<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): NOVEMBER 24, 1996
DUKE POWER COMPANY
(Exact Name of Registrant as Specified in its Charter)
NORTH CAROLINA 1-4928 56-0205520
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
422 South Church Street
Charlotte, North Carolina 28242-0001
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 704-594-0887
<PAGE>
Item 5. Other Events.
On November 24, 1996, Duke Power Company, a North Carolina corporation
("Duke"), Duke Transaction Corporation, a newly formed Delaware corporation
wholly owned by Duke ("Duke Transaction") and PanEnergy Corp, a Delaware
corporation ("PanEnergy"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") providing for a strategic business combination of Duke and
PanEnergy. Pursuant to the Merger Agreement, Duke Transaction will be merged
with and into PanEnergy (the "Merger") and PanEnergy will become a wholly owned
subsidiary of Duke, which will change its name to "Duke Energy Corporation." In
the Merger, each outstanding share of Common Stock, par value $1.00 per share,
of PanEnergy will be converted into the right to receive 1.0444 shares of Common
Stock, without par value, of Duke. Based on the number of shares of Common
Stock of PanEnergy outstanding on November 22, 1996, the shareholders of
PanEnergy will own approximately 44% of the outstanding shares of Common Stock
of Duke following the Merger. Upon completion of the Merger, Richard B. Priory,
currently President and Chief Operating Officer of Duke, will become Chairman
and Chief Executive Officer of Duke Energy Corporation ("Duke Energy") and Paul
M. Anderson, currently President and Chief Executive Officer of PanEnergy, will
become President and Chief Operating Officer of Duke Energy and they will
jointly constitute the Office of the Chief Executive. The Board of Directors of
Duke Energy will be made up of 18 persons, eleven from Duke and seven from
PanEnergy. Duke Energy will be headquartered in Charlotte, with Houston serving
as the center for PanEnergy's pipeline operations, trading and marketing
services and certain business development activities.
The Merger Agreement has been approved by the Boards of Directors of Duke
and PanEnergy. Consummation of the Merger is subject to certain closing
conditions, including approval by the shareholders of PanEnergy and the approval
by the shareholders of Duke of an increase in Duke's authorized shares. Duke
and PanEnergy presently intend that the shareholders' meetings to consider such
approval will be held as early as practicable in 1997. Consummation of the
Merger is also subject to receipt of a favorable opinion of counsel that the
Merger will qualify as a tax-free reorganization, the effectiveness of a
Registration Statement to be filed by Duke in respect of its Common Stock to be
issued in the Merger and certain regulatory approvals or filings, including
approvals by or filings with the North Carolina Utilities Commission, The Public
Service Commission of South Carolina and the Federal Energy Regulatory
Commission and the filing of the requisite notifications with the Federal Trade
Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the expiration of applicable waiting
periods thereunder. Duke and PanEnergy have agreed to certain undertakings and
limitations regarding the conduct of their business prior to the closing of the
transaction, which they anticipate will occur in 1997.
The Merger Agreement provides for termination by either Duke or PanEnergy
if the Merger has not been consummated by June 30, 1998 or if shareholder
approval is not obtained by Duke at its shareholders' meeting or by PanEnergy at
its shareholders' meeting. The Merger Agreement may be terminated by PanEnergy
before the approval of PanEnergy's shareholders is obtained if the Board of
Directors of PanEnergy determines that such termination is required by reason of
an Alternative Proposal (as defined in the Merger Agreement) being made. The
Merger Agreement may be terminated by Duke if the Board of Directors of
PanEnergy withdraws or modifies in a manner materially adverse to Duke its
2
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approval or recommendation of the Merger Agreement or the Merger or recommends
an Alternative Proposal to PanEnergy's shareholders. If an Alternative Proposal
is made and the Merger Agreement is terminated (x) pursuant to either of the
provisions described in the two preceding sentences, (y) because shareholder
approval is not obtained by PanEnergy at its shareholders' meeting (or because
such meeting has not been convened prior to June 30, 1998) or (z) by Duke by
reason of a breach of representation or warranty or covenant, and in any such
case the Alternative Proposal has not been rejected by the Board of Directors of
PanEnergy and withdrawn, then PanEnergy will pay Duke a $200 million fee.
The description of the Merger Agreement set forth herein does not purport
to be complete and is qualified in its entirety by the provisions of the Merger
Agreement, which is attached hereto as Exhibit 2(b) and is incorporated herein
by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following exhibits are filed herewith:
2(a). Press release dated November 25, 1996.
2(b). Agreement and Plan of Merger dated as of November 24, 1996 among
Duke Power Company, Duke Transaction Corporation and PanEnergy
Corp.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DUKE POWER COMPANY
Date: December 9, 1996 By: /s/ Richard J. Osborne
----------------------
Richard J. Osborne
Senior Vice President
and Chief Financial Officer
3
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Exhibit Index
Exhibit
Number Description
- --------- -----------
2(a). Press release dated November 25, 1996.
2(b). Agreement and Plan of Merger dated as of
November 24, 1996 among Duke Power Company,
Duke Transaction Corporation and PanEnergy Corp.
4
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EXHIBIT 2(a)
FOR IMMEDIATE RELEASE
CONTACT FOR DUKE POWER COMPANY: CONTACT FOR PANENERGY CORP:
MEDIA: Joe Maher MEDIA: John Barnett
704/382-8323 713/627-4072
INVESTORS: Allen Stewart INVESTORS: Brad Porlier
704/382-5087 713/627-4600
DUKE POWER AND PANENERGY ANNOUNCE $23 BILLION MERGER
TO CREATE UNPARALLELED INTEGRATED ENERGY PROVIDER
CHARLOTTE, NC AND HOUSTON, TX (NOVEMBER 25, 1996) -- Duke Power Company [NYSE:
DUK] and PanEnergy Corp [NYSE: PEL] today announced that their Boards of
Directors have approved a definitive merger agreement for a tax-free, stock-for-
stock transaction creating an integrated energy company with a total market
capitalization of approximately $23 billion ($17 billion in equity and $6
billion in debt and preferred stock). Under the agreement, each PanEnergy share
would be converted into 1.0444 shares of Duke Power. Based upon Duke Power's
closing price of $47.875 on November 22, 1996, Duke Power will issue
approximately $7.7 billion in stock to PanEnergy stockholders to complete the
transaction. PanEnergy stockholders will own approximately 44 percent of the
common stock of the company. The transaction will be accounted for as a pooling
of interests and is anticipated to become accretive towards the end of the
second year after the completion of the transaction. At closing, Duke Power
Company will change its name to Duke Energy Corporation.
The proposed combination would create an unparalleled integrated energy
provider that unites Duke Power, one of the nation's largest investor-owned
electric utilities serving 1.8 million customers, with PanEnergy, one of the
nation's leading energy services companies handling over 15 percent of the
natural gas consumed in the United States.
Duke Power currently pays an indicated annual dividend of $2.12 per share.
Accordingly, PanEnergy's shareholders will receive an increase of $1.25 in
dividends per share, based on the implied exchange ratio, from PanEnergy's
current indicated dividend of $0.96 per share.
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-2-
William H. Grigg, chairman and chief executive officer of Duke Power, said,
"This strategic merger is about growth, opportunity and creating value. Each of
our companies has a recognized name and a strong reputation in our industries.
This combination creates the preeminent provider of energy and energy services
in North America. Duke Power and PanEnergy share the vision that customer choice
is the driver of the energy services marketplace of the future. In our
dramatically changing industry, we need to define ourselves by our customers'
needs, not by our traditional product offerings. Companies that are positioned
to help their customers find business solutions that optimize a broad array of
energy products and services at competitive prices will be rewarded with
satisfied shareholders, customers, and employees.
"We at Duke Power realized that the implementation of our strategic goals
required a partner who shares our vision," Mr. Grigg continued. "We will
continue to be committed to our core electric business. However, both Duke
Power and PanEnergy realize that the convergence of the gas and electricity
industries means that a combined company would achieve distinct advantages not
available to either on a stand alone basis. The combination brings together one
of the largest and lowest-cost investor-owned electric utilities in the country
with PanEnergy, North America's third largest marketer of natural gas, the
fourth-largest U.S. natural gas liquids producer and owner of one of the
nation's leading interstate natural gas pipeline networks. Our companies are
committed to forging a union based on profitability, opportunity, efficiency and
growth.
"In forming this partnership with PanEnergy, we have aligned ourselves with a
team of management and Board members that has successfully navigated through a
period of deregulation and profound changes in the natural gas industry. The
skills that Mr. Anderson and his colleagues honed during that time will be
invaluable to us as we confront the challenges of deregulation in the electric
utility industry," Mr. Grigg concluded.
Paul M. Anderson, president and chief executive officer of PanEnergy, said,
"Over the last two years, PanEnergy has emerged as a mega-marketer of natural
gas with an expanding presence in other energy forms. As the gas and electric
markets have begun to converge, we have recognized a need to align ourselves
with an electric partner. Duke Power is the acknowledged industry leader in
providing safe, reliable, responsive and economical service to its customers.
It is upon this bedrock that we will build a true industry pacesetter in the
field of energy services. Moreover, Duke Power is recognized as having
engineering and global power asset management skills which rank it among the
best. I cannot imagine a better company for PanEnergy to join with in pursuing
its strategic vision. PanEnergy shareholders will have a substantial ownership
interest in a financially strong company with excellent access to financial
markets and a solid record of earnings and dividend growth."
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-3-
"We expect the unregulated business segments to generate significant
incremental operating income for Duke Energy through the marketing of energy
products and services both nationally and internationally," Mr. Anderson
continued. "We estimate incremental annual pre-tax income to be approximately
$225 million by the year 2000. PanEnergy currently gathers and processes 2.7
Trillion British thermal units (TBtu) of natural gas and markets 7.2 TBtu each
day. Combining this natural gas business base with Duke Power's knowledge of
the electric generation business, its experience in serving electric customers,
and its customer base, Duke Energy will have marketing expertise and market
reach far beyond what either company could achieve on its own."
"Duke Energy will have the ability to offer physical delivery and management
of both gas and electricity in multiple regions of the country through
PanEnergy's extensive pipeline system and Duke Power's well-managed electric
transmission grid," Mr. Anderson continued. "These systems will be managed
together in a new energy transportation group giving Duke Energy the flexibility
required to better serve its customers and respond to market forces. Owning
diverse physical assets will enable us to optimize the delivery of energy to our
customers. The energy services group will build upon the demonstrated success
of each company's existing energy marketing ventures: PanEnergy Trading and
Market Services, L.L.C. venture with Mobil Corporation and the Duke Energy
Group, Inc. power marketing venture with Louis Dreyfus Electric Power."
"The combination of PanEnergy and Duke Power will capture the opportunities
that are developing in the new energy services environment," said Dennis
Hendrix, chairman of PanEnergy. "It will create a platform to market, trade and
arrange physical delivery of energy products and services on a large scale to
all major market areas. The new company will also create expanded opportunities
in international markets, some of which are currently served by Duke Power and
PanEnergy. This will increase our ability to serve more customers and offer
them comprehensive packages of energy resources and management services."
Richard B. Priory, president and chief operating officer of Duke Power, said,
"This is a compelling combination for customers, shareholders and employees of
Duke Power and PanEnergy. Our customers will benefit from one-stop shopping for
the provision -- and management -- of their energy needs. Shareholders will
participate in the earnings and growth opportunities created by a new market
leader in energy services that intends to build on a track record of sustained
financial strength. Our employees will share in the opportunity to be part of a
larger company, positioned for leadership in the emerging energy services
industry. The economic potential of this transaction lies primarily in revenue
enhancements and strategic positioning, not cost cutting."
-more-
<PAGE>
-4-
"Our goal is to build a company that combines the best of both worlds --
building on Duke Power's superb reputation for reliability and service and its
deep roots in the Carolina communities while taking the steps necessary to
ensure that the company will prosper in the era of regulatory change that we
believe is inevitable across the country and around the globe. The merger of
PanEnergy and Duke Power combines two powerful, innovative companies eager to
join forces to win in the energy marketplace of the twenty-first century," Mr.
Priory added.
Upon completion of the merger, Richard B. Priory, currently president and
chief operating officer of Duke Power, will become chairman and chief executive
officer of Duke Energy; Paul M. Anderson, president and chief executive officer
of PanEnergy, will become president and chief operating officer of Duke Energy;
and William H. Grigg, currently chairman and chief executive officer of Duke
Power, will retire. Dennis Hendrix will step down as chairman of PanEnergy
effective with the merger and will join Duke Energy's board. The board of
directors of Duke Energy will be made up of 18 members, eleven from Duke Power
and seven from PanEnergy. The company will be headquartered in Charlotte, with
Houston serving as the center for PanEnergy's pipeline operations, trading and
marketing services, and certain business development activities.
After the completion of the merger, PanEnergy will be a wholly-owned
subsidiary of Duke Energy. Under the merger agreement, there are no changes
required with respect to either company's public debt issues or the outstanding
preferred stock of Duke Power.
The merger is conditioned, among other things, upon the approval of the
holders of a majority of the PanEnergy common shares outstanding and a majority
of the Duke Power common shares voting, and the completion of appropriate state
and federal regulatory procedures. The companies anticipate that the regulatory
procedures can be completed in less than 12 months.
Barr Devlin Associates and Morgan Stanley & Co. Incorporated acted as
financial advisors and provided fairness opinions to Duke Power. Merrill Lynch
& Co. and Lehman Brothers Inc. acted as financial advisors and provided fairness
opinions to PanEnergy.
PanEnergy Corp -- one of North America's leading energy services companies --
operates more than 37,000 miles of natural gas pipeline, delivering gas
primarily to Northeast and Midwest markets. The company is also one of the
nation's largest natural gas gatherers and processors and markets liquefied
petroleum gases and related energy services throughout the United States and
Canada. Through its recently formed venture with Mobil, PanEnergy is one of the
leading marketers of natural gas and electricity in North America. The company
also has other energy interests worldwide.
-more-
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-5-
Duke Power is one of the nation's largest investor-owned electric utilities.
Headquartered in Charlotte, NC, it serves 1.8 million residential, commercial
and industrial customers in a 20,000 square-mile service area in North Carolina
and South Carolina. The company operates a diversified generating system
consisting of three nuclear generating stations, eight coal-fired generating
stations and 38 hydroelectric plants. In addition to its regulated activities,
Duke Power also has several non-regulated businesses whose services include
electric power facility development and management; real estate development;
energy and environmental engineering services; construction services;
merchandising; and telecommunications.
This press release includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although Duke Power believes that its expectations are
based on reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements herein include the pace
of deregulation of retail natural gas and electricity markets in the United
States, federal and state regulatory developments, the timing and extent of
changes in commodity prices for oil, gas, coal, electricity and interest rates,
the extent of success in connecting natural gas supplies to gathering and
processing systems and in connecting and expanding gas and electric markets, the
performance of electric generation, pipeline and gas processing facilities,
decommissioning costs associated with nuclear generating facilities, the timing
and success of efforts to develop domestic and international power, pipeline,
gathering, processing and other infrastructure projects and conditions of the
capital markets and equity markets during the periods covered by the forward
looking statements.
Note to Editors: Today's news release, along with other news about Duke Power
and PanEnergy, is available on the Internet at: http:\\www.dukepower.com AND
http://www.naturalgas.com/pec.
# # #
SATELLITE UPLINK FOR DUKE POWER/PANENERGY B-ROLL:
November 25, 1996
10:00 - 10:30 a.m. EST
and 1:30 - 2:00 p.m. EST
C-Band Galaxy 9; Transponder 6
If you have any technical questions or problems with the satellite feed for Duke
Power/PanEnergy B-roll, please call Emy Nakase at 212/627-5622.
<PAGE>
EXHIBIT 2(b)
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DUKE POWER COMPANY
AND
DUKE TRANSACTION CORPORATION
AND
PANENERGY CORP
DATED AS OF NOVEMBER 24, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
1.1. The Merger......................................... 2
1.2. The Closing........................................ 2
1.3. Effective Time..................................... 2
ARTICLE 2
CERTIFICATE OF INCORPORATION AND
BY-LAWS OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation....................... 2
2.2. By-laws............................................ 3
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION
3.1. Directors.......................................... 3
3.2. Officers........................................... 3
ARTICLE 4
EFFECT OF THE MERGER ON SECURITIES OF
MERGER SUB AND PANENERGY
4.1. Merger Sub Stock................................... 3
4.2. PanEnergy Securities............................... 3
4.3. Exchange of Certificates Representing
PanEnergy Common Stock........................... 5
4.4. Adjustment of Exchange Ratio....................... 8
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PANENERGY
5.1. Organization, Standing and Power................... 9
5.2. Capital Structure.................................. 9
5.3. Authority; No Violations; Consents and Approvals... 11
5.4. SEC Documents...................................... 13
5.5. Information Supplied............................... 14
5.6. Absence of Certain Changes or Events............... 15
5.7. No Undisclosed Material Liabilities................ 16
5.8. No Default......................................... 16
5.9. Compliance with Applicable Laws.................... 16
i
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5.10. Litigation......................................... 17
5.11. Tax Matters........................................ 17
5.12. Employee Benefits; Labor Matters................... 21
5.13. Environmental Matters.............................. 23
5.14. Insurance.......................................... 26
5.15. Contracts.......................................... 27
5.16. Regulatory Proceedings............................. 27
5.17. Regulation as a Utility............................ 27
5.18. Opinions of Financial Advisors..................... 28
5.19. Vote Required...................................... 28
5.20. Beneficial Ownership of Duke Common Stock.......... 28
5.21. Brokers............................................ 28
5.22. Article Seventh of the Restated Certificate
of Incorporation of PanEnergy and Section 203 of
the DGCL Not Applicable.......................... 28
5.23. Properties......................................... 28
5.24. Easements.......................................... 29
5.25. Futures Trading and Fixed Price Exposure........... 29
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF DUKE
6.1. Organization, Standing and Power................... 30
6.2. Capital Structure.................................. 30
6.3. Authority; No Violations; Consents and Approvals... 32
6.4. SEC Documents...................................... 34
6.5. Information Supplied............................... 35
6.6. Absence of Certain Changes or Events............... 36
6.7. No Undisclosed Material Liabilities................ 36
6.8. No Default......................................... 37
6.9. Compliance with Applicable Laws.................... 37
6.10. Litigation......................................... 37
6.11. Tax Matters........................................ 38
6.12. Employee Benefits; Labor Matters................... 42
6.13. Environmental Matters.............................. 43
6.14. Insurance.......................................... 44
6.15. Contracts.......................................... 45
6.16. Regulatory Proceedings............................. 45
6.17. Regulation as a Utility............................ 45
6.18. Opinions of Financial Advisors..................... 46
6.19. Vote Required...................................... 46
6.20. Beneficial Ownership of PanEnergy Common Stock..... 46
6.21. Brokers............................................ 46
6.22. Properties......................................... 46
6.23. Franchises, Licenses, Etc.......................... 47
6.24. Nuclear Operations................................. 48
ii
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6.25. Duke/Louis Dreyfus L.L.C. ("D/LD") Obligations..... 48
6.26. Representations with Respect to Merger Sub......... 48
ARTICLE 7
CONDUCT OF BUSINESS PENDING THE MERGER
7.1. Conduct of Business of PanEnergy Pending the Merger 49
(a) Ordinary Course of Business................... 49
(b) Dividends; Changes in Stock................... 50
(c) Issuance of Securities........................ 50
(d) Capital Expenditures.......................... 50
(e) No Acquisitions............................... 51
(f) No Dispositions............................... 51
(g) No Dissolution, Etc........................... 51
(h) Certain Employee Matters...................... 51
(i) Indebtedness; Leases.......................... 52
(j) Governing Documents........................... 53
(k) Accounting.................................... 53
(l) Rate Matters.................................. 53
(m) Contracts..................................... 53
(n) Insurance..................................... 53
(o) Permits....................................... 53
(p) Discharge of Liabilities...................... 54
(q) 1935 Act...................................... 54
(r) Tax Matters................................... 54
(s) Tax Status.................................... 54
(t) Other Actions................................. 54
(u) Agreements.................................... 54
7.2. Conduct of Business of Duke Pending the Merger..... 54
(a) Ordinary Course of Business................... 55
(b) Dividends; Changes in Stock................... 55
(c) Issuance of Securities........................ 56
(d) Capital Expenditures.......................... 56
(e) No Acquisitions............................... 56
(f) No Dispositions............................... 57
(g) No Dissolution, Etc........................... 57
(h) Certain Employee Matters...................... 57
(i) Indebtedness; Leases.......................... 58
(j) Governing Documents........................... 58
(k) Accounting.................................... 58
(l) Rate Matters.................................. 59
(m) Contracts..................................... 59
(n) Insurance..................................... 59
(o) Permits....................................... 59
(p) Discharge of Liabilities...................... 59
(q) 1935 Act...................................... 60
(r) Tax Matters................................... 60
(s) Tax Status.................................... 60
(t) Other Actions................................. 60
(u) Agreements.................................... 60
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7.3. Transition Committee............................... 60
ARTICLE 8
COVENANTS
8.1. Alternative Proposals.............................. 60
8.2. Preparation of S-4 and the Joint Proxy Statement... 62
8.3. Letter of PanEnergy's Accountants.................. 62
8.4. Letter of Duke's Accountants....................... 62
8.5. Access to Information.............................. 63
8.6. PanEnergy Stockholders' Meeting.................... 63
8.7. Duke Shareholders' Meeting......................... 63
8.8. Regulatory and Other Approvals..................... 64
(a) HSR Act....................................... 64
(b) Other Regulatory Approvals.................... 64
(c) Other Approvals............................... 64
8.9. Agreements of Others............................... 64
8.10. Authorization for Shares and
Stock Exchange Listings.......................... 65
8.11. Indemnification; Directors' and Officers' Insurance 65
8.12. Public Announcements............................... 66
8.13. Other Actions...................................... 66
8.14. Cooperation; Notification.......................... 66
8.15. Governance......................................... 67
(a) Board of Directors of Duke.................... 67
(b) Committees of the Board of Directors of Duke.. 67
(c) Officers of Duke.............................. 67
(d) Office of the Chief Executive;
Executive Committee......................... 67
(e) Name; Corporate Headquarters.................. 68
8.16. Employment Agreements.............................. 68
8.17. Expenses........................................... 68
8.18. Pooling............................................ 68
8.19. Tax Matters........................................ 69
8.20. Employee Benefit Plans............................. 69
ARTICLE 9
CONDITIONS
9.1. Conditions to Each Party's Obligation
to Effect the Merger............................. 72
9.2. Conditions to Obligation of PanEnergy
to Effect the Merger............................. 73
9.3. Conditions to Obligation of Duke and
Merger Sub to Effect the Merger.................. 74
iv
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ARTICLE 10
TERMINATION
10.1. Termination by Mutual Consent...................... 75
10.2. Termination by Either Duke or PanEnergy............ 75
10.3. Termination by PanEnergy........................... 76
10.4. Termination by Duke................................ 76
10.5. Effect of Termination and Abandonment.............. 76
10.6. Extension, Waiver.................................. 77
ARTICLE 11
GENERAL PROVISIONS
11.1. Nonsurvival of Representations,
Warranties and Agreements........................ 78
11.2. Notices............................................ 78
11.3. Assignment; Binding Effect......................... 79
11.4. Entire Agreement................................... 79
11.5. Amendment.......................................... 80
11.6. Governing Law...................................... 80
11.7. Counterparts....................................... 80
11.8. Headings........................................... 80
11.9. Interpretation..................................... 80
11.10. Waivers............................................ 80
11.11. Severability....................................... 81
11.12. Enforcement of Agreement........................... 81
11.13. Further Assurances................................. 81
11.14. Waiver of Jury Trial............................... 81
11.15. Certain Definitions................................ 82
EXHIBIT A FORM OF AFFILIATE LETTER
EXHIBIT B-1 FORM OF EMPLOYMENT AGREEMENT FOR PAUL M. ANDERSON
OF PANENERGY
EXHIBIT B-2 FORM OF EMPLOYMENT AGREEMENT FOR JAMES T. HACKETT
OF PANENERGY
EXHIBIT B-3 FORM OF EMPLOYMENT AGREEMENT FOR FRED J. FOWLER
OF PANENERGY
EXHIBIT B-4 FORM OF EMPLOYMENT AGREEMENT FOR L.B. GATEWOOD
OF PANENERGY
EXHIBIT B-5 FORM OF EMPLOYMENT AGREEMENT FOR JIM W. MOGG
OF PANENERGY
EXHIBIT B-6 FORM OF EMPLOYMENT AGREEMENT FOR BRUCE WILLIAMSON
OF PANENERGY
EXHIBIT C-1 FORM OF EMPLOYMENT AGREEMENT FOR RICHARD B. PRIORY
OF DUKE
EXHIBIT C-2 FORM OF EMPLOYMENT AGREEMENT FOR WILLIAM A. COLEY
OF DUKE
EXHIBIT C-3 FORM OF EMPLOYMENT AGREEMENT FOR RICHARD J. OSBORNE
OF DUKE
EXHIBIT C-4 FORM OF EMPLOYMENT AGREEMENT FOR RUTH G. SHAW
OF DUKE
EXHIBIT C-5 FORM OF EMPLOYMENT AGREEMENT FOR MICHAEL S. TUCKMAN
OF DUKE
EXHIBIT C-6 FORM OF EMPLOYMENT AGREEMENT FOR DAVID L. HAUSER
OF DUKE
v
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INDEX OF DEFINED TERMS
"1935 Act".....................................................27
"Agreement".....................................................1
"Alternative Proposal".........................................61
"Atomic Energy Act"............................................34
"Cash Balance Conversion"......................................70
"Certificate"...................................................4
"Closing Agreement"............................................19
"Closing Date"..................................................2
"Closing".......................................................2
"Code"..........................................................1
"Confidentiality Agreement"....................................63
"Continuation Period"..........................................69
"Convertible Notes".............................................5
"D/LD".........................................................48
"D&O Insurance"................................................65
"Delaware Courts"..............................................80
"DGCL"..........................................................2
"Duke"..........................................................1
"Duke 1995 Margin Threshold"...................................45
"Duke 1995 Revenue Threshold"..................................45
"Duke Benefit Plans"...........................................42
"Duke Capital Budget"..........................................55
"Duke Common Stock".............................................3
"Duke Director"................................................67
"Duke Disclosure Schedule".....................................30
"Duke Generating Stations".....................................47
"Duke Litigation"..............................................38
"Duke Orders"..................................................38
"Duke Permits".................................................37
"Duke Personnel"...............................................42
"Duke Preference Stock"........................................31
"Duke Preferred Stock A".......................................31
"Duke Preferred Stock".........................................30
"Duke Required Consents".......................................33
"Duke Required Statutory Approvals"............................34
"Duke SEC Documents"...........................................35
"Duke Stock Repurchase Program"................................36
"Duke Shareholders' Meeting"...................................13
"Duke Stock Plans".............................................31
"Duke Vote Matter".............................................32
"Easements"....................................................29
"Effective Time"................................................2
"Environmental Claims".........................................23
"Environmental Laws"...........................................23
"Environmental Permits"........................................25
"Environmental Subsidiary".....................................24
"ERISA"........................................................22
"Excess Shares Proceeds"........................................7
"Excess Shares".................................................7
"Exchange Act".................................................13
"Exchange Agent"................................................5
i
<PAGE>
"Exchange Fund".................................................5
"Exchange Ratio"................................................3
"FERC".........................................................13
"Final Order"..................................................73
"GAAP"..........................................................1
"Governmental Entity"..........................................13
"Hazardous Materials"..........................................24
"HSR Act"......................................................13
"IRS"..........................................................19
"Joint Proxy Statement"........................................13
"Joint Venture"................................................82
"Material Adverse Effect".......................................9
"Maximum Premium"..............................................65
"Merger Sub"....................................................1
"Merger"........................................................1
"Mobil Joint Venture"..........................................30
"Mortgage".....................................................46
"NCBCA"........................................................32
"NCUC".........................................................34
"Net PanEnergy Position".......................................29
"NP&L".........................................................45
"Nuclear Stations".............................................48
"NYSE"..........................................................7
"PanEnergy".....................................................1
"PanEnergy Benefit Plans"......................................22
"PanEnergy Business Unit"......................................27
"PanEnergy Business Unit's 1995 Margin Threshold"..............27
"PanEnergy Business Unit's 1995 Revenue Threshold".............27
"PanEnergy Common Stock"........................................3
"PanEnergy Director"...........................................67
"PanEnergy Disclosure Schedule".................................9
"PanEnergy DRIP"...............................................10
"PanEnergy Employees"..........................................69
"PanEnergy Litigation".........................................17
"PanEnergy Option"..............................................4
"PanEnergy Options".............................................4
"PanEnergy Orders".............................................17
"PanEnergy Permits"............................................16
"PanEnergy Personnel"..........................................21
"PanEnergy Pipeline Assets"....................................29
"PanEnergy Preferred Stock".....................................9
"PanEnergy Required Consents"..................................12
"PanEnergy Restricted Stock"....................................4
"PanEnergy SEC Documents"......................................14
"PanEnergy Stock Option Plan"...................................4
"PanEnergy Stock Option Plans"..................................4
"PanEnergy Stock Plans"........................................10
"PanEnergy Stockholders' Approval".............................11
"PanEnergy Stockholders' Meeting"..............................13
"Peat Marwick".................................................62
"Power Act"....................................................13
"PSCSC"........................................................34
ii
<PAGE>
"Record Date"..................................................50
"Release"......................................................24
"Rule 145 Affiliates"..........................................65
"S-4"..........................................................14
"Securities Act"................................................7
"Significant Subsidiary".......................................82
"Stock Benefit Plans"..........................................71
"Subsidiary"...................................................82
"Subsidiary Capital Expenditures"..............................56
"Surviving Corporation".........................................2
"Tax Return"...................................................17
"Tax Ruling"...................................................19
"Taxes"........................................................17
"Transition Committee".........................................60
"Voting Debt"..................................................10
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November 24,
1996, by and among Duke Power Company, a North Carolina corporation ("Duke"),
Duke Transaction Corporation, a Delaware corporation and a wholly-owned
subsidiary of Duke ("Merger Sub"), and PanEnergy Corp, a Delaware corporation
("PanEnergy").
RECITALS
WHEREAS, Duke and PanEnergy have each determined to engage in a strategic
business combination with the other;
WHEREAS, in furtherance thereof, the respective Boards of Directors of Duke
and PanEnergy have approved the merger (the "Merger") of Merger Sub with and
into PanEnergy whereby the Common Stock of PanEnergy will be converted into and
exchanged for Common Stock of Duke and PanEnergy will become a wholly-owned
subsidiary of Duke, all pursuant to the terms and conditions set forth in this
Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will be a reorganization of the type described in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder;
WHEREAS, for accounting purposes, it is intended that the transaction
contemplated hereby shall be accounted for as a pooling of interests under
United States generally accepted accounting principles ("GAAP");
WHEREAS, Duke and PanEnergy have each received fairness opinions relating
to the transactions contemplated hereby (as more fully described herein); and
WHEREAS, Duke, Merger Sub and PanEnergy desire to make certain
representations, warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
<PAGE>
ARTICLE 1
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
----------
the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with
and into PanEnergy in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease. PanEnergy shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in the Delaware
General Corporation Law (the "DGCL").
1.2. The Closing. Subject to the terms and conditions of this Agreement,
-----------
the closing of the Merger (the "Closing") shall take place (a) at the offices of
Dewey Ballantine, 1301 Avenue of the Americas, New York, New York, at 10:00
a.m., local time, on the second business day immediately following the day on
which the last to be fulfilled or waived of the conditions set forth in Article
9 shall be fulfilled or waived in accordance herewith or (b) at such other time,
date or place as Duke and PanEnergy may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date".
1.3. Effective Time. If all the conditions to the Merger set forth in
--------------
Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
CERTIFICATE OF INCORPORATION AND
BY-LAWS OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Merger Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time (except that Article 1 of such Certificate of Incorporation shall be
amended as of the Effective Time to read as follows: "The name of the
2
<PAGE>
Corporation is PanEnergy Corp."), until duly amended in accordance with
applicable law.
2.2. By-laws. The By-laws of Merger Sub in effect immediately prior to the
-------
Effective Time shall be the By-laws of the Surviving Corporation, until duly
amended in accordance with applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION
3.1. Directors. The directors of the Surviving Corporation at the
---------
Effective Time shall be the directors of PanEnergy immediately prior to the
Effective Time together with such other persons as Duke shall designate and
until their successors are duly appointed or elected in accordance with
applicable law.
3.2. Officers. The officers of the Surviving Corporation at the Effective
--------
Time shall be the officers of PanEnergy immediately prior to the Effective Time
together with such other persons as Duke shall designate and until their
successors are duly appointed or elected in accordance with applicable law.
ARTICLE 4
EFFECT OF THE MERGER ON SECURITIES OF
MERGER SUB AND PANENERGY
4.1. Merger Sub Stock. At the Effective Time, each share of Common Stock,
----------------
$1.00 par value, of Merger Sub outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and non-assessable share of Common Stock, $1.00 par value, of the Surviving
Corporation.
4.2. PanEnergy Securities. (a) At the Effective Time, each share of
--------------------
Common Stock, par value $1.00 per share (the "PanEnergy Common Stock"), of
PanEnergy issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive 1.0444 shares of Common Stock,
without par value (the "Duke Common Stock"), of Duke (the "Exchange Ratio").
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time all shares of PanEnergy Common Stock shall
cease to be
3
<PAGE>
outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of shares of PanEnergy Common Stock shall thereafter cease to have
any rights with respect to such shares of PanEnergy Common Stock, except the
right to receive, without interest, the Duke Common Stock and cash for
fractional shares of Duke Common Stock in accordance with Sections 4.3(b) and
4.3(e) upon the surrender of a certificate (a "Certificate") representing such
shares of PanEnergy Common Stock.
(c) Each share of PanEnergy Common Stock issued and held in PanEnergy's
treasury or by any Subsidiary (as defined in Section 11.15) of PanEnergy at the
Effective Time shall, by virtue of the Merger, cease to be outstanding and shall
be cancelled and retired without payment of any consideration therefor.
