Exhibit 2.1
Execution Copy
PURCHASE AND SALE AGREEMENT
by and between
TARGA GP INC.
and
TARGA LP INC.
(Sellers)
and
TARGA RESOURCES PARTNERS LP,
(Buyer)
dated as of
July 27, 2009
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS AND RULES OF CONSTRUCTION
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Section 1.1
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Definitions
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2
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Section 1.2
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Rules of Construction
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11
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ARTICLE II
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PURCHASE AND SALE; CLOSING
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Section 2.1
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Purchase and Sale of Purchased Interests
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11
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Section 2.2
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Purchase Price
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11
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Section 2.3
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The Closing
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12
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Section 2.4
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Purchase Price Adjustments; Post Closing Working Capital Adjustment
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13
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ARTICLE III
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REPRESENTATIONS AND WARRANTIES RELATING TO SELLERS
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Section 3.1
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Organization of Sellers
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16
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Section 3.2
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Authorization; Enforceability
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16
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Section 3.3
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No Conflict
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16
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Section 3.4
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Litigation
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16
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Section 3.5
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Brokers Fees
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17
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Section 3.6
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Ownership of Purchased Interests
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17
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ARTICLE IV
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REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES
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Section 4.1
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Organization of the Companies
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18
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Section 4.2
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No Conflict
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18
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Section 4.3
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Subsidiaries; Investments
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19
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Section 4.4
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Financial Statements; Records; Undisclosed Liabilities; Working Capital
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20
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Section 4.5
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Absence of Certain Changes
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21
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Section 4.6
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Contracts
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21
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Section 4.7
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Intellectual Property
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23
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Section 4.8
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Litigation
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23
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Section 4.9
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Taxes
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23
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Section 4.10
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Environmental Matters
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24
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Section 4.11
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Legal Compliance
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24
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Section 4.12
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Permits
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24
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Section 4.13
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Insurance
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24
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Section 4.14
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Labor Relations
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25
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Section 4.15
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Title to Properties and Related Matters
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25
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Section 4.16
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Investment Representations
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26
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i
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Page
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ARTICLE V
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REPRESENTATIONS AND WARRANTIES RELATING TO BUYER
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Section 5.1
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Organization of Buyer
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26
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Section 5.2
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Authorization; Enforceability
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26
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Section 5.3
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No Conflict
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27
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Section 5.4
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Litigation
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27
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Section 5.5
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Brokers' Fees
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27
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Section 5.6
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Investment Representation
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27
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Section 5.7
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Purchased Units
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28
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ARTICLE VI
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COVENANTS
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Section 6.1
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Conduct of Business
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28
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Section 6.2
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Access
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29
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Section 6.3
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Third-Party Approvals
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29
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Section 6.4
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Regulatory Filings
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29
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Section 6.5
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Company Guarantees
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30
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Section 6.6
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Indebtedness for Borrowed Money
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30
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Section 6.7
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Update Information
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30
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Section 6.8
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Books and Records
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31
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Section 6.9
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Permits
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31
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Section 6.10
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Hedges
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31
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Section 6.11
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Title Commitments and Title Policies
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31
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Section 6.12
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Participation of Sellers in Subsequent Disposition
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32
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Section 6.13
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Business Interruption Insurance
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32
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ARTICLE VII
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TAX MATTERS
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Section 7.1
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Tax Returns
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32
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Section 7.2
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Transfer Taxes
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34
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Section 7.3
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Tax Indemnity
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34
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Section 7.4
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Scope
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35
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Section 7.5
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Wage Reporting
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36
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Section 7.6
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Tax Refunds
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36
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Section 7.7
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Contribution Structure
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36
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ARTICLE VIII
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CONDITIONS TO OBLIGATIONS
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Section 8.1
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Conditions to Obligations of Buyer
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36
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Section 8.2
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Conditions to the Obligations of Sellers
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37
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ii
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Page
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ARTICLE IX
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INDEMNIFICATION
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Section 9.1
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Survival
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38
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Section 9.2
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Indemnification
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39
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Section 9.3
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Indemnification Procedures
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40
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Section 9.4
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Additional Agreements Regarding Indemnification
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41
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Section 9.5
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Waiver of Other Representations
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42
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Section 9.6
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Purchase Price Adjustment
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42
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Section 9.7
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Exclusive Remedy
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42
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ARTICLE X
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TERMINATION
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Section 10.1
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Termination
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43
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Section 10.2
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Effect of Termination
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43
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ARTICLE XI
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MISCELLANEOUS
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Section 11.1
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Notices
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44
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Section 11.2
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Assignment
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45
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Section 11.3
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Rights of Third-Parties
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45
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Section 11.4
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Expenses
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45
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Section 11.5
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Counterparts
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45
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Section 11.6
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Entire Agreement
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45
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Section 11.7
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Disclosure Schedules
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45
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Section 11.8
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Amendments
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46
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Section 11.9
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Publicity
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46
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Section 11.10
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Severability
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46
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Section 11.11
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Governing Law; Jurisdiction
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46
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Section 11.12
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Further Assurances
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47
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Section 11.13
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Action by Buyer
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47
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iii
Disclosure Schedules
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Schedule 1.1(i)
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Company Assets
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Schedule 1.1(ii)
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Excluded Assets
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Schedule 1.1(iii)
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Buyer Knowledge
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Schedule 1.1(iv)
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Sellers Knowledge
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Schedule 1.1(v)
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Permitted Liens
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Schedule 2.2(b)
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Volume Weighted Average Price
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Schedule 2.2(c)
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Sellers Proportionate Amount of Purchase Price
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Schedule 3.3
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Sellers Approvals
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Schedule 3.5
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Broker Fees
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Schedule 3.6(e)
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Voting Agreements
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Schedule 4.3(a)
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Company Subsidiaries
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Schedule 4.3(b)
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Joint Ventures
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Schedule 4.3(e)(ii)
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Conduct of CBF Business
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Schedule 4.3(e)(iv)
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CBF Environmental
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Schedule 4.4
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Financial Statements
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Schedule 4.4(b)
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Indebtedness for Borrowed Monies
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Schedule 4.4(c)
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Range of Working Capital
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Schedule 4.5
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Absence of Certain Changes
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Schedule 4.6(a)
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Material Contracts
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Schedule 4.6(c)
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Enforceability of Material Contracts; No Defaults
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Schedule 4.6(d)
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Purchase and Sale Agreements
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Schedule 4.7(b)
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Intellectual Property
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Schedule 4.8
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Litigation
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Schedule 4.9
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Taxes
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Schedule 4.10
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Environmental Matters
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Schedule 4.12
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Permits
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Schedule 4.13
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Insurance
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Schedule 4.14
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Labor Relations
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Schedule 4.15(b)(i)
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Material Real Estate
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Schedule 4.15(b)(ii)
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Real Estate Options, Rights of First Refusal
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Schedule 4.15(c)
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Material Real Estate Leases
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Schedule 5.3
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Buyer Approvals
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Schedule 5.5
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Brokers Fees
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Schedule 6.1
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Conduct of Business
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Schedule 6.1(v)
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Capital Expenditures
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Schedule 6.5
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Guarantees
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Schedule 6.11(a)
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Title Commitments and Title Policies
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Exhibits
Exhibit A Second Amended and Restated Omnibus Agreement
iv
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT, dated as of July 27, 2009 (this
Agreement
), is entered
into by and between Targa GP Inc., a Delaware corporation (
Targa GP Inc.
) and Targa LP Inc., a
Delaware corporation (
Targa LP Inc.
and together with Targa GP Inc., the
Sellers
) and Targa
Resources Partners LP, a limited partnership organized under the Laws of the State of Delaware
(
Buyer
).
RECITALS
WHEREAS, (i) Targa GP Inc. owns 100% of the limited liability company interests in Targa
Downstream GP LLC (
Targa Downstream GP
), a Delaware limited liability company which holds a
general partner interest which constitutes all of the general partner interests of and a 50%
ownership interest in Targa Downstream LP (
Targa Downstream LP
), a Delaware limited partnership,
(ii) Targa LP Inc. owns a limited partner interest which constitutes all of the limited partner
interests of and a 50% ownership interest in Targa Downstream LP, (iii) Targa GP Inc. owns 100% of
the limited liability company interests in Targa LSNG GP LLC (
Targa LSNG GP
), a Delaware limited
liability company which holds a general partner interest which constitutes all of the general
partner interests of and a 50% ownership interest in Targa LSNG LP (
Targa LSNG LP
), a Delaware
limited partnership and (iv) Targa LP Inc. owns a limited partner interest which constitutes all of
the limited partner interests of and a 50% ownership interest in Targa LSNG LP.
WHEREAS, Sellers desire to transfer, assign and sell to Buyer and Buyer desires to purchase
from Sellers the above-referenced limited liability company interests in Targa Downstream GP and
Targa LSNG GP and limited partner interests in Targa Downstream LP and Targa LSNG LP (such limited
liability company interests and limited partner interests being collectively referred to as the
Purchased Interests
);
WHEREAS, Targa Downstream LP and Targa LSNG LP, collectively, own or will at Closing own a
natural gas liquids business consisting of (i) the Logistics Segment which consists of
fractionation facilities, storage and terminalling facilities, low sulfur natural gasoline treating
facilities, and pipeline transportation and distribution assets (the
Logistics Segment
), (ii) the
Marketing Segment which markets NGL production and purchases mixed or component NGL products from
third parties for resale (the
Marketing Segment
), and (iii) the Wholesale Segment which owns
propane storage, truck terminals and NGL transport assets and provides services for refineries,
including NGL balancing, purchasing or marketing propane and providing butane supply, and sells
propane to retailers and end users (the
Wholesale Segment
);
WHEREAS, at the Closing (as defined below) and in accordance with the terms of this Agreement,
Sellers will assign and transfer to Buyer or its designee all of the Purchased Interests; provided
an undivided portion of the Purchased Interests equal in value to the value of the GP Units issued
to General Partner pursuant to Section 2.2(b) will be transferred by Sellers to Buyer for and on
behalf of General Partner (and treated as if it were a capital contribution by Sellers to General
Partner and a subsequent capital contribution by General Partner to Buyer).
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1
Definitions
. As used herein, the following terms shall have the following
meanings:
Actual Product Inventory
has the meaning provided such term in Section 2.4(c).
Affiliate
means, with respect to any Person, any other Person that, directly or indirectly,
controls, is controlled by or is under common control with, such specified Person through one or
more intermediaries or otherwise;
provided
that, for purposes of this Agreement, Warburg Pincus
LLC, its affiliates and all private equity funds and portfolio companies owned or managed by
Warburg Pincus LLC or its affiliates shall not be deemed to be affiliates of Sellers, the Companies
or Buyer. For the purposes of this definition, control means, where used with respect to any
Person, the possession, directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms controlling and controlled have correlative meanings.
Agreement
has the meaning provided such term in the preamble to this Agreement.
Balance Sheet Date
means March 31, 2009.
BI Proceeds
has the meaning provided such term in Section 6.13.
Business Day
means any day that is not a Saturday, Sunday or legal holiday in the State of
Texas or a federal holiday in the United States.
Buyer
has the meaning provided such term in the preamble to this Agreement.
Buyer Approvals
has the meaning provided such term in Section 5.3.
Buyer Indemnified Parties
has the meaning provided such term in Section 9.2(a).
Cash True-Up Payment
has the meaning provided such term in Section 2.4(a).
CBF
has the meaning provided such term in Section 4.3(e).
Claim Notice
has the meaning provided such term in Section 9.3(a).
Closing
has the meaning provided such term in Section 2.3(a).
Closing Date
has the meaning provided such term in Section 2.3(a).
Code
means the Internal Revenue Code of 1986, as amended.
2
Common Units
means common units of Buyer representing limited partner interests in Buyer.
Companies
means Targa Downstream GP, Targa Downstream LP, Targa LSNG GP and Targa LSNG LP
and each of the Company Subsidiaries and
Company
means any one of the foregoing.
Company Assets
means all of the plants, facilities and tangible and intangible assets owned
by the Companies used in the Downstream Business, including the assets listed on
Schedule 1.1(i)
hereto, but excluding the Excluded Assets.
Company Guarantees
means all guaranties, letters of credit, bonds, sureties, cash collateral
accounts, and other credit support or assurances provided by Sellers or their Affiliates (other
than the Companies) in support of any obligations of any of the Companies or the Downstream
Business, including those obligations listed on
Schedule 6.5
.
Company Subsidiaries
means Targa Canada Liquids Inc., a British Columbia corporation,
Midstream Barge Company LLC, a Delaware limited liability company, Targa Retail Electric LLC, a
Delaware limited liability company, Targa Co-Generation LLC, a Delaware limited liability company,
Targa Liquids GP LLC, a Delaware limited liability company, Targa NGL Pipeline Company LLC, a
Delaware limited liability company, Targa OPI LLC, a Delaware limited liability company, Targa
Liquids Marketing and Trade, a Delaware general partnership, Targa Bridgeline, LLC and Targa MLP
Capital LLC (to be formed between signing and closing).
Conflicts Committee
means the conflicts committee of the board of directors of Targa
Resources GP LLC.
Contract
means any legally binding agreement, commitment, lease, license or contract.
Defense Actions
means the defense actions as listed in subsection (i) of
Schedule
4.8
.
Disclosure Schedules
means the schedules attached hereto.
Disposition
has the meaning provided such term in Section 6.12.
Disposition Payment
has the meaning provided such term in Section 6.12.
Dollars
and
$
mean the lawful currency of the United States.
Downstream Business
means the business and operations currently conducted by Sellers
described in the Targa Resources, Inc. Annual Report on Form 10-K for the year ended December 31,
2008, as the NGL Logistics and Marketing Division, consisting of three segments: Logistics Assets,
NGL Distribution and Marketing and Wholesale Marketing excluding the business and operations
utilizing or derived from the Excluded Assets.
3
Downstream Joint Ventures
means Downstream Energy Ventures Co., L.L.C., a Delaware limited
liability company, Gulf Coast Fractionators, a Texas general partnership, and Cedar Bayou
Fractionators, L.P., a Delaware limited partnership.
Effective Time
has the meaning provided such term in Section 2.3(a).
Environmental Law
means any applicable Law relating to the environment, natural resources,
or the protection thereof, including any applicable provisions of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. § 9601
et
seq.
, the Hazardous
Materials Transportation Act, 49 U.S.C. § 5101
et
seq.
, the Resource Conservation
and Recovery Act, 42 U.S.C. § 6901
et
seq.
, the Clean Water Act, 33 U.S.C. § 1251
et
seq.
, the Clean Air Act, 42 U.S.C. § 7401
et
seq.
, the Toxic
Substances Control Act, 15 U.S.C. § 2601
et
seq.
, the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. § 136
et
seq.
, the Oil Pollution Act of
1990, 33 U.S.C. § 2701
et
seq.
, the Safe Drinking Water Act, 42 U.S.C. § 300f
et
seq.
, and any applicable Law relating to health, safety, the environment,
natural resources or the protection thereof, and all analogous state or local statutes, and the
regulations promulgated pursuant thereto.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended.
Estimated Net Working Capital
has the meaning provided such term in Section 2.4(d).
Excluded Assets
means the assets which are identified on
Schedule 1.1(ii)
which will
be retained by Sellers or its Affiliates and not included in the Company Assets.
Final Net Working Capital
has the meaning provided such term in Section 2.4(d).
Financial Statements
has the meaning provided such term in Section 4.4(a).
Fundamental Representations and Warranties
means the representations and warranties
contained in Sections 3.1, 3.2, 3.6, 4.1 and 4.3.
GAAP
means generally accepted accounting principles of the United States, consistently
applied.
GCF
means Gulf Coast Fractionators.
General Partner
has the meaning provided such term in Section 2.2(b).
Governmental Authority
means any federal, state, municipal, local or similar governmental
authority, regulatory or administrative agency, court or arbitral body.
GP Units
means general partner units of Buyer representing general partner interests in
Buyer.
Hazardous Substance(s)
means and includes, each substance defined, designated or classified
as a hazardous waste, hazardous substance, hazardous material, pollutant, contaminant
4
or toxic substance under any Environmental Law and any petroleum or petroleum products that
have been Released into the environment.
Houston Area Assets
means the Company Assets included in the Logistics Segment and located
in the Houston, Texas area including the Gulf Coast Fractionator, the Cedar Bayou Fractionator and
the Galena Park Terminal and the business conducted by such assets.
HSR Act
means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Indebtedness for Borrowed Money
means with respect to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, including all principal,
interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (b) all
obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property, except trade
payables incurred in the ordinary course of business, (d) all obligations of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar
instrument, (e) all capitalized lease obligations, (f) all other obligations of a Person which
would be required to be shown as indebtedness on a balance sheet of such Person prepared in
accordance with GAAP, and (g) all indebtedness of any other Person of the type referred to in
clauses (a) to (f) above directly or indirectly guaranteed by such Person or secured by any assets
of such Person, whether or not such indebtedness has been assumed by such Person.
Indemnified Party
has the meaning provided such term in Section 9.3(a).
Indemnified Tax Claim
has the meaning provided such term in Section 7.3(b).
Indemnifying Party
has the meaning provided such term in Section 9.3(a).
Intellectual Property
means intellectual property rights, statutory or common law,
worldwide, including (a) trademarks, service marks, trade dress, slogans, logos and all goodwill
associated therewith, and any applications or registrations for any of the foregoing; (b)
copyrights and any applications or registrations for any of the foregoing; and (c) patents, all
confidential know-how, trade secrets and similar proprietary rights in confidential inventions,
discoveries, improvements, processes, techniques, devices, methods, patterns, formulae, and
specifications.
Intercompany Accounts True-Up Payment
has the meaning provided such term in Section 2.4(b).
Knowledge
as to Buyer means the actual knowledge of those Persons listed in
Schedule 1.1(iii)
after due inquiry of the Persons listed as sources for inquiry on said
Schedule 1.1(iii)
and as to Sellers means the actual knowledge of those Persons listed as
sources for inquiry in
Schedule 1.1(iv)
after due inquiry of the Persons listed on said
Schedule 1.1(iv)
.
Law
means any applicable law, rule, regulation, ordinance, order, judgment or decree of a
Governmental Authority, in each case as in effect on and as interpreted on the date of this
Agreement.
5
Logistics Segment
has the meaning provided such term in the recitals to this Agreement.
Lien
means, with respect to any property or asset, any mortgage, pledge, charge, security
interest or other encumbrance of any kind in respect of such property or asset.
Losses
means all actual liabilities, losses, damages, fines, penalties, judgments,
settlements, awards, costs and expenses (including reasonable fees and expenses of counsel);
provided, however
, that Losses shall not include any special, punitive, exemplary, incidental,
consequential or indirect damages;
provided, further, however
, that the preceding proviso shall not
apply to the extent a Party is required to pay such damages to a third party in connection with a
matter for which such Party is entitled to indemnification under Article IX.
Marketing Segment
has the meaning provided such term in the recitals to this Agreement.
Material Adverse Effect
means, with respect to any Person, any circumstance, change or
effect that (a) is materially adverse, or is reasonably expected to be materially adverse, to the
business, operations or financial condition of such Person (and in the case of any Company, of the
Companies and the Downstream Business taken as a whole), or (b) that materially impedes the ability
of such Person to complete the transactions contemplated herein, but shall exclude any
circumstance, change or effect resulting or arising from:
(i) any change in general economic conditions in the industries or markets in which any of the
Companies operate;
(ii) seasonal reductions in revenues and/or earnings of the Companies in the ordinary course
of their respective businesses;
(iii) national or international political conditions, including any engagement in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any
military or terrorist attack;
(iv) changes in Law or GAAP; and
(v) the entry into or announcement of this Agreement, actions contemplated by this Agreement,
or the consummation of the transactions contemplated hereby.
Notwithstanding the foregoing clauses (i), (iii) and (iv) shall not apply in the event of a
disproportionate effect on the Companies as compared to other entities in the markets in which the
Companies operate.
Material Contracts
has the meaning provided such term in Section 4.6(a).
Material Real Estate Leases
has the meaning provided such term in Section 4.15(b).
NGLs
means natural gas liquids.
6
Non-Affiliate Contracts
means Contracts other than Contracts with Sellers or any Affiliate
of Sellers other than a Company.
Omnibus Agreement
means that certain Amended and Restated Omnibus Agreement dated as of
October 24, 2007, between Targa Resources, Inc., Targa Resources LLC, Targa Resources GP LLC and
Buyer.
Organizational Documents
means any charter, certificate of incorporation, articles of
association, bylaws, partnership agreement, operating agreement or similar formation or governing
documents and instruments.
Parties
means Sellers and Buyer.
Permits
means authorizations, licenses, permits or certificates issued by Governmental
Authorities, including those issued under any Environmental Law;
provided
, right-of-way agreements
and similar rights and approvals are not included in the definition of Permits.
Permitted Liens
means (a) Liens for Taxes not yet delinquent or being contested in good
faith by appropriate proceedings, (b) statutory Liens (including materialmens, warehousemens,
mechanics, repairmens, landlords, and other similar Liens) arising in the ordinary course of
business securing payments not yet delinquent or being contested in good faith by appropriate
proceedings, (c) the rights of lessors and lessees under leases, and the rights of third parties
under any agreement, in each case executed in the ordinary course of business, (d) the rights of
licensors and licensees under licenses executed in the ordinary course of business, (e) restrictive
covenants, easements and defects, imperfections or irregularities of title or Liens, if any, of a
nature that do not materially and adversely affect the assets or properties subject thereto, (f)
preferential purchase rights and other similar arrangements with respect to which consents or
waivers are obtained for this transaction or as to which the time for asserting such rights has
expired at the Closing Date without an exercise of such rights, (g) restrictions on transfer with
respect to which consents or waivers are obtained for this transaction, (h) Liens granted in the
ordinary course of business which do not secure the payment of Indebtedness for Borrowed Money and
which do not materially and adversely affect the ability of the Companies to conduct their business
as currently conducted, (i) Liens which are of a nature that would be reasonably acceptable to a
prudent owner or operator of NGL assets and facilities of a type similar to the Company Assets, (j)
Liens reflected on the title commitments and title policies listed in and other liens described on
Schedule 1.1(v)
and (k) Liens created by Buyer or its successors and assigns.
Person
means any individual, firm, corporation, partnership, limited liability company,
incorporated or unincorporated association, joint venture, joint stock company, Governmental
Authority or other entity of any kind.
Pre-Closing Environmental Liabilities
means any Losses arising out of any Pre-Closing
Environmental Matter.
Pre-Closing Environmental Matters
means (i) any violation of Environmental Law by the
Companies or the Downstream Business prior to the Closing or arising in connection with the
ownership or operation of the assets of the Companies prior to the Closing, (ii) any Release of
7
Hazardous Substances onto or from properties or assets owned by the Companies and included in
the Downstream Business prior to the Closing or relating to or arising from any activities
conducted on such properties or from operation of such assets prior to the Closing and (iii) any
claim, action, cause of action, inquiry, investigation, remediation, removal or restoration with
respect to the matters set forth in subsection (i) or (ii) above, in each case to the extent that
Buyer becomes aware of such matter and provides written notice (in accordance with notice
procedures contained in Section 11.1 of this Agreement) to Sellers on or prior to the second
anniversary of the Closing describing such environmental matter and stating that such matter is one
for which Sellers have indemnification obligations hereunder.
Pre-Closing Tax
has the meaning provided in Section 7.1(c).
Pre-Closing Taxable Period
means any taxable period ending on or before the Effective Time
and that portion of any taxable period beginning before and ending after the Effective Time that
ends on the Effective Time.
Product Inventory
means the Companies inventories of NGLs and NGL products.
Purchase Price
has the meaning provided such term in Section 2.2(a).
Purchased Units
has the meaning provided such term in Section 2.2(b).
Purchased Companies
means Targa Downstream LP, Targa Downstream GP, Targa LSNG LP and Targa
LSNG GP.
Purchased Interests
has the meaning provided such term in the recitals of this Agreement.
Reasonable Efforts
means efforts in accordance with reasonable commercial practice and
without the incurrence of unreasonable expense.
Release
means any depositing, spilling, leaking, pumping, pouring, placing, emitting,
discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping,
or disposing.
Representatives
means, as to any Person, its officers, directors, employees, counsel,
accountants, financial advisers and consultants.
Seller
and
Sellers
have the meaning provided such term in the preamble to this Agreement.
Sellers Approvals
has the meaning provided such term in Section 3.3.
Sellers Indemnified Parties
has the meaning provided such term in Section 9.2(b).
Subsidiary
means, with respect to any Person, (a) any corporation 50% or more of whose stock
of any class or classes having by the terms thereof ordinary voting power to elect a majority of
the directors of such corporation (irrespective of whether or not at the time stock of
8
any class or classes of such corporation have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person, directly or indirectly through
Subsidiaries, and (b) any partnership, limited liability company, association, joint venture, trust
or other entity in which such Person, directly or indirectly through Subsidiaries has a 50% or
greater equity interest at the time, provided that the Downstream Joint Ventures shall not be
deemed to be or considered to be Subsidiaries.
Targa Downstream GP
has the meaning provided such term in the recitals to this Agreement.
Targa Downstream LP
has the meaning provided such term in the recitals to this Agreement.
Targa GP Inc.
has the meaning provided such term in the preamble to this Agreement.
Targa LP Inc.
has the meaning provided such term in the preamble to this Agreement.
Targa LSNG GP
has the meaning provided such term in the recitals to this Agreement.
Targa LSNG LP
has the meaning provided such term in the recitals to this Agreement.
Tax Authority
means any Governmental Authority having jurisdiction over the assessment,
determination, collection or imposition of any Tax.
Tax Benefit
means, with respect to a Loss, an amount by which the Tax liability of a Person
(or group of corporations filing a Tax Return that includes the Person), with respect to a taxable
period, is reduced as a result of such Loss or the amount of any Tax refund or Tax credit that is
generated (including, by deduction, loss, credit or otherwise) as a result of such Loss, and any
related interest received from any relevant Tax Authority;
provided
, in each case, only the
reasonable present value of any Tax Benefit shall be considered with respect to a Loss.
Tax Indemnified Party
has the meaning provided such term in Section 7.3(b).
Tax Indemnifying Party
has the meaning provided such term in Section 7.3(b).
Tax Proceeding
has the meaning provided such term in Section 7.1(e).
Tax Returns
means any report, return, election, document, estimated tax filing, declaration
or other filing provided to any Tax Authority including any amendments thereto.
Taxes
or
Tax
means (a) all taxes, assessments, duties, levies, imposts or other similar
charges imposed by a Governmental Authority, including all income, franchise, profits, capital
gains, capital stock, transfer, gross receipts, sales, use, transfer, service, occupation, ad
valorem, property, excise, severance, windfall profits, premium, stamp, license, payroll,
employment, social security, unemployment, disability, environmental (including taxes under Code
Section 59A), alternative minimum, add-on, value-added, withholding (including backup withholding)
and other taxes, assessments, duties, levies, imposts or other similar charges of any kind
whatsoever (whether payable directly or by withholding and whether or not requiring the
9
filing of a Tax Return), and all estimated taxes, deficiency assessments, additions to tax,
additional amounts imposed by any Governmental Authority, penalties and interest, (b) any liability
of any Company for the payment of any amounts of any of the foregoing types as a result of being a
member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement
or arrangement whereby liability of such Company for payment of such amounts was determined or
taken into account with reference to the liability of any other Person, and (c) any liability of
any Company for the payment of any amounts as a result of being a party to any Tax-Sharing
Agreement or with respect to the payment of any amounts of any of the foregoing types as a result
of any express or implied obligation to indemnify any other Person.
Tax-Sharing Agreements
means all existing agreements or arrangements (whether or not
written) that are binding on any Company and regarding the sharing, allocation, or payment of Taxes
or amounts in lieu of Taxes.
Third-Party Claim
has the meaning provided such term in Section 9.3(a).
Title Commitments
has the meaning provided such term in Section 6.11.
Title Company
means Stewart Title Guaranty Company.
Title Policies
has the meaning provided such term in Section 6.11.
United States
means United States of America.
Volume Weighted Average Price
with respect to the Common Units on any trading day means the
per unit volume weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg
Page NGLS<equity>AQR (or its equivalent successor if such page is not available) in respect
of the period from 9:30 a.m. to 4:00 p.m., New York City time, on such trading day or, if such
Volume Weighted Average Price is unavailable or such page or its equivalent is unavailable, the
volume weighted average price of each trade in the Common Units during such trading day between
9:30 a.m. and 4:00 p.m., New York City time, on The Nasdaq Global Select Market or, if the Volume
Weighted Average Price is unavailable from the above-referenced sources, as calculated by a
nationally recognized independent investment banking firm retained for this purpose by the Buyer,
such calculation to be made in a manner consistent with the manner in which Volume Weighted
Average Price would have been determined by Bloomberg.
Wholesale Segment
has the meaning provided such term in the recitals to this Agreement.
