EXHIBIT 7.1
PACIFIC GAS TRANSMISSION COMPANY
PACIFIC NORTHWEST GAS SYSTEM, INC.
708559 ALBERTA LTD.
0000 X.X. Xxxxx Xxxxxxx
Xxxxxxxx, Xxxxxx 00000
December 9, 1996
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
00000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Gentlemen:
Your acceptance of this letter will confirm our understanding and
agreement regarding certain matters in connection with that certain Asset
Purchase Agreement, dated November 15, 1996, by and among Edisto Resources
Corporation, a Delaware corporation, Energy Source, Inc., a Texas corporation,
Energy Source Canada, Inc., an Alberta, Canada corporation, Pacific Gas
Transmission Company, a California corporation, Pacific Northwest Gas System,
Inc., a California corporation, and 708559 Alberta Ltd., an Alberta, Canada
corporation (the "Asset Purchase Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Asset Purchase
Agreement.
1. Pursuant to Section 2.3 of the Asset Purchase Agreement, the Closing
Date shall be December 10, 1996; pursuant to Sections 1.8 and 2.3 of
the Asset Purchase Agreement, the Effective Date shall be November
30, 1996.
2. Section 3.1 of the Asset Purchase Agreement is hereby amended to
provide that, subject to Sections 3.2 and 3.3 of the Asset Purchase
Agreement, the aggregate consideration for the Assets is TWENTY
MILLION SIX HUNDRED EIGHTY THREE THOUSAND FORTY AND NO/100 DOLLARS
($20,683,040).
3. Pursuant to Section 3.2(b) of the Asset Purchase Agreement, the
parties agree and acknowledge that the July A/R Reserve shall be
$1,800,000, and the other
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components of Adjusted Working Capital and Fixed Assets of Sellers
as of July 31, 1996, are as set forth on Schedule 3.2B to the Asset
Purchase Agreement.
4. Pursuant to Section 3.3(b) of the Asset Purchase Agreement, the
parties agree and acknowledge that the Allowance Percentage shall be
zero percent.
5. With respect to the PanEnergy dispute and the Panhandle Eastern
balancing penalty dispute described in Item II and number 5 of Item
IV of Schedule 4.11 to the Disclosure Letter, as amended to date,
and any other disputes with PanEnergy relating to the production
months prior to November 1, 1996 (the "PanEnergy Matter"), the
parties agree and acknowledge that all rights and obligations of
Sellers in and to the PanEnergy Matter, including, without
limitation, any rights in tort, in contract or otherwise, shall be
retained by Sellers, and Schedule 2.1B of the Asset Purchase
Agreement is hereby amended to include the PanEnergy Matter as an
Excluded Asset. The PanEnergy Matter shall not be an Assumed
Liability, and Purchaser does not assume, and shall not be treated
as having assumed, any liability or obligation with respect to the
PanEnergy Matter. Without regard to any limitations on indemnity set
forth in the Asset Purchase Agreement, Sellers and Stockholder
shall, and hereby do, jointly and severally indemnify, hold harmless
and defend the Sellers' Indemnified Parties at all times from and
after the date hereof, from and against any and all Damages which
are paid, incurred or suffered by or asserted against the Sellers'
Indemnified Parties by any Person resulting or arising from or
incurred in connection with the PanEnergy Matter.
6. Purchaser agrees to assume at Closing certain intercompany loans
from Stockholder to Sellers in the amount (including accrued but
unpaid interest through December 9, 1996) of $16,934,544 plus per
diem interest of $4,257 from (but not including) December 9, 1996
through and including the Closing Date, such per diem interest
accruing after December 9, 1996 being payable by Purchaser to
Stockholder within two days after Closing (the "Stockholder Loans"),
and Pacific Northwest further agrees to repay the Stockholder Loans
at Closing. To reflect such assumption and repayment of the
Stockholder Loans, the Asset Purchase Agreement is hereby amended as
follows:
(a) Section 3.4(viii) is added, to read as follows:
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and (viii) the obligations of Sellers to repay to Stockholder
all principal and accrued but unpaid interest on the
subordinated loans made by Stockholder to Sellers during
November 1996, and any subsequent subordinated loans made by
Stockholder to Sellers prior to the Closing Date, not to
exceed a total payment, including accrued but unpaid interest
through December 9, 1996, of $16,934,544 plus per diem
interest of $4,257 from (but not including) December 9, 1996
through and including the Closing Date, (the "Stockholder
Loans")."
