JOINT APPLICATION OF NATIONAL FUEL AND LEIDY HUB
File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
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National Fuel Gas Company Leidy Hub, Inc.
30 Rockefeller Plaza 10 Lafayette Square
New York, NY 10112 Buffalo, NY 14203
(Name of company filing this statement
and address of principal executive offices)
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NATIONAL FUEL GAS COMPANY
(Name of top registered holding company)
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Walter E. DeForest, President Richard M. DiValerio, Secretary
Leidy Hub, Inc. National Fuel Gas Company
10 Lafayette Square 10 Lafayette Square
Buffalo, NY 14203 Buffalo, NY 14203
(Names and addresses of agents for service)
It is respectfully requested that the Commission send copies of
all notices, orders and communications to:
James R. Peterson, Esq.
Suite 1500
10 Lafayette Square
Buffalo, NY 14203
OUTLINE
Item 1. Description of Proposed Transactions.
A. SUMMARY OF PROPOSED TRANSACTIONS
B. FORMATION AND OPERATION OF ENERCHANGE
(1) Developing and Operating the Electronic Trading
System.
(2) Operating Existing Market Hubs.
(3) Doing Transactions on the Electronic Trading System.
(4) Developing and Operating Other Hubs.
(5) Engaging in Market-Making Activity
(6) Other and Incidental Activities.
C. PRE-PURCHASE AGREEMENT
D. PURCHASE AGREEMENT
E. LIMITED LIABILITY COMPANY AGREEMENT OF ENERCHANGE, L.L.C.
F. PARENT GUARANTEES
G. ANALYSIS
(1) Satisfaction of Requirements of Section 10(b) and
10(c)
(2) Applicability of the Gas Related Activities Act
(3) Enerchange's Rule 16 Exemption
H. FINANCING
Item 2. Fees, Commissions and Expenses.
Item 3. Applicable Statutory Provisions.
Item 4. Regulatory Approval.
Item 5. Procedure.
Item 6. Exhibits and Financial Statements.
Item 7. Information as to Environmental Effects.
SIGNATURES
National Fuel Gas Company ("National"), is a public
utility holding company registered under the Public Utility
Holding Company Act of 1935, as amended ("Act"). National's
wholly-owned subsidiary, Leidy Hub, Inc. ("LHI") has joined this
application/declaration.
Item 1. Description of Proposed Transactions.
A. SUMMARY OF PROPOSED TRANSACTIONS
National and LHI are proposing the following
transactions (the "Proposed Transactions"), all of which are
described below in more detail:
(i) LHI would enter into a Purchase Agreement (the
"Purchase Agreement", copy attached as Exhibit A-7) with Hub
Services, Inc. ("Hub Services"). LHI would thereby acquire a
14.5% Limited Liability Company Interest in (and thereby become a
"Member" of) Enerchange, L.L.C., a Delaware member-managed limited
liability company ("Enerchange"). Enerchange would provide
various energy-related services to the public.
(ii) LHI, as a Member of Enerchange, would make
capital contributions to Enerchange from time to time as required
by Enerchange's Executive Committee pursuant to the Limited
Liability Company Agreement of Enerchange, L.L.C. (the "LLC
Agreement", attached hereto as Exhibit A-8); LHI's capital
contributions to Enerchange are exempt from the requirement for a
declaration pursuant to Rule 45(b)(4) [17 CFR Section
250.45(b)(4)].
(iii) LHI, as a Member of Enerchange, might make
loans to Enerchange if another Member failed to make any required
capital contribution; LHI's loan amount would be based on the
ratio of its 14.5% interest to the interests of the other
nondefaulting Members.
(iv) LHI, as a Member of Enerchange, might have
the opportunity and/or the obligation to purchase additional
interests in Enerchange from other Members;
(v) Enerchange would become a Member of, and make
capital contributions and loans to, another Delaware member-
managed limited liability company to be known as QuickTrade,
L.L.C. ("Quicktrade"). Enerchange's participation in this
transaction would be exempt from the requirement for a declaration
because Enerchange satisfies the requirements of Rule 16 [17 CFR
Section 250.16].
(vi) National would guarantee certain future trade
obligations of LHI, Enerchange and QuickTrade, and LHI would
guarantee certain future trade obligations of Enerchange and
QuickTrade.
The Proposed Transactions, to the extent they happen,
would result from LHI's entering into the Purchase Agreement.
This application/declaration is filed (i) to seek authority for
LHI to enter into the Purchase Agreement, and (ii) to seek any
authority necessary for LHI and National to enter into the other
Proposed Transactions, from time to time, to the extent management
elects to do so.
Hub Services is a Delaware corporation with an office at
One O'Hare Center, 6250 Des Plaines River Road, Rosemount,
Illinois 60018, and is a wholly-owned subsidiary of NGC
Corporation ("Clearinghouse"). LHI and Hub Services entered into
a Pre-Purchase Agreement which was effective as of June 12, 1995
(the "Pre-Purchase Agreement", attached hereto as Exhibit A-6).
The Pre-Purchase Agreement is a "Preliminary Agreement" for
purposes of Rule 51 [17 CFR Section 250.51], and provides at
Section 8.3(c) that "notwithstanding any other provision of this
Agreement, [LHI] is not obligated to indemnify, and does not agree
to indemnify, [Hub Services] or any other person against any
market or investment risk in connection with [LHI]'s acquisition,
retention or disposition of the subject matter of this Agreement."
The Pre-Purchase Agreement provides, upon the approval
of the Securities and Exchange Commission ("SEC" or "Commission"),
for LHI to purchase from Hub Services a 14.5% ownership interest
in Enerchange. After selling that 14.5% ownership interest to
LHI, Hub Services would retain a significant ownership interest in
Enerchange. NICOR Hub Services, Inc. ("NICOR", an Illinois
corporation wholly owned by NICOR, Inc.) and Pacific Enerchange
("PE", a California corporation wholly owned by Pacific
Enterprises) own the remaining ownership interests in Enerchange.
B. FORMATION AND OPERATION OF ENERCHANGE
Enerchange was formed on June 13, 1995. The LLC
Agreement (Exhibit A-8) states at Section 3.1 that Enerchange was
formed for the following purposes:
to coordinate and participate in the development,
implementation and operation of an electronic gas trading
and nomination system (the "Electronic Trading System",
which is described at Item 1(B)(1) below);
to manage, own and operate Enerchange's interests in the
Chicago Hub, the California Energy Hub and the
Ellisburg-Leidy Northeast Hub (described at Item 1(B)(2)
below);
to promote and participate in transactions involving the
use of the Electronic Trading System (described at Item
1(B)(3) below);
to develop and manage hubs owned by third parties
(described at Item 1(B)(4) below);
to engage in Market-Making Activity (described at Item
1(B)(5) below);
engage in all other activities permitted by law if approved
by a Supermajority Vote of the Executive Committee or,
subject to Section 8.1(d)(5) of the LLC Agreement, a
Unanimous Vote of the Executive Committee (described at
Item 1(B)(6) below); and
to engage in any and all activities incidental to the
foregoing.
These purposes, and the transactions which would or
could result, are discussed below in more detail. Enerchange does
not plan to provide any services regulated by the Federal Energy
Regulatory Commission ("FERC") or by any state commission.
Enerchange does not plan to have any FERC jurisdictional
facilities and plans to engage exclusively in non-jurisdictional
activities.
(1) Developing and Operating the Electronic Trading System.
Enerchange plans to join with a subsidiary of Energy
Exchange, Inc. ("EEI"), a Canadian corporation, to form a new
entity ("QuickTrade"). QuickTrade would develop and operate an
electronic trading and nomination system which could be accessed
via computer by buyers and sellers of natural gas to make and
accept binding offers to buy or sell gas at specific locations
(generally at market hubs, and especially at Enerchange's market
hubs as described at Item 1(B)(2) below). Subscribers to
QuickTrade's system would be able to see, on-line in real time,
the price at which gas is being sold at any location listed on the
system (without being able to see the names of the parties
involved). Subscribers will also be able to nominate directly to
interstate pipelines to transport or store the gas being sold via
the system.
Entities in the gas business would subscribe to
QuickTrade's on-line computer service, install in their
computer(s) software developed and provided by QuickTrade, and
receive training in the use of the system. Subscribers would pay
to Quicktrade a flat monthly subscription fee, and would pay
additional fees based on their actual usage of the system.
QuickTrade has not yet been formed, but is planned to be
a Delaware member-managed limited liability company named
QuickTrade, L.L.C. Enerchange would be an initial member of
QuickTrade with an ownership interest of up to 50%. EEI would be
another substantial initial member, and it is possible that other
entities may become members of QuickTrade. Enerchange would make
capital contributions and/or loans to QuickTrade to help fund the
development and initial operating costs of the electronic trading
and nomination system. EEI, which owns and operates a similar
electronic trading and nomination system in Canada, would be
responsible for most of the system development.
Profits and losses of QuickTrade would be allocated in
part to Enerchange, which would in turn allocate those profits or
losses to the Members of Enerchange, including LHI. The
QuickTrade system would include as trading locations various
points on Enerchange's three market hubs, which would generate
some income to Enerchange pursuant to the Hub Agreements (see Item
1(B)(2) below). Enerchange would also be a subscriber to the
QuickTrade system, and would use its access to that system to
engage in buying and selling gas and engaging in market-making
activities (see Item 1(B)(5) below).
The operations of QuickTrade would be limited to "cash
forward contracts" which will typically be settled by actual
physical delivery, as opposed to "futures contracts" which are
extensively regulated by the Commodities Futures Trading
Commission (the "CFTC") pursuant to the Commodity Exchange Act.
QuickTrade's system operations will be generally similar to those
of a rival system known as "Channel 4", a registered service mark
of the New York Mercantile Exchange and EnerSoft Corporation. The
CFTC staff (Off-Exchange Task Force) confirmed in an Interpretive
Letter that such activities are not regulated by the CFTC, and
that the Channel 4 system would not be a regulated "contract
market" for purposes of the Commodities Exchange Act. CFTC
Interpretive Letter No. 94-58 (Channel 4 System), CCH Commodities
Futures Law Reports Paragraph 26,147, issued May 18, 1994.
Because Enerchange satisfies all the requirements of
Rule 16 (see Item 1(G)(3) below), Enerchange's acquisition of an
ownership interest in QuickTrade does not require the Commission's
approval pursuant to Sections 9 and 10 of the Act. Information on
QuickTrade and other exempt transactions is voluntarily included
in this application/declaration for the purpose of fully informing
the Commission about the nature of the business in which the
applicants are seeking authority to acquire an interest.
(2) Operating Existing Market Hubs.
Hub Services is a party to contracts involving three
natural gas market-area hubs, including the hub described in a
previous application/declaration filed by LHI and National and
approved by the Commission. National Fuel Gas Company et al.,
File No. 70-8417, Release No. 35-26093 issued July 29, 1994.
Following the issuance of that order, LHI and Hub Services
executed a Partnership Agreement (the "Partnership Agreement")
which formed, effective September 1, 1994, a 50/50 Pennsylvania
General Partnership known as Ellisburg-Leidy Northeast Hub Company
(the "Partnership"). The Applicants' application/declaration in
Case No. 70-8417 described the background and operation of natural
gas market-area hubs in general and the Partnership in particular.
Briefly, a natural gas market area hub is a place where
two or more interstate natural gas pipelines interconnect in a
"market area" (as opposed to a "production area") and where
customers can seek and obtain various services relating to the
transportation, storage, purchase, sale, exchange and lending of
natural gas in the hub area. The Partnership provides such
services to such customers. National's wholly-owned subsidiary
National Fuel Gas Supply Corporation ("Supply") is one of various
interstate pipelines with substantial facilities in the vicinity
of Ellisburg and Leidy, Pennsylvania.
FERC has stated that the creation of "market centers" or
"market area hubs" is in the public interest because hubs will
increase competition and efficiency and cut transaction costs. To
foster the development of market area hubs, FERC's Order 636
provided, among other matters, that "[a]n interstate pipeline that
offers transportation services on a firm basis . . . may not
include in its tariff any provision that inhibits the development
of market centers." 18 CFR Section 284.8(b)(6).
Hub Services also entered into other agreements which
provide for Hub Services to perform services and receive money in
connection with the operation of other market-area hubs in the
vicinity of Chicago and Los Angeles. Hub Services and the public
utility affiliate of NICOR executed the Chicago Hub Agreement
effective May 26, 1993. Hub Services and the public utility
affiliate of PE executed the California Hub Agreement effective
March 15, 1994.
On June 13, 1995, Hub Services transferred to Enerchange
(as Hub Services's capital contribution) all of Hub Services's
interest in the Partnership, the Chicago Hub Agreement and the
California Hub Agreement (collectively, the "Hub Agreements").
Hub Services transferred its interest in the Partnership to
Enerchange pursuant to Section 11.6 of the Partnership Agreement,
which permits either Partner to assign its interest to an
affiliate. Enerchange and LHI are therefore currently the sole
partners in the Partnership. Enerchange will perform all the
obligations which Hub Services had under any of the Hub
Agreements, and all proceeds which Hub Services would have
received under any of the Hub Agreements will be paid instead to
Enerchange. Enerchange's profits and losses will be allocated as
provided in the LLC Agreement (Exhibit A-8), generally in
accordance with the Members' relative capital accounts (referred
to in the LLC Agreement as their "Allocable Shares"). All of the
Hub Agreements will remain in place so that, for example, LHI will
continue to receive 50% of the net profits or losses of the
Partnership, with the other 50% being allocated to Enerchange.
LHI will continue to have 50% voting control of the Partnership.
(3) Doing Transactions on the Electronic Trading System.
Enerchange will subscribe to the QuickTrade system and
engage in transactions using that system, including the
"market-making" activity described at Item 1(B)(5) below.
(4) Developing and Operating Other Hubs.
Enerchange may enter into agreements with other parties
to develop and operate additional hubs (in addition to the three
hubs described in the Hub Agreements). Any profit or loss
incurred by Enerchange in performing such agreements would be
allocated to Enerchange's Members, including LHI, pursuant to the
LLC Agreement in proportion to their Allocable Shares.
(5) Engaging in Market-Making Activity
Market-making is defined in Article I, Section 35 of the
LLC Agreement (Exhibit A-8) to consist of acting as an
intermediary between persons desiring to sell natural gas and
persons desiring to purchase natural gas and includes, without
limitation, electronic solicitation of transactions between
anonymous sellers and buyers, implementation and documentation of
such transactions, and assuming the performance and credit risk
associated with such transactions
Enerchange's natural gas market-making will differ in
important respects from the heavily regulated activities of a
"market maker" of a particular stock on the floor of the New York
Stock Exchange. Enerchange plans to subscribe to, and be an
active participant on, the QuickTrade system, frequently posting
and accepting offers to buy and offers to sell gas at specified
prices at various points listed on the QuickTrade system
(including especially points at the three hubs covered by the Hub
Agreements). However, Enerchange would not be required, for
example, to accept all offers to buy gas at a specified location
within a specified spread from the last reported transaction at
that location. Enerchange's purpose is to enhance liquidity at
the hub locations, not price stability.
Enerchange expects that its "market-making" activities
will have the effect of making the hubs listed on QuickTrade's
system (including the hubs in which Enerchange and LHI have an
interest) into places where more natural gas is bought and sold,
as more gas industry participants recognize that those hubs are
places where deals can easily be made. Enerchange also expects to
make money on the "market-making" transactions themselves, which
are essentially purchases and sales of gas.
(6) Other and Incidental Activities.
The LLC Agreement reserves Enerchange's rights to engage
in other activities not prohibited by law, and to engage in
activities which are incidental to the specified purposes of
Enerchange.
C. PRE-PURCHASE AGREEMENT
By way of preliminary explanation, under the
Pre-Purchase Agreement (Exhibit A-6) Hub Services continues to
hold the 14.5% ownership interest in Enerchange which is promised
to LHI (the "Acquired Interest") until after the SEC approves
LHI's acquisition of the Acquired Interest. During that time,
LHI's involvement in Enerchange is structured so as not to offend
the Act. Among other things, this structure requires that (i) all
profits or losses of Enerchange allocated to the Acquired Interest
prior to LHI's purchase of the Acquired Interest belong to Hub
Services, and (ii) LHI is not obligated to indemnify Hub Services
against any market or investment risk in connection with LHI's
acquisition, retention or disposition of the Acquired Interest.
If the SEC grants this declaration-application without
the imposition of any conditions which make it impracticable to
consummate the Proposed Transactions, and if certain other
conditions are satisfied, LHI will purchase the Acquired Interest
at a closing (the "Closing"). At the Closing, Hub Services will
convey to LHI the Acquired Interest including the portion of Hub
Services's capital account sufficient to give LHI an "Allocable
Share" amounting to 14.5% of the total Allocable Shares of all the
Members.
The Purchase Price is set at the amount which would put
both LHI and Hub Services in approximately the same after-tax
economic positions as they would have been if LHI had bought the
Acquired Interest from Hub Services when Enerchange was formed on
June 13, 1995, for a fixed amount set out in the portions of
Article I of the Pre-Purchase Agreement for which the
applicant/declarants have requested confidential treatment
pursuant to Rule 104(b). The Purchase Price is subject to further
adjustment as described in the Purchase Agreement. The Purchase
Price was negotiated based on the parties' respective beliefs as
to the potential profits of Enerchange for the next three years
from its Hub Agreements and its market-making activities,
discounted to present value. The Purchase Price is subject to
adjustment depending on events occurring between June 13, 1995 and
the Closing, as described in the following paragraph.
If Enerchange were profitable during the period between
June 13, 1995 and the Closing (the "Pre-Purchase Phase"), Hub
Services would get the profits allocable to the Acquired Interest,
and the Purchase Price would decrease in proportion (recognizing
that Hub Services would have to pay taxes on that profit). If
Enerchange were not profitable during the Pre-Purchase Phase, the
Hub Services would get the losses allocable to the Acquired
Interest, and the Purchase Price would increase (recognizing that
Hub Services would get the benefit of the tax loss). If Hub
Services were to make additional capital contributions to
Enerchange in respect of the Acquired Interest during the
Pre-Purchase Phase, the Purchase Price (and the capital account
transferred to LHI at the Closing) would increase accordingly,
including some interest for the time value of the extra capital
contribution. In this fashion, if SEC approval is obtained, it
will be as if LHI had been a Member of Enerchange from its
formation on June 13, 1995, and if SEC approval is not obtained,
the Acquired Interest will continue to belong to Hub Services.
Within three business days after the Commission approved
this application/declaration (or a longer agreed-upon time), LHI
and Hub Services would execute and perform the Purchase Agreement
in substantially the form attached to the Pre-Purchase Agreement
as an exhibit (the Purchase Agreement is described below).
In the Pre-Purchase Agreement, Hub Services and LHI make
certain standard representations, warranties and covenants to each
other, and each agrees to indemnify the other against any losses
suffered because of a breach of such warranty, representation or
covenant. The parties have agreed that no filing is necessary
with the Commodities Futures Trading Commission, and LHI and
National have agreed to file applications seeking the approval of
the SEC under the Act as soon as practicable, and to use their
best efforts to obtain such approval. The Closing is subject to
certain conditions, including that the SEC shall have approved
LHI's acquisition of the Acquired Interest, without any conditions
which in the judgment of either of the parties make it
impracticable to consummate the transactions contemplated by the
Pre-Purchase Agreement.
During the Pre-Purchase Phase, LHI will not be a Member
of Enerchange and will therefore not be entitled to appoint anyone
to the Enerchange Executive Committee or to vote on matters before
that Committee. Hub Services will furnish LHI with copies of all
notices and material documents relating to Enerchange's business.
Hub Services will afford LHI an opportunity to review and comment
on all matters presented to Enerchange's Executive Committee for
approval, and Hub Services agrees to take LHI's comments on all
such matters into account prior to voting on matters in the
Executive Committee. Hub Services agrees to use its best efforts
to obtain approval for a representative of LHI to attend all
meetings of the Enerchange Executive Committee as an observer.
The Pre-Partnership Agreement shall be governed,
construed and enforced in accordance with the internal laws of the
State of Delaware without regard to the conflicts of law
principles thereof.
D. PURCHASE AGREEMENT
When and if the Commission approves this
application/declaration, a Closing would be held at which LHI and
Hub Services would enter into and perform the Purchase Agreement
(including LHI's payment to Hub Services of the Purchase Price as
described above under "Pre-Purchase Agreement"). A copy of the
Purchase Agreement is filed herewith as Exhibit A-7.
The Purchase Agreement would provide at Section 6.2 for
LHI to pay additional money to Hub Services as part of the
Purchase Price if the Chicago Hub Agreement and/or the California
Hub Agreement are extended to a date not earlier than June 11,
2000. Those two Hub Agreements would expire in 1998 if not
renewed or extended; the extension(s) would bring additional money
into Enerchange as its share of the proceeds from those
agreements. The additional Purchase Price payment to Hub Services
would be due on the date of execution of such extension, but no
earlier than June 12, 1998. The amounts of these additional
payments are included in the portion of 6.2 of the Purchase
Agreement for which the applicant/declarants have requested
confidential treatment pursuant to Rule 104(b).
In the Purchase Agreement, Hub Services and LHI would
make various standard representations, warranties and covenants to
each other, and each would agree to indemnify the other against
any losses suffered because of a breach of such warranty,
representation or covenant. Hub Services would make various
representations and warranties concerning Enerchange and the
Acquired Interest, including title and condition of property,
absence of defaults and violations, taxes, contracts, permits,
insurance policies, employee benefit plans, litigation, conflicts
of interest, bank accounts, etc.
E. LIMITED LIABILITY COMPANY AGREEMENT OF ENERCHANGE, L.L.C.
Enerchange was formed under the laws of the State of
Delaware as a member-managed limited liability company on June 13,
1995. The governing document is the LLC Agreement (Exhibit A-8).
The owners of a limited liability company are its "Members", who
have "Capital Accounts" similar to those of partners in a general
partnership. The purposes of Enerchange and the various
transactions it would or could make are described above at Item
1(B)(1).
By operation of the Delaware Limited Liability Company
Act, and as stated at Section 6.6 of the LLC Agreement, Members
are not liable for debts, obligations or liabilities of
Enerchange. The principal appeal of the limited liability company
form of business organization is that Members receive the benefit
of this shield from liability in the same manner as the
stockholders of a corporation are shielded from liability for the
corporation's debts, while the limited liability company is
treated for federal income tax purposes as if it were a
partnership. A limited liability company thus pays no federal
income taxes itself, passing its profits (and losses) through to
its Members, and each Member deals with the tax effects of its
share of the limited liability company's profits or losses. A
limited liability company is in this sense similar to a Subchapter
S Corporation, except that corporations such as LHI are ineligible
to become stockholders of Subchapter S Corporations.
