UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-3551
EQUITABLE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0464690
(State of incorporation or organization) (IRS Employer Identification No.)
420 Boulevard of the Allies, Pittsburgh, Pennsylvania 15219
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (412) 261-3000
------------
NONE
(Former name, former address and former fiscal year,
if changed since last report)
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the close of the period covered by this report.
Outstanding at
Class September 30, 1998
Common stock, no par value 37,136,000 shares
<PAGE>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Index
Page No.
Part I. Financial Statements:
Statements of Consolidated Income for the Three and
Nine Months Ended September 30, 1998 and 1997 1
Statements of Condensed Consolidated Cash Flows
for the Three and Nine Months Ended September 30,
1998 and 1997 2
Consolidated Balance Sheets, September 30, 1998,
and December 31, 1997 3 - 4
Notes to Consolidated Financial Statements 5 - 7
Information by Business Segment 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 20
Part II. Other Information 21
Signature 22
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Statements of Consolidated Income (Unaudited)
(Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------------------------------- --------------------------------------
Restated Restated
<S> <C> <C> <C> <C>
Operating revenues $ 159,318 $ 165,337 $ 627,720 $ 647,389
Cost of sales 72,475 64,347 321,382 314,219
--------------- --------------- ----------------- -----------------
Net operating revenues 86,843 100,990 306,338 333,170
--------------- --------------- ----------------- -----------------
Operating expenses:
Operation 40,350 49,952 130,238 153,587
Maintenance 6,683 7,669 18,493 22,256
Depreciation, depletion and amortization 21,670 18,377 61,086 52,656
Taxes other than income 4,628 5,919 20,802 27,755
Impairment of assets and nonrecurring items - 10,725 - 23,725
--------------- --------------- ----------------- -----------------
Total operating expenses 73,331 92,642 230,619 279,979
--------------- --------------- ----------------- -----------------
Operating income 13,512 8,348 75,719 53,191
Other income 645 26,139 943 26,826
--------------- --------------- ----------------- -----------------
Earnings from continuing operations,
before interest & taxes 14,157 34,487 76,662 80,017
Interest charges 9,858 9,714 30,710 28,656
--------------- --------------- ----------------- -----------------
Income before income taxes 4,299 24,773 45,952 51,361
Income taxes 2,262 8,423 16,989 17,504
--------------- --------------- ----------------- -----------------
Net income from continuing operations 2,037 16,350 28,963 33,857
Income (loss) from discontinued operations
after taxes - 637 (4,604) 1,657
--------------- --------------- ----------------- -----------------
Net income $ 2,037 $ 16,987 $ 24,359 $ 35,514
=============== =============== ================= =================
Average common shares outstanding 37,007 36,185 36,975 35,763
=============== =============== ================= =================
Earnings (loss) per share of common stock
- - basic/diluted:
Continuing operations $ 0.06 $ 0.45 $ 0.78 $ 0.94
Discontinued operations - 0.02 (0.12) 0.05
--------------- --------------- ----------------- -----------------
Net income $ 0.06 $ 0.47 $ 0.66 $ 0.99
=============== =============== ================= =================
Dividends per share of common stock $0.295 $0.295 $0.885 $0.885
=============== =============== ================= =================
The accompanying notes are an integral part of
these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------------------------- -----------------------------
Restated Restated
<S> <C> <C> <C> <C>
Cash flows from operating activities $ (18,948) $ 16,376 $ 96,019 $ 87,866
Cash flows from investing activities:
Capital expenditures (46,307) (54,119) (123,981) (101,696)
Proceeds from sale of property - 119,679 - 119,992
Additions to net assets of discontinued operations (18,194) (27,828) (31,935) (32,423)
------------ ------------ ------------- ------------
Net cash provided by (used in)
investing activities (64,501) 37,732 (155,916) (14,127)
------------ ------------ ------------- ------------
Cash flows from financing activities:
Retirement of long-term debt - - (10,880) (157)
Increase (decrease) in short-term loans 80,340 51,458 (66,451) 102,659
Dividends paid (10,952) (10,838) (32,830) (31,486)
Proceeds from issuance of preferred trust securities - - 125,000 -
Proceeds from issuance of common stock 637 3,673 2,392 4,027
Purchase of treasury stock - (4,845) - (28,596)
------------ ------------ ------------- ------------
Net cash provided by financing activities 70,025 39,448 17,231 46,447
------------ ------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents (13,424) 93,556 (42,666) 120,186
Cash and cash equivalents at beginning of period 40,200 41,367 69,442 14,737
------------ ------------ ------------- ------------
Cash and cash equivalents at end of period $ 26,776 $ 134,923 $ 26,776 $ 134,923
============ ============ ============= ============
Cash paid during the period for:
Interest (net of amount capitalized) $ 20,009 $ 21,695 $ 38,719 $ 36,732
============ ============ ============= ============
Income taxes $ 450 $ 2,489 $ 10,304 $ 7,762
============ ============ ============= ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
ASSETS September 30, December 31,
1998 1997
----------------------------------
(Thousands)
----------------------------------
Restated
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,776 $ 69,442
Accounts receivable 231,067 360,713
Unbilled revenues 15,585 25,935
Inventory 40,105 37,156
Deferred purchased gas cost 43,670 44,053
Derivative commodity instruments, at fair value 109,922 82,912
Prepaid expenses and other 54,563 64,523
-------------- --------------
Total current assets 521,688 684,734
-------------- --------------
Property, plant and equipment 1,971,343 1,862,412
Less accumulated depreciation and depletion 723,385 675,410
-------------- --------------
Net property, plant and equipment 1,247,958 1,187,002
-------------- --------------
Net assets of discontinued operations 267,835 238,182
-------------- --------------
Other assets 221,852 218,133
-------------- --------------
Total $ 2,259,333 $ 2,328,051
============== ==============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY September 30, December 31,
1998 1997
----------------------------------
(Thousands)
----------------------------------
Restated
<S> <C> <C>
Current liabilities:
Short-term loans $ 214,993 $ 286,444
Accounts payable 152,790 288,192
Derivative commodity instruments, at fair value 108,172 79,012
Other current liabilities 101,721 92,053
-------------- --------------
Total current liabilities 577,676 745,701
-------------- --------------
Long-term debt 412,419 417,564
Deferred and other credits 323,059 341,266
Commitments and contingencies - -
Preferred trust securities 125,000 -
Capitalization:
Common stockholders' equity:
Common stock, no par value, authorized 80,000
shares; shares issued September 30,1998, 37,192;
December 31, 1997, 36,929 276,092 269,878
Retained earnings 546,773 555,246
Treasury stock, shares at cost September 30, 1998,
56; December 31, 1997, 56 (1,551) (1,551)
Accumulated other comprehensive income (135) (53)
-------------- --------------
Total common stockholders' equity 821,179 823,520
-------------- --------------
Total $ 2,259,333 $ 2,328,051
============== ==============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
</TABLE>
<PAGE>
Equitable Resources, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
A. The accompanying financial statements should be read in conjunction
with the Company's 1997 Annual Report and Form 10-K.
B. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1998 and
1997, and the results of operations and cash flows for the three months
and nine months then ended. All adjustments are of a normal, recurring
nature unless otherwise indicated.
C. The results of operations for the three- and nine-month periods ended
September 30, 1998 and 1997, are not indicative of results for a full
year because of the seasonal nature of the Company's natural gas
distribution operations.
D. In April 1998 management adopted a formal plan to sell the Company's
natural gas midstream operations. The operations include an integrated
gas gathering, processing and storage system in Louisiana and a natural
gas and electricity marketing business based in Houston. The condensed
consolidated financial statements have been restated to classify these
as discontinued operations. On September 14, 1998, the Company
announced an agreement to sell the operations for $320 million, subject
to working capital and other adjustments at closing. Net proceeds from
the sale of the midstream operations are expected to be sufficient to
exceed estimated losses from operations and costs of disposal. The
transaction is expected to close before the end of 1998.
Net income (loss) from discontinued operations was $1.7 million for the
nine months ended September 30, 1997, and $(4.6) million for the nine
months ended September 30, 1998. These results were reported net of
income tax expense (benefit) of $1.3 million and $(2.3) million in 1997
and 1998, respectively.
Interest expense allocated to discontinued operations was $6.5 million
in the first nine months of 1998 and $5.2 million in the first nine
months of 1997.
The net assets of discontinued operations are summarized as follows:
September 30, December 31,
1998 1997
-----------------------------------
(millions)
Property, plant and equipment $ 339.9 $ 319.5
Deferred credits (72.1) (81.3)
------------- ------------
$ 267.8 $ 238.2
============= ============
<PAGE>
Equitable Resources, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
E. In April 1998, $125 million of 7.35% Trust Preferred Capital Securities
were issued. The capital securities were issued through a subsidiary
trust, Equitable Resources Capital Trust I, established for the purpose
of issuing the capital securities and investing the proceeds in 7.35%
Junior Subordinated Debentures issued by the Company. The capital
securities have a mandatory redemption date of April 15, 2038; however,
at the Company's option, the securities may be redeemed on or after
April 23, 2003. Proceeds were used to reduce short-term debt
outstanding. Interest expense for the three- and nine-months ended
September 30, 1998, includes $2.4 million and $4.1 million,
respectively, of preferred dividends related to the trust preferred
capital securities.
F. Comprehensive Income
In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 established new
rules for the reporting and display of comprehensive income and its
components; however, the adoption of this statement had no impact on
the Company's net income or shareholders' equity. SFAS No. 130 requires
foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be reported as other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
G. Segment Disclosure
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131),
establishes new standards for reporting information about operating
segments in interim and annual financial statements. This statement is
effective for 1998 year-end financial statements. The company has not
yet determined what effect SFAS No. 131 will have on the Company's
reported segments.
H. Pension Disclosure
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" (SFAS No.
132) revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no
longer as useful as they previously were. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. The Company will adopt
the new disclosure requirements in its annual financial statements for
the year ending December 31, 1998.
<PAGE>
Equitable Resources, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
I. Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) revises
certain accounting and reporting for derivative instruments, including
those designated as a hedge of another instrument or transaction. The
Company already records derivatives other than hedges on the balance
sheet at fair value, as required by this standard. Under SFAS No. 133,
if the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what effect
SFAS No. 133 will have on the earnings and financial position of the
Company. However, SFAS No. 133 could increase volatility in earnings
and other comprehensive income.
SFAS No. 133 is required to be adopted in years beginning after June
15, 1999. The statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Company has not yet decided
when to adopt the statement.
J. At September 30, 1998, 8,936,000 shares of Common Stock were reserved
as follows: 460,000 shares for issuance under the Key Employee
Restricted Stock Option and Stock Appreciation Rights Incentive
Compensation Plan, 1,715,000 shares for issuance under the Long-Term
Incentive Plan, 76,000 shares for issuance under the Nonemployee
Directors' Stock Incentive Plan, 10,000 shares for issuance under the
Company's Dividend Reinvestment and Stock Purchase Plan, and 6,675,000
shares for possible use in connection with future acquisitions.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Information by Business Segment
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
--------------------------------- --------------------------------
(Thousands) (Thousands)
--------------------------------- --------------------------------
Restated Restated
<S> <C> <C> <C> <C>
Operating revenues:
Production $ 39,446 $ 60,557 $ 122,257 $ 159,028
Utilities 51,887 54,551 285,791 332,073
Services 92,539 86,922 308,347 269,620
Sales between segments (24,554) (36,693) (88,675) (113,332)
------------- -------------- ------------- -------------
Total $ 159,318 $ 165,337 $ 627,720 $ 647,389
============= ============== ============= =============
Operating income (loss) from continuing operations:
Production $ 8,770 $ 20,710 $ 28,766 $ 41,380
Utilities 4,239 (10,894) 48,556 19,553
Services 503 (1,468) (1,603) (7,742)
------------- -------------- ------------- -------------
Total $ 13,512 $ 8,348 $ 75,719 $ 53,191
============= ============== ============= =============
Capital expenditures (continuing operations):
Production $ 37,094 $ 22,973 $ 95,619 $ 51,309
Utilities 8,875 16,921 27,444 35,224
Services 338 14,225 918 15,163
------------- -------------- ------------- -------------
Total $ 46,307 $ 54,119 $ 123,981 $ 101,696
============= ============== ============= =============
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
Equitable's consolidated net income for the quarter ended September 30,
1998, was $2.0 million, or $0.06 per share, compared with net income of $17.0
million, or $0.47 per share, for the quarter ended September 30, 1997. The 1997
period included other income of $25.6 million from the sale of oil and gas
production properties, and a nonrecurring pretax charge of $10.7 million.
Equitable's income from continuing operations for the three months
ended September 30, 1998, was $2.0 million, or $0.06 per share, compared to
income of $16.4 million, or $0.45 per share for the three months ended September
30, 1997. Excluding the $25.6 million gain and $10.7 million charge, 1997
results from continuing operations would have been $6.1 million of net income or
$0.18 per share for the three months ended September 30. Overall, the current
period results were adversely affected by lower revenues for crude oil and
natural gas liquids, and the scheduled reduction in the direct billing
settlement amount collected through the Company's annual gas cost filing. These
reductions were partially offset by increased margins on retail gas sales, due
to a fourth quarter 1997 rate increase, and improved margins in the Company's
energy services business.
Equitable's consolidated net income for the nine months ended September
30, 1998, was $24.4 million, or $0.66 per share, compared to $35.5 million or
$0.99 per share for the nine months ended September 30, 1997. Excluding the 1997
gain on sale, and $23.7 million of nonrecurring charges, income from continuing
operations was $29.0 million, or $0.78 per share, for 1998 compared to $32.6
million, or $0.91 per share for 1997. The current year has been affected by
lower crude oil and natural gas liquids revenues, coupled with low retail
volumes from year-to-date weather 22% warmer than 1997, increased depreciation,
depletion and amortization charges and increased interest expense. The effects
of these have been partially offset by increased rates on retail gas sales,
improved margins on energy service contracts, and lower exploration and
maintenance expenses.
In September 1998 the Company announced an agreement to sell its
discontinued natural gas midstream operations for $320 million, subject to
working capital adjustments at closing. The operations include an integrated gas
gathering, processing and storage system in Louisiana and a natural gas and
electricity marketing business based in Houston. The transaction is expected to
close before the end of 1998.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
OVERVIEW (Continued)
Also in the fourth quarter of 1998, management expects to record a
pretax restructuring charge of at least $20 million, principally related to its
recent initiatives to improve the Company's cost structure and increase
efficiency. These initiatives, which were approved early in the fourth quarter
by the Company's Board of Directors, include a "voluntary reduction program" (to
be coupled with an involuntary separation program if necessary) to reduce the
size of the Company's corporate and utility segment staff; the removal of three
management layers and associated overhead from the Production segment; the
closing of unprofitable marketing regions in ERI Services' retail marketing
operation; and the proposed sale of the Company's Pittsburgh headquarters
building. The Company is continuing to review other cost saving measures along
with separate actions related to Equitable's focus on its core businesses, that
will most likely result in a considerably larger one-time charge.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RESULTS OF OPERATIONS
PRODUCTION
In anticipation of the sale of the Company's midstream operations and
the concentration of Equitable's Gulf region activities on gas and oil
production, the Company's Supply and Logistics segment has been renamed
Equitable Production. The Production segment's continuing operations are
comprised of the exploration and production of natural gas and crude oil and the
processing and sale of natural gas liquids through operations focused in the
Appalachian and offshore Louisiana Gulf Coast regions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
PRODUCTION 1998 1997 1998 1997
- --------------------------------------------------------------------------------------- --------------------------------------
(Thousands) (Thousands)
----------------------------------- --------------------------------------
Restated Restated
<S> <C> <C> <C> <C>
Continuing operations
Operating revenues
Produced natural gas $ 29,051 $ 29,414 $ 89,729 $ 86,857
Produced natural gas liquids 3,696 6,318 13,635 18,081
Crude oil 2,875 5,856 10,732 20,577
Other 3,824 18,969 8,161 33,513
------------- ------------- ------------- -------------
Total revenues 39,446 60,557 122,257 159,028
Cost of energy purchased 2,692 3,713 10,300 11,428
------------- ------------- ------------- -------------
Net operating revenues 36,754 56,844 111,957 147,600
Operating expenses:
Production 7,295 7,897 22,259 25,567
Exploration 670 1,935 3,083 6,605
Gas processing 1,025 1,357 3,286 4,400
Other 6,341 13,435 19,245 37,780
Depreciation, depletion and amortization 12,653 10,310 35,318 30,668
Impairment of assets and nonrecurring items - 1,200 - 1,200
------------- ------------- ------------- -------------
Total operating expenses 27,984 36,134 83,191 106,220
------------- ------------- ------------- -------------
Operating income from continuing operations 8,770 20,710 28,766 41,380
Other income 41 25,957 (732) 26,511
------------- ------------- ------------- -------------
Earnings from continuing operations,
before interest and taxes $ 8,811 $ 46,667 $ 28,034 $ 67,891
============= ============= ============= =============
Sales quantities:
Produced natural gas (MMcf) 14,224 13,976 40,523 40,288
Crude oil (MBls) 224 361 759 1,193
Natural gas liquids (thousands of gallons) 15,176 18,696 49,408 47,827
Discontinued operations
Operating revenues 352,935 349,022 1,123,069 866,554
Earnings before interest and taxes - 2,820 (5,087) 8,122
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Three Months Ended September 30, 1998
vs. Three Months Ended September 30, 1997
Net operating revenues for the three months ended September 30, 1998,
decreased $20.1 million, primarily due to the sale of the Company's Union
Drilling division in the fourth quarter of 1997 ($7.8 million), declines in
crude oil prices ($1.4 million) and volumes ($1.5 million), natural gas liquids
price decline ($1.8 million), and the scheduled reduction in direct billing
revenues ($5.2 million).
Natural gas production increased slightly in 1998 compared with 1997,
as a 2.0 bcf increase in offshore Gulf production (74%) offset declines of 0.2
bcf in the Company's Appalachian region (2%) and 1.6 bcf due to the third and
fourth quarter 1997 sales of the Company's western properties.
The decline in crude oil production reflects the 1997 sale of the
Company's western properties, which held the majority of the Company's oil
reserves. The declines in crude oil (21%) and natural gas liquids (28%) prices
continue to be a reflection of the overall commodity market, where oil price
indexes show a 27% decline for the three months ended September 30, 1998,
compared to the same period in 1997.
Total operating expenses for the third quarter of 1998 reflect
reductions of $12.3 million due to the sales of the Union Drilling division and
the western properties. These reductions are partially offset by higher
production costs ($1.1 million) and depreciation, depletion and amortization
(DD&A) expenses ($4.6 million) in the Gulf due to increased offshore production
activity and the acquisition of additional producing properties in the fourth
quarter of 1997.
Other income in 1997 included a pretax gain of $25.6 million related to
the sale of certain of the Company's western production properties.
Nine Months Ended September 30, 1998
vs. Nine Months Ended September 30, 1997
Net operating revenues for the nine months ended September 30, 1998,
decreased $35.6 million due primarily to the sale of the Union Drilling division
($16.2 million), decreases in crude oil volumes ($5.4 million) and prices ($4.4
million), natural gas liquids price decline ($4.9 million), and the scheduled
reduction in direct billing revenues ($5.2 million). These decreases are
partially offset by an increase in the Company's average effective gas price
($3.5 million) as a result of a favorable hedged position.
Gas volumes for the nine-month period of 1998 are up slightly compared
to 1997 as production increases in the Gulf offset the loss of gas volumes
associated with the western property sale. The decline in oil volumes for the
year-to-date period is a result of the western sale.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
PRODUCTION (Continued)
Total operating expenses for the first nine months of 1998 benefited
from the sales of the Union Drilling division ($15.3 million) and western
properties ($19.3 million) and lower exploration expenses ($2.0 million) in the
Gulf. The Company's exploration program has been reduced in the current year due
to low commodity prices. Offsetting these decreases is an increase in the Gulf's
production costs ($3.7 million) and DD&A expense ($12.9 million) due to the
reasons noted above in the discussion of the third quarter results.
UTILITIES
Utilities operations are comprised of the sale and transportation of
natural gas to retail customers at state-regulated rates, interstate
transportation and storage of natural gas subject to federal regulation and the
marketing of natural gas.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
UTILITIES 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------- ---------------------------------
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
Operating revenues
Residential gas sales $ 21,365 $ 24,632 $ 162,140 $ 205,161
Commercial gas sales 2,120 2,004 16,193 23,624
Industrial and utility gas sales 5,816 8,452 28,173 35,492
Marketed gas sales 3,645 4,715 13,472 15,598
Transportation service 14,277 8,815 52,067 38,106
Storage service 2,599 2,171 7,574 5,957
Other 2,065 3,762 6,172 8,135
------------- ------------- ------------ ----------
Total revenues 51,887 54,551 285,791 332,073
Cost of energy purchased 11,151 17,255 115,934 159,259
------------- ------------- ------------ ----------
Net operating revenues 40,736 37,296 169,857 172,814
Operating expenses:
Operations and maintenance 28,828 31,953 99,533 110,571
Depreciation, depletion and amortization 7,669 6,912 21,768 20,365
Impairment of assets - 9,325 - 22,325
------------- ------------- ------------ ----------
Total operating expenses 36,497 48,190 121,301 153,261
------------- ------------- ------------ ----------
Operating income 4,239 (10,894) 48,556 19,553
Other income 281 143 881 262
------------- ------------- ------------ ----------
Earnings before interest and taxes $ 4,520 $ (10,751) $ 49,437 $ 19,815
============= ============= ============ ==========
Sales quantities (MMcf):
Residential gas sales 1,512 1,941 15,232 19,248
Commercial gas sales 154 162 1,608 2,279
Industrial and utility gas sales 2,530 3,545 11,196 13,326
Marketed gas sales 1,912 2,206 6,622 6,277
Transportation deliveries 24,509 20,444 65,386 62,059
Heating degree days 56 139 2,938 3,781
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Three Months Ended September 30, 1998
vs. Three Months Ended September 30, 1997
Net operating revenues for the quarter ended September 30, 1998,
increased 9.2% to $40.7 million, primarily as a result of a base rate increase
and new rate design put in place by the Company's western Pennsylvania area
distribution operations in October 1997. The effect of the new rates on net
operating revenues ($3.7 million) was partially offset by lower gas sales ($0.4
million) to retail customers because of warmer September weather.
Approximately $0.8 million of the increase in transportation revenues
compared to 1997 also results from a base rate increase in October 1997, with
the balance attributable to an increase in transportation for third parties
rather than regulated affiliates. The $4.6 million increase in transportation
revenues for third parties had minimal impact on the Company's overall margins
due to the regulatory treatment of purchased gas costs. Storage revenues also
increased due to new rates in effect in 1998.
The operating expense decline in the current period reflects lower
uncollectible accounts and customer assistance programs ($0.3 million) as a
result of decreased residential sales revenues, and lower utility and corporate
administrative expenses ($1.6 million), as the benefits are realized from the
third quarter 1997 evaluation and reduction of corporate office and noncore
business functions.
Nine Months Ended September 30, 1998
vs. Nine Months Ended September 30, 1997
Net operating revenues for the nine-month period ended September 30,
1998, decreased $3.0 million (1.7%). Year-to-date effects of the warmer weather
($11.8 million) have been offset by the new rates in effect ($12.8 million) for
gas sales and transportation at the distribution company and for transportation
and storage services at Equitrans' pipeline. Marketed gas revenues declined 14%
in the current period, as the result of natural gas commodity price decreases
more than offsetting volume increases compared to the 1997 period. These factors
resulted in a $0.4 million decline in net operating revenues for marketed gas in
1998. Certain surcharges are no longer passed through to customers, reducing net
operating revenues in 1998 by $1.6 million, pursuant to an alternative pricing
election by the liquids processor on its extraction contracts. This same
decrease is also reflected in operating expenses.
Excluding the one-time storage project and corporate office charges in
1997, operating expenses decreased from 1997 to 1998 due to weather related
factors ($4.8 million), on-going cost savings resulting from the 1997 evaluation
and reduction of corporate office and noncore business functions ($3.8 million),
and the elimination of the processing surcharge ($1.6 million) described above.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
SERVICES
Services' operations are comprised of two business lines: (1) marketing
of natural gas and (2) comprehensive energy services provided to industrial,
commercial, institutional and governmental customers. Energy services includes
the development, implementation, financing and management of energy and water
efficiency programs through the use of performance-based contracting activities,
the development and construction of cogeneration and independent power
production facilities and central plant facilities management.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
SERVICES 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------- ----------------------------------
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
Operating revenues
Marketed natural gas $ 58,843 $ 64,422 $ 233,188 $ 241,164
Energy service contracting 33,696 22,500 75,159 28,456
-------------- -------------- -------------- --------------
Total revenues 92,539 86,922 308,347 269,620
Cost of energy purchased 58,534 62,982 230,771 234,479
Energy service contract costs 23,888 16,409 50,784 20,347
-------------- -------------- -------------- --------------
Net operating revenues 10,117 7,531 26,792 14,794
Operating expenses:
Selling, general and administrative 8,265 7,645 24,395 20,713
Depreciation, depletion and amortization 1,349 1,154 4,000 1,623
Impairment of assets and other nonrecurring charges - 200 - 200
-------------- -------------- -------------- --------------
Total operating expenses 9,614 8,999 28,395 22,536
-------------- -------------- -------------- --------------
Operating income (loss) 503 (1,468) (1,603) (7,742)
Other income 323 39 794 53
-------------- -------------- -------------- --------------
Earnings before interest and taxes $ 826 $ (1,429) $ (809) $ (7,689)
============== ============== ============== ==============
Sales quantities:
Marketed natural gas (MMcf) 25,274 31,233 93,830 88,958
</TABLE>
Three Months Ended September 30, 1998
vs. Three Months Ended September 30, 1997
Net operating revenues increased to $10.1 million for the quarter ended
September 30, 1998, compared to $7.5 million for the same period in 1997. This
segment's energy management and performance contracting operations now hold a
larger mix of commercial government and international projects. During the
quarter, several significant contracts were signed. At September 30, 1998,
construction backlog totaled approximately $90 million.
This segment's energy marketing business experienced a $1.1 million
reduction compared to 1997 in net operating revenues in the third quarter of
1998, as energy prices remained low and competition increased for the more
profitable commercial customers.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
SERVICES (Continued)
Operating expenses for this segment increased $0.8 million, as
residential marketing programs in western Pennsylvania and southern Ohio were
introduced in the current quarter. Partially offsetting increased marketing
expenses was a reduction in other operating expenses.
Nine Months Ended September 30, 1998
vs. Nine Months Ended September 30, 1997
Net operating revenues increased to $26.8 million for the nine months
ended September 30, 1998, compared to $14.8 million for the same period in 1997.
This segment's energy management and performance contracting operations
experienced substantial growth in revenues, due to the acquisition of NORESCO
and internally generated growth, as operations have moved forward from contract
awards to construction projects over the past 12 months.