(b) Section 9.5 is amended to provide in its entirety as follows:
"9.5 REPAYMENT OF SUBORDINATED DEBT. On or prior to the
Closing Date, Sellers shall repay to Stockholder all principal
and accrued but unpaid interest on the subordinated loans from
Stockholder to Sellers in excess of the amounts assumed by
Purchaser pursuant to Section 3.4(viii).
(c) Section 11.8 is added to provide as follows:
"11.8 REPAYMENT OF STOCKHOLDER LOANS. Purchaser shall have
repaid the principal and accrued but unpaid interest through
December 9, 1996 on the Stockholder Loans in an amount not to
exceed $16,934,544."
7. Pursuant to Section 3.6 of the Asset Purchase Agreement, the parties
agree and acknowledge that the total consideration for the Assets
(including the Assumed Liabilities) shall be allocated among the
Assets as set forth on Exhibit A hereto.
8. With respect to all of the Contracts between Xxxxxxxx Energy Inc.
(or NESI Energy Marketing Canada Ltd., which is the new name of
Xxxxxxxx Energy Inc., referred to herein as "Xxxxxxxx") and ES
Canada (the "Xxxxxxxx/XXXX Contracts"), the parties agree and
acknowledge that all rights and obligations of Sellers in and to the
Xxxxxxxx/NESI Contracts, including but not limited to accounts
receivable related thereto and all rights in tort, contract or
otherwise, shall be retained by Sellers, and Schedule 2.1B of the
Asset Purchase Agreement is hereby amended to include the
Xxxxxxxx/XXXX Contracts and related accounts receivable and other
rights as Excluded Assets. The Xxxxxxxx/NESI Contracts and all
matters related thereto or arising therefrom shall not be Assumed
Liabilities, and Purchaser does not assume,
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and shall not be treated as having assumed, any liability or
obligation related to or arising out of the Xxxxxxxx/XXXX Contracts.
The Sellers and Stockholder represent and warrant that Exhibit B
attached hereto contains a true, correct and complete list of all of
the Xxxxxxxx/NESI Contracts. The Sellers and Stockholder represent
and warrant that Exhibit C attached hereto contains a true, correct
and complete list of all of Contracts between Xxxxxxxx and ESI,
which Contracts are being assigned to Purchaser pursuant to the
Asset Purchase Agreement. Without regard to any limitations on
indemnity set forth in the Asset Purchase Agreement, Sellers and
Stockholder shall, and hereby do, jointly and severally indemnify,
hold harmless and defend the Sellers' Indemnified Parties at all
times from and after the date hereof, from and against any and all
Damages which are paid, incurred or suffered by or asserted against
the Sellers' Indemnified Parties by any Person resulting or arising
from or incurred in connection with the Xxxxxxxx/NESI Contracts.
9. With respect to all of the Contracts between Tarpon Gas Marketing
Ltd. ("Tarpon") and ES Canada (the "Tarpon Contracts"), the parties
agree and acknowledge that all rights and obligations of Sellers in
and to the Tarpon Contracts, including but not limited to all rights
in tort, contract or otherwise, shall be retained by Sellers, and
Schedule 2.1B of the Asset Purchase Agreement is hereby amended to
include the Tarpon Contracts and related accounts receivable as
Excluded Assets. The Tarpon Contracts and all matters related
thereto or arising therefrom shall not be Assumed Liabilities, and
Purchaser does not assume, and shall not be treated as having
assumed, any liability or obligation related to or arising out of
the Tarpon Contracts. The Sellers and Stockholder represent and
warrant that (i) Exhibit D attached hereto contains a true, correct
and complete list of all of the Tarpon Contracts and (ii) ESI is not
a party to any contracts or agreements with Tarpon and no such
contracts or agreements shall be Assumed Liabilities. Without regard
to any limitations on indemnity set forth in the Asset Purchase
Agreement, Sellers and Stockholder shall, and hereby do, jointly and
severally indemnify, hold harmless and defend the Sellers'
Indemnified Parties at all times from and after the date hereof,
from and against any and all Damages which are paid, incurred or
suffered by or asserted against the Sellers' Indemnified Parties by
any Person resulting or arising from or incurred in connection with
the Tarpon Contracts.
