===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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------------------
FORM 10-Q
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QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File No. 1-8157
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PANENERGY CORP
(Exact name of registrant as specified in its charter)
A Delaware Corporation
(State of Incorporation or Organization)
74-2150460
(IRS Employer Identification No.)
5400 Westheimer Court, P.O. Box 1642, Houston, Texas 77251-1642
(Address of principal executive offices, including zip code)
(713) 627-5400
(Registrant's telephone number, including area code)
------------------
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 twelve 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 the registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at July 31, 1996
-------------------------- ----------------------------
Common Stock, $1 par value 150,984,258
===========================================================================<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
PanEnergy Corp and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Periods Ended June 30
Three Months Six Months
------------------ ------------------
Millions, except per share amounts 1996 1995 1996 1995
- ---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Sales of natural gas and
petroleum products $1,052.2 $ 918.3 $2,343.1 $1,730.0
Transportation and storage
of natural gas 359.7 356.4 760.6 757.9
Other 24.2 8.6 45.0 27.5
-------- -------- -------- --------
Total (Note 2) 1,436.1 1,283.3 3,148.7 2,515.4
-------- -------- -------- --------
Costs and Expenses
Natural gas and petroleum
products purchased 976.5 851.3 2,133.9 1,610.9
Operating and maintenance 138.5 134.1 311.0 283.0
General and administrative 59.7 45.6 134.5 101.2
Depreciation and amortization 72.1 69.5 144.2 138.3
Miscellaneous taxes 19.5 21.8 42.1 44.3
-------- -------- -------- --------
Total 1,266.3 1,122.3 2,765.7 2,177.7
-------- -------- -------- --------
Operating Income 169.8 161.0 383.0 337.7
-------- -------- -------- --------
Other Income and Deductions
Equity in earnings of
unconsolidated affiliates 8.0 9.7 13.1 33.3
Other income, net of deductions 6.3 0.6 10.0 (2.9)
-------- -------- -------- --------
Total 14.3 10.3 23.1 30.4
-------- -------- -------- --------
Earnings Before Interest and Tax184.1 171.3 406.1 368.1
Interest Expense 55.8 59.0 114.1 117.0
-------- -------- -------- --------
Earnings Before Income Tax 128.3 112.3 292.0 251.1
Income Tax 48.5 44.8 110.4 99.5
-------- -------- -------- --------
NET INCOME $ 79.8 $ 67.5 $ 181.6 $ 151.6
======== ======== ======== ========
Average Common Shares Outstanding 150.8 149.5 150.7 149.3
======== ======== ======== ========
Earnings per Common Share $ 0.53 $ 0.45 $ 1.21 $ 1.02
======== ======== ======== ========
Dividends per Common Share $ 0.240 $ 0.225 $ 0.465 $ 0.435
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
Millions 1996 1995
- -------- --------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 25.2 $ 50.8
Accounts and notes receivable, net 598.3 505.1
Inventory and supplies 128.4 135.8
Current deferred income tax 63.7 80.8
Other (Notes 2 and 6) 273.9 239.8
--------- ---------
Total 1,089.5 1,012.3
--------- ---------
Investments
Affiliates 209.9 164.3
Other 58.9 65.8
--------- ---------
Total 268.8 230.1
--------- ---------
Plant, Property and Equipment
Original cost 8,321.4 8,400.7
Accumulated depreciation and amortization (3,248.1) (3,250.9)
--------- ---------
Net plant, property and equipment 5,073.3 5,149.8
--------- ---------
Deferred Charges
Goodwill, net 235.8 239.7
Prepaid pension 269.4 259.3
Other (Notes 2 and 6) 663.2 736.1
--------- ---------
Total 1,168.4 1,235.1
--------- ---------
TOTAL ASSETS $ 7,600.0 $ 7,627.3
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
Millions 1996 1995
- -------- --------- ------------
<S> <C> <C>
Current Liabilities
Long-term debt due within one year $ 297.0 $ 179.6
Notes payable 84.6 145.0
Accounts payable 432.4 391.2
Rate refund provisions (Note 2) 47.0 53.6
Accrued interest 69.6 69.1
Taxes payable 73.4 65.0
Other (Notes 2 and 6) 385.8 419.9
-------- --------
Total 1,389.8 1,323.4
-------- --------
Deferred Liabilities and Credits
Deferred income tax (Note 3) 1,198.6 1,182.9
Other (Notes 2 and 6) 742.1 802.1
-------- --------
Total 1,940.7 1,985.0
-------- --------
Long-term Debt 1,917.6 2,091.6
-------- --------
Commitments and Contingent Liabilities
(Notes 2, 4, 6 and 7)
Common Stockholders' Equity
Common stock, 151 million (1996) and
150.2 million (1995) shares issued and
outstanding, $1 par value per share 151.0 150.2
Paid-in capital 2,232.0 2,219.7
Retained earnings (deficit) (31.1) (142.6)
-------- --------
Total (Note 5) 2,351.9 2,227.3
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,600.0 $7,627.3
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
Millions 1996 1995
- -------- ------- -------
<S> <C> <C>
Operating Activities
Net income $ 181.6 $ 151.6
Adjustments to reconcile net income to operating
cash flows:
Depreciation and amortization 144.2 138.3
Deferred income tax expense 32.9 53.0
Earnings of unconsolidated affiliates,
net of distributions (7.5) (5.0)
Net pension benefit (10.2) (10.9)
Other non-cash items in net income 3.2 (13.3)
Net change in operating assets
and liabilities (98.0) (85.3)
------- -------
Net Cash Flows Provided by Operating Activities 246.2 228.4
------- -------
Investing Activities
Capital expenditures (107.4) (132.5)
Investment expenditures (11.4) (3.4)
Property retirements and other 18.2 14.4
------- -------
Net Cash Flows Used in Investing Activities (100.6) (121.5)
------- -------
Financing Activities
Retirement of debt (53.9) (185.1)
Issuance of debt - 200.0
Net increase (decrease) in notes payable (60.4) 14.3
Accounts payable - banks 6.7 (36.7)
Common stock issuance 7.6 8.4
Dividends paid (70.0) (63.8)
Other (1.2) (29.0)
------- -------
Net Cash Flows Used in Financing Activities (171.2) (91.9)
------- -------
Net Change in Cash
Increase (decrease) in cash and cash equivalents (25.6) 15.0
Cash and cash equivalents, beginning of period 50.8 33.3
------- -------
Cash and Cash Equivalents, End of Period $ 25.2 $ 48.3
======= =======
Supplemental Disclosures
Cash paid for interest (net of amount capitalized) $ 104.9 $ 108.8
Cash paid for income tax 64.7 43.3
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PanEnergy Corp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
PanEnergy Corp (PanEnergy) and its subsidiaries (the Company) are
involved in the transportation, storage, gathering and processing of
natural gas. The Company is also a leading marketer of natural gas,
electricity, liquefied petroleum gases and related energy services. The
interstate natural gas transmission operations of Texas Eastern
Transmission Corporation (TETCO), Algonquin Gas Transmission Company
(Algonquin), Panhandle Eastern Pipe Line Company (PEPL) and Trunkline
Gas Company (Trunkline), and the liquefied natural gas (LNG) operations
of Trunkline LNG Company and Algonquin LNG, Inc. (Algonquin LNG) are
subject to the rules, regulations and accounting procedures of the
Federal Energy Regulatory Commission (FERC).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. Certain amounts of reported revenues and expenses
are also affected by these estimates and assumptions. Actual results
could differ from those estimates. The consolidated financial
statements reflect all normal recurring adjustments that are, in the
opinion of management, necessary for fair presentation. Certain amounts
for the prior periods have been reclassified in the consolidated
financial statements to conform to the current presentation.
2. Natural Gas Revenues and Regulatory Matters
When rate cases are pending final FERC approval, a portion of the
revenues collected by each interstate natural gas pipeline is subject
to possible refunds. The Company has established adequate reserves
where required for such cases. The following is a summary of
significant pending rate cases before FERC and certain regulatory
matters.
FERC Order 636 and Transition Costs
During 1993, the Company's interstate natural gas pipelines began
providing restructured services pursuant to FERC Order 636. This order
requires pipeline service restructuring that unbundles sales,
transportation and storage services. Order 636 allows pipelines to
recover eligible costs resulting from implementation of the order
(transition costs). On July 16, 1996, the U.S. Court of Appeals for the
District of Columbia upheld, in general, all aspects of Order 636 and
remanded certain issues for further explanation. One of the issues
remanded for further explanation is whether pipelines should be entitled
to recover 100% of gas supply realignment (GSR) costs. This matter is
substantially mitigated by TETCO's and PEPL's Order 636 settlements.
<PAGE>
<PAGE>
TETCO's final and nonappealable Order 636 settlement, implemented on
August 1, 1994, provides for the recovery of certain transition costs
through volumetric and reservation charges through 2002 and beyond, if
necessary. Pursuant to the settlement, TETCO will absorb a certain
portion of the transition costs, the amount of which continues to be
subject to change dependent upon natural gas prices and deliverability
levels. In 1993, the Company established an additional provision to
reflect the impact of the settlement and increased its liabilities in
1995 upon producers' discoveries of additional natural gas reserves.
PEPL's transition cost recoveries, which are subject to certain
challenges pending before FERC and the courts, will occur through 1999.
At June 30, 1996 and December 31, 1995, the Company's interstate
pipelines had recorded $66 million and $291.6 million (1996), and
$70 million and $310 million (1995) of current and long-term regulatory
assets, respectively, representing transition costs incurred or
estimated to be incurred that will be recovered. At June 30, 1996 and
December 31, 1995, the Company had recorded estimated current and
long-term liabilities related to Order 636 transition costs of
$89.8 million and $153.4 million (1996), and $125 million and
$165 million (1995), respectively.
In July 1996, TETCO received $76 million for the sale of certain
Order 636 GSR surcharges, with limited recourse. In the opinion of
management, the probability that TETCO will be required to perform under
the recourse provisions is remote.
In the past, during the normal course of business, the Company's
interstate pipelines entered into certain gas purchase contracts
containing take-or-pay provisions, which may expose the Company to
financial risk. Trunkline is currently collecting certain take-or-pay
settlement costs with respect to such contracts through volumetric
surcharges with interest through 1997 and intends to file after 1997 for
recovery of amounts not fully recovered by these surcharges.
The U.S. Department of the Interior announced its intention to seek
additional royalties from gas producers as a result of payments received
by such producers in connection with past take-or-pay settlements, and
buyouts and buydowns of gas sales contracts with natural gas pipelines.
The Company's pipelines, with respect to certain producer contract
settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. The
potential liability of the producers to the government and of the
pipelines to the producers involves complex issues of law and fact which
are likely to take a substantial period of time to resolve. If the
Company's pipelines ultimately have to reimburse or indemnify the
producers, the Company's pipelines will file with FERC to recover a
portion of these costs from pipeline customers.
The Company believes the exposure associated with gas purchase contract
commitments and the termination of the Company's pipeline merchant
services is substantially mitigated by transition cost recoveries
pursuant to TETCO's settlement, Order 636 and other mechanisms. As a
result, the Company believes that Order 636 transition cost issues and
take-or-pay settlement matters will not have a material adverse effect
on future consolidated results of operations or financial position.
<PAGE>
Jurisdictional Transportation and Sales Rates
PEPL - On April 1, 1992 and November 1, 1992, PEPL placed into effect,
subject to refund, general rate increases. FERC issued an order on
May 25, 1995 on the earlier rate proceeding and PEPL has requested
rehearing of certain matters in that order. On February 5, 1996, FERC
issued an order on the latter rate proceeding and PEPL has also
requested rehearing of various items in this order.
Effective April 1, 1989, PEPL placed into effect, subject to refund,
sales and transportation rates reflecting a general rate increase,
including seasonal rate structures. On December 7, 1995, FERC issued
an order, subject to rehearing, which addressed all remaining matters
on the rate proceeding, with no additional refunds due customers.
Trunkline - Effective August 1, 1996, Trunkline placed into effect,
subject to refund, a new general rate increase.
Algonquin - On June 14, 1996, Algonquin submitted a compliance filing
reflecting changes in net plant, property and equipment pursuant to a
FERC order issued on Algonquin's March 29, 1996 limited rate filing.
Requests for rehearing of the order have been denied and the compliance
filing is pending FERC review.
Other - The Company's pipelines, pursuant to FERC requirements,
requested FERC approval to record the impact of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
including the recognition of a portion of the impact as an increase to
stockholders' equity. The FERC accounting branch denied approval of
certain of these requests pending future rate proceedings, and the
Company's pipelines filed for rehearing. In July 1996, FERC issued an
order, which is subject to rehearing, which clarifies the accounting
branch order and supports the accounting treatment requested by the
pipelines. The Company believes the ultimate resolution of this matter
will not have a material adverse effect on consolidated financial
position.
3. Income Tax
The Company's investment tax credit carryforward of $25 million at
December 31, 1995, which is expected to be fully utilized in 1996, will
begin to expire in 1997 and will be extinguished in 2002 if not utilized
sooner. The Company's alternative minimum tax credit carryforward of
$79 million at December 31, 1995 can be carried forward indefinitely.
4. Other Contingencies
TEPPCO Partners, L.P. - The Company has a 10.45% ownership interest in
TEPPCO Partners, L.P., a master limited partnership (MLP) that owns and
operates a petroleum products pipeline. A subsidiary partnership of the
MLP has $339.5 million in First Mortgage Notes outstanding at June 30,
1996 with recourse to the general partner, a subsidiary of PanEnergy.
These notes have annual principal payments due through 2010. In the
opinion of management, the probability that the PanEnergy subsidiary
will be required to perform under this recourse provision is remote. <PAGE>
<PAGE>
Petrolane Incorporated (Petrolane) - In connection with the sale of
Petrolane in 1989, Texas Eastern Corporation (TEC), a subsidiary of
PanEnergy, agreed to indemnify Petrolane against certain obligations for
guaranteed leases and environmental matters. Certain of the lease
obligations relate to Petrolane's divestiture of supermarket operations
prior to its acquisition by TEC and as of December 31, 1995 totaled
approximately $73 million over the remaining terms of the leases, which
expire in 2006. In the opinion of management, the probability that TEC
will be required to perform under this indemnity provision is remote.
Northern Border Pipeline Company (Northern Border) - PEPL owns an
effective 5.95% ownership interest in Northern Border through an MLP.
Under the terms of a settlement related to a transportation agreement
between PEPL and Northern Border, PEPL guarantees payment to Northern
Border under a transportation agreement by an affiliate of Pan-Alberta
Gas Limited. The transportation agreement requires estimated total
payments of $163 million for the years 1996 through 2001. In the
opinion of management, the probability that PEPL will be required to
perform under this guarantee is remote.
5. Stockholders' Equity
Under the most restrictive covenants contained in the Company's debt
agreements, $1.1 billion of PanEnergy's consolidated common stock-
holders' equity was available for the payment of dividends at June 30,
1996.
6. Environmental Matters
TETCO is currently conducting PCB (polychlorinated biphenyl) assessment
and cleanup programs at certain of its compressor station sites under
conditions stipulated by a U.S. Consent Decree. The programs include
on- and off-site assessment, installation of on-site source control
equipment and groundwater monitoring wells, and on- and off-site cleanup
work. TETCO expects to complete these cleanup programs by 1998.
Groundwater monitoring activities will continue beyond 1998. In
addition, TETCO has conducted PCB cleanup work at certain on- and
off-site areas pursuant to separate agreements with the states of
Pennsylvania and New Jersey.
In 1987, the Commonwealth of Kentucky instituted suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three
compressor station sites in Kentucky. This suit, which is still
pending, seeks penalties for violations of Kentucky environmental
statutes. The Company previously established a reserve for potential
fines and penalties. TETCO completed cleanup of one of its Kentucky
sites in 1994, another in 1995 and intends to complete the final site
in 1996.
<PAGE>
<PAGE>
The Company has also identified environmental contamination at certain
sites on the PEPL and Trunkline systems and is undertaking cleanup
programs at these sites. The contamination resulted from the past use
of lubricants containing PCBs and the prior use of wastewater collection
facilities and other on-site disposal areas. Soil and sediment testing,
to date, has detected no significant off-site contamination. The
Company has communicated with the Environmental Protection Agency and
appropriate state regulatory agencies on these matters. In August 1995,
Trunkline entered into a consent order under a cleanup program with the
Tennessee Department of Environment and Conservation for the cleanup of
its Tennessee facility. In June 1996, Trunkline entered into an
agreement with the Indiana Department of Environmental Management for
the cleanup of one of its Indiana facilities. Cleanups in other states
by PEPL and Trunkline are also proceeding. The environmental cleanup
programs are expected to continue until 2002.
At June 30, 1996 and December 31, 1995, the Company had total current
and long-term liabilities recorded of $68.6 million and $194.7 million
(1996), and $56.3 million and $225.8 million (1995), respectively, for
remaining estimated cleanup costs on the TETCO, PEPL and Trunkline
systems. These cost estimates represent gross cleanup costs expected
to be incurred, have not been discounted or reduced by customer
recoveries and do not include fines, penalties or third-party claims.
Estimated liabilities for remaining TETCO PCB cleanup costs were reduced
in the fourth quarter 1995 as a result of lower-than-projected cleanup
costs incurred on completed sites. As a result of the reduction in
estimated cleanup costs, the related regulatory assets were also
reduced. At June 30, 1996 and December 31, 1995, the Company had total
current and long-term regulatory assets recorded of $24.3 million and
$142.8 million (1996), and $21.3 million and $176.6 million (1995),
respectively, representing costs to be recovered from customers.
The federal and state cleanup programs are not expected to interrupt or
diminish the Company's ability to deliver natural gas to customers. The
Company believes the ultimate resolution of matters relating to the
environmental issues discussed above will not have a material adverse
effect on consolidated results of operations or financial position.
7. Litigation
In connection with a rupture and fire that occurred on TETCO's 36-inch
natural gas pipeline on March 23, 1994 in Edison, New Jersey, claims
have been made and numerous lawsuits have been filed in the Superior
Court of New Jersey, Middlesex County against TETCO and other private
and governmental entities by or on behalf of hundreds of individuals and
businesses. These claimants seek compensatory damages for personal
injuries and/or property losses, as well as punitive damages. The
property insurers of an apartment complex adjacent to the asphalt plant
where the rupture occurred also have filed suits against TETCO and other
defendants in Superior Court seeking to recover amounts paid under
pertinent policies of insurance. TETCO has settled the claims of the
property insurers and some of the claims of individuals and businesses
while retaining the right to seek recovery of those settlement amounts
from other defendants. Quality Materials, Inc. (Quality), the owner
of the asphalt plant, filed suit in the U.S. District Court for the <PAGE>
<PAGE>
District of New Jersey against TETCO seeking to recover unspecified
property damages, lost income and punitive damages. TETCO filed a
counterclaim against Quality. In April 1996, the U.S. District Court
dismissed the suit by Quality and the counterclaim by TETCO on the
grounds that all claims should be resolved in the pending Middlesex
County litigation.
The findings of an investigation of the incident by the Company and the
National Transportation Safety Board (NTSB) indicate third-party damage
to be the cause of the rupture. Additionally, an NTSB report found that
TETCO's pipeline operations met or exceeded federal safety regulations.
The Company recorded a provision in 1994 for costs related to this
incident that are not recoverable under the Company's insurance
policies.
On August 30, 1995, two plaintiffs filed a lawsuit with class action
allegations in Jefferson County, Texas, against PanEnergy, TEC and
TETCO, among others. While that suit ultimately was dismissed, one of
the two original plaintiffs refiled the suit on June 3, 1996, in the
Circuit Court of the City of St. Louis, Missouri. The defendants now
have removed the suit to the U.S. District Court for the Eastern
District of Missouri, Eastern Division. The plaintiff seeks recovery
of compensatory and punitive damages, in unspecified amounts, for
personal injuries and property damage resulting from alleged exposure
to PCBs.
The Company expects the resolution of all the above litigation matters
will not have a material adverse effect on consolidated results of
operations or financial position.
The Company is also involved in various other legal actions and claims
arising in the normal course of business. Based upon its current
assessment of the facts and the law, management does not believe that
the outcome of any such action or claim will have a material adverse
effect upon the consolidated financial position of the Company.
However, these actions and claims in the aggregate seek substantial
damages against the Company and are subject to the uncertainties
inherent in any litigation. The Company is defending itself vigorously
in all the above suits.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information is provided to facilitate increased understanding
of the 1996 and 1995 interim consolidated financial statements and
accompanying notes presented in Item 1. The discussion of the Company's
"Operating Environment and Outlook" addresses key trends and future plans.
Material period-to-period variances in the consolidated statement of income
are discussed under "Results of Operations." The "Capital Resources, Liquidity
and Financial Position" section analyzes cash flows and financial position.
Throughout these discussions, management addresses items that are reasonably
likely to materially affect future liquidity or earnings.
<PAGE>
<PAGE>
OPERATING ENVIRONMENT AND OUTLOOK
The changing environment resulting from the restructuring of the natural gas
industry under Order 636 has led to industry consolidations and created
additional growth opportunities for the Company. The Company continues its
growth strategy of expanding non-jurisdictional businesses, while also
continuing to advance interstate gas pipeline market-expansion projects and
provide new services to customers.
In the Energy Services segment, on August 1, 1996, a company that combines the
marketing operations of Gas and Power Services with those of Mobil Corporation
(Mobil) was formed. The Company operates and owns 60% of the new marketing
company which conducts business as PanEnergy Trading and Market Services,
L.L.C. in the United States and as PanEnergy Marketing Limited Partnership in
Canada. In a separate transaction, the Company acquired Mobil's interest in
certain natural gas gathering, processing and related assets for $200 million.
Acquisition of up to another $100 million of Mobil assets is expected to occur
later in the third quarter 1996.
In April 1996, FERC issued its final ruling ordering traditional power
companies to make their transmission systems common carriers, which should
further open the electric power market to competition. The Company plans to
take advantage of the resulting electric market by providing expanded energy
options to customers.