Working Capital True-Up Payment
has the meaning provided such term in Section 2.4(d).
10
Section 1.2
Rules of Construction.
(a) All article, section, schedule and exhibit references used in this Agreement are to
articles, sections, schedules and exhibits to this Agreement unless otherwise specified. The
schedules and exhibits attached to this Agreement constitute a part of this Agreement and are
incorporated herein for all purposes.
(b) If a term is defined as one part of speech (such as a noun), it shall have a corresponding
meaning when used as another part of speech (such as a verb). Terms defined in the singular have
the corresponding meanings in the plural, and vice versa. Unless the context of this Agreement
clearly requires otherwise, words importing the masculine gender shall include the feminine and
neutral genders and vice versa. The term includes or including shall mean including without
limitation. The words hereof, hereto, hereby, herein, hereunder and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole and not to any
particular section or article in which such words appear.
(c) The Parties acknowledge that each Party and its attorney has reviewed this Agreement and
that any rule of construction to the effect that any ambiguities are to be resolved against the
drafting Party, or any similar rule operating against the drafter of an agreement, shall not be
applicable to the construction or interpretation of this Agreement.
(d) 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.
(e) All references to currency herein shall be to, and all payments required hereunder shall
be paid in, Dollars.
(f) All accounting terms used herein and not expressly defined herein shall have the meanings
given to them under GAAP.
(g) Any event hereunder requiring the payment of cash or cash equivalents on a day that is not
a Business Day shall be deferred until the next Business Day.
ARTICLE II
PURCHASE AND SALE; CLOSING
Section 2.1
Purchase and Sale of Purchased Interests
. At the Closing, upon the terms and
subject to the conditions set forth in this Agreement, Sellers shall sell, assign, transfer and
convey to Buyer (or a designated Subsidiary of Buyer), and Buyer (or a designated Subsidiary of
Buyer) shall purchase and acquire from Sellers, the Purchased Interests, free and clear of any
Liens other than transfer restrictions imposed thereon by applicable securities Laws.
Section 2.2
Purchase Price
.
(a) The total purchase price consideration payable by Buyer to Sellers for the Purchased
Interests (the
Purchase Price
) shall be $530,000,000 payable as set forth below.
11
(b) The Purchase Price shall be payable (i) 75% in cash (through the assumption and payment by
Buyer at Closing of $397,500,000 of indebtedness owed by the Purchased Companies to Sellers or
their Affiliates) and (ii) 25% in equity securities consisting of Common Units and GP Units
(collectively, the
Purchased Units
). The Purchased Units shall be valued at the Volume Weighted
Average Price of the Common Units on the NASDAQ for the ten (10) trading days ending five trading
days prior to the date hereof. An example of this calculation is set forth on
Schedule 2.2(b)
. The Purchased Units shall be issued in the following ratio: 98% of the
Purchased Units shall be Common Units issued to Sellers and 2% of the Purchased Units shall be GP
Units issued, at the direction of Sellers, to Targa Resources GP LLC (the
General Partner
).
(c) The Purchase Price shall be deemed to be paid and allocated among Sellers as specified in
Schedule 2.2(c)
.
Section 2.3
The Closing.
(a) The closing of the transactions contemplated by this Agreement (the
Closing
) shall take
place at the offices of Vinson & Elkins L.L.P., 2500 First City Tower, 1001 Fannin Street, Houston,
Texas 77002, commencing at 10:00 a.m. local time on the third Business Day following the
satisfaction or waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions the Parties shall
take at the Closing itself) or such other date as Buyer and Sellers may mutually determine (the
Closing Date
);
provided
, the Closing shall be deemed to have been consummated at 12:01 a.m.
Houston, Texas time on the first day of the month in which the Closing occurs (the
Effective
Time
).
(b) At the Closing, Sellers will deliver the following documents and deliverables to Buyer:
(i) an assignment or assignments effecting the transfer to Buyer (or designated subsidiary of
Buyer) of ownership of all of the Purchased Interests together with certificates, if any,
representing the Purchased Interests and such other documentation as is required to admit Buyer (or
a designated Subsidiary of Buyer) as a partner or member of the Companies, as applicable;
(ii) a certification in the form prescribed by Treasury Regulation Section 1.1445-2(b)(2) to
the effect that each Seller is not a foreign person;
(iii) resolutions of the applicable managers, directors and equityholders of Sellers required
for approval of the transactions contemplated hereby;
(iv) certificates of good standing and existence as of a recent date with respect to each of
the Companies;
(v) certificates required by
Article VIII
; and
12
(vi) such other certificates, instruments of conveyance, and documents as may be reasonably
requested by Buyer and agreed to by Sellers prior to the Closing Date to carry out the intent and
purposes of this Agreement.
(c) At the Closing, Buyer will deliver the following documents and deliverables to Sellers (or
the General Partner, as applicable):
(i) the Common Units which are a portion of the Purchased Units;
(ii) the GP Units which are a portion of the Purchased Units;
(iii) resolutions of the Board of Directors of the general partner of Buyer as required for
approval of the transactions contemplated hereby;
(iv) certificates required by
Article VIII
; and
(v) such other certificates, instruments, and documents as may be reasonably requested by
Sellers and agreed to by Buyer prior to the Closing Date to carry out the intent and purposes of
this Agreement.
Section 2.4
Purchase Price Adjustments; Post Closing Working Capital Adjustment.
(a)
Cash Balances
. All cash, on hand, at the Companies and at Downstream Energy Ventures Co.,
L.L.C., and CBF (to the extent of the Companies ownership interest in such Downstream Joint
Ventures) as of the Effective Time, shall be the property of the Sellers and Buyer acknowledges and
agrees that the Companies may, prior to the Closing, make a distribution to Sellers or their
Affiliates of all cash, on hand at the Companies and such Downstream Joint Ventures as of the
Effective Time. In the event that there was any cash in the accounts of the Companies and
Downstream Energy Ventures Co., L.L.C., and CBF on the Effective Time, the Buyer will make a
payment to Sellers (the
Cash True-Up Payment
) in the amount of the sum of (i) such cash balances
in the accounts of the Companies and (ii) the cash balances in the accounts of such Downstream
Joint Ventures
times
the Companies ownership percentage in each such Downstream Joint Ventures
within sixty (60) days following the Closing. In addition, Buyer agrees to pay or cause the
Companies to pay to Sellers all cash distributions received by the Companies or their Affiliates
from GCF (or as a result of the Companies ownership interest in GCF) after the Closing to Sellers
up to an amount equal to cash, on hand, at GCF as of the Effective Time
times
the Companies
ownership percentage in GCF, such payment being referred to as a
GCF Distribution Payment
.
(b)
Intercompany Accounts
. Accounts receivable and accounts payable between the Companies, on
the one hand, and Sellers and its Affiliates (other than the Companies), on the other hand, and
existing on the Effective Time shall be subject to the customary monthly settlement and true-up
procedures currently utilized between Targa Resources, Inc. and Buyer with respect to intercompany
accounts. Any amounts owing by the Companies to Sellers or their Affiliates (other than the
Companies) as a result of such intercompany account true-up and any amounts owing by Sellers or
their Affiliates (other than the Companies) to the Companies as a result of such intercompany
accounts true-up
13
(
Intercompany Accounts True-Up Payment
), shall be made by the applicable Party within ninety
(90) days following the Closing.
(c)
Product Inventory
.
(i) Within ninety (90) days following the Closing, Buyer and Sellers shall make a joint
determination of the actual Product Inventory levels (calculated in barrels on a product-by-product
basis) of the Companies as of the Effective Time (
Actual Product Inventory
).
(ii) If the Actual Product Inventory is greater than or equal to the Product Inventory Floor,
then no inventory adjustment will be required under this subsection (c).
(iii) If the Actual Product Inventory is less than the Product Inventory Floor, then an
inventory adjustment analysis will be required and an adjustment payment shall be payable by
Sellers to Buyer equal to the positive amount determined as follows:
Product
Less
Actual
Less
Net Applicable
Times
Weighted
Inventory Product Product Inventory OPIS
Floor Inventory Receivables Price
(BBLS) (BBLS) Volume (BBLS)
|
(iv) For purposes of this subsection (c), the following terms will have the meanings
prescribed below:
Product Inventory Floor
shall mean (i) if the Effective Time is August 1,
2009, .89 million barrels and (ii) if the Effective Time is September 1, 2009, 1.04
million barrels and (iii) if the Effective Time is after September 1, 2009, such
revised floor amount as may be mutually agreed between Sellers and Buyer.
Net Applicable Product Inventory Receivables
means the positive amount (if
any) analyzed as the applicable accounts receivables of the Companies as of the
Effective Time for sales of Product Inventory to third-parties for the purposes of
assessing appropriate responsibility for incremental inventory
minus
applicable accounts payable of the Companies as of the Effective Time for purchases
of Product Inventory from third parties for the purposes of assessing appropriate
responsibility for incremental inventory.
Net Applicable Products Inventory Receivables Volume
means the barrels of
Product Inventory attributable to any Net Product Inventory Receivable for the
purposes of assessing appropriate responsibility for incremental inventory.
Weighted OPIS Price
shall be the per barrel price calculated by (i)
multiplying the volumes of each category of Product Inventory included in the Actual
Product Inventory,
times
the OPIS price applicable to such category of
Product Inventory as of the Effective Time to determine an Individual Product
Value for each category of Product Inventory, (ii) adding the various Individual
Product Values to determine the value of the aggregate Actual Product Inventory
14
and (iii) then dividing the Aggregate Product Inventory Value by the total number of
barrels of Product Inventory included in the Actual Product Inventory.
(v) Buyer and Seller acknowledge that should inventory adjustment analysis be required, then
detailed analysis as opposed to mechanical calculations will be required to determine applicable
accounts receivable and payable for the purposes of assessing appropriate responsibility for
incremental inventory.
(vi) Any required inventory adjustment payment by Sellers (a
Product Inventory True-up
Payment
) shall be made by Sellers within ten days following the determination of the Actual
Product Inventory to yield a weighted average price in $/bbl.
(d)
Residual Working Capital Adjustment
. At the end of the calendar month in which Closing
occurs, Sellers shall provide to Buyer a statement of the net working capital derived from the
books and records of the Companies (excluding (i) cash, (ii) intercompany accounts payable and
receivable, (iii) Product Inventory and (iv) accounts receivable and payable for Product Inventory
actually taken into consideration in calculating the Product Inventory True-up Payment) as of the
Effective Time (
Estimated Net Working Capital
). Working capital statements will be prepared on
the same basis used to prepare the audited financial statements, and working capital analysis will
be done consistent with Targa Resources, Inc.s normal monthly accounting closing processes.
Estimated Net Working Capital (and Final Net Working Capital as provided below) will not include
any line item with respect to income tax assets or liabilities (including those relating to Texas
margin Tax), it being the intention of the Parties that such income tax matters be addressed by
Article VII below. Non-cash items included in Estimated Net Working Capital will be adjusted post
closing to update and replace the estimated amounts contained in the Estimated Net Working Capital
to actuals as determined using a look-back over the sixty (60)-day period following the Closing.
Any adjustments resulting from such actualization shall be taken into consideration in the working
capital true-up process set forth in this subsection (d). Within ninety (90) days following the
Closing, Buyer and Seller shall jointly determine the actual net working capital of the Companies
(excluding (i) cash, (ii) intercompany accounts receivable and payable, (iii) Product Inventory and
(iv) accounts receivable and payable for Product Inventory actually taken into consideration in
calculating the Product Inventory True-up Payment) as of the Effective Time (the
Final Net Working
Capital
). The Final Net Working Capital shall include the line items and be calculated in the
same manner as the calculation of Estimated Net Working Capital. If Buyer and Sellers are unable
to mutually agree upon Final Net Working Capital, then Buyer and Sellers shall submit any disputed
items relating to such calculation to an independent accounting firm of recognized national
standing as may be mutually selected by Buyer and Sellers. The costs of such independent
accountant shall be borne 50% by Sellers and 50% by Buyer. Buyer shall pay to Sellers an amount
equal to the excess, if any, of the Final Net Working Capital minus the Estimated Net Working
Capital, or Sellers shall pay to Buyer an amount equal to the excess, if any, of the Estimated Net
Working Capital minus the Final Net Working Capital. Such true-up payments (the
Working Capital
True-Up Payment
) shall be paid within ten days following the agreement of Buyer and Sellers
(whether by mutual agreement or by decision of the independent accounting firm) with respect to the
calculation of the Final Net Working Capital.
15
(e) Cash True-Up Payments, GCF Distribution Payments, Intercompany Accounts True-Up Payments,
Product Inventory True-up Payments and Working Capital True-Up Payments shall be made by Buyer or
Sellers, as the case may be, via wire transfer of immediately available funds to an account
designated (in writing) by the Party entitled to receive such payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO SELLERS
Except as disclosed in the Disclosure Schedules, each Seller hereby severally represents and
warrants to Buyer as follows:
Section 3.1
Organization of Sellers
. Each of the Sellers is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware and has all requisite
corporate power and authority to own, operate and lease its properties and assets and to carry on
its business as now conducted.
Section 3.2
Authorization; Enforceability
. Each Seller has all requisite corporate power and
authority to execute and deliver this Agreement and to perform all obligations to be performed by
it hereunder. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and approved by all
requisite corporate action on the part of Sellers. This Agreement has been duly and validly
executed and delivered by Sellers, and this Agreement constitutes a valid and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws
affecting creditors rights generally and subject, as to enforceability, to general principles of
equity.
Section 3.3
No Conflict
. The execution and delivery of this Agreement by Sellers and the
consummation of the transactions contemplated hereby by Sellers (assuming all required filings,
consents, approvals, authorizations and notices set forth in
Schedule 3.3
(collectively,
the
Sellers Approvals
) have been made, given or obtained) do not and shall not:
(a) violate any Law applicable to Sellers or require any filing with, consent, approval or
authorization of, or notice to, any Governmental Authority;
(b) violate any Organizational Document of Sellers; or
(c) (i) breach any Contract to which any Seller is a party or by which any Seller may be
bound, (ii) result in the termination of any such Contract, (iii) result in the creation of any
Lien upon any of the Purchased Interests or (iv) constitute an event which, after notice or lapse
of time or both, would result in any such breach, termination or creation of a Lien upon any of the
Purchased Interests.
Section 3.4
Litigation
. There are no lawsuits or actions before any Governmental Authority
pending or, to the Knowledge of Sellers, threatened against Sellers that would adversely affect the
ability of Sellers to perform their obligations under this Agreement, and there are no orders or
unsatisfied judgments from any Governmental Authority binding upon
16
Sellers that would adversely affect the ability of Sellers to perform their obligations under
this Agreement.
Section 3.5
Brokers Fees
. Except as reflected on
Schedule 3.5
, no broker, finder,
investment banker or other Person is entitled to any brokerage fee, finders fee or other
commission in connection with the transactions contemplated hereby based upon arrangements made by
Sellers or any of their Affiliates.
Section 3.6
Ownership of Purchased Interests
.
(a) Targa GP Inc. is the sole member of Targa Downstream GP and has good and valid title to,
holds of record and owns beneficially all of the limited liability company interests of Targa
Downstream GP included in the Purchased Interests, free and clear of any Liens other than (i)
transfer restrictions imposed thereon by applicable securities Laws and (ii) Permitted Liens, which
will be released or removed at or prior to Closing.
(b) Targa GP Inc. is the sole member of Targa LSNG GP and has good and valid title to, holds
of record and owns beneficially all of the limited liability company interests of Targa LSNG GP
included in the Purchased Interests, free and clear of any Liens other than (i) transfer
restrictions imposed thereon by applicable securities Law and (ii) Permitted Liens, which will be
released or removed at or prior to Closing.
(c) Targa LP Inc. is the sole limited partner of Targa Downstream LP and has good and valid
title to, holds of record and owns beneficially a limited partner interest representing a 50%
ownership in Targa Downstream LP which constitutes all of the limited partner interests of Targa
Downstream LP, free and clear of any Liens other than (i) transfer restrictions imposed thereon by
applicable securities Laws and (ii) Permitted Liens which will be released or removed at or prior
to Closing. Targa Downstream GP is the general partner of Targa Downstream LP and has good and
valid title to, holds of record and owns beneficially a general partner interest representing a 50%
ownership in Targa Downstream LP which constitutes all of the general partner interests of Targa
Downstream LP, free and clear of any Liens other than (i) transfer restrictions imposed thereon by
applicable securities Laws and (ii) Permitted Liens, which will be released or removed at or prior
to Closing.
(d) Targa LP Inc. is the sole limited partner of Targa LSNG LP and has good and valid title
to, holds of record and owns beneficially a limited partner interest representing a 50% ownership
in Targa LSNG LP which constitutes all of the limited partner interests of Targa LSNG LP, free and
clear of any Liens other than (i) transfer restrictions imposed thereon by applicable securities
Laws and (ii) Permitted Liens which will be released or removed at or prior to Closing. Targa LSNG
GP is the general partner of Targa LSNG LP and has good and valid title to, holds of record and
owns beneficially a general partner interest representing a 50% ownership in Targa LSNG LP which
constitutes all of the general partner interests of Targa LSNG LP, free and clear of any Liens
other than (i) transfer restrictions imposed thereon by applicable securities Laws and
(ii) Permitted Liens, which will be released or removed at or prior to Closing.
17
(e) With respect to each Company, there are no outstanding options, warrants, rights or other
securities convertible into or exchangeable or exercisable for equity securities, any other
commitments or agreements providing for the issuance of additional equity interests or the
repurchase or redemption of equity interests, and there are no agreements of any kind which may
obligate any of the Companies to issue, purchase, redeem or otherwise acquire any of their
respective equity interests. Except as set forth in
Schedule 3.6(e)
, there are no voting
agreements, proxies or other similar agreements or understandings with respect to the equity
interests of any Company.
(f) All of the Purchased Interests are duly authorized, validly issued and outstanding and
fully paid, and were issued free of preemptive rights in compliance with applicable Laws. Upon
consummation of the transactions contemplated hereby, Buyer (or one of its designated Subsidiaries)
(i) will be the sole member of Targa Downstream GP and the sole limited partner of Targa Downstream
LP, (ii) will be the sole member of Targa LSNG GP and the sole limited partner of Targa LSNG LP and
(iii) will acquire good and valid title to all of the Purchased Interests, free and clear of any
Liens other than transfer restrictions imposed thereon by applicable securities Laws or Liens
created by Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANIES
Except as disclosed in the Disclosure Schedules, Sellers hereby severally represent and
warrant to Buyer as follows:
Section 4.1
Organization of the Companies
. Each of the Purchased Companies is duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its organization and
has the requisite limited liability company or partnership power and authority to own or lease its
assets and to conduct its business as it is now being conducted. Each of the Purchased Companies
is duly licensed or qualified in each jurisdiction in which the ownership or operation of its
assets or the character of its activities is such as to require it to be so licensed or qualified,
except where the failure to be so licensed or qualified would not reasonably be expected to have a
Material Adverse Effect on any of the Purchased Companies. Sellers have made available to Buyer
true copies of all existing Organizational Documents of each of the Purchased Companies.
Section 4.2
No Conflict
. The execution and delivery of this Agreement by Sellers and the
consummation of the transactions contemplated hereby by Sellers (assuming all of Sellers Approvals
have been made, given or obtained) do not and shall not:
(a) violate, in any material respect, any Law applicable to the Companies or require any
filing with, consent, approval or authorization of, or notice to, any Governmental Authority;
(b) violate any Organizational Document of the Companies; or
(c) (i) breach any Material Contract, (ii) result in the termination of any such Material
Contract, (iii) result in the creation of any Lien under any Material Contract, or (iv)
18
constitute an event which, after notice or lapse of time or both, would result in any such
breach, termination or creation of a Lien.
Section 4.3
Subsidiaries; Investments
.
(a) Except for ownership in another Company or as reflected on
Schedules 4.3(a)
and
4.3(b)
, none of the Companies owns any equity interests in any Person. At or immediately
following Closing and subject to compliance with the procedures described in
Schedules
4.3(a)
and
4.3(b)
, the interests in the Downstream Joint Ventures will be owned by the
Companies free and clear of Liens other than Permitted Liens and the provisions of the
Organizational Documents of the respective Downstream Joint Ventures.
(b) (i)
Schedule 4.3(a)
sets forth a complete list of all of the Company Subsidiaries,
the jurisdiction of incorporation or formation of each such Subsidiary and the number of issued and
outstanding ownership interests of each such Subsidiary and the record holders thereof, and (ii)
Schedule 4.3(b)
sets forth a complete list of all partnerships, joint ventures or other
entities (other than Subsidiaries) in which the Company or any of its Subsidiaries has, or will
have at Closing, an interest, including a description of the type of such entity, the ownership
interest of the Company and its Subsidiaries therein and, to Sellers Knowledge, the names and
ownership interests of the other holders thereof. Except as set forth on
Schedule 4.3(a)
,
all of the outstanding ownership interests of the Company Subsidiaries are owned beneficially and
of record by the Company or the Companys Subsidiaries, free and clear of all Liens.
(c) All of the equity interests of each Company Subsidiary are duly authorized, validly issued
and outstanding and fully paid, and were issued free of preemptive rights in compliance with
applicable Laws.
(d) Sellers have made available to Buyer true copies of all existing Organizational Documents
of the Company Subsidiaries.
(e) Sellers hereby represent with respect to Cedar Bayou Fractionators, L.P, a Delaware
limited partnership (
CBF
) that:
(i) all liabilities of CBF that are required by GAAP to be reflected or reserved against in
the March 31, 2009 Balance Sheet included in the Financial Statements have been so reflected or
reserved against in the March 31, 2009 Balance Sheet included in the Financial Statements;
(ii) except as disclosed on
Schedule 4.3(e)(ii)
, since the Balance Sheet Date, (x) the
business of CBF has been conducted, in all material respects, only in the ordinary course
consistent with past practices, and (y) there has been no damage, destruction or loss to the assets
or properties of CBF which could reasonably be expected to have a material and adverse impact on
the business of CBF;
(iii) there are no lawsuits or actions before any Governmental Authority pending or, to the
Knowledge of Sellers, threatened by any Person against CBF other than lawsuits
19
or actions which could not reasonably be expected to have a material and adverse impact on CBF
and CBF is not subject to any injunction, order or unsatisfied judgment from any Governmental
Authority which could reasonable be expected to have a material and adverse impact on CBF;
(iv) to the Knowledge of Sellers and except as set forth in
Schedule 4.3(e)(iv)
: (A)
the operations of CBF are in compliance in all material respects with all Environmental Laws, which
compliance includes the possession and maintenance of, and compliance with, all material Permits
required under all applicable Environmental Laws; (B) CBF is not the subject of any outstanding
administrative or judicial order or judgment, agreement or arbitration award from any Governmental
Authority under any Environmental Laws requiring remediation or the payment of a fine or penalty;
and (C) CBF is not subject to any action pending or threatened in writing, whether judicial or
administrative, alleging noncompliance with or potential liability under any Environmental Law; and
(v) Downstream Energy Ventures Co., L.L.C. is the general partner of CBF and has not conducted
any business or activities other than serving as general partner of CBF.
Section 4.4
Financial Statements; Records; Undisclosed Liabilities; Working Capital.
(a)
Schedule 4.4
sets forth true and complete copies of the following financial
statements (collectively, the
Financial Statements
): (i) the audited balance sheet of the
Downstream Business (with related statements of income and comprehensive income, changes in capital
and cash flows) as of, and for the year ended December 31, 2008 and (ii) the unaudited balance
sheet of the Downstream Business, together with related statements of income as of, and for the
three month period ended March 31, 2009. The Financial Statements have been prepared in accordance
with GAAP (except as otherwise stated in the footnotes or the audit opinion related thereto and
except for, with respect to the March 31, 2009 Balance Sheet and the related statement of income,
normal year-end adjustments and the absence of footnote disclosure) and present fairly in
accordance with GAAP, in all material respects, the financial position and the results of
operations of the Companies as of, and for the periods ended on, such dates.
(b) All liabilities of the Companies that are required by GAAP to be reflected or reserved
against in the March 31, 2009 Balance Sheet included in the Financial Statements have been so
reflected or reserved against in the March 31, 2009 Balance Sheet included in the Financial
Statements. Except as set forth on
Schedule 4.4(b)
, as of Closing the Companies shall have
no Indebtedness for Borrowed Money, other than Indebtedness for Borrowed Money incurred by Buyer.
(c) To the Knowledge of Sellers, the range of working capital of the Companies reflected in
Schedule 4.4(c)
for the Effective Time and the remainder of 2009 reflects reasonable levels
of working capital for the current and forecasted operations of the Downstream Business for such
periods based on (i) information available to Sellers as of the date hereto, (ii) current market
and industry conditions and (iii) Sellers assumptions regarding continuing market and industry
conditions.
20
Section 4.5
Absence of Certain Changes
. Except as disclosed on
Schedule 4.5
, since
the Balance Sheet Date, (a) there has not been any Material Adverse Effect on the Companies, (b)
the business of each of the Companies has been conducted, in all material respects, only in the
ordinary course consistent with past practices, and (c) there has been no damage, destruction or
loss to the assets or properties of the Companies which could reasonably be expected to have a
material and adverse impact on the business of the Companies.
Section 4.6
Contracts.
(a)
Schedule 4.6(a)
contains a true and complete listing of the following Contracts to
which any of the Companies is a party, or will become a party to prior to or concurrently with the
Closing (such Contracts that are required to be listed on
Schedule 4.6(a)
being
Material
Contracts
):
(i) except for any intercompany indebtedness that will be cancelled or distributed prior to
Closing, each Contract for Indebtedness for Borrowed Money;
(ii) Non-Affiliate Contracts associated with the Logistics Segment which represent in the
aggregate in excess of 70% of the gross revenues of the Logistics Segment from Non-Affiliate
Contracts for the twelve months ended December 31, 2008;
(iii) Non-Affiliate Contracts associated with the Wholesale Segment which represent in the
aggregate in excess of 70% of the volume of NGLs sold by the Wholesale Segment pursuant to
Non-Affiliate Contracts for the twelve months ended December 31, 2008;
(iv) Non-Affiliate Contracts associated with the Wholesale Segment which represent in the
aggregate in excess of 70% of the volume of NGLs purchased by the Wholesale Segment pursuant to
Non-Affiliate Contracts for the twelve months ended December 31, 2008;
(v) Non-Affiliate Contracts associated with the Marketing Segment which represent in the
aggregate in excess of 70% of the volume of NGLs sold by the Marketing Segment pursuant to
Non-Affiliate Contracts for the twelve months ended December 31, 2008;
(vi) Non-Affiliate Contracts associated with the Marketing Segment which represent in the
aggregate in excess of 70% of the volume of NGLs purchased by the Marketing Segment pursuant to
Non-Affiliate Contracts for the twelve months ended December 31, 2008;
(vii) Non-Affiliate Contracts associated with the Marketing Segment which represent in the
aggregate in excess of 70% of NGLs exchanged by the Marketing Segment.
(viii) each Contract involving a remaining commitment obligating a Company to make capital
expenditures in excess of $1,000,000 following the Closing;
(ix) each Contract for lease of personal property involving payments in excess of $1,000,000
for the twelve months ended December 31, 2008;
21
(x) except for Contracts of the nature described in clauses (i) through (ix) above, each
Contract involving aggregate payments in excess of $1,000,000 for the twelve months ended December
31, 2008, or any successor contract between Sellers or any Affiliate of Sellers (other than any of
the Companies) on the one hand, and any of the Companies, on the other hand, which will survive the
Closing and which cannot be cancelled by a Company upon 30 days or less notice without payment
penalty;
(xi) except for Contracts described in clauses (i) through (x) above and other than Contracts
entered into in the ordinary course of business including in connection with operating and
maintaining the facilities, any Contract for the purchase or sale of materials, supplies, goods,
services, equipment or other assets that is reasonably expected by Sellers to involve, aggregate
payments by or to a Company of $1,000,000 or more in the twelve month period immediately following
the Closing;
(xii) each Contract that provides for a limit on the ability of a Company to compete in any
line of business or with any Person or in any geographic area during any period of time after the
Closing;
(xiii) any partnership or joint venture agreement (other than the Organizational Documents of
the Companies);
(xiv) any Contract which any third party has rights to own or use any material asset of a
Company, including any Intellectual Property right of a Company, other than pursuant to Contracts
or commercial arrangements entered into by the Companies with such third parties in the ordinary
course of business;
(xv) the Material Real Estate Leases; and
(xvi) any agreement relating to the acquisition or disposition following the Closing of any
business (whether by merger, sale of stock, sale of assets or otherwise) or granting to any Person
a right of first refusal, first offer or right to purchase any of the assets of a Company which
right survives the Closing other than Permitted Liens.
(b) True and complete copies of all Material Contracts have been made available to Buyer.
