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): October 31, 1998
DUKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 1-4928 56-0205520
(State of other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
422 South Church Street
Charlotte, North Carolina 28202-1904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 704-594-6200
Item 5. Other Events.
Duke Energy Corporation (the "registrant"), through its wholly owned
subsidiaries PanEnergy Corp ("PanEnergy") and Texas Eastern Corporation ("TEC"),
entered into a Stock Purchase Agreement between PanEnergy, TEC and CMS Energy
Corporation ("CMS Energy") dated October 31, 1998, pursuant to which the
registrant will sell Panhandle Eastern Pipe Line Company, Trunkline Gas Company
and the storage related to those systems, along with the Trunkline LNG Company
terminal, to CMS Energy for $2.2 billion, involving a cash payment of $1.9
billion and existing Panhandle debt of approximately $300 million. The sale will
result in an after tax gain of approximately $700 million, or $1.94 per share,
and is contingent upon completion of due diligence and receipt of clearances
under the Hart-Scott-Rodino Act. Closing is anticipated in January 1999.
A copy of the registrant's press release announcing the Stock Purchase
Agreement is filed herewith as Exhibit 2 and is incorporated by reference
herein. The Stock Purchase Agreement is filed herewith as Exhibit 10 and is
incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following exhibits are filed herewith:
2. Press Release of registrant dated November 2, 1998.
10. Stock Purchase Agreement between PanEnergy Corp, Texas Eastern
Corporation and CMS Energy Corporation, dated as of October 31,
1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DUKE ENERGY CORPORATION
(registrant)
By: ________________________
Richard J. Osborne
Executive Vice President
and Chief Financial Officer
Dated: November 5, 1998
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
2 Press Release of registrant dated November 2, 1998
10 Stock Purchase Agreement between PanEnergy Corp, Texas
Eastern Corporation and CMS Energy Corporation, dated as
of October 31, 1998
EXHIBIT 2
November 2, 1998
Contact: Media Relations
John P. Barnett
713/627-4072
DUKE ENERGY SELLS PANHANDLE EASTERN AND
TRUNKLINE PIPELINES TO CMS ENERGY
HOUSTON--Duke Energy announced today that it had signed a definitive agreement
to sell Panhandle Eastern Pipe Line Company, Trunkline Gas Company and the
storage related to those systems and the Trunkline LNG Company terminal to CMS
Energy for $2.2 billion, involving a cash payment of $1.9 billion and existing
Panhandle debt of approximately $300 million. The sale will result in an
after-tax gain of approximately $700 million, or $1.94 per share.
"This is a great example of how being true to your strategy can yield new
opportunities to create or extract value," said Richard B. Priory, chairman and
chief executive officer. "When CMS Energy approached us about selling the
pipelines, we concluded we could accomplish our objectives in the Midwest
without owning the Panhandle Eastern and Trunkline pipelines. And, we could
reinvest the proceeds of the sale in high growth activities in our focused
regions."
Duke Energy is aggressively developing regional centers of energy assets in the
Northeast, Gulf Coast and Western U.S. and internationally. It is constructing
the Maritimes & Northeast Pipeline, an 800-mile pipeline project that will bring
newly developed natural gas reserves from the Sable Island Area, offshore Nova
Scotia, to markets in the northeastern United States and the Maritime Provinces
of Canada. In July, Duke Energy's Bridgeport Energy Facility, one of the first
merchant power plants in the Northeast, began operating. The company has also
announced merchant power plants in Maine and Florida. Earlier this year, the
company completed its purchase of three electric power plants in California. The
2,645-megawatt combined capacity of the Morro Bay, Moss Landing and Oakland
plants creates a major presence for Duke Energy in the West.
"CMS Energy has been a customer of the Midwest pipelines for many years. In
fact, many of the changes that have been made to these pipelines over the years
have been driven by CMS Energy's needs. They are a company we know and
respect," said Fred J. Fowler, group president, Energy Transmission.
(more)
<PAGE>
-2-
The sale of CMS Energy is contingent upon completion of due diligence and
receipt of clearances under the Hart-Scott-Rodino Act. The companies anticipate
closing in January 1999.
Duke Energy (NYSE:DUK) is a global energy company with more than $24 billion in
assets. Duke Energy companies provide electric service to approximately 2
million customers; operate pipelines that deliver 12 percent of the natural gas
consumed in the United States; and are leading marketers of electricity, natural
gas and natural gas liquids. Globally the companies develop, own and operate
energy facilities and provide engineering, management, operating and
environmental services. Contact Duke Energy on the World Wide Web at
http://www.duke-energy.com.
###
================================================================================
STOCK PURCHASE AGREEMENT
BETWEEN
PANENERGY CORP,
TEXAS EASTERN CORPORATION
AND
CMS ENERGY CORPORATION
Dated as of October 31, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I DEFINITIONS AND TERMS
1.1 Specific Definitions...............................1 11
1.2 Terms Defined Elsewhere in the Agreement...............
1.3 Other Definitional Provisions.........................9
1.4 References to Time...................................10
ARTICLE II PURCHASE AND SALE; REORGANIZATION OF SOLD SUBSIDIARIES
2.1 Purchase and Sale of the Shares......................11
2.2 Purchase Price.......................................11
2.3 Reorganization of Sold Subsidiaries..................11
2.4 Closing..............................................12
2.5 Deliveries by Acquiror...............................12
2.6 Deliveries by Sellers................................13
2.7 Adjustment to Purchase Price.........................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Organization and Qualification.......................16
3.2 Capitalization; the PEPL Companies...................16
3.3 Corporate Authorization..............................17
3.4 Consents and Approvals...............................17
3.5 Non-Contravention....................................18
3.6 Binding Effect.......................................18
3.7 SEC Reports..........................................19
3.8 Statement of Assets and Liabilities;
Books and Records; LNG Liabilities...................19
3.9 Litigation...........................................20
3.10 Taxes................................................20
3.11 Employee Benefits....................................21
3.12 Compliance with Laws.................................23
3.13 Intellectual Property................................23
3.14 Contracts............................................24
3.15 Brokers..............................................24
3.16 Title to Properties..................................24
3.17 Environmental Matters................................25
3.18 Labor Relations......................................26
3.19 Year 2000 Compliance.................................27
3.20 Absence of Certain Changes...........................27
3.21 No Other Representations or Warranties...............27
3.22 Disclosure Schedule..................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR
</TABLE>
i
<PAGE>
<TABLE>
Section Page
- ------- ----
<S> <C> <C>
4.1 Organization and Qualification.......................28
4.2 Corporate Authorization..............................28
4.3 Consents and Approvals...............................28
4.4 Non-Contravention....................................29
4.5 Binding Effect.......................................30
4.6 Brokers..............................................30
4.7 Financing............................................30
4.8 No Other Representations or Warranties...............30
ARTICLE V COVENANTS
5.1 Conduct of the Business..............................30
5.2 Access; Confidentiality..............................33
5.3 Reasonable Best Efforts..............................34
5.4 Antitrust Notification...............................36
5.5 Supplemental Disclosure..............................36
5.6 Further Assurances...................................37
5.7 Announcements........................................37
5.8 No Solicitation......................................37
5.9 Employee Matters.....................................38
5.10 Preservation of Records..............................43
5.11 Other Agreements.....................................44
5.12 Related Party Payments...............................44
5.13 Insurance............................................44
5.14 Environmental Remediation............................46
5.15 Financing............................................48
5.16 LNG Port Facility Bonds..............................49
5.17 Superfund Claims.....................................49
ARTICLE VI CONDITIONS TO CLOSING
6.1 Conditions to the Obligations of
Acquiror and Sellers.................................50
6.2 Conditions to the Obligations of Acquiror............50
6.3 Conditions to the Obligations of Sellers.............51
ARTICLE VII SURVIVAL; GENERAL INDEMNIFICATION
7.1 Survival.............................................52
7.2 Indemnification by Acquiror..........................52
7.3 Indemnification by Sellers...........................53
7.4 Procedure for Indemnification........................56
7.5 Characterization of Indemnification Payments.........58
7.6 Computation of Losses; Disputes......................58
ARTICLE VIII TAX MATTERS; TAX INDEMNIFICATION
8.1 Tax Matters..........................................59
8.2 Tax Returns..........................................61
8.3 Tax Contests.........................................63
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
8.4 Refunds and Credits..................................64
8.5 Assistance and Cooperation...........................64
8.6 Election Under Section 338(h)(10)....................64
8.7 Dispute Procedures...................................65
8.8 Survival.............................................65
ARTICLE IX TERMINATION
9.1 Termination..........................................66
9.2 Effect of Termination................................67
9.3 Termination Fee......................................67
ARTICLE X GENERAL PROVISIONS
10.1 Extension; Waiver....................................68
10.2 Amendment............................................68
10.3 Expenses.............................................68
10.4 Governing Law........................................68
10.5 Notices..............................................68
10.6 Entire Agreement.....................................70
10.7 Disclosure Schedule..................................70
10.8 Headings; References.................................70
10.9 Counterparts.........................................70
10.10 Parties in Interest; Assignment; No Third Party
Beneficiaries........................................70
10.11 Severability; Enforcement............................70
10.12 Consent to Jurisdiction; Exclusive Forum.............71
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A -- Form of Plan of Liquidation
Exhibit B -- Form of Opinion of Counsel to Acquiror
Exhibit C-1 -- Form of Opinion of Weil, Gotshal & Manges LLP
Exhibit C-2 -- Form of Opinion of Richard J. Kruse
Exhibit D-1 -- Agreement for Transition Services to be Provided by Sellers
Exhibit D-2 -- Agreement for Transition Services to be Provided by Sold
Subsidiaries
Exhibit E -- LNG Terminal & Transportation Agreement
Exhibit F -- Intellectual Property Agreement
Exhibit G -- Access and Support Agreement
Exhibit H -- Operation and Maintenance Agreement
iv
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 31, 1998, between
PANENERGY CORP, a Delaware corporation ("PEC"), TEXAS EASTERN CORPORATION, a
Delaware corporation ("Eastern"; and together with PEC, the "Sellers") and CMS
ENERGY CORPORATION, a Michigan corporation ("Acquiror").
W I T N E S S E T H :
WHEREAS, PEC owns direct and indirect subsidiaries which are engaged
in the business of pipeline transportation and storage of natural gas;
WHEREAS, PEC is the owner of (i) 1,000 shares of Common Stock,
without par value (the "PEPL Shares"), of Panhandle Eastern Pipe Line Company, a
Delaware corporation ("PEPL") and (ii) 1,000 shares of Common Stock, par value
$1.00 per share (the "PSC Shares"), of Panhandle Storage Company, a Delaware
corporation ("PSC");
WHEREAS, Eastern is the owner of 250 shares of Common Stock, without
par value (the "LNG Shares"; and together with the PEPL Shares and the PSC
Shares, the "Shares") of Trunkline LNG Company, a Delaware corporation ("LNG",
and collectively with PEPL and PSC, the "Sold Subsidiaries"); and
WHEREAS, Sellers desire to sell, transfer and deliver to Acquiror,
and Acquiror desires to purchase from Sellers, all of the Shares, on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 Specific Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Acquiror" shall have the meaning set forth in the preamble to this
Agreement.
<PAGE>
"Affiliate" shall mean, with respect to any specified Person, any
other Person directly or indirectly controlling, controlled by or under common
control with such specified Person, provided, that Duke Energy Trading and
Marketing, LLC and Texas Eastern Products Pipeline Company shall not be deemed
to be Affiliates of Parent or Sellers for any purpose under this Agreement.
"Agreed Rate" shall mean the publicly announced base rate of
Citibank, N.A. at the Closing Date.
"Agreement" shall mean this Stock Purchase Agreement, together with
all exhibits and schedules hereto, as the same may be amended or supplemented
from time to time in accordance with the terms hereof.
"Applicable Laws" shall mean, with respect to any Person, all
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Authority applicable to such Person and its business, properties and assets.
"Base Working Capital Amount" shall mean $56,139,918.87.
"Business" shall mean the business currently conducted by the PEPL
Companies, after giving effect to the transactions contemplated by Section 2.3
of this Agreement.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which banks located in New York City are authorized or required by
law to close.
"Cash Equivalents" shall mean cash on hand, all other cash in any
bank checking, savings or similar accounts at any financial institution, and
checks, drafts and similar instruments and any publicly traded stocks, bonds or
similar marketable securities, certificates of deposit, commercial paper,
Eurodollar deposits and any other cash equivalents held in the name of or for
the account of any of the PEPL Companies.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ? 9601 et seq.).
"Closing" shall mean the closing of the transactions contemplated by
this Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985.
2
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"DOJ" shall mean the United States Department of Justice.
"Employee Arrangements" shall mean all employment and consulting
agreements, and all bonus and other incentive compensation, deferred
compensation, disability, severance, stock award, stock option, stock purchase,
collective bargaining or workers' compensation agreements, plans, programs,
policies and arrangements with respect to the employment or termination of
employment of any employee, officer, director or other Person who is or was
employed by any of the PEPL Companies or primarily employed on matters relating
to the Business.
"Employee Benefit Plans" shall mean all "employee benefit plans," as
defined in Section 3(3) of ERISA, which either Seller, one of the PEPL Companies
or any ERISA Affiliate sponsor, maintain or contribute to or are required to
contribute to and in which any employee or former employee employed by the PEPL
Companies or primarily employed on matters relating to the Business participates
or is entitled to any benefit thereunder.
"Encumbrances" shall mean any and all mortgages, security interests,
liens, claims, pledges, restrictions, leases, charges or other encumbrances.
"Environmental Claim" shall mean any notice of violation, action,
claim, lien, demand, abatement or other order or directive (conditional or
otherwise) by any Person or Governmental Authority for personal injury
(including sickness, disease or death), tangible or intangible property damage,
damage to the environment (including natural resources), nuisance, pollution,
contamination, trespass or other adverse effects on the environment, or for
fines, penalties or restrictions resulting from or based upon (i) the existence,
or the continuation of the existence, of a Release (including, without
limitation, sudden or non-sudden accidental or non-accidental Releases) of, or
exposure to, any Hazardous Material, odor or audible noise; (ii) the
transportation, storage, treatment or disposal of Hazardous Materials; or (iii)
the violation, or alleged violation, of any Environmental Laws or Permits issued
thereunder.
"Environmental Costs and Liabilities" shall mean any and all claims
(including Environmental Claims),
3
<PAGE>
actions, suits, proceedings, liabilities (whether absolute or contingent),
obligations, losses (including liquidated damages or losses arising out of
lender liability claims), damages (including any penalty or punitive damages),
judgment, equitable relief granted, amounts paid in settlement, awards, demands,
offsets, counterclaims, clean-up obligations, interest, costs and expenses
(including the reasonable fees of attorneys, consultants, engineers and other
experts), and court costs (and other out-of-pocket expenses incurred in
investigating, preparing, or defending the foregoing or with respect to any
appeal) arising under or pursuant to any Environmental Law.
"Environmental Law" shall mean current local, county, state,
federal, and/or foreign law (including common law), statute, code, ordinance,
rule, regulation or other legal obligation relating to the protection of the
environment or natural resources, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ?
9601 et seq.), as amended, the Resource Conservation and Recovery Act (42 U.S.C.
? 6901 et seq.), as amended ("RCRA"), the Federal Water Pollution Control Act
(33 U.S.C. ? 1251 et seq.), as amended, the Clean Air Act (42 U.S.C. ? 7401 et
seq.), as amended, the Toxic Substances Control Act (15 U.S.C. ? 2601 et seq.),
as amended, the Occupational Safety and Health Act (29 U.S.C. ? 651 et seq.), as
amended, the Hazardous Materials Transportation Act (49 U.S.C. ? 1801 et seq.),
as amended, the Oil Pollution Act (33 U.S.C. ? 2701 et seq.), the Safe Drinking
Water Act (42 U.S.C. ? 300(f) et seq.), as amended, and any similar,
implementing or successor law, and any amendment, rule, regulation, or directive
issued thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with Parent or any PEPL Company would be deemed a
"single employer" within the meaning of Section 4001(b) of ERISA.
"Evaluation Material" shall mean all data, reports, interpretations,
forecasts and records (whether in oral or written form, electronically stored or
otherwise) containing or otherwise reflecting information concerning the PEPL
Companies, Sellers or the Business, that one party or its Affiliates provides to
the other party or its Representatives and all notes, analyses, compilations,
studies or other documents in tangible form (whether in written form,
electronically stored or otherwise) that
4
<PAGE>
contain or otherwise reflect such information; but not including:
(a) information that was already in the possession of the Recipient
or its Representatives prior to the date hereof and that was not acquired
or obtained from the other party;
(b) information that is obtained by the Recipient or its
Representatives from a source other than the supplying party or its
Representatives who, insofar as is known to the Recipient after reasonable
inquiry, is not prohibited by a contractual, legal or fiduciary obligation
to the supplying party from transmitting the information to the Recipient
or its Representatives; or
(c) information that is or becomes generally available to the public
other than as a result of a disclosure by the Recipient or its
Representatives in violation of the provisions of this Agreement.
"FERC" shall mean the United States Federal Energy Regulatory
Commission, or its predecessor agency, the United States Federal Power
Commission.
"FTC" shall mean the United States Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any foreign, federal, state or
local government, court, agency or commission or other governmental or
regulatory body or authority.
"Hazardous Material" shall mean any substance, material or waste
which is regulated by any Governmental Authority as hazardous, toxic, a
pollutant, contaminant or words of similar meaning including, without
limitation, petroleum, petroleum products, asbestos, urea formaldehyde and
polychlorinated biphenyls.
"Indemnified Party" shall mean any Person which is seeking
indemnification from an Indemnifying Party pursuant to the provisions of this
Agreement.
"Indemnifying Party" shall mean any party hereto from which any
Indemnified Party is seeking indemnification pursuant to the provisions of this
Agreement.
5
<PAGE>
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" of Sellers or any similar phrase shall mean the actual
knowledge, after reasonable inquiry, of those management employees of Sellers
and the PEPL Companies with responsibility for the Business identified in
Section 1.1(a) of the Disclosure Schedule.
"Legal Proceedings" shall mean any judicial, administrative or
arbitral actions, suits, proceedings (public or private), investigations or
governmental proceedings before any Governmental Authority.