Algonquin LNG filed an application with FERC on May 13, 1996 seeking
authorization to construct, acquire and operate the facilities necessary to
provide an LNG handling service, which includes liquefaction, storage and
vaporization, at its Providence, Rhode Island plant.
The Company also plans to continue to pursue strategic opportunities that
emerge, in the U.S. and internationally, via joint ventures, expansion
projects and acquisitions in both the Natural Gas Transmission and the Energy
Services segments.
RESULTS OF OPERATIONS
Consolidated net income for the six months ended June 30, 1996 was
$181.6 million, or $1.21 per share on 150.7 million average common shares
outstanding, compared with $151.6 million, or $1.02 per share on 149.3 million
average common shares outstanding, for the same period in 1995.
Earnings Before Interest and Tax Analysis
Consolidated earnings before interest and tax increased to $406.1 million in
the first six months of 1996 compared with $368.1 million for the same period
in 1995, reflecting improvements in both the Natural Gas Transmission and
Energy Services groups. Low storage levels, as a result of slightly
colder-than-normal winter temperatures, coupled with improved operations from
business expansions and increased margins, contributed to a $38 million, or
10%, increase in earnings before interest and tax. This increase is net of
a non-recurring $17 million charge in first quarter 1996 for a work
force reduction. <PAGE>
<PAGE>
Earnings Before Interest and Tax by Business Group
- --------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------
Millions 1996 1995
-------- ------ ------
<S> <C> <C>
Natural Gas Transmission
TETCO $165.1 $156.7
Algonquin 34.7 40.2
PEPL 69.8 66.6
Trunkline 31.3 21.9
------ ------
Total 300.9 285.4
------ ------
Energy Services
Field Services 53.5 37.1
Gas and Power Services 31.4 8.5
Crude Oil 4.8 4.5
------ ------
Total 89.7 50.1
------ ------
Other 15.5 32.6
------ ------
Consolidated Earnings Before
Interest and Tax $406.1 $368.1
====== ======
</TABLE>
Equity in Earnings (Losses) of Unconsolidated Affiliates
(included in Earnings Before Interest and Tax)
--------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------
Millions 1996 1995
-------- ----- -----
<S> <C> <C>
Natural Gas Transmission
Northern Border Partners, L.P. $ 2.1 $ 4.9
----- -----
Energy Services
Various affiliates 0.8 0.8
----- -----
Other
National Methanol Company 5.7 17.8
TEPPCO Partners, L.P. 4.7 3.8
Midland Cogeneration Venture 1.9 5.9
Other affiliates (2.1) 0.1
----- -----
Total 10.2 27.6
----- -----
Total Equity in Earnings $13.1 $33.3
===== =====
</TABLE>
<PAGE>
Operating Data
--------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------
1996 1995
----- -----
<S> <C> <C>
Natural Gas Transmission Volumes,
Trillion British Thermal Units
Market Area
TETCO 665 592
Algonquin 167 176
PEPL 346 324
Trunkline 273 194
Eliminations (24) (26)
----- -----
Total 1,427 1,260
----- -----
Supply Area
TETCO 61 52
PEPL 19 24
Trunkline 49 57
----- -----
Total 129 133
----- -----
Total Volumes 1,556 1,393
===== =====
Energy Services Volumes
Field Services
Natural gas gathered/
processed, TBtu/d(1) 2.5 1.7
NGL production, MBbl/d(2) 60.5 53.2
Gas and Power Services
Natural gas marketed, TBtu/d 4.1 3.5
Crude Oil
Crude oil pipeline volumes, MBbl/d 69.2 78.2
NGL pipeline volumes, MBbl/d 19.7 16.9
----------
(1) Trillion British thermal units per day.
(2) Thousand barrels per day.
</TABLE>
<PAGE>
<PAGE>
Natural Gas Transmission
Earnings before interest and tax for Natural Gas Transmission increased
$15.5 million, or 5%, to $300.9 million in the first six months of 1996
compared with the same period in 1995.
TETCO - Earnings before interest and tax for TETCO increased $8.4 million
comparing the first six months of 1996 with the prior-year period. Revenues
increased $20.6 million, or 5%, primarily due to colder weather and new
expansion projects. Higher operating expenses, including $2.3 million of
severance expense recorded in the first quarter 1996, partially offset the
increase in revenues.
Algonquin - Algonquin's earnings before interest and tax decreased
$5.5 million in the first six months of 1996 compared with the same period in
1995. The primary reason for the decline was $4 million of revenues
recognized in the first quarter 1995 applicable to the resolution of a
regulatory issue. Lower natural gas demand for electric power generation due
to higher gas prices and moderate weather also contributed to the decrease.
PEPL - PEPL's earnings before interest and tax increased $3.2 million, or 5%,
comparing the first six months of 1996 with the prior-year period. The
increase was primarily the result of higher earnings from increased rate
realization and cold weather. The 1996 earnings include $9.5 million of
severance expense in the first quarter, which was mostly offset by
$8.2 million of income related to the resolution of certain gas cost issues.
In addition, PEPL's results reflect a $2.8 million reduction in equity
earnings from Northern Border Partners, L.P.
Trunkline - Earnings before interest and tax for Trunkline increased
$9.4 million comparing the first six months of 1996 with the same period in
1995. The net increase was due to higher throughput and transportation
revenues during the colder winter weather and lower expenses, which were
partially offset by $5 million of severance expense recorded in the first
quarter 1996.
Energy Services
Earnings before interest and tax for Energy Services increased $39.6 million,
or 79%, comparing the first six months of 1996 with the same period in 1995,
primarily from strong marketing margins and natural gas liquids (NGL) prices,
as well as increased NGL production.
Field Services - Field Services' earnings before interest and tax increased
$16.4 million for the first six months of 1996 as compared with the prior-year
period. Net revenues increased $36.4 million, or 39%, resulting from higher
NGL prices and increased gathering and processing volumes related to capital
expansion projects. Higher operating expenses partially offset the increase
in net revenues.
Gas and Power Services - Earnings before interest and tax for Gas and Power
Services increased $22.9 million for the first six months of 1996 compared
with the same period in 1995, primarily due to higher gas margins resulting
from colder weather and gas price volatility, and higher risk management
margins. Marketed volumes also increased 17% to 4.1 TBtu/d. The increase in
margins was partially offset by higher operating expenses.
<PAGE>
Risk Management - The Company uses financial instruments to reduce its
exposure to market fluctuations in the price and transportation costs of
natural gas and petroleum products. The Company's general strategy is to
hedge price and location risk with futures, swaps and options; however, net
open positions in terms of price, volume and specified delivery point do
occur. In addition to hedging activities, the Company also engages in trading
of such instruments. The Company manages open positions with strict policies
which limit its exposure to market risk and require reporting to management
potential financial exposure on a daily basis. These policies include
statistical risk tolerance limits using weighted price movements to calculate
a daily earning at risk (DEAR) as well as a total value at risk (VAR)
measurement.
Other Operations
Earnings before interest and tax for other operations decreased $17.1 million
comparing the first six months of 1996 with the same period in 1995. Equity
in earnings from National Methanol Company declined $12.1 million to
$5.7 million in 1996 due primarily to significantly lower methanol margins.
Also contributing to the decrease in other operations was a 1995 provision
reversal of $10.4 million on the LNG Project, which was partially offset by
higher LNG tanker charter revenues in 1996.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION
Operating Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
Millions 1996 1995
- -------- ------ ------
<S> <C> <C>
Net Cash Flows Provided by Operating Activities $246.2 $228.4
------ ------
</TABLE>
Historical Analysis - Operating cash flows increased $17.8 million comparing
the first six months in 1996 to the same period in 1995. This increase
primarily reflects higher 1996 earnings and decreased net cash outflows
related to transition costs, partially offset by increased tax payments.
Order 636 Transition Costs - With implementation of Order 636 and the
elimination of pipeline merchant services, the Company's interstate natural
gas pipelines are incurring certain costs related to the transition, primarily
TETCO's gas purchase contract commitments. TETCO's gross commitments under
gas purchase contracts that do not contain market-sensitive pricing provisions
are approximately $160 million, $115 million, $60 million and $25 million for
the years 1996 through 1999, respectively, with no significant amounts
thereafter. These estimates reflect significant assumptions regarding
deliverability and natural gas prices. <PAGE>
<PAGE>
TETCO's final and nonappealable Order 636 settlement, implemented on August 1,
1994, provides for the recovery of certain transition costs through volumetric
and reservation charges through 2002 and beyond, if necessary. Pursuant to
the settlement, TETCO will absorb a certain portion of the transition costs,
the amount of which continues to be subject to change dependent upon natural
gas prices and deliverability levels. The Company has established provisions
to reflect the impact of the settlement. PEPL's transition cost recoveries,
which are subject to certain challenges pending before FERC and the courts,
will occur through 1999. In July 1996, TETCO received $76 million for the
sale of certain Order 636 GSR surcharges, with limited recourse. See Note 2
of the Notes to Consolidated Financial Statements.
Environmental Matters - For information concerning cleanup programs and
environmental litigation, see Note 6 of the Notes to Consolidated Financial
Statements.
Litigation - For information concerning other litigation matters, see Note 7
of the Notes to Consolidated Financial Statements.
Other - See Notes 2 and 4 of the Notes to Consolidated Financial Statements
for a discussion of certain other regulatory proceedings and other
contingencies.
The carrying value of LNG project assets is expected to be recovered through
estimated future cash flows. Current estimates of future cash flows are based
on significant business relationships and assumptions of future natural gas
prices, supply availability and demand for LNG, which are subject to change.
The Company has chartered its two LNG tankers to Nigeria LNG Limited for
22 years starting as early as 1999.
The Company believes the regulatory, environmental and legal issues discussed
above will not have a material adverse effect on the Company's consolidated
results of operations, financial position or liquidity.
Investing Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
- --------------------
Millions 1996 1995
- -------- ------ ------
<S> <C> <C>
Net Cash Flows Used in Investing Activities $100.6 $121.5
------ ------
</TABLE>
<PAGE>
<PAGE>
Capital and Investment Expenditures - Capital and investment expenditures
totaled $118.8 million in the first six months of 1996, compared with
$135.9 million for the same period in 1995. The Company currently expects to
invest approximately $500 million to $550 million in base 1996 capital and
investment expenditures, with approximately 50% for Energy Services and 40%
for Natural Gas Transmission, with the remainder budgeted for international
and other development projects. The Company's base expenditure plans include
approximately $350 million for market-expansion projects by the Natural Gas
Transmission and Energy Services segments. Estimated expenditures of up to
$300 million related to the asset transactions with Mobil are not included in
the aforementioned expenditures and percentages.
Financing Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
- --------------------
Millions 1996 1995
- -------- ------ ----
<S> <C> <C>
Net Cash Flows Used in Financing Activities $171.2 $91.9
------ -----
</TABLE>
Debt and Credit Facilities - PanEnergy has two variable-rate bank credit
agreements, dated January 31, 1996, that permit PanEnergy to borrow up to
$400 million under a five-year facility and $400 million under a 364-day
facility. At June 30, 1996, there were no amounts outstanding under the
credit agreements.
Stockholders Equity - The board of directors increased the quarterly dividend
on common stock from $0.225 to $0.24 per common share effective with the 1996
second quarter.
Financing Requirements - Dividends and debt repayments for the next 12 months,
along with operating and investing requirements as previously discussed in the
Operating and Investing Cash Flow sections, are expected to be funded by cash
from operations, debt issuances, periodic sales of customer accounts with
limited recourse and/or available credit facilities. As of the date of this
report, PanEnergy, TETCO and PEPL each have effective shelf registration
statements with the Securities and Exchange Commission for the issuance of
$100 million each of unsecured debt securities.
Redemption provisions for TETCO's $150 million, 10% debentures and
$100 million, 10 1/8% debentures, which allow for refinancing at lower
interest rates, will become exercisable by TETCO in the second half of 1996.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes 2, 6 and 7 of the Notes to Consolidated Financial Statements in
Part I of this Report, which are incorporated herein by reference. See also
Item 3 of PanEnergy's Annual Report on Form 10-K for the year ended
December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Stockholders of PanEnergy was held on April 24,
1996. There were six matters submitted to a vote of stockholders. The first
was the re-election of four directors for three-year terms expiring at the
1999 Annual Meeting. As a result of voting by stockholders present in person
or by proxy, 132,728,639 shares of common stock were cast in favor of Milton
Carroll, Robert Cizik, Harold S. Hook, and Leo E. Linbeck, Jr., and
1,479,731 shares were withheld.
The second proposal was to change the Company's name to "PanEnergy Corp".
Stockholders present in person or by proxy voted 131,672,850 shares in favor
thereof and 2,169,951 against. There were 347,030 shares abstaining. As
such, this proposal was approved and adopted.
The third matter was a vote that approved and adopted an amendment to the
1994 Long Term Incentive Plan. Stockholders present in person or by proxy
voted 125,503,910 shares in favor thereof and 5,512,935 against. There were
1,197,858 shares abstaining.
The fourth proposal was to eliminate the classification of the Board of
Directors. Stockholders present in person or by proxy voted 63,480,362 shares
in favor thereof and 60,894,228 against. There were 1,427,192 shares
abstaining. As a minimum of 75% of the authorized and outstanding shares of
PanEnergy stock were needed for approval, this proposal was not approved.
The fifth matter was a proposal regarding severance benefits upon a change in
control, which was not approved. Stockholders present in person or by proxy
voted 54,655,062 shares in favor thereof and 67,890,510 against. There were
2,810,956 shares abstaining.
The sixth matter concerned a proposal to delete Article SEVENTH of the
Company's restated Certificate of Incorporation, which was not approved.
Stockholders present in person or by proxy voted 60,172,927 shares in favor
thereof and 61,898,201 against. There were 3,217,862 shares abstaining.
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Number Description
2 Formation Agreement between PanEnergy Trading and
Market Services, Inc. and Mobil Natural Gas Inc. dated
May 29, 1996
3 Restated Certificate of Incorporation
10.1 Agreement between PanEnergy Corp and Verner, Liipfert,
Bernhard, McPherson and Hand, Chartered, dated April 2,
1996
10.2 Amendment to the 1994 Long Term Incentive Plan
27 Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned duly authorized officer and chief accounting officer.
PanEnergy Corp
(Registrant)
/s/ Sandra P. Meyer
-------------------------------
Sandra P. Meyer, Vice President
and Controller
Date: August 13, 1996
<PAGE>
==============================================================================
FORMATION AGREEMENT
BETWEEN
PANENERGY TRADING AND MARKET SERVICES, INC.
AND
MOBIL NATURAL GAS INC.
May 29, 1996
==============================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINED TERMS
1.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . .1
1.02 Construction. . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE II
FORMATION OF NEWCO US AND NEWCO CANADA AND CLOSING
2.01 Formation of Newco US and Newco Canada. . . . . . . . . . . . .4
2.02 Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.03 Actions to be Taken at the Closing. . . . . . . . . . . . . . .8
2.04 Post-Closing Adjustments to Initial Contributions.. . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PTMSI
3.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 13
3.02 Power and Authority; Enforceability . . . . . . . . . . . . . 13
3.03 Qualification; Operating Power and Authority. . . . . . . . . 13
3.04 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.05 No Default or Consents. . . . . . . . . . . . . . . . . . . . 14
3.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . 14
3.07 No Adverse Changes. . . . . . . . . . . . . . . . . . . . . . 14
3.08 Legal Compliance; Proceedings . . . . . . . . . . . . . . . . 14
3.09 Contractual Obligations . . . . . . . . . . . . . . . . . . . 14
3.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Employee Benefit Liabilities. . . . . . . . . . . . . . . . . 16
3.12 Public Utility. . . . . . . . . . . . . . . . . . . . . . . . 16
3.13 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . 16
3.14 Intellectual Property . . . . . . . . . . . . . . . . . . . . 16
3.15 PTMSI Business. . . . . . . . . . . . . . . . . . . . . . . . 17
3.16 No Occurrences. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MNGI
4.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 17
4.02 Power and Authority; Enforceability . . . . . . . . . . . . . 17
- -i-<PAGE>
<PAGE>
4.03 Qualification; Operating Power and Authority. . . . . . . . . 18
4.04 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.05 No Default or Consents. . . . . . . . . . . . . . . . . . . . 18
4.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . 18
4.07 No Adverse Changes. . . . . . . . . . . . . . . . . . . . . . 19
4.08 Legal Compliance; Proceedings . . . . . . . . . . . . . . . . 19
4.09 Contractual Obligations . . . . . . . . . . . . . . . . . . . 19
4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.11 Employee Benefit Liabilities. . . . . . . . . . . . . . . . . 20
4.12 Public Utility. . . . . . . . . . . . . . . . . . . . . . . . 20
4.13 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . 21
4.14 Intellectual Property . . . . . . . . . . . . . . . . . . . . 21
4.15 No Distribution . . . . . . . . . . . . . . . . . . . . . . . 21
4.16 MNGI Business . . . . . . . . . . . . . . . . . . . . . . . . 21
4.17 No Occurrences . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V
COVENANTS OF THE PARTIES PRIOR TO CLOSING
5.01 Operations and Actions of PTMSI . . . . . . . . . . . . . . . 22
5.02 Operations and Actions of MNGI. . . . . . . . . . . . . . . . 23
5.03 Access for MNGI . . . . . . . . . . . . . . . . . . . . . . . 24
5.04 Access for PTMSI. . . . . . . . . . . . . . . . . . . . . . . 24
5.05 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.06 PTMSI Contracts and Consents to be Obtained by PTMSI. . . . . 27
5.07 MNGI Contracts and Consents to be Obtained by MNGI. . . . . . 27
5.08 No Other Transactions . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Obligation of PTMSI . . . . . . . . . . . . . . 27
6.02 Conditions to Obligation of MNGI. . . . . . . . . . . . . . . 28
ARTICLE VII
POST-CLOSING COVENANTS
7.01 Consents Not Obtained . . . . . . . . . . . . . . . . . . . . 30
7.02 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.03 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 30
7.04 Indemnification Procedures. . . . . . . . . . . . . . . . . . 32
-ii-<PAGE>
<PAGE>
ARTICLE VIII
TERMINATION; REMEDIES; LIMITATIONS
8.01 Grounds for Termination . . . . . . . . . . . . . . . . . . . 34
8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . 34
8.03 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.04 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX
MISCELLANEOUS
9.01 No Partnership. . . . . . . . . . . . . . . . . . . . . . . . 36
9.02 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 36
9.03 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.04 Broker Fees . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.05 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . 37
9.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.07 Assignment and Amendment. . . . . . . . . . . . . . . . . . . 38
9.08 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 38
9.09 Entire Agreement; Supersedure . . . . . . . . . . . . . . . . 38
9.10 Incorporation of Schedules. . . . . . . . . . . . . . . . . . 38
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Third Person. . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 Dispute Resolution; Arbitration . . . . . . . . . . . . . . . 38
9.15 Recovery of Costs and Attorneys Fees . . . . . . . . . . . . 41
9.16 Choice of Forum . . . . . . . . . . . . . . . . . . . . . . . 41
9.17 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . 41
Appendix 1 References to Where Defined Terms First Appear
Exhibit A-1 Certificate of Formation of Limited Liability Company
Exhibit A-2 LLC Agreement
Exhibit A-3 Limited Partnership Agreement
Exhibit B Terms of Subscription Agreement
Exhibit C General Assignment and Assumption Agreement
Exhibit D MEPUS/Newco US Supply Contract
Exhibit E Terms of Mocan Supply Contract
Exhibit F License Agreement
Exhibit G Guaranty Agreement
Exhibit H PTMSI Disclosure Schedule
Exhibit I MNGI Disclosure Schedule
- -iii-<PAGE>
<PAGE>
FORMATION AGREEMENT
This Formation Agreement (this Agreement ) is entered into as of May
29, 1996, by and between PanEnergy Trading and Market Services, Inc., a
Delaware corporation ( PTMSI ) and an indirect wholly-owned subsidiary of
PanEnergy Corp, a Delaware corporation ( PEC ), and Mobil Natural Gas Inc.,
a Delaware corporation ( MNGI ) and a direct wholly-owned subsidiary of Mobil
Corporation ( Mocorp ).
PTMSI and MNGI desire to form, or cause to be formed, (i) a Delaware
limited liability company ( Newco US ) pursuant to the limited liability
company agreement in the form of Exhibit A-2 attached hereto (the LLC
Agreement ) and (ii) a Canadian limited partnership ( Newco Canada ) pursuant
to the limited partnership agreement in the form of Exhibit A-3 attached
hereto (the Limited Partnership Agreement ). In connection with the
formation of Newco US and Newco Canada, subject to the terms and conditions
of this Agreement, (i) PTMSI will contribute, or cause to be contributed, all
of the PTMSI US Assets and the PTMSI Canada Assets subject only to the PTMSI
US Liabilities and the PTMSI Canada Liabilities, respectively, each as defined
below, to Newco US and Newco Canada, respectively, in exchange for a 60%
limited liability company interest in Newco US and a 59.4% limited partnership
interest in Newco Canada to be issued to the contributors, and (ii) MNGI will
contribute, or cause to be contributed, all of the MNGI US Assets and the
Mobil Canada Assets, respectively, subject only to the MNGI US Liabilities and
the Mobil Canada Liabilities, respectively, each as defined below, to Newco
US and Newco Canada, respectively, in exchange for a 40% limited liability
company interest in Newco US and a 39.6% limited partnership interest in Newco
Canada to be issued to the contributors. A 1% general partnership interest
in Newco Canada will be issued to a corporation owned 60% by an Affiliate
(defined below) of PTMSI and 40% by an Affiliate of MNGI.