(d) All options (individually, a "PanEnergy Option" and collectively, the
"PanEnergy Options") outstanding at the Effective Time under any PanEnergy stock
option plan (individually, a "PanEnergy Stock Option Plan" and collectively, the
"PanEnergy Stock Option Plans") shall remain outstanding following the Effective
Time. At the Effective Time, such PanEnergy Options shall, by virtue of the
Merger and without any further action on the part of PanEnergy or the holder of
any such PanEnergy Options, be assumed by Duke in such manner that Duke (i) is a
corporation "assuming a stock option in a transaction to which Section 424(a)
applied" within the meaning of Section 424 of the Code, or (ii) to the extent
that Section 424 of the Code does not apply to any such PanEnergy Options, would
be such a corporation were Section 424 of the Code applicable to such PanEnergy
Option. Each PanEnergy Option assumed by Duke shall be exercisable upon the
same terms and conditions as under the applicable PanEnergy Stock Option Plan
and the applicable option agreement issued thereunder, except that (i) each such
PanEnergy Option shall be exercisable for that whole number of shares of Duke
Common Stock (rounded down to the nearest whole share) into which the number of
shares of PanEnergy Common Stock subject to such PanEnergy Option immediately
prior to the Effective Time would be converted under this Section 4.2, and (ii)
the option price per share of Duke Common Stock shall be an amount equal to the
option price per share of PanEnergy Common Stock subject to such PanEnergy
Option in effect immediately prior to the Effective Time divided by the Exchange
Ratio (the option price per share, as so determined, being rounded up to the
nearest full cent). No payment shall be made for fractional interests. Each
award of restricted PanEnergy Common Stock outstanding at the Effective Time
that is not vested before or at the Effective Time (the "PanEnergy Restricted
Stock") shall remain outstanding following the Effective Time in accordance with
4
<PAGE>
the terms of any such award. At the Effective Time, such PanEnergy Restricted
Stock shall, by virtue of the Merger and without any further action on the part
of PanEnergy or the holder of any such PanEnergy Restricted Stock, be assumed by
Duke and shall be adjusted to constitute an award of restricted Duke Common
Stock, upon the same terms and conditions as were applicable under such
PanEnergy Restricted Stock, except that it shall consist of such number of
shares of Duke Common Stock into which such PanEnergy Restricted Stock is
converted pursuant to the Merger. At the Effective Time, Duke shall assume each
agreement relating to PanEnergy Stock Options and PanEnergy Restricted Stock,
each as amended pursuant to the foregoing. As soon as practicable after the
Effective Time, Duke shall deliver to the holders of PanEnergy Stock Options and
PanEnergy Restricted Stock appropriate documentation setting forth such holders'
rights pursuant to the amended terms thereof, each as assumed by Duke.
(e) The 9% Convertible Notes of PanEnergy due 1997-2004 (the "Convertible
Notes") shall remain outstanding following the Effective Time, unless
theretofore redeemed. At the Effective Time, PanEnergy shall take such action as
may be necessary so that, after the Effective Time, the Convertible Notes
outstanding at the Effective Time, if any, shall be convertible in accordance
with their terms only for Duke Common Stock. Duke shall authorize and reserve
for issuance, or otherwise provide, a sufficient number of shares of Duke Common
Stock for delivery upon such conversion of the then outstanding Convertible
Notes.
4.3. Exchange of Certificates Representing PanEnergy Common Stock. (a) As
------------------------------------------------------------
of the Effective Time, Duke shall deposit, or shall cause to be deposited, with
an exchange agent selected by Duke, which shall be reasonably satisfactory to
PanEnergy (the "Exchange Agent"), for the benefit of the holders of shares of
PanEnergy Common Stock, for exchange in accordance with this Article 4,
certificates representing the shares of Duke Common Stock (such certificates for
shares of Duke Common Stock, together with any dividends or distributions paid
with respect thereto relating to record dates for such dividends or
distributions after the Effective Time, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 4.2 and paid pursuant to this
Section 4.3 in exchange for outstanding shares of PanEnergy Common Stock.
(b) Promptly after the Effective Time, Duke shall cause the Exchange Agent
to mail to each holder of record of shares of PanEnergy Common Stock (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to such shares of PanEnergy Common Stock shall pass, only
upon delivery of the
5
<PAGE>
Certificates representing such shares to the Exchange Agent and which shall be
in such form and have such other provisions as Duke may reasonably specify and
(ii) instructions for use in effecting the surrender of such Certificates in
exchange for certificates representing shares of Duke Common Stock and cash in
lieu of fractional shares. Upon surrender of a Certificate for cancellation to
the Exchange Agent together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of the shares
represented by such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing that number of whole shares of Duke
Common Stock and (y) a check representing the amount of cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any, which
such holder has the right to receive in respect of the Certificate surrendered
pursuant to the provisions of this Article 4, less any required withholding tax,
and the shares represented by the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares and unpaid dividends and distributions, if any, payable to
holders of shares of PanEnergy Common Stock. In the event of a transfer of
ownership of PanEnergy Common Stock which is not registered in the transfer
records of PanEnergy, a certificate representing the proper number of shares of
Duke Common Stock, together with a check for the cash to be paid in lieu of
fractional shares, may be issued to such a transferee if the Certificate
representing such PanEnergy Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends
or other distributions declared after the Effective Time on Duke Common Stock
shall be paid with respect to any shares of PanEnergy Common Stock represented
by a Certificate to the holder of such Certificate until such Certificate is
surrendered for exchange as provided herein. Dividends and distributions
declared after the Effective Date in respect of shares of Duke Common Stock that
would be delivered by the Exchange Agent in exchange for shares of PanEnergy
Common Stock upon surrender of the Certificates therefor shall be deposited with
the Exchange Agent for the benefit of the holders of such Certificates until the
unclaimed portion of the Exchange Fund is returned to Duke in accordance with
Section 4.3(f). Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Duke Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of
6
<PAGE>
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Duke Common Stock, less
the amount of any withholding taxes which may be required thereon, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Duke
Common Stock, less the amount of any withholding taxes which may be required
thereon.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of PanEnergy of the shares of PanEnergy Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged for certificates for shares of Duke Common
Stock and cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive in respect of
the Certificates surrendered in accordance with the procedures set forth in this
Article 4. Certificates surrendered for exchange by any person constituting an
"affiliate" of PanEnergy for purposes of Rule 145(c) under the Securities Act of
1933, as amended (the "Securities Act"), shall not be exchanged until Duke has
received a written agreement from such person as provided in Section 8.9.
(e) No fractional shares of Duke Common Stock shall be issued pursuant
hereto. As promptly as possible following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of Duke Common
Stock delivered to the Exchange Agent by Duke pursuant to Section 4.3(a) over
(ii) the number of full shares of Duke Common Stock to be distributed to the
holders of PanEnergy Common Stock pursuant to Section 4.3(b) (such excess being
herein referred to as the "Excess Shares"). As soon after the Effective Date as
practicable, the Exchange Agent, as agent for the holders of PanEnergy Common
Stock, shall sell the Excess Shares at the then prevailing prices on the New
York Stock Exchange (the "NYSE") through one or more member firms of the NYSE in
round lots to the extent practicable. Duke shall pay, or cause to be paid, all
commissions, transfer taxes and other out-of-pocket transactions costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. Until the proceeds of such sale
or sales have been distributed to the holders of PanEnergy Common Stock, the
Exchange Agent shall hold such proceeds in trust for the holders of PanEnergy
Common Stock. The Exchange Agent shall determine the portion of the proceeds
from the sale of the Excess Shares (the "Excess Shares
7
<PAGE>
Proceeds") to which each holder of PanEnergy Common Stock is entitled, if any,
by multiplying the amount of the Excess Shares Proceeds by a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder of PanEnergy Common Stock is entitled, and the denominator of which is
the aggregate amount of fractional share interests to which all of the holders
of PanEnergy Common Stock are entitled. As soon as practicable after the sale
of the Excess Shares and the determination of the amount of cash, if any, to be
paid to each holder of PanEnergy Common Stock in lieu of any fractional share
interests, the Exchange Agent shall distribute such amounts to the holders of
PanEnergy Common Stock entitled thereto and who have theretofore delivered
Certificates for PanEnergy Common Stock pursuant to this Article 4.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Duke Common Stock) that remains unclaimed
by the former stockholders of PanEnergy one year after the Effective Time shall
be delivered to Duke. Any former stockholders of PanEnergy who have not
theretofore complied with this Article 4 shall thereafter look only to Duke for
payment of their shares of Duke Common Stock, cash in lieu of fractional shares
and unpaid dividends and distributions on the Duke Common Stock deliverable in
respect of each share of PanEnergy Common Stock such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
(g) None of Duke, PanEnergy, the Surviving Corporation, the Exchange Agent
or any other person shall be liable to any former holder of shares of PanEnergy
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Duke, the
posting by such person of a bond in such reasonable amount as Duke may direct as
indemnity against any claim that may be made against it or the Surviving
Corporation with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of Duke
Common Stock and cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Duke Common Stock as provided in Section 4.3(c),
deliverable in respect thereof pursuant to this Agreement.
4.4. Adjustment of Exchange Ratio. In the event that, subsequent to the
----------------------------
date of this Agreement but prior to
8
<PAGE>
the Effective Time, the outstanding shares of Duke Common Stock or PanEnergy
Common Stock, respectively, shall have been changed into a different number of
shares or a different class as a result of a stock split, reverse stock split,
stock dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the Exchange Ratio shall be
appropriately adjusted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PANENERGY
Except as set forth in the disclosure schedule dated as of the date
hereof and signed by an authorized officer of PanEnergy and delivered to Duke by
or on behalf of PanEnergy on or prior to the date hereof (the "PanEnergy
Disclosure Schedule") (each of which exceptions shall specifically identify the
relevant Section hereof to which it relates), PanEnergy represents and warrants
to Duke as follows:
5.1. Organization, Standing and Power. Each of PanEnergy and its
--------------------------------
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its state of incorporation or
organization, has all requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as now being conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which the business it is conducting, or the operation, ownership or leasing
of its assets and properties, makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect on PanEnergy (as hereinafter defined). As used in this Agreement
a "Material Adverse Effect" shall mean, in respect of PanEnergy, any effect or
change that is, or is reasonably likely to be, materially adverse to the
business, operations, assets, financial condition or results of operations of
PanEnergy and its Subsidiaries taken as a whole. PanEnergy has heretofore made
available to Duke complete and correct copies of its Restated Certificate of
Incorporation and By-laws and the certificates of incorporation and by-laws (or
similar governing documents) of each of its Subsidiaries, in each case as in
effect at the date hereof.
5.2. Capital Structure. (a) The authorized capital stock of PanEnergy
-----------------
consists of 300,000,000 shares of PanEnergy Common Stock and 3,000,000 shares of
preferred stock, par value $1.00 per share (the "PanEnergy Preferred Stock").
At the close of business on October 31, 1996:
9
<PAGE>
(i) 151,066,410 shares of PanEnergy Common Stock and no shares of PanEnergy
Preferred Stock were issued and outstanding; (ii) 7,015,366 shares of PanEnergy
Common Stock were reserved for issuance pursuant to PanEnergy's stock option
plans and programs (collectively, the "PanEnergy Stock Plans"); (iii) no shares
of PanEnergy Common Stock were held by PanEnergy in its treasury or by any
Subsidiary of PanEnergy, except for shares of PanEnergy Common Stock held in
treasury for issuance pursuant to PanEnergy's Dividend Reinvestment and Stock
Purchase Plan (together with any successor plan, the "PanEnergy DRIP"); and (iv)
no bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote on any matters on which its
stockholders may vote) ("Voting Debt") were issued or outstanding, except for
the Convertible Notes. Since October 31, 1996, except for changes resulting
from the exercise of stock options granted prior to the date hereof pursuant to
the PanEnergy Stock Plans, changes resulting from issuances of PanEnergy Common
Stock pursuant to the PanEnergy DRIP and changes resulting from the conversion
of Convertible Notes (which exercises of stock options, issuances of PanEnergy
Common Stock and conversions of Convertible Notes are set forth, as of November
15, 1996, in Section 5.2(a) of the PanEnergy Disclosure Schedule), PanEnergy has
not issued: (A) any additional shares of capital stock, Voting Debt or other
voting securities or (B) any securities convertible into or exchangeable for
shares of capital stock, any Voting Debt or other voting securities. The
authorized capital stock of each wholly-owned Subsidiary of PanEnergy and the
percentage ownership interest of PanEnergy and any other Subsidiary or
Subsidiaries of PanEnergy in any Subsidiary that is not wholly-owned, in each
case as of the date hereof, are set forth in Section 5.2(a) of the PanEnergy
Disclosure Schedule. All outstanding shares of PanEnergy Common Stock and all
outstanding shares of the capital stock of each Subsidiary of PanEnergy are
validly issued, fully paid and nonassessable and are not subject to any
preemptive rights. Except as set forth in Section 5.2(a) of the PanEnergy
Disclosure Schedule, all outstanding shares of the capital stock of the
Subsidiaries of PanEnergy are owned by PanEnergy or wholly-owned Subsidiaries of
PanEnergy, free and clear of all liens, charges, encumbrances, claims, security
interests, equities and options of any nature whatsoever. Except as set forth
in Section 5.2(a) of the PanEnergy Disclosure Schedule and except for the
conversion rights of the holders of the Convertible Notes, as of the date
hereof, there are no outstanding subscriptions, options, warrants, calls,
rights, commitments or agreements to which PanEnergy or any Subsidiary of
PanEnergy is a party or by which PanEnergy or any Subsidiary of PanEnergy is
bound, obligating PanEnergy or any Subsidiary of PanEnergy to issue, deliver,
sell, purchase, redeem or acquire, or
10
<PAGE>
cause to be issued, delivered, sold, purchased, redeemed or acquired, any
additional shares of capital stock, any Voting Debt or other voting securities
of PanEnergy or of any Subsidiary of PanEnergy, or obligating PanEnergy or any
Subsidiary of PanEnergy to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. There are no stockholder agreements,
voting trusts, proxies or other agreements or understandings to which PanEnergy
or any Subsidiary of PanEnergy is a party or by which PanEnergy or any
Subsidiary of PanEnergy is bound relating to the voting of any shares of the
capital stock of PanEnergy or any Subsidiary of PanEnergy by any person other
than PanEnergy or a Subsidiary of PanEnergy.
(b) Section 5.2(b) of the PanEnergy Disclosure Schedule lists as of the
date hereof all Subsidiaries of PanEnergy, including the name of each
Subsidiary, the state or jurisdiction of its incorporation or organization, the
states or jurisdictions in which they are qualified or licensed to do business
and PanEnergy's interest therein.
(c) Section 5.2(c) of the PanEnergy Disclosure Schedule lists as of the
date hereof all Joint Ventures (as defined in Section 11.15) of PanEnergy,
including the name of each such entity, the state or jurisdiction of its
organization, the states or jurisdictions in which they are qualified or
licensed to do business and PanEnergy's interest therein.
(d) The Shareholder Rights Protection Agreement dated as of March 11,
1986, as amended, between PanEnergy and Continental Stock Transfer & Trust
Company, as successor Rights Agent, has been terminated or has expired without
any rights becoming exercisable thereunder, and PanEnergy has not adopted any
other shareholder rights plan and will not do so prior to the Effective Time.
5.3. Authority; No Violations; Consents and Approvals. (a) The Board of
------------------------------------------------
Directors of PanEnergy has approved this Agreement, the Merger and the other
transactions contemplated hereby by the unanimous vote of all of the directors
present and has declared this Agreement, the Merger and the other transactions
contemplated hereby to be in the best interests of the stockholders of
PanEnergy. The directors voting thereon have advised PanEnergy and Duke that
they intend to vote or cause to be voted all of the shares of PanEnergy Common
Stock beneficially owned by them in favor of approval of the Merger and this
Agreement. PanEnergy has all requisite corporate power and authority to enter
into this Agreement and, subject to adoption of this Agreement by the
stockholders of PanEnergy in accordance with the DGCL (the "PanEnergy
Stockholders' Approval") and due and timely
11
<PAGE>
receipt of all regulatory consents and approvals set forth in Section 5.3(c) of
the PanEnergy Disclosure Schedule, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of PanEnergy, subject, with respect to consummation
of the Merger, to the PanEnergy Stockholders' Approval and due and timely
receipt of the regulatory consents and approvals specified above. This
Agreement has been duly executed and delivered by PanEnergy and, subject, with
respect to consummation of the Merger, to the PanEnergy Stockholders' Approval
and due and timely receipt of the regulatory consents and approvals specified
above, and assuming this Agreement constitutes the valid and binding obligation
of Duke and Merger Sub, constitutes a valid and binding obligation of PanEnergy
enforceable in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
PanEnergy, any of its Subsidiaries or, to PanEnergy's knowledge, any of its
Joint Ventures under, any provision of (A) the Restated Certificate of
Incorporation or By-Laws of PanEnergy or the comparable charter or
organizational documents of any of its Subsidiaries or, to PanEnergy's
knowledge, any of its Joint Ventures, (B) subject to obtaining the third-party
consents set forth in Section 5.3(b) of the PanEnergy Disclosure Schedule (the
"PanEnergy Required Consents"), any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to PanEnergy, any of its Subsidiaries or, to
PanEnergy's knowledge, any of its Joint Ventures or any of their respective
properties or assets or (C) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 5.3(c) are duly and
timely obtained or made and the PanEnergy Stockholders' Approval has been
obtained, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to PanEnergy, any of its Subsidiaries or, to PanEnergy's
knowledge, any of its Joint Ventures or any of their respective properties or
assets, other than, in the
12
<PAGE>
case of clause (B) or (C), any such conflicts, violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on PanEnergy, materially
impair the ability of PanEnergy to perform its obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any court, governmental, regulatory
or administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"), is required by
or with respect to PanEnergy, any of its Subsidiaries or, to PanEnergy's
knowledge, any of its Joint Ventures in connection with the execution and
delivery of this Agreement by PanEnergy or the consummation by PanEnergy of the
transactions contemplated hereby, as to which the failure to obtain or make
would have a Material Adverse Effect on PanEnergy, would impair the ability of
PanEnergy to perform its obligations hereunder or would prevent the consummation
of any of the transactions contemplated hereby, except for: (A) the filing of a
premerger notification report by PanEnergy under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or
termination of the applicable waiting period with respect thereto; (B) the
filing with the SEC of (x) a joint proxy statement in preliminary and definitive
form relating to the meeting of PanEnergy's stockholders (the "PanEnergy
Stockholders' Meeting") and the meeting of Duke's shareholders (the "Duke
Shareholders' Meeting") to be held in connection with the Merger (the "Joint
Proxy Statement") and (y) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such other compliance
with the Exchange Act and the rules and regulations thereunder as may be
required in connection with this Agreement and the transactions contemplated
hereby; (C) the filing of a Certificate of Merger with the Secretary of State of
the State of Delaware; (D) such filings and approvals as may be required by any
applicable state securities or "blue sky" laws; and (E) those consents,
approvals, orders or authorizations, registrations, declarations, filings and
permits set forth in Section 5.3(c) of the PanEnergy Disclosure Schedule.
5.4. SEC Documents. The filings required to be made by PanEnergy and its
-------------
Subsidiaries since December 31, 1993 under the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, the Federal Power Act (the
"Power Act") and applicable state laws and regulations, if any, have been filed
with the SEC, the Federal Energy Regulatory Commission (the "FERC") and the
relevant state
13
<PAGE>
authorities, if any, as the case may be, and PanEnergy has complied in all
material respects with all applicable requirements of such acts and the rules
and regulations thereunder, with such exceptions as would not in the aggregate
have a Material Adverse Effect on PanEnergy. PanEnergy has made available to
Duke a true and complete copy of each report, schedule, registration statement,
definitive proxy statement or other document filed by PanEnergy or any of its
Subsidiaries with the SEC since December 31, 1993 (the "PanEnergy SEC
Documents"). As of their respective dates, the PanEnergy SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such PanEnergy SEC Documents, with such exceptions as
would not in the aggregate have a Material Adverse Effect on PanEnergy and none
of the PanEnergy SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of PanEnergy included in
the PanEnergy SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X of the SEC) and fairly present in accordance with
applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, none of which will be material)
the consolidated financial position of PanEnergy and its consolidated
subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of PanEnergy and its consolidated
subsidiaries for the periods presented therein.
5.5. Information Supplied. None of the information supplied or to be
--------------------
supplied by PanEnergy for inclusion or incorporation by reference in the
Registration Statement on Form S-4 to be filed with the SEC by Duke in
connection with the issuance of shares of Common Stock in the Merger (the "S-4")
will, at the time the S-4 becomes effective under the Securities Act or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and none of the information supplied or to be
supplied by PanEnergy and included or incorporated by reference in the Joint
Proxy Statement will, at the date mailed to the stockholders of PanEnergy and
the shareholders of Duke or at
14
<PAGE>
the time of the meeting of such stockholders or shareholders to be held in
connection with the Merger or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to PanEnergy or any of its
Subsidiaries, or with respect to other information supplied by PanEnergy for
inclusion in the Joint Proxy Statement or the S-4, shall occur which is required
to be described in an amendment of, or a supplement to, the Joint Proxy
Statement or the S-4, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of PanEnergy. The Joint Proxy Statement,
insofar as it relates to PanEnergy or its Subsidiaries or other information
supplied by PanEnergy for inclusion therein, will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
5.6. Absence of Certain Changes or Events. Except as disclosed in, or
------------------------------------
reflected in the financial statements included in, the PanEnergy SEC Documents,
or except as contemplated by this Agreement, from December 31, 1995 through the
date hereof , each of PanEnergy, its Subsidiaries and, to PanEnergy's knowledge,
its Joint Ventures has conducted its business only in the ordinary course of
business consistent with past practice and there has not been: (i) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any shares of PanEnergy's
capital stock, except for regular quarterly cash dividends consistent with past
practice on PanEnergy Common Stock with usual record and payment dates for such
dividends; (ii) any repurchase, redemption or other acquisition by PanEnergy or
any Subsidiary of PanEnergy of any outstanding shares of capital stock or other
equity securities of, or other ownership interests in, PanEnergy or any
Subsidiary of PanEnergy, except in accordance with the terms of the PanEnergy
Stock Plans, the PanEnergy Benefit Plans (as defined in Section 5.12(a)) or the
PanEnergy DRIP; (iii) any material change in any method of accounting or
accounting practice by PanEnergy or any Subsidiary of PanEnergy; or (iv) any
other transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
that could reasonably be expected to have a Material Adverse Effect on
PanEnergy. Since November 24, 1995, PanEnergy has executed no confidentiality
agreement with any person in connection with its consideration of acquiring all
or a substantial part of PanEnergy or its Significant Subsidiaries.
15
<PAGE>
5.7. No Undisclosed Material Liabilities. Except as disclosed in the
-----------------------------------
PanEnergy SEC Documents, as of the date hereof, there are no liabilities or
obligations of PanEnergy, any of its Subsidiaries or, to PanEnergy's knowledge,
any of its Joint Ventures of any kind whatsoever, whether accrued, contingent or
otherwise, that would constitute, and there have been no events, changes or
effects with respect to PanEnergy, any of its Subsidiaries or, to PanEnergy's
knowledge, any of its Joint Ventures, constituting or which are reasonably
likely to constitute, whether individually or in the aggregate, a Material
Adverse Effect on PanEnergy.
5.8. No Default. Neither PanEnergy nor any of its Subsidiaries nor, to
----------
PanEnergy's knowledge, any of its Joint Ventures is in default or violation (and
no event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of (i)
their respective charters, bylaws or other governing documents, (ii) any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which PanEnergy, any of its Subsidiaries or, to PanEnergy's knowledge, any of
its Joint Ventures is now a party or by which PanEnergy, any of its Subsidiaries
or, to PanEnergy's knowledge, any of its Joint Ventures or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to PanEnergy, any of
its Subsidiaries or, to PanEnergy's knowledge, any of its Joint Ventures, except
in the case of (ii) and (iii) for defaults or violations which in the aggregate
would not have a Material Adverse Effect on PanEnergy.
5.9. Compliance with Applicable Laws. PanEnergy and its Subsidiaries and,
-------------------------------
to PanEnergy's knowledge, its Joint Ventures hold all permits, licenses,
variances, exemptions, orders, franchises, consents and approvals of all
Governmental Entities necessary for them to own, lease and operate their
properties and assets and to lawfully conduct their respective businesses (the
"PanEnergy Permits"), except where the failure so to hold would not have a
Material Adverse Effect on PanEnergy. PanEnergy and its Subsidiaries and, to
PanEnergy's knowledge, its Joint Ventures are in compliance with the terms of
the PanEnergy Permits, except where the failure so to comply would not have a
Material Adverse Effect on PanEnergy. Except as disclosed in the PanEnergy SEC
Documents, the businesses of PanEnergy, its Subsidiaries and, to PanEnergy's
knowledge, its Joint Ventures are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations which would not have a Material Adverse Effect on PanEnergy. No
action, proceeding, investigation or review of any Governmental
16
<PAGE>
Entity with respect to PanEnergy, any of its Subsidiaries or, to PanEnergy's
knowledge, any of its Joint Ventures is pending, and, to PanEnergy's knowledge,
no investigation or review by any Governmental Entity with respect to PanEnergy,
any of its Subsidiaries or any of its Joint Ventures is threatened which would,
or would be reasonably likely to, have a Material Adverse Effect on PanEnergy.
5.10. Litigation. Except as disclosed in the PanEnergy SEC Documents or as
----------
set forth in Section 5.10 of the PanEnergy Disclosure Schedule, there is no
suit, action or proceeding pending, or, to the knowledge of PanEnergy,
threatened against or affecting PanEnergy, any of its Subsidiaries or any of its
Joint Ventures ("PanEnergy Litigation"), and PanEnergy, its Subsidiaries and, to
PanEnergy's knowledge, its Joint Ventures have no knowledge of any facts that
are likely to give rise to any PanEnergy Litigation, that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on
PanEnergy or its ability to consummate the transactions contemplated by this
Agreement, nor are there any judgments, decrees, injunctions, rules or orders of
any Governmental Entity or arbitrator outstanding against PanEnergy, any of its
Subsidiaries or, to PanEnergy's knowledge, any of its Joint Ventures ("PanEnergy
Orders") that are, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on PanEnergy or its ability to consummate the
transactions contemplated by this Agreement.
5.11. Tax Matters. "Taxes", as used in this Agreement, means any federal,
-----------
state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, whether foreign or domestic, and includes any additions to tax, interest
and penalties (civil or criminal), and any expenses incurred in connection with
the determination, settlement or litigation of any liability for any of the
foregoing. "Tax Return", as used in this Agreement, means a report, return or
other information required to be supplied to a governmental entity with respect
to Taxes including, where permitted or required, combined or consolidated
returns for any group of entities that includes PanEnergy or any of its
Subsidiaries on the one hand, or Duke or any of its Subsidiaries on the other
hand.
Except (i) as disclosed in Section 5.11 of the PanEnergy Disclosure
Schedule or (ii) where the failure of
17
<PAGE>
the following representations to be true would not, either individually or in
the aggregate, have a Material Adverse Effect on PanEnergy:
(a) Filing of Timely Tax Returns. All material Tax Returns required to be
----------------------------
filed by PanEnergy and each of its Subsidiaries under applicable law have been
(and, as to Tax Returns not filed as of the date hereof, will be) filed on a
timely basis. All such Tax Returns were and are in all material respects (and,
as to Tax Returns not filed as of the date hereof, will be) true, complete and
correct.
(b) Payment of Taxes. PanEnergy and each of its Subsidiaries have, within
----------------
the time and in the manner prescribed by law, paid (and until the Closing Date
will pay within the time and in the manner prescribed by law) all material
Taxes that are currently due and payable except for those being contested in
good faith or for which adequate reserves have been established. No written
claim (and, to PanEnergy's knowledge, no other claim) has ever been made by an
authority in a jurisdiction where any of PanEnergy and its Subsidiaries does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(c) Tax Reserves. Except as previously disclosed by PanEnergy to Duke,
------------
PanEnergy and its Subsidiaries have established (and until the Closing Date will
maintain) on their books and records (i) reserves adequate to pay all material
Taxes and all deficiencies in material Taxes asserted, proposed or threatened
against PanEnergy or its Subsidiaries and (ii) reserves for deferred income
taxes, in each case in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of PanEnergy or any
---------
of its Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. PanEnergy and each of its Subsidiaries have
-----------------
complied (and until the Closing Date will comply) in all material respects with
the provisions of the Code relating to the withholding of Taxes, including,
without limitation, the withholding and reporting requirements under Sections
1441 through 1464, 3401 through 3406, and 6041 through 6049 of the Code, as well
as any similar provisions under any other laws, and have, within the time and in
the manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all material amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither PanEnergy nor any
-----------------------------------------
of its Subsidiaries has requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
18
<PAGE>
(g) Waivers of Statute of Limitations. Neither PanEnergy nor any of its
---------------------------------
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
------------------------------------
the assessment of all material Taxes has expired for all applicable material Tax
Returns of PanEnergy and each of its Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any material Taxes has been proposed, asserted or
assessed (or, to PanEnergy's knowledge, threatened) against PanEnergy or any of
its Subsidiaries that has not been resolved and paid in full or previously
disclosed by PanEnergy to Duke.
(i) Audit, Administrative and Court Proceedings. No audits or other
-------------------------------------------
administrative proceedings or court proceedings are presently pending with
regard to any material Taxes or material Tax Returns of PanEnergy or any of its
Subsidiaries. Neither PanEnergy nor any of its Subsidiaries has any knowledge
of any threatened action, audit or administrative or court proceeding with
respect to any such Taxes or Tax Returns. Further, to the best of the knowledge
of PanEnergy, no state of facts exists or has existed which would constitute
grounds for the assessment of any material liability for Taxes with respect to
the periods which have not been audited by the Internal Revenue Service (the
"IRS") or other taxing authority.
(j) Tax Rulings. Neither PanEnergy nor any of its Subsidiaries has
-----------
received a Tax Ruling (as defined below) or entered into a Closing Agreement (as
defined below) with any taxing authority that would have a continuing material
adverse effect after the Closing Date. "Tax Ruling", as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement", as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(k) Availability of Tax Returns. To the extent not previously provided,
---------------------------
as soon as practicable after the date hereof, PanEnergy and its Subsidiaries
will make available to Duke complete and accurate copies of such of the
following materials as Duke may reasonably request: (i) material Tax Returns,
and any amendments thereto, filed by PanEnergy or any of its Subsidiaries since
January 1, 1994, (ii) audit reports received from any taxing authority relating
to any material Tax Return filed by PanEnergy or any of its Subsidiaries and
(iii) Closing Agreements entered
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<PAGE>
into by PanEnergy or any of its Subsidiaries with any taxing authority.
(l) Tax Sharing Agreements. Neither PanEnergy nor any of its Subsidiaries
----------------------
is a party to any Tax allocation or sharing agreement with any person other than
PanEnergy and its Subsidiaries.
(m) Liability for Others. Neither PanEnergy nor any of its Subsidiaries
--------------------
has any liability for Taxes of any person other than PanEnergy and its
Subsidiaries under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
(n) Section 341(f). Neither PanEnergy nor any of its Subsidiaries has
--------------
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by PanEnergy or any of its Subsidiaries.
(o) Section 168. No property of PanEnergy or any of its Subsidiaries is
-----------
property that PanEnergy or any such Subsidiary or any party to this transaction
is or will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(p) Section 481 Adjustments. Neither PanEnergy nor any of its
-----------------------
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting method
initiated by PanEnergy or any of its Subsidiaries, and to the best of the
knowledge of PanEnergy, the IRS has not proposed any such adjustment or change
in accounting method.
(q) Tax-Exempt Interest. None of the assets of PanEnergy or its
-------------------
Subsidiaries directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
(r) Sections 6661 and 6662. All transactions that could give rise to an
----------------------
understatement of federal income tax (within the meaning of Section 6661 of the
Code for Tax Returns filed on or before December 31, 1989, and within the
meaning of Section 6662 of the Code for tax returns filed after December 31,
1989) have been adequately disclosed (or, with respect to Tax Returns not yet
filed will be adequately disclosed) on the Tax Returns of PanEnergy and its
20
<PAGE>
Subsidiaries in accordance with Section 6661(b)(2)(B) of the Code for Tax
Returns filed on or prior to December 31, 1989, and in accordance with Section
6662(d)(2)(B) of the Code for Tax Returns filed after December 31, 1989.
(s) Section 280G. Neither PanEnergy nor any of its Subsidiaries is a
------------
party to any agreement, contract, or arrangement that could result, either
directly or indirectly, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code (except for such
payments as may be payable pursuant to certain provisions in contracts
contemplated by Section 8.16 and/or as a result of the accelerated vesting of
awards of restricted PanEnergy Common Stock and/or PanEnergy Options).
(t) Acquisition Indebtedness. No indebtedness of PanEnergy or any of its
------------------------
Subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(u) NOLs. As of September 30, 1996, PanEnergy and its Subsidiaries had
----
net operating loss carryovers available to offset future income as set forth in
Section 5.11(u) of the PanEnergy Disclosure Schedule. Section 5.11(u) of the
PanEnergy Disclosure Schedule sets forth the amount of and year of expiration of
each company's net operating loss carryovers.
(v) Credit Carryover. As of September 30, 1996, PanEnergy and its
----------------
Subsidiaries had tax credit carryovers available to offset future tax liability
as set forth in Section 5.11(v) of the PanEnergy Disclosure Schedule. Section
5.11(v) of the PanEnergy Disclosure Schedule sets forth the amount and year of
expiration of each company's tax credit carryovers.
(w) The Merger. Neither PanEnergy nor any of its Subsidiaries has taken
----------
any action or has any knowledge of any fact or circumstance that would, or would
be reasonably likely to, adversely affect the status of the Merger as a
reorganization under Section 368(a) of the Code.
5.12. Employee Benefits; Labor Matters. (a) Except as disclosed in the
--------------------------------
PanEnergy SEC documents, as set forth in Section 5.12(a) of the PanEnergy
Disclosure Schedule or as would not have a Material Adverse Effect on PanEnergy,
(i) all employee benefit plans, policies, practices, arrangements and programs
maintained for the benefit of the current or former employees or directors of
PanEnergy or any of its Subsidiaries ("PanEnergy Personnel") that are sponsored,
maintained or contributed to by
21
<PAGE>
PanEnergy or any of its Subsidiaries, or with respect to which PanEnergy or any
of its Subsidiaries has incurred or could be reasonably expected to incur any
liability, including without limitation any such plan that is an "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") ("PanEnergy Benefit Plans"), are in compliance
with all applicable requirements of law, including ERISA and the Code, and have
been administered and operated in compliance with their terms, and (ii) neither
PanEnergy nor any of its Subsidiaries has any liabilities or obligations with
respect to any such PanEnergy Benefit Plans or any employee benefit plan which
is not a PanEnergy Benefit Plan because (x) such plan has been terminated and/or
(y) such plan is or was maintained or contributed to by any entity (other than a
Subsidiary of PanEnergy) required to be aggregated with PanEnergy pursuant to
Section 414 of the Code or Section 4001(b) of ERISA, whether accrued, contingent
or otherwise, nor, to the knowledge of PanEnergy, are any such liabilities or
obligations expected to be incurred.
(b) Except as set forth in Section 5.12(b) of the PanEnergy Disclosure
Schedule, the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any plan, policy, arrangement or
agreement, including but not limited to the PanEnergy Benefit Plans, or any
trust or loan that will or may result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
PanEnergy Personnel.
(c) Except as set forth in Schedule 5.12(c) of the PanEnergy Disclosure
Schedule, neither PanEnergy nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor agreement with any union or labor
organization, nor does PanEnergy know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to represent or
organize any PanEnergy Personnel. Except as set forth in Section 5.12(c) of the
PanEnergy Disclosure Schedule, (i) there is no unfair labor practice, employment
discrimination or other complaint against PanEnergy pending, or, to the
knowledge of PanEnergy, threatened, which has or could reasonably be expected to
have, a Material Adverse Effect on PanEnergy and (ii) there is no strike,
dispute, slowdown, work stoppage or lockout pending, or, to the knowledge of
PanEnergy, threatened, against or involving PanEnergy or any of its Subsidiaries
which has or could reasonably be expected to have, a Material Adverse Effect on
PanEnergy.