Enerchange's governing body is its Executive Committee,
consisting of one committee member appointed by each Member, with
each Member's votes weighted in accordance with that Member's
"Allocable Share" (which is generally the ratio of the Member's
capital account to the total of all the Members' capital
accounts). Various provisions governing the Executive Committee
are contained in Article VIII of the LLC Agreement, including
detailed lists of the various types of items that require a simple
majority, "Supermajority" (72%) or unanimous vote of the Executive
Committee.
The Executive Committee is required to establish
annually by Supermajority Vote an annual capital budget, operating
budget and capital contributions for the Operating Fund. A
Supermajority Vote is generally required to exceed the budget.
The Executive Committee also must establish (initially
by unanimous vote) an Operating Policy addressing, among other
areas, procedures for the execution and approval of agreements
binding Enerchange (including specific authority levels for
employees and officers), procedures for the execution and approval
of agreements between Enerchange and Members, Affiliates,
Officers, and/or Enerchange employees, tax recording and
accounting procedures, and retention and audit policies which
effectively monitor and control risks associated in particular
with market-making agreements.
Members' capital contributions and capital accounts are
addressed in Article IX of the LLC Agreement. Pursuant to Section
9.1(a) of the LLC Agreement, contemporaneously with the execution
of the LLC Agreement the Members contributed to Enerchange's
capital various assets which were agreed to have a certain total
value as set out in the portion of Exhibit G of the LLC Agreement
for which the applicant/declarants have requested confidential
treatment pursuant to Rule 104(b) (the "Initial Capital
Contributions"). Pursuant to Section 9.1(b) of the LLC Agreement,
the Members are required to make certain additional capital
contributions totalling an amount set out in the portion of
Section 9.1(b) of the LLC Agreement for which the
applicant/declarants have requested confidential treatment
pursuant to Rule 104(b), in proportion to the Members' respective
"Allocable Shares", within ten days after the formation of
QuickTrade. Enerchange intends to lend this additional capital to
QuickTrade to fund the development and initial operating costs of
the Electronic Trading and Nomination System (see Item 1(B)(1)
above). Section 9.1(c) of the LLC Agreement also provides that
the Members commit to make additional cash capital contributions
during the first year in an amount set out in the portion of
Section 9.1(c) of the LLC Agreement for which the
applicant/declarants have requested confidential treatment
pursuant to Rule 104(b), with the amount and timing of those
contributions to be determined by Supermajority Vote of the
Executive Committee.
Pursuant to Section 9.1(c) of the LLC Agreement, each
Member must also make additional capital contributions, according
to their Allocable Shares, to the Operating Fund as determined by
a Supermajority of the Executive Committee. For calendar year
1995, the amount of the Operating Fund is set out in the portion
of Section 9.1(c) of the LLC Agreement for which the
applicant/declarants have requested confidential treatment
pursuant to Rule 104(b).
Section 9.2 of the LLC Agreement provides that,
generally, the Executive Committee can require additional capital
contributions by Supermajority Vote, but Section 9.1(e) of the LLC
Agreement sets a limit for the first few years as set out in the
portion of Section 9.1(e) of the LLC Agreement for which the
applicant/declarants have requested confidential treatment
pursuant to Rule 104(b). Section 9.1(e) provides that, during the
initial five-year term of Enerchange, and any extension of that
term, total capital contributions shall not exceed the specified
amount (the "9.1(e) Limit") in the aggregate for all Members
unless the Executive Committee decides otherwise by unanimous
vote.
Note that the amounts LHI would pay to Hub Services for
the Acquired Interest under the Purchase Agreement would generally
not be capital contributions to Enerchange (except to the extent
LHI reimburses Hub Services for capital contributions Hub Services
makes in respect of the Acquired Interest during the Pre-Purchase
Phase). LHI's total investment in the Acquired Interest, assuming
the 9.1(e) Limit is not overridden by unanimous vote, would amount
to a small fraction of 1% of National's assets, and of National's
total capitalization, involving no money charged to the ratepayers
of either of National's regulated subsidiaries (See Item 1(H)
below, "Financing").
Section 9.3 of the LLC Agreement provides for a variety
of things that might happen if the Executive Committee requests
capital contributions in accordance with the LLC Agreement and a
Member fails to pay (a "Delinquent Member"):
(i) The remaining members may make the capital contribution
themselves, in proportion to their Allocable Shares (or as
they otherwise agree). The effect of this would be to
increase the capital accounts (and therefore the Allocable
Shares) of all the Members except the Delinquent Member,
whose Allocable Share would decrease.
(ii) The remaining Members can loan the missing capital to
Enerchange in proportion to their Allocable Shares (or as
they otherwise agree), which would give those Members
interest on that money (Wall Street Journal Prime Rate plus
2 percentage points) before Enerchange's net profits are
calculated, and also give those Members priority upon the
dissolution of Enerchange if those loans remain outstanding
at the time of dissolution. LHI needs the Commission's
authorization to be able to make such loans to Enerchange,
which it requests up to a maximum lending authority of $5
million.
(iii) The remaining Members may rescind the request for capital.
(iv) The remaining Members may take such other action against
the Delinquent Member, including court proceedings, as they
deem appropriate.
Enerchange will establish for each Member a Capital
Account to which will be credited such Member's capital
contributions to Enerchange, items in the nature of income or gain
that are allocated to the Member partner pursuant to the LLC
Agreement, and the amount of any Enerchange liabilities that are
assumed by that member or secured by any property that is
distributed to that Member. From each member's Capital Account
will be debited the amount of distributions made to that Member,
items in the nature of expenses or losses that are allocated to
that Member pursuant to the LLC Agreement, and the amount of any
liabilities of that Member that are assumed by Enerchange or that
are secured by any property that is contributed by that Member to
Enerchange.
The net profits and losses of Enerchange will be
determined at the end of each fiscal year, which will end on
December 31 unless otherwise agreed by the Executive Committee.
Such profits and losses will be allocated annually, in proportion
to the Members' Allocable Shares. The LLC Agreement contains a
number of special allocation provisions intended to comply with
applicable treasury regulations with minimal affect on the net
amount of allocations made to each Member.
Enerchange will make distributions of cash or property
to Members in aggregate amounts and at times as determined by
Supermajority Vote of the Executive Committee. Except in the
event of dissolution, distribution shall be made to the Members in
proportion to their Allocable Shares.
Enerchange shall exist for an initial term of five years
and shall be automatically continued for additional terms of three
years if such extension is approved by unanimous vote of the
Executive Committee.
Enerchange shall be dissolved upon the occurrence
of any of the following events: (a) the expiration of
the term of the Partnership; (b) the unanimous written consent of
all of the Members; (c) an event which makes it unlawful for
Enerchange to be continued; (e) the entry of a decree of judicial
dissolution under Section 18-802 of the Delaware Limited Liability
Company Act; (f) the withdrawal, bankruptcy, or dissolution of any
Member, including the occurrence of any event that terminates the
continued membership of any Member in Enerchange under the
Delaware Limited Liability Company Act, unless the business of
Enerchange is continued by unanimous vote of the Members
(calculated without regard to any Member that has withdrawn,
become bankrupt or been dissolved) within 90 days following the
occurrence of any such event.
Upon the dissolution of the Partnership, unless it is
reconstituted and continued, a Liquidating Trustee designated by
the Members unanimously (or by the Executive Committee if the
Members can't agree) shall wind up the affairs of Enerchange. The
Liquidating Trustee shall in an orderly manner wind up the affairs
of Enerchange and make an accounting of the Capital Account of
each Member and of the Enerchange assets, liabilities and
operations from the date of the last previous accounting to the
date of dissolution. Upon winding up, Enerchange's assets shall
be distributed first to creditors (including Members who are
creditors), and then to the establishment of reserves which the
Liquidating Trustee deems reasonably necessary for any contingent
or unforeseen liabilities of Enerchange, and then to Members,
generally in proportion to their Allocable Shares.
Each Member agrees to remain a Member, and not to
dispose of any portion of its interest in Enerchange, at least
until June 13, 2000 unless it disposes of its interest in
accordance with Article XII of the LLC Agreement. This provision
may enforced by specific performance.
Article XII of the LLC Agreement provides that any
Member may dispose of all or any part of its interest to the other
Member(s) on a per capita basis among those Members wishing to
purchase, on such terms as are agreed between or among them. If
any Member receives and wants to accept a bona fide offer to
purchase all or any portion of the Member's interest in
Enerchange, it must allow the remaining Members to match the
offer, and obtain the unanimous consent of each Member (in its
sole and absolute discretion) to the sale to a third party. If
more than one of the Members wishes to purchase the interest, they
share it on a per capita basis.
If none of the remaining Members wish to purchase the
offered interest, one or more of the Members may still refuse to
consent to the sale to a third party, whereupon the selling Member
can force the other Members to buy him out. Section 12.5 of the
LLC Agreement contains a procedure whereby a third party appraiser
would determine the fair market value of the seller's interest,
and the remaining Members would purchase the offered interest at
that price on a pro rata basis (in proportion to their Allocable
Shares).
If a Member has to withdraw from Enerchange because of
an adverse ruling by a regulatory authority, and does not present
an offer from a third party, a third party appraiser is appointed.
The appraiser establishes the fair market value of the withdrawing
party's interest, and the remaining Members purchase the
withdrawing Member's interest on a pro rata basis at a price equal
to 85% of the fair market value.
As a Member of Enerchange, LHI may therefore have the
opportunity and/or the obligation to purchase on short notice an
additional interest in Enerchange. LHI therefore requests that
the SEC authorize LHI to purchase additional interests in
Enerchange from time to time pursuant to Article XII of the LLC
Agreement.
Enerchange shall maintain complete and accurate books of
account, on an accrual basis, and its fiscal year shall be the
calendar year. The Executive Committee shall mail to each partner
monthly unaudited financial statements, and within sixty days of
the end of the fiscal year, financial statements audited by a
national CPA firm selected by the Executive Committee by
Supermajority Vote, as well as sufficient information from which
each Member may prepare its own federal and state income tax
returns for the preceding year. Each Member or its authorized
representative shall have unrestricted access to the properties,
books, records, accounts and information regarding the Enerchange,
whether in possession of Enerchange or another appropriate
location.
The Executive Committee is charged with the
responsibility to cause to be timely prepared and filed all
required Enerchange tax returns, a copy of which shall be provided
to each Member.
The assets of Enerchange shall be dedicated exclusively
to the benefit of Enerchange. Members and their affiliates may
participate in other business activities, whether or not
competitive with Enerchange, except as provided below. No
officer, Executive Committee Representative or employee of
Enerchange, so long as such individuals remain in that capacity,
shall participate in business activities in competition with
Enerchange. In the absence of approval by the Executive Committee
by unanimous vote, no Member or affiliate shall engage in, own,
operate, manage or invest in any person who engages as a material
line of business in:
(i) the ownership and management of a Hub located in North
America; or
(ii) any electronic natural gas trading system which, in either
case, Enerchange does not own an interest in or does not
operate or manage.
Exceptions are provided which authorize each Member to operate its
own Hub, and for regulated affiliates of Members to provide
services contained in their tariffs. Members are free to compete
with each other except as specifically provided above.
Enerchange's suppliers may include National Fuel Gas
Supply Corporation ("Supply", a wholly-owned subsidiary of
National currently engaged in the interstate transportation and
storage of natural gas) which would provide tariff services to
Enerchange on the same terms it provides such services to anybody
else. Enerchange will also utilize unaffiliated interstate
pipelines. Enerchange's and QuickTrade's customers may include
National Fuel Gas Distribution Corporation ("Distribution"), a New
York corporation and a wholly-owned subsidiary of National which
is a public utility selling natural gas and providing gas
transportation services in western New York and northwestern
Pennsylvania. Distribution may utilize Enerchange's and/or
QuickTrade's services to help buy or sell gas. In addition,
National Fuel Resources, Inc. ("NFR"), a New York corporation and
a wholly-owned subsidiary of National which ships gas on Supply
and buys and sells gas, including from and to Distribution, may be
a customer of Enerchange and/or QuickTrade.
Clearinghouse (parent of Hub Services) is not affiliated
with National or any of its subsidiaries, other than as described
in this application/declaration. Clearinghouse is eligible to
become a shipper under any of Supply's open access rate schedules,
but is not currently a shipper. A Clearinghouse subsidiary, NGC
Transportation, Inc., is a shipper on Supply. As described above,
the Partnership is also a shipper on Supply. Clearinghouse
formerly sold gas to Supply when Supply was in the gas merchant
business, and a Clearinghouse affiliate currently sells gas to
Distribution. It is anticipated that Clearinghouse or its
affiliates may purchase services from, and may buy and sell gas
from and to, Enerchange and/or QuickTrade.
Neither of the other two Members of Enerchange (NICOR
and PE) is affiliated with the applicants, or does any business
with any of the applicants' affiliates, except that PE's affiliate
Southern California Gas Company from time to time purchases
natural gas which is produced by National's wholly-owned
subsidiary Seneca Resources Corporation. Affiliates of NICOR
and/or PE, including the gas utilities serving the Chicago and Los
Angeles areas, may be customers or suppliers of Enerchange and/or
QuickTrade. A Supermajority Vote of the Enerchange Executive
Committee is required to approve contracts between Enerchange and
any affiliate of a Member, except for such contracts in the
ordinary course of business as are authorized by the Operating
Policy when that document is unanimously adopted.
F. PARENT GUARANTEES
National and LHI seek authorization from the Commission
to allow National to act as guarantor of certain obligations of
LHI, Enerchange and QuickTrade, and for LHI to act as guarantor of
certain obligations of Enerchange and QuickTrade. National and
its other subsidiaries have previously been granted similar
authority pursuant to the provisions of application-declarations
and the Orders of the SEC dated November 12, 1993, HCAR No. 25922,
and dated July 29, 1994, HCAR No. 35-26093 (collectively, the
"Parent Guarantee Orders").
The obligations of LHI, Enerchange and QuickTrade to be
guaranteed would be incurred as a result of the activities
undertaken by Enerchange and QuickTrade related to the supply of
natural gas as delineated in the Gas Related Activities Act (see
Item 1(G)(2) below). It is anticipated that whenever Enerchange
is required to provide a guarantee, the guarantee will be provided
14.5% by National and/or LHI, and 85.5% by the other Members of
Enerchange and/or their corporate parents . Such guarantees
include the guarantee of obligations associated with: (1) gas
transportation agreements to be entered into by Enerchange with
local distribution companies ("LDCs") or pipelines such as
Distribution and Supply; (2) gas purchase and sale agreements
entered into by Enerchange; and (3) any and all other agreements
relating to the transportation, storage, or supply (including
marketing) of natural gas.
Such guarantees have become necessary under the new
operating environment created by FERC Order 636. The maximum
total amount of such guarantees to be outstanding at any one time
by National for the benefit of LHI and Enerchange, or by LHI for
the benefit of Enerchange, will not exceed $5 million (in addition
to the other National guarantees authorized by the Parent
Guarantee Orders). National and LHI seek authority to provide the
additional guarantees described above through December 31, 2000.
It is anticipated that the guarantees will in many instances be
made for an indefinite period of time not to exceed four years.
Neither National nor LHI would pay any fees, expenses or
penalties associated with any of the guarantees. They would,
however, as guarantor assume the rights and obligations of
Enerchange, QuickTrade and/or LHI upon a payment default. LHI,
Enerchange and QuickTrade would be responsible to repay National
for any payments National or LHI, as guarantor, must make on their
behalf, plus any interest expense (at the highest incremental
interest rate National must pay for borrowings on behalf of the
System through the money pool) or other expenses incurred or paid
by National as guarantor. It is anticipated that repayment by LHI
would be made from LHI's distributions from Enerchange and
repayment by Enerchange and QuickTrade would be made from revenues
or from additional capital calls as permitted by their respective
LLC Agreements.
FERC's Order 636 restructuring has resulted in
significant changes to the gas industry. Most interstate
pipelines no longer perform a merchant function, i.e., purchase
gas for resale to LDCs which, in turn, ultimately re-sell such
supplies to retail customers. In response to these industry
changes, suppliers who previously had no ongoing relationships
with the LDCs directly or with brokers and marketers have been
imposing significant security requirements which gas purchasers
such as Enerchange will have to meet. These security requirements
are being imposed across the board, regardless of the financial
strength of the purchaser, because there has been no prior
relationship between the parties. For example, a number of
suppliers have taken the position that any time a subsidiary
contracts for gas purchases, a parent guarantee will be required.
The security requirements placed on LDCs undoubtedly
will also be imposed on smaller purchasers such as Enerchange. In
order to carry out its marketing efforts, Enerchange will have
on-going gas purchase, transportation and storage requirements and
thus will have to meet the security requirements imposed by
suppliers. Again, it is anticipated that whenever Enerchange is
required to provide a guarantee, it will be provided 14.5% by
National and/or LHI, and the remainder by the other Members of
Enerchange and/or their parents.
Suppliers of gas may also be required to provide
guarantees that they will in fact deliver gas they have contracted
to sell. Enerchange may from time to time be required to provide
assurances of delivery of gas it sells, including a parent
guarantee.
The Order 636 restructuring has also resulted in
significant changes to pipeline tariffs and operating procedures
which the pipelines have indicated will necessitate a more
stringent application of creditworthiness criteria to each shipper
which makes a request for transportation service. It is
anticipated that, from time to time, Enerchange as a shipper on
pipelines, including pipelines owned by National, may not, on its
own, meet the creditworthiness requirements of the pipelines.
Accordingly, Enerchange may be required to provide adequate
security to the pipeline, such as a three month prepayment or an
irrevocable letter of credit. Providing the three month
prepayment could be severely detrimental to the cash flow and
reputation of Enerchange, as the gas industry regards with some
scorn and distrust those entities which cannot establish their
creditworthiness other than by prepayment.
QuickTrade may find it necessary to issue some kind of
assurance to its customers that QuickTrade will be able to perform
its commitments. For example, to induce customers to enter into
transactions with other subscribers on an anonymous basis,
QuickTrade may have to:
commit to a buyer that the gas he buys will arrive where
and when it is supposed to;
if the seller doesn't perform, QuickTrade would make the
gas appear as committed; and
QuickTrade would recover its cost of performance from the
seller, either from security previously posted by the
seller or otherwise.
Buyers may require some evidence that QuickTrade is able to
perform in such situations. LHI's indirect interest in QuickTrade
would amount to no more than 7.25%, so LHI and National do not
expect to have to guarantee any more than 7.25% of any QuickTrade
obligation.
Enerchange and QuickTrade will not start out having
sufficient unencumbered assets to obtain letters of credit. In
any event, the fees associated with letters of credit could be
saved if a parent guarantee was provided in lieu of such letters
of credit. In the alternative, LHI, Enerchange and QuickTrade
might be able to secure letters of credit or otherwise meet the
pipeline creditworthiness requirements if the letters of credit
were backed by National's guarantee of the obligations of LHI
Enerchange and/or QuickTrade, and by the other Members' parents'
guarantees of the obligations of Enerchange and QuickTrade.
The total outstanding amount of obligations which
National would guarantee on behalf of LHI, Enerchange and
QuickTrade (in addition to amounts authorized by the Parent
Guarantee Orders) would not exceed $5 million. The applicants
estimate that $5 million of guarantee authority will be sufficient
to cover LHI's share of the maximum aggregate amounts of all such
obligations.
G. ANALYSIS
As discussed in this filing, it is proposed that LHI
will enter into the Purchase Agreement with Hub Services whereby
LHI will acquire, own and control 14.5% of Enerchange, with the
opportunity and/or obligation to acquire additional interests in
Enerchange from time to time. Section 9(a)(1) of the Act requires
that this acquisition of an interest in a business be preceded by
the Commission's approval under Section 10(a)(3) of the Act.
(1) Satisfaction of Requirements of Section 10(b) and 10(c)
Section 10(b)(1) - The proposed activities of LHI and
Enerchange do not involve the acquisition of "utility assets" as
defined by Section 2(a)(18) of the Act. Enerchange will not be a
"gas utility company" as defined in Section 2(a)(4) of the Act, in
that Enerchange will not "own or operate facilities used for the
distribution at retail of natural or manufactured gas for heat,
light or power." Accordingly, LHI's acquisition of an interest in
Enerchange cannot possibly tend "towards interlocking relations or
the concentration of control of public-utility companies," the
concern of Section 10(b)(1) of the Act.
Section 10(b)(2) - As discussed above, the proposed
activities of LHI and Enerchange do not involve the acquisition of
utility assets or an interest in a gas utility company. The
Acquired Interest (a 14.5% ownership interest in Enerchange) might
be thought to be "securities", in which case Section 10(b)(2)
would be applicable. The Applicants submit that the total
consideration (which includes no fees, commissions or other
remuneration not disclosed in this application/declaration) paid
directly by LHI to Hub Services and to Enerchange (no
consideration being paid indirectly) in connection with this
acquisition is reasonable. The Applicants further submit that the
acquisition will not unduly complicate the capital structure of
National (the holding company) or be detrimental to the public
interest or the interest of investors or consumers or the proper
functioning of National's holding company system. See Item
1(G)(2) below for additional discussion of the benefits to
consumers of the Proposed Transactions.
Section 10(b)(3) - The proposed investment by LHI in
Enerchange will have a de minimus effect on the capital structure
of the National Fuel System. Further, as discussed at Item
1(G)(2) below, these proposed transactions will not be detrimental
to the public interest or the interest of investors or consumers
or the proper functioning of such holding company system.
Section 10(c)(1) - Since this filing does not involve
the acquisition of utility assets or securities of a gas or
electric company, Section 8 of the Act is not applicable. Also,
as discussed at Item 1(g)(2) below, LHI's investment in the
Partnership is not detrimental to the provisions of Section 11 of
the Act.
Sections 10(c)(2) and (e) - Again, as this filing does
not involve the acquisition of utility assets or securities of a
public utility or holding company, these sections are not
applicable.
An exemption from competitive bidding is available
because no underwriting or public sale of securities is involved,
and competitive bidding is not necessary or appropriate in the
public interest or for the protection of investors or consumers.
(2) Applicability of the Gas Related Activities Act
National and its subsidiaries (the "National Fuel
System" or the "System") are engaged principally in the
exploration, production, purchasing, gathering, transmission,
storage, marketing and distribution of natural gas. As a result
of state and federal legislation and regulatory developments, the
roles and functions of gas pipeline and distribution companies
have in recent years changed drastically. The passage by Congress
of the Gas Related Activities Act in 1990, Pub. L. No. 101-572
(1990) (hereinafter referred to as the "GRAA") acknowledges the
changing structure of the natural gas industry. Under the Section
11(b) of the Act, all proposed investments by Public Utility
Holding Companies and their subsidiaries are scrutinized by the
SEC to insure that the investments are necessary or appropriate to
the operation of an integrated public utility system.
Section 2(a) of the GRAA provides in effect that the
investment by LHI in Enerchange and the activities of Enerchange
involving the transportation and storage of natural gas are
deemed, for purposes of Section 11(b)(1) of the Act, to be
reasonably incidental or economically necessary or appropriate to
the operation of the National Fuel System. The transportation-
and storage-related services which Enerchange and QuickTrade will
provide will comprise the predominance of its business. Under
Section 2(a) of the GRAA, the proposed investment by LHI in
Enerchange and the transportation- and storage-related activities
of Enerchange therefore automatically satisfy Section 10 of the
Act.