NOW, THEREFORE, in consideration of the premises, the agreements set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
1.01 Defined Terms. As used in this Agreement, the following terms
shall have the respective meanings set forth below (and items that are defined
in the text of this Agreement other than in this Article I are defined in the
Article, Section, or paragraph referenced in Appendix 1 attached hereto):
Affiliate means, with respect to any Person, a Person that
directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with such first Person,
where control means the power to direct management or policies;
provided that neither Newco US nor Newco Canada shall be deemed to be
an Affiliate of either PTMSI or MNGI or any of their respective
Affiliates. <PAGE>
<PAGE>
Business Day means any day other than a Saturday, Sunday or bank
holiday in Houston, Texas.
Code means the Internal Revenue Code of 1986, as amended.
Contracts means any and all contracts, agreements, franchises,
understandings, arrangements, leases, licenses, registrations,
authorizations, mortgages, bonds, notes and other instruments and
obligations and interests therein.
ERISA Affiliate means, with respect to any Person, a Person
which, together with the first Person, would be deemed to be a "single
employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m), or (o) of section 414 of the Code.
GAAP means, with respect to entities (or their businesses)
formed under the laws of any United States jurisdiction, United States
generally accepted accounting principles as in effect from time to time
and, with respect to entities (or their businesses) formed under the
laws of any Canadian jurisdiction, Canadian generally accepted
accounting principles as in effect from time to time.
Governmental Authority or ( Governmental ) means a federal,
state, provincial, local or foreign governmental authority, including
the United States of America and Canada; a state, province,
commonwealth, territory or district thereof; a county or parish; a city,
town, township, village or other municipality; a district, ward or other
subdivision of any of the foregoing; any executive, legislative or other
governing body of any of the foregoing; any agency, authority, board,
department, system, service, office, commission, committee, council or
other administrative body of any of the foregoing, including the FERC
and NEB; any court or other judicial body; and any officer, official or
other representative of any of the foregoing.
Intellectual Property means all trademarks, trade names, service
marks, trade dress and logos and all applications and registrations
therefor and any good will associated therewith.
Judgments means any and all judgments, orders, directives,
injunctions, decrees or awards of any Governmental Authority.
Knowledge means, with respect to a party, that its officers or
employees at a managerial or higher level have conducted such
investigations and inquiries as they reasonably believe to be likely to
confirm the truth and accuracy of the matter being represented and
warranted (or have caused such investigations and inquiries to be made
under their supervision) and, after evaluating the findings of such
investigations and inquiries, either (i) know that the matter being
represented and warranted is true and accurate, except as disclosed in
the applicable Disclosure Schedule to this Agreement, or (ii) have no
reason to believe that the matter being represented and warranted is not
true and accurate. As used in this Agreement, Knowledge of PTMSI shall
include Knowledge of the PanEnergy Marketing Companies, and Knowledge
of MNGI shall include Knowledge of the Mocorp Marketing Companies.
<PAGE>
<PAGE>
Law means any applicable constitutional provision, statute, act,
code (including the Code), law, regulation, rule, ordinance, order,
decree, ruling, proclamation, resolution, judgment, decision,
declaration, or interpretative or advisory opinion or letter of a
Governmental Authority having valid jurisdiction.
Legal Requirements means any and all applicable (i) federal,
state, provincial, local and foreign Laws, (ii) non-appealable judgments and
(iii) consent decrees and similar arrangements.
Lien means liens, mortgages, charges, security interests and
other encumbrances.
Material Effect means, with respect to any entity or entities
or business, a material adverse effect on the business, properties,
operations or results thereof or financial condition of such entity or
entities or business taken as a whole.
NEB means the National Energy Board of Canada or any Canadian
Governmental Authority succeeding to the powers of such board.
Permits means any and all permits, authorizations, approvals,
registrations, legal status, rights-of-way, orders or other approvals
or licenses (i) under any (A) Law, (B) Judgment or (C) Contract with any
Governmental Authority, relating to compliance with matters described
in (A) or (B) above or (ii) granted by any Governmental Authority.
Person means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a
trust, a joint venture, an unincorporated organization, a governmental
entity (or any department, agency, or political subdivision thereof),
or other entity.
Proceeding means any lawsuit, charge, action, claim, demand,
investigation or other legal or administrative proceeding by or before
any Governmental Authority or any arbitration proceeding.
Termination Fee means a fee of $10,000,000.
1.02 Construction. Unless the context requires otherwise: (i) the
gender (or lack of gender) of all words used in this Agreement includes the
masculine, feminine, and neuter; (ii) references to Articles and Sections
refer to articles and sections of this Agreement; (iii) references to Exhibits
are to Exhibits attached to this Agreement, each of which is made a part of
this Agreement for all purposes; (iv) references to Laws refers to Laws as
they may be amended from time to time, and references to particular provisions
of a Law include any corresponding provisions of any succeeding Law; (v)
references to money refer to legal currency of the United States of America;
and (vi) the word including means including without limitation.
<PAGE>
<PAGE>
ARTICLE II
FORMATION OF NEWCO US AND NEWCO CANADA AND CLOSING
2.01 Formation of Newco US and Newco Canada. (a) Certain capitalized
terms used in this Section 2.01(a) are defined in Section 2.01(b). Subject
to the terms and conditions of this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained herein, at the
Closing, the following shall occur:
(i) PTMSI shall enter into the LLC Agreement and shall, or shall cause
the PTMSI Marketing Companies to, contribute to Newco US the PTMSI
US Assets, subject to the PTMSI US Liabilities, and Newco US shall
assume the PTMSI US Liabilities and issue to PTMSI a 60% limited
liability company interest;
(ii) MNGI shall enter into the LLC Agreement and contribute to Newco
US the MNGI US Assets, subject to the MNGI US Liabilities, and
Newco US shall assume the MNGI US Liabilities and issue to MNGI
a 40% limited liability company interest;
(iii) PTMSI shall cause PanEnergy Services Canada, Ltd., a Canadian
corporation ( PanEnergy Canada LP ), to enter into the Limited
Partnership Agreement and contribute to Newco Canada the PTMSI
Canada Assets, subject to the PTMSI Canada Liabilities, and Newco
Canada shall assume the PTMSI Canada Liabilities and issue to
PanEnergy Canada LP a 59.4% limited partnership interest;
(iv) Each of PTMSI and MNGI shall (A) form a corporation owned 60% by
an Affiliate of PTMSI and 40% by an Affiliate of MNGI ( Canada
GP ), the shareholders of which shall enter into a Shareholders
Agreement (the Shareholders Agreement ) on terms that result in
the management of Newco Canada in a manner substantially similar
to the management of Newco US pursuant to the LLC Agreement, (B)
cause Canada GP to enter into the Limited Partnership Agreement,
and (C) cause such shareholders to enter into a Subscription
Agreement on the terms set forth on Exhibit B attached hereto, and
Newco Canada shall issue to Canada GP a 1% general partnership
interest; and
(v) MNGI shall cause Mobil Oil Canada, Ltd. ( Mobil Canada ) to enter
into the Limited Partnership Agreement and shall cause the Mocorp
Canada Marketing Companies (hereinafter defined) to contribute to
Newco Canada the Mobil Canada Assets subject to the Mobil Canada
Liabilities, and Newco Canada shall issue to Mobil Canada a 39.6%
limited partnership interest.
All such assignments and assumptions shall be pursuant to a General Assignment
and Assumption Agreement in the form of Exhibit C attached hereto (the
Assignment and Assumption Agreement ). PTMSI and PanEnergy Canada LP are
collectively referred to as the PanEnergy Owners, MNGI and Mobil Canada are
collectively referred to as the Mobil Owners, Canada GP is deemed to be both
a PanEnergy Owner and a Mobil Owner, and the PanEnergy Owners and the Mobil
Owners are collectively referred to as the Owners and any of them is
referred to as Owner.
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(b) Certain of the defined terms used in Section 2.01(a) are
defined as follows:
(i) PTMSI US Assets means all assets that are reflected on the
PTMSI March 31 Balance Sheet that relate to the PTMSI US Business
(excluding assets disposed of in the ordinary course of business by the
PanEnergy Marketing Companies since March 31, 1996), assets acquired in
the ordinary course of business by the PanEnergy Marketing Companies
with respect to the PTMSI US Business since March 31, 1996 that would
be required to be reflected on a balance sheet prepared in accordance
with GAAP, and rights under the PTMSI Contracts that relate to the PTMSI
US Business accruing from and after the Effective Time.
(ii) PanEnergy Marketing Companies means PanEnergy Gas
Services, Inc. ( PanEnergy ), PanEnergy Power Services, Inc. ( Power ),
PanEnergy Risk Management Services, Inc. ( Risk Management ), and
PanEnergy Canada LP.
(iii) PTMSI US Liabilities means all liabilities that are
reflected on the PTMSI March 31 Balance Sheet that relate to the PTMSI
US Business (excluding liabilities discharged since March 31, 1996),
liabilities (excluding income tax liabilities) incurred in the ordinary
course of business by the PanEnergy Marketing Companies with respect to
the PTMSI US Business since March 31, 1996, and liabilities under the
PTMSI Contracts that relate to the PTMSI US Business to be paid or
performed from and after the Effective Time.
(iv) PTMSI Canada Assets means all assets that are reflected
on the PTMSI March 31 Balance Sheet that relate to the PTMSI Canada
Business (excluding assets disposed of in the ordinary course of
business by the PanEnergy Marketing Companies since March 31, 1996),
assets acquired in the ordinary course of business by the PanEnergy
Marketing Companies with respect to the PTMSI Canada Business since
March 31, 1996 that would be required to be reflected on a balance sheet
prepared in accordance with GAAP, and rights under the PTMSI Contracts
that relate to the PTMSI Canada Business accruing from and after the
Effective Time. The PTMSI US Assets and the PTMSI Canada Assets are
collectively referred to as the PTMSI Assets.
(v) PTMSI Canada Liabilities means all liabilities that are
reflected on the PTMSI March 31 Balance Sheet that relate to the PTMSI
Canada Business (excluding liabilities discharged since March 31, 1996),
liabilities (excluding income tax liabilities) incurred in the ordinary
course of business by the PanEnergy Marketing Companies with respect to
the PTMSI Canada Business since March 31, 1996, and liabilities under
the PTMSI Contracts that relate to the PTMSI Canada Business to be paid
or performed from and after the Effective Time. The PTMSI US
Liabilities and the PTMSI Canada Liabilities are collectively referred
to as the PTMSI Liabilities.
(vi) PTMSI US Business means the businesses of the PanEnergy
Marketing Companies relating to the marketing and sale of gas and
electric power and related risk management and conducted in the United
States of America.
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(vii) PTMSI Canada Business means the businesses of the
PanEnergy Marketing Companies relating to the marketing and sale of gas
and electric power and related risk management and conducted in Canada.
The PTMSI US Business and the PTMSI Canada Business are collectively
referred to as the PTMSI Business.
(viii) PTMSI Contracts means all of the following Contracts
to which any of the PanEnergy Marketing Companies is a party at the
Effective Time: (i) Contracts listed on Section 3.09 of the PTMSI
Disclosure Schedule (excluding Contracts that have been performed prior
to the Effective Time), (ii) Contracts for the future purchase,
transportation, sale or storage of natural gas and electric power
entered into after the date hereof in the ordinary course of business
that would not be required to be disclosed on Section 3.09 of the PTMSI
Disclosure Schedule if they were in existence on the date hereof, and
(iii) Derivative Contracts (as defined in Section 3.09) entered into in
the ordinary course of business; provided that, subject to
Section 2.04(f)(ii), (A) all Contracts for the future purchase,
transportation, storage or sale of natural gas or electric power at a
stated price or fixed differential to an index price ( Fixed Price
Contracts ) (1) have been hedged against on a portfolio basis to cover
price and basis risk by Derivative Contracts or (2) have an established
reserve to cover price and basis risk on the PTMSI Preliminary Effective
Time Balance Sheet; and (B) the net asset or liability for all
Derivative Contracts constituting PTMSI Contracts that on a portfolio
basis are not being used to hedge against Fixed Price Contracts is
reflected on the PTMSI Preliminary Effective Time Balance Sheet.
(ix) MNGI US Assets means all assets that are reflected on the
MNGI March 31 Balance Sheet that relate to the MNGI US Business
(excluding assets disposed of in the ordinary course of business by MNGI
since March 31, 1996), assets acquired in the ordinary course of
business by MNGI with respect to the MNGI US Business since March 31,
1996 that would be required to be reflected on a balance sheet prepared
in accordance with GAAP, and rights under the MNGI Contracts that relate
to the MNGI US Business accruing from and after the Effective Time.
(x) Mocorp Canada Marketing Companies means Mobil Canada,
Mobil Oil Canada Properties and Mobil Natural Gas Canada Ltd.
(xi) Mocorp Marketing Companies means MNGI and the Mocorp
Canada Marketing Companies.
(xii) MNGI US Liabilities means all liabilities that are
reflected on the MNGI March 31 Balance Sheet that relate to the MNGI US
Business (excluding liabilities discharged since March 31, 1996),
liabilities (excluding income tax liabilities) incurred in the ordinary
course of business by MNGI with respect to the MNGI US Business since
March 31, 1996, and liabilities under the MNGI Contracts that relate to
the MNGI US Business to be paid or performed from and after the
Effective Time.
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(xiii) Mobil Canada Assets means all assets that are
reflected on the MNGI March 31 Balance Sheet that relate to the MNGI
Canada Business (excluding assets disposed of in the ordinary course of
business by the Mocorp Canada Marketing Companies since March 31, 1996),
assets acquired in the ordinary course of business by the Mocorp Canada
Marketing Companies with respect to the MNGI Canada Business since March
31, 1996 that would be required to be reflected on a balance sheet
prepared in accordance with GAAP, and rights under the MNGI Contracts
that relate to the MNGI Canada Business accruing from and after the
Effective Time. The MNGI US Assets and the Mobil Canada Assets are
collectively referred to as the MNGI Assets.
(xiv) Mobil Canada Liabilities means all liabilities that are
reflected on the MNGI March 31 Balance Sheet that relate to the MNGI
Canada Business (excluding liabilities discharged since March 31, 1996),
liabilities (excluding income tax liabilities) incurred in the ordinary
course of business by the Mocorp Canada Marketing Companies with respect
to the MNGI Canada Business since March 31, 1996, and liabilities under
the MNGI Contracts that relate to the MNGI Canada Business to be paid
or performed from and after the Effective Time. The MNGI US Liabilities
and the Mobil Canada Liabilities are collectively referred to as the
MNGI Liabilities.
(xv) MNGI US Business means the business of MNGI relating to
the marketing and sale of gas and electric power and related risk
management and conducted in the United States of America, excluding the
business of MNGI associated with the ownership or operation of the
assets of MNGI that are not reflected on the MNGI March 31 Balance
Sheet.
(xvi) MNGI Canada Business means the businesses of the Mocorp
Canada Marketing Companies relating to the marketing and sale of gas
and, if any, electric power and related risk management and conducted
in Canada, excluding the businesses of the Mocorp Canada Marketing
Companies associated with the ownership or operation of the assets of
the Mocorp Canada Marketing Companies that are not reflected on the MNGI
March 31 Balance Sheet. The MNGI US Business and the MNGI Canada
Business are collectively referred to as the MNGI Business .
(xvii) MNGI Contracts means all of the following Contracts
to which any of the Mocorp Marketing Companies is a party at the
Effective Time: (i) Contracts listed on Section 4.09 of the MNGI
Disclosure Schedule (excluding Contracts that have been performed prior
to the Effective Time), (ii) Contracts for the future purchase,
transportation, sale or storage of natural gas and electric power
entered into after the date hereof in the ordinary course of business
that would not be required to be disclosed on Section 4.09 of the MNGI
Disclosure Schedule if they were in existence on the date hereof, and
(iii) Derivative Contracts entered into in the ordinary course of
business; provided that, subject to Section 2.04(f)(ii), (A) all Fixed
Price Contracts (1) have been hedged against on a portfolio basis to
cover price and basis risk by Derivative Contracts or (2) have an
established reserve to cover price and basis risk on the MNGI
Preliminary Effective Time Balance Sheet; and (B) the net asset or
liability for all Derivative Contracts constituting MNGI Contracts that
on a portfolio basis are not being used to hedge against Fixed Price
Contracts is reflected on the MNGI Preliminary Effective Time Balance
Sheet.
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2.02 Closing. The closing of the transactions contemplated by
Section 2.01(a) (the Closing ) shall take place at the offices of Fulbright
& Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas at 10:00 a.m. on
August 1, 1996, or at such other place, time and date as the parties hereto
may agree upon (the Closing Date ) and shall be effective as of 12:01 a.m.
on the Closing Date (the Effective Time ).
2.03 Actions to be Taken at the Closing. At the Closing, in the
following order:
(a) PTMSI shall cause the relevant PanEnergy Owners to, and MNGI
shall, and shall cause the other relevant Mobil Owners to, (i) execute,
deliver and file with the Secretary of State of the State of Delaware the
Certificate of Formation of Limited Liability Company for Newco US and
(ii) execute and deliver the LLC Agreement for Newco US and the Limited
Partnership Agreement for Newco Canada substantially in the form of
Exhibits A-1, A-2 and A-3 attached hereto, respectively, with such changes to
the LLC Agreement and the Limited Partnership Agreement as are appropriate to
reflect the contributions and distributions to be made under the Funding
Agreement.
(b) PTMSI shall cause the relevant PanEnergy Owners to make the
contributions and assignments described to be made by them in Section 2.01(a),
by executing and delivering Assignment and Assumption Agreements, and each of
Newco US and Newco Canada shall execute and deliver such Assignment and
Assumption Agreements and issue to the relevant PanEnergy Owners a 60% limited
liability company interest in Newco US and a 59.4% limited partnership
interest in Newco Canada.
(c) MNGI shall, and shall cause the other Mobil Owners to, make
the contributions and assignments described to be made by them in Section
2.01(a), by executing and delivering Assignment and Assumption Agreements, and
each of Newco US and Newco Canada shall execute such Assignment and Assumption
Agreements and issue to the relevant Mobil Owner a 40% limited liability
company interest in Newco US and a 39.6% limited partnership interest in
Newco Canada.
(d) Each of PTMSI and MNGI shall cause Newco Canada to issue a
1% general partnership interest in Newco Canada to Canada GP.
(e) Each of PTMSI and MNGI shall, and shall cause its Affiliates
to, execute and deliver the following agreements to which it or they,
respectively, are parties:
(i) Gas Sales and Services Contract (the MEPUS/Newco US Supply
Contract ) between Mobil Exploration & Producing U.S. Inc. ( MEPUS ),
as Seller, and Newco US, as Purchaser, in substantially the form of
Exhibit D attached hereto;
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(ii) Gas Sales and Services Contract (the Mocan Supply
Contract ) between Mobil Oil Canada and Newco Canada on the terms set
forth on Exhibit E attached hereto and on such other terms as are
mutually agreed upon;
(iii) the Shareholders Agreement;
(iv) the Subscription Agreement;
(v) License Agreement (the Mocorp License Agreement ) (covering
the use of Mocorp Intellectual Property) between Mocorp and Newco US and
Newco Canada in substantially the form of Exhibit F attached hereto;
(vi) License Agreement (the PEC License Agreement ) (covering
the use of PEC Intellectual Property) between PEC and Newco US and Newco
Canada in substantially the form of Exhibit F attached hereto;
(vii) Guaranty Agreement in substantially the form of Exhibit G
attached hereto by Mocorp (the Mocorp Guaranty ) in favor of PTMSI and
its Affiliates and Newco US and Newco Canada, guaranteeing the
performance by Mocorp s Affiliates of their obligations under the Asset
Purchase Agreement (the Asset Purchase Agreement ) of even date
herewith between MNGI, MEPUS et al., as Sellers, and PanEnergy Field
Services, Inc., as Buyer, this Agreement, the Shareholders Agreement,
the Subscription Agreement, the Funding Agreement, the MEPUS/Newco US
Supply Contract, the Mocan Supply Contract, the Sable Island Gas Supply
Contract (as defined in the LLC Agreement), the Mocorp License
Agreement, the LLC Agreement and the Limited Partnership Agreement; and
(ix) Guaranty Agreement in substantially the form of Exhibit G
attached hereto by PEC (the PEC Guaranty ) in favor of MNGI and its
Affiliates and Newco US and Newco Canada, guaranteeing the performance
by PEC s Affiliates of their obligations under the Asset Purchase
Agreement, this Agreement, the Shareholders Agreement, the Subscription
Agreement, the Funding Agreement, the PFS Gas Supply Contract (as
defined in the LLC Agreement), the PEC License Agreement, the LLC
Agreement and the Limited Partnership Agreement.
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2.04 Post-Closing Adjustments to Initial Contributions. (a) Within 120
calendar days after the Closing Date, PTMSI shall cause to be prepared and
delivered to MNGI audited balance sheets for each of the PTMSI US Business and
the PTMSI Canada Business as of the Effective Time (collectively, the PTMSI
Preliminary Effective Time Balance Sheets ), and MNGI shall cause to be
prepared and delivered to PTMSI audited balance sheets for each of the MNGI
US Business and the MNGI Canada Business as of the Effective Time
(collectively the MNGI Preliminary Effective Time Balance Sheets, and
collectively with the PTMSI Preliminary Effective Time Balance Sheets, the
Preliminary Effective Time Balance Sheets ), each of which shall be prepared
in the same manner as the PTMSI March 31 Balance Sheets and the MNGI March 31
Balance Sheets, respectively, except that they shall be prepared based on the
information known as of 90 days after the Closing Date. If the amounts of
Working Capital and Fixed Assets (defined below) reflected on the applicable
PTMSI Preliminary Effective Time Balance Sheet or MNGI Preliminary Effective
Time Balance Sheet, respectively, are not in the ratio of 60/40 for the
PanEnergy Owners and Mobil Owners, respectively, PTMSI and MNGI, respectively,
shall cause the relevant PanEnergy Owners or Mobil Owners to make cash
payments to Newco US and Newco Canada, as appropriate, in an amount such that
immediately thereafter the total of Working Capital and Fixed Assets reflected
on the Preliminary Effective Time Balance Sheets for each of Newco US and
Newco Canada are in the ratio of 60/40 for the PanEnergy Owners and Mobil
Owners, respectively. Any such payments shall include interest on the amount
thereof at a rate per annum equal to the interest rate per annum under the
Credit Facility Agreements (the Specified Rate ) from the Closing Date
through the date of such payment. Working Capital and Fixed Assets shall
mean (i) the excess of total current assets over total current liabilities and
(ii) fixed assets (not to exceed $4,000,000), in each case as reflected on a
balance sheet prepared in accordance with GAAP consistently applied, except
as otherwise expressly provided herein.