22
<PAGE>
5.13. Environmental Matters.
---------------------
(a) Definitions. For purposes of this Agreement:
-----------
(i) "Environmental Claims" means, with respect to any person, (x) any and
all administrative, regulatory or judicial actions, suits, injunctions,
judgments, demands (including, without limitation, demands or other notices
pursuant to any indemnification, contribution or similar agreement), demand
letters, directives, claims, complaints, orders, decrees, liens, investigations,
proceedings or notices of non-compliance or violation or any other notice in
writing by or from any person or entity (including any Governmental Entity), or
(y) any oral information provided by a Governmental Entity that written action
of the type described in the foregoing clause is in process, which (in case of
either (x) or (y)) alleges potential liability or any obligation to take any
action or cease any action (including, without limitation, potential liability
for enforcement, investigatory costs, monitoring costs, cleanup costs,
governmental response costs, removal costs, remedial costs, response costs,
corrective action, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (1) the
presence, or Release (as hereinafter defined) into the environment, of any
Hazardous Materials (as hereinafter defined) at any location, whether or not
owned, operated, occupied, leased or managed by PanEnergy or any of its
Environmental Subsidiaries (for purposes of this Section 5.13) or by Duke or any
of its Environmental Subsidiaries (for purposes of Section 6.13) and (2)
circumstances or conditions forming the basis of any violation, or alleged
violation, of any Environmental Law (as hereinafter defined) including, without
limitation (in case of either (1) or (2)), any and all claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any Hazardous
Materials at any location.
(ii) "Environmental Laws" means all foreign, federal, state and local laws,
statutes, rules, regulations, orders, codes, directives and ordinances
pertaining to: (A) the protection of health, safety and the indoor or outdoor
environment; (B) the conservation, management, or use of natural resources and
wildlife; (C) the protection or use of surface water and ground water; (D) the
management, manufacture, possession, presence, use, processing, generation,
transportation, distribution, treatment, storage, disposal, release, threatened
release, abatement, removal, remediation, or handling of, or exposure to, any
Hazardous Materials; or (E) pollution (including any
23
<PAGE>
Release or threatened Release of Hazardous Materials to indoor or outdoor air,
land surface or subsurface strata, surface water or ground water); and includes,
without limitation, the following federal statutes (and their implementing
regulations and the analogous state statutes and regulations): the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. (S) 9601 et seq.; the Solid Waste Disposal Act, as amended by the
------
Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and
Solid Waste Amendments of 1984, 42 U.S.C. (S) 6901 et seq.; the Federal Water
------
Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, as
amended, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances Control Act of 1976,
------
as amended, 15 U.S.C. (S) 2601 et seq.; the Emergency Planning and Community
------
Right-To-Know Act of 1986, 42 U.S.C. (S) 11001 et seq.; the Clean Air Act of
------
1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. (S) 7401 et
--
seq.; the National Environmental Policy Act of 1970, as amended, 42 U.S.C. (S)
- ---
4321 et seq.; the Rivers and Harbors Act of 1899, as amended, 33 U.S.C. (S) 401
------
et seq.; the Endangered Species Act of 1973, as amended, 16 U.S.C. (S) 1531 et
- ------ --
seq.; the Atomic Energy Act, as amended, 42 U.S.C. (S) 2014 et seq.; the
- --- ------
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. (S) 651 et
--
seq.; the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. (S) 300(f) et
- --- --
seq.; and the Oil Pollution Act of 1990, as amended, 33 U.S.C. (S) 2701 et seq.
- --- ------
(iii) "Hazardous Materials" means (x) any petroleum or petroleum products,
radioactive materials, asbestos in any form, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls, (y) any
chemicals, materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances"
or "toxic pollutants," or words of similar import, under any Environmental Law
and (z) any other chemical, material, substance or waste, exposure to which is
now prohibited, limited or regulated under any applicable Environmental Law.
(iv) "Release" means any release or threatened release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the atmosphere, soil, indoor air, subsurface, surface water, groundwater or
property.
(v) "Environmental Subsidiary" means any corporation or other
organization, whether incorporated or unincorporated, in which a party to this
Agreement
24
<PAGE>
directly or indirectly owns or controls securities or other interests or any
organization of which such party or any subsidiary of such party is a general
partner.
(b) Compliance. (i) Except as set forth in the PanEnergy SEC Documents,
----------
PanEnergy and each of its Environmental Subsidiaries and any real or personal
property (including, without limitation, any vessel) that any of them owns,
operates, occupies, leases or manages, in whole or in part, directly or
indirectly, are in compliance with all applicable Environmental Laws, except
where the failure to be so in compliance would not be reasonably likely to have
a Material Adverse Effect on PanEnergy.
(ii) Except as set forth in the PanEnergy SEC Documents, neither PanEnergy
nor any of its Environmental Subsidiaries has received any written communication
from any person or Governmental Entity that alleges that PanEnergy or any of its
Environmental Subsidiaries or any real or personal property (including, without
limitation, any vessel) that any of them owns, operates, occupies, leases or
manages, in whole or in part, directly or indirectly, is not in compliance with
applicable Environmental Laws, except where the failure to be so in compliance
would not be reasonably likely to have a Material Adverse Effect on PanEnergy.
(c) Environmental Permits. Except as set forth in the PanEnergy SEC
---------------------
Documents, PanEnergy and each of its Environmental Subsidiaries has obtained,
and will maintain through the Closing Date, all permits, consents, licenses,
variances, certificates, exemptions, orders, franchises, authorizations and
approvals required under any Environmental Law (collectively, "Environmental
Permits") necessary for the construction and operation of their facilities
(including, without limitation, any vessel) and the conduct of their operations,
and all such Environmental Permits are in good standing or, where applicable, an
application or renewal application has been timely filed, is pending and agency
approval is expected to be obtained, and PanEnergy and its Environmental
Subsidiaries are in compliance with all terms and conditions of all such
Environmental Permits and are not required to make any expenditure in order to
obtain or renew any Environmental Permits, except where the failure to obtain or
be in compliance with such Environmental Permits and the requirement to make
such expenditures would not be reasonably likely to have a Material Adverse
Effect on PanEnergy.
(d) Environmental Claims. Except as set forth in the PanEnergy SEC
--------------------
Documents, there is no Environmental
25
<PAGE>
Claim pending or, to the knowledge of PanEnergy and its Environmental
Subsidiaries, threatened:
(i) against PanEnergy or any of its Environmental Subsidiaries,
(ii) against any person or entity whose liability for, or whose obligation
to satisfy, any Environmental Claim PanEnergy or any of its Environmental
Subsidiaries has retained, assumed or guaranteed, either contractually or by
operation of law, or
(iii) against any real or personal property (including, without limitation,
any vessel) or operations that PanEnergy or any of its Environmental
Subsidiaries owns, operates, occupies, leases or manages, in whole or in part,
directly or indirectly,
that would be reasonably likely to have a Material Adverse Effect on PanEnergy.
(e) Releases. Except as set forth in the PanEnergy SEC Documents, and
--------
except for Releases of Hazardous Materials the liability for which would not be
reasonably likely to have a Material Adverse Effect on PanEnergy, PanEnergy has
no knowledge of any Release of any Hazardous Materials that has occurred on, at,
from or to any of the real or personal property (including, without limitation,
any vessel) owned, operated, occupied, leased or managed by PanEnergy or any
Environmental Subsidiary of PanEnergy or any predecessor of PanEnergy or any
Environmental Subsidiary of PanEnergy or any other property which requires
investigation, assessment, monitoring, remediation, response, removal,
corrective action, cleanup or any similar action under Environmental Laws.
(f) Disclosure. PanEnergy has disclosed to Duke all material facts that
----------
PanEnergy reasonably believes would be reasonably likely to form the basis of a
Material Adverse Effect on PanEnergy arising from (x) the cost of pollution
control equipment currently required or known to be required in the future, (y)
investigation, assessment, monitoring, remediation, response, removal,
corrective action, cleanup, or remediation costs and any related costs currently
required or known to be required in the future, or (z) any other environmental,
health or safety matter affecting PanEnergy or its Environmental Subsidiaries.
5.14. Insurance. Except as set forth in Section 5.14 of the PanEnergy
---------
Disclosure Schedule, each of PanEnergy and its Subsidiaries is, and has been
continuously since December 31, 1993, insured by reputable and financially
responsible insurers in such amounts and against such risks
26
<PAGE>
and losses as are customary for companies conducting their respective businesses
during such time period. Neither PanEnergy nor any of its Subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy thereof and neither PanEnergy nor any of its Subsidiaries has
received notice that any such policy is invalid or unenforceable.
5.15. Contracts. PanEnergy has set forth in Section 5.15 of the PanEnergy
---------
Disclosure Schedule a list of all contracts to which PanEnergy or Texas Eastern
Transmission Corporation, Algonquin Gas Transmission Company, Panhandle Eastern
Pipe Line Company, Trunkline Gas Company, PanEnergy Field Services, Inc., or
PanEnergy Trading and Market Services, L.L.C. (each a "PanEnergy Business Unit")
is a party as of the date hereof and which, in the reasonable judgment of
PanEnergy, is likely (on an annualized basis) in the fiscal year ending December
31, 1996, to (i) provide gross revenues in excess of the PanEnergy Business
Unit's 1995 Revenue Threshold, (ii) require payments in excess of the PanEnergy
Business Unit's 1995 Revenue Threshold, or (iii) provide a contribution to the
gross margin in excess of the PanEnergy Business Unit's 1995 Margin Threshold.
As used herein, a "PanEnergy Business Unit's 1995 Revenue Threshold" means an
amount equal to 5% of such PanEnergy Business Unit's gross revenues for the
fiscal year ended December 31, 1995, and a "PanEnergy Business Unit's 1995
Margin Threshold" means an amount equal to 5% of such PanEnergy Business Unit's
gross margin for the fiscal year ended December 31, 1995.
5.16. Regulatory Proceedings. Except as set forth in the PanEnergy SEC
----------------------
Documents or Section 5.16 of the PanEnergy Disclosure Schedule, neither
PanEnergy nor any of its Subsidiaries nor, to PanEnergy's knowledge, any of its
Joint Ventures all or part of whose rates or services are regulated by a
Governmental Entity is a party to any proceeding before a court or other
Governmental Entity which is reasonably likely to result in orders having a
Material Adverse Effect on PanEnergy nor has any such proceeding been noticed.
5.17. Regulation as a Utility. (a) Neither PanEnergy nor any of its
-----------------------
Subsidiaries or Joint Ventures is a "holding company," a "subsidiary company" or
an "affiliate" of any public utility company within the meaning of Section
2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act of 1935,
as amended (the "1935 Act"), respectively, and none of PanEnergy or any of its
Subsidiaries or Joint Ventures is a "public utility company" within the meaning
of Section 2(a)(5) of the 1935 Act.
27
<PAGE>
(b) Neither PanEnergy nor any "subsidiary company" or "affiliate" (as each
such term is defined in the 1935 Act) of PanEnergy is subject to regulation as a
public utility or public service company (or similar designation) by any state
in the United States or any foreign country.
5.18. Opinions of Financial Advisors. The Board of Directors of PanEnergy
------------------------------
has received the opinions of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Lehman Brothers ("Lehman"), dated the date hereof, to the
effect that, as of the date hereof, the Exchange Ratio is fair from a financial
point of view to the holders of PanEnergy Common Stock.
5.19. Vote Required. The affirmative vote of the holders of a majority of
-------------
the outstanding shares of PanEnergy Common Stock is the only vote of the holders
of any class or series of capital stock of PanEnergy necessary to approve this
Agreement, the Merger and the other transactions contemplated hereby.
5.20. Beneficial Ownership of Duke Common Stock. Neither PanEnergy nor any
-----------------------------------------
of its Subsidiaries "beneficially owns" (as defined in Rule 13d-3 under the
Exchange Act) any outstanding shares of Duke Common Stock.
5.21. Brokers. Except for the fees and expenses payable to Merrill Lynch
-------
and Lehman, which fees are reflected in their agreements with PanEnergy (copies
of which have been delivered to Duke), no broker, investment banker or other
person is entitled to any broker's, finder's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of PanEnergy.
5.22. Article Seventh of the Restated Certificate of Incorporation of
---------------------------------------------------------------
PanEnergy and Section 203 of the DGCL Not Applicable. Neither the provisions of
- ----------------------------------------------------
Article Seventh of PanEnergy's Restated Certificate of Incorporation, nor the
provisions of Section 203 of the DGCL are applicable to this Agreement, the
Merger or any other transaction contemplated hereby. No other "fair price",
"moratorium", "control share acquisition" or similar anti-takeover statute or
regulation is applicable to PanEnergy, the Merger or any other transaction
contemplated hereby.
5.23. Properties. Except for liens arising in the ordinary course of
----------
business after the date hereof and properties and assets disposed of in the
ordinary course of business after the date of the most recent balance sheet
contained in PanEnergy's most recent Report on Form 10-Q filed prior to the date
hereof, PanEnergy, its Subsidiaries and, to PanEnergy's knowledge, its Joint
Ventures have
28
<PAGE>
defensible title (or, with respect to pipelines, equipment and other tangible
personal property used in connection with PanEnergy's pipeline operations
(collectively, "PanEnergy Pipeline Assets"), title to or interest in the
applicable PanEnergy Pipeline Asset sufficient to enable PanEnergy, its
Subsidiaries and, to PanEnergy's knowledge, its Joint Ventures to conduct their
business with respect thereto without material interference as it is currently
being conducted or as described in the PanEnergy SEC Documents) on all their
material properties and assets, whether tangible or intangible, real, personal
or mixed, free and clear of all liens, except for liens disclosed in the
PanEnergy SEC Documents and liens the existence of which would not have a
Material Adverse Effect on PanEnergy.
5.24. Easements. The businesses of PanEnergy and each of its Subsidiaries
---------
are being operated in a manner which does not violate (in any manner which
would, or which would be reasonably likely to, have a Material Adverse Effect on
PanEnergy) the terms of any easements, rights of way, permits, servitudes,
licenses, leasehold estates and similar rights relating to real property
(collectively, "Easements") used by PanEnergy and each of its Subsidiaries in
such businesses. All Easements are valid and enforceable, except as the
enforceability thereof may be affected by bankruptcy, insolvency or other laws
of general applicability affecting the rights of creditors generally or
principles of equity, and grant the rights purported to be granted thereby and
all rights necessary thereunder for the current operation of such business where
the failure of any such Easement to be valid and enforceable or to grant the
rights purported to be granted thereby or necessary thereunder would have a
Material Adverse Effect on PanEnergy. There are no spacial gaps in the Easements
which would impair the conduct of such business in a manner which would, or
which would be reasonably likely to, have a Material Adverse Effect on
PanEnergy, and no part of PanEnergy Pipeline Assets is located on property which
is not owned in fee by PanEnergy or a Subsidiary or subject to an Easement in
favor of PanEnergy or a Subsidiary, where the failure of such PanEnergy Pipeline
Assets to be so located would have a Material Adverse Effect on PanEnergy.
5.25. Futures Trading and Fixed Price Exposure. The Risk Management
----------------------------------------
Committee of PanEnergy has established risk parameters to restrict the level of
risk that PanEnergy and its Subsidiaries are authorized to take with respect to
the net position resulting from all physical commodity transactions, exchange
traded futures and options and over-the-counter derivative instruments (the "Net
PanEnergy Position") and monitors the compliance by PanEnergy and its
Subsidiaries with such risk parameters. The risk parameters established by
PanEnergy's Risk Management Committee on the
29
<PAGE>
date of this Agreement are set forth in Section 5.25 of the PanEnergy Disclosure
Schedule and may be modified only by PanEnergy's Risk Management Committee. The
Net PanEnergy Position is within the risk parameters which have been established
by PanEnergy's Risk Management Committee. All guaranties by PanEnergy or any of
its Subsidiaries (other than the Mobil Joint Venture) of indebtedness of the
Mobil Joint Venture are described in Section 5.25 of the PanEnergy Disclosure
Schedule. As used herein, "Mobil Joint Venture" means PanEnergy Trading and
Market Services, L.L.C. and PanEnergy Marketing Canada Ltd.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF DUKE
Except as set forth in the disclosure schedule dated as of the date
hereof and signed by an authorized officer of Duke and delivered to PanEnergy by
or on behalf of Duke on or prior to the date hereof (the "Duke Disclosure
Schedule") (each of which exceptions shall specifically identify the relevant
Section hereof to which it relates), Duke represents and warrants to PanEnergy
as follows:
6.1. Organization, Standing and Power. Each of Duke and its Subsidiaries
--------------------------------
is a corporation or partnership duly organized, validly existing and in good
standing under the laws of its state of incorporation or organization, has all
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
business it is conducting, or the operation, ownership or leasing of its assets
and properties, makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not have a Material Adverse
Effect on Duke. As used in this Agreement a "Material Adverse Effect" shall
mean, in respect of Duke, any effect or change that is, or is reasonably likely
to be, materially adverse to the business, operations, assets, financial
condition or results of operations of Duke and its Subsidiaries taken as a
whole. Duke has heretofore made available to PanEnergy complete and correct
copies of its Restated Articles of Incorporation and By-Laws and the
certificates of incorporation and bylaws (or similar governing documents) of
each of its Subsidiaries, in each case as in effect at the date hereof.
6.2. Capital Structure. (a) The authorized capital stock of Duke
-----------------
consists of 300,000,000 shares of Duke Common Stock, 12,500,000 shares of
Preferred Stock, par value $100 (the "Duke Preferred Stock"), 10,000,000 shares
30
<PAGE>
of Preferred Stock A, par value $25 (the "Duke Preferred Stock A"), and
1,500,000 shares of Preference Stock, $100 par value (the "Duke Preference
Stock"). At the close of business on September 30, 1996: (A) 201,589,596 shares
of Common Stock were issued and outstanding; (B) 5,240,000 shares of Duke
Preferred Stock were issued and outstanding, consisting of 350,000 shares of
4.50%, Series C; 350,000 shares of 5.72%, Series D; 350,000 shares of 6.72%,
Series E; 850,000 shares of 7.50%, Series R; 600,000 shares of 7.85%, Series S;
130,000 shares of 6.20%, Series T; 130,000 shares of 6.30%, Series U; 130,000
shares of 6.40%, Series V; 500,000 shares of 7.00%, Series W; 500,000 shares of
6.75%, Series X; 600,000 shares of 7.04%, Series Y; and 750,000 shares of
Auction Series A; (C) 6,400,000 shares of Duke Preferred Stock A were issued and
outstanding, consisting of 1,600,000 shares of 7.72%, 1992 Series; 800,000
shares of 5.95%, 1992 Series B; 800,000 shares of 6.10%, 1992 Series C; 800,000
shares of 6.20%, 1992 Series D; and 2,400,000 shares of 6.375%, 1993 Series; (D)
no shares of Duke Preference Stock were issued and outstanding; (E) 2,000,000
shares of Duke Common Stock were reserved for issuance pursuant to Duke's Stock
Incentive Plan; 2,266,424 shares of Duke Common Stock were reserved for issuance
pursuant to Duke's Stock Purchase-Savings Program; 3,673,247 shares of Common
Stock were reserved for issuance pursuant to Duke's Employee Stock Ownership
Plan; and 1,064,998 shares of Duke Common Stock were reserved for issuance
pursuant to Duke's Stock Purchase and Dividend Reinvestment Plan (together with
any successor plans, the "Duke Stock Plans"); and (F) no Voting Debt of Duke was
outstanding. Since September 30, 1996, Duke has not issued: (A) any additional
shares of capital stock, any Voting Debt or other voting securities or (B) any
securities convertible into or exchangeable for shares of capital stock, Voting
Debt or other voting securities. The authorized capital stock of each
wholly-owned Subsidiary of Duke and the number of shares of the capital stock of
each such Subsidiary that are issued and outstanding as of the date hereof, are
set forth in Section 6.2(a) of the Duke Disclosure Schedule. All outstanding
shares of Duke capital stock are, and the shares of Duke Common Stock issued in
accordance with this Agreement and upon exercise of the PanEnergy Stock Options
to be assumed by Duke pursuant to this Agreement, will be, and all outstanding
shares of the capital stock of each Subsidiary are, validly issued, fully paid
and nonassessable and not subject to any preemptive rights. Except as set forth
in Section 6.2(a) of the Duke Disclosure Schedule, all outstanding shares of the
capital stock of the Subsidiaries of Duke are owned by Duke or wholly-owned
Subsidiaries of Duke, free and clear of all liens, charges, encumbrances,
claims, security interests, equities and options of any nature whatsoever.
Except as set forth in Section 6.2(a) of the Duke Disclosure Schedule, as of the
date hereof, there
31
<PAGE>
are no outstanding subscriptions, options, warrants, calls, rights, commitments
or agreements to which Duke or any Subsidiary of Duke is a party or by which
Duke or any Subsidiary of Duke is bound, obligating Duke or any Subsidiary of
Duke to issue, deliver, sell, purchase, redeem or acquire, or cause to be
issued, delivered, sold, purchased, redeemed or acquired, any additional shares
of capital stock, any Voting Debt or other voting securities of Duke or of any
Subsidiary of Duke or obligating Duke or any Subsidiary of Duke to grant, extend
or enter into any such option, warrant, call, right, commitment or agreement.
There are no stockholder agreements, voting trusts, proxies or other agreements
or understandings to which Duke or any Subsidiary of Duke is a party or by which
Duke or any Subsidiary of Duke is bound relating to the voting of any shares of
the capital stock of Duke or any Subsidiary of Duke by any person other than
Duke or a Subsidiary of Duke.
(b) Section 6.2(b) of the Duke Disclosure Schedule lists as of the date
hereof all Subsidiaries of Duke, including the name of each Subsidiary, the
state or jurisdiction of its incorporation or organization, the states or
jurisdictions in which they are qualified or licensed to do business and
Duke's interest therein.
(c) Section 6.2(c) of the Duke Disclosure Schedule lists as of the date
hereof all Joint Ventures of Duke, including the name of each such entity, the
state or jurisdiction of its organization, the states or jurisdictions in which
they are qualified or licensed to do business and Duke's interest therein.
6.3. Authority; No Violations; Consents and Approvals. (a) The Board of
------------------------------------------------
Directors of Duke has approved this Agreement, the Merger and the other
transactions contemplated hereby by the unanimous vote of all of the directors
present, and has declared this Agreement, the Merger and the other transactions
contemplated hereby to be in the best interests of the shareholders of Duke.
The directors have advised PanEnergy and Duke that they intend to vote or cause
to be voted all of the shares of Duke Common Stock beneficially owned by them in
favor of approval of the Duke Vote Matter (as defined below). Duke has all
requisite corporate power and authority to enter into this Agreement and,
subject to approval of the amendment of the Restated Articles of Incorporation
of Duke for the purpose of changing the name of Duke to Duke Energy Corporation
and increasing the number of authorized shares of Duke Common Stock and subject
to approval of the issuance of the shares of Duke Common Stock that are to be
issued in connection with the Merger (together, sometimes herein called the
"Duke Vote Matter") by the shareholders of Duke in accordance with the North
Carolina Business Corporation Act ("NCBCA") and
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<PAGE>
the NYSE listing requirements and subject to due and timely receipt of all
required federal and state regulatory consents and approvals set forth in
Section 6.3(c)(E), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including, but not limited to, the issuance of
the Duke Common Stock pursuant to the Merger, have been duly authorized by all
necessary corporate action on the part of Duke, subject to approval of the Duke
Vote Matter by the shareholders of Duke in accordance with the NCBCA and NYSE
listing requirements and subject to due and timely receipt of the regulatory
consents and approvals specified above. This Agreement has been duly executed
and delivered by Duke and, subject, with respect to approval of the Duke Vote
Matter by the shareholders of Duke in accordance with the NCBCA and NYSE listing
requirements and subject to due and timely receipt of the regulatory consents
and approvals specified above, and assuming this Agreement constitutes the valid
and binding obligation of PanEnergy, constitutes a valid and binding obligation
of Duke enforceable in accordance with its terms, subject, as to enforceability,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Duke, any of its Subsidiaries or, to Duke's knowledge, any of its Joint Ventures
under, any provision of (A) the Restated Articles of Incorporation or By-Laws of
Duke or the comparable charter or organizational documents of any of its
Subsidiaries or, to Duke's knowledge, any of its Joint Ventures, (B) subject to
obtaining the third-party consents, if any, set forth in Section 6.3(b) of the
Duke Disclosure Schedule (the "Duke Required Consents"), any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Duke, any of
its Subsidiaries or, to Duke's knowledge, any of its Joint Ventures or any of
their respective properties or assets or (C) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in Section
6.3(c) are duly and timely obtained or made and the approval of the Duke Vote
Matter by the shareholders of Duke has been obtained, any
33
<PAGE>
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Duke, any of its Subsidiaries or, to Duke's knowledge, any of its Joint
Ventures or any of their respective properties or assets, other than, in the
case of clause (B) or (C), any such conflicts, violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Duke, materially impair
the ability of Duke to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any Governmental Entity is required
by or with respect to Duke, any of its Subsidiaries or, to Duke's knowledge, any
of its Joint Ventures in connection with the execution and delivery of this
Agreement by Duke, or the consummation by Duke of the transactions contemplated
hereby, as to which the failure to obtain or make would have a Material Adverse
Effect on Duke, would impair the ability of Duke to perform its obligations
hereunder or would prevent the consummation of any of the transactions
contemplated hereby, except for: (A) the filing of a premerger notification
report by Duke under the HSR Act and the expiration or termination of the
applicable waiting period with respect thereto; (B) the filing with the SEC of
the Joint Proxy Statement, the S-4, such reports under Section 13(a) of the
Exchange Act and such other compliance with the Securities Act and the Exchange
Act and the rules and regulations thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby, and the obtaining
from the SEC of such orders as may be so required; (C) the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware; (D)
such filings and approvals as may be required by any applicable state securities
or "blue sky" laws; and (E) any required approvals of the North Carolina
Utilities Commission (the "NCUC"), The Public Service Commission of South
Carolina (the "PSCSC") and FERC (the "Duke Required Statutory Approvals").
6.4. SEC Documents. The filings required to be made by Duke and its
-------------
Subsidiaries since December 31, 1993 under the Securities Act, the Exchange Act,
the Power Act, the Atomic Energy Act of 1954, as amended (the "Atomic Energy
Act"), the 1935 Act, and applicable North Carolina and South Carolina laws and
regulations have been filed with the SEC, FERC, the Nuclear Regulatory
Commission, the NCUC and the PSCSC, as the case may be, and Duke has
complied in all material respects with all requirements of such acts, laws and
rules and regulations thereunder with such exceptions as would not in the
aggregate have a Material Adverse Effect on Duke. Duke has made available to
34
<PAGE>
PanEnergy a true and complete copy of each report, schedule, registration
statement, definitive proxy statement or other document filed by Duke or any of
its Subsidiaries with the SEC since December 31, 1993 (the "Duke SEC
Documents"). As of their respective dates, the Duke SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Duke SEC Documents, with such exceptions as would
not in the aggregate have a Material Adverse Effect on Duke, and none of the
Duke SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Duke included in the Duke SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which will be material) the consolidated
financial position of Duke and its consolidated subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Duke and its consolidated subsidiaries for the periods presented
therein.
6.5. Information Supplied. None of the information supplied or to be
--------------------
supplied by Duke for inclusion or incorporation by reference in the S-4 will, at
the time the S-4 becomes effective under the Securities Act or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and none of the information supplied or to be supplied
by Duke and included or incorporated by reference in the Joint Proxy Statement
will, at the date mailed to the shareholders of Duke and the stockholders of
PanEnergy or at the time of the meeting of such shareholders or stockholders to
be held in connection with the Merger or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Duke or any of its
Subsidiaries, or with respect to other information supplied by Duke for
inclusion in the Joint Proxy Statement
35
<PAGE>
or S-4, shall occur which is required to be described in an amendment of, or a
supplement to, the Joint Proxy Statement or the S-4, such event shall be so
described, and such amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of Duke. The Joint
Proxy Statement, insofar as it relates to Duke or its Subsidiaries or other
information supplied by Duke for inclusion therein, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
6.6. Absence of Certain Changes or Events. Except as disclosed in, or
------------------------------------
reflected in the financial statements included in, the Duke SEC Documents, or
except as contemplated by this Agreement, from December 31, 1995 through the
date hereof , each of Duke, its Subsidiaries, and, to Duke's knowledge, its
Joint Ventures has conducted its business only in the ordinary course of
business consistent with past practice and there has not been: (i) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to (x) any shares of Duke's
capital stock, except for regular quarterly cash dividends consistent with past
practice on Duke Common Stock with usual record and payment dates for such
dividends, (y) any shares of Duke Preferred Stock, except for regular cash
dividends pursuant to the terms of such series of Duke Preferred Stock with
usual record and payment dates for such dividends or (z) any shares of Duke
Preferred Stock A, except for regular cash dividends pursuant to the terms of
such series of Duke Preferred Stock with usual record and payment dates for such
dividends; (ii) any repurchase, redemption or other acquisition by Duke or any
Subsidiary of Duke of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Duke or any Subsidiary of Duke,
except pursuant to Duke's Common Stock repurchase program publicly announced by
Duke on March 12, 1996 (the "Duke Stock Repurchase Program") or in accordance
with the terms of the Duke Stock Plans or the Duke Benefit Plans as defined in
Section 6.12(a); (iii) any material change in any method of accounting or
accounting practice by Duke or any Subsidiary of Duke; or (iv) any other
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
that could reasonably be expected to have a Material Adverse Effect on Duke.
6.7. No Undisclosed Material Liabilities. Except as disclosed in the Duke
-----------------------------------
SEC Documents, as of the date hereof, there are no liabilities or obligations of
Duke, any of its Subsidiaries or, to Duke's knowledge, any of its Joint Ventures
of any kind whatsoever, whether accrued, contingent or otherwise, that would
constitute, and there have been no events, changes or effects with respect to
36
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Duke, any of its Subsidiaries or, to Duke's knowledge, any of its Joint Ventures
constituting or which are reasonably likely to constitute, whether individually
or in the aggregate, a Material Adverse Effect on Duke.
6.8. No Default. Neither Duke, nor any of its Subsidiaries nor, to Duke's
----------
knowledge, any of its Joint Ventures is in default or violation (and no event
has occurred which, with notice or the lapse of time or both, would constitute a
default or violation) of any term, condition or provision of (i) their
respective charters, bylaws or other governing documents, (ii) any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which Duke, any of its Subsidiaries, or to Duke's knowledge, any of its Joint
Ventures is now a party or by which Duke, any of its Subsidiaries or, to Duke's
knowledge, any of its Joint Ventures or any of their respective properties or
assets may be bound or (iii) any order, writ, injunction, decree, statute, rule
or regulation applicable to Duke, any of its Subsidiaries or, to Duke's
knowledge, any of its Joint Ventures, except in the case of (ii) and (iii) for
defaults or violations which in the aggregate would not have a Material Adverse
Effect on Duke.
6.9. Compliance with Applicable Laws. Duke and its Subsidiaries and, to
-------------------------------
Duke's knowledge, its Joint Ventures hold all permits, licenses, variances,
exemptions, orders, franchises, consents and approvals of all Governmental
Entities necessary for them to own, lease and operate their properties and
assets, and to lawfully conduct their respective businesses (the "Duke
Permits"), except where the failure so to hold would not have a Material Adverse
Effect on Duke. Duke and its Subsidiaries and, to Duke's knowledge, its Joint
Ventures are in compliance with the terms of the Duke Permits, except where the
failure so to comply would not have a Material Adverse Effect on Duke. Except
as disclosed in the Duke SEC Documents, the businesses of Duke, its Subsidiaries
and, to Duke's knowledge, its Joint Ventures are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which would not have a Material Adverse Effect on Duke.
No action, proceeding, investigation or review of any Governmental Entity with
respect to Duke, any of its Subsidiaries or, to Duke's knowledge, any of its
Joint Ventures is pending, and, to Duke's knowledge, no investigation or review
by any Governmental Entity with respect to Duke, any of its Subsidiaries or any
of its Joint Ventures is threatened which would, or would be reasonably likely
to, have a Material Adverse Effect on Duke.
6.10. Litigation. Except as disclosed in the Duke SEC Documents or as set
----------
forth in Section 6.10 of the Duke
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Disclosure Schedule, there is no suit, action or proceeding pending, or, to the
knowledge of Duke, threatened against or affecting Duke, any of its
Subsidiaries, or any of its Joint Ventures ("Duke Litigation") and Duke, its
Subsidiaries and, to Duke's knowledge, its Joint Ventures have no knowledge of
any facts that are likely to give rise to any Duke Litigation, that,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Duke or its ability to consummate the transactions
contemplated by this Agreement, nor are there any judgments, decrees,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Duke, any of its Subsidiaries or, to Duke's knowledge, any
of its Joint Ventures ("Duke Orders") that are, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on Duke or its
ability to consummate the transactions contemplated by this Agreement.
6.11. Tax Matters.
-----------
Except (i) as disclosed in Section 6.11 of the Duke Disclosure
Schedule or (ii) where the failure of the following representations to be true
would not, either individually or in the aggregate, have a Material Adverse
Effect on Duke:
(a) Filing of Timely Tax Returns. All material Tax Returns required to be
----------------------------
filed by Duke and each of its Subsidiaries under applicable law have been (and,
as to Tax Returns not filed as of the date hereof, will be) filed on a timely
basis. All such Tax Returns were and are in all material respects (and, as to
Tax Returns not filed as of the date hereof, will be) true, complete and
correct.
(b) Payment of Taxes. Duke and each of its Subsidiaries have, within the
----------------
time and in the manner prescribed by law, paid (and until the Closing Date will
pay within the time and in the manner prescribed by law) all material Taxes
that are currently due and payable except for those being contested in good
faith or for which adequate reserves have been established. No written claim
(and, to Duke's knowledge, no other claim) has ever been made by an authority in
a jurisdiction where any of Duke and its Subsidiaries does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(c) Tax Reserves. Except as previously disclosed by Duke to PanEnergy,
------------
Duke and its Subsidiaries have established (and until the Closing Date will
maintain) on their books and records (i) reserves adequate to pay all material
Taxes and all deficiencies in material Taxes asserted, proposed or threatened
against Duke or its
38
<PAGE>
Subsidiaries and (ii) reserves for deferred income taxes, in each case in
accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Duke or
---------
any of its Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. Duke and each of its Subsidiaries have complied
-----------------
(and until the Closing Date will comply) in all material respects with the
provisions of the Code relating to the withholding of Taxes, including, without
limitation, the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 through 6049 of the Code, as well as
any similar provisions under any other laws, and have, within the time and in
the manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all material amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither Duke nor any of
-----------------------------------------
its Subsidiaries has requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither Duke nor any of its
---------------------------------
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
------------------------------------
the assessment of all material Taxes has expired for all applicable material Tax
Returns of Duke and each of its Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any material Taxes has been proposed, asserted or
assessed (or, to Duke's knowledge, threatened) against Duke or any of its
Subsidiaries that has not been resolved and paid in full or previously disclosed
by Duke to PanEnergy.
(i) Audit, Administrative and Court Proceedings. No audits or other
-------------------------------------------
administrative proceedings or court proceedings are presently pending with
regard to any material Taxes or material Tax Returns of Duke or any of its
Subsidiaries. Neither Duke nor any of its Subsidiaries has any knowledge of any
threatened action, audit or administrative or court proceeding with respect to
any such Taxes or Tax Returns. Further, to the best of the knowledge of Duke,
no state of facts exists or has existed which would constitute grounds for the
assessment of any material liability for Taxes with respect to the periods which
have not been audited by the IRS or other taxing authority.
39
<PAGE>
(j) Tax Rulings. Neither Duke nor any of its Subsidiaries has received a
-----------
Tax Ruling or entered into a Closing Agreement with any taxing authority that
would have a continuing material adverse effect after the Closing Date.