Section 2(b) of the GRAA provides in effect that the
acquisition by LHI of an interest in Enerchange and the activities
of Enerchange related to the supply of natural gas, including
marketing or other similar activities, are deemed, for purposes of
Section 11(b)(1) of the Act, to be reasonably incidental or
economically necessary or appropriate to the operation of the
National Fuel System if the Commission determines that such
acquisition:
is in the interest of consumers of National's subsidiaries,
including Distribution; and
will not be detrimental to the interests of consumers of
National's subsidiaries (including Distribution) or to the
proper functioning of the National Fuel System.
The activities of Enerchange and QuickTrade are expected
to benefit utility customers, including Distribution's customers,
by making the market for natural gas more efficient, more
transparent and therefore more competitive. Distribution expects
to be an active customer of QuickTrade utilizing this on-line
system to:
discover the prices being paid for gas at various locations
where Distribution buys and sells gas, and
to buy and sell gas at the best possible prices and with
the maximum amount of flexibility.
LHI's investment in Enerchange and the activities of
Enerchange and QuickTrade, if their efforts to develop active Hubs
are successful, make it possible for Distribution (and other
utilities, brokers and marketers) to buy gas more economically and
efficiently. The extent to which Distribution's customers, or
anybody else, will benefit from these Hubs will depend on whether
the Hubs become active places where a large number of various
natural gas transfers are made. The Applicants believe that their
efforts to date and in the future, combined with the efforts of
Enerchange and QuickTrade, can facilitate the creation and
operation of such Hubs and result in Enerchange earning a
reasonable profit providing the services necessary to establish
and maintain such Hubs.
Distribution's customers would benefit in another way
from large amounts of Hub throughput. Distribution buys gas
transportation and storage services from Supply as Supply's
largest firm customer, and passes the cost of those services on to
Distribution's customers. Supply has established several services
in its FERC-approved tariff related to the Ellisburg-Leidy Hub:
Rate Schedules W-1, P-1, P-2, IR-1 and IR-2. Roughly 90% of the
revenue which Supply receives from these rate schedules is
refunded to Supply's firm customers, including Distribution. As
throughput under these rate schedules increases, the amount
Distribution collects from its customers decreases.
(3) Enerchange's Rule 16 Exemption
Due to the fact that LHI, a wholly-owned subsidiary of
National, will control 14.5% of the voting interests of
Enerchange, Enerchange will be a "subsidiary" of LHI under Section
2(a)(8) of the Act, and as a subsidiary will be a part of
National's "holding company system" under Section 2(a)(9), and
therefore an "associate company" of National under Section
2(a)(10) of the Act. However, Enerchange and its affiliates, as
defined in Section 2(a)(11) of the Act, in particular Hub Services
and Clearinghouse, will be exempt from all obligations, duties and
liabilities otherwise imposed upon it by the Act, as a result of
Rule 16 promulgated under the Act (17 CFR Section 250.16).
Rule 16 will grant such an exemption to the Partnership
and its affiliates because:
Enerchange will not be a "public utility company" as
defined in Section 2(a)(5) of the Act;
Enerchange will be organized to engage primarily in
arranging for storage, transportation and supply of natural
gas;
since none of Hub Services, NICOR or PE or any of their
affiliates is a registered holding company, no more than
50% of Enerchange's voting interests will be "owned,
directly or indirectly, by one or more registered holding
companies"; and
the Commission will have approved the acquisition by LHI of
its interest in Enerchange pursuant to this
application-declaration.
H. FINANCING
LHI plans to invest in its interest in Enerchange during
the first year of operations. The applicants' current plan is to
maintain LHI's debt/equity ratio at about 50/50. Unless that plan
changed, approximately half of this amount would come from capital
contributions to be made by National to LHI, and approximately
half would come from LHI's borrowings from National's System Money
Pool. As described below, neither source of funding requires
additional authorization by the Commission at this time.
National would make capital contributions to LHI from
time to time, when and as approved by National's Board of
Directors. The amount of contributions needed in the short term
would be funded from National's existing cash reserves. If
National needed to issue additional securities to fund future
capital contributions to LHI, National would utilize existing
authorizations or file an additional application/declaration. The
Commission's recent amendment of Rule 45(b)(4) [17 CFR Section
250.45(b)(4)] provides that all capital contributions by National
to LHI, and all capital contributions by LHI to Enerchange, are
exempt from the requirement of prior Commission approval pursuant
to Section 12(b) of the Act. Exemption of Issuance and Sale of
Certain Securities etc., HCAR 35-26311, File No. S7-17-92, issued
June 28, 1995.
LHI presently has authority to participate in the
National Fuel System Money Pool pursuant to the provisions of the
Application-Declaration and the Order of the SEC dated December
29, 1993, HCAR No. 35-25964 (the "Money Pool Order"). Under the
terms of the Money Pool Order, certain National Fuel System
Companies are authorized to undertake certain intra-system
borrowing transactions through December 31, 1995. LHI may
participate in this intra-system arrangement and is authorized to
make borrowings from the Money Pool of a maximum principal amount
at any one time outstanding of $5 million. The Commission has
reserved jurisdiction over $2.5 million of this amount pending
completion of the record. As of June 30, 1995, $300,000 of this
borrowing authority had been used by LHI primarily for investments
unrelated to the Hub.
In order to purchase a 14.5% interest in Enerchange from
Hub Services and to meet its anticipated calls for capital in the
first year of Enerchange's operation, LHI would expect to borrow
out of its existing unused authority to borrow $2.2 million over
which the Commission has not reserved jurisdiction. National, LHI
and their affiliates will file an application/declaration to set
new borrowing limits from the National Fuel System Money Pool for
a period beginning January 1996, in time for new limits to be
approved before December 31, 1995. If the applicants believe that
LHI needs to borrow more than $2.2 million before December 31,
1995, they will make a filing seeking to increase LHI's borrowing
limit. LHI and National will continue to be bound by the terms
and conditions of the Money Pool Order as amended from time to
time.
LHI proposes to use the proceeds from Enerchange-related
capital contributions from National, and Enerchange-related
borrowings from the Money Pool, for:
payment to Hub Services of the purchase price,
LHI's initial capital contributions to Enerchange,
possible future capital contributions to Enerchange, and
for LHI's own working capital.
Under the LLC Agreement, LHI may be required by the Executive
Committee to contribute further capital to Enerchange (see Item
1(E) above). LHI's working capital requirements may arise because
it may incur de minimis operating expenses which exceed its
distributions from Enerchange.
Item 2. Fees, Commissions and Expenses.
It is estimated that the expenses to be incurred by
National and LHI in connection with the herein proposed
transaction are as follows:
Filing Fee $ 2,000
Fees and Expenses of Counsel (a) $ 2,000
- Estimated
(a) Stryker, Tams & Dill
Item 3. Applicable Statutory Provisions.
Sections 9(a), 10, 11(b), 12(b), 13(b) of the Act and
Rules 16, 23, 24, 45 and 51, and the Gas Related Activities Act of
1990 are all considered applicable to the proposed transactions.
The applicability of each of the sections and rules to
each of the proposed transactions are set out as follows:
Proposed Transaction Applicable Provisions of the Act
LHI's acquisition of Section 9(a), 10, 11(b) and the
an interest in Gas Related Activities Act
Enerchange Rules 23, 24, 51
LHI's possible loan(s) to Section 12(b)
Enerchange Rules 23, 24 and 45
Guarantee by National and Section 12(b)
LHI of Obligations of LHI, Rules 23, 24 and 45
Enerchange and QuickTrade
Operations of Enerchange Section 13(b), Rule 16 and the
Gas Related Activities Act
To the extent that any Proposed Transaction is
considered by the Commission to require authorization, approval or
exemption under any section of the Act or provision of the rules
or regulations other than those specifically referred to herein,
request for such authorization, approval or exemption is hereby
made.
Item 4. Regulatory Approval.
No federal regulatory authority, other than the
Securities and Exchange Commission, has jurisdiction over the
proposed transactions.
No state regulatory authority has jurisdiction over the
proposed transactions.
Item 5. Procedure.
Pursuant to the provisions of Rule 62, the Commission is
requested to issue an Order permitting the Declaration to become
effective as soon as possible with respect to consummation of the
transactions described herein.
Pursuant to Rule 24, Applicant-Declarants will provide
on a quarterly basis an income statement and balance sheet
reflecting the activities of LHI, bearing both the File Number of
this proceeding and File No. 70-08417 regarding LHI and the
Partnership. Those Rule 24 filings will display separately LHI's
allocated share of the profits/losses of the Partnership and LHI's
allocated share of the profits/losses of Enerchange. If LHI's
income statement reflects a net loss for a consecutive twelve (12)
month period, at the request of the SEC, a more detailed income
statement and balance sheet would be provided in the form as
mutually agreed by LHI and the Staff of the SEC.
Applicant-Declarants request permission to file such information
within 45 days after the end of each quarter. LHI asks (partly at
the request of other Members of Enerchange) that the Commission
not require the Applicant-Declarants to provide income statements
and balance sheets for Enerchange because (i) Enerchange does not
otherwise intend to make its financial statements publicly
available, (ii) Enerchange is in a highly competitive business in
which information such as that displayed on Enerchange's financial
statements will have commercial value, and (iii) LHI would be only
a small minority owner of Enerchange without any actual control
over the persons who will generate Enerchange's financial
statements.
Within six months of the effective date of the order,
LHI shall file with the SEC, in accordance with Section 15 of the
Act and pursuant to Rule 24, a copy of the accounting system
maintained by LHI and Enerchange as well as any cost allocation
methodology, work order procedures and cost accounting procedures
needed to collect and account for the income and expenses of the
activities of LHI and Enerchange. This is to include the
allocation of Enerchange profits to LHI and the other Members.
Applicant-Declarants respectfully request that the
Commission's Order herein be entered pursuant to the provisions of
Rule 23. If a hearing be ordered, Applicant-Declarants waive a
recommended decision by a Hearing Officer, or any other
responsible officer of the Commission, agree that the Division of
Investment Management may assist in the preparation of the
Commission's decision and request that there be no waiting period
between the issuance of the Commission's Order and the date on
which it becomes effective.
The Applicants hereby request that certain information
contained in the Exhibits hereto, as indicated in the index to
Exhibits (the "Information") be kept confidential pursuant to Rule
104(b) [17 CFR Section 250.104(b)].
Public disclosure of the Information is not necessary or
appropriate in the public interest or for the protection of
investors or consumers. The Information describes the purchase
price of the Acquired Interest and other financial information
relating to Enerchange, L.L.C., and the financial effect of the
proposed transactions on Leidy Hub, Inc. and on the National Fuel
Gas Company holding company system.
The amounts involved are orders of magnitude too small
to be material to either investors or consumers. Leidy Hub, Inc.
expects to invest a fraction of 1% of its capitalization in its
interest in Enerchange during the first year of operation.
The people who would be most interested in the
Information would be the marketers, hub operators and computer
service providers who would be in competition with Enerchange and
QuickTrade. These people typically operate with a minimal capital
investment and very tight margins in a highly competitive
environment. In this environment, information on a competitor's
costs, margins, plans and projections is a valuable trade secret,
and is treated by all the competitors as confidential, proprietary
information.
These competitors can not obtain the Information
anywhere else. The Applicants cannot obtain similar information
about their competitors. The Applicants firmly believe that the
investing and consuming public would be best served by allowing
the Information to remain confidential, thereby permitting
Enerchange and QuickTrade to compete on an equal basis with their
competitors.
Item 6. Exhibits and Financial Statements.
The following exhibits and financial statements are
made a part of this Application-Declaration:
(a) Exhibits
A-1 Restated Certificate of Incorporation of
National Fuel Gas Company, dated March 15,
1985 (Incorporated by Reference to Exhibit A-
4 in File No. 70-6667).
A-2 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated March 9, 1987
(Incorporated by Reference to Exhibit A-3 in
File No. 70-7334).
A-3 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated February 22, 1988
(Incorporated by Reference to Exhibit B-5 in
File No. 70-7478).
A-4 Certificate of Amendment of Restated
Certificate of Incorporation, dated March 17,
1992. (Incorporated by Reference to
Exhibit A-4 in File No. 70-8109).
A-5 Bylaws of National Fuel Gas Company, as
amended. (Incorporated by Reference to
Exhibit A-5 in File No. 70-8109).
A-6 Pre-Purchase Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). (Note that
Exhibit A to the Pre-Purchase Agreement is
included as Exhibit A-7). A PORTION OF THIS
AGREEMENT IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 104(b).
A-7 Form of Purchase Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
A-8 Limited Liability Company Agreement of
Enerchange, L.L.C. (Designated as
Exhibit EX-3 for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
F-1 Opinion of Stryker Tams and Dill (Designated
as Exhibit EX-5 for EDGAR purposes).
F-2 Opinion of James R. Peterson (Designated
as Exhibit EX-5 for EDGAR purposes).
G-1 Financial Data Schedules
THIS EXHIBIT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
H-1 Proposed form of public notice (Designated as
Exhibit EX-99 for EDGAR purposes).
(b) Financial Statements
S-1 Pro Forma Consolidated Statement of Income
and Earnings Reinvested in the Business for
the twelve months ended March 31, 1995,
Pro Forma Consolidated Balance Sheet at
March 31, 1995 and Pro Forma Adjusting
Entries. THIS EXHIBIT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
S-2 National Fuel Gas Company Pro Forma
Statement of Income and Earnings Reinvested
in the Business for the twelve months
ended March 31, 1995, Pro Forma Balance
Sheet at March 31, 1995 and Pro Forma
Adjusting Entries. THIS EXHIBIT IS SUBJECT TO
A REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
S-3 Leidy Hub, Inc. Pro Forma Statement of
Income and Earnings Reinvested in the Business
for the twelve months ended March 31, 1995,
Pro Forma Balance Sheet at March 31, 1995 and
Pro Forma Adjusting Entries. THIS EXHIBIT IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
S-4 Notes to Financial Statements. THIS EXHIBIT
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
S-5 Enerchange, L.L.C. Condensed Balance Sheet at
June 12, 1995. This financial statement, as
agreed to by the parties to the formation of
Enerchange, L.L.C., (and not prepared by
representatives of the Applicant-Declarants)
is incorporated in Exhibit A-8 (the Limited
Liability Company Agreement of Enerchange,
L.L.C.) as Exhibit G thereto.
There have been no material changes not in the
ordinary course of business since March 31, 1995.
Item 7. Information as to Environmental Effects.
The proposed transactions outlined herein involve no major action
which will significantly effect the quality of the human
environment.
No federal agency has prepared or is preparing an
environmental impact statement with respect to the transactions
proposed in this Declaration.
SIGNATURES
Pursuant to the requirements of the Public Holding
Utility Company Act of 1935, the undersigned company has duly
caused this Statement to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
By /s/ R. M. DiValerio_______
R. M. DiValerio
Secretary
LEIDY HUB, INC.
By /s/ Walter E. DeForest____
Walter E. DeForest
President
Dated: July 7, 1995
EXHIBIT INDEX
(a) Exhibits
A-1 Restated Certificate of Incorporation of
National Fuel Gas Company, dated March 15,
1985 (Incorporated by Reference to Exhibit A-
4 in File No. 70-6667).
A-2 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated March 9, 1987
(Incorporated by Reference to Exhibit A-3 in
File No. 70-7334).
A-3 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated February 22, 1988
(Incorporated by Reference to Exhibit B-5 in
File No. 70-7478).
A-4 Certificate of Amendment of Restated
Certificate of Incorporation, dated March 17,
1992. (Incorporated by Reference to
Exhibit A-4 in File No. 70-8109).
A-5 Bylaws of National Fuel Gas Company, as
amended. (Incorporated by Reference to
Exhibit A-5 in File No. 70-8109).
A-6 Pre-Purchase Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). (Note that
Exhibit A to the Pre-Purchase Agreement is
included as Exhibit A-7). A PORTION OF THIS
AGREEMENT IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 104(b).
A-7 Form of Purchase Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
A-8 Limited Liability Company Agreement of
Enerchange, L.L.C. (Designated as
Exhibit EX-3 for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
F-1 Opinion of Stryker Tams and Dill (Designated
as Exhibit EX-5 for EDGAR purposes).
F-2 Opinion of James R. Peterson (Designated
as Exhibit EX-5 for EDGAR purposes).
G-1 Financial Data Schedules
THIS EXHIBIT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
H-1 Proposed form of public notice (Designated as
Exhibit EX-99 for EDGAR purposes).
(b) Financial Statements
S-1 Pro Forma Consolidated Statement of Income
and Earnings Reinvested in the Business for
the twelve months ended March 31, 1995,
Pro Forma Consolidated Balance Sheet at
March 31, 1995 and Pro Forma Adjusting
Entries. THIS EXHIBIT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
S-2 National Fuel Gas Company Pro Forma
Statement of Income and Earnings Reinvested
in the Business for the twelve months
ended March 31, 1995, Pro Forma Balance
Sheet at March 31, 1995 and Pro Forma
Adjusting Entries. THIS EXHIBIT IS SUBJECT TO
A REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
S-3 Leidy Hub, Inc. Pro Forma Statement of
Income and Earnings Reinvested in the Business
for the twelve months ended March 31, 1995,
Pro Forma Balance Sheet at March 31, 1995 and
Pro Forma Adjusting Entries. THIS EXHIBIT IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
S-4 Notes to Financial Statements. THIS EXHIBIT
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
S-5 Enerchange, L.L.C. Condensed Balance Sheet at
June 12, 1995. This financial statement, as
agreed to by the parties to the formation of
Enerchange, L.L.C., (and not prepared by
representatives of the Applicant-Declarants)
is incorporated in Exhibit A-8 (the Limited
Liability Company Agreement of Enerchange,
L.L.C.) as Exhibit G thereto.
EXHIBIT A-6
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
PRE-PURCHASE AGREEMENT
(Designated as Exhibit EX-2 for EDGAR purposes)
THIS PRE-PURCHASE AGREEMENT (this "Agreement"), dated as of
June 12, 1995, is made by and between Hub Services Inc., a
Delaware corporation ("Seller"), and Leidy Hub, Inc., a New York
corporation ("Purchaser").
RECITALS
1. On the date hereof, Seller and NICOR Hub Services Inc.
("NHS") formed Enerchange, a Delaware limited liability company
("Company") for the purpose of engaging in the Business, with
Seller owning a 99.0% Limited Liability Company Interest in the
Company and NICOR Hub Services, Inc.("NHS") owning a 1.0% Limited
Liability Company Interest in the Company.
2. The Limited Liability Company Agreement provides that
Seller may sell to Purchaser a 14.5% Limited Liability Company
Interest (the "Acquired Interest") and sets forth a procedure for
the approval of such sale, and Seller wishes to sell to Purchaser,
and Purchaser wishes to buy from Seller, the Acquired Interest.
3. Purchaser and National Fuel Gas Company ("NFG") must
obtain Securities and Exchange Commission approval prior to
purchasing the Acquired Interest.
4. Concurrently with the execution of this Agreement,
Seller intends to sell a [ ]% Limited Liability Company Interest
in the Company to NHS and a [ ]% Limited Liability Company
Interest in the Company to Pacific Enerchange.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
In consideration of the mutual covenants, agreements and
warranties herein contained, it is agreed that Purchaser shall
acquire from Seller all of the Acquired Interest upon the terms
and conditions hereinafter set forth and pursuant to a purchase
agreement substantially in the form of the Purchase Agreement
attached to this Agreement as Exhibit A.
ARTICLE I
DEFINITIONS
The following terms shall have the meanings set forth herein
for the purposes of this Agreement:
"Acquired Interest" is defined in the second recital.
"Act" means the Delaware Limited Liability Company Act,
6 Del. C. 18101, et seq., and all amendments to the Act, as in
effect from time to time.
"Affiliate" means, with respect to any Person, another Person
that directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with such
Person.
"Business" means the business described in Section 3.1 of the
Limited Liability Company Agreement.
"Closing Date" means the date on which the sale and purchase
of the Acquired Interest occurs.
"Company" is defined in the first recital.
"Electronic Trading System" means the electronic gas trading
and nominations system that the Company expects to develop and
operate on a joint ownership basis with Energy Exchange Inc., a
corporation incorporated pursuant to the laws of the Province of
Alberta.
"Financial Statements" means the financial statements of
Seller for the 12-month period ended December 31, 1993 and
December 31, 1994 and for January, February, March, April and May
1995 (including all notes thereto), which have been previously
furnished by Seller to Purchaser, consisting of the statements of
earnings and cash flows for such periods.
"Governmental Authority" means the government of the United
States or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hub Trading Purchase Price" means the sum of $[ ] as
adjusted in accordance with Section 5.4 of this Agreement, and
which may be increased in accordance with Section 6.2 of the
Purchase Agreement.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Indemnified Person" shall mean the Person entitled to, or
claiming a right to, indemnification under Article VIII.
"Indemnifying Person" shall mean the Person claimed by the
Indemnified Person to be obligated to provide indemnification
under Article VIII.
"Limited Liability Company Agreement" means that certain
Limited Liability Company Agreement dated as of June 12, 1995,
between Seller and LHI.
"Limited Liability Company Interest" has the meaning given
such term in the Act.
"Losses" is defined in Section 8.2.
"Market Making Purchase Price" means $[ ].
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Person" means an individual, trust, Governmental Authority,
estate or any incorporated or unincorporated company, corporation,
limited liability company, partnership or other organization.
"Purchaser" is defined in the preamble.
"Purchase Agreement" is defined in the last paragraph of the
Recitals.
"SEC Approval" means SEC approval of Purchaser's purchase of
the Acquired Interest without any conditions which in the judgment
of either of the parties make it impractical to consummate the
transactions contemplated by this Agreement.
"Seller" is defined in the preamble.
"Total Purchase Price" is defined in Section 2.2.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of The Acquired Interest. Subject to
the terms and conditions set forth in this Agreement, within three
business days following SEC Approval, or such longer period
acceptable to the parties, Seller and Purchaser shall execute and
perform the Purchase Agreement in substantially the form attached
hereto as Exhibit A.
2.2 Payment of Purchase Price. In consideration of such
sale, assignment, transfer, conveyance and delivery to Purchaser
by Seller of all of the Acquired Interest, Purchaser shall pay to
Seller the following, which together shall comprise the "Total
Purchase Price":
(a) on the Closing Date, the Hub Trading Purchase Price and
the Market Making Purchase Price;
(b) the total amount due on the Closing Date shall be
adjusted pursuant to Section 5.4, which adjustment could under
certain circumstances have a net result of Seller paying money to
Purchaser; and
(c) the additional amounts, if any, that become payable in
accordance with Section 6.2 of the Purchase Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 Ownership of Acquired Interest. Seller owns
beneficially and legally all right, title and interest in and to
the Acquired Interest, free and clear of any security interest,
lien, adverse claim or other encumbrance. The Acquired Interest
in the aggregate constitutes 14.5% of the aggregate Limited
Liability Company Interest of the Company. None of the Acquired
Interest is subject to any restriction on transfer, other than as
set forth in the Limited Liability Company Agreement.