"Material Adverse Effect" shall mean any change or effect that is
materially adverse to the business, financial condition or assets of the
Business, taken as a whole, as the same shall have existed as of September 30,
1998; provided, however, that Material Adverse Effect shall exclude any change
or effect due to (i) changes in the international, national, regional or local
wholesale or retail markets for natural gas, (ii) changes in the North American,
national, regional or local interstate natural gas pipeline systems, (iii)
rules, regulations or decisions of the FERC affecting the interstate natural gas
transmission industry as a whole, or rate orders affecting (inter alia) one or
more of the PEPL Companies, (iv) any continuation of an adverse trend disclosed
to or otherwise known to Acquiror on or prior to the date hereof, (v) any
condition described in the Disclosure Schedule and (vi) the public announcement
of the transactions contemplated by this Agreement, or the consummation of the
transactions contemplated hereby.
"Parent" shall mean Duke Energy Corporation, a North Carolina
corporation.
"PEC Pension Plan" shall mean the Retirement Income Plan of
PanEnergy Corp and Participating Affiliates (as amended and restated effective
January 1, 1995).
"PEC Savings Plan" shall mean the Employees' Savings Plan of
PanEnergy Corp and Participating Affiliates.
"PEPL" shall have the meaning set forth in the recitals to this
Agreement.
"PEPL Cleanup Program" shall mean only those components (assessment,
air system decontamination, and remediation), of the program generally described
in Section 1.1(b) of the Disclosure Schedule, yet to be completed at the 18
sites identified in Schedule 3.17(a). The
6
<PAGE>
remediation component of the PEPL Cleanup Program will include the uncompleted
remedial actions for PCB and TPH (or its constituents of concern) in soils,
sediment and groundwater as specifically identified in the associated
assessments undertaken as part of such Program to the least stringent cleanup
levels applicable to the real property as it is currently used.
"PEPL Companies" shall mean PSC, LNG, PEPL, TGC, Pan Gas Storage
Company and Trunkline Gas Resources, Inc.
"Person" or "person" shall mean and includes any individual,
partnership, joint venture, corporation, Governmental Authority, business trust,
association, joint stock company, trust, unincorporated organization, limited
liability company or similar entity.
"Representatives" shall mean the Affiliates of a party to this
Agreement and the respective directors, officers, employees, representatives or
agents of such party.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Sellers" shall have the meaning set forth in the preamble to this
Agreement.
"Shares" shall have the meaning set forth in the recitals to this
Agreement.
"Sold Subsidiaries" shall have the meaning set forth in the recitals
to this Agreement.
"Statement of Assets and Liabilities" shall mean the pro forma
balance sheet of the PEPL Companies, after giving effect to the transactions
contemplated by Section 2.3 of this Agreement, at September 30, 1998 as set
forth in Section 1.1(c) of the Disclosure Schedule.
"Straddle Period" shall mean any taxable year or period beginning
before and ending after the Closing Date.
"Subsidiary" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture or other legal entity of which such
Person owns, either directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or similar governing body of such
corporation, partnership,
7
<PAGE>
joint venture or other legal entity and (ii) each partnership in which such
Person or another Subsidiary of such Person is the general partner or otherwise
controls such partnership.
"Tax" shall mean any domestic or foreign, federal, state or local
net income, gross income, receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer, stamp or
environmental tax, or any other tax, custom, duty, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest or
penalty thereon, addition to tax or additional amount imposed by any
Governmental Authority.
"Tax Returns" shall mean any return, report or statement required to
be filed with respect to any Tax (including any attachments thereto), including
any information return, claim for refund, amended return or declaration of
estimated Tax.
"TGC" shall mean Trunkline Gas Company, a Delaware corporation.
"TGC Cleanup Program" shall mean only those components (assessment,
air system decontamination, and remediation), of the program generally described
in Section 1.1(d) of the Disclosure Schedule, yet to be completed at the 6 sites
as identified in Schedule 3.17(a). The remediation component of the TGC Cleanup
Program shall only include the uncompleted remedial actions for PCBs and TPH (or
its constituents of concern) in soils, sediment and groundwater as specifically
identified in the associated assessments undertaken as part of such Program to
the least stringent cleanup levels applicable to the real property as it is
currently used.
"WARN" shall mean the Worker Adjustment and Retraining Notification
Act.
"Wattenberg System" shall mean that pipeline system formerly owned
by PEPL, and located in Adams, Arapahoe, Boulder, Larimer, and Weld Counties,
Colorado, consisting of approximately 1,275 miles of pipe, 11 compressor station
sites totaling approximately 45,000 horsepower of compression, and related
facilities and buildings, which was the subject of an abandonment proceeding in
Docket No. CP92-190-000 at the FERC. The Wattenberg System was sold to KN
Wattenberg Transmission
8
<PAGE>
Limited Liability Company and KN Front Range Gathering Company by PEPL on April
1, 1993.
"Working Capital" shall mean current assets, less current
liabilities.
1.2 Terms Defined Elsewhere in the Agreement. For purposes of this
Agreement, the following terms shall have the meanings set forth in the sections
indicated:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquiror Indemnified Parties......................................7.3(a)
Acquiror's 401(k) Plan............................................5.9(g)
Acquiror's Actuary................................................5.9(f)
Acquiror's Plan...................................................5.9(f)
Acquisition Transaction..............................................5.8
Allocation Schedule...............................................8.6(b)
Asserted Liability................................................7.4(a)
Casualty Insurance Claims........................................5.13(a)
Claim Notice......................................................7.4(a)
Closing Date.........................................................2.4
Closing Statement.................................................2.7(a)
Commitment Letters..................................................5.15
CPA Firm..........................................................2.7(b)
Deductible........................................................7.2(b)
Disclosure Schedule.................................................3.22
Effective Pension Time............................................5.9(f)
Election..........................................................8.6(a)
Environmental Permits............................................3.17(b)
Excluded Assets...................................................2.3(b)
Excluded Employees................................................5.9(a)
Excluded Subsidiaries.............................................2.3(a)
Excluded Taxes....................................................8.1(a)
Final Amount......................................................2.7(c)
414(l) Amount.....................................................5.9(f)
HSR Act..............................................................3.4
Initial Transfer Amount...........................................5.9(f)
Insurance Policies...............................................5.13(a)
Lake Charles Bonds..................................................5.16
LNG Facilities......................................................5.16
LNG FERC Settlement...........................................7.3(a)(ix)
Losses............................................................7.2(a)
Material Contract...................................................3.14
Notice Period.....................................................7.4(a)
Notified Party....................................................8.3(a)
Objection.........................................................2.7(b)
Optionee..........................................................5.9(h)
Other Antitrust Regulations..........................................3.4
Parent Severance Plan............................................3.11(a)
PEC Review Period.................................................2.7(b)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
PEPL Employees....................................................5.9(a)
PEPL Employee Arrangements.......................................3.11(a)
PEPL Employee Benefit Plans......................................3.11(a)
PEPL Representatives.................................................5.8
PEPL SEC Reports.....................................................3.7
Plans of Liquidation..............................................2.3(a)
Purchase Price.......................................................2.2
Qualifying Use......................................................5.16
Recipient.........................................................5.2(b)
Reorganization.......................................................2.3
SEC..................................................................3.7
Seller Indemnified Parties...........................................7.2
Sellers' Actuary..................................................5.9(f)
Sellers' Investigation...........................................5.14(a)
Superfund Claims....................................................5.17
Tax Claim.........................................................8.3(a)
Tax Package.......................................................8.2(e)
Transfer Taxes....................................................8.1(d)
Transferred Benefits..............................................5.9(f)
Transferred Employees.............................................5.9(a)
True-Up Amount....................................................5.9(f)
True-Up Date......................................................5.9(f)
Work.............................................................5.14(a)
</TABLE>
1.3 Other Definitional Provisions. (a) The words "hereof",
"herein", and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
(d) As used in this Agreement, accounting terms which are
specifically defined under GAAP and are not otherwise defined herein shall have
the respective meanings given to them under GAAP.
(e) A Legal Proceeding shall not be "pending" unless and until
Sellers shall have received actual written notice thereof.
(f) References herein to the receipt of "notice" shall mean written
notice.
10
<PAGE>
1.4 References to Time. All references in this Agreement to times of
the day shall be to Houston, Texas time.
ARTICLE II
PURCHASE AND SALE; REORGANIZATION
OF SOLD SUBSIDIARIES
2.1 Purchase and Sale of the Shares. On the terms and subject to the
conditions set forth herein, at the Closing, each Seller agrees to sell,
transfer and deliver to Acquiror, and Acquiror agrees to purchase from each
respective Seller, the Shares.
2.2 Purchase Price. The purchase price for the Shares shall be
$1,900,000,000 (the "Purchase Price"), as adjusted pursuant to Section 2.7.
2.3 Reorganization of Sold Subsidiaries. At or prior to the
Closing, Sellers shall take or shall cause the PEPL Companies to take the
following actions (collectively, and together with all other actions to be taken
pursuant to Section 5.9 of this Agreement prior to the Closing, the
"Reorganization"):
(a) transfer to PEC (in transactions that will include liquidating
distributions pursuant to plans of liquidation, substantially in the form set
forth in Exhibit A to this Agreement, "Plans of Liquidation"), all of the shares
of capital stock of the Subsidiaries of PEPL set forth in Section 2.3(a) of the
Disclosure Schedule (the "Excluded Subsidiaries");
(b) transfer to any of the Sellers or any Affiliate of Sellers that
is not a PEPL Company (in transactions that will include liquidating
distributions pursuant to Plans of Liquidation all of the assets set forth in
Section 2.3(b) of the Disclosure Schedule (the "Excluded Assets");
(c) cause all intercompany payables, receivables and loans between
any PEPL Company, on the one hand, and Parent and its Subsidiaries (other than
the PEPL Companies), on the other hand, to be settled or canceled, other than as
set forth in Section 2.3(c) of the Disclosure Schedule;
(d) transfer to (i) any Subsidiary of Parent that is not a Sold
Subsidiary, all employees who are not primarily employed on matters relating to
the Business and
11
<PAGE>
(ii) any PEPL Company, all employees agreed by the parties pursuant to Section
5.9(a); and
(e) cause Trunkline A.P. Pipeline Company to assign to a newly
incorporated Subsidiary of PEPL (which shall conduct no business prior to the
Closing except as contemplated by this Section 2.3(e)), which shall assume all
obligations and rights of Trunkline A.P. Pipeline Company under the contracts
set forth in Section 2.3(e) of the Disclosure Schedule.
2.4 Closing. Subject to the satisfaction or waiver of all conditions
to the Closing set forth in Article VI, the Closing shall take place at the
offices of Weil, Gotshal & Manges LLP, 700 Louisiana, Suite 1600, Houston, Texas
77002 (or, if Acquiror shall request, at the offices of Weil, Gotshal & Manges
LLP, 767 Fifth Avenue, New York, New York 10153) at 10:00 A.M., local time, on
January 4, 1999 or, on such other date, time or place as the parties hereto may
agree. If the Closing shall take place on January 4, 1999, the effective date
and time therefor shall be 12:00 A.M. on January 1, 1999, otherwise, the
effective date and time shall be 12:00 A.M. on the date on which the Closing
shall take place (such effective date is referred to herein as the "Closing
Date").
2.5 Deliveries by Acquiror. At the Closing, Acquiror shall deliver
to Seller the following:
(a) The Purchase Price, in immediately available funds by wire
transfer to each Seller's account set forth in Section 2.5(a) of the Disclosure
Schedule or such other account designated in writing by such Seller not less
than two Business Days prior to the Closing;
(b) the certificates and other documents to be delivered pursuant to
Section 6.3;
(c) a cross-receipt duly executed by the Acquiror acknowledging
receipt of the Shares;
(d) copies of the resolutions adopted by the directors of the
Acquiror, certified by the Secretary of the Acquiror as having been duly and
validly adopted and as being in full force and effect, authorizing the execution
and delivery by the Acquiror of this Agreement, and the performance by the
Acquiror of its obligations hereunder;
(e) the opinion of Acquiror's legal counsel, substantially in the
form of Exhibit B hereto;
12
<PAGE>
(f) duly executed copies of each of the agreements described in
Section 5.11 of this Agreement; and
(g) all other documents and instruments reasonably required to be
delivered by Acquiror pursuant to this Agreement.
2.6 Deliveries by Sellers. At the Closing, the Sellers shall
deliver to Acquiror the following:
(a) a certificate or certificates representing the Shares, duly and
validly endorsed to or registered in the name of Acquiror or accompanied by
separate stock powers duly and validly executed by the appropriate Seller and
otherwise sufficient to vest in the Acquiror good and marketable title to such
Shares;
(b) the certificates and other documents to be delivered pursuant to
Section 6.2;
(c) a cross-receipt duly executed by the Sellers acknowledging
receipt of the Purchase Price;
(d) copies of the Articles of Incorporation and By-laws of each of
the PEPL Companies, certified by the Secretary of such entity as being true and
complete;
(e) copies of the resolutions adopted by the directors of the
Sellers, each certified by the Secretary of such Seller as having been duly and
validly adopted and as being in full force and effect, authorizing the execution
and delivery by such Seller of this Agreement, and the performance by such
Seller of its obligations hereunder;
(f) the stock books, stock ledgers, minute books and, if any,
corporate seals of the PEPL Companies, and all other books and records of the
PEPL Companies, all to the extent within the possession of the Sellers or any
Subsidiary thereof;
(g) certificates evidencing the good standing of each PEPL Company
under the laws of their respective jurisdictions of incorporation;
(h) letters from each director of the PEPL Companies evidencing such
director's resignation;
(i) the opinion of Sellers' legal counsels, substantially in the
forms of Exhibits C-1 and C-2 hereto;
13
<PAGE>
(j) duly executed copies of each of the agreements described in
Section 5.11 of this Agreement; and
(k) such other agreements or documents as are reasonably required to
be delivered by the Sellers at or prior to the Closing Date pursuant to this
Agreement.
2.7 Adjustment to Purchase Price. (a) Within 60 days following the
Closing Date, PEC shall, at its expense, prepare, or cause to be prepared, and
shall deliver to Acquiror a statement (the "Closing Statement"), which shall set
forth in reasonable detail the amount of Working Capital of the PEPL Companies,
after giving effect to the transactions contemplated by Section 2.3 of this
Agreement, as of the Closing Date. The Closing Statement shall be prepared on a
basis consistent with the Statement of Assets and Liabilities, using the same
accounting methods, policies, practices, procedures and adjustments as were used
in the preparation of the Statement of Assets and Liabilities. The Closing
Statement shall be prepared based on the books and records of the PEPL Companies
as of the Closing Date, and Acquiror shall grant PEC and its representatives
complete access to all books and records of the PEPL Companies to enable PEC to
prepare the Closing Statement. Acquiror shall permit PEC to use employees of the
PEPL Companies to assist in the preparation of the Closing Statement, and
Acquiror agrees to cooperate, and shall not interfere, directly or indirectly,
in the preparation of the Closing Statement.
(b) Acquiror shall have 30 days to review the Closing Statement and
to inform PEC in writing of any disagreement (the "Objection") which it may have
with the Closing Statement. If PEC does not receive Acquiror's Objection within
such 30-day period, the amount of Working Capital set forth in the Closing
Statement delivered pursuant to Section 2.7(a) shall be deemed to have been
accepted by Acquiror and shall become binding upon Acquiror. If Acquiror does
timely deliver Acquiror's Objection to PEC, PEC shall then have 30 days from the
date of receipt (the "PEC Review Period") to review and respond to Acquiror's
Objection. PEC and Acquiror agree to attempt in good faith to resolve any
disagreements with respect to the determination of Working Capital as of the
Closing Date. If PEC and Acquiror are unable to resolve all of their
disagreements with respect to the determination of Working Capital as of the
Closing Date within 10 days following the expiration of the PEC Review Period,
they may refer, at the option of either party, their differences to Ernst &
Young LLP, or if Ernst & Young LLP, shall decline to accept such engagement, an
internationally recognized firm of
14
<PAGE>
independent public accountants selected jointly by PEC and Acquiror, who shall
determine only with respect to the differences so submitted, whether and to what
extent, if any, the amount of Working Capital set forth in the Closing Statement
requires adjustment. If PEC and Acquiror are unable to so select the independent
public accountants within five days of Ernst & Young LLP declining to accept
such engagement, either Acquiror or PEC may thereafter request that the American
Arbitration Association make such selection (as applicable, Ernst & Young LLP
the firm selected by PEC and Acquiror or the firm selected by the American
Arbitration Association is referred to as the "CPA Firm"). PEC and Acquiror
shall direct the CPA Firm (i) that it shall not assign a value to any particular
item greater than the greatest value for such item claimed by PEC or Acquiror or
less than the smallest value for such item claimed by PEC or Acquiror, in each
case as presented to the CPA Firm, and (ii) to use its best efforts to render
its determination within 30 days. The CPA Firm's determination shall be
conclusive and binding upon PEC and Acquiror. The fees and disbursements of the
CPA Firm shall be shared equally by PEC and Acquiror. PEC and Acquiror shall
make readily available to the CPA Firm all relevant books and records relating
to the Closing Statement and all other items reasonably requested by the CPA
Firm. Neither Sellers nor Acquiror has retained the Ernst & Young LLP audit
services group during the past two years, and will not retain Ernst and Young
LLP audit services group prior to the completion of the determination of the
Final Amount pursuant to this Section 2.7.
(c) If the Working Capital of the PEPL Companies, after giving
effect to the transactions contemplated by Section 2.3 of this Agreement, as of
the Closing Date determined in accordance with the procedures set forth in this
Section 2.7 (the "Final Amount") is less than the Base Working Capital Amount,
PEC shall, within 10 days following the determination of the Final Amount, pay
to Acquiror an amount in cash equal to such difference, and if the Final Amount
is greater than the Base Working Capital Amount, Acquiror shall, within such 10
days, pay to PEC an amount in cash equal to such difference.
(d) The amount payable by PEC to Acquiror or from Acquiror to PEC,
as the case may be, under this Section 2.7 shall be accompanied by the payment
of interest thereon at the Agreed Rate, computed from the Closing Date to the
date of payment of such amount, and shall be wire transferred to an account
designated by Acquiror or PEC, as the case may be.