(c) Except as set forth in
Schedule 4.6(c)
, each Material Contract (other than such
Material Contracts with respect to which all performance and payment obligations have been fully
performed or otherwise discharged by all parties thereto prior to the Closing) (i) is in full force
and effect and (ii) represents the legal, valid and binding obligation of the Company that is party
thereto and, to the Knowledge of Sellers, represents the legal, valid and binding obligation of the
other parties thereto, in each case enforceable in accordance with its terms. Except as set forth
in
Schedule 4.6(c)
, none of the Companies and, to the Knowledge of Sellers, no other party
is in material breach of any Material Contract, and neither Sellers nor any of the Companies has
received any notice of termination or breach of any Material Contract.
(d)
Schedule 4.6(d)
lists all of the purchase and sale agreements pursuant to which
the Companies have acquired or disposed of any assets or entities since inception other
22
than purchases and dispositions of assets in the ordinary course of business none of which
could be reasonably expected to have any significant and adverse impact on the Downstream Business.
True and correct copies of the documents listed on
Schedule 4.6(d)
have been made
available to Buyer.
Section 4.7
Intellectual Property.
(a) The Companies own or have the right to use, pursuant to license, sublicense, agreement or
otherwise, all items of Intellectual Property required in the operation of the Downstream Business
as presently conducted. No third party has asserted against any of the Companies any written claim
that such Company is infringing the Intellectual Property of such third party, and, to the
Knowledge of Sellers, no third party is infringing the Intellectual Property owned by any of the
Companies.
(b) All of the Companys Intellectual Property which is required to conduct the Downstream
Business (as currently being conducted) is listed on
Schedule 4.7(b)
. No Intellectual
Property listed or required to be listed in such schedule is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof by a Company.
Section 4.8
Litigation
. Except as set forth in
Schedule 4.8
, (a) there are no
lawsuits or actions before any Governmental Authority pending or, to the Knowledge of Sellers,
threatened by any Person against any of the Companies or with respect to any Company Asset other
than lawsuits or actions which could not reasonably be expected to have a material and adverse
impact on the Companies and (b) no Company is subject to any injunction, order or unsatisfied
judgment from any Governmental Authority.
Section 4.9
Taxes
. Except as set forth on
Schedule 4.9
, with respect to each Company
(a) all Tax Returns required to be filed have been duly and timely filed with the appropriate Tax
Authority, and were, when filed, true, correct and complete in all material respects, (b) all Taxes
due and owing (whether or not shown as due on any Tax Returns) have been timely paid in full, (c)
there are no Liens on any of the assets of such Company that arose in connection with any failure
(or alleged failure) to pay any Tax, (d) there is no claim, action, or proceeding pending by any
applicable Tax Authority in connection with any Tax, (e) no Tax Returns are now under audit or
examination by any Tax Authority, (f) there are no agreements or waivers providing for an extension
of time with respect to the filing of any Tax Returns or the assessment or collection of any such
Tax, (g) no written claim has been made by any Tax Authority in a jurisdiction where such Company
does not file a Tax Return that it is or may be subject to taxation in that jurisdiction, (h) such
Company is not a party to any Tax-Sharing Agreement, and is not otherwise liable for the Taxes of
any other Person (including as a transferee or successor), (i) since its inception, such Company
has been a disregarded as an entity separate from its owner for federal income tax purposes
pursuant to Treasury Regulation Section 301.7701-3(b)(1), (j) no power of attorney that is
currently in force has been granted with respect to any matter relating Taxes that could affect
such Company, and (k) such Company has not, during any period for which the statute of limitations
for any relevant Tax has not expired, participated in any listed transaction required to be
disclosed under Treasury Regulation Section 1.6011-4.
23
Section 4.10
Environmental Matters
. To the Knowledge of Sellers, except as set forth on
Schedule 4.10
:
(a) the operations of the Companies are in compliance in all material respects with all
Environmental Laws, which compliance includes the possession and maintenance of, and compliance
with, all material Permits required under all applicable Environmental Laws;
(b) none of the Companies is the subject of any outstanding administrative or judicial order
or judgment, agreement or arbitration award from any Governmental Authority under any Environmental
Laws requiring remediation or the payment of a fine or penalty; and
(c) none of the Companies is subject to any action pending or threatened in writing, whether
judicial or administrative, alleging noncompliance with or potential liability under any
Environmental Law.
Except for Section 4.12, Buyer acknowledges that this Section 4.10 shall be deemed to be the
only representation and warranty in the Agreement with respect to the environmental matters.
Section 4.11
Legal Compliance
. Except with respect to (a) matters set forth in
Schedule 4.8
, (b) compliance with Laws concerning Taxes (as to which certain
representations and warranties are made pursuant to Section 4.9), (c) compliance with Environmental
Laws (as to which certain representations and warranties are made pursuant to Section 4.10), and
(d) compliance with Permits (as to which representations and warranties are made pursuant to
Section 4.12), the Companies are in compliance in all material respects with all applicable Laws
and, to the Knowledge of Sellers, the Companies have not received written notice of any violation
of any Law, relating to the operation of the business or to any of their assets or operations which
could reasonably be expected to materially and adversely impact the Companies.
Section 4.12
Permits
. Except as set forth in
Schedule 4.12
, each of the Companies
possesses or has the ability to operate under all material Permits necessary for it to own its
assets and operate the Downstream Business as currently conducted. All such Permits are in full
force and effect. There are no lawsuits or other proceedings pending or, to the Knowledge of
Sellers, threatened in writing before any Governmental Authority that seek the revocation,
cancellation, suspension or adverse modification thereof. To the Knowledge of Sellers, such
Permits will not be subject to suspension, modification, revocation or non-renewal as a result of
the execution, delivery and consummation of the transactions contemplated hereby.
Section 4.13
Insurance
.
Schedule 4.13
contains a summary description of all material
policies of property, fire and casualty, product liability, workers compensation and other
insurance held by or for the benefit of any of the Companies as of the date of this Agreement.
Except as reflected on
Schedule 4.13
, there is no material claim by any Company pending
under any of such policies as to which coverage has been denied or disputed by the underwriters of
such policies. All premiums due and payable under such policies have been paid, and the Companies
have complied with the terms and conditions of such policies. All such insurance policies are in
full force and effect. No notice of cancellation of, or indication of an intention not
24
to renew, any such insurance policy has been received by Sellers other than in the ordinary
course of business.
Section 4.14
Labor Relations
. None of the Companies (a) is a party to any collective
bargaining agreement or other labor union contract applicable to persons employed by Sellers
Affiliates who provide services to a Company, and, to the Knowledge of Sellers, there are no
organizational campaigns, petitions or other unionization activities focusing on persons employed
by Sellers Affiliates who provide services to a Company which seeks recognition of a collective
bargaining unit, or (b) is subject to any strikes, material slowdowns or material work stoppages
pending or, to the Knowledge of Sellers, threatened in writing between a Company and any group of
the foregoing employees. Except as set forth on
Schedule 4.14
, none of the Companies (i)
has any employees and all employment services to the Company immediately following the Closing will
be rendered pursuant to the Omnibus Agreement, as amended in the form of
Exhibit A
or (ii)
maintains, contributes or is subject to any employee benefit or welfare plan of any nature,
including but not limited to, plans subject to ERISA.
Section 4.15
Title to Properties and Related Matters.
(a) Sellers have delivered or made available to Buyer copies of the deeds and other
instruments by which Targa Downstream LP or any other Company has acquired (or will acquire prior
to Closing), fee simple title to real property included in the Company Assets, and all material
real property records, all title insurance policies, opinions, abstracts and surveys in the
possession of such Company and relating to such real property interests.
(b)
Schedule 4.15(b)(i)
sets forth a list of all material real property owned in fee
by any Company or Company Subsidiary, but does not include compressor sites, rights of way and
other similar real property interests which are not considered by the Sellers to be independently
material. Except as set forth on
Schedule 4.15(b)(ii)
, there are no outstanding options or
rights of first refusal to purchase any of the fee owned real property reflected on
Schedule 4.15(b)(i)
.
(c) The Companies have (i) good and defensible fee simple title to or valid leasehold
interests in all of its real property and (ii) good and valid title to all of its personal property
used in the ordinary conduct of the Downstream Business, except (x) for such defects in title as
could not, individually or in the aggregate, reasonably be expected to materially and adversely
impact the ability of the Companies to conduct the Downstream Business (including situations where
beneficial title has been transferred to a Company but record title may be transferred following
the Closing as contemplated in Section 11.12 below) and (y) for easements, rights of way and
similar property use rights which are addressed in subsection (e) below. The real property and
personal property owned by the Companies and used in the Downstream Business are subject to no
Liens other than Permitted Liens.
Schedule 4.15(c)
includes a list of all real estate
leases which involve the payment by the Companies of in excess of $250,000 in any calendar year or
which if lost would have a material and adverse impact on the Companies ability to conduct the
Downstream Business (
Material Real Estate Leases
). The Material Real Estate Leases are (i) in
full force and effect (ii) represent the legal, valid and binding obligations of the Company that
is a party thereto and, to the Knowledge of Sellers, represent the legal, valid and binding
obligation of the other parties thereto, in each case enforceable in accordance with
25
its terms. None of the Companies and, to the Knowledge of Sellers, no other party is in
breach in any material respect of any Material Real Estate Lease.
(d) All of the plants, facilities and other tangible assets owned, leased or used by the
Companies in the conduct of the Downstream Business are to the Knowledge of Sellers (i)
structurally sound with no known defects (ii) in good operating condition and repair, subject to
ordinary wear and tear, and (iii) not in need of maintenance or repair except for ordinary, routine
maintenance and repair, except for such circumstances that could not reasonably be expected to have
a material and adverse impact on the Companies and the Downstream Business.
(e) The Companies have such easements, rights of way and other similar property use rights
which are sufficient, in the aggregate, for the Companies to conduct the Downstream Business as
currently conducted except for such defects that could not reasonably be expected to materially and
adversely impact the conduct of the Downstream Business by the Companies. Buyer acknowledges that
this Section 4.15(e) shall be deemed to be the only representation and warranty in the Agreement
with respect to easements, rights of way and other similar property use rights held or used by the
Companies.
(f) After the Closing and except with respect to the Excluded Assets, the Companies will have
record ownership or have beneficial ownership of the Company Assets, and the Company Assets
constitute all of the assets used in connection with the Downstream Business and are adequate to
conduct, in all material respects, the Downstream Business as currently conducted.
Section 4.16
Investment Representations
. Sellers are acquiring the Purchased Units for their
own account with the present intention of holding the Purchased Units for investment purposes and
not with a view to or for sale, in connection with any public distribution, of the Purchased Units
in violation of any federal or state securities Laws. Sellers have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits and risks of an
investment in the Purchased Units. Sellers acknowledge that the Purchased Units have not been
registered under applicable federal and state securities Laws and that the Purchased Units may not
be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such
transfer, sale, assignment, pledge, hypothecation or other disposition is registered under
applicable federal and state securities Laws or pursuant to an exemption from registration under
any federal or state securities Laws.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RELATING TO BUYER
Buyer hereby represents and warrants to Sellers as follows:
Section 5.1
Organization of Buyer
. Buyer is a limited partnership organized, validly existing
and in good standing under the Laws of the State of Delaware.
Section 5.2
Authorization; Enforceability
. Buyer has all requisite partnership power and
authority to execute and deliver this Agreement and to perform all obligations to be performed by
it hereunder. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and approved by
26
Buyer, and no other partnership proceeding on the part of Buyer is necessary to authorize this
Agreement. This Agreement has been duly and validly executed and delivered by Buyer, and this
Agreement constitutes a valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors rights generally and subject, as
to enforceability, to general principles of equity.
Section 5.3
No Conflict
. The execution and delivery of this Agreement by Buyer and the
consummation of the transactions contemplated hereby by Buyer (assuming all required filings,
consents, approvals authorizations and notices set forth in
Schedule 5.3
(collectively, the
Buyer Approvals
) have been made, given or obtained) does not and shall not:
(a) violate any Law applicable to Buyer or require any filing with, consent, approval or
authorization of, or, notice to, any Governmental Authority;
(b) violate any Organizational Document of Buyer; or
(c) (i) breach any material Contract, to which Buyer is a party or by which Buyer may be
bound, (ii) result in the termination of any such material Contract, (iii) result in the creation
of any Lien upon any of the properties or assets of Buyer or (iv) constitute an event which, after
notice or lapse of time or both, would result in any such breach, termination or creation of a
Lien.
Section 5.4
Litigation
. There are no lawsuits or actions before any Governmental Authority
pending or, to the Knowledge of Buyer, threatened in writing against Buyer that would reasonably be
expected to have a material and adverse impact on the ability of Buyer to perform its obligations
hereby, and there are no orders or unsatisfied judgments from any Governmental Authority binding
upon Buyer that would reasonably be expected to have a material and adverse impact on the ability
of Buyer to perform its obligations hereby.
Section 5.5
Brokers Fees
. Except as reflected on
Schedule 5.5
hereto, no broker,
finder, investment banker or other Person is entitled to any brokerage fee, finders fee or other
commission in connection with the transactions contemplated hereby based upon arrangements made by
Buyer.
Section 5.6
Investment Representation
. Buyer is purchasing the Purchased Interests for its
own account with the present intention of holding the Purchased Interests for investment purposes
and not with a view to or for sale, in connection with any public distribution, of the Purchased
Interests in violation of any federal or state securities Laws. Buyer has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks
of an investment in the Purchased Interests. Buyer acknowledges that the Purchased Interests have
not been registered under applicable federal and state securities Laws and that the Purchased
Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise
disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is
registered under applicable federal and state securities Laws or pursuant to an exemption from
registration under any federal or state securities Laws.
27
Section 5.7
Purchased Units
. The Purchased Units have been duly authorized and upon issuance,
at Closing, will be validly issued and fully paid. Such Purchased Units will be issued free of
preemptive rights. Upon consummation of the transactions contemplated hereby, Sellers (or one of
its designated Subsidiaries) will acquire good and valid title to all of the Purchased Units, free
and clear of any Liens other than transfer restrictions imposed therein by applicable securities
laws and the terms of the partnership agreement of Buyer.
ARTICLE VI
COVENANTS
Section 6.1
Conduct of Business
. From the date of this Agreement through the Closing, except
as set forth on
Schedule 6.1
, as contemplated by this Agreement, or as consented to by
Buyer in writing (which consent shall not be unreasonably withheld, conditioned or delayed), (a)
Sellers shall cause each of the Companies to (x) operate its business in the ordinary course and
(y) use Reasonable Efforts to preserve intact its business and its relationship with customers,
suppliers and others having business relationships with a Company and (b) Sellers shall not permit
any of the Companies to:
(i) amend its Organizational Documents;
(ii) liquidate, dissolve, recapitalize or otherwise wind up its business;
(iii) change its accounting methods, policies or practices, except as required by GAAP or
applicable Laws;
(iv) sell, assign, transfer, lease or otherwise dispose of any assets except in the ordinary
course of business or pursuant to the terms of a Material Contract;
(v) make any capital expenditure in excess of $1,000,000 other than capital expenditures
reflected on
Schedule 6.1(v)
and other than reasonable capital expenditures in connection
with any emergency or force majeure events affecting a Company;
(vi) merge or consolidate with, or purchase substantially all of the assets or business of, or
equity interests in, or make an investment in any Person (other than in a Company or extensions of
credit to customers in the ordinary course of business);
(vii) incur any Indebtedness for Borrowed Money or issue or sell any equity interests, notes,
bonds or other securities of a Company (except for intercompany loans from or to Sellers or their
Affiliates in the ordinary course of business), or any option, warrant or right to acquire same;
(viii) adopt any profit sharing, compensation, savings, insurance, pension, retirement or
other benefit plan or otherwise hire any employees;
(ix) enter into any Contract, except for Contracts entered into by a Company in the ordinary
course of business;
(x) create or assume any Lien, other than a Permitted Lien;
28
(xi) terminate or close any facility, business or operation of any Company except in the
ordinary course of business; or
(xii) agree, whether in writing or otherwise, to do any of the foregoing.
Section 6.2
Access
. From the date hereof through the Closing, Sellers shall afford to Buyer
and its authorized Representatives reasonable access, during normal business hours and in such
manner as not to unreasonably interfere with normal operation of the Downstream Business, to the
properties, books, contracts, records and appropriate officers and employees of Sellers Affiliates
who provide services to the Companies, and shall furnish such authorized Representatives with all
financial and operating data and other information concerning the affairs of each Company as Buyer
and such Representatives may reasonably request. Sellers shall have the right to have a
Representative present at all times during any such inspections, interviews, and examinations.
Notwithstanding the foregoing, Buyer shall have no right of access to, and Sellers shall have no
obligation to provide to Buyer, information relating to (a) any information the disclosure of which
would jeopardize any privilege available to a Company, Sellers or any Sellers Affiliate relating to
such information; or (b) any information the disclosure of which would result in a violation of
Law.
Section 6.3
Third-Party Approvals
. Buyer and Sellers shall (and shall each cause their
respective Affiliates to) use Reasonable Efforts to obtain all material consents and approvals of
third parties that any of Buyer, Sellers or their respective Affiliates are required to obtain in
order to consummate the transactions contemplated hereby.
Section 6.4
Regulatory Filings
. From the date of this Agreement until the Closing, each of
Buyer and Sellers shall, and shall cause their respective Affiliates to (i) make or cause to be
made the filings required of such party or any of its Affiliates under any Laws with respect to the
transactions contemplated hereby and to pay any fees due of it in connection with such filings, as
promptly as is reasonably practicable, and in any event within ten Business Days after the date
hereof, (ii) cooperate with the other Party and furnish all information in such Partys possession
that is necessary in connection with such other Partys filings, (iii) use Reasonable Efforts to
cause the expiration of the notice or waiting periods under the HSR Act and any other Laws with
respect to the transactions contemplated hereby as promptly as is reasonably practicable, (iv)
promptly inform the other Party of any communication from or to, and any proposed understanding or
agreement with, any Governmental Authority in respect of such filings, (v) consult and cooperate
with the other Party in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments and opinions made or submitted by or on behalf of any Party in connection with
all meetings, actions and proceedings with Governmental Authorities relating to such filings, (vi)
comply, as promptly as is reasonably practicable, with any requests received by such Party or any
of its Affiliates under the HSR Act and any other Laws for additional information, documents or
other materials, (vii) use Reasonable Efforts to resolve any objections as may be asserted by any
Governmental Authority with respect to the transactions contemplated hereby, and (viii) use
Reasonable Efforts to contest and resist any action or proceeding instituted (or threatened in
writing to be instituted) by any Governmental Authority challenging the transactions contemplated
hereby as in violation of any Law. If a Party intends to participate in any meeting with any
Governmental Authority with
29
respect to such filings, it shall give the other Party reasonable prior notice of, and an
opportunity to participate in, such meeting.
Section 6.5
Company Guarantees
.
(a) A list of Company Guarantees is set forth in
Schedule 6.5
hereto, and Sellers
shall update such schedule as of the Closing Date. Buyer shall use its Reasonable Efforts to
obtain from the respective beneficiary, in form and substance reasonably satisfactory to Sellers,
on or before the Closing, valid and binding termination of Company Guarantees or releases of
Sellers and their Affiliates (other than the Companies), as applicable, from any liability or
obligation, whether arising before, on or after the Closing Date, under any Company Guarantees in
effect as of the Closing, including by providing substitute guarantees with terms that are as
favorable to the counterparty as the terms of the applicable Company Guarantees and by furnishing
letters of credit, instituting escrow arrangements, posting surety or performance bonds or making
other arrangements as the counterparty may reasonably request. If any Company Guarantee has not
been released as of the Closing Date, then Buyer shall continue to use its Reasonable Efforts after
the Closing to cause each such unreleased Company Guarantee to be released promptly. Buyer shall
indemnify and hold harmless Sellers and their Affiliates from and after the Closing for any Losses
arising out of or relating to any Company Guarantees.
(b) Notwithstanding anything to the contrary herein, the Parties acknowledge and agree that at
any time after 90 days following the Closing Date, Sellers and their Affiliates may, in their sole
discretion, take any action to terminate, obtain release of or otherwise limit its liability under
any and all outstanding Company Guarantees.
Section 6.6
Indebtedness for Borrowed Money
. Other than the payment by Buyer of indebtedness
of the Purchased Companies as provided in Section 2.2(b), at the Closing, (i) Sellers shall cause
the Companies to distribute to Sellers any remaining Indebtedness for Borrowed Money due to the
Companies from Sellers or their Affiliates (other than the Companies) and (ii) Sellers shall cancel
and contribute to the capital of the applicable Company (or, as applicable, cause its Affiliates to
cancel) any Indebtedness for Borrowed Money due from the Companies to Sellers or their Affiliates
(other than the Companies), in each case including interest and other amounts accrued thereon or
due in respect thereof.
Section 6.7
Update Information
. At any time prior to the Closing, Sellers may supplement in
writing any information furnished on the Disclosure Schedules to reflect post-signing developments
and matters (which if not included on a Disclosure Schedule would constitute a breach of this
Agreement by Sellers) by furnishing such supplemented information to Buyer pursuant to the notice
provisions hereof. If (i) Sellers so furnish supplemental information, (ii) the absence of such
information would have resulted in a breach of any representation or warranty under this Agreement
and (iii) the Closing occurs, then such information shall be deemed to amend this Agreement and the
Disclosure Schedules for all purposes hereunder,
provided
if such supplemental disclosure would
result in Losses to the Companies in excess of $5,000,000 in the aggregate then Buyer may elect, by
written notice to Sellers, to terminate this Agreement.
30
Section 6.8
Books and Records
. From and after the Closing, Buyer shall preserve and keep a
copy of all books and records (other than Tax Records which are addressed in Article VII) relating
to the business or operations of the Companies on or before the Closing Date in Buyers possession
for a period of at least seven years after the Closing Date. After such seven-year period, before
Buyer shall dispose of any such books and records, Buyer shall give Sellers at least ninety (90)
days prior notice to such effect, and Sellers shall be given an opportunity, at their cost and
expense, to remove and retain all or any part of such books and records as Sellers may select.
Buyer shall provide to Sellers, at no cost or expense to Sellers, reasonable access during business
hours to such books and records as remain in Buyers possession and reasonable access during
business hours to the properties and employees of Buyer and the Companies in connection with
matters relating to the business or operations of the Companies on or before the Closing Date and
any disputes relating to this Agreement.
Section 6.9
Permits
. Sellers and Buyer shall cooperate to provide all notices and otherwise
take all actions required to transfer or reissue any Permits, including those required under
Environmental Laws, as a result of or in furtherance of the transactions contemplated hereby.
Section 6.10
Hedges
. Buyer and Sellers agree to cooperate to ensure that the Purchased
Interests and the related Downstream Business are transferred to the Buyer free of any financial
hedge transactions. Buyer acknowledges, however, that the Downstream Business does include various
contracts which constitute physical hedges such as forward sale arrangements.
Section 6.11
Title Commitments and Title Policies
.
(a) Within ten (10) Business Days after the date of this Agreement, Sellers shall deliver or
cause to be delivered to Buyer current, binding title commitments for owners title policies issued
by Title Company covering each of the real properties described on
Schedule 6.11(a)
, which
Title Commitments shall reflect Targa Downstream LP as the proposed insured.
(b) In addition, Sellers have heretofore applied for or will promptly apply for title
commitments for all other real property interests reflected on
Schedule 4.15(b)(i)
and will
deliver such title commitments to Buyer as and when received from the Title Company. Sellers will
use Reasonable Efforts to obtain and cause all such title commitments to be delivered to Buyer at
or prior to the Closing. In the event that the Title Company is unable to or otherwise fails to
deliver any of such title commitments at the Closing, then Sellers will continue to use Reasonable
Efforts to cause such title commitments to be delivered to Buyer as soon as possible following the
Closing and in any event within ninety (90) days following the Closing.
(c) The title commitments delivered at Closing (the
Title Commitments
) shall not indicate
any defects in title other than Permitted Liens and defects that would, individually or in the
aggregate, reasonably be expected to materially and adversely impact the ability of the Companies
to conduct the Downstream Business. At Closing, or as promptly as is reasonably practicable,
Sellers shall request that the Title Company issue to Buyer one or more owners title insurance
policies in accordance with the Title Commitments, together with any customary endorsements thereto
requested by Buyer, and subject only to Permitted Liens and defects in title that would not,
individually or in the aggregate, reasonably be expected to
31
materially and adversely impact the ability of the Companies to conduct the Downstream
Business (the
Title Policies
).
(d) All title insurance premiums, charges and costs for the title commitments and title
policies with respect to the real property interests reflected on
Schedule 4.15(b)(i)
will
be paid 50% by Sellers and 50% by Buyer.
Section 6.12
Participation of Sellers in Subsequent Disposition
. Buyer agrees that in the event
that Buyer, at any time prior to the first anniversary of the Closing, enters into a letter of
intent, memorandum of understanding or agreement respecting a transfer, conveyance, sale or other,
direct or indirect, disposition to a third Person of (i) the Companies, (ii) the business conducted
by the Companies, (iii) all or substantially all of the Company Assets, (iv) all or substantially
all of the Downstream Business or (v) all or substantially all of the Houston Area Assets (each, a
Disposition
), then Buyer will be obligated to make an additional cash payment (a
Disposition
Payment
) to Sellers equal to .5 times the difference between the consideration received by Buyer
or its Affiliates pursuant to such Disposition (net of Taxes payable as a result of receipt of such
consideration) and the adjusted Purchase Price under this Agreement. The Disposition Payment shall
be made within ten days following closing of any Disposition via wire transfer of immediately
available funds by Buyer to an account designated (in writing) by Sellers. For purposes of
determining the portion of the adjusted Purchase Price which shall be allocable to a Disposition,
an allocation shall be based on the portion of the 2009 EBITDA attributable to the assets or
business sold relative to the 2009 EBITDA for the Company Assets, collectively. Sellers
acknowledge that, notwithstanding anything in this Section 6.12 to the contrary, the approval of
the Conflicts Committee shall be required for any such Disposition.
Section 6.13
Business Interruption Insurance
. Sellers shall be entitled to receive and retain any
and all amounts paid to insureds in respect of any business interruption, and/or contingent
business interruption claim(s) relating to the Companies in the event the entire period of business
interruption occurred on or prior to the Effective Time. In the event the period of business
interruption includes periods prior to and after the Effective Time: (i) Sellers shall assume any
associated waiting period days and be entitled to receive and retain the business interruption
proceeds (the
BI Proceeds
) attributable to the period prior to the Effective Time and (ii) Buyer
shall assume any associated waiting period days and be entitled to receive and retain the BI
Proceeds attributable to the period after the Effective Time.
ARTICLE VII
TAX MATTERS
Section 7.1
Tax Returns
.
(a) Through the Closing, Sellers shall cause each of the Companies to continue their current
tax treatment as (a) partnerships or (b) entities that are disregarded as separate from their owner
for federal income tax purposes pursuant to Treasury Regulation Section 301.7701-3(b)(1), and the
operations of each of the Companies through the Effective Time shall be reflected on the federal
income Tax Return of its owners. The income of the Companies will be apportioned to the period up
to and including the Effective Time, and the
32
period after the Effective Time by closing the books of the Companies as of the Effective Time
except as otherwise provided below in Section 7.1(c).
(b) With respect to any Tax Return of a Company covering a taxable period ending on or before
the Effective Time that is required to be filed after the Effective Time, Sellers shall cause such
Tax Return to be prepared and shall cause to be included in such Tax Return all Tax items required
to be included therein. Not later than fifteen (15) days prior to the due date of each such Tax
Return, Sellers shall deliver a copy of such Tax Return to Buyer together with a statement of the
difference, if any, of the amount of Tax shown due on such Tax Return over the amount set up as a
liability for such Tax (for the period through the Effective Time) in the Final Net Working
Capital. Sellers shall make all reasonable changes to such Tax Return requested by Buyer not later
than ten (10) days prior to the due date of such Tax Return. If the Tax shown on the Tax Return
exceeds the amount set up as a liability for the Tax (for the period through the Effective Time) in
the Final Net Working Capital, not later than the due date of such Tax Return, Sellers shall pay to
Buyer the amount of such excess. If the amount set up as a liability for the Tax (for the period
through the Effective Time) in the Final Net Working Capital exceeds the Tax shown on the Tax
Return, not later than the due date of such Tax Return, Buyer shall pay to Sellers the amount of
such excess. Buyer shall cause the Company to file the Tax Return and timely pay the Taxes shown
due on such Tax Return.