3.2 Due Organization. To the best of Seller's knowledge,
the Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. To the best of Seller's knowledge, the
Company is duly qualified and in good standing as a foreign
limited liability company to do business in each jurisdiction
where the failure to be so qualified would, in the aggregate, have
a material adverse effect on the business or operations of the
Company. Schedule 3.2 is a complete and accurate list of all
jurisdictions in which the Company is so qualified. The Company
owns no equity or debt securities of any Person, other than a
50.0% interest in the Ellisburg-Leidy Northeast Hub Company, a
Pennsylvania general partnership. True, correct and complete
copies of the Company's Certificate of Formation and all other
organizational documents of the Company have been delivered to
Purchaser.
3.3 Due Authorization. Seller has full power and authority
to enter into this Agreement and to carry out the transactions
contemplated hereby, and this Agreement has been duly and validly
executed and delivered by Seller, and constitutes the legal, valid
and binding obligation of Seller, enforceable in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on the
availability of specific remedies.
3.4 No Conflict. The execution, delivery and performance of
this Agreement and all other instruments, agreements, certificates
and documents contemplated hereby by Seller do not: (i) violate
any order, decree or judgment of any Governmental Authority
applicable to Seller, or the Acquired Interest or, to the best of
Seller's knowledge, the Company; (ii) violate any law (or
regulation or rule promulgated under any law); (iii) violate or
conflict with, or result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or
both, would constitute a default) under, or permit cancellation
of, or result in the creation of any lien or encumbrance or other
contingent liability upon any of the assets of the Company or the
Acquired Interest under, any of the terms, conditions, or
provisions of any contract to which Seller or the Company is a
party, or by which either of them or any of the assets of the
Company or the Acquired Interest is bound; (iv) permit the
acceleration of the maturity of any indebtedness of the Company,
or any indebtedness secured by any of the assets of the Company or
the Acquired Interest; or (v) violate or conflict with any
provision of the charter, by-laws or other organizational
documents of Seller or, to the best of Seller's knowledge, the
Company.
3.4 Consents. Prior to execution of this Agreement and
prior to the Closing Date, Seller will have obtained all
authorizations, consents and permits required to permit the
consummation of the transactions contemplated by this Agreement.
3.5 Accuracy of Statements. This Agreement does not contain
any untrue statement of a material fact regarding Seller, the
Company, the assets of the Company or the Acquired Interest.
3.6 Financial Statements; Undisclosed Liabilities; Other
Documents. The Financial Statements have been prepared in
accordance with consistently applied accounting principles and
present fairly the financial position, revenues, expenses,
earnings, and cash flows of Seller for the periods covered
thereby. Such Financial Statements are in accordance with the
books and records of Seller, do not reflect any transactions which
are not bona fide transactions and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements contained therein, in light of
the circumstances in which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
4.1 Due Authorization. Purchaser has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby, and this Agreement has been duly
and validly executed and delivered by Purchaser, and constitutes
the legal, valid and binding obligation of Purchaser, enforceable
in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect which
affect creditors' rights generally, and by legal and equitable
limitations on the availability of specific remedies.
4.2 No Conflict. The execution, delivery and performance of
this Agreement does not: (i) violate any decree or judgment of
any Governmental Authority applicable to Purchaser; (ii) violate
any law (or regulation promulgated under any law); (iii) violate
or conflict with, or result in a breach of, or constitute a
default (or an event which, with or without notice or lapse of
time or both, would constitute a default) under, any of the terms,
conditions, or provisions of any contract to which Purchaser is a
party, or by which Purchaser is bound; or (iv) violate or conflict
with any provision of the charter, by-laws or other organizational
documents of Purchaser.
4.3 Investment Intent. Purchaser is acquiring the Acquired
Interest for its own account, for investment and not with a view
to, or for sale or other disposition in connection with, any
"distribution" thereof, within the meaning of the Securities Act
of 1933, as amended, nor with any present intention of selling or
otherwise disposing of the Acquired Interest.
4.4 Consents. Prior to the execution of this Agreement and
prior to the Closing Date, Purchaser will have obtained all
authorizations, consents and permits of others required to permit
the consummation of the transactions contemplated by this
Agreement except, with respect to SEC Approval, LHI and NFG will
file applications for approval as soon as possible and will use
their best efforts to obtain such approval.
ARTICLE V
PRE-CLOSING OPERATION OF THE COMPANY
5.1 Pre-Closing Company Operations. The parties contemplate
that the Company will be created concurrently with the execution
of this Agreement. The Company will conduct operations in
accordance with the terms and conditions of the Company Agreement.
5.2 Purchaser's Pre-Closing Participation. Purchaser will
be entitled to participate in the pre-Closing Date business
affairs of the Company in accordance with the following
procedures. Seller will furnish Purchaser with copies of all
notices and other material documents relating to the Company's
business. Seller will afford Purchaser an opportunity to review
and comment on all matters presented to the Company's Executive
Committee for approval and Seller agrees to take Purchaser's
comments on all such matters into account prior to voting on
matters in the Executive Committee. In addition, Seller agrees to
use its best efforts to obtain approval for a representative of
Purchaser to attend all meetings of the Executive Committee as an
observer.
5.3 Periodic Reports. Seller shall at a minimum furnish
Purchaser with copies of all reports and other statements that the
Company is required to furnish its Members pursuant to the Company
Agreement.
5.4 Purchase Price Adjustment. The intent of this Section
is to place Seller and Purchaser in approximately the same
after-tax economic positions as they would have been if Purchaser
had purchased the Acquired Interest from Seller on the date of
execution of this Agreement. Following execution of this
Agreement the parties will agree on a formula to be used to
implement the intent expressed in this Section and appropriate
adjustments to the Total Purchase Price will be made in accordance
with such formula.
5.5 Pre-Closing Competition with the Company. During the
period prior to the Closing Date, Purchaser agrees that it shall
be subject to those provisions of the Company Agreement limiting
the extent to which Members and their Affiliates may compete with
the business of the Company, including, without limitation,
Article VII of the Company Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO EXECUTION OF THE
PURCHASE AGREEMENT
6.1 Conditions Precedent to Obligations of the Purchaser.
The obligation of Purchaser to execute and perform the Purchase
Agreement is subject to the satisfaction of the following
conditions and such conditions that may be established in the
Purchase Agreement:
6.1.1 Covenants, Representations and Warranties. Seller
shall have performed, in all material respects, all obligations
and agreements and complied with all covenants contained in this
Agreement to be performed and complied with by Seller prior to
the Closing Date. Each of the warranties and representations of
Seller contained in this Agreement shall be accurate in all
material respects, at and as of the date made and also at and as
of the Closing Date with the same force and effect as though made
on and as of the Closing Date, and Seller shall have delivered to
Purchaser a certificate so certifying.
6.1.2 SEC Approval. The SEC Approval shall have been
obtained without any conditions which in the judgment of either
party make it impractical to consummate the transactions
contemplated by this Agreement.
6.2 Conditions Precedent to Obligations of Seller. The
obligation of Seller to execute and perform the Purchase Agreement
is subject to the satisfaction of the following conditions and
such conditions that may be established in the Purchase Agreement:
6.2.1 Covenants, Representations and Warranties. Purchaser
shall have performed, in all material respects, all obligations
and agreements and complied with all covenants contained in this
Agreement to be performed and complied with by Purchaser prior to
the Closing Date. Each of the warranties and representations of
Purchaser contained in this Agreement shall be accurate in all
material respects, at and as of the date made and also at and as
of the Closing Date with the same force and effect as though made
on and as of the Closing Date, and Purchaser shall have delivered
to Seller a certificate so certifying.
ARTICLE VII
COVENANTS
7.1 Implementing This Agreement. From the date hereof to
the Closing Date, each of Purchaser and Seller will take all
necessary action to fulfill its respective obligations under this
Agreement and shall take all commercially reasonable efforts to
consummate the transactions contemplated thereby.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations and warranties of the
parties hereto contained herein shall survive the Closing. Such
representations and warranties shall be deemed made as of the date
of this Agreement and as of the Closing Date. The representations
and warranties of the parties hereto contained herein shall
survive the Closing.
8.2 Indemnification by Seller. Seller agrees to indemnify
Purchaser against, and agrees to hold Purchaser harmless from, any
and all liabilities, losses, costs, claims, damages (including
without limitation consequential damages), penalties and expenses
(including without limitation reasonable attorneys' fees and
expenses and reasonable costs of investigation) (collectively,
"Losses") incurred or suffered by Purchaser relating to or arising
out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Seller in this Agreement; or
(b) any breach of or failure by Seller to perform any
covenant or obligation of Seller set out or contemplated in this
Agreement.
8.3 Indemnification by Purchaser. Purchaser agrees to
indemnify Seller against, and agrees to hold Seller harmless from,
any and all Losses incurred or suffered by Seller relating to or
arising out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Purchaser in this Agreement;
(b) any breach of or failure by Purchaser to perform any
covenant or obligation of Purchaser set out or contemplated in
this Agreement; and
(c) notwithstanding any other provision of this Agreement,
Purchaser is not obligated to indemnify, and does not agree to
indemnify, Seller or any other person against any market or
investment risk in connection with Purchaser's acquisition,
retention or disposition of the subject matter of this Agreement.
8.4 Claims. The provisions of this Section shall be subject
to Section 8.5. As soon as is reasonably practicable after
becoming aware of a claim for indemnification under this Agreement
the Indemnified Person shall promptly give notice to the
Indemnifying Person of such claim and the amount the Indemnified
Person will be entitled to receive hereunder from the Indemnifying
Person; provided that the failure of the Indemnified Person to
give notice shall not relieve the Indemnifying Person of its
obligations under this Article VIII except to the extent (if any)
that the Indemnifying Person shall have been prejudiced thereby.
If the Indemnifying Person does not object in writing to such
indemnification claim within 30 calendar days of receiving notice
thereof, the Indemnified Person shall be entitled to recover
promptly from the Indemnifying Person the amount of such claim,
and no later objection by the Indemnifying Person shall be
permitted. If the Indemnifying Person agrees that it has an
indemnification obligation but objects on the grounds that it is
obligated to pay only a lesser amount, the Indemnified Person
shall nevertheless be entitled to recover promptly from the
Indemnifying Person the lesser amount, without prejudice to the
Indemnified Person's claim for the difference.
8.5 Notice of Third Party Claims; Assumption of Defense.
The Indemnified Person shall give notice as promptly as is
reasonably practicable to the Indemnifying Person of the assertion
of any claim, or the commencement of any Proceeding, by any Person
not a party hereto in respect of which indemnity may be sought
under this Agreement; provided that the failure of the Indemnified
Person to give notice shall not relieve the Indemnifying Person of
its obligations under this Article VIII except to the extent (if
any) that the Indemnifying Person shall have been prejudiced
thereby. The Indemnifying Person may, at its own expense, (a)
participate in the defense of any claim, suit, action or
proceeding and (b) upon notice to the Indemnified Person and the
Indemnifying Person's delivering to the Indemnified Person a
written agreement that the Indemnified Person is entitled to
indemnification for all Losses arising out of such claim or
Proceeding and that the Indemnifying Person shall be liable for
the entire amount of any Loss, at any time during the course of
any such claim or Proceeding, assume the defense thereof;
provided, however, that (i) the Indemnifying Person's counsel is
reasonably satisfactory to the Indemnified Person, and (ii) the
Indemnifying Person shall thereafter consult with the Indemnified
Person upon the Indemnified Person's reasonable request for such
consultation from time to time with respect to such claim or
Proceeding. If the Indemnifying Person assumes such defense, the
Indemnified Person shall have the right (but not the duty) to
participate in the defense thereof. If the Indemnified Person
reasonably determines in its judgment that representation by the
Indemnifying Person's counsel of both the Indemnifying Person and
the Indemnified Person would present such counsel with a conflict
of interest, then such Indemnified Person may employ separate
counsel to represent or defend it in any such claim or Proceeding,
and the Indemnifying Person shall pay the fees and disbursements
of such separate counsel. Whether or not the Indemnifying Person
chooses to defend or prosecute any such claim or Proceeding, all
of the parties hereto shall cooperate in the defense or
prosecution thereof.
8.6 Settlement or Compromise. Any settlement or compromise
made or caused to be made by the Indemnified Person or the
Indemnifying Person, as the case may be, of any such claim or
Proceeding of the kind referred to in Section 8.5 shall also be
binding upon the Indemnifying Person or the Indemnified Person, as
the case may be, in the same manner as if a final judgment or
decree had been entered by a court of competent jurisdiction in
the amount of such settlement or compromise; provided, however,
that no obligation, restriction or Loss shall be imposed on the
Indemnified Person as a result of such settlement without its
prior written consent.
8.7 Failure of Indemnifying Person to Act. In the event
that the Indemnifying Person does not elect to assume the defense
of any claim or Proceeding, then any failure of the Indemnified
Person to defend or to participate in the defense of any such
claim or Proceeding or to cause the same to be done, shall not
relieve the Indemnifying Person of its obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Each party hereto shall bear its own expenses
with respect to this transaction.
9.2 Amendment. This Agreement may be amended, modified or
supplemented, but only in writing signed by each of the parties
hereto.
9.3 Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed to
be an original, but together shall constitute one and the same
instrument.
9.4 Headings. Section and Article headings in this
Agreement are for convenience of reference only, and shall not
govern the interpretation of the provisions of this Agreement.
9.5 Severability. Any provisions of this Agreement that are
held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable, or invalid without affecting the remaining
provisions of this Agreement in that jurisdiction or the
operation, enforceability, or validity of such provisions in any
other jurisdiction.
9.6 Entire Understanding. This Agreement and the Company
Agreement set forth the entire agreement and understanding of the
parties hereto with respect to the transaction contemplated hereby
and supersede all prior arrangements, agreements and
understandings relating to the subject matter hereof. There have
been no representations or statements, oral or written, that have
been relied on by either party hereto, except those expressly set
forth in this Agreement and the Company Agreement.
9.7 Applicable Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the internal laws
of the State of Delaware, without regard to the conflicts of law
principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
HUB SERVICES INC.
By:/s/ Stemphen W. Bergstrom________
Title:Executive Vice President______
Printed Name:Stephen W. Bergstrom___
LEIDY HUB, INC.
By:/s/ Walter E. DeForest___________
Title:President_____________________
Printed Name:Walter E. DeForest_____
EXHIBIT A
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of
- ------________, 1995, is made by and between Hub Services Inc., a
Delaware corporation ("Seller"), and Leidy Hub, Inc., a New York
corporation ("Purchaser").
RECITALS
1. On June 12, 1995, Seller and NICOR Hub Services Inc.
("NHS") formed Enerchange, L.L.C. a Delaware limited liability
company ("Company") for the purpose of engaging in the Business,
with Seller owning a 99.0% Limited Liability Company Interest in
the Company and NICOR Hub Services, Inc. ("NHS") owning a 1.0%
Limited Liability Company Interest in the Company. Subsequently,
Seller sold an additional [ ]% Limited Liability Company Interest
to NHS and a [ ]% Limited Liability Company Interest to Pacific
Enerchange.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
2. The Limited Liability Company Agreement provides that
Seller may sell to Purchaser a 14.5% Limited Liability Company
Interest (the "Acquired Interest") and sets forth a procedure for
the approval of such sale, and Seller wishes to sell to Purchaser,
and Purchaser wishes to buy from Seller, the Acquired Interest.
3. The Company's Executive Committee has approved Seller's
sale of the Acquired Interest to Purchaser.
In consideration of the mutual covenants, agreements and
warranties herein contained, it is agreed that Purchaser shall
acquire from Seller all of the Acquired Interest upon the terms
and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
The following terms shall have the meanings set forth herein
for the purposes of this Agreement:
"Acquired Interest" is defined in the second recital.
"Act" means the Delaware Limited Liability Company Act,
6 Del. C. 18101, et seq., and all amendments to the Act, as in
effect from time to time.
"Affiliate" means, with respect to any Person, another Person
that directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with such
Person.
"Business" means the business described in Section 3.1 of the
Limited Liability Company Agreement.
"Closing Date" means the date on which the Closing occurs or
is to occur.
"Company" is defined in the first recital.
"Electronic Trading System" means the electronic gas trading
and nominations system that the Company expects to develop and
operate on a joint ownership basis with Energy Exchange Inc., a
corporation incorporated pursuant to the laws of the Province of
Alberta.
"Governmental Authority" means the government of the United
States or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hub Service Contract" means each of (a) that certain Chicago
Hub Agreement dated as of May 26, 1993, between Northern Illinois
Gas Company and Seller, (b) that certain California Hub Agreement
dated as of March 15, 1994, between Southern California Gas
Company and Seller, and (c) that certain Pre-Partnership Agreement
dated as of September 1, 1993, and that certain Partnership
Agreement dated as of September 1, 1994, each between Purchaser
and Seller.
"Hub Trading Purchase Price" means the sum of $[ ] as
adjusted pursuant to Section 5.4 of the Pre-Purchase Agreement.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Indemnified Person" shall mean the Person entitled to, or
claiming a right to, indemnification under Article VIII.
"Indemnifying Person" shall mean the Person claimed by the
Indemnified Person to be obligated to provide indemnification
under Article VIII.
"Limited Liability Company Agreement" means that certain
Limited Liability Company Agreement dated as of June 12, 1995
between Seller and NHS.
"Limited Liability Company Interest" has the meaning given
such term in the Act.
"Losses" is defined in Section 8.2.
"Market Making Purchase Price" means $[ ].
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Person" means an individual, trust, Governmental Authority,
estate or any incorporated or unincorporated company, corporation,
limited liability company, partnership or other organization.
"Pre-Purchase Agreement" means that certain Pre-Purchase
Agreement dated June 12, 1995, executed by Seller and Purchaser.
"Proceedings" is defined in Section 3.17.
"Purchaser" is defined in the preamble.
"Seller" is defined in the preamble.
"Taxes" means all taxes, charges, fees, duties, levies or
other assessments, including (without limitation) income, gross
receipts, net proceeds, ad valorem, turnover, real and personal
property (tangible and intangible), sales, use, franchise, excise,
value added, stamp, leasing, lease, user, transfer, fuel, excess
profits, occupational, interest equalization, windfall profits,
severance and employees' income withholding, unemployment and
Social Security taxes, which are imposed by the United States, or
any state, local or foreign government or subdivision or agency
thereof, and such term shall include any interest, penalties or
additions to tax attributable to such Taxes.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of The Acquired Interest. Subject to
the terms and conditions set forth in this Agreement, at the
Closing, Seller shall sell, assign, transfer, convey and deliver
to Purchaser, and Purchaser shall accept, acquire and take
assignment and delivery of, all of the Acquired Interest.
2.2 Payment of Purchase Price. In consideration for such
sale, assignment, transfer, conveyance and delivery to Purchaser
by Seller of all of the Acquired Interest, on the Closing Date
Purchaser will pay to Seller the Hub Trading Purchase Price and
the Market Making Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 Ownership of Acquired Interest. Seller owns
beneficially and legally all right, title and interest in and to
the Acquired Interest, free and clear of any security interest,
lien, adverse claim or other encumbrance. The Acquired Interest
in the aggregate constitutes 14.5% of the aggregate Limited
Liability Company Interests of the Company. None of the Acquired
Interest is subject to any restriction on transfer, other than as
set forth in the Limited Liability Company Agreement.
3.2 Due Organization. To the best of Seller's knowledge,
the Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. To the best of Seller's knowledge, the
Company is duly qualified and in good standing as a foreign
limited liability company to do business in each jurisdiction
where the failure to be so qualified would, in the aggregate, have
a material adverse effect on the business or operations of the
Company. Schedule 3.2 is a complete and accurate list of all
jurisdictions in which the Company is so qualified. The Company
owns no equity or debt securities of any Person, other than a
50.0% interest in the Pennsylvania general partnership formed
under the contracts described in clause (c) of the definition of
"Hub Services Contract." True, correct and complete copies of the
Company's Certificate of Formation and all other organizational
documents of the Company have been delivered to Purchaser.
3.3 Due Authorization. Seller has full power and authority
to enter into this Agreement and to carry out the transactions
contemplated hereby, and this Agreement has been duly and validly
executed and delivered by Seller, and constitutes the legal, valid
and binding obligation of Seller, enforceable in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on the
availability of specific remedies.
3.4 No conflict. The execution, delivery and performance of
this Agreement and all other instruments, agreements, certificates
and documents contemplated hereby by Seller do not: (i) violate
any order, decree or judgment of any Governmental Authority
applicable to Seller, or the Acquired Interest or, to the best of
Seller's knowledge, the Company; (ii) violate any law (or
regulation or rule promulgated under any law); (iii) violate or
conflict with, or result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or
both, would constitute a default) under, or permit cancellation
of, or result in the creation of any lien or encumbrance or other
contingent liability upon any of the assets of the Company or the
Acquired Interest under, any of the terms, conditions, or
provisions of any contract to which Seller or the Company is a
party, or by which either of them or any of the assets of the
Company or the Acquired Interest is bound; (iv) permit the
acceleration of the maturity of any indebtedness of the Company,
or any indebtedness secured by any of the assets of the Company or
the Acquired Interest; or (v) violate or conflict with any
provision of the charter, by-laws or other organizational
documents of Seller or, to the best of Seller's knowledge, the
Company.
3.5 Ownership of Interests. Prior to giving effect to
Purchaser's acquisition of the Acquired Interest pursuant to this
Agreement, Seller owned a [ ]% Limited Liability Company
Interest in the Company. Neither Seller nor, to the best of
Seller's knowledge, the Company has granted any option, warrant,
or similar right to any Person to purchase or acquire any rights
with respect to any Limited Liability Company Interest, or any
other interest whatsoever, of the Company.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
3.6 Title to and Condition of Properties and the Company.
The Company has good title to and is the lawful owner of all of
the assets of the Company, free and clear of all security
interests, liens, adverse claims and other encumbrances. All of
the assets of the Company are listed on Schedule 3.6(a). Each of
the Hub Services Contracts is in full force and effect and
constitutes a legal, valid and binding agreement of each party
thereto. The rights and obligations of Seller under each Hub
Services Contract have been duly and validly assigned to the
Company by Seller. All of the liabilities of the Company are
listed on Schedule 3.6(b). The Company has no liabilities, debts,
claims or obligations, whether accrued, absolute, contingent or
otherwise, whether due or to become due, except as set forth on
Schedule 3.6(b).