10. With respect to all of the Contracts between MultiEnergies, Inc.
("MultiEnergies") and ES Canada (the "MultiEnergies Contracts"), the
parties agree
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and acknowledge that all rights and obligations of Sellers in and to
the MultiEnergies Contracts, including but not limited to accounts
receivable related thereto and all rights in tort, contract or
otherwise, shall be retained by Sellers, and Schedule 2.1B of the
Asset Purchase Agreement is hereby amended to include the
MultiEnergies Contracts and related accounts receivable as Excluded
Assets. The MultiEnergies Contracts and all matters related thereto
or arising therefrom shall not be Assumed Liabilities, and Purchaser
does not assume, and shall not be treated as having assumed, any
liability or obligation related to or arising out of the
MultiEnergies Contracts or any transactions engaged in by Sellers
with respect thereto or the receivables thereunder. The Sellers and
Stockholder represent and warrant that (i) Exhibit E attached hereto
contains a true, correct and complete list of all of the
MultiEnergies Contracts and (ii) ESI is not a party to any contracts
or agreements with MultiEnergies and no such contracts or agreements
shall be Assumed Liabilities. Without regard to any limitations on
indemnity set forth in the Asset Purchase Agreement, Sellers and
Stockholder shall, and hereby do, jointly and severally indemnify,
hold harmless and defend the Sellers' Indemnified Parties at all
times from and after the date hereof, from and against any and all
Damages which are paid, incurred or suffered by or asserted against
the Sellers' Indemnified Parties by any Person resulting or arising
from or incurred in connection with the MultiEnergies Contracts or
any transactions engaged in by Sellers with respect thereto or the
receivables thereunder.
11. Terms used in this paragraph 11 that are not otherwise defined
herein or in the Asset Purchase Agreement shall have the meaning set
forth below. If, with respect to any customer listed on Exhibit F
hereto from which ES Canada has Effective Date Receivables, such
customer files for protection from creditors within 60 days after
the Effective Date under any state, federal or foreign bankruptcy,
moratorium, insolvency or other similar laws affecting generally the
rights of creditors (such customer being referred to herein as a
"Bankrupt Customer" and the date of such filing being referred to
herein as the "Bankruptcy Date"), then Sellers shall pay to
Purchaser the Bankrupt Customer Reimbursement Amount for such
Bankrupt Customer. Such payment shall be made in cash by check or
wire transfer within sixty (60) days after delivery by Purchaser to
Sellers of a written calculation of the Bankrupt Customer
Reimbursement Amount for such Bankrupt Customer. If at any time, and
from time to time, thereafter it is determined that (i) the amount
of the Effective Date Offset Payables that are allowed as an offset
against the Effective
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Date Bankrupt Customer Receivables is different from the amount
thereof used in calculating the Bankrupt Customer Reimbursement
Amount, (ii) Purchaser is required to fulfill all or any part of one
or more of the contracts (or uncompleted portions thereof) with a
Bankrupt Customer that were treated as being canceled for purposes
of calculating the Bankrupt Customer Reimbursement Amount, or (iii)
errors were made in calculating the Bankrupt Customer Reimbursement
Amount in accordance with the provisions hereof, then the Bankrupt
Customer Reimbursement Amount shall be recalculated based on the
amount of Effective Date Offset Payables then allowed as offsets,
the Xxxx to Market Gain with respect to contracts then cancelable
and the elimination of any errors in calculation, and any
underpayment shall be promptly paid by Sellers to Purchaser and any
overpayment shall promptly be paid by Purchaser to Sellers.
Purchaser shall use commercially reasonable efforts to mitigate
damages resulting from the filing for protection from creditors by
any Bankrupt Customer. For purposes of this paragraph 11, the
following terms shall have the meanings as set forth below:
(a) "Bankrupt Customer Effective Date Receivables" shall mean the
Effective Date Receivables that are still owed and unpaid by
the Bankrupt Customers as of the Bankruptcy Date for the
Bankrupt Customer.
(b) "Bankrupt Customer Reimbursement Amount" with respect to a
Bankrupt Customer shall mean the amount (if positive) of the
Bankrupt Customer Effective Date Receivables for the Bankrupt
Customer minus the Effective Date Offset Payables for the
Bankrupt Customer minus the Xxxx to Market Offset for the
Bankrupt Customer.