(c) With respect to any Tax Return of a Company covering a taxable period beginning on or
before the Effective Time and ending after the Effective Time that is required to be filed after
the Effective Time, Buyer shall cause such Tax Return to be prepared and shall cause to be included
in such Tax Return all Tax items required to be included therein. Buyer shall determine (by an
interim closing of the books as of the Effective Time except for ad valorem Taxes and franchise
taxes based solely on capital which shall be prorated on a daily basis) the Tax which would have
been due with respect to the period covered by such Tax Return if such taxable period ended on the
Effective Time (the
Pre-Closing Tax
). For this purpose, any franchise Tax paid or payable with
respect to a Company shall be allocated to the taxable period for which payment of the Tax provides
the right to engage in business, regardless of the taxable period during which the income,
operations, assets or capital comprising the base of such Tax is measured. Not later than fifteen
(15) days prior to the due date of each such Tax Return, Buyer shall deliver a copy of such Tax
Return to Sellers for their review. Buyer shall make all reasonable changes to such Tax Return
requested by Sellers not later than ten (10) days prior to the due date of such Tax Return. Not
later than the due date of the Tax Return, either (i) Sellers shall pay to Buyer the excess, if
any, of the Pre-Closing Tax over the amount set up as a liability for the Pre-Closing Tax in the
Final Net Working Capital, or (ii) Buyer shall pay to Sellers the excess, if any, of the amount set
up as a liability for the Pre-Closing Tax in the Final Net Working Capital over the Pre-Closing
Tax. Buyer shall cause the Company to file the Tax Return and timely pay the Taxes shown due on
such Tax Return.
(d) Any Tax Return prepared pursuant to the provisions of this Section 7.1 shall be prepared
in a manner consistent with practices followed in prior years with respect to similar Tax Returns,
except as otherwise required by Law or fact. Any dispute arising pursuant to the provisions of
Section 7.1(b) or Section 7.1(c) shall be resolved pursuant to procedures comparable to the
procedures applicable under Section 2.4(d).
33
(e) Buyer and Sellers shall cooperate fully, and Buyer shall cause each of the Companies to
cooperate fully, as and to the extent reasonably requested by the other Party, in connection with
the preparation and filing of Tax Returns pursuant to this Section 7.1 (and Section 7.6), requests
for the provision of any information or documentation within the knowledge or possession of the
other Party as reasonably necessary to facilitate compliance with financial reporting obligations
arising under FASB Statement No. 109 (including without limitation, compliance with Financial
Accounting Standards Board Interpretation No. 48), and any audit, litigation or other proceeding
(each a
Tax Proceeding
) with respect to Taxes. Such cooperation shall include access to, the
retention and (upon the other Partys request) the provision of records and information which are
reasonably relevant to any such Tax Return or Tax Proceeding, and making employees available on a
mutually convenient basis to provide additional information and explanation of any material
provided hereunder. Sellers will, and Buyer will and will cause the Companies to, (i) retain all
books and records with respect to Tax matters pertinent to the Companies relating to any taxable
period beginning before the Effective Time until the later of six (6) years after the Effective
Time or the expiration of the applicable statute of limitations of the respective taxable periods
(including any extensions thereof), and to abide by all record retention agreements entered into
with any Tax Authority, and (ii) give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the other party so
requests, Buyer or Sellers, as the case may be, shall allow the other party to take possession of
such books and records. Buyer and Sellers each agree, upon request, to use Reasonable Efforts to
obtain any certificate or other document from any Tax Authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the
transactions contemplated hereby.
Section 7.2
Transfer Taxes
. Buyer shall be responsible for and indemnify Sellers for the
payment of all state and local transfer, sales, use, stamp, registration or other similar Taxes
resulting from the transactions contemplated hereby.
Section 7.3
Tax Indemnity
.
(a) Sellers shall be jointly and severally liable for, shall pay and shall protect, defend,
indemnify and hold harmless Buyer and the Companies from (i) any breach of the representations and
warranties contained in Section 4.9 and (ii) any and all Taxes in excess of any liability for Taxes
(for the period through the Effective Time) reflected in the Final Net Working Capital which relate
to or result from the income, business, property or operations of the Companies prior to the
Effective Time. The representations and warranties contained in Section 4.9 shall survive the
Closing until six months after expiration of the applicable statute of limitations. Buyer shall be
solely liable for, shall pay and shall protect, defend, indemnify and hold harmless Sellers from
any and all Taxes, together with costs and expenses with respect thereto, which relate to or result
from the income, business, property or operations of the Companies after the Effective Time.
(b) If any claim (an
Indemnified Tax Claim
) is made by any Tax Authority that, if
successful, would result in indemnification of any Party (the
Tax Indemnified Party
) by another
Party (the
Tax Indemnifying Party
) under this Section 7.3, the Tax Indemnified Party shall
promptly, but in no event later than the earlier of (i) forty-five (45) days after receipt of
notice from the Tax Authority of such claim or (ii) fifteen (15) days prior to the date required
34
for the filing of any protest of such claim, notify the Tax Indemnifying Party in writing of
such fact, including a description in reasonable detail of the nature of the Indemnified Tax Claim,
and a copy of all papers received with respect to such claim (if any).
(c) The Tax Indemnifying Party shall control all decisions with respect to any Tax Proceeding
involving an Indemnified Tax Claim and the Tax Indemnified Party shall take such action (including
settlement with respect to such Tax Proceeding or the prosecution of such Tax Proceeding to a
determination in a court or other tribunal of initial or appellate jurisdiction) in connection with
a Tax Proceeding involving an Indemnified Tax Claim as the Tax Indemnifying Party shall reasonably
request in writing from time to time, including the selection of counsel and experts and the
execution of powers of attorney;
provided
that (i) if within thirty (30) days after the notice
required by Section 7.3(b) has been delivered (or such earlier date that any payment of Taxes with
respect to such claim is due but in no event sooner than five days after the Tax Indemnifying
Partys receipt of such notice), the Tax Indemnifying Party requests that such claim be contested,
and (ii) if the Tax Indemnified Party is requested by the Tax Indemnifying Party to pay the Tax
claimed and sue for a refund, the Tax Indemnifying Party shall have advanced to the Tax Indemnified
Party, on an interest-free basis, the amount of such claim. The Tax Indemnified Party shall not
make any payment of an Indemnified Tax Claim for at least thirty (30) days (or such shorter period
as may be required by applicable law) after the giving of the notice required by Section 7.3(b)
with respect to such claim, shall give to the Tax Indemnifying Party any information requested
related to such claim, and otherwise shall cooperate with the Tax Indemnifying Party in order to
contest effectively any such claim. Notwithstanding anything in this Section 7.3 to the contrary,
(i) the Tax Indemnifying Party shall not, without the written consent of the Tax Indemnified Party
(which consent shall not be unreasonably withheld, conditioned or delayed), enter into any
compromise or settlement regarding an Indemnified Tax Claim that will effect taxable periods ending
after the Effective Time or that involves issues that recur for taxable periods ending after the
Effective Time, (ii) the Tax Indemnified Party may participate in, but not control (subject to
clause (iii) below), any defense or settlement of any Indemnified Tax Claim controlled by the
Indemnifying Party pursuant to this Section 7.3, and the Tax Indemnified Party shall bear its own
costs and expenses with respect to such participation, and (iii) if the Tax Indemnifying Party
fails to take action to timely defend an Indemnified Tax Claim, then the Tax Indemnified Party
shall have the exclusive right to defend, and be reimbursed by the Tax Indemnifying Party for its
reasonable cost and expense, in regard to the Indemnified Tax Claim with counsel selected by the
Tax Indemnified Party, in which case the Tax Indemnified Party shall have full control of such
defense and proceedings;
provided, however
, that the Tax Indemnified Party may not enter into any
compromise or settlement of such Indemnified Tax Claim if indemnification is to be sought
hereunder, without the Tax Indemnifying Partys consent (which consent shall not be unreasonably
withheld, conditioned or delayed).
Section 7.4
Scope
. Notwithstanding anything to the contrary herein, this Article VII shall be
the exclusive remedy for any claims relating to Taxes (including any claims relating to
representations respecting Tax matters including Section 4.9). The rights under this Article VII
shall survive the Closing until thirty (30) days after the expiration of the statute of limitations
(including extensions) applicable to such Tax matter. No claim may be made or brought by any Party
hereto after the expiration of the applicable survival period unless such claim has been
35
asserted by written notice specifying the details supporting the claim on or prior to the
expiration of the applicable survival period.
Section 7.5
Wage Reporting
. Buyer and Sellers shall utilize, and/or cause their Affiliates to
utilize, the alternate procedure set forth in IRS Revenue Procedure 2004-53 with respect to wage
reporting for employees associated with the Downstream Business.
Section 7.6
Tax Refunds
. In the event that Buyer receives any refund of Taxes from a taxing
jurisdiction or a reimbursement of Taxes from a third-party with respect to any Pre-Closing Taxable
Period, such amounts shall belong to Sellers and shall be forwarded by Buyer to Sellers within ten
days of receipt.
Section 7.7
Contribution Structure
. Notwithstanding anything in this Agreement to the
contrary, the Parties acknowledge and agree that their intent is that the transfer of the Purchased
Interests pursuant to the terms and conditions of this Agreement shall constitute a contribution
transaction as described in Section 721 of the Code, subject to the provisions of Section 707 of
the Code, and any cash proceeds received by Sellers pursuant the Agreement (including Section 2.4,
Section 6.12, Article VII, and Article IX) shall be, to the extent possible, treated as
reimbursement for capital expenditures pursuant to Treasury Regulation Section 1.701-4(d).
ARTICLE VIII
CONDITIONS TO OBLIGATIONS
Section 8.1
Conditions to Obligations of Buyer
. The obligation of Buyer to consummate the
transactions contemplated hereby is subject to the satisfaction of the following conditions, any
one or more of which may be waived in writing by Buyer:
(a) Buyer Approvals shall have been duly made, given or obtained and shall be in full force
and effect;
(b) Each of the representations and warranties of Sellers contained in this Agreement (other
than those contained in Section 3.2 and Section 3.6, which shall be true and correct in all
respects) shall be true in all material respects as of the date of this Agreement and as of the
Closing, as if made at and as of that time (other than such representations and warranties that
expressly address matters only as of a certain date, which need only be true as of such certain
date) without giving effect to the words material, material adverse effect or Material Adverse
Effect;
(c) Sellers shall have performed or complied in all material respects with all of the
covenants and agreements required by this Agreement to be performed or complied with by it at or
before the Closing;
(d) Sellers shall have delivered to Buyer a certificate, dated as of the Closing Date,
certifying that the conditions specified in Sections 8.1(b) and 8.1(c) have been fulfilled;
(e) No statute, rule, regulation, executive order, decree, temporary restraining order,
preliminary or permanent injunction, judgment or other order shall have been enacted,
36
entered, promulgated, enforced or issued by any Governmental Authority, or other legal
restraint or prohibition preventing the consummation of the transactions contemplated hereby shall
be in effect, and no investigation, action or proceeding before a Governmental Authority shall have
been instituted or threatened challenging or seeking to restrain or prohibit the transactions
contemplated hereby or to recover damages in connection therewith;
(f) Sellers and Buyer shall have entered into an amendment to the Omnibus Agreement in the
form of
Exhibit A
;
(g) Buyer shall have received a true and complete copy, certified by the secretary of Targa GP
Inc. and Targa LP Inc., of resolutions duly and validly adopted by the board of directors of Targa
GP Inc. and Targa LP Inc., evidencing their authorization of the execution and delivery of this
Agreement and the consummation of transactions contemplated hereby;
(h) the waiting period applicable to the consummation of the transactions contemplated hereby
under the HSR Act shall have expired or have been terminated;
(i) Sellers shall have delivered to Buyer all of the documents, certificates and other
instruments required to be delivered under, and otherwise complied with the provisions of, Section
2.3(b);
(j) Buyer shall have obtained such third party financing as may be required for Buyer to
consummate the transactions contemplated by this Agreement, which shall have been approved by the
board of directors of the General Partner;
(k) Affiliates of Sellers and the Companies shall have entered into NGL sale/purchase
agreements pursuant to which such Affiliates of Sellers have agreed to sell and the Companies have
agreed to purchase NGLs generated by and/or owned by such Affiliates of Sellers on terms reasonably
acceptable to Buyer and Sellers; and
(l) Buyer shall not have provided notice to Sellers that Buyer is contemplating a material
acquisition transaction or business combination and the Board of Directors of Targa Resources GP
LLC, the general partner of Buyer, has determined that, in light of such pending material
transaction, Buyer cannot proceed with consummation of the transactions contemplated hereby.
Section 8.2
Conditions to the Obligations of Sellers
. The obligation of Sellers to consummate
the transactions contemplated hereby is subject to the satisfaction of the following conditions,
any one or more of which may be waived in writing by Sellers:
(a) Sellers Approvals shall have been duly made, given or obtained and shall be in full force
and effect;
(b) Each of the representations and warranties of Buyer contained in this Agreement (other
than those contained in Section 5.2, which shall be true and correct in all respects) shall be true
in all material respects as of the date of this Agreement and as of the Closing, as if made anew at
and as of that time (other than such representations and warranties
37
that expressly address matters only as of a certain date, which need only be true as of such
certain date) without giving effect to the words material or material adverse effect;
(c) Buyer shall have performed or complied in all material respects with all of the covenants
and agreements required by this Agreement to be performed or complied with by Buyer on or before
the Closing;
(d) Buyer shall have delivered to Sellers a certificate, dated as of the Closing Date,
certifying that the conditions specified in Section 8.2(b) and (c) have been fulfilled;
(e) No statute, rule, regulation, executive order, decree, temporary restraining order,
preliminary or permanent injunction, judgment or other order shall have been enacted, entered,
promulgated, enforced or issued by any Governmental Authority, or other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby shall be in effect,
and no investigation, action or proceeding before a court or any other governmental agency or body
shall have been instituted or threatened challenging or seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or to recover damages in connection therewith;
(f) Buyer shall have delivered to Sellers all of the documents, certificates and other
instruments required to be delivered under, and otherwise complied with the provisions of, Section
2.3(c);
(g) Sellers shall have received a true and complete copy, certified by the secretary of the
General Partner, of resolutions duly and validly adopted by the board of directors of the General
Partner, evidencing authorization of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(h) Sellers and Buyer shall have entered into an amendment to the Omnibus Agreement in the
form of
Exhibit A
;
(i) Affiliates of Sellers shall have entered into NGL sale/purchase agreements with the
Companies pursuant to which such Affiliates of Sellers have agreed to sell and the applicable
Company has agreed to purchase NGLs generated by and/or owned by such Affiliates of Sellers on
terms reasonably acceptable to Buyer and Sellers; and
(j) The waiting period applicable to the consummation of the transaction contemplated hereby
under the HSR Act shall have expired or have been terminated.
ARTICLE IX
INDEMNIFICATION
Section 9.1
Survival
.
(a) The representations and warranties of the Parties contained in this Agreement and all
covenants contained in this Agreement that are to be performed prior to the Closing will survive
the closing for 12 months following the Closing;
provided, however
, that (i) the Fundamental
Representations and Warranties shall survive for the applicable statute of
38
limitations, (ii) the representations and warranties set forth in Section 4.9 (Taxes) shall
survive as set forth in Article VII and (iii) the representation and warranty in Section 4.10
(Environmental Matters) shall not survive the Closing. Except as expressly set forth in Section
9.1(b) below, no Party shall have any liability for indemnification claims made under this
Article IX with respect to any such representation, warranty or pre-closing covenant unless a Claim
Notice is provided by the non-breaching Party to the other Party prior to the expiration of the
applicable survival period for such representation, warranty or pre-closing covenant. If a Claim
Notice has been timely given in accordance with this Agreement prior to the expiration of the
applicable survival period for such representation, warranty or pre-closing covenant or claim, then
the applicable representation, warranty or pre-closing covenant shall survive as to such claim,
until such claim has been finally resolved.
(b) Sellers shall have no liability for indemnification claims under Section 9.2(a)(ii) unless
the appropriate written notice as referenced in the definition of Pre-Closing Environmental
Matter is provided by Buyer to Sellers on or prior to the second anniversary of Closing. If such
notice has been given in accordance with this Agreement prior to the second anniversary of the
Closing, then Sellers will have an indemnification obligation with respect to the Pre-Closing
Environmental Matters specifically described in such notice and such indemnification obligation
shall survive and continue after the second anniversary of the Closing.
(c) All covenants and agreements of the parties contained in this Agreement to be performed
after the Closing, will survive the Closing in accordance with their terms.
(d) The representations and warranties of Sellers will not be affected or reduced as a result
of any investigation or Knowledge of Buyer.
(e) For purposes of clarity, the limitations set forth in Section 9.4(a),(b) and (c) do not
apply to indemnification claims for Pre-Closing Environmental Liabilities made under Section
9.2(a)(ii) or for the Defense Actions made under Section 9.2(a)(iii).
Section 9.2
Indemnification
.
(a) Subject to Article VII relating to Taxes and the provisions of this Article IX, from and
after the Closing, Sellers shall jointly and severally indemnify and hold harmless Buyer, Buyers
Affiliates and their respective Representatives (the
Buyer Indemnified Parties
) from and against
(i) all Losses that Buyer Indemnified Parties incur arising from any breach of any representation,
warranty or covenant of Sellers in this Agreement; (ii) Pre-Closing Environmental Liabilities; and
(iii) any of the Defense Actions.
(b) Subject to Article VII relating to Taxes and the provisions of this Article IX, from and
after the Closing, Buyer shall indemnify and hold harmless Sellers and their Affiliates and their
respective Representatives (the
Sellers Indemnified Parties
) from and against all Losses that
Sellers Indemnified Parties incur arising from or out of (i) the business and operations of the
Companies (whether relating to periods prior to or after the Effective Time) to the extent such
Losses are not matters for which Sellers have an indemnification obligation
39
under the provisions of Section 9.2(a) or (ii) any breach of any representation, warranty or
covenant of Buyer in this Agreement.
(c) Notwithstanding anything to the contrary herein, the Parties shall have a duty to use
Reasonable Efforts to mitigate any Loss arising out of or relating to this Agreement or the
transactions contemplated hereby.
(d) Notwithstanding anything in this Article IX to the contrary, all Losses relating to Taxes
which are the subject of Article VII shall only be subject to indemnification under Section 7.3.
Section 9.3
Indemnification Procedures
. Claims for indemnification under this Agreement
(other than claims involving a Tax Proceeding or a breach of Section 4.9, the procedures for which
are set forth in Article VII) shall be asserted and resolved as follows:
(a) Any Buyer Indemnified Party or Sellers Indemnified Party claiming indemnification under
this Agreement (an
Indemnified Party
) with respect to any claim asserted against the Indemnified
Party by a third party (
Third-Party Claim
) in respect of any matter that is subject to
indemnification under Section 9.2 shall promptly (i) notify the other Party (the
Indemnifying
Party
) of the Third-Party Claim and (ii) transmit to the Indemnifying Party a written notice
(
Claim Notice
) describing in reasonable detail the nature of the Third-Party Claim, a copy of all
papers served with respect to such claim (if any), the Indemnified Partys best estimate of the
amount of Losses attributable to the Third-Party Claim and the basis of the Indemnified Partys
request for indemnification under this Agreement. Failure to timely provide such Claim Notice
shall not affect the right of the Indemnified Partys indemnification hereunder, except to the
extent the Indemnifying Party is prejudiced by such delay or omission.
(b) The Indemnifying Party shall have the right to defend the Indemnified Party against such
Third-Party Claim. If the Indemnifying Party notifies the Indemnified Party that the Indemnifying
Party elects to assume the defense of the Third-Party Claim, then the Indemnifying Party shall have
the right to defend such Third-Party Claim with counsel selected by the Indemnifying Party (who
shall be reasonably satisfactory to the Indemnified Party), by all appropriate proceedings, to a
final conclusion or settlement at the discretion of the Indemnifying Party in accordance with this
Section 9.3(b). The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof;
provided, however,
that the Indemnifying Party
shall not enter into any settlement agreement without the written consent of the Indemnified Party
(which consent shall not be unreasonably withheld, conditioned or delayed);
provided further,
however
, that such consent shall not be required if (i) the settlement agreement contains a
complete and unconditional general release by the third party asserting the claim to all
Indemnified Parties affected by the claim and (ii) the settlement agreement does not contain any
sanction or restriction upon the conduct of any business by the Indemnified Party or its
Affiliates. If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost
and expense of the Indemnifying Party, to cooperate with the Indemnifying Party and its counsel in
contesting any Third-Party Claim which the Indemnifying Party elects to contest, including the
making of any related counterclaim against the Person asserting the Third-Party Claim or any cross
complaint against any Person. The Indemnified Party may participate in, but not control, any
defense or settlement of any Third-Party Claim
40
controlled by the Indemnifying Party pursuant to this Section 9.3(b), and the Indemnified
Party shall bear its own costs and expenses with respect to such participation.
(c) If the Indemnifying Party does not notify the Indemnified Party that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 9.3(b), then the Indemnified Party
shall have the right to defend, and be reimbursed for its reasonable cost and expense (but only if
the Indemnified Party is actually entitled to indemnification hereunder) in regard to the
Third-Party Claim with counsel selected by the Indemnified Party (who shall be reasonably
satisfactory to the Indemnifying Party), by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnified Party. In such circumstances, the Indemnified Party shall
defend any such Third-Party Claim in good faith and have full control of such defense and
proceedings;
provided, however
, that the Indemnified Party may not enter into any compromise or
settlement of such Third-Party Claim if indemnification is to be sought hereunder, without the
Indemnifying Partys consent (which consent shall not be unreasonably withheld, conditioned or
delayed). The Indemnifying Party may participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this Section 9.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
(d) Subject to the other provisions of this Article IX, a claim for indemnification for any
matter not involving a Third-Party Claim may be asserted by notice to the Party from whom
indemnification is sought.
(e) In the event an Indemnified Party shall recover Losses in respect of a claim of
indemnification under this Article IX, no other Indemnified Party shall be entitled to recover the
same Losses in respect of a claim for indemnification.
(f) Notwithstanding anything to the contrary in this Section 9.3, the indemnification
procedures set forth in Article VII shall control any indemnities relating to Taxes.
Section 9.4
Additional Agreements Regarding Indemnification
. Notwithstanding anything to the
contrary herein (and excluding matters covered by Article VII):
(a) a breach of any representation, warranty or pre-closing covenant (other than with respect
to a breach of the Fundamental Representations and Warranties) of Sellers in this Agreement in
connection with any single item or group of related items that results in Losses of less than
$250,000 shall be deemed, for all purposes of this Article IX not to be a breach of such
representation, warranty or pre-closing covenant;
(b) Sellers shall have no liability arising out of or relating to Section 9.2(a)(i) for
breaches of representations or warranties (other than with respect to a breach of the Fundamental
Representations and Warranties) except if the aggregate Losses actually incurred by Buyer
Indemnified Parties thereunder exceed $7,950,000 (and then, subject to Section 9.4(c), only to the
extent such aggregate Losses exceed such amount);
(c) in no event shall Sellers aggregate liability arising out of or relating to Section
9.2(a)(i) for breaches of representations, warranties or pre-closing covenants (other than
41
with respect to a breach of the Fundamental Representations and Warranties) exceed
$58,300,000;
(d) The amount of any Loss for which a Buyer Indemnified Party claims indemnification under
this Agreement shall be reduced by: (i) any insurance proceeds actually recovered with respect to
such Loss; (ii) any Tax Benefits with respect to such Loss and (iii) indemnification or
reimbursement payments actually recovered from third parties with respect to such Loss;
(e) For purposes of determining whether there has been a breach or inaccuracy of a
representation or warranty by a party in connection with the assertion of a claim for
indemnification under Article IX, or determining the amount of a Loss, with respect to any asserted
breach or inaccuracy, such determination shall be made without regard to any qualifier as to
material, materiality or Material Adverse Effect expressly contained in Article III or IV.
Section 9.5
Waiver of Other Representations
.
(a) NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IT IS THE EXPLICIT INTENT OF EACH PARTY
HERETO, AND THE PARTIES HEREBY AGREE, THAT NONE OF SELLERS OR ANY OF THEIR AFFILIATES OR
REPRESENTATIVES HAS MADE OR IS MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WRITTEN OR ORAL, INCLUDING ANY IMPLIED REPRESENTATION OR WARRANTY AS TO THE CONDITION,
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE
PURCHASED INTERESTS, THE COMPANIES, THEIR ASSETS, OR ANY PART THEREOF, EXCEPT THOSE REPRESENTATIONS
AND WARRANTIES CONTAINED IN THIS AGREEMENT, AND WITHOUT IN ANY WAY LIMITING THE FOREGOING, SELLERS
MAKE NO REPRESENTATION OR WARRANTY TO BUYER WITH RESPECT TO ANY FINANCIAL PROJECTIONS OR FORECASTS
RELATING TO THE COMPANIES.
(b) The representations and warranties contained in Section 4.10 shall be the exclusive
representations and warranties with regard to Environmental Laws and related matters.
Section 9.6
Purchase Price Adjustment
. The Parties agree to treat all payments made pursuant
to this Article IX as adjustments to the Purchase Price for Tax purposes.
Section 9.7
Exclusive Remedy.
(a) Notwithstanding anything to the contrary herein (i) except as provided in Sections 2.1,
2.2, and 2.3 (as to all of which Buyer shall be entitled to specific performance and Sellers shall
be entitled to damages without regard to the limitations provided in Section 9.7(b) below), (ii)
except as provided in Sections 6.5, 7.2, 7.3, 9.2 or 10.2, and (iii) other than with respect to any
claim for fraud, no Party shall have any liability, and no Party shall make any claim, for any Loss
or other matter (and Buyer and Sellers hereby waive any right of contribution against the other and
their respective Affiliates), under, arising out of or relating to this Agreement, any other
document, agreement, certificate or other matter delivered pursuant hereto
42
or the transactions contemplated hereby, whether based on contract, tort, strict liability,
other Laws or otherwise.
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, NO PARTY SHALL BE LIABLE FOR SPECIAL,
PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES, WHETHER BASED ON CONTRACT,
TORT, STRICT LIABILITY, OTHER LAW OR OTHERWISE AND WHETHER OR NOT ARISING FROM ANY OTHER PARTYS
SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT;
PROVIDED, HOWEVER
, THAT THIS
SECTION 9.7(b) SHALL NOT LIMIT A PARTYS RIGHT TO RECOVERY UNDER ARTICLE VII OR ARTICLE IX FOR ANY
SUCH DAMAGES TO THE EXTENT SUCH PARTY IS REQUIRED TO PAY SUCH DAMAGES TO A THIRD PARTY IN
CONNECTION WITH A MATTER FOR WHICH SUCH PARTY IS OTHERWISE ENTITLED TO INDEMNIFICATION UNDER
ARTICLE IX.
ARTICLE X
TERMINATION
Section 10.1
Termination
. At any time prior to the Closing, this Agreement may be terminated
and the transactions contemplated hereby abandoned:
(a) by the mutual consent of Buyer and Sellers as evidenced in writing signed by each of Buyer
and Sellers;
(b) by Buyer, if there has been a material breach by Sellers of any representation, warranty
or covenant contained in this Agreement which will or has prevented the satisfaction of any
condition to the obligations of Buyer at the Closing and, if such breach is of a character that it
is capable of being cured, such breach has not been cured by Sellers within thirty (30) days after
written notice thereof from Buyer;
(c) by Sellers, if there has been a material breach by Buyer of any representation, warranty
or covenant contained in this Agreement which will or has prevented the satisfaction of any
condition to the obligations of Sellers at the Closing and, if such breach is of a character that
it is capable of being cured, such breach has not been cured by Buyer within thirty (30) days after
written notice thereof from Sellers;
(d) by either Buyer or Sellers if any Governmental Authority having competent jurisdiction has
issued a final, non-appealable order, decree, ruling or injunction (other than a temporary
restraining order) or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby; or
(e) by either Buyer or Sellers, if the Closing has not occurred on or before December 31, 2009
or such later date as the Parties may agree upon.
Section 10.2
Effect of Termination
. In the event of termination and abandonment of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any Party hereto;
provided, however
, that if this Agreement is
validly terminated by a Party as a result of an intentional, material breach of this
43
Agreement by the non-terminating Party, then the terminating Party shall be entitled to all
rights and remedies available under Law or equity. The provisions of Sections 11.2 and 11.4 hereof
shall survive any termination of this Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1
Notices
. All notices and other communications between the Parties shall be in
writing and shall be deemed to have been duly given when (i) delivered in person, (ii) five (5)
days after posting in the United States mail having been sent registered or certified mail return
receipt requested or (iii) delivered by telecopy and promptly confirmed by delivery in person or
post as aforesaid in each case, with postage prepaid, addressed as follows:
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(a)
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If to Buyer, to:
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Targa Resources Partners LP
c/o Targa Resources GP LLC
1000 Louisiana Street, Suite 4300
Houston, Texas 77002
Attention: Joe Bob Perkins, President
Telecopy: 713-584-1110
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with copies to:
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Targa Resources Partners LP
c/o Targa Resources GP LLC
1000 Louisiana Street, Suite 4300
Houston, Texas 77002
Attention: General Counsel
Telecopy: 713-584-1110
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(b)
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If to Sellers, to:
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Targa GP Inc.
1000 Louisiana Street, Suite 4300
Houston, Texas 77002
Attention: Rene R. Joyce, Chief Executive Officer
Telecopy: 713-584-1110
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and
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Targa LP Inc.