3.7 No Defaults or Violations. Except as set forth on
Schedule 3.7, (a) the Company has not materially breached any
provision of, nor is it in material default under the terms of,
any contract (including, without limitation, any Hub Services
Contract) to which it is a party or under which it has any rights
or by which it is bound, and to Seller's knowledge no other party
to any such contract is in default thereunder in any material
respect, and (b) the Company is not in material violation of or
default under or with respect to any law, governmental regulation
or rule or order of any Governmental Authority that is applicable
in any way to the business or operation of the Company, provided
that, to the extent such representations and warranties in clauses
(a) and (b) above are made with respect to any breach, default or
violation by the Company that may have arisen from and after the
Company's formation, such representations and warranties are made
to the best of Seller's knowledge. No party to a Hub Services
Contract has notified Seller, whether orally or in writing, that
Seller is in default under such Hub Services Contract, and Seller
is unaware of any default, actual or threatened, or any event
which with or without notice or lapse of time or both would become
a default, under any Hub Services Contract by any party to any
such Hub Services Contract. Except as set forth in Schedule 3.7,
none of the assets of the Company is in material violation of any
law, building, zoning or other ordinance, code or regulation
applicable to it.
3.8 Taxes. Having been formed on the Closing Date, the
Company has not previously filed any Federal, state and other tax
returns and reports as of the Closing Date; the Company has not
been required to file any such returns; and the Company has not
been required to pay any Taxes on or prior to the Closing Date.
3.9 Condition of Assets. Except as disclosed on
Schedule 3.9, all of the assets of the Company, whether real or
personal, owned or leased, are in reasonably good operating
condition (with the exception of normal wear and tear).
3.10 Contracts. Schedule 3.10 includes all the contracts and
arrangements (including, without limitation, any employment
contracts) to which the Company is a party or by which it is bound
or to which any of the assets of the Company is subject. Seller
has delivered to Purchaser true, correct and complete copies of
each document listed on Schedule 3.10, and a written description
of each oral arrangement so listed.
3.11 Permits, etc. The Company holds all of the licenses,
certificates, permits, franchises and rights listed on
Schedule 3.11, and, to the best of Seller's knowledge, does not
require any other licenses, certificates, permits, franchises and
rights to conduct the Business and its other affairs.
3.12 Insurance Policies. Schedule 3.12 contains a list of
each insurance policy currently providing coverage for the assets
or business of the Company and a copy of each such policy has been
delivered to Purchaser.
3.13 Employee Benefit Plans. Each "employee pension benefit
plan," as such term is defined in Section 3(2) of ERISA, and each
"employee welfare benefit plan," as defined in Section 3(1) of
ERISA, that is maintained by the Company to provide benefits for
its employees is described on Schedule 3.13.
3.14 Compliance With Laws. Prior to the formation of the
Company, Seller conducted the Business in full compliance in all
material respects with all applicable laws and, to the best of
Seller's knowledge, on and from the formation of the Company, the
Company has conducted the Business and its other affairs in full
compliance in all material respects with all applicable laws.
3.15 No Other Agreement. Other than the Sale Agreements,
neither Seller nor any its Affiliates has any contract, agreement,
arrangement or understanding with respect to the sale or other
disposition of the assets of the Company or any interests in the
Company.
3.16 Consents. Except as set forth on Schedule 3.16, no
notice to, filing with, authorization of, exemption by, or consent
of any Person is required in order for Seller to consummate the
transactions contemplated hereby.
3.17 Litigation.
(a) Except as disclosed in Schedule 3.17, there are no
claims, actions, suits, arbitrations, regulatory proceedings or
other litigation, proceedings or governmental investigations
(collectively, "Proceedings") pending, or to the best of Seller's
knowledge, threatened against or affecting the Company, Seller or
any of its respective officers, directors, employees, agents or
stockholders thereof in their capacity as such, or any of their
respective properties or businesses relating to such Persons in
such capacities, and Seller is not aware of any facts or
circumstances which may give rise to any of the foregoing;
provided that to the extent such representations and warranties in
this clause are made with respect to any Proceedings that may have
arisen against the Company from and after the Company's formation,
such representations and warranties are made to the best of
Seller's knowledge.
(b) There are no Proceedings pending or, to the best of
Seller's knowledge, threatened by or against the Company or Seller
with respect to this Agreement or any Hub Services Contract, or in
connection with the transactions contemplated hereby or thereby,
and Seller has no reason to believe there is a valid basis for any
such Proceeding; provided that to the extent such representations
and warranties in this clause are made with respect to any
Proceedings that may have arisen against the Company from and
after the Company's formation, such representations and warranties
are made to the best of Seller's knowledge.
3.18 No Conflict of Interest. Neither Seller nor any of its
Affiliates has or claims to have any direct or indirect interest
in any tangible or intangible property used in the Business,
except Seller's interest as an owner of its Limited Liability
Company Interest in the Company.
3.19 Bank Accounts. Schedule 3.19 sets forth the names and
locations of each bank or other financial institution at which the
Company has an account (giving the account numbers) or safe
deposit box and the names of all Persons authorized to draw
thereon or have access thereto, and the names of all Persons, if
any, now holding powers of attorney or comparable delegation of
authority from the Company and a summary statement thereof.
3.20 Accuracy of Statements. This Agreement does not contain
any untrue statement of a material fact regarding Seller, the
Company, the assets of the Company or the Acquired Interest.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
4.1 Due Authorization. Purchaser has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby, and this Agreement has been duly
and validly executed and delivered by Purchaser, and constitutes
the legal, valid and binding obligation of Purchaser, enforceable
in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect which
affect creditors' rights generally, and by legal and equitable
limitations on the availability of specific remedies.
4.2 No Conflict. The execution, delivery and performance of
this Agreement and all other instruments, agreements, certificates
and documents contemplated hereby by Purchaser do not: (i)
violate any decree or judgment of any Governmental Authority
applicable to Purchaser; (ii) violate any law (or existing
regulation promulgated under any law); (iii) violate or conflict
with, or result in a breach of, or constitute a default (or an
event which, with or without notice or lapse of time or both,
would constitute a default) under, any of the terms, conditions,
or provisions of any contract to which Purchaser is a party, or by
which Purchaser is bound; or (iv) violate or conflict with any
provision of the charter, by-laws or other organizational
documents of Purchaser.
4.3 Investment Intent. Purchaser is acquiring the Acquired
Interest for its own account, for investment and not with a view
to, or for sale or other disposition in connection with, any
"distribution" thereof, within the meaning of the Securities Act
of 1933, as amended, nor with any present intention of selling or
otherwise disposing of the Acquired Interest.
4.4 Consents. Except as set forth on Schedule 4.3, no
notice to, filing with, authorization of, exemption by, or consent
of any Person is required in order for Purchaser to consummate the
transactions contemplated hereby.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to Obligations of the Purchaser.
The obligation of Purchaser to purchase the Acquired Interest at
Closing is subject to the satisfaction of the following conditions:
5.1.1 Representations and Warranties. The representations
and warranties set forth in this Agreement made by Seller shall be
accurate as of the Closing Date as if made on the Closing Date,
and Seller shall have delivered to Purchaser a certificate so
certifying.
5.1.2 Compliance with Agreements and Covenants. Seller
shall have performed and complied with all of its covenants,
obligations and agreements contained in this Agreement to be
performed and complied with by Seller on or prior to the Closing
Date.
5.2 Conditions Precedent to Obligations of Seller. The
obligation of Seller to sell the Acquired Interest at Closing is
subject to the satisfaction of the following conditions:
5.2.1 Representations and Warranties. The representations
and warranties set forth in this Agreement made by Purchaser shall
be accurate as of the Closing Date as if made on the Closing Date,
and Purchaser shall have delivered to Seller a certificate so
certifying.
5.2.2 Compliance with Agreements and Covenants. Purchaser
shall have performed and complied with all of its covenants,
obligations and agreements contained in this Agreement to be
performed and complied with by Purchaser on or prior to the
Closing Date.
5.2.3 Company Approval. Seller shall have obtained the
approval of the Company's Executive Committee to sell the Acquired
Interest to Purchaser in form and substance satisfactory to Seller
in its sole discretion.
ARTICLE VI
COVENANTS
6.1 Implementing This Agreement. From the date hereof to
the Closing Date, each of Purchaser and Seller will take all
necessary action to fulfill its respective obligations under this
Agreement and shall take all commercially reasonable efforts to
consummate the transactions contemplated thereby.
6.2 Payment to Seller for Hub Administration. Purchaser
agrees that, if the termination date of the Chicago Hub Agreement
is extended to a date not earlier than June 11, 2000 on
substantially the same terms as those currently in effect with
respect to the Chicago Hub Agreement, Purchaser shall pay to
Seller, on the later of June 12, 1998 or the date of execution of
such extension, an amount equal to $[ ]. In addition,
Purchaser agrees that, if the termination date of the California
Hub Agreement is extended to a date not earlier than June 11, 2000
on substantially the same terms as those currently in effect with
respect to the California Hub Agreement, Purchaser shall pay to
Seller, on the later of June 12, 1998 or the date of execution of
such extension, an amount equal to $[ ].
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
6.3 Seller to Provide Expertise. Seller acknowledges that
Purchaser is purchasing the Acquired Interest hereunder in
reliance upon representations that Seller and Seller's Affiliates
have officers and employees who possess the experience and
expertise to engage successfully in Market-Making (provided that
Purchaser acknowledges that Seller has in no way guaranteed the
success of the Company's Market-Making). Seller agrees that it
will, or will cause its Affiliates to, second or otherwise make
available to the Company officers and employees (and cause the
Company to engage and retain, so long as the Limited Liability
Company Agreement shall remain in effect, such officers and
employees) who have such experience and expertise, and Seller
further agrees that such officers and employees shall be
reasonably acceptable to Purchaser. Without limiting the
foregoing, the parties agree that Miles Allen has such experience
and expertise (provided that Purchaser agrees that, subject to the
foregoing sentence, other officers and employees may replace Miles
Allen).
6.4 That certain Assignment, Bill of Sale and Conveyance
dated June 12, 1995 executed by Seller, as Assignor, and
Enerchange, as Assignee (the "Assignment"), provides that
Enerchange will reassign the assigned interest in the
Ellisburg-Leidy Partnership Agreement to Seller upon Seller's
election in the event that either the Chicago Hub Agreement or the
California Hub Agreement, or both, are not extended to a date
specified in the Assignment. Seller and Purchaser hereby agree
that Seller shall not elect to require Enerchange to reassign the
interest in the Ellisburg-Leidy Partnership Agreement to Seller
without the prior written consent of Purchaser.
ARTICLE VII
CLOSING
7.1 Closing. The Closing shall take place on or before the
third business day following the day on which Purchaser's
acquisition of the Acquired Interest is approved by the SEC, or on
such later date to which the parties hereto shall agree.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations and warranties of the
parties hereto contained herein and in this Article VIII shall
survive the Closing. Such representations and warranties shall be
deemed made as of the date of this Agreement and as of the Closing
Date.
8.2 Indemnification by Seller. Seller agrees to indemnify
Purchaser against, and agrees to hold Purchaser harmless from, any
and all liabilities, losses, costs, claims, damages (including
without limitation consequential damages), penalties and expenses
(including without limitation reasonable attorneys' fees and
expenses and reasonable costs of investigation) (collectively,
"Losses") incurred or suffered by Purchaser relating to or arising
out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Seller in this Agreement;
(b) any breach of or failure by Seller to perform any
covenant or obligation of Seller set out or contemplated in this
Agreement; or
(c) any actual and/or contingent liabilities arising from,
or in connection with, or as a result of Seller's performance, act
or omission prior to the Closing Date.
8.3 Indemnification by Purchaser. Purchaser agrees to
indemnify Seller against, and agrees to hold Seller harmless from,
any and all Losses incurred or suffered by Seller relating to or
arising out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Purchaser in this Agreement ; or
(b) any breach of or failure by Purchaser to perform any
covenant or obligation of Purchaser set out or contemplated in
this Agreement.
8.4 Claims. The provisions of this Section shall be subject
to Section 8.5. As soon as is reasonably practicable after
becoming aware of a claim for indemnification under this Agreement
the Indemnified Person shall promptly give notice to the
Indemnifying Person of such claim and the amount the Indemnified
Person will be entitled to receive hereunder from the Indemnifying
Person; provided that the failure of the Indemnified Person to
give notice shall not relieve the Indemnifying Person of its
obligations under this Article VIII except to the extent (if any)
that the Indemnifying Person shall have been prejudiced thereby.
If the Indemnifying Person does not object in writing to such
indemnification claim within 30 calendar days of receiving notice
thereof, the Indemnified Person shall be entitled to recover
promptly from the Indemnifying Person the amount of such claim,
and no later objection by the Indemnifying Person shall be
permitted. If the Indemnifying Person agrees that it has an
indemnification obligation but objects on the grounds that it is
obligated to pay only a lesser amount, the Indemnified Person
shall nevertheless be entitled to recover promptly from the
Indemnifying Person the lesser amount, without prejudice to the
Indemnified Person's claim for the difference.
8.5 Notice of Third Party Claims; Assumption of Defense.
The Indemnified Person shall give notice as promptly as is
reasonably practicable to the Indemnifying Person of the assertion
of any claim, or the commencement of any Proceeding, by any Person
not a party hereto in respect of which indemnity may be sought
under this Agreement; provided that the failure of the Indemnified
Person to give notice shall not relieve the Indemnifying Person of
its obligations under this Article VIII except to the extent (if
any) that the Indemnifying Person shall have been prejudiced
thereby. The Indemnifying Person may, at its own expense, (a)
participate in the defense of any claim, suit, action or
proceeding and (b) upon notice to the Indemnified Person and the
Indemnifying Person's delivering to the Indemnified Person a
written agreement that the Indemnified Person is entitled to
indemnification for all Losses arising out of such claim or
Proceeding and that the Indemnifying Person shall be liable for
the entire amount of any Loss, at any time during the course of
any such claim or Proceeding, assume the defense thereof;
provided, however, that (i) the Indemnifying Person's counsel is
reasonably satisfactory to the Indemnified Person, and (ii) the
Indemnifying Person shall thereafter consult with the Indemnified
Person upon the Indemnified Person's reasonable request for such
consultation from time to time with respect to such claim or
Proceeding. If the Indemnifying Person assumes such defense, the
Indemnified Person shall have the right (but not the duty) to
participate in the defense thereof. If the Indemnified Person
reasonably determines in its judgment that representation by the
Indemnifying Person's counsel of both the Indemnifying Person and
the Indemnified Person would present such counsel with a conflict
of interest, then such Indemnified Person may employ separate
counsel to represent or defend it in any such claim or Proceeding,
and the Indemnifying Person shall pay the fees and disbursements
of such separate counsel. Whether or not the Indemnifying Person
chooses to defend or prosecute any such claim or Proceeding, all
of the parties hereto shall cooperate in the defense or
prosecution thereof.
<PAGE>
8.6 Settlement or Compromise. Any settlement or compromise
made or caused to be made by the Indemnified Person or the
Indemnifying Person, as the case may be, of any such claim or
Proceeding of the kind referred to in Section 8.5 shall also be
binding upon the Indemnifying Person or the Indemnified Person, as
the case may be, in the same manner as if a final judgment or
decree had been entered by a court of competent jurisdiction in
the amount of such settlement or compromise; provided, however,
that no obligation, restriction or Loss shall be imposed on the
Indemnified Person as a result of such settlement without its
prior written consent.
8.7 Failure of Indemnifying Person to Act. In the event
that the Indemnifying Person does not elect to assume the defense
of any claim or Proceeding, then any failure of the Indemnified
Person to defend or to participate in the defense of any such
claim or Proceeding or to cause the same to be done, shall not
relieve the Indemnifying Person of its obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Each party hereto shall bear its own expenses
with respect to this transaction.
9.2 Amendment. This Agreement may be amended, modified or
supplemented, but only in writing signed by each of the parties
hereto.
9.3 Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed to
be an original, but together shall constitute one and the same
instrument.
9.4 Headings. Section and Article headings in this
Agreement are for convenience of reference only, and shall not
govern the interpretation of the provisions of this Agreement.
9.5 Severability. Any provisions of this Agreement that are
held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable, or invalid without affecting the remaining
provisions of this Agreement in that jurisdiction or the
operation, enforceability, or validity of such provisions in any
other jurisdiction.
9.6 Entire Understanding. This Agreement, the Pre-Purchase
Agreement and the Company Agreement set forth the entire agreement
and understanding of the parties hereto with respect to the
transaction contemplated hereby and supersede all prior
arrangements, agreements and understandings relating to the
subject matter hereof. There have been no representations or
statements, oral or written, that have been relied on by either
party hereto, except those expressly set forth in this Agreement,
the Pre-Purchase Agreement and the Company Agreement.
9.7 Applicable Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the internal laws
of the State of Delaware, without regard to the conflicts of law
principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
HUB SERVICES INC.
By:_________________________________
Title:______________________________
Printed Name:_______________________
LEIDY HUB, INC.
By:_________________________________
Title:______________________________
Printed Name:_______________________
SCHEDULE 3.2
JURISDICTIONS OF QUALIFICATION
1. Delaware
SCHEDULE 3.6(a)
ASSETS
1. That certain CALIFORNIA HUB AGREEMENT dated as of March
15, 1994, by and between Southern California Gas Company and Hub
Services, Inc.
2. That certain HUB OPERATING AGREEMENT dated as of May 27,
1994, by and between Southern California Gas Company and Hub
Services, Inc.
3. That certain CHICAGO HUB AGREEMENT dated May 26, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
4. That certain PARTNERSHIP AGREEMENT dated as of September
1, 1994, by and between Leidy Hub, Inc. and Hub Services, Inc.
5. That certain BUY-SELL CONTRACT dated November 29, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
SCHEDULE 3.6(b)
LIABILITIES
1. None.
SCHEDULE 3.7
DEFAULTS AND VIOLATIONS
1. None
SCHEDULE 3.9
CONDITION OF ASSETS
1. No disclosure is made pursuant to Section 3.9.
SCHEDULE 3.10
CONTRACTS
1. That certain CALIFORNIA HUB AGREEMENT dated as of March
15, 1994, by and between Southern California Gas Company and Hub
Services, Inc.
2. That certain HUB OPERATING AGREEMENT dated as of May 27,
1994, by and between Southern California Gas Company and Hub
Services, Inc.
3. That certain CHICAGO HUB AGREEMENT dated May 26, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
4. That certain PARTNERSHIP AGREEMENT dated as of September
1, 1994, by and between Leidy Hub, Inc. and Hub Services, Inc.
5. That certain BUY-SELL CONTRACT dated November 29, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
SCHEDULE 3.11
LICENSES, PERMITS, FRANCHISES AND RIGHTS
1. None
SCHEDULE 3.12
INSURANCE
1. None
SCHEDULE 3.13
EMPLOYEE BENEFIT PLANS
1. None
SCHEDULE 3.16
CONSENTS
1. In accordance with Section 12.3 of the Limited Liability
Company Agreement, HSI is obligated to obtain the consent of NHS
to the disposition of the Acquired Interest.
SCHEDULE 3.17
LITIGATION
1. None
SCHEDULE 3.19
BANK ACCOUNTS
1. None
EXHIBIT A-7
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
PURCHASE AGREEMENT
(Designated as Exhibit EX-2 for EDGAR purposes)
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of
- ------________, 1995, is made by and between Hub Services Inc., a
Delaware corporation ("Seller"), and Leidy Hub, Inc., a New York
corporation ("Purchaser").
RECITALS
1. On June 12, 1995, Seller and NICOR Hub Services Inc.
("NHS") formed Enerchange, L.L.C. a Delaware limited liability
company ("Company") for the purpose of engaging in the Business,
with Seller owning a 99.0% Limited Liability Company Interest in
the Company and NICOR Hub Services, Inc. ("NHS") owning a 1.0%
Limited Liability Company Interest in the Company. Subsequently,
Seller sold an additional [ ]% Limited Liability Company Interest
to NHS and a [ ]% Limited Liability Company Interest to Pacific
Enerchange.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
2. The Limited Liability Company Agreement provides that
Seller may sell to Purchaser a 14.5% Limited Liability Company
Interest (the "Acquired Interest") and sets forth a procedure for
the approval of such sale, and Seller wishes to sell to Purchaser,
and Purchaser wishes to buy from Seller, the Acquired Interest.
3. The Company's Executive Committee has approved Seller's
sale of the Acquired Interest to Purchaser.
In consideration of the mutual covenants, agreements and
warranties herein contained, it is agreed that Purchaser shall
acquire from Seller all of the Acquired Interest upon the terms
and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
The following terms shall have the meanings set forth herein
for the purposes of this Agreement:
"Acquired Interest" is defined in the second recital.
"Act" means the Delaware Limited Liability Company Act,
6 Del. C. 18101, et seq., and all amendments to the Act, as in
effect from time to time.
"Affiliate" means, with respect to any Person, another Person
that directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with such
Person.
"Business" means the business described in Section 3.1 of the
Limited Liability Company Agreement.
"Closing Date" means the date on which the Closing occurs or
is to occur.
"Company" is defined in the first recital.
"Electronic Trading System" means the electronic gas trading
and nominations system that the Company expects to develop and
operate on a joint ownership basis with Energy Exchange Inc., a
corporation incorporated pursuant to the laws of the Province of
Alberta.
"Governmental Authority" means the government of the United
States or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hub Service Contract" means each of (a) that certain Chicago
Hub Agreement dated as of May 26, 1993, between Northern Illinois
Gas Company and Seller, (b) that certain California Hub Agreement
dated as of March 15, 1994, between Southern California Gas
Company and Seller, and (c) that certain Pre-Partnership Agreement
dated as of September 1, 1993, and that certain Partnership
Agreement dated as of September 1, 1994, each between Purchaser
and Seller.
"Hub Trading Purchase Price" means the sum of $[ ] as
adjusted pursuant to Section 5.4 of the Pre-Purchase Agreement.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Indemnified Person" shall mean the Person entitled to, or
claiming a right to, indemnification under Article VIII.
"Indemnifying Person" shall mean the Person claimed by the
Indemnified Person to be obligated to provide indemnification
under Article VIII.
"Limited Liability Company Agreement" means that certain
Limited Liability Company Agreement dated as of June 12, 1995
between Seller and NHS.
"Limited Liability Company Interest" has the meaning given
such term in the Act.
"Losses" is defined in Section 8.2.
"Market Making Purchase Price" means $[ ].
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
"Person" means an individual, trust, Governmental Authority,
estate or any incorporated or unincorporated company, corporation,
limited liability company, partnership or other organization.
"Pre-Purchase Agreement" means that certain Pre-Purchase
Agreement dated June 12, 1995, executed by Seller and Purchaser.
"Proceedings" is defined in Section 3.17.
"Purchaser" is defined in the preamble.
"Seller" is defined in the preamble.
