(4) Acquisition

6 Months Ended

Jun. 30, 2013

Notes

(4) Acquisition

(4) Acquisitions

SEACOR Energy, Inc

On December 31, 2012, we acquired Texadian, an indirect wholly-owned subsidiary of SEACOR Holdings Inc., for $14.0 million plus estimated net working capital of approximately $4.0 million at closing resulting in approximately $18.0 million of cash paid at closing. Texadian operates a oil transportation, distribution and marketing business with significant logistics capabilities. We acquired Texadian in furtherance of our growth strategy that focuses on the acquisition of income producing businesses. The purchase price for the acquisition was funded with a combination of cash and additional borrowings under the Tranche B Loan (see Note 5).

The purchase was accounted for as a business combination in accordance with ASC 805 whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. Goodwill is defined in ASC 805 as the future economic benefit of other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is attributable to opportunities expected to arise from combining our operations with Texadian’s, and specifically utilization of our net operating loss carryforwards, as well as other intangible assets that do not qualify for separate recognition. In addition, we recorded certain other identifiable intangible assets. These include relationships with suppliers and shippers and favorable railcar leases. These intangible assets will be amortized over their estimated useful lives on a straight line basis, which approximates their consumptive life.

 A summary of the fair value of the assets acquired and liabilities assumed is as follows (in thousands):

Intangible assets	$8,809
Goodwill	8,290
Net non cash working capital	3,097
Deferred tax liabilities	(2,757)
Total, net of cash acquired	$17,439

None of the goodwill or intangible assets are expected to be deductible for income tax reporting purposes.

The results of operations of Texadian are included in our consolidated statement of operations beginning January 1, 2013. We have not presented pro forma results for Predecessor periods as the entities are not comparable.

Membership Interest Purchase Agreement – Tesoro Corporation

On June 17, 2013 (the “Execution Date”), our wholly-owned subsidiary, Hawaii Pacific Energy, LLC ("Hawaii Pacific Energy"), entered into a membership interest purchase agreement (the “Purchase Agreement”) with Tesoro Corporation, (the “Seller”) and solely for the purpose set forth in the Purchase Agreement, Tesoro Hawaii, LLC (“Tesoro Hawaii”). Pursuant to the Purchase Agreement, Hawaii Pacific Energy will purchase from the Seller all of the issued and outstanding units representing the membership interests in Tesoro Hawaii (the “Purchased Units”), and indirectly thereby also acquiring Tesoro Hawaii’s wholly owned subsidiary, Smiley’s Super Service, Inc. Tesoro Hawaii owns and operates (i) a petroleum refinery located at the Campbell Industrial Park in Kapolei, Hawaii (the “Refinery”), (ii) certain pipeline assets, floating pipeline mooring equipment, and refined products terminals, and (iii) retail assets selling fuel products and merchandise on the islands of Oahu, Maui and Hawaii.

Set forth below are certain material terms of the Purchase Agreement:

Purchase Price and Earnout Payments: Hawaii Pacific Energy has agreed to purchase the Purchased Units for $75.0 million, payable in cash at the closing of the Purchase Agreement, plus or minus adjustments for net working capital, plus adjustments for inventories at closing and plus certain contingent earnout payments of up to $40.0 million. The earnout payments, if any, are to be paid annually following each of the three calendar years beginning January 1, 2014 through the year ending December 31, 2016, in an amount equal to 20% of the consolidated annual gross margin of Tesoro Hawaii in excess of $165.0 million during such calendar years, with an annual cap of $20.0 million. In the event that the Refinery ceases operations or in the event Hawaii Pacific Energy disposes of any facility used in the acquired business, Hawaii Pacific Energy's obligation to make earnout payments could be modified and/or accelerated as provided in the Purchase Agreement.

Deposit: As consideration for the Seller’s entry into the Purchase Agreement, Hawaii Pacific Energy made a deposit against the purchase price for the Purchased Units of $25.0 million (the “Deposit”). The Deposit will be returned to Hawaii Pacific Energy in the event that the Purchase Agreement is terminated (i) by the mutual agreement of the parties thereto, (ii) in the event of certain breaches by the Seller of the representations, warranties and covenants contained in the Purchase Agreement, and (iii) following a casualty event with an estimated cost of greater than $20.0 million; provided, however, in a casualty event the amount to be returned is reduced by the amount of losses sustained by Seller in the Refinery startup (as described below), including crude purchases.

Refinery Startup Activities: Prior to the Execution Date, the Seller had commenced activities to shutdown the Refinery and to convert it into an import terminal. The Purchase Agreement contains certain pre-closing covenants, including covenants related to the startup of operations at the Refinery (the “Refinery Startup Activities”). The expenses associated with the Refinery Startup Activities are currently estimated to be $27.0 million (the “Startup Expenses”). Pursuant to the terms of the Purchase Agreement, Hawaii Pacific Energy made a deposit of $15.0 million for the Startup Expenses within seven days of the Execution Date.  The next $5.0 million of Startup Expenses will be borne by the Seller, with all Startup Expenses in excess of $20.0 million to be borne by Hawaii Pacific Energy. Due to the Startup Expenses exceeding $20.0 million, Hawaii Pacific Energy made an additional deposit of $7.0 million for the Startup Expenses on August 5, 2013.  In addition, Hawaii Pacific Energy funded $2.3 million on July 23, 2013 for a major overhaul of a gas turbine engine used in the operations of the refinery's steam cogeneration.  The Seller draws upon the deposit as expenses are incurred.

 The closing of the Purchase Agreement is subject to certain customary closing conditions, and contains customary representations, warranties, covenants, indemnifications and guarantees typical for a transaction of this type. The closing of the Purchase Agreement is also conditioned upon (i) the Seller’s completion of the Refinery Startup Activities in all material respects and the delivery of an operational Refinery, (ii) the Seller’s provision of certain operational software for the benefit of Hawaii Pacific Energy, and (iii) the provision by us to the Seller of reasonable confirmation that Hawaii Pacific Energy's adjusted net worth immediately prior to the closing of the Purchase Agreement shall equal or exceed $150 million. The closing of the Purchase Agreement will take place on the second business day following the satisfaction of the closing conditions contained in the Purchase Agreement, or on such other date to which the parties thereto may mutually agree.  As of June 30, 2013, Hawaii Pacific Energy has made advances for the Deposit and Startup Expenses totaling $40.0 million, which are reflected as Acquisition Deposits on our consolidated balance sheet. On August 5, 2013, Hawaii Pacific Energy made an additional deposit for Start Up Expenses totaling $7.0 million.

Financing Commitments

In connection with Hawaii Pacific Energy’s entry into the Purchase Agreement and to finance the operations of the business of Tesoro Hawaii after the acquisition, we obtained commitment letters to enter into financing arrangements and commodity swap transactions with certain third party lenders or counterparties, including (i) crude oil supply and intermediation arrangements (involving the purchase, storage, transport, logistics, and related exchange mechanism necessary to facilitate delivery and processing of crude oil and refined product inventory at the Refinery), and (ii) a senior secured asset-based credit facility of up to $125.0 million.

Private Offering Commitment

In connection with Hawaii Pacific Energy’s entry into the Purchase Agreement, we obtained a binding commitment from a group of accredited investors pursuant to which the investors will purchase in the aggregate $200 million of our common stock, in a private placement, at a price of $1.39 per share, pursuant to the exemptions from registration provided in the Securities Act of 1933, as amended.