1000 Louisiana Street, Suite 4300
Houston, Texas 77002
Attention: Rene R. Joyce, Chief Executive Officer
Telecopy: 713-584-1110
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with copies to:
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Targa Resources, Inc.
1000 Louisiana Street, Suite 4300
Houston, Texas 77002
Attention: General Counsel
Telecopy: 713-584-1110
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or to such other address or addresses as the Parties may from time to time designate in writing.
Section 11.2
Assignment
. No Party shall assign this Agreement or any part hereof without the
prior written consent of the other Party,
provided, however,
nothing herein shall restrict Buyer
from transferring its rights and obligations hereunder to one or more Affiliates of Buyer. Subject
to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and
their respective permitted successors and assigns. Buyer acknowledges that Sellers, between the
date hereof and Closing, may transfer the Purchased Interests to various Affiliates of Sellers and
agrees that the obligations of and rights in favor of Sellers hereunder may be assigned to such
Affiliates of Sellers whereupon such Affiliates will become a Seller under this Agreement
provided Targa GP Inc. and Targa LP Inc. shall continue to be responsible for such Sellers
obligations under this Agreement notwithstanding such transfer.
Section 11.3
Rights of Third-Parties
. Except for the provisions of Section 9.2 which are
intended to be enforceable by the Persons respectively referred to therein, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or give any Person,
other than the Parties, any right or remedies under or by reason of this Agreement.
Section 11.4
Expenses
. Except as otherwise provided herein, each Party shall bear its own
expenses incurred in connection with this Agreement and the transactions herein contemplated hereby
whether or not such transactions shall be consummated, including all fees of its legal counsel,
financial advisers and accountants.
Section 11.5
Counterparts
. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same
instrument. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed
originals.
Section 11.6
Entire Agreement
. This Agreement (together with the Disclosure Schedules and
exhibits to this Agreement) constitute the entire agreement among the Parties and supersede any
other agreements, whether written or oral, that may have been made or entered into by or among any
of the Parties or any of their respective Affiliates relating to the transactions contemplated
hereby.
Section 11.7
Disclosure Schedules
. Unless the context otherwise requires, all capitalized
terms used in the Disclosure Schedules shall have the respective meanings assigned in this
Agreement. No reference to or disclosure of any item or other matter in the Disclosure Schedules
shall be construed as an admission or indication that such item or other matter is material or that
such item or other matter is required to be referred to or disclosed in the
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Disclosure Schedules. No disclosure in the Disclosure Schedules relating to any possible
breach or violation of any agreement or Law shall be construed as an admission or indication that
any such breach or violation exists or has actually occurred. The inclusion of any information in
the Disclosure Schedules shall not be deemed to be an admission or acknowledgment by Sellers, in
and of itself, that such information is material to or outside the ordinary course of the business
of the Companies or required to be disclosed on the Disclosure Schedules.
Section 11.8
Amendments
. This Agreement may be amended or modified in whole or in part, and
terms and conditions may be waived, only by a duly authorized agreement in writing which makes
reference to this Agreement executed by each Party.
Section 11.9
Publicity
. All press releases or other public communications of any nature
whatsoever relating to the transactions contemplated hereby, and the method of the release for
publication thereof, shall be subject to the prior consent of Buyer and Sellers, which consent
shall not be unreasonably withheld, conditioned or delayed by any Party;
provided, however
, that
nothing herein shall prevent a Party from publishing such press releases or other public
communications as such Party may consider necessary in order to satisfy such Partys obligations at
Law or under the rules of any stock or commodities exchange after consultation with the other Party
as is reasonable under the circumstances.
Section 11.10
Severability
. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall
remain in full force and effect. The Parties further agree that if any provision contained herein
is, to any extent, held invalid or unenforceable in any respect under the Laws governing this
Agreement, they shall take any actions necessary to render the remaining provisions of this
Agreement valid and enforceable to the fullest extent permitted by Law and, to the extent
necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein
that is held invalid or unenforceable with a valid and enforceable provision giving effect to the
intent of the Parties to the greatest extent legally permissible.
Section 11.11
Governing Law; Jurisdiction
.
(a) This Agreement shall be governed and construed in accordance with the Laws of the State of
Texas without regard to the Laws that might be applicable under conflicts of laws principles.
(b) The Parties agree that the appropriate, exclusive and convenient forum for any disputes
between any of the Parties hereto arising out of this Agreement or the transactions contemplated
hereby shall be in any state or federal court in Houston, Texas, and each of the Parties hereto
irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding
arising out of or related to this Agreement. The Parties further agree that the Parties shall not
bring suit with respect to any disputes arising out of this Agreement or the transactions
contemplated hereby in any court or jurisdiction other than the above specified courts;
provided,
however
, that the foregoing shall not limit the rights of the Parties to obtain execution of
judgment in any other jurisdiction. The Parties further agree, to the extent permitted by Law,
that a final and unappealable judgment against a Party in any action or proceeding contemplated
above shall be conclusive and may be enforced in any other jurisdiction within or outside the
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United States by suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and amount of such judgment. Except to the extent that a different
determination or finding is mandated due to the applicable law being that of a different
jurisdiction, the Parties agree that all judicial determinations or findings by a state or federal
court in Houston, Texas with respect to any matter under this Agreement shall be binding.
(c) To the extent that any Party hereto has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself
or its property, each such party hereby irrevocably (i) waives such immunity in respect of its
obligations with respect to this Agreement and (ii) submits to the personal jurisdiction of any
court described in Section 11.11(b).
(d) THE PARTIES HERETO AGREE THAT THEY HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN
ANY ACTION TO ENFORCE OR INTERPRET THE PROVISIONS OF THIS AGREEMENT.
Section 11.12
Further Assurances
.
(a) Buyer acknowledges in some instances only beneficial ownership to the Company Assets will
have been transferred to the Companies at Closing and record title may be transferred to Buyer or
the Companies following the Closing. Sellers are in the process of causing such record title to be
transferred into the Companies and Sellers agree from and after the Closing to cause their
Affiliates to execute and deliver to Buyer all such further instruments as may be reasonably
necessary or appropriate in order to cause record title to the Company Assets to be assigned,
transferred and conveyed to the Companies and otherwise to carry out the provisions of this
Agreement. In the event that Seller is unable to transfer record title to a Company Asset to the
Companies or Buyer, then Seller agrees to hold and maintain such record title for the benefit of
Buyer and the Companies, as the case may be.
(b) Buyer agrees that if and to the extent Buyer or any of the Companies receive payments
following the Closing which relate to the Excluded Assets or otherwise belonging to Sellers or its
Affiliates (other than the Companies), Buyer will cause the Companies to remit such payments
promptly to Sellers.
Section 11.13
Action by Buyer
. With respect to any action, notice, consent, approval or
waiver that is required to be taken or given or that may be taken or given by Buyer prior to or
after the Closing Date, such action, notice, consent, approval or waiver shall be taken or given by
the Conflicts Committee on behalf of Buyer.
[Remainder of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF this Agreement has been duly executed and delivered by each Party as of the
date first above written.
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SELLERS:
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TARGA GP INC.
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By:
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/s/ Rene R. Joyce
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Name: Rene R. Joyce
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Title: Chief Executive Officer
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TARGA LP INC.
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By:
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/s/ Rene R. Joyce
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Name: Rene R. Joyce
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Title: Chief Executive Officer
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BUYER:
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TARGA RESOURCES PARTNERS LP
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By:
Targa Resources GP LLC
, its general partner
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By:
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/s/ Joe Bob Perkins
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Name: Joe Bob Perkins
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Title: President
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Signature Page to Purchase and Sale Agreement
EXHIBIT A
SECOND AMENDED AND RESTATED
OMNIBUS AGREEMENT
among
TARGA RESOURCES, INC.
TARGA RESOURCES GP LLC
and
TARGA RESOURCES PARTNERS LP
SECOND AMENDED AND RESTATED
OMNIBUS AGREEMENT
THIS SECOND AMENDED AND RESTATED OMNIBUS AGREEMENT (
Agreement
) is entered into on, and
effective as of, [
] 2009, and is by and among Targa Resources, Inc., a Delaware corporation
(
Targa
), Targa Resources LLC, a Delaware limited liability company, Targa Resources GP LLC, a
Delaware limited liability company (the
General Partner
) and Targa Resources Partners LP, a
Delaware limited partnership (the
Partnership
). The above-named entities are sometimes referred
to in this Agreement each as a
Party
and collectively as the
Parties
.
R E C I T A L S:
1. The Parties entered into that certain Omnibus Agreement, dated and effective as of the
Closing Date (as defined herein) (the
Original Agreement
), to (i) evidence their agreement with
respect to the amount to be paid by the Partnership for certain general and administrative services
to be performed by Targa and its Affiliates as well as direct expenses, including operating
expenses, incurred by Targa and its Affiliates for and on behalf of the Partnership Group (as
defined herein) and (ii) evidence their agreement with respect to certain indemnification
obligations of the Parties.
2. The Parties entered into that certain Amended and Restated Omnibus Agreement dated and
effective as of October 24, 2007 (the
Current Agreement
) in order to amend and restate the
Original Agreement.
3. The Parties desire to amend and restate the Current Agreement to, among other things,
reflect the purchase of the Downstream Business (as defined herein) by the Partnership from certain
Affiliates of Targa.
In consideration of the agreements contained herein, and for other good and valuable
consideration, the Parties hereby amend and restate the Current Agreement as follows:
ARTICLE I
Definitions
1.1
Definitions
.
As used in this Agreement, the following terms shall have the respective meanings set
forth below:
Affiliate
is defined in the Partnership Agreement.
Change of Control
means, with respect to any Person (the Applicable Person), any of
the following events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the Applicable Persons
assets to any other Person, unless immediately following such sale, lease, exchange or other
transfer such assets are owned, directly or indirectly, by the
- 1 -
Applicable Person; (ii) the dissolution or liquidation of the Applicable Person;
(iii) the consolidation or merger of the Applicable Person with or into another Person
pursuant to a transaction in which the outstanding Voting Securities of the Applicable
Person are changed into or exchanged for cash, securities or other property, other than any
such transaction where (a) the outstanding Voting Securities of the Applicable Person are
changed into or exchanged for Voting Securities of the surviving Person or its parent and
(b) the holders of the Voting Securities of the Applicable Person immediately prior to such
transaction own, directly or indirectly, not less than a majority of the outstanding Voting
Securities of the surviving Person or its parent immediately after such transaction; and
(iv) a person or group (within the meaning of Sections 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended), other than Warburg Pincus LLC or its
Affiliates, being or becoming the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, as amended) of more than 50% of all of the then
outstanding Voting Securities of the Applicable Person, except in a merger or consolidation
which would not constitute a Change of Control under clause (iii) above.
Closing Date
means the date of the closing of the Partnerships initial public
offering of Common Units.
Common Units
is defined in the Partnership Agreement.
Conflicts Committee
is defined in the Partnership Agreement.
Covered Environmental Losses
means all environmental losses, damages, liabilities,
claims, demands, causes of action, judgments, settlements, fines, penalties, costs and
expenses (including, without limitation, costs and expenses of any Environmental Activity,
court costs and reasonable attorneys and experts fees) of any and every kind or character,
by reason of or arising out of:
(i) any violation or correction of violation of Environmental Laws, including without
limitation performance of any Environmental Activity; or
(ii) any event, omission or condition associated with ownership or operation of the
North Texas Assets relating to Environmental Activities (including, without limitation, the
exposure to or presence of Hazardous Substances on, under, about or migrating to or from the
North Texas Assets or the exposure to or release of Hazardous Substances arising out of
operation of the North Texas Assets) including, without limitation, (A) the cost and expense
of any Environmental Activities, (B) the cost or expense of the preparation and
implementation of any closure, remedial or corrective action or other plans required or
necessary under Environmental Laws and (C) the cost and expense for any environmental or
toxic tort pre-trial, trial or appellate legal or litigation support work;
provided
, in the
case of clauses (A) and (B), such cost and expense shall not include the costs associated
with project management and soil and ground water monitoring.
CPI Index
is defined in Section 2.1(c) of this Agreement.
- 2 -
Distribution Coverage
means the ratio determined by dividing Distributable Cash Flow
of the Partnership for the quarter by Total Distributions of the Partnership for the
quarter. In such calculation, (i)
Distributable Cash Flow
is net income plus depreciation
and amortization, other non cash items and deferred taxes, adjusted for non-cash
losses/(gains) on mark-to-market derivative contracts and early extinguishment of debt, less
maintenance capital expenditures; and (ii)
Total Distributions
equal all cash
distributions paid to all equity holders including incentive distributions for the period
for which the distributions are declared. By way of example, if Distributable Cash Flow for
a quarter (i.e. Q1) equaled X and Total Distributions for the quarter equaled Y,
Distribution Coverage for the quarter would be X/Y. The Total Distributions of Y would not
be paid until the following quarter (i.e. Q2).
Downstream Business
means the business and operations currently conducted by Targa
and its affiliates described in the Targa Resources, Inc. Annual Report on Form 10-K for the
year ended December 31, 2008, as the NGL Logistics and Marketing Division, consisting of
three segments: Logistics Assets, NGL Distribution and Marketing and Wholesale Marketing.
Environmental Activities
shall mean any investigation, study, assessment, evaluation,
sampling, testing, monitoring, containment, removal, disposal, closure, corrective action,
remediation (regardless of whether active or passive), natural attenuation, restoration,
bioremediation, response, repair, corrective measure, cleanup or abatement that is required
or necessary under any applicable Environmental Law, including, but not limited to,
institutional or engineering controls or participation in a governmental voluntary cleanup
program to conduct voluntary investigatory and remedial actions for the clean-up, removal or
remediation of Hazardous Substances that exceed actionable levels established pursuant to
Environmental Laws, or participation in a supplemental environmental project in partial or
whole mitigation of a fine or penalty.
Environmental Laws
means all federal, state, and local laws, statutes, rules,
regulations, orders, judgments, ordinances, codes, injunctions, decrees, Environmental
Permits and other legally enforceable requirements and rules of common law relating to (a)
pollution or protection of the environment or natural resources including, without
limitation, the federal Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act, the Resource Conservation and
Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Toxic
Substances Control Act, the Oil Pollution Act of 1990, the Hazardous Materials
Transportation Act, the Marine Mammal Protection Act, the Endangered Species Act, the
National Environmental Policy Act and other environmental conservation and protection laws,
each as amended through the Closing Date, (b) any release or threatened release of, or any
exposure of any Person or property to, any Hazardous Substances and (c) the generation,
manufacture, processing, distribution, use, treatment, storage, transport or handling of any
Hazardous Substances.
Environmental Permit
means any permit, approval, identification number, license,
registration, consent, exemption, variance or other authorization required under or issued
pursuant to any applicable Environmental Law.
- 3 -
Excess Amount
means the difference between the Support Amount and the Subsequent
Payment Amount.
G&A Expenses Limit
is defined in Section 2.1(c) of this Agreement.
General Partner
is defined in the introduction to this Agreement.
Hazardous Substance
means (a) any substance that is designated, defined or classified
as a hazardous waste, solid waste, hazardous material, pollutant, contaminant or toxic or
hazardous substance, or terms of similar meaning, or that is otherwise regulated under any
Environmental Law, including, without limitation, any hazardous substance as defined under
the Comprehensive Environmental Response, Compensation and Liability Act, as amended, (b)
oil as defined in the Oil Pollution Act of 1990, as amended, including oil, gasoline,
natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel and other refined
petroleum hydrocarbons and petroleum products and (c) radioactive materials, asbestos
containing materials or polychlorinated biphenyls.
Indemnified Party
means each Partnership Group Member and Targa in their capacities
as parties entitled to indemnification in accordance with Article III.
Indemnifying Party
means each of Targa and the Partnership Group, as the case may be,
in their capacity as the parties from whom indemnification may be required in accordance
with Article III.
Limited Partner
is defined in the Partnership Agreement.
Losses
means all losses, damages, liabilities, claims, demands, causes of action,
judgments, settlements, fines, penalties, costs and expenses (including, without limitation,
court costs and reasonable attorneys and experts fees) of any and every kind or character.
Minimum Coverage Threshold
shall mean a distribution coverage of 1.0x.
North Texas Assets
means the gathering and processing assets contributed to the
Partnership in connection with its initial public offering and as more completely described
in the Registration Statement and includes the pipelines, processing plants or related
equipment or assets, or portions thereof, conveyed, contributed or otherwise transferred or
intended to be conveyed, contributed or otherwise transferred to any member of the
Partnership Group, or owned by or necessary for the operation of the business, properties or
assets of any member of the Partnership Group, prior to or as of the Closing Date.
Partnership
is defined in the introduction to this Agreement.
Partnership Agreement
means the First Amended and Restated Agreement of Limited
Partnership of Targa Resources Partners LP, dated as of February 14, 2007, as amended by
Amendment No. 1 thereto, dated May 13, 2008, as such agreement is in effect on the date
hereof, to which reference is hereby made for all purposes of this
- 4 -
Agreement. No amendment or modification to the Partnership Agreement subsequent to the
date hereof shall be given effect for the purposes of this Agreement unless such amendment
receives the approval required pursuant to Section 4.6 hereof.
Partnership Entities
means the General Partner and each member of the Partnership
Group.
Partnership Group
means the Partnership and its Subsidiaries treated as a single
consolidated entity.
Partnership Group Member
means any member of the Partnership Group.
Partnership Indemnitee
shall mean any Person who is an Indemnitee (as defined in the
Partnership Agreement); provided that the term Partnership Indemnitee shall exclude Targa
and any Affiliate of Targa which is not a member of the Partnership Group.
Party
and
Parties
are defined in the introduction to this Agreement.
Person
means an individual or a corporation, limited liability company, partnership,
joint venture, trust, business trust, employee benefit plan, unincorporated organization,
association, government agency or political subdivision thereof or other entity.
PSA
means the Purchase and Sale Agreement, dated July 27, 2009, by and between Targa
GP Inc., Targa LP Inc and the Partnership
Registration Statement
means the Registration Statement on Form S-1 (Registration No.
333-138747), as amended, filed with the Securities and Exchange Commission with respect to
the proposed initial public offering of Common Units by the Partnership.
SAOU/LOU Business
means the business conducted by Targa Texas Field Services LP and
Targa Louisiana Field Services, LLC.
Subsidiary
means, with respect to any Person, (a) a corporation of which more than
50% of the voting power of shares entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or other governing body of such
corporation is owned, directly or indirectly, at the date of determination, by such Person,
by one or more Subsidiaries of such Person or a combination thereof, (b) a partnership
(whether general or limited) in which such Person or a Subsidiary of such Person is, at the
date of determination, a general or limited partner of such partnership, but only if more
than 50% of the partnership interests of such partnership (considering all of the
partnership interests of the partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more Subsidiaries of
such Person, or a combination thereof, or (c) any other Person (other than a corporation or
a partnership) in which such Person, one or more Subsidiaries of such Person, or a
combination thereof, directly or indirectly, at the date of determination, has (i) at least
a
- 5 -
majority ownership interest or (ii) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
Targa
is defined in the introduction to this Agreement.
Term of Support
means the fourth quarter of 2009 through and including the fourth
quarter of 2011.
Voting Securities
means securities of any class of Person entitling the holders
thereof to vote in the election of, or to appoint, members of the board of directors or
other similar governing body of the Person.
ARTICLE II
Reimbursement Obligations
2.1
Reimbursement for Allocated General and Administrative Expenses; Limitations on
Reimbursement.
(a) Targa hereby agrees to continue to provide the Partnership Group with certain general and
administrative services, such as legal, accounting, treasury, insurance, risk management, health,
safety and environmental, information technology, human resources, credit, payroll, internal audit,
taxes, engineering and marketing. These general and administrative services shall be substantially
identical in nature and quality to the services of such type previously provided by Targa in
connection with their management and operation of the North Texas Assets prior to their acquisition
by the Partnership. In the event that the Partnership Group makes any acquisitions of assets or
businesses from Targa or its Affiliates during the first three years following the Closing Date,
Targa will similarly provide general and administrative services that are substantially identical
in nature and quality to the services of such type previously provided by Targa in connection with
their management and operation of such assets or businesses prior to their acquisition by the
Partnership.
(b) Subject to the provisions of Section 2.1(c) and 2.1(d) below, the Partnership Group hereby
agrees to reimburse Targa for all expenses and expenditures Targa or its Affiliates incur or
payments they make on behalf of the Partnership Group for these general and administrative
services.
(c) The amount for which Targa shall be entitled to reimbursement from the Partnership Group
pursuant to Section 2.1(b) for general and administrative expenses shall not exceed $5.0 million
annually for a period of three (3) years following the Closing Date (the
G&A Expenses Limit
).
Following the first anniversary of the Closing Date, the G&A Expenses Limit shall be increased
annually over the next two years by the percentage increase in the
Consumer Price Index All Urban
Consumers, U.S. City Average, Not Seasonally Adjusted
(the
CPI Index"
) for the applicable year.
In making such adjustment, the G&A Expenses Limit shall be increased on the first anniversary of
the Closing Date by the CPI Index for the prior year period based on the most recent information
available from the U.S. Department of Labor and similarly increased on the second anniversary of
the Closing Date by the CPI Index for the prior year period. In the event that the Partnership
Group makes any acquisitions of assets or businesses or the business of the Partnership Group
otherwise expands during the first three
- 6 -
years following the Closing Date, then the G&A Expenses Limit shall be appropriately increased
in order to account for adjustments in the nature and extent of the general and administrative
services by Targa to the Partnership Group, with any such increase in the G&A Expenses Limit
subject to the approval of the Conflicts Committee. From and after October 24, 2007, the G&A
Expenses Limit is increased by the actual amount of general and administrative expenses allocated
by Targa for the services provided to the SAOU/LOU Business, according to the allocation
methodology utilized by Targa. From and after the date hereof, the G&A Expenses Limit is increased
by the actual amount of general and administrative expenses allocated by Targa for the services
provided to the Downstream Business, according to the allocation methodology utilized by Targa.
After the third anniversary of the Closing Date, the G&A Expenses Limit will no longer apply and
the General Partner will determine the amount of general and administrative expenses that will be
properly allocated to the Partnership in accordance with the terms of the Partnership Agreement.
The G&A Expenses Limit shall not apply to reimbursement for direct expenses of the Partnership as
provided in Section 2.2.
(d) Notwithstanding the obligations of the Partnership Group set forth in Sections 2.1(b) and
2.1(c) above and subject to Section 4.1(c), for any fiscal quarter during the Term of Support for
which the Partnerships Distribution Coverage for such quarter is less than the Minimum Coverage
Threshold (before giving effect to any reduction in the reimbursement of general and administrative
expenses contemplated in this clause (d) for such quarter), the general and administrative expenses
for such quarter relating to the matters for which Targa would otherwise be entitled to
reimbursement will be reduced by the amount (the
Support Amount
) required for the Partnership to
meet the Minimum Coverage Threshold for such quarter;
provided, however
, that in no event will the
Support Amount exceed $8 million for any quarter. During the Term of Support, the Distribution
Coverage for each applicable quarter is to be calculated assuming that Total Distributions for such
quarter equal an amount in cash sufficient to pay all equity holders including incentive
distributions for the period for which distributions are declared a distribution of $0.5175 per
unit. The Support Amount (i) is to be calculated by the Partnership in conjunction with closing the
financial statements for the applicable quarter; (ii) will be accrued for the applicable quarter
and reflected in distributable cash flow for such quarter; and (iii) will be settled by the
Partnership in conjunction with the next regularly scheduled monthly payment (the
Subsequent
Payment
) for allocated expenses to be settled by the Partnership pursuant to this Agreement (the
amount of the Subsequent Payment before giving effect to any Support Amount is the
Subsequent
Payment Amount"
). The Subsequent Payment will be settled as follows: (i) if the Support Amount is
less than the Subsequent Payment Amount, then the Partnership will pay to Targa the Excess Amount;
(ii) if the Support Amount is greater than the Subsequent Payment Amount, then Targa will pay to
the Partnership the Excess Amount; and (iii) if the Support Amount is equal to the Subsequent
Payment Amount, then no payment will be made by either the Partnership or Targa.
2.2
Reimbursement for Direct Expenses.
(a) The Partnership Group hereby agrees to reimburse Targa and its Affiliates for all direct
expenses and expenditures they incur or payments they make on behalf of the Partnership Group,
including, but not limited to, (i) salaries of operational personnel performing services on the
Partnership Groups behalf, the cost of employee benefits for such personnel and general and
administrative expense associated with such personnel, (ii) capital expenditures, (iii)
- 7 -
maintenance and repair costs, (iv) taxes and (v) direct expenses, including operating expenses
and certain allocated operating expenses, associated with the ownership and operation of the North
Texas Assets, the SAOU/LOU Business and the Downstream Business.
(b) The Partnership Group hereby agrees to reimburse Targa and its Affiliates for all expenses
and expenditures they incur or payments they make as a result of the Partnership becoming a
publicly traded entity, including costs associated with annual and quarterly reports, tax return
and Schedule K-1 preparation and distribution, independent auditor fees, registrar and transfer
agent fees, legal fees and independent director compensation.
(c) The obligation of the Partnership Group to reimburse Targa and its Subsidiaries pursuant
to this Section 2.2 shall not be subject to any monetary limitation, including the G&A Expenses
Limit contained in Section 2.1.
ARTICLE III
Indemnification
3.1
Environmental Indemnification.
(a) Subject to the provisions of Section 3.3, Targa shall indemnify, defend and hold harmless
the Partnership Group and the Partnership Indemnitees from and against any Covered Environmental
Losses suffered or incurred by the Partnership Group or any Partnership Indemnitee relating to the
North Texas Assets for a period of three (3) years from the Closing Date but only to the extent
such violations, corrections, events or conditions occurred on or before the Closing Date;
provided, however
, that such indemnity shall not apply to any Covered Environmental Losses reserved
on the books of the Partnership Group as of the Closing Date.
(b) The Partnership Group shall indemnify, defend and hold harmless Targa and its Affiliates,
other than any Partnership Group Member, from and against any Covered Environmental Losses suffered
or incurred by Targa and its Affiliates, other than any Partnership Group Member, relating to the
North Texas Assets occurring after the Closing Date except to the extent that the Partnership Group
is indemnified with respect to any of such Covered Environmental Losses under Section 3.1(a).
(c) The aggregate liability of Targa under Section 3.1(a) shall not exceed $10.0 million.
(d) No claims may be made against Targa for indemnification pursuant to Section 3.1(a) unless
the aggregate dollar amount of the Losses suffered or incurred by the Partnership Group or
Partnership Indemnitees exceed $250,000, after such time Targa shall be liable for the full amount
of such claims, subject to the limitations of Section 3.1(c).
(e) Notwithstanding anything herein to the contrary, in no event shall Targa have any
indemnification obligations under this Agreement for claims made as a result of additions to or
modifications of Environmental Laws promulgated after the Closing Date.
- 8 -
3.2
Additional Indemnification
(a) Subject to the provisions of Section 3.3, Targa shall indemnify, defend and hold harmless
the Partnership Group and the Partnership Indemnitees from and against any Losses suffered or
incurred by the Partnership Group or any Partnership Indemnitee by reason of or arising out of:
(i) the failure of the Partnership Group to be the owner of valid and
indefeasible easement rights, leasehold and/or fee ownership interests in and to the
lands on which are located any North Texas Assets, and such failure renders the
Partnership Group liable or unable to use or operate the North Texas Assets in
substantially the same manner that the North Texas Assets were used and operated by
Targa and its Affiliates immediately prior to the Closing Date as described in the
Registration Statement;
(ii) the failure of the Partnership Group to have on the Closing Date any
consent or governmental permit necessary to allow (i) the transfer of any of the
North Texas Assets to the Partnership Group on the Closing Date or (ii) any such
North Texas Assets to cross the roads, waterways, railroads and other areas upon
which any such North Texas Assets are located as of the Closing Date, and any such
failure specified in such clause (ii) renders the Partnership Group unable to use or
operate the North Texas Assets in substantially the same manner that the North Texas
Assets were owned and operated by Targa and its Affiliates immediately prior to the
Closing Date as described in the Registration Statement;
(iii) all federal, state and local income tax liabilities attributable to the
ownership or operation of the North Texas Assets prior to the Closing Date,
including any such income tax liabilities of Targa and its Affiliates that may
result from the consummation of the formation transactions for the Partnership Group
occurring on or prior to the Closing Date; and
(iv) all pending legal actions as of the Closing Date against one or more
Partnership Group Members involving or otherwise relating to the North Texas Assets;
provided
,
however
, that, in the case of clauses (i), (ii) and (iv) above, such indemnification
obligations shall survive for three (3) years from the Closing Date; and that in the case of clause
(iii) above, such indemnification obligations shall survive after the expiration of any applicable
statute of limitations;
provided, further,
that in the case of clauses (i), (ii), (iii) and (iv) above, such
indemnification shall not include indemnity for Losses reserved on the books of the Partnership
Group as of the Closing Date;
provided, further
, no claims may be made against Targa for indemnification pursuant to Section 3.2
unless the aggregate dollar amount of the Losses suffered or incurred by the Partnership Group or
Partnership Indemnitees exceed $250,000, after such time Targa shall be liable for the full amount
of such claims.