15
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, subject to Sections 3.21 and 3.22, hereby jointly and
severally represent and warrant to Acquiror as follows:
3.1 Organization and Qualification. Each Seller and each PEPL
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own and operate its assets and properties and
to carry on its business as currently conducted. Each PEPL Company is duly
qualified to do business and is in good standing in each jurisdiction where the
ownership or operation of its assets and properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or in good standing, as the case may be, would not have a Material
Adverse Effect. Section 3.1 of the Disclosure Schedule sets forth the name,
jurisdiction of incorporation and capitalization of each PEPL Company and the
jurisdictions in which such PEPL Company is qualified to do business.
3.2 Capitalization; the PEPL Companies. (a) The authorized capital
stock of (i) PEPL consists of 1,000 shares of Common Stock, without par value,
(ii) PSC consists of 1,000 shares of Common Stock, par value $1.00 per share and
(iii) LNG consists of 2,000 shares of Common Stock, without par value. The
Shares constitute the only shares of capital stock of the Sold Subsidiaries
issued and outstanding. The Shares are duly authorized, validly issued, fully
paid and nonassessable and are owned, of record and beneficially, by the Seller
indicated on Section 3.2(a) of the Disclosure Schedule, free and clear of all
Encumbrances. Upon transfer of the Shares to Acquiror in accordance with the
terms of Article II hereof, Acquiror will receive valid title to the Shares,
free and clear of all Encumbrances.
(b) As of the Closing Date, the Sold Subsidiaries will not have any
Subsidiary other than the PEPL Companies. All the outstanding shares of capital
stock of each Subsidiary of the Sold Subsidiaries which is a PEPL Company are
owned directly or indirectly by the Sold Subsidiaries, free and clear of all
Encumbrances and all material claims or charges of any kind, and are validly
issued, fully paid and nonassessable. Sellers have heretofore delivered to
Acquiror complete and correct copies of the certificate of
16
<PAGE>
incorporation and by-laws of each of the PEPL Companies, as presently in effect.
(c) Other than pursuant to this Agreement, there are no outstanding
subscriptions, options, warrants, rights, puts, calls, commitments, or other
contracts, arrangements or understandings issued by or binding upon any PEPL
Company requiring or providing for, and there are no outstanding debt or equity
securities of any PEPL Company which upon the conversion, exchange or exercise
thereof would require or provide for, the issuance, transfer or sale by any PEPL
Company of any new or additional equity interests in any PEPL Company (or any
other securities of any PEPL Company which, with notice, lapse of time or
payment of monies, are or would be convertible into or exercisable or
exchangeable for equity interests in any PEPL Company). There are no voting
trusts or other agreements or understandings to which either Seller or any PEPL
Company is a party with respect to the voting of the capital stock of any PEPL
Company. There is no indebtedness having general voting rights of any of the
PEPL Companies issued and outstanding. There are no outstanding contractual
obligations of any PEPL Company to repurchase, redeem or otherwise acquire any
common stock of a PEPL Company or any Affiliate of a PEPL Company, or to provide
funds to make any investment (in the form of a loan, capital contribution or
otherwise) in any PEPL Company or any other entity.
3.3 Corporate Authorization. Each Seller has the requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the transactions
contemplated by this Agreement. The execution, delivery and performance by each
Seller of this Agreement and the consummation by each Seller of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of each Seller.
3.4 Consents and Approvals. Except as set forth in Section 3.4 of
the Disclosure Schedule, no consent, approval or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by either Seller or any PEPL Company in connection with the execution, delivery
and performance by either Seller of this Agreement and the consummation by
either Seller of the transactions contemplated by this Agreement, except (i) for
the filing of a premerger notification and report form by Sellers under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"),
(ii) as may be required under any local, state, federal (other than the HSR Act)
or foreign antitrust statute, antitrust law, antitrust
17
<PAGE>
regulation or antitrust rule applicable to Acquiror, any Seller, or any PEPL
Company ("Other Antitrust Regulations"), (iii) as may be required under any
environmental, health, employment or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the transactions
contemplated by this Agreement, and (iv) for such other consents, approvals,
orders, authorizations, registrations, declarations and filings, the failure of
which to be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect.
3.5 Non-Contravention. Except as set forth in Section 3.5 of the
Disclosure Schedule, the execution, delivery and performance by each Seller of
this Agreement, and the consummation of the transactions contemplated hereby, do
not and will not (i) violate any provision of the Certificate of Incorporation
or the By-laws of either Seller or any PEPL Company, (ii) subject to obtaining
the consents and approvals referred to in Section 3.5 of the Disclosure
Schedule, conflict with, or result in the breach of, or constitute a default
under, or result in the termination, cancellation or acceleration (whether after
the filing of notice or the lapse of time or both) of any right or obligation
material to the PEPL Companies taken as a whole under any agreement (including,
without limitation, any collective bargaining agreement), lease, contract, note,
mortgage, indenture, trust, commitment, understanding, arrangement or
restriction of any kind to which any of the PEPL Companies is a party or bound
or to which the Shares are subject, or (iii) subject to the exceptions set forth
in Section 3.4, violate, or result in a breach of or constitute a default under
any Applicable Law or judgment, order, writ, injunction or decree of any
Governmental Authority to which any Seller, any PEPL Company, the Shares or any
of the property or assets of the PEPL Companies is subject, other than, in the
cases of clauses (ii) and (iii), any conflict, breach, termination, default,
cancellation, acceleration, loss or violation that, individually or in the
aggregate, would not have a Material Adverse Effect or materially impair or
delay the ability of either Seller to perform its obligations under this
Agreement or consummate the transactions contemplated by this Agreement. The
transactions contemplated by this Agreement will not trigger any right of first
refusal or similar right held by a third party.
3.6 Binding Effect. This Agreement has been duly executed and
delivered by each Seller and, assuming it has been duly executed and delivered
by Acquiror, constitutes a valid and legally binding obligation of each Seller,
18
<PAGE>
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
3.7 SEC Reports. PEPL has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since January
1, 1995, each of which has complied in all material respects with all applicable
requirements of the Securities Act, and the Securities Exchange Act of 1934, as
amended, each as in effect on the dates such forms, reports and documents were
filed. PEPL has provided to Acquiror prior to the date hereof (i) its Annual
Reports on Form 10-K for each of the fiscal years ended December 31, 1995, 1996
and 1997 and (ii) all other reports or registration statements filed by PEPL
with the SEC since January 1, 1995 (the "PEPL SEC Reports"). None of such forms,
reports or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited financial statements contained in the
PEPL SEC Reports were prepared in accordance with GAAP as in effect as of the
dates of such filings, applied on a consistent basis during the periods involved
(except as may be stated in the notes thereto) and fairly present, in all
material respects, the consolidated financial position, results of operations
and cash flows of PEPL and its Subsidiaries, as of the dates and for the periods
referred to therein.
3.8 Statement of Assets and Liabilities; Books and Records; LNG
Liabilities. (a) Subject to the matters set forth in Section 1.1(c) of the
Disclosure Schedule, the Statement of Assets and Liabilities (i) fairly
presents, in all material respects, the pro forma financial condition of the
Business as of the date thereof and (ii) was prepared in accordance with GAAP
and is consistent with the regular books and records of the PEPL Companies in
all material respects.
(b) To the Knowledge of Sellers, the books of account, minute books
and stock record books of each of the PEPL Companies are complete and correct in
all material respects and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
19
<PAGE>
(c) Except as reflected in the Statement of Assets and Liabilities,
there are no material undisclosed liabilities of LNG as of such date; it being
understood that nothing in this representation is intended to address any
Environmental Costs and Liabilities or other matters which are the subject of
any representation or warranty set forth in Section 3.17.
3.9 Litigation. Except as set forth in Section 3.9 of the
Disclosure Schedule or as disclosed in the PEPL SEC Reports, as of the date
hereof, there are no Legal Proceedings pending or, to the Knowledge of Sellers,
threatened against or involving any Seller or any PEPL Company that,
individually or in the aggregate, are reasonably likely to (i) have a Material
Adverse Effect or (ii) materially impair or delay the ability of either Seller
to perform its obligations under this Agreement or consummate the transactions
contemplated by this Agreement. Except as set forth in Section 3.9 of the
Disclosure Schedule or as disclosed in the PEPL SEC Reports, as of the date
hereof, there is no order, judgment, injunction or decree of any Governmental
Authority outstanding against any Seller or any of the PEPL Companies that,
individually or in the aggregate, would have any effect referred to in the
foregoing clauses (i) and (ii).
3.10 Taxes. Except as set forth in Section 3.10 of the
Disclosure Schedule:
(a) each PEPL Company has (i) timely filed (or there has been timely
filed on its behalf) with the appropriate Governmental Authorities all Tax
Returns required to be filed, and all such Tax Returns are true, correct and
complete in all material respects and (ii) paid all Taxes shown due on such Tax
Returns;
(b) all deficiencies asserted or assessments made as a result of any
examinations by the IRS or any other taxing authority of the Tax Returns of, or
covering or including, any PEPL Company have been fully paid or reserved for in
accordance with GAAP in the appropriate financial statements, and there are no
other actions, suits, investigations, audits or claims by any taxing authority
in progress, nor has any PEPL Company received any written notice from any
taxing authority that it intends to conduct such an audit or investigation;
(c) all Taxes that any PEPL Company is required by law to withhold
or to collect for payment have been duly withheld and collected, and have been
paid over to the appropriate Governmental Authorities or accrued, reserved
20
<PAGE>
against and entered on the books of the PEPL Companies in accordance with GAAP;
(d) no property owned by any PEPL Company (i) is property required
to be treated as being owned by another Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code;
(e) neither Seller is a foreign person within the meaning of Section
1445 of the Code;
(f) Sellers and each PEPL Company are members of a "selling
consolidated group" as such term is defined in Treasury Regulation Section
1.338(h)(10)-1(c);
(g) there are no outstanding requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessments of any Taxes or deficiencies against any PEPL Company;
(h) no power of attorney has been granted by or with respect to any
PEPL Company with respect to any matter relating to Taxes; and
(i) no PEPL Company is a party to, is bound by or has any
obligations under any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement.
3.11 Employee Benefits. (a) Section 3.11(a) of the Disclosure
Schedule sets forth a complete and correct list of all material Employee Benefit
Plans and all material Employee Arrangements, including, but not limited to, the
severance plan applicable to the PEPL Employees (the "Parent Severance Plan")
and the Employee Benefit Plans and Employee Arrangements solely applicable to
the PEPL Employees (the "PEPL Employee Benefit Plans" and "PEPL Employee
Arrangements", respectively). No PEPL Employee Benefit Plan is subject to Title
IV of ERISA.
(b) With respect to each material Employee Benefit Plan and each
material Employee Arrangement referred to above, a complete and correct copy of
each of the following documents (if applicable) has been provided or made
available to Acquiror: (i) the most recent plan document or agreement and all
amendments thereto and
21
<PAGE>
(ii) the most recent summary plan description and all related summaries of
material modifications. With respect to each material PEPL Employee Benefit
Plan, a complete and correct copy of each of the following documents (if
applicable) has been made available to Acquiror: (i) the annual report on Form
5500 and attached schedules filed with the IRS in the last three years, (ii) the
most recent actuarial report and (iii) the most recent determination letter
received from the IRS.
(c) Except as set forth in Section 3.11(c) of the Disclosure
Schedule, none of the PEPL Employee Benefit Plans is subject to Section 4063,
4064 or 4202 of ERISA.
(d) The PEPL Employee Benefit Plans and their related trusts
intended to qualify under Sections 401 and 501(a) of the Code, respectively,
have been determined by the IRS to qualify under such Sections, as amended by
the Tax Reform Act of 1986.
(e) the PEC Pension Plan was fully funded on a Pension Benefit
Guaranty Corporation termination basis for all accrued benefit obligations as of
the most recent valuation date, and there has been no material adverse change in
the funding status of such plan to date.
(f) All contributions required to have been made by the PEPL
Companies or Sellers under any PEPL Employee Benefit Plan or any Applicable Law
to any trusts established thereunder or in connection therewith have been made
by the due date therefor (including any valid extensions).
(g) Except as set forth in Section 3.11(g) of the Disclosure
Schedule, the PEPL Employee Benefit Plans and PEPL Employee Arrangements have
been maintained in accordance with their terms and Applicable Laws, except where
any failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect.
(h) Except as set forth in Section 3.11(h) of the Disclosure
Schedule, no Employee Benefit Plan or Employee Arrangement provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
for employees or former employees of any PEPL Company for periods extending
beyond their retirement or other termination of service, other than (i) coverage
mandated by Applicable Laws, (ii) death benefits under any "pension plan," or
(iii) benefits the full cost of which is borne by such current or former
employee (or his or her beneficiary).
22
<PAGE>
(i) Except as set forth in Section 3.11(i) of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle any
PEPL Employee to severance pay, unemployment compensation or any other payment,
except as expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee.
(j) Except as set forth in Section 3.11(j) of the Disclosure
Schedule, there are no claims pending, or to the Knowledge of Sellers,
threatened in writing (i) by or on behalf of any Employee Benefit Plan or
Employee Arrangement which could affect the PEPL Employees, (ii) by any PEPL
Employee covered under any such plan or arrangement, or (iii) otherwise
involving any PEPL Employee Benefit Plan or PEPL Employee Arrangement (in each
case, other than routine claims for benefits).
3.12 Compliance with Laws. Except as set forth in Section 3.12 of
the Disclosure Schedule, (i) each of the PEPL Companies is in compliance with
all Applicable Laws, (ii) the PEPL Companies have all permits, licenses,
certificates of authority, orders and approvals of, and have made all filings,
applications and registrations with, Governmental Authorities that are required
in order for the PEPL Companies to conduct the Business as presently conducted,
and such permits and licenses are in full force and effect, and (iii) none of
Sellers nor any of the PEPL Companies have received any notice, and no claim or
action has been filed, commenced, or to the Knowledge of Sellers, threatened
against a PEPL Company alleging any violation of the matters set forth in
clauses (i) and (ii) in each case with such exceptions to clauses (i), (ii) and
(iii) as would not, individually or in the aggregate, have a Material Adverse
Effect; it being understood that nothing in this representation is intended to
address any matters which are the subject of the representation and warranty set
forth in Section 3.17.
3.13 Intellectual Property. Except as set forth in Section 3.13 of
the Disclosure Schedule, the PEPL Companies will, on the Closing Date, by
operation of the Intellectual Property Agreement attached hereto as Exhibit F,
own or possess licenses or other legally enforceable rights to use all patents,
copyrights, trademarks, service marks, trade names, logos, intellectual
property, software object and source code provided for in such Intellectual
Property Agreement as are necessary to conduct the Business as currently
conducted, except those the lack of which would
23
<PAGE>
not, individually or in the aggregate, have a Material Adverse Effect; and none
of Sellers or any of the PEPL Companies has any Knowledge of any conflict by
Sellers or any of the PEPL Companies with the rights of others therein which,
individually or in the aggregate, would have a Material Adverse Effect.
3.14 Contracts. Section 3.14(a) of the Disclosure Schedule sets
forth a list, as of the date hereof, of each material written contract and lease
and each material oral contract or lease to which any of the PEPL Companies is a
party, other than (i) any purchase or sale orders arising in the ordinary course
of business, (ii) any contract involving the payment or receipt of less than
$1,000,000 in the aggregate and (iii) any contract listed in any other Section
of the Disclosure Schedule (each contract set forth in Section 3.14(a) of the
Disclosure Schedule being referred to herein as a "Material Contract"). Section
3.14(b) of the Disclosure Schedule sets forth a list, as of the date hereof, of
each material contract that any PEPL Company has with an Affiliate. Except as
set forth in Section 3.14(a) of the Disclosure Schedule, each Material Contract
is a valid and binding agreement of the PEPL Company which is a party thereto
and, to the Knowledge of Sellers, is in full force and effect. Except as set
forth in Section 3.14(a) of the Disclosure Schedule, Sellers have no Knowledge
of any default under any contract, which default has not been cured or waived
and which default would have a Material Adverse Effect.
3.15 Brokers. Except for Merrill Lynch & Co., whose fees will be
paid by Sellers or Parent, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Sellers or the PEPL Companies who is entitled to any fee or commission from
Sellers or the PEPL Companies in connection with the transactions contemplated
by this Agreement.
3.16 Title to Properties. Each of the PEPL Companies has good and
valid title to all of the material tangible assets and properties which it owns
and which are reflected on the Statement of Assets and Liabilities (except for
assets and properties sold, consumed or otherwise disposed of in the ordinary
course of business since the date of the Statement of Assets and Liabilities),
and such tangible assets and properties are owned free and clear of all
Encumbrances, except for (a) Encumbrances listed in Section 3.16 of the
Disclosure Schedule, (b) liens for current Taxes not yet due and payable or for
Taxes the validity of which is being contested in good faith,
24
<PAGE>
(c) Encumbrances to secure indebtedness reflected on the Statement of Assets and
Liabilities or indebtedness incurred in the ordinary course of business
consistent with past practice after the date thereof, (d) mechanic's liens,
materialmen's liens and other Encumbrances which have arisen in the ordinary
course of business, (e) Encumbrances which will be discharged on or prior to the
Closing Date, and (f) Encumbrances which, in the aggregate, would not have a
Material Adverse Effect.
3.17 Environmental Matters. (a) Section 3.17(a) of the Disclosure
Schedule sets forth all locations included in the PEPL Cleanup Program and the
TGC Cleanup Program.