(k) Availability of Tax Returns. To the extent not previously provided,
---------------------------
as soon as practicable after the date hereof, Duke and its Subsidiaries will
make available to PanEnergy complete and accurate copies of such of the
following materials as PanEnergy may reasonably request: (i) material Tax
Returns, and any amendments thereto, filed by Duke or any of its Subsidiaries
since January 1, 1994, (ii) audit reports received from any taxing authority
relating to any material Tax Return filed by Duke or any of its Subsidiaries and
(iii) Closing Agreements entered into by Duke or any of its Subsidiaries with
any taxing authority.
(l) Tax Sharing Agreements. Neither Duke nor any of its Subsidiaries is a
----------------------
party to any Tax allocation or sharing agreement with any person other than Duke
and its Subsidiaries.
(m) Liability for Others. Neither Duke nor any of its Subsidiaries has
--------------------
any liability for Taxes of any person other than Duke and its Subsidiaries under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise.
(n) Section 341(f). Neither Duke nor any of its Subsidiaries has filed
--------------
(or will file prior to the Closing) a consent pursuant to Section 341(f) of the
Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by Duke or any of its Subsidiaries.
(o) Section 168. No property of Duke or any of its Subsidiaries is
-----------
property that Duke or any such Subsidiary or any party to this transaction is or
will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(p) Section 481 Adjustments. Neither Duke nor any of its Subsidiaries is
-----------------------
required to include in income any adjustment pursuant to Section 481(a) of the
Code by reason of a voluntary change in accounting method initiated by Duke or
any of its Subsidiaries, and to the best of the knowledge of Duke, the IRS has
not proposed any such adjustment or change in accounting method.
40
<PAGE>
(q) Tax-Exempt Interest. None of the assets of Duke or its Subsidiaries
-------------------
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code.
(r) Sections 6661 and 6662. All transactions that could give rise to an
----------------------
understatement of federal income tax (within the meaning of Section 6661 of the
Code for Tax Returns filed on or before December 31, 1989, and within the
meaning of Section 6662 of the Code for tax returns filed after December 31,
1989) have been adequately disclosed (or, with respect to Tax Returns not yet
filed will be adequately disclosed) on the Tax Returns of Duke and its
Subsidiaries in accordance with Section 6661(b)(2)(B) of the Code for Tax
Returns filed on or prior to December 31, 1989, and in accordance with Section
6662(d)(2)(B) of the Code for Tax Returns filed after December 31, 1989.
(s) Section 280G. Neither Duke nor any of its Subsidiaries is a party to
------------
any agreement, contract, or arrangement that could result, either directly or
indirectly, on account of the transactions contemplated hereunder, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code (except for such payments as may be payable
pursuant to certain provisions in contracts contemplated by Section 8.16).
(t) Acquisition Indebtedness. No indebtedness of Duke or any of its
------------------------
Subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(u) NOLs. As of September 30, 1996, Duke and its Subsidiaries had net
----
operating loss carryovers available to offset future income as set forth in
Section 6.11(u) of the Duke Disclosure Schedule. Section 6.11(u) of the Duke
Disclosure Schedule sets forth the amount of and year of expiration of each
company's net operating loss carryovers.
(v) Credit Carryover. As of September 30, 1996, Duke and its Subsidiaries
----------------
had tax credit carryovers available to offset future tax liability as set forth
in Section 6.11(v) of the Duke Disclosure Schedule. Section 6.11(v) of the Duke
Disclosure Schedule sets forth the amount and year of expiration of each
company's tax credit carryovers.
(w) The Merger. Neither Duke nor any of its Subsidiaries has taken any
----------
action or has any knowledge of any fact or circumstance that would, or would be
reasonably likely to, adversely affect the status of the Merger as a
reorganization under Section 368(a) of the Code.
41
<PAGE>
6.12. Employee Benefits; Labor Matters.
--------------------------------
(a) Except as disclosed in the Duke SEC Documents, as set forth in Section
6.12(a) of the Duke Disclosure Schedule, or as would not have a Material Adverse
Effect on Duke, (i) all employee benefit plans, policies, practices,
arrangements and programs maintained for the benefit of the current or former
employees or directors of Duke or any of its Subsidiaries ("Duke Personnel")
that are sponsored, maintained or contributed to by Duke or any of its
Subsidiaries, or with respect to which Duke or any of its Subsidiaries has
incurred or could be reasonably expected to incur any liability, including
without limitation any such plan that is an "employee benefit plan" as defined
in Section 3(3) of ERISA ("Duke Benefit Plans"), are in compliance with all
applicable requirements of law, including ERISA and the Code, and have been
administered and operated in compliance with their terms, and (ii) neither Duke
nor any of its Subsidiaries has any liabilities or obligations with respect to
any such Duke Benefit Plans or any employee benefit plan which is not a Duke
Benefit Plan because (x) such plan has been terminated and/or (y) such plan is
or was maintained or contributed to by any entity (other than a Subsidiary of
Duke) required to be aggregated with Duke pursuant to Section 414 of the Code or
Section 4001(b) of ERISA, whether accrued, contingent or otherwise, nor, to the
knowledge of Duke, are any such liabilities or obligations expected to be
incurred.
(b) Except as set forth in Section 6.12(b) of the Duke Disclosure
Schedule, the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any plan, policy, arrangement or
agreement, including but not limited to the Duke Benefit Plans, or any trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any Duke
Personnel.
(c) Except as set forth in Schedule 6.12(c) of the Duke Disclosure
Schedule, neither Duke nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor agreement with any union or labor
organization, nor does Duke know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to represent or
organize any Duke Personnel. Except as set forth in Section 6.12(c) of the Duke
Disclosure Schedule, (i) there is no unfair labor practice, employment
discrimination or other complaint against Duke pending, or, to the knowledge of
Duke,
42
<PAGE>
threatened, which has or could reasonably be expected to have a Material Adverse
Effect on Duke and (ii) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or, to the knowledge of Duke, threatened, against or involving
Duke or any of its Subsidiaries which has or could reasonably be expected to
have, a Material Adverse Effect on Duke.
6.13. Environmental Matters.
---------------------
(a) Compliance. (i) Except as set forth in the Duke SEC
----------
Documents, Duke and each of its Environmental Subsidiaries and any real or
personal property (including, without limitation, any vessel) that any of them
owns, operates, occupies, leases or manages, in whole or in part, directly or
indirectly, are in compliance with all applicable Environmental Laws, except
where the failure to be so in compliance would not be reasonably likely to have
a Material Adverse Effect on Duke.
(ii) Except as set forth in the Duke SEC Documents, neither Duke nor any of
its Environmental Subsidiaries has received any written communication from any
person or Governmental Entity that alleges that Duke or any of its Environmental
Subsidiaries or any real or personal property (including, without limitation,
any vessel) that any of them owns, operates, occupies, leases or manages, in
whole or in part, directly or indirectly, is not in compliance with applicable
Environmental Laws, except where the failure to be so in compliance would not be
reasonably likely to have a Material Adverse Effect on Duke.
(b) Environmental Permits. Except as set forth in the Duke SEC Documents,
---------------------
Duke and each of its Environmental Subsidiaries has obtained, and will maintain
through the Closing Date, all Environmental Permits necessary for the
construction and operation of their facilities (including, without limitation,
any vessel) and the conduct of their operations, and all such Environmental
Permits are in good standing or, where applicable, an application or renewal
application has been timely filed, is pending and agency approval is expected to
be obtained, and Duke and its Environmental Subsidiaries are in compliance with
all terms and conditions of all such Environmental Permits and are not required
to make any expenditure in order to obtain or renew any Environmental Permits,
except where the failure to obtain or be in compliance with such Environmental
Permits and the requirement to make such expenditures would not be reasonably
likely to have a Material Adverse Effect on Duke.
(c) Environmental Claims. Except as set forth in the Duke SEC Documents,
--------------------
there is no Environmental Claim
43
<PAGE>
pending or, to the knowledge of Duke and its Environmental Subsidiaries,
threatened:
(i) against Duke or any of its Environmental Subsidiaries,
(ii) against any person or entity whose liability for, or whose obligation
to satisfy, an Environmental Claim Duke or any of its Environmental Subsidiaries
has retained, assumed or guaranteed, either contractually or by operation of
law, or
(iii) against any real or personal property (including, without limitation,
any vessel) or operations that Duke or any of its Environmental Subsidiaries
owns, operates, occupies, leases or manages, in whole or in part, directly or
indirectly,
that would be reasonably likely to have a Material Adverse Effect on Duke.
(d) Releases. Except as set forth in the Duke SEC Documents, and except
--------
for Releases of Hazardous Materials the liability for which would not be
reasonably likely to have a Material Adverse Effect on Duke, Duke has no
knowledge of any Release of any Hazardous Materials that has occurred on, at,
from or to any of the real or personal property (including, without limitation,
any vessel) owned, operated, occupied, leased or managed by Duke or any
Environmental Subsidiary of Duke or any predecessor of Duke or any Environmental
Subsidiary of Duke or any other property which requires investigation,
assessment, monitoring, remediation, response, removal, corrective action,
cleanup or any similar action under Environmental Laws.
(e) Disclosure. Duke has disclosed to PanEnergy all material facts that
----------
Duke reasonably believes would be reasonably likely to form the basis of a
Material Adverse Effect on Duke arising from (x) the cost of pollution control
equipment currently required or known to be required in the future, (y)
investigation, assessment, monitoring, remediation, response, removal,
corrective action, cleanup, or remediation costs and any related costs currently
required or known to be required in the future, or (z) any other environmental,
health or safety matter affecting Duke or its Environmental Subsidiaries.
6.14. Insurance. Each of Duke and its Subsidiaries is, and has been
---------
continuously since December 31, 1993, insured by reputable and financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting their respective
44
<PAGE>
businesses during such time period. Neither Duke nor any of its Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy thereof and neither Duke nor any of its Subsidiaries
has received notice that any such policy is invalid or unenforceable.
6.15. Contracts. Duke has set forth in Section 6.15 of the Duke Disclosure
---------
Schedule a list of all contracts to which Duke or any of its Subsidiaries is a
party as of the date hereof, and which, in the reasonable judgment of Duke, is
likely (on an annualized basis) in the fiscal year ending December 31, 1996 to
(i) provide gross revenues in excess of the Duke 1995 Revenue Threshold, (ii)
require payments in excess of the Duke 1995 Revenue Threshold, or (iii) provide
a contribution to the gross margin in excess of the Duke 1995 Margin Threshold.
As used herein, "Duke 1995 Revenue Threshold" means an amount equal to 5% of
Duke's gross revenues for the fiscal year ended December 31, 1995, and "Duke
1995 Margin Threshold" means an amount equal to 5% of Duke's gross margin for
the fiscal year ended December 31, 1995.
6.16. Regulatory Proceedings. Except as set forth in the Duke SEC
----------------------
Documents, neither Duke nor any of its Subsidiaries nor, to Duke's knowledge,
any of its Joint Ventures, all or part of whose rates or services are regulated
by a Governmental Entity, is a party to any proceeding before a court or other
Governmental Entity which is reasonably likely to result in orders having a
Material Adverse Effect on Duke nor has any such proceeding been noticed.
6.17. Regulation as a Utility. (a) Duke is a public utility holding
-----------------------
company as defined in the 1935 Act exempt from all provisions of the 1935 Act,
except Section 9(a)(2), pursuant to Section 3(a)(2) of the 1935 Act and is a
"public utility company" within the meaning of Section 2(a)(5) of the 1935 Act.
With the exception of Nantahala Power and Light Company ("NP&L"), no Subsidiary
or Joint Venture of Duke is a "public utility holding company" or a "public
utility company" within the meaning of Section 2(a)(5) of the 1935 Act.
(b) Duke is regulated as a public utility in the States of North Carolina
and South Carolina and in no other states, and NP&L is regulated as a public
utility in the State of North Carolina and in no other states. Except as set
forth in Section 6.17(b) of the Duke Disclosure Schedule, neither Duke nor any
"subsidiary company" or "affiliate" (as each such term is defined in the 1935
Act) of Duke is subject to regulation as a public utility or public service
company (or similar designation) by any other state in the United States or any
foreign country.
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6.18. Opinions of Financial Advisors. The Board of Directors of Duke has
------------------------------
received the opinions of Morgan Stanley & Co. Incorporated ("Morgan Stanley")
and Barr Devlin & Co. Incorporated ("Barr Devlin"), dated the date hereof, to
the effect that, as of the date hereof, the Exchange Ratio is fair from a
financial point of view to Duke.
6.19. Vote Required. Approval by a majority of the votes cast on the Duke
-------------
Vote Matter by the holders of Duke Common Stock (provided that the total vote
cast represents a majority of the outstanding shares of Duke Common Stock
entitled to vote thereon) is the only vote of the holders of any class or series
of Duke capital stock necessary to approve the Duke Vote Matter.
6.20. Beneficial Ownership of PanEnergy Common Stock. Neither Duke nor any
----------------------------------------------
of its Subsidiaries "beneficially owns" (as defined in Rule 13d-3 under the
Exchange Act) any outstanding shares of PanEnergy Common Stock.
6.21. Brokers. Except for the fees and expenses payable to Morgan Stanley
-------
and Barr Devlin, which fees are reflected in their agreements with Duke (copies
of which have been delivered to PanEnergy), no broker, investment banker or
other person is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Duke.
6.22. Properties. (a) Duke has good title (fee simple in the case of real
----------
property other than easements and rights of way) to all properties reflected in
the balance sheet contained in Duke's most recent Report on Form 10-Q filed
prior to the date hereof, as owned by it and which have not been disposed of in
the ordinary course of business, which properties include all properties owned
at that date upon which the First and Refunding Mortgage dated as of December 1,
1927 between Duke and The Chase Manhattan Bank, as successor Trustee, as
supplemented and amended (the "Mortgage") purports to create a lien (except such
as have been released pursuant to the terms of the Mortgage), subject only (i)
to the lien of the Mortgage, (ii) to permitted encumbrances as defined in the
Mortgage, (iii) to minor exceptions and defects which do not, in the aggregate,
materially interfere with the use by Duke of such properties for the
purposes for which they are held, materially detract from the value of said
properties or in any material way impair the security afforded by the Mortgage,
and (iv) in the case of Duke's existing hydroelectric plants, to provisions of
licenses issued by FERC and to the provisions of the Power Act. All buildings,
and all fixtures, equipment and other property and assets, which are
46
<PAGE>
material to the business of Duke and which are held under leases by Duke are
held under valid instruments enforceable by Duke in accordance with their
respective terms, except as the enforceability thereof may be affected by
bankruptcy, insolvency or other laws of general applicability affecting the
rights of creditors generally or principles of equity.
(b) The electric generating stations of Duke (the "Duke Generating
Stations") have been maintained in good repair and working order consistent with
customary practice in the industry, except where the failure so to maintain the
Duke Generating Stations would not, or would not be likely to, whether
individually or in the aggregate, have a Material Adverse Effect on Duke. Duke
has made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as may be necessary so that the operations carried on
in connection therewith may be conducted at all times in accordance with
industry standards and all applicable legal requirements, except where the
failure so to repair, renew, replace, better or improve the Duke Generating
Stations would not, or would not be likely to, whether individually or in the
aggregate, have a Material Adverse Effect on Duke. Duke has no knowledge of any
conditions existing in respect of the Duke Generating Stations which would
require Duke to incur any capital expenditures relating thereto which are
materially in excess of the amounts budgeted by Duke (as reflected in existing
budgets of Duke, copies of which were delivered to PanEnergy) for maintenance,
repair or renewal of the Duke Generating Stations.
6.23. Franchises, Licenses, Etc. Duke holds valid and subsisting
--------------------------
franchises, licenses and permits in all communities wherein it operates its
properties, which are free from unduly burdensome restrictions, are individually
satisfactory and vest in Duke adequate authority to operate its public utility
system therein, except that in a few municipalities Duke is operating either
without franchises or with franchises the validity of which might possibly be
called into question. The franchises, licenses and permits relating to Duke's
public utility business, as a system, are satisfactory for the adequate conduct
of the business of Duke in the territory which it serves, the rights of Duke to
maintain transmission lines through unincorporated communities and over public
lands not located in incorporated communities and over private rights of way
are, as a system, satisfactory for the adequate conduct of the business of Duke
in the territory which it serves, and, as a public utility corporation operating
under the laws of the States of North Carolina and South Carolina, Duke has
adequate rights to operate its system.
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6.24. Nuclear Operations. Except as set forth in Section 6.24 of the Duke
------------------
Disclosure Schedule, to the knowledge of Duke, the operations of its Nuclear
Steam Generating Stations ("Nuclear Stations") are and have at all times been
conducted in material compliance with applicable health, safety, regulatory and
other legal requirements. To the knowledge of Duke, the Nuclear Stations
maintain emergency plans designed to respond to an unplanned release therefrom
of radioactive materials into the environment and liability insurance to the
extent required by law, and such further insurance (other than liability
insurance) as is consistent with Duke's view of the risks inherent in the
operation of a nuclear power facility. To the knowledge of Duke, plans for the
decommissioning of each of the Nuclear Stations and for the short-term storage
of spent nuclear fuel conform with applicable regulatory or other legal
requirements, and such plans have at all times been funded to the extent
required by law, which is consistent with Duke's reasonable budget projections
for such plans.
6.25. Duke/Louis Dreyfus L.L.C. ("D/LD") Obligations. The exposure of Duke
----------------------------------------------
and its Subsidiaries with respect to D/LD's net position resulting from all
physical commodity transactions, exchange traded futures and options and over-
the-counter derivative instruments is not, to Duke's knowledge, on the date
hereof, material to Duke and will not, after the date hereof, result in a
Material Adverse Effect on Duke.
6.26. Representations with Respect to Merger Sub. (a) Merger Sub is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no
other business activities, has no obligations or liabilities, has no other
assets and has no subsidiaries.
(b) As of the date hereof, the authorized capital stock of Merger Sub
consists of 1,000 shares of common stock, par value $1.00 per share, of Merger
Sub, all of which are validly issued, fully paid and nonassessable and are owned
by Duke.
(c) Merger Sub has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by Merger Sub of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and, assuming this Agreement constitutes
the valid and binding obligation of Duke and
48
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PanEnergy, constitutes a valid and binding obligation of Merger Sub enforceable
in accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity.
ARTICLE 7
CONDUCT OF BUSINESS PENDING THE MERGER
7.1. Conduct of Business of PanEnergy Pending the Merger. During the
---------------------------------------------------
period from the date of this Agreement and continuing until the Effective Time,
PanEnergy agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, as provided in the PanEnergy
Disclosure Schedule (each of which exceptions shall specifically identify the
relevant Section hereof to which it relates) or to the extent that Duke shall
otherwise consent in writing):
(a) Ordinary Course of Business. Each of PanEnergy and its Subsidiaries
---------------------------
shall carry on its businesses (i) in the usual, regular and ordinary course
consistent with past practice or (ii) in accordance with the capital budget and
business plan of PanEnergy and its Subsidiaries delivered by PanEnergy to Duke
prior to the date hereof (the "PanEnergy Capital Budget") and shall use all
commercially reasonable efforts to preserve intact its present business
organizations and goodwill, keep available the services of its current officers
and employees, endeavor to preserve its relationships with customers, suppliers
and others having business dealings with it, maintain and keep its material
properties and assets in as good repair and condition as at present, subject to
ordinary wear and tear, and maintain supplies and inventories in quantities
consistent with past practice, and, with respect to wholesale power and energy
trading and transactions, comply with the risk parameters established from time
to time by PanEnergy's Risk Management Committee, all to the end that its
goodwill and ongoing businesses shall not be impaired in any material respect at
the Effective Time. Notwithstanding the foregoing, the risk parameters
established by PanEnergy's Risk Management Committee may be revised by PanEnergy
only after consultation by PanEnergy with Duke.
(b) Dividends; Changes in Stock. PanEnergy shall not, and it shall not
---------------------------
permit any of its Subsidiaries to: (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock or any other
interests specified in Section 5.2 or set forth in Section 5.2 of the PanEnergy
Disclosure Schedule, except for
49
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the declaration and payment, with Record Dates and usual payment dates, of
regular quarterly cash dividends on PanEnergy Common Stock not in excess, in any
fiscal year, of the dividends for the prior fiscal year increased at a rate
consistent with past practice, dividends payable by a Subsidiary of PanEnergy to
PanEnergy or to a wholly-owned Subsidiary of PanEnergy, or dividends by a less
than wholly-owned Subsidiary consistent with past practice; (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) repurchase, redeem or otherwise
acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise
acquire, any shares of its capital stock or Voting Debt or other voting
securities or any securities convertible into, or any rights, warrants, calls,
subscriptions or options to acquire, shares of capital stock or Voting Debt or
other voting securities of PanEnergy or any of its Subsidiaries, except (x)
pursuant to the terms of the PanEnergy Stock Plans, the PanEnergy Benefit Plans
or the PanEnergy DRIP, as in effect on the date hereof, in the ordinary course
of business consistent with past practice or (y) as required by the terms of any
such securities outstanding on the date hereof. As used herein, "Record Date"
means each February 15, May 15, August 15 or November 15 (or, if such date is
not a business day, the first business day immediately following such date).
(c) Issuance of Securities. PanEnergy shall not, and it shall not permit
----------------------
any of its Subsidiaries to, issue, deliver, sell, pledge, dispose of or
encumber, or authorize or propose to issue, deliver, sell, pledge, dispose of or
encumber, any shares of its capital stock of any class, any Voting Debt or other
voting securities or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any shares of capital stock, Voting
Debt or other voting securities or convertible securities of PanEnergy or any of
its Subsidiaries, other than: (i) the issuance of PanEnergy Common Stock
pursuant to stock grants or stock-based awards made in the ordinary course of
business consistent with past practice pursuant to the PanEnergy Stock Plans or
pursuant to the PanEnergy DRIP, in each case in accordance with the present
terms of such plans, (ii) the issuance of PanEnergy Common Stock upon conversion
of any Convertible Notes, or (iii) the issuance of capital stock of a Subsidiary
of PanEnergy to PanEnergy or to a wholly-owned Subsidiary of PanEnergy.
(d) Capital Expenditures. Except for capital expenditures that PanEnergy
--------------------
or any of its Subsidiaries are required to make under applicable law, PanEnergy
shall not, nor shall PanEnergy permit any of its Subsidiaries to, make capital
expenditures (including capital lease obligations)
50
<PAGE>
other than capital expenditures to repair or replace facilities destroyed or
damaged due to casualty or accident (whether or not covered by insurance), in
excess of such aggregate amount as is set forth in the PanEnergy Capital Budget.
(e) No Acquisitions. Except for acquisitions resulting from capital
---------------
expenditures permitted pursuant to Section 7.1(d) or as to which the total
consideration is not in excess of $100 million individually (or in respect of a
series of related transactions) or $200 million in the aggregate, PanEnergy
shall not, and it shall not permit any of its Subsidiaries to, acquire or agree
to acquire by merging or consolidating with, or by purchasing an equity interest
in or a portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof. PanEnergy may not acquire any electric utility assets or any retail
gas assets or any properties relating thereto unless (x) PanEnergy consults with
Duke prior to any such acquisition and (y) such acquisition will not, in the
opinion of Duke, violate the covenant contained in Section 7.1(q).
(f) No Dispositions. Other than dispositions as to which the aggregate
---------------
market value is not in excess of $50 million individually (or in respect of a
series of related transactions) or $100 million in the aggregate (exclusive of
like-kind exchanges with respect to which the aggregate market value shall not
be in excess of $100 million), PanEnergy shall not, and it shall not permit any
of its Subsidiaries to, sell, lease (whether such lease is an operating or
capital lease), encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets.
(g) No Dissolution, Etc. PanEnergy shall not authorize, recommend,
-------------------
propose or announce an intention to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of PanEnergy or any of its Subsidiaries; provided that
nothing in this Section 7.1(g) shall preclude any such transaction which
involves only wholly-owned Subsidiaries of PanEnergy or the transactions
permitted by Section 7.1(f) hereof.
(h) Certain Employee Matters. Except as may be required by applicable law
------------------------
or any agreement to which PanEnergy or any of its Subsidiaries is a party on the
date hereof or as expressly contemplated by this Agreement or as set forth in
Section 7.1(h) of the PanEnergy Disclosure Schedule, PanEnergy shall not, nor
shall it permit any of its Subsidiaries to:
51
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(i) increase the amount of (or accelerate the payment or vesting of)
any benefit or amount payable under, any employee benefit plan or any other
contract, agreement, commitment, arrangement, plan or policy providing for
compensation or benefits to any former, present or future director, officer or
employee of PanEnergy or any of its Subsidiaries and maintained by, contributed
to or entered into by, PanEnergy or any of its Subsidiaries on or prior to the
date hereof, including, without limitation, any PanEnergy Benefit Plan
outstanding on the date hereof;
(ii) increase (or enter into any contract, agreement, commitment or
arrangement to increase in any manner) the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or any related
rights, of any former, present or future director, officer or employee of
PanEnergy or any of its Subsidiaries, except for (x) normal increases in the
ordinary course of business consistent with past practice, provided that the
overall compensation budget shall not increase by more than 3.5% on an annual
basis or (y) increases required under applicable law; or
(iii) adopt, establish, enter into, implement or amend any plan,
policy, employment agreement, severance agreement, or other contract, agreement
or other arrangement providing for any form of benefits or other compensation to
any former, present or future director, officer or employee of PanEnergy or any
of its Subsidiaries, other than in the ordinary course of business consistent
with past practice.
(i) Indebtedness; Leases. PanEnergy shall not, nor shall PanEnergy
--------------------
permit any of its Subsidiaries to, (A) incur any indebtedness for borrowed money
or guarantee, or enter into a "keepwell" or similar arrangement with respect to,
any such indebtedness (including, without limitation, issuances or sales of any
debt securities or warrants or rights to acquire any debt securities of
PanEnergy or any of its Subsidiaries), other than (x) long-term indebtedness
incurred in connection with the refinancing of existing indebtedness either at
its stated maturity or at a lower cost of funds, (y) indebtedness between
PanEnergy or any of its Subsidiaries and another of its Subsidiaries and (z)
additional indebtedness in an amount not to exceed $1.2 billion, or (B) enter
into any material operating lease or create any mortgages, liens, security
interests or other encumbrances on the property of PanEnergy or any of its
Subsidiaries in connection with any indebtedness thereof, except with respect to
indebtedness permitted pursuant to this Section 7.1(i). The amount of short-term
indebtedness incurred by PanEnergy and its
52
<PAGE>
Subsidiaries shall not exceed 75% of the committed facilities of PanEnergy and
its Subsidiaries.
(j) Governing Documents. Neither PanEnergy nor any of its Subsidiaries
-------------------
shall amend or propose to amend its certificate of incorporation or by-laws (or
similar governing documents).
(k) Accounting. PanEnergy shall not, nor shall it permit any of its
----------
Subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the SEC, except as
required by law, rule, regulation or GAAP.
(l) Rate Matters. Subject to applicable law and except for non-material
------------
filings in the ordinary course of business consistent with past practice,
PanEnergy shall consult with Duke prior to implementing any changes in its or
any of its Subsidiaries' rates or charges (other than pass-through or tracking
rate charges under existing tariffs or rate schedules), standards of service or
accounting or executing any agreement with respect thereto that is otherwise
permitted under this Agreement and shall, and shall cause its Subsidiaries to,
deliver to Duke a copy of each such filing or agreement at least five days prior
to the filing or execution thereof so that Duke may comment thereon. PanEnergy
shall, and shall cause its Subsidiaries to, make all such filings only in the
ordinary course of business consistent with past practice.
(m) Contracts. Except in the ordinary course of business consistent with
---------
past practice, PanEnergy shall not, nor shall it permit any of its Subsidiaries
to, modify, amend or terminate any material contract or agreement of the nature
required to be disclosed in Section 5.15 of the PanEnergy Disclosure Schedule
and to which it or any of its Subsidiaries is a party or waive, release or
assign any material rights or claims under any such contract or agreement.
(n) Insurance. PanEnergy shall, and shall cause its Subsidiaries to,
---------
maintain with financially responsible insurance companies (or through self-
insurance) insurance in such amounts and against such risks and losses as are
customary for companies engaged in their respective businesses.
(o) Permits. PanEnergy shall, and shall cause its Subsidiaries to,
-------
maintain in effect all existing PanEnergy Permits (including Environmental
Permits) which are material to their respective operations.
53
<PAGE>
(p) Discharge of Liabilities. PanEnergy shall not, nor shall it permit
------------------------
any of its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than (i) the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice (which includes
the payment of final and unappealable judgments and the refinancing of existing
indebtedness for borrowed money either at its stated maturity or at a lower cost
of funds) as required by their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of PanEnergy included in the PanEnergy SEC
Documents, or incurred in the ordinary course of business consistent with past
practice and (ii) redemption of the Convertible Notes.
(q) 1935 Act. PanEnergy shall not, and shall not permit any of its
--------
subsidiaries to, engage in any activities which would cause a change in its
status, or that of its subsidiaries, under the 1935 Act, or that would impair
the ability of Duke to continue to claim an exemption as of right under Rule 2
of the 1935 Act following the Merger.
(r) Tax Matters. PanEnergy shall inform Duke regarding the progress of
-----------
any material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit, or controversy relating to Taxes and shall consult with
Duke before entering into any settlements or compromises with regard to such
matters.
(s) Tax Status. PanEnergy shall not, and shall not permit any of its
----------
Subsidiaries to, take any actions which would, or would be reasonably likely to,
adversely affect the status of the Merger as a reorganization under Section
368(a) of the Code.
(t) Other Actions. PanEnergy shall not, and shall not permit any of its
-------------
Subsidiaries to, take or fail to take any action which would reasonably be
expected to prevent or materially impede, interfere with or delay the Merger.
(u) Agreements. PanEnergy shall not, nor shall it permit any of its
----------
Subsidiaries to, agree in writing or otherwise take any action inconsistent with
the foregoing.
7.2. Conduct of Business of Duke Pending the Merger. During the period
----------------------------------------------
from the date of this Agreement and continuing until the Effective Time, Duke
agrees as to itself and its Subsidiaries that (except as expressly contemplated
or permitted by this Agreement, as provided in the Duke Disclosure Schedule
(each of which exceptions shall specifically identify the relevant Section
hereof to which it relates) or to the extent that PanEnergy shall otherwise
consent in writing):
54
<PAGE>
(a) Ordinary Course of Business. Each of Duke and its Subsidiaries shall
---------------------------
carry on its businesses (i) in the usual, regular and ordinary course consistent
with past practice or (ii) in accordance with the capital budget of Duke
delivered by Duke to PanEnergy prior to the date hereof (the "Duke Capital
Budget") and shall use all commercially reasonable efforts to preserve intact
its present business organizations and goodwill, keep available the services of
its current officers and employees, endeavor to preserve its relationships with
customers, suppliers and others having business dealings with it, maintain and
keep its material properties and assets in as good repair and condition as at
present, subject to ordinary wear and tear, and maintain supplies and
inventories in quantities consistent with past practice, and, with respect to
wholesale power and energy trading and transactions, comply with prudent
policies, practices and procedures with respect to risk management and trading
limitations, all to the end that its goodwill and ongoing businesses shall not
be impaired in any material respect at the Effective Time.
(b) Dividends; Changes in Stock. Duke shall not, and it shall not permit
---------------------------
any of its Subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock or any other interests
specified in Section 6.2 or set forth in Section 6.2 of the Duke Disclosure
Schedule, except for (A) the declaration and payment, with Record Dates and
usual payment dates, of regular quarterly cash dividends on Duke Common Stock of
not more than, for such fiscal year or portion thereof, the dividends for the
prior fiscal year or portion thereof increased at a rate consistent with past
practice and not less than, for such fiscal year or portion thereof, the
dividends for the prior fiscal year or portion thereof, except that (x) the Duke
Board of Directors in good faith in the reasonable exercise of its business
judgment may determine that dividends on Duke Common Stock shall, as a
consequence of the occurrence of unforeseen circumstances or events, be, for
such fiscal year or portion thereof, less than the dividends for the prior
fiscal year or portion thereof and (y) any dividends on Duke Common Stock shall
not be in an amount prohibited by law; (B) the declaration and payment of
regular dividends on Duke Preferred Stock pursuant to the terms of the relevant
series and (C) the declaration and payment of regular dividends on Duke
Preferred Stock A pursuant to the terms of the relevant series; (D) dividends
payable by a Subsidiary of Duke to Duke or to a wholly-owned Subsidiary of Duke;
or (E) dividends by a less than wholly-owned Subsidiary consistent with past
practice; (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock; or
55
<PAGE>
(iii) repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries
to purchase, redeem or otherwise acquire, any shares of its capital stock or
Voting Debt or other voting securities or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to acquire, shares of
capital stock or Voting Debt or other voting securities of Duke or any of its
Subsidiaries, except (A) pursuant to the terms of the Duke Stock Plans or the
Duke Benefit Plans made in the ordinary course of business consistent with past
practice, (B) pursuant to the terms of the Duke Stock Repurchase Program
(subject to Section 8.18) or (C) as required by the terms of any such securities
outstanding on the date hereof.
(c) Issuance of Securities. Duke shall not, and it shall not permit any
----------------------
of its Subsidiaries to, issue, deliver, sell, pledge, dispose of or encumber, or
authorize or propose to issue, deliver, sell, pledge, dispose of or encumber,
any shares of its capital stock of any class, any Voting Debt or other voting
securities or any securities convertible into, or any rights, warrants, calls,
subscriptions or options to acquire, any shares of capital stock, Voting Debt or
other voting securities or convertible securities of Duke or any of its
Subsidiaries, other than: (i) the issuance of Duke Common Stock under the Duke
Stock Plans or (ii) the issuance of capital stock of a Subsidiary of Duke to
Duke or to a wholly-owned Subsidiary of Duke.
(d) Capital Expenditures. Except for capital expenditures that Duke or
--------------------
any of its Subsidiaries are required to make under applicable law and capital
expenditures to repair or replace facilities destroyed or damaged due to
casualty or accident (whether or not covered by insurance), (i) Duke shall not
make capital expenditures in excess of the aggregate amount of capital
expenditures set forth in the Duke Capital Budget, and (ii) Duke shall not
permit its Subsidiaries to make capital expenditures ("Subsidiary Capital
Expenditures") in excess of $200 million individually (or in respect of a series
of related capital expenditures) or $500 million in the aggregate.
(e) No Acquisitions. Except for acquisitions by Duke resulting from
---------------
capital expenditures permitted pursuant to Section 7.2(d) or as to which the
total consideration is not in excess of (i) $200 million individually (or in
respect of a series of related transactions) or (ii) $500 million in the
aggregate (reduced by the aggregate amount of Subsidiary Capital Expenditures
that are not acquisitions), Duke shall not, and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof. Duke may not acquire any electric
utility assets or any retail gas assets or any properties relating thereto
unless (x) Duke consults with PanEnergy prior to any such acquisition and
56
<PAGE>
(y) such acquisition will not, in the opinion of PanEnergy, violate the covenant
contained in Section 7.2(q).
(f) No Dispositions. Other than dispositions as to which the aggregate
---------------
market value is not in excess of $150 million individually (or in respect of a
series of related transactions) or $200 million in the aggregate (exclusive of
like-kind exchanges with respect to which the aggregate market value shall not
be in excess of $200 million), Duke shall not, and it shall not permit any of
its Subsidiaries to, sell, lease (whether such lease is an operating or capital
lease), encumber or otherwise dispose of, or agree to sell, lease, encumber or
otherwise dispose of, any of its assets.