"Taxes" means all taxes, charges, fees, duties, levies or
other assessments, including (without limitation) income, gross
receipts, net proceeds, ad valorem, turnover, real and personal
property (tangible and intangible), sales, use, franchise, excise,
value added, stamp, leasing, lease, user, transfer, fuel, excess
profits, occupational, interest equalization, windfall profits,
severance and employees' income withholding, unemployment and
Social Security taxes, which are imposed by the United States, or
any state, local or foreign government or subdivision or agency
thereof, and such term shall include any interest, penalties or
additions to tax attributable to such Taxes.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of The Acquired Interest. Subject to
the terms and conditions set forth in this Agreement, at the
Closing, Seller shall sell, assign, transfer, convey and deliver
to Purchaser, and Purchaser shall accept, acquire and take
assignment and delivery of, all of the Acquired Interest.
2.2 Payment of Purchase Price. In consideration for such
sale, assignment, transfer, conveyance and delivery to Purchaser
by Seller of all of the Acquired Interest, on the Closing Date
Purchaser will pay to Seller the Hub Trading Purchase Price and
the Market Making Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 Ownership of Acquired Interest. Seller owns
beneficially and legally all right, title and interest in and to
the Acquired Interest, free and clear of any security interest,
lien, adverse claim or other encumbrance. The Acquired Interest
in the aggregate constitutes 14.5% of the aggregate Limited
Liability Company Interests of the Company. None of the Acquired
Interest is subject to any restriction on transfer, other than as
set forth in the Limited Liability Company Agreement.
3.2 Due Organization. To the best of Seller's knowledge,
the Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. To the best of Seller's knowledge, the
Company is duly qualified and in good standing as a foreign
limited liability company to do business in each jurisdiction
where the failure to be so qualified would, in the aggregate, have
a material adverse effect on the business or operations of the
Company. Schedule 3.2 is a complete and accurate list of all
jurisdictions in which the Company is so qualified. The Company
owns no equity or debt securities of any Person, other than a
50.0% interest in the Pennsylvania general partnership formed
under the contracts described in clause (c) of the definition of
"Hub Services Contract." True, correct and complete copies of the
Company's Certificate of Formation and all other organizational
documents of the Company have been delivered to Purchaser.
3.3 Due Authorization. Seller has full power and authority
to enter into this Agreement and to carry out the transactions
contemplated hereby, and this Agreement has been duly and validly
executed and delivered by Seller, and constitutes the legal, valid
and binding obligation of Seller, enforceable in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on the
availability of specific remedies.
3.4 No conflict. The execution, delivery and performance of
this Agreement and all other instruments, agreements, certificates
and documents contemplated hereby by Seller do not: (i) violate
any order, decree or judgment of any Governmental Authority
applicable to Seller, or the Acquired Interest or, to the best of
Seller's knowledge, the Company; (ii) violate any law (or
regulation or rule promulgated under any law); (iii) violate or
conflict with, or result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or
both, would constitute a default) under, or permit cancellation
of, or result in the creation of any lien or encumbrance or other
contingent liability upon any of the assets of the Company or the
Acquired Interest under, any of the terms, conditions, or
provisions of any contract to which Seller or the Company is a
party, or by which either of them or any of the assets of the
Company or the Acquired Interest is bound; (iv) permit the
acceleration of the maturity of any indebtedness of the Company,
or any indebtedness secured by any of the assets of the Company or
the Acquired Interest; or (v) violate or conflict with any
provision of the charter, by-laws or other organizational
documents of Seller or, to the best of Seller's knowledge, the
Company.
3.5 Ownership of Interests. Prior to giving effect to
Purchaser's acquisition of the Acquired Interest pursuant to this
Agreement, Seller owned a [ ]% Limited Liability Company
Interest in the Company. Neither Seller nor, to the best of
Seller's knowledge, the Company has granted any option, warrant,
or similar right to any Person to purchase or acquire any rights
with respect to any Limited Liability Company Interest, or any
other interest whatsoever, of the Company.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
3.6 Title to and Condition of Properties and the Company.
The Company has good title to and is the lawful owner of all of
the assets of the Company, free and clear of all security
interests, liens, adverse claims and other encumbrances. All of
the assets of the Company are listed on Schedule 3.6(a). Each of
the Hub Services Contracts is in full force and effect and
constitutes a legal, valid and binding agreement of each party
thereto. The rights and obligations of Seller under each Hub
Services Contract have been duly and validly assigned to the
Company by Seller. All of the liabilities of the Company are
listed on Schedule 3.6(b). The Company has no liabilities, debts,
claims or obligations, whether accrued, absolute, contingent or
otherwise, whether due or to become due, except as set forth on
Schedule 3.6(b).
3.7 No Defaults or Violations. Except as set forth on
Schedule 3.7, (a) the Company has not materially breached any
provision of, nor is it in material default under the terms of,
any contract (including, without limitation, any Hub Services
Contract) to which it is a party or under which it has any rights
or by which it is bound, and to Seller's knowledge no other party
to any such contract is in default thereunder in any material
respect, and (b) the Company is not in material violation of or
default under or with respect to any law, governmental regulation
or rule or order of any Governmental Authority that is applicable
in any way to the business or operation of the Company, provided
that, to the extent such representations and warranties in clauses
(a) and (b) above are made with respect to any breach, default or
violation by the Company that may have arisen from and after the
Company's formation, such representations and warranties are made
to the best of Seller's knowledge. No party to a Hub Services
Contract has notified Seller, whether orally or in writing, that
Seller is in default under such Hub Services Contract, and Seller
is unaware of any default, actual or threatened, or any event
which with or without notice or lapse of time or both would become
a default, under any Hub Services Contract by any party to any
such Hub Services Contract. Except as set forth in Schedule 3.7,
none of the assets of the Company is in material violation of any
law, building, zoning or other ordinance, code or regulation
applicable to it.
3.8 Taxes. Having been formed on the Closing Date, the
Company has not previously filed any Federal, state and other tax
returns and reports as of the Closing Date; the Company has not
been required to file any such returns; and the Company has not
been required to pay any Taxes on or prior to the Closing Date.
3.9 Condition of Assets. Except as disclosed on
Schedule 3.9, all of the assets of the Company, whether real or
personal, owned or leased, are in reasonably good operating
condition (with the exception of normal wear and tear).
3.10 Contracts. Schedule 3.10 includes all the contracts and
arrangements (including, without limitation, any employment
contracts) to which the Company is a party or by which it is bound
or to which any of the assets of the Company is subject. Seller
has delivered to Purchaser true, correct and complete copies of
each document listed on Schedule 3.10, and a written description
of each oral arrangement so listed.
3.11 Permits, etc. The Company holds all of the licenses,
certificates, permits, franchises and rights listed on
Schedule 3.11, and, to the best of Seller's knowledge, does not
require any other licenses, certificates, permits, franchises and
rights to conduct the Business and its other affairs.
3.12 Insurance Policies. Schedule 3.12 contains a list of
each insurance policy currently providing coverage for the assets
or business of the Company and a copy of each such policy has been
delivered to Purchaser.
3.13 Employee Benefit Plans. Each "employee pension benefit
plan," as such term is defined in Section 3(2) of ERISA, and each
"employee welfare benefit plan," as defined in Section 3(1) of
ERISA, that is maintained by the Company to provide benefits for
its employees is described on Schedule 3.13.
3.14 Compliance With Laws. Prior to the formation of the
Company, Seller conducted the Business in full compliance in all
material respects with all applicable laws and, to the best of
Seller's knowledge, on and from the formation of the Company, the
Company has conducted the Business and its other affairs in full
compliance in all material respects with all applicable laws.
3.15 No Other Agreement. Other than the Sale Agreements,
neither Seller nor any its Affiliates has any contract, agreement,
arrangement or understanding with respect to the sale or other
disposition of the assets of the Company or any interests in the
Company.
3.16 Consents. Except as set forth on Schedule 3.16, no
notice to, filing with, authorization of, exemption by, or consent
of any Person is required in order for Seller to consummate the
transactions contemplated hereby.
3.17 Litigation.
(a) Except as disclosed in Schedule 3.17, there are no
claims, actions, suits, arbitrations, regulatory proceedings or
other litigation, proceedings or governmental investigations
(collectively, "Proceedings") pending, or to the best of Seller's
knowledge, threatened against or affecting the Company, Seller or
any of its respective officers, directors, employees, agents or
stockholders thereof in their capacity as such, or any of their
respective properties or businesses relating to such Persons in
such capacities, and Seller is not aware of any facts or
circumstances which may give rise to any of the foregoing;
provided that to the extent such representations and warranties in
this clause are made with respect to any Proceedings that may have
arisen against the Company from and after the Company's formation,
such representations and warranties are made to the best of
Seller's knowledge.
(b) There are no Proceedings pending or, to the best of
Seller's knowledge, threatened by or against the Company or Seller
with respect to this Agreement or any Hub Services Contract, or in
connection with the transactions contemplated hereby or thereby,
and Seller has no reason to believe there is a valid basis for any
such Proceeding; provided that to the extent such representations
and warranties in this clause are made with respect to any
Proceedings that may have arisen against the Company from and
after the Company's formation, such representations and warranties
are made to the best of Seller's knowledge.
3.18 No Conflict of Interest. Neither Seller nor any of its
Affiliates has or claims to have any direct or indirect interest
in any tangible or intangible property used in the Business,
except Seller's interest as an owner of its Limited Liability
Company Interest in the Company.
3.19 Bank Accounts. Schedule 3.19 sets forth the names and
locations of each bank or other financial institution at which the
Company has an account (giving the account numbers) or safe
deposit box and the names of all Persons authorized to draw
thereon or have access thereto, and the names of all Persons, if
any, now holding powers of attorney or comparable delegation of
authority from the Company and a summary statement thereof.
3.20 Accuracy of Statements. This Agreement does not contain
any untrue statement of a material fact regarding Seller, the
Company, the assets of the Company or the Acquired Interest.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
4.1 Due Authorization. Purchaser has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby, and this Agreement has been duly
and validly executed and delivered by Purchaser, and constitutes
the legal, valid and binding obligation of Purchaser, enforceable
in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect which
affect creditors' rights generally, and by legal and equitable
limitations on the availability of specific remedies.
4.2 No Conflict. The execution, delivery and performance of
this Agreement and all other instruments, agreements, certificates
and documents contemplated hereby by Purchaser do not: (i)
violate any decree or judgment of any Governmental Authority
applicable to Purchaser; (ii) violate any law (or existing
regulation promulgated under any law); (iii) violate or conflict
with, or result in a breach of, or constitute a default (or an
event which, with or without notice or lapse of time or both,
would constitute a default) under, any of the terms, conditions,
or provisions of any contract to which Purchaser is a party, or by
which Purchaser is bound; or (iv) violate or conflict with any
provision of the charter, by-laws or other organizational
documents of Purchaser.
4.3 Investment Intent. Purchaser is acquiring the Acquired
Interest for its own account, for investment and not with a view
to, or for sale or other disposition in connection with, any
"distribution" thereof, within the meaning of the Securities Act
of 1933, as amended, nor with any present intention of selling or
otherwise disposing of the Acquired Interest.
4.4 Consents. Except as set forth on Schedule 4.3, no
notice to, filing with, authorization of, exemption by, or consent
of any Person is required in order for Purchaser to consummate the
transactions contemplated hereby.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to Obligations of the Purchaser.
The obligation of Purchaser to purchase the Acquired Interest at
Closing is subject to the satisfaction of the following conditions:
5.1.1 Representations and Warranties. The representations
and warranties set forth in this Agreement made by Seller shall be
accurate as of the Closing Date as if made on the Closing Date,
and Seller shall have delivered to Purchaser a certificate so
certifying.
5.1.2 Compliance with Agreements and Covenants. Seller
shall have performed and complied with all of its covenants,
obligations and agreements contained in this Agreement to be
performed and complied with by Seller on or prior to the Closing
Date.
5.2 Conditions Precedent to Obligations of Seller. The
obligation of Seller to sell the Acquired Interest at Closing is
subject to the satisfaction of the following conditions:
5.2.1 Representations and Warranties. The representations
and warranties set forth in this Agreement made by Purchaser shall
be accurate as of the Closing Date as if made on the Closing Date,
and Purchaser shall have delivered to Seller a certificate so
certifying.
5.2.2 Compliance with Agreements and Covenants. Purchaser
shall have performed and complied with all of its covenants,
obligations and agreements contained in this Agreement to be
performed and complied with by Purchaser on or prior to the
Closing Date.
5.2.3 Company Approval. Seller shall have obtained the
approval of the Company's Executive Committee to sell the Acquired
Interest to Purchaser in form and substance satisfactory to Seller
in its sole discretion.
ARTICLE VI
COVENANTS
6.1 Implementing This Agreement. From the date hereof to
the Closing Date, each of Purchaser and Seller will take all
necessary action to fulfill its respective obligations under this
Agreement and shall take all commercially reasonable efforts to
consummate the transactions contemplated thereby.
6.2 Payment to Seller for Hub Administration. Purchaser
agrees that, if the termination date of the Chicago Hub Agreement
is extended to a date not earlier than June 11, 2000 on
substantially the same terms as those currently in effect with
respect to the Chicago Hub Agreement, Purchaser shall pay to
Seller, on the later of June 12, 1998 or the date of execution of
such extension, an amount equal to $[ ]. In addition,
Purchaser agrees that, if the termination date of the California
Hub Agreement is extended to a date not earlier than June 11, 2000
on substantially the same terms as those currently in effect with
respect to the California Hub Agreement, Purchaser shall pay to
Seller, on the later of June 12, 1998 or the date of execution of
such extension, an amount equal to $[ ].
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
6.3 Seller to Provide Expertise. Seller acknowledges that
Purchaser is purchasing the Acquired Interest hereunder in
reliance upon representations that Seller and Seller's Affiliates
have officers and employees who possess the experience and
expertise to engage successfully in Market-Making (provided that
Purchaser acknowledges that Seller has in no way guaranteed the
success of the Company's Market-Making). Seller agrees that it
will, or will cause its Affiliates to, second or otherwise make
available to the Company officers and employees (and cause the
Company to engage and retain, so long as the Limited Liability
Company Agreement shall remain in effect, such officers and
employees) who have such experience and expertise, and Seller
further agrees that such officers and employees shall be
reasonably acceptable to Purchaser. Without limiting the
foregoing, the parties agree that Miles Allen has such experience
and expertise (provided that Purchaser agrees that, subject to the
foregoing sentence, other officers and employees may replace Miles
Allen).
6.4 That certain Assignment, Bill of Sale and Conveyance
dated June 12, 1995 executed by Seller, as Assignor, and
Enerchange, as Assignee (the "Assignment"), provides that
Enerchange will reassign the assigned interest in the
Ellisburg-Leidy Partnership Agreement to Seller upon Seller's
election in the event that either the Chicago Hub Agreement or the
California Hub Agreement, or both, are not extended to a date
specified in the Assignment. Seller and Purchaser hereby agree
that Seller shall not elect to require Enerchange to reassign the
interest in the Ellisburg-Leidy Partnership Agreement to Seller
without the prior written consent of Purchaser.
ARTICLE VII
CLOSING
7.1 Closing. The Closing shall take place on or before the
third business day following the day on which Purchaser's
acquisition of the Acquired Interest is approved by the SEC, or on
such later date to which the parties hereto shall agree.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations and warranties of the
parties hereto contained herein and in this Article VIII shall
survive the Closing. Such representations and warranties shall be
deemed made as of the date of this Agreement and as of the Closing
Date.
8.2 Indemnification by Seller. Seller agrees to indemnify
Purchaser against, and agrees to hold Purchaser harmless from, any
and all liabilities, losses, costs, claims, damages (including
without limitation consequential damages), penalties and expenses
(including without limitation reasonable attorneys' fees and
expenses and reasonable costs of investigation) (collectively,
"Losses") incurred or suffered by Purchaser relating to or arising
out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Seller in this Agreement;
(b) any breach of or failure by Seller to perform any
covenant or obligation of Seller set out or contemplated in this
Agreement; or
(c) any actual and/or contingent liabilities arising from,
or in connection with, or as a result of Seller's performance, act
or omission prior to the Closing Date.
8.3 Indemnification by Purchaser. Purchaser agrees to
indemnify Seller against, and agrees to hold Seller harmless from,
any and all Losses incurred or suffered by Seller relating to or
arising out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Purchaser in this Agreement ; or
(b) any breach of or failure by Purchaser to perform any
covenant or obligation of Purchaser set out or contemplated in
this Agreement.
8.4 Claims. The provisions of this Section shall be subject
to Section 8.5. As soon as is reasonably practicable after
becoming aware of a claim for indemnification under this Agreement
the Indemnified Person shall promptly give notice to the
Indemnifying Person of such claim and the amount the Indemnified
Person will be entitled to receive hereunder from the Indemnifying
Person; provided that the failure of the Indemnified Person to
give notice shall not relieve the Indemnifying Person of its
obligations under this Article VIII except to the extent (if any)
that the Indemnifying Person shall have been prejudiced thereby.
If the Indemnifying Person does not object in writing to such
indemnification claim within 30 calendar days of receiving notice
thereof, the Indemnified Person shall be entitled to recover
promptly from the Indemnifying Person the amount of such claim,
and no later objection by the Indemnifying Person shall be
permitted. If the Indemnifying Person agrees that it has an
indemnification obligation but objects on the grounds that it is
obligated to pay only a lesser amount, the Indemnified Person
shall nevertheless be entitled to recover promptly from the
Indemnifying Person the lesser amount, without prejudice to the
Indemnified Person's claim for the difference.
8.5 Notice of Third Party Claims; Assumption of Defense.
The Indemnified Person shall give notice as promptly as is
reasonably practicable to the Indemnifying Person of the assertion
of any claim, or the commencement of any Proceeding, by any Person
not a party hereto in respect of which indemnity may be sought
under this Agreement; provided that the failure of the Indemnified
Person to give notice shall not relieve the Indemnifying Person of
its obligations under this Article VIII except to the extent (if
any) that the Indemnifying Person shall have been prejudiced
thereby. The Indemnifying Person may, at its own expense, (a)
participate in the defense of any claim, suit, action or
proceeding and (b) upon notice to the Indemnified Person and the
Indemnifying Person's delivering to the Indemnified Person a
written agreement that the Indemnified Person is entitled to
indemnification for all Losses arising out of such claim or
Proceeding and that the Indemnifying Person shall be liable for
the entire amount of any Loss, at any time during the course of
any such claim or Proceeding, assume the defense thereof;
provided, however, that (i) the Indemnifying Person's counsel is
reasonably satisfactory to the Indemnified Person, and (ii) the
Indemnifying Person shall thereafter consult with the Indemnified
Person upon the Indemnified Person's reasonable request for such
consultation from time to time with respect to such claim or
Proceeding. If the Indemnifying Person assumes such defense, the
Indemnified Person shall have the right (but not the duty) to
participate in the defense thereof. If the Indemnified Person
reasonably determines in its judgment that representation by the
Indemnifying Person's counsel of both the Indemnifying Person and
the Indemnified Person would present such counsel with a conflict
of interest, then such Indemnified Person may employ separate
counsel to represent or defend it in any such claim or Proceeding,
and the Indemnifying Person shall pay the fees and disbursements
of such separate counsel. Whether or not the Indemnifying Person
chooses to defend or prosecute any such claim or Proceeding, all
of the parties hereto shall cooperate in the defense or
prosecution thereof.
8.6 Settlement or Compromise. Any settlement or compromise
made or caused to be made by the Indemnified Person or the
Indemnifying Person, as the case may be, of any such claim or
Proceeding of the kind referred to in Section 8.5 shall also be
binding upon the Indemnifying Person or the Indemnified Person, as
the case may be, in the same manner as if a final judgment or
decree had been entered by a court of competent jurisdiction in
the amount of such settlement or compromise; provided, however,
that no obligation, restriction or Loss shall be imposed on the
Indemnified Person as a result of such settlement without its
prior written consent.
8.7 Failure of Indemnifying Person to Act. In the event
that the Indemnifying Person does not elect to assume the defense
of any claim or Proceeding, then any failure of the Indemnified
Person to defend or to participate in the defense of any such
claim or Proceeding or to cause the same to be done, shall not
relieve the Indemnifying Person of its obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Each party hereto shall bear its own expenses
with respect to this transaction.
9.2 Amendment. This Agreement may be amended, modified or
supplemented, but only in writing signed by each of the parties
hereto.
9.3 Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed to
be an original, but together shall constitute one and the same
instrument.
9.4 Headings. Section and Article headings in this
Agreement are for convenience of reference only, and shall not
govern the interpretation of the provisions of this Agreement.
9.5 Severability. Any provisions of this Agreement that are
held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable, or invalid without affecting the remaining
provisions of this Agreement in that jurisdiction or the
operation, enforceability, or validity of such provisions in any
other jurisdiction.
9.6 Entire Understanding. This Agreement, the Pre-Purchase
Agreement and the Company Agreement set forth the entire agreement
and understanding of the parties hereto with respect to the
transaction contemplated hereby and supersede all prior
arrangements, agreements and understandings relating to the
subject matter hereof. There have been no representations or
statements, oral or written, that have been relied on by either
party hereto, except those expressly set forth in this Agreement,
the Pre-Purchase Agreement and the Company Agreement.
9.7 Applicable Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the internal laws
of the State of Delaware, without regard to the conflicts of law
principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
HUB SERVICES INC.
By:_________________________________
Title:______________________________
Printed Name:_______________________
LEIDY HUB, INC.
By:_________________________________
Title:______________________________
Printed Name:_______________________
SCHEDULE 3.2
JURISDICTIONS OF QUALIFICATION
1. Delaware
SCHEDULE 3.6(a)
ASSETS
1. That certain CALIFORNIA HUB AGREEMENT dated as of March
15, 1994, by and between Southern California Gas Company and Hub
Services, Inc.
2. That certain HUB OPERATING AGREEMENT dated as of May 27,
1994, by and between Southern California Gas Company and Hub
Services, Inc.
3. That certain CHICAGO HUB AGREEMENT dated May 26, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
4. That certain PARTNERSHIP AGREEMENT dated as of September
1, 1994, by and between Leidy Hub, Inc. and Hub Services, Inc.
5. That certain BUY-SELL CONTRACT dated November 29, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
SCHEDULE 3.6(b)
LIABILITIES
1. None.
SCHEDULE 3.7
DEFAULTS AND VIOLATIONS
1. None
SCHEDULE 3.9
CONDITION OF ASSETS
1. No disclosure is made pursuant to Section 3.9.
SCHEDULE 3.10
CONTRACTS
1. That certain CALIFORNIA HUB AGREEMENT dated as of March
15, 1994, by and between Southern California Gas Company and Hub
Services, Inc.
2. That certain HUB OPERATING AGREEMENT dated as of May 27,
1994, by and between Southern California Gas Company and Hub
Services, Inc.
3. That certain CHICAGO HUB AGREEMENT dated May 26, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
4. That certain PARTNERSHIP AGREEMENT dated as of September
1, 1994, by and between Leidy Hub, Inc. and Hub Services, Inc.