(b) Except as set forth in Section 3.17(b) of the Disclosure
Schedule or as disclosed in the PEPL SEC Reports, to the Knowledge of Sellers:
(i) the PEPL Companies presently are in material
compliance with all applicable Environmental Laws, and during the past
five years have been in material compliance with Environmental Laws,
except for historical non-compliance that could not reasonably be expected
to result in the PEPL Companies incurring material Environmental Costs and
Liabilities;
(ii) none of the PEPL Companies has received any written
request for information, or has been notified that it is a potentially
responsible party, under CERCLA or any similar state law with respect to
any on-site or off-site location for which liability is currently being
asserted;
(iii) there are no material writs, injunctions, decrees,
orders or judgments outstanding, or any actions, suits, proceedings or
investigations pending or threatened, involving any PEPL Company relating
to (A) compliance by the PEPL Companies with any Environmental Law, or (B)
the release, disposal, discharge, spill, treatment, storage or recycling
of Hazardous Materials into the environment at any location which could
reasonably be expected to result in any of the PEPL Companies incurring
any material liability under Environmental Laws;
(iv) each of the PEPL Companies has obtained, currently
maintains and is in material compliance with all material permits,
licenses and other authorizations which are required under Environmental
Laws for the operation of their respective businesses (collectively,
"Environmental Permits"), all such Environmental
25
<PAGE>
Permits are in effect and no appeal nor any other action is pending to
revoke any such Environmental Permit; and
(v) no cleanup, investigation or remedial action has
occurred at the properties that are currently owned, leased, operated or
otherwise used by the PEPL Companies that could result in the assertion or
creation of a lien on such property by any Governmental Authority with
respect thereto and for which the PEPL Companies would be responsible, nor
has any such assertion of a lien been made by any Governmental Authority
with respect thereto which has not been removed.
(c) To the Knowledge of Sellers, except as set forth in Section
3.17(b) of the Disclosure Schedule and except for Environmental Costs and
Liabilities related to the PEPL Cleanup Program and the TGC Cleanup Program and
the Wattenburg System, there is no non-compliance with Environmental Laws prior
to the Closing which could reasonably be expected to result in any of the PEPL
Companies incurring any material liability under Environmental Law.
(d) There are no other sites in the PEPL Cleanup Program or the TGC
Cleanup Program other than the locations identified in Section 3.17(a) of the
Disclosure Schedule.
(e) Except as set forth in Section 3.17(b) of the Disclosure
Schedule, to the Knowledge of Sellers, there are no material Environmental Costs
and Liabilities which may arise based on activities prior to the Closing Date at
the properties that are currently, or previously were, owned, leased, operated
or otherwise used by LNG.
3.18 Labor Relations. (a) Except as set forth in Section 3.18(a)
of the Disclosure Schedule, (i) none of the PEPL Companies is a party to any
labor or collective bargaining agreements, and there are no labor or collective
bargaining agreements which pertain to the PEPL Employees, (ii) within the
preceding three years, there have been no representation or certification
proceedings, or petitions seeking a representation proceeding, pending or, to
the Knowledge of Sellers, threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority with respect to the PEPL Companies and (iii) within the preceding
three years, to the Knowledge of Sellers, there have been no organizing
activities involving the PEPL Companies with respect to any group of employees
of the PEPL Companies.
26
<PAGE>
(b) Except as set forth in Section 3.18(b) of the Disclosure
Schedule, (i) there are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or, to the Knowledge of Sellers, threatened in writing against or
involving the PEPL Companies and (ii) there are no unfair labor practice
charges, grievances or complaints pending or, to the Knowledge of Sellers,
threatened in writing by or on behalf of any employee or group of employees of
the PEPL Companies which, if individually or collectively resolved against the
PEPL Companies, would have a Material Adverse Effect.
(c) Except as set forth in Section 3.18(c) of the Disclosure
Statement, (i) there has been no "mass layoff" or "plant closing" as defined by
WARN with respect to the PEPL Companies within the six (6) months prior to the
date hereof, and (ii) there has been no "employment loss" as defined by WARN
with respect to the PEPL Employees within the ninety (90) days prior to the date
hereof.
3.19 Year 2000 Compliance. Sellers have informed Acquiror of their
analysis of, the status of development of contingency plans for, and forecasted
expenditures with respect to year 2000 compliance of material computer software
and computer firmware of the PEPL Companies, as such analysis, contingency plan
development and forecast of expenditures exist on the date hereof. Sellers have
developed and implemented such analysis, have worked on the development of
contingency plans and forecasted expenditures for the PEPL Companies using the
same general methodology as was applicable to the other Subsidiaries of Parent
engaged in the interstate pipeline business.
3.20 Absence of Certain Changes. Since September 30, 1998 and
until the date hereof, the PEPL Companies have conducted their respective
businesses in the ordinary course of business, consistent with past practice,
and none of the PEPL Companies has, during such period, taken any of the actions
described in Sections 5.1 (i) through (xvi), except in connection with entering
into this Agreement.
3.21 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither Seller nor
any other Person makes any other express or implied representation or warranty
on behalf of Sellers.
3.22 Disclosure Schedule. On or prior to the date hereof, Sellers
have delivered to Acquiror a schedule (the "Disclosure Schedule") setting forth,
among other
27
<PAGE>
things, items of disclosure relating to any or all of the representations and
warranties of Sellers; provided, that (i) no such item is required to be set
forth in the Disclosure Schedule as an exception to a representation or warranty
if its absence would not result in the related representation or warranty being
deemed untrue or incorrect and (ii) the mere inclusion of an item in the
Disclosure Schedule shall not be deemed an admission by Sellers that such item
represents a material exception or fact, event or circumstance or that such item
would result in a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Sellers as follows:
4.1 Organization and Qualification. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own and operate its assets and properties and to carry on its
business as currently conducted. Acquiror is duly qualified to do business and
is in good standing in each jurisdiction where the ownership or operation of its
assets and properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or in good standing,
as the case may be, would not materially impair or delay the ability of Acquiror
to perform its obligations under this Agreement or consummate the transactions
contemplated by this Agreement.
4.2 Corporate Authorization. Acquiror has the requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations under this Agreement and to consummate the transactions contemplated
by this Agreement. The execution, delivery and performance by Acquiror of this
Agreement and the consummation by Acquiror of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate and
stockholder action on the part of Acquiror.
4.3 Consents and Approvals. No consent, approval or authorization
of, or registration, declaration or filing with, any Governmental Authority is
required by Acquiror in connection with the execution, delivery and performance
by Acquiror of this Agreement and the consummation by Acquiror of the
transactions contemplated by this Agreement, except
28
<PAGE>
(i) for the filing of a premerger notification and report form by Acquiror under
the HSR Act, (ii) as may be required under any Other Antitrust Regulations,
(iii) as may be required under any environmental, health, employment or safety
law or regulation pertaining to any notification, disclosure or required
approval triggered by the transactions contemplated by this Agreement, and (iv)
for such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would not,
individually or in the aggregate, materially impair or delay the ability of
Acquiror to perform its obligations under this Agreement or consummate the
transactions contemplated by this Agreement. On or prior to the date hereof,
Acquiror has delivered to Sellers a true and complete copy of the opinion letter
of Rodger A. Kershner, Senior Vice President and General Counsel, which states
that in the opinion of Rodger A. Kershner, there are no consents, approvals,
filings or notices which must be made or obtained with or from regulatory
authorities of the State of Michigan in connection with the execution, delivery
and performance by Acquiror of this Agreement and the consummation by Acquiror
of the transactions contemplated by this Agreement.
4.4 Non-Contravention. Except as set forth in Section 4.4 of the
Disclosure Schedule, the execution, delivery and performance by Acquiror of this
Agreement, and the consummation by Acquiror of the transactions contemplated
hereby, do not and will not (i) violate any provision of the Certificate of
Incorporation or the By-laws of Acquiror; (ii) conflict with, or result in the
breach of, or constitute a default under, or result in the termination,
cancellation or acceleration (whether after the filing of notice or the lapse of
time or both) of any material right or obligation of Acquiror or any of its
Subsidiaries under, any material agreement, lease, contract, note, mortgage,
indenture or other obligation of Acquiror or its Subsidiaries; or (iii) subject
to the exceptions set forth in the first sentence of Section 4.3, violate, or
result in a breach of or constitute a default under any Applicable Law or
judgment, decree or order of any Governmental Authority to which Acquiror or any
of its Subsidiaries is subject, other than, in the case of clauses (ii) and
(iii), any conflict, breach, termination, default, cancellation, acceleration,
loss or violation which, individually or in the aggregate, would not materially
impair or delay the ability of Acquiror to perform its obligations under this
Agreement or consummate the transactions contemplated by this Agreement.
29
<PAGE>
4.5 Binding Effect. This Agreement constitutes a valid and legally
binding obligation of Acquiror enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
4.6 Brokers. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, whose fees will be paid by Acquiror, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Acquiror or any Subsidiary of Acquiror who is entitled to
any fee or commission from Acquiror in connection with the transactions
contemplated by this Agreement.
4.7 Financing. On or prior to the date hereof, Acquiror has
delivered to Sellers (i) a true and complete copy of a commitment letter from
Bank of America NT&SA, Barclays Bank PLC and Union Bank of California, N.A. to
provide to Acquiror a $600,000,000 six-month bridge revolving credit facility to
be used solely to make debt or equity investments in power or energy projects,
(ii) a letter dated October 28, 1998 pursuant to which NationsBanc Montgomery
Securities confirmed it was highly confident of its ability to arrange for
Acquiror up to a $950 million of debt financing to finance a portion of the
Purchase Price, (iii) a letter dated October 28, 1998 pursuant to which
NationsBanc Montgomery Securities confirmed it was highly confident of its
ability to arrange for the PEPL Companies as Acquiror's subsidiaries up to $1
billion of debt financing to finance a portion of the Purchase Price, and (iv) a
letter dated October 29, 1998 pursuant to which the Chase Manhattan Bank
confirmed that it was highly interested in the possible arrangement of $1
billion of senior credit facilities to finance a portion of the Purchase Price.
4.8 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, neither Acquiror
nor any other Person makes any other express or implied representation or
warranty on behalf of Acquiror.
ARTICLE V
COVENANTS
5.1 Conduct of the Business. Except as otherwise contemplated by
this Agreement or as set forth in Section 5.1 of the Disclosure Schedule or in
any other Section of
30
<PAGE>
the Disclosure Schedule, during the period from the date hereof to the Closing,
Sellers shall, and shall cause the PEPL Companies to, taking into account any
matters that may arise that are attributable to the pendency of the transactions
contemplated by this Agreement, (a) conduct the Business only in the ordinary
course, consistent with past practice and (b) use their respective reasonable
best efforts to preserve the business organization of the PEPL Companies intact,
keep available the services of the current officers and employees of the PEPL
Companies and maintain the existing relations with franchisees, customers,
suppliers, creditors and business partners having business dealings with the
PEPL Companies. In addition, from and after the date hereof to the Closing Date,
except as otherwise contemplated by this Agreement or as set forth in Section
5.1 of the Disclosure Schedule, Sellers shall not permit any PEPL Company to,
without the prior written consent of Acquiror (which consent shall not be
unreasonably withheld or delayed):
(i) amend its Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents or merge with or into or
consolidate with any other person;
(ii) issue, sell, pledge, dispose of or encumber, or authorize or
propose the issuance, sale, pledge, disposition or encumbrance of, any
shares of, or securities convertible or exchangeable for, or options,
puts, warrants, calls, commitments or rights of any kind to acquire, any
of its capital stock or subdivide or in any way reclassify any shares of
its capital stock or change or agree to change in any manner the rights of
its outstanding capital stock;
(iii) except as may be required by agreements or arrangements
identified in the Disclosure Schedule, grant any severance or termination
pay to, or enter into, extend or amend any employment, consulting,
severance or other compensation agreement with, or otherwise increase the
compensation or benefits provided to any of its directors, officers or
other employees whose annual base salary is in excess of $100,000;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any lien or otherwise dispose of any properties or assets material to
the Business having a fair market value in excess of $1 million
individually or $10 million in the aggregate, other than (A) sales made in
the ordinary course of business
31
<PAGE>
consistent with past practice or (B) sales of obsolete or other assets not
presently utilized in the Business;
(v) implement any change in its accounting principles, practices or
methods, other than as may be required by GAAP or any Governmental
Authority and other than as may be necessary or advisable in connection
with the transactions contemplated hereby;
(vi) make, change or revoke any Tax election or make any agreement
or settlement regarding Taxes of any PEPL Company with any Tax authority,
if such action would affect Acquiror or any of its Affiliates (including
any PEPL Company) for taxable periods commencing after the Closing Date;
(vii) (a) declare, set aside or pay any dividend or other
distribution payable other than in Cash Equivalents, with respect to any
shares of any class or series of capital stock of the PEPL Companies; (b)
split, combine or reclassify any shares of any class or series of capital
stock of the PEPL Companies; or (c) redeem, purchase or otherwise acquire
directly or indirectly any shares of any class or series of capital stock
of the PEPL Companies, or any instrument or security which consists of or
includes a right to acquire such shares;
(viii) organize any new Subsidiary or acquire any capital stock of,
or equity or ownership interest in, any other Person;
(ix) modify, amend or terminate any Material Contract or waive,
release or assign any material rights or claims under a Material Contract,
except in the ordinary course of business and consistent with past
practice;
(x) (A) incur or assume any long-term debt, or except in the
ordinary course of business consistent with past practice, incur or assume
short-term indebtedness (other than intercompany indebtedness) exceeding
$5 million in the aggregate from the date hereof until the Closing; (B)
modify the terms of any indebtedness or other liability, other than
modifications of short-term debt in the ordinary and usual course of
business and consistent with past practice; (C) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for the material obligations of any other Person, except as
described in Section
32
<PAGE>
5.1(a)(x) of the Disclosure Schedule; (D) enter into any material
commitment or transaction (including, but not limited to, any material
capital expenditure or purchase, sale or lease of material assets or real
estate); or (E) dispose of or permit to lapse any rights to any material
intellectual property used or useful in the Business;
(xi) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be canceled or terminated, except policies providing
coverage for losses not in excess of $1 million;
(xii) enter into any contract or transaction relating to the
purchase of assets material to the PEPL Companies, taken as a whole, other
than in the ordinary course of business consistent with past practices;
(xiii) pay, repurchase, discharge or satisfy any of its
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 and consistent with past
practice;
(xiv) except as set forth in Section 2.3, adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of any PEPL
Company;
(xv) take any action that would or is reasonably likely to
materially impair the ability of the Sellers to consummate the Closing in
accordance with the terms hereof or materially delay such consummation;
and
(xvi) authorize any of, or commit or agree to take any of, the
actions referred to in paragraphs (i) through (xv) above.
5.2 Access; Confidentiality. (a) Prior to the Closing, Sellers
shall, and shall cause the PEPL Companies to, permit Acquiror and its financing
sources to have reasonable access, during normal business hours and upon
reasonable advance notice, to the properties, books, records, accountants
(subject to their availability) and executive-level personnel of Sellers and the
PEPL Companies relating to the Business, and shall furnish, or cause to be
furnished, to Acquiror, all other information concerning the Business or the
PEPL Companies that is available as Acquiror may reasonably request. The
foregoing shall entitle Acquiror to conduct Phase I environmental assessments at
the
33
<PAGE>
properties of the PEPL Companies consistent with ASTM Standard E1527-97 prior to
November 16, 1998. Acquiror shall coordinate the schedule of such assessments
with Sellers. In connection with any access contemplated by this Section 5.2(a),
Acquiror's representatives shall cooperate with Sellers' and PEPL's
representatives and shall use their reasonable best efforts to minimize any
disruption of the Business.
(b) Except as hereinafter provided, without the prior written
consent of Acquiror or Sellers, as appropriate, who delivered such information,
Evaluation Material will be held in confidence and not disclosed by the
receiving party (the "Recipient") or its Representatives or used by the
Recipient or its Representatives other than directly or indirectly in connection
with consideration of this Agreement or in connection with the performance of
the agreements contemplated by Section 5.11 of this Agreement. Except as
otherwise expressly provided in this Agreement, the Recipient further agrees to
disclose Evaluation Material only to its Representatives who need to know the
Evaluation Material to evaluate the transactions contemplated by this Agreement,
or to accomplish the purpose of the agreements contemplated pursuant to Section
5.11 of this Agreement, and who are informed of its confidential nature and
agree to be bound by the terms of this Section. The Recipient agrees to be fully
responsible for any breach of this provision by any of its Representatives. In
addition, Acquiror will not provide Evaluation Material to any employee of
Acquiror engaged in procurement, contracting of or management of pipeline
services or pipeline-related regulatory activities.
(c) In addition, Acquiror and Sellers each agree that it will not
for a period of 24 months from the date of the signing of this Agreement, except
as contemplated by Section 5.9(a), employ or attempt to employ or divert an
employee of the other party or any of its affiliates, provided, however, that
neither Acquiror nor Sellers shall be prohibited from (a) employing any such
employee who contacts Acquiror or Seller, as applicable, on his or her own
initiative and without any direct or indirect solicitation by Acquiror or
Seller, as applicable, and (b) conducting generalized solicitations for
employees (which solicitations are not specifically targeted at employees of the
other party) through the use of media advertisements, professional search firms
or otherwise.
5.3 Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, Sellers and Acquiror shall use their
respective reasonable best efforts to take, or cause to be taken, all actions,
and
34
<PAGE>
to do, or cause to be done, and to assist and cooperate with the other in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings with, and
the taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any Governmental Authority,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the obtaining of transfers, modifications or amendments to
permits required as a result of the execution of this Agreement or the
consummation of the transactions contemplated hereby, (iv) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the transactions
contemplated by this Agreement, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Authority vacated
or reversed and (v) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement; provided, however, that, notwithstanding the
foregoing, the actions of Sellers and Acquiror with respect to filings,
approvals and other matters pursuant to the HSR Act and Other Antitrust
Regulations shall be governed by Section 5.4.
(b) Prior to the Closing, each party shall promptly consult with the
other parties hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by such party with any Governmental Authority or any
other information supplied by such party to a Governmental Authority in
connection with this Agreement and the transactions contemplated hereby. Each
party hereto shall promptly inform the others of any communication received by
such party from any Governmental Authority regarding any of the transactions
contemplated hereby. If any party hereto or Affiliate receives a request for
additional information or documentary material from any Governmental Authority
with respect to any of the transactions contemplated hereby, then such party
shall endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other parties, an appropriate
response in compliance with such request.