- 9 -
(b) In addition to and not in limitation of the indemnification provided under this Article
III, the Partnership Group shall indemnify, defend, and hold harmless Targa and its Affiliates,
other than any Partnership Group Member, from and against any Losses suffered or incurred by Targa
and its Affiliates, other than any Partnership Group Member, by reason of or arising out of events
and conditions associated with the operation of the North Texas Assets that occurs on or after the
Closing Date except to the extent that the Partnership Group is indemnified with respect to any
such Losses under Section 3.2(a).
3.3
Indemnification Procedures.
(a) The Indemnified Party agrees that within a reasonable period of time after it becomes
aware of facts giving rise to a claim for indemnification pursuant to this Article III, they will
provide notice thereof in writing to the Indemnifying Party specifying the nature of and specific
basis for such claim;
provided
,
however
, that the Indemnified Party shall not submit claims more
frequently than once a calendar quarter (or twice in the case of the last calendar quarter prior to
the expiration of the applicable indemnity coverage under this Agreement).
(b) The Indemnifying Party shall have the right to control all aspects of the defense of (and
any counterclaims with respect to) any claims brought against the Indemnified Party that are
covered by the indemnification set forth in this Article III, including, without limitation, the
selection of counsel, determination of whether to appeal any decision of any court or similar
authority and the settling of any such matter or any issues relating thereto;
provided
,
however
,
that no such settlement shall be entered into without the consent (which consent shall not be
unreasonably withheld, conditioned or delayed) of the Indemnified Party unless it includes a full
release of the Indemnified Party from such matter or issues, as the case may be.
(c) The Indemnified Party agrees to cooperate fully with the Indemnifying Party with respect
to all aspects of the defense of any claims covered by the indemnification set forth in this
Article III, including, without limitation, the prompt furnishing to the Indemnifying Party of any
correspondence or other notice relating thereto that the Indemnified Party may receive, permitting
the names of the Indemnified Party to be utilized in connection with such defense, the making
available to the Indemnifying Party of any files, records or other information of the Indemnified
Party that the Indemnifying Party considers relevant to such defense and the making available to
the Indemnifying Party of any employees of the Indemnified Party;
provided
,
however
, that in
connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact
thereof on the operations of the Indemnified Party and further agrees to maintain the
confidentiality of all files, records and other information furnished by the Indemnified Party
pursuant to this Section 3.3. In no event shall the obligation of the Indemnified Party to
cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be
construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in
connection with the defense of any claims covered by the indemnification set forth in this Article
III;
provided
,
however
, that the Indemnified Party may, at its own option, cost and expense, hire
and pay for counsel in connection with any such defense. The Indemnifying Party agrees to keep any
such counsel hired by the Indemnified Party reasonably informed as to the status of any such
defense, but the Indemnifying Party shall have the right to retain sole control over such defense.
- 10 -
(d) In determining the amount of any loss, cost, damage or expense for which the Indemnified
Party is entitled to indemnification under this Agreement, the gross amount of the indemnification
will be reduced by (i) any insurance proceeds realized by the Indemnified Party, and such
correlative insurance benefit shall be net of any incremental insurance premium that becomes due
and payable by the Indemnified Party as a result of such claim and (ii) all amounts recovered by
the Indemnified Party under contractual indemnities from third Persons.
ARTICLE IV
Miscellaneous
4.1
Special Termination Rights
.
(a) Notwithstanding any other provision of this Agreement, if the General Partner is removed
as general partner of the Partnership under circumstances where Cause (as defined in the
Partnership Agreement) does not exist and the Units (as defined in the Partnership Agreement) held
by the General Partner and its Affiliates are not voted in favor of such removal, this Agreement,
other than the provisions set forth in Article III hereof, may immediately thereupon be terminated
by Targa upon giving notice of termination to the other parties hereto.
(b) This Agreement shall also terminate upon a Change of Control of the General Partner.
(c) If and to the extent that the Partnership hereafter transfers or disposes of (i) the
Companies (as defined in the PSA), (ii) the business conducted by the Companies, (iii) all or
substantially all of the Company Assets (as defined in the PSA), (iv) all or substantially all of
the Downstream Business or (v) all or substantially all of the Houston Area Assets (as defined in
the PSA) to a Person that is not an Affiliate of the Partnership, then the obligations of Targa
under Section 2.1(d) shall terminate and lapse and Targa would from and after the consummation of
such transfer or disposition no longer be obligated to provide the support referenced in Section
2.1(d).
4.2
Choice of Law; Submission to Jurisdiction
. This Agreement shall be subject to and
governed by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that
might refer the construction or interpretation of this Agreement to the laws of another state.
Each Party hereby submits to the jurisdiction of the state and federal courts in the State of Texas
and to venue in Houston, Texas.
4.3
Notice.
All notices or requests or consents provided for by, or permitted to be given
pursuant to, this Agreement must be in writing and must be given by depositing same in the United
States mail, addressed to the Person to be notified, postpaid, and registered or certified with
return receipt requested or by delivering such notice in person or by telecopier or telegram to
such Party. Notice given by personal delivery or mail shall be effective upon actual receipt.
Notice given by telegram or telecopier shall be effective upon actual receipt if received during
the recipients normal business hours or at the beginning of the recipients next business day
after receipt if not received during the recipients normal business hours. All notices to be sent
to a Party pursuant to this Agreement shall be sent to or made at the address set forth below
- 11 -
or at such other address as such Party may stipulate to the other Parties in the manner
provided in this Section 4.3.
if to Targa:
Targa Resources, Inc.
1000 Louisiana, Suite 4300
Houston, Texas 77002
Attention: General Counsel
if to the Partnership Entities:
Targa Resources Partners LP
1000 Louisiana, Suite 4300
Houston, Texas 77002
Attention: General Counsel
4.4
Entire Agreement
. This Agreement constitutes the entire agreement of the Parties relating
to the matters contained herein, superseding all prior contracts or agreements, whether oral or
written, relating to the matters contained herein.
4.5
Effect of Waiver or Consent
. No waiver or consent, express or implied, by any Party to or
of any breach or default by any Person in the performance by such Person of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance by such Person of the same or any other obligations of such Person
hereunder.
4.6
Amendment or Modification
. This Agreement may be amended or modified from time to time
only by the written agreement of all the Parties hereto;
provided
,
however
, that the Partnership
may not, without the prior approval of the Conflicts Committee, agree to any amendment or
modification of this Agreement that, in the reasonable discretion of the General Partner, will
adversely affect the holders of Common Units. Each such instrument shall be reduced to writing.
4.7
Assignment
. No Party shall have the right to assign any of its rights or obligations
under this Agreement without the consent of the other Parties hereto.
4.8
Counterparts
. This Agreement may be executed in any number of counterparts with the same
effect as if all signatory parties had signed the same document. All counterparts shall be
construed together and shall constitute one and the same instrument.
4.9
Severability
. If any provision of this Agreement shall be held invalid or unenforceable
by a court or regulatory body of competent jurisdiction, the remainder of this Agreement shall
remain in full force and effect.
4.10
Further Assurances
. In connection with this Agreement and all transactions contemplated
by this Agreement, each signatory party hereto agrees to execute and deliver such additional
documents and instruments and to perform such additional acts as may be necessary or
- 12 -
appropriate to effectuate, carry out and perform all of the terms, provisions and conditions
of this Agreement and all such transactions.
4.11
Rights of Limited Partners
. The provisions of this Agreement are enforceable solely by
the Parties to this Agreement, and no Limited Partner of the Partnership shall have the right,
separate and apart from the Partnership, to enforce any provision of this Agreement or to compel
any Party to this Agreement to comply with the terms of this Agreement.
4.12
Successors
. This Agreement shall bind and inure to the benefit of the Parties and to
their respective successors and assigns.
[SIGNATURE PAGES FOLLOW]
- 13 -
IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the date
first set forth above.
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TARGA RESOURCES, INC.
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By:
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Rene R. Joyce
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Chief Executive Officer
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TARGA RESOURCES LLC
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By:
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Rene R. Joyce
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Chief Executive Officer
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TARGA RESOURCES GP LLC
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By:
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Rene R. Joyce
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Chief Executive Officer
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TARGA RESOURCES PARTNERS LP
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By:
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Targa Resources GP LLC
,
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its general partner
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By:
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Rene R. Joyce
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Chief Executive Officer
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[
Signature Page to the Second Amended and Restated Omnibus Agreement]
Exhibit 99.2
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
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1
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Combined Balance Sheets as of December 31, 2008 and 2007
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2
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Combined Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006
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3
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Combined Statement of Changes in Owners Equity for the Years Ended
December 31, 2008, 2007 and 2006
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4
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Combined Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
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5
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Notes to Combined Financial Statements
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6
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Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors of Targa Resources, Inc.:
In our opinion, the accompanying combined balance sheets and the related combined statements of
operations, of changes in owners equity, and of cash flows present fairly, in all material
respects, the combined financial position of the Downstream Assets of Targa Resources, Inc. at
December 31, 2008 and 2007, and the combined results of their operations and their cash flows for
each of the three years in the period ended December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the
responsibility of the management of Targa Resources, Inc.; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 10 to the financial statements, the Downstream Assets of Targa Resources, Inc.
have engaged in significant transactions with other subsidiaries of their parent company, Targa
Resources, Inc., a related party.
/s/ PricewaterhouseCoopers
Houston, Texas
July 24, 2009
1
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED BALANCE SHEETS
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December 31,
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2008
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2007
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(In thousands)
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ASSETS (Collateral for Parent Debt Note 7)
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Current assets:
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|
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Cash and cash equivalents
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$
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13,540
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$
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13,348
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Trade receivables, net of allowances of $2,207 and $943
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177,782
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674,622
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Inventory
|
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|
71,196
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|
|
|
145,967
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Other current assets
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|
|
493
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|
|
414
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|
|
|
|
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Total current assets
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263,011
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|
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834,351
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|
|
|
|
|
|
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|
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|
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Property, plant and equipment, at cost
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543,652
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|
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|
502,203
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Accumulated depreciation
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|
|
(68,933
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)
|
|
|
(45,376
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)
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Property, plant and equipment, net
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474,719
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456,827
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Investment in unconsolidated affiliate
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18,465
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19,238
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Other assets
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13
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13
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Total assets (collateral for Parent debt Note 7)
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$
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756,208
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$
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1,310,429
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LIABILITIES AND OWNERS EQUITY (DEFICIT)
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Current liabilities:
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Accounts payable
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$
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130,096
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$
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429,425
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Affiliate payables
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39,522
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153,145
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Accrued liabilities
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17,921
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12,861
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Total current liabilities
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187,539
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595,431
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Long-term debt payable to Parent
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773,883
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711,267
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Deferred income taxes
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1,378
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|
970
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Asset retirement obligations
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2,684
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2,595
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Commitments and contingencies (Note 9)
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Owners equity (deficit):
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Parent deficit
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(223,368
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)
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(13,352
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Noncontrolling interest in subsidiaries
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14,092
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13,518
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Total owners equity (deficit)
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(209,276
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)
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166
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Total liabilities and owners equity
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$
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756,208
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$
|
1,310,429
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See notes to combined financial statements
2
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED STATEMENTS OF OPERATIONS
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Year Ended December 31,
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2008
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2007
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2006
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(In thousands)
|
|
|
|
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|
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|
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Revenues from third parties
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$
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6,134,899
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$
|
5,767,948
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$
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4,626,300
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Revenues from affiliates
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|
|
37,780
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|
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6,296
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|
|
|
|
|
|
|
|
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Total operating revenues
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|
|
6,172,679
|
|
|
|
5,767,948
|
|
|
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4,632,596
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|
|
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|
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Costs and expenses:
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|
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|
|
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Product purchases from third parties
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4,345,372
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4,106,027
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3,356,103
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Product purchases from affiliates
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|
1,547,004
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|
|
|
1,374,947
|
|
|
|
1,069,076
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Operating expenses from third parties
|
|
|
139,931
|
|
|
|
124,099
|
|
|
|
105,075
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Operating expenses from affiliates
|
|
|
58,846
|
|
|
|
44,530
|
|
|
|
38,603
|
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Depreciation and amortization expense
|
|
|
23,563
|
|
|
|
21,764
|
|
|
|
20,787
|
|
General and administrative expense
|
|
|
46,249
|
|
|
|
45,059
|
|
|
|
41,196
|
|
Casualty loss
|
|
|
4,784
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
|
(5,812
|
)
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,159,937
|
|
|
|
5,716,426
|
|
|
|
4,630,874
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
12,742
|
|
|
|
51,522
|
|
|
|
1,722
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense allocated from Parent
|
|
|
|
|
|
|
|
|
|
|
(39,263
|
)
|
Interest expense from affiliate
|
|
|
(59,255
|
)
|
|
|
(58,526
|
)
|
|
|
|
|
Other interest income, net
|
|
|
517
|
|
|
|
606
|
|
|
|
227
|
|
Equity in earnings of unconsolidated investments
|
|
|
3,877
|
|
|
|
3,511
|
|
|
|
2,754
|
|
Other
|
|
|
1,314
|
|
|
|
(1,131
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(40,805
|
)
|
|
|
(4,018
|
)
|
|
|
(34,715
|
)
|
Income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(582
|
)
|
|
|
(574
|
)
|
|
|
|
|
Deferred
|
|
|
(408
|
)
|
|
|
(466
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(990
|
)
|
|
|
(1,040
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(41,795
|
)
|
|
|
(5,058
|
)
|
|
|
(35,219
|
)
|
Less: Net income (loss) attributable to noncontrolling interest
|
|
|
274
|
|
|
|
112
|
|
|
|
(630
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Parent
|
|
$
|
(42,069
|
)
|
|
$
|
(5,170
|
)
|
|
$
|
(34,589
|
)
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
3
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED STATEMENT OF CHANGES IN OWNERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Investment (Deficit)
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
299,946
|
|
|
$
|
14,036
|
|
|
$
|
313,982
|
|
Net loss
|
|
|
(34,589
|
)
|
|
|
(630
|
)
|
|
|
(35,219
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate hedges allocated from Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
|
571
|
|
|
|
|
|
|
|
571
|
|
Settlements
|
|
|
(220
|
)
|
|
|
|
|
|
|
(220
|
)
|
Currency translation adjustment
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(34,179
|
)
|
|
|
(630
|
)
|
|
|
(34,809
|
)
|
|
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(131,137
|
)
|
|
|
|
|
|
|
(131,137
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
134,630
|
|
|
|
13,406
|
|
|
|
148,036
|
|
Net income (loss)
|
|
|
(5,170
|
)
|
|
|
112
|
|
|
|
(5,058
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
1,925
|
|
|
|
|
|
|
|
1,925
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(3,245
|
)
|
|
|
112
|
|
|
|
(3,133
|
)
|
|
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(144,737
|
)
|
|
|
|
|
|
|
(144,737
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
(13,352
|
)
|
|
|
13,518
|
|
|
|
166
|
|
Net income (loss)
|
|
|
(42,069
|
)
|
|
|
274
|
|
|
|
(41,795
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(1,820
|
)
|
|
|
|
|
|
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(43,889
|
)
|
|
|
274
|
|
|
|
(43,615
|
)
|
|
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(166,127
|
)
|
|
|
|
|
|
|
(166,127
|
)
|
Contribution from noncontrolling interest
|
|
|
|
|
|
|
300
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
(223,368
|
)
|
|
$
|
14,092
|
|
|
$
|
(209,276
|
)
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
4
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41,795
|
)
|
|
$
|
(5,058
|
)
|
|
$
|
(35,219
|
)
|
Adjustments to reconcile net loss to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization in interest expense
|
|
|
|
|
|
|
|
|
|
|
2,849
|
|
Interest expense on affiliate indebtedness
|
|
|
59,255
|
|
|
|
58,526
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
23,563
|
|
|
|
21,764
|
|
|
|
20,787
|
|
Accretion of asset retirement obligations
|
|
|
81
|
|
|
|
71
|
|
|
|
66
|
|
Deferred income tax expense
|
|
|
408
|
|
|
|
466
|
|
|
|
504
|
|
Equity in earnings of unconsolidated investments
|
|
|
(3,877
|
)
|
|
|
(3,511
|
)
|
|
|
(2,754
|
)
|
Distributions from unconsolidated investments
|
|
|
4,650
|
|
|
|
3,875
|
|
|
|
2,306
|
|
Loss (gain) on sale of assets
|
|
|
(5,812
|
)
|
|
|
|
|
|
|
34
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
|
496,760
|
|
|
|
(294,130
|
)
|
|
|
(44,500
|
)
|
Inventory
|
|
|
74,771
|
|
|
|
(27,964
|
)
|
|
|
34,604
|
|
Accounts payable and other liabilities
|
|
|
(410,249
|
)
|
|
|
243,733
|
|
|
|
106,405
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
197,755
|
|
|
|
(2,228
|
)
|
|
|
85,082
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions of property, plant and equipment
|
|
|
(35,110
|
)
|
|
|
(36,457
|
)
|
|
|
(21,830
|
)
|
Other
|
|
|
13
|
|
|
|
415
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(35,097
|
)
|
|
|
(36,042
|
)
|
|
|
(21,669
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution from (distribution to) Parent
|
|
|
(166,127
|
)
|
|
|
26,029
|
|
|
|
(58,803
|
)
|
Loan from Parent
|
|
|
3,361
|
|
|
|
13,024
|
|
|
|
|
|
Contribution from noncontrolling interest
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(162,466
|
)
|
|
|
39,053
|
|
|
|
(58,803
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
192
|
|
|
|
783
|
|
|
|
4,610
|
|
Cash and cash equivalents, beginning of year
|
|
|
13,348
|
|
|
|
12,565
|
|
|
|
7,955
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
13,540
|
|
|
$
|
13,348
|
|
|
$
|
12,565
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
5
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Except as noted within the context of each footnote disclosure, the dollar amounts presented in the
tabular data within these footnote disclosures are stated in thousands of dollars.
Note 1Organization and Operations
Organization
.
The combined financial statements of the Downstream Assets of Targa Resources,
Inc. (we, us, our or the Company) include the accounts of substantially all of Targa
Downstream LP, a Delaware limited partnership formed on November 28, 2005 and Targa LSNG LP, a
Delaware limited partnership formed on March 1, 2006. Targa Downstream LP and Targa LSNG LP are
owned 50% by their general partners, respectively Targa Downstream GP LLC, a Delaware limited
liability company, and Targa LSNG GP LLC, a Delaware limited liability company, and 50% by their
sole limited partner, Targa LP Inc., a Delaware corporation.
Targa Downstream GP LLC, Targa LSNG GP LLC, and Targa LP Inc. are indirect wholly-owned
subsidiaries of Targa Resources, Inc. (Targa or Parent). Targa manages our operations and
employs our officers and personnel (see Note 10).
The combined financial statements have been prepared in conjunction with Targa Resources
Partners LPs (the Partnership) potential purchase from Targa of substantially all of Targas
natural gas liquids business. Certain assets owned by Targa Downstream LP have been excluded from
the combined financial statements because they will be retained by Targa.
The combined financial statements are presented on a carve-out combined basis to include the
historical operations of Targa Downstream LP and Targa LSNG LP (except for the excluded assets). In
this context, no direct owner relationship existed among Targa Downstream LP and Targa LSNG LP.
Accordingly, Targas net investment in us (Parent investment) is shown in lieu of partners
capital in the combined financial statements.
Basis of Presentation.
Targa acquired the assets of the Company on October 31, 2005 as part of
its acquisition of substantially all of Dynegy Inc.s midstream natural gas business. On December
1, 2005, in a series of transactions, Targa conveyed those assets to Targa Downstream LP. Targas
conveyance of assets to Targa Downstream LP was accounted for as a transfer of assets between
entities under common control.
Throughout the periods covered by the combined financial statements, Targa has provided cash
management services to the Company through a centralized treasury system. Transactions with
affiliated entities that are not 100% owned by Targa are cash settled by the Company. The balances
due to these non-100% owned affiliates are reflected in affiliate payables in the combined balance
sheets. Also reflected in affiliate payables in the combined balance sheets are the amounts
settled subsequent to month end between Targa and us for purchases and sales of natural gas and
natural gas liquids (commodity transactions) in prior periods associated with the routine
conduct of business with Targa subsidiaries. All other charges and cost allocations covered by the
centralized treasury system (including operating expenses and general and administrative expenses)
were deemed to have been paid to Targa in cash during the period in which the cost was recorded in
the combined financial statements.
Cash receipts advanced by Targa in excess/deficit of charges and cash allocations are
reflected as contributions from/distributions to Parent in the combined statements of changes in
owners equity. Consequently, we had a combined negative Parent investment balance of $223.4
million as of December 31, 2008. Despite the negative Parent investment balance, on a combined
basis, the Company generated a positive operating margin of $81.5 million for the year ended
December 31, 2008. See Note 11.
The accompanying combined financial statements and related notes present our combined
financial position as of December 31, 2008 and 2007, and the results of our combined operations,
combined cash flows and combined changes in owners equity for the years ended December 31, 2008,
2007 and 2006. Our combined financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). All significant
intercompany balances and transactions have been eliminated.
6
Noncontrolling interest in our combined balance sheets and statements of changes in owners
equity represents the investment by a party other than Targa Downstream LP in Cedar Bayou
Fractionators, LP. (CBF). Net income (loss) attributable to noncontrolling interest in our
combined statements of operations represents that partys share of the net income or loss of CBF.
Operations.
We provide midstream energy services consisting of fractionating, storing,
terminalling, transporting, distributing and marketing of natural gas liquids (NGL). Our business
activities consist of three segments: (a) Logistics Assets, (b) NGL Distribution and Marketing and
(c) Wholesale Marketing (see Note 11 Segment Information).
Our Logistics Assets segment is involved with gathering and storing mixed NGLs and
fractionating, storing, and transporting of finished NGLs. These assets, which are generally
connected to and supplied, in part, by Targas natural gas processing plants, are predominantly
located in Mont Belvieu, Texas and West Louisiana.
Our NGL Distribution and Marketing segment markets Targas natural gas liquids production and
also purchases natural gas liquids products in selected United States markets. We also have the
right to purchase or market substantially all of Chevron Corporations (Chevron) natural gas
liquids pursuant to a Master Natural Gas Liquids Purchase Agreement.
Our Wholesale Marketing segment includes our refinery services business and wholesale propane
marketing operations. In our refinery services business, we provide liquefied petroleum gas
balancing services, purchasing natural gas liquids products from refinery customers and selling
natural gas liquids products to various customers. Our wholesale propane marketing operations
include the sale of propane and related logistics services to multi-state retailers, independent
retailers and other end-users. Wholesale Marketing operates principally in the United States, and
has a small marketing presence in Canada.
Note 2Accounting Policies and Related Matters
Asset Retirement Obligations
(AROs) are legal obligations associated with the retirement of
tangible long-lived assets that result from the assets acquisition, construction, development
and/or normal operation. An ARO is initially measured at its estimated fair value. Upon initial
recognition of an ARO, we record an increase to the carrying amount of the related long-lived asset
and an offsetting ARO liability. The consolidated cost of the asset and the capitalized asset
retirement obligation is depreciated using a systematic and rational allocation method over the
period during which the long-lived asset is expected to provide benefits. After the initial period
of ARO recognition, the ARO will change as a result of either the passage of time or revisions to
the original estimates of either the amounts of estimated cash flows or their timing. Changes due
to the passage of time increase the carrying amount of the liability because there are fewer
periods remaining from the initial measurement date until the settlement date; therefore, the
present values of the discounted future settlement amount increases. These changes are recorded as
a period cost called accretion expense. Upon settlement, AROs will be extinguished by us at either
the recorded amount or we will recognize a gain or loss on the difference between the recorded
amount and the actual settlement cost.
Cash and Cash Equivalents.
Cash and cash equivalents include all cash on hand, demand
deposits, and investments with original maturities of three months or less. We consider cash
equivalents to include short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. As of December
31, 2008 and 2007, accounts payable included approximately $0.2 million and $0.7 million of
outstanding checks that were reclassed from cash and cash equivalents.
Comprehensive Income.
Comprehensive income includes net income and other comprehensive income,
which includes unrealized foreign exchange gains and losses and unrealized gains and losses on
derivative instruments allocated from our Parent.
Concentration of Credit Risk.
Financial instruments which potentially subject us to
concentrations of credit risk consist primarily of trade accounts receivable.
7
Trade Accounts Receivable.
We extend credit to customers and other parties in the normal
course of business. We have established various procedures to manage our credit exposure, including
initial credit approvals, credit limits and terms, letters of credit, and rights of offset. We also
use prepayments and guarantees to limit credit risk to ensure that our established credit criteria
are met.
Estimated losses on accounts receivable are provided through an allowance for doubtful
accounts. In evaluating the level of established reserves, we make judgments regarding each partys
ability to make required payments, economic events and other factors. As the financial condition of
any party changes, circumstances develop or additional information becomes available, adjustments
to an allowance for doubtful accounts may be required.
The following table presents the activity of our allowance for doubtful accounts for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance at beginning of year
|
|
$
|
943
|
|
|
$
|
781
|
|
|
$
|
775
|
|
Additions
|
|
|
1,264
|
|
|
|
242
|
|
|
|
746
|
|
Deductions
|
|
|
|
|
|
|
(80
|
)
|
|
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,207
|
|
|
$
|
943
|
|
|
$
|
781
|
|
|
|
|
|
|
|
|
|
|
|
Significant Commercial Relationships
The following table lists the percentage of our combined sales and purchases with Chevron
(including the Chevron Phillips Chemical Company LLC joint venture (CPC)), and Louis Dreyfus
Energy Services L.P., which accounted for more than 10% of our combined revenues and combined
product purchases for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
% of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chevron and CPC
|
|
|
25
|
%
|
|
|
29
|
%
|
|
|
30
|
%
|
% of product purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chevron and CPC
|
|
|
9
|
%
|
|
|
12
|
%
|
|
|
20
|
%
|
Louis Dreyfus Energy Services L.P. (1)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Product purchases from Louis Dreyfus Energy Services L.P. for 2007 and 2006 did not exceed
10% of our combined product purchases for those years.
|
Environmental Liabilities.
Liabilities for loss contingencies, including environmental
remediation costs arising from claims, assessments, litigation, fines, and penalties and other
sources are charged to expense when it is probable that a liability has been incurred and the
amount of the assessment and/or remediation can be reasonably estimated.
Exchanges.
Exchanges are movements of NGL products between parties to satisfy timing and
logistical needs of the parties. Volumes received and delivered under exchange agreements are
recorded as inventory. If the locations of receipt and delivery are in different markets, a price
differential may be billed or owed. The price differential is recorded as either accounts
receivable or accrued liabilities.
Impairment Testing for Unconsolidated Investments.
We evaluate equity method investments
(which include excess cost amounts attributable to tangible or intangible assets) for impairment
when events or changes in circumstances indicate that there is a loss in value of the investment
which is an other than temporary decline. Examples of such events or changes in circumstances
include continuing operating losses of the investee or long-term negative changes in the investees
industry. In the event we determine that the decline in value of an investment is other than
temporary, we record a charge to earnings to adjust the carrying value to fair value.
8
Income Taxes.
The entities combined herein are treated as pass-through entities for income tax
purposes. Earnings or losses for federal income tax purposes are included in the tax returns of the
partners. In May 2006, Texas adopted a margin tax applicable at the entity level, consisting
generally of a 1% tax on the amount by which total revenues exceed cost of goods sold, as
apportioned to Texas. Accordingly, we have estimated our liability for this tax.
We have determined that there are no significant uncertain tax positions requiring recognition
in our financial statements as of December 31, 2008. There are no unrecognized tax benefits that,
if recognized, would affect the effective rate, and there are no unrecognized tax benefits that are
reasonably expected to increase or decrease in the next twelve months. Presently, no income tax
examinations are underway, and none have been announced. No potential interest or penalties were
recognized as of December 31, 2008.
Noncontrolling Interest.
Noncontrolling interest represents third party ownership interests in
the net assets of our consolidated subsidiaries. For financial reporting purposes, the assets and
liabilities of our majority owned subsidiaries are consolidated with those of our own, with any
third party investors interest in our combined balance amounts shown as noncontrolling interest.
