Midstream/Pipeline Acquisitions and Divestitures

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Midstream/Pipeline Acquisitions andDivestitures

• Presented by
• Bill Swanstrom
• Locke Liddell Sapp LLP
• [phone]
• bswanstrom_at_lockeliddell.com
• My thanks to Val Burguieres of Locke Liddell for
  her excellent work in compiling the information
  reflected in this report.

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INTRODUCTION

• This study analyzes publicly available domestic
  midstream acquisition agreements, along with
  certain private agreements that Locke Liddell has
  been involved in, entered into since January 1,
  2004. The transaction values ranged from
  approximately 50 million to 2.35 billion.

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Table of Contents

1. No Undisclosed Liabilities Representation
2. Full Disclosure Representation
3. Material Adverse Change Condition
4. Material Adverse Change/Effect Carveouts
5. Knowledge Investigation Standards
6. Knowledge Groups
7. Time Limitation for Assertion of Claims
8. Baskets
9. Basket Carveouts
10. Caps
11. Indemnification as the Exclusive Remedy
12. Escrows

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1. Buyer-FavorableNo Undisclosed Liabilities
Representation

• Except for Unrecorded Obligations (i)
  disclosed, reflected or reserved against on the
  face of the balance sheet for five months ended
  May 31, 2005 that are included in the financial
  information contained in Schedule 4(1)(ii) (ii)
  incurred in the Ordinary Course of Business after
  May 31, 2005 (iii) arising from the execution,
  delivery or performance of this Agreement or any
  other agreement contemplated hereby or (iv)
  disclosed on any Schedule to this Agreement,
  neither of the Acquired Companies has any
  material Unrecorded Obligations.
• (MarkWest Energy Partners L.P. acquisition from
  Valero Energy Corporation)

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Target-FavorableNo Undisclosed Liabilities
Representation

• No Undisclosed Liabilities. Except as disclosed
  in Sellers Disclosure Schedules, no HPL Entity
  has any material liabilities that are required by
  GAAP to be reflected on the balance sheet of such
  HPL Entity except for
• (La Grange Acquisition, L.P. equity purchase from
  HPL Storage LP and AEP Energy Services Gas
  Holding Company II, L.L.C.)

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No Undisclosed Liabilities Representation
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No Undisclosed Liabilities Representation
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2. Full Disclosure Representation

• Full Disclosure. No representation or warranty
  or other statement made by Target or any Target
  shareholder in this Agreement, the Disclosure
  Letter, any supplement to the Disclosure Letter,
  the certificates delivered pursuant to Section
  2.7(a) or otherwise in connection with the
  Contemplated Transactions contains any untrue
  statement or omits to state a material fact
  necessary to make any of them in light of the
  circumstances in which it was made, not
  misleading.
• (ABA Model Asset Purchase Agreement)
• Although this pro-Buyer representation is
  sometimes present, it was not included in any of
  the agreements reviewed for this presentation.

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3. Material Adverse Change Condition(MAC
Condition)

• Example 1
• Since the date of this Agreement, there has not
  been any Target Material Adverse Change.
• Example 2
• Representation that there is an Absence of
  Changes
• PLUS
• A Bring Down formulation of Accuracy of
  Representations Condition

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MAC Condition
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MAC Condition(Various Formulations Quantified
MAC)

• Material Adverse Effect means, (a) with respect
  to Target or the Shareholders, any breach of a
  representation or warranty hereunder or a
  covenant to be performed by Target or the
  Shareholders the effect of which is likely to
  cause Target (or the Surviving Company) to pay
  or become liable to pay more than Five Hundred
  Thousand (500,000) Dollars to remedy any single
  such event, violation, breach, default or
  termination (as the case may be) or more than One
  Million (1,000,000) Dollars in the aggregate for
  all such events, violations, breaches or defaults
  or terminations (as the case may be), and (b)
  with respect to Parent, any breach of a
  representation or warranty hereunder or a
  covenant to be performed by the Parent or
  Acquisition Subsidiary the effect of which is
  likely to cause the Parent (or the Surviving
  Company) to pay or become liable to pay more than
  Five Hundred Thousand (500,000) Dollars to
  remedy any single such event, violation, breach,
  default or termination (as the case may be) or
  more than One Million (1,000,000) Dollars in the
  aggregate for all such events, violations,
  breaches, or defaults or terminations (as the
  case may be).
• (Starcraft Corp Acquisition of Wheel-to-Wheel
  Inc.)
• This is not a midstream acquisition but does
  demonstrate a quantified MAC condition

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Buyers MAC Condition(Various Formulations
Quantified MACs)(All deals with stand-alone or
backdoor MAC Condition)

• Other studies have indicated that in mergers and
  acquisitions generally, 8 of deals have a
  quantified MAC Condition. However, we found no
  midstream/pipeline acquisitions with quantified
  MAC Conditions.