35
<PAGE>
5.4 Antitrust Notification. (a) Sellers and Acquiror shall file on
November 9, 1998 with (i) the FTC and the DOJ, the notification and report form
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act and (ii)
any other applicable Governmental Authority all filings, reports, information
and documentation required for the consummation of the transactions contemplated
hereby pursuant to Other Antitrust Regulations. Each of Sellers and Acquiror
shall furnish to each other's counsel such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission that is necessary under the HSR Act and Other Antitrust
Regulations.
(b) Each of Sellers and Acquiror shall use its best efforts to
obtain any clearance required under the HSR Act and Other Antitrust Regulations
for the consummation of the transactions contemplated by this Agreement and
shall keep each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the DOJ and
other Governmental Authorities and shall comply promptly with any such inquiry
or request.
(c) Each of Sellers and Acquiror shall use its best efforts to take
any action reasonably necessary to vigorously defend, lift, mitigate and rescind
the effect of any litigation or administrative proceeding adversely affecting
this Agreement or the transactions contemplated hereby, including, without
limitation, promptly appealing any adverse court or administrative order or
injunction.
(d) Notwithstanding anything to the contrary in this Section 5.4,
Acquiror shall not be required to consent to any material limitations on its
ownership or operation (or that of any of its Affiliates) of all or a material
portion of Acquiror's business or assets or the businesses or assets of the PEPL
Companies, taken as a whole, or compel the Acquiror, its Affiliates or the PEPL
Companies to dispose of or hold separate any material portion of the business or
assets of the Acquiror or the PEPL Companies taken as a whole. For the purposes
of this Section 5.4(d), the determination of materiality shall be made by the
Board of Directors of Acquiror in its reasonable judgment.
5.5 Supplemental Disclosure. Sellers shall confer on a regular and
frequent basis with Acquiror, report on operational matters and promptly notify
Acquiror of, and furnish Acquiror with, any information it may reasonably
request with respect to, any event or condition or the
36
<PAGE>
existence of any fact that would cause any of the conditions to Acquiror's
obligation to consummate the transactions contemplated by this Agreement not to
be completed, and Acquiror shall promptly notify Sellers of, and furnish Sellers
with any information it may reasonably request with respect to, any event or
condition or the existence of any fact that would cause any of the conditions to
Sellers' obligation to consummate the transactions contemplated by this
Agreement not to be completed. Sellers shall give notice to the Acquiror
promptly after becoming aware of (i) the occurrence or non-occurrence of any
event whose occurrence or non-occurrence would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date or (ii) any failure of the Sellers, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder that would create a
Material Adverse Effect.
5.6 Further Assurances. At any time after the Closing Date, Sellers,
on the one hand, and Acquiror, on the other hand, shall promptly execute,
acknowledge and deliver any other assurances or documents reasonably requested
by Acquiror or Sellers, as the case may be, and necessary for it to satisfy its
respective obligations hereunder or obtain the benefits contemplated hereby.
5.7 Announcements. Prior to the Closing, neither Sellers nor
Acquiror will issue any press release or otherwise make any public statement
with respect to this Agreement and any of the transactions contemplated hereby
without the prior consent of the other (which consent shall not be unreasonably
withheld), except as expressly permitted by and in accordance with the terms of
the Confidentiality Agreement. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
shall be in the form heretofore agreed to by the parties.
5.8 No Solicitation. Sellers will not, and will not cause or permit
the PEPL Companies or any of their or the PEPL Companies' directors, officers,
employees, representatives or agents (collectively, the "PEPL Representatives")
to, directly or indirectly, (i) negotiate, undertake, authorize, recommend,
propose or enter into, either as the proposed surviving, merged, acquiring or
acquired corporation, any transaction involving a merger, consolidation,
business combination, purchase or disposition of any material amount of the
assets or capital stock or other equity interest in the PEPL Companies other
than the
37
<PAGE>
transactions contemplated by this Agreement (an "Acquisition Transaction"), (ii)
facilitate, encourage, solicit or initiate discussions, negotiations or
submissions of proposals or offers in respect of an Acquisition Transaction,
(iii) furnish or cause to be furnished, to any Person, any information
concerning the business, operations, properties or assets of the PEPL Companies
in connection with an Acquisition Transaction, or (iv) otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other Person to do or seek any of the foregoing. Sellers will
inform in writing immediately following the receipt by any Seller, any PEPL
Company or any PEPL Representative of any written proposal in respect of any
Acquisition Transaction.
5.9 Employee Matters. (a) Prior to December 1, 1998, Sellers and
Acquiror shall agree on those employees currently employed by Parent or its
Affiliates (other than the PEPL Companies) who are primarily employed on matters
relating to the Business and who will become employees of the PEPL Companies
(the "Transferred Employees"). All Transferred Employees and employees of the
PEPL Companies employed on the Closing Date, including employees not actively at
work by reason of layoff, sick leave, absence, vacation, short term disability
or other approved leave of absence are hereinafter referred to as the "PEPL
Employees." The term "PEPL Employees" shall not include employees who as of the
Closing Date are "disabled" (within the meaning of the long term disability
plans applicable to the PEPL Companies), former employees and retired employees
of the PEPL Companies, and employees transferred from the PEPL Companies
pursuant to Section 2.3(d) hereof (collectively, the "Excluded Employees").
Acquiror agrees that all PEPL Employees will remain employees of a PEPL Company
immediately following the Closing at not less than the compensation levels in
place immediately prior to the Closing.
(b) The PEPL Companies will cease participation in all Employee
Benefit Plans and Employee Arrangements other than the PEPL Employee Benefit
Plans, PEPL Employee Arrangements and Parent Severance Plan as of the Closing
Date.
(c) Effective as of the Closing Date, and provided that such does
not conflict with the terms of the collective bargaining agreements applicable
to the PEPL Employees, Acquiror shall cause to be maintained compensation and
benefits for the PEPL Employees for a period of not less than two years
following the Closing Date which are comparable to and on the same terms and
38
<PAGE>
conditions, as provided for similarly situated employees of Acquiror and its
Affiliates, provided, however, that it is understood and agreed by the parties
that the PEPL Employees shall be covered under the provisions of Acquiror's
retiree medical plan applicable to persons hired after January 1, 1991.
Effective as of the Closing Date, Acquiror shall cause the PEPL Companies to (i)
assume the obligations of Parent and its Affiliates arising under the Parent
Severance Plan and (ii) maintain the Parent Severance Plan during the 18 months
following the Closing Date, in each case, solely with respect to the PEPL
Employees, and Acquiror shall indemnify Parent and its Affiliates for any
liability with respect to any PEPL Employee under such plan, including any
liability that may arise as a result of the transactions contemplated by this
Agreement.
(d) Except as provided in Section 5.9(f) hereof, service by the PEPL
Employees with the PEPL Companies or any of their Affiliates prior to the
Closing Date shall be recognized under any benefit plan or arrangement
established, maintained or contributed to by Acquiror, the PEPL Companies, or
any of their Affiliates after the Closing Date for the benefit of any PEPL
Employee for all purposes, including but not limited to eligibility, vesting,
benefit accruals and eligibility for retirement, provided, that such recognition
does not result in any duplication of benefits. All liabilities with respect to
any PEPL Employee arising under, in connection with or relating to any Employee
Benefit Plan or Employee Arrangement (other than the Parent Severance Plan, PEPL
Employee Benefit Plans and PEPL Employee Arrangements with respect to which
Acquiror or the PEPL Companies assume all liabilities relating to the PEPL
Employees whenever arising) shall be assumed and paid by the PEPL Companies,
provided that the Closing Statement shall include an accrued liability in the
amount of $1,000,000 relating to such liabilities.
(e) Effective as of the Closing Date, Acquiror shall cause to be
waived any pre-existing condition limitation under the medical and dental
benefit plans applicable to PEPL Employees or their respective dependents, and
shall cause the dollar amount of all expenses incurred by the PEPL Employees and
their respective dependents prior to the Closing Date not to be recognized for
purposes of computing any maximum benefit limitations under the relevant
employee welfare benefit plans of Acquiror.
(f) Effective as of 11:59 P.M. on December 31, 1998 (the "Effective
Pension Time"), Acquiror, PEPL Companies or the applicable Affiliate thereof
shall have in effect a defined benefit plan ("Acquiror's Plan") intended
39
<PAGE>
to be qualified pursuant to Section 401(a) of the Code that will provide
benefits to the PEPL Employees, and that complies with Section 411(d)(6) of the
Code with respect to Transferred Benefits (as defined below). Each PEPL Employee
participating in the PEC Pension Plan immediately prior to the Effective Pension
Time shall become a participant in Acquiror's Plan as of the Effective Pension
Time. Acquiror's Plan shall provide for the assumption of all accrued benefits
and other ancillary benefits of the PEC Pension Plan relating to the PEPL
Employees, including any benefits arising from the transactions contemplated by
this Agreement (the "Transferred Benefits"), calculated as of the Effective
Pension Time, subject to the transfer of assets equal to the amount as described
below. Following the completion of such transfer of assets from the PEC Pension
Plan to Acquiror's Plan as provided below, the Acquiror's Plan and the PEPL
Companies shall be solely responsible for such Transferred Benefits. The PEPL
Employees shall cease accrual of benefits under the PEC Pension Plan effective
as of the Effective Pension Time.
Notwithstanding Section 5.9(d) above, except as provided in this
Section 5.9(f), service by the PEPL Employees with the PEPL Companies or any of
their Affiliates prior to the Closing Date shall not be required to be
recognized for benefit accrual purposes for any tax qualified pension plan
maintained by Acquiror, the PEPL Companies, or any of their Affiliates after the
Closing Date.
Notwithstanding the above paragraph, Acquiror's Plan shall provide
that each PEPL Employee shall be entitled to receive a benefit thereunder not
less than the benefit such employee would have received under the PEC Pension
Plan as in effect on the date hereof assuming (i) such employee's service under
the PEC Pension Plan is equal to the sum of (A) the service of such employee
which is recognized under the PEC Pension Plan immediately prior to the
Effective Pension Time and (B) the service of such employee following the
Effective Pension Time which is recognized under Acquiror's Plan and (ii) the
compensation of such employee taken into account for purposes of computing the
benefit under the PEC Pension Plan is the compensation such employee received
irrespective of whether such compensation is associated with service immediately
prior to the Effective Pension Time, service following the Effective Pension
Time, or a combination thereof.
Sellers shall cause Hewitt Associates LLC based in Atlanta
("Sellers' Actuary") to determine the amount of assets for the Transferred
Benefits obligation to be
40
<PAGE>
transferred from the PEC Pension Plan to Acquiror's Plan (the "Transfer
Amount"). The Transfer Amount shall be determined effective as of the Effective
Pension Time by Sellers' Actuary on the basis of the assumptions set forth in
Section 5.9(f) of the Disclosure Schedule. In connection therewith, Sellers
shall cause Sellers' Actuary to determine the amounts of charges and credits to
the funding standard account under Section 412 of the Code, the funding standard
account credit balance and the annual amortization charges and credits (such
amounts determined under the provisions of IRS Service Revenue Ruling 81-212 and
other applicable guidance) to be allocated between the PEC Pension Plan and the
Acquiror's Plan as a result of the transfer of assets and liabilities
anticipated under this Section 5.9(f). The actuarial calculation of the
liabilities shall be reviewed by an actuarial firm designated by Acquiror
("Acquiror's Actuary") for accuracy and to ensure that such calculation was
performed in accordance with Section 5.9(f) of the Disclosure Schedule. At the
Closing, provided that (i) Acquiror has received a favorable determination
letter from the IRS to the effect that Acquiror's Plan meets the requirements
for qualification under Section 401(a) of the Code (or an opinion of Acquiror's
counsel, reasonably satisfactory to Sellers, to such effect), (ii) Sellers have
received a favorable determination letter from the IRS to the effect that the
PEC Pension Plan meets the requirements for qualification under Section 401(a)
of the Code (or an opinion of Sellers' counsel reasonably satisfactory to
Acquiror to such effect), and (iii) the applicable regulatory filing
requirements have been met, Sellers shall cause to be transferred from the Trust
Fund for the PEC Pension Plan to the trust established for Acquiror's Plan, an
amount in the form of cash or readily marketable securities reasonably
acceptable to Acquiror equal to 85% of the amount reasonably estimated by
Sellers' Actuary in good faith to be equal to the Transfer Amount (the "Initial
Transfer Amount"), plus interest at an annual rate of 5.4% from the Effective
Pension Time to the date of transfer. As soon as practicable after the final
determination of the Transfer Amount (the "True-Up Date"), Sellers shall cause a
second transfer to be made to Acquiror's Plan, in cash or readily marketable
securities reasonably acceptable to Acquiror, of the "True-Up Amount." The
True-Up Amount shall be equal to the sum of (i) the excess of the Transfer
Amount over the Initial Transfer Amount and (ii) interest at an annual rate of
5.4% from the Effective Pension Time to the True-Up Date on the amount described
in clause (i) above.
If for any reason the Initial Transfer Amount actually transferred
from the PEC Pension Plan to the Acquiror's Plan is more than the Transfer
Amount, then on
41
<PAGE>
the True-Up Date or as soon thereafter as practicable, Acquiror's Plan shall pay
to the PEC Pension Plan an amount, in cash or readily marketable securities
reasonably acceptable to the Acquiror, equal to the amount by which the Initial
Transfer Amount exceeds the Transfer Amount, plus interest thereon from the date
of overpayment to the date on which such amount is paid to the PEC Pension Plan
at an annual rate of 5.4%.
Acquiror shall indemnify and hold Parent and its Affiliates harmless
from (i) any liability arising from the failure of the Acquiror's Plan to comply
with Section 411(d)(6) of the Code with respect to the Transferred Benefits and
(ii) any liability attributable to the Transferred Benefits.
(g) 401(k) Plan. Sellers shall take all such action necessary and
appropriate to cause each PEPL Employee participating in the PEC Pension Plan as
of the Closing Date to become eligible to receive a distribution of his or her
accrued benefit thereunder as a result of the transactions contemplated by this
Agreement. Acquiror shall cause the Employees' Savings and Incentive Plan of
Consumers Energy Company to accept a rollover pursuant to Section 402(a) of the
Code and a direct transfer pursuant to Section 401(a)(31) of the Code in respect
of such distributions.
(h) Prior to and effective as of the Closing Date, Sellers shall
take all such action necessary to cause each option to purchase shares of Parent
common stock ("Seller Option") which is vested and unexercised immediately prior
to the Closing Date granted by Sellers or their Affiliates to any PEPL Employee
("Optionee") to remain fully exercisable for a period of thirty (30) days after
the Closing (or such longer period as may be provided in any Seller Option as of
the date hereof).
(i) Except as otherwise provided in this Section 5.9 or in the
Parent Severance Plan, any PEPL Employee Benefit Plan or any PEPL Employee
Arrangement, no provision of this Agreement shall be construed to prohibit the
PEPL Companies or any Affiliate thereof from terminating the employment of any
PEPL Employee, with or without cause, or amending or terminating any employee
benefit plans or employee arrangements applicable to the PEPL Employees,
including, but not limited to, any PEPL Employee Benefit Plan or PEPL Employee
Arrangement maintained or contributed to by the PEPL Companies, Acquiror or
their Affiliates.
(j) Acquiror shall recognize any seniority rights of any Excluded
Employee who is on long term disability as
42
<PAGE>
of the Closing Date and who offers to return to work with any PEPL Company and,
if such employee returns to work with any PEPL Company, such employee shall be
treated as a PEPL Employee effective as of such date.
(k) Acquiror shall indemnify and hold Sellers and their Affiliates
harmless with respect to any PEPL Employee from any employment-related
liability, whether arising prior to or after the Closing Date. Except as
otherwise provided in this Section 5.9, Sellers and their Affiliates shall
indemnify and hold Acquiror and its Affiliates harmless with respect to any
Excluded Employee from (i) any employment-related liability and (ii) any
liability relating to, arising under or in connection with any Employee Benefit
Plan or Employee Arrangement, including any liability under COBRA, whether
arising prior to or after the Closing Date.
(l) Sellers and Acquiror agree to cooperate to carry out the duties
and responsibilities contained in this Section 5.9. In addition, Sellers agree
to make available to Acquiror such information as Acquiror may reasonably
request to facilitate the determination of (i) the period of service of any PEPL
Employee with the PEPL Companies or any of their Affiliates prior to the Closing
Date, (ii) individual service accruals and salary histories of the PEPL
Employees and (iii) such other information as Acquiror may reasonably request to
carry out the provisions of this Section 5.9.
5.10 Preservation of Records. Acquiror agrees that it shall, at its
own expense, preserve and keep the records held by it relating to the Business
that could reasonably be required after the Closing by Sellers for as long as is
specified for such categories of records in document retention program
applicable to the Business in effect on the Closing Date (a copy of which has
been provided to Acquiror). In addition, Acquiror shall make such records
available to Sellers as may be reasonably required by Sellers in connection
with, among other things, any insurance claim, legal proceeding or governmental
investigation relating to the Business. Notwithstanding the foregoing, Sellers
shall retain with respect to each PEPL Company all original books, records,
reports, Tax Returns and all other information relating to Taxes for taxable
periods that end on or prior to the Closing Date. At Acquiror's request, Sellers
shall provide copies of such retained materials (including computer files and
similar electronic media), at Acquiror's expense, to Acquiror.
43
<PAGE>
5.11 Other Agreements. Each of PEC and Acquiror agrees that it
shall, on or prior to the Closing, enter into (i) a Transition Services
Agreement for PEC Services, substantially in the form of Exhibit D-1 hereto,
with respect to transition services to be provided by PEC or its Affiliates to
the Sold Subsidiaries or their Affiliates, (ii) a Transition Services Agreement
for Sold Subsidiary Services, substantially in the form of Exhibit D-2 hereto,
with respect to transition services to be provided by the Sold Subsidiaries to
PEC or its Affiliates, (iii) a LNG Terminal & Transportation Agreement,
substantially in the form of Exhibit E hereto, with respect to terminaling and
transportation services to be provided to PEC by Acquiror, (iv) an Intellectual
Property Agreement, substantially in the form of Exhibit F hereto, with respect
to Intellectual Property to be utilized by both Sellers and the PEPL Companies
following the Closing Date, (v) an Access and Support Agreement, substantially
in the form of Exhibit G hereto, with respect to PEC's access to certain data
and employees of the Business in connection with PEC's defense of certain
retained litigation and (vi) an Operation and Maintenance Agreement,
substantially on the terms reflected in Exhibit H hereto, with such
modifications as may be negotiated in good faith by the parties prior to the
Closing Date. Each of PEC and Acquiror shall, and shall cause its respective
subsidiaries to, perform their respective obligations under the agreements
described above. In addition each of PEC and Acquiror agrees that it shall, on
or prior to the Closing, negotiate and enter into definitive agreements relating
to the field services and joint operations described in Section 5.11 of the
Disclosure Schedule.