(b) Within 30 days after the second anniversary of the Closing
Date, PTMSI shall cause to be prepared and delivered to MNGI restated balance
sheets for each of the PTMSI US Business and the PTMSI Canada Business and the
MNGI US Business and the MNGI Canada Business as of the Effective Time (the
PTMSI Proposed Final Effective Time Balance Sheets and the MNGI Proposed
Final Effective Time Balance Sheets, and collectively the Proposed Final
Effective Time Balance Sheets ), each of which shall be prepared in the same
manner as the Preliminary Effective Time Balance Sheets, except that they
shall be prepared based on the information known as of the second anniversary
of the Closing Date and except that they shall exclude any accounts or notes
receivable or payable that were contributed to Newco US or Newco Canada, to
the extent only that they were not fully collected or paid on the second
anniversary of the Closing Date (the Excluded Accounts ). MNGI shall have
a period of 30 calendar days after receipt of the Proposed Final Effective
Time Balance Sheets to review same and to make any objections thereto in
writing to PTMSI. If no such written objections are delivered to PTMSI within
such 30-day period, the Proposed Final Effective Time Balance Sheets shall be
deemed to be accepted and approved by MNGI. If written objections by MNGI to
the Proposed Final Effective Time Balance Sheets are delivered to PTMSI within
such 30-day period, then MNGI and PTMSI shall attempt to resolve the matter
or matters in dispute and the provisions of Section 2.04(c) shall apply.
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(c) If disputes under Section 2.04(a) or 2.04(b) cannot be
resolved by MNGI and PTMSI within 20 calendar days after the delivery by MNGI
to PTMSI or by PTMSI to MNGI, as the case may be, of the objections to the
Preliminary Effective Time Balance Sheets or Proposed Final Effective Time
Balance Sheets, as the case may be, then the specific matters in dispute shall
be submitted to an independent accounting firm approved by MNGI and PTMSI (the
Independent Accountants ), which firm shall render its opinion as to such
matters. Based on such opinion, the Independent Accountants shall send to
MNGI and PTMSI a written determination of the matters in dispute and a written
determination of the Preliminary Effective Time Balance Sheets or Proposed
Final Effective Time Balance Sheets, as the case may be, whereupon the
confirmed or revised Preliminary Effective Time Balance Sheets or Proposed
Final Effective Time Balance Sheets, as the case may be, shall be final and
binding upon MNGI and PTMSI. All costs and expenses charged by the
Independent Accountants shall be borne one-half each by MNGI and PTMSI.
(d) On the third Business Day (the Settlement Date ) after the
Proposed Final Effective Time Balance Sheets have become final either pursuant
to Section 2.04(b) or 2.04(c) (the PTMSI Final Effective Time Balance Sheets
and the MNGI Final Effective Time Balance Sheets and collectively the Final
Effective Time Balance Sheets ), each of PTMSI and MNGI shall cause the
relevant PanEnergy Owners or Mobil Owners to make cash payments to Newco US
or Newco Canada, as appropriate, in an amount such that the amounts of the
total of Working Capital and Fixed Assets (excluding the Excluded Accounts)
as of the Effective Time (taking into account any adjustments already made
pursuant to Section 2.04(a)) for (i) the PTMSI US Business and the MNGI US
Business are in the proportion of 60/40, respectively, and (ii) the PTMSI
Canada Business and the MNGI Canada Business are in the proportion of 60/40,
respectively. Any such payment shall include interest on the amount thereof
at the Specified Rate from the Closing Date through the date of such
contribution or distribution.
(e) On the Settlement Date, PTMSI and MNGI shall, and shall
cause the PanEnergy Owners and Mobil Owners to, cause Newco US and Newco
Canada to assign without recourse the Excluded Accounts to the assignor
thereof, and the Excluded Accounts shall automatically be deemed not to
constitute PTMSI Assets or MNGI Assets for purposes of Section 7.03 or
otherwise. To the extent that PTMSI or MNGI uses employees who perform
services for Newco US or Newco Canada to collect the Excluded Accounts or
other accounts and notes receivable constituting MNGI Assets or PTMSI Assets
that accrued prior to January 1, 1996, the percentage of such employees
salary and benefits that is attributable to the time such employees spend in
such collection shall be borne by PTMSI or MNGI, respectively, and shall not
be charged to Newco US or Newco Canada.
(f) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of this Section 2.04(f) shall apply:
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(i) If an adjustment to Working Capital and Fixed Assets
pursuant to this Section 2.04 is required as a result of any matter
which could also result in the breach of any representation or warranty
of PTMSI set forth in Article III, then MNGI shall only be entitled to
assert such matter as an adjustment to Working Capital and Fixed Assets
pursuant to this Section 2.04 and shall be precluded from also asserting
such mater as the basis of the breach of any such representation or
warranty of PTMSI; and if an adjustment to Working Capital and Fixed
Assets pursuant to this Section 2.04 is required as a result of any
matter which could also result in the breach of any representation or
warranty of MNGI set forth in Article IV, then PTMSI shall only be
entitled to assert such matter as an adjustment to Working Capital and
Fixed Assets pursuant to this Section 2.04 and shall be precluded from
also asserting such matter as the basis of the breach of any such
representation or warranty of MNGI.
(ii) No payments shall be made pursuant to this Section 2.04 with
respect to Fixed Price Contracts or Derivative Contracts contributed at
the Closing except to the extent that the Total Exposure (defined below)
for the PTMSI Contracts exceeds $1,000,000 or the Total Exposure for the
MNGI Contracts exceeds $1,000,000. The Total Exposure with respect
to each of PTMSI or MNGI means the aggregate exposure of price and basis
risk under its Fixed Price Contracts that were not covered on a
portfolio basis by Derivative Contracts contributed on its behalf
pursuant to this Agreement, with exposure being calculated as the amount
required to adjust the Fixed Price Contracts to market value as of the
Effective Time, and where market value is based on published index
prices for the respective commodity being valued. To the extent the
Total Exposure for PTMSI or MNGI exceeds $1,000,000, the payments to be
made pursuant to this Section 2.04 shall be adjusted so that,
immediately after making such payment, the Total Exposure for each of
PTMSI and MNGI shall equal $1,000,000. After making adjustments
pursuant to this Section 2.04(f)(ii), any PTMSI Contracts or MNGI
Contracts contributed at the Closing shall remain and constitute PTMSI
Contracts or MNGI Contracts, respectively. No other adjustments or
payments under this Section 2.04 shall be made with respect to the PTMSI
Contracts or the MNGI Contracts except as described in this Section
2.04(f)(ii) or as described in Section 2.04(d) for Excluded Accounts.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PTMSI
PTMSI hereby represents and warrants to MNGI that, except as set forth
in the disclosure schedule attached hereto as Exhibit H attached hereto (the
PTMSI Disclosure Schedule ), which is arranged in paragraphs corresponding
to the Sections contained in this Article III:
3.01 Corporate Existence. PTMSI and the PanEnergy Marketing Companies
are each corporations duly organized, validly existing and in good standing
under the laws of their jurisdiction of incorporation.
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3.02 Power and Authority; Enforceability. PTMSI has all requisite
corporate power to enter into this Agreement and to perform its obligations
under this Agreement. The execution and delivery of this Agreement by PTMSI
have been duly and validly authorized by all necessary corporate action of
PTMSI and its Affiliates. This Agreement constitutes a legal, valid and
binding obligation of PTMSI enforceable in accordance with its terms (except
as may be limited by bankruptcy, insolvency or similar Laws of general
application). At the Closing, the documents to be delivered at Closing
(collectively, the Related Agreements ) to which PTMSI or any of its
Affiliates is a party, when executed and delivered in accordance herewith,
will constitute legal, valid and binding obligations of PTMSI and its
Affiliates, as applicable, enforceable in accordance with their respective
terms (except as may be limited by bankruptcy, insolvency or similar Laws of
general application).
3.03 Qualification; Operating Power and Authority. Each of PTMSI and
each PanEnergy Marketing Company is duly qualified to do business and is in
good standing as a foreign corporation in each of the states and provinces
disclosed in the PTMSI Disclosure Schedule, such states and provinces being
the only jurisdictions where PTMSI and the PanEnergy Marketing Companies are
required to be so qualified, except where such failure to qualify would not
have a Material Effect on the PTMSI Business. PTMSI and the PanEnergy
Marketing Companies each have the corporate power to own and operate their
respective assets and to carry on their respective businesses as presently
conducted.
3.04 Ownership. PEC is the indirect legal and beneficial owner of all
of the capital stock of the PanEnergy Marketing Companies, free and clear of
all Liens. PEC will be as of the Closing the indirect legal and beneficial
owner of all of the capital stock of PTMSI and PanEnergy Canada LP, free and
clear of all Liens, except for Liens granted under the terms of the LLC
Agreement and the Limited Partnership Agreement.
3.05 No Default or Consents. Except as disclosed in the PTMSI
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein (i) will conflict
with or result in a breach, default or violation of (A) the charter or bylaws
of PTMSI or any PanEnergy Marketing Company or (B) any material, Permit or
Judgment to which PTMSI or any PanEnergy Marketing Company is a party or to
which any one of them is subject or by which any of their respective assets
is bound, or (ii) will result in the creation of any Lien on any material
asset of PTMSI or any PanEnergy Marketing Company, the failure to obtain which
would have a Material Effect on the PTMSI Business. Except as disclosed in
the PTMSI Disclosure Schedule, no material consent, action, approval or
authorization of, or registration, declaration or filing with, any
Governmental Authority is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by PTMSI or the
consummation by PTMSI or its Affiliates of the transactions contemplated
herein.
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3.06 Financial Statements. Section 3.06 of the PTMSI Disclosure
Schedule sets forth pro forma balance sheets for the PTMSI US Business and the
PTMSI Canada Business as of March 31, 1996 (the PTMSI March 31 Balance
Sheets ). The PTMSI March 31 Balance Sheets have been prepared in accordance
with GAAP applied on a consistent basis and in accordance with the notes
thereto, present fairly the financial condition of the PTMSI Business as of
such date, and are consistent with the books and records of the PTMSI
Business; provided, however, that they do not include a provision for income
taxes, are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack certain footnotes and other
presentation items.
3.07 No Adverse Changes. Except as disclosed in the PTMSI Disclosure
Schedule, since March 31, 1996 through the date hereof, there have been no
changes in (i) the financial condition or results of operations of the PTMSI
Business or (ii) the condition (other than financial) of the PTMSI Business
other than, with respect to clauses (i) and (ii) hereof, changes which have
not in the aggregate had a Material Effect on the PTMSI Business.
3.08 Legal Compliance; Proceedings. Except as disclosed in the PTMSI
Disclosure Schedule, the PTMSI Business is in compliance with all Legal
Requirements and there are no Proceedings pending or, to the Knowledge of
PTMSI, threatened against PTMSI or any of its Affiliates in connection with
the PTMSI Business alleging any failure so to comply or otherwise relating to
the PTMSI Assets or PTMSI Business, except, in each case, where such non-
compliance or Proceeding would not have a Material Effect on the PTMSI
Business.
3.09 Contractual Obligations. (a) Except as disclosed in the PTMSI
Disclosure Schedule, neither PTMSI nor any PanEnergy Marketing Company is a
party to any of the following, whether written or oral:
(i) Contract for the future purchase, transportation, sale or
storage of natural gas or electric power, which Contract (A) will be
active as of the Effective Time and be in effect for more than 31
consecutive days after the Effective Time, (B) is not terminable without
penalty on not more than 30 days notice and (C) provides for payments
in any one year in excess of $500,000;
(ii) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, or under which it
has imposed a security interest on any of its assets, tangible or
intangible, which security interest secures indebtedness for borrowed
money;
(iii) except for Contracts entered into with customers and
suppliers of the PTMSI Business in the ordinary course of business and
agreements entered into with employees, any agreement concerning
confidentiality;
(iv) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, Contract or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
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(v) lease under which it is the lessee of real or personal
property which lease (A) is not terminable without penalty on not more
than 30 days notice and (B) provides for annual base rental payments
in excess of $100,000;
(vi) Contract for the future purchase of materials, supplies,
equipment or services in excess of its normal operating requirements,
which Contract (A) is not terminable without penalty on not more than
30 days notice and (B) provides for annual payments in excess of
$500,000;
(vii) any futures, swap, collar, put, call, floor, cap, option or
other Contract that is intended to benefit from or reduce or eliminate
the risk of fluctuations in the price of commodities, including natural
gas, crude oil, propane, electric power or securities (collectively,
Derivative Contracts ), other than those entered into in the ordinary
course of business;
(viii) Contract with any Affiliate of PEC;
(ix) Contract for (A) the sale of any asset (other than sales of
natural gas and electric power in the ordinary course of business) or
(B) the grant of right or option to purchase any such asset, in each
case requiring payments in excess of $500,000; or
(x) Contract that purports to limit its freedom to compete in
any line of business or in any geographic area.
(b) No PanEnergy Marketing Company is in default, nor but for
a requirement that notice be given or that a period of time elapse or both,
would be in default, under any Contract to which it is party or by which its
assets are bound relating to the PTMSI Business, which default would have a
Material Effect on the PTMSI Business.
3.10 Taxes. Except as disclosed in the PTMSI Disclosure Schedule, (i)
all foreign, federal, state, provincial, and local tax returns and reports
( Tax Returns ), reports and forms required to be filed on or before the
Closing Date in connection with the activities or assets of PTMSI have been
or will be duly prepared and filed in good faith according to applicable Law
and (ii) all Taxes and other levies which are required to be paid with respect
to the activities or assets of PTMSI have been duly paid or adequate provision
therefor made on the PTMSI Preliminary Effective Time Balance Sheets, except
in each case such as would not in the aggregate have a Material Effect on the
PTMSI Business.
3.11 Employee Benefit Liabilities. Except as disclosed in the PTMSI
Disclosure Schedule, there are no incurred or contingent liabilities with
respect to any employee benefit plans within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ( ERISA ),
sponsored, maintained or contributed to by PEC or any Affiliate of PEC that
could reasonably be expected to have a Material Effect on the ability of PTMSI
to perform its obligations under this Agreement or result in the imposition
of liability against Mocorp, Newco US, Newco Canada or any ERISA Affiliate of
Mocorp.
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3.12 Public Utility. PEC is not a holding company, a public
utility, a subsidiary of a holding company, or an affiliate or
associate company of a holding company, as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, and the rules and
regulations issued thereunder ( PUHCA ).
3.13 Regulatory Matters. Except as disclosed in the PTMSI Disclosure
Schedule, or as to those Legal Requirements, Judgments or Permits the
noncompliance with which could not reasonably be expected to have a Material
Effect on the ability of PTMSI to perform its obligations under this
Agreement, PTMSI and the PanEnergy Marketing Companies are duly authorized
under all Legal Requirements, Judgments and Permits to perform the obligations
under and enjoy the benefits of the PTMSI Contracts (as presently constituted)
to which they are a party.
3.14 Intellectual Property. (a) PEC or its Affiliates own or have the
right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the PTMSI Business as
presently conducted. Each item of Intellectual Property owned or used by PEC
or its Affiliates in connection with the PTMSI Business during the 12-month
period immediately preceding the Closing will be owned or available for use
by Newco US and Newco Canada pursuant to the PEC License Agreement on
substantially the same terms and conditions immediately subsequent to the
Closing, subject to receipt of any PTMSI Consents (defined in Section 5.06).
(b) Except as would not have a Material Effect on the PTMSI
Business, (i) neither PEC nor any of its Affiliates has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third Persons with respect to the PTMSI
Business, and (ii) neither PEC nor its Affiliates have within the past two
years received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or conflict (including any
claim that any of them must license or refrain from using any Intellectual
Property rights of any third Person). To the Knowledge of PTMSI, no third
Person has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of PEC or its Affiliates
that are used by the PTMSI Business or are to be licensed to Newco US or Newco
Canada.
3.15 PTMSI Business. Except as excluded by the terms of this Agreement
and except as set forth in the PTMSI Disclosure Schedule, the PTMSI Assets
constitute all of the material assets (tangible and intangible) owned or held
by PTMSI or its Affiliates that are used primarily in the marketing and sale
of gas and electric power and related risk management in the United States and
Canada.
3.16 No Occurrences. Between March 31, 1996 and the date hereof, no
event has occurred that would constitute a breach of Section 5.01 if such
event were to occur after the date hereof.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MNGI
MNGI hereby represents and warrants to PTMSI that, except as set forth
in the disclosure schedule attached hereto as Exhibit I attached hereto (the
MNGI Disclosure Schedule ), which is arranged in paragraphs corresponding to
the Sections contained in this Article IV:
4.01 Corporate Existence. MNGI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and the Mocorp Canada Marketing Companies are each corporations or
partnerships duly organized, validly existing and in good standing under the
applicable laws of Canada or its provinces.
4.02 Power and Authority; Enforceability. MNGI has all requisite
corporate power to enter into this Agreement and to perform its obligations
under this Agreement. The execution and delivery of this Agreement by MNGI
have been duly and validly authorized by all necessary corporate or
partnership action (as the case may be) of MNGI and its Affiliates. This
Agreement constitutes a legal, valid and binding obligation of MNGI
enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency or similar Laws of general application). At the
Closing, the Related Agreements to which MNGI or any of its Affiliates is a
party, when executed and delivered in accordance herewith, will constitute
legal, valid and binding obligations of MNGI and its Affiliates, as
applicable, enforceable in accordance with their respective terms (except as
may be limited by bankruptcy, insolvency or similar Laws of general
application).
4.03 Qualification; Operating Power and Authority. Each of MNGI and
each other Mocorp Marketing Company is duly qualified to do business and is
in good standing as a foreign corporation or partnership in each of the states
and provinces disclosed in the MNGI Disclosure Schedule, such states and
provinces being the only jurisdictions where MNGI and the other Mocorp
Marketing Companies are required to be so qualified, except where such failure
to qualify would not have a Material Effect on the MNGI Business. MNGI and
the other Mocorp Marketing Companies each have the corporate or partnership
power to own and operate their respective assets and to carry on their
respective businesses as presently conducted.
4.04 Ownership. Mocorp is, and will be as of the Closing, the indirect
legal and beneficial owner of all of the capital stock or partnership
interests (as the case may be) of the Mocorp Marketing Companies, free and
clear of all Liens. Mocorp will be as of the Closing the indirect legal and
beneficial owner of all of the capital stock of MNGI and Mobil Canada, free
and clear of all Liens, except for Liens granted under the terms of the LLC
Agreement and the Limited Partnership Agreement.
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4.05 No Default or Consents. Except as disclosed in the MNGI
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein (i) will conflict
with or result in a breach, default or violation of (A) the charter or bylaws
of MNGI or any other Mocorp Marketing Company or (B) any material Permit or
Judgment to which MNGI or any other Mocorp Marketing Company is a party or to
which any one of them is subject or by which any of their respective assets
is bound, or (ii) will result in the creation of any Lien on any material
asset of MNGI or any other Mocorp Marketing Company, the failure to obtain
which would have a Material Effect on the MNGI Business. Except as disclosed
in the MNGI Disclosure Schedule, no material consent, action, approval or
authorization of, or registration, declaration or filing with, any
Governmental Authority is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by MNGI or the
consummation by MNGI or its Affiliates of the transactions contemplated
herein.
4.06 Financial Statements. Section 4.06 of the MNGI Disclosure
Schedule sets forth pro forma balance sheets for the MNGI US Business and the
MNGI Canada Business as of March 31, 1996 (the MNGI March 31 Balance
Sheets ). The MNGI March 31 Balance Sheets have been prepared in accordance
with GAAP applied on a consistent basis and in accordance with the notes
thereto, present fairly the financial condition of the MNGI Business as of
such date, and are consistent with the books and records of the MNGI Business;
provided, however, that the MNGI March 31 Balance Sheets do not include a
provision for income taxes, are subject to normal year-end adjustments (which
will not be material individually or in the aggregate) and lack certain
footnotes and other presentation items.
4.07 No Adverse Changes. Except as disclosed in the MNGI Disclosure
Schedule, since March 31, 1996 through the date of this Agreement, there have
been no changes in (i) the financial condition or results of operations of the
MNGI Business or (ii) the condition (other than financial) of the MNGI
Business other than, with respect to clauses (i) and (ii) hereof, changes
which have not in the aggregate had a Material Effect on the MNGI Business.
4.08 Legal Compliance; Proceedings. Except as disclosed in the MNGI
Disclosure Schedule, the MNGI Business is in compliance with all Legal
Requirements and there are no Proceedings pending or, to the Knowledge of
MNGI, threatened against MNGI or any of its Affiliates in connection with the
MNGI Business alleging any failure so to comply or otherwise relating to the
MNGI Assets or MNGI Business, except, in each case, where such non-compliance
or Proceeding would not have a Material Effect on the MNGI Business.