This segment's energy marketing business experienced a $4.3 million
reduction in net operating revenues in the nine months ended 1998, as the
segment's revenue from several industrial/commercial accounts was terminated.
Operating expenses for this segment increased $5.9 million, primarily
in the energy management and performance contracting businesses, due to the
acquisition of NORESCO ($9.2 million), offset somewhat by a decrease in
operating expenses relating to the energy marketing business. Depreciation,
depletion, and amortization also increased due to $2.3 million amortization of
goodwill associated with NORESCO.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows
Cash required for operations is impacted primarily by the seasonal
nature of ERI's natural gas distribution operations and the volatility of oil
and gas commodity prices. Short-term loans used to support working capital
requirements during the summer months are repaid as gas is sold during the
heating season.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
CAPITAL RESOURCES AND LIQUIDITY (Continued)
Cash used by operating activities totaled $18.9 million in the three
months ended September 30, 1998, compared to cash provided by operating
activities of $6.3 million in the 1997 period. Cash flows from operations
decreased in 1998 primarily as a result of reduced collection of accounts
receivable. During the third quarter of 1998, collections of previous winter
heating bills were down $10 million at the utility operations, compared to the
prior year, as a result of lower gas sales to retail customers as a result of
warmer weather in the winter months. In the Company's discontinued operations,
cash was used during the third quarter, as payments to creditors for trade
accounts payable exceeded collections on accounts receivable by $18 million.
This was primarily a reversal of the second quarter 1998 when collections on
accounts receivable exceeded vendor payments by a like amount. Overall sales
volumes have decreased in this group as the sale of the operation approaches.
The Company's performance contracting business requires substantial
initial working capital investments which are recovered in revenues as the
related energy savings are realized or when the contract is assigned. The net
investment in these projects during the nine months ended September 30, 1998,
was approximately $9.5 million.
ERI's financial objectives require ongoing capital expenditures for
growth projects in continuing operations of the Production segment, as well as
replacements, improvements and additions to plant assets in the Utilities
segment. Such capital expenditures during the 1998 quarter were approximately
$46 million, including $25 million and $12 million for exploration and
production projects in the Gulf of Mexico and Appalachian regions, respectively.
In addition, ongoing capital projects in the Company's discontinued operations
accounted for an additional $17 million use of cash in the three months ended
September 30, 1998. In the first nine months of 1998, the Company has expended
$124 million on capital projects. A total of $229 million has been authorized
for the 1998 capital expenditure program. The Company has financed its 1998
capital expenditure program with cash generated from operations and with
short-term loans.
Capital Resources
ERI has adequate borrowing capacity to meet its financing requirements.
Bank loans and commercial paper, supported by available credit, are used to meet
short-term financing requirements. Interest rates on these short-term loans
averaged 5.62% during the third quarter of 1998. ERI maintains a revolving
credit agreement with a group of banks providing $500 million of available
credit. Adequate credit is expected to continue to be available in the future.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
In April 1998 $125 million of 7.35% Trust Preferred Capital Securities
were issued. The capital securities were issued through a subsidiary trust,
Equitable Resources Capital Trust I, established for the purpose of issuing the
capital securities and investing the proceeds in 7.35% Junior Subordinated
Debentures issued by the Company. The capital securities have a mandatory
redemption date of April 15, 2038; however, at the Company's option, the
securities may be redeemed on or after April 23, 2003.
Proceeds were used to reduce short-term debt outstanding.
In the fourth quarter of 1998, the Company expects to close the sale of
its midstream operations for $320 million. Net proceeds to the Company may be
used to retire a portion of the Company's outstanding long-and short-term debt,
to fund the possible repurchase, over the next several years of up to 5.6
million shares of the Company's common stock, or for new investments. Any
long-term debt redeemed prior to maturity will require payment of certain
premiums, resulting in an extraordinary loss in the period in which the
redemption occurs.
YEAR 2000
State of Readiness
The Company initiated an enterprise-wide project in 1996 to address the
Year 2000 issue. A management team was put in place to manage this project and a
detailed project plan has been developed to address the three identified primary
risk areas: process controls and facilities, business information systems
applications, and issues relative to third party product and service providers.
This plan is continuously updated and reviewed regularly with senior management
and the Board of Directors. The Company is on schedule to complete remediation
and testing of all critical components as planned.
To date the Company has completed the inventory and assessment phases
covering all process controls (embedded chips), facilities and systems
applications. Testing has begun on process controls, using both internal
resources and contracted engineers and is currently on schedule. Full testing is
expected to be completed by the end of January 1999. The testing and remediation
of systems applications are on schedule with approximately 60% of those deemed
critical remediated and 30% into the testing phase. In addition, ERI is
presently upgrading many of its financial and operating systems. These systems
are Year 2000 compliant.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
YEAR 2000 (Continued)
Additionally, the Company has developed a formal communications process
with external parties with whom it does business to determine the extent to
which they have addressed their Year 2000 compliance. The Company will continue
to evaluate responses as they are received. Actions to remediate potential
problems (up to and including shifting business to Year 2000 compliant vendors
from those with problems) will take place in 1999.
Costs
As the work is in process, the total cost of the Company's Year 2000
project is still being evaluated. Until all process control systems have been
tested and documented, planned for the end of January 1999, the full cost of
remediation of this part of the project will not be known. The cost to date,
however, is $2.5 million, and the total cost estimate for the balance of the
project is an additional $2.6 million. All of the costs have been or will be
charged to operating expense except $0.5 million of systems upgrades, which will
be capitalized and charged to expense over the estimated useful life of the
associated hardware and software. Additional costs could be incurred if
significant remediation activities are required with third party suppliers (see
below). The estimated costs to convert remaining systems is not expected to be
material to results of operations in any future period.
Risks and Contingencies
The Company continues to evaluate risks associated with the potential
inability of outside parties to successfully complete their Year 2000 effort and
contingency plans are being developed and/or adapted as appropriate. While the
Company is confident of the continued safe and reliable operation of its natural
gas delivery system into the Year 2000, monitoring the progress of critical
suppliers is an ongoing process. A potential scenario would involve the failure
of one or more of the gas marketers supplying the Company's distribution
operations. If this occurs, the Company would either supply its customers from
existing internal supply sources or attempt to purchase supply on the "spot"
market, probably at somewhat higher prices. Unless supply shortfalls were of a
long duration or occurred during a period of extreme weather conditions, when
spot supplies might not be as readily available, it would be unlikely that the
distribution company would have to curtail deliveries to its customers. If it
appears that this scenario is more than a remote possibility additional
contingency plans will be put into place.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Disclosures in this report may include forward-looking statements
related to such matters as anticipated financial performance, business
prospects, capital projects, new products and operational matters. The Company
notes that a variety of factors could cause the Company's actual results to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the Company
business include, but are not limited to, the following: weather conditions, the
pace of deregulation of retail natural gas and electricity markets, the timing
and extent of changes in commodity prices for gas and oil, changes in interest
rates, the timing and extent of the Company's success in acquiring gas and oil
properties and in discovering, developing and producing reserves, the inability
of the Company or others to remediate Year 2000 concerns in a timely fashion,
delays in obtaining necessary governmental approvals and the impact of
competitive factors on profit margins in various markets in which the Company
competes.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
The Securities and Exchange Commission has amended Rule 14a-4(c)
under the Securities Exchange Act of 1934 (the "1934 Act") which
governs the Company's use of discretionary proxy voting authority
with respect to shareholder proposals that are not being included in
the Company's proxy solicitation materials pursuant to Rule 14a-8 of
the 1934 Act. Therefore, in the event a shareholder does not notify
the company by March 1, 1999, of an intent to present such a proposal
at the Company's 1999 annual meeting, the Company's management
proxies will have the right to exercise their discretionary authority
in connection with the matter submitted by the shareholder, without
discussion of the matter in the proxy statement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of July 1, 1998, with David L.
Porges.
10.2 Change in Control Agreement dated July 1, 1998, with David L.
Porges.
10.3 Post-Termination Confidentiality and Non-Competition
Agreement dated July 1, 1998, with David L. Porges.
10.4 Equitable Resources, Inc. Breakthrough Long-Term Incentive
Plan for certain executives of the Company.
10.5 Purchase Agreement by and among Equitable Resources Energy
Company, ET Bluegrass Company, EREC Nevada, Inc. and ERI
Services, Inc. and AEP Resources, Inc. dated September 12,
1998, for the purchase of midstream assets.
(b) Reports on Form 8-K during the quarter ended September 30,
1998:
Form 8-K Current Report dated September 14, 1998, announcing
ERI's agreement to sell its natural gas midstream operations
to AEP Resources, Inc.
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITABLE RESOURCES, INC.
(Registrant)
/s/ David L. Porges
-------------------------------
David L. Porges
Senior Vice President
and Chief Financial Officer
Date: November 13, 1998
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of the 1st
day of July, 1998 (the "Effective Date") is between Equitable Resources, Inc., a
Pennsylvania corporation, with its principal executive offices at 420 Boulevard
of the Allies, Pittsburgh, Pennsylvania 15219 (the "Company"), and David L.
Porges, an individual and resident of Houston, Texas (the "Executive").
WHEREAS, the Company desires to secure the employment of the
Executive in accordance with the provisions of the Agreement; and
WHEREAS, the Executive desires and is willing to accept
employment with the Company in accordance herewith.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound, the Company and the Executive
hereby agree as follows:
Section 1. Position and Duties.
(a) The Company hereby agrees to employ the Executive for the
term of this Agreement to render services to the Company as Senior Vice
President and Chief Financial Officer of the Company and to perform those duties
commensurate with such position, as the Chief Executive Officer may reasonably
direct.
(b) The Executive hereby accepts such employment and agrees
faithfully to perform to the best of his ability and on a full-time basis the
duties described in Section l(a). The Executive further agrees that promptly
after the execution of this Agreement, he shall move his primary residence to
the Pittsburgh, Pennsylvania area.
Section 2. Term of Employment Agreement.
(a) Term. The term of this Agreement shall commence on the Effective
Date and shall terminate on the last day of the 36th calendar month after the
Effective Date, unless automatically extended as follows: commencing on the last
day of the first full calendar month after the second anniversary of the
Effective Date and on the last day of each succeeding calendar month, the term
of this Agreement shall be automatically extended without further action by
either party (but not beyond the Executive's 65th birthday) for one additional
calendar month unless one party notifies the other in writing that such party
does not wish to extend the term of this Agreement. In the event that such
notice shall have been delivered, the term hereof shall no longer be subject to
automatic extension and the term hereof shall expire on the date which is 12
calendar months after the last day of the month in which such written notice is
received. The last day of the calendar month in which the term hereof, as such
may be extended from time to time, shall end is hereinafter referred to as the
"Expiration Date".
(b) Termination of Employment. If the Executive's Termination of
Employment Date (as defined below) is prior to the Expiration Date, this
Agreement shall terminate on the Termination of Employment Date , subject to the
provisions of Section 8 hereof. For purposes of this Agreement, the Executive's
Termination of Employment Date shall be the earliest to occur of the following
events:
(i) if the Executive's employment is terminated for Disability, as
defined in Paragraph 8(b), the date which is thirty days after Notice of
Termination is given following expiration of the Disability Period
(provided that the Executive shall not have returned to the performance
of the Executive's duties on a full-time daily basis during such
period),
(ii) if the Executive's employment is terminated on account of his
death, the Executive's date of death, and
(iii) if the Executive's employment is terminated for any other reason,
the date specified in the Notice of Termination (which shall not be less
than 30 days nor more than 60 days, from the date such Notice of
Termination is given).
For purposes of this Agreement, a "Notice of Termination" shall mean a
Notice which shall specify the date of termination and shall identify
the basis therefor.
The Company reserves the right to terminate the Executive's employment
for any reason not prohibited by law; provided, however, that any such removal
shall be without prejudice to any rights the Executive may have to benefits
under this Agreement or the Agreements described in Appendix A and B.
Section 3. Compensation and Benefits.
The Executive shall be entitled to receive the following compensation and
benefits under this Agreement:
(a) The Executive shall receive Inducement Benefits as set forth
in Section 4 of this Agreement;
(b) The Executive shall receive base salary as set forth in
Section 5 of this Agreement;
(c) The Executive shall be eligible for bonus and incentive
benefits as described in Section 6 of this Agreement;
(d) The Executive shall be entitled to employee benefits as
described in Section 7 of this Agreement;
(e) The Executive shall be entitled to Change of Control benefits
as set forth in the Change of Control Agreement which is attached to this
Agreement as Appendix A; and
(f) The Executive shall be entitled to post-termination benefits
under the Post-Termination Confidentiality/Noncompete Agreement which is
attached to this Agreement as Appendix B.
Nothing contained in this Agreement shall prevent the Company from
amending or otherwise altering the benefit plans and agreements described below
so long as such amendment or alteration equitably affects all employees,
executive or otherwise, previously covered thereunder.
Section 4. Inducement Benefits.
(a) Signing Bonus. The Executive will receive a bonus payment in
the amount of $175,000 from the Company on his first day of employment with the
Company. This amount must be repaid to the Company if the Executive's
Termination from Employment Date is on or before April 30, 1999.
Section 5. Compensation.
The Company shall pay the Executive a base salary of $270,000 per year. This
base amount shall be reviewed by the Compensation Committee of the Board of
Directors on an annual basis and will be adjusted taking into consideration both
individual performance and competitive position relative to the Company's peer
group.
Section 6. Bonus and Incentive Benefits.
The Executive shall be eligible to participate in the following bonus and
incentive benefit programs of the Company:
(a) Short Term Incentive Benefits. The Executive shall be
entitled to an annual incentive compensation payment equal to the amount, if
any, payable to the Executive under the terms and conditions of the Company's
Short-Term Incentive Compensation Plan as in effect for each annual period
during the term of this Agreement; except that for the 1998 year, the
Executive's bonus amount as described in this paragraph, if any, shall be
reduced by the amount of the Executive's signing bonus as described in Agreement
Section 4(a);
(b) Long-Term Incentive Benefits. The Executive shall participate
in the Company's 1994 Long-Term Incentive Plan or any successor plan (the
"Long-Term Incentive Plan"). Under the Long-Term Incentive Plan, the Executive
will be credited with benefits which shall be subject to the terms and
conditions of the Long-Term Incentive Plan and programs thereunder, except as
otherwise specifically provided below, and shall include the following:
(i) The Executive will receive a grant of 10,000 shares of
Company stock which shall vest in one-third increments with the first third
vesting on the first anniversary of the Effective Date, the second third vesting
on the second anniversary of the Effective Date, and the final third vesting on
the third anniversary of the Effective Date. Also, the Executive will receive a
cash payment on each of the three vesting dates equivalent to the federal, FICA,
state and local taxes payable relative to the grant as determined by the
Company.
(ii) The Executive will receive options to purchase 60,000
shares of Company stock. These options will also vest in one-third increments
with the first third vesting on the first anniversary of the Effective Date, the
second third vesting on the second anniversary of the Effective Date, and the
final third vesting on the third anniversary of the Effective Date. The strike
price for all of the options will be set on the Effective Date and will be the
Fair Market Value on the Effective Date as defined in the Long-Term Incentive
Plan. The exercise period shall be four years from the date of vesting.
(iii) The Executive shall be eligible to receive
additional stock option grants under the Company's Long-Term Incentive Plan. For
the 1998 plan year, and each of the following four plan years, the Executive
will be granted options to purchase no less than 30,000 shares.
Section 7. Other Benefits.
(a) Employee Benefits. The Executive shall participate on the
same terms and conditions as all other corporate employees in all employee
benefit plans, as may be now or hereafter sponsored or maintained for all
corporate employees of the Company and participation on the same terms and
conditions as other executive officers in such other plan, program or
arrangement as may be now or hereafter sponsored or maintained for executive
officers of the Company. The Executive will be entitled to four weeks of
vacation per year subject to the terms and conditions of the Company's policies.
(b) Executive Life Insurance Benefits. The Executive shall be
provided with the following life insurance benefits:
(i) In addition to the life insurance benefits provided
under the corporate employee benefit plans (currently one times annual base
salary), the Executive shall receive life insurance benefits which shall provide
a death benefit equal to an additional one-times the Executive's annual base
salary; and
(ii) The Company shall fund the purchase of a
second-to-die split dollar life insurance policy on the joint lives of the
Executive and his spouse. The policy shall provide a one million dollar death
benefit and shall be subject to a Split Dollar Agreement.
(c) Perquisites. Subject to the reasonable approval of the
Company, the Executive shall be entitled to the following Executive perquisites:
(i) One country club membership; (ii) One dining club
membership; (iii) A car or a monthly car allowance of
$765; and (iv) Financial, estate and tax planning services
Any bond or bond equivalent purchased by the Company in
connection with the provision of club memberships shall at all times be in the
name and ownership of the Company.
(d) Relocation. Relocation benefits will be provided to the
Executive as detailed in the Offer of Employment document provided by the
Company.
(e) Expenses. The Executive shall be reimbursed for reasonable
travel and other expenses incurred by Executive in performing his obligations
hereunder pursuant to the terms and conditions of the Company's policy in
respect thereto. In addition, the Executive will be reimbursed for reasonable
legal expenses in connection with the review of this document and all other
initial employment related documents.
Section 8. Benefits Upon Termination of Employment.
(a) Involuntary Termination without Cause. If the Executive's
employment with the Company terminates prior to the Expiration Date on account
of an involuntary termination of employment by the Company without Cause, or by
voluntary termination within 90 days of a material breach by the Company of the
Agreement, the Executive shall receive his base salary compensation as described
in Section 5 hereof until the Expiration Date and no additional benefits other
than medical benefits until the Expiration Date and those accrued hereunder and
under the Company's employee benefit plans up to the Termination of Employment
Date.
(b) Other Terminations of Employment. If the Executive's
employment with the Company terminates on the Expiration Date, or on account of
the Executive's (i) death, (ii) Disability, (iii) termination for Cause, or (iv)
voluntary termination, the Executive will receive no additional benefits under
this Agreement other than those accrued hereunder and under the Company's
employee benefit plans up to the Termination of Employment Date.
For purposes of this Agreement, the term "Disability" means the
occurrence of a physical or mental condition of the Executive which, in the
judgment of the Board of Directors of the Company, prevents the Executive from
performing his duties on a full time basis for a period of 90 consecutive days
("Disability Period").
For purposes of this Agreement, "Cause" shall include: (i) the
conviction of a felony, a crime of moral turpitude or fraud or having committed
fraud, misappropriation or embezzlement in connection with the performance his
duties hereunder, (ii) willful and repeated failures to substantially perform
his assigned duties; or (iii) a material violation of any other provisions of
this Agreement or express significant policies of the Company.
(c) Sole Right of Recourse. In the event the Executive's
employment is terminated, the Executive agrees that his sole right against the
Company with respect to his employment or the termination thereof shall consist
of his rights to benefits as described in this Section 8 and as set forth in
other Agreements entered into between the Company and the Executive, employee
benefit programs and any indemnification with respect to third party actions
under the Company By-Laws.
(d) Executive's Duty to Mitigate. The Executive shall not be
required to mitigate the amount of any payment provided for in this Section by
seeking other employment or otherwise, nor shall the amount of any payment
provided for in this Section be reduced by any compensation earned by the
Executive as the result of employment by another employer, or otherwise.
(e) Coordination With Other Agreements. If the Executive is
entitled to benefits under the Change of Control Agreement (as set forth in
Appendix A hereto) following his termination of employment, then its terms shall
control and he shall not receive the base salary compensation and benefits
continuance provided under paragraph (a) of this Section 8. The base salary
compensation and benefits continuance provided to the Executive under paragraph
(a) of this Section 8 shall be also be reduced by the 24-month annual base
salary payment and benefits continuance provided in Section 3 of the
Post-Termination Confidentiality and Non-Competition Agreement.
Section 9. Arbitration.
Any disputes hereunder shall be settled by arbitration in Pittsburgh,
Pennsylvania under the auspices of, and in accordance with the rules of, the
American Arbitration Association, and the decision in such arbitration shall be
final and conclusive on the parties and judgment upon such decision may be
entered in any court having jurisdiction thereof. The prevailing party may
recover from the other the costs and expenses, including reasonable attorneys'
fees, if any, incurred in conjunction therewith.
Section 10. Notices.
All notices and other communications which are required or may be given under
this Agreement shall be in writing and shall be delivered personally or by
registered or certified mail addressed to the party concerned at the following
addresses:
If to the Company:
Equitable Resources, Inc.
420 Boulevard of Allies
Pittsburgh, PA 15219
Attn: Corporate Secretary
If to the Executive:
Mr. David L. Porges
In Care of:
Williams Coulson Attorneys at Law
15th Floor
Two Chatham Center
Pittsburgh, PA 15219
or to such other address as shall be designated by notice in writing to the
other party in accordance herewith. Notices and other communications hereunder
shall be deemed effectively given when personally delivered, or, if mailed, 48
hours after deposit in the United States mail.
Section 11. Assignment.
This Agreement shall inure to the benefit of and be binding upon the respective
legal representatives, successors, and assigns of the parties hereto. However,
the relationship contemplated by this Agreement is unique and personal, and any
assignment of this Agreement by the Executive without the consent of the Company
shall be void. Notwithstanding the preceding sentence, the Company may assign
its rights and obligations hereunder to any corporation or other business
organization with which the Company may merge or consolidate, or to which it may
transfer substantially all its assets or otherwise enter into an acquisition or
reorganization transaction.
Section 12. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania.
Section 13. Miscellaneous.
(a) This Agreement and its appendices as executed supersede all
prior agreements, arrangements and undertakings, written or oral, relating to
the subject matter hereof.
(b) This arrangement shall inure to the benefit of the
Executive's heirs, representatives or estate to the extent stated herein.
(c) This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provisions hereof shall in no
manner affect the right at a later time to enforce such provisions thereafter.
No waiver by either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach or a waiver of the breach of any other term or covenant contained in
this Agreement.
(d) In the event any one or more of the covenants, terms or
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants, terms and
provisions contained herein shall be in no way affected, prejudiced or disturbed
thereby.
(e) The Executive represents that he has no obligations under
any other agreement which would conflict or interfere in any way with the
services to be rendered hereunder.
(f) The Company and the Executive agree that the termination of
this Agreement shall not cause, by itself, the termination of any of the
agreements referenced as appendices or any other employee benefit plan
maintained by the Company which shall be governed by their terms.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered.
ATTEST: EQUITABLE RESOURCES, INC.
By: /s/ Audrey C. Moeller /s/ Murry S. Gerber
______________________________________ By: ________________________________
Audrey C. Moeller Murry S. Gerber
Vice President and Corporate Secretary President and Chief
Executive Officer
WITNESS:
By: /s/ Cindy Davila /s/ David L. Porges
______________________________________ _________________________________
David L. Porges
Exhibit 10.2
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT (the "Agreement") dated as of the 1st day of July,
1998 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a
Pennsylvania corporation with its principal place of business at Pittsburgh,
Pennsylvania (the "Company"), and DAVID L. PORGES, an individual and resident of
Houston, Texas (the "Employee");
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interest of the Company and its shareholders
to assure that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Employee's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Employee with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Employee will be satisfied and which are competitive with those of other
corporations in the industry in which the Company's principal business activity
is conducted. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. Term.
The term of this Agreement shall commence on the Effective Date hereof and shall
terminate on the last day of the 36th calendar month after the Effective Date,
unless automatically extended as follows: commencing on the last day of the
first full calendar month after the Effective Date and on the last day of each
succeeding calendar month, the term of this Agreement shall be automatically
extended without further action by either party (but not beyond the Executive's
65th birthday) for one additional calendar month unless one party notifies the
other in writing that such party does not wish to extend the term of this
Agreement. In the event that such notice shall have been delivered, the term
hereof shall no longer be subject to automatic extension and the term hereof
shall expire on the date which is 36 calendar months after the last day of the
month in which such written notice is received. The last day of the calendar
month in which the term hereof, as may be extended from time to time, shall end
is hereinafter referred to as the "Expiration Date". Notwithstanding the
foregoing, the Employee shall serve in said office(s) at the pleasure of the
Board, and the Employee may be removed from said office(s) at any time with or
without Cause (as hereinafter defined); provided, that such removal shall be
without prejudice to any rights the Employee may have to Salary and Benefits
Continuation (as hereinafter defined) hereunder.
Section 2. Change of Control.
Change of Control shall mean any of the following events (each of such events
being herein referred to as a "Change of Control"):
(a) The sale or other disposition by the Company of all or
substantially all of its assets to a single purchaser or to a
group of purchasers, other than to a corporation with respect to
which, following such sale or disposition, more than eighty
percent (80%) of, respectively, the then outstanding shares of
Company common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of the Board of Directors is then owned beneficially,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the outstanding Company common stock and the
combined voting power of the then outstanding voting securities
immediately prior to such sale or disposition in substantially
the same proportion as their ownership of the outstanding Company
common stock and voting power immediately prior to such sale or
disposition;
(b) The acquisition in one or more transactions by any
person or group, directly or indirectly, of beneficial ownership
of twenty percent (20%) or more of the outstanding shares of
Company common stock or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of the Board of Directors; provided,
however, that any acquisition by (x) the Company or any of its
subsidiaries, or any employee benefit plan (or related trust)
sponsored or maintained by the Company or any of its subsidiaries
or (y) any person that is eligible, pursuant to Rule 13d-1(b)
under the Exchange Act (as such rule is in effect as of November
1, 1995), to file a statement on Schedule 13G with respect to its
beneficial ownership of Company common stock and other voting
securities whether or not such person shall have filed a
statement on Schedule 13G, unless such person shall have filed a
statement on Schedule 13D with respect to beneficial ownership of
fifteen percent (15%) or more of the Company's voting securities,
shall not constitute a Change of Control;
(c) The Company's termination of its business and
liquidation of its assets;
(d) The reorganization, merger or consolidation of the
Company into or with another person or entity, by which
reorganization, merger or consolidation the persons who held one
hundred percent (100%) of the voting securities of the Company
prior to such reorganization, merger or consolidation receive or
continue to hold less than sixty percent (60%) of the outstanding
voting shares of the new or continuing corporation; or
(e) If, during any two-year period, less than a majority
of the members of the Board of Directors are persons who were
either (i) nominated or recommended for election by at least
two-thirds vote of the persons who were members of the Board of
Directors or Nominating Committee of the Board of Directors at
the beginning of the period, or (ii) elected by at least a
two-thirds vote of the persons who were members of the Board of
Directors at the beginning of the period.
Section 3. Salary and Benefits Continuation.