(g) No Dissolution, Etc. Duke shall not authorize, recommend, propose or
-------------------
announce an intention to adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of Duke or any of its Subsidiaries; provided that nothing in this
Section 7.2(g) shall preclude any such transaction which involves only wholly-
owned Subsidiaries of Duke or the transactions permitted by Section 7.2(f)
hereof.
(h) Certain Employee Matters. Except as may be required by applicable law
------------------------
or any agreement to which Duke or any of its Subsidiaries is a party on the date
hereof or as expressly contemplated by this Agreement or as set forth in Section
7.2(h) of the Duke Disclosure Schedule, Duke shall not, nor shall it permit any
of its Subsidiaries to:
(i) increase the amount of (or accelerate the payment or vesting of)
any benefit or amount payable under, any employee benefit plan or any other
contract, agreement, commitment, arrangement, plan or policy providing for
compensation or benefits to any former, present or future director, officer or
employee of Duke or any of its Subsidiaries and maintained by, contributed to or
entered into by, Duke or any of its Subsidiaries on or prior to the date hereof,
including, without limitation, any Duke Benefit Plan outstanding on the date
hereof, other than in the ordinary course of business consistent with past
practice;
(ii) increase (or enter into any contract, agreement, commitment or
arrangement to increase in any manner) the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or any related
rights, of any former, present or future director, officer or employee of Duke
or any of its Subsidiaries, except for (i) normal increases in the ordinary
course of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits
57
<PAGE>
or compensation expense to Duke or any of its Subsidiaries or (ii) increases
required under applicable law; or
(iii) adopt, establish, enter into, implement or amend any plan,
policy, employment agreement, severance agreement, or other contract, agreement
or other arrangement providing for any form of benefits or other compensation to
any former, present or future director, officer or employee of Duke or any of
its Subsidiaries, other than in the ordinary course of business consistent with
past practice.
(i) Indebtedness; Leases. Duke shall not, nor shall Duke permit any of
--------------------
its Subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee,
or enter into a "keepwell" or similar arrangement with respect to, any such
indebtedness (including, without limitation, issuances or sales of any debt
securities or warrants or rights to acquire any debt securities of Duke or any
of its Subsidiaries), other than (a) long-term indebtedness incurred in
connection with the refinancing of existing indebtedness either at its stated
maturity or at a lower cost of funds, (b) indebtedness between Duke or any of
its Subsidiaries and another of its Subsidiaries and (c) additional indebtedness
in an amount not to exceed $2 billion, or (ii) enter into any material operating
lease or create any mortgages, liens, security interests or other encumbrances
on the property of Duke or any of its Subsidiaries in connection with any
indebtedness thereof except with respect to indebtedness permitted by this
Section 7.2(i). The amount of short-term indebtedness incurred shall not exceed
75% of the committed facilities of Duke and its Subsidiaries.
(j) Governing Documents. Neither Duke nor any of its Subsidiaries shall
-------------------
amend or propose to amend its certificate of incorporation or by-laws (or
similar governing documents), except with respect to matters contemplated by
this Agreement.
(k) Accounting. Duke shall not, nor shall it permit any of its
----------
Subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the SEC, except as
required by law, rule, regulation or GAAP.
58
<PAGE>
(l) Rate Matters. Subject to applicable law and except for non-material
------------
filings in the ordinary course of business consistent with past practice, Duke
shall consult with PanEnergy prior to implementing any changes in its or any of
its Subsidiaries' rates or charges (other than pass-through or tracking rate
charges under existing tariffs or rate schedules), standards of service or
accounting or executing any agreement with respect thereto that is otherwise
permitted under this Agreement and shall, and shall cause its Subsidiaries to,
deliver to PanEnergy a copy of each such filing or agreement at least five days
prior to the filing or execution thereof so that PanEnergy may comment thereon.
Duke shall, and shall cause its Subsidiaries to, make all such filings only in
the ordinary course of business consistent with past practice.
(m) Contracts. Except in the ordinary course of business consistent with
---------
past practice, Duke shall not, nor shall it permit any of its Subsidiaries to,
modify, amend or terminate any material contract or agreement of the nature
required to be disclosed in Section 6.15 of the Duke Disclosure Schedule to
which it or any of its Subsidiaries is a party or waive, release or assign any
material rights or claims under any such contract or agreement.
(n) Insurance. Duke shall, and shall cause its Subsidiaries to, maintain
---------
with financially responsible insurance companies (or through self-insurance)
insurance in such amounts and against such risks and losses as are customary for
companies engaged in their respective businesses.
(o) Permits. Duke shall, and shall cause its Subsidiaries to, maintain in
-------
effect all existing Duke Permits (including Environmental Permits) which are
material to their respective operations.
(p) Discharge of Liabilities. Duke shall not, nor shall it permit any of
------------------------
its Subsidiaries to, pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice (which includes the payment of
final and unappealable judgments and the refinancing of existing indebtedness
for borrowed money either at its stated maturity or at a lower cost of funds) as
required by their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of Duke included in Duke SEC Documents, or incurred in the ordinary
course of business consistent with past practice.
59
<PAGE>
(q) 1935 Act. Duke shall not, and shall not permit any of its
--------
subsidiaries to, engage in any activities which would cause a change in its
status, or that of its subsidiaries, under the 1935 Act.
(r) Tax Matters. Duke shall inform PanEnergy regarding the progress of
-----------
any material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit, or controversy relating to Taxes and shall consult with
PanEnergy before entering into any settlements or compromises with regard to
such matters.
(s) Tax Status. Duke shall not, and shall not permit any of its
----------
Subsidiaries to, take any actions which
would, or would be reasonably likely to, adversely affect the status of the
Merger as a reorganization under Section 368(a) of the Code.
(t) Other Actions. Duke shall not, and shall not permit any of its
-------------
Subsidiaries to, take or fail to take any other action which would reasonably be
expected to prevent or materially impede, interfere with or delay the Merger.
(u) Agreements. Duke shall not, nor shall it permit any of its
----------
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with the foregoing.
7.3. Transition Committee. A committee comprised of one person designated
--------------------
by Duke and one person designated by PanEnergy (the "Transition Committee") will
be established as soon after execution of this Agreement as is practicable to
examine various alternatives regarding the manner in which to best organize,
manage and integrate the businesses of Duke and PanEnergy after the Effective
Time. The person designated by Duke shall be the senior member of the
Transition Committee and shall coordinate the day-to-day activities of the
Transition Committee with the concurrence of the person designated by PanEnergy
to serve on the Transition Committee. From time to time, the Transition
Committee shall report its findings to the Board of Directors of each of Duke
and PanEnergy.
ARTICLE 8
COVENANTS
8.1 Alternative Proposals. Prior to the Effective Time, PanEnergy
---------------------
agrees (a) that neither it nor any of its Subsidiaries shall, and it shall
direct and use reasonable efforts to cause its officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its Subsidiaries or any
of the foregoing) not to initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to an Alternative Proposal (as defined below) or engage in any
negotiations concerning, or provide any non-public information or data to, or
have any discussions with, any person relating to an Alternative Proposal, or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions
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or negotiations with any parties conducted heretofore with respect to any of the
foregoing, and it will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken in this Section 8.1;
and (c) that it will notify Duke immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it;
provided, however, that nothing contained in this Section 8.1 shall prohibit the
Board of Directors of PanEnergy from (i) furnishing information (pursuant to a
confidentiality letter deemed appropriate by the Board of Directors of
PanEnergy) to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide proposal or offer to the stockholders
of PanEnergy, to acquire PanEnergy pursuant to a merger, consolidation, share
purchase, share exchange, purchase of a substantial portion of assets, business
combination or other similar transaction, if, and only to the extent that, (A)
the Board of Directors of PanEnergy determines in good faith upon the advice of
outside counsel that such action is required for the Board of Directors to
comply with its fiduciary duties to stockholders imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, PanEnergy provides written notice to Duke of the
identity of the person or entity making the Alternative Proposal and that it
intends to furnish information to, or intends to enter into discussions or
negotiations with, such person or entity, (C) PanEnergy keeps Duke informed on a
timely basis of the status of any such discussions or negotiations and all terms
and conditions thereof and promptly provides Duke with copies of any written
inquiries or proposals relating thereto, and (D) in the event that the Board of
Directors of PanEnergy determines to accept any such Alternative Proposal (in
accordance with subclause (A) above), PanEnergy provides Duke with at least
three days' prior written notice thereof, during which time Duke may make, and
in such event, PanEnergy shall in good faith consider, a counterproposal to such
Alternative Proposal; and (ii) to the extent applicable, complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Alternative Proposal.
Nothing in this Section 8.1 shall (x) permit PanEnergy to terminate this
Agreement (except as specifically provided in Article 10 hereof), (y) permit
PanEnergy to enter into any agreement with respect to an Alternative Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, PanEnergy shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement deemed appropriate by the Board of Directors of
PanEnergy)), or (z) affect any other obligation of PanEnergy under this
Agreement. "Alternative Proposal"
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shall mean any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction involving
PanEnergy or any of PanEnergy's Significant Subsidiaries, or any proposal or
offer to acquire in any manner, directly or indirectly, a substantial equity
interest in or a substantial portion of the assets of PanEnergy or any of
PanEnergy's Significant Subsidiaries. Nothing herein shall prohibit a
disposition permitted by Section 7.1(f) hereof.
8.2. Preparation of S-4 and the Joint Proxy Statement. As promptly as
------------------------------------------------
practicable after the date hereof, Duke and PanEnergy shall prepare and file
with the SEC the Joint Proxy Statement and Duke shall prepare and file with the
SEC the S-4, in which the Joint Proxy Statement will be included as part of a
prospectus. Each of Duke and PanEnergy shall use all reasonable efforts to have
the S-4 declared effective under the Securities Act as promptly as practicable
after such filing and to cause the Joint Proxy Statement to be mailed to the
shareholders of Duke and the stockholders of PanEnergy at the earliest
practicable date. Duke shall use reasonable efforts to obtain all necessary
authorizations from state regulatory authorities, all necessary authorizations
under state securities laws or "blue sky" permits, approvals and registrations
in connection with the issuance of Duke Common Stock in the Merger and upon the
exercise of any PanEnergy Stock Options assumed by Duke, and PanEnergy shall
furnish all information concerning PanEnergy and the holders of PanEnergy Common
Stock as may be reasonably requested in connection with obtaining such permits,
approvals and registrations.
8.3. Letter of PanEnergy's Accountants. PanEnergy shall use reasonable
---------------------------------
efforts to cause to be delivered to Duke a letter of KPMG Peat Marwick LLP
("Peat Marwick"), PanEnergy's independent public accountants, dated a date
within two business days before the date on which the S-4 shall become effective
and addressed to Duke and PanEnergy, in form and substance reasonably
satisfactory to Duke and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the S-4.
8.4. Letter of Duke's Accountants. Duke shall use reasonable efforts to
----------------------------
cause to be delivered to PanEnergy a letter of Deloitte & Touche LLP ("Deloitte
& Touche"), Duke's independent public accountants, dated a date within two
business days before the date on which the S-4 shall become effective and
addressed to Duke and PanEnergy, in form and substance reasonably satisfactory
to PanEnergy and customary in scope and substance for letters delivered by
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independent public accountants in connection with registration statements
similar to the S-4.
8.5. Access to Information. To the extent permitted by law, upon
---------------------
reasonable notice, Duke and PanEnergy each shall, and shall cause each of their
respective Subsidiaries to, afford to the officers, employees, accountants,
counsel and other representatives of the other, access, during normal business
hours during the period prior to the Effective Time, to all of its properties,
books, contracts, commitments and records and, during such period, each of Duke
and PanEnergy shall (and shall cause each of their respective Subsidiaries to)
furnish promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to SEC requirements and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Each of
Duke and PanEnergy agrees that it will not, and will cause its respective
representatives not to, use any information obtained pursuant to this Section
8.5 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. The Confidentiality Agreement dated November 6,
1996 between Duke and PanEnergy (the "Confidentiality Agreement") shall apply
with respect to information furnished thereunder or hereunder and any other
activities contemplated thereby or hereby.
8.6. PanEnergy Stockholders' Meeting. PanEnergy shall (i) call a meeting
-------------------------------
of its stockholders to be held as promptly as practicable after the date hereof
for the purpose of voting upon the adoption of this Agreement, (ii) through its
Board of Directors, recommend to its stockholders adoption of this Agreement and
not rescind such recommendation, (iii) use all reasonable efforts to obtain
adoption of this Agreement by its stockholders and (iv) use all reasonable
efforts to hold such meeting as soon as practicable after the date upon which
the S-4 becomes effective; provided, however, that nothing herein obligates
PanEnergy to take any action that would cause its Board of Directors to act
inconsistently with their fiduciary duties as determined by the Board of
Directors of PanEnergy in good faith based on the advice of PanEnergy's outside
counsel. The PanEnergy Stockholders' Meeting shall be held on such date, as
soon as practicable after the date upon which the S-4 becomes effective, as Duke
and PanEnergy shall mutually determine, which shall be the same date as the Duke
Shareholders' Meeting.
8.7. Duke Shareholders' Meeting. Duke shall (i) call the Duke
--------------------------
Shareholders' Meeting to be held as promptly as practicable after the date
hereof for the purpose of voting upon the Duke Vote Matter, (ii) through its
Board of
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Directors, recommend to its shareholders approval of the Duke Vote Matter and
not rescind such recommendation, (iii) use all reasonable efforts to obtain
approval by its shareholders and (iv) use all reasonable efforts to hold such
meeting as soon as practicable after the date upon which the S-4 becomes
effective; provided, however, that nothing herein obligates Duke to take any
action that would cause its Board of Directors to act inconsistently with their
fiduciary duties as determined by the Board of Directors of Duke in good faith
based on the advice of Duke's outside counsel. The Duke Shareholders' Meeting
shall be held on such date, as soon as practicable after the date upon which the
S-4 becomes effective, as Duke and PanEnergy shall mutually determine, which
shall be the same date as the PanEnergy Stockholders' Meeting.
8.8. Regulatory and Other Approvals.
------------------------------
(a) HSR Act. Duke and PanEnergy shall file or cause to be filed with the
-------
Federal Trade Commission and the Department of Justice any notifications
required to be filed by them under the HSR Act and the rules and regulations
promulgated thereunder with respect to the transactions contemplated hereby.
Such parties will use all commercially reasonable efforts to make such filings
promptly and to respond on a timely basis to any requests for additional
information made by either of such agencies.
(b) Other Regulatory Approvals. Duke and PanEnergy shall cooperate and
--------------------------
use all reasonable efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use all commercially reasonable efforts to obtain
(and will cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity required to be obtained or made by Duke, PanEnergy or any of
their Subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement, including, without limitation, the
Duke Required Statutory Approvals.
(c) Other Approvals. Duke and PanEnergy shall, and shall cause each of
---------------
their respective Subsidiaries to, take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) all Duke Required
Consents and all PanEnergy Required Consents, as the case may be.
8.9. Agreements of Others. At least 30 days prior to the Closing Date,
--------------------
PanEnergy shall cause to be prepared and delivered to Duke a list identifying
all persons who, at
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the record date for the PanEnergy Stockholders' Meeting, may be deemed to be
"affiliates" of PanEnergy as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act (the "Rule 145 Affiliates"). PanEnergy shall use
all reasonable efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Duke, prior to the Closing Date, a written
agreement, in substantially the form attached hereto as Exhibit A, that such
Rule 145 Affiliate will not sell, pledge, transfer or otherwise dispose of any
shares of Duke Common Stock issued to such Rule 145 Affiliate pursuant to the
Merger, except pursuant to an effective registration statement or in compliance
with Rule 145 or an exemption from the registration requirements of the
Securities Act.
8.10. Authorization for Shares and Stock Exchange Listings. Prior to the
----------------------------------------------------
Effective Time, Duke shall have taken all action necessary to permit it to issue
the number of shares of Duke Common Stock required to be issued pursuant to
Sections 4.2 and 4.3. Duke shall use all reasonable efforts to cause the shares
of Duke Common Stock to be issued in the Merger and the shares of Duke Common
Stock to be reserved for issuance upon exercise of the PanEnergy Stock Options
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
8.11. Indemnification; Directors' and Officers' Insurance. The Surviving
---------------------------------------------------
Corporation agrees that all rights to indemnification for acts or omissions
occurring prior to the Effective Time existing as of the date hereof, in favor
of the current or former directors or officers of PanEnergy as provided in its
Restated Certificate of Incorporation or By-Laws, shall survive the Merger and
shall continue in full force and effect in accordance with their terms from the
Effective Time until the expiration of the applicable statute of limitations
with respect to any claims against the current or former directors or officers
of PanEnergy arising out of such acts or omissions. Duke shall cause to be
maintained for a period of not less than six years from the Effective Time
PanEnergy's directors' and officers' insurance and indemnification policy in
effect as of the date hereof, to the extent that it provides coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all persons who
are directors or officers of PanEnergy who are covered persons under PanEnergy's
D&O Insurance policies in effect on the date hereof, so long as the annual
premium therefor would not be in excess of 200% of the last annual premium paid
prior to the date hereof (the "Maximum Premium"). If the existing D&O Insurance
expires, is terminated or canceled during such six-year period, the Surviving
Corporation shall use all reasonable efforts to
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<PAGE>
cause to be obtained as much D&O Insurance as can be obtained for the remainder
of such period for an annualized premium not in excess of the Maximum Premium,
on terms and conditions no less advantageous to the covered persons than the
existing D&O Insurance.
8.12. Public Announcements. The initial press release relating to this
--------------------
Agreement shall be a joint press release and thereafter PanEnergy and Duke shall
consult with each other, and use reasonable efforts to agree upon the text of
any press release, before issuing any such press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or by obligations pursuant to any listing agreement with any national
securities exchange or transaction reporting system.
8.13. Other Actions. Except as contemplated by this Agreement, neither Duke
-------------
nor PanEnergy shall, and neither shall permit any of its respective Subsidiaries
to, take or agree or commit to take any action that is reasonably likely to
result in any of its respective representations or warranties hereunder being
untrue in any material respect or in any of the conditions to the Merger set
forth in Article 9 not being satisfied. PanEnergy, Duke and Merger Sub shall
perform such further acts and execute such documents as may be reasonably
required to effect the Merger.
8.14. Cooperation; Notification. Duke and PanEnergy shall confer on a
-------------------------
regular basis with each other, report on operational matters and promptly advise
each other orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a Material Adverse Effect on
Duke or a Material Adverse Effect on PanEnergy, as the case may be. Duke and
PanEnergy shall promptly provide each other (or their respective counsel) copies
of all filings made by such party with the SEC or any other Governmental Entity
in connection with this Agreement and the transactions contemplated hereby.
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8.15. Governance. (a) Board of Directors of Duke. Duke shall take such
---------- --------------------------
action as may be necessary to cause the number of directors comprising the full
Board of Directors of Duke at the Effective Time to be 18 persons, to be
allocated as equally as possible among the three classes of such Board of
Directors, eleven of whom shall be designated by Duke (each a "Duke Director")
and seven of whom shall be designated by PanEnergy (each a "PanEnergy
Director"). It is contemplated that one Duke Director and one PanEnergy Director
shall retire from the Duke Board of Directors in April 1998 and that the number
of directors comprising the full Board of Directors of Duke shall thereafter be
16. The Board of Directors of Duke at the Effective Time shall consist of the
Duke Directors designated by Duke and the PanEnergy Directors designated by
PanEnergy prior to the Effective Time; provided, however, that if, prior to the
Effective Time, any such designee shall decline or be unable to serve, Duke or
PanEnergy, as the case may be, shall designate another person to serve as a Duke
Director or a PanEnergy Director, as the case may be, in such person's stead.
(b) Committees of the Board of Directors of Duke. The Duke Board of
--------------------------------------------
Directors shall take such action as is necessary to cause the Chairman of each
Committee of the Board of Directors of Duke at the Effective Time to be a Duke
Director. At the Effective Time, the Management Committee of the Board of
Directors of Duke shall consist of Richard B. Priory, Steve C. Griffith, Jr. and
William A. Coley of Duke and Paul M. Anderson of PanEnergy. At the Effective
Time all other Committees of the Board of Directors of Duke shall have two
members designated by PanEnergy.
(c) Officers of Duke. From the Effective Time, pursuant to the terms
----------------
hereof and the employment agreements referred to in Section 8.16, Richard B.
Priory shall hold the position of Chairman of the Board and Chief Executive
Officer of Duke and Paul M. Anderson shall hold the position of President and
Chief Operating Officer of Duke; provided, however, that if, prior to the
Effective Time, Richard B. Priory shall decline or be unable to serve as
Chairman of the Board and Chief Executive Officer, Duke shall designate another
person to serve in his stead, and if, prior to the Effective Time, Paul M.
Anderson shall decline or be unable to serve as President and Chief Operating
Officer, PanEnergy shall designate another person to serve in his stead. From
the Effective Time, all other officers of Duke shall be determined by the Duke
Board of Directors.
(d) Office of the Chief Executive; Executive Committee. At the
--------------------------------------------------
Effective Time, Duke shall establish an Office of the Chief Executive which
shall exercise executive management over Duke and shall consist of the Chief
Executive Officer of Duke and the President and Chief Operating Officer of Duke.
The final decision-making authority in the Office of the Chief Executive shall
reside with the Chief Executive Officer of Duke. At the Effective Time the
Office of the Chief Executive shall appoint an Executive Committee of senior
executive officers of Duke and PanEnergy which shall, in addition to the
Chairman of the Board and Chief Executive Officer of Duke and President and
Chief Operating Officer of Duke, consist of William A.
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Coley, Richard J. Osborne and Ruth G. Shaw of Duke and James T. Hackett and Fred
J. Fowler of PanEnergy.
(e) Name; Corporate Headquarters. The parties hereto agree that,
----------------------------
subject to the approval of the shareholders of Duke, the name of Duke shall be
changed to Duke Energy Corporation at the Effective Time, that the headquarters
of Duke Energy Corporation shall be located in Charlotte, North Carolina, and
that Duke Energy Corporation shall maintain significant operations in Houston,
Texas.
8.16. Employment Agreements. Concurrently with the execution and delivery
---------------------
of this Agreement, Duke and/or PanEnergy have entered into employment agreements
in the forms set forth in Exhibits B1-B6 hereof with the persons listed in
Section 8.16 of the PanEnergy Disclosure Schedule and Duke has entered into
employment agreements in the forms set forth in Exhibits C1-C6 hereof with the
persons listed in Section 8.16 of the Duke Disclosure Schedule. Such employment
agreements shall become effective immediately at the Effective Time in
accordance with their terms.
8.17. Expenses. Subject to Section 10.5, whether or not the Merger is
--------
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses except as expressly provided herein and except that (a) the filing
fee in connection with the filing of the Form S-4 or Joint Proxy Statement with
the SEC, (b) the filing fee under the HSR Act and (c) the expenses incurred in
connection with printing and mailing the Form S-4 and the Joint Proxy Statement,
shall be shared equally by PanEnergy and Duke.
8.18. Pooling. No party hereto shall, nor shall any such party permit any
-------
of its Subsidiaries to, take any actions which would, or would be reasonably
likely to, prevent Duke from accounting for the Merger as a pooling of interests
in accordance with GAAP and applicable SEC regulations.
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8.19. Tax Matters.
-----------
(a) Tax-Exempt Status. No party shall, nor shall any party permit any of
-----------------
its Subsidiaries to, take any action that would be likely to jeopardize the
qualification of outstanding revenue bonds issued for the benefit of any party
or any Subsidiary thereof that qualify on the date hereof under Section 142(a)
of the Code as "exempt facility bonds" or as tax-exempt private activity bonds
under Section 103(b) of the Code or as tax-exempt industrial development bonds
under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended prior
to the Tax Reform Act of 1986.
(b) Other Tax Matters. Without the consent of the other party (excluding
-----------------
Merger Sub), which consent shall not be unreasonably withheld, no party or any
of its Subsidiaries shall (i) make or rescind any material express or deemed
election relating to Taxes, (ii) make a request for a Tax Ruling or enter into a
Closing Agreement with respect to any material Tax matter, or (iii) with respect
to any material Tax matter, change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Return for the taxable year ending
December 31, 1995, except as may be required by applicable law.
8.20. Employee Benefit Plans.
----------------------
(a) Maintenance of Benefits. For the period beginning at the Effective
-----------------------
Time and ending on the first anniversary of the Effective Time (the
"Continuation Period"), PanEnergy Employees (as defined below) shall continue to
receive active employee and retiree benefits under the PanEnergy Benefit Plans
(regardless of any transfer of employment to Duke or any affiliate of Duke) on
substantially the same terms and conditions as were in effect immediately before
the Effective Time, provided that the foregoing shall not prevent the amendment
of any PanEnergy Benefit Plan or the taking of other necessary actions to comply
with any applicable law or regulation, as necessary in order to retain tax-
qualified status where applicable, or as required by any collective bargaining
agreement; and provided, further, that the foregoing shall not be construed to
confer on any individual a right to remain employed by PanEnergy or any of its
affiliates. "PanEnergy Employees" means individuals who are, as of the
Effective Time, employees of PanEnergy and its Subsidiaries or former employees
of PanEnergy and its Subsidiaries entitled to present or future benefits
according to the provisions of any PanEnergy Benefit Plan as of the Effective
Time. For purposes of this Section 8.20, "affiliate" shall mean any corporation,
partnership or limited liability company controlled by, controlling or under
common control with PanEnergy and/or Duke, as the context may require.
(b) Nonqualified Plans. Without limiting the generality of the foregoing,
------------------
during the Continuation Period: (i) PanEnergy's executive benefit plans and
programs as in effect at this Effective Time shall continue in effect without
any amendment that could adversely affect PanEnergy
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Employees who are participants therein as of the Effective Time (including
without limitation any amendment that reduces the rate at which benefits are
accrued), (ii) PanEnergy Employees shall be entitled to severance benefits in
amounts and upon terms and conditions no less favorable than those in effect for
such individuals as of the Effective Time, including without limitation (A) any
severance benefits under plans or policies taking effect upon the Effective
Time, and (B) outplacement services consistent with the practice of PanEnergy
before the Effective Time. This paragraph (b) shall not apply with respect to
base salary, annual bonuses, stock options, restricted stock and/or severance
pay provided to any employee of PanEnergy who has entered into an employment
agreement in accordance with Section 8.16 of this Agreement.
(c) Continuity of Benefits. Duke shall provide, or shall cause PanEnergy
----------------------
or their respective affiliates to provide, that (i) for all purposes under all
employee benefit plans and programs applicable to PanEnergy Employees at any
time following the Effective Time, all service by PanEnergy Employees with, and
all compensation of PanEnergy Employees from, PanEnergy or any of its
Subsidiaries before the Effective Time shall be treated in the same manner as
service with and compensation from Duke and its Subsidiaries before the
Effective Time for all purposes, including without limitation eligibility to
participate and eligibility and grow-ins for, and accrual and vesting of,
benefits, rights and features, except to the extent such treatment would result
in a duplication of benefits, and (ii) for purposes of any welfare benefit plan
maintained by any of them after the Effective Time, if any PanEnergy Employee
transfers from one such plan to another during a plan year, the second such plan
shall waive any waiting periods and limitations regarding coverage for pre-
existing conditions and recognize any out-of-pocket expenses incurred by such
PanEnergy Employee and his or her eligible dependents during the portion of the
plan year before such transfer for purposes of determining their deductibles and
out-of-pocket maximums for the remainder of such plan year. Notwithstanding the
foregoing, in the event that at any time after the Effective Time, PanEnergy
Employees begin to participate in any cash balance defined benefit pension plan
(a "Cash Balance Conversion"), the transition from the traditional defined
benefit pension plan in which they participated before such Cash Balance
Conversion shall be implemented using methodologies designed so that such
PanEnergy Employees (considered as an aggregate population and not as
individuals) are treated in a manner not materially less favorable than
employees of Duke and its affiliates (other than PanEnergy and its Subsidiaries)
(also considered as an aggregate population and not as individuals) are or were
treated in any Cash Balance
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Conversion occurring after the date of this Agreement and before or
contemporaneously with the Cash Balance Conversion of such PanEnergy Employees,
even if the achievement of such treatment would not comply with the requirements
of clause (i) of the preceding sentence.
(d) Stock Plans. With respect to each PanEnergy Benefit Plan under which
-----------
the delivery of PanEnergy Common Stock is required upon payment of benefits,
grant of awards or exercise of options after the Effective Time (the "Stock
Benefit Plans"), Duke shall take or cause to be taken all corporate action
necessary or appropriate to (i) provide for the issuance or purchase in the open
market of Duke Common Stock rather than PanEnergy Common Stock, as applicable,
pursuant thereto, (ii) reserve for issuance under such plan or otherwise provide
a sufficient number of shares of Duke Common Stock for delivery upon payment of
benefits, grant of awards or exercise of options under such Stock Benefit Plans
and (iii) as soon as practicable after the Effective Time, file registration
statements on Form S-3 or Form S-8 or amendments on such forms to the Form S-4
Registration Statement, as the case may be (or any successor or other
appropriate forms), with respect to the shares of Duke Common Stock subject to
such Stock Benefit Plans to the extent such registration statement is required
under applicable law, and Duke shall use all reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectuses contained therein) for so long as such benefits and grants
remain payable and such options remain outstanding.
(e) Severance Benefit Plan. At the Effective Time, the provisions of the
----------------------
PanEnergy Change in Control Severance Benefits Plan shall be in effect on terms
and conditions that are not more favorable to employees than those set forth in
Section 8.20(e) of the PanEnergy Disclosure Schedule.
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ARTICLE 9
CONDITIONS
9.1. Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The PanEnergy Stockholders' Approval shall have been obtained and the
Duke Vote Matter shall have been approved by the shareholders of Duke.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the consummation
of the transactions contemplated by this Agreement. In the event any such order
or injunction shall have been issued, each party agrees to use all reasonable
efforts to have any such injunction lifted.
(d) The Form S-4 shall have become effective and shall be effective at the
Effective Time, and no stop order suspending effectiveness of the Form S-4 shall
have been issued, no action, suit, proceeding or investigation by the SEC to
suspend the effectiveness thereof shall have been initiated and be continuing,
and all necessary approvals under state securities laws relating to the issuance
or trading of the Duke Common Stock to be issued to PanEnergy stockholders in
connection with the Merger shall have been received.
(e) All consents, authorizations, orders, permits and approvals of (or
registrations, declarations or filings with) any Governmental Entity required in
connection with the execution, delivery and performance of this Agreement shall
have been obtained or made pursuant to Final Orders as defined in Section
9.2(e), except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on
Duke or the Surviving Corporation following the Effective Time.
(f) PanEnergy shall have received from Peat Marwick and Duke shall have
received from Deloitte & Touche an opinion that the Merger will be treated as a
"pooling of interests" under applicable accounting standards.
(g) The Duke Common Stock to be issued to PanEnergy stockholders in
connection with the Merger shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
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9.2. Conditions to Obligation of PanEnergy to Effect the Merger. The
----------------------------------------------------------
obligation of PanEnergy to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions:
(a) Duke shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date, the representations and warranties of Duke and Merger Sub contained in
this Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and PanEnergy shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of Duke,
dated the Closing Date, certifying to such effect.
(b) PanEnergy shall have received an opinion of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., special counsel to PanEnergy, dated the Closing Date, addressed
to PanEnergy and in form and substance satisfactory to PanEnergy, which opinion
may be based on appropriate representations of Duke, PanEnergy and Merger Sub
which are in form and substance reasonably satisfactory to such counsel, to the
effect that the Merger will be treated as a reorganization under Section 368(a)
of the Code and that PanEnergy and the stockholders of PanEnergy who exchange
their shares of PanEnergy Common Stock solely for Duke Common Stock in the
Merger will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the Merger.
(c) PanEnergy shall have received a "comfort" letter from Deloitte &
Touche, dated the Closing Date, in form and substance reasonably satisfactory to
PanEnergy, in connection with the procedures undertaken by them with respect to
the financial statements of Duke and its Subsidiaries contained in the Form S-4
and such other matters as are customarily included in comfort letters relating
to transactions similar to the Merger.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
properties or operations of Duke and its Subsidiaries, taken as a whole, that
would have or would be reasonably likely to have a Material Adverse Effect on
Duke.
(e) The Duke Required Statutory Approvals shall have been obtained at or
prior to the Effective Time pursuant to Final Orders and no such Final Order
shall have imposed terms or conditions that would have a Material Adverse Effect
on Duke or the Surviving Corporation. As used in this Agreement, a "Final
Order" means any action by the relevant regulatory authority (i) that has not
been reversed, stayed, enjoined, set aside, annulled or suspended, (ii) with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, (iii) as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied
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and (iv) as to which all opportunities for rehearing are exhausted (whether or
not any appeal thereof is pending).
(f) Duke Energy Marketing Corp., Duke Energy Corp., Louis Dreyfus Energy
Corp., and Louis Dreyfus Electric Power Inc. shall have entered into that
certain letter agreement dated November 24, 1996 among such parties (the "D/LD
Agreement") and the other agreements referred to therein, and the transactions
contemplated by paragraph (1) of the D/LD Agreement shall have been consummated.
9.3. Conditions to Obligation of Duke and Merger Sub to Effect the Merger.
--------------------------------------------------------------------
The obligations of Duke and Merger Sub to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) PanEnergy shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date, the representations and warranties of PanEnergy contained in this
Agreement and in any document delivered in connection herewith shall be true and
correct as of the Closing Date, and Duke shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of PanEnergy, dated the
Closing Date, certifying to such effect.
(b) Duke shall have received a copy of the opinion of LeBoeuf, Lamb,
Greene & MacRae, L.L.P. referred to in Section 9.2(b) of this Agreement, which
opinion shall be in form and substance reasonably satisfactory to Duke.
(c) Duke shall have received a "comfort" letter from Peat Marwick, dated
the Closing Date, in form and substance reasonably satisfactory to Duke, in
connection with the procedures undertaken by them with respect to the financial
statements and other financial information of PanEnergy and its Subsidiaries
contained in the Form S-4 and such other matters as are customarily included in
comfort letters relating to transactions similar to the Merger.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
properties or operations of PanEnergy and its Subsidiaries, taken as a whole,
that would have or would be reasonably likely to have a Material Adverse Effect
on PanEnergy.
(e) The regulatory consents and approvals specified in Section 5.3(c)(E)
shall have been obtained at or prior to the Effective Time pursuant to Final
Orders and no such Final Order shall have imposed terms or conditions
74
<PAGE>
that would have a Material Adverse Effect on Duke or the Surviving Corporation.
ARTICLE 10
TERMINATION
10.1. Termination by Mutual Consent. This Agreement may be terminated and
-----------------------------
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the date on which the PanEnergy Stockholders' Approval has been
obtained and whether before or after the date on which the approval of the Duke
Vote Matter by the holders of Duke Common Stock has been obtained, by the mutual
written consent of Duke and PanEnergy.