(c) "Effective Date Offset Payables" shall mean the amount of any
payables owed by Sellers to a Bankrupt Customer with respect
to transactions occurring on or prior to the Effective Date
that are subject to offset against the Bankrupt Customer
Effective Date Receivables.
(d) "Effective Date Receivables" shall mean all unpaid accounts
receivable owed by a customer to Sellers with respect to
transactions occurring on or prior to the Effective Date.
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(e) "Xxxx to Market Gain" means the amount of the net gain, if
any, that would have been realized by Purchaser if, on the
Bankruptcy Date, the Purchaser had canceled all uncompleted
portions of all contracts with the Bankrupt Customer and
replaced such uncompleted portions of contracts with new
contracts at then existing market prices.
(f) "Xxxx to Market Offset" means an amount equal to the Xxxx to
Market Gain, if any, multiplied by a fraction the numerator of
which is the amount of the Bankrupt Customer Effective Date
Receivables and denominator of which is the total of all
receivables owing by the Bankrupt Customer to Purchaser as of
the Bankruptcy Date (including, but not limited to, the
Bankrupt Customer Effective Date Receivables).
12. Stockholder has transferred to the payroll account of ESI (which is
an account being transferred to Purchaser) the amount of $371,764.20
to fund stay bonuses and over three week vacation payments payable
by ESI to ESI employees in the same aggregate amount and has
executed checks payable to such ESI employees for such amounts which
will be delivered after the Closing. Purchaser further agrees to
prepare or cause to be prepared consolidated Forms W-2 with respect
to payroll amounts paid to Sellers' transferred employees by Sellers
and Purchaser during 1996.
13. The Effective Date of the Asset Purchase Agreement is prior to the
Closing Date. The Asset Purchase Agreement, as amended hereby,
provides that, subject to specified limitations, the benefits and
liabilities of the Assets and Business pass to Purchaser as of 11:59
p.m. on the Effective Date. The parties acknowledge that such
provisions in the Asset Purchase Agreement and any other provisions
requiring assumption of items by Purchaser as of the Effective Date
shall not in any way limit, restrict or otherwise change the
obligations and liabilities of Sellers and Stockholder to indemnify
Purchaser with respect to any breaches of (i) covenants of Sellers
or Stockholder set forth herein or in the Asset Purchase Agreement,
as amended hereby, or (ii) representations or warranties made by
Sellers or Stockholder herein or in the Asset Purchase Agreement or
as of the Closing Date as a result of the certificate delivered to
Purchasers in accordance with Section 10.1 of the Asset Purchase
Agreement. Thus, Purchaser shall not be responsible for or assume,
and Sellers and Stockholder shall jointly and severally indemnify
the Sellers' Indemnified Parties (pursuant to and subject to the
limitations of Section 14 of the Asset Purchase
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Agreement) for, any breaches of covenants set forth herein or in the
Asset Purchase Agreement, as amended hereby, and any breaches of
representations and warranties that are made by Sellers or
Stockholder herein or in the Asset Purchase Agreement or as of the
Closing Date as a result of the certificate delivered to Purchasers
in accordance with Section 10.1 of the Asset Purchase Agreement,
even if the events that give rise to such breaches occur after the
Effective Date.
14. The Asset Purchase Agreement is hereby amended in the following
respects:
(a) Section 2.1 is amended to add the following to the end of the
last sentence of such Section:
"; provided that Purchaser specifically does not assume any
liabilities relating to or arising out of (a) the operation of
the Business or the ownership or use of any of the Assets
after the Effective Date but before the Closing Date to the
extent such liabilities result from the gross negligence or
willful misconduct of Sellers, or (b) matters that constitute
a breach of any representation, warranty or covenant of
Sellers or Stockholder set forth herein or made as of the
Closing Date pursuant to the provisions of Section 10.1."
(b) Section 3.4(i) is amended to add the following to the end of
such provision:
"or (E) for matters that constitute a breach of any
representation, warranty or covenant of Sellers or Stockholder
set forth herein or made as of the Closing Date pursuant to
the provisions of Section 10.1."