"Salary and Benefits Continuation" shall be defined to mean the following: (i)
payment of sum equal to Employee's base salary for a twelve (12) month period;
(ii) payment of an amount of cash equal to two (2) times the average Short-Term
Incentive Compensation Plan Benefit (as defined in the Employment Agreement)
earned over the prior three year period; (iii) immediate vesting of all
previously unvested stock options and grants; (iv) immediate delivery of an
amount of cash equal to two (2) times the average value (measured as the
difference between the applicable strike price and the Fair Market Value as
defined in the Company's Long-Term Incentive Plan on the date the change in
control is consummated) of the average number of stock options granted to
Employee over the preceding three (3) years under the applicable Company
Long-Term Incentive Plan; (v) provision to Employee and his eligible dependents
of medical, disability, dental and life insurance coverage (to the extent such
coverage was in effect immediately prior to the Change of Control) for 24
months; and (vi) reimbursement to Employee of reasonable costs (not to exceed
20% of base salary) incurred by Employee for outplacement services following
termination of Employee's employment in connection with a Change of Control. If
the Agreement has not been in effect two (2) years, the length of the
Executive's employment is used when provisions call for an average. In such
event, the sum of the benefits is placed in the numerator and the actual length
of service in months capped at 24 is placed in the denominator.
All amounts payable by the Company to the Employee in cash
pursuant to Section 3(i), (ii), (iii) and (iv) shall be made in a lump sum
unless the Employee otherwise elects and notifies the Company in writing prior
to the termination of his employment of his desire to have all payments made in
accordance with the Company's regular salary and benefit payment practices,
provided that the lump sum payment or first payment is made within thirty (30)
days after the Employee's termination hereunder. All other amounts payable by
the Company to the Employee pursuant to Section 3 shall be paid or provided in
accordance with the Company's standard payroll and reimbursement procedures, as
in effect immediately prior to the Change of Control. In the event that medical,
disability, dental and life insurance benefits cannot be provided under
appropriate Company group insurance policies, an amount equal to the premium
necessary for the Employee to purchase directly the same level of coverage in
effect immediately prior to the Change of Control shall be added to the
Company's salary payments to Employee.
If there is a Change of Control as defined above, the Company
will provide Salary and Benefits Continuation if at any time during the first
twenty-four (24) months following the consummation of a Change of Control,
either (i) the Company terminates the Employee's employment other than for Cause
as defined in Section 4 below or (ii) the Employee terminates his employment for
"Good Reason." The exception to this provision is the immediate vesting of all
unvested stock options and grants upon a Change of Control as defined above. It
is not necessary for the Company to terminate the Executive or for the Executive
to terminate employment.
For purposes of this Agreement, "Good Reason" is defined as:
(a) Removal of the Employee from the position he held
immediately prior to the Change of Control (by reason other than
death, disability or Cause), or any other material breach by the
Company of its obligations contained in this Agreement;
(b) The assignment to the Employee of any duties
inconsistent with those performed by the Employee immediately
prior to the Change of Control or a substantial alteration in the
nature or status of the Employee's responsibilities which renders
the Employee's position to be of less dignity, responsibility or
scope;
(c) A reduction by the Company in the Employee's annual
base salary as in effect on the date hereof or as the same may be
increased from time to time, except for proportional
across-the-board salary reductions similarly affecting all
executives of the Company and all executives of any person in
control of the Company, provided, however, that in no event shall
the Employee's annual base salary be reduced by an amount equal
to ten percent or more of the Employee's annual base salary as of
the end of the calendar year immediately preceding the year in
which the Change of Control occurs, without the Employee's
consent;
(d) The failure to grant the Employee an annual salary
increase reasonably necessary to maintain such salary as
reasonably comparable to salaries of senior executives holding
positions equivalent to the Employee's in the industry in which
the Company's then principal business activity is conducted;
(e) The Company requiring the Employee to be based
anywhere other than the Company's principal executive offices in
the city in which the Employee is principally located immediately
prior to the Change of Control, except for required travel on the
Company's business to an extent substantially consistent with the
Employee's present business travel obligations;
(f) Any material reduction by the Company of the benefits
enjoyed by the Employee under any of the Company's pension,
retirement, profit sharing, savings, life insurance, medical,
health and accident, disability or other employee benefit plans,
programs or arrangements, the taking of any action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Employee of any material fringe benefits,
or the failure by the Company to provide the Employee with the
number of paid vacation days to which he is entitled on the basis
of years of service with the Company in accordance with the
Company's normal vacation policy, provided that this paragraph
(f) shall not apply to any proportional across-the-board
reduction or action similarly affecting all executives of the
Company and all executives of any person in control of the
Company; or
(g) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof.
The Employee's right to Salary and Benefits Continuation shall accrue upon the
occurrence of either (i) the Company terminates the Employee's employment other
than for Cause as defined in Section 4 below or (ii) the Employee terminates his
employment for "Good Reason" and shall continue as provided, notwithstanding the
subsequent expiration of this Agreement pursuant to Section 1 hereof. The
Employee's subsequent employment, death or disability following the Employee's
termination of employment in connection with a Change of Control shall not
affect the Company's obligation to continue making Salary and Benefits
Continuation payments. The Employee shall not be required to mitigate the amount
of any payment provided for in this Section 3 by seeking employment or
otherwise. The rights to Salary and Benefits Continuation shall be in addition
to whatever other benefits the Employee may be entitled to under any other
agreement or compensation plan, program or arrangement of the Company. For
purposes of interpreting any such other agreement, compensation plan, program or
arrangement, the occurrence of either of the events specified in (i) and (ii)
hereof shall be deemed to be a termination of Executive's employment by the
Company. The Company shall be authorized to withhold from any payment to the
Employee, his estate or his beneficiaries hereunder all such amounts, if any,
that the Company may reasonably determine it is required to withhold pursuant to
any applicable tax law or regulation.
Section 4. Termination of Employee for Cause.
Upon or following a Change of Control, the Company may at any time terminate the
Employee's employment for Cause. Termination of employment by the Company for
"Cause" shall mean termination upon:
(i) the willful and continued failure by the Employee to
substantially perform his duties with the Company (other than (A)
any such failure resulting from Employee's disability or (B) any
such actual or anticipated failure resulting from Employee's
termination of his/her employment for Good Reason), after a
written demand for substantial performance is delivered to the
Employee by the Board of Directors which specifically identifies
the manner in which the Board of Directors believes that the
Employee has not substantially performed his duties, and which
failure has not been cured within thirty days (30) after such
written demand; or
(ii) the willful and continued engaging by the Employee in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise, or
(iii) the breach by the Employee of the Confidentiality
provision set forth in Section 8 hereof.
For purposes of this Section 4, no act, or failure to act, on the
Employee's part shall be considered "willful" unless done, or omitted to be
done, by the Employee in bad faith and without reasonable belief that such
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board of Directors at a meeting of the Board of
Directors called and held for that purpose (after reasonable notice to the
Employee and an opportunity for the Employee, together with his counsel, to be
heard before the Board of Directors) finding that in the good faith opinion of
the Board of Directors the Employee is guilty of the conduct set forth above in
clauses (i), (ii) or (iii) of this Section 4 and specifying the particulars
thereof in detail.
Section 5. Prior Termination.
Anything in this Agreement to the contrary notwithstanding, if the Employee's
employment with the Company is terminated prior to the date on which a Change of
Control occurs either (i) by the Company other than for Cause or (ii) by the
Employee for Good Reason, and it is reasonably demonstrated by Employee that
such termination of employment (a) was at the request of a third party who has
taken steps reasonably calculated to effect the Change of Control, or (b)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement the termination shall be deemed to have
occurred upon a Change of Control and the Employee will be entitled to Salary
and Benefits Continuation as provided for in Section 3 hereof.
Section 6. Entire Understanding.
This Agreement contains the entire understanding of the Company and the Employee
with respect to the subject matter hereof.
Section 7. Construction of Agreement.
(a) Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania
without regard to its conflict of law provisions.
(b) Severability. In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality or enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
(c) Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience of
reference only and shall not constitute a part of this Agreement.
Section 8. Covenant as to Confidential Information.
In the event that the Employee violates the confidentiality requirement of
Section 1 of the Post Termination Confidentiality and Non-Competition Agreement
between the Executive and the Company, the Company shall be entitled, to the
extent permissible by law, and subject to Section 11 of this Agreement, to cease
to pay or provide the Employee or his dependents any compensation or benefit
being, or to be, paid or provided to him pursuant to Section 3 of this
Agreement, and also to obtain immediate injunctive relief restraining the
Employee from conduct in breach or threatened breach of the covenants contained
in this Section 8. Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from the Employee.
Section 9. Reimbursement of Fees.
The Company agrees to pay, to the full extent permitted by law, all legal fees
and expenses which the Employee may reasonably incur as a result of any contest
by the Company, Internal Revenue Service or others regarding the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Employee about the amount of any payment pursuant to Section 3 of this
Agreement) or in connection with any dispute arising from this Agreement,
regardless of whether Employee prevails in any such contest or dispute.
Section 10. Certain Reductions of Payments by the Company.
Notwithstanding anything herein to the contrary, if the aggregate of the amounts
due the Employee under this Agreement and any other plan or program of the
Company constitutes a "Parachute Payment," as such term is defined in Section
280G of the Internal Revenue Code of 1986, as amended, then the payments to be
made to the Employee under this Agreement which are contingent on a Change of
Control shall be reduced to an amount which, when added to the aggregate of all
other payments to be made to the Employee which are contingent on a Change of
Control, as a result of the termination of his employment, will make the total
amount of such payment equal to 2.99 times his Base Amount. The determinations
to be made with respect to this paragraph shall be made by an independent
auditor (the "Auditor") jointly selected by the Employee and the Company and
paid by the Company. In the event the payments to be made to the Employee are
required to be reduced pursuant to the limitations in this Section 10, the
Company shall allow the Employee to select which payment or benefits Employee
wants the Company to reduce in order that the total amount of such payment is
equal to 2.99 times such Employee's Base Amount. The Auditor shall be a
nationally recognized United States public accounting firm that has not, during
the two years preceding the date of its selection, acted in any way on behalf of
the Company or any of its subsidiaries.
Section 11. Resolution of Differences Over Breaches of Agreement.
Except as otherwise provided herein, in the event of any controversy, dispute or
claim arising out of, or relating to this Agreement, or the breach thereof, or
arising out of any other matter relating to the Employee's employment with the
Company or the termination of such employment, the parties may seek recourse
only for temporary or preliminary injunctive relief to the courts having
jurisdiction thereof and if any relief other than injunctive relief is sought,
the Company and the Employee agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in
accordance with this Section 11 of this Agreement and the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). The matter shall be heard
and decided, and awards rendered by a panel of three (3) arbitrators (the
"Arbitration Panel"). The Company and the Employee shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators (the
"Commercial Panel") and AAA shall select a third arbitrator from the Commercial
Panel. The award rendered by the Arbitration Panel shall be final and binding as
between the parties hereto and their heirs, executors, administrators,
successors and assigns, and judgment on the award may be entered by any court
having jurisdiction thereof.
Section 12. Release.
The Employee hereby acknowledges and agrees that prior to the occurrence of the
Employee's or his dependents' right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid or provided to
him or his dependents pursuant to Section 3 of this Agreement, the Employee may
be required by the Company, in its sole discretion, to execute a release in a
form reasonably acceptable to the Company, which releases any and all claims
(other than amounts to be paid to Employee as expressly provided for under this
Agreement, the Employment Agreement, the Post Termination Confidentiality and
Non-Competition Agreement and the Supplemental Executive Retirement Agreement
the Employee has or may have against the Company or its subsidiaries, agents,
officers, directors, successors or assigns with respect to matters relating to
his employment and termination of employment.
Section 13. Waiver.
The waiver by a party hereto of any breach by the other party hereto of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by a party hereto.
Section 14. Assignment.
This Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the Company. The Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the Company's business or assets, by a
written agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no succession
had taken place. This Agreement shall inure to the extent provided hereunder to
the benefit of and be enforceable by the Employee or his legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. The Employee may not delegate any of his duties, responsibilities,
obligations or positions hereunder to any person and any such purported
delegation by him shall be void and of no force and effect with respect to
matters relating to his employment and termination of employment. Without
limiting the foregoing, the Employee's rights to receive payments and benefits
hereunder shall not be assignable or transferable, other than a transfer by
Employee's will or by the laws of descent and distribution.
Section 15. Notices.
Any notices required or permitted to be given under this Agreement shall be
sufficient if in writing, and if personally delivered or when sent by first
class certified or registered mail, postage prepaid, return receipt requested --
in the case of the Employee, to his residence address as set forth below, and in
the case of the Company, to the address of its principal place of business as
set forth below, in care of the Chairman of the Board -- or to such other person
or at such other address with respect to each party as such party shall notify
the other in writing.
Section 16. Pronouns.
Pronouns stated in either the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
Section 17. Entire Agreement
This Agreement contains the entire agreement of the parties concerning the
matters set forth herein and all promises, representations, understandings,
arrangements and prior agreements on such subject are merged herein and
superseded hereby. The provisions of this Agreement may not be amended,
modified, repealed, waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of any amendment,
modification, repeal, waiver, extension or discharge is sought. No person acting
other than pursuant to a resolution of the Board of Directors shall have
authority on behalf of the Company to agree to amend, modify, repeal, waive,
extend or discharge any provision of this Agreement or anything in reference
thereto or to exercise any of the Company's rights to terminate or to fail to
extend this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officers thereunto duly authorized, and the Employee has
hereunto set his hand, all as of the day and year first above written.
ATTEST: EQUITABLE RESOURCES, INC.
By: /s/ Audrey C. Moeller /s/ Murry S. Gerber
______________________________________ By: ________________________________
Audrey C. Moeller Murry S. Gerber
Vice President and Corporate Secretary President and Chief
Executive Officer
WITNESS:
By: /s/ Cindy Davila /s/ David L. Porges
______________________________________ _________________________________
David L. Porges
POST-TERMINATION CONFIDENTIALITY Exhibit 10.3
AND NON-COMPETITION AGREEMENT
This Agreement made this 1st day of July, 1998 (the "Effective Date"),
by and between EQUITABLE RESOURCES, INC., having a business address at 420
Boulevard of the Allies, Pittsburgh, Pennsylvania 15219 (Equitable Resources,
Inc. and its subsidiary companies hereinafter collectively known as the
"Company") and DAVID L. PORGES, an individual and resident of Houston, Texas,
(the "Executive").
WHEREAS, the Company is concurrently entering into an Employment
Agreement of even date herewith with Executive for which the execution of this
Agreement is a precondition;
WHEREAS, the Company is willing to grant to the Executive certain
additional benefits in consideration of the Executive's agreement to comply with
specific post-employment confidentiality and non-competition requirements
contained herein; and
WHEREAS, the Company and the Executive desire to enter into this
Agreement to reflect their understanding of those benefits and requirements.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. Confidentiality:
Recognizing (1) that trade secrets or confidential information in any way
related to the business activities of the Company, such as, but not limited to:
marketing plans, business plans, technical information, market information,
customer lists, pricing data and strategies, financial information, business
methods or practices, programs, hardware and software (referred to hereinafter
collectively as "Confidential Information"), constitute valuable assets of the
Company, and (2) that such Confidential Information is the property of the
Company, Executive covenants, in consideration of Executive's access to and use
of Confidential Information, to hold such Confidential Information in trust for
the Company, and successors and assigns, and not to disclose or use the same
other than in the business of the Company, specifically agreeing:
(a) not to, directly or indirectly, disclose or make available to anyone
or use outside of the Company's organization during or after the term of
employment, any Confidential Information unless such disclosure or availability
or use is approved by the Company;
(b) to use reasonable efforts to safeguard all Confidential Information
within the possession or control of Executive at all times so it is not exposed
to, or taken by, any unauthorized person (including unauthorized employees and
agents of the Company);
(c) upon termination of employment, to deliver to the Company all
papers, photographs, photoreproductions, computer tapes, tape recordings and
other materials, including but not limited to Confidential Information,
including personal notes and reproductions, relating to the business of the
Company, its subsidiaries and affiliates in the Executive's possession or
control.
This Section 1 shall not apply to any Confidential Information
that the Company has voluntarily disclosed to the public or that has otherwise
legally entered the public domain or which was known by the Executive prior to
his employment with the Company or which is required by law to be disclosed.
Section 2. Non-competition:
For a period of one year from the termination date of his employment, the
Executive will not (i) engage, directly or indirectly, whether as principal or
as agent, officer, director, employee, consultant, owner, partner, shareholder,
or otherwise, alone or in association with any other person, corporation or
other entity, in any business which produces, markets, or sells any product or
service in competition with products or services which the Company, produces,
markets, or sells in any geographic market where the Company is engaged in
business; (ii) solicit, directly or indirectly, either for himself or any other
person, any business related to the business of any customer, supplier, licensee
or other person having a business relationship with the Company, or induce or
attempt to induce any such person to cease doing business with the Company;
(iii) interfere, or attempt to interfere, with any contemplated business project
which representatives of the Company have discussed with any potential
participant in such project; or (iv) induce, or attempt to induce, any employee
of the Company to leave the employ of the Company or to violate the terms of his
contract with the Company, or employ or otherwise engage as an employee,
independent contractor or otherwise any such person. Notwithstanding the
provisions of Section 2(a)(i), the Executive may purchase or otherwise acquire
up to (but not more than) 1% of any class of securities of any enterprise (but
without otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934. The
Executive agrees that this covenant is reasonable with respect to duration,
geographical area and scope. This non-competition restriction shall not apply if
the Executive has a termination date within twenty-four (24) months of a Change
of Control as defined in the Change of Control Agreement between the Executive
and the Company.
Section 3. Consideration:
If the employment of the Executive with the Company is terminated by the Company
for any reason (other than for Cause as defined below), the Executive shall
receive, from the date of termination, in addition to any payments he may be
entitled to under other agreements with the Company (in accordance with their
terms), 24 months of base salary payments at the salary level in effect at the
time of such termination and 24 months of medical benefits continuance. For
purposes of this Agreement, "Cause" shall include: (i) the conviction of a
felony, a crime of moral turpitude or fraud or having committed fraud,
misappropriation or embezzlement in connection with the performance of his
duties hereunder, (ii) willful and repeated failures to substantially perform
his assigned duties, or (iii) a material violation of any other provisions of
this Agreement or express significant policies of the Company. The purpose of
this Agreement is to obtain the Executive's agreement to the covenants contained
herein and it is intended that benefits payable under this Agreement should be
treated as payments in the nature of compensation within the meaning of Code
Section 280G and the Regulations thereunder (the "280G Rules") and that such
payments constitute reasonable compensation within the meaning of the 280G
Rules.
Section 4. Term:
The term of this Agreement shall commence on the Effective Date and shall remain
in effect unless amended or terminated by mutual written agreement.
Section 5. Certain Remedies:
Without limiting the remedies available to the Company, the Executive
acknowledges that damages at law will be an insufficient remedy to the Company
in the event that the Executive violates the terms of this Agreement and that
the Company may apply for, and obtain, injunctive relief to restrain the breach
or threatened breach of, or otherwise to specifically enforce, such covenants.
If it should become desirable or necessary for the Company to seek compliance
with this Agreement by judicial proceedings, the period of time during which
Executive is restricted under Section 2 shall be extended by the amount of time
remaining under the original restriction on the date Executive first breached
this Agreement, commencing on the date of the trial court order or settlement
requiring such compliance. If litigation should develop between the parties
regarding this Agreement or the obligations undertaken hereby, the party
prevailing in such litigation may recover from the other such costs and
expenses, including reasonable attorneys' fees, if any, as a court of competent
jurisdiction may determine or award.
Section 6. Governing Law:
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania.
Section 7. Binding Agreement:
The obligations of Executive under this Agreement shall continue after the
termination of his employment with the Company for any reason, with or without
cause, and shall be binding on Executive's heirs, executors and legal
representatives and shall inure to the benefit of any successors by merger or
purchase of substantially all of the assets of the Company.
Section 8. Company Violation Not a Defense:
The existence of any claim or cause of action against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
enforcement by the Company of this Agreement.
Section 9. Authorization to Modify Restrictions:
It is the intention of the parties that the provisions of this Agreement shall
be enforceable to the fullest extent permissible under applicable law, but that
the unenforceability (or modification to conform to such law) of any provision
or provisions hereof shall not render unenforceable, or impair the remaining
provisions of this Agreement. If any provision or provisions of this Agreement
shall be deemed illegal, invalid or otherwise unenforceable, either in whole or
in part, this Agreement shall be deemed amended to delete or modify, as
necessary, the offending provision or provisions and to alter the bounds thereof
to render it valid and enforceable.
Section 10. Consent to Jurisdiction and Venue:
Any action or proceeding arising out of or relating to this Agreement shall be
commenced by either party in any state or federal court in Allegheny County,
Pennsylvania and the parties hereby irrevocably agree that all claims in respect
of any such action or proceeding may be heard and determined in any such court.
Executive and the Company acknowledge that the forum designated herein present
the most convenient forum for both parties. In any action commenced in any of
these courts, Executive and the Company waive any objections to inconvenience of
forum, venue and personal jurisdiction of the Court.
Section 11. Notices:
Notices hereunder shall be in writing and shall be deemed effective when
received by the Company or the Executive at their respective addresses above
given.
Section 12. Waiver:
A waiver by the Company of a breach of any of the provisions of this Agreement
shall not operate or be construed as a waiver or excuse of any subsequent or
different breach.
Section 13. Integration and Modification:
This Agreement contains the entire agreement between the parties hereto with
respect to the subject matter hereof (except for the Employment Agreement and
its appendices executed as of even date herewith between the Executive and the
Company) and supersedes all prior agreements and understandings, oral or
written. This Agreement may not be changed, amended, or modified, except by a
written instrument signed by the parties and shall survive the expiration or
termination of the Employment Agreement.
Executive acknowledges that he has read and understands the provisions of this
Agreement, that he has been given an opportunity for his legal counsel to review
this Agreement and that the provisions of this Agreement are reasonable.
ATTEST: EQUITABLE RESOURCES, INC.
By: /s/ Audrey C. Moeller /s/ Murry S. Gerber
______________________________________ By: ________________________________
Audrey C. Moeller Murry S. Gerber
Vice President and Corporate Secretary President and Chief
Executive Officer
WITNESS:
By: /s/ Cindy Davila /s/ David L. Porges
______________________________________ _________________________________
David L. Porges
EQUITABLE RESOURCES, INC.
BREAKTHROUGH LONG TERM INCENTIVE PLAN
EQUITABLE RESOURCES, INC. (the "Company") hereby establishes the
Equitable Resources, Inc. Breakthrough Long Term Incentive Plan (the "Plan") for
the benefit of certain executives of the Company effective as of the 16th day of
July, 1998.
WHEREAS, the Company maintains certain incentive award plans, including
the Equitable Resources, Inc. 1994 Long Term Incentive Plan, pursuant to which
stock-based incentive awards are granted to selected executive employees; and
WHEREAS, in order to further align the interests of the persons
primarily responsible for the success of the Company with the interest of the
shareholders, the Company desires to provide additional long term incentive
benefits through the Plan.
NOW THEREFORE, the Company hereby provides for additional incentive
benefits for certain executive employees of the Company on the following terms
and conditions:
Section 1. Eligibility. The Chief Executive Officer of the Company (the "CEO")
shall, in his sole discretion, select the executive employees of the Company who
shall be eligible to participate in the Plan. The CEO selections will become
participants in the Plan (the "Participants") only upon approval by the
Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee").
Section 2. Incentive Awards. Each Participant shall be awarded a number of units
(the "Award") (subject to the conditions provided herein) which shall be
determined by dividing four times his or her current annual base salary as of
the effective date of the Plan by $28.50, which is the average of the high and
low stock prices of Company common stock on July 16, 1998 (the "Award Date") as
reported on the New York Stock Exchange Composite Transactions System in the
Wall Street Journal ("NYSE"). The value of each unit shall equal the closing
price of the Company's common stock on the NYSE for that day. A Participant's
base salary shall be determined by the Compensation Committee, but shall in any
event exclude bonuses, commissions, car allowances, Company reimbursements,
relocation payments, and any gain from the exercise of stock options or the
grant of stock to Participants.
The Award shall be made to the Participant on the Award Date but will be held by
the Company subject to the terms and conditions described below. A Participant
shall have no current right to exchange the Award for cash, stock or any other
benefit and shall be a mere unsecured creditor of the Company with respect to
future rights to benefits.
Section 3. Performance Condition of the Award. The Award shall have value only
if the closing price of the Company's common stock on the NYSE equals or exceeds
fifty-dollars ($50.00) per share on twenty or more consecutive trading days
("Performance Condition"), in which event, subject to the terms of the Plan, a
Participant shall be entitled to receive an amount of cash equal to the value of
the Award.
Section 4. Forfeiture of the Award.
(a) The number of units constituting a Participant's Award shall
be reduced by 50% if the Performance Condition is not
satisfied on or before December 31, 2001. If the Performance
Condition is not satisfied on or before December 31, 2002, the
Participant's Award shall be forfeited.
(b) A Participant's Award shall be forfeited if, prior to the
satisfaction of the Performance Condition, the Participant's
employment with the Company terminates for any reason other
than the following.
(i) the Company terminates the employment of the Participant
for reasons other than for Cause (as defined in Section
10 below) prior to a Change in Control;
(ii) the Participant's death
(iii) the Participant terminates his or her employment with
the Company for Good Reason (as defined in Section 10
below) at any time within twenty-four months following a
Change in Control of the Company (as defined in Section
9 below).
(c) If a Participant's employment with the Company terminates for
a reason described in paragraphs (I) or (ii) of Section 4(b)
above prior to the satisfaction of the Performance Condition,
then the number of units constituting the Participant's Award
shall be reduced as follows:
(i) If the Participant's employment with the Company
terminates on or before March 31, 1999, then 100% of the
Participant's Award shall be forfeited.
(ii) If the Participant's employment with the Company
terminates after March 31, 1999, and on or before March
31, 2000, then the number of units constituting the
Participant's Award shall be reduced by 50%.
(iii) If the Participant's employment with the Company
terminates after March 31, 2000, then the number of
units constituting the Participant's Award shall be
reduced by 25%.
(d) If a Participant's employment with the Company terminates for
a reason described in Section 4(b)(iii) above, then the number
of units constituting the Participant's Award shall not be
reduced.
Section 5. Dividends. Each unit will be credited with dividends which are paid
on the Company's common stock in the form of additional units. These additional
units shall be subject to the same conditions and restrictions as provided in
this Plan.
Section 6. Distribution. Upon notification from the Company of participation in
the Plan, each Participant must make a written election as to the time and form
in which his or her Award will be paid as provided in this Section 6. This
election must be made on or before December 1, 1998.
(a) A Participant may elect to have the payment of his or her
Award commence either upon termination of employment with the
Company or upon a specified date in the future. The
Participant's election as to when the Award will be paid shall
be irrevocable.
(b) A Participant may elect to have his or her Award paid in
either a lump-sum cash payment or annual installment cash
payments over one, five or ten year periods. A Participant may
also change his or her original election as to the method of
payment by making a subsequent written election with the
Company, except that such election shall not be effective
until the one-year anniversary after the election is made.
Consequently, if the Participant makes a subsequent election
and become entitled to payment of the Award before the
expiration of the one-year period, the original election shall
apply.
(c) If a Participant elects to receive payment of his or her
Award, or any portion thereof, at any time after the
satisfaction of the Performance Condition at a specified date
and on such date, he or she is still employed by the Company,
then the units constituting the Award shall be credited to and
maintained in accordance with the terms of the Company's
Deferred Compensation Plan as then in effect.