5. That certain BUY-SELL CONTRACT dated November 29, 1993,
by and between Northern Illinois Gas Company and Hub Services, Inc.
SCHEDULE 3.11
LICENSES, PERMITS, FRANCHISES AND RIGHTS
1. None
SCHEDULE 3.12
INSURANCE
1. None
SCHEDULE 3.13
EMPLOYEE BENEFIT PLANS
1. None
SCHEDULE 3.16
CONSENTS
1. In accordance with Section 12.3 of the Limited Liability
Company Agreement, HSI is obligated to obtain the consent of NHS
to the disposition of the Acquired Interest.
SCHEDULE 3.17
LITIGATION
1. None
SCHEDULE 3.19
BANK ACCOUNTS
1. None
EXHIBIT A-8
(Designated as Exhibit EX-3 for EDGAR purposes)
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
LIMITED LIABILITY COMPANY AGREEMENT
OF
ENERCHANGE, L.L.C.
(A Delaware Limited Liability Company)
(Member Managed)
TABLE OF CONTENTS
ARTICLE I
Definitions. . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
Formation. . . . . . . . . . . . . . . . . . . . . . . . . .7
2.1 Organization. . . . . . . . . . . . . . . . . . .7
2.2 Certificate of Formation. . . . . . . . . . . . .7
2.3 Agreement . . . . . . . . . . . . . . . . . . . .7
2.4 Name. . . . . . . . . . . . . . . . . . . . . . .8
2.5 Effective Date. . . . . . . . . . . . . . . . . .8
2.6 Term. . . . . . . . . . . . . . . . . . . . . . .8
2.7 Registered Agent and Office . . . . . . . . . . .8
2.8 Principal Office. . . . . . . . . . . . . . . . .9
2.9 Governmental Applications . . . . . . . . . . . .9
ARTICLE III
Nature of Business . . . . . . . . . . . . . . . . . . . . .9
3.1 Purpose . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IV
Accounting, Records and Reports. . . . . . . . . . . . . . 10
4.1 Records to be Maintained. . . . . . . . . . . . 10
4.2 Accounting. . . . . . . . . . . . . . . . . . . 10
4.3 Financial Reports . . . . . . . . . . . . . . . 10
4.4 Fiscal Year . . . . . . . . . . . . . . . . . . 11
4.5 Accounts. . . . . . . . . . . . . . . . . . . . 11
4.6 Access to Records . . . . . . . . . . . . . . . 11
ARTICLE V
Names and Addresses of Charter Members . . . . . . . . . . 11
ARTICLE VI
Rights and Duties of Members . . . . . . . . . . . . . . . 11
6.1 Member Requirements . . . . . . . . . . . . . . 11
6.2 Operating Fund. . . . . . . . . . . . . . . . . 12
6.3 1995 Fiscal Year Operating Budget . . . . . . . 12
6.4 Unauthorized Expenses or Contracts. . . . . . . 12
6.5 Authority of Members to Bind the Company. . . . 12
6.6 Limitation of Liability of Members. . . . . . . 13
6.7 Contract to Limit Members' Liabilities. . . . . 13
6.8 Liability of Members for Certain Acts or
Omissions . . . . . . . . . . . . . . . . . . . 13
6.9 Indemnification . . . . . . . . . . . . . . . . 13
6.10 Representations and Warranties. . . . . . . . . 15
6.11 Credit Support. . . . . . . . . . . . . . . . . 16
6.12 Insurance . . . . . . . . . . . . . . . . . . . 16
6.13 HSI Contributions . . . . . . . . . . . . . . . 16
6.14 HSI Representation as to Initial Balance
Sheet; Agreement as to Cut-Off Date. . . . . . 16
ARTICLE VII
Competition and Conflicts of Interest. . . . . . . . . . . 17
7.1 Company Opportunity . . . . . . . . . . . . . . 17
7.2 Member Dealings with the Company. . . . . . . . 18
7.3 Competition Between Members . . . . . . . . . . 19
ARTICLE VIII
Management . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Executive Committee . . . . . . . . . . . . . . 19
8.2 Composition and Term. . . . . . . . . . . . . . 25
8.3 Annual and Regular Meetings . . . . . . . . . . 26
8.4 Special Meetings. . . . . . . . . . . . . . . . 26
8.5 Notice of Meetings. . . . . . . . . . . . . . . 26
8.6 Quorum and Manner of Acting . . . . . . . . . . 26
8.7 No Compensation . . . . . . . . . . . . . . . . 26
8.8 Officers. . . . . . . . . . . . . . . . . . . . 26
8.9 Expenses. . . . . . . . . . . . . . . . . . . . 29
ARTICLE IX
Contributions and Capital Accounts . . . . . . . . . . . . 29
9.1 Capital Contributions . . . . . . . . . . . . . 29
9.2 Additional Capital Contributions. . . . . . . . 31
9.3 Failure to Contribute . . . . . . . . . . . . . 31
9.4 Maintenance of Capital Accounts . . . . . . . . 32
9.5 Withdrawal of Capital . . . . . . . . . . . . . 33
9.6 Capital Account, Allocations, and Distributions
Attributable to Transferred Interest. . . . . . 33
9.7 Compliance with Section 704(b) of the Code. . . 33
ARTICLE X
Allocations and Distributions. . . . . . . . . . . . . . . 34
10.1 Allocations of Net Profits and Net Losses . . . 34
10.2 Allocations of Taxable Income or Taxable Loss . 34
10.3 Tax Allocations: Section 704(c). . . . . . . . 34
10.4 Distributions . . . . . . . . . . . . . . . . . 34
ARTICLE XI
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.1 Tax Elections . . . . . . . . . . . . . . . . . 34
11.2 Tax Returns . . . . . . . . . . . . . . . . . . 35
11.3 Tax Matters Member. . . . . . . . . . . . . . . 35
ARTICLE XII
Disposition of Company Interests . . . . . . . . . . . . . 36
12.1 Right of Disposition. . . . . . . . . . . . . . 36
12.2 Dispositions not in Compliance with
this Article Void. . . . . . . . . . . . . . . 36
12.3 Initial HSI Disposition . . . . . . . . . . . . 36
12.4 Disposition Between Members . . . . . . . . . . 36
12.5 Third Party Disposition Procedures. . . . . . . 37
12.6 Withdrawal from Company . . . . . . . . . . . . 38
12.7 Involuntary Regulatory Withdrawal . . . . . . . 39
ARTICLE XIII
Dissolution and Winding Up . . . . . . . . . . . . . . . . 39
13.1 Dissolution . . . . . . . . . . . . . . . . . . 39
13.2 Effect of Dissolution . . . . . . . . . . . . . 40
13.3 Distribution of Assets on Dissolution . . . . . 40
13.4 Winding Up and Certificate of Cancellation. . . 41
13.5 Termination . . . . . . . . . . . . . . . . . . 41
13.6 Use of Company Identity . . . . . . . . . . . . 41
ARTICLE XIV
Amendment. . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XV
Miscellaneous Provisions . . . . . . . . . . . . . . . . . 42
15.1 Entire Agreement . . . . . . . . . . . . . . . 42
15.2 Successors and Assigns . . . . . . . . . . . . 42
15.3 Governing Law. . . . . . . . . . . . . . . . . 42
15.4 Notices. . . . . . . . . . . . . . . . . . . . 42
15.5 Rights of Creditors and Third Parties under
Company Agreement . . . . . . . . . . . . . . 42
15.6 No Action for Partition. . . . . . . . . . . . 42
15.7 Title to Company Property. . . . . . . . . . . 42
15.8 Company Funds. . . . . . . . . . . . . . . . . 42
15.9 Confidentiality. . . . . . . . . . . . . . . . 43
15.10 Transaction Costs . . . . . . . . . . . . . . . 44
EXHIBITS
Exhibit A Form of Certificate of Formation (Section 2.2)
Exhibit B Addresses for Notices (Section 15.4)
Exhibit C Names and Addresses of Charter Members
(Article V)
Exhibit D Initial Capital Contributions (Section 9.1)
Exhibit E Company Interest
Exhibit F Admission Agreement
Exhibit G Balance Sheet
LIMITED LIABILITY COMPANY AGREEMENT
OF
ENERCHANGE, L.L.C.
This Limited Liability Company Agreement of Enerchange,
L.L.C., a limited liability company organized pursuant to the
Delaware Limited Liability Company Act, is entered into this 12th
day of June, 1995, by and among Hub Services, Inc., a Delaware
corporation with its principal offices at 13430 Northwest
Freeway, Suite 1200, Houston, Texas 77040 ("HSI"), and NICOR Hub
Services, Inc., a Delaware corporation with its principal offices
at 1844 Ferry Road, Naperville, Illinois 60563 ("NHS") (referred
to jointly herein as "Charter Members," and together with any
Additional Members admitted pursuant to this Agreement, as the
"Members").
W I T N E S S E T H
WHEREAS, HSI and NHS desire to create a limited liability
company pursuant to the Delaware Limited Liability Company Act,
for the purpose of developing, owning, managing, and operating
interests in natural gas market hubs located in North America;
coordination and participation in the development, implementation
and operation of an electronic trading system; natural gas market
making activities; and all other activities permitted by law;
NOW THEREFORE, in consideration of the mutual agreements,
promises and undertakings hereinafter set forth, the Members
agree as follows:
ARTICLE I
Definitions
The following terms, as used herein, shall have the
following meanings:
1. Act means the Delaware Limited Liability Company Act, 6
Del. C. Sections 18-101, et seq., and all amendments to the
Act, as in effect from time to time.
2. Additional Member means a Person other than a Charter
Member who has acquired a Company Interest from the
Company or from another Member in accordance with
Section 12 of this Company Agreement pursuant to an
Admission Agreement.
3. Admission Agreement means the Agreement between an
Additional Member and the Company described in Section
9.1(d), substantially in the form set forth as
Exhibit F hereto.
4. Affiliate means, with respect to any Person, another
Person that directly or indirectly through one or more
intermediaries controls or is controlled by or is under
common control with such Person. For purposes of this
Company Agreement control means an interest in excess
of fifty percent (50%).
5. Allocable Share means, as to any Member, that
percentage which, from time to time, such Member's
Capital Account then bears to the total of the Capital
Accounts of all Members.
6. Bankruptcy means, with respect to a Person: (i) the
commencement against such Person of proceedings for any
relief under any bankruptcy or insolvency law, or any
law relating to the relief of debtors, readjustment of
indebtedness, reorganization, arrangement, composition,
or extension of debts, provided such proceeding shall
not have been dismissed, nullified, stayed, or
otherwise rendered ineffective (but only so long as
such ineffectiveness shall continue in force) within
ninety (90) days after the commencement of such
proceedings; (ii) the commencement by such Person of
proceedings for any relief under any bankruptcy or
insolvency law, or any law relating to the relief of
debtors, readjustment of indebtedness, reorganization,
arrangement, composition, or extension of debts; (iii)
a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator,
or trustee or assignee in bankruptcy or insolvency of
such Person or of a substantial part of such Person's
property, or for the winding up or liquidation of its
affairs, which decree or order remains in force
undischarged and unstayed for a period of ninety (90)
days; or (iv) a general assignment by such Person for
the benefit of creditors or the admission by such
Person in writing of its inability to pay its debts
generally as they become due.
7. California Energy Hub means the natural gas market hub
created and described in that certain California Hub
Agreement dated March 15, 1994 executed by Southern
California Gas Company and Hub Services, Inc.
8. Capital Account means the account maintained for a
Member determined in accordance with Section 9.4.
9. Capital Contribution means the value of Property
contributed, from time to time, to the Company by any
one Member pursuant to Section 6.2, 9.1, 9.2 or 9.3;
provided that such value, in the case of Property other
than cash, shall be the fair market value of such
Property as reasonably determined by the Member
contributing such Property and the Executive Committee.
10. Certificate of Formation shall have the meaning set
forth in Section 2.2.
11. Charter Members has the meaning set forth in the
preamble hereof.
12. Chicago Hub means the natural gas market hub created
and described in that certain Chicago Hub Agreement
dated May 26, 1993 executed by Northern Illinois Gas
Company and Hub Services, Inc.
13. Code means the Internal Revenue Code of 1986, as from
time to time amended, or any successor thereto; any
reference to a section of the Code or the Regulations
shall mean such section or any successor thereto as in
effect at the time or times in question.
14. Company means Enerchange, L.L.C., a limited liability
company formed under the laws of Delaware.
15. Company Agreement means this Limited Liability Company
Agreement, including all amendments adopted in
accordance with this Company Agreement and the Act.
16. Company Interest means a Limited Liability Company
Interest, defined by the Act as a Member's share of the
profits and losses of the Company, and a Member's right
to receive distributions (liquidating and otherwise) of
the Company's assets, which Company Interests are as
set forth on Exhibit E attached hereto.
17. Company Property means all Property owned of record or
beneficially by the Company.
18. Delinquent Member shall have the meaning set forth in
Section 9.3.
19. Disposition (Dispose) means any sale, assignment,
transfer, exchange, mortgage, pledge, grant,
hypothecation, or other transfer, absolute or as
security or encumbrance (including dispositions by
operation of law).
20. Dissolution Event shall have the meaning set forth in
Section 13.1 hereof.
21. EEI means Energy Exchange Inc., a corporation
incorporated pursuant to the laws of the Province of
Alberta.
22. Effective Date shall have the meaning set forth in
Section 2.5 hereof.
23. Electronic Trading System means the electronic natural
gas trading and nomination system that the Company
expects to develop and operate on a joint ownership
basis with EEI.
24. Ellisburg-Leidy Northeast Hub means the natural gas
market hub created and described in that certain Pre-
Partnership Agreement dated September 1, 1993 and
Partnership Agreement dated September 1, 1994, executed
by Leidy Hub, Inc. and Hub Services, Inc.
25. Executive Committee shall have the meaning set forth in
Section 8.2(a) hereof.
26. Executive Committee Representative or Representative
means the representative appointed by a Member to serve
on the Executive Committee.
27. Fiscal Year shall have the meaning set forth in Section
4.4 hereof.
28. Hub means natural gas transportation and interchange
facilities located in the vicinity of two or more
interstate or intrastate pipelines, solely to the
extent such facilities are utilized in connection with
a venture (the hub company) that (i) takes delivery of
natural gas from a large number of suppliers and
provides these suppliers with a wide variety of markets
in which to sell natural gas; and/or (ii) provides hub
customers with wheeling, loaning, parking and in some
instances title transfer services. Wheeling refers to
the simultaneous transfer of natural gas from one
location on a pipeline to another, while loaning occurs
when one party allows another party to borrow natural
gas. Parking services allow a customer to receive
natural gas from a pipeline, store natural gas in a hub
for future redelivery and redeliver natural gas to a
pipeline, while title transfer services allow a
customer to assign title to natural gas that is in
storage. Notwithstanding the foregoing, a Hub shall
not include such facilities to the extent they are used
to provide services that are explicitly excluded from
the scope of "Hub Transactions" pursuant to the Hub
Agreements relating to the California Energy Hub,
Chicago Hub or Ellisburg-Leidy Northeast Hub.
29. Hub Agreement means any of the agreements described in
the definitions of "California Energy Hub," "Chicago
Hub" or "Ellisburg-Leidy Northeast Hub," or any similar
agreement that may be entered into from time to time by
a Member or Affiliate of a Member and the Company, as
each such agreement may be amended or modified from
time to time.
30. Initial Capital Contribution means the initial capital
contribution made by the Charter Members and any
Additional Members, as described in Section 9.1 and
Exhibit D attached hereto.
31. LHI means Leidy Hub, Inc., a New York corporation with
its principal offices at 10 Lafayette Square, Buffalo,
New York 14203.
32. Liquidating Trustee means the Member or such other
Person as all Members agree (or, in the absence of such
agreement, the Executive Committee), charged with
carrying out the winding up of the Company.
33. Majority Vote means approval by more than fifty percent
(50%) of the votes of all Representatives comprising
the Executive Committee.
34. Market-Making means acting as an intermediary between
Persons desiring to sell natural gas and Persons
desiring to purchase natural gas and includes, without
limitation, electronic solicitation of transactions
between anonymous sellers and buyers, implementation
and documentation of such transactions, buying and
selling natural gas for immediate or delayed delivery
or options or other financial instruments related
thereto, and assuming the performance and credit risks
associated with such transactions.
35. Member shall have the meaning set forth in the preamble
hereof.
36. Member Loan shall have the meaning set forth in Section
9.3 hereof.
37. Member Loan Rate means the rate of interest equal to
the Prime Rate as reported in the Wall Street Journal
plus two (2) percent, changing when and as such Prime
Rate changes. For purposes of this Company Agreement,
each change in the Member Loan Rate shall take effect
on the published date of the change in the Prime Rate.
If the Prime Rate is no longer published in the Wall
Street Journal, for any reason, then the Member Loan
Rate shall be the Prime Rate (or comparable base rate
on corporate loans) as reported in a widely recognized
business publication with national U.S. circulation
that is selected by the Member then making the Member
Loan.
38. Net Losses means the losses and deductions of the
Company determined in accordance with generally
accepted accounting principles consistently applied.
39. Net Profits means the income and gains of the Company
determined in accordance with generally accepted
accounting principles consistently applied.
40. Officer shall have the meaning set forth in Section
8.8(a).
41. Operating Budget shall have the meaning set forth in
Section 8.1(c)(4) hereof.
42. Operating Fund shall have the meaning set forth in
Section 6.2 hereof.
43. Operating Policy shall have the meaning set forth in
Section 8.1(c)(18) hereof.
44. PE means Pacific Enerchange, a California corporation
with its principal offices at Los Angeles, California.
45. Person means an individual, trust, governmental
authority, estate, or any incorporated or
unincorporated company, corporation, limited liability
company, partnership or other organization.
46. Principal Office shall have the meaning set forth in
Section 2.8 hereof.
47. Proceeding means any administrative or judicial
adversary proceeding or hearing, civil, criminal or
investigative, the result of which may be that a court,
arbitrator, mediator or governmental agency may enter a
judgment, order, decree, or other determination which,
if not appealed and reversed, would be binding.
48. Property means any property, real or personal, tangible
or intangible, including cash and any legal or
equitable interest in such property, but excluding
services and promises to perform services in the
future.
49. Regulations means, except where the context indicates
otherwise, the permanent and temporary regulations of
the United States Department of the Treasury under the
Code, including any amendments thereto.
50. Representative shall have the meaning set forth in
Section 8.2(a) hereof.
51. Selling Member shall have the meaning set forth in
Section 12.5 hereof.
52. Supermajority Vote means approval by no less than
seventy-two percent (72%) of all votes of all
Representatives comprising the Executive Committee.
53. Taxable Year shall mean the Fiscal Year unless changed
by the Executive Committee by Supermajority Vote.
54. Tax Matters Member shall have the meaning set forth in
Section 11.3 hereof.
55. Unanimous Vote means the approval by one hundred
percent (100%) of the votes of all Representatives
comprising the Executive Committee.
56. Withdrawing Member has the meaning set forth in Section
12.6 hereof.
ARTICLE II
Formation
2.1 Organization. The Charter Members hereby form, and
agree to jointly operate, a Delaware limited liability company
pursuant to the provisions of the Act. The Charter Members
intend that the Company be construed as a partnership or flow
through tax organization for purposes of federal, state, and
other taxes.
2.2 Certificate of Formation. Concurrently with or as soon
as possible after the execution of this Company Agreement, the
Members shall cause the Certificate of Formation, in the form
attached hereto as Exhibit A (the "Certificate of Formation"), to
be filed in the Office of the Secretary of the State of Delaware
in accordance with the requirements of the Act. From time to
time, the Members shall cause to be filed, and the Members agree
to execute, such further certificates of formation, qualification
to do business, or like filings in such jurisdictions as may be
necessary or appropriate in connection with the conduct of the
Company's business or to provide notification of the limitation
of liability of Members.
2.3 Agreement. For and in consideration of the mutual
covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Members hereby agree to the terms and
conditions of this Company Agreement, as it may from time to time
be amended according to its terms. It is the express intention of
the Members that this Company Agreement, as it may be amended
from time to time in accordance with its terms, shall be the sole
source of agreement of the parties with respect to the subject
matter thereof, and, except to the extent a provision of this
Company Agreement expressly incorporates federal income tax rules
by reference to sections of the Code or Regulations or is
expressly prohibited or ineffective under the Act, this Company
Agreement shall govern, even when inconsistent with, or different
than, the provisions of the Act or any other law or rule. To the
extent any provision of this Company Agreement is prohibited or
ineffective under the Act, this Company Agreement shall be
considered amended to the smallest degree possible in order to
make this Company Agreement effective under the Act. In the
event the Act is subsequently amended or interpreted in such a
way to make any provision of this Company Agreement that was
formerly invalid valid, such provision shall be considered to be
valid from the effective date of such interpretation or
amendment.
2.4 Name. The name of the Company is Enerchange, L.L.C.
2.5 Effective Date. This Company Agreement shall become
effective on the date (the "Effective Date") the Certificate of
Formation is accepted and the Company is duly formed as certified
by the Secretary of State of the State of Delaware.
2.6 Term. The Company shall dissolve five (5) years after
the Effective Date unless (i) sooner dissolved as hereinafter
provided; or (ii) extended for an additional three (3) year term
on one or more occasions as hereinafter provided. Not later than
one hundred and twenty (120) days prior to the expiration of the
then effective term, or such other date selected by the Executive
Committee by Supermajority Vote, the Executive Committee shall
meet for the purpose of determining whether or not the term will
be extended for an additional three years. Extension of the term
shall require a Unanimous Vote.
2.7 Registered Agent and Office. The registered agent for
the service of process and the registered office shall be that
Person and location reflected in the Certificate of Formation as
filed in the Office of the Secretary of State. The Executive
Committee, may, from time to time, change the registered agent or
office through appropriate filings with the Secretary of State.
In the event the registered agent ceases to act as such for any
reason or the registered office shall change, the Executive
Committee shall promptly designate a replacement registered agent
or file a notice of change of address as the case may be. If the
Executive Committee shall fail within thirty (30) days to
designate a replacement registered agent or change of address of
the registered office, any Member may designate a replacement
registered agent or file a notice of change of address.
2.8 Principal Office. The principal office of the Company
(the "Principal Office") shall be at such place as the Executive
Committee may from time to time decide.
2.9 Governmental Applications. The Members agree to
cooperate and exercise due diligence in securing any necessary
regulatory approvals and such other matters as may be necessary
or appropriate for purposes of effectuating the business of the
Company. Notwithstanding the foregoing, in the event any Member
is a regulated entity, as defined below, or has an Affiliate that
is a regulated entity, nothing in this Section 2.9 shall be
construed to obligate that Member to seek, or join in, any
regulatory approval if that Member concludes that such action may
have a material adverse impact on that Member or any Affiliate or
to accept any issued approval if such issued approval contains
conditions not requested by such Member and unacceptable to such
Member. For purposes of this Section, a regulated entity is one
whose ongoing business is subject to review, approval or
oversight by a federal or state regulatory body or agency.