10.2. Termination by Either Duke or PanEnergy. This Agreement may be
---------------------------------------
terminated and the Merger may be abandoned by action of the Board of Directors
of either Duke or PanEnergy if (a) the Merger shall not have been consummated by
June 30, 1998, or (b) the PanEnergy Stockholders' Meeting shall not have been
convened prior to June 30, 1998 or the PanEnergy Stockholders' Approval shall
not have been obtained at the PanEnergy Stockholders' Meeting or any adjournment
thereof, or (c) the approval of Duke's stockholders of the Duke Vote Matter
shall not have been obtained at the Duke Shareholders' Meeting or at any
adjournment thereof, or (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement; provided, that the party seeking to
terminate this Agreement pursuant to this clause (d) shall have used all
reasonable efforts to remove such injunction, order or decree; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger by June 30, 1998.
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10.3. Termination by PanEnergy. This Agreement may be terminated and the
------------------------
Merger may be abandoned at any time prior to the Effective Time, if (a) before
the date on which the PanEnergy Stockholders' Approval is obtained, by action of
the Board of Directors of PanEnergy, in the exercise of its good faith judgment
as to fiduciary duties to its stockholders imposed by law, as advised by outside
counsel to PanEnergy, the Board of Directors of PanEnergy determines that such
termination is required by reason of an Alternative Proposal being made;
provided, however, that PanEnergy shall (i) notify Duke promptly of receipt of
such Alternative Proposal and shall (ii) notify Duke promptly of its intention
to recommend such Alternative Proposal to PanEnergy's stockholders, but in no
event shall the notice referred to in clause (ii) be given less than three days
prior to the earlier of the public announcement of such recommendation or
PanEnergy's termination of this Agreement, or (b) there has been a breach by
Duke or Merger Sub of any representation or warranty contained in this Agreement
which would have or would be reasonably likely to have a Material Adverse Effect
on Duke, or (c) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of Duke, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by PanEnergy to Duke.
10.4. Termination by Duke. This Agreement may be terminated and the Merger
-------------------
may be abandoned at any time prior to the Effective Time, before or after the
approval by the shareholders of Duke referred to in Section 9.1(a), by action of
the Board of Directors of Duke, if (a) the Board of Directors of PanEnergy shall
have withdrawn or modified in a manner materially adverse to Duke its approval
or recommendation of this Agreement or the Merger or shall have recommended an
Alternative Proposal to PanEnergy stockholders, or (b) there has been a breach
by PanEnergy of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have a Material Adverse Effect on
PanEnergy, or (c) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of PanEnergy, which breach is
not curable or, if curable, is not cured within 30 days after written notice of
such breach is given by Duke to PanEnergy.
10.5. Effect of Termination and Abandonment. (a) In the event that
-------------------------------------
(i) any person shall have made an Alternative Proposal, (ii) this Agreement is
terminated pursuant to Section 10.2(b), 10.3(a) or 10.4 and (iii) at the time of
such termination the Alternative Proposal shall not have been (A) rejected by
PanEnergy and its Board of Directors and (B) withdrawn by the person making the
Alternative Proposal, then PanEnergy shall, on the day of such termination, pay
to Duke a fee of $200 million (exclusive of any expenses to be paid pursuant to
Section 8.17) in cash by wire transfer of immediately available funds to an
account designated by Duke.
(b) PanEnergy acknowledges that the agreements contained in this Section
10.5 are an integral part of the
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<PAGE>
transactions contemplated in this Agreement, and that, without these agreements,
Duke and Merger Sub would not enter into this Agreement; accordingly, if
PanEnergy fails to promptly pay the amount due pursuant to this Section 10.5,
and, in order to obtain such payment, Duke or Merger Sub commences a suit or
other legal action taken to collect payment of the fee set forth in this Section
10.5, PanEnergy shall pay to Duke its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on the amount of the
fee at the rate of 8% from the date such fee was required to be paid.
In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 10, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
10.5 and Section 8.17 and except for the provisions of Sections 11.3, 11.4,
11.6, 11.8, 11.9 and 11.11 through 11.15. Nothing herein shall prejudice the
ability of the non-breaching party from seeking damages from any other party for
any breach of this Agreement, including without limitation, attorneys' fees and
the right to pursue any remedy at law or in equity.
10.6. Extension, Waiver. At any time prior to the Effective Time, any party
-----------------
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE 11
GENERAL PROVISIONS
11.1. Nonsurvival of Representations, Warranties and Agreements. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger; provided, however, that the agreements contained in Article 4,
Sections 8.11, 8.15, 8.16, 8.17 and 8.20 and this Article 11 shall survive the
Merger.
11.2. Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Duke or Merger Sub:
Steve C. Griffith, Jr., Esq.
Duke Power Company
422 South Church Street
Charlotte, NC 28242
Facsimile: (704) 382-8137
With copies to:
John Spuches, Esq.
Morton A. Pierce, Esq.
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Facsimile: (212) 259-6333
If to PanEnergy:
Carl B. King, Esq.
PanEnergy Corp
5400 Westheimer Court
Houston, TX 77251-1642
Facsimile: (713) 627-4691
With copies to:
Steven H. Davis, Esq.
Douglas W. Hawes, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Facsimile: (212) 424-8500
and
Seth A. Kaplan, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Facsimile: (212) 403-2000
78
<PAGE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3. Assignment; Binding Effect. Neither this Agreement nor any of the
--------------------------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Merger Sub may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to any newly formed, direct wholly-owned Subsidiary of Duke, which Subsidiary
would then be substituted for Merger Sub for purposes of this Agreement.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of Article 4 and Sections 8.11 and 8.16,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.4. Entire Agreement. This Agreement, the Exhibits, the PanEnergy
----------------
Disclosure Schedule, the Duke Disclosure Schedule, the Confidentiality Agreement
and any agreements delivered by the parties in connection herewith constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
79
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11.5. Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of PanEnergy and shareholders of Duke, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
11.6. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to its rules
of conflict of laws. Except as prohibited by law, each of PanEnergy and Duke
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in an
inconvenient forum.
11.7. Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.8. Headings. Headings of the Articles and Sections of this Agreement are
--------
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
11.9. Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
11.10. Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
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11.11. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.12. Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any Delaware Court, this being in addition to
any other remedy to which they are entitled at law or in equity.
11.13. Further Assurances. Each party hereto shall execute such further
------------------
documents and instruments and take such further actions as may reasonably be
requested by any other party hereto in order to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof.
11.14. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
--------------------
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY TO THE EXTENT PERMITTED BY
LAW HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.14.
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11.15. Certain Definitions. As used in this Agreement, except as otherwise
-------------------
provided in Sections 5.13(a) and 6.13(a), the word "Subsidiary" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions with respect to such corporation or other
organization, or any organization of which such party is a general partner. As
used in this Agreement, the term "Significant Subsidiary" has the meaning
ascribed to it under Rule 405 under the Securities Act. As used in this
Agreement, the term "Joint Venture" means, with respect to any person, any
corporation or other entity (including partnerships and other business
associations and joint ventures) in which such person or one or more of its
Subsidiaries owns an equity interest that is less than a majority of any class
of the outstanding voting securities or equity, other than equity interests held
for passive investment purposes that are less than 5% of any class of the
outstanding voting securities or equity of such entity.
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IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
DUKE POWER COMPANY
ATTEST:
By: By:
------------------------------- -------------------------------
Ellen T. Ruff William H. Grigg
Secretary Chairman of the Board and
Chief Executive Officer
DUKE TRANSACTION CORPORATION
ATTEST:
By: By:
------------------------------- -------------------------------
Peter C. Buck Steve C. Griffith, Jr.
Secretary President
PANENERGY CORP
ATTEST:
By: By:
------------------------------- -------------------------------
Robert W. Reed Paul M. Anderson
Secretary President and Chief
Executive Officer
83
<PAGE>
EXHIBIT A
TO AGREEMENT
AND PLAN OF
MERGER
FORM OF AFFILIATE LETTER
Duke Power Company
422 South Church Street
Charlotte, NC 28242
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of PanEnergy Corp, a Delaware corporation ("PanEnergy"), as the
term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of Rule
145 of the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), or (ii) used in and for purposes of Accounting Series,
Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of
the Agreement and Plan of Merger dated as of November 24, 1996 (the
"Agreement"), between Duke Power Company, a North Carolina corporation ("Duke"),
Duke Transaction Corporation, a Delaware corporation and a wholly-owned
subsidiary of Duke ("Merger Sub"), and PanEnergy, Merger Sub will be merged with
and into PanEnergy (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, without par
value, of Duke (the "Duke Securities") in exchange for shares owned by me of
Common Stock, par value $1.00 per share, of PanEnergy.
I represent, warrant and covenant to Duke that in the event I receive any
Duke Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the Duke
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of the Duke Securities to the extent I
felt necessary, with my counsel or counsel for PanEnergy.
A-1
<PAGE>
C. I have been advised that the issuance of Duke Securities to me pursuant to
the Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of
PanEnergy, I may be deemed to have been an affiliate of PanEnergy and the
distribution by me of the Duke Securities has not been registered under the Act,
I may not sell, transfer or otherwise dispose of the Duke Securities issued to
me in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is made
in conformity with Rule 145 promulgated by the Commission under the Act, or
(iii) in the opinion of counsel reasonably acceptable to Duke, or pursuant to a
"no action" letter obtained by the undersigned from the staff of the Commission,
such sale, transfer or other disposition is otherwise exempt from registration
under the Act.
D. I understand that Duke is under no obligation to register the sale,
transfer or other disposition of the Duke Securities by me or on my behalf under
the Act or to take any other action necessary in order to make compliance with
an exemption from such registration available.
E. I also understand that stop transfer instructions will be given to Duke's
transfer agents with respect to the Duke Securities and that there will be
placed on the certificates for the Duke Securities issued to me, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT DATED ____________, BETWEEN THE REGISTERED HOLDER
HEREOF AND DUKE, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF DUKE."
F. I also understand that unless the transfer by me of my Duke Securities
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Duke reserves the right to put the following legend on
the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES HAVE BEEN ACQUIRED BY THE
A-2
<PAGE>
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH,
ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this Agreement.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) two years shall have elapsed from the date the
undersigned acquired the Duke Securities received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) three
years shall have elapsed from the date the undersigned acquired the Duke
Securities received in the Merger and the provisions of Rule 145(d)(3) are then
available to the undersigned, or (iii) Duke has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to Duke, or
a "no action" letter obtained by the undersigned from the staff of the
Commission, to the effect that the restrictions imposed by Rule 145 under the
Act no longer apply to the undersigned.
I further represent to and covenant with Duke that I will not sell, transfer
or otherwise dispose of any Duke Securities received by me in the Merger or any
other shares of the capital stock of Duke until after such time as financial
results covering at least 30 days of combined operations of PanEnergy and Duke
have been published by Duke, in the form of a quarterly earnings report, an
effective registration statement registered with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or announcement
which includes such combined results of operations. Duke shall notify the
"affiliates" of the publication of such results.
A-3
<PAGE>
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of PanEnergy as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
--------------------------------
Name:
Accepted this_______ day of
____________, 199__ by
DUKE POWER COMPANY
By:
--------------------------------
Name:
Title:
A-4
<PAGE>
EXHIBIT B-1
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
PAUL M. ANDERSON OF PANENERGY
-----------------------------
AGREEMENT by and among PanEnergy Corp, a Delaware corporation
("PanEnergy"), Duke Power Company, a North Carolina corporation (the
"Company"), and Paul M. Anderson (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of PanEnergy (the "PanEnergy Board") and the
Board of Directors of the Company (the "Board"), have determined that it is in
the best interests of PanEnergy and its shareholders and the Company and its
shareholders to assure that PanEnergy will have the continued dedication of the
Executive pending the merger of PanEnergy and Duke Transaction Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of November 24, 1996 (the
"Merger Agreement") and to provide the surviving corporation after the Merger
with continuity of management. Therefore, in order to accomplish these
objectives, the Company's Board and the PanEnergy Board have caused the Company
and PanEnergy, respectively, to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as (x) Chief Operating Officer
and
<PAGE>
President of the Company, reporting to Richard B. Priory, (y) a member of the
Company's Executive Committee, which Committee shall have the responsibilities
and shall be constituted as set forth in Section 8.15(d) of the Merger
Agreement, and (z) a member of the Office of the Chief Executive Officer, which
shall be the senior policy-making body of the Company and which shall be
comprised solely of the Executive and the Chief Executive Officer of the
Company, and shall have such authority, duties and responsi bilities as are
commensurate with such positions and as may be consistent with such position as
may be assigned to him by the Board and (B) the Executive's services shall be
performed at offices of the Company in Houston, Texas, and Charlotte, North
Carolina (the "Office Locations"), and in no event shall the Executive be
required to reside on a permanent basis in North Carolina, but he may elect to
do so. Notwithstanding the foregoing, the Company and the Executive may
mutually agree to such changes in the Executive's position, reporting or
location of employment as are in the best interests of the Company without
violating the provisions of this paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary") of no less
than $ , payable monthly. The Annual Base Salary shall be reviewed no
more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary or any payment of Supplemental Salary (as defined below)
shall not serve to limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used
B-1-2
<PAGE>
in this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
In the event that, pursuant to the provisions of Section 3(a)(i) hereof,
the Executive becomes subject to North Carolina income or employment taxes as a
resident of the State of North Carolina (a "Change of Residence"), then for each
calendar year that begins during the Employment Period that he is subject to
such taxes, the Executive shall receive a supplemental salary payment (the
"Supplemental Salary") such that after payment by the Executive of all taxes,
including, without limitation, Federal and state income and employment taxes
with respect to the Executive's total compensation from the Company for such
calendar year (including, without limitation, the Supplemental Salary), the
Executive will retain an amount (the "After-Tax Compensation") equal to the
amount of After-Tax Compensation he would have received had no Change of
Residence occurred, as determined by an independent tax advisor mutually agreed
to by the Company and the Executive (whose fees and expenses for making such
determination shall be paid by the Company).
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals (set by the
Compensation Committee of the Board, in consultation with the Executive, at
levels substantially consistent with past practice) during such fiscal year, to
receive a bonus (the "Annual Bonus") at a target level of not less than 70% of
the Annual Base Salary (the "Target Bonus Amount") with the opportunity,
substantially consistent with past practice, to earn in excess of such amount
based upon the attainment of agreed upon performance goals. Each such Annual
Bonus shall be paid no later than the last business day of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded (the "Last Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of the Company at a price equal to Fair
B-1-3
<PAGE>
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of the Company (each a "Restricted Share" and collectively the
"Restricted Stock Award"), or (3) both an Option Award and a Restricted Stock
Award (a "Combination Award"), in an amount such that the Aggregate Value (as
defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less
than 100% of the sum of (x) the Annual Base Salary and (y) the Target Bonus
Amount for the fiscal year with respect to which the Option Award, the
Restricted Stock Award or the Combination Award, as applicable, is made.
Options granted as part of any Option Award shall have a term of 10 years, and
vest and become exercisable ratably in three annual installments beginning on
the first anniversary of the Award Date, and Shares granted as part of any
Restricted Stock Award shall become free of all restrictions (including, without
limitation, with respect to transferability) ratably in installments, each of
which installment shall occur on the date the Executive achieves one of several
performance goals (the "Restricted Stock Performance Goals") whose number, level
and content shall be set by the Compensation Committee of the Board in
consultation with the Executive; provided, however, that the number, level and
content of the Restricted Stock Performance Goals shall be such that, in the
event the Executive achieves all the Restricted Stock Performance Goals, one-
third of the Restricted Stock Award shall have become free of all restrictions
on each of the first three anniversaries of the Award Date. For the purposes
of this Agreement, "Fair Market Value" shall mean, as of any given date, the
closing price of the common stock of the Company on the New York Stock Exchange
Composite Transactions on such date as reported in The Wall Street Journal (or,
-------------------
if there is no reported sale on such date, on the last preceding date on which
any reported sale occurred). For the purposes of this Agreement, "Aggregate
Value" shall mean: with respect to an Option Award, the product of (x) the
number of Options awarded and (y) the dollar value of each such Option according
to the Black Sholes option pricing model or such other option pricing model
acceptable to both the Company and the Executive; with respect to a Restricted
Stock Award, the product of (x) the number of Shares awarded and (y) Fair Market
Value (determined without regard to the restrictions upon such Shares); and
with respect to a Combination Award, the sum of the respective Aggregate Values
of the Option Award and the Restricted Stock Award comprising the Combination
Award. Determinations of Aggregate Value shall be made by Ernst & Young or by
such other certified public accounting firm or consulting firm reasonably
acceptable to the Executive as may be designated by the Company.
B-1-4
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period,
----------------------------
the Executive shall be entitled to participate in all savings and retirement
plans, practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall
--------
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the Company's policies, including, without
limitation, the costs of travel between the Office Locations during the ordinary
course of business and reasonable costs of furnished accommodations for the
Executive in Charlotte, North Carolina. In the event the Executive elects to
relocate his principal residence (as defined in Section 1034 of the Internal
Revenue Code of 1986, as amended (the "Code")) to North Carolina (the
"Relocation"), the Executive shall also be entitled to prompt reimbursement for
all costs reasonably incurred in connection with such Relocation ("Relocation
Costs"). Relocation Costs shall include, without limitation, the amount of any
short-term capital loss or long-term capital loss (as defined in Section 1222 of
the Code) experienced by the Executive on the disposition during the Employment
Period of his principal residence in connection with the Relocation.
(vii) Deferred Account. The Company shall establish an unfunded
-----------------
deferred compensation account (the "Deferred Account") for the Executive to
which it shall credit the amounts set forth in this Section 3(b)(vii). The
Company shall pay the Executive a cash lump sum equal to the entire balance in
the Deferred Account upon the later of (i) the termination of the Executive's
employment with the Company for any reason and (ii) the Executive's 55th
birthday; provided, that if the Executive dies before his 55th birthday, then
notwithstanding any other provision of this Agreement, such balance shall be
paid immediately to the Executive's legal representatives.
There shall be credited to the Deferred Account, as of the end of each
calendar month during the period from the Effective Date of this Agreement
until the second anniversary thereof, (A) the sum of $83,334 plus (B) interest
on the balance in the Deferred Account determined immediately before the end of
such calendar month, at a rate equal to the Company's cost of funds during such
calendar month;
B-1-5
<PAGE>
provided, that no further amounts described in clause (A) shall be credited
- --------
to the Deferred Account following the termination of the Executive's employment
by the Company for Cause (as defined below). Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 3(b)(vii).
(viii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than that
generally applicable to peer executives of the Company but in any event he shall
be entitled to no less than four weeks of vacation per year during the
Employment Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- --------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean the engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with
B-1-6
<PAGE>
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Executive is guilty of the conduct described above, and
specifying the particulars thereof in detail.
(c) By the Executive. The Executive's employment may be terminated by
----------------
the Executive for any reason during or at the end of the Employment Period (a
"Termination by the Executive").
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
any Termination by the Executive, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Cause shall not waive any right of the Company
hereunder or preclude the Company from asserting such fact or circumstance in
enforcing the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or in the case of
a Termination by the Executive, the date of receipt of the Notice of Termination
or any later date specified therein that is within 30 days of such notice, as
the case may be, (ii) if the Executive's employment is terminated by the Company
other than for Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Termination by the
------------------------------------------- ------------------
Executive; Other than for Cause, Death or Disability. If, during the Employment
- ----------------------------------------------------
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or there shall occur a Termination by the Executive:
B-1-7
<PAGE>
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to the extent not
theretofore paid; (2) the product of (x) the Target Bonus Amount and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365; (3)
any accrued vacation pay to the extent not theretofore paid; and (4) the
Executive's Supplemental Salary, if applicable, for periods through the Date
of Termination, to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be hereinafter referred to as
the "Accrued Obligations");
(ii) the Executive shall receive Retirement Benefits (as defined
below) from and after the Date of Termination on the following basis: (A) if
he has not reached the age of 55 as of the Date of Termination, he shall be
deemed, for purposes of all determinations with respect to the Retirement
Benefits, to have attained the age of 55 as of the Date of Termination, and
his years of service shall be increased as if he had been employed for an
additional a number of years of service (and fractions thereof) equal to the
number of years (and fractions thereof) from the Date of Termination through
his 55th birthday; (B) "Retirement Benefits" shall mean (x) qualified defined
benefit retirement benefits and excess or supplemental retirement benefits,
together with (y) retiree medical, long-term disability, dental, accidental
death and dismemberment and life insurance benefits for the Executive and/or
the Executive's dependents, in each case in accordance with the plans,
programs, practices and policies as may be in effect at the Date of
Termination; provided, that in no event shall any such benefits be less
favorable than those that the Executive (and his dependents, if applicable)
would have received under PanEnergy's qualified and nonqualified retirement
plans and retiree medical and other welfare benefit plans as in effect at the
Effective Time ("Current Plans"), if the Current Plans had remained in effect
without amendment as of the Date of Termination and the Executive had been
eligible to retire under the Current Plans as of the Date of Termination; and
(C) the Company may elect to provide any or all of the Retirement Benefits
(other than those actually provided from qualified plans) through individual
arrangements or otherwise not through Company-sponsored plans, so long as the
net after-tax Retirement Benefits provided to the Executive and his dependents
are not less than they would have enjoyed had they received such Retirement
Benefits under Company-sponsored plans; and
B-1-8
<PAGE>
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
with respect to the Deferred Account or under any plan, program, policy or
practice or contract or agreement of the Company as of the Date of Termination
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. The term Other Benefits as
utilized in this Section 5(b) shall include death benefits as in effect on the
date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause. If the Executive's employment shall be terminated for Cause
-----
during the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, and (y) Other
Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termina-
B-1-9
<PAGE>
tion shall be payable in accordance with such plan, policy, practice or program
or contract or agreement except as explicitly modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement); provided, however,
-------- -------
that the foregoing shall not apply in connection with any such contest in which
the finder of fact determines that the contest is frivolous or was brought by
the Executive in bad faith.
8. Certain Reduction of Payments by the Company. (a) For purposes of
--------------------------------------------
this Section 8, (i) a "Payment" shall mean any payment or distribution in the
nature of compensation to or for the benefit of the Executive, whether paid or
payable pursuant to this Agreement or otherwise; (ii) "Separation Payment" shall
mean a Payment paid or payable pursuant to this Agreement (disregarding this
Section); (iii) "Net After Tax Receipt" shall mean the Present Value of a
Payment net of all taxes imposed on the Executive with respect thereto under
Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), determined by applying the highest marginal rate under Section 1 of
the Code which applied to the Executive's taxable income for the immediately
preceding taxable year; (iv) "Present Value" shall mean such value determined in
accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall
mean the greatest aggregate amount of Separation Payments which (a) is less than
the sum of all Separation Payments and (b) results in aggregate Net After Tax
Receipts which are equal to or greater than the Net After Tax Receipts which
would result if the Executive were paid the sum of all Separation Payments.
The Company shall select a mutually agreeable nationally recognized accounting
firm (the "Accounting Firm") to make all necessary determinations under this
Section 8, in consultation with any independent law firm of the Accounting
Firm's choice.
(b) Anything in this Agreement to the contrary not withstanding, in the
event the Accounting Firm shall determine that receipt of all Payments would
subject the
B-1-10
<PAGE>
Executive to tax under Section 4999 of the Code, it shall determine whether some
amount of Separation Payments would meet the definition of a "Reduced Amount."
If the Accounting Firm determines that there is a Reduced Amount, the aggregate
Separation Payments shall be reduced to such Reduced Amount. All fees payable to
the Accounting Firm shall be paid solely by the Company.
(c) If the Accounting Firm determines that aggregate Separation Payments
should be reduced to the Reduced Amount, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Separation Payments shall be eliminated or reduced (as long as after such
election the present value of the aggregate Separation Payments equals the
Reduced Amount), and shall advise the Company in writing of his election within
ten days of his receipt of notice. If no such election is made by the Executive
within such ten-day period, the Company may elect which of such Separation
Payments shall be eliminated or reduced (as long as after such election the
present value of the aggregate Separation Payments equals the Reduced Amount)
and shall notify the Executive promptly of such election. All determinations
made by the Accounting Firm under this Section shall be binding upon the Company
and the Executive and shall be made within 60 days of a request for such
determination by either the Executive or the Company. As promptly as practicable
following such determination, the Company shall pay to or distribute for the
benefit of the Executive such Separation Payments as are then due to the
Executive under this Agreement and shall promptly pay to or distribute for the
benefit of the Executive in the future such Separation Payments as become due
to the Executive under this Agreement.
(d) While it is the intention of the Company to reduce the amounts
payable or distributable to the Executive hereunder only if the aggregate Net
After Tax Receipts to an Executive would thereby be increased, as a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Company to or for the benefit
of the Executive pursuant to this Agreement which should not have been so paid
or distributed ("Overpayment") or that additional amounts which will have not
been paid or distributed by the Company to or for the benefit of the Executive
pursuant to this Agreement could have been so paid or distributed
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Executive which deficiency the Accounting
B-1-11
<PAGE>
Firm believes has a high probability of success, determines that an Overpayment
has been made, any such Overpayment paid or distributed by the Company to or for
the benefit of the Executive shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Company together with interest
at the applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by the Executive to the Company if and to the extent
such deemed loan and payment would not either reduce the amount on which the
Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without the prior written consent of the Company or as may
otherwise be required by law or legal process or in order to enforce his rights
under this Agreement or as necessary to defend himself against a claim asserted
directly or indirectly by the Company or any of its affiliated companies) any
secret or confidential information, knowledge or data relating to the Company or
any of its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and selling, client and
customer lists, identity of prospects,
B-1-12
<PAGE>
proprietary computer programs, policy or procedure manuals, proprietary training
and recruiting procedures, proprietary accounting procedures, and the status and
contents of the Company's contracts with its suppliers, clients, customers or
prospects. The Executive further agrees to maintain in confidence any
confidential information of third parties received as a result of his employment
with the Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a
B-1-13
<PAGE>
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Paul M. Anderson
2 East Bend Lane
Arlington Court
Houston, TX 77007
If to PanEnergy:
---------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
If to the Company:
-----------------
422 South Church Street
Charlotte, NC 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and
B-1-14
<PAGE>
conditions of such employment or the termination of such employment. Any and all
prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter, including but not limited to the
Employment Agreement between the Executive and PanEnergy dated March 1, 1991,
are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment Period and the Executive
shall be entitled to the protection of any such insurance policies on no less
favorable a basis than is provided to any other officer or director of the
Company or any of its affiliated companies.
B-1-15
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from their respective Board of Directors,
PanEnergy and the Company have caused these presents to be executed in their
respective names on their respective behalfs, all as of the day and year first
above written.
-----------------------------------
Paul M. Anderson
PANENERGY CORP
By
---------------------------------
DUKE POWER COMPANY
By
---------------------------------
B-1-16
<PAGE>
EXHIBIT B-2
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
JAMES T. HACKETT OF PANENERGY
-----------------------------
AGREEMENT by and between PanEnergy Corp, a Delaware corporation (the
"Company") and James T. Hackett (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of the Company and Duke Transaction Corporation, a Delaware corporation
and a wholly-owned subsidiary of Duke Power Company, a North Carolina
corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as
of November 24, 1996 (the "Merger Agreement") and to provide the surviving
corporation after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period: (A) the Executive shall serve as President of Duke Energy
Services, which shall comprise all of the non-regulated businesses of the
Company other than real estate and telecommunications, and as a member of the
Executive Committee of Duke Power
<PAGE>
Company, which Committee shall have the responsibilities and shall be
constituted as set forth in Section 8.15(d) of the Merger Agreement, with such
authority, duties and responsibilities as are commensurate with such positions
and as may be consistent with such position as may be assigned to him by the
Board, provided, however, that in the event the Executive determines in good
faith that the terms and conditions of a letter agreement between the Executive
and Natural Gas Clearinghouse, dated as of January 16, 1994 (the "Non-Compete
Agreement") (attached hereto as Exhibit A), preclude him from assuming any such
authority, duty and/or responsibility (each a "Precluded Responsibility") for a
period of time (the "Non-Compete Period"), then the Precluded Responsibility or
Responsibilities shall not be assumed by the Executive until immediately after
the Non-Compete Period; (B) the Executive shall report to Paul M. Anderson while
Mr. Anderson is employed by Duke Power Company; and (C) the Executive's services
shall be performed at offices of the Company in Houston, Texas.
Notwithstanding the foregoing, the Company and the Executive may mutually agree
to such changes in the Executive's position, reporting or location of employment
as are in the best interests of the Company without violating the provisions of
this paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by PanEnergy in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and
B-2-2
<PAGE>
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, for each fiscal
------------
year ending during the Employment Period the Executive shall be eligible, based
upon the Executive's achievement of performance goals (set by the Compensation
Committee of the Board, in consultation with the Executive, at levels
substantially consistent with past practice) during such fiscal year, to receive
a bonus (the "Annual Bonus") at a target level of not less than 55% of the
Annual Base Salary (the "Target Bonus Amount") with the opportunity,
substantially consistent with past practice, to earn in excess of such amount
based upon the attainment of agreed upon performance goals. Each such Annual
Bonus shall be paid no later than the last business day of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded (the "Last Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of Duke Power Company at a price equal to Fair
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of Duke Power Company (each a "Restricted Share" and collectively
the "Restricted Stock Award"), or (3) both an Option Award and a Restricted
Stock Award (a "Combination Award"), in an amount such that the Aggregate Value
(as defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less than 80% of the
sum of (x) the Annual Base Salary and (y) the Target Bonus Amount for the fiscal
year with respect to which the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, is made. Options granted as part of any
Option Award shall have a term of 10 years, and vest and become exercisable
ratably in three annual installments
B-2-3
<PAGE>
beginning on the first anniversary of the Award Date, and Shares granted as part
of any Restricted Stock Award shall become free of all restrictions (including,
without limitation, with respect to transferability) ratably in installments,
each of which installment shall occur on the date the Executive achieves one of
several performance goals (the "Restricted Stock Performance Goals") whose
number, level and content shall be set by the Compensation Committee of the
Board in consultation with the Executive; provided, however, that the number,
level and content of the Restricted Stock Performance Goals shall be such that,
in the event the Executive achieves all the Restricted Stock Performance Goals,
one-third of the Restricted Stock Award shall have become free of all
restrictions on each of the first three anniversaries of the Award Date. For
the purposes of this Agreement, "Fair Market Value" shall mean, as of any given
date, the closing price of the common stock of Duke Power Company on the New
York Stock Exchange Composite Transactions on such date as reported in The Wall
----
Street Journal (or, if there is no reported sale on such date, on the last
- --------------
preceding date on which any reported sale occurred). For the purposes of this
Agreement, "Aggregate Value" shall mean: with respect to an Option Award, the
product of (x) the number of Options awarded and (y) the dollar value of each
such Option according to the Black Sholes option pricing model or such other
option pricing model acceptable to both the Company and the Executive; with
respect to a Restricted Stock Award, the product of (x) the number of Shares
awarded and (y) Fair Market Value (determined without regard to the restrictions
upon such Shares); and with respect to a Combination Award, the sum of the
respective Aggregate Values of the Option Award and the Restricted Stock Award
comprising the Combination Award. Determinations of Aggregate Value shall be
made by Ernst & Young or such other certified public accounting firm or
consulting firm reasonably acceptable to the Executive as may be designated by
the Company.
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
B-2-4
<PAGE>
(vi) Expenses. During the Employment Period, the Executive shall
--------
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the Company's policies, including,
without limitation, the costs of travel between Houston, Texas and Charlotte,
North Carolina during the ordinary course of business.
(vii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than that
generally applicable to peer executives of the Company but in any event he shall
be entitled to no less than four weeks of vacation per year during the
Employment Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean the engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with
B-2-5
<PAGE>
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Executive is guilty of the conduct described above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive without the Executive's
written consent to be based at any office or location other than as provided
in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to
travel away from the Company's offices in Houston, Texas and Charlotte, North
Carolina on Company business to a substantially greater extent than required
immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. In the case of a Good Reason termination, such Notice of Termination
shall be given within 90 days of the occurrence of the event that is claimed as
serving the basis for the termination as a condition of such claim being treated
as a Good Reason termination hereunder. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the
B-2-6
<PAGE>
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the product
of (x) the Target Bonus Amount and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365; and (3) any accrued
vacation pay to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B-2-7
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus Amount;
and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
(the "Retirement Plan") (utilizing actuarial assumptions in effect under
the Company's Retirement Plan as of the Date of Termination), and any
excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive if
the Executive's employment continued for three years after the Date of
Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that the Executive's compensation in each of the
three years is that required by Section 3(b)(i) and Section 3(b)(ii),
over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and the SERP as of
the Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue the medical, long-term
disability, dental, accidental death and dismemberment and life insurance
benefits to the Executive and/or the Executive's dependents at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies in effect under Section 3(b)(v) of this
Agreement (the "Continuing Benefit Plans") as if the Executive's employment
had not been terminated (either by permitting the Executive and/or the
Executive's dependents to participate in the Continuing Benefit Plans, or by
providing the Executive and/or the Executive's dependents with equivalent
benefits outside the Continuing Benefit Plans, as the Company may elect, so
long as the net after-tax benefit to them is the same as if the Executive had
remained an employee of the Company participating in the Continuing Benefit
Plans); provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, long-term disability,
dental, accidental death and dismemberment or life insurance benefits under
another employer-provided plan, the medical, long-term disability, dental,
accidental death and dismemberment and life insurance benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to the Continuing Benefit Plans and any other welfare
B-2-8
<PAGE>
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have retired
on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company as of the Date of Termination (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. The term Other Benefits as
utilized in this Section 5(b) shall include death benefits as in effect on the
date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate
without further obligations to the Executive other than the obligation to pay to
the Executive (x) his Annual Base Salary through the Date of Termination, and
(y) Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under
B-2-9
<PAGE>
any contract or agreement with the Company or any of its affiliated companies.
Any rights that are vested and any benefits that the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment.
The Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to
this Agreement); provided, however, that the foregoing shall not apply in
-------- -------
connection with any such contest in which the finder of fact determines that the
contest is frivolous or was brought by the Executive in bad faith.
8. Certain Additional Payments by the Company (a) Restricted Stock.
------------------------------------------- ----------------
The Executive may receive an additional payment (the "Additional RS Payment")
with respect to the 60,000 remaining unvested shares of PanEnergy Common Stock
awarded to him as part of a grant of 75,000 shares of restricted stock pursuant
to his employment letter dated November 28, 1995 (such 60,000 shares, the "1996
Restricted Stock"). The Additional RS Payment shall be made in the event that
it shall be determined that the Restricted Stock, without regard to any other
payment or distribution by PanEnergy or the Company to or for the benefit of the
Executive, would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties would be incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"). The
amount of the Additional RS Payment shall be the amount such that, after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income and employment
taxes (and any interest and penalties imposed with respect thereto) ("Taxes")
and Excise Tax imposed upon the Additional RS
B-2-10
<PAGE>
Payment, the Executive would be in the same net after-tax position with respect
to the Restricted Stock had such Excise Tax not been imposed.
(b) NRS Amount. Notwithstanding anything elsewhere in this Agreement to
----------
the contrary, in the event that the total Parachute Value (as defined below) of
any payments or distributions by PanEnergy or the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise), other than the 1996
Restricted Stock and the Additional RS Payment (the "Payments"), would exceed
2.99 multiplied by the Executive's "base amount" (as defined in Section 280G of
the Code) (the "Limitation"), the amount of the cash lump sum payable to him
pursuant to Section 5(a)(i) shall be reduced (but not below zero) so that the
total Parachute Value (as defined below) of the Payments does not exceed the
Limitation. In the event that the foregoing reduction is insufficient for the
total Parachute Value of the Payments not to exceed the Limitation, other
Payments made pursuant to this Agreement shall be reduced (but not below zero),
in the order selected by the Executive, so that the total Parachute Value shall
not exceed the Limitation; provided, that in no event shall Payments that are
not made pursuant to this Agreement be reduced pursuant to this Section 8. The
Payments, after any applicable reduction, are hereinafter referred to as the
"Reduced Payments," whether or not they are actually reduced. The "Parachute
Value" of any Payment means the dollar amount of the "parachute payment"
attributable thereto, determined in accordance with Section 280G of the Code and
the proposed Treasury Regulations thereunder (or any final Treasury Regulations
thereunder that may hereafter be promulgated).