(d) If a Participant elects to receive the payment of his or her
Award at a specified date and on such date, he or she is still
employed by the Company, then the Award shall be paid to the
Participant only to the extent that the deductibility of such
payment to the Company is not limited by reason of Section
162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). In the event that the payment of all or a part of the
Award exceeds the Code Section 162(m) limit, the amount in
excess of the limit shall automatically be deferred to the
next subsequent year in which it can be paid to the
Participant without exceeding the Code Section 162(m) limit.
(e) A Participant's Award under this Plan shall actually be paid
to the Participant within 30 days or as soon as practicable
thereafter following the benefit commencement date as
described in paragraph (a) above. The Participant shall
receive all benefits in cash payments and shall have no right
to receive a distribution of Company stock.
(f) In the event of the Participant's death, the Participant's
beneficiary (as listed on the most recent election form which
is delivered to the Company) shall receive an immediate
lump-sum cash payment without regard to the Participant's
elections as to the time and form of payment as described in
paragraphs (a) and (b) above.
Section 7. Tax Consequences to Participants. It is intended that (i) until the
Performance Condition is satisfied, a Participant's right to an Award under this
Plan shall be subject to a substantial risk of forfeiture in accordance with
Code Sections 83(a) and 3121(v)(2); (ii) the Award shall be subject to
employment taxes upon the satisfaction of the Performance Condition; and (iii)
until the Award is actually paid to the Participant, the Participant shall have
merely an unfunded, unsecured promise to be paid the benefit, and such unfunded
promise shall not consist of a transfer of "property" within the meaning of Code
Section 83. It is further intended that, because a Participant may only change
the method of payment of the Award at a time when he or she cannot actually or
constructively receive the Award, and such election will not become effective
for a one-year period after it is made, the Participant will not be in actual or
constructive receipt of the Award within the meaning of Code Section 451 until
it is actually received.
Section 8. Nonassignment. A Participant shall not be permitted to assign,
alienate or otherwise transfer his Award and any attempt to do so shall be void.
Section 9. Change in Control.
(a) Upon a Change in Control (as defined in paragraph (b) below),
the Company must transfer an amount of cash to the grantor
trust which is created by the attached Trust Plan for the
benefit of the Participants (the "Rabbi Trust"). The amount
that must be transferred to the Rabbi Trust shall equal the
value of all of the Awards made pursuant to the Plan (which
have not been forfeited pursuant to Section 4 hereof as of the
date of the Change in Control) assuming the Performance
Condition is satisfied as of the date of the Change of
Control. The Rabbi Trust shall provide the following a Change
in Control of the Company, the amount transferred to the Rabbi
Trust may not be returned to the Company (subject to its use
for creditors in the event of bankruptcy or insolvency);
provided, however, that (i) the value of any award forfeited
pursuant to Section 4 hereof subsequent to a Change in Control
shall be returned to the Company; and (ii) all amounts in the
Rabbi Trust shall be returned to the Company if the
Performance Condition is not satisfied as of December 31,
2002. In such event the Rabbi Trust shall provide that the
transferred amount shall be returned to the Company.
(b) A Change in Control of the Company shall mean any of the
following events:
(i) The sale or other disposition by the Company of all
or substantially all of its assets to a single
purchaser or to a group of purchasers, other than to
a corporation with respect to which, following such
sale or disposition more than eighty percent of,
respectively, the then outstanding shares of Company
common stock and the combined voting power of the
then outstanding voting securities entitled to vote
generally in the election of the Board of Directors
is then owned beneficially, directly or indirectly,
by all or substantially all of the individuals and
entities who were the beneficial owners, respectively
of the outstanding Company common stock and the
combined voting power of the then outstanding voting
securities immediately prior to such sale or
disposition in substantially the same proportion as
their ownership of the outstanding Company common
stock and voting power immediately prior to such sale
or disposition;
(ii) The acquisition in one or more transactions by any
person or group, directly or indirectly, of
beneficial ownership of twenty percent or more of the
outstanding shares of Company common stock or the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally
in the election of the Board of Directors; provided,
however, that any acquisition by (x) the Company or
any of its subsidiaries, or any employee benefit plan
(or related trust) sponsored or maintained by the
Company or any of its subsidiaries or (y) any person
that is eligible, pursuant to Rule 13d-1(b) under the
Exchange Act (as such rule is in effect as of
November 1, 1995) to file a statement on Schedule 13G
with respect to its beneficial ownership of Company
common stock and other voting securities, whether or
not such person shall have filed a statement on
Schedule 13G, unless such person shall have filed a
statement on Schedule 13D with respect to beneficial
ownership of fifteen percent or more of the Company's
voting securities, shall not constitute a Change in
Control;
(iii) The Company's termination of its business and
liquidation of its assets;
(iv) There is consummated a merger, consolidation,
reorganization, share exchange, or similar
transaction involving the Company, (including a
triangular merger), in any case, unless immediately
following such transaction; (x) all of substantially
all of the persons who were the beneficial owners of
the outstanding common stock and outstanding voting
securities of the Company immediately prior to the
transaction beneficially own, directly or indirectly,
more than 60% of the outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors of the
corporation resulting from such transaction
(including a corporation or other person which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets through one
or more subsidiaries (a "Parent Company")) in
substantially the same proportion as their ownership
of the common stock and other voting securities of
the Company immediately prior to the consummation of
the transaction, (y) no person (other than the
Company, any employee benefit plan sponsored or
maintained by the Company or, if reference was made
to equity ownership of any Parent Company for
purposes of determining whether clause (x) above is
satisfied in connection with the transaction, (such
Parent Company) beneficially owns, directly or
indirectly, 20% or more of the outstanding shares of
common stock or the combined voting power of the
voting securities entitled to vote generally in the
election of directors of the corporation resulting
from such transaction and (z) individuals who were
members of the Company's Board of Directors
immediately prior to the consummation of the
transaction constitute at least a majority of the
members of the board of directors resulting from such
transaction (or, if reference was made to equity
ownership of any Parent Company for purposes of
determining whether clause (x) above is satisfied in
connection with the transaction, such Parent
Company); or
(v) The following individual cease for any reason to
constitute a majority of the number of directors then
serving; individuals who, on the date hereof,
constitute the entire Board of Directors and any new
director (other than a director whose initial
assumption of office is in connection with an actual
or threatened election contest, including but not
limited to a consent solicitation, relating to the
election of directors of the Company) whose
appointment or election by the Board or nomination
for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors on the date hereof or whose appointment,
election or nomination for election was previously so
approved.
Section 10. Good Reason for Termination. For purposes of the Forfeiture
Provision of Section 4, a Participant shall have terminated employment with the
Company for "Good Reason" if any one of the following applies:
(a) The removal of the Participant from the position he held
immediately prior to the Change in Control (other than by
reason of death, disability or Cause),
(b) The assignment to the Participant of any duties inconsistent
with those performed by the Participant immediately prior to
the Change in Control or a substantial alteration in the
nature or status of the Participant's responsibilities which
renders the Participant's position to be of less dignity,
responsibility or scope;
(c) A reduction by the Company in the Participant's level of
overall compensation (including annual incentive opportunity
at target award levels) as in effect on the effective date of
this Plan or as the same may be increased from time to time
except for proportional across-the-board reductions similarly
affecting all executives of the Company and all executives of
any person in control of the Company, provided, however, that
the exception for across-the-board reductions shall not apply
in the event the Participant's annual base salary is reduced
by an amount equal to ten percent or more of the Participant's
annual base salary as of the end of the calendar year
immediately preceding the year in which the Change in Control
occurs, without the Participant's consent;
(d) The failure to grant the Participant an annual salary increase
reasonably necessary to maintain such salary as reasonably
comparable to salaries of senior executives holding position
equivalent to the Participant's in the industry in which the
Company's then principal business activity is conducted;
(e) The Company requiring the Participant to be based anywhere
other than the Company's principal executive offices in the
city in which the Participant is principally located
immediately prior to the Change in Control, except for
required travel on the Company's business to an extent
substantially consistent with the Participant's present
business travel obligations; or
(f) Any material reduction by the Company of the benefits enjoyed
by the Participant under any of the Company's pension,
retirement, profit sharing, savings, life insurance, medical,
health and accident, disability or other employee benefit
plans, programs or arrangements; the taking of any action by
the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Participant of any
material fringe benefits or perquisites; or the failure by the
Company to provide the Participant with the number of paid
vacation days to which he is entitled on the basis of years of
service with the Company in accordance with the Company's
normal vacation policy, provided that this paragraph (f) shall
not apply to any proportional across-the-board reduction or
action similarly affecting all executives of the Company and
all executives of any person in control of the Company.
Section 11. Termination of Participant for Cause. For purposes of the Forfeiture
Provision of Section 4, a Participant shall have a termination of employment
from the Company for "Cause" upon:
(a) The willful and continued failure by the Participant to
substantially perform his duties with the Company (other than
(i) any such failure resulting from the Participant's
disability, or (ii) any such actual or anticipated failure
resulting from the Participant's termination of his employment
for Good Reason), after a written demand for substantial
performance is delivered to the Participant by the CEO of the
Company which specifically identifies the manner in which the
CEO believes that the Participant has not substantially
performed his duties and which failure has not been cured
within thirty days after such written demand; or
(b) The willful and continued engaging by the Participant in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise.
For purposes of this Section 11, no act, or failure to act on the Participant's
part shall be considered "willful" unless done, or omitted to be done, by the
Participant in bad faith and without reasonable belief that such action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
the Participant shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board of Directors at a meeting of the Board of Directors called and held
for that purpose (after reasonable notice to the Participant and an opportunity
for the Participant, together with his counsel, to be heard before the Board of
Directors) finding that in the good faith opinion of the Board of Directors the
Participant is guilty of the conduct set forth above and specifying the
particulars thereof in detail.
Section 12. Successors; Changes in Stock. The obligation of the Company under
the Plan shall be binding upon the successors and assigns of the Company. In the
event of a stock split, stock dividend or other recapitalization of the Company
affecting the Company's common stock, then the number of units constituting a
Participant's Award and the Performance Condition shall be appropriately and
equitably adjusted. In the event that the Company's common stock is exchanged
for or converted solely into the common stock of another Company, then the value
of the units constituting the Award shall equal the closing price of such common
stock on the principal market on which such common stock is traded and the Award
shall continue to be subject to the terms of the Plan. In the event that the
Company's common stock is exchanged for or converted into the right to receive
cash or other property [including debt securities and/or other securities (other
than solely common stock)], then the Performance Condition shall be deemed to
have been satisfied if the fair market value of such cash and/or property equals
or exceeds $50.00 per share of the Company's common stock.
Section 13. Dispute Resolution. The Participant may make a claim to the
Compensation Committee with regard to a payment of benefits provided herein. If
the Compensation Committee receives a claim in writing, the Compensation
Committee must advise the Participant of its decision on the claim in writing in
a reasonable period of time after receipt of the claim, (not to exceed 120
days). The notice shall set forth the following information:
(a) The specific basis for its decision;
(b) Specific reference to pertinent Plan provisions on which the
decision is based;
(c) A description of any additional material or information
necessary for the Participant to perfect a claim and an
explanation of why such material or information is necessary;
and
(d) An explanation of the Plan's claim review procedure.
If the Participant does not receive a notice of decision within 120 days after
receipt of the claim, the claim will be deemed to have been denied. The
Participant may request a review of a decision (or deemed denial) by filing with
the Compensation Committee a written request for such review. The request must
be filed within 60 days after the notice of decision is received, or within 60
days after the denial is deemed to have occurred. The Participant may review
pertinent documents and submit issues and comments in writing within the same 60
day period. If a request for review is filed, such review shall be made by the
Compensation Committee within 120 days after receipt of such request. Upon
completion of the review, the Participant shall be given written notice of the
decision resulting from such review, which notice shall include specific reasons
for the decision and specific references to the pertinent Plan provisions on
which the decision is based.
In the event that the Participant continues to disagree with the decision of the
Compensation Committee, the Participant may seek to resolve the dispute by
referring the matter to an impartial arbitrator who shall be selected from a
list of names provided by the Federal Mediation and Conciliation Service in
Washington DC, provided that the costs for such proceeding shall be borne by the
party determined by the arbitrator.
Section 14. Impact on Benefit Plans. Payments made under this Plan will not be
considered as earnings for purposes of the Deferred Compensation Plan.
Section 15. No Contract of Employment. This Plan shall not be construed as a
contract of employment for the Participant during the term of this Plan.
Section 16. Applicable Law. This Plan shall be governed by and construed under
the laws of the Commonwealth of Pennsylvania without regard to its conflict of
law provisions.
Section 17. Severability. In the event that any one or more of the provisions of
this Plan shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 18. Headings. The descriptive headings of the Sections of this Plan are
inserted for convenience of reference only and shall not constitute a part of
this Plan.
Section 19. Amendment and Termination. This Plan may be amended by the Company,
in its sole discretion at any time by a written action authorized by its Board
of Directors except that no amendment shall adversely affect a Participant's
rights to his Award after the Award Date and no amendment can be made following
a Change in Control as defined in Section 9. This Plan shall terminate upon the
earlier of the satisfaction of the Performance Condition or December 31, 2002.
The Compensation Committee shall be responsible for administering the Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
officers thererunto duly authorized as of the day and year first written above.
ATTEST: EQUITABLE RESOURCES, INC.
______________________________________ _______________________________
Audrey C. Moeller Murry S. Gerber
Vice President and Corporate Secretary President and Chief Executive
Officer
PURCHASE AGREEMENT
by and among
EQUITABLE RESOURCES ENERGY COMPANY,
ET BLUEGRASS COMPANY,
EREC NEVADA, INC.
and
ERI SERVICES, INC.
and
AEP RESOURCES, INC.
September 12, 1998
<PAGE>
TABLE OF CONTENTS
Page
PURCHASE AGREEMENT 1
ARTICLE I - DEFINITIONS 1
1.1 Certain Defined Terms 1
1.2 Certain Additional Defined Terms 6
1.3 Construction 7
ARTICLE II - TERMS OF THE TRANSACTION 7
2.1 Agreement to Sell and to Purchase the Subject
Stock and Trading Assets 7
2.2 Purchase Price and Payment. 7
2.3 Additional Consideration 8
2.4 Calculation of Closing Consideration 8
2.5 Calculation of Adjustment Amount 8
2.6 Assumed Obligations 9
2.7 Purchase Price Allocation 9
ARTICLE III - CLOSING 10
3.1 Closing 10
3.2 Deliveries by Seller 10
3.3 Deliveries by Buyer 11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER 12
4.1 Corporate Organization 12
4.2 Midstream Companies 12
4.3 Charter and Bylaws 13
4.4 Authority Relative to This Agreement 13
4.5 No Conflict 13
4.6 Consents, Approvals, Licenses, Etc. 14
4.7 Financial Statements 14
4.8 Absence of Certain Changes 14
4.9 Tax Matters 15
4.10 Compliance With Laws 16
4.11 Legal Proceedings 16
4.12 Title to Properties 16
4.13 Sufficiency and Condition of Properties 16
4.14 Midstream Company Agreements 16
4.15 ERISA 18
4.16 Environmental Matters 19
4.17 Labor Matters 20
4.18 Insurance 20
4.19 Absence of Undisclosed Liabilities 21
4.20 Bank Accounts 21
4.21 Transferred Contracts. 21
4.22 Trading Company Permits 21
4.23 Brokerage Fees 22
4.24 Governmental Regulation 22
4.25 No Other Representations 22
4.26 Year 2000 Compliance 22
4.27 No Misrepresentations 22
4.28 Tax Status of Equitable Storage Company, LLC 22
4.29 No Take-or-Pay Obligations 23
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 23
5.1 Corporate Organization 23
5.2 Authority Relative to This Agreement 23
5.3 No Conflict 24
5.4 Consents, Approvals, Licenses, Etc 24
5.5 Financing 24
5.6 Investment Intent; Investment Experience; Restricted Securities 24
5.7 Legal Proceedings 25
5.8 Brokerage Fees 25
5.9 Independent Investigation 25
5.10 LLC Status 25
ARTICLE VI - CONDUCT OF COMPANY PENDING CLOSING 25
6.1 Conduct and Preservation of the Midstream Companies 25
6.2 Restrictions on Certain Actions relating to
the Midstream Companies 26
6.3 Restrictions on Certain Actions relating to the Trading Assets 28
6.4 No Other Negotiations 28
6.5 Replacement of IT System 28
6.6 Transition Period 28
ARTICLE VII -ADDITIONAL AGREEMENTS 29
7.1 Access to Information; Confidentiality 29
7.2 Regulatory and Other Authorizations; Consents 30
7.3 Employee and Employee Benefit Plan Matters 32
7.4 Public Announcements 33
7.5 Notification of Certain Matters 34
7.6 Amendment of Schedules 34
7.7 Intercompany Accounts 34
7.8 Fees and Expenses 34
7.9 Transfer Taxes 34
7.10 Action Regarding Indemnities. 34
7.11 Casualty Loss. 34
7.12 Excluded Assets 35
7.13 Transition Services 35
7.14 Guarantees 35
7.15 [Intentionally omitted.] 35
7.16 Use of Name. 36
7.17 Insurance. 36
ARTICLE VIII -CONDITIONS TO OBLIGATIONS OF SELLER 36
8.1 Representations and Warranties True 36
8.2 Covenants and Agreements Performed 36
8.3 HSR Act; Consents 36
8.4 Legal Proceedings 36
8.5 Guarantees 37
ARTICLE IX - CONDITIONS TO OBLIGATIONS OF BUYER 37
9.1 Representations and Warranties True 37
9.2 Covenants and Agreements Performed 37
9.3 HSR Act; Consents 37
9.4 Legal Proceedings 37
9.5 Material Adverse Effect 37
ARTICLE X - TERMINATION, AMENDMENT, AND WAIVER 38
10.1 Termination 38
10.2 Effect of Termination 38
10.3 Amendment 38
10.4 Waiver 39
ARTICLE XI - TAX MATTERS 39
11.1 Tax Allocation: Pre-Closing. 39
11.2 Tax Allocation: Post-Closing. 39
11.3 Tax Allocation: Straddle Period. 39
11.4 Return Preparation. 40
11.5 Refunds or Credits. 40
11.6 Taxes Relating to Trading Assets. 40
ARTICLE XII - SURVIVAL; INDEMNIFICATION 41
12.1 Survival 41
12.2 Indemnification by Seller 41
12.3 Indemnification by Buyer 43
12.4 Further Limitations of Liability 44
12.5 Defense of Claims. 44
12.6 Additional Provisions Relating to Environmental Indemnification 45
12.7 Procedures for Remedial Actions 47
12.8 Third Party Indemnity 47
12.9 Tax Treatment of Indemnity Payments. 48
ARTICLE XIII - MISCELLANEOUS 48
13.1 Notices 48
13.2 Entire Agreement 49
13.3 Binding Effect; Assignment; No Third Party Benefit 49
13.4 Severability 50
13.5 GOVERNING LAW 50
13.6 Further Assurances 50
13.7 Descriptive Headings 50
13.8 Gender 50
13.9 References 50
13.10 Counterparts 50
13.11 [Intentionally omitted.] 50
13.12 Disclosure 51
13.13 Consent to Jurisdiction 51
13.14 Arbitration 51
13.15 Bulk Sales or Transfer Laws 52
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of September 12, 1998,
among Equitable Resources Energy Company, a West Virginia corporation, ET Blue
Grass Company, a Delaware corporation, EREC Nevada, Inc., a Nevada corporation,
and ERI Services, Inc., a Delaware corporation (collectively, "Seller"), and AEP
Resources, Inc., an Ohio corporation ("Buyer").
WHEREAS, the Midstream Companies (as defined in Section 1.1) are
wholly-owned direct or indirect subsidiaries of Seller; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Subject Stock and the Trading Assets (in each case as defined
in Section 1.1);
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Seller and Buyer hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"Adjustment Amount" means (i) current assets of the Midstream
Companies less current liabilities of the Midstream Companies (but
excluding the cash in the bank account maintained by Equitable
Resources, Inc. with Mellon Bank and all Intercompany Accounts),
including the current portion of other assets and liabilities, as
reflected on the Effective Date Balance Sheet, plus (or minus) (ii) the
Physical Book Adjustment, plus (iii) if the Closing occurs after
December 1, 1998, the aggregate amount of cash transferred to or for
the account of the Midstream Companies by Seller or its affiliates
(other than the Midstream Companies) between the Effective Date and the
Closing Date, minus (iv) if the Closing occurs after December 1, 1998,
the aggregate amount of cash transferred to or for the account of
Seller or its affiliates (other than the Midstream Companies) by the
Midstream Companies between the Effective Date and the Closing Date,
plus (v) if the Closing occurs after December 1, 1998, the Interest
Adjustment. For purposes of determining the amount in the preceding
clause (i), the estimated costs as of the Effective Date to complete
(A) the Plaquemine plant expansion in Iberville Parish, Louisiana and
(B) the second salt-dome storage cavern at the Jefferson Island storage
facility shall be deemed to be current liabilities of the Midstream
Companies.
"affiliate" means, with respect to any person, any other
person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control
with, such person. For the purposes of this definition, "control" when
used with respect to any person means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership
of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Law" means any statute, law, ordinance, executive
order, rule or regulation, or any judgment, order, writ, injunction or
decree of, any Governmental Entity to which a specified person or
property is subject.
"Arbitrating Firm" means one of the "big five" independent
public accounting firms (other than any such firm that audited the 1996
or 1997 financial statements of Seller or Buyer or any of their
respective affiliates) selected by agreement of Buyer and Seller or, if
they cannot agree, chosen by lot by Buyer from among the eligible
firms.
"Assumed Litigation" means all Proceedings described in
Schedule 4.11 but does not include Retained Litigation.
"Code" means the Internal Revenue Code of 1986, as amended.
"commercially reasonable efforts" means efforts in accordance
with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Confidentiality Agreement" means that certain letter
agreement dated May 15, 1998, between an affiliate of Buyer and J.P.
Morgan Securities, Inc. (on behalf of Equitable Resources, Inc.).
"Defense Costs" means the amount of costs and expenses
(including, without limitation, legal fees and expenses and expert fees
and expenses) incurred by Seller and its affiliates for goods and
services received by Seller after the Effective Date in the defense of
the Retained Litigation.
"EBITDA" means earnings before interest, taxes, depreciation
and amortization, as calculated in the same manner as the Financial
Statements have been prepared.
"Effective Date" means the earlier to occur of Closing Date
and December 1, 1998.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements and other encumbrances of every type and description, whether
imposed by law, agreement, understanding or otherwise.
"Environmental Response Measures" means any of the following,
to the extent required to effectuate compliance with Applicable
Environmental Laws: the cost of investigation, remedial response
obligations, removal response obligations, interim response
obligations, ecological investigation obligations, natural resource
damage remediation obligations, and obligations to comply with orders
of any Governmental Entity.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Approvals" means action by all appropriate
Governmental Entities granting any and all material permits, consents
and approvals of Governmental Entities, including but not limited to
those required under the HSR Act or from the Federal Energy Regulatory
Commission, the Securities and Exchange Commission, the Louisiana
Public Service Commission, the Louisiana Office of Conservation, the
State Mineral Board of the State of Louisiana, the State Land Office of
the State of Louisiana and various Louisiana parish authorities, that
reasonably may be deemed necessary so that the consummation of the
transactions contemplated hereby will be in compliance with Applicable
Law, the failure to comply with which would have a Material Adverse
Effect.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal or
other governmental body, agency, authority, department, commission,
board, bureau or instrumentality (domestic or foreign).
"Hazardous Material" means any hazardous substance defined in
Section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601(14),
petroleum, including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas or any constituents thereof.
Solely for purposes of this Agreement, and without any admission or
implication that brine or waste water constitutes a hazardous material
or hazardous waste, the definition of "Hazardous Material" shall
include brine and waste water.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Intellectual Property" means patents, trademarks, service
marks, trade names, service names, brand names, copyrights, trade
secrets, know-how, technology, inventions, computer software (including
documentation and object and source codes) and similar rights, and all
registrations, applications, licenses and rights with respect to any of
the foregoing.
"Intercompany Accounts" mean all Intercompany Receivables and
all Intercompany Payables, including, without limitation, all
intercompany tax allocations.
"Intercompany Payables" means all amounts owed by the
Midstream Companies to Seller or any of its affiliates (including the
Midstream Companies), including, without limitation, all intercompany
notes payable (whether short or long term) and intercompany accounts
payable.
"Intercompany Receivables" means all amounts due from Seller
or any of its affiliates (including the Midstream Companies) to the
Midstream Companies, including, without limitation, all intercompany
notes receivable (whether short or long term) and intercompany accounts
receivable.
"Interest Adjustment" means an amount equal to interest on the
Purchase Price at 6.5% per annum from December 1, 1998, to the Closing
Date.
"IRS" means the Internal Revenue Service.
"Material Adverse Effect" means a material adverse effect on
the business, assets or financial condition of the Midstream Companies
and the Trading Assets considered as a whole.
"Midstream Companies" mean Equitable Storage Company, L.L.C.;
Equitable Pipeline Company; Louisiana Intrastate Gas Company, L.L.C.;
LIG, Inc.; LIG Liquids Company L.L.C.; LIG Chemical Company; and
Tuscaloosa Pipeline Company.
"Permits" means licenses, permits, franchises, consents,
approvals, variances, exemptions and other authorizations of or from
Governmental Entities.
"Permitted Encumbrances" means (i) Encumbrances created by
Buyer, (ii) liens for Taxes not yet due and payable, (iii) statutory
liens (including materialmen's, mechanic's, repairmen's landlord's, and
other similar liens) arising in connection with the ordinary course of
business securing payments not yet due and payable, (iv) Encumbrances
of record and (v) such defects, imperfections or irregularities of
title, if any, as are not substantial in character, amount, or extent
and do not materially impair the conduct of normal operations of the
Midstream Companies or the Trading Assets considered as a whole, or
otherwise result in a Material Adverse Effect. "Permitted Encumbrance"
does not include any lien described in clause (ii) or (iii) of this
definition to the extent that the existence of such lien or the
indebtedness secured thereby constitutes a breach by Seller of any
representation, warranty or covenant set forth in this Agreement or any
certificate, schedule, agreement or other instrument delivered by
Seller in connection herewith.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization or Governmental Entity.
"Physical Book Adjustment" means the present value of the net
aggregate unrealized gain and loss with respect to the Transferred
Contracts as of the last day of the month in which the Closing occurs,
valued using the estimated fair market value of the Transferred
Contracts of the Trading Company as of such date and a discount rate
equal to the Prime Rate.
"Prime Rate" means the prime interest rate reported in the
Wall Street Journal on the Effective Date.
"Proceedings" means all proceedings, actions, claims, suits,
arbitration or mediation proceedings, investigations and inquiries by
or before any arbitrator or Governmental Entity.