In the statements of operations, noncontrolling interest reflects the allocation of joint venture
earnings to third party investors. Distributions to and contributions from noncontrolling interests
represent cash payments and cash contributions from such third party investors.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated service lives of our functional asset groups
are as follows:
|
|
|
Asset Group
|
|
Range
of Years
|
Fractionation, terminalling and natural gas liquids storage facilities
|
|
5 to 25
|
Transportation assets
|
|
10 to 25
|
Other property and equipment
|
|
3 to 25
|
Expenditures for maintenance and repairs are expensed as incurred. Expenditures to refurbish
assets that extend the useful lives or prevent environmental contamination are capitalized and
depreciated over the remaining useful life of the asset
Our determination of the useful lives of property, plant and equipment requires us to make
various assumptions, including the supply of and demand for hydrocarbons in the markets served by
our assets, normal wear and tear of the facilities, and the extent and frequency of maintenance
programs. From time to time, we utilize consultants and other experts to assist us in assessing the
remaining lives of the crude oil or natural gas production in the basins we serve.
We may capitalize certain costs directly related to the construction of assets, including
internal labor costs, interest and engineering costs. Upon disposition or retirement of property,
plant and equipment, any gain or loss is charged to operations.
We evaluate the recoverability of our property, plant and equipment when events or
circumstances such as economic obsolescence, the business climate, legal and other factors indicate
we may not recover the carrying amount of the assets. We continually monitor our businesses and the
market and business environments to identify indicators that may suggest an asset may not be
recoverable.
We evaluate an asset for recoverability by comparing the carrying value of the asset with the
assets expected future undiscounted cash flows. These cash flow estimates require us to make
projections and assumptions for many years into the future for pricing, demand, competition,
operating cost and other factors. If the carrying amount exceeds the expected future undiscounted
cash flows we recognize an impairment loss to write down the carrying amount of the asset to its
fair value as determined by quoted market prices in active markets or present value techniques if
quotes are unavailable. The determination of the fair value using present value techniques requires
us to make projections and assumptions regarding the probability of a range of outcomes and the
rates of interest used in the present value calculations. Any changes we make to these projections
and assumptions could result in significant revisions to our evaluation of recoverability of our
property, plant and equipment and the recognition of
9
an impairment loss in our combined statements
of operations.
Revenue Recognition.
The primary types of sales and service activities reported as operating
revenues include:
|
|
|
sales of NGLs; and
|
|
|
|
|
fractionation, storage, terminalling and transportation of NGLs, from which we
generate fee-based revenue.
|
We recognize revenues when all of the following criteria are met: (1) persuasive evidence of
an exchange arrangement exists, if applicable, (2) delivery has occurred or services have been
rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured.
We generally report revenues gross in our combined statements of operations. Except for
fee-based contracts, we act as the principal in the transactions where we receive and take title to
the commodities and incur the risks and rewards of ownership.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Estimates and judgments are based on
information available at the time such estimates and judgments are made. Adjustments made with
respect to the use of these estimates and judgments often relate to information not previously
available. Uncertainties with respect to such estimates and judgments are inherent in the
preparation of financial statements. Estimates and judgments are used in, among other things, (1)
estimating unbilled revenues and operating and general and administrative costs, (2) developing
fair value assumptions, including estimates of future cash flows and discount rates, (3) analyzing
long-lived assets for possible impairment, (4) estimating the useful lives of assets and (5)
determining amounts to accrue for contingencies, guarantees and indemnifications. Actual results
could differ materially from estimated amounts.
Accounting Pronouncements Recently Adopted
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 157,
Fair Value Measurements.
SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value measurements. SFAS 157 was
initially effective as of January 1, 2008, but in February 2008, FASB delayed the effective date
for applying this standard to nonfinancial assets and nonfinancial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis until periods
beginning after November 15, 2008. We adopted SFAS 157 as of January 1, 2008 for assets and
liabilities within its scope and the impact was not material to our financial statements.
In February 2007, the FASB issued SFAS 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115.
SFAS 159 expands
opportunities to use fair value measurements in financial reporting and permits entities to choose
to measure many financial instruments and certain other items at fair value. Our adoption of SFAS
159 on January 1, 2008 did not have a material impact on our combined financial statements.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51.
SFAS 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal
years, beginning on or after December 15, 2008 with retroactive presentation of all years
presented. These financial statements incorporate the provisions of SFAS 160.
10
Accounting Pronouncements Recently Issued
In December 2007, the FASB issued SFAS 141R,
Business Combinations.
SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business combination. SFAS 141R is
effective as of the beginning of an entitys fiscal year that begins after December 15, 2008. This
new accounting standard will only impact how we account for business combinations on a prospective
basis.
On April 1, 2009 FASB issued FASB Staff Position (FSP) FAS 141R-1,
Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.
FSP FAS
141R-1 amends and clarifies SFAS 141R to address application issues on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This FSP is effective for assets and
liabilities arising from contingencies in business combinations for which the acquisition date is
on or after January 1, 2009. We do not expect any material financial statement implications
relating to the adoption of this FSP.
On May 28, 2009, FASB issued SFAS 165,
Subsequent Events
. SFAS 165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. Specifically, SFAS 165
provides (1) the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements, and (3) the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. We do not expect any material financial statement implications relating to the adoption
of this SFAS.
Note 3Inventory
Our inventories consist primarily of NGLs. Most NGL inventories turn over monthly, but some
inventory, primarily propane, is held during the year to meet anticipated heating season
requirements of our customers. Our NGL inventories are valued at the lower of cost or market using
the average cost method.
Due to fluctuating commodity prices for natural gas liquids, we occasionally recognize lower
of cost or market adjustments when the carrying values of our inventories exceed their net
realizable value. These non-cash adjustments are charged to product purchases within operating
costs and expenses in the period they are recognized, with the related cash impact in the
subsequent period. For 2008, 2007 and 2006 we recognized $6.0 million, $0.2 million and $13.1
million to reduce the carrying value of NGL inventory to its net realizable value.
As of December 31, 2008 and 2007, inventory consisted primarily of NGL products of $71.2
million and $146.0 million.
11
Note 4Property, Plant and Equipment
Our property, plant and equipment and accumulated depreciation were as follows at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
NGL gathering systems
|
|
$
|
6,860
|
|
|
$
|
5,376
|
|
Processing and fractionation facilities
|
|
|
136,690
|
|
|
|
129,916
|
|
Terminalling and natural gas liquids storage facilities
|
|
|
221,883
|
|
|
|
213,261
|
|
Transportation assets
|
|
|
107,161
|
|
|
|
99,073
|
|
Other property, plant, and equipment
|
|
|
6,291
|
|
|
|
4,157
|
|
Land
|
|
|
46,028
|
|
|
|
46,028
|
|
Construction in progress
|
|
|
18,739
|
|
|
|
4,392
|
|
|
|
|
|
|
|
|
|
|
|
543,652
|
|
|
|
502,203
|
|
Accumulated depreciation
|
|
|
(68,933
|
)
|
|
|
(45,376
|
)
|
|
|
|
|
|
|
|
|
|
$
|
474,719
|
|
|
$
|
456,827
|
|
|
|
|
|
|
|
|
Note 5Investment in Unconsolidated Affiliate
Our investment in unconsolidated affiliate consists of our 38.75% ownership interest in Gulf
Coast Fractionators LP (GCF), a venture that fractionates natural gas liquids on the Gulf Coast.
As of December 31, 2008 and 2007, our investment in GCF was $18.5 million and $19.2 million.
Our equity in the net assets of GCF exceeded our acquisition date investment account by
approximately $5.2 million. This amount is being amortized over the estimated remaining life of the
net assets on a straight-line basis, and is included as a component of our equity in earnings of
unconsolidated investments.
The following table shows our equity earnings and cash activity with respect to our investment
in GCF for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Equity in earnings
|
|
$
|
3,877
|
|
|
$
|
3,511
|
|
|
$
|
2,754
|
|
Cash distributions
|
|
|
4,650
|
|
|
|
3,875
|
|
|
|
2,306
|
|
Note 6Asset Retirement Obligations
The changes in our aggregate asset retirement obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Beginning of period
|
|
$
|
2,595
|
|
|
$
|
2,524
|
|
|
$
|
396
|
|
Allocated from Parent
|
|
|
|
|
|
|
|
|
|
|
2,062
|
|
Change in cash flow estimate
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
81
|
|
|
|
71
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
2,684
|
|
|
$
|
2,595
|
|
|
$
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
12
Note 7Debt Obligations
Our combined debt obligations consisted of the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Targa Downstream LP:
|
|
|
|
|
|
|
|
|
Note payable to Parent, 10% fixed rate, due December 2011 (including
accrued interest of $175,343 and $118,475)
|
|
$
|
744,020
|
|
|
$
|
687,152
|
|
Targa LSNG LP:
|
|
|
|
|
|
|
|
|
Note payable to Parent, 10% fixed rate, due December 2011 (including
accrued interest of $4,281 and $1,894)
|
|
|
29,863
|
|
|
|
24,115
|
|
|
|
|
|
|
|
|
|
|
$
|
773,883
|
|
|
$
|
711,267
|
|
|
|
|
|
|
|
|
On January 1, 2007, Targa contributed to us affiliated indebtedness related to the assets of
Targa Downstream LP and Targa LSNG LP of approximately $639.7 million (including accrued interest
of $61.8 million). During the years ended December 31, 2008 and 2007, additional affiliated
indebtedness of $3.4 million and $13.0 million was incurred by Targa LSNG LP to fund the
construction of its Mont Belvieu, Texas isomerization unit. During 2008 and 2007, we recorded $59.3
million and $58.5 million in interest expense associated with this affiliated debt.
The stated 10% interest rate in the formal debt arrangements is not indicative of prevailing
external rates of interest including that incurred under Targas credit facility which is secured
by substantially all of our assets. On a pro forma basis, at prevailing interest rates the
affiliated interest expense for the years ended December 31, 2008 and 2007 would have been reduced
by $15.9 million and $10.2 million. The pro forma interest expense adjustment has been calculated
by applying the weighted average rates of 7.3% and 8.3% that Targa incurred under its credit
facility to the affiliate debt balance for the periods indicated.
Note 8Insurance Claims
We recognize income from business interruption insurance in our combined statements of
operations as a component of revenues from third parties in the period that a proof of loss is
executed and submitted to the insurers for payment. For 2008, 2007 and 2006 income from business
interruption insurance resulting from the effects of Hurricanes Katrina and Rita was $18.1 million,
$4.6 million and $7.0 million. In addition, we received $0.6 million during 2008 as a result of
fire damage claims at certain plants in our wholesale marketing segment.
Hurricanes Gustav and Ike
In September 2008, certain of our facilities in Louisiana and Texas sustained damage and had
disruption to their operations from Hurricanes Gustav and Ike.
We currently estimate the cost associated with our interest for repairs to the impacted
facilities to be approximately $17.2 million. We believe that we have adequate insurance coverage
(subject to customary deductibles, limits and sub-limits) to cover the respective facility repair
costs and to offset the majority of the associated lost profits as a result of the hurricanes. The
property damage deductibles under our insurance coverage will reduce our ultimate property damage
insurance recoveries by approximately $3.3 million. We will have additional out of pocket costs
associated with improvements (e.g., elevating critical equipment) that may not be covered by
insurance.
During 2008 we recorded a loss provision of $4.8 million for our estimated out-of-pocket
cleanup and repair costs related to these two hurricanes, after estimated insurance proceeds. As of
December 31, 2008, expenditures related to the hurricanes totaled $5.5 million.
13
Note 9Commitments and Contingencies
Certain property and equipment is leased under non-cancelable leases that require fixed
monthly rental payments and expire at various dates through 2011. Surface and underground access
for gathering, processing, and distribution assets that are located on property not owned by us is
obtained through right of way agreements, which require annual rental payments and expire at
various dates through 2013. Future non-cancelable commitments related to these obligations and our
asset retirement obligations are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
Operating leases (1)
|
|
$
|
53,942
|
|
|
$
|
10,258
|
|
|
$
|
8,874
|
|
|
$
|
6,655
|
|
|
$
|
6,196
|
|
|
$
|
5,436
|
|
|
$
|
16,523
|
|
Right of way
|
|
|
2,517
|
|
|
|
184
|
|
|
|
153
|
|
|
|
128
|
|
|
|
128
|
|
|
|
126
|
|
|
|
1,798
|
|
Asset retirement obligations
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
2,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,143
|
|
|
$
|
10,442
|
|
|
$
|
9,027
|
|
|
$
|
6,789
|
|
|
$
|
6,324
|
|
|
$
|
5,562
|
|
|
$
|
20,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease obligations include minimum lease payment obligations associated with site
leases, railcar leases, and office space leases.
|
Total expenses related to operating leases and right of way payments were $9.2 million and
$1.4 million for 2008; $11.0 million and $0.6 million for 2007; and $4.7 million and $0.7 million
for 2006.
Environmental
We are a party to various environmental agency proceedings. We believe all such matters
involve amounts which, if resolved unfavorably, would not have a material effect on our financial
position, results of operations, or cash flows.
Legal Proceedings
We are a party to various legal proceedings and/or regulatory proceedings and certain claims,
suits and complaints arising in the ordinary course of business have been filed or are pending
against us. We believe all such matters are without merit or involve amounts which, if resolved
unfavorably, would not have a material effect on our financial position, results of operations, or
cash flows.
Note 10Related-Party Transactions
Transactions with Targa
Sales to and purchases from affiliates.
We routinely conduct business with other subsidiaries
of Targa. The related transactions result primarily from commodity transactions. The balances that
are reflected in affiliate payables in the combined balance sheets are the amounts settled
subsequent to month end between Targa and us for these commodity transactions in prior periods
associated with the routine conduct of business with Targa subsidiaries. In addition, all of our
expenditures are paid through our parent company resulting in intercompany transactions. Unlike
sales transactions with third parties that settle in cash, settlement of these sales transactions
occurs primarily through adjustments to Parent investment.
Allocation of costs.
The employees supporting our operations are employees of Targa. Our
financial statements include costs allocated to us by Targa for centralized general and
administrative services performed by them, as well as depreciation of assets utilized by Targas
centralized general and administrative functions. Costs were allocated to us based on our
proportionate share of Targas assets, revenues and employees. Costs allocated to us were based on
identification of our resources which directly benefit us and our proportionate share of costs
based on our estimated usage of shared resources and functions. All of the allocations are based on
assumptions that management believes are reasonable; however, these allocations are not necessarily
indicative of the costs and
14
expenses that would have resulted if we had operated as a stand-alone entity. These
allocations are not settled in cash. Settlement of these allocations occurs through adjustments to
Parent investment.
Allocations of long-term debt, debt issue costs, interest rate swaps and interest expense
.
Our financial statements include long-term debt, debt issue costs, interest rate swaps and interest
expense allocated from Targa. The allocations were calculated in a manner based on the fair value
of tangible assets. These allocations are not settled in cash. Settlement of these allocations
occurs through an adjustment to Parent investment.
The following table summarizes the sales to and purchases from affiliates of Targa, payments
made or received by them on our behalf, and allocations of costs from them which are settled
through an adjustment to Parent investment. Management believes these transactions were executed on
fair and reasonable terms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to affiliates
|
|
$
|
(37,780
|
)
|
|
$
|
|
|
|
$
|
(6,296
|
)
|
Purchases from affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in product purchases
|
|
|
1,547,004
|
|
|
|
1,374,947
|
|
|
|
1,069,076
|
|
Included in operating expenses
|
|
|
58,846
|
|
|
|
44,530
|
|
|
|
38,603
|
|
Payments made to our Parent
|
|
|
(1,658,240
|
)
|
|
|
(1,496,142
|
)
|
|
|
(1,265,111
|
)
|
Parent allocation of interest expense
|
|
|
|
|
|
|
|
|
|
|
39,263
|
|
Parent allocation of general and
administrative expense
|
|
|
37,666
|
|
|
|
38,625
|
|
|
|
39,470
|
|
Net change in affiliate payable
|
|
|
(113,623
|
)
|
|
|
64,069
|
|
|
|
26,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(166,127
|
)
|
|
$
|
26,029
|
|
|
$
|
(58,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Parent
|
|
$
|
3,361
|
|
|
$
|
13,024
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent allocation of assets, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(75,226
|
)
|
Parent allocation of debt
|
|
|
|
|
|
|
478,677
|
|
|
|
2,741
|
|
Parent allocation of debt issue costs
|
|
|
|
|
|
|
(9,726
|
)
|
|
|
151
|
|
Parent contribution of affiliate indebtedness
|
|
|
|
|
|
|
(639,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(170,766
|
)
|
|
$
|
(72,334
|
)
|
|
|
|
|
|
|
|
|
|
|
Centralized cash management.
Targa operates a cash management system whereby excess cash
from most of its various subsidiaries, held in separate bank accounts, is swept to a centralized
account. Cash distributions are deemed to have occurred through Parent investment and are reflected
as adjustments to Parent investment. Deemed net distributions of cash to (from) Targa were $166.1
million, $(26.0) million and $58.8 million for 2008, 2007 and 2006.
Transactions with Merrill Lynch
An affiliate of Merrill Lynch holds a non-voting equity interest in Targas parent. We have
executed NGL sales and purchase transactions on the spot market with Merrill Lynch Commodities Inc.
(MLCI), an affiliate of Merrill Lynch. For the years 2008, 2007 and 2006, sales to MLCI which
were included in revenues totaled $4.4 million, $18.1 million and $12.4 million. For the same
periods, purchases from MLCI were $0.8 million, $9.4 million and $11.2 million.
15
Transactions with GCF
For the years 2008, 2007 and 2006, transactions with GCF which were included in revenues
totaled $0.5 million, $4.5 million and $1.4 million. For the same periods, transactions included in
costs and expenses were $3.5 million, $3.3 million and $3.3 million.
Note 11Segment Information
We evaluate segment performance based on the financial measure of operating margin. We define
operating margin as total operating revenues less product purchases and operating expense.
Operating margin (either in total or by individual segment) is an important performance measure of
the core profitability of our operations. Operating margin is reviewed monthly for consistency and
trend analysis.
Eliminations and Other consists of the elimination of intersegment revenues and expenses.
Our reportable segment information is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
NGL Distrib-
|
|
|
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
ution and
|
|
|
Wholesale
|
|
|
Eliminations
|
|
|
|
|
|
|
Assets
|
|
|
Marketing
|
|
|
Marketing
|
|
|
and Other
|
|
|
Total
|
|
Revenues from third parties
|
|
$
|
106,016
|
|
|
$
|
4,613,423
|
|
|
$
|
1,415,460
|
|
|
$
|
|
|
|
$
|
6,134,899
|
|
Revenues from affiliates
|
|
|
131,995
|
|
|
|
571,296
|
|
|
|
44,587
|
|
|
|
(710,098
|
)
|
|
|
37,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
238,011
|
|
|
|
5,184,719
|
|
|
|
1,460,047
|
|
|
|
(710,098
|
)
|
|
|
6,172,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases from third parties
|
|
|
(101
|
)
|
|
|
3,445,263
|
|
|
|
900,210
|
|
|
|
|
|
|
|
4,345,372
|
|
Product purchases from affiliates
|
|
|
101
|
|
|
|
1,719,177
|
|
|
|
546,680
|
|
|
|
(718,954
|
)
|
|
|
1,547,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
|
|
|
|
5,164,440
|
|
|
|
1,446,890
|
|
|
|
(718,954
|
)
|
|
|
5,892,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses from third parties
|
|
|
138,125
|
|
|
|
1,746
|
|
|
|
60
|
|
|
|
|
|
|
|
139,931
|
|
Operating expenses from affiliates
|
|
|
49,990
|
|
|
|
|
|
|
|
|
|
|
|
8,856
|
|
|
|
58,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
188,115
|
|
|
|
1,746
|
|
|
|
60
|
|
|
|
8,856
|
|
|
|
198,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
49,896
|
|
|
$
|
18,533
|
|
|
$
|
13,097
|
|
|
$
|
|
|
|
$
|
81,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated investments
|
|
$
|
3,877
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,877
|
|
Identifiable assets
|
|
|
498,189
|
|
|
|
142,349
|
|
|
|
115,670
|
|
|
|
|
|
|
|
756,208
|
|
Unconsolidated investments
|
|
|
18,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,465
|
|
Capital expenditures
|
|
|
41,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,460
|
|
Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL sales
|
|
$
|
60
|
|
|
$
|
5,172,168
|
|
|
$
|
1,453,130
|
|
|
$
|
(578,122
|
)
|
|
$
|
6,047,236
|
|
Services
|
|
|
235,398
|
|
|
|
2,961
|
|
|
|
408
|
|
|
|
(131,976
|
)
|
|
|
106,791
|
|
Business interruption/other
|
|
|
2,553
|
|
|
|
9,590
|
|
|
|
6,509
|
|
|
|
|
|
|
|
18,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
238,011
|
|
|
$
|
5,184,719
|
|
|
$
|
1,460,047
|
|
|
$
|
(710,098
|
)
|
|
$
|
6,172,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
NGL Distrib-
|
|
|
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
ution and
|
|
|
Wholesale
|
|
|
Eliminations
|
|
|
|
|
|
|
Assets
|
|
|
Marketing
|
|
|
Marketing
|
|
|
and Other
|
|
|
Total
|
|
Revenues from third parties
|
|
$
|
83,129
|
|
|
$
|
4,419,636
|
|
|
$
|
1,265,183
|
|
|
$
|
|
|
|
$
|
5,767,948
|
|
Revenues from affiliates
|
|
|
111,968
|
|
|
|
476,178
|
|
|
|
30,822
|
|
|
|
(618,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
195,097
|
|
|
|
4,895,814
|
|
|
|
1,296,005
|
|
|
|
(618,968
|
)
|
|
|
5,767,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases from third parties
|
|
|
|
|
|
|
3,322,534
|
|
|
|
783,493
|
|
|
|
|
|
|
|
4,106,027
|
|
Product purchases from affiliates
|
|
|
|
|
|
|
1,516,288
|
|
|
|
489,707
|
|
|
|
(631,048
|
)
|
|
|
1,374,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
|
|
|
|
4,838,822
|
|
|
|
1,273,200
|
|
|
|
(631,048
|
)
|
|
|
5,480,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses from third parties
|
|
|
122,639
|
|
|
|
1,562
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
124,099
|
|
Operating expenses from affiliates
|
|
|
32,473
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
12,080
|
|
|
|
44,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
155,112
|
|
|
|
1,539
|
|
|
|
(102
|
)
|
|
|
12,080
|
|
|
|
168,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
39,985
|
|
|
$
|
55,453
|
|
|
$
|
22,907
|
|
|
$
|
|
|
|
$
|
118,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated investments
|
|
$
|
3,511
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,511
|
|
Identifiable assets
|
|
|
482,190
|
|
|
|
588,505
|
|
|
|
239,734
|
|
|
|
|
|
|
|
1,310,429
|
|
Unconsolidated investments
|
|
|
19,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,238
|
|
Capital expenditures
|
|
|
35,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,179
|
|
Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL sales
|
|
$
|
45
|
|
|
$
|
4,889,339
|
|
|
$
|
1,294,599
|
|
|
$
|
(507,018
|
)
|
|
$
|
5,676,965
|
|
Services
|
|
|
195,081
|
|
|
|
2,643
|
|
|
|
580
|
|
|
|
(111,950
|
)
|
|
|
86,354
|
|
Business interruption/other
|
|
|
(29
|
)
|
|
|
3,832
|
|
|
|
826
|
|
|
|
|
|
|
|
4,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
195,097
|
|
|
$
|
4,895,814
|
|
|
$
|
1,296,005
|
|
|
$
|
(618,968
|
)
|
|
$
|
5,767,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
NGL Distrib-
|
|
|
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
ution and
|
|
|
Wholesale
|
|
|
Eliminations
|
|
|
|
|
|
|
Assets
|
|
|
Marketing
|
|
|
Marketing
|
|
|
and Other
|
|
|
Total
|
|
Revenues from third parties
|
|
$
|
63,429
|
|
|
$
|
3,315,535
|
|
|
$
|
1,247,336
|
|
|
$
|
|
|
|
$
|
4,626,300
|
|
Revenues from affiliates
|
|
|
114,700
|
|
|
|
423,234
|
|
|
|
63,106
|
|
|
|
(594,744
|
)
|
|
|
6,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
178,129
|
|
|
|
3,738,769
|
|
|
|
1,310,442
|
|
|
|
(594,744
|
)
|
|
|
4,632,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases from third parties
|
|
|
3
|
|
|
|
2,496,448
|
|
|
|
859,652
|
|
|
|
|
|
|
|
3,356,103
|
|
Product purchases from affiliates
|
|
|
(3
|
)
|
|
|
1,229,673
|
|
|
|
440,646
|
|
|
|
(601,240
|
)
|
|
|
1,069,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
|
|
|
|
3,726,121
|
|
|
|
1,300,298
|
|
|
|
(601,240
|
)
|
|
|
4,425,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses from third parties
|
|
|
103,405
|
|
|
|
2,044
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
105,075
|
|
Operating expenses from affiliates
|
|
|
32,107
|
|
|
|
|
|
|
|
|
|
|
|
6,496
|
|
|
|
38,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
135,512
|
|
|
|
2,044
|
|
|
|
(374
|
)
|
|
|
6,496
|
|
|
|
143,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
42,617
|
|
|
$
|
10,604
|
|
|
$
|
10,518
|
|
|
$
|
|
|
|
$
|
63,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated investments
|
|
$
|
2,754
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,754
|
|
Identifiable assets
|
|
|
479,819
|
|
|
|
346,805
|
|
|
|
158,018
|
|
|
|
|
|
|
|
984,642
|
|
Unconsolidated investments
|
|
|
19,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,602
|
|
Capital expenditures
|
|
|
23,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,167
|
|
Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL sales
|
|
$
|
|
|
|
$
|
3,730,172
|
|
|
$
|
1,302,287
|
|
|
$
|
(480,069
|
)
|
|
$
|
4,552,390
|
|
Services
|
|
|
177,744
|
|
|
|
3,092
|
|
|
|
7,059
|
|
|
|
(114,675
|
)
|
|
|
73,220
|
|
Business interruption/other
|
|
|
385
|
|
|
|
5,505
|
|
|
|
1,096
|
|
|
|
|
|
|
|
6,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,129
|
|
|
$
|
3,738,769
|
|
|
$
|
1,310,442
|
|
|
$
|
(594,744
|
)
|
|
$
|
4,632,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table is a reconciliation of operating margin to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Reconciliation of operating margin to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
81,526
|
|
|
$
|
118,345
|
|
|
$
|
63,739
|
|
Depreciation and amortization expense
|
|
|
(23,563
|
)
|
|
|
(21,764
|
)
|
|
|
(20,787
|
)
|
Income tax expense
|
|
|
(990
|
)
|
|
|
(1,040
|
)
|
|
|
(504
|
)
|
Other, net
|
|
|
6,219
|
|
|
|
2,380
|
|
|
|
2,565
|
|
Interest expense, net
|
|
|
(58,738
|
)
|
|
|
(57,920
|
)
|
|
|
(39,036
|
)
|
General and administrative expense
|
|
|
(46,249
|
)
|
|
|
(45,059
|
)
|
|
|
(41,196
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41,795
|
)
|
|
$
|
(5,058
|
)
|
|
$
|
(35,219
|
)
|
|
|
|
|
|
|
|
|
|
|
Note 12Supplemental Cash Flow Information
We engaged in the following noncash investing and financing activities:
Year ended December 31, 2008:
|
|
|
Noncash addition to property, plant and equipment of $5.8 million resulting from a
like-kind exchange transaction in which our basis in the exchanged property was zero.
|
Year ended December 31, 2007:
|
|
|
Debt issue costs of $9.7 million allocated to our Parent.
|
|
|
|
|
Long-term debt of $478.7 million allocated to our Parent.
|
|
|
|
|
Affiliated indebtedness of $639.7 million contributed by our Parent.
|
Year ended December 31, 2006:
|
|
|
Net asset allocation to our Parent of $75.2 million, resulting from purchase price
adjustments and reallocations by Targa.
|
|
|
|
|
Debt issue costs of $0.2 million allocated from our Parent.
|
|
|
|
|
Long-term debt repayments of $2.7 million allocated from our Parent.
|
Note 13Significant Risks and Uncertainties
Nature of Operations in the Midstream Energy Industry
We operate in the midstream energy industry. Our business activities include gathering,
transporting, processing, fractionating and storing NGLs and crude oil. As such, our results of
operations, cash flows and financial condition may be affected by (i) changes in the commodity
prices of these hydrocarbon products and (ii) changes in the relative price levels among these
hydrocarbon products. In general, the prices of natural gas, NGLs, crude oil and other hydrocarbon
products are subject to fluctuations in response to changes in supply, market uncertainty and a
variety of additional factors that are beyond our control.
Our profitability could be impacted by a decline in the volume of natural gas, NGLs and
condensate transported, gathered or processed at our facilities. A material decrease in natural gas
or crude oil production or crude oil refining, as a result of depressed commodity prices, a
decrease in exploration and development activities or otherwise, could result in a decline in the
volume of natural gas, NGLs and condensate handled by our facilities.