If the Reduced Payments are subject to the Excise Tax, the Company shall
pay the Executive an additional cash lump sum payment (the "Additional Non-RS
Payment") such that after paying (i) all Excise Tax and interest and penalties
imposed with respect to such Excise Tax imposed upon the Reduced Payments, and
(ii) all Taxes imposed upon the Additional Non-RS Payment, the Executive is in
the same net after-tax position with respect to the Reduced Payments as if the
Excise Tax had not been imposed.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without the prior written consent of the Company or as may
otherwise be required by law or legal process or in order to enforce his rights
under this Agreement or as necessary to defend
B-2-11
<PAGE>
himself against a claim asserted directly or indirectly by the Company or any of
its affiliated companies) any secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
respective businesses, in any manner whatsoever, that is not otherwise publicly
available, to, or for the benefit of, any person, firm, corporation or other
entity, other than the Company and those designated by it or in the course of
his employment with the Company and its affiliated companies. As used herein,
the term "all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses"
shall include, without limitation, the Company's plans, strategies, proposals to
potential customers and/or partners, costs, prices, proprietary systems for
buying and selling, client and customer lists, identity of prospects,
proprietary computer programs, policy or procedure manuals, proprietary training
and recruiting procedures, proprietary accounting procedures, and the status and
contents of the Company's contracts with its suppliers, clients, customers or
prospects. The Executive further agrees to maintain in confidence any
confidential information of third parties received as a result of his employment
with the Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business
B-2-12
<PAGE>
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
James T. Hackett
3372 Delmonte Drive
Houston, TX 77019
If to the Company:
-----------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
B-2-13
<PAGE>
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and conditions
of such employment or the termination of such employment. Any and all prior
agreements, understandings or commitments between the Company and the Executive
with respect to any such matter, including but not limited to the Agreement
between the Executive and the Company dated December 19, 1995, are hereby
superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment Period and the Executive
shall be entitled to the protection of any such insurance policies on no less
favorable a basis than is provided to any other officer or director of the
Company or any of its affiliated companies.
B-2-14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------------
James T. Hackett
PANENERGY CORP
By
---------------------------------
B-2-15
<PAGE>
EXHIBIT B-3
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
FRED. J. FOWLER OF PANENERGY
----------------------------
AGREEMENT by and between PanEnergy Corp, a Delaware corporation (the
"Company") and Fred J. Fowler (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of the Company and Duke Transaction Corporation, a Delaware corporation
and a wholly-owned subsidiary of Duke Power Company, a North Carolina
corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as
of November 24, 1996 (the "Merger Agreement"), and to provide the surviving
corporation after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as President of Duke Energy
Transmission Services and as a member of the Executive Committee of Duke Power
Company, which Committee shall have the responsibilities and shall be
constituted as set forth in Section 8.15(d) of the Merger Agreement, with such
au-
<PAGE>
thority, duties and responsibilities as are commensurate with such positions and
as may be consistent with such positions as may be assigned to him by the Board,
and (B) the Executive's services shall be performed at offices of the Company
in Houston, Texas. Notwithstanding the foregoing, the Company and the Executive
may mutually agree to such changes in the Executive's position, reporting or
location of employment as are in the best interests of the Company without
violating the provisions of this paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by PanEnergy in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary or any payment of Supplemental Salary (as defined
below) shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
In the event that, pursuant to the provisions of Section 3(a)(i)
hereof, the Executive becomes subject to North Carolina income or employment
taxes as a resident of the State of North Carolina (a "Change of Residence"),
then
B-3-2
<PAGE>
for each calendar year that begins during the Employment Period that he is
subject to such taxes, the Executive shall receive a supplemental salary payment
(the "Supplemental Salary") such that after payment by the Executive of all
taxes, including, without limitation, Federal and state income and employment
taxes with respect to the Executive's total compensation from the Company for
such calendar year (including, without limitation, the Supplemental Salary),
the Executive will retain an amount (the "After-Tax Compensation") equal to the
amount of After-Tax Compensation he would have received had no Change of
Residence occurred, as determined by an independent tax advisor mutually agreed
to by the Company and the Executive (whose fees and expenses for making such
determination shall be paid by the Company).
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals (set by the
Compensation Committee of the Board, in consultation with the Executive, at
levels substantially consistent with past practice) during such fiscal year, to
receive a bonus (the "Annual Bonus") at a target level of not less than 50% of
the Annual Base Salary (the "Target Bonus Amount") with the opportunity,
substantially consistent with past practice, to earn in excess of such amount
based upon the attainment of agreed upon performance goals. Each such Annual
Bonus shall be paid no later than the last business day of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded (the "Last Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of Duke Power Company at a price equal to Fair
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of Duke Power Company (each a "Restricted Share" and collectively
the "Restricted Stock Award"), or (3) both an Option Award and a Restricted
Stock Award (a "Combination Award"), in an amount such that the Aggregate Value
(as defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less than 55%
B-3-3
<PAGE>
of the sum of (x) the Annual Base Salary and (y) the Target Bonus Amount for
the fiscal year with respect to which the Option Award, the Restricted Stock
Award or the Combination Award, as applicable, is made. Options granted as part
of any Option Award shall have a term of 10 years, and vest and become
exercisable ratably in three annual installments beginning on the first
anniversary of the Award Date, and Shares granted as part of any Restricted
Stock Award shall become free of all restrictions (including, without
limitation, with respect to transferability) ratably in installments, each of
which installment shall occur on the date the Executive achieves one of several
performance goals (the "Restricted Stock Performance Goals") whose number, level
and content shall be set by the Compensation Committee of the Board in
consultation with the Executive; provided, however, that the number, level and
content of the Restricted Stock Performance Goals shall be such that, in the
event the Executive achieves all the Restricted Stock Performance Goals, one-
third of the Restricted Stock Award shall have become free of all restrictions
on each of the first three anniversaries of the Award Date. For the purposes of
this Agreement, "Fair Market Value" shall mean, as of any given date, the
closing price of the common stock of Duke Power Company on the New York Stock
Exchange Composite Transactions on such date as reported in The Wall Street
-----------
Journal (or, if there is no reported sale on such date, on the last preceding
- -------
date on which any reported sale occurred). For the purposes of this Agreement,
"Aggregate Value" shall mean: with respect to an Option Award, the product of
(x) the number of Options awarded and (y) the dollar value of each such Option
according to the Black Sholes option pricing model or such other option pricing
model acceptable to both the Company and the Executive; with respect to a
Restricted Stock Award, the product of (x) the number of Shares awarded and (y)
Fair Market Value (determined without regard to the restrictions upon such
Shares); and with respect to a Combination Award, the sum of the respective
Aggregate Values of the Option Award and the Restricted Stock Award comprising
the Combination Award. Determinations of Aggregate Value shall be made by Ernst
& Young or such other certified public accounting firm or consulting firm
reasonably acceptable to the Executive as may be designated by the Company.
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for
B-3-4
<PAGE>
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company on a basis no less
favorable than that generally applicable to peer executives of the Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies. In the event the
Executive relocates his principal residence (as defined in Section 1034 of the
Internal Revenue Code of 1986, as amended (the "Code")) to North Carolina (the
"Relocation"), the Executive shall also be entitled to prompt reimbursement for
all costs reasonably incurred in connection with such Relocation ("Relocation
Costs"). Relocation Costs shall include, without limitation, the amount of any
short-term capital loss or long-term capital loss (as defined in Section 1222 of
the Code) experienced by the Executive on the disposition during the Employment
Period of his principal residence in connection with the Relocation.
(vii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than that
generally applicable to peer executives of the Company but in any event he shall
be entitled to no less than four weeks of vacation per year during the
Employment Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance with
Section 11(b) of this Agreement, of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 60th day after receipt of such notice by the
Executive (the "Disability Effective Date"); provided that, within the 60 days
after such receipt, the Executive shall not have returned to substantially full
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the performance of the
Executive's duties with the Company on a full time basis for an aggregate of 120
out of any 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by an
independent physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
B-3-5
<PAGE>
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean the engaging by the Executive in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive without the Executive's
written consent to be based at any office or location other than as provided
in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to
travel away from the Company's offices in Houston, Texas and Charlotte, North
Carolina on Company business to a substantially greater extent than required
immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
B-3-6
<PAGE>
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. In the case of a Good Reason termination, such Notice of Termination
shall be given within 90 days of the occurrence of the event that is claimed as
serving the basis for the termination as a condition of such claim being treated
as a Good Reason termination hereunder. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
B-3-7
<PAGE>
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the product
of (x) the Target Bonus Amount and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365; (3) any accrued
vacation pay to the extent not theretofore paid; and (4) the Executive's
Supplemental Salary, if applicable, for periods through the Date of
Termination, to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be hereinafter referred
to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus Amount;
and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
(the "Retirement Plan") (utilizing actuarial assumptions in effect under
the Company's Retirement Plan as of the Date of Termination), and any
excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive if
the Executive's employment continued for two years after the Date of
Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that the Executive's compensation in each of the
two years is that required by Section 3(b)(i) and Section 3(b)(ii), over
(b) the actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the Date
of Termination;
(ii) for two years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue the medical, long-term
disability, dental, accidental death and dismemberment and life insurance
benefits to the Executive and/or the Executive's dependents at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies in effect under Section 3(b)(v) of this
Agreement (the "Continuing Benefit Plans") as if the Executive's employment
had not been terminated (either by permitting the Executive and/or the
Executive's dependents to participate in the Continuing Benefit Plans, or by
providing the Executive and/or the Executive's dependents with equivalent
benefits outside the Continuing Benefit Plans, as the Company may elect, so
long as the
B-3-8
<PAGE>
net after-tax benefit to them is the same as if the Executive had remained an
employee of the Company participating in the Continuing Benefit Plans);
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical, long-term disability, dental,
accidental death and dismemberment or life insurance benefits under another
employer-provided plan, the medical, long-term disability, dental, accidental
death and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies, the Executive shall be considered to have remained employed until
two years after the Date of Termination and to have retired on the last day of
such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company as of the Date of Termination (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. The term Other Benefits as
utilized in this Section 5(b) shall include death benefits as in effect on the
date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the
B-3-9
<PAGE>
Executive terminates his employment without Good Reason during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, and (y) Other Benefits, in each case to
the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement); provided, however, that the foregoing shall not apply in connection
-------- -------
with any such contest in which the finder of fact determines that the contest is
frivolous or was brought by the Executive in bad faith.
8. Excise Tax Limit. Notwithstanding anything elsewhere in this
----------------
Agreement to the contrary, if any of the payments provided for in this
Agreement, together with any other payments or benefits which the Executive has
the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code),
the payments pursuant to this Agreement shall be reduced so that the present
value of the total amount received by the Executive that would
B-3-10
<PAGE>
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive shall
be subject to the excise tax imposed by Section 4999 of the Code. The
determination as to whether any reduction in the payments under this Agreement
pursuant to this Section 8 is necessary shall be made by such nationally
recognized accounting firm as shall be mutually agreeable to the Company and the
Executive, in consultation with any independent law firm of such firm's choice,
and such determination shall be conclusive and binding on the Executive and the
Company. All fees and expenses of such accounting firm to make such
determination shall be paid by the Company. If through error or otherwise the
Executive should receive payments under this Agreement or otherwise in excess of
one dollar ($1.00) less than three (3) times his base amount, the Executive
shall immediately repay such excess to the Company upon notification that an
overpayment has been made.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without the prior written consent of the Company or as may
otherwise be required by law or legal process or in order to enforce his rights
under this Agreement or as necessary to defend himself against a claim asserted
directly or indirectly by the Company or any of its affiliated companies) any
secret or confidential information, knowledge or data relating to the Company or
any of its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and
B-3-11
<PAGE>
selling, client and customer lists, identity of prospects, proprietary computer
programs, policy or procedure manuals, proprietary training and recruiting
procedures, proprietary accounting procedures, and the status and contents of
the Company's contracts with its suppliers, clients, customers or prospects.
The Executive further agrees to maintain in confidence any confidential
information of third parties received as a result of his employment with the
Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a
B-3-12
<PAGE>
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Fred J. Fowler
11403 Bassdale
Houston, TX 77070
If to the Company:
-----------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and conditions
of such employment or the termination of such employment. Any and all prior
agreements, understandings or commitments between the Company and the Executive
with respect to any such matter, including but not limited to the Executive
Severance Agreement between the Executive and the
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<PAGE>
Company dated as of August 19, 1988, are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment Period and the Executive
shall be entitled to the protection of any such insurance policies on no less
favorable a basis than is provided to any other officer or director of the
Company or any of its affiliated companies.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
____________________________________
Fred J. Fowler
PANENERGY CORP
By__________________________________
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<PAGE>
EXHIBIT B-4
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
L.B. GATEWOOD OF PANENERGY
--------------------------
AGREEMENT by and between PanEnergy Corp, a Delaware corporation (the
"Company") and L. B. Gatewood (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of the Company and Duke Transaction Corporation, a Delaware corporation
and a wholly-owned subsidiary of Duke Power Company, a North Carolina
corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as
of November 24, 1996 (the "Merger Agreement") and to provide the surviving
corporation after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as President and Chief
Executive Officer of PanEnergy Trading and Marketing Services, Inc., with such
authority, duties and responsibilities as are commensurate with such position
and as may be consistent with such position as may be assigned to him by the
Board,
<PAGE>
and (B) the Executive's services shall be performed at offices of the Company in
Houston, Texas. Notwithstanding the foregoing, the Company and the Executive
may mutually agree to such changes in the Executive's position, reporting or
location of employment as are in the best interests of the Company without
violating the provisions of this paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by PanEnergy in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals (set by the
Compensation Committee of the Board, in consultation with the Executive, at
levels substantially consistent with past practice) during such fiscal year, to
receive a bonus
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<PAGE>
(the "Annual Bonus") at a target level of not less than 40% of the Annual Base
Salary (the "Target Bonus Amount") with the opportunity, substantially
consistent with past practice, to earn in excess of such amount based upon the
attainment of agreed upon performance goals. Each such Annual Bonus shall be
paid no later than the last business day of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded (the "Last
Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of Duke Power Company at a price equal to Fair
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of Duke Power Company (each a "Restricted Share" and collectively
the "Restricted Stock Award"), or (3) both an Option Award and a Restricted
Stock Award (a "Combination Award"), in an amount such that the Aggregate Value
(as defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less than 45% of the
sum of (x) the Annual Base Salary and (y) the Target Bonus Amount for the fiscal
year with respect to which the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, is made. Options granted as part of any Option
Award shall have a term of 10 years, and vest and become exercisable ratably in
three annual installments beginning on the first anniversary of the Award Date,
and Shares granted as part of any Restricted Stock Award shall become free of
all restrictions (including, without limitation, with respect to
transferability) ratably in installments, each of which installment shall occur
on the date the Executive achieves one of several performance goals (the
"Restricted Stock Performance Goals") whose number, level and content shall be
set by the Compensation Committee of the Board in consultation with the
Executive; provided, however, that the number, level and content of the
Restricted Stock Performance Goals shall be such that, in the event the
Executive achieves all the Restricted Stock Performance Goals, one-third of the
Restricted Stock Award shall have become free of all restrictions on each of the
first three anniversaries of the Award Date. For the purposes of this Agreement,
"Fair Market Value" shall mean, as of any given date, the closing price of the
common stock
B-4-3
<PAGE>
of Duke Power Company on the New York Stock Exchange Composite Transactions on
such date as reported in The Wall Street Journal (or, if there is no reported
-------------------
sale on such date, on the last preceding date on which any reported sale
occurred). For the purposes of this Agreement, "Aggregate Value" shall mean:
with respect to an Option Award, the product of (x) the number of Options
awarded and (y) the dollar value of each such Option according to the Black
Sholes option pricing model or such other option pricing model acceptable to
both the Company and the Executive; with respect to a Restricted Stock Award,
the product of (x) the number of Shares awarded and (y) Fair Market Value
(determined without regard to the restrictions upon such Shares); and with
respect to a Combination Award, the sum of the respective Aggregate Values of
the Option Award and the Restricted Stock Award comprising the Combination
Award. Determinations of Aggregate Value shall be made by Ernst & Young or such
other certified public accounting firm or consulting firm reasonably acceptable
to the Executive as may be designated by the Company.
(iv) Savings and Retirement Plans. During the Employment Period,
----------------------------
the Executive shall be entitled to participate in all savings and retirement
plans, practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall
--------
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall
--------
be entitled to paid vacation in accordance with the plans, policies, programs
and practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive
occurs during the Employment Period (pursuant to the
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<PAGE>
definition of Disability set forth below), the Company may give to the Executive
written notice, in accordance with Section 11(b) of this Agreement, of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 60th
day after receipt of such notice by the Executive (the "Disability Effective
Date"); provided that, within the 60 days after such receipt, the Executive
shall not have returned to substantially full time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the performance of the Executive's duties with the
Company on a full time basis for an aggregate of 120 out of any 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by an independent physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean the engaging by the Executive in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B)
B-4-5
<PAGE>
any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive without the Executive's
written consent to be based at any office or location other than as provided
in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than required
immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. In the case of a Good Reason termination, such Notice of Termination
shall be given within 90 days of the occurrence of the event that is claimed as
serving the basis for the termination as a condition of such claim being treated
as a Good Reason termination hereunder. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company
B-4-6
<PAGE>
other than for Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the product
of (x) the Target Bonus Amount and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365; and (3) any accrued
vacation pay to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus Amount;
and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
(the "Retirement Plan") (utilizing actuarial assumptions in effect under
the Company's Retirement Plan as of the Date of Termination), any excess
or supplemental retirement plan in which the Executive participates
(together, the "SERP"), and the agreement between the Executive and
PanEnergy, dated as of November 14, 1996 (the "Retirement Agreement"),
which the Executive would receive if the Executive's employment continued
for two years after the Date of Termination assuming for this purpose
that all accrued benefits are fully vested, and, assuming that the
Executive's compensation in each of the two years is that required by
Section 3(b)(i) and Section 3(b)(ii), over (b) the actuarial equivalent
of the Executive's actual benefit (paid or payable), if any, under the
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<PAGE>
Retirement Plan, the SERP and the Retirement Agreement as of the Date of
Termination;
(ii) for two years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue the medical, long-term
disability, dental, accidental death and dismemberment and life insurance
benefits to the Executive and/or the Executive's dependents at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies in effect under Section 3(b)(v) of this
Agreement (the "Continuing Benefit Plans") as if the Executive's employment
had not been terminated (either by permitting the Executive and/or the
Executive's dependents to participate in the Continuing Benefit Plans, or by
providing the Executive and/or the Executive's dependents with equivalent
benefits outside the Continuing Benefit Plans, as the Company may elect, so
long as the net after-tax benefit to them is the same as if the Executive had
remained an employee of the Company participating in the Continuing Benefit
Plans); provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, long-term disability,
dental, accidental death and dismemberment or life insurance benefits under
another employer-provided plan, the medical, long-term disability, dental,
accidental death and dismemberment and life insurance benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to the Continuing Benefit Plans and any other welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to have retired in
accordance with the procedure outlined in the Retirement Agreement on the last
day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company as of the Date of Termination (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without
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<PAGE>
further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. The term Other Benefits as utilized in this
Section 5(b) shall include death benefits as in effect on the date of the
Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
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<PAGE>
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement); provided, however, that the foregoing shall not apply in connection
-------- -------
with any such contest in which the finder of fact determines that the contest is
frivolous or was brought by the Executive in bad faith.
8. Excise Tax Limit. Notwithstanding anything elsewhere in this
----------------
Agreement to the contrary, if any of the payments provided for in this
Agreement, together with any other payments or benefits which the Executive has
the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant
to this Agreement shall be reduced so that the present value of the total amount
received by the Executive that would constitute a "parachute payment" will be
one dollar ($1.00) less than three (3) times the Executive's base amount (as
defined in Section 280G of the Code) and so that no portion of the payments or
benefits received by the Executive shall be subject to the excise tax imposed by
Section 4999 of the Code. The determination as to whether any reduction in the
payments under this Agreement pursuant to this Section 8 is necessary shall be
made by such nationally recognized accounting firm as shall be mutually
agreeable to the Company and the Executive, in consultation with any independent
law firm of such firm's choice, and such determination shall be conclusive and
binding on the Executive and the Company. All fees and expenses of such
accounting firm to make such determination shall be paid by the Company. If
through error or otherwise the Executive should receive payments under this
Agreement or otherwise in excess of one dollar ($1.00) less than three (3) times
his base amount, the Executive shall immediately repay such excess to the
Company upon notification that an overpayment has been made.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The
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<PAGE>
Executive shall not, at any time during his employment with the Company or at
any time thereafter, for any reason, in any fashion, form or manner, either
directly or indirectly, communicate, divulge, copy or permit to be copied
(without the prior written consent of the Company or as may otherwise be
required by law or legal process or in order to enforce his rights under this
Agreement or as necessary to defend himself against a claim asserted directly or
indirectly by the Company or any of its affiliated companies) any secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and selling, client and
customer lists, identity of prospects, proprietary computer programs, policy or
procedure manuals, proprietary training and recruiting procedures, proprietary
accounting procedures, and the status and contents of the Company's contracts
with its suppliers, clients, customers or prospects. The Executive further
agrees to maintain in confidence any confidential information of third parties
received as a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
B-4-11
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
L. B. Gatewood
3258 Hunters Glen
Missouri City, TX 77459
If to the Company:
-----------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or
B-4-12
<PAGE>
foreign taxes as shall be required to be withheld pursuant to any applicable law
or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and conditions
of such employment or the termination of such employment. Any and all prior
agreements, understandings or commitments between the Company and the Executive
with respect to any such matter, including but not limited to the Executive
Severance Agreement between the Executive and the Company dated November 7,
1990, are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment
B-4-13
<PAGE>
Period and the Executive shall be entitled to the protection of any such
insurance policies on no less favorable a basis than is provided to any other
officer or director of the Company or any of its affiliated companies.
B-4-14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
________________________________
L. B. Gatewood
PANENERGY CORP
By ____________________________
B-4-15
<PAGE>
EXHIBIT B-5
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
JIM W. MOGG OF PANENERGY
------------------------
AGREEMENT by and between PanEnergy Corp, a Delaware corporation (the
"Company") and Jim W. Mogg (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of the Company and Duke Transaction Corporation, a Delaware corporation
and a wholly-owned subsidiary of Duke Power Company, a North Carolina
corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as
of November 24, 1996 (the "Merger Agreement") and to provide the surviving
corporation after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as President and Chief
Executive Officer of PanEnergy Field Services, with such authority, duties and
responsibilities as are commensurate with such position and as may be consistent
with such position as may be assigned to him by the Board and (B) the
Executive's
<PAGE>
services shall be performed at offices of the Company in Denver, Colorado.
Notwithstanding the foregoing, the Company and the Executive may mutually agree
to such changes in the Executive's position, reporting or location of employment
as are in the best interests of the Company without violating the provisions of
this paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by PanEnergy in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals (set by the
Compensation Committee of the Board, in consultation with the Executive, at
levels substantially consistent with past practice) during such fiscal year, to
receive a bonus (the "Annual Bonus") at a target level of not less than 40%
B-5-2
<PAGE>
of the Annual Base Salary (the "Target Bonus Amount") with the opportunity,
substantially consistent with past practice, to earn in excess of such amount
based upon the attainment of agreed upon performance goals. Each such Annual
Bonus shall be paid no later than the last business day of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded (the "Last Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of Duke Power Company at a price equal to Fair
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of Duke Power Company (each a "Restricted Share" and collectively
the "Restricted Stock Award"), or (3) both an Option Award and a Restricted
Stock Award (a "Combination Award"), in an amount such that the Aggregate Value
(as defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less than 45% of the
sum of (x) the Annual Base Salary and (y) the Target Bonus Amount for the fiscal
year with respect to which the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, is made. Options granted as part of any
Option Award shall have a term of 10 years, and vest and become exercisable
ratably in three annual installments beginning on the first anniversary of the
Award Date, and Shares granted as part of any Restricted Stock Award shall
become free of all restrictions (including, without limitation, with respect to
transferability) ratably in installments, each of which installment shall occur
on the date the Executive achieves one of several performance goals (the
"Restricted Stock Performance Goals") whose number, level and content shall be
set by the Compensation Committee of the Board in consultation with the
Executive; provided, however, that the number, level and content of the
Restricted Stock Performance Goals shall be such that, in the event the
Executive achieves all the Restricted Stock Performance Goals, one-third of the
Restricted Stock Award shall have become free of all restrictions on each of the
first three anniversaries of the Award Date. For the purposes of this
Agreement, "Fair Market Value" shall mean, as of any given date, the closing
price of the common stock of Duke Power Company on the New York Stock Exchange
Composite
B-5-3
<PAGE>
Transactions on such date as reported in The Wall Street Journal (or, if there
-------------------
is no reported sale on such date, on the last preceding date on which any
reported sale occurred). For the purposes of this Agreement, "Aggregate Value"
shall mean: with respect to an Option Award, the product of (x) the number of
Options awarded and (y) the dollar value of each such Option according to the
Black Sholes option pricing model or such other option pricing model acceptable
to both the Company and the Executive; with respect to a Restricted Stock Award,
the product of (x) the number of Shares awarded and (y) Fair Market Value
(determined without regard to the restrictions upon such Shares); and with
respect to a Combination Award, the sum of the respective Aggregate Values of
the Option Award and the Restricted Stock Award comprising the Combination
Award. Determinations of Aggregate Value shall be made by Ernst & Young or such
other certified public accounting firm or consulting firm reasonably acceptable
to the Executive as may be designated by the Company.
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than that
generally applicable to peer executives of the Company but in any event he shall
be entitled to no less than four weeks of vacation per year during the
Employment Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Execu-
B-5-4
<PAGE>
tive written notice, in accordance with Section 11(b) of this Agreement, of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 60th
day after receipt of such notice by the Executive (the "Disability Effective
Date"); provided that, within the 60 days after such receipt, the Executive
shall not have returned to substantially full time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the performance of the Executive's duties with the
Company on a full time basis for an aggregate of 120 out of any 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by an independent physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean the engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
B-5-5
<PAGE>
(ii) any failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive without the Executive's
written consent to be based at any office or location other than as provided
in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than required
immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. In the case of a Good Reason termination, such Notice of Termination
shall be given within 90 days of the occurrence of the event that is claimed as
serving the basis for the termination as a condition of such claim being treated
as a Good Reason termination hereunder. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's
B-5-6
<PAGE>
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the product
of (x) the Target Bonus Amount and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365; and (3) any accrued
vacation pay to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus Amount;
and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") (utilizing actuarial assumptions in effect
under the Company's Retirement Plan as of the Date of Termination), any
excess or supplemental retirement plan in which the Executive
participates (together, the "SERP"), and the agreement between the
Executive and PanEnergy, dated as of May 25, 1995 (the "Retirement
Agreement"), which the Executive would receive if the Executive's
employment continued for two years after the Date of Termination assuming
for this purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the two years is
that required by Section 3(b)(i) and Section 3(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan, the SERP and the Retirement
Agreement as of the Date of Termination;
B-5-7
<PAGE>
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue the medical, long-term
disability, dental, accidental death and dismemberment and life insurance
benefits to the Executive and/or the Executive's dependents at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies in effect under Section 3(b)(v) of this
Agreement (the "Continuing Benefit Plans") as if the Executive's employment
had not been terminated (either by permitting the Executive and/or the
Executive's dependents to participate in the Continuing Benefit Plans, or by
providing the Executive and/or the Executive's dependents with equivalent
benefits outside the Continuing Benefit Plans, as the Company may elect, so
long as the net after-tax benefit to them is the same as if the Executive had
remained an employee of the Company participating in the Continuing Benefit
Plans); provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, long-term disability,
dental, accidental death and dismemberment or life insurance benefits under
another employer-provided plan, the medical, long-term disability, dental,
accidental death and dismemberment and life insurance benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to the Continuing Benefit Plans and any other welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to have retired in
accordance with the procedure outlined in the Retirement Agreement on the last
day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company as of the Date of Termination (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other
B-5-8
<PAGE>
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term Other Benefits as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate
without further obligations to the Executive other than the obligation to pay to
the Executive (x) his Annual Base Salary through the Date of Termination, and
(y) Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment.
The Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the
B-5-9
<PAGE>
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement); provided, however, that the foregoing shall not apply in connection
-------- -------
with any such contest in which the finder of fact determines that the contest is
frivolous or was brought by the Executive in bad faith.
8. Excise Tax Limit. Notwithstanding anything elsewhere in this
----------------
Agreement to the contrary, if any of the payments provided for in this
Agreement, together with any other payments or benefits which the Executive has
the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant
to this Agreement shall be reduced so that the present value of the total amount
received by the Executive that would constitute a "parachute payment" will be
one dollar ($1.00) less than three (3) times the Executive's base amount (as
defined in Section 280G of the Code) and so that no portion of the payments or
benefits received by the Executive shall be subject to the excise tax imposed by
Section 4999 of the Code. The determination as to whether any reduction in the
payments under this Agreement pursuant to this Section 8 is necessary shall be
made by such nationally recognized accounting firm as shall be mutually
agreeable to the Company and the Executive, in consultation with any independent
law firm of such firm's choice, and such determination shall be conclusive and
binding on the Executive and the Company. All fees and expenses of such
accounting firm to make such determination shall be paid by the Company. If
through error or otherwise the Executive should receive payments under this
Agreement or otherwise in excess of one dollar ($1.00) less than three (3) times
his base amount, the Executive shall immediately repay such excess to the
Company upon notification that an overpayment has been made.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly,
B-5-10
<PAGE>
communicate, divulge, copy or permit to be copied (without the prior written
consent of the Company or as may otherwise be required by law or legal process
or in order to enforce his rights under this Agreement or as necessary to defend
himself against a claim asserted directly or indirectly by the Company or any of
its affiliated companies) any secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
respective businesses, in any manner whatsoever, that is not otherwise publicly
available, to, or for the benefit of, any person, firm, corporation or other
entity, other than the Company and those designated by it or in the course of
his employment with the Company and its affiliated companies. As used herein,
the term "all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses"
shall include, without limitation, the Company's plans, strategies, proposals to
potential customers and/or partners, costs, prices, proprietary systems for
buying and selling, client and customer lists, identity of prospects,
proprietary computer programs, policy or procedure manuals, proprietary training
and recruiting procedures, proprietary accounting procedures, and the status and
contents of the Company's contracts with its suppliers, clients, customers or
prospects. The Executive further agrees to maintain in confidence any
confidential information of third parties received as a result of his employment
with the Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
B-5-11
<PAGE>
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Colorado, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Jim W. Mogg
2329 Woodbury Lane
Evergreen, CO 80439
If to the Company:
-----------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
B-5-12
<PAGE>
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and conditions
of such employment or the termination of such employment. Any and all prior
agreements, understandings or commitments between the Company and the Executive
with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment Period and the Executive
shall be entitled to the protection of any such insurance policies on no less
favorable a basis than is provided to any other officer or director of the
Company or any of its affiliated companies.
B-5-13
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------------------
Jim W. Mogg
PANENERGY CORP
By
---------------------------------------
B-5-14
<PAGE>
EXHIBIT B-6
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
BRUCE WILLIAMSON OF PANENERGY
-----------------------------
AGREEMENT by and between PanEnergy Corp, a Delaware corporation (the
"Company") and Bruce Williamson (the "Executive"), dated as of the 24th day of
November, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of the Company and Duke Transaction Corporation, a Delaware corporation
and a wholly-owned subsidiary of Duke Power Company, a North Carolina
corporation (the "Merger") pursuant to the Agreement and Plan of Merger dated as
of November 24, 1996 (the "Merger Agreement") and to provide the surviving
corporation after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Vice President, Business
Development for Duke Energy Services, with such authority, duties and
responsibilities as are commensurate with such position and as may be consistent
with such position as may
<PAGE>
be assigned to him by the Board and (B) the Executive's services shall be
performed at offices of the Company in Houston, Texas. Notwithstanding the
foregoing, the Company and the Executive may mutually agree to such changes in
the Executive's position, reporting or location of employment as are in the
best interests of the Company without violating the provisions of this
paragraph.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by PanEnergy in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals (set by the
Compensation Committee of the Board, in consultation with the Executive, at
levels substantially consistent with past practice) during such fiscal year, to
receive a bonus
B-6-2
<PAGE>
(the "Annual Bonus") at a target level of not less than 35% of the Annual Base
Salary (the "Target Bonus Amount") with the opportunity, substantially
consistent with past practice, to earn in excess of such amount based upon the
attainment of agreed upon performance goals. Each such Annual Bonus shall be
paid no later than the last business day of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded (the "Last
Payment Date").
(iii) Long-Term Incentive Compensation. During the Employment
--------------------------------
Period, the Executive shall be entitled to participate in all long-term
incentive plans, practices, policies and programs applicable generally to other
peer executives of the Company, provided that for each fiscal year ending during
the Employment Period, the Company shall, on the earlier (the "Award Date") of
(A) the date on which the Annual Bonus with respect to such fiscal year is paid,
if any and (B) the Last Payment Date, grant the Executive either (1) stock
options (each an "Option" and collectively the "Option Award"), each to purchase
one share of the common stock of Duke Power Company at a price equal to Fair
Market Value (as defined below) as of the Award Date, (2) shares of restricted
common stock of Duke Power Company (each a "Restricted Share" and collectively
the "Restricted Stock Award"), or (3) both an Option Award and a Restricted
Stock Award (a "Combination Award"), in an amount such that the Aggregate Value
(as defined below) of the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, on the Award Date is not less than 40% of the
sum of (x) the Annual Base Salary and (y) the Target Bonus Amount for the fiscal
year with respect to which the Option Award, the Restricted Stock Award or the
Combination Award, as applicable, is made. Options granted as part of any
Option Award shall have a term of 10 years, and vest and become exercisable
ratably in three annual installments beginning on the first anniversary of the
Award Date, and Shares granted as part of any Restricted Stock Award shall
become free of all restrictions (including, without limitation, with respect to
transferability) ratably in installments, each of which installment shall occur
on the date the Executive achieves one of several performance goals (the
"Restricted Stock Performance Goals") whose number, level and content shall be
set by the Compensation Committee of the Board in consultation with the
Executive; provided, however, that the number, level and content of the
Restricted Stock Performance Goals shall be such that, in the event the
Executive achieves all the Restricted Stock Performance Goals, one-third of the
Restricted Stock Award shall have become free of all restrictions on each of the
first three anniversaries of the Award Date. For the purposes of this
Agreement, "Fair Market Value" shall mean, as of any given date, the closing
price of the common stock
B-6-3
<PAGE>
of Duke Power Company on the New York Stock Exchange Composite Transactions on
such date as reported in The Wall Street Journal (or, if there is no reported
-------------------
sale on such date, on the last preceding date on which any reported sale
occurred). For the purposes of this Agreement, "Aggregate Value" shall mean:
with respect to an Option Award, the product of (x) the number of Options
awarded and (y) the dollar value of each such Option according to the Black
Sholes option pricing model or such other option pricing model acceptable to
both the Company and the Executive; with respect to a Restricted Stock Award,
the product of (x) the number of Shares awarded and (y) Fair Market Value
(determined without regard to the restrictions upon such Shares); and with
respect to a Combination Award, the sum of the respective Aggregate Values of
the Option Award and the Restricted Stock Award comprising the Combination
Award. Determinations of Aggregate Value shall be made by Ernst & Young or such
other certified public accounting firm or consulting firm reasonably acceptable
to the Executive as may be designated by the Company.