"Retained Litigation" means the Proceedings listed on Schedule
1.1(a) to the extent Buyer is entitled to be indemnified therefor by
Seller pursuant to this Agreement and any Proceedings which are duly
served on the Midstream Companies between the date hereof and the
Closing Date.
"Securities Act" means the Securities Act of 1933, as amended.
"Subject Stock" means all the issued and outstanding capital
stock or membership interests, as applicable, of the Midstream
Companies.
"Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any general partnership, joint
venture or similar entity more than 50% of whose total equity
interests, is owned, directly or indirectly, by Seller, or any limited
partnership of which Seller or any Subsidiary is a general partner.
"Taxes" means any income, add-on, value-added or gross
receipts taxes or similar assessments or any sales, excise, occupation,
use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, or other tax or duty imposed by any
United States federal, state or local (or any foreign or provincial)
taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report, including any related
or supporting information, with respect to Taxes.
"to the knowledge" of a specified person (or similar
references to a person's knowledge) means that the only information to
be attributed to such person is information actually known to (a) such
person in the case of an individual or (b) in the case of a corporation
or other entity, each executive officer who devoted substantive
attention to matters of such nature during the ordinary course of his
employment by such person. Unless otherwise provided in this Agreement,
and unless undertaken in the course of due diligence, no such person is
represented to have undertaken a separate investigation in connection
with the transactions contemplated hereby to determine the existence or
absence of facts in any statement qualified by "to the knowledge" of
any person.
"Trading Assets" means the Transferred Contracts and the other
assets listed on Schedule 1.1(b) hereto.
"Trading Company" means ERI Services, Inc.
"Treasury Regulations" means one or more treasury regulations
(including temporary and proposed regulations) promulgated under the
Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in
the United States of America from time to time, with such exceptions to
such generally accepted accounting principles as may be noted or
otherwise referred to on any individual financial statement or
schedule.
1.2 Certain Additional Defined Terms. In addition to such terms as are
defined in the opening paragraph of and the recitals to this Agreement and in
Section 1.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
Defined Term Section Reference
Applicable Environmental Laws................................. 4.16(b)
Arbitrator.................................................... 13.14
Assumed Liabilities........................................... 2.6
Base Purchase Price........................................... 2.2
Breach ..................................................... 4.5
Buyer Controlled Group........................................ 7.3(e)
Casualty Loss................................................. 7.11
Cause ..................................................... 7.3(f)
Closing ..................................................... 3.1
Closing Date.................................................. 3.1
Continuing Employees.......................................... 7.3(f)
Deposit ..................................................... 2.3
Designated Trading Employees.................................. 7.3(c)
Direct Claim.................................................. 12.5(c)
Dispute ..................................................... 13.14
Dispute Deadline Date......................................... 2.5(b)
Effective Date Balance Sheet.................................. 2.5(a)
Employee Plans................................................ 4.15(a)
Estimated Adjustment Amount................................... 2.4
Financial Book Transaction.................................... 7.15
Financial Statements.......................................... 4.7
Government Antitrust Authority................................ 7.2(b)
Guarantees.................................................... 7.14
Indemnifying Party............................................ 12.5(a)
Indemnitee.................................................... 12.4
Insurance Cap Amount.......................................... 12.2(c)
Interest Adjustment........................................... 2.2
JD Amount..................................................... 12.2
Joint Defense Agreement....................................... 12.2
Latest Balance Sheet.......................................... 4.7
Liquids Agreement............................................. 2.3
Loss ..................................................... 12.2(a)
Material Midstream Contracts.................................. 4.14(b)
Master Swap Agreement......................................... 7.15
Midstream Employees........................................... 7.3(a)
Midstream Insurance Policies.................................. 4.18
Pre-Closing Tax Period........................................ 11.1
Post-Closing Certificate...................................... 2.5(a)
Post-Closing Tax Period....................................... 11.2
Purchase Price................................................ 2.2
Qualified Offer............................................... 7.3(c)
Remediation Standard.......................................... 12.6(f)
Retention Agreements.......................................... 7.3(g)
Seller Claims................................................. 12.3(a)
Straddle Period............................................... 11.3
Survival Date................................................. 12.1(a)
Third Party Claim............................................. 12.5(a)
Third Party Indemnities....................................... 7.10
Trading Company Permits....................................... 4.22
Trading Employees............................................. 7.3(a)
Transferred Contracts......................................... 4.21
1.3 Construction. Unless herein otherwise provided, or unless the
context shall otherwise require, words importing the singular number shall
include the plural number, and vice versa; the terms "herein", "hereof",
"hereby" and "hereunder", or other similar terms, refer to this Agreement as a
whole and not only to the particular Article, Section or other subdivision in
which any such terms may be employed; references to Articles, Sections and other
subdivisions refer to the Articles, Sections, and other subdivisions of this
Agreement; a reference to any person shall include such person's predecessors
and successors; and all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with U.S. GAAP. Each reference herein to
a Schedule or Exhibit refers to the item attached to this Agreement or otherwise
identified separately in writing by the parties hereto as the described Schedule
or Exhibit to this Agreement.
ARTICLE II
TERMS OF THE TRANSACTION
2.1 Agreement to Sell and to Purchase the Subject Stock and Trading
Assets. At the Closing, and on the terms and subject to the conditions set forth
in this Agreement, Seller shall sell, assign, transfer, deliver and convey to
Buyer, and Buyer shall purchase and accept from Seller, the Subject Stock and
the Trading Assets.
2.2 Purchase Price and Payment. In consideration of the sale of the
Subject Stock and the Trading Assets to Buyer, Buyer shall pay to Seller at the
Closing an aggregate purchase price (the "Purchase Price") consisting of
$320,000,000 (the "Base Purchase Price") as adjusted by the Adjustment Amount in
accordance with this Article II.
2.3 Additional Consideration. As additional consideration for the
sale of the Subject Stock and the Trading Assets to Buyer, at the Closing Buyer
will cause certain of the Midstream Companies to execute and deliver an
agreement (the "Liquids Agreement") substantially in the form of Exhibit 2.3
hereto.
2.4 Calculation of Closing Consideration. Not later than 5 days prior
to the Closing Date, Seller shall deliver to Buyer a written statement setting
forth an estimate of the Adjustment Amount (the "Estimated Adjustment Amount")
with Seller's calculation thereof in reasonable detail, based on information
then available to Seller. Subject to the terms and conditions of this Agreement,
at the Closing Buyer shall pay in immediately available funds by confirmed wire
transfer to a bank account to be designated by Seller an amount equal to the
Base Purchase Price plus (i) the Interest Adjustment and plus or minus (ii) the
Estimated Adjustment Amount.
2.5 Calculation of Adjustment Amount
(a) As promptly as practicable after the Closing Date, and in any
event not later than 120 days after the Closing Date, Seller shall deliver to
Buyer (i) a combined balance sheet of the Midstream Companies as of the
beginning of the Effective Date (the "Effective Date Balance Sheet"), prepared
on the same basis as the Financial Statements referred to in Section 4.7 have
been prepared and (ii) a certificate of Seller (the "Post-Closing Certificate")
showing its calculation of the Adjustment Amount. Buyer agrees, without charge
to Seller, to give Seller and its authorized representatives reasonable access
to such employees, offices and other facilities and such books and records of
the Midstream Companies as are reasonably necessary to allow Seller and its
authorized representatives to prepare the Effective Date Balance Sheet in
compliance with this Section 2.5.
(b) In the event that Buyer acting in good faith disputes the
calculation of the Adjustment Amount, Buyer shall give written notice thereof to
Seller on or before the 60th day after the Post-Closing Certificate was given to
Buyer (the "Dispute Deadline Date"), which notice shall set forth the basis for
such dispute in reasonable detail. Buyer and Seller shall use all reasonable
efforts to resolve any such dispute, but if any such dispute cannot be resolved
by such parties within 60 days after the date the dispute notice is given, all
unresolved disputes shall be referred to an Arbitrating Firm for resolution.
Buyer and Seller shall seek to cause the Arbitrating Firm to make its
determination within 60 days after referral of a dispute to it. Buyer and Seller
shall each promptly prepare a written statement on the matters in dispute which
(together with the relevant documents) shall be submitted to the Arbitrating
Firm as soon as possible, and, in any event, within 30 days of its appointment,
for determination by the Arbitrating Firm within 60 days of its appointment. In
giving such determination, the Arbitrating Firm shall state what adjustments (if
any) are necessary to the draft Effective Date Balance Sheet in order to comply
with the requirements of this Agreement. Seller and Buyer shall each provide the
Arbitrating Firm with all information which it reasonably requires and the
Arbitrating Firm shall be entitled (to the extent it considers appropriate) to
base its opinion on such information and on the accounting and other records of
the Midstream Companies. The determination of the Arbitrating Firm shall be
conclusive and binding on each party. The fees of the Arbitrating Firm shall be
allocated and paid by Seller or Buyer, or divided between them, on a basis
determined by the Arbitrating Firm to be fair taking into account the
correctness of the positions asserted by each of them with respect to the
disputed matters resolved by the Arbitrating Firm.
(c) The Adjustment Amount shall be deemed to be finally determined in
the amount set forth in the Post-Closing Certificate on the Dispute Deadline
Date unless a dispute notice is given in accordance with Section 2.5(b) with
respect to the calculation thereof. If such a dispute notice is given, the
Adjustment Amount shall be deemed finally determined on the date that the
Arbitrating Firm gives written notice to Buyer and Seller of its determination
with respect to all disputes regarding the calculation thereof, or, if earlier,
the date on which Seller and Buyer agree in writing on the amount thereof, in
which case the Adjustment Amount shall be calculated in accordance with such
determination or agreement, as the case may be.
(d) If the Adjustment Amount, as finally determined, exceeds the
Estimated Adjustment Amount, then Buyer shall pay to Seller the amount of such
excess, plus interest on the amount of such excess from and including the
Closing Date to but excluding the date of payment at the Prime Rate. If the
Adjustment Amount is less than the Estimated Adjustment Amount, then Seller
shall pay to Buyer the amount of such deficiency, plus interest on the amount of
such deficiency from and including the Closing Date to but excluding the date of
payment at the Prime Rate. Any payment shall be made within 10 business days of
the date the Adjustment Amount is deemed to be finally determined pursuant to
Section 2.5(c).
2.6 Assumed Obligations. Buyer acknowledges and agrees that,
following the Closing, the Midstream Companies shall remain obligated for all
their respective liabilities and obligations, and subject to Seller's
obligations under Article XII, Buyer shall assume or cause the Midstream
Companies to pay, perform and discharge their liabilities and obligations after
the Closing. In addition, as further consideration for the sale hereunder to
Buyer, Buyer agrees, upon the terms and subject to the conditions set forth
herein and except as otherwise provided herein, to assume at the Closing and
thereafter to pay, perform and discharge, all liabilities and obligations
relating to the ownership or operation of the Trading Assets, including, without
limitation, all liabilities and obligations of Seller under the Transferred
Contracts, to the extent that such liabilities and obligations arise and relate
to periods beginning on or after the Effective Date. The foregoing liabilities
and obligations (i) of the Midstream Companies and (ii) relating to the
ownership or operation of the Trading Assets are herein collectively referred to
as the "Assumed Liabilities". "Assumed Liabilities" does not include any
liability or obligation to the extent that the existence of such liability or
obligation constitutes a breach by Seller of any representation, warranty or
covenant set forth in this Agreement or any certificate, schedule, agreement or
other instrument delivered by Seller in connection herewith.
2.7 Purchae Price Allocation. The Purchase Price shall be allocated
as set forth on Schedule 2.7 for all purposes, including the filing of any Tax
Returns. The parties agree that the Purchase Price and the liabilities of the
Subject Stock and Trading Assets have been allocated for all purposes (including
Tax and financial accounting purposes) in a manner consistent with the relative
fair market values set forth on Schedule 2.7. To the extent that an Adjustment
Amount occurs, Buyer and Seller shall promptly make appropriate adjustments to
such allocations. The valuations and allocation determined pursuant to this
Section 2.7, as they may be adjusted, shall be used for purposes of all relevant
tax returns, tax reports and tax filings.
ARTICLE III
CLOSING
3.1 Closing. Subject to Section 3.4 hereof and to fulfillment or
waiver of the conditions precedent specified herein, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the offices
of Seller, in Houston, Texas, at 10 a.m. local time, on the later of (A) October
1, 1998, or (B) not later than the tenth business day following the receipt of
all Governmental Approvals, or at such other time or place as the parties hereto
shall agree. The date on which the Closing takes place is herein referred to as
the "Closing Date." All Closing transactions shall be deemed to have occurred
simultaneously.
3.2 Deliveries by Seller. At the Closing, Seller will deliver (or in
the case of clause (c)(ii) below, deliver or grant access and custody to) the
following documents to Buyer:
(a) A certificate executed on behalf of each Seller by the president
or vice president of such Seller, dated the Closing Date, representing and
certifying, in such detail as Buyer may reasonably request, that the conditions
set forth in Sections 9.1 and 9.2 have been fulfilled.
(b) An opinion of counsel to Seller, dated the Closing Date, in the
form of Exhibit 3.2(b).
(c) The certificates, instruments and documents listed below:
(i) The stock certificates representing the Subject Stock duly
endorsed in blank, or accompanied by stock powers duly executed in
blank, and otherwise in form acceptable for transfer of the Subject
Stock to Buyer.
(ii) The minute books, stock records, other corporate,
business, tax and financial records, and corporate seal of each of the
Midstream Companies.
(iii) The written resignations (or evidence of removal) of the
directors and officers of the Midstream Companies designated in writing
by Buyer to Seller not less than 14 days prior to Closing, such
resignations to be effective concurrently with the Closing on the
Closing Date.
(iv) Evidence of the Governmental Approvals of Seller and the
Midstream Companies.
(v) An assignment and assumption agreement substantially in
the form of Exhibit 3.2(c) duly executed by the Sellers conveying the
Trading Assets.
(vi) All security codes, access devices, instruments and other
information, equipment or documentation reasonably necessary to vest in
Buyer exclusive access to and control over all bank accounts, and
similar accounts with financial institutions, of the Midstream
Companies, all safe deposit boxes, escrow deposits or other bailments
maintained by or for the Midstream Companies, all premises occupied by
the Midstream Companies, all computer systems and files maintained by
the Midstream Companies, and all other property of the Midstream
Companies.
(vii) Certificates of Seller's officers performing the
functions of chief executive officer and chief financial officer that
the conditions specified in Sections 9.1, 9.2 and 9.5 have been
satisfied as of Closing.
(viii) Such other certificates, instruments of conveyance and
documents as may be reasonably requested by Buyer prior to the Closing
Date to carry out the intent and purposes of this Agreement.
(ix) A guaranty of ERI Investments, Inc. in substantially the
form of Exhibit 3.2(d)(ix).
(x) The Software License Agreement in substantially the form
of Exhibit 3.2(d)(x).
3.3 Deliveries by Buyer. At the Closing, Buyer will deliver the
following documents to Seller:
(a) A certificate executed by the president or vice president of
Buyer, dated the Closing Date, representing and certifying, in such detail as
Seller may reasonably request, that the conditions set forth in Sections 8.1 and
8.2 have been fulfilled.
(b) An opinion of legal counsel to Buyer, dated the Closing Date, in
the form of Exhibit 3.3(b).
(c) An assignment and assumption agreement substantially in the form
of Exhibit 3.2(c) duly executed by Buyer.
(d) All releases, replacements and substitutions required by Section
8.5 with respect to Guarantees, in form and substance satisfactory to Seller.
(e) Evidence of the Governmental Approvals of Buyer.
(f) Certificates of Buyer's chief executive officer and chief
financial officer that the conditions specified in Sections 8.1 and 8.2 have
been satisfied as of Closing.
(g) The Liquids Agreement, duly executed by the parties thereto.
(h) Such other certificates, instruments, and documents as may be
reasonably requested by Seller prior to the Closing Date to carry out the intent
and purposes of this Agreement.
(i) An instrument executed by the Midstream Companies joining the
Midstream Companies to the Buyer's post-Closing obligations under this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Each Seller jointly and severally represents and warrants to Buyer
that:
4.1 Corporate Organization. Each Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 Midstream Companies
(a) Except as set forth on Schedule 4.2, no Midstream Company owns,
directly or indirectly, any capital stock or other securities of any corporation
or has any direct or indirect equity or ownership interest in any other person,
other than the Midstream Companies. Schedule 4.2 lists each Midstream Company,
the jurisdiction of incorporation or formation of each Midstream Company, and
the authorized (in the case of capital stock) and outstanding capital stock or
other equity interests of each Midstream Company. Each corporate Midstream
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation, and each other
Midstream Company is duly formed, validly existing and in good standing under
the laws of the jurisdiction of its formation. Each Midstream Company has all
requisite corporate or other power and authority, as applicable, to own, lease,
and operate its properties and to carry on its business as now being conducted.
No actions or proceedings to dissolve any Midstream Company are pending.
(b) Except as otherwise indicated on Schedule 4.2, all of the
outstanding capital stock or other equity interests of each Midstream Company is
owned directly or indirectly by Seller, free and clear of all Encumbrances,
other than (i) restrictions on transfer that may be imposed by federal or state
securities laws or (ii) those that arise by virtue of any actions taken by or on
behalf of Buyer or its affiliates. All outstanding shares of capital stock of
each corporate Midstream Company have been validly issued and are fully paid and
nonassessable. All equity interests of each other Midstream Company have been
validly issued and are fully paid (to the extent presently required). No shares
of capital stock or other equity interests of any Midstream Company are subject
to, nor have any been issued in violation of, preemptive or similar rights.
(c) Except as set forth on Schedule 4.2, there are (and as of the
Closing Date there will be) outstanding (i) no shares of capital stock or other
equity interests or voting securities of any Midstream Company, (ii) no
securities of any Midstream Company convertible into or exchangeable for shares
of capital stock or other equity interests or voting securities of any Midstream
Company, (iii) no options or other rights to acquire from Seller or any
Midstream Company, and no obligation of Seller or any Midstream Company to issue
or sell, any shares of capital stock or other equity interests or voting
securities of any Midstream Company or any securities convertible into or
exchangeable for such capital stock or equity interests or voting securities and
(iv) no equity equivalents, phantom stock arrangements, performance unit
arrangements, stock appreciation rights, interests in the ownership or earnings,
or other similar rights of or with respect to any Midstream Company. There are
(and as of the Closing Date there will be) no outstanding obligations of Seller
or any Midstream Company to repurchase, redeem, or otherwise acquire any of the
foregoing shares, securities, options, equity equivalents, interests or rights
or make any distribution with respect thereto.
(d) Each of the Midstream Companies is duly qualified or licensed to
do business as a foreign corporation or limited liability company, as
applicable, and each of the Midstream Companies is in good standing in, each of
the jurisdictions set forth opposite its name on Schedule 4.2, which are all the
jurisdiction in which the property owned, leased, or operated by it or the
conduct of its business requires such qualification or licensing, except
jurisdictions in which the failure to be so qualified or licensed would not,
individually or in the aggregate, have a Material Adverse Effect.
4.3 Charter and Bylaws. Seller has made available to Buyer accurate
and complete copies of each Midstream Company's certificate of incorporation and
bylaws (or equivalent organizational documents) as currently in effect, and
accurate, current and complete stock or other ownership records of the Midstream
Companies.
4.4 Authority Relative to This Agreement. Seller has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and any ancillary documents relating to the transactions contemplated hereby to
which it is a party to consummate the transactions contemplated hereby and
thereby. The execution, delivery, and performance by Seller of this Agreement
and such ancillary documents, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action of Seller. This Agreement has been duly executed and delivered
by Seller and constitutes, and each such ancillary document executed or to be
executed by Seller has been, or when executed will be, duly executed and
delivered by Seller and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Seller, enforceable
against Seller in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally and (ii) equitable principles which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
4.5 No Conflict. Assuming all consents, approvals, authorizations and
other actions described in Section 4.6 have been obtained and all filings and
notifications listed on Schedule 4.6 have been made, and except as may result
from any facts or circumstances relating solely to Buyer or as described on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Seller and the consummation by it of the transactions contemplated hereby and
the actions to be taken or withheld by the Midstream Companies pursuant hereto
do not and will not (a) violate or conflict with the certificate of
incorporation or by-laws (or equivalent organizational documents) of Seller or
any Midstream Company, (b) conflict with or violate any Applicable Law binding
upon Seller or any Midstream Company, except as would not, individually or in
the aggregate, have a Material Adverse Effect, (c) result in any breach of, or
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of (each, a "Breach"), or
result in the creation of any Encumbrance on any of the assets or properties of
any Midstream Company or on any of the Trading Assets pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to such assets or properties to which
Seller or any Midstream Company is a party or by which any of such assets or
properties is bound or affected or (d) result in a Breach of a Transferred
Contract, except as would not, individually or in the aggregate, have a Material
Adverse Effect.
4.6 Consents, Approvals, Licenses, Etc. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Entity, or any other
person or entity, is required to be made or obtained by Seller or any Midstream
Company in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, except:
(a) as set forth on Schedule 4.6; (b) applicable requirements, if any, of the
HSR Act; (c) where the failure to obtain such consents, approvals,
authorizations, licenses, orders or permits of, or to make such declarations,
filings or registrations or notifications, either individually or in the
aggregate, (i) would not prevent Seller from performing its obligations under
this Agreement and (ii) would not have a Material Adverse Effect and (d) as may
be necessary as a result of any facts or circumstances relating solely to Buyer.
The Midstream Companies hold all Permits necessary or required for the conduct
of the business of the Midstream Companies, except for Permits the absence of
which would not have a Material Adverse Effect. As of the date of this
Agreement, all of such Permits are in full force and effect and each Midstream
Company is in compliance with each such Permit, except as would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. No notice has been received by Seller or any Midstream Company
and no Proceeding is pending or, to the knowledge of Seller, threatened with
respect to any alleged failure by any Midstream Company to have any such Permit
or not to be in compliance therewith. To the knowledge of Seller, no event has
occurred and is continuing which permits, or after notice or lapse of time or
both would permit, any modification or termination of any such Permit held by
any Midstream Company.
4.7 Financial Statements. Set forth as Schedule 4.7 hereto are the
unaudited consolidated balance sheet of the Midstream Companies as of June 30,
1998 (the "Latest Balance Sheet"), and the related unaudited statements of
consolidated income and consolidated cash flows for the period then ended, and
the notes and schedules thereto (collectively, the "Financial Statements"). The
Financial Statements fairly present the financial condition of the Midstream
Companies and have been prepared in conformity with U.S. GAAP as modified by the
assumptions and limitations set forth in the notes thereto.
4.8 Absence of Certain Changes. Except as disclosed on Schedule 4.8,
since the date of the Latest Balance Sheet, (i) there has not been any material
adverse change in the assets or financial condition of the Midstream Companies;
(ii) the businesses of the Midstream Companies have been conducted only in the
ordinary course consistent with past practice; (iii) no Midstream Company has
incurred any material liability, engaged in any material transaction or entered
into any material agreement outside the ordinary course of business consistent
with past practice; (iv) no Midstream Company has suffered any material loss,
damage, destruction, or other casualty to any of its assets (whether or not
covered by insurance); and (v) no Midstream Company has taken any of the actions
set forth in Section 6.2 except as permitted thereunder.
4.9 Tax Matters. Except as disclosed on Schedule 4.9:
(a) Each Midstream Company has filed, or has had filed on its behalf,
in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of each of
the Midstream Companies other than those Tax Returns on which an immaterial
amount of Taxes would properly be shown the failure of which to file would not
have, individually or in the aggregate, a Material Adverse Effect on any
Midstream Company. All such Tax Returns were correct and complete in all
material respects;
(b) All Taxes due and payable on all filed Tax Returns of or with
respect to the Midstream Companies have been paid in full or adequate reserves
have been provided for on the Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to any of the Midstream Companies;
(d) None of the Tax Returns of or with respect to any of the
Midstream Companies is currently being audited or examined by any taxing
authority and no appeal from or adjudication of any such audit or examination is
pending;
(e) No material deficiency for any Taxes have been assessed, and
there are no material disputes or claims asserted, with respect to any of the
Midstream Companies (i) that has not been abated, (ii) that has not been paid in
full or (iii) for which adequate reserves have not been provided;
(f) None of the Midstream Companies has any liability or known
potential liability for any Tax owed by any other member of an Affiliated Group,
within the meaning of Section 1504 of the Code, of which any Midstream Company
has been a member for any period ending on or before the Closing Date pursuant
to a tax sharing or tax allocation agreement or otherwise;
(g) No Tax litigation is currently pending;
(h) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
any Midstream Company;
(i) None of the Midstream Companies has filed a consent under Section
341(f) of the Code; and
(j) All tax sharing or tax allocation agreements between or among the
Midstream Companies and the Seller or its affiliates shall be terminated on or
before the Closing Date and will have no future effect for any past, current or
future taxable year.
4.10 Compliance With Laws. Except as disclosed on Schedule 4.10, the
Midstream Companies are in compliance in all material respects with all
Applicable Laws (other than Applicable Environmental Laws, as to which Seller's
sole representations or warranties are set forth in Section 4.16), except for
noncompliance with such Applicable Laws which, individually or in the aggregate,
would not have a Material Adverse Effect.
4.11 Legal Proceedings. Except as disclosed on Schedule 4.11, there
are no Proceedings pending or to the knowledge of Seller threatened against or
involving any Midstream Company or any properties of any Midstream Company
which, individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. No Midstream Company is subject to any judgment, order,
writ, injunction, or decree of any Governmental Entity which has had or is
reasonably likely to have a Material Adverse Effect. Notwithstanding the
foregoing, Seller makes no representation or warranty in this Section 4.11 as to
Proceedings, judgments, orders, writs, injunctions or decrees which are, or
contain issues, of broad applicability to, or which affect, the natural gas,
natural gas liquids or pipeline industry, including any state or federal
rulemaking or similar proceeding of general applicability and any petition for
review or appeal thereof.
4.12 Title to Properties. Except (i) as disclosed on Schedule 4.12,
(ii) for the Permitted Encumbrances and (iii) for such matters which,
individually or in the aggregate, would not have a Material Adverse Effect, (a)
each of the Midstream Companies has good and marketable title to those
properties (real, personal, and mixed, tangible and intangible) reflected in its
books and records and in the Latest Balance Sheet, other than those disposed of
after the date of such balance sheet in the ordinary course of business
consistent with past practice free and clear of all Encumbrances, and (b) the
Trading Company has good and marketable title to the Trading Assets owned by it
free and clear of all Encumbrances.
4.13 Sufficiency and Condition of Properties. The properties owned,
leased or used by the Midstream Companies are, to the knowledge of Seller, (i)
in the case of tangible properties, in reasonably good operating condition and
repair (ordinary wear and tear excepted) and have been maintained in accordance
with standard industry practice and are in compliance with applicable
requirements of any Governmental Entity in all material respects, (ii) suitable
for the purposes used and (iii) adequate and sufficient for the normal operation
of the Midstream Companies' businesses, as presently conducted.