(c) The proviso beginning in line six of Section 3.4(v) is amended
in its entirety to provide as follows:
"provided that Purchaser specifically does not assume any
liabilities relating to or arising out of (a) the operation of
the Business or the ownership or use of any of the Assets
after the Effective Date but before the Closing Date to the
extent such liabilities result from the gross negligence or
willful misconduct of Sellers, or (b) matters that constitute
a breach of any representation, warranty or covenant of
Sellers or Stockholder set forth herein or made as of the
Closing Date pursuant to the provisions of Section 10.1."
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(d) Section 7(c) is amended to add the following to the end of
such Section:
"(except for matters that result from or arise out of (i)
actions of Sellers or Stockholder that constitute gross
negligence or willful misconduct or (ii) breaches of covenants
of Sellers or Stockholder set forth herein or breaches of
representations or warranties made by Sellers or Stockholder
herein (including, but not limited to, those made as of the
Closing Date pursuant to the provisions of Section 10.1))."
(e) Section 14.2(iv) is amended in its entirety to provide as
follows:
"(iv) the operation of the Business by Purchaser and the
ownership and use of the Assets after the Effective Date,
except for (a) matters resulting from or arising out of
actions of Sellers or Stockholder that constitute gross
negligence or willful misconduct and (b) matters that
constitute a breach of any covenant, representation or
warranty of Sellers or Stockholder set forth herein or made as
of the Closing Date pursuant to the provisions of Section
10.1; and"
(f) Item I of Schedule 2.1A is amended in its entirety to provide
as follows:
"I. PREPAID EXPENSES AND CURRENT ASSETS. All assets in
existence on the Closing Date that are of the type, or are
included in the categories, of assets that are included in the
calculation of Adjusted Working Capital."
15. The parties agree that the officers and key employees of Sellers who
are listed on Schedule 10.7 of the Asset Purchase Agreement shall be
given credit for their respective periods of employment with Sellers
in accordance with Section 8(c)(ii) of each such officer's or key
employee's employment agreement with Purchaser.
16. Without regard to any limitations on indemnity set forth in the
Asset Purchase Agreement, Purchaser shall indemnify, hold harmless
and defend the Purchaser Indemnified Parties at all times from and
after the date hereof, from and against any and all Damages which
are paid, incurred or suffered by or asserted against the Purchaser
Indemnified Parties by any Person resulting or arising from or
incurred in
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connection with the guaranty of Canadian dollars $147,000 by ES
Canada with respect to debt of CEG owed to Toronto Dominion Bank.
Purchaser agrees to use commercially reasonable efforts to arrange
for the release of such guaranty, such release to be obtained within
60 days after the date hereof.
17. Stockholder acknowledges and agrees that its guarantee obligations
set forth in Section 21.1 of the Asset Purchase Agreement shall
cover and include the amendments to the Asset Purchase Agreement set
forth in this letter as well as the obligations of Sellers described
in this letter. PGT acknowledges and agrees that its guarantee
obligations set forth in Section 21.2 of the Asset Purchase
Agreement shall cover and include the amendments to the Asset
Purchase Agreement set forth in this letter as well as the
obligations of Purchaser described in this letter.
If the foregoing represents your understanding of our mutual agreement
regarding the matters set forth herein, please execute this letter where
indicated below.
Sincerely,
PACIFIC NORTHWEST GAS SYSTEM, INC.
By: /S/ XXXXXXX X. XXXXXXXX
Name: Xxxxxxx X. Xxxxxxxx
Title: President & CEO
708559 ALBERTA LTD.
By: /S/ XXXXXXX X. XXXXXXXX
Name: Xxxxxxx X. Xxxxxxxx
Title: Authorized Representative
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
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PACIFIC GAS TRANSMISSION COMPANY
By: /S/ XXXXXXX X. XXXXXXXX
Name: Xxxxxxx X. Xxxxxxxx
Title: President and Chief Executive Officer
ACCEPTED AND AGREED TO:
EDISTO RESOURCES CORPORATION
By: /S/ XXXXXXX X. XXXXXXXX
Name: Xxxxxxx X. XxXxxxxx
Title: Chairman
ENERGY SOURCE, INC.
By: /S/ XXXXX X. XXXXX
Name: Xxxxx X. Xxxxx
Title: Chairman and President
ENERGY SOURCE CANADA, INC.
By: /S/ XXXXX X. XXXXX
Name: Xxxxx X. Xxxxx
Title: Chairman