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MAC Condition(Various Formulations Prospects)

• Except as set forth in 4(g) of the Disclosure
  Schedule since April 30, 2005, (i) there has not
  been any Material Adverse Change in the business,
  financial condition, operations, results of
  operations, assets, liabilities, obligations or
  future prospects of the Company since April 30,
  2005.
• (Copano Energy acquisition from Scissortail
  Energy, LLC)

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4. MAC/MAE Carveouts

• Material Adverse Effect means (i) a material
  adverse effect on the business, assets,
  properties, results of operations or financial
  condition of the Companies and the Subsidiaries
  (taken as a whole) or (ii) a material adverse
  effect on the ability of Seller to consummate the
  transactions contemplated by this Agreement,
  other than with respect to (i) and (ii) an effect
  resulting from an Excluded Matter.
• (ONEOK, Inc, purchase of NGL/LP, LLC from Koch
  Hydrocarbon Management Company, LLC)
• Excluded Matter defined on following slide

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• Excluded Matter means any one or more of the
  following (A) the effect of any change in the
  United States or foreign economies or securities
  or financial markets in general (B) the effect
  of any change that generally affects any industry
  in which any of the Companies or the Subsidiaries
  operates (C) the effect of any change arising in
  connection with any natural disasters,
  hostilities, acts of war, sabotage or terrorism
  or military actions or any escalation or material
  worsening of any hostilities, acts of war,
  sabotage, or terrorism or military actions
  existing or underway as of the date hereof (D)
  the effect of any action taken by Purchaser or
  its Affiliates with respect to the transactions
  contemplated hereby or with respect to any of the
  Companies or the Subsidiaries (E) any matter of
  which Purchaser is aware on the date hereof (F)
  the effect of any changes in applicable Laws or
  accounting rules (G) the failure of any of the
  Companies or the Subsidiaries to meet any of its
  internal projections (H) any effect resulting
  from the public announcement of this agreement,
  compliance with terms of this Agreement or the
  consummation of the transactions contemplated by
  this Agreement (I) the loss of any employee of
  any of the Companies or the Subsidiaries or (J)
  matters that will be reflected in the
  determination of the Adjusted Purchase Price as
  of the Closing Date.
• (ONEOK, Inc, purchase of NGL/LP, LLC from Koch
  Hydrocarbon Management Company, LLC)

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MAC/MAE Carveouts(All deferred closing deals)
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MAC/MAE Carveouts General Economic
Conditions(All deals with MAC/MAE Carveout)
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MAC/MAE Carveouts Industry Conditions(All
deferred closing deals regardless of existence of
MAC Condition)
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5. Knowledge Investigation StandardsActual
Knowledge

• Knowledge of the Company means actual knowledge
  without independent investigation of the
  individuals listed in 1(b) of the Disclosure
  Schedule.
• (Copano Energy, LLC acquisition from Scissortail
  Energy, LLC)

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Knowledge Investigation StandardsConstructive
Knowledge

• Knowledge as to Buyers means the actual
  knowledge, after reasonable inquiry, of those
  persons listed in Schedule 1.1(a) and as to
  Sellers means the actual knowledge, after
  reasonable inquiry, of those persons listed in
  Schedule 1.1(b).
• (Southern Union asset purchase from SRGC)

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Knowledge Investigation Standards
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6. Whose Knowledge?

• As to any Seller, Knowledge means the actual
  knowledge of any of the individuals listed in
  Sellers Disclosures Schedules as Sellers
  Knowledge Group or any other presently serving
  officer, member of the board of directors, or
  limited liability company manager of such Seller
  or the HPL Companies that such Seller directly or
  indirectly owned before the Closing Date, and the
  knowledge that such individual would have
  obtained as a result of the proper operation of
  reporting procedure concerning the business of
  Sellers or the HPL Entities that was not grossly
  negligent.
• (La Grange Acquisition L.P. purchase from HPL
  Storage LP and AEP Energy Services Gas Holding
  Company II, L.L.C.)

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Knowledge Groups(From agreements with Knowledge
Investigation Standards)

• All of the midstream acquisition agreements,
  reviewed for this presentation, containing a
  knowledge qualifier also identified specific
  knowledge groups.