4.14 Midstream Company Agreements
(a) Set forth on Schedule 4.14 is a list of the following agreements,
contracts, arrangements and understandings to which any Midstream Company is a
party or by which any Midstream Company or any of their respective properties is
otherwise bound:
(i) any commitment, agreement, note, loan, evidence of
indebtedness, purchase order, letter of credit or guarantee of the
indebtedness of others or promise of indemnity or contribution that
Seller reasonably anticipates will or may, in accordance with its
terms, involve aggregate payments by any Midstream Company of more than
$1,000,000 within the remaining term of such agreement;
(ii) any agreement or understanding for the purchase, sale,
gathering, compression, processing, transportation or storage of
natural gas or natural gas liquids;
(iii) any agreement or understanding which constitutes a lease
(other than for oil and gas interests), under which a Midstream Company
is the lessor or lessee of real or personal property which lease (A)
cannot be terminated by a Midstream Company without penalty upon not
more than 30 calendar days notice and (B) involves an annual base
rental in excess of $100,000, all other such leases involving an
aggregate annual base rental of not more than $1,000,000;
(iv) any contract or agreement containing covenants limiting
the freedom of any Midstream Company to engage in any line of business
or compete with any person;
(v) any employment agreement involving annual payments by any
Midstream Company in excess of $100,000 or any agreement that could
result in an "excess parachute payment" under section 280G of the Code
as a result of the transactions contemplated hereby;
(vi) any pending sale of real or personal property of a
Midstream Company (other than sales of natural gas or natural gas
liquids in the ordinary course of business) in excess of $100,000, all
other such pending sales involving an aggregate annual base rental of
not more than $1,000,000;
(vii) any contract requiring a capital expenditure or a
commitment for a capital expenditure in excess of $250,000, all other
such expenditures and commitments involving an aggregate annual base
rental of not more than $1,000,000; or
(viii) any obligation to make future payments, contingent or
otherwise, arising out of or relating to the acquisition or disposition
of any business, assets or stock of other companies by any Midstream
Company.
(b) No Midstream Company is, as of the date of this Agreement, in
material breach or violation of, or default under, any of the agreements,
contracts, arrangements or understandings listed on Schedule 4.14 (the "Material
Midstream Contracts"), and no Midstream Company has received notice of an
allegation by any counterparty thereto or other third Person of such a breach,
violation or default. The consummation of the transactions contemplated by this
Agreement will not constitute a breach or violation of, or entitle any other
party thereto to terminate, any of the Material Midstream Contracts. Each
Material Midstream Contract is, as of the date of this Agreement, a valid
agreement, arrangement or commitment of the Midstream Company which is a party
thereto, enforceable against the Midstream Company in accordance with its terms
and, to the knowledge of Seller, is a valid agreement, arrangement or commitment
of each other party thereto, enforceable against such party in accordance with
its terms, except in each case where enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except where enforceability is subject to the application of
equitable principles or remedies or as would not have, individually or in the
aggregate, a Material Adverse Effect. True and complete copies of the written
Material Midstream Contracts and complete and accurate abstracts of the material
provisions of all oral Material Midstream Contracts have heretofore been made
available to Buyer. No Material Midstream Contract has been amended in any
material respect, except as disclosed on Schedule 4.14. To the knowledge of
Seller, no counterparty thereto or other person bound thereby or whose property
is subject thereto is in breach or violation thereof or in default thereunder or
is the subject of any bankruptcy, receivership, insolvency or similar
proceeding. Neither Seller nor any Midstream Company has waived or released in
any material respect any of its rights thereunder or entered into any
forbearance or moratorium agreement with respect thereto. No counterparty
thereto has made any payment or delivery thereunder where such payment or
delivery is otherwise scheduled to be made after Closing.
4.15 ERISA
(a) Set forth on Schedule 4.15 is a list identifying each "employee
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
the Midstream Companies or any affiliate of the Midstream Companies and (iii)
which covers any employee or former employee of the Midstream Companies, or
under which any Midstream Company has any liability. Seller has made available
to Buyer accurate and complete copies of such plans (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are collectively referred to as the
"Employee Plans." For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be treated
as a single employer under Section 414 of the Code. The only Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA are identified as such on Schedule
4.15.
(b) Except as otherwise identified on Schedule 4.15, (i) no Employee
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA,
(ii) no Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code, and (iii) no Employee Plan is subject to Title IV
of ERISA or to the minimum funding standards of ERISA and the Code. There are no
accumulated funding deficiencies as defined in Section 412 of the Code (whether
or not waived) with respect to any Employee Plan. No Midstream Company has
incurred any material liability under Title IV of ERISA arising in connection
with the termination of, or complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA. Seller has paid and
discharged promptly when due all liabilities and obligations arising under ERISA
or the Code of a character which if unpaid or unperformed might result in the
imposition of a lien against any of the assets of any Midstream Company or any
of the Trading Assets. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has or will
make any Midstream Company subject to any liability under Title I of ERISA or
liable for any Tax pursuant to Section 4975 of the Code that could have a
Material Adverse Effect. During the past 5 years, neither Seller nor any other
person that together with Seller will be treated as a single employer under
Section 414 of the Code has made or been required to make contributions to any
"multiemployer plan", as defined in Section 3(37) of ERISA.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified, and each trust forming a part
thereof is exempt from Tax pursuant to Section 501(a) of the Code. Seller has
made available to Buyer the most recent IRS determination letters with respect
to any such Plans. Each Employee Plan is being maintained in compliance with its
terms and with the requirements prescribed by all Applicable Laws.
4.16 Environmental Matters
(a) Except as set forth on Schedule 4.16, the Midstream Companies
have received no written notice of any violation or alleged non-compliance from
any Governmental Entity under any Applicable Environmental Laws (as defined
below) which has had or is reasonably likely to have a Material Adverse Effect
or any notice of potential responsibility or information request under the
Comprehensive Environmental Response, Compensation and Liability Act or any
analogous state law which has not been resolved. Except as set forth on Schedule
4.16, and, except for noncompliance or actions or conditions which have not had
and are not reasonably likely to have a Material Adverse Effect, to the
knowledge of Seller (i) the Midstream Companies are in compliance with all
Applicable Environmental Laws and (ii) no condition exists on any property
currently owned or leased by the Midstream Companies which would subject any
Midstream Company or such property to any Environmental Response Measures under
any Applicable Environmental Laws.
(b) For purposes of this Agreement, "Applicable Environmental Laws"
means any and all Applicable Laws as in effect as of the date of this Agreement
pertaining to protection of the environment in effect in any and all
jurisdictions in which any Midstream Company has conducted operations,
including, without limitation, the Clear Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Rivers and Harbors Act of 1899, as amended, the Federal Water Pollution Control
Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Louisiana Environmental Quality
Act and other environmental protection laws.
(c) All known meter sites contaminated with mercury have been
remedied, and this expense has been substantially paid under Third Party
Indemnities.
(d) Seller knows of no other hydrocarbon contamination sites owned,
operated or leased by the Midstream Companies other than the 96 identified in
1995 in the Dames and Moore report, dated December 22, 1995.
(e) To the knowledge of Seller, the Midstream Companies have only
been involved in two EPA Superfund cleanup sites to date and are not named as
"potentially responsible parties" at any other Superfund sites that have not
been resolved and have received no CERCLA ss.104(e) letters for any sites that
have not been resolved.
(f) To the knowledge of Seller, all used oil and hydrocarbons removed
from pigging pipelines is recycled or properly disposed of under Applicable
Environmental Laws.
(g) Except as set forth on Schedule 4.16, the Midstream Companies are
not presently involved in any wetlands restoration projects.
(h) Except as set forth on Schedule 4.16, the Midstream Companies are
not presently subject to any enforcement actions under Applicable Environmental
Laws.
(i) The Midstream Companies do not own or operate any PCB equipment,
including transformers and compressor motors, and are unaware of any locations
where PCB contamination requires remediation under EPA's current cleanup
standards.
(j) Seller knows of no abandoned or currently used landfills or waste
disposal operations on property owned, leased or operated by the Midstream
Companies, except for those for which all required permits have been obtained
and are in effect.
4.17 Labor Matters. Except as set forth on Schedule 4.17, no
Midstream Company (i) is a party to any labor agreement with respect to its
employees with any labor organization, group or association, (ii) has any
employees represented by any labor organization, collective bargaining
representative or group of employees, (iii) has been the subject of any
representational campaign by any union or other organization or group seeking to
become the collective bargaining representative of any of its employees or been
subject to or, to the knowledge of Seller, threatened with any strike or other
concerted labor activity or dispute or (iv) is obligated to bargain collectively
with respect to wages, hours and other terms and conditions of employment with
any recognized or certified labor organization, collective bargaining
representative or group of employees. Except as set forth on Schedule 4.17 or
where the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect, to the knowledge of Seller, each Midstream Company is
in compliance with all Applicable Laws respecting employment practices, terms
and conditions of employment and wages and hours. Except as set forth on
Schedule 4.17 or as would not, individually or in the aggregate, have a Material
Adverse Effect, as of the date of this Agreement, (a) there is no unfair labor
practice charge or complaint against any Midstream Company threatened or pending
before the National Labor Relations Board or any comparable domestic or foreign
agency and (b) there is no labor strike, labor disturbance or work stoppage
threatened or pending against any Midstream Company.
4.18 Insurance. Set forth on Schedule 4.18 is a list of all material
policies of insurance Seller maintains for the Midstream Companies with respect
to their respective assets and operations (the "Midstream Insurance Policies").
All premiums due and payable with respect to the Midstream Insurance Policies
have been timely paid. No notice of cancellation of, or indication of an
intention not to renew, any Midstream Insurance Policy has been received by
Seller or any Midstream Company.
4.19 Absence of Undisclosed Liabilities. To the knowledge of Seller,
no Midstream Company has any liability or obligation except (i) liabilities
reflected on the Latest Balance Sheet, (ii) liabilities which have arisen since
the date of the Latest Balance Sheet in the ordinary course of business (none of
which is a material liability for breach of contract, breach of warranty,
violation of law, tort or infringement), (iii) liabilities arising under
executory contracts entered into in the ordinary course of business (none of
which is a material liability for breach of contract), (iv) liabilities
specifically reflected on Schedule 4.19 or which relate to or are associated
with the matters described in the other Schedules hereto and (v) other
liabilities which, in the aggregate, are not material to the Midstream Companies
considered as a whole.
4.20 Bank Accounts. Set forth on Schedule 4.20 are the name of each
bank or other financial institution with which the Midstream Company has an
account.
4.21 Transferred Contracts. rue and complete copies of the agreements
being transferred to Buyer from the Trading Company (the "Transferred
Contracts") listed on Schedule 4.21 have heretofore been made available to
Buyer. Schedule 4.21 and the definition of Transferred Contracts will be updated
as of the Effective Date to reflect the deletion of any Transferred Contracts
not in effect as of the Effective Date and the addition of any similar
agreements entered into by the Trading Company from the date of this Agreement
to the Effective Date. The Trading Company is not, as of the date of this
Agreement, in breach or violation of, or default under, any of the material
agreements listed on Schedule 4.21, and the Trading Company has not received any
notice of an allegation by any counterparty thereto or other third Person of
such a breach, violation or default. Each Transferred Contract is, as of the
date of this Agreement, a valid agreement, arrangement or commitment of the
Trading Company, enforceable against the Trading Company in accordance with its
terms and, to the knowledge of Seller, is a valid agreement, arrangement or
commitment of each other party thereto, enforceable against such party in
accordance with its terms, except in each case where enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and except where enforceability is subject to the application
of equitable principles or remedies or as would not have, individually or in the
aggregate, a Material Adverse Effect. No Transferred Contract has been amended
in any material respect except as disclosed on Schedule 4.21. To the knowledge
of Seller, no counterparty thereto or other person bound thereby or whose
property is subject thereto is in breach or violation thereof or in default
thereunder or is the subject of any bankruptcy, receivership, insolvency or
similar proceeding. Neither Seller nor the Trading Company has waived or
released in any material respect any of its rights thereunder or entered into
any forbearance or moratorium agreement with respect thereto. No counterparty
thereto has made any payment or delivery thereunder where such payment or
delivery is otherwise scheduled to be made after Closing.
4.22 Trading Company Permits. The Permits listed or described on
Schedule 4.22 hereto (the "Trading Company Permits") are all the Permits
necessary or required for the conduct of the business of owning and operating
the Trading Assets and entering into transactions similar to the Financial Book
Transactions, except for Permits the absence of which would not have a Material
Adverse Effect.
4.23 Brokerage Fees. Neither Seller nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby except that J.P. Morgan Securities, Inc.
has been retained as Seller's financial advisor in connection with the
transactions contemplated hereby.
4.24 Governmental Regulation. No Midstream Company is a "holding
company," member of a "holding company group," or "subsidiary" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
4.25 No Other Representations. Except as and to the extent expressly
set forth in this Agreement or in any certificate or other instrument delivered
in connection herewith, Seller makes no representations or warranties whatsoever
to Buyer and hereby disclaims all liability and responsibility for any
representation, warranty, statement or information made, communicated, or
furnished (orally or in writing) to Buyer or its representatives (including
without limitation any opinion, information, projection, or advice that may have
been or may be provided to Buyer by any director, officer, employee, agent,
consultant, or representative of Seller or any affiliate thereof). Seller makes
no representations or warranties to Buyer regarding the probable success or
profitability of the business of the Midstream Companies or of the Trading
Assets.
4.26 Year 2000 Compliance. Seller has provided to Buyer copies of the
written Year 2000 Compliance plan attributable to the Midstream Companies (the
"Y2K Plan") and any and all audits or assessments of the Midstream Companies'
year 2000 Compliance efforts conducted by a third party. Seller knows of no
matter which would prevent the Midstream Companies from taking the actions
described in the Y2K Plan by the respective dates specified therein. The
Midstream Companies, in the ordinary course of business, will continue to
diligently pursue the implementation of the Y2K Plan.
4.27 No Misrepresentations. The representations and warranties of
Seller set forth in Article IV of this Agreement, and the information contained
in the Exhibits and Schedules attached hereto, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
were made, not misleading.
4.28 Tax Status of Equitable Storage Company, LLC
(a) Equitable Storage Company, LLC (hereinafter in this Section 4.28
"LLC") is a business entity that is not classified as a corporation under
Treasury Regulation ss.301.7701-2(b) and LLC has not made an election pursuant
to Treasury Regulation ss.301.7701-3(c) to be classified as a corporation for
federal income tax purposes. LLC has complied with Treasury Regulation
ss.301.7701-3 in order to ensure its classification as a partnership for federal
income tax purposes and LLC has a reasonable basis (within the meaning of Code
Section 6662) for its classification as a partnership for federal income tax
purposes. LLC and all members of LLC recognized the federal tax consequences of
any change in the entity's classification from other than a partnership, to a
partnership within the 60 months prior to January 1, 1997. Neither LLC nor any
of its members have been notified in writing by the Internal Revenue Service
that the entity's classification is under examination. LLC represents that as a
protective measure to ensure that Buyer receives an adjustment to the inside tax
basis of the assets of LLC upon the purchase of the LLC's membership interests,
LLC will, if requested by Buyer, make an election under Section 754 of the Code
on its timely filed federal income tax return for the year in which the purchase
occurs to the extent permitted by applicable law.
(b) Seller agrees to cooperate with Buyer in tax matters relating to
the structure of the acquisition to the extent that alternative structures may
enhance Buyer's tax benefits relating to the acquisition, but only to the extent
that such alternative structure is not detrimental to Seller.
(c) LLC and its members represent that it has timely filed all
federal income tax returns since the date of its existence consistently
classifying its tax status as a partnership for federal income tax purposes. As
of Closing, LLC will be taxable as a partnership for federal income tax
purposes. The number of members of LLC will not be changed at any time prior to
Closing. No membership interest in LLC will be owned directly or indirectly by
Equitable Pipeline Company at any time prior to Closing.
4.29 No Take-or-Pay Obligations. Except as described in Schedule
4.29, no Midstream Company is a party to or otherwise bound by take-or-pay
obligations with respect to gas purchases or gas marketing which, in the
aggregate, impose minimum obligations upon all Midstream Companies of more than
$500,000 over the remaining terms of the contracts, including all renewal
options held by the counterparties thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
5.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
5.2. Authority Relative to This Agreement. Buyer has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and any ancillary documents relating to the transactions contemplated hereby to
which it is a party to consummate the transactions contemplated hereby and
thereby. The execution, delivery, and performance by Buyer of this Agreement and
such ancillary documents and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action of Buyer. This Agreement has been duly executed and delivered
by Buyer and constitutes, and each such ancillary document executed or to be
executed by Buyer has been, or when executed will be, duly executed and
delivered by Buyer and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, except that such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
5.3 No Conflict. Assuming all consents, approvals, authorizations and
other actions described in Section 5.4 have been obtained and all filings and
notifications listed in Section 5.4 have been made, and except as may result
from any facts or circumstances relating solely to Seller, the execution,
delivery and performance of this Agreement by Buyer do not and will not (a)
violate or conflict with the certificate of incorporation or by-laws of Buyer,
(b) conflict with or violate any Applicable Law binding upon Buyer, except as
would not, individually or in the aggregate, delay the consummation of the
transaction contemplated by this Agreement or have a material adverse effect on
the ability of Buyer to consummate the transactions contemplated by this
Agreement or (c) result in any breach of, or constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of Buyer pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which Buyer is a party or by
which any of such assets or properties is bound or affected, except as would
not, individually or in the aggregate, delay the consummation of the
transactions contemplated by this Agreement or have a material adverse effect on
the ability of Buyer to consummate the transactions contemplated by this
Agreement.
5.4. Consents, Approvals, Licenses, Etc. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Entity (including but
not limited to the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, as amended, and the Federal Energy Regulatory
Commission), or any other person or entity, is required to be made or obtained
by Buyer or any of its affiliates in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except (a) applicable requirements, if any, of the HSR Act,
(b) where failure to obtain such consent, approval, authorization or action, or
to make such filing or notification, either individually or in conjunction with
other such failures, would delay the consummation of the transactions
contemplated by this Agreement or have a material adverse effect on the ability
of Buyer to consummate the transactions contemplated by this Agreement, or (c)
as set forth on Schedule 5.4.
5.5 Financing. Buyer has, and at the Closing will have, sufficient
cash, available lines of credit or other sources of immediately available funds
to enable it to pay the Purchase Price to Seller in accordance with Article II
hereof.
5.6 Investment Intent; Investment Experience; Restricted Securities.
Buyer is acquiring the Subject Stock for its own account for investment and not
with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof. In acquiring the Subject Stock, Buyer
is not offering or selling, and will not offer or sell, for Seller in connection
with any distribution of the Subject Stock, and Buyer does not have a
participation and will not participate in any such undertaking or in any
underwriting of such an undertaking except in compliance with applicable federal
and state securities laws. Buyer acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in the Subject Stock, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Subject
Stock. Buyer is an "accredited investor" as such term is defined in Regulation D
under the Securities Act. Buyer understands that the Subject Stock will not have
been registered pursuant to the Securities Act or any applicable state
securities laws, that the Subject Stock will be characterized as "restricted
securities" under federal securities laws and that under such laws and
applicable regulations the Subject Stock cannot be sold or otherwise disposed of
without registration under the Securities Act or an exemption therefrom.
5.7. Legal Proceedings. There are no Proceedings pending or, to the
knowledge of Buyer, threatened seeking to restrain, prohibit, or obtain damages
or other relief in connection with this Agreement or the transactions
contemplated hereby.
5.8 Brokerage Fees. Neither Buyer nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby except that Salomon Brothers, Inc. has
been retained as Buyer's financial advisor in connection with the transactions
contemplated hereby.
5.9 Independent Investigation. Buyer hereby acknowledges and affirms
that it has completed its own independent investigation, analysis and evaluation
of the Midstream Companies and the Trading Assets, that it has made all such
reviews and inspections of the business, assets, results of operations,
condition (financial or otherwise) and prospects of the Midstream Companies and
the Trading Assets as it has deemed necessary or appropriate, and that in making
its decision to enter into this Agreement and to consummate the transactions
contemplated hereby it has not relied on any evaluation of the Midstream
Companies and the Trading Assets submitted to it by Seller.
5.10 LLC Status. To the knowledge of Buyer as of the date of this
Agreement, the representation and warranty set forth in the first and second
sentences of Section 4.28(c) is true and correct.
ARTICLE VI
CONDUCT OF COMPANY PENDING CLOSING
Seller hereby covenants and agree with Buyer as follows:
6.1 Conduct and Preservation of the Midstream Companies. Except as
expressly provided in this Agreement, during the period from the date hereof to
the Closing, Seller shall cause each of the Midstream Companies to continue to
meet its contractual obligations and pay its obligations as they mature and
conduct its operations according to its ordinary course of business consistent
with past practice and in compliance with all Applicable Laws and shall use
commercially reasonable efforts to preserve, maintain and protect their
properties; provided, however, that Seller and the Midstream Companies shall not
be required to make any payments or enter into or amend any contractual
agreements, arrangements, or understandings to satisfy the foregoing obligation
unless such payment or other action is required or consistent with past
practice. Seller agrees to use commercially reasonable efforts to keep the
Midstream Insurance Policies in force through Closing.
6.2 Restrictions on Certain Actions relating to the Midstream
Companies. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Closing, Seller
shall not permit any Midstream Company, without the prior written consent of
Buyer, to:
(a)amend its charter or bylaws or other governing instruments;
(b) (i) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase, or otherwise) any shares of its capital stock of any class or
any other securities or equity equivalents; or (ii) amend in any
material respect any of the terms of any such securities outstanding as
of the date hereof;
(c) (i) split, combine, or reclassify any shares of its
capital stock or other equity securities; (ii) declare, set aside, or
pay any dividend or other distribution (whether in cash, stock, or
property or any combination thereof) in respect of its capital stock or
other equity securities; (iii) repurchase, redeem or otherwise acquire
any of its securities; or (iv) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing a liquidation,
dissolution, termination, merger, consolidation, restructuring,
recapitalization or other reorganization of any Midstream Company;
(d) (i) except in the ordinary course of business consistent
with past practice, create, incur, guarantee or assume any indebtedness
for borrowed money or otherwise become liable or responsible for the
obligations of any other person, except for obligations of wholly owned
Subsidiaries; (ii) make any loans, advances or capital contributions
to, or investments in, any other person (other than to wholly owned
Subsidiaries and customary loans or advances to employees in amounts
not material to the maker of such loan or advance); or (iii) except in
the ordinary course of business consistent with past practice, mortgage
or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material lien thereupon;
(e) (i) enter into, adopt or (except as may be required by
law) make any material amendments to or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase, pension, retirement, deferred compensation,
employment, collective bargaining, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (ii) except for normal
increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase
in benefits or compensation expense to such Midstream Company, or
increase in any manner the compensation or fringe benefits of any
director, officer, or employee; or (iii) pay to any director, officer,
or employee any benefit not required by any employee benefit agreement,
trust, plan, fund, or other arrangement as in effect on the date
hereof;
(f) acquire, sell, lease, transfer, or otherwise dispose of,
directly or indirectly, any assets outside the ordinary course of
business consistent with past practice or any assets that in the
aggregate are material to the Midstream Companies considered as a
whole;
(g) acquire (by merger, consolidation, or acquisition of stock
or assets or otherwise) any corporation, partnership or other business
organization or division thereof;
(h) make any capital expenditure or expenditures, other than
those described on Schedule 6.2, which, individually, is in excess of
$250,000 or, in the aggregate, are in excess of $1,000,000, except
pursuant to contracts in existence on the date hereof;
(i) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign income Tax liability
material to any of the Midstream Companies;
(j) pay, discharge, or satisfy any claims, liabilities or
obligations (whether accrued, absolute, contingent, unliquidated or
otherwise, and whether asserted or unasserted), other than the payment,
discharge or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred
since the date of the Latest Balance Sheet in the ordinary course of
business consistent with past practice; provided, however, that Seller
may cause the Midstream Companies to settle or compromise any liability
or obligation associated with the Retained Litigation to the extent
Seller uses its funds to effect any such compromise or settlement;
(k) enter into any lease, contract, agreement, commitment,
arrangement or transaction outside the ordinary course of business
consistent with past practice or for a term extending beyond June 30,
1998;
(l) amend, modify, or change in any material respect any
existing lease, contract or agreement the result of which will have a
Material Adverse Effect;
(m) change any of the accounting principles or practices used
by it, except for any change required by reason of a concurrent change
in generally accepted accounting principles;
(n) make any election under Code section 168(g)(7) for any
post-1997 property additions of any Midstream Company; or
(o) from and after the Effective Date, make any payment to
Seller or any affiliate of Seller in respect of redemptions of
securities, dividends, loans or distributions except payments
made in respect of bona fide transactions incurred in the
ordinary course of business on an arm's-length basis.
6.3 Restrictions on Certain Actions relating to the Trading Assets.
Except as otherwise expressly provided in this Agreement, prior to the Closing,
Seller shall not, without the prior consent of Buyer:
(a) mortgage or pledge any of the Trading Assets or create or
suffer to exist any Encumbrance thereupon, other than the Permitted
Encumbrances and as described on Schedule 6.3;
(b) sell, lease, transfer or otherwise dispose of, directly or
indirectly, any of the Trading Assets other than in the ordinary course
of business consistent with past practice; or
(c) amend, modify or change any Transferred Contract other
than in the ordinary course of business consistent with past practice.
6.4 No Other Negotiations. In consideration for the substantial
expenditures of time, effort and expenses to be undertaken by Buyer in pursuing
the transactions contemplated by this Agreement, Seller agrees that from the
date hereof to the earlier of the Closing Date or the date on which this
Agreement is terminated, neither Seller nor any Midstream Company nor any of its
or their officers, directors, employees, affiliates, representatives or agents
shall, directly or indirectly, solicit, initiate or participate in any way in
discussions, proposals or negotiations with, or provide any information or
assistance to or enter into any agreement with, any person or entity (other than
Buyer and its representatives) concerning any acquisition of all or a portion of
the Subject Stock and/or the Trading Assets, or attempt by any other person to
do or seek to do any of the foregoing.
6.5 Replacement of IT System. Until Closing, the Midstream Companies
shall cooperate and coordinate with Buyer for the purpose of Buyer's licensing
the appropriate modules of ultra technologies Gas Management System (GMS)
necessary to replace the functionality provided by Sellers' Gas Management
Information System (GMIS). Seller shall provide all reasonably necessary data
needed to populate the GMS database with counterparties, shippers, contract
status, and other reasonably pertinent information prior to the testing,
parallel operation, and eventual cutting over from the Midstream Companies' GMIS
to the newly licensed ultra gms modules.