4.09 Contractual Obligations. (a) Except as disclosed in the MNGI
Disclosure Schedule, and except with respect to any Contracts or other assets
of MNGI or of any other Mocorp Marketing Company that are not included in the
MNGI Assets, neither MNGI nor any other Mocorp Marketing Company is a party
to any of the following, whether written or oral:
(i) Contract for the future purchase, transportation, sale or
storage of natural gas or electric power, which Contract (A) will be
active as of the Effective Time and be in effect for more than 31
consecutive days after the Effective Time, (B) is not terminable without
penalty on not more than 30 days notice and (C) provides for payments
in any one year in excess of $500,000;
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(ii) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, or under which it
has imposed a security interest on any of its assets, tangible or
intangible, which security interest secures indebtedness for borrowed
money;
(iii) except for Contracts entered into with customers and
suppliers of the MNGI Business in the ordinary course of business and
agreements entered into with employees, any agreement concerning
confidentiality;
(iv) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, Contract or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(v) lease under which it is the lessee of real or personal
property which lease (A) is not terminable without penalty on not more
than 30 days notice and (B) provides for annual base rental payments
in excess of $100,000;
(vi) Contract for the future purchase of materials, supplies,
equipment or services in excess of its normal operating requirements,
which Contract (A) is not terminable without penalty on not more than
30 days notice and (B) provides for annual payments in excess of
$500,000;
(vii) Derivative Contracts, other than those entered into in the
ordinary course of business;
(viii) Contract with any Affiliate of Mocorp that is included
within the MNGI Business;
(ix) Contract for (A) the sale of any asset (other than sales of
natural gas and electric power in the ordinary course of business) or
(B) the grant of right or option to purchase any such asset, in each
case requiring payments in excess of $500,000; or
(x) Contract that purports to limit its freedom to compete in
any line of business or in any geographic area.
(b) Neither MNGI nor any other Mocorp Marketing Company is in
default, nor but for a requirement that notice be given or that a period of
time elapse or both, would be in default, under any Contract to which it is
party or by which it or their respective assets are bound relating to the MNGI
Business, which default would have a Material Effect on the MNGI Business.
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4.10 Taxes. Except as disclosed in the MNGI Disclosure Schedule, (i)
all Tax Returns, reports and forms required to be filed on or before the
Closing Date in connection with the activities or assets of MNGI have been or
will be duly prepared and filed in good faith according to applicable Law and
(ii) all Taxes and other levies which are required to be paid with respect to
the activities or assets of MNGI have been duly paid or adequate provision
therefor made on the MNGI Preliminary Effective Time Balance Sheets, except
in each case such as would not in the aggregate have a Material Effect on the
MNGI Business.
4.11 Employee Benefit Liabilities. Except as disclosed in the MNGI
Disclosure Schedule, there are no incurred or contingent liabilities with
respect to any employee benefit plans within the meaning of Section 3(3) of
ERISA, sponsored, maintained or contributed to by Mocorp or any Affiliate of
Mocorp that could reasonably be expected to have a Material Effect on the
ability of MNGI to perform its obligations under this Agreement or result in
the imposition of liability against PEC, Newco US, Newco Canada or any ERISA
Affiliate of PEC.
4.12 Public Utility. Mocorp is not a holding company, a public
utility, a subsidiary of a holding company, or an affiliate or
associate company of a holding company, as such terms are defined in
PUHCA.
4.13 Regulatory Matters. Except as disclosed in the MNGI Disclosure
Schedule, or as to those Legal Requirements, Judgments or Permits the
noncompliance with which could not reasonably be expected to have a Material
Effect on the ability of MNGI to perform its obligations under this Agreement,
MNGI and the other Mocorp Marketing Companies are duly authorized under all
Legal Requirements, Judgments and Permits to perform the obligations under and
enjoy the benefits of the MNGI Contracts (as presently constituted) to which
they are a party.
Mobil 4.14 Intellectual Property. (a) Mocorp or its Affiliates own or
have the right to use pursuant to license, sublicense, agreement, or
permission all Intellectual Property necessary for the operation of the MNGI
Business as presently conducted. Each item of Intellectual Property owned by
Mocorp or its Affiliates in connection with the MNGI Business during the 12-
month period immediately preceding the Closing will be owned or available for
use by Newco US and Newco Canada pursuant to the Mocorp License Agreement on
substantially the same terms and conditions immediately subsequent to the
Closing, subject to receipt of the MNGI Consents (defined in Section 5.07).
(b) Except as would not have a Material Effect on the MNGI
Business, (i) neither Mocorp nor any of its Affiliates has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third Persons with respect to the MNGI
Business, and (ii) neither Mocorp nor its Affiliates have within the past two
years received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or conflict (including any
claim that any of them must license or refrain from using any Intellectual
Property rights of any third Person). To the Knowledge of MNGI, no third
Person has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of Mocorp or its
Affiliates that are used by the MNGI Business or are to be licensed to Newco
US or Newco Canada.
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4.15 No Distribution. MNGI and Mobil Canada, respectively, are
acquiring the limited liability company interest in Newco US and the limited
partnership interest in Newco Canada solely for investment purposes and not
with a view to the distribution thereof in violation of applicable securities
laws.
4.16 MNGI Business. Except as excluded by the terms of this Agreement
and except as set forth in the MNGI Disclosure Schedule, the MNGI Assets
constitute all of the material assets (tangible and intangible) owned or held
by MNGI or its Affiliates that are used primarily in the marketing and sale
of gas and electric power and related risk management in the United States and
Canada.
4.17 No Occurrences. Between March 31, 1996 and the date hereof, no
event has occurred that would constitute a breach of Section 5.02 if such
event were to occur after the date hereof.
ARTICLE V
COVENANTS OF THE PARTIES PRIOR TO CLOSING
5.01 Operations and Actions of PTMSI. (a) From the date hereof until
the Closing, PTMSI agrees that except as contemplated by this Agreement,
without the prior written consent of MNGI, PTMSI will not, and will cause the
PanEnergy Marketing Companies not to:
(i) Take any action with respect to the PTMSI Business or the
PTMSI Assets other than in the ordinary course of business;
(ii) Commence any new capital projects relating to the PTMSI
Business or make any additional capital expenditures or additional
commitments for capital expenditures relating thereto in excess of
$500,000 in the aggregate, other than capital projects previously
approved in the ordinary course of business and described in Section
5.01(a)(ii) of the PTMSI Disclosure Schedule;
(iii) Consent to or suffer the imposition of any security interest
on any of the PTMSI Assets;
(iv) Enter into any Contract of the type described in
Section 3.09, except in the ordinary course of business;
(v) Amend, modify, terminate or waive any right under any PTMSI
Contract, except in the ordinary course of business;
(vi) Dispose of any of the PTMSI Assets, except in the ordinary
course of business;
(vii) Acquire any real property;
(viii) Acquire any tangible personal property in excess of
$500,000 in the aggregate; or
(ix) Make any change in the accounting practices or policies used
with respect to the PTMSI Business.
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<PAGE>
(b) From the date hereof until the Closing, PTMSI agrees that
except as contemplated by this Agreement, unless MNGI otherwise consents in
writing, PTMSI shall, and shall cause the PanEnergy Marketing Companies to:
(i) Operate and maintain the PTMSI Business and the PTMSI Assets
only in the ordinary course of business;
(ii) Use all commercially reasonable efforts to maintain good
relations with the customers and suppliers of the PTMSI Business and
others having material business relationships with the PTMSI Business
consistent with past practices; and
(iii) Maintain the books of account and records of the PTMSI
Business in the usual and ordinary manner.
(c) From the date hereof until the Closing, PTMSI agrees that,
without the prior written consent of MNGI, PTMSI will not, and will cause its
Affiliates not to, dispose of any of their respective Intellectual Property
that will be licensed to Newco US and Newco Canada under the PEC License
Agreement, or amend, modify, withdraw or terminate any registration,
application, licensing, royalty or similar Contract relating to any of such
Intellectual Property (other than renewals or extensions of registrations
nearing expiration or other similar routine actions).
5.02 Operations and Actions of MNGI. (a) From the date hereof until
the Closing, MNGI agrees that except as contemplated by this Agreement, and
except with respect to any Contracts or other assets of MNGI or of any other
Mocorp Marketing Company that are not included in the MNGI Assets, without the
prior written consent of PTMSI, MNGI will not, and will cause the other Mocorp
Marketing Companies not to:
(i) Take any action with respect to the MNGI Assets or the MNGI
Business other than in the ordinary course of business;
(ii) Commence any new capital projects relating to the MNGI
Business or make any additional capital expenditures or additional
commitments for capital expenditures relating thereto in excess of
$500,000 in the aggregate, other than capital projects previously
approved in the ordinary course of business and described in Section
5.02(a)(ii) of the MNGI Disclosure Schedule;
(iii) Consent to or suffer the imposition of any security interest
on any of the MNGI Assets;
(iv) Enter into any Contract of the type described in
Section 4.09, except in the ordinary course of business;
(v) Amend, modify, terminate or waive any right under any MNGI
Contract, except in the ordinary course of business;
(vi) Dispose of any of the MNGI Assets, except in the ordinary
course of business;
(vii) Acquire any real property;
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(viii) Acquire any tangible personal property in excess of
$500,000 in the aggregate; or
(ix) Make any change in the accounting practices or policies used
with respect to the MNGI Business.
(b) From the date hereof until the Closing, MNGI agrees that
except as contemplated by this Agreement, unless PTMSI otherwise consents in
writing, MNGI shall, and shall cause the other Mocorp Marketing Companies to:
(i) Operate and maintain the MNGI Assets and the MNGI Business
only in the ordinary course of business;
(ii) Use all commercially reasonable efforts to maintain good
relations with the customers and suppliers of the MNGI Business and
others having material business relationships with the MNGI Business
consistent with past practices; and
(iii) Maintain the books of account and records of the MNGI
Business in the usual and ordinary manner.
(c) From the date hereof until the Closing, MNGI agrees that,
without the prior written consent of PTMSI, MNGI will not, and will cause its
Affiliates not to, dispose of any of their respective Intellectual Property
that will be licensed to Newco US and Newco Canada under the Mocorp License
Agreement, or amend, modify, withdraw or terminate any registration,
application, licensing, royalty or similar Contract relating to any of such
Intellectual Property (other than renewals or extensions of registrations
nearing expiration or other similar routine actions).
5.03 Access for MNGI. From the date hereof through the Closing, PTMSI
will (i) give or cause to be given to MNGI and its representatives such
access, during normal business hours, to the PTMSI Assets and the books and
records of the PTMSI Business and to employees of the PTMSI Business (in
consultation with PTMSI) as MNGI shall from time to time reasonably request
and (ii) furnish or cause to be furnished to MNGI such financial and operating
data and other information with respect to the PTMSI Assets and the PTMSI
Business, including copies of the PTMSI Contracts and the Contracts described
in Section 3.09 of the PTMSI Disclosure Schedule, as MNGI shall from time to
time reasonably request; in each case, to the extent same shall not
unreasonably interfere with the operation of the PTMSI Business.
5.04 Access for PTMSI. From the date hereof through the Closing, MNGI
will (i) give or cause to be given to PTMSI and its representatives such
access, during normal business hours, to the MNGI Assets and the books and
records of the MNGI Business and to employees of the MNGI Business (in
consultation with MNGI) as PTMSI shall from time to time reasonably request
and (ii) furnish or cause to be furnished to PTMSI such financial and
operating data and other information with respect to the MNGI Assets and the
MNGI Business, including copies of the MNGI Contracts and the Contracts
described in Section 4.09 of the MNGI Disclosure Schedule, as PTMSI shall from
time to time reasonably request; in each case, to the extent same shall not
unreasonably interfere with the operation of the MNGI Business; provided that
MNGI shall not be obligated to provide access to any contract that contains
a confidentiality obligation prohibiting disclosure of such contract to third
parties without the consent of the other party to such contract (collectively,
the Specified Contracts ).
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<PAGE>
5.05 Employees. (a) Neither Newco US nor Newco Canada shall have any
employees.
(b) Subject to the terms of the LLC Agreement and the Limited
Partnership Agreement, the PanEnergy Owners will manage Newco US and Newco
Canada, and in such capacity, PTMSI, on behalf of the PanEnergy Owners, shall
determine whether any employees of the MNGI Business will be hired by a
PanEnergy Marketing Company to provide services to Newco US or Newco Canada.
In that regard, the PanEnergy Marketing Companies may, but shall not be
obligated to, offer employment to employees of the MNGI Business on the terms
set forth in Section 5.05(c).
(c) PTMSI has heretofore furnished MNGI with a list of employees
of the MNGI Business who PTMSI wishes to employ through a PanEnergy Marketing
Company to provide services to Newco US or Newco Canada.
(i) Upon commencement of employment by a PanEnergy Marketing
Company, PTMSI would, or would cause its Affiliates to, take all action
necessary to cause all employees of the MNGI Business accepting offers
of employment from a PanEnergy Marketing Company as of the Closing Date
(the Transferred Employees ) to be covered under the employee benefit
plans (including, subject to clause (iii) below, severance plans) and
fringe benefit arrangements of the PanEnergy Marketing Companies, in
each case on substantially the same basis as those provided to employees
of the PTMSI Business who hold comparable positions; provided that the
medical plan of the PanEnergy Marketing Company shall not impose any
preexisting condition or waiting requirement on any Transferred
Employee s participation in such plan if such employee enrolls within
30 days after the Closing Date. The salary and hourly wages payable to
such employees at the commencement of their employment by the applicable
PanEnergy Marketing Company shall not be decreased prior to the first
anniversary of the Closing Date.
(ii) PTMSI shall, or shall cause the PanEnergy Marketing
Companies to, grant all Transferred Employees credit for purposes of
eligibility (excluding eligibility for early retirement) and vesting
under the employee benefit plans (including vacation and severance) of
the PanEnergy Marketing Companies for their service with the MNGI
Business prior to the Closing Date.
(iii) The PanEnergy Marketing Companies shall provide, from the
Closing Date through the first anniversary thereof, severance pay
benefits for salaried and hourly Transferred Employees, respectively,
that recognize Mobil service and are at least as favorable as the
standard separation allowance plans of Mobil Oil Corporation for
similarly situated salaried employees and hourly employees of Mobil Oil
Corporation (complete and correct copies of which have heretofore been
furnished by MNGI to PTMSI).
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<PAGE>
(iv) Except as expressly provided in this Section 5.05, neither
PTMSI nor any of its Affiliates shall be responsible for, and MNGI and
its Affiliates shall be responsible for and MNGI shall indemnify and
hold PTMSI and its Affiliates harmless from and against, any and all
costs, expenses (including reasonable attorneys fees and expenses),
obligations and liabilities arising out of or relating to (i) claims by
any directors, officers, employees, shareholders, agents or
representatives of MNGI or the other Mocorp Marketing Companies or the
MNGI Business that relate to this Agreement or the consummation of the
transactions contemplated herein (including the transfer or termination
of employment by MNGI or its Affiliates), and (ii) claims by any of such
persons relating to or arising out of (A) their employment by MNGI or
its Affiliates, (B) their employment contracts (if any) with MNGI or its
Affiliates, (C) their pension or other benefit liabilities payable by
Mobil Oil Corporation or its Affiliates, or (D) any Legal Requirement
requiring notice to them of severance or severance benefits.
(v) MNGI shall, and shall cause its Affiliates to, comply with
all Legal Requirements with respect to the employees of the MNGI
Business, including the Workers Adjustment and Retraining Notification
Act.
(d) MNGI shall have the right to designate ten employees who at
the Closing are, or in the 12-month period immediately preceding the Closing
have been, employees of the MNGI Business and who have been approved by PTMSI
to be seconded to a PanEnergy Marketing Company pursuant to a Secondment
Agreement (the Secondment Agreement ), the terms of which shall be agreed
upon by PTMSI and MNGI. Such ten employees shall be seconded to such
PanEnergy Marketing Company for terms of three years (four employees), two and
one-half years (three employees) and two years (three employees),
respectively; provided that, pursuant to the terms of the Secondment
Agreement, the PanEnergy Marketing Company shall have the right to terminate
secondment with respect to any secondee who fails to satisfactorily perform
his or her job functions. At the expiration of the term of secondment with
respect to any secondee (or at the earlier termination of secondment of any
secondee as described above), Mocorp shall have the right to second another
employee of Mocorp or one of its Affiliates approved by PTMSI to replace such
former secondee. Each replacement secondee shall be seconded for the same
term as the original term of the secondee being replaced, unless such
replacement is terminated earlier as described above. If a secondee is
replaced before completion of his full term, the replacement secondee shall
serve for the balance of that term. Pursuant to the Secondment Agreement, the
cost of agreed upon salaries and benefits for the original ten secondees shall
be borne by Newco US or Newco Canada, and the cost of any subsequent secondees
shall be borne by Mocorp unless the applicable PanEnergy Marketing Company
determines that such subsequent secondee is experienced and qualified to
perform his or her job responsibilities.
5.06 PTMSI Contracts and Consents to be Obtained by PTMSI. PTMSI shall
use its commercially reasonable efforts to obtain as soon as practicable all
consents, (the PTMSI Consents ), in form and substance reasonably acceptable
to MNGI, necessary to assign, transfer, convey and deliver the PTMSI Assets
to Newco US and Newco Canada, as applicable.
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5.07 MNGI Contracts and Consents to be Obtained by MNGI. MNGI shall
use its commercially reasonable efforts to obtain as soon as practicable all
consents (the MNGI Consents ), in form and substance reasonably acceptable
to PTMSI, necessary to assign, transfer, convey and deliver the MNGI Assets
to Newco US and Newco Canada, as applicable.
5.08 No Other Transactions. Until this Agreement is terminated or the
Closing occurs, neither party hereto will directly or indirectly (or permit
any of its Affiliates to) solicit, initiate or encourage submission of
proposals or offers from any Person (other than the other party hereto)
relating to any merger, combination or acquisition of, in the case of PTMSI,
all or any material portion of the PTMSI Business or the PTMSI Assets and, in
the case of MNGI, all or any material portion of the MNGI Business or the MNGI
Assets.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Obligation of PTMSI. The obligation of PTMSI to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article IV
shall be correct in all material respects at and as of the Closing Date;
(b) MNGI shall have performed and complied in all material
respects with all of its covenants and agreements herein required to be
performed prior to or at the Closing;
(c) MNGI shall have executed and delivered to PTMSI a
certificate of its president or any vice president confirming that the
representations and warranties of MNGI are correct in all material respects
at and as of the Closing Date and that MNGI has performed and complied in all
material respects with all of its covenants and agreements required herein to
be performed prior to or at the Closing;
(d) no action, suit, or proceeding (excluding any such matter
initiated by PTMSI or any of its Affiliates) shall be pending or threatened
before any Governmental Authority to prohibit the consummation of the
transactions contemplated by this Agreement or to recover substantial damages
from PTMSI or any of its Affiliates resulting therefrom;
(e) PTMSI shall have procured all of the consents to the
assignment of the PTMSI Assets to Newco US and Newco Canada, the failure of
which to obtain would have a Material Effect on Newco US or Newco Canada;
(f) MNGI shall have procured all of the consents to the
assignment of the MNGI Assets to Newco US and Newco Canada, the failure of
which to obtain would have a Material Effect on Newco US or Newco Canada;
(g) the initial Business Plans (as defined in the LLC Agreement
and the Limited Partnership Agreement, collectively the Business Plans ) for
Newco US and Newco Canada shall have been agreed to by the members and
partners, respectively, thereof;
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(h) the purchase and sale under the terms of the Asset Purchase
Agreement shall have been consummated, unless such purchase and sale is not
consummated on account of a default by Buyer under the Asset Purchase
Agreement;
(i) MNGI and PTMSI shall have entered into an agreement (the
Funding Agreement ) with Newco US to make funds available to Newco US in a
manner that is tax efficient and in an amount to be mutually determined by
Mocorp and PEC with an objective of obtaining an A credit rating for Newco
US from Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., if the obtaining thereof would not, in the judgment of either
Mocorp or PEC, be economically onerous, and Mobil Canada and PanEnergy Canada
LP (or their respective Affiliates) shall have entered into a parallel
agreement to similarly make funds available to Newco Canada, which agreements
shall set forth the aggregate maximum amount to be advanced under the LLC
Agreement, the Limited Partnership Agreement, and the Funding Agreement, and
shall contain such other terms, including provisions for return of amounts
advanced, as are mutually agreed upon; and
(j) MNGI shall have provided PTMSI with access to copies of all
Specified Contracts.
PTMSI may waive any condition specified in this Section 6.01 if it executes
a writing so stating at or prior to the Closing.
6.02 Conditions to Obligation of MNGI. The obligation of MNGI to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article III
shall be correct in all material respects at and as of the Closing Date;
(b) PTMSI shall have performed and complied in all material
respects with all of its covenants and agreements herein required to be
performed prior to or at the Closing;
(c) PTMSI shall have executed and delivered to MNGI a
certificate of its president or any vice president confirming that the
representations and warranties of PTMSI are correct in all material respects
at and as of the Closing Date and that PTMSI has performed and complied in all
material respects with all of its covenants and agreements required herein to
be performed prior to or at the Closing;
(d) no action, suit, or proceeding (excluding any such matters
initiated by MNGI or any of its Affiliates) shall be pending or threatened
before any Governmental Authority to prohibit the consummation of the
transactions contemplated by this Agreement or to recover substantial damages
from MNGI or any of its Affiliates resulting therefrom;
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(e) PTMSI shall have procured all of the consents to the
assignment of the PTMSI Assets to Newco US and Newco Canada, the failure of
which to obtain would have a Material Effect on Newco US or Newco Canada;
(f) MNGI shall have procured all of the consents to the
assignment of the MNGI Assets to Newco US and Newco Canada, the failure of
which to obtain would have a Material Effect on Newco US or Newco Canada;
(g) the initial Business Plans for Newco US and Newco Canada
shall have been agreed to by the members and partners, respectively, thereof;
(h) the purchase and sale under the terms of the Asset Purchase
Agreement shall have been consummated, unless such purchase and sale is not
consummated on account of a default by Sellers under the Asset Purchase
Agreement; and
(i) MNGI and PTMSI shall have entered into the Funding Agreement
with Newco US to make funds available to Newco US in a manner that is tax
efficient and in an amount to be mutually determined by Mocorp and PEC with
an objective of obtaining an A credit rating for Newco US from Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., if the
obtaining thereof would not, in the judgment of either Mocorp or PEC, be
economically onerous, and Mobil Canada and PanEnergy Canada LP (or their
respective Affiliates) shall have entered into a parallel agreement to
similarly make funds available to Newco Canada, which agreements shall set
forth the aggregate maximum amount to be advanced under the LLC Agreement, the
Limited Partnership Agreement, and the Funding Agreement, and shall contain
such other terms, including provisions for return of amounts advanced, as are
mutually agreed upon.