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7. Time Limitation for Assertion of Claims

• The representations and warranties of the
  parties contained in this Agreement shall survive
  the Closing until nine (9) months after the
  Closing Date, except that the representations and
  warranties in Sectiosn 5.1, 5.2, 5.4, 5.19, 6.1,
  6.2, 6.5 and 6.6 shall survive until the fifth
  annual anniversary of the Closing Date and the
  representations and warranties in Section 5.9
  shall survive until the expiration of the
  applicable statute of limitations.
• (ONEOK, Inc, acquisition from Koch Hydrocarbon
  Management Company, LLC)

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Survival/Time Limitation for Assertion of Claims

lt12 mos.
12 mos.
gt 12 mos.
Time periods that apply to representations on a
general basis does not take into account longer
periods that may be assigned to specific
representations (see Carveouts to Survival
Limitations)
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Carveouts to Survival Limitations
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8. Baskets - Deductible

• Seller shall have no liability arising out of or
  relating to Section 9.2(a) except if the
  aggregate Losses actually incurred by the Buyer
  Indemnified Parties thereunder exceed two percent
  of the Base Purchase Price (and then, subject to
  Section 9.4(c), only to the extent such aggregate
  Losses exceed such amount).
• (TGT Pipeline, LLC equity purchase of GS Pipeline
  Company, LLC from Entergy-Koch, LP)
• No reimbursement or payment for any Damages
  asserted against Sellers under Section 6.2.1(i)
  or 6.2.1(v) shall be required unless and until
  the cumulative aggregate amount of such Damages
  for all claims arising thereunder equals or
  exceeds the Sellers Threshold and then only to
  the extent that the cumulative aggregate amount
  of Damages, as finally determined, exceeds the
  Sellers Threshold. The Sellers Threshold
  shall be 10,000,000.
• (La Grange Acquisition, L.P. equity purchase from
  HPL Storage LP and AEP Energy Services Gas
  Holding Company II, L.L.C.)

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Baskets First Dollar

• An Indemnifying Party shall not be liable for any
  claim for indemnification pursuant to Section
  7.02(a) or 7.03(a), unless and until the
  aggregate amount of identifiable Losses that may
  be recovered from the Indemnifying Party equals
  or exceeds 12,000,000 (the Aggregate
  Threshold) in which case the Indemnifying Party
  shall be liable for all such Losses.
• (Boston Scientific Corp acquisition of Advanced
  Bionics Corporation)
• Note that this is not a midstream/pipeline
  agreement. None of the agreements that we
  reviewed had a First Dollar Basket.

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Baskets Other Variations1. Minimum Size for
Individual Claims2. Tiered Baskets

• the Seller agrees to release, indemnify and
  hold harmless the Buyer Indemnitees from and
  against the entirety of any Adverse Consequences
  that are individually in excess of twenty-five
  thousand dollars (25,000) and that are suffered
  by the Buyer Indemnitees by reason of each such
  breach provided, that the Seller shall not have
  any obligation to indemnify the Buyer Indemnitees
  from and against (A) the entirety of any such
  Adverse Consequence by reason of such breaches
  until the Buyer Indemnitees, in the aggregate,
  have suffered Adverse Consequences by reason of
  all Adverse Events in excess of an initial
  aggregate deductible amount equal to 1.0 of the
  Combined Purchase Price, (B) after which point,
  50 of any such further Adverse Consequences by
  reason of such breaches until the Buyer
  Indemnitees, in the aggregate (above such amounts
  described in (A) above), have suffered Adverse
  Consequences by reason of all Adverse Events in
  excess of a second deductible aggregate amount
  equal to 1.0 of the Combined Purchase Price
  (after which point the Seller shall be obligated
  only to indemnify the Buyer Indemnitees from and
  against any further Adverse Consequences)
• (Crosstex Energy, L.P. acquisition from El Paso
  Corporation)

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Baskets As a Percentage of Deal Value(Subset
Deals with Baskets)
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9. Basket Carveouts(Subset deals with Baskets)
Examples of Fundamental Representations include
representations regarding due authorization,
title, enforceability, no violation of the law
and other matters
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10. Caps

• In no event shall the total indemnification to
  be paid by Sellers under this Article XI (other
  than the amounts paid pursuant to Section 11.1(b)
  with respect to post-Closing covenants, 11.1(c)
  and 11.1(e)) exceed U.S. 300,00,000.
• (Targa Resources acquisition from Dynegy)

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Caps
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Cap Amounts
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Cap Carveouts
Examples of Fundamental Representations include
representations regarding due authorization,
title, enforceability, no violation of the law
and other matters
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11. Indemnification as the Exclusive Remedy
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Indemnification as the Exclusive Remedy -
Carveouts
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12. Escrows