6.6 Transition Period. Between the date of this Agreement and the
Closing, Buyer may have one or more representatives present at the principal
office of the Midstream Companies and the Trading Company, and Seller agrees to
cause the Midstream Companies and the Trading Company to keep such
representatives informed about the operation of the business and will consult
with such representatives about important business decisions.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information; Confidentiality
(a) Between the date hereof and the Closing, Seller (i) shall give
Buyer and its authorized representatives reasonable access, during regular
business hours and upon reasonable advance notice, to such employees, plants,
offices, warehouses, and other facilities, and such books and records of the
Midstream Companies and the Trading Company, as are reasonably necessary to
allow Buyer and its authorized representatives to make such inspections as they
may reasonably require to verify the accuracy of any representation or warranty
contained in Article IV and (ii) shall cause Seller's officers and those of the
Midstream Companies and the Trading Company to furnish Buyer and its authorized
representatives with such financial and operating data and other information
with respect to the Midstream Companies or the Trading Assets as Buyer may from
time to time reasonably request; provided, however, (A) that Seller shall have
the right to have a representative present at all times of any such inspections,
interviews, and examinations conducted at or on the offices or other facilities
or properties of Seller or the Midstream Companies or the Trading Company, (B)
that Buyer shall hold in confidence all such information on the terms and
subject to the conditions contained in the Confidentiality Agreement and (C)
that Buyer shall have no right of access to, and Seller shall have no obligation
to provide to Buyer, (1) bids received from others in connection with the
transactions contemplated by this Agreement and information relating to such
bids or (2) any information the disclosure of which would jeopardize any
privilege available to a Midstream Company or Seller relating to such
information or would cause Seller to breach a confidentiality obligation. Buyer
shall indemnify, defend and hold harmless Seller from and against any Losses (as
defined herein) asserted against or suffered by Seller relating to, resulting
from or arising out of examinations or inspections made by Buyer or its
authorized representatives pursuant to this Section 7.1(a).
(b) Buyer agrees that Seller may retain (i) a copy of all materials
included in the data room prepared by Seller in connection with the purchase and
sale contemplated hereby, together with a copy of all documents referred to in
such materials; (ii) all books and records prepared in connection with the
transactions contemplated by this Agreement, including without limitation, bids
received from others and information relating to such bids; (iii) copies of any
books and records which may be relevant in connection with the defense of (A)
the matters referred to in Article XII or (B) disputes arising hereunder; and
(iv) all consolidating and consolidated financial information and all other
accounting books and records prepared or used in connection with the preparation
of financial statements of Seller or any parent company of any of the Midstream
Companies.
(c) Buyer agrees that it shall preserve and keep all books and
records relating to the business or operations of the Midstream Companies on or
before the Closing Date in Buyer's possession for a period of at least 10 years
from the Closing Date. After such 10-year period, before Buyer shall dispose of
any of such books and records, at least 90 calendar days' prior written notice
to such effect shall be given by Buyer to Seller, and Seller shall be given an
opportunity, at its cost and expense, to remove and retain all or any part of
such books and records as Seller may select. Notwithstanding the foregoing,
Buyer agrees that it shall preserve and keep all books and records of the
Midstream Companies relating to any investigation instituted by a Governmental
Entity or any litigation (whether or not existing on the Closing Date) if any
possibility exists that such investigation or litigation may relate to matters
occurring prior to the Closing, without regard to the 10-year period set forth
in this Section 7.1(c).
(d) Each party agrees that it will cooperate with and make available
to the other party (including without limitation the right to make copies at
Seller's expense), during normal business hours, all books and records,
information and employees (without substantial disruption of employment)
retained and remaining in existence after the Closing Date which are necessary
or useful in connection with (i) any Tax inquiry, audit, investigation or
dispute, (ii) any litigation or investigation, or (iii) any other matter
requiring any such books and records, information or employees for any
reasonable business purpose. The party requesting any such books and records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees and reimbursement for the
reasonable salaries and employee benefits for those employees who are made
available) reasonably incurred in connection with providing such books and
records, information or employees. Seller may require certain financial
information relating to the Midstream Companies' businesses for periods prior to
the Closing Date for the purpose of filing federal, state, local and foreign Tax
returns and other governmental reports, and Buyer agrees to furnish such
information to Seller at Seller's request and expense.
7.2 Regulatory and Other Authorizations; Consents
(a) Each party hereto shall use all reasonable efforts to
expeditiously obtain all authorizations, consents, orders and approvals of, and
to give all notices to and make all filings with, all Governmental Entities
(including but not limited to those pertaining to the Governmental Approvals)
and other third parties that may be or become necessary for its execution and
delivery of, and the performance of its obligations pursuant to this Agreement
and will cooperate fully with the other party in promptly seeking to obtain all
such authorizations, consents, orders and approvals, giving such notices, and
making such filings. Buyer shall take the responsibility for the preparation,
filing and prosecution of any Governmental Approvals required to be obtained in
the name of any of the Midstream Companies, and shall give Seller a reasonable
opportunity to approve (which approval shall not be unreasonably withheld) any
such filings and to participate in any such prosecutions. To the extent required
by the HSR Act, each of the parties hereto shall (i) file or cause to be filed,
as promptly as practicable after the execution and delivery of this Agreement,
with the Federal Trade Commission and the United States Department of Justice,
all reports and other documents required to be filed by such party under the HSR
Act concerning the transactions contemplated hereby and (ii) promptly comply
with or cause to be complied with any requests by the Federal Trade Commission
or the United States Department of Justice for additional information concerning
such transactions, in each case so that the waiting period applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall
expire as soon as practicable after the execution and delivery of this
Agreement. Each party hereto agrees to request, and to cooperate with the other
party or parties in requesting, early termination of any applicable waiting
period under the HSR Act. Buyer shall pay the filing fees payable in connection
with the filings by the parties required by the HSR Act.
(b) Without limiting the generality of Buyer's undertakings pursuant
to Section 7.2(a), Buyer shall:
(i) use reasonable efforts to prevent the entry in a judicial
or administrative proceeding brought under any Applicable Law by any
Governmental Entity or any other party for a permanent or preliminary
injunction or other order that would make consummation of the
transactions contemplated by this Agreement unlawful or that would
prevent or delay such consummation; and
(ii) take promptly, in the event that such an injunction or
order has been issued in such a proceeding, any and all reasonable
steps, including, without limitation, the appeal thereof or the posting
of a bond, necessary to vacate, modify or suspend such injunction or
order so as to permit such consummation on a schedule as close as
possible to that contemplated by this Agreement.
(c) If the transfer of any instrument, contract, license, lease,
permit, or other document to Buyer hereunder shall require the consent of any
party thereto other than Seller, then this Agreement shall not constitute an
agreement to assign the same, and such item shall not be assigned to or assumed
by Buyer, if an actual or attempted assignment thereof would constitute a breach
thereof or default thereunder. In such case, Seller and Buyer shall cooperate
and each shall use commercially reasonable efforts to obtain such consents to
the extent required of such other parties. If any such consent cannot be
obtained, Seller shall cooperate, at Buyer's request, in any reasonable
arrangement designed to obtain for Buyer all benefits and privileges of the
applicable instrument, contract, license, lease, permit or document. Seller
shall use commercially reasonable efforts to transfer the Trading Company
Permits to Buyer or, if a Trading Company Permit is not transferable to Buyer,
to assist Buyer in obtaining a similar permit in Buyer's name.
(d) Buyer will use commercially reasonable efforts to assist Seller
in obtaining any consents of third parties necessary or advisable in connection
with the transactions contemplated by this Agreement, including, without
limitation, providing to such third parties such financial statements and other
publicly available financial information with respect to Buyer as such third
parties may reasonably request.
(e) The foregoing notwithstanding, Buyer shall not be required to
accept any Governmental Approval if the Governmental Entity having jurisdiction
thereof has imposed any conditions in writing within the body of such
Governmental Approval that (i) limits or restricts the operations of the
Midstream Companies in a manner that can reasonably be expected to have a
material adverse effect on the operations of the Midstream Companies (as
conducted on the date of this Agreement), (ii) requires the divestiture by
American Electric Power Company, Inc. or its subsidiaries of assets or
operations with a fair market value of more than $100,000,000, (iii) can
reasonably be expected to have a material adverse effect on American Electric
Power Company, Inc. and its subsidiaries considered as a whole (without regard
to the transactions contemplated hereby) or (iv) can reasonably be expected to
have a material adverse effect on the approval by (A) the Federal Trade
Commission or the United States Justice Department under the HSR Act, (B) the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935 or (C) the Louisiana Public Service Commission of American Electric
Power Company, Inc.' s planned merger with Central and South West Corporation.
7.3 Employee and Employee Benefit Plan Matters
(a) Set forth on Schedule 7.3 is a list of the employees of the
Midstream Companies (the "Midstream Employees") and the Trading Company (the
"Trading Employees"), together with the amount of severance pay to which such
employees would be entitled assuming termination or modification of his or her
employment ("Severance Pay").
(b) Buyer acknowledges and agrees that the Midstream Companies shall
have no obligation to terminate any of the Midstream Employees prior to the
Closing, and that the Midstream Companies shall be obligated to pay all amounts
due to any Midstream Employee terminated in connection with or following the
Closing, including without limitation all Severance Pay. Following the Closing,
Buyer agrees to cause the Midstream Companies to make all such payments and to
indemnify and hold harmless Seller and its affiliates from and against any
claims by Midstream Employees relating to the termination of any of the
Midstream Employees by the Midstream Companies, Buyer or any of its affiliates.
(c) On or before 5 days prior to the Closing Date, Buyer shall
deliver to Seller a list of the Trading Employees (the "Designated Trading
Employees") to whom Buyer intends to extend a Qualified Offer of employment
effective as of the Closing. In connection with the Closing, Buyer shall extend
Qualified Offers of employment to the Designated Trading Employees. A "Qualified
Offer" means an offer of employment by the Buyer to a Trading Employee which (i)
contains a base salary not less than the base salary being paid by the Trading
Company to such Trading Employee on the date hereof, (ii) does not result in a
substantial reduction in the role or responsibilities of such Trading Employee
from that in effect on the date hereof and (iii) is at a primary worksite in a
location that is not more than 50 miles from the office location for such
Trading Employee on the date hereof. Seller shall be responsible for the payment
to the Trading Employees of all salaries wages, benefits and other sums due or
accrued through the Closing Date. Buyer shall pay to Seller within 5 days
following the Closing an amount equal to the Severance Pay and other amounts
relating thereto (including, without limitation, payroll taxes) as calculated by
Seller which would be incurred by Seller or any affiliate of Seller upon the
termination of employment of the Trading Employees who are not Designated
Trading Employees; provided, that Buyer's obligation under this Section 7.3(c)
shall be limited to 135% of the aggregate amount reflected on Schedule 7.3 for
such Trading Employees.
(d) As of the Closing Date, the Midstream Companies shall cease to be
a participating employer in the employee benefit plans for which the Midstream
Employees were eligible and the Midstream Employees shall cease to be eligible
for all Employee Plans for which they were eligible prior to the Closing Date
and shall, as of the Closing Date, cease to accrue any additional benefits under
such Employee Plans (for which benefit accruals are relevant). Buyer agrees that
the employee benefit plans, programs and policies of Buyer or the Midstream
Companies from and after the Closing Date shall recognize the Midstream
Employees' service before the Closing Date for purposes of vesting and
eligibility, and with respect to welfare plans, shall to the extent practicable
provide benefits without interruption. Buyer will cause the Midstream Companies
and any successors and assigns to honor all obligations of the Midstream
Companies arising in respect of periods on or before the Closing Date under the
Employee Plans set forth on Schedule 4.15 to the extent accruing at or prior to
the Closing.
(e) For each Designated Trading Employee who is employed by Buyer or
an affiliate of Buyer (including, after the Closing, any of the Midstream
Companies) ("Buyer Controlled Group"), Buyer or such affiliate shall cause such
Designated Trading Employee's prior employment by the Trading Company to be
treated as employment by the Buyer Controlled Group for purposes of vesting and
eligibility in the Buyer Controlled Group's benefit plans.
(f) The Midstream Employees who remain employed with the Buyer
Controlled Group after the Closing Date and the Trading Employees employed by a
Buyer Controlled Group member after the Closing Date are collectively referred
to as the "Continuing Employees." If a Continuing Employee is involuntarily
terminated from employment with the Buyer Controlled Group within the 18 month
period beginning on the Closing Date other than for fraud, gross dereliction of
duty, misappropriation of Buyer Controlled Group property, misconduct damaging
to such property or to the business of Buyer Controlled Group or the commission
of a felony ("Cause"), then Buyer shall pay or shall cause the Buyer Controlled
Group member employing such terminated Continuing Employee to pay to such
terminated Continuing Employee Severance Pay not less than the amount reflected
on Schedule 7.3 for any such Continuing Employee. For purposes of this Section
7.3(f), if within the 18 month period beginning on the Closing Date a Continuing
Employee is offered continued employment by the Buyer Controlled Group which (i)
contains a base salary less than the base salary paid to such Continuing
Employee on the date hereof, (ii) results in a substantial reduction in the role
or responsibilities of such Continuing Employee from that in effect on the date
hereof or (iii) is at a primary worksite in a location that is more than 50
miles from the primary worksite for such Continuing Employee on the date hereof,
such Continuing Employee shall be deemed to be involuntarily terminated without
Cause.
(g) Buyer shall cause the Midstream Companies to pay to the Midstream
Employees all amounts due under the retention agreements between the Midstream
Companies and the Midstream Employees in effect prior to Closing (the "Retention
Agreements"). Seller shall pay to the Midstream Companies within 5 days
following the Closing the aggregate amount of the fixed retention payments and
incentive retention payments (but specifically excluding any Severance Pay)
payable to the Midstream Employees under the Retention Agreements.
(h) Seller will assume at or prior to Closing the liabilities of the
Midstream Companies for accumulated post-retirement benefits for former
employees of the Midstream Companies.
7.4 Public Announcements. Buyer, on the one hand, and Seller, on the
other, shall consult with each other before they or any of their respective
affiliates issue any press release or otherwise make any public statement with
respect to this Agreement or the transactions contemplated hereby, and neither
of them or any such affiliate shall issue any such press release or make any
such public statement prior to such consultation (but no approval thereof shall
be required), except as may be required by law.
7.5 Notification of Certain Matters. Seller and Buyer shall promptly
notify each other of any event of circumstance prior to the Closing which shall
constitute a Material Adverse Effect or a breach of a representation or warranty
or a covenant or agreement of either Seller or Buyer.
7.6 Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Articles VIII and IX
have been fulfilled, the Schedules hereto shall be deemed to include only that
information contained therein on the date of this Agreement and shall be deemed
to exclude all information contained in any supplement or amendment thereto;
provided, however, that if the Closing shall occur, then the Schedules hereto
shall be deemed to include all matters disclosed pursuant to any such supplement
or amendment at or prior to the Closing.
7.7 Intercompany Accounts. On the Closing Date, Seller and the
Midstream Companies shall undertake such transactions and execute and deliver
such agreements and instruments as may be necessary or appropriate to cause all
Intercompany Accounts existing immediately prior to the Closing to have been
eliminated or charged or credited, as appropriate, to capital.
7.8 Fees and Expenses. Except insofar as a party may be damaged by
another party's breach hereof or as otherwise expressly provided in this
Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors, and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fee or expense, whether or not the Closing shall have occurred. Buyer shall
be obligated to pay any and all costs of any audit of the Midstream Companies or
the Trading Company as may be required to enable Buyer to complete and file any
filing by Buyer or an affiliate of Buyer with the Securities and Exchange
Commission.
7.9 Transfer Taxes. All sales, transfer, filing, recordation,
registration and similar taxes and fees arising from or associated with the
transactions contemplated hereunder, whether levied on Buyer or Seller, shall be
borne equally by Buyer and Seller, and the parties shall file all necessary
documentation with respect to, and make all payments of, such taxes and fees on
a timely basis.
7.10 Action Regarding Indemnities. Buyer agrees that it will not
knowingly take any action after the Closing that would limit, reduce or
extinguish any indemnity or right of contribution from a third party
(collectively "Third Party Indemnities") which may be available to Seller, Buyer
or the Midstream Companies, and will use commercially reasonable efforts to take
all necessary action, of which it has actual knowledge, to preserve claims under
any such indemnity.
7.11 Casualty Loss. Notwithstanding anything to the contrary in this
Agreement, in the event of damage by fire or other casualty to the properties of
any Midstream Company (a "Casualty Loss") prior to Closing, this Agreement shall
remain in full force and effect, there shall be no reduction in the Purchase
Price and no failure of a condition to closing shall be deemed to exist by
virtue of such event, provided that (a) in such event Seller, at its option, (i)
repairs such damage (which Seller shall have no obligation to do), (ii) collects
(and when collected pays over to Buyer) any insurance claims related to such
damage or (iii) assigns to Buyer such insurance claims, and (b) after Seller's
recourse to its option described in clause (a) of this Section 7.11, such damage
does not result in a Material Adverse Effect.
7.12 Excluded Assets. Notwithstanding Article VI hereof, the
transactions contemplated by this Agreement exclude and prior to the Closing
Date Seller may cause a Midstream Company to transfer to Seller or any of its
affiliates (other than the Midstream Companies):
(a) the assets listed or described on Schedule 7.12;
(b) all Midstream Insurance Policies and rights under any such
insurance policies in respect to any and all claims made under such policies
whether such claims are asserted before or after the Closing Date and all rights
to any proceeds payable under any such policy;
(c) the names "Equitable" and "ERI" and any related or similar trade
names, trade marks, service marks or logos (but excluding the name "Louisiana
Intrastate Gas"); and
(d) any refund or credit related to Taxes paid prior to the Effective
Date pursuant to Section 11.5, whether such refund is received as a payment or
as a credit against future Taxes payable.
7.13 Transition Services. For a reasonable period after Closing, not
to exceed 6 months or such longer period as may be agreed between the parties,
Buyer and Seller shall cooperate with respect to transition activities as to the
businesses of the Midstream Properties, including without limitation computer
support of the GMIS. To the extent Seller provides such services and unless
otherwise agreed by the parties, Buyer shall pay Seller reasonable compensation
for such services and shall reimburse Seller for reasonable costs actually
incurred in connection therewith.
7.14 Guarantees. Buyer and Seller shall cooperate and use
commercially reasonable efforts in order that, effective as of the Closing Date,
(i) all obligations relating to the guarantees, letters of credit, bonds, other
credit assurances of a comparable nature of Seller or any of its affiliates
(other than the Midstream Companies) for the benefit of any Midstream Company or
Trading Company and listed or described on Schedule 7.14 (the "Guarantees") and
any liabilities related thereto shall be released as to Seller or such affiliate
and (ii) substitute arrangements of Buyer or its affiliates shall be in effect.
No Midstream Company is currently obligated under any guarantee, letter of
credit, bond or other credit assurance in favor of Seller or any of its
affiliates (other than the Midstream Companies). In the event that any Guarantee
is not released, Buyer shall indemnify and hold harmless the guarantor(s)
thereunder from and against any losses that such guarantor(s) may suffer under
such Guarantees from and after the Closing Date.
7.15 [Intentionally omitted.]
7.16 Use of Name. Buyer agrees that promptly following the Closing,
it will (i) change the legal name of any of the Midstream Companies that contain
the word or initials "Equitable" or "ERI" to a name that does not include either
such word or initials and (ii) remove from any of the properties of the
Midstream Companies or paint over such name or initials and logos, symbols or
trademarks relating thereto.
7.17 Insurance. Buyer acknowledges and agrees that, following the
Closing, the Midstream Insurance Policies may be terminated or modified to
exclude coverage of all or any portion of the Midstream Companies or the Trading
Assets by Seller in its sole discretion, and, as a result, Buyer shall be
obligated at or before Closing to obtain at its sole cost and expense
replacement or substitute insurance coverage with similar policies and amounts
of coverage. Buyer further acknowledges and agrees that Buyer will need to
provide to certain Governmental Entities and third parties evidence of such
replacement or substitute insurance coverage for the continued operations of the
businesses of the Midstream Companies following the Closing.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date or, if and as applicable, the Canadian Deferred Closing Date of each of the
following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of such date, except as
affected by transactions permitted by this Agreement and except to the extent
that any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct in
all material respects as of such specified date.
8.2 Covenants and Agreements Performed. Buyer shall have performed
and complied with in all material respects all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date and all deliveries contemplated by Section 3.3 shall have been
made.
8.3 HSR Act: Consents. All waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated, and there shall have
been obtained any and all other Governmental Approvals specified on Schedules
4.6 and 5.4.
8.4 Legal Proceedings. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect which restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby.
8.5 Guarantees. The Guarantees shall be released as to Seller or its
appropriate affiliate and substitute arrangements of Buyer or its affiliates
shall be in effect.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
9.1 Representations and Warranties True. All the representations and
warranties of Seller contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on or
prior to the Closing Date, shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date, except as affected
by transactions permitted by this Agreement, in which case such representation
or warranty shall have been true and correct in all material respects as of such
specified date.
9.2 Covenants and Agreements Performed. Seller shall have performed
and complied with in all material respects all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date and all deliveries contemplated by Section 3.2 shall have been
made.
9.3 HSR Act: Consents. All waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated, and there shall have
been obtained any and all other Governmental Approvals specified on Schedules
4.6 and 5.4.
9.4 Legal Proceedings. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect which restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby.
9.5 Material Adverse Effect. There shall not have occurred or
transpired any event or circumstance (other than those described in this
Agreement or which result from the transactions contemplated hereby), whether or
not under the control of the Midstream Companies or Seller, that (i) constitutes
a Casualty Loss in excess of $15,000,000 (or $5,000,000 of uninsured loss) or
(ii) constitutes or is reasonably likely to constitute a Material Adverse Effect
as of Closing and (A) is a Proceeding against a Midstream Company or (B)
constitutes the loss of any supplier or customer (other than the expiration of
an Agreement in accordance with its terms). Notwithstanding the foregoing, the
condition specified in this Section 9.5 shall be deemed satisfied if Seller, on
or before the Closing, takes such action as is necessary to cure such event or
circumstance or enters into an agreement or other arrangement reasonably
satisfactory to Buyer that has the effect of indemnifying and holding harmless
Buyer and the affected Midstream Company for or from the effects of such event
or circumstance.
ARTICLE X
TERMINATION, AMENDMENT, AND WAIVER
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer, if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the sale of the Subject
Stock hereunder and such order, decree, ruling or other action shall
have become final and unappealable;
(c) by Seller, if on or before December 31, 1998, all waiting
periods (and any extensions thereof) applicable to this Agreement and
the transactions contemplated hereby under the HSR Act shall not have
expired or been terminated, or there shall not have been obtained any
other Governmental Approval set forth on Schedule 5.4 or required by
Buyer; or
(d) by either Seller or Buyer, if the Closing shall not have
occurred on or before March 1, 1999, provided, however, that the right
to terminate this Agreement under this Section 10.1(d) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing to occur prior to such date.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section and in Article X and XIII and Sections 7.1(a), 7.4 and
7.8 shall survive the termination hereof. Nothing contained in this Section
shall relieve any party from liability for damages actually incurred as a result
of any breach of this Agreement. No termination of this Agreement shall affect
the obligations of the parties pursuant to the Confidentiality Agreement, except
to the extent specified in such letter agreement.
10.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
10.4 Waiver. Each of Seller, on the one hand, and Buyer, on the
other, may (i) waive any inaccuracies in the representations and warranties of
the other contained herein or in any document, certificate, or writing delivered
pursuant hereto or (ii) waive compliance by the other with any of the other's
agreements or fulfillment of any conditions to its own obligations contained
herein. Any agreement on the part of a party hereto to any such waiver shall be
valid only if set forth in an instrument in writing signed by or on behalf of
such party. No failure or delay by a party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
ARTICLE XI
TAX MATTERS
11.1 Tax Allocation: Pre-Closing. Seller shall be solely liable for
and shall pay all Taxes of the Midstream Companies (and any costs or expenses
connected therewith) due for all taxable years and periods ending on or before
the Closing Date (the "Pre-Closing Tax Period") except for Taxes specifically
and fully reserved as a current liability on the Effective Date Balance Sheet.
Seller will include the taxable income of the Midstream Companies (including any
deferred income recognized by Treasury Regulation ss.1.1502-13) on the Seller's
federal consolidated income tax returns for all periods ending on or before the
Closing Date to the extent required under Treasury Regulation ss.1.1502-76(b).
The income of the Midstream Companies will be apportioned up to and including
the Closing Date by closing the books of the Midstream Companies as of the
Closing Date pursuant to Treasury Regulation ss.1.1502-76(b). Seller will
prepare and file or cause to be prepared and filed all Tax Returns for the
Midstream Companies that are required to be filed with the appropriate
Governmental Entities for any Pre-Closing Tax Period; provided, however, that
Seller shall furnish copies of such returns to Buyer for its review, at least 10
days prior to filing; and provided, further, that Seller shall not file any
amended Tax Returns for the Midstream Companies for any Pre-Closing Tax Period
without the written consent of Buyer, which will not be unreasonably withheld or
delayed.
11.2 Tax Allocation: Post-Closing. Buyer shall be solely liable for
and shall pay all Taxes of the Midstream Companies (and any costs or expenses
connected therewith) due for any taxable year or taxable period commencing after
the Closing Date (a "Post-Closing Tax Period"). Buyer will prepare and file or
cause to be prepared and filed all Returns for the Midstream Companies (and any
costs or expenses connected therewith) that are required to be filed with the
appropriate Governmental Entities for any Post-Closing Tax Period. Buyer will
make or cause to be made all payments shown thereon as owing with respect to any
such Tax Returns.
11.3 Tax Allocation: Straddle Period. Buyer shall cause the Midstream
Companies to pay all Taxes due for any taxable year or taxable period commencing
before and ending after the Closing Date (the "Straddle Period"). Upon notice
from Buyer, Seller shall pay to the Midstream Companies prior to the date any
payment for Taxes as described in this Section 11.3 is due, an amount equal to
the excess, if any, of (i) the Taxes that would have been due if the Straddle
Period had ended at the close of business on the Closing Date (using an
interim-closing-of-the-books method except that exemptions, allowances, and
deductions that are otherwise calculated on an annual basis such as deductions
for real estate taxes, depreciation, and depletion, shall be apportioned on a
per diem basis) over (ii) the sum of the Taxes for the Straddle Period (A) which
have been specifically and fully reserved on the Effective Date Balance Sheet or
(B) which have been paid prior to the Closing Date by the Midstream Companies or
by Seller or an affiliate thereof with respect to the Midstream Companies.
11.4 Return Preparation. In order to assist Seller in the preparation
of all Tax Returns that Seller is required to prepare, Buyer will promptly
provide or cause to be provided to Seller such information as Seller may
reasonably request in order for the operations of the Midstream Companies to be
properly reported in such Tax Returns.