5.12 Related Party Payments. Except as otherwise provided in this
Agreement and the other agreements and documents contemplated hereby, all
liabilities and obligations of the PEPL Companies to Sellers and other
Subsidiaries of Parent (other than the PEPL Companies) shall be paid or
otherwise settled on or prior to the Closing.
5.13 Insurance. (a) Sellers and Acquiror agree that Casualty
Insurance Claims relating to the Business (including reported claims and
including incurred but not reported claims) will remain with the PEPL Companies
immediately following the Closing. For purposes hereof, "Casualty Insurance
Claims" shall mean workers' compensation, auto liability, general liability and
products liability claims and claims for damages caused to PEPL facilities
generally insured under all risk, real property, boiler and mechanical breakdown
insurance coverage. The Casualty Insurance Claims are subject to the provisions
of
44
<PAGE>
policies of insurance with insurance carriers and contractual arrangements with
insurance adjusters maintained by PEC or its Affiliates prior to the Closing
(collectively, the "Insurance Policies"). With respect to the Casualty Insurance
Claims, the following procedures shall apply: (i) Parent or its Affiliates shall
continue to administer, adjust, settle and pay, on behalf of the PEPL Companies,
all Casualty Insurance Claims with dates of occurrence prior to the date of
Closing; provided, that PEC will obtain the consent of Acquiror prior to
adjusting, settling or paying any Casualty Insurance Claim of an amount greater
than $10,000 and provided, further, that PEC shall permit Acquiror to join PEC
in any settlement negotiations with claimants, insurers or insurance adjusters;
and (ii) PEC shall invoice PEPL at the end of each month for Casualty Insurance
Claims paid on behalf of PEPL by PEC. Acquiror shall cause PEPL to pay the
invoice within 15 days of its date. In the event that PEPL does not pay PEC
within 15 days of such invoice, interest at the rate of 10% per annum shall
accrue on the amount of such invoice. Casualty Insurance Claims to be paid by
PEPL hereunder shall include all costs necessary to settle claims including, but
not limited to, compensatory, medical, legal and other allocated expenses. In
the event that any Casualty Insurance Claim exceeds a deductible or self-insured
retention under the Insurance Policies, PEPL shall be entitled to the benefit of
any insurance proceeds that may be available to discharge any portion of such
Casualty Insurance Claim.
(b) Sellers make no representation or warranty with respect to the
applicability, validity or adequacy of any Insurance Policy, and Sellers shall
not be responsible to Acquiror or any of its Affiliates for the failure of any
insurer to pay under any such Insurance Policy.
(c) Nothing in this Agreement is intended to provide or shall be
construed as providing a benefit or release to any insurer or claims service
organization of any obligation under any Insurance Policy. Sellers and Acquiror
confirm that the sole intention of this Section 5.13 is to divide and allocate
the benefits and obligations under the Insurance Policies between them as of the
Closing Date and not to affect, enhance or diminish the rights and obligations
of any insurer or claims service organization thereunder. Nothing herein shall
be construed as creating or permitting any insurer or claims service
organization the right of subrogation against Sellers or Acquiror or any of
their Affiliates in respect of payments made by one to the other under any
Insurance Policy.
45
<PAGE>
(d) If Acquiror requests a copy of an insurance policy relating to a
pending or threatened Casualty Insurance Claim, Sellers shall provide a copy of
all relevant insurance policies which insure such Casualty Insurance Claim
within five Business Days, provided, that if Sellers cannot provide such policy
within five days after exercising reasonable best efforts to locate such policy,
Sellers shall continue to exercise their reasonable best efforts to provide such
policy to Acquiror as soon as possible thereafter.
5.14 Environmental Remediation. (a) Sellers have conducted or have
caused to be conducted an environmental investigation at the real property on
which is located certain of the material operations of the PEPL Companies
("Sellers' Investigation") and have made available to Acquiror copies of reports
of Sellers' Investigation, which reports are identified on Section 3.17 of the
Disclosure Schedule. In connection with Sellers' Investigation, Sellers have
developed or caused to be developed the PEPL Cleanup Program and the TGC Cleanup
Program, which established programs regarding further investigation and
remediation of certain real property to address the presence of polychlorinated
biphenyls (PCB) and petroleum hydrocarbons in the environment (the "Work").
(b) As of the Closing, PEC shall have implemented, but not
completed, the Work required by the PEPL Cleanup Program and the TGC Cleanup
Program. From and after the Closing, PEC agrees to complete all of the Work
required by the PEPL Cleanup Program and the TGC Cleanup Program at PEC's sole
cost and expense. In undertaking the Work, PEC shall: (1) comply in all material
respects with applicable Environmental Laws; (2) provide Acquiror with a written
scope of work related to any phase of the Work, including, but not limited to,
the type, location, number and laboratory analyses to be conducted in connection
with such work, the identity of all significant contractors related to such
work, and the schedule for such work; (3) provide Acquiror with reasonable prior
notice of any field work to be conducted in connection with the Work and
coordinate with Acquiror to ensure that such field work does not unreasonably
interfere with any of Acquiror's or the PEPL Companies' operations or pose an
unreasonable risk of harm to persons or property; (4) allow employees and
representatives of Acquiror and the PEPL Companies to be present to observe all
field work conducted by Sellers in connection with the Work; (5) promptly
provide Acquiror and the PEPL Companies with copies of all final and complete
data, documents, correspondence, reports, or other information related to the
Work; (6) provide Acquiror and
46
<PAGE>
the PEPL Companies with a reasonable opportunity to review and comment on any
submissions to be provided to governmental regulators with respect to the Work
and make reasonable efforts to accommodate the comments of Acquiror and the PEPL
Companies, provided that the comments are consistent with the scope of work and
the approach of the PEPL and TGC Cleanup Programs; (7) provide Acquiror and the
PEPL Companies with reasonable advance notice of all meetings with governmental
regulators with respect to the Work, and allow Acquiror and the PEPL Companies
and their representatives to attend (but not to actively participate in) such
meetings; (8) furnish evidence, in a form reasonably acceptable to Acquiror, of
general liability, automotive and workers compensation insurance issued to
Sellers and/or its contractors and consultants, naming Acquiror and the PEPL
Companies as additional insureds, and protecting Acquiror and the PEPL Companies
and their agents, employees, tenants and invitees from and against personal
injury and property damage with respect to the performance of the Work; (9) not
permit any lien to be filed against any of the property of the PEPL Companies
for any labor or materials in connection with the Work, and, in the event that
such lien is filed, shall cause such lien to be removed no later than 30 days
after the filing of such lien; (10) to the extent permitted by Environmental
Law, maintain responsibility and liability for managing all waste materials
generated in connection with the performance of the Work, including, but not
limited to, the proper disposal of any contaminated media, pollutants or
hazardous waste that is generated in connection with the Work; (11) plug in
compliance with applicable Environmental Laws any and all groundwater monitoring
wells installed pursuant to the PEPL Cleanup Program and the TGC Cleanup Program
and repair and restore, to the extent practical, any areas of the real property
adversely impacted by soil borings taken by Sellers as part of the PEPL Cleanup
Program and the TGC Cleanup Program; and (12) ensure that implementation of the
Work does not prevent or materially impair the PEPL Companies from using the
property as currently used.
(c) Subject to Section 5.14(b), Acquiror shall assist and shall
cause its and the PEPL employees to reasonably assist PEC, its agents or
representatives with undertaking the Work, provided, that such assistance shall
not require it or any of the PEPL Companies to incur any out-of-pocket costs or
expenses not reimbursable by Sellers pursuant to this Agreement. Acquiror will
not knowingly or intentionally obstruct, hinder, or increase the scope or the
expense of the Work and will not seek to influence any Governmental Authority to
increase the scope of the Work, impose more stringent cleanup criteria or
otherwise make it
47
<PAGE>
more difficult or costly for Sellers to complete the Work required under the
PEPL and TGC Cleanup Programs. Acquiror shall afford PEC and its agents and
representatives, including, but not limited to environmental contractors and
consultants, with reasonable cooperation, including, but not limited to
reasonable access to any of the real property for which Work is required,
relevant records and personnel. Reasonable cooperation shall also include, but
not be limited to: (i) providing access to water, telephone lines, electricity
and other readily available utilities reasonably necessary to undertake any
Work; (ii) permission to operate, maintain and upgrade any equipment, associated
piping, monitoring and extraction wells and other items and appurtenances
necessary to operate and maintain any necessary remediation system; (iii)
notification by Acquiror as soon as practicable of any event or environmental
condition at any site subject to Work that Acquiror reasonably believes could
adversely affect PEC's continuing obligations under this section; (iv) procuring
additional Environmental Permits, if necessary, in order to undertake the
required Work; and (v) filing any necessary reports with Governmental
Authorities.
5.15 Financing. (a) On or prior to November 23, 1998, Acquiror will
deliver to Sellers (i) true and complete copies of firm commitment letters from
nationally recognized financial institutions to provide debt financing, subject
to the execution of definitive financing arrangements and other normal
conditions applicable to credits of a similar nature, for use as payment of a
portion of the Purchase Price in an amount not less than $1,900,000,000, less
any amount that Acquiror places in escrow pursuant to Section 5.15(b) (the
"Commitment Letters") and (ii) all waivers necessary to consummate the
transactions contemplated by this Agreement including, without limitation, those
referenced on Section 4.4 of the Disclosure Schedule. Acquiror agrees to extend
the termination date of the Commitment Letters upon their original expiration
for a period ending on the Closing Date or the termination of this Agreement
pursuant to Article IX.
(b) Acquiror agrees to promptly notify Sellers if at any time prior
to the Closing Date it no longer believes in good faith that it will be able to
borrow at least $1,900,000,000, less any amount that Acquiror places in escrow
pursuant to this Section 5.15(b), substantially on the terms described in the
Commitment Letters. Acquiror shall not borrow any amounts available under any
facilities established pursuant to the Commitment Letters, except for use in
paying the Purchase Price at Closing or any amount remaining available under
such facilities after payment in full of the Purchase Price; provided, that the
foregoing
48
<PAGE>
restriction shall not apply to the extent that Acquiror places cash in escrow
for the payment of the Purchase Price, pursuant to an escrow agreement
reasonably satisfactory to Sellers.
5.16 LNG Port Facility Bonds. Acquiror understands that certain of
the facilities comprising the operations of LNG (the "LNG Facilities") were
financed with the proceeds of bonds issued by the Lake Charles Harbor and
Terminal District, the interest on which is excludable, for federal income tax
purposes, from the gross income of the holders thereof (the "Lake Charles
Bonds"). Acquiror further understands that the federal tax-exempt status of the
Lake Charles Bonds is based on, among other things, the LNG Facilities being
property that is used (or property that is functionally related and subordinate
to property that is used) to off-load products from waterborne vessels that dock
at the LNG Facilities and to store temporarily the products off-loaded (the
"Qualifying Use"). Acquiror represents to Sellers that it has no intention or
expectation of using the LNG Facilities for any purpose other than the
Qualifying Use described in the preceding sentence. Acquiror agrees that it will
notify Sellers in writing of any use of the Facilities different than the
Qualifying Use described above as soon as practicable after it decides to
commence such different use and in no event later that five business days after
such different use commences.
5.17 Superfund Claims. Sellers covenant and agree that after the
Closing, Sellers shall have the sole and exclusive responsibility for
conducting, defending and prosecuting on behalf of the Acquiror and the PEPL
Companies any claim against or obligation of TGC under CERCLA, RCRA or the
analogous Arkansas laws as a result of TGC being identified as a potentially
responsible party at the South Eighth Street Superfund Site, in West Memphis,
Arkansas, and the Gurley Pit Superfund Site in Edmonson, Arkansas (collectively,
the "Superfund Claims"); provided, Acquiror and the PEPL Companies shall
cooperate with Sellers with respect to the conduct, defense, and prosecution of
any Superfund Claims, which cooperation shall include, but not be limited to,
providing timely and adequate notice of any claims, consenting to settlements,
and making people and records available, although Acquiror and the PEPL
Companies shall not be required to incur any out-of-pocket expenses unless
Sellers have agreed to reimburse all such out-of-pocket expenses.
49
<PAGE>
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to the Obligations of Acquiror and Sellers. The
respective obligation of each party to effect the Closing is subject to the
satisfaction of the following conditions or written waiver thereof by each party
hereto (to the extent permitted under Applicable Laws) on or prior to the
Closing Date:
(a) No Injunctions or Restraints. No statute, rule, regulation,
decree, preliminary or permanent injunction, temporary restraining order or
other order of any nature of any U.S. federal or state Governmental Authority
shall be in effect that restrains or prevents the transactions contemplated
hereby; provided, however, that in the case of a decree, injunction or other
order, each of the parties shall use its best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
decree, injunction or other order.
(b) HSR Act. The applicable waiting periods under the HSR Act shall
have expired or been terminated.
(c) Consents Obtained. All consents set forth in Section 6.1(c) of
the Disclosure Schedule shall have been obtained.
6.2 Conditions to the Obligations of Acquiror. The obligation of
Acquiror to effect the Closing is further subject to the satisfaction of the
following conditions, any or all of which may be waived in writing on or prior
to the Closing Date by Acquiror.
(a) Representations and Warranties. The representations and
warranties of Sellers made herein shall be true and correct in all material
respects at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement and except to the extent that any representation
or warranty is expressly made as of a specified date, in which case such
representation or warranty shall be true and correct in all material respects
only as of such date. Acquiror shall have received a certificate from each
Seller to that effect dated the Closing Date and signed on behalf of such Seller
by an authorized officer of such Seller.
(b) Agreements. Each Seller shall have performed in all material
respects all of its material obligations required to be performed by it under
this Agreement at or
50
<PAGE>
prior to the Closing Date, and Acquiror shall have received a certificate from
each Seller to that effect dated the Closing Date and signed on behalf of such
Seller by an authorized officer of such Seller.
(c) Government Action. There shall not be pending any suit, action
or proceeding by any Governmental Authority, domestic or foreign, (i) seeking to
prohibit or impose, in connection with the transactions contemplated hereby, any
material limitations on Acquiror's ownership or operation (or that of any of its
Subsidiaries or Affiliates) of all or a material portion of Acquiror's business
or assets, or the businesses or assets of the PEPL Companies, or to compel the
Acquiror or its Subsidiaries and Affiliates or the PEPL Companies to dispose of
or hold separate any material portion of the business or assets of the PEPL
Companies or the Acquiror, (ii) seeking to restrain or prohibit the consummation
of the Closing or the performance of any of the other transactions contemplated
hereby or (iii) seeking to impose material limitations on the ability of the
Acquiror effectively to exercise full rights of ownership of the Shares.
(d) Material Adverse Effect. There shall not have occurred any
Material Adverse Effect.
(e) Resignation of Directors of the PEPL Companies. All of the
directors of the PEPL Companies shall have tendered their resignations as
members of such board to such PEPL Company.
6.3 Conditions to the Obligations of Sellers. The obligation of
Sellers to effect the Closing is further subject to the satisfaction of the
following conditions, any or all of which may be waived in writing on or prior
to the Closing Date by Sellers:
(a) Representations and Warranties. The representations and
warranties of Acquiror made herein shall be true and correct in all material
respects, at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement and except to the extent that any representation
or warranty is expressly made as of a specified date, in which case such
representation or warranty shall be true and correct in all material respects,
only as of such date. Sellers shall have received a certificate to that effect
dated the Closing Date and signed on behalf of Acquiror by an authorized officer
of Acquiror.
(b) Agreements. Acquiror shall have performed in all material
respects all of its material obligations
51
<PAGE>
required to be performed by it under this Agreement at or prior to the Closing
Date, and Sellers shall have received a certificate to that effect dated the
Closing Date and signed on behalf of Acquiror by an authorized officer of
Acquiror.
(c) Government Action. There shall not be pending any suit, action
or proceeding by any Governmental Authority, domestic or foreign, seeking to
restrain or prohibit the consummation of the Closing or the performance of any
of the other transactions contemplated hereby.
ARTICLE VII
SURVIVAL; GENERAL INDEMNIFICATION
7.1 Survival. All of the representations and warranties of Sellers
and Acquiror contained in this Agreement (other than in Section 3.10) and all
claims and causes of action with respect thereto shall terminate on March 31,
2000 and notices of such claims for indemnification under Section 7.2(a) or
7.3(a) must be given prior to March 31, 2000. In the event notice of such claim
for indemnification under Section 7.2(a) or Section 7.3(a) is given (within the
meaning of Section 10.5) within the applicable survival period, the
representations and warranties that are the subject of such indemnification
claim shall survive with respect to such claim until such time as such claim is
finally resolved.
7.2 Indemnification by Acquiror. (a) Subject to Section 7.1 and
7.2(b), and except as otherwise provided in Article VIII, Acquiror hereby agrees
that it shall indemnify, defend and hold harmless Sellers and their respective
stockholders, directors, officers, employees, representatives, advisors, agents
and Affiliates (the "Seller Indemnified Parties") from, against and in respect
of any and all damages, claims, losses, charges, actions, suits, proceedings,
deficiencies, Taxes, interest, penalties, and reasonable costs and expenses (but
not including, consequential, exemplary, special and punitive damages and lost
profits, other than such damages awarded to any third party against an
Indemnified Party) (collectively, the "Losses") arising out of, relating to or
resulting from, directly or indirectly:
(i) any breach of any representation or warranty made by
Acquiror contained in this Agreement;
(ii) the breach of any covenant or agreement of Acquiror
contained in this Agreement; and
52
<PAGE>
(iii) except as otherwise provided in Article VIII or
specifically enumerated as an item as to which Sellers will indemnify
Acquiror pursuant to Section 7.3, all liabilities and obligations of the
PEPL Companies and/or the Business, regardless of when they arose or arise
and regardless of by whom or when asserted (including, without limitation,
all liabilities and expenses attributable to the PEPL Employee Benefit
Plans and the PEPL Employee Arrangements or otherwise to be assumed or
paid by Acquiror or the PEPL Companies pursuant to Section 5.9).