MNGI may waive any condition specified in this Section 6.02 if it executes a
writing so stating at or prior to the Closing.
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ARTICLE VII
POST-CLOSING COVENANTS
The parties hereto agree as follows with respect to the period following
the Closing:
7.01 Consents Not Obtained. If prior to the Closing PTMSI does not
obtain any PTMSI Consent, PTMSI shall, at the expense and using the employees
of, Affiliates of PTMSI, as appropriate, (i) continue to use all commercially
reasonable efforts to obtain such consent and (ii) enter into lawful
arrangements with Newco US or Newco Canada, as appropriate, which arrangements
are mutually acceptable to the parties hereto, to transfer to Newco US or
Newco Canada, as appropriate, the benefits and burdens accruing from and after
the Effective Time under the Contract to which such PTMSI Consent relates.
If prior to the Closing MNGI does not obtain any MNGI Consent, MNGI shall, at
the expense of MNGI, (A) continue to use all commercially reasonable efforts
to obtain such consent and (B) enter into lawful arrangements with Newco US
or Newco Canada, as appropriate, which arrangements are mutually acceptable
to the parties hereto, to transfer to Newco US or Newco Canada, as
appropriate, the benefits and burdens accruing from and after the Effective
Time under the Contract to which such MNGI Consent relates.
7.02 Tax Matters. PTMSI shall be responsible for the preparation and
filing of all Tax Returns required to be filed after the Closing Date with
respect to the PTMSI Assets relating to periods ending on or before the
Closing Date. MNGI shall be responsible for the preparation and filing of all
Tax Returns required to be filed after the Closing Date with respect to the
MNGI Assets relating to periods ending on or before the Closing Date. All
state, provincial and local transfer, sales, use or other similar Taxes
resulting from the assignment, transfer, conveyance and delivery of the PTMSI
Assets or the MNGI Assets shall be the responsibility of the assignor or
transferor thereof.
7.03 Indemnification. (a) From and after the Closing, subject to the
provisions of Section 7.03(c), PTMSI shall indemnify, defend and hold harmless
MNGI and its Affiliates and Newco US and Newco Canada and their respective
representatives, employees and agents from and against any and all damages,
claims, liabilities, losses, costs and expenses (including attorneys fees and
expenses) (collectively Losses ) arising out of, resulting from, or related
to any one or more of the following (collectively the MNGI Indemnified
Liabilities ):
(i) breach of any of PTMSI s representations or warranties in
this Agreement (disregarding for the purpose of this Section 7.03(a) any
materiality qualifiers);
(ii) breach of any of PTMSI s covenants under this Agreement; or
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(iii) except for the PTMSI Liabilities that are reflected on the PTMSI
Final Effective Time Balance Sheets, the ownership, operation or use by
PTMSI and its Affiliates of their respective assets or the businesses
of PTMSI and the PanEnergy Marketing Companies relating to the marketing
and sale of gas and electric power and related risk management and
conducted in the United States and Canada prior to the Effective Time,
including any litigation to which PTMSI or any of the PanEnergy
Marketing Companies is a party;
provided that PTMSI shall have no liability under Section 7.03(a)(i)
unless the aggregate of all Losses for which PTMSI would, but for this
proviso, be liable exceeds on a cumulative basis $1,000,000, and then
only to the extent of any such excess.
(b) From and after the Closing, subject to the provisions of
Section 7.03(c), MNGI shall indemnify, defend and hold harmless PTMSI and its
Affiliates and Newco US and Newco Canada and their respective representatives,
employees and agents (each a PTMSI Party ) from and against any and all
Losses arising out of, resulting from, or related to any one or more of the
following (collectively the PTMSI Indemnified Liabilities ):
(i) breach of any of MNGI s representations or warranties in
this Agreement (disregarding for the purpose of this Section 7.03(b) any
materiality qualifiers);
(ii) breach of any of MNGI s covenants under this Agreement; or
(iii) except for the MNGI Liabilities that are reflected on the
MNGI Final Effective Time Balance Sheets, the ownership, operation or
use by MNGI and its Affiliates of their respective assets or the
businesses of MNGI and the Mocorp Marketing Companies relating to the
marketing and sale of gas and electric power and related risk management
and conducted in the United States and Canada prior to the Effective
Time, including any litigation to which MNGI or any of the Mocorp
Marketing Companies is a party;
provided that MNGI shall have no liability under Section 7.03(b)(i)
unless the aggregate of all Losses for which MNGI would, but for this
proviso, be liable exceeds on a cumulative basis $1,000,000, and then
only to the extent of any such excess.
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(c) The representations and warranties in this Agreement and in
any other document or certificate to be delivered at the Closing pursuant
hereto shall survive the Closing solely for purposes of this Article VII and
shall terminate on the second anniversary of the Closing Date. No action can
be brought with respect to any breach of any representation and warranty under
this Agreement or any certificate to be delivered at the Closing pursuant
hereto unless a Claim Notice or Indemnity Notice (each as defined below)
specifying the breach of the representation or warranty forming the basis of
such claim has been delivered to the party alleged to have breached such
representation or warranty prior to the termination date of such
representation or warranty as described in this Section 7.03(c). Any claim
for indemnity for breach of covenant herein that pursuant to its terms is to
be performed prior to the Closing shall be effective only as to matters with
respect to which a Claim Notice has been delivered pursuant hereto on or
before the second anniversary of the Closing Date. Any claim for indemnity
pursuant to Section 7.03(a)(iii) or 7.03(b)(iii) with respect to (i) a Third
Party Claim (as defined below) shall be effective only as to matters with
respect to which a Claim Notice has been delivered pursuant hereto on or
before the third anniversary of the Closing Date and (ii) a claim that does
not involve a Third Party Claim shall be effective only as to matters with
respect to which an Indemnity Notice has been delivered pursuant hereto on or
before the second anniversary of the Closing Date. THE LIMITED RIGHTS
PROVIDED TO PTMSI AND MNGI PURSUANT TO THIS ARTICLE VII SHALL BE THE SOLE
REMEDY FOR ANY INACCURACY IN OR BREACH OF ANY REPRESENTATIONS, WARRANTIES OR
COVENANTS CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT OR CERTIFICATE TO BE
DELIVERED AT THE CLOSING. TO THE FULLEST EXTENT PERMITTED BY LEGAL
REQUIREMENTS, EACH OF PTMSI AND MNGI HEREBY WAIVES ANY AND ALL OTHER RIGHTS
IT MAY HAVE AT LAW OR IN EQUITY WITH RESPECT TO ANY INACCURACY IN OR BREACH
OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS DESCRIBED IN THIS SECTION
7.03(C).
7.04 Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
Indemnified Party ) with respect to any claim ( Third Party Claim ) asserted
by a Person other than a party hereto or its Affiliates or Newco US or Newco
Canada against the Indemnified Party that could give rise to a right of
indemnification under this Agreement shall promptly (i) notify the party from
whom indemnification is sought (the Indemnifying Party ) of the Third Party
Claim and (ii) transmit to the Indemnifying Party a written notice ( Claim
Notice ) describing in reasonable detail the nature of the Third Party Claim,
a copy of all papers served with respect to such claim (if any), the
Indemnified Party s best estimate of the amount of damages attributable to the
Third Party Claim and the basis of the Indemnified Party s request for
indemnification under this Agreement. Subject to Section 7.03(c), failure to
provide such Claim Notice shall not affect the right of the Indemnified
Party s indemnification hereunder except to the extent the Indemnifying Party
is prejudiced thereby. Within 30 days after receipt of any Claim Notice (the
Election Period ), the Indemnifying Party shall notify the Indemnified Party
(A) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article VII with respect to such Third Party
Claim and (B) whether the Indemnifying Party desires to defend the Indemnified
Party against such Third Party Claim; provided that if the Indemnifying Party
fails to so notify the Indemnified Party during the Election Period, the
Indemnifying Party shall be deemed to have elected to dispute such liability.
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(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party does not dispute its
potential liability to the Indemnified Party under this Article VII and that
the Indemnifying Party elects to assume the defense of the Third Party Claim,
then the Indemnifying Party shall have the right to defend, at its sole cost
and expense, such Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 7.04(b). The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided that the Indemnifying Party shall not enter into
any settlement agreement providing for a finding of responsibility or
liability on the part of the Indemnified Party or providing any material
sanction or material restriction upon the conduct of any business by the
Indemnified Party without the Indemnified Party s consent, which consent shall
not be unreasonably withheld. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if pursuant to
Section 7.04(b) or 7.04(d) the Indemnified Party is actually entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings which the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and
not prejudicial to the Indemnifying Party. If requested by the Indemnifying
Party, the Indemnified Party agrees, at the sole cost and expense of the
Indemnifying Party, to cooperate with the Indemnifying Party and its counsel
in contesting any Third Party Claim which the Indemnifying Party elects to
contest, including the making of any related counterclaim against the Person
asserting the Third Party Claim or any cross-complaint against any Person
(other than an (i) Affiliate of the Indemnified Party, (ii) Newco US or (iii)
Newco Canada). The Indemnified Party may participate in, but not control, any
defense or settlement or any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 7.04, and the Indemnified Party shall bear its
own costs and expenses with respect to such participation.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 7.04(b), or if the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 7.04(b) but
fails to diligently prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (but only if pursuant to Section 7.04(b) or 7.04(d)
the Indemnified Party is actually entitled to indemnification hereunder), the
Third Party Claim by all appropriate proceedings, which proceedings shall be
promptly and vigorously prosecuted by the Indemnified Party to a final
conclusion or settled. The Indemnified Party shall have full control of such
defense and proceedings; provided, however, that the Indemnified Party may not
enter into, without the Indemnifying Party s consent, which shall not be
unreasonably withheld, any compromise or settlement of such Third Party Claim.
The Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section
7.04(c), and the Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
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(d) If the Indemnifying Party elects not to assume the defense
of a Third Party Claim, or elects to assume the defense of a Third Party
Claim, but reserves the right to dispute whether such claim is an
indemnifiable loss under this Agreement, the determination of whether the
Indemnified Party is entitled to indemnification hereunder shall be resolved
pursuant to Section 9.14.
(e) If any Indemnified Party has a claim against any
Indemnifying Party hereunder which does not involve a Third Party Claim, the
Indemnified Party shall promptly transmit to the Indemnifying Party a written
notice (the Indemnity Notice ) describing in reasonable detail the nature of
the claim, the Indemnified Party s best estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party s request
for indemnification under this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within 60 days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the Indemnifying Party
shall be deemed to have disputed such claim. If the Indemnifying Party has
disputed such claim, such dispute shall be resolved pursuant to Section 9.14.
ARTICLE VIII
TERMINATION; REMEDIES; LIMITATIONS
8.01 Grounds for Termination. This Agreement may be terminated:
(a) By the written agreement of PTMSI and MNGI, at any time on
or prior to the Closing Date;
(b) By either PTMSI or MNGI, by written notice to the other, if
the transactions contemplated hereby shall not have been consummated by August
2, 1996, unless the lack of consummation shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe any of the
covenants hereof to be performed or observed by such party; or
(c) By either PTMSI or MNGI, at any time on or prior to the
Closing Date, if a final, nonappealable Judgment has been entered against
PTMSI or MNGI or any of their respective Affiliates restraining, prohibiting,
or declaring illegal any material part of the transactions provided for
hereby.
8.02 Effect of Termination. If the Closing does not occur as a result
of any party s exercising its right to terminate pursuant to Section 8.01,
then this Agreement shall automatically terminate (except for Sections 9.04
and 9.05), and no party shall have any rights or obligations under this
Agreement, except that nothing herein shall relieve any party from any
liability for any breach hereof, or from its obligations under Section 9.04
or 9.05 or under the Confidentiality Agreement dated as of June 27, 1995
between Associated Natural Gas Corporation and MNGI, as ratified by PEC (the
Confidentiality Agreement ).
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8.03 Remedies.
(A) THE FAILURE BY THE BUYER TO FULFILL ANY UNDERTAKING OR
COMMITMENT PROVIDED FOR IN THE ASSET PURCHASE AGREEMENT ON THE PART OF THE
BUYER THAT IS REQUIRED TO BE FULFILLED ON OR PRIOR TO THE CLOSING DATE (AS
THEREIN DEFINED) SHALL CONSTITUTE A DEFAULT BY PTMSI UNDER THIS AGREEMENT FOR
PURPOSES OF THIS SECTION 8.03; AND THE FAILURE BY THE SELLERS TO FULFILL ANY
UNDERTAKING OR COMMITMENT PROVIDED FOR IN THE ASSET PURCHASE AGREEMENT ON THE
PART OF THE SELLERS THAT IS REQUIRED TO BE FULFILLED ON OR PRIOR TO THE
CLOSING DATE (AS THEREIN DEFINED) SHALL CONSTITUTE A DEFAULT BY MNGI UNDER
THIS AGREEMENT FOR PURPOSES OF THIS SECTION 8.03.
(B) NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY
OTHER PROVISION OF THIS AGREEMENT, UPON THE FAILURE BY PTMSI TO FULFILL ANY
MATERIAL UNDERTAKING OR COMMITMENT PROVIDED FOR IN THIS AGREEMENT ON THE PART
OF PTMSI THAT IS REQUIRED TO BE FULFILLED ON OR PRIOR TO THE CLOSING DATE,
INCLUDING THE BREACH BY PTMSI OF ITS AGREEMENT SET FORTH IN SECTION 5.08, MNGI
MAY TERMINATE THIS AGREEMENT IF IT ALSO TERMINATES THE ASSET PURCHASE
AGREEMENT AND REQUIRE THAT PTMSI PROMPTLY PAY TO MNGI THE TERMINATION FEE AS
LIQUIDATED DAMAGES, AS MNGI S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, ALL
OTHER REMEDIES BEING EXPRESSLY WAIVED BY MNGI.
(C) NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY
OTHER PROVISION OF THIS AGREEMENT, UPON THE FAILURE BY MNGI TO FULFILL ANY
MATERIAL UNDERTAKING OR COMMITMENT PROVIDED FOR IN THIS AGREEMENT ON THE PART
OF MNGI THAT IS REQUIRED TO BE FULFILLED ON OR PRIOR TO THE CLOSING DATE,
INCLUDING THE BREACH BY MNGI OF ITS AGREEMENT SET FORTH IN SECTION 5.08, PTMSI
MAY TERMINATE THIS AGREEMENT IF IT ALSO TERMINATES THE ASSET PURCHASE
AGREEMENT AND REQUIRE THAT MNGI PROMPTLY PAY TO PTMSI THE TERMINATION FEE AS
LIQUIDATED DAMAGES, AS PTMSI S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, ALL
OTHER REMEDIES BEING EXPRESSLY WAIVED BY PTMSI.
(D) PTMSI AND MNGI AGREE UPON THE TERMINATION FEE AMOUNT AS
LIQUIDATED DAMAGES DUE TO THE DIFFICULTY AND INCONVENIENCE OF MEASURING ACTUAL
DAMAGES AND THE UNCERTAINTY THEREOF, AND PTMSI AND MNGI AGREE THAT THE
TERMINATION FEE IS A REASONABLE ESTIMATE OF PTMSI S LOSS IN THE EVENT OF ANY
SUCH DEFAULT BY MNGI AND OF MNGI S LOSS IN THE EVENT OF ANY SUCH DEFAULT BY
PTMSI.
8.04 Limitations. (a) NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, IT IS THE EXPLICIT INTENT
OF EACH PARTY HERETO THAT NEITHER PARTY IS MAKING ANY REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, BEYOND THOSE
REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN THIS AGREEMENT.
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(b) NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY
OTHER PROVISION OF THIS AGREEMENT, PTMSI AND MNGI AGREE THAT, EXCEPT FOR THE
LIQUIDATED DAMAGES SPECIFICALLY PROVIDED FOR IN SECTION 8.03, THE RECOVERY BY
EITHER PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS A RESULT OF
ANY BREACH BY THE OTHER PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR
OBLIGATIONS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES
SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY
THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS
HEREUNDER AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO THE NON-
BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES, EXCEPT TO THE EXTENT CONSTITUTING PART OF A THIRD PARTY CLAIM
PURSUANT TO ARTICLE VII, SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS
A RESULT OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR OBLIGATIONS HEREUNDER.
ARTICLE IX
MISCELLANEOUS
9.01 No Partnership. No term or provision of this Agreement shall be
construed to establish any relationship of partnership, agency or joint
venture between the parties hereto.
9.02 Further Assurances. Following the Closing, PTMSI and MNGI each
shall, and shall cause their appropriate Affiliates to, execute and deliver
such documents, and take such other action as shall be reasonably requested
by the other party hereto to carry out the transactions provided for herein.
Nothing herein shall constitute a waiver by either party of any other right
or remedy it may have under this Agreement or otherwise, at law or in equity.
9.03 Publicity. PTMSI and MNGI shall not, and shall cause their
respective Affiliates not to, issue or make any press release or announcement
concerning the transactions contemplated hereby, without the prior written
agreement of the other party with respect to the form and substance thereof,
except that either party may make any such press release and announcement
where the releasing party is advised by its legal counsel that such press
release or announcement is required by Legal Requirements or stock exchange
rules or regulations, but in such event the parties shall use their reasonable
good faith efforts to agree as to the form and substance of such release or
announcement.
9.04 Broker Fees. PTMSI and MNGI shall each be responsible for 50% of
the fees and commission owed to Merrill, Lynch, Pierce, Fenner & Smith, if
any, in connection with the transactions contemplated hereby. PTMSI shall
indemnify, defend and hold harmless MNGI, Newco US and Newco Canada from and
against all fees and commissions owing to any other broker, finder or agent
as a result of the transactions contemplated hereby and arising out of any
obligation created or assumed by PTMSI or any of its Affiliates or any of
their respective officers, directors, employees or agents, and MNGI shall
indemnify, defend and hold harmless PTMSI, Newco US and Newco Canada from and
against all fees and commissions owing to any other broker, finder or agent
as a result of the transactions contemplated hereby and arising out of any
obligation created or assumed by MNGI or any of its Affiliates or any of their
respective officers, directors, employees or agents.
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9.05 Costs and Expenses. Each party shall bear its own expenses
incurred in connection with the negotiation, preparation and execution of this
Agreement.
9.06 Notices. All notices or other communications required or
permitted to be given under this Agreement shall be sufficiently given for all
purposes hereunder if in writing and personally delivered, delivered by
recognized courier service (such as Federal Express) or certified United
States mail, return receipt requested, or sent by facsimile communication to
the appropriate address or number as set forth below. Notices shall be
effective upon receipt by the party to be notified. The addresses for notice
are as follows:
If to PTMSI, as follows:
PanEnergy Trading and Market Services, Inc.
10777 Westheimer
Suite 650
Houston, Texas 77042
Telephone: 713-260-1800
Fax: 713-260-6511
Attn: General Counsel
If to MNGI, as follows:
Mobil Oil Corporation
3225 Gallows Road
Fairfax, VA 22037
Telephone: 703-846-4153
Fax: 703-846-4165
Attn: W.S. Piontek
or to such other address as hereafter shall be furnished as provided in this
Section 9.06 by either party hereto to the other party hereto.
9.07 Assignment and Amendment. Neither the rights nor the obligations
under this Agreement shall be assignable in whole or in part by either party
hereto without the prior written consent of the other party hereto, and any
purported assignment in violation hereof shall be null and void. This
Agreement shall not be amended, except pursuant to a writing executed by both
of the parties hereto.
9.08 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
9.09 Entire Agreement; Supersedure. This Agreement and the
Confidentiality Agreement set forth the entire understanding and agreement
between the parties as to the matters covered herein and therein and supersede
and replace any prior understanding, agreement or statement (written or oral)
with respect thereto. The headings herein are for convenience only and shall
have no significance in the interpretation hereof.
<PAGE>
<PAGE>
9.10 Incorporation of Schedules. The PTMSI Disclosure Schedule and the
MNGI Disclosure Schedule are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to
this Agreement and the words herein , hereby , hereof and words of
similar import refer to this Agreement (including its Exhibits, the PTMSI
Disclosure Schedule and the MNGI Disclosure Schedule) as an entirety.
9.11 Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Texas without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas.
9.12 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
9.13 Third Person. Nothing herein expressed or implied is intended or
shall be construed to confer upon or to give any Person not a party hereto any
rights or remedies under or by reason of this Agreement, except as provided
in Section 7.03.
9.14 Dispute Resolution; Arbitration.
(a) In the event of any controversy or claim, whether based in
contract, tort or otherwise, arising out of or relating to this Agreement or
the scope, breach, termination or validity of this Agreement (a Claim ), the
parties to this Agreement (the Parties ) shall promptly seek to resolve any
such Claim by negotiations between senior executives of the Parties who have
authority to settle the Claim. When a Party believes there is a Claim under
this Agreement, that Party will give the other Party written notice of the
Claim. Within thirty (30) days after receipt of such notice, the receiving
Party shall submit to the other a written response. Both the notice and
response shall include (i) a statement of each Party's position and a summary
of the evidence and arguments supporting its position, and (ii) the name,
title, fax number, and telephone number of the executive who will represent
that Party. If a Claim involves a claim arising out of the actions of any
Person not a signatory to this Agreement, the receiving Party shall have such
additional time as necessary, not to exceed an additional 60 days, to
investigate the Claim before submitting a written response. The executives
shall meet at a mutually acceptable time and place within 15 days after the
date of the response and thereafter as often as they reasonably deem necessary
to exchange relevant information and to attempt to resolve the Claim. If one
of the executives intends to be accompanied at a meeting by an attorney, the
other executive shall be given at least five working days' notice of such
intention and may also be accompanied by an attorney. All negotiations and
communications pursuant to this Section 9.14 shall be treated and maintained
by the Parties as confidential information and shall be treated as compromise
and settlement negotiations for the purposes of the Federal Rules of Evidence
and state rules of evidence.