A reduction in demand for NGL products by the petrochemical, refining or heating industries,
whether because of (i) general economic conditions, (ii) reduced demand by consumers for the end
products made with NGL products, (iii) increased competition from petroleum-based products due to
the pricing differences, (iv) adverse
18
weather conditions, (v) government regulations affecting
commodity prices and production levels of hydrocarbons or the content of motor gasoline or (vi)
other reasons, could also adversely affect our results of operations, cash flows and financial
position.
Credit Risk due to Industry Concentrations
A substantial portion of our revenues are derived from companies in the domestic natural gas,
NGL and petrochemical industries. This concentration could impact our overall exposure to credit
risk since these customers may be impacted by similar economic or other conditions. To help reduce
our credit risk, we evaluate our counterparties financial condition and, where appropriate,
negotiate netting agreements. We generally do not require collateral for our accounts receivable;
however, in certain circumstances we will call for prepayment, require automatic debit agreements
or obtain collateral to minimize our potential exposure to defaults.
Casualties and Other Risks
Targa maintains coverage in various insurance programs, on our behalf, which provide us with
property damage, business interruption and other coverages which are customary for the nature and
scope of our operations. The financial impact of storm events such as Hurricanes Gustav and Ike, as
well as the current economic environment, have affected many insurance carriers, and may affect
their ability to meet their obligation or trigger
limitations in certain insurance coverages. At present, there is no indication of any of
Targas insurance carriers being unable or unwilling to meet their coverage obligations.
Management believes that Targa has adequate insurance coverage, although insurance will not
cover every type of interruption that might occur. As a result of insurance market conditions,
premiums and deductibles for certain insurance policies have increased substantially, and in some
instances, certain insurance may become unavailable, or available for only reduced amounts of
coverage. As a result, Targa may not be able to renew existing insurance policies or procure other
desirable insurance on commercially reasonable terms, if at all.
If we were to incur a significant liability for which Targa were not fully insured, it could
have a material impact on our combined financial position and results of operations. In addition,
the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if
such an event were to occur. Any event that interrupts the revenues generated by our combined
operations, or which causes us to make significant expenditures not covered by insurance, could
reduce our ability to meet our obligations under various agreements with our lenders. A portion of
the insurance costs described above is allocated to us by Targa.
19
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Combined Balance Sheets as of March 31, 2009 and December 31, 2008
|
|
|
1
|
|
Combined Statements of Operations for the three months ended March 31, 2009 and 2008
|
|
|
2
|
|
Combined Statements of Cash Flows for the three months ended March 31, 2009 and 2008
|
|
|
3
|
|
Notes to Combined Financial Statements
|
|
|
4
|
|
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
ASSETS (Collateral for Parent Debt Note 4)
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,660
|
|
|
$
|
13,540
|
|
Trade receivables, net of allowances of $1,992 and $2,207
|
|
|
173,759
|
|
|
|
177,782
|
|
Inventory
|
|
|
24,814
|
|
|
|
71,196
|
|
Other current assets
|
|
|
770
|
|
|
|
493
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
211,003
|
|
|
|
263,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
558,426
|
|
|
|
543,652
|
|
Accumulated depreciation
|
|
|
(74,838
|
)
|
|
|
(68,933
|
)
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
483,588
|
|
|
|
474,719
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate
|
|
|
18,586
|
|
|
|
18,465
|
|
Other assets
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
Total assets (collateral for Parent debt Note 4)
|
|
$
|
713,190
|
|
|
$
|
756,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
132,796
|
|
|
$
|
130,096
|
|
Affiliate payables
|
|
|
57,175
|
|
|
|
39,522
|
|
Accrued liabilities
|
|
|
8,767
|
|
|
|
17,921
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
198,738
|
|
|
|
187,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to Parent
|
|
|
788,739
|
|
|
|
773,883
|
|
Deferred income taxes
|
|
|
1,434
|
|
|
|
1,378
|
|
Asset retirement obligations
|
|
|
2,705
|
|
|
|
2,684
|
|
Owners equity (deficit):
|
|
|
|
|
|
|
|
|
Parent deficit
|
|
|
(292,406
|
)
|
|
|
(223,368
|
)
|
Noncontrolling interest in subsidiaries
|
|
|
13,980
|
|
|
|
14,092
|
|
|
|
|
|
|
|
|
Total owners deficit
|
|
|
(278,426
|
)
|
|
|
(209,276
|
)
|
|
|
|
|
|
|
|
Total liabilities and owners deficit
|
|
$
|
713,190
|
|
|
$
|
756,208
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
1
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Revenues from third parties
|
|
$
|
754,852
|
|
|
$
|
1,763,192
|
|
Revenues from affiliates
|
|
|
5,859
|
|
|
|
6,603
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
760,711
|
|
|
|
1,769,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Product purchases from third parties
|
|
|
510,626
|
|
|
|
1,277,396
|
|
Product purchases from affiliates
|
|
|
186,009
|
|
|
|
421,395
|
|
Operating expenses from third parties
|
|
|
29,949
|
|
|
|
33,469
|
|
Operating expenses from affiliates
|
|
|
6,140
|
|
|
|
12,674
|
|
Depreciation and amortization expense
|
|
|
5,954
|
|
|
|
5,746
|
|
General and administrative expense
|
|
|
10,717
|
|
|
|
12,281
|
|
Gain on sale of assets
|
|
|
(6
|
)
|
|
|
(4,352
|
)
|
|
|
|
|
|
|
|
|
|
|
749,389
|
|
|
|
1,758,609
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
11,322
|
|
|
|
11,186
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense from affiliate
|
|
|
(14,856
|
)
|
|
|
(14,772
|
)
|
Other interest income, net
|
|
|
332
|
|
|
|
48
|
|
Equity in earnings of unconsolidated investment
|
|
|
121
|
|
|
|
1,084
|
|
Other
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(3,081
|
)
|
|
|
(2,178
|
)
|
Income tax expense:
|
|
|
|
|
|
|
|
|
Current
|
|
|
(154
|
)
|
|
|
(146
|
)
|
Deferred
|
|
|
(56
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,291
|
)
|
|
|
(2,426
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
|
(112
|
)
|
|
|
(281
|
)
|
|
|
|
|
|
|
|
Net loss attributable to Parent
|
|
$
|
(3,179
|
)
|
|
$
|
(2,145
|
)
|
|
|
|
|
|
|
|
See notes to combined financial statements
2
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,291
|
)
|
|
$
|
(2,426
|
)
|
Adjustments to reconcile net loss to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Interest expense on affiliate indebtedness
|
|
|
14,856
|
|
|
|
14,772
|
|
Depreciation and amortization expense
|
|
|
5,954
|
|
|
|
5,746
|
|
Accretion of asset retirement obligations
|
|
|
21
|
|
|
|
19
|
|
Deferred income tax expense
|
|
|
56
|
|
|
|
102
|
|
Equity in earnings of unconsolidated investment
|
|
|
(121
|
)
|
|
|
(1,084
|
)
|
Distributions from unconsolidated investment
|
|
|
|
|
|
|
775
|
|
Gain on sale of assets
|
|
|
(6
|
)
|
|
|
(4,352
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
|
3,746
|
|
|
|
211,959
|
|
Inventory
|
|
|
36,242
|
|
|
|
63,944
|
|
Accounts payable and other liabilities
|
|
|
11,939
|
|
|
|
(104,353
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
69,396
|
|
|
|
185,102
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Additions of property, plant and equipment
|
|
|
(5,641
|
)
|
|
|
(5,894
|
)
|
Other
|
|
|
43
|
|
|
|
7
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,598
|
)
|
|
|
(5,887
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(65,678
|
)
|
|
|
(183,474
|
)
|
Loan from Parent
|
|
|
|
|
|
|
924
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(65,678
|
)
|
|
|
(182,550
|
)
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,880
|
)
|
|
|
(3,335
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
13,540
|
|
|
|
13,348
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
11,660
|
|
|
$
|
10,013
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
3
DOWNSTREAM ASSETS OF TARGA RESOURCES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
Except as noted within the context of each footnote disclosure, the dollar amounts presented in the
tabular data within these footnote disclosures are stated in thousands of dollars.
Note 1Organization and Basis of Presentation
The
unaudited combined financial statements of the Downstream Assets of Targa Resources, Inc.
(we, us, our or the Company) include the accounts of substantially all of Targa Downstream
LP (Downstream LP), a Delaware limited partnership formed on November 28, 2005 and Targa LSNG LP
(LSNG LP), a Delaware limited partnership formed on March 1, 2006.
Downstream LP and LSNG LP are indirect wholly-owned subsidiaries of Targa Resources, Inc.
(Targa or Parent). Targa manages our operations and employs our officers and personnel (see
Note 7).
The unaudited combined financial statements have been prepared in conjunction with Targa
Resources Partners LPs (the Partnership) potential purchase from Targa of substantially all of
Targas natural gas liquids business. Certain assets owned by Downstream LP have been excluded from
the combined presentation because they will be retained by Targa.
The unaudited combined financial statements are presented on a carve-out combined basis to
include the historical operations of Downstream LP and LSNG LP (except for the excluded assets). In
this context, no direct owner relationship existed among Downstream LP and LSNG LP. Accordingly,
Targas net investment in us (Parent investment) is shown in lieu of partners capital in the
unaudited combined financial statements.
The unaudited combined financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial
information. Accordingly, they do not include all of the information and footnotes required by GAAP
for complete financial statements. The year-end balance sheet data was derived from audited
financial statements. The unaudited combined financial statements for the three month periods ended
March 31, 2009 and 2008 include all adjustments, both normal and recurring, which are, in the
opinion of management, necessary for a fair statement of the results for the interim periods. All
significant intercompany balances and transactions have been eliminated. Transactions between us
and other Targa operations have been identified in the unaudited combined financial statements as
transactions between affiliates (see Note 7). Our financial results for the three months ended
March 31, 2009 are not necessarily indicative of the results that may be expected for the full year
ended December 31, 2009. These unaudited combined financial statements and other information
included herein should be read in conjunction with our audited combined financial statements and
notes thereto for the year ended December 31, 2008.
Throughout the periods covered by the combined financial statements, Targa has provided cash
management services to the Company through a centralized treasury system. Transactions with
affiliated entities that are not 100% owned by Targa are cash settled by the Company. The balances
due to these non-100% owned affiliates are reflected in affiliate payables in the combined balance
sheets. Also reflected in affiliate payables in the combined balance sheets are the amounts
settled subsequent to month end between Targa and us for purchases and sales of natural gas and
natural gas liquids (commodity transactions) in prior periods associated with the routine
conduct of business with Targa subsidiaries. All other charges and cost allocations covered by the
centralized treasury system (including operating expenses and general and administrative expenses)
were deemed to have been paid to Targa in cash during the period in which the cost was recorded in
the combined financial statements.
Cash receipts advanced by Targa in excess/deficit of charges and cash allocations are
reflected as contributions from/distributions to Parent in the combined statements of changes in
owners equity (see Note 5). Consequently, we had a combined negative Parent investment balance of
$292.4 million as of March 31, 2009. Despite the negative Parent investment balance, on a combined
basis, the Company generated a positive operating margin of $28.0 million for the three months
ended March 31, 2009. See Note 8.
4
Noncontrolling interest in our unaudited combined balance sheets and statements of changes in
owners equity represents the investment by a party other than Downstream LP in Cedar Bayou
Fractionators, L.P. (CBF). Net loss attributable to noncontrolling interest in our unaudited
combined statements of operations represents that partys share of the net loss of CBF.
Operations.
We provide midstream energy services consisting of fractionating, storing,
terminalling, transporting, distributing and marketing of natural gas liquids (NGL). Our business
activities are separated into three segments: (a) Logistics Assets, (b) NGL Distribution and
Marketing and (c) Wholesale Marketing. See Note 8.
Our Logistics Assets segment is involved with gathering and storing mixed NGLs and
fractionating, storing, and transporting of finished NGLs. These assets, which are generally
connected to and supplied, in part, by Targas natural gas processing plants, are predominantly
located in Mont Belvieu, Texas and West Louisiana.
Our NGL Distribution and Marketing segment markets Targas natural gas liquids production and
also purchases natural gas liquids products in selected United States markets. We also have the
right to purchase or market substantially all of Chevron Corporations (Chevron) natural gas
liquids pursuant to a Master Natural Gas Liquids Purchase Agreement.
Our Wholesale Marketing segment includes our refinery services business and wholesale propane
marketing operations. In our refinery services business, we provide liquefied petroleum gas
balancing services, purchasing natural gas liquids products from refinery customers and selling
natural gas liquids products to various customers. Our wholesale propane marketing operations
include the sale of propane and related logistics services to multi-state retailers, independent
retailers and other end-users. Wholesale Marketing operates principally in the United States, and
has a small marketing presence in Canada.
Note 2Accounting Policies and Related Matters
Accounting Pronouncements Recently Adopted
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 157,
Fair Value Measurements
. SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value measurements. SFAS 157 was
initially effective as of January 1, 2008, but in February 2008, FASB delayed the effective date
for applying this standard to nonfinancial assets and nonfinancial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis until periods
beginning after November 15, 2008. We adopted SFAS 157 as of January 1, 2008 for assets and
liabilities within its scope and the impact was not material to our financial statements. As of
January 1, 2009, nonfinancial assets and nonfinancial liabilities were also required to be measured
at fair value. The adoption of these additional provisions did not have a material impact on our
financial statements.
In December 2007, FASB issued SFAS 141R,
Business Combinations.
SFAS 141R requires the
acquiring entity in a business combination to recognize all assets acquired and liabilities assumed
in the transaction, establishes the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed and requires the acquirer to disclose certain
information related to the nature and financial effect of the business combination. SFAS 141R also
establishes principles and requirements for how an acquirer recognizes any noncontrolling interest
in the acquiree and the goodwill acquired in a business combination. SFAS 141R was effective on a
prospective basis for business combinations for which the acquisition date is on or after January
1, 2009. For any business combination that takes place subsequent to January 1, 2009, SFAS 141R may
have a material impact on our financial statements. The nature and extent of any such impact will
depend upon the terms and conditions of the transaction.
On April 1, 2009 FASB issued FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination that Arise from Contingencies.
FSP FAS 141R-1 amends and
clarifies SFAS 141R to address application issues on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. This FSP is effective for
5
assets and liabilities arising from contingencies in business combinations for which the
acquisition date is on or after January 1, 2009. We do not expect any material financial statement
implications relating to our adoption of this FSP.
Accounting Pronouncements Recently Issued
In May 2009, FASB issued SFAS 165,
Subsequent Events
. SFAS 165 establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 sets forth (1) the period
after the balance sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the financial statements,
(2) the circumstances under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (3) the disclosures that an entity should
make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective
for interim and annual periods ended after June 15, 2009 and should be applied prospectively. We do
not expect any material financial statement implications relating to our adoption of SFAS 165.
In June 2009, FASB issued SFAS 168,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
.
SFAS 168 establishes the FASB Accounting Standards Codification (Codification) as the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective
for financial statements issued for interim and annual periods ending after September 15, 2009. On
the effective date, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature not included in the
Codification will become non-authoritative.
Following SFAS 168, FASB will not issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards
Updates (ASU). FASB will not consider ASUs as authoritative in their own right. They will serve
only to update the Codification, provide background information about the guidance, and provide the
bases for conclusions on the change(s) in the Codification.
On June 30, 2009, FASB issued ASU 2009-1,
Topic 105Generally Accepted Accounting
Principlesamendments based onStatement of Financial Accounting Standards No. 168The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
.
ASU 2009-1 amends the Codification for the issuance of SFAS 168.
On June 30, 2009, FASB issued ASU 2009-2,
Omnibus UpdateAmendments to Various Topics for
Technical Corrections.
The technical corrections in ASU 2009-2 are not expected to impact our
financial statements.
Note 3Asset Retirement Obligations
The changes in our aggregate asset retirement obligations are as follows:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2009
|
|
Beginning of period
|
|
$
|
2,684
|
|
Accretion expense
|
|
|
21
|
|
|
|
|
|
End of period
|
|
$
|
2,705
|
|
|
|
|
|
6
Note 4Debt Obligations
Our combined debt obligations consisted of the following at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Targa Downstream LP:
|
|
|
|
|
|
|
|
|
Note payable to Parent, 10% fixed rate, due December 2011 (including
accrued interest of $189,559 and $175,343)
|
|
$
|
758,236
|
|
|
$
|
744,020
|
|
Targa LSNG LP:
|
|
|
|
|
|
|
|
|
Note payable to Parent, 10% fixed rate, due December 2011 (including
accrued interest of $4,921 and $4,281)
|
|
|
30,503
|
|
|
|
29,863
|
|
|
|
|
|
|
|
|
|
|
$
|
788,739
|
|
|
$
|
773,883
|
|
|
|
|
|
|
|
|
The stated 10% interest rate in the formal debt arrangements is not indicative of prevailing
external rates of interest including that incurred under Targas credit facility which is secured
by substantially all of our assets. On a pro forma basis, at prevailing interest rates the
affiliated interest expense for the three months ended March 31, 2009 and 2008 would have been
reduced by $2.2 million and $2.3 million. The pro forma interest expense adjustment has been
calculated by applying the weighted average rate of 8.5% that Targa incurred under its credit
facility to the affiliate debt balance for the periods indicated.
Collateral for Parent Debt
The assets of our 100% owned subsidiaries are pledged as collateral on substantially all of
Targas debt.
Note 5Statement of Changes in Owners Equity
The following table reflects the reconciliation at the beginning and the end of the period of
the carrying amount of owners equity, Parent investment and equity attributable to the
noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Investment (Deficit)
|
|
|
Interest
|
|
|
Total
|
|
Balance, December 31, 2008
|
|
$
|
(223,368
|
)
|
|
$
|
14,092
|
|
|
$
|
(209,276
|
)
|
Net loss
|
|
|
(3,179
|
)
|
|
|
(112
|
)
|
|
|
(3,291
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(181
|
)
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(3,360
|
)
|
|
|
(112
|
)
|
|
|
(3,472
|
)
|
|
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(65,678
|
)
|
|
|
|
|
|
|
(65,678
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
$
|
(292,406
|
)
|
|
$
|
13,980
|
|
|
$
|
(278,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Investment (Deficit)
|
|
|
Interest
|
|
|
Total
|
|
Balance, December 31, 2007
|
|
$
|
(13,352
|
)
|
|
$
|
13,518
|
|
|
$
|
166
|
|
Net loss
|
|
|
(2,145
|
)
|
|
|
(281
|
)
|
|
|
(2,426
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(342
|
)
|
|
|
|
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(2,487
|
)
|
|
|
(281
|
)
|
|
|
(2,768
|
)
|
|
|
|
|
|
|
|
|
|
|
Distribution to Parent
|
|
|
(183,474
|
)
|
|
|
|
|
|
|
(183,474
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
$
|
(199,313
|
)
|
|
$
|
13,237
|
|
|
$
|
(186,076
|
)
|
|
|
|
|
|
|
|
|
|
|
7
Note 6Insurance Claims
Certain of our Louisiana and Texas facilities sustained damage and had operations disruptions
during the 2008 hurricane season from two Gulf Coast
hurricanesGustav and Ike. As of December 31, 2008, we recorded a $4.8 million loss provision (net of estimated insurance reimbursements) related
to the hurricanes. As of March 31, 2009, that estimate was unchanged.
During the three months ended March 31, 2009, expenditures related to the hurricanes totaled
$4.3 million, and we recognized $0.5 million of business interruption insurance revenue in our
Wholesale Marketing segment. No proofs of loss were executed during the three months ended March
31, 2009 or 2008.
Note 7Related-Party Transactions
Transactions with Targa
Sales to and purchases from affiliates.
We routinely conduct business with other subsidiaries
of Targa. The related transactions result primarily from commodity transactions. The balances that
are reflected in affiliate payables in the combined balance sheets are the amounts settled
subsequent to month end between Targa and us for these commodity transactions in prior periods
associated with the routine conduct of business with Targa subsidiaries. In addition, all of our
expenditures are paid through our parent company resulting in intercompany transactions. Unlike
sales transactions with third parties that settle in cash, settlement of these sales transactions
occurs primarily through adjustments to Parent investment.
Allocation of costs.
The employees supporting our operations are employees of Targa. Our
financial statements include costs allocated to us by Targa for centralized general and
administrative services performed by them, as well as depreciation of assets utilized by Targas
centralized general and administrative functions. Costs were allocated to us based on our
proportionate share of Targas assets, revenues and employees. Costs allocated to us were based on
identification of our resources which directly benefit us and our proportionate share of costs
based on our estimated usage of shared resources and functions. All of the allocations are based on
assumptions that management believes are reasonable; however, these allocations are not necessarily
indicative of the costs and expenses that would have resulted if we had operated as a stand-alone
entity. These allocations are not settled in cash. Settlement of these allocations occurs through
adjustments to Parent investment.
The following table summarizes, for the periods indicated, the sales to and purchases from
affiliates of Targa, payments made or received by them on our behalf, and allocations of costs from
Targa which are settled through an adjustment to Parent investment. Management believes these
transactions were executed on fair and reasonable terms.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
|
|
|
|
|
|
|
|
|
Sales to affiliates
|
|
$
|
(5,859
|
)
|
|
$
|
(6,603
|
)
|
Purchases from affiliates:
|
|
|
|
|
|
|
|
|
Included in product purchases
|
|
|
186,009
|
|
|
|
421,395
|
|
Included in operating expenses
|
|
|
6,140
|
|
|
|
12,674
|
|
Payments made to our Parent
|
|
|
(276,880
|
)
|
|
|
(614,508
|
)
|
Parent allocation of general and administrative expense
|
|
|
7,259
|
|
|
|
10,630
|
|
Net change in affiliate payable
|
|
|
17,653
|
|
|
|
(7,062
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(65,678
|
)
|
|
$
|
(183,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Parent
|
|
$
|
|
|
|
$
|
924
|
|
|
|
|
|
|
|
|
8
Centralized cash management.
Targa operates a cash management system whereby excess cash
from most of its various subsidiaries, held in separate bank accounts, is swept to a centralized
account. Cash distributions are deemed to have occurred through Parent investment and are reflected
as adjustments to Parent investment. Deemed net distributions of cash to Targa were $65.7 million
and $183.5 million for the three months ended March 31, 2009 and 2008.
Transactions with Merrill Lynch
An affiliate of Merrill Lynch holds a non-voting equity interest in Targas parent. We have
executed NGL sales and purchase transactions on the spot market with Merrill Lynch Commodities Inc.
(MLCI), an affiliate of Merrill Lynch. For the three months ended March 31, 2009 and 2008, sales
to MLCI which were included in revenues totaled $0.4 million and nil. For the same periods,
purchases from MLCI were $0.3 million and $0.4 million.
Transactions with GCF
For the three months ended March 31, 2009 and 2008, transactions with GCF which were included
in revenues were less than $0.1 million. For the same periods, transactions included in costs and
expenses were $1.2 million and $1.3 million.
Note 8Segment Information
We evaluate segment performance based on the financial measure of operating margin. We define
operating margin as total operating revenues less product purchases and operating expense.
Operating margin (either in total or by individual segment) is an important performance measure of
the core profitability of our operations. Operating margin is reviewed monthly for consistency and
trend analysis.
Eliminations and Other consists of the elimination of intersegment revenues and expenses.
Our reportable segment information is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
NGL Distrib-
|
|
|
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
ution and
|
|
|
Wholesale
|
|
|
Eliminations
|
|
|
|
|
|
|
Assets
|
|
|
Marketing
|
|
|
Marketing
|
|
|
and Other
|
|
|
Total
|
|
Revenues
from third parties
|
|
$
|
21,786
|
|
|
$
|
467,357
|
|
|
$
|
265,709
|
|
|
$
|
|
|
|
$
|
754,852
|
|
Revenues
from affiliates
|
|
|
22,634
|
|
|
|
120,403
|
|
|
|
22,965
|
|
|
|
(160,143
|
)
|
|
|
5,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
44,420
|
|
|
|
587,760
|
|
|
|
288,674
|
|
|
|
(160,143
|
)
|
|
|
760,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
purchases from third parties
|
|
|
|
|
|
|
349,781
|
|
|
|
160,845
|
|
|
|
|
|
|
|
510,626
|
|
Product
purchases from affiliates
|
|
|
|
|
|
|
223,131
|
|
|
|
123,489
|
|
|
|
(160,611
|
)
|
|
|
186,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
|
|
|
|
572,912
|
|
|
|
284,334
|
|
|
|
(160,611
|
)
|
|
|
696,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses from third parties
|
|
|
29,639
|
|
|
|
299
|
|
|
|
11
|
|
|
|
|
|
|
|
29,949
|
|
Operating
expenses from affiliates
|
|
|
5,672
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
|
|
6,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
35,311
|
|
|
|
299
|
|
|
|
11
|
|
|
|
468
|
|
|
|
36,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
9,109
|
|
|
$
|
14,549
|
|
|
$
|
4,329
|
|
|
$
|
|
|
|
$
|
27,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated
investments
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
121
|
|
Unconsolidated investments
|
|
|
18,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,586
|
|
Capital expenditures
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,719
|
|
Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL sales
|
|
$
|
|
|
|
$
|
586,643
|
|
|
$
|
287,881
|
|
|
$
|
(137,510
|
)
|
|
$
|
737,014
|
|
Services
|
|
|
44,420
|
|
|
|
1,117
|
|
|
|
293
|
|
|
|
(22,633
|
)
|
|
|
23,197
|
|
Business interruption/other
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,420
|
|
|
$
|
587,760
|
|
|
$
|
288,674
|
|
|
$
|
(160,143
|
)
|
|
$
|
760,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
NGL Distrib-
|
|
|
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
ution and
|
|
|
Wholesale
|
|
|
Eliminations
|
|
|
|
|
|
|
Assets
|
|
|
Marketing
|
|
|
Marketing
|
|
|
and Other
|
|
|
Total
|
|
Revenues from third
parties
|
|
$
|
20,818
|
|
|
$
|
1,219,113
|
|
|
$
|
523,261
|
|
|
$
|
|
|
|
$
|
1,763,192
|
|
Revenues from affiliates
|
|
|
30,336
|
|
|
|
200,504
|
|
|
|
20,086
|
|
|
|
(244,323
|
)
|
|
|
6,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
51,154
|
|
|
|
1,419,617
|
|
|
|
543,347
|
|
|
|
(244,323
|
)
|
|
|
1,769,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
purchases from third
parties
|
|
|
|
|
|
|
944,386
|
|
|
|
333,010
|
|
|
|
|
|
|
|
1,277,396
|
|
Product
purchases from affiliates
|
|
|
|
|
|
|
466,429
|
|
|
|
200,732
|
|
|
|
(245,766
|
)
|
|
|
421,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
|
|
|
|
1,410,815
|
|
|
|
533,742
|
|
|
|
(245,766
|
)
|
|
|
1,698,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses from third
parties
|
|
|
32,959
|
|
|
|
499
|
|
|
|
11
|
|
|
|
|
|
|
|
33,469
|
|
Operating
expenses from affiliates
|
|
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
12,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
44,190
|
|
|
|
499
|
|
|
|
11
|
|
|
|
1,443
|
|
|
|
46,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
6,964
|
|
|
$
|
8,303
|
|
|
$
|
9,594
|
|
|
$
|
|
|
|
$
|
24,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated investments
|
|
$
|
1,084
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,084
|
|
Unconsolidated investments
|
|
|
19,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,547
|
|
Capital expenditures
|
|
|
5,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,920
|
|
Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL sales
|
|
$
|
48
|
|
|
$
|
1,418,841
|
|
|
$
|
543,263
|
|
|
$
|
(214,004
|
)
|
|
$
|
1,748,148
|
|
Services
|
|
|
51,106
|
|
|
|
776
|
|
|
|
84
|
|
|
|
(30,319
|
)
|
|
|
21,647
|
|
Business interruption/other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,154
|
|
|
$
|
1,419,617
|
|
|
$
|
543,347
|
|
|
$
|
(244,323
|
)
|
|
$
|
1,769,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table is a reconciliation of operating margin to net income for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Reconciliation of operating margin to net loss:
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
27,987
|
|
|
$
|
24,861
|
|
Less:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(5,954
|
)
|
|
|
(5,746
|
)
|
Income tax expense
|
|
|
(210
|
)
|
|
|
(248
|
)
|
Other, net
|
|
|
127
|
|
|
|
5,712
|
|
Interest expense, net
|
|
|
(14,524
|
)
|
|
|
(14,724
|
)
|
General and administrative expense
|
|
|
(10,717
|
)
|
|
|
(12,281
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,291
|
)
|
|
$
|
(2,426
|
)
|
|
|
|
|
|
|
|
Note 9Supplemental Cash Flow Information
During the three months ended March 31, 2009, we had a noncash
addition to property, plant and
equipment of $10.1 million resulting from the reclassification
from inventory of working NGL volumes in third-party
owned facilities. During the three months ended March 31, 2008, we
had a noncash addition to property, plant and equipment of $4.4
million resulting from a like-kind exchange transaction in which our
basis in the exchanged property was zero.
10