(b) Acquiror shall not be liable to the Seller Indemnified Parties
for any Losses with respect to the matters enumerated in Section 7.2(a)(i)
unless the Losses therefrom exceed an aggregate amount equal to $45 million (the
"Deductible"), and then only for such Losses in excess of such amount, and only
up to an aggregate amount equal to $250 million. For purposes of this Section
7.2 only, the representations and warranties of Acquiror contained in this
Agreement shall be read without giving effect to any "materiality" exceptions;
provided, that Losses relating to any single breach or series of related
breaches of such representations and warranties shall be deemed to not
constitute a Loss, and therefore shall not consume the Deductible or be
indemnifiable hereunder, unless such Losses relating to any single breach or
series of related breaches exceed $1 million.
(c) Notwithstanding any other provision in this Agreement to the
contrary, this Section 7.2 shall not apply to any claim of indemnification with
respect to Tax matters. Claims for indemnification with respect to Tax matters
shall be governed by Article VIII.
7.3 Indemnification by Sellers. (a) Subject to Sections 7.1 and
7.3(b), and except as otherwise provided in Article VIII, Sellers hereby agree
to jointly and severally indemnify, defend and hold harmless Acquiror and its
directors, officers, employees, representatives, advisors, agents and Affiliates
(other than employees of the PEPL Companies) (the "Acquiror Indemnified
Parties") from, against and in respect of any Losses arising out of, relating to
or resulting from, directly or indirectly:
(i) any breach of any representation or warranty made by
Sellers contained in this Agreement;
(ii) the breach of any covenant or agreement of Sellers
contained in this Agreement; provided, that
53
<PAGE>
with respect to the covenant contained in Section 5.14, Sellers shall have
no obligation to indemnify the Acquiror Indemnified Parties for any Losses
incurred due to Acquiror's decision to voluntarily undertake any of the
Work; and provided, further, that (A) if Sellers refuse to complete the
Work notwithstanding the covenant set forth in Section 5.14 or (B) if
Acquiror or the PEPL Companies are ordered by a Governmental Authority to
undertake any investigation or remediation that is encompassed in the
Work, and, after giving Sellers reasonable and timely notice of the
Governmental Authority's order, the Sellers have refused to undertake such
part of the Work encompassed by the Governmental Authority order, then
Sellers shall have an obligation to indemnify the Acquiror Indemnified
Parties for Losses they reasonably incur with respect to any portion of
the Work undertaken by Acquiror or the PEPL Companies under such
circumstances;
(iii) any liabilities and expenses attributable to
Employee Benefit Plans (other than PEPL Employee Benefit Plans) and
Employee Arrangements (other than PEPL Employee Arrangements), except for
liabilities and expenses to be paid by Acquiror and/or PEPL pursuant to
Section 5.9;
(iv) any liabilities and expenses of the PEPL
Companies attributable to the Wattenberg System;
(v) any liabilities and expenses attributable to (A)
Anadarko Petroleum Corporation v. PanEnergy Pipe Line Company, Panhandle
Eastern Pipe Line Company, PanEnergy Corporation and Panhandle Eastern
Corporation, et al. (Cause No. 97-25497) and (B) Riverside Pipeline
Company, L.P., Kansas Pipeline Partnership, The Bishop Pipeline Company,
Syenergy Pipeline Company, L.P., Kansas Natural Partnership, Kansok
Partnership, Riverside Pipeline Partnership and Margasco v. Panhandle
Eastern Pipe Line Company (Case No. 97-0642-CV-W-4); provided, that
Sellers shall have no obligation to indemnify the Acquiror Indemnified
Parties for any Losses pursuant to clause (A) of this Section 7.3(a)(v) in
excess of the Losses which would be incurred under the "Order On
Compliant" issued October 20, 1998 by the FERC (85 FERC ? 61,090) as in
effect at the Closing, without giving effect to any subsequent change,
modification, or amendment which may be made by the FERC by any subsequent
order issued on or after the Closing, unless Acquiror and/or the PEPL
Companies have taken all reasonable steps to oppose the
54
<PAGE>
issuance of the subsequent order effecting such change, modification or
amendment, or, if issued, to seek rehearing of the subsequent order before
the FERC or the appeal courts, and despite such efforts such subsequent
order remains in full force and effect;
(vi) any liabilities and expenses attributable to the
contracts set forth in Section 7.3(a)(vi) of the Disclosure Schedule;
(vii) any Environmental Costs and Liabilities
attributable to the Superfund Claims; provided, that Acquiror and the PEPL
Companies have complied with their obligations under Section 5.17 of this
Agreement;
(viii) any fines assessed by the Illinois Environmental
Protection Agency and actually incurred by the PEPL Companies (after a
good faith attempt to obtain a reduction in any assessment) as a result of
the currently alleged violations by PEPL of the existing air permit at the
Glenarm, IL, compressor station, but not any other costs, expenses,
liabilities or obligations of any nature relating thereto, including,
without limitation, the costs of any required capital improvements
necessary to bring the Glenarm, IL, compressor unit into compliance with
current or future air regulation; and
(ix) the liability, if any, for customer refunds owed by
TGC pursuant to Article VIII ("Provisions Respecting the LNG Terminal") of
"the Offer of Settlement" dated July 15, 1992 (the "LNG FERC Settlement")
approved by the FERC Order dated August 28, 1992 (60 FERC ? 61,209) to the
extent such refunds are in fact made in accordance with the LNG FERC
Settlement.
(b) Sellers shall not be liable to the Acquiror Indemnified Parties
for any Losses with respect to the matters enumerated in Sections 7.3(a)(i)
unless the Losses therefrom exceed an aggregate amount equal to the Deductible,
and then only for such Losses in excess of the Deductible, and only up to an
aggregate amount equal to $250 million. For purposes of this Section 7.3 only,
the representations and warranties of Sellers contained in this Agreement shall
be read without giving effect to any "Material Adverse Effect" or "materiality"
exceptions; provided, that Losses relating to any single breach or series of
related breaches of such representations and warranties shall be deemed to not
constitute a Loss, and therefore shall not consume the Deductible or be
55
<PAGE>
indemnifiable hereunder, unless such Losses relating to any single breach or
series of related breaches exceed $1 million.
(c) Notwithstanding any other provision in this Agreement to the
contrary, this Section 7.3 shall not apply to any claim of indemnification with
respect to Tax matters. Claims for indemnification with respect to Tax matters
shall be governed by Article VIII.
7.4 Procedure for Indemnification. Subject to Section 7.1, all
claims for indemnification under this Article VII shall be asserted and resolved
as follows:
(a) In the event that any claim or demand, or other circumstance or
state of facts which could give rise to any claim or demand, for which an
Indemnifying Party may be liable to an Indemnified Party hereunder, is asserted
or sought to be collected by a third party (an "Asserted Liability"), the
Indemnified Party shall as soon as reasonably possible notify the Indemnifying
Party in writing of such Asserted Liability, specifying the nature of such
Asserted Liability (the "Claim Notice"); provided, that no delay on the part of
the Indemnified Party in giving any such Claim Notice shall relieve the
Indemnifying Party of any indemnification obligation hereunder except to the
extent that the Indemnifying Party is materially prejudiced by such delay. The
Indemnifying Party shall have 60 days (or less if the nature of the Asserted
Liability requires) from its receipt of the Claim Notice (the "Notice Period")
to notify the Indemnified Party whether or not the Indemnifying Party desires,
at the Indemnifying Party's sole cost and expense and by counsel of its own
choosing, to defend against such Asserted Liability; provided, that if, under
applicable standards of professional conduct a conflict on any significant issue
between the Indemnifying Party and any Indemnified Party exists in respect of
such Asserted Liability, then the Indemnifying Party shall reimburse the
Indemnified Party for the reasonable fees and expenses of one additional counsel
(who shall be reasonably acceptable to the Indemnifying Party). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not be unreasonably withheld), consent to any settlement
unless such settlement (i) includes a complete release of the Indemnified Party
and (ii) does not require the Indemnified Party to make any payment or forego or
take any action. Notwithstanding the foregoing, the Indemnified Party shall have
the right to control, pay or settle any Asserted Liability which the
Indemnifying Party shall have undertaken to defend so long as the Indemnified
Party shall also waive any right to
56
<PAGE>
indemnification therefor by the Indemnifying Party. If the Indemnifying Party
undertakes to defend against an Asserted Liability, the Indemnified Party shall
cooperate fully with the Indemnifying Party and its counsel in the
investigation, defense and settlement thereof, but the Indemnifying Party shall
control the investigation, defense and settlement thereof. If the Indemnified
Party desires to participate in any such defense it may do so at its sole cost
and expense. If the Indemnifying Party elects not to defend against such
Asserted Liability, then the Indemnifying Party shall have the right to
participate in any such defense at its sole cost and expense, but the
Indemnified Party shall control the investigation, defense and settlement
thereof at the reasonable cost and expense of the Indemnifying Party. The
Indemnifying Party shall not be liable for any settlement of any Asserted
Liability effected without its prior written consent (which consent shall not be
unreasonably withheld).
(b) In the event that an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted by a third party, the Indemnified Party shall send a Claim
Notice with respect to such claim to the Indemnifying Party. The Indemnifying
Party shall have 60 days from the date such Claim Notice is delivered during
which to notify the Indemnified Party in writing of any good faith objections it
has to the Indemnified Party's Claim Notice or claims for indemnification,
setting forth in reasonable detail each of the Indemnifying Party's objections
thereto. If the Indemnifying Party does deliver such written notice of objection
within such 60-day period, the Indemnifying Party and the Indemnified Party
shall attempt in good faith to resolve any such dispute within 60 days of the
delivery by the Indemnifying Party of such written notice of objection.
(c) With respect to the liabilities for which Sellers may be
required to provide indemnification pursuant to Section 7.3(a)(i) resulting from
a breach or alleged breach of Section 3.17, the Acquiror Indemnified Parties
shall cooperate with Sellers, provide Sellers as promptly as possible with all
relevant materials, information and data requested by Sellers and shall grant
Sellers, without charge, reasonable access to employees and premises of the PEPL
Companies, including the right to conduct environmental tests thereon and to
take samples therefrom.
(d) Acquiror acknowledges that the indemnification provisions
contained in Section 5.9, this Article VII and Article VIII, together with the
termination rights under Article IX, constitute Acquiror's sole remedies with
respect to any of the matters arising out of or in
57
<PAGE>
connection with this Agreement, the Disclosure Schedule or any Exhibit hereto.
Acquiror acknowledges and agrees that: (i) Acquiror and its representatives have
the experience and knowledge to evaluate the business, financial condition,
assets and liabilities of the PEPL Companies; and (ii) in determining to acquire
the Shares and, therefore, the Business and the underlying assets and
liabilities of the PEPL Companies (including the real property, fixtures and the
tangible personal property), Acquiror has made its own investigation into, and
based thereon Acquiror has formed an independent judgment concerning, the
Shares, the Business and the underlying assets and liabilities of the PEPL
Companies (including the real property, fixtures and the tangible personal
property). It is therefore expressly understood and agreed that, except as
otherwise provided in this Agreement, Acquiror accepts the condition of the real
property and tangible personal property of the PEPL Companies "AS IS, WHERE IS"
without any representation, warranty or guarantee, express or implied, as to
merchantability, fitness for a particular purpose or otherwise as to the
condition, size, extent, quantity, type or value of such property. Acquiror
hereby waives, releases and agrees not to make any claim or bring any
contribution, cost recovery or other action against Sellers, their respective
Affiliates, and, if applicable, their respective directors, officers,
shareholders, partners, attorneys, accountants, agents and employees and their
heirs, successors and assigns, under the Environmental Laws, common law, or any
federal, state or local environmental or other law or regulation now existing or
hereafter enacted other than for Losses which Sellers are expressly required to
indemnify Acquiror under this Article VII or for specific performance of
Sellers' obligations under Section 5.14. Acquiror agrees that it will not bring
any such claim or action under any Environmental Laws or any other environmental
or other law or regulation which seeks to allocate liabilities between Acquiror
and Sellers in a different manner than as expressly set forth in this Agreement
or in a more costly manner than would be the case under applicable Environmental
Laws or other laws in effect on the date hereof.
7.5 Characterization of Indemnification Payments. All amounts paid
by Acquiror or Sellers, as the case may be, under this Article VII or Article
VIII shall be treated as adjustments to the Purchase Price for all Tax purposes.
7.6 Computation of Losses; Disputes. The amount of any Losses for
which indemnification is provided under Section 5.9, this Article VII or Article
VIII shall be reduced by (x) any related Tax benefits if and when actually
58
<PAGE>
realized or received, and (y) any insurance recovery if and when actually
realized or received in each case in respect of such Losses. Any such recovery
shall be promptly repaid by the Indemnified Party to the Indemnifying Party
following the time at which such recovery is realized or received pursuant to
the previous sentence, minus all reasonably allocable costs, charges and
expenses incurred by the Indemnified Party in obtaining such recovery.
Notwithstanding the foregoing, if (x) the amount of Indemnifiable Losses for
which the Indemnifying Party is obligated to indemnify the Indemnified Party is
reduced by any Tax benefit or insurance recovery in accordance with the
provisions of the previous sentence, and (y) the Indemnified Party subsequently
is required to repay the amount of any such Tax benefit or insurance recovery or
such Tax benefit or insurance recovery is disallowed, then the obligation of the
Indemnifying Party to indemnify with respect to such amounts shall be reinstated
immediately and such amounts, plus interest at the Agreed Rate, shall be paid
promptly to the Indemnified Party in accordance with the provisions of this
Agreement.
ARTICLE VIII
TAX MATTERS; TAX INDEMNIFICATION
8.1 Tax Matters. (a) Taxes. Sellers shall be jointly and
severally liable for, shall promptly defend and shall indemnify and hold each of
the Acquiror Indemnified Parties harmless from and against, any and all Losses
suffered or incurred by any Acquiror Indemnified Party resulting from, arising
out of, based upon or relating to, the following:
(i) any and all Taxes imposed on any member of a
consolidated, combined or unitary group of which any PEPL Company (or any
predecessor) is or was a member on or prior to the Closing Date, by reason
of the liability of any PEPL Company pursuant to Treasury Regulation
Section 1.1502-6(a) or any similar foreign, state or local law or
regulation;
(ii) any breach of any of the representations and
warranties contained in Section 3.10;
(iii) except as provided in Section 8.1(d), any and all
Taxes imposed on any PEPL Company resulting from, arising out of, based on
or relating to the transactions contemplated by Section 2.3;
59
<PAGE>
(iv) any and all Taxes imposed on any PEPL Company (or
any predecessor), or for which any PEPL Company (or any predecessor) may
otherwise be liable, for any taxable year or period that ends on or before
the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period deemed to end on and including the Closing Date; and
(v) any and all Taxes imposed by any taxing authority on
any PEPL Company resulting from, arising out of, based on or relating to
the Election made pursuant to Section 8.6.
provided, however, that Sellers shall not be liable for and shall not indemnify
the Acquiror Indemnified Parties against any liability for Taxes resulting from
transactions or actions taken by the Acquiror, any PEPL Company or any of their
respective Affiliates on the Closing Date but after the Closing shall have
occurred that are outside the ordinary course of business and not contemplated
by this Agreement ("Excluded Taxes").
(b) Acquiror shall be liable for, shall promptly defend and shall
indemnify and hold the Seller Indemnified Parties harmless from and against any
and all Losses suffered or incurred by any of them resulting from, arising out
of, based upon or relating to, the following:
(i) any and all Taxes imposed on any PEPL Company for
any taxable year or period that begins after the Closing Date and,
with respect to any Straddle Period, the portion of such Straddle
Period beginning after the Closing Date;
(ii) Excluded Taxes; and
(iii) any failure by Acquiror to timely pay any and all
Taxes required to be borne by Acquiror referred to in Section
8.1(d).
(c) To the extent permitted by law or administrative practice, (A)
the taxable year of each PEPL Company that includes the Closing Date shall be
treated as closing on (and including) the Closing Date and (B) all transactions
not in the ordinary course of business occurring on the Closing Date but after
the Closing shall have occurred shall be reported on Acquiror's consolidated
United States federal income Tax Return to the extent permitted by Treasury
Regulation Section 1.1502-76(b)(1)(ii)(B) and shall be similarly reported on
other Tax Returns of Acquiror or its Affiliates to the extent
60
<PAGE>
permitted by law. For purposes of paragraphs (a)(iv) and (b)(i) above, where it
is necessary to apportion between Sellers and Acquiror the Tax liability of an
entity for a Straddle Period (which is not treated under the immediately
preceding sentence as closing on the Closing Date), such liability shall be
apportioned between the period deemed to end at the close of the Closing Date
and the period deemed to begin at the beginning of the day following the Closing
Date on the basis of an interim closing of the books, except that (1)
exemptions, allowances or deductions that are calculated on a time basis (such
as the deduction for depreciation) shall be apportioned on a time basis and (2)
Taxes (such as real property Taxes) imposed on a periodic basis shall be
allocated on a daily basis over the period to which such Taxes relate. Property
Taxes shall be deemed to relate to the one-year period beginning on the
assessment date except for Indiana property Taxes, which shall be deemed to
relate to the calendar year in which the assessment date occurs.
(d) Any real property transfer or gains tax, sales tax, use tax,
stamp tax, stock transfer tax or other similar tax, including any penalties,
interest and additions to tax (collectively, "Transfer Taxes") imposed by reason
of the transactions contemplated by this Agreement, including Section 2.3, shall
be borne 50% by Acquiror and 50% by Sellers.
(e) On or before the Closing Date, Sellers shall terminate, or cause
to be terminated, all agreements between any of the PEPL Companies and the
Sellers or any of their Subsidiaries other than the PEPL Companies that provide
for the allocation of any Taxes. Thereafter, all obligations between any of the
PEPL Companies and the Sellers or any of their Subsidiaries other than the PEPL
Companies with respect to Taxes shall be governed solely by this Agreement.