<PAGE>
<PAGE>
(b) If the Claim has not been resolved within 60 days after the
date of the response given pursuant to Section 9.14(a), or such additional
time, if any, that the Parties mutually agree to in writing, or if the Party
receiving such notice denies the applicability of the provisions of Section
9.14(a) or otherwise refuses to participate under the provisions of Section
9.14(a), either Party may initiate binding arbitration pursuant to the
provisions of Section 9.14(c).
(c) Any Claims not settled pursuant to the foregoing provisions
shall be submitted to binding arbitration in accordance with the following
provisions.
(i) The Party desiring to initiate arbitration in connection
with any Claim shall notify the other Party in writing, which notice
shall provide the name of the arbitrator appointed by the Party, demand
arbitration and include a statement of the matter in controversy.
(ii) Within 15 days after receipt of such demand, the receiving
Party shall name its arbitrator. If the receiving Party fails or
refuses to name its arbitrator within such 15-day period, the second
arbitrator shall be appointed, upon request of the Party demanding
arbitration, by the Chief U.S. District Court Judge for the Southern
District of Texas or such other person designated by such judge. The
two arbitrators so selected shall within 15 days after their designation
select a third arbitrator; provided, however, that if the two
arbitrators are not able to agree on a third arbitrator within such 15-
day period, either Party may request the Chief U.S. District Court Judge
for the Southern District of Texas or such other person designated by
such judge to select the third arbitrator as soon as possible. In the
event such Judge declines to appoint an arbitrator, appointment shall
be made, upon application of either Party, pursuant to the Commercial
Arbitration Rules of the American Arbitration Association.
(iii) Each arbitrator shall be a licensed attorney with at least
15 years of oil and gas experience as a practicing attorney and at least
five years of trial experience or shall be a judge with at least 15
years of experience. In addition, at least one of the arbitrators shall
be a judge retired from a state or federal district, appeals or supreme
court. If neither of the arbitrators appointed by or on behalf of the
Parties is a retired judge, then the third arbitrator shall be a retired
judge.
(iv) The Parties hereto hereby request and consent to the three
arbitrators conducting a hearing in Houston, Texas no later than 60 days
following their selection or 30 days after all prehearing discovery has
been completed, whichever is later, at which the Parties shall present
such evidence and witnesses as they may choose, with or without counsel.
(v) Arbitration shall be conducted in accordance with the
Commercial Arbitration Rules and procedures of the American Arbitration
Association.
<PAGE>
<PAGE>
(vi) The Federal Rules of Civil Procedure, as modified or
supplemented by the local rules of civil procedure for the U.S. District
Court for the Southern District of Texas, shall apply in the
arbitration. The Parties shall make their witnesses available in a
timely manner for discovery pursuant to such rules. If a Party fails
to comply with this discovery agreement within the time established by
the arbitrators, after resolving any discovery disputes, the arbitrators
may take such failure to comply into consideration in reaching their
decision. All discovery disputes shall be resolved by the arbitrators
pursuant to the procedures set forth in the Federal Rules of Civil
Procedure.
(vii) Adherence to formal rules of evidence shall not be required.
The arbitrators shall consider any evidence and testimony that they
determine to be relevant.
(viii) The Parties hereto hereby request that the arbitrators
render their decision within 30 calendar days following conclusion of
the hearing.
(ix) Any decision by a majority of the arbitration panel shall
be final, binding and non-appealable. Any such decision may be filed
in any court of competent jurisdiction and may be enforced by any Party
as a final judgment in such court. There shall be no grounds for appeal
of any arbitration award hereunder.
(x) The defenses of statute of limitations and laches shall be
tolled with respect to a Claim of which a Party gives the other Party
written notice, from the date of notice as provided in Section 9.14(a)
until such time as the Claim has been resolved pursuant to Section
9.14(a) or an arbitration award has been entered pursuant to this
Section 9.14(c).
(xi) The arbitrators shall have no authority to award special,
exemplary, or consequential damages, except as to third-party claims
pursuant to the indemnification provisions of Article VII of this
Agreement.
9.15 Recovery of Costs and Attorneys Fees. In the event arbitration
(or, despite the Parties agreement to settle Claims through binding
arbitration, litigation) arising out of this Agreement is initiated by either
Party, the prevailing Party, after the entry of a final non-appealable order,
shall be entitled to recover from the other Party, as a part of said order,
all court costs, fees and expenses of such arbitration (or litigation),
including reasonable attorneys' fees.
9.16 Choice of Forum. If, despite the Parties agreement to submit any
Claims to binding arbitration, there are any court proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby, such
proceedings shall be brought and tried exclusively in the federal or state
courts situated in Harris County, Texas. THE PARTIES HEREBY IRREVOCABLY WAIVE
ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY.
9.17 Time of Essence. Time is of the essence in this Agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first above written.
PANENERGY TRADING AND
MARKET SERVICES, INC.
By:__________________________
Name:________________________
Title:_______________________
MOBIL NATURAL GAS INC.
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
<PAGE>
APPENDIX 1
Sections in which Defined Terms First Appear
--------------------------------------------
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Affiliate Article I
Agreement First paragraph of this
Agreement
Asset Purchase Agreement Section 2.03
Assignment and Assumption Agreement Section 2.01
Business Day Article I
Canada GP Section 2.01
Capital Account Section 2.01
Claim Section 9.14
Claim Notice Section 7.04
Closing Section 2.02
Closing Date Section 2.02
Code Article I
Confidentiality Agreement Section 8.02
Contracts Article I
Control Article I
Derivative Contracts Section 2.01
Effective Time Section 2.02
Election Period Section 7.04
ERISA Section 3.11
ERISA Affiliate Article I
App. 1-1<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Excluded Accounts Section 2.04
Final Effective Time Balance Sheets Section 2.04
Funding Agreement Section 6.01
GAAP Article I
Gas Services Section 2.01
Governmental Authority or Governmental Article I
Indemnified Party Section 7.04
Indemnifying Party Section 7.04
Indemnity Notice Section 7.04
Independent Accountants Section 2.04
Intellectual Property Article I
IRS Article I
Judgments Article I
Knowledge Article I
Law Article I
Legal Requirements Article I
Lien Article I
Limited Partnership Agreement Second paragraph of this
Agreement
LLC Agreement Second paragraph of this
Agreement
Losses Section 7.03
App. 1 -2<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Material Effect Article I
MEPUS Section 2.03
MEPUS/Newco US Supply Contract Section 2.03
MNGI First paragraph of this
Agreement
MNGI Assets Section 2.01
MNGI Business Section 2.03
MNGI Canada Business Section 2.01
MNGI Consents Section 5.07
MNGI Contracts Section 2.01
MNGI Disclosure Schedule Article IV
MNGI March 31 Balance Sheet Section 4.06
MNGI Final Effective Time Balance Sheets Section 2.04
MNGI Indemnified Liabilities Section 7.03
MNGI Liabilities Section 2.01
MNGI Preliminary Effective Time Balance Sheets Section 2.04
MNGI Proposed Final Effective
Time Balance Sheets Section 2.04
MNGI US Assets Section 2.01
MNGI US Business Section 2.01
MNGI US Liabilities Section 2.01
Mobil Section 2.01
Mobil Canada Section 2.01
App. 1-3<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Mobil Canada Assets Section 2.01
Mobil Canada Liabilities Section 2.01
Mobil Owners Section 2.01
Mocan Supply Contract Section 2.03
Mocorp First paragraph of this
Agreement
Mocorp Canada Marketing Companies Section 2.01
Mocorp Contracts Section 2.01
Mocorp Guaranty Section 2.03
Mocorp License Agreement Section 2.03
Mocorp Marketing Companies Section 2.01
NEB Article I
Net Working Capital Section 2.03
Newco Canada Second paragraph of this
Agreement
Newco US Second paragraph of this
Agreement
Owner Section 2.01
Owners Section 2.01
PanEnergy Section 2.01
PanEnergy Canada LP Section 2.01
PanEnergy Marketing Companies Section 2.01
PanEnergy Owners Section 2.01
Parties Section 9.14
App. 1- 4<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Partnership Agreement Second paragraph of this
Agreement
PEC First paragraph of this
Agreement
PEC Guaranty Section 2.03
PEC License Agreement Section 2.03
Permits Article I
Person Article I
Power Section 2.01
Preliminary Effective Time Balance Sheets Section 2.04
Proceeding Article I
Proposed Final Effective Time Balance Sheets Section 2.04
PTMSI First paragraph of this
Agreement
PTMSI Assets Section 2.01
PTMSI Business Section 2.03
PTMSI Canada Assets Section 2.01
PTMSI Canada Business Section 2.01
PTMSI Canada Liabilities Section 2.01
PTMSI Consents Section 5.06
PTMSI Contracts Section 2.01
PTMSI Disclosure Schedule Article III
PTMSI Final Effective Time Balance Sheets Section 2.04
App. 1-5<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
PTMSI Indemnified Liabilities Section 7.03
PTMSI Liabilities Section 2.01
PTMSI March 31 Balance Sheets Section 3.06
PTMSI Party Section 7.03
PTMSI Preliminary Effective Time Balance Sheets Section 2.04
PTMSI Proposed Final Effective Time
Balance Sheets Section 2.04
PTMSI US Assets Section 2.01
PTMSI US Business Section 2.01
PTMSI US Liabilities Section 2.01
PUHCA Section 3.12
Recipient Section 2.04
Related Agreements Section 3.02
Risk Management Section 2.01
Sable Island Supply Contract Section 2.03
Secondment Agreement Section 5.05
Settlement Date Section 2.04
Specified Contracts Section 5.04
Specified Rate Section 2.04
Tax Returns Section 3.10
Taxes Section 3.10
Termination Fee Section 1.01
Third Party Claim Section 7.04
App. 1-6<PAGE>
<PAGE>
Section or Article or
Definition Paragraph
- ---------- ------------------------------
Total Exposure Section 2.04
Transferred Employees Section 5.05
App. 1-7
<PAGE>
State of Delaware PAGE 1
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "PANHANDLE EASTERN CORPORATION", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF APRIL, A.D. 1990, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
--------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7911137
DATE: 04-17-96
<PAGE>
<PAGE> 2
RESTATED
CERTIFICATE OF INCORPORATION
OF
PANHANDLE EASTERN CORPORATION
The undersigned, for the purpose of restating the Certificate of
Incorporation of Panhandle Eastern Corporation (hereinafter called the
"Corporation") pursuant to Section 245 of the General Corporation Law of
the State of Delaware, hereby certify:
I. The name of the Corporation is Panhandle Eastern Corporation. The
Corporation's original Certificate of Incorporation was filed with the
Secretary of State of Delaware on January 26, 1981.
II. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
FIRST: The name of the Corporation is PANHANDLE EASTERN CORPORATION.
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of its registered agent
at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is 303,000,000 shares, of which 3,000,000 shares shall
be Preferred Stock (hereinafter called the "Preferred Stock"), issuable in
series, of the par value of $1.00 per share, and 300,000,000 shares shall
be Common Stock, of the par value of $1.00 per share (hereinafter called
the "Common Stock").
The designations, powers, preferences and rights and the
qualifications, limitations or restrictions of the Preferred Stock and the
Common Stock are as follows:
PROVISIONS APPLICABLE TO PREFERRED STOCK
A. The Preferred Stock may be issued from time to time in one or more
series and with such designation for each such series as shall be stated
and expressed in the resolution or resolutions providing for the issue of
each such series adopted by the Board of Directors. The Board of Directors
in any such resolution or resolutions is expressly authorized to state and
express for each such series:
(1) The voting powers, if any, of the holders of stock of such series;
(2) The rate per annum and the times at and conditions upon which the
holders of stock of such series shall be entitled to receive dividends, and
whether such dividends shall be cumulative or non-cumulative and if
cumulative the terms upon which such dividends shall be cumulative;
<PAGE>
<PAGE> 3
(3) The price or prices and the time or times at and the manner in
which the stock of such series shall be redeemable;
(4) The rights to which the holders of the shares of stock of such
series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(5) The terms, if any, upon which shares of stock of such series shall
be convertible into, or exchangeable for, shares of stock of any other
class or classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of conversion
or exchange and the terms of adjustment, if any; and,
(6) Any other designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof so far as they are not inconsistent with the
provisions of the Certificate of Incorporation, as amended, and to the full
extent now or hereafter permitted by the laws of Delaware.
B. All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon, if cumulative, shall be cumulative.
PROVISIONS APPLICABLE TO PARTICIPATING PREFERRED STOCK
C. There is hereby established one series of Preferred Stock and the
voting powers, designations, preferences, rights, qualifications,
limitations and restrictions of, the dividends on, and the terms of
redemption of, the shares of such series, are hereby fixed as follows:
(1) The distinctive serial designation of this series shall be
"Participating Preferred Stock" (hereinafter called "this Series").
Each share of this Series shall be identical in all respects with the
other Shares of this Series except as to the dates from and after
which dividends thereon shall be cumulative.
(2) The number of shares in this Series shall initially be
1,000,000, which number may from time to time be increased or
decreased (but not below the number then outstanding) by the Board of
Directors. Shares of this Series redeemed or purchased by the
Corporation shall be cancelled and Shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.<PAGE>
<PAGE> 4
(3) The holders of full or fractional shares of this Series shall
be entitled to receive, when and as declared by the Board of
Directors, but only out of funds legally available therefor,
dividends, on each date that dividends or other distributions (other
than dividends or distributions payable in capital stock of the
Corporation) are payable on or in respect of capital stock comprising
part of the Reference Package (as defined below), in an amount per
whole share of this Series equal to the aggregate amount of dividends
or other distributions (other than dividends or other distributions
payable in capital stock of the Corporation) that would be payable on
such date to the holder of the Reference Package. Each such dividend
shall be paid to the holders of record of shares of this Series on
the date, not exceeding fifty (50) days preceding such dividend or
distribution payment date, fixed for the purpose by the Board of
Directors in advance of payment of each particular dividend or
distribution. Dividends on each full and fractional share of this
Series shall be cumulative from the date such full or fractional
share is originally issued; provided that any such full or fractional
share originally issued after a dividend record date and on or prior
to the dividend payment date to which such record date relates shall
not be entitled to receive the dividend payable on such dividend
payment date or any amount in respect of the period from such
original issuance to such dividend payment date.
The term "Reference Package" shall initially mean 100 shares of
Common Stock of the Corporation. In the event the Corporation shall
at any time after the Separation Date [as defined in the Rights
Agreement, dated as of March 11, 1986 (the "Rights Agreement"),
between the Corporation and First City National Bank of Houston, as
Rights Agent] (a) declare or pay a dividend on any capital stock
comprising part of the Reference Package payable in capital stock,
(b) subdivide any capital stock comprising part of the Reference
Package, (c) combine any capital stock comprising part of the
Reference Package into a smaller number of shares or (d) issue in a
reclassification, merger or consolidation any shares of capital stock
in respect of or in lieu of any existing capital stock comprising
part of the Reference Package, then and in each such case the
Reference Package after such event shall be the capital stock that a
holder of the Reference Package immediately prior to such event would
hold thereafter as a result thereof.
Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends, as herein provided on this Series.
<PAGE>
<PAGE> 5
So long as any shares of this Series are outstanding, no
dividend (other than a dividend in Common Stock or in any other stock
ranking junior to this Series as to dividends and upon liquidation)
shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other
stock ranking junior to this Series as to dividends or upon
liquidation, nor shall any Common Stock or any other stock of the
Corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to this Series as to
dividends and upon liquidation) unless, in each case, the full
cumulative dividends (including the dividend to be due upon payment
of such dividend, distribution, redemption, purchase or other
acquisition) on all outstanding shares of this Series shall have
been, or shall contemporaneously be, paid.
(4) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary,
the holders of full and fractional shares of this Series shall be
entitled, before any distribution or payment is made to the holders
of the Common Stock or any other stock of the Corporation ranking
junior to this Series upon liquidation, to be paid in full an amount
per whole share of this Series equal to one hundred times the
Exercise Price (as defined in the Rights Agreement) in effect as of
the Separation Date (such product being hereinafter referred to as
the "Liquidation Preference"), together with accrued dividends to
such distribution or payment date, whether or not earned or declared.
If such payment shall have been made in full to all holders of shares
of this Series, the holders of shares of this Series as such shall
have no right or claim to any of the remaining assets of the
Corporation.
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
dissolution, liquidation or winding up of the Corporation whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to the first
paragraph of this Section (4), no such distribution shall be made on
account of any shares of any other class or series of Preferred Stock
ranking on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless proportionate
distributive amounts shall be paid on account of the shares, of this
Series, ratably in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
Upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of this Series then outstanding
shall be entitled to be paid out of assets of the Corporation
available for distribution to its stockholders all amounts to which
such holders are entitled pursuant to the first paragraph of this
Section (4) before any payment shall be made to the holders of Common
Stock or any other stock of the Corporation ranking junior upon
liquidation to this Series.<PAGE>
<PAGE> 6
For the purposes of this Section (4), the consolidation or
merger of the Corporation with any other corporation shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
(5) The Corporation, at the option of the Board of Directors,
may redeem the whole or any part of the shares of this Series at the
time outstanding, at any time or from time to time after the date
which is two (2) years following the Separation Date referred to
above, upon notice given as hereinafter specified, at a redemption
price equal to the Liquidation Preference, together with accrued
dividends to the redemption date, whether or not earned or declared.
Notice of every redemption of shares of this Series shall be
given by publication at least once in a newspaper printed in the
English language and customarily published on each business day and
of general circulation in the Borough of Manhattan, The City of New
York, such publication to be at least thirty (30) days and not more
than sixty (60) days prior to the date fixed for redemption. Notice
of every such redemption shall also be mailed by first class mail,
postage prepaid, addressed to the holders of record of the shares to
be redeemed at their respective last addresses as they shall appear
on the books of the Corporation. Such mailing shall be at least
thirty (30) days and not more than sixty (60) days prior to the date
fixed for redemption; but failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of
the proceedings for the redemption of any shares so to be redeemed.
In the case of redemption of a part only of the shares of this
Series at the time outstanding, the redemption may be either pro rata
or by lot. The Board of Directors shall have full power and
authority, subject to the provisions herein contained, to prescribe
the terms and conditions upon which shares of this Series shall be
redeemed from time to time.
If notice of redemption shall have been duly given, and if, on
or before the redemption date specified therein, all funds necessary
for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata
benefit of the holders of the shares called for redemption, so as to
be and continue to be available therefor, then, notwithstanding that
any certificate for shares so called for redemption shall not have
been surrendered for cancellation, all shares so called for
redemption shall no longer be deemed outstanding on and after such
redemption date, and all rights with respect to such shares shall
forthwith on such redemption date cease and terminate, except only
the right of the holders thereof to receive the amount payable on
redemption thereof, without interest.
<PAGE>
<PAGE> 7
If such notice of redemption shall have been duly given or if
the Corporation shall have given to the bank or trust company
hereinafter referred to irrevocable authorization promptly to give
such notice, and if on or before the redemption date specified
therein the funds necessary for such redemption shall have been
deposited by the Corporation with such bank or trust company in trust
for the pro rata benefit of the holders of the shares called for
redemption, then, notwithstanding standing that any certificate for
shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares so
called for redemption shall no longer be deemed to be outstanding and
all rights with respect to such shares shall forthwith cease and
terminate, except only the right of the holders thereof to receive
from such bank or trust company at any time after the time of such
deposit the funds so deposited, without interest. The aforesaid bank
or trust company shall be organized and in good standing under the
laws of the United States of America or of the State of New York,
shall be doing business in the Borough of Manhattan, The City of New
York, shall have capital, surplus and undivided profits aggregating
at least $50,000,000 according to its last published statement of
condition, and shall be identified in the notice of redemption. Any
interest accrued on such funds shall be paid to the Corporation from
time to time.
Any funds so set aside or deposited by the Corporation and
unclaimed at the end of three (3) years from such redemption date
shall, to the extent permitted by law, be released or repaid to the
Corporation, after which repayment the holders of the shares so
called for redemption shall look only to the Corporation for payment
thereof.
(6) The shares of this Series shall not have any voting powers,
either general or special, except as hereinafter provided. So long
as any shares of this Series are outstanding, in addition to any
other vote or consent of stockholders required by law or by the
Certificate of Incorporation, the consent of the holders of a
majority of the shares of this Series at the time outstanding, given
in person or by proxy, either in writing without a meeting or by vote
at any meeting called for the purpose, shall be necessary for
effecting or validating:
(a) Any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of the
By-Laws, of the Corporation, which affects adversely the voting
powers, rights or preferences of the holders of the shares of
this Series; provided, however, that the amendment of the
provisions of the Certificate of Incorporation so as to
authorize or create, or to increase the authorized amount of,
the Common Stock or any other stock ranking junior to the
shares of this Series or any shares of any class ranking on a
parity with or prior to the shares of this Series shall not be
deemed to affect adversely the voting powers, rights or
preferences of the holders of the shares of this Series, or
<PAGE>
<PAGE> 8
(b) The merger or the consolidation of the Corporation
with or into any other corporation, or the sale or transfer of
all or substantially all of the assets of the Corporation;
provided, however, that no such vote shall be required in
connection with any merger if (x) the Corporation is the
surviving corporation in such merger, (y) the shares of this
Series continue as shares of the Corporation and (z) in
connection with such merger, no amendment, alteration or repeal
or the Certificate of Incorporation or By-Laws of the
Corporation requiring approval under subsection (a) above shall
be effected; provided, however, that no such consent of the
holders of this Series shall be required if, at or prior to the
time when such amendment, alteration, repeal, consolidation,
merger, sale or transfer is to take effect, as the case may be,
provision is made for the redemption in accordance with the
foregoing provisions of all shares of this Series at the time
outstanding.