11.5 Refunds or Credits. Except as otherwise set forth in this
Agreement, to the extent any refunds or credits not reflected in the current
assets on the Effective Date Balance Sheet with respect to Taxes paid by the
Midstream Companies are attributable to taxable periods commencing before and
ending on or before the Closing Date, such refunds or credits shall be for the
account of Seller. Except as provided in the immediately succeeding sentence, to
the extent that any refunds or credits with respect to Taxes paid by the
Midstream Companies are attributable to taxable periods commencing on or after
the Closing Date, such refunds or credits shall be for the account of Buyer. To
the extent that any refunds or credits with respect to taxes paid by the
Midstream Companies are attributable to the Straddle Period described in Section
11.3, such refunds and credits shall be for the account of the party who bears
responsibility for such Taxes pursuant to Section 11.3. Buyer shall cause the
Midstream Companies to forward to Seller or to reimburse Seller for any such
refunds or credits for the account of Seller within 10 business days from
receipt thereof by any of Buyer or the Midstream Companies. Seller shall forward
to Buyer or reimburse Buyer for any refunds or credits for the account of Buyer
within 10 business days from receipt thereof by Seller. To the extent any such
refund or credit is properly includable in the taxable income of the initial
recipient, the amount forwarded or reimbursed to Seller or Buyer, as the case
may be, shall be reduced by a percentage of the amount of such refund or credit
equal to the highest marginal federal income tax rate for the tax period in
which the refund or credit is received. Any refunds or reimbursements not made
within the 10 business day period specified above shall bear interest from the
date received by the refunding or reimbursing party at the Prime Rate.
11.6 Taxes Relating to Trading Assets. All property or ad valorem
taxes imposed on or with respect to the Trading Assets for the year in which the
Closing occurs shall be prorated between Seller and Buyer based on the number of
days in such year before and after the Closing Date. Seller shall be liable for
such taxes prorated for the period up to and including the Closing Date, and
Buyer shall be liable for such taxes prorated for the period subsequent to the
Closing Date. Seller shall be responsible for the actual payment of such taxes
to the appropriate Governmental Entity that become due and payable prior to the
Closing Date. Buyer shall likewise be responsible for the actual payment of such
taxes becoming due and payable subsequent to the Closing Date. The parties shall
file all necessary documentation with respect to, and make all payments of, such
taxes on a timely basis.
ARTICLE XII
SURVIVAL; INDEMNIFICATION
12.1 Survival
(a) The representations and warranties of the parties hereto contained
in Articles IV and V of this Agreement or in any certificate, instrument, or
document delivered pursuant hereto, and the indemnification obligations of the
parties contained in this Article XII for which no notice is given by the
applicable Survival Date, shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the second anniversary of
the Closing Date, provided however, that, (i) the representations set forth in
Section 4.9, Section 4.15, Section 4.28 and the second sentence of Section 4.17
shall survive until 30 days after all applicable statute of limitations,
including waivers and extensions, have expired with respect to the matters
addressed therein, and if no statute of limitations exists, forever thereafter
(as applicable, the "Survival Date") and (ii) the representations and warranties
set forth in Section 4.28(c) shall expire at the Closing. For this purpose, the
parties agree that proper notice shall have been given by Buyer to Seller as of
Closing with respect to all Retained Litigation.
(b) No party hereto shall have any indemnification obligation pursuant
to this Article XII or otherwise in respect of any such representation or
warranty unless before the Survival Date it shall have received from the party
seeking indemnification proper notice as required in this Article XII.
(c) The provisions of this Article shall have no effect upon any other
obligation of the parties hereto under this Agreement, whether to be performed
before, at or after the Closing.
12.2 Indemnification by Seller
(a) Subject to the terms, limitations and conditions of this Article
XII, Seller shall indemnify, defend and hold harmless Buyer and its successors
and assigns, the Midstream Companies, and its and their affiliates and their
respective officers, directors, partners, employees, agents and representatives
from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
damages, fines, interest, punitive damages payable to third parties, costs and
expenses (including reasonable attorneys' fees and expenses), of any nature
whatsoever (each, a "Loss"), asserted against, resulting to, imposed upon or
incurred by Buyer or its affiliates or any such other Person, directly or
indirectly, by reason of or resulting from any of the following:
(i) any breach by Seller of any of its covenants,
representations or warranties contained in this Agreement;
(ii) the Retained Litigation (other than the matter listed as
item 1 on Schedule 1.1(a) hereto), to the extent provided herein;
(iii) the ownership of the Trading Assets for the period prior
to the Effective Date;
(iv) the matter listed as item 1 on Schedule 1.1(a) hereto;
(v) any Loss that Buyer may suffer resulting from, arising out
of, relating to, in the nature of, or imposed upon any of the Midstream
Companies, for Taxes of any person other than the Midstream Companies
(i) under Treasury Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), (ii) as transferee or successor, by contract,
or (iii) otherwise;
(vi) any amount payable to any employee or other person (or
the present value of any amount as to which such a person's vesting is
accelerated), in respect of the provision of services to Seller or any
of its affiliates, as a result of the change in control of the
Midstream Companies or the acquisition of the Trading Assets as
contemplated by this Agreement, and any incremental Taxes imposed upon
the Buyer or any Midstream Company as a result of the application of
Code section 280G or 4999 thereto;
(vii) any (A) Third Party Claim arising out of or resulting
from the presence of Hazardous Material that has been released to the
soils, groundwater, sediments or otherwise to the environment or (B)
Environmental Response Measures, in either case that arise out of or
relate to the operations conducted by the Midstream Companies prior to
the Closing Date; and
(viii) any act of the Midstream Companies occurring after July
1, 1993, and prior to the Closing constituting (A) a violation of
Applicable Law (other than Applicable Environmental Laws) or (B)
statutory or contractual fraud.
(b) The indemnification obligations of Seller pursuant to this Article
XII shall be subject to the following limitations and other provisions set forth
herein:
(i) No indemnification shall be required to be made by Seller
with respect to any Losses under Sections 12.2(a)(i), (iii), (vi),
(vii) or (viii) except to the extent that the aggregate amount of such
Losses incurred by Buyer (whether arising, asserted, resulting, imposed
or incurred before, on or after the Closing Date) exceeds $3,000,000.
(ii) No indemnification shall be required to be made by Seller
with respect to any Losses under Sections 12.2(a)(i), (ii), (iii),
(vi), (vii) or (viii) to the extent that the aggregate amount of such
Losses incurred by Buyer and its affiliates (including the Midstream
Companies) (whether arising, asserted, resulting, imposed or incurred
before, on or after the Closing Date), together with the aggregate
amount paid by Seller and its affiliates as Defense Costs in connection
with the Retained Litigation (other than the matter listed as item 1 on
Schedule 1.1(a) hereto) exceeds $100,000,000.
(iii) No indemnification shall be required to be made by
Seller with respect to any Losses for any matter (A) for which Buyer or
its affiliates have otherwise indemnified Seller or its affiliates, (B)
to the extent that such matters were known to Buyer prior to the date
of this Agreement and were not disclosed to Seller prior to such date
or otherwise known by Seller or (C) to the extent such Losses arise
from the negligent or wrongful act or omission of Buyer or its
affiliates (other than the Midstream Companies prior to Closing), or
the breach of their obligations to Seller or its affiliates.
(iv) [Intentionally omitted.]
(v) No indemnification shall be required to be made by Seller
with respect to any Losses associated with the matter listed as item 1
on Schedule 1.1(a) hereto to the extent that the aggregate amount of
such Losses incurred by Buyer and its affiliates (including the
Midstream Companies), exceeds the amount (the "JD Amount") specified in
that certain joint defense agreement between Sellers and Buyer dated
September 12, 1998 (the "Joint Defense Agreement"). In addition, Seller
shall make available for payment of such indemnity claims the positive
amount (if any) equal to (i) the aggregate amount of insurance proceeds
actually received by Equitable Resources, Inc. ("ERI") in connection
with the matter listed as item 1 on Schedule 1.1(a) minus (ii) the sum
of (A) the JD Amount and (B) the aggregate amount of Losses of ERI and
its affiliates relating to or in connection with the matter listed as
item 1 on Schedule 1.1(a) (including, without limitation, the aggregate
amount of costs and expenses paid by ERI and its affiliates as Defense
Costs in connection with the matter listed as item 1 on Schedule
1.1(a)).
(vi) In addition to the other limitation contained herein, the
indemnification obligations of Seller for Losses under Section
12.2(a)(vii) shall be limited as follows:
(A) Seller shall only be liable to indemnify to the
extent of 50% of such Losses; and
(B) Seller shall not be liable to indemnify for any
such Loss unless and until the Loss relating to a specific
site or set of facts exceeds $20,000, in which event such
indemnity shall include such $20,000.
(c) Subject to the provisions of the Joint Defense Agreement, Seller
shall be entitled to conduct and direct the defense of the Proceedings and
claims related to the Retained Litigation in accordance with Section 12.5, and
Buyer shall cooperate, and shall cause the Midstream Companies to cooperate, in
good faith in such defense. Without limiting the generality of the preceding
sentence and as more fully set forth in the Joint Defense Agreement, Seller
shall be entitled, in the name and on behalf of Buyer or any of the Midstream
Companies, to pursue in good faith Third Party Indemnities from any Person.
Seller shall be entitled to control and direct all proceedings and claims
related to such insurance coverage associated with the Retained Litigation.
12.3 Indemnification by Buyer. Subject to the terms and conditions of
this Article XII, Buyer shall indemnify, defend and hold harmless Seller and its
affiliates and their respective officers, directors, partners, employees, agents
and representatives from and against any and all Losses asserted against,
resulting to, imposed upon or incurred by Seller or its affiliates or any such
other Person, directly or indirectly, by reason of or resulting from any of the
following:
(i) breach by Buyer of any of its covenants,
representations or warranties contained in this Agreement;
(ii) the Assumed Litigation; and
(iii) the Assumed Liabilities.
12.4 Further Limitations of Liability. The amount of any Loss shall be
reduced (i) to the extent that any person entitled to receive indemnification
under this Agreement (an "Indemnitee") receives any insurance proceeds with
respect to a Loss, (ii) to take into account any Tax benefit recognized by the
Indemnitee arising from the recognition of the Loss less any Tax detriment from
the receipt of indemnification associated with such Loss and (iii) to take into
account any payment actually received by an Indemnitee with respect to a Loss.
12.5 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim or
of the commencement of any claim, action or proceeding made or brought by any
person or entity who or which is not a party to this Agreement or an affiliate
of a party to this Agreement (a "Third Party Claim") with respect to which
indemnification is to be sought from a person required to provide
indemnification under this Agreement (the "Indemnifying Party"), the Indemnitee
will give such Indemnifying Party reasonable prompt written notice thereof, but
in any event not later than 20 calendar days after the Indemnitee$s receipt of
notice of such Third Party Claim, provided this failure to give timely notice
will not affect the rights or obligations of the Indemnifying Party except and
only to the extent that, as a result of such failure, the Indemnifying Party was
substantially disadvantaged. Such notice shall describe the nature of the Third
Party Claim in reasonable detail and will indicate the estimated amount, if
practicable, of the Loss that has been or may be sustained by the Indemnitee.
The Indemnifying Party will have the right to participate in or, by giving
written notice to the Indemnitee, to elect to assume the defense of any Third
Party Claim at such Indemnifying Party$s own expense and by such Indemnifying
Party$s own counsel, and the Indemnitee will cooperate in good faith in such
defense at such Indemnitee$s own expense.
(b) If within 10 calendar days after an Indemnitee provides written
notice to the Indemnifying Party of any Third Party Claim the Indemnitee
receives written notice from the Indemnifying Party that such Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 12.5(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within 10 calendar days after receiving notice from the Indemnitee that the
Indemnitee believes the Indemnifying Party has failed to take such steps the
Indemnitee may assume its own defense, and the Indemnifying Party will be liable
for all reasonable expenses thereof. Without the prior written consent of the
Indemnitee, the Indemnifying Party will not enter into any settlement of any
Third Party Claim which would lead to liability or create any financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder. If a firm offer is made to settle a Third
Party Claim without leading to liability or the creation of a financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party will give written notice
to the Indemnitee to that effect. If the Indemnitee fails to consent to such
firm offer within 10 calendar days after its receipt of such notice, the
Indemnitee may continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party to such Third Party Claim
will be the amount of such settlement offer, plus reasonable costs and expenses
paid or incurred by the Indemnitee up to the date of such notice. Subject to the
other provision of this Agreement, the parties agree that for purposes of this
Section 12.5(b), the Retained Litigation shall be deemed to be Third Party
Claims.
(c) Any claim by an Indemnitee on account of a Loss which does not
result from a Third Party Claim (a "Direct Claim") will be asserted by giving
the Indemnifying Party reasonably prompt written notice thereof, stating the
nature of such claim in reasonable detail and indicating the estimated amount,
if practicable, but in any event not later than 90 calendar days after the
Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party will
have a period of 30 calendar days within which to respond to such Direct Claim.
If the Indemnifying Party does not respond within such 30 day period, the
Indemnifying Party will be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its rights to indemnification under this Agreement.
(d) If the amount of any Loss, at any time subsequent to the making of
an indemnity payment in respect thereof, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage or Tax benefit, or
pursuant to any claim, recovery, settlement or payment by or against any other
entity, the amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith, will promptly be repaid by the Indemnitee to
the Indemnifying Party. Upon making any indemnity payment, the Indemnifying
Party will, to the extent of such indemnity payment, be subrogated to all rights
of the Indemnitee against any third party in respect of the Loss to which the
indemnity payment relates; provided, however, that (i) the Indemnifying Party
will then be in compliance with its obligations under this Agreement in respect
of such Loss, (ii) until the Indemnitee recovers full payment of its Loss, any
and all claims of the Indemnifying Party against any such third party on account
of said indemnity payment are hereby made expressly subordinated and subjected
in right of payment to the Indemnitee$s rights against such third party and
(iii) under no circumstance shall Buyer or its affiliates (including the
Midstream Companies) have any rights to pursue recovery under the Midstream
Insurance Policies. Without limiting the generality or effect of any other
provision hereof, each such Indemnitee and Indemnifying Party will duly execute
upon request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights. Nothing in this Section
12.5(d) shall be construed to require any party hereto to obtain or maintain any
insurance coverage.
12.6 Additional Provisions Relating to Environmental Indemnification.
In addition to the limitations set forth elsewhere in this Article XII, Seller's
obligation to indemnify the Buyer pursuant to Article XII with respect to
environmental matters shall be further qualified as specified below:
(a) If Buyer has a Loss for costs of an Environmental Response Measure
pursuant to Article XII of this Agreement that relates to the presence of
Hazardous Material that has been released to the soils, groundwater, sediments
or otherwise to the environment, Seller shall only be required to defend,
indemnify and hold harmless the Buyer to the extent that: (i) investigation or
remediation of the Hazardous Material is required pursuant to an Applicable
Environmental Law that is in effect as of and is enforceable as of the Closing
Date; (ii) the Remediation Standards (as defined below) that must be met in
order to satisfy any legal requirements (A) are no more stringent than the
Remediation Standards that were in effect as of and were enforceable as of the
date of this Agreement under the Applicable Environmental Law that is the source
of the obligation to conduct a remediation, or, where no such Remediation
Standards had been promulgated and were enforceable as of the date of this
Agreement, Remediation Standards that were applied, within 1 year prior to the
date of this Agreement, on a case-by-case basis, to properties that are most
similar to the property that is subject to a remediation and (B) are also those
Remediation Standards that would be the least stringent Remediation Standards
that would be applicable given the use of the property as of the day before the
Closing Date; and (iii) such investigation and/or remediation is conducted using
the most reasonably cost effective methods for investigation, remediation and/or
containment consistent with Applicable Environmental Law. To the extent that the
Losses incurred in connection with an investigation or remediation are in excess
of the Losses that would be incurred for an investigation or remediation meeting
the conditions set forth in this Section 12.6(a), Seller shall have no
obligation to indemnify Buyer for such excess Losses.
(b) If the costs of an investigation or remediation that is subject to
an indemnity by Seller hereunder are increased due to an act or omission
(occurring after the Closing Date) by a person other than Seller or an agent,
representative or contractor of Seller, Seller shall not be responsible for any
such increase in costs incurred. Seller shall not be responsible for any
increased Losses that are incurred due to (i) the voluntary closure of
operations at any of the affected assets or (ii) a material voluntary change in
use of the affected assets from the use of such assets as of the Closing Date.
(c) Seller shall not be responsible for the costs associated with
Buyer's oversight of Seller's performance of its defense and indemnity
obligations under this Agreement, including the cost of Buyer's oversight of
Seller's legal counsel, consultant or employees, and Seller shall not be
responsible for any costs or expenses of Buyer that are not "out-of-pocket"
(including, without limitation, pro-rated salaries of Buyer's employees).
(d) Claims brought pursuant to Article XII that are related to
environmental matters shall be subject to the procedures for indemnification set
forth in Section 12.5 if such claims are third party claims. Claims that require
investigation and remediation of Hazardous Materials shall also be subject to
the procedures of Section 12.7.
(e) For purposes of this Agreement, "Remediation Standard" means a
numerical standard that defines the concentrations of Hazardous Materials that
may be permitted to remain in any environmental media after an investigation,
remediation or containment of a release of Hazardous Materials.
12.7 Procedures for Remedial Actions
(a) Seller shall have the right, but not the obligation, to control the
management of an environmental investigation or remediation that is subject to
indemnification pursuant to Article XII. Seller shall notify Buyer, within 30
days of receipt of notice of Buyer's claim for indemnification for such matter,
either that (i) it intends to undertake such responsibility, (ii) it does not
intend to undertake such responsibility or (iii) that more information is needed
from Buyer before Seller can reasonably determine that Buyer's claim is subject
to indemnification pursuant to this Agreement. Buyer shall promptly respond to
such requests for information (to the extent such information is reasonably
available to Buyer) and, within 30 days of receipt of such information, Seller
shall notify Buyer as to whether it shall undertake the investigation and
remediation.
(b) In the event Seller undertakes the responsibility for investigation
or remediation, Seller shall promptly provide copies to Buyer of all notices,
correspondence, draft reports, submissions, work plans and final reports and
shall give Buyer a reasonable opportunity (at Buyer's own expense) to approve
(which approval shall not be unreasonably withheld) on any submissions Seller
intends to deliver or submit to the appropriate Governmental Entity prior to
said submission. If Buyer does not object to such submission within 10 days of
receiving a copy thereof and all other requested information reasonably relating
thereto and available to Seller, Buyer shall be deemed to have approved the
same. In the event Buyer or Seller (but not both Buyer and Seller) does not
approve any offer by a Governmental Entity to settle any Environmental Response
Measure, the amount of Losses for which the other such party shall be obligated
for such Environmental Response Measure shall be limited to the amount of such
rejected settlement offer. Buyer may, at its own expense, hire its own
consultants, attorneys or other professionals to monitor the investigation or
remediation, including any field work undertaken by Seller, and Seller shall
provide Buyer with the results of all such field work or other evaluation or
analysis. Notwithstanding the above, Buyer shall not take any actions that shall
unreasonably interfere with Seller's performance of the investigation and
remediation. Seller shall undertake any such work required herein in a manner
designed to minimize any disruption to the greatest extent possible, with the
conduct of operations at the affected assets. Buyer shall allow Seller
reasonable access to conduct any of the work contemplated herein and shall fully
cooperate with Seller in the performance of the investigation and remediation,
including, but not limited to, providing Seller with reasonable access to
employees and documents as necessary.
(c) If Seller declines to undertake the performance of an investigation
and remediation hereunder, Buyer shall be entitled to undertake the
investigation and remediation. Buyer shall promptly provide copies to Seller of
all notices, correspondence, draft reports, submissions, work plans and final
reports and shall give Seller a reasonable opportunity (at Seller's own expense)
to comment on any submissions Buyer intends to deliver or submit to the
appropriate Governmental Entity prior to said submission. Seller may, at its own
expense, hire its own consultants, attorneys or other professionals to monitor
the investigation and remediation, including any field work undertaken by Buyer,
and Buyer shall provide Seller with the results of all such field work.
12.8 Third Party Indemnity. Buyer agrees that for all Buyer Losses ,
Buyer will cause the applicable Midstream Company to seek indemnification from
any applicable Third Party Indemnities. Buyer agrees that Seller, at its option,
shall have the right at its expense to pursue a Third Party Indemnity on behalf
of and in the name of the applicable Midstream Company for recovery under a
Third Party Indemnity with legal counsel reasonably satisfactory to Buyer.
Buyer, Seller and any Indemnitee agree to consult with each other with respect
to any action to be taken regarding a Third Party Indemnity and agree that no
action adversely affecting or settlement of a Third Party Indemnity will be
entered into without the written consent of each of Seller, the applicable
Midstream Company and Buyer.
12.9 Tax Treatment of Indemnity Payments. Each of the parties agrees to
treat any payments made in respect of Direct Claims pursuant to this Article
XII, under any other indemnity provision in this Agreement and for any
misrepresentations or breach of warranties or covenants as adjustments to the
Purchase Price for all federal and state income tax purposes.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) transmitted by first class registered or certified mail,
postage prepaid, return receipt requested, (iii) delivered by prepaid overnight
courier service, or (iv) delivered by confirmed telecopy or facsimile
transmission to the parties at the following addresses (or at such other
addresses as shall be specified by the parties by like notice):
If to Buyer:
AEP Resources, Inc.
1 Riverside Plaza
Columbus, OH 43215
Attention: Jeffrey Cross
General Counsel and Vice President
Telefax: (614) 223-2499
with a copy to:
Clark, Thomas & Winters
A Professional Corporation
P.O. Box 1148
Austin, TX 78731
Attention: C. Joseph Cain
Telefax: (512) 474-1129
If to any Seller:
ERI Supply & Logistics
5555 San Felipe, Suite 2100
Houston, Texas 77056
Attention: R. Gerald Bennett, President
Telefax: (713) 548-2115
with a copy to:
Corporate Secretary
Equitable Resources, Inc.
420 Boulevard of the Allies
Pittsburgh, Pennsylvania 15219
Telefax: (412) 553-6105
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor or
(iii) if sent by telecopy or facsimile transmission, when the answer back is
received.
13.2 Entire Agreement. This Agreement, together with the Schedules and
other writings referred to herein or delivered pursuant hereto, including the
Confidentiality Agreement, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in the
Equitable Resources, Inc. Descriptive Memorandum for the sale of its Gulf Coast
Natural Gas Midstream Operations dated May 1998, or the Solicitation Letter,
dated July 31, 1998, previously made available to Buyer by Seller and J. P.
Morgan Securities, Inc.
13.3 Binding Effect: Assignment: No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Except as otherwise expressly
provided in this Agreement, neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. Prior to Closing,
Equitable Resources Energy Company may assign its rights and obligations under
this Agreement to a new wholly owned entity in connection with the transfer of
all the capital stock of Equitable Pipeline Company to such entity. In
connection with the Closing, Buyer may assign its rights under this Agreement to
one or more of its present or future affiliates. Except as expressly provided
herein, nothing in this Agreement, express or implied, is intended to or shall
confer upon any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits, or remedies of any
nature whatsoever under or by reason of this Agreement.
13.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
13.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
13.6 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
13.7. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect in any manner the meaning or interpretation of
this Agreement.
13.8 Gender. Pronouns in masculine, feminine, and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
13.9 References. All references in this Agreement to Articles,
Sections, and other subdivisions refer to the Articles, Sections, and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement", "herein", "hereof", "hereby", "hereunder", and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. Whenever the words "include",
"includes", and "including" are used in this Agreement, such words shall be
deemed to be followed by the words "without limitation." Each reference herein
to a Schedule, Exhibit or Annex refers to the item identified separately in
writing by the parties hereto as the described Schedule, Exhibit, or Annex to
this Agreement. All Schedules, Exhibits or Annexes are hereby incorporated in
and made a part of this Agreement as if set forth in full herein.
13.10 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement. Each counterpart
may consist of a number of copies hereof each signed by less than all, but
together signed by all, the parties hereto.
13.11 [Intentionally omitted.]
13.12 Disclosure. Each of the Schedules to this Agreement shall be
deemed to include and incorporate all disclosures made on the other Schedules to
this Agreement. Certain information set forth in the Schedules is included
solely for informational purposes and may not be required to be disclosed
pursuant to this Agreement. It is understood and agreed that the specification
of any dollar amount in the representations and warranties contained in this
Agreement or the inclusion of any specific item in the Schedules is not intended
to imply that such amounts or higher or lower amounts, or the items so included
or other items, are or are not material, and no party shall use the fact of the
setting of such amounts or the fact of the inclusion of any such item in the
Schedules in any dispute or controversy between the parties as to whether any
obligation, item, or matter not described herein or included in a Schedule is or
is not material for purposes of this Agreement.
13.13 Consent to Jurisdiction. The parties hereto hereby irrevocably
submit to the jurisdiction of the courts of the Commonwealth of Pennsylvania and
the federal courts of the United States of America located in Allegheny County,
Pennsylvania, and appropriate appellate courts therefrom, over any dispute
arising out of or relating to this Agreement or any of the transactions
contemplated hereby, and each party hereby irrevocably agrees that all claims in
respect of such dispute or proceeding shall be heard and determined in such
courts. The parties hereby irrevocably waive, to the fullest extent permitted by
Applicable Law, any objection which they may now or hereafter have to the laying
of venue of any dispute arising out of or relating to this Agreement or any of
the transactions contemplated hereby brought in such court or any defense of
inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
This consent to jurisdiction is being given solely for purposes of this
Agreement and is not intended to, and shall not, confer consent to jurisdiction
with respect to any other dispute in which a party to this Agreement may become
involved.
13.14 Arbitration. In the event the Closing occurs, then
notwithstanding Section 13.13, if any dispute or disagreement arises between
Buyer and Seller under this Agreement (any such dispute or disagreement being
referred to as a "Dispute"), and Buyer and Seller are unable to resolve such
Dispute within thirty (30) days after the date written notice of the Dispute is
given by Buyer or Seller, an arbitrator agreed upon by Buyer and Seller (the
"Arbitrator") shall be employed hereunder to settle such Dispute as soon as
practicable in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. In the event that the parties are unable to agree upon
the appointment of such an arbitrator within 15 business days, then each of
Buyer and Sellers shall within 10 business days appoint an independent
arbitrator, which independent arbitrators shall agree within 10 business days on
the appointment of a third independent arbitrator to whom the Dispute shall be
submitted. Buyer and Sellers shall submit the Dispute to the Arbitrator within 5
business days of its appointment and shall cooperate with each other and
otherwise use commercially reasonable efforts to cause the Arbitrator to make
its decision within 60 days after referral of a Dispute to it. The Arbitrator
shall have access to all documents and facilities necessary to perform its
function as arbitrator. The Arbitrator's determination with respect to any
Dispute shall be final and binding upon the parties hereto. The non-prevailing
party as determined by the Arbitrator shall pay all of the fees and expenses of
the Arbitrator for such services.
13.15 Bulk Sales or Transfer Laws. The Buyer hereby waives compliance
by the Seller with the provisions of the bulk sales or transfer laws of all
applicable jurisdictions.
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
SELLERS:
EQUITABLE RESOURCES ENERGY COMPANY
By:
Name:
Title:
ET BLUE GRASS COMPANY
By:
Name:
Title:
EREC NEVADA, INC.
By:
Name:
Title:
ERI SERVICES, INC.
By:
Name:
Title:
BUYER:
AEP RESOURCES, INC.
By:
Name:
Title:
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