8.2 Tax Returns.
(a) (i) Sellers shall file or cause to be filed when due all Tax
Returns that are required to be filed (taking into account extensions) by or
with respect to each PEPL Company on or before the Closing Date, and Sellers
shall remit (or cause to be remitted) any Taxes due in respect of such returns.
(ii) Sellers shall also file or cause to be filed when due all Tax Returns
relating to Taxes of a consolidated, combined or unitary group of which a PEPL
Company and Sellers (or any Affiliate of Sellers other than a PEPL Company) were
members on or prior to the Closing Date, that are required to be filed by or
with respect to each PEPL Company for taxable years or periods ending on or
61
<PAGE>
before the Closing Date, and Sellers shall remit (or cause to be remitted) any
Taxes due in respect of such Tax Returns. (iii) Sellers shall prepare or cause
to be prepared all Tax Returns that are due after the Closing Date (including
extensions) with respect to each PEPL Company that relate to taxable years or
periods ending on or before the Closing Date and shall submit such Tax Returns
to Acquiror for Acquiror's approval (which shall not be unreasonably withheld or
delayed) 20 days prior to the due date (including extensions) for the filing of
such Tax Returns. Acquiror shall thereafter timely file such Tax Returns.
Sellers shall pay to Acquiror the amount of Taxes shown due on such Tax Returns
upon the written request of Acquiror no later than five business days prior to
the due date (including extensions) for the filing of such Tax Returns. All Tax
Returns referred to in this Section 8.2(a) shall be prepared in a manner
consistent with prior practice and in accordance with applicable law.
(b) Acquiror shall file or cause to be filed when due all other Tax
Returns that are required to be filed by or with respect to each PEPL Company
after the Closing Date, and Acquiror shall remit (or cause to be remitted) any
Taxes due in respect of such Tax Returns.
(c) Any Tax Return required to be filed by Acquiror pursuant to
Section 8.2(b) that relates in whole or in part to Taxes for which Sellers are
liable pursuant to Section 8.1 shall be submitted to Sellers for Sellers'
approval not less than 20 days prior to the due date (including extensions) for
the filing of such Tax Return, which approval shall not be unreasonably withheld
or delayed. Sellers shall pay to Acquiror the amount of Taxes for which Sellers
are liable pursuant to Section 8.1(a) hereof, but which are payable with any Tax
Return to be filed by Acquiror pursuant to Section 8.2(b) upon the written
request of Acquiror, setting forth in detail the computation of the amount owed,
no later than five business days prior to the due date (including extensions) of
any such Tax Return. No payment pursuant to this Section 8.2(c) will affect
Acquiror's right to indemnification pursuant to Section 8.1(a) hereof, should
the amount of Taxes as ultimately determined (on audit or otherwise), for the
periods covered by such Tax Returns and which are the responsibility of Sellers,
exceed the amount of Sellers' payment under this Section 8.2(c).
(d) None of Acquiror or any Affiliate of Acquiror shall (or shall
cause or permit any PEPL Company to) amend, refile or otherwise modify any Tax
Return relating in whole or in part to any PEPL Company with respect to any
taxable
62
<PAGE>
year or period ending on or before the Closing Date (or with respect to any
Straddle Period) without the prior written consent of Sellers.
(e) Within 150 days after the Closing Date, Acquiror shall cause
each PEPL Company to prepare and provide to Sellers a package of Tax information
materials, including schedules and work papers (the "Tax Package") required by
Sellers to enable Sellers to prepare and file all Tax Returns required to be
prepared and filed by it pursuant to Section 8.2(a); provided, however, that to
the extent that information relating to the Election (as defined in Section 8.6
of this Agreement) (including, but not limited to, valuation information) is not
available at the time that the Tax Package is required to be provided to
Sellers, Acquiror shall provide Sellers with the balance of the Tax Package at
such time and shall promptly provide such other information to Sellers upon its
becoming available. The Tax Package shall be prepared in good faith in a manner
consistent with past practice.
8.3 Tax Contests.
(a) If a notice of deficiency, proposed adjustment, assessment,
audit, examination or other administrative or court proceeding, suit, dispute or
other claim (a "Tax Claim") shall be delivered, sent, commenced or initiated, in
writing, to or against Acquiror or Sellers, any of either of their respective
Affiliates, or any PEPL Company (a "Notified Party") by any taxing authority
with respect to Taxes for which the other party may reasonably be expected to be
liable pursuant to Sections 8.1(a) or (b), the Notified Party shall, if informed
thereof, promptly notify the other party in writing of such Tax Claim; provided,
however, that the failure of the Notified Party to give the other party prompt
notice as provided herein shall not relieve the other party of its obligations
under this Article VIII except to the extent that such failure would have a
material adverse effect on such other party.
(b) Sellers shall have the sole right to represent each of the PEPL
Companies' interests in any Tax Claim relating to taxable periods ending on or
before the Closing Date and to employ counsel of its choice at its expense. In
the case of a Straddle Period, Sellers and Acquiror shall jointly have the right
to represent each of the PEPL Companies' interests in any Tax Claim. None of
Acquiror, any of its Affiliates, or any PEPL Company may agree to any settlement
or compromise of any Tax Claim that affects (or that might reasonably be
expected to affect) Sellers' obligations pursuant to Section 8.1(a).
63
<PAGE>
8.4 Refunds and Credits. Sellers shall be entitled to any and all
refunds or credits of Taxes that relate to Taxes for which the Sellers have an
obligation to indemnify the Acquiror Indemnified Parties under Article VIII
hereof. Upon receipt of any such refund or credit Acquiror, any of the PEPL
Companies or any of their respective Affiliates shall promptly remit such refund
or credit, together with any interest thereon actually received, to the Sellers.
8.5 Assistance and Cooperation. After the Closing Date, each of
Sellers and Acquiror shall (and shall cause their respective Affiliates to):
(i) timely sign and deliver such certificates or forms
as may be necessary or appropriate to establish an exemption from (or
otherwise reduce), or file Tax Returns or other reports with respect to,
Taxes described in Section 8.1(d);
(ii) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing in
accordance with Section 8.2;
(iii) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of each PEPL
Company, and consult with the other party and its counsel in connection
with audits and proceedings in which it is representing the PEPL
Companies; and
(iv) make available to the other and to any taxing
authority as reasonably requested in connection with any Tax Return
described in Section 8.2 or any proceeding described in Section 8.3, all
information relating to any Taxes or Tax Returns of each PEPL Company.
Notwithstanding the foregoing or any other provision in this Agreement, neither
Acquiror nor any of its Affiliates shall have the right to receive or obtain any
information relating to Taxes of Sellers or any of their Affiliates other than
information relating solely to the PEPL Companies.
8.6 Election Under Section 338(h)(10).
(a) Sellers and Acquiror shall make a joint election for each PEPL
Company under Section 338(h)(10) of the Code and under any comparable provisions
of state or local law (an "Election") with respect to the purchase of the
Shares. Sellers and Acquiror shall mutually execute and
64
<PAGE>
complete copies of IRS Form 8023 and any similar state or local forms no later
than 60 days prior to the due date (including extensions) for filing such forms
or the Tax Returns to which such forms must be attached. If any changes are
required in these forms as a result of information that is first available after
such forms are prepared, the parties will promptly agree on such changes.
(b) Within 120 days following the Closing Date, Acquiror and Sellers
shall negotiate and draft a schedule (the "Allocation Schedule") allocating the
Modified Adjusted Deemed Sales Price (as defined in Treasury Regulation Section
1.338(h)(10)-1(f)) for each PEPL Company, among the assets of such PEPL Company.
The Allocation Schedule shall be prepared in accordance with Section 338(h)(10)
of the Code and the regulations thereunder. Upon receipt of the Allocation
Schedule, each of Acquiror and Seller shall execute a copy thereof and return
such copy to the other party. The parties shall take no action inconsistent
with, or fail to take any action necessary for, the validity of the Election,
and shall adopt and utilize the asset values as determined on the Allocation
Schedule for the purpose of all Tax Returns filed by them, and shall not
voluntarily take any action inconsistent therewith upon examination of any Tax
Return, in any refund claim, in any litigation or otherwise with respect to such
Tax Returns, unless otherwise required by applicable law.
8.7 Dispute Procedures. If the parties disagree as to the amount
of any payment or allocation to be made under, or any other matter arising out
of, this Article 8, the parties shall attempt in good faith to resolve such
dispute. If such dispute is not resolved within 15 days, the parties shall
submit such dispute for resolution by an independent accounting firm mutually
acceptable to Sellers and Acquiror. The report of the independent accounting
firm shall be final, binding and conclusive on Sellers and Acquiror. The fees
and expenses of such accounting firm shall be borne 50% by Sellers, on the one
hand, and 50% by Acquiror, on the other hand.
8.8 Survival. The covenants and agreements of the parties set
forth in this Article VIII regarding Tax matters shall survive the Closing Date
and shall expire when all applicable statutes of limitation (including any
extensions thereof) with respect to such Taxes have expired. No claim for the
recovery of any Tax claim may be asserted by any Acquiror Indemnified Party
after the expiration of the applicable indemnification period; provided,
however, that claims first asserted in writing by any Acquiror Indemnified Party
with reasonable specificity prior to the
65
<PAGE>
expiration of the applicable indemnification period shall not thereafter be
barred by the expiration of the applicable indemnification period.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated prior to the
Closing:
(a) by agreement of Acquiror and Sellers at any time prior to the
Closing;
(b) by Acquiror, in the event that, as a result of Acquiror's
diligence investigation regarding the Business conducted after the date of this
Agreement, Acquiror shall have learned of facts not previously disclosed to or
otherwise known by Acquiror which establish that Sellers' representations and
warranties are not true and correct in all material respects, and Acquiror
delivers a notice to Sellers which (i) specifies such facts and the basis for
such determination in reasonable detail, (ii) states that the Board of Directors
of Acquiror wishes to terminate this Agreement; and (iii) is received by Sellers
on or prior to 5:00 P.M. on November 23, 1998; provided, that in any such case,
such right of termination shall not apply in the event that Sellers, within 30
days following receipt of such notice, shall have taken such corrective action
as is necessary to cause Sellers' representations and warranties to be true and
correct in all material aspects;
(c) by either Acquiror, on the one hand, or Sellers, on the other
hand, by giving written notice of such termination to the other, if the Closing
shall not have occurred on or prior to March 31, 1999; provided, however, that
the terminating party is not in breach of its obligations under this Agreement
and provided, further that if on March 31, 1999, all of the conditions set forth
in Article VI shall be satisfied or waived in writing, other than the condition
set forth in Section 6.1(b), neither Acquiror nor Sellers may terminate this
Agreement pursuant to this Section 9.1(c) prior to June 30, 1999; or
(d) by Acquiror, so long as Acquiror is not then in breach of its
obligations under this Agreement, upon a breach of any covenant or agreement on
the part of Sellers set forth in this Agreement, or if any representation or
warranty of Sellers shall have been or become untrue, in each case such that the
conditions set forth in Section
66
<PAGE>
6.2(a) or (b) would not be satisfied and such breach or untruth (i) cannot be
cured by the Closing Date or (ii) has not been cured within 30 days of the date
on which Sellers receive written notice thereof from Acquiror;
(e) by Sellers, so long as Sellers are not then in breach of their
obligations under this Agreement, upon a breach of any covenant or agreement on
the part of Acquiror set forth in this Agreement, or if any representation or
warranty of Acquiror shall have been or become untrue, in each case such that
the conditions set forth in Section 6.3(a) or (b) would not be satisfied and
such breach or untruth (i) cannot be cured by the Closing Date or (ii) has not
been cured within 30 days of the date on which Acquiror receives written notice
thereof from Sellers;
(f) By Acquiror or Sellers if any Governmental Authority shall have
issued an order, decree or ruling or taken any other action, which permanently
restrains, enjoins or otherwise prohibits the acquisition by Acquiror of the
Shares and such order, decree, ruling or other action shall have become final
and nonappealable; or
(g) by Sellers, if Acquiror has not complied with the covenant
contained in Section 5.15 on or prior to November 23, 1998.
9.2 Effect of Termination. In the event of termination by Sellers
or Acquiror pursuant to Section 9.1, written notice thereof shall promptly be
given to the other party and, except as otherwise provided herein, the
transactions contemplated by this Agreement shall be terminated and become void
and have no effect, without further action by the other party, other than the
provisions of Section 5.2(b) and Article X. Nothing in this Section 9.2 shall be
deemed to release any party from any liability for any breach by such party of
the terms and provisions of this Agreement.
9.3 Termination Fee. In the event of the termination of this
Agreement (i) by Sellers pursuant to Section 9.1(e) or (g) or (ii) pursuant to
Section 9.1(c) and at the time of such termination pursuant to Section 9.1(c)
Sellers shall have been legally permitted to and shall have offered to proceed
with the Closing, and all of the conditions to Closing set forth in Section 6.1
and Section 6.2 (other than Section 6.2(e)) shall be satisfied or shall have
been waived by Acquiror and the Closing shall not have occurred due to the
refusal or inability of Acquiror to proceed, then Acquiror shall pay to PEC,
within two business days following the date of termination, the sum of
67
<PAGE>
$75,000,000 as a termination fee, which the parties agree shall constitute
liquidated damages to Sellers in respect of any breach by Acquiror of its
obligations hereunder to consummate the transactions contemplated hereby.
ARTICLE X
GENERAL PROVISIONS
10.1 Extension; Waiver. The parties hereto may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions 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 a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
10.2 Amendment. This Agreement may be amended, modified or
supplemented only by written agreement of Acquiror and Sellers at any time prior
to the Closing Date with respect to any of the terms contained herein.
10.3 Expenses. Each of the parties hereto shall pay the fees and
expenses of its respective counsel, accountants and other experts and shall pay
all other costs and expenses incurred by it in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Except as otherwise specifically provided
herein, Sellers shall pay any fees and expenses incurred prior to Closing of any
counsel, accountants and other experts of any of the PEPL Companies in
connection with the negotiation and preparation of this Agreement. Acquiror
shall pay all HSR filing fees in connection with the transactions contemplated
by this Agreement.
10.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to choice of law principles, including all matters of construction,
validity and performance.
10.5 Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in
<PAGE>
writing and shall be deemed to have been duly given if signed by the respective
persons giving them (in the case of any corporation the signature shall be by an
officer thereof) and delivered by hand or mailed registered or certified, return
receipt requested, postage prepaid and addressed as follows:
If to Sellers, to:
PanEnergy Corporation
5400 Westheimer Court
Houston, Texas 77056
Attention: General Counsel
and
Duke Energy Corporation
422 South Church Street
Charlotte, North Carolina 28202
Attention: General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Frederick S. Green, Esq.
and,
If to Acquiror, to:
CMS Energy Corporation
300 Town Center Drive, Suite 1100
Dearborn, Michigan 48126
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3987
Attention: Sheldon S. Adler, Esq.
Such names and addresses may be changed by notice given in accordance with this
Section 10.5. Notices, requests, permissions, waivers and other communications
properly given as aforesaid shall be effective when delivered by hand, sent by
telecopy, or on the third business day following the date of mailing.
69
<PAGE>
10.6 Entire Agreement. This Agreement, together with all schedules,
exhibits, annexes, certificates, instruments and agreements delivered pursuant
hereto contain the entire understanding of the parties hereto and thereto with
respect to the subject matter contained herein and therein, and supersede and
cancel all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
There are no restrictions, promises, representations, warranties, agreements or
undertakings of any party hereto with respect to the transactions contemplated
by this Agreement other than those set forth herein or made hereunder.
10.7 Disclosure Schedule. The Disclosure Schedule is incorporated
into this Agreement by reference and made a part hereof.
10.8 Headings; References. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles", "Sections" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Exhibits hereto unless otherwise
indicated.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all of
which shall constitute one and the same original.
10.10 Parties in Interest; Assignment; No Third Party Beneficiaries.
Neither this Agreement nor any of the rights, interest or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties. Subject to the preceding sentence, this Agreement shall
inure to the benefit of and be binding upon Sellers and Acquiror and shall inure
to the sole benefit of Sellers and Acquiror and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies under or by reason of this
Agreement.
10.11 Severability; Enforcement. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by
70
<PAGE>
law, and each party hereby consents and agrees that such scope may be judicially
modified accordingly in any proceeding brought to enforce such restriction.
10.12 Consent to Jurisdiction; Exclusive Forum. Each party hereto
irrevocably and unconditionally (i) submits, for itself and its property, to the
exclusive jurisdiction of any Federal Court sitting in New York County (Southern
District) of the State of New York in any suit, action or proceeding arising out
of or relating to this Agreement or for recognition or enforcement of any
judgment rendered in any such suit, action or proceeding, (ii) waives any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding in any such court, including any claim that any such
suit, action or proceeding has been brought in an inconvenient forum and (iii)
waives all rights to a trial by jury in any such suit, action or proceeding. Any
and all service of process and any other notice and any such action or
proceeding shall be effective against any party if given personally or by
registered or certified mail, return receipt requested, or by any other means of
mail that requires a signed receipt, postage prepaid, mailed to such party as
provided herein. Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner permitted by law. The Sellers and
Acquiror hereby agree that neither Sellers nor Acquiror shall bring an action
arising out of or relating to this Agreement against the other in any forum
other than a Federal Court sitting in New York County (Southern District) of the
State of New York, unless Federal jurisdiction in such action is not available,
in which case the exclusive forum shall be a state court sitting in New York
County of the State of New York.
[SIGNATURES BEGIN ON NEXT PAGE]
71
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
PANENERGY CORP
By: /s/ Fred J. Fowler
----------------------------------
Name: Fred J. Fowler
Title: Group Vice President
TEXAS EASTERN CORPORATION
By: /s/ Fred J. Fowler
----------------------------------
Name: Fred J. Fowler
Title: Senior Vice President
CMS ENERGY CORPORATION
By: /s/ William T. McCormick, Jr.
----------------------------------
Name: William T. McCormick, Jr.
Title: Chairman of the Board and Chief
Executive Officer