PROVISIONS APPLICABLE TO COMMON STOCK
D. Whenever dividends upon the Preferred Stock at the time
outstanding shall have been paid in full for all past dividend periods or
declared and set apart for payment, such dividends as may be determined by
the Board of Directors may be declared by the Board of Directors and paid
from time to time to the holders of the Common Stock.
E. In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, all assets
remaining after the payment to the holders of the preferred Stock at the
time outstanding of the full amounts to which they shall be entitled shall
be divided and distributed among the holders of the Common Stock according
to their respective shares.
F. Each holder of the Common Stock shall have one vote in respect of
each share of such stock held by him.
FIFTH: The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal By-Laws of the Corporation.
SIXTH: Elections of Directors need not be by written ballot except and
to the extent provided in the By-Laws of the Corporation.
SEVENTH: A. In addition to the requirements of the provisions of any
series of Preferred Stock which may be outstanding, and whether or not a
vote of the stockholders is otherwise required, the affirmative vote of the
holders of not less than eighty percent (80%) of the Voting Stock shall be
required for the approval or authorization of any Business Transaction with
a Related Person, or any Business Transaction in which a Related Person has
an interest (except proportionately as a stockholder); provided, however,
that the eighty percent (80%) voting requirement shall not be applicable if
(i) the Continuing Directors, who at the time constitute at least a
majority of the entire Board of Directors of the Corporation, have
expressly approved the Business Transaction by at least a two-thirds (2/3)
vote of such Continuing Directors, or (ii) all of the following conditions
are satisfied;
<PAGE>
<PAGE> 9
(1) The Business Transaction is a merger or consolidation and
the cash or fair market value of the property, securities or other
consideration to be received per share by holders of Common Stock of
the Corporation (other than such Related Person) in the Business
Transaction is at least equal in value to such Related Person's
Highest Purchase Price;
(2) After such Related Person has become the Beneficial Owner
of not less than ten percent (10%) of the Voting Stock of the
Corporation and prior to the consummation of such Business
Transaction, such Related Person shall not have become the Beneficial
Owner of any additional shares of Voting Stock or securities
convertible into Voting Stock, except (a) as a part of the
transaction which resulted in such Related Person becoming the
Beneficial Owner of not less than ten percent (10%) of the Voting
Stock or (b) as a result of a pro rata stock dividend or stock split;
and,
(3) Prior to the consummation of such Business Transaction,
such Related Person shall not have, directly or indirectly,
(a) received the benefit (except proportionately as a stockholder) of
any loans, advances, guarantees, pledges or other financial
assistance or tax credits provided by the Corporation or any of its
subsidiaries, or (b) caused any material change in the Corporation's
business or equity capital structure, including the issuance of
shares of capital stock of the Corporation to any third party.
B. For the purpose of this Article SEVENTH:
(1) The term "Business Transaction" shall mean (a) any merger
or consolidation involving the Corporation or a subsidiary of the
Corporation, (b) any sale, lease, exchange, transfer or other
disposition (in one transaction or a series of transactions),
including without limitation a mortgage or any other security device,
of all or any Substantial Part of the assets either of the
Corporation or of a subsidiary of the Corporation, (c) any sale,
lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of an entity to the Corporation or a
subsidiary of the Corporation, (d) the issuance, sale, exchange,
transfer or other disposition by the Corporation or a subsidiary of
the Corporation of any securities of the Corporation or any
subsidiary of the Corporation, (e) any recapitalization or
reclassification of the Corporation's securities (including, without
limitation, any reverse stock split) or other transaction that would
have the effect of increasing the voting power of a Related Person,
(f) any liquidation, spinoff, splitoff, splitup or dissolution of the
Corporation, and (g) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Transaction.
<PAGE>
<PAGE> 10
(2) The term "Related Person" shall (a) mean and include any
individual, corporation, partnership, group, association or other
person or entity which, together with its Affiliates and Associates,
is the Beneficial Owner of not less than ten percent (10%) of the
Voting Stock of the Corporation or was the Beneficial Owner of not
less than ten percent (10%) of the Voting Stock of the Corporation
(x) at the time the definitive agreement providing for the Business
Transaction (including any amendment thereof) was entered into, (y)
at the time a resolution approving the Business Transaction was
adopted by the Board of Directors of the Corporation, or (z) as of
the record date for the determination of stockholders entitled to
notice of and to vote on, or consent to, the Business Transaction,
and (b) shall mean and include any Affiliate or Associate of any such
individual, corporation, partnership, group, association or other
person or entity; provided, however, and notwithstanding anything in
the foregoing to the contrary, the term "Related Person" shall not
include the Corporation, a wholly owned subsidiary of the
Corporation, any employee stock ownership or other employee benefit
plan of the Corporation or any wholly owned subsidiary of the
Corporation, or any trustee of, or fiduciary with respect to, any
such plan when acting in such capacity.
(3) The term "Beneficial Owner" shall be defined by reference
to Rule 13d-3 under the Securities Exchange Act of 1934, as in effect
on February 23, 1983; provided, however, and without limitation, any
individual, corporation, partnership, group, association or other
person or entity which has the right to acquire any Voting Stock at
any time in the future, whether such right is contingent or absolute,
pursuant to any agreement, arrangement or understanding or upon
exercise of conversion rights, warrants or options, or otherwise,
shall be the Beneficial Owner of such Voting Stock.
(4) The term "Highest Purchase Price" shall mean the highest
amount of consideration paid by such Related Person for a share of
Common Stock of the Corporation within one year prior to the date
such Related Person became a Related Person or in the transaction
which resulted in such Related Person becoming the Beneficial Owner
of not less than ten percent (10%) of the Voting Stock; provided,
however, that the Highest Purchase Price shall be appropriately
adjusted to reflect the occurrence of any reclassification,
recapitalization, stock split, reverse stock split or other
readjustment in the number of outstanding shares of Common Stock of
the Corporation, or the declaration of a stock dividend thereon,
between the last date upon which such Related Person paid the Highest
Purchase Price to the effective date of the merger or consolidation.
(5) The term "Substantial Part" shall mean more than twenty
percent (20%) of the fair market value of the total assets of the
entity in question, as reflected on the most recent consolidated
balance sheet of such entity existing at the time the stockholders of
the Corporation would be required to approve or authorize the
Business Transaction involving the assets constituting any such
Substantial Part.
<PAGE>
<PAGE> 11
(6) In the event of a merger in which the Corporation is the
surviving corporation, for the purpose of subparagraph (1) of
Section A of this Article SEVENTH, the phrase "property, securities
or other consideration to be received" shall include, without
limitation, Common Stock of the Corporation retained by its existing
stockholders.
(7) The term "Voting Stock" shall mean all outstanding shares
of capital stock of the Corporation entitled to vote generally in the
election of directors, considered for the purpose of this Article
SEVENTH as one class; provided, however, that if the Corporation has
shares of Voting Stock entitled to more or less than one vote for any
such share, each reference in this Article SEVENTH to a proportion of
shares of Voting Stock shall be deemed to refer to such proportion of
the votes entitled to be cast by such shares.
(8) The term "Continuing Director" shall mean a director who
either was a member of the Board of Directors of the Corporation
prior to the time such Related Person became a Related Person or who
subsequently became a director of the Corporation and whose election,
or nomination for election by the Corporation's stockholders, was
approved by a vote of at least three-quarters (3/4) of the Continuing
Directors then on the Board.
(9) The term "Affiliate," used to indicate a relationship to a
specified person, shall mean a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person.
(10) The term "Associate," used to indicate a relationship with
a specified person, shall mean (a) any corporation, partnership or
other organization of which such specified person is an officer or
partner or is, directly or indirectly, the Beneficial Owner of ten
percent (10%) or more of any class of equity securities, (b) any
trust or other estate in which such specified person has a
substantial beneficial interest or as to which such specified person
serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of such specified person, or any relative of such
spouse, who has the same home as such specified person or who is a
director or officer of the Corporation or any of its parents or
subsidiaries, and (d) any person who is a director or officer of such
specified person or any of its parents or subsidiaries (other than
the Corporation or any wholly owned subsidiary of the Corporation).
<PAGE>
<PAGE> 12
C. For the purpose of this Article SEVENTH, if the Continuing
Directors constitute at least a majority of the entire Board of Directors,
then two-thirds (2/3) of such Continuing Directors shall have the power to
make a good faith determination, on the basis of information known to them,
of: (i) the number of shares of Voting Stock of which any person is the
Beneficial Owner, (ii) whether a person is an Affiliate or Associate of
another, (iii) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in the definition
of Beneficial Owner herein, (v) whether the assets subject to any Business
Transaction constitute a Substantial Part, (v) whether any Business
Transaction is one in which a Related Person has an interest (except
proportionately as a stockholder), (vi) whether a Related Person has,
directly or indirectly, received the benefits or caused any of the changes
referred to in subparagraph (3) of Section A of this Article SEVENTH, and
(vii) such other matters with respect to which a determination is required
under this Article SEVENTH.
D. Nothing contained in this Article SEVENTH shall be construed to
relieve any Related Person from any fiduciary obligation imposed by law.
E. Notwithstanding any other provisions of this Certificate Of
Incorporation or the By-Laws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the provisions of this
Article SEVENTH may not be repealed or amended in any respect, nor may any
provision be adopted inconsistent with this Article SEVENTH, unless such
action is approved by the affirmative vote of the holders of not less than
eighty percent (80%) of the Voting Stock.
EIGHTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote of
the holders of not less than seventy-five percent (75%) of the outstanding
shares of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class) shall
be required to amend or repeal, or to adopt any provision inconsistent
with, this Article EIGHTH of this Certificate of Incorporation.
NINTH. The By-Laws of the Corporation may be altered, amended or
repealed by the stockholders of the Corporation at any annual or special
meeting of the stockholders by the affirmative vote of the holders of not
less than seventy-five percent (75%) of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class).
<PAGE>
<PAGE> 13
Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote of
the holders of not less than seventy-five percent (75%) of the outstanding
shares of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class) shall
be required to amend or repeal, or to adopt any provision inconsistent
with, this Article NINTH of this Certificate of Incorporation.
TENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware General
Corporation Law as presently in effect or as the same may hereafter be
amended.
No amendment, modification or repeal of this Article TENTH shall
adversely affect any right or protection that exists at the time of such
amendment, modification or repeal.
III. This Restated Certificate of Incorporation was duly adopted by
the stockholders of the Corporation at the Annual Meeting of Stockholders
held on April 25, 1990, in accordance with the applicable provisions of
Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this Certificate has been made under the seal of
said PANHANDLE EASTERN CORPORATION and has been signed by one of its Vice
Presidents and attested by its Assistant Secretary on this 30th day of
April, 1990.
PANHANDLE EASTERN CORPORATION
/s/ CYRIL J. SMITH
Cyril J. Smith
Vice President
ATTEST:
/s/ CHERI L. PEPER
CHERI L. PEPER,
Assistant Secretary
<PAGE>
<PAGE> 14
State of Delaware PAGE 1
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF DESIGNATION OF "PANHANDLE EASTERN CORPORATION", FILED IN THIS OFFICE ON
THE FIFTH DAY OF MARCH, A.D. 1996, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
--------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7911138
DATE: 04-17-96<PAGE>
<PAGE> 15
CERTIFICATE OF ELIMINATION
of the
PARTICIPATING PREFERRED STOCK
(Par Value $1.00 Per Share)
of
PANHANDLE EASTERN CORPORATION
------------------------------------------------
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
------------------------------------------------
PANHANDLE EASTERN CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Company"),
does hereby certify that the following resolutions were duly adopted by the
Board of Directors of the Company on February 16, 1996, and remains in full
force and
effect:
ELIMINATION OF PARTICIPATING PREFERRED STOCK
WHEREAS, the Board of Directors of Panhandle Eastern Corporation
(the "Company") believes that it is in the best interest of the
Company to eliminate the 1,000,000 shares of Participating Preferred
Stock, par value $1.00, of the Company.
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that, pursuant to the authority granted to and vested in
the Board of Directors and in accordance with the provisions of the
Restated Certificate of Incorporation of the Company filed with the
Office of the Secretary of State of the State of Delaware on
April 30, 1990 (the "Certificate of Incorporation"), the Board hereby
states and declares that none of the 1,000,000 authorized shares of
the series of Preferred Stock of the Company designated as
"Participating Preferred Stock" is outstanding and none will be
issued subject to the Certificate of Incorporation or the certificate
of designation and terms previously filed with the Secretary of State
of the State of Delaware with respect to the Participating Preferred
Stock and, when the certificate of elimination, referred to below,
setting forth this resolution becomes effective, it shall have the
effect of eliminating from the Certificate of Incorporation and such
certificate of designation and terms all matters set forth therein
with respect to the Participating Preferred Stock; and <PAGE>
<PAGE> 16
FURTHER RESOLVED, that, pursuant to the authority granted to and
vested in the Board of Directors, the Board of Directors hereby
authorizes the elimination in whole of the Participating Preferred
Stock, and any shares thereof previously reserved for issuance shall
automatically cease to be reserved for such purpose; and
FURTHER RESOLVED, that each officer of the Company is hereby
authorized, in the name and on behalf of the Company, to prepare,
execute and file, or cause to be prepared and filed, a certificate of
elimination relating to the Participating Preferred Stock
substantially in the form presented to the Board of Directors.
IN WITNESS WHEREOF, PANHANDLE EASTERN CORPORATION has caused this
Certificate of Elimination to be duly executed by its duly authorized
officer, this 4th day of March, 1996.
PANHANDLE EASTERN CORPORATION
By: /s/ ROBERT W. REED
------------------------------
Robert W. Reed
Secretary
<PAGE>
<PAGE> 17
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF AMENDMENT OF "PANHANDLE EASTERN CORPORATION", CHANGING ITS NAME FROM
"PANHANDLE EASTERN CORPORATION" TO "PANENERGY CORP", FILED IN THIS OFFICE
ON THE TWENTY-FIFTH DAY OF APRIL, A.D. 1996, AT 8:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL] AUTHENTICATION: 7921638
DATE: 04-29-96
<PAGE>
<PAGE> 18
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PANHANDLE EASTERN CORPORATION
Panhandle Eastern Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), DOES HEREBY CERTIFY:
First: That at a regular meeting of the Board of Directors of the
Corporation held on January 24, 1996, the Board of Directors unanimously
adopted resolutions proposing and declaring advisable that the first
sentence of Section I of the Restated Certificate of Incorporation of the
Corporation be amended to read as follows:
"I. The name of the Corporation is PanEnergy Corp".
and, further, that Article FIRST of Section II of the Restated Certificate
of Incorporation be amended to read as follows:
"FIRST: The name of the corporation is PanEnergy Corp".
Second: That on April 24, 1996 the stockholders of the Corporation
entitled to vote it in respect of such Amendment, acting pursuant to
Section 228 of the General Corporation Law of the State of Delaware, gave
their approval of such amendment.
Third: That such amendment was duly adopted in accordance with the
applicable provisions of Sections 242, 141(f) and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Panhandle Eastern Corporation has caused this
certificate to be signed in its corporate name by Paul F. Ferguson, Jr.,
its Senior Vice President and Chief Financial Officer, and Robert W. Reed,
its Secretary, this 24th day of April, 1996.
PANHANDLE EASTERN CORPORATION
By: /s/ PAUL F. FERGUSON, JR.
-------------------------------
Paul F. Ferguson, Jr.
Senior Vice President and
[Seal] Chief Financial Officer
ATTEST:
By: /s/ ROBERT W. REED
--------------------------
Robert W. Reed, Secretary
<PAGE>
April 2, 1996
Mr. Dennis R. Hendrix - Chairman of the Board
Mr. Paul M. Anderson - President & CEO
PanEnergy Corp.
P. O. Box 1642
Houston, TX 77251-9961
RE: TERMS OF ENGAGEMENT
Dear Gentlemen:
We are looking forward to the representation of PanEnergy and
appreciative of your decision to retain our firm to provide representation on
national and international issues concerning PanEnergy. The purpose of this
letter is to describe our proposed terms of the agreement between the law firm
of Verner, Liipfert, Bernhard, McPherson and Hand, Chartered (the "Firm") and
PanEnergy Corp. ("PanEnergy") and our Firm's billing policies and procedures.
Effective April 1, 1996, PanEnergy agrees to pay the Firm a retainer for
professional services rendered in the amount of $180,000 for an twelve-month
period, to be paid in monthly installments of $15,000 each month. The first
monthly payment will be due by April 30, 1996 and, thereafter, by the 10th day
of each month. At the end of March, 1997 both parties will review the terms
of this retainer and determine the best way to proceed.
The Firm will provide PanEnergy with a monthly invoice for the retainer
amount for professional services. If the billable value of the Firm's
services exceeds the monthly retainer amount, the Firm will also bill
PanEnergy for the excess. Out-of-pocket expenses (as more fully described
below) will be billed in addition to the fees for professional services.
Our Firm's policies and procedures require that I set forth in this
letter the following information with respect to our billing procedures. It
is our policy to provide our clients with the most effective support systems
available and to allocate the costs of those support systems in accordance
with their usage. In addition to fees for professional services, a billing
statement is provided which includes the costs incurred in the course of our
representation of PanEnergy's interests, such as long distance telephone;
messenger and other communications costs; travel expenses, including the cost
of transportation, meals and lodging; document retrieval costs; staff
overtime; computer research facilities and document production on our word
processing system. Such statement will also contain, when applicable, the
name of the person providing services, his or her billing rate, a brief
description of the service provided and date the service was rendered. Large
disbursements, should they occur, may be forwarded to PanEnergy for direct
payment.
Our billing statements are rendered on a monthly basis. If you have any
questions about the bill, please let us know promptly. Our statements are due
and payable upon receipt, and we expect bills to be paid in full within
30 days of the statement date. <PAGE>
<PAGE>
Dennis R. Hendrix
Paul M. Anderson
April 2, 1996
Page 2
As you know, the breadth of the Firm's practice is such that we may from
time to time concurrently represent one client in a particular case or matter
and an adversary of that client in such case or matter in an unrelated case or
matter if it is the Firm's professional judgment that we can undertake the
concurrent representation impartially and without any adverse effect on our
other responsibilities to either client. Despite any such concurrent
representation, it is our practice to preserve all client confidences of
non-public information and to pursue zealously the interests of each of our
clients. PanEnergy acknowledges that it does not consider such concurrent
representation, in unrelated matters, to be inappropriate and consent to any
such present or future concurrent representations.
All of our lawyers, consultants and legal assistants are bound by and
strictly adhere to the District of Columbia Court of Appeals Rules of
Professional Conduct and all laws and regulations governing lawyers and
lobbyists applicable to representation of clients in the House of
Representatives, the Senate and the Executive Branch.
We look forward to serving PanEnergy, and I am personally gratified by
the confidence the company has shown by this retention.
With best personal regards.
Sincerely,
VERNER, LIIPFERT, BERNHARD,
MCPHERSON & HAND, CHARTERED
/s/ Lloyd M. Bentsen
---------------------------------
By: Lloyd M. Bentsen
If this letter accurately describes the agreement between PanEnergy and
Verner, Liipfert, Bernhard, McPherson and Hand, Chartered, please sign and
date below and return the executed copy to me.
AGREED TO:
PANENERGY CORP.
By: /s/ Carl B. King
--------------------------
Position: Senior Vice President and
General Counsel
--------------------------
Date: April 8, 1996
--------------------------
<PAGE>
5. Awards to Covered Employees
The Committee may determine that any Award granted hereunder for any
Plan Year to a Participant who is a Covered Employee shall be made and
administered by a subcommittee consisting solely of two or more "outside
directors" (as defined in Treasury regulations promulgated under
Section 162(m) of the Code) appointed by the Committee (the
"Subcommittee"). Except as otherwise permitted by Section 8 of this Plan,
compensation resulting from any Award made by the Subcommittee shall be
paid solely on the attainment of performance goals established in writing
by the Subcommittee with reference to (a) the achievement by the Company of
a specified target earnings per share, return on equity or net income,
(b) the Company's stock price, (c) accumulated dividends paid on the
Company's stock, (d) the achievement by a business unit of the Company of a
specified target income or market share, or (e) any combination of the
goals set forth in (a) through (d) above. With respect to any Award made
by the Subcommittee, the Subcommittee shall establish such performance
goals prior to the beginning of the Plan Year for which the Award is
granted (or such later date as may be prescribed by the Internal Revenue
Service for purposes of Section 162(m) of the Code). No more than
one million (1,000,000) shares of common stock shall be cumulatively
available for Awards made by the Subcommittee and granted under
Sections 4(a) through 4(d) of this Plan to any Covered Employee, and
compensation resulting to any Covered Employee during any Plan Year from
Awards made by the Subcommittee and granted under Sections 4(e) through
4(h) of this Plan, shall be limited to a maximum value of $2,500,000. Any
payment of compensation to a Covered Employee resulting from an Award made
by the Subcommittee upon attainment of related performance goals, other
than Awards granted under Sections 4(a) through 4(c) of this Plan, shall be
conditioned upon the written certification of the Subcommittee that the
performance goals, and all other material conditions and terms, relating to
such Awards have, in fact, been satisfied.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
PanEnergy Corp Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANENERGY CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,200
<SECURITIES> 0
<RECEIVABLES> 598,300
<ALLOWANCES> 0
<INVENTORY> 128,400
<CURRENT-ASSETS> 1,089,500
<PP&E> 8,321,400
<DEPRECIATION> 3,248,100
<TOTAL-ASSETS> 7,600,000
<CURRENT-LIABILITIES> 1,389,800
<BONDS> 1,917,600
<COMMON> 151,000
0
0
<OTHER-SE> 2,200,900
<TOTAL-LIABILITY-AND-EQUITY> 7,600,000
<SALES> 2,343,100
<TOTAL-REVENUES> 3,148,700
<CGS> 2,133,900
<TOTAL-COSTS> 2,444,900
<OTHER-EXPENSES> 186,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,100
<INCOME-PRETAX> 292,000
<INCOME-TAX> 110,400
<INCOME-CONTINUING> 181,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,600
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