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the
B-6-4
<PAGE>
definition of Disability set forth below), the Company may give to the Executive
written notice, in accordance with Section 11(b) of this Agreement, of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 60th
day after receipt of such notice by the Executive (the "Disability Effective
Date"); provided that, within the 60 days after such receipt, the Executive
shall not have returned to substantially full time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the performance of the Executive's duties with the
Company on a full time basis for an aggregate of 120 out of any 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by an independent physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean the engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B)
B-6-5
<PAGE>
any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive without the Executive's
written consent to be based at any office or location other than as provided
in Section 3(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than required
immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. In the case of a Good Reason termination, such Notice of Termination
shall be given within 90 days of the occurrence of the event that is claimed as
serving the basis for the termination as a condition of such claim being treated
as a Good Reason termination hereunder. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if
B-6-6
<PAGE>
the Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the product
of (x) the Target Bonus Amount and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365; and (3) any accrued
vacation pay to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus Amount;
and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
(the "Retirement Plan") (utilizing actuarial assumptions in effect under
the Company's Retirement Plan as of the Date of Termination), and any
excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive if
the Executive's employment continued for two years after the Date of
Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that the Executive's compensation in each of the
two years is that required by Section 3(b)(i) and Section 3(b)(ii), over
(b) the actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the Date
of Termination;
B-6-7
<PAGE>
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue the medical, long-term
disability, dental, accidental death and dismemberment and life insurance
benefits to the Executive and/or the Executive's dependents at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies in effect under Section 3(b)(v) of this
Agreement (the "Continuing Benefit Plans") as if the Executive's employment had
not been terminated (either by permitting the Executive and/or the Executive's
dependents to participate in the Continuing Benefit Plans, or by providing the
Executive and/or the Executive's dependents with equivalent benefits outside the
Continuing Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of the
Company participating in the Continuing Benefit Plans); provided, however, that
if the Executive becomes reemployed with another employer and is eligible to
receive medical, long-term disability, dental, accidental death and
dismemberment or life insurance benefits under another employer-provided plan,
the medical, long-term disability, dental, accidental death and dismemberment
and life insurance benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to the Continuing
Benefit Plans and any other welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies, the Executive
shall be considered to have remained employed until two years after the Date of
Termination and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company as of the Date of Termination (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the
B-6-8
<PAGE>
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. The term Other Benefits as utilized in this
Section 5(b) shall include death benefits as in effect on the date of the
Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any
B-6-9
<PAGE>
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement); provided, however, that the foregoing shall not
-------- -------
apply in connection with any such contest in which the finder of fact determines
that the contest is frivolous or was brought by the Executive in bad faith.
8. Excise Tax Limit. Notwithstanding anything elsewhere in this
----------------
Agreement to the contrary, if any of the payments provided for in this
Agreement, together with any other payments or benefits which the Executive has
the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant
to this Agreement shall be reduced so that the present value of the total amount
received by the Executive that would constitute a "parachute payment" will be
one dollar ($1.00) less than three (3) times the Executive's base amount (as
defined in Section 280G of the Code) and so that no portion of the payments or
benefits received by the Executive shall be subject to the excise tax imposed by
Section 4999 of the Code. The determination as to whether any reduction in the
payments under this Agreement pursuant to this Section 8 is necessary shall be
made by such nationally recognized accounting firm as shall be mutually
agreeable to the Company and the Executive, in consultation with any independent
law firm of such firm's choice, and such determination shall be conclusive and
binding on the Executive and the Company. All fees and expenses of such
accounting firm to make such determination shall be paid by the Company. If
through error or otherwise the Executive should receive payments under this
Agreement or otherwise in excess of one dollar ($1.00) less than three (3) times
his base amount, the Executive shall immediately repay such excess to the
Company upon notification that an overpayment has been made.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without
B-6-10
<PAGE>
the prior written consent of the Company or as may otherwise be required by law
or legal process or in order to enforce his rights under this Agreement or as
necessary to defend himself against a claim asserted directly or indirectly by
the Company or any of its affiliated companies) any secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, in any manner whatsoever, that is
not otherwise publicly available, to, or for the benefit of, any person, firm,
corporation or other entity, other than the Company and those designated by it
or in the course of his employment with the Company and its affiliated
companies. As used herein, the term "all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses" shall include, without limitation, the
Company's plans, strategies, proposals to potential customers and/or partners,
costs, prices, proprietary systems for buying and selling, client and customer
lists, identity of prospects, proprietary computer programs, policy or procedure
manuals, proprietary training and recruiting procedures, proprietary accounting
procedures, and the status and contents of the Company's contracts with its
suppliers, clients, customers or prospects. The Executive further agrees to
maintain in confidence any confidential information of third parties received as
a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of this
-----------
Section 9, the Executive agrees that the Company shall be entitled, in addition
to any other remedies available to it to specific performance and injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of this
--------
Agreement shall have no effect on the continuing operation of this Section 9.
10. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
B-6-11
<PAGE>
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Bruce Williamson
12322 Moorecreek
Houston, TX 77070-2459
If to the Company:
-----------------
5400 Westheimer Court
Houston, TX 77056-5310
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
B-6-12
<PAGE>
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the parties
and is intended to be an integration of all agreements between the parties with
respect to the Executive's employment by the Company, the terms and conditions
of such employment or the termination of such employment. Any and all prior
agreements, understandings or commitments between the Company and the Executive
with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company or any of
its affiliated companies to procure a judgment in its favor, by reason of the
fact that the Executive is or was serving in any capacity at the request of the
Company or any of affiliated companies for any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The right to
indemnification provided, in this paragraph (g) shall not be deemed exclusive
of any other rights to which Executive may have or hereafter be entitled under
any law or the charter or by-laws of the Company or any of its affiliated
companies or otherwise, both as to action in Executive's official capacity and
as to action in another capacity while holding such office, and shall continue
after Executive has ceased to be a director or officer and shall inure to the
benefit of Executive's heirs, executors and administrators. Any reimbursement
obligation arising hereunder shall be satisfied on an as-incurred basis. In
addition, the Company agrees to continue to maintain customary and appropriate
directors and liability insurance during the Employment Period and the Executive
shall be entitled to the protection of any such insurance policies on no less
favorable a basis than is provided to any other officer or director of the
Company or any of its affiliated companies.
B-6-13
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------
Bruce Williamson
PANENERGY CORP
By
---------------------------
B-6-14
<PAGE>
EXHIBIT C-1
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
RICHARD B. PRIORY OF DUKE
-------------------------
AGREEMENT by and between Duke Power Company, a North Carolina
corporation (the "Company"), and Richard B. Priory (the "Executive"), dated as
of the 24th day of November, 1996.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of PanEnergy Corp, a Delaware corporation, and Duke Transaction
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Merger"), pursuant to the Agreement and Plan of Merger dated as of
November 24, 1996 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Chairman and Chief Executive
Officer, with such authority, duties and responsibilities as are commensurate
with such position and as may be consistent with such position. Notwithstanding
the foregoing, the Company and the Executive may mutually agree to such changes
in the Executive's position, reporting or location of employment as are in the
best interests of the Company without violating the provisions of this
paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by the Company in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals during such fiscal
year, to receive a bonus (the "Annual Bonus") with a target level not less than
the target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the
--------------------
Executive shall be entitled to participate in all long-term incentive plans,
practices, policies and programs applicable generally to peer executives of the
Company, at such levels as shall be determined in the sole discretion of the
Compensation Committee of the Board.
C-1-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean
C-1-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
C-1-4
<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-1-5
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue the medical,
long-term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the
C-1-6
<PAGE>
Employment Period, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term "Other Benefits" as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not
C-1-7
<PAGE>
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement); provided,
--------
however, that the foregoing shall not apply in connection with any such contest
- -------
in which the finder of fact determines that the contest is frivolous or was
brought by the Executive in bad faith.
8. Excise Tax Provision. Notwithstanding anything elsewhere in this
--------------------
Agreement to the contrary, if any of the payments or benefits provided for in
this Agreement, together with any other payments or benefits which the Executive
has the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the Executive may elect
(i) to have the payments or benefits pursuant to this Agreement reduced so that
the present value of the total amount received by the Executive that would
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive would
be subject to the excise tax imposed by Section 4999 of the Code or (ii) to have
no such reduction described in Section 8(i) hereof. The foregoing shall not
affect the right of the Company to satisfy all tax withholding requirements
(including excise tax withholding requirements) with respect to any payments or
benefits provided for in this Agreement in the event it shall determine that any
such payments or benefits would, regardless of the Executive's election
hereunder, be subject to the excise tax imposed by Section 4999 of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without the prior written consent of the Company or as may
otherwise
C-1-8
<PAGE>
be required by law or legal process or in order to enforce his rights under this
Agreement or as necessary to defend himself against a claim asserted directly or
indirectly by the Company or any of its affiliated companies) any secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and selling, client and
customer lists, identity of prospects, proprietary computer programs, policy or
procedure manuals, proprietary training and recruiting procedures, proprietary
accounting procedures, and the status and contents of the Company's contracts
with its suppliers, clients, customers or prospects. The Executive further
agrees to maintain in confidence any confidential information of third parties
received as a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger,
C-1-9
<PAGE>
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
C-1-10
<PAGE>
If to the Executive:
-------------------
Richard B. Priory
3520 Providence Road
Charlotte, North Carolina 28211
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
C-1-11
<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
C-1-12
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
----------------------------
Richard B. Priory
DUKE POWER COMPANY
By
----------------------------
C-1-13
<PAGE>
EXHIBIT C-2
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
WILLIAM A. COLEY OF DUKE
------------------------
AGREEMENT by and between Duke Power Company, a North Carolina
corporation (the "Company"), and William A. Coley (the "Executive"), dated as of
the 24th day of November, 1996.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of PanEnergy Corp, a Delaware corporation, and Duke Transaction
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Merger"), pursuant to the Agreement and Plan of Merger dated as of
November 24, 1996 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as President of Duke Power
Company (the regulated electric utility which on the Effective Date will
become a division of Duke Energy Corporation), with such authority, duties and
responsibilities as are commensurate with such position and as may be consistent
with such position. Notwithstanding the foregoing, the Company and the Executive
may mutually agree to such changes in the Executive's position, reporting or
location of employment as are in the best interests of the Company without
violating the provisions of this paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by the Company in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals during such fiscal
year, to receive a bonus (the "Annual Bonus") with a target level not less than
the target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the
--------------------
Executive shall be entitled to participate in all long-term incentive plans,
practices, policies and programs applicable generally to peer executives of the
Company, at such levels as shall be determined in the sole discretion of the
Compensation Committee of the Board.
C-2-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean
C-2-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
C-2-4
<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-2-5
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue the medical,
long-term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the
C-2-6
<PAGE>
Employment Period, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term "Other Benefits" as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not
C-2-7
<PAGE>
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement); provided,
--------
however, that the foregoing shall not apply in connection with any such contest
- -------
in which the finder of fact determines that the contest is frivolous or was
brought by the Executive in bad faith.
8. Excise Tax Provision. Notwithstanding anything elsewhere in this
--------------------
Agreement to the contrary, if any of the payments or benefits provided for in
this Agreement, together with any other payments or benefits which the Executive
has the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the Executive may elect
(i) to have the payments or benefits pursuant to this Agreement reduced so that
the present value of the total amount received by the Executive that would
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive would
be subject to the excise tax imposed by Section 4999 of the Code or (ii) to have
no such reduction described in Section 8(i) hereof. The foregoing shall not
affect the right of the Company to satisfy all tax withholding requirements
(including excise tax withholding requirements) with respect to any payments or
benefits provided for in this Agreement in the event it shall determine that any
such payments or benefits would, regardless of the Executive's election
hereunder, be subject to the excise tax imposed by Section 4999 of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without the prior written consent of the Company or as may
otherwise
C-2-8
<PAGE>
be required by law or legal process or in order to enforce his rights under this
Agreement or as necessary to defend himself against a claim asserted directly or
indirectly by the Company or any of its affiliated companies) any secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and selling, client and
customer lists, identity of prospects, proprietary computer programs, policy or
procedure manuals, proprietary training and recruiting procedures, proprietary
accounting procedures, and the status and contents of the Company's contracts
with its suppliers, clients, customers or prospects. The Executive further
agrees to maintain in confidence any confidential information of third parties
received as a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger,
C-2-9
<PAGE>
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
C-2-10
<PAGE>
If to the Executive:
-------------------
William A. Coley
1231 Wareham Court
Charlotte, North Carolina 28207
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
C-2-11
<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
C-2-12
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
----------------------------------
William A. Coley
DUKE POWER COMPANY
By
------------------------------
C-2-13
<PAGE>
EXHIBIT C-3
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
RICHARD J. OSBORNE OF DUKE
--------------------------
AGREEMENT by and between Duke Power Company, a North Carolina corporation
(the "Company"), and Richard J. Osborne (the "Executive"), dated as of the 24th
day of November, 1996.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive pending the merger
of PanEnergy Corp, a Delaware corporation, and Duke Transaction Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company (the
"Merger"), pursuant to the Agreement and Plan of Merger dated as of November 24,
1996 (the "Merger Agreement") and to provide the Company after the Merger with
continuity of management. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which the
--------------
Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the Executive,
-----------------
and the Executive hereby agrees to accept employment with and remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the second anniversary
thereof, or such later date as may be mutually agreed upon by the Company and
the Executive. Notwithstanding the foregoing, the Executive's employment
hereunder may be earlier terminated, subject to Section 5 of this Agreement.
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Senior Vice President and
Chief Financial Officer, with such authority, duties and responsibilities as are
commensurate with such position and as may be consistent with such position.
Notwithstanding the foregoing, the Company and the Executive may mutually agree
to such changes in the Executive's position, reporting or location of
employment as are in the best interests of the Company without violating the
provisions of this paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote substantially all of his attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), payable
monthly, at least equal to the annual base salary paid or payable, including any
base salary which has been earned but deferred, to the Executive by the Company
in respect of the twelve-month period immediately preceding the Effective Date.
During the Employment Period, the Annual Base Salary shall be reviewed no more
than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each fiscal
------------
year ending during the Employment Period the Executive shall be eligible, based
upon the Executive's achievement of performance goals during such fiscal year,
to receive a bonus (the "Annual Bonus") with a target level not less than the
target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the Executive
--------------------
shall be entitled to participate in all long-term incentive plans, practices,
policies and programs applicable generally to peer executives of the Company, at
such levels as shall be determined in the sole discretion of the Compensation
Committee of the Board.
C-3-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the Executive
---------------------
and/or the Executive's dependents, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company on a basis no less
favorable than that generally applicable to peer executives of the Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The Executive's
------------------------- -------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Disability of the Executive occurs during the
Employment Period (pursuant to the definition of Disability set forth below),
the Company may give to the Executive written notice, in accordance with
Section 11(b) of this Agreement, of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 60th day after receipt of such notice by the
Executive (the "Disability Effective Date"); provided that, within the 60 days
after such receipt, the Executive shall not have returned to substantially full
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the performance of the
Executive's duties with the Company on a full time basis for an aggregate of 120
out of any 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by an
independent physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean
C-3-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
C-3-4
<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-3-5
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue the medical,
long-term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the
C-3-6
<PAGE>
Employment Period, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term "Other Benefits" as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not
C-3-7
<PAGE>
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement); provided,
--------
however, that the foregoing shall not apply in connection with any such contest
- -------
in which the finder of fact determines that the contest is frivolous or was
brought by the Executive in bad faith.
8. Excise Tax Provision. Notwithstanding anything elsewhere in this
--------------------
Agreement to the contrary, if any of the payments or benefits provided for in
this Agreement, together with any other payments or benefits which the Executive
has the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the Executive may elect
(i) to have the payments or benefits pursuant to this Agreement reduced so that
the present value of the total amount received by the Executive that would
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive would
be subject to the excise tax imposed by Section 4999 of the Code or (ii) to have
no such reduction described in Section 8(i) hereof. The foregoing shall not
affect the right of the Company to satisfy all tax withholding requirements
(including excise tax withholding requirements) with respect to any payments or
benefits provided for in this Agreement in the event it shall determine that any
such payments or benefits would, regardless of the Executive's election
hereunder, be subject to the excise tax imposed by Section 4999 of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without
C-3-8
<PAGE>
the prior written consent of the Company or as may otherwise be required by law
or legal process or in order to enforce his rights under this Agreement or as
necessary to defend himself against a claim asserted directly or indirectly by
the Company or any of its affiliated companies) any secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, in any manner whatsoever, that is
not otherwise publicly available, to, or for the benefit of, any person, firm,
corporation or other entity, other than the Company and those designated by it
or in the course of his employment with the Company and its affiliated
companies. As used herein, the term "all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses" shall include, without limitation, the
Company's plans, strategies, proposals to potential customers and/or partners,
costs, prices, proprietary systems for buying and selling, client and customer
lists, identity of prospects, proprietary computer programs, policy or procedure
manuals, proprietary training and recruiting procedures, proprietary accounting
procedures, and the status and contents of the Company's contracts with its
suppliers, clients, customers or prospects. The Executive further agrees to
maintain in confidence any confidential information of third parties received as
a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
C-3-9
<PAGE>
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
C-3-10
<PAGE>
If to the Executive:
-------------------
Richard J. Osborne
2025 Nolen Park Lane
Charlotte, North Carolina 28209
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
C-3-11
<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
C-3-12
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
------------------------
Richard J. Osborne
DUKE POWER COMPANY
By
----------------------
C-3-13
<PAGE>
EXHIBIT C-4
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
RUTH G. SHAW OF DUKE
--------------------
AGREEMENT by and between Duke Power Company, a North Carolina
corporation (the "Company"), and Ruth G. Shaw (the "Executive"), dated as of the
24th day of November, 1996.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of PanEnergy Corp, a Delaware corporation, and Duke Transaction
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Merger"), pursuant to the Agreement and Plan of Merger dated as of
November 24, 1996 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Senior Vice President,
Corporate Resources and Chief Administrative Officer, with such authority,
duties and responsibilities as are commensurate with such position and as may be
consistent with such position. Notwithstanding the foregoing, the Company and
the Executive may mutually agree to such changes in the Executive's position,
reporting or location of employment as are in the best interests of the Company
without violating the provisions of this paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of her attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by the Company in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals during such fiscal
year, to receive a bonus (the "Annual Bonus") with a target level not less than
the target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation
Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the
--------------------
Executive shall be entitled to participate in all long-term incentive plans,
practices, policies and programs applicable generally to peer executives of the
Company, at such levels as shall be determined in the sole discretion of the
Compensation Committee of the Board.
C-4-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event she shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean
C-4-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given her written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
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<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-4-5
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue the medical,
long-term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the
C-4-6
<PAGE>
Employment Period, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term "Other Benefits" as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates her employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) her Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not
C-4-7
<PAGE>
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement); provided,
--------
however, that the foregoing shall not apply in connection with any such contest
- -------
in which the finder of fact determines that the contest is frivolous or was
brought by the Executive in bad faith.
8. Excise Tax Provision. Notwithstanding anything elsewhere in this
--------------------
Agreement to the contrary, if any of the payments or benefits provided for in
this Agreement, together with any other payments or benefits which the Executive
has the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the Executive may elect
(i) to have the payments or benefits pursuant to this Agreement reduced so that
the present value of the total amount received by the Executive that would
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive would
be subject to the excise tax imposed by Section 4999 of the Code or (ii) to have
no such reduction described in Section 8(i) hereof. The foregoing shall not
affect the right of the Company to satisfy all tax withholding requirements
(including excise tax withholding requirements) with respect to any payments or
benefits provided for in this Agreement in the event it shall determine that any
such payments or benefits would, regardless of the Executive's election
hereunder, be subject to the excise tax imposed by Section 4999 of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during her employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without
C-4-8
<PAGE>
the prior written consent of the Company or as may otherwise be required by law
or legal process or in order to enforce her rights under this Agreement or as
necessary to defend herself against a claim asserted directly or indirectly by
the Company or any of its affiliated companies) any secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, in any manner whatsoever, that is
not otherwise publicly available, to, or for the benefit of, any person, firm,
corporation or other entity, other than the Company and those designated by it
or in the course of her employment with the Company and its affiliated
companies. As used herein, the term "all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses" shall include, without limitation, the
Company's plans, strategies, proposals to potential customers and/or partners,
costs, prices, proprietary systems for buying and selling, client and customer
lists, identity of prospects, proprietary computer programs, policy or procedure
manuals, proprietary training and recruiting procedures, proprietary accounting
procedures, and the status and contents of the Company's contracts with its
suppliers, clients, customers or prospects. The Executive further agrees to
maintain in confidence any confidential information of third parties received as
a result of her employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
C-4-9
<PAGE>
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
C-4-10
<PAGE>
If to the Executive:
-------------------
Ruth G. Shaw
P.O. Box 533
Davidson, North Carolina 28036
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and her legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
C-4-11
<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
C-4-12
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
------------------------------------
Ruth G. Shaw
DUKE POWER COMPANY
By
-----------------------------------
C-4-13
<PAGE>
EXHIBIT C-5
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
MICHAEL S. TUCKMAN OF DUKE
--------------------------
AGREEMENT by and between Duke Power Company, a North Carolina
corporation (the "Company"), and Michael S. Tuckman (the "Executive"), dated as
of the 24th day of November, 1996.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of PanEnergy Corp, a Delaware corporation, and Duke Transaction
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Merger"), pursuant to the Agreement and Plan of Merger dated as of
November 24, 1996 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Senior Vice President,
Nuclear Generation, with such authority, duties and responsibilities as are
commensurate with such position and as may be consistent with such position.
Notwithstanding the foregoing, the Company and the Executive may mutually agree
to such changes in the Executive's position, reporting or location of
employment as are in the best interests of the Company without violating the
provisions of this paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by the Company in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals during such fiscal
year, to receive a bonus (the "Annual Bonus") with a target level not less than
the target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the
--------------------
Executive shall be entitled to participate in all long-term incentive plans,
practices, policies and programs applicable generally to peer executives of the
Company, at such levels as shall be determined in the sole discretion of the
Compensation Committee of the Board.
C-5-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean
C-5-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
C-5-4
<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-5-5
<PAGE>
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue the medical,
long-term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have
retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the
C-5-6
<PAGE>
Employment Period, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. The term "Other Benefits" as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not
C-5-7
<PAGE>
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement); provided,
--------
however, that the foregoing shall not apply in connection with any such contest
- -------
in which the finder of fact determines that the contest is frivolous or was
brought by the Executive in bad faith.
8. Excise Tax Provision. Notwithstanding anything elsewhere in this
--------------------
Agreement to the contrary, if any of the payments or benefits provided for in
this Agreement, together with any other payments or benefits which the Executive
has the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the Executive may elect
(i) to have the payments or benefits pursuant to this Agreement reduced so that
the present value of the total amount received by the Executive that would
constitute a "parachute payment" will be one dollar ($1.00) less than three (3)
times the Executive's base amount (as defined in Section 280G of the Code) and
so that no portion of the payments or benefits received by the Executive would
be subject to the excise tax imposed by Section 4999 of the Code or (ii) to have
no such reduction described in Section 8(i) hereof. The foregoing shall not
affect the right of the Company to satisfy all tax withholding requirements
(including excise tax withholding requirements) with respect to any payments or
benefits provided for in this Agreement in the event it shall determine that any
such payments or benefits would, regardless of the Executive's election
hereunder, be subject to the excise tax imposed by Section 4999 of the Code.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the Company or at any time thereafter, for any reason, in any fashion, form
or manner, either directly or indirectly, communicate, divulge, copy or permit
to be copied (without
C-5-8
<PAGE>
the prior written consent of the Company or as may otherwise be required by law
or legal process or in order to enforce his rights under this Agreement or as
necessary to defend himself against a claim asserted directly or indirectly by
the Company or any of its affiliated companies) any secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, in any manner whatsoever, that is
not otherwise publicly available, to, or for the benefit of, any person, firm,
corporation or other entity, other than the Company and those designated by it
or in the course of his employment with the Company and its affiliated
companies. As used herein, the term "all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses" shall include, without limitation, the
Company's plans, strategies, proposals to potential customers and/or partners,
costs, prices, proprietary systems for buying and selling, client and customer
lists, identity of prospects, proprietary computer programs, policy or procedure
manuals, proprietary training and recruiting procedures, proprietary accounting
procedures, and the status and contents of the Company's contracts with its
suppliers, clients, customers or prospects. The Executive further agrees to
maintain in confidence any confidential information of third parties received as
a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
C-5-9
<PAGE>
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
C-5-10
<PAGE>
If to the Executive:
-------------------
Michael S. Tuckman
2416 Summerlake Road
Charlotte, North Carolina 28226
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
C-5-11
<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
C-5-12
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
------------------------
Michael S. Tuckman
DUKE POWER COMPANY
By
-----------------------
C-5-13
<PAGE>
EXHIBIT C-6
TO AGREEMENT AND
PLAN OF MERGER
FORM OF EMPLOYMENT AGREEMENT FOR
--------------------------------
DAVID L. HAUSER OF DUKE
-----------------------
AGREEMENT by and between Duke Power Company, a North Carolina
corporation (the "Company"), and David L. Hauser (the "Executive"), dated as of
the 24th day of November, 1996.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive pending the
merger of PanEnergy Corp, a Delaware corporation, and Duke Transaction
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Merger"), pursuant to the Agreement and Plan of Merger dated as of
November 24, 1996 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the date on which
--------------
the Effective Time of the Merger (as defined in the Merger Agreement) occurs.
2. Employment Period. The Company hereby agrees to employ the
-----------------
Executive, and the Executive hereby agrees to accept employment with and remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary thereof, or such later date as may be mutually agreed upon by
the Company and the Executive. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, subject to Section 5 of this
Agreement. The period of time between the commencement and the termination of
the Executive's employment hereunder shall be referred to herein as the
"Employment Period."
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive shall serve as Vice President, Procurement,
Services and Materials, with such authority, duties and responsibilities as are
commensurate with such position and as may be consistent with such position.
Notwithstanding the foregoing, the Company and the Executive may mutually agree
to such changes in the Executive's position, reporting or location of
employment as are in the best interests of the Company without violating the
provisions of this paragraph.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"),
payable monthly, at least equal to the annual base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive
by the Company in respect of the twelve-month period immediately preceding the
Effective Date. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, for each
------------
fiscal year ending during the Employment Period the Executive shall be eligible,
based upon the Executive's achievement of performance goals during such fiscal
year, to receive a bonus (the "Annual Bonus") with a target level not less than
the target level applicable to the Executive for the 1996 fiscal year under the
Company's Executive Short Term Incentive Plan (with such percentage, multiplied
by the Executive's Annual Base Salary, to represent the Executive's "Target
Bonus Amount" hereunder). The establishment of the performance goals, the
evaluation of the actual performance against such goals, and the determination
of the Annual Bonus actually payable to the Executive shall be made by the
Compensation Committee of the Board acting in its sole discretion.
(iii) Long-Term Incentives. During the Employment Period, the
--------------------
Executive shall be entitled to participate in all long-term incentive plans,
practices, policies and programs applicable generally to peer executives of the
Company, at such levels as shall be determined in the sole discretion of the
Compensation Committee of the Board.
C-6-2
<PAGE>
(iv) Savings and Retirement Plans. During the Employment Period, the
----------------------------
Executive shall be entitled to participate in all savings and retirement plans,
practices, policies and programs on a basis no less favorable than that
generally applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company on a
basis no less favorable than that generally applicable to peer executives of the
Company.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company on a basis no less favorable than that generally
applicable to peer executives of the Company but in any event he shall be
entitled to no less than four weeks of vacation per year during the Employment
Period.
4. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Disability of the Executive occurs during
the Employment Period (pursuant to the definition of Disability set forth
below), the Company may give to the Executive written notice, in accordance
with Section 11(b) of this Agreement, of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 60th day after receipt of such notice
by the Executive (the "Disability Effective Date"); provided that, within the 60
days after such receipt, the Executive shall not have returned to substantially
full time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
performance of the Executive's duties with the Company on a full time basis for
an aggregate of 120 out of any 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean
C-6-3
<PAGE>
the engaging by the Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for these purposes (A) an isolated and
insubstantial action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive and
(B) any action to which the Executive has given his written consent;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; or
(iii) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. In the case of a Good Reason termination, such Notice of
Termination shall be given within 90 days of the occurrence of the event that is
claimed as serving the basis for the termination as a condition of such claim
being treated as a Good Reason termination hereunder. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
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<PAGE>
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for any reason (including Good Reason), the date of receipt of the
Notice of Termination or any later date specified therein that is within 30 days
of such notice, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other than for Cause, Death or Disability. If, during the Employment Period,
- -----------------------------------------
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; (2) the
product of (x) the Target Bonus Amount and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365;
and (3) any accrued vacation pay to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and
C-6-5
<PAGE>
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Target Bonus
Amount; and
(ii) for two years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue the medical, long-
term disability, dental, accidental death and dismemberment and life
insurance benefits to the Executive and/or the Executive's dependents at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies in effect under Section
3(b)(v) of this Agreement (the "Continuing Benefit Plans") as if the
Executive's employment had not been terminated (either by permitting the
Executive and/or the Executive's dependents to participate in the
Continuing Benefit Plans, or by providing the Executive and/or the
Executive's dependents with equivalent benefits outside the Continuing
Benefit Plans, as the Company may elect, so long as the net after-tax
benefit to them is the same as if the Executive had remained an employee of
the Company participating in the Continuing Benefit Plans); provided,
however, that if the Executive becomes employed by another employer and is
eligible to receive medical, long-term disability, dental, accidental death
and dismemberment or life insurance benefits under another employer-
provided plan, the medical, long-term disability, dental, accidental death
and dismemberment and life insurance benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to the Continuing Benefit Plans and any other welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to have retired
on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company as of the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without
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further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. The term "Other Benefits" as utilized in
this Section 5(b) shall include death benefits as in effect on the date of the
Executive's death.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Any rights that are vested and any benefits that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
7. Full Settlement. In no event shall the Executive be obligated to
---------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as provided in Section 5(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees
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to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement); provided, however, that the foregoing shall not apply in connection
-------- -------
with any such contest in which the finder of fact determines that the contest is
frivolous or was brought by the Executive in bad faith.
8. Excise Tax Limit. Notwithstanding anything elsewhere in this
----------------
Agreement to the contrary, if any of the payments provided for in this
Agreement, together with any other payments or benefits which the Executive has
the right to receive from the Company (or its affiliated companies), would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant
to this Agreement shall be reduced so that the present value of the total amount
received by the Executive that would constitute a "parachute payment" will be
one dollar ($1.00) less than three (3) times the Executive's base amount (as
defined in Section 280G of the Code) and so that no portion of the payments or
benefits received by the Executive shall be subject to the excise tax imposed by
Section 4999 of the Code. The determination as to whether any reduction in the
payments under this Agreement pursuant to this Section 8 is necessary shall be
made by such nationally recognized accounting firm as shall be mutually
agreeable to the Company and the Executive, in consultation with any independent
law firm of such firm's choice, and such determination shall be conclusive and
binding on the Executive and the Company. All fees and expenses of such
accounting firm to make such determination shall be paid by the Company. If
through error or otherwise the Executive should receive payments under this
Agreement or otherwise in excess of one dollar ($1.00) less than three (3) times
his base amount, the Executive shall immediately repay such excess to the
Company upon notification that an overpayment has been made.
9. (a) Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). The Executive shall not, at any time during his employment
with the
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Company or at any time thereafter, for any reason, in any fashion, form or
manner, either directly or indirectly, communicate, divulge, copy or permit to
be copied (without the prior written consent of the Company or as may otherwise
be required by law or legal process or in order to enforce his rights under this
Agreement or as necessary to defend himself against a claim asserted directly or
indirectly by the Company or any of its affiliated companies) any secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, in any manner
whatsoever, that is not otherwise publicly available, to, or for the benefit of,
any person, firm, corporation or other entity, other than the Company and those
designated by it or in the course of his employment with the Company and its
affiliated companies. As used herein, the term "all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses" shall include, without limitation,
the Company's plans, strategies, proposals to potential customers and/or
partners, costs, prices, proprietary systems for buying and selling, client and
customer lists, identity of prospects, proprietary computer programs, policy or
procedure manuals, proprietary training and recruiting procedures, proprietary
accounting procedures, and the status and contents of the Company's contracts
with its suppliers, clients, customers or prospects. The Executive further
agrees to maintain in confidence any confidential information of third parties
received as a result of his employment with the Company.
(b) Enforcement. In the event of a breach or threatened breach of
-----------
this Section 9, the Executive agrees that the Company shall be entitled, in
addition to any other remedies available to it to specific performance and
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(c) Survival. Any termination of the Executive's employment or of
--------
this Agreement shall have no effect on the continuing operation of this Section
9.
10. Successors. (a) This Agreement is personal to the Executive
----------
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
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<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of North Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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<PAGE>
If to the Executive:
-------------------
David L. Hauser
513 Maymont Drive
Cramerton, North Carolina 28032
If to the Company:
-----------------
422 South Church Street
Charlotte, North Carolina 28242
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Subject to Section 4(d) of this Agreement, the Executive's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This Agreement constitutes the entire agreement between the
parties and is intended to be an integration of all agreements between the
parties with respect to the Executive's employment by the Company, the terms and
conditions of such employment or the termination of such employment. Any and
all prior agreements, understandings or commitments between the Company and the
Executive with respect to any such matter are hereby superseded and revoked.
(g) The Company shall indemnify and hold the Executive and his legal
representatives harmless to the fullest extent permitted by applicable law, from
and against all judgments, fines, penalties, excise taxes, amounts paid in
settlement, losses, expenses, costs, liabilities and legal fees if the Executive
is made, or threatened to be made a party to any threatened or pending or
completed action, suit, proceeding, whether civil, criminal, administrative or
investigative, including an action by or
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<PAGE>
in the right of the Company or any of its affiliated companies to procure a
judgment in its favor, by reason of the fact that the Executive is or was
serving in any capacity at the request of the Company or any of affiliated
companies for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The right to indemnification provided in this
paragraph (g) shall not be deemed exclusive of any other rights to which
Executive may have or hereafter be entitled under any law or the charter or by-
laws of the Company or any of its affiliated companies or otherwise, both as to
action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue after Executive has ceased to be a
director or officer and shall inure to the benefit of Executive's heirs,
executors and administrators. Any reimbursement obligation arising hereunder
shall be satisfied on an as-incurred basis. In addition, the Company agrees to
continue to maintain customary and appropriate directors and liability insurance
during the Employment Period and the Executive shall be entitled to the
protection of any such insurance policies on no less favorable a basis than is
provided to any other officer or director of the Company or any of its
affiliated companies.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
----------------------
David L. Hauser
DUKE POWER COMPANY
By
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