ARTICLE III
Nature of Business
3.1 Purpose. The Company is empowered to (a) coordinate
and participate in the development, implementation and operation
of the Electronic Trading System; (b) manage, own and operate the
Company's interests in the Chicago Hub, the California Energy Hub
and the Ellisburg-Leidy Northeast Hub and promote and participate
in transactions on those Hubs; (c) promote and participate in
transactions involving the use of the Electronic Trading System;
(d) develop and manage Hubs owned by third parties; (e) engage in
Market-Making activity; (f) engage in all other activities
permitted by law if approved by a Supermajority Vote of the
Executive Committee, or, subject to Section 8.1(d)(5), a
Unanimous Vote of the Executive Committee; and (g) engage in any
and all activities incidental to the foregoing. The Company is
empowered to take any and all action necessary, appropriate, or
convenient for the accomplishment of its purposes, and for the
benefit of the Company and its Property, including, but not
limited to:
(1) Entering into and performing contracts of any
kind;
(2) Acquiring, selling, conveying, pledging,
constructing, operating, maintaining, owning, transferring,
renting, or leasing any Property;
(3) Applying for and obtaining governmental
authorizations and approvals; and
(4) Bringing and defending actions at law or equity.
ARTICLE IV
Accounting, Records and Reports
4.1 Records to be Maintained. The Company shall maintain
the following accurate and complete records at the Principal
Office or at such other locations as may be provided by the
Members:
(a) a current list of the full name and last known
business address of each Member;
(b) a copy of the Certificate of Formation and all
amendments thereto;
(c) copies of each of the Company's Federal, state and
local tax returns and reports, as filed, for the last
seven taxable periods;
(d) copies of this Company Agreement, including all
amendments thereto;
(e) Company audited financial statements for the last
seven Fiscal Years; and
(f) books and records of the Company.
4.2 Accounting. Books and records of the Company shall be
maintained on an accrual accounting basis, and the Company's net
profit or net loss shall be determined on the basis of the Fiscal
Year and in accordance with generally accepted accounting
principles consistently applied.
4.3 Financial Reports. The Executive Committee shall cause
the following financial statements to be prepared, in each case
in accordance with generally accepted accounting principles
consistently applied on a consolidated and consolidating (i.e.,
by line of business) basis, and shall cause to be delivered to
each Person who was a Member during the applicable period
described below:
(a) a balance sheet and statement of income, cash flow
and Member's capital account as of the end of or for,
as the case may be, each month, each within fifteen
(15) days after the end of each month;
(b) (i) a balance sheet as of the end of each fiscal
quarter; (ii) an income statement for such quarter and
year-to-date; (iii) a statement of each Member's
Capital Account as of the end of such quarter; and (iv)
a statement of cash flows for such quarter and year-to-
date (including sufficient information to permit the
Members to calculate their tax accruals), each within
thirty (30) days after the end of such fiscal quarter
(or more frequently if agreed by the Executive
Committee);
(c) (i) a balance sheet as of the end of each Fiscal
Year; (ii) an income statement for such Fiscal Year;
(iii) a statement of each Member's Capital Account as
of the end of such Fiscal Year; (iv) such federal,
state and local income tax returns and such other
accounting tax information and schedules as shall be
necessary for the preparation by each Member of its
income tax return for such Fiscal Year; and (v) a
statement of cash flows for such Fiscal Year, each
within sixty (60) days after the end of such Fiscal
Year of the Company; and
(d) audited annual financial statements prepared by a
national CPA firm selected by the Executive Committee
by Supermajority Vote within ten (10) days after such
statements are furnished to the Company but in no event
later than sixty (60) days after the end of each Fiscal
Year.
4.4 Fiscal Year. The fiscal year of the Company (the
"Fiscal Year") shall end on December 31.
4.5 Accounts. The Company shall maintain a record of each
Member's Capital Account in accordance with Section 9.4.
4.6 Access to Records. Each Member or its authorized
representative shall have unrestricted access at the Company's
principal place of business and other appropriate locations,
during ordinary business hours, to all properties, books,
records, accounts and information regarding the Company.
ARTICLE V
Names and Addresses of Charter Members
The name and addresses of the Charter Members are as
reflected on Exhibit C attached hereto.
ARTICLE VI
Rights and Duties of Members
6.1 Member Requirements. A Member must remain a Member
until the date five (5) years after the Effective Date and may
not Dispose of all or any portion of its Company Interest except
in strict accordance with the terms and conditions of this
Company Agreement (including, without limitation, Article XII).
Any attempted Disposition of all or any portion of its Company
Interest, other than in strict accordance with this Company
Agreement, shall be, and is hereby declared, null and void ab
initio. The Members agree that breach of the provisions of this
Section 6.1 may cause irreparable injury to the Company for which
monetary damages (or other remedy at law) are inadequate in view
of (i) the complexities and uncertainties in measuring the actual
damages that would be sustained by reason of the failure of a
Member to comply with such provisions, and (ii) the uniqueness of
the Company business and the relationship among the Members.
Accordingly, the Members agree that the provisions of this
Section 6.1 may be enforced by specific performance.
6.2 Operating Fund. Subject to Section 9.1(e), on or
before the close of business on the first business day of each
Fiscal Year, each Member will contribute, as a Capital
Contribution, its Allocable Share of an amount determined by a
Supermajority Vote of the Executive Committee to a fund
established as the annual operating fund (the "Operating Fund")
of the Company. The contribution with respect to the 1995 Fiscal
Year of the Company shall be made by each Member within thirty
(30) business days of the date on which the Executive Committee
determines the 1995 Fiscal Year Operating Budget, as provided in
Section 6.3 hereof (which contribution shall not be in excess of
$[ ] in aggregate for all Members and shall be in addition to
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
the Initial Capital Contribution set forth in Section 9.1(a) and
the additional Capital Contributions set forth in 9.1(b) hereof).
6.3 1995 Fiscal Year Operating Budget. Within thirty (30)
business days of the execution of this Company Agreement, the
Executive Committee by Supermajority Vote shall determine the
amount of the 1995 Fiscal Year Operating Budget and any
allocation of such Operating Budget among programs or uses.
6.4 Unauthorized Expenses or Contracts. A Member may not,
without the prior approval of the Executive Committee, cause the
Company to enter into or make any contract, security agreement,
financing statement, note or similar instrument, mortgage or
guaranty, incur any obligation, or expend any money, except and
unless an expenditure is required by the terms of a contract or
instrument theretofore duly entered into by the Company and
authorized in accordance with this Company Agreement. Should a
Member breach this Section 6.4, such Member will indemnify,
defend and hold the other Members harmless from all liabilities,
costs, and damages resulting from such breach.
6.5 Authority of Members to Bind the Company. The Members
hereby agree that no individual Member or Members can bind the
Company unless such Member or Members are acting with the express
authority of the Executive Committee, in either case pursuant to
a resolution of the Executive Committee.
6.6 Limitation of Liability of Members. Except as provided
for in Section 6.4 hereof, no Member shall be liable for the
debts, obligations or liabilities of the Company, including under
a judgment, decree or order of court, except as may be otherwise
expressly agreed to in writing by such Member directly to the
applicable third Person.
6.7 Contract to Limit Members' Liabilities. Unless
approved by Unanimous Vote of the Executive Committee, no
contract, lease, sublease, note, deed or other agreement or
instrument shall be executed and delivered by or on behalf of the
Company if there is contained therein any provision whatsoever
that states or suggests that the claims of all parties thereto
and other beneficiaries thereunder are not limited solely to the
assets of the Company, and any contract, lease, sublease, note,
deed or other agreement or instrument containing any such
provision shall be null and void and shall not constitute a valid
obligation of the Company.
6.8 Liability of Members for Certain Acts or Omissions.
Any act or omission by a Member, the effect of which may cause or
result in loss or damage to the Company, shall not subject the
Member to any liability to the Company or any other Member so
long as such act or omission was not done fraudulently or in bad
faith or as a result of willful and wanton misconduct or gross
negligence.
6.9 Indemnification.
(a) The Company shall defend, indemnify and hold
harmless any Member, Executive Committee Representative
(or alternate), or Company officer, employee or agent,
who was or is a party to, or is threatened to be made a
party to, or is involved in, any threatened, pending or
completed Proceeding, by a third party (including any
action by or in the right of the Company) by reason of
any acts, omissions or alleged acts or omissions by
such Member, Executive Committee Representative (or
alternate), or Company officer, employee or agent
undertaken on behalf of the Company, against and from
losses, damages, claims and expenses for which such
Member, Executive Committee Representative (or
alternate), or Company officer, employee or agent has
not otherwise been reimbursed (including (i) reasonable
attorneys' fees, judgments, and fines in all cases and
(ii) amounts paid in settlement if agreed to by
Supermajority Vote of the Executive Committee) actually
and reasonably incurred in connection with such
Proceeding, so long as such act or omission was not
done fraudulently or in bad faith or as a result of
willful and wanton misconduct or gross negligence or,
with respect to any criminal Proceeding, such Person
had no reasonable cause to believe his conduct was
unlawful.
(b) Subject to limitations and conditions as provided
in this Article VI, each Person who was or is a party
to, or is threatened to be made a party to, or is
involved in, any threatened, pending or completed
Proceeding, by reason of the fact that, such Person is
or was serving at the request of the Company as a
member, officer, employee, or agent of another foreign
or domestic limited liability company, corporation,
partnership, joint venture, sole proprietorship, or
other enterprise, shall be defended, indemnified and
held harmless by the Company to the fullest extent
permitted by the Act, against and from losses, damages,
claims and expenses for which such Person has not
otherwise been reimbursed (including (i) reasonable
attorneys' fees, judgments, and fines in all cases and
(ii) amounts paid in settlement if agreed to by
Supermajority Vote of the Executive Committee) actually
and reasonably incurred in connection with such
Proceeding, so long as the acts or omissions or alleged
acts or omissions forming the basis for such Proceeding
were not done fraudulently or in bad faith or as a
result of willful and wanton misconduct or gross
negligence or, with respect to any criminal Proceeding,
such Person had no reasonable cause to believe his
conduct was unlawful.
(c) Indemnification under this Article VI shall
continue as to a Person who has ceased to serve in the
capacity which initially entitled such Person to
indemnity hereunder. The rights granted pursuant to
this Article VI shall be deemed contract rights, and no
amendment, modification or repeal of this Article VI
shall have the effect of limiting or denying any such
rights with respect to actions taken or Proceedings
arising prior to any such amendment, modification or
repeal. It is expressly acknowledged that the
indemnification provided in this Article VI could
involve indemnification for negligence but cannot
involve indemnification for any act or omission done
fraudulently or in bad faith or as a result of willful
and wanton misconduct or gross negligence or, with
respect to any criminal Proceeding, if such Person had
reasonable cause to believe his conduct was unlawful.
(d) The right to indemnification conferred in this
Article VI shall not be exclusive of any other right
which a Member or other Person indemnified pursuant to
this Section 6.9 may have or hereafter acquire under
any law, any provision of the Certification of
Formation, this Company Agreement, any agreement, any
vote of Members or otherwise.
6.10 Representations and Warranties. Each Member hereby
represents and warrants to the Company and each other Member
that: (a) if such Member is an organization, that it is duly
organized, validly existing, and in good standing under the law
of its state of incorporation or organization and that it has
full organizational power to execute and agree to this Company
Agreement and to perform its obligations hereunder; (b) except as
provided in Section 12.3, such Member is acquiring its Company
Interest for such Member's own account as an investment and
without an intent to distribute the interest; (c) such Member
acknowledges that such interests have not been registered under
the Securities Act of 1933 or any state securities laws, and may
not be resold or transferred by the Member without appropriate
registration or the availability of an exemption from such
requirements; (d) such Member, by itself or together with its
advisors, is experienced in making investments comparable to its
investment in the Company and is capable of judging for itself
the risks inherent in such investment; (e) such Member has the
financial capacity to hold its investment in the Company for an
indefinite period of time and to meet its obligations to make
Capital Contributions hereunder, and acknowledges that the
disposition of such investment is restricted both pursuant to
federal and state securities laws and pursuant to the terms of
this Company Agreement; (f) such Member acknowledges that it has
received access to all information that it deems necessary in
order to make its decision to invest in the Company; (g) this
Company Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable in
accordance with its terms; (h) neither the execution and delivery
of this Company Agreement nor the consummation of the
transactions contemplated hereby nor compliance by it with any
provisions hereof (1) conflicts with, or results in a breach or
contravention of, or in a default or the creation of any lien
under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement, or other
instrument or obligation to which it is a party or by which it or
its properties are bound, or (2) violates any law, order, writ,
injunction or decree applicable to it or any of its properties;
and (i) no consent, approval or other action by any court,
governmental authority or third party is required in connection
with its execution, delivery and performance of this Company
Agreement. The parties agree that no representations are made as
to Southern California Gas Company, an Affiliate of PE. The
parties agree that no representations are made as to Northern
Illinois Gas Company ("NI-Gas"), an Affiliate of NHS, and
acknowledge that NI-Gas expects to request the consent and
approval of the Illinois Commerce Commission in connection with
the assignment by HSI to the Company of its rights under the
Chicago Hub Agreement referred to in the definition of Chicago
Hub and that if NI-Gas fails to obtain such consent on terms
satisfactory to NI-Gas and NHS, NHS may elect to dispose of its
interest in the Company or NI-Gas may elect to terminate the
Chicago Hub Agreement.
6.11 Credit Support. HSI acting alone or through one or
more of its Affiliates, hereby agrees to exercise commercially
reasonable efforts to provide credit support on acceptable terms
to the extent required to support the Company's commercial
operations. Such credit support may include, but is not limited
to, a guaranty of the Company's performance or a letter of
credit.
6.12 Insurance. To the extent not inconsistent with the Act
and other laws and public policies of the State of Delaware, the
Company will purchase and maintain its own policies of insurance
at levels appropriate to cover potential liabilities of the
Company for the benefit of the Company and any Person who is or
was a Member or officer, employee or agent against any liability
asserted against or expenses incurred (in connection with an
asserted liability) by the Company or such Person in any such
capacity or arising out of such Person's service with the
Company, whether or not the Company would have the power to
indemnify such Person against such liability.
6.13 HSI Contributions. HSI, acting alone or through its
Affiliate, Natural Gas Clearinghouse, or one or more other
Affiliates, hereby agrees to (1) second or otherwise make
available to the Company officers and employees for the exclusive
use of the Company (subject to change only upon agreement of each
of the Members other than HSI) having the experience and
expertise to develop and carry out the activities described in
Section 3.1 hereof (and cause the Company to vote its Company
Interest to the extent necessary to engage such officers and
employees), and (2) provide to the Company access to and use of
an electronic nomination system known as the Gas Trading System,
for a monthly fee not to exceed [
] and otherwise on commercially
reasonable terms and conditions.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
6.14 Representation as to Initial Balance Sheet; Agreement
as to Cut-Off Date.
(a) HSI represents and warrants that the balance sheet
of the Company as of the Effective Date is as set forth
in Exhibit G hereto, and that except as so disclosed on
such balance sheet the Company has no liabilities,
debts, claims or obligations, whether accrued,
absolute, contingent or otherwise, whether due or to
become due. HSI hereby agrees to indemnify and hold
harmless the Company from and against any such
liabilities, debts, claims or obligations (subject to
clause (b) below).
(b) Each of the parties agree (1) that each agreement,
contract, transaction or other arrangement entered into
under each Hub Agreement prior to June 1, 1995 (the
"Cut-Off Date") shall be for the sole benefit of and
the asset of HSI and shall be the sole responsibility
and liability of HSI, and that the Company shall not
receive any such benefits, assets, responsibilities or
liabilities notwithstanding HSI's contribution of its
rights under such Hub Agreements to the Company in
accordance with this Agreement and (2) that each
agreement, contract, transaction or other arrangement
entered into under each Hub Agreement on or after the
Cut-Off Date (collectively, "Post-Cut-Off
Transactions") shall be for the sole benefit of and the
asset of the Company and shall be the sole
responsibility and liability of the Company and that
HSI shall not receive any of such benefits, assets,
responsibilities or liabilities.
(c) HSI represents and warrants that the note to the
balance sheet set forth in Exhibit G hereto accurately
and completely sets forth all Post-Cut-Off
Transactions, and that no other Post-Cut-Off
Transactions have occurred or exist.
ARTICLE VII
Competition and Conflicts of Interest
7.1 Company Opportunity. The assets of the Company shall
at all times be dedicated exclusively to the benefit of the
Company. Subject to the foregoing and except as otherwise set
forth below, any Member or Affiliate of any Member may
participate in other business activities, whether or not any such
activities are competitive with the business of the Company. No
Officer, Executive Committee Representative or employee of the
Company, so long as such individuals remain in such capacity,
shall participate in business activities in competition with the
business of the Company. Subject to the Supermajority Vote
requirement of Section 8.1(c)(16) below, no transaction with the
Company shall be voidable solely because a Member has a direct or
indirect interest in the transaction if either the transaction is
arms-length and fair to the Company or the disinterested Members
(knowing the material facts of the transaction and the Member's
interest) or their Representatives on the Executive Committee
authorize, approve, or ratify the transaction.
Notwithstanding the foregoing, in the absence of the
approval of the Executive Committee by Unanimous Vote, no Member
or Affiliate of any Member shall engage in, or own, operate,
manage or invest in any Person who engages as a material line of
business in (x) the ownership and management of a Hub located in
North America or (y) any electronic natural gas trading system
which, in either case, the Company does not own an interest in or
does not operate or manage. Nothing set forth herein shall
restrict any Member or Affiliate from (i) engaging in the
operation, ownership or management of the Chicago Hub, the
California Energy Hub or the Ellisburg-Leidy Northeast Hub (or,
before or after termination of the relevant Hub Agreement
creating any such Hub, the operation, ownership or management of
the assets or business constituting such Hub); (ii) contracting
with third parties for services associated with any Hub or
electronic natural gas trading and/or nomination system; or (iii)
owning an interest in, operating, managing or engaging in any
electronic natural gas nomination system including, without
limitation, NHS' Affiliate's interest in "Gas Exchange" and PE's
Affiliate's interest in "GasSelect." In the event any such
electronic natural gas nomination system of a Member or its
Affiliate installs an electronic interface with an electronic
natural gas trading and nomination system that competes with the
Company's system, such Member or its Affiliate will, for not more
than a comparable total economic cost, attempt to provide an
opportunity to install an electronic interface for the Electronic
Trading System with essentially equivalent contractual terms and
conditions to those applicable to the competing electronic
natural gas trading and nomination system. Nothing in this
Article VII shall be construed to place any limitations on any
Affiliate's ability to comply with and offer services in
accordance with the laws, regulations and tariffs applicable to
it as an interstate natural gas pipeline or a state-regulated
public utility. For example, potential Company, California
Energy Hub, Chicago Hub, or Ellisburg-Leidy Hub customers will be
able to make requests for services directly to a Member's
Affiliate that may be in competition with the services offered by
the Company, California Energy Hub, Chicago Hub or Ellisburg-
Leidy Northeast Hub, respectively, and such Affiliate may perform
and be paid for those services.
7.2 Member Dealings with the Company. The Members expect
that Members and/or Affiliates may become customers of the
Company, and otherwise engage in natural gas marketing or
transportation activities which may compete with the Company.
Other than the specific prohibition in Section 7.1 above, nothing
in this Company Agreement is intended to prohibit or limit such
competition.
7.3 Competition Between Members. Except as specifically
provided in this Article VII, nothing shall limit or restrict the
Members' ability to compete with each other.
ARTICLE VIII
Management
8.1 Executive Committee.
(a) Except as otherwise provided in this Company
Agreement, the property, business and affairs of the
Company shall be under the direction of the Executive
Committee. Except for matters requiring the action of
the Members under the terms of this Company Agreement,
the Executive Committee shall have the power to take
any action that the Members may take under law, subject
to any restrictions set forth in this Company
Agreement.
(b) The approval by a Majority Vote shall be required
before any of the following acts involving the Company
may be taken:
<PAGE>
(1) entering into, amending, modifying, or
terminating an agreement with a term in excess of
one year or involving aggregate consideration
(including assumed actual and contingent
liabilities) or receipts, or delivery or receipt
of goods or services having a value, in excess of
$50,000, but not to exceed $100,000, over the term
of the agreement (other than an agreement for the
transportation, balancing, storage, parking,
wheeling, purchase, or sale of natural gas);
(2) entering into, amending, modifying, or
terminating any contract or commitment to acquire
or transfer any asset, the fair market value or
aggregate consideration (including assumed actual
and contingent liabilities) of which exceeds
$50,000, unless such fair market value or
aggregate consideration exceeds $250,000, in which
case any acquisition or transfer requires a
Unanimous Vote;
(3) (A) filing any claim or lawsuit against
any Person except where the amount claimed is for
less than $50,000, or (B) settling any claim or
lawsuit except where the fair market value of the
settlement amount is less than $50,000; or
(4) taking action in its capacity as a
shareholder, partner or member of any joint
venture between the Company and EEI to the extent
such action is the equivalent of an act requiring
a Majority Vote under this Section 8.1 (in the
case of an action to which a monetary value can be
assigned, determined by reference to the impact of
such action on the Company).
(c) The approval by a Supermajority Vote shall be
required before any of the following acts involving the
Company may be taken:
(1) entering into, or amending, modifying,
or terminating, an agreement involving aggregate
consideration (including assumed actual and
contingent liabilities) or receipts, or delivery
or receipt of goods or services having a value, in
excess of $100,000 over the term of the agreement
(other than an agreement for the transportation,
balancing, storage, parking, wheeling, purchase,
or sale of natural gas);
(2) any amendment or modification of any
provision of the Operating Policy described in
subsection (d)(12) below, except to the extent the
Operating Policy states that such provision may be
amended or modified only by Unanimous Vote;
(3) borrowing any principal amount in excess
of $25,000, incurring any contingent liability
whatsoever in excess of $25,000, lending or
guaranteeing any third party indebtedness
(including, without limitation, under any contract
or arrangement referred to in this Section 8.1),
it being understood that such limitation shall not
be a limitation on the amount or type of trade
payables that may be incurred in the ordinary
course of business consistent in all respects with
past practices by the Company;
(4) approving a capital budget, an operating
budget (the "Operating Budget") and contributions
to the Operating Fund for each Fiscal Year, which
shall not be exceeded without the express consent
of a Supermajority Vote of the Executive Committee
(except with respect to capital expenditures of
less than $25,000 as provided in subsection (5)
below);
(5) making any capital expenditure in excess
of $25,000 unless such expenditure is reflected in
a capital budget for the current Fiscal Year that
has been approved by the Executive Committee;
(6) incurring aggregate general and
administrative expenses, as defined and calculated
in accordance with generally accepted accounting
principles, in any Fiscal Year in excess of one
hundred and five percent (105%) of the general and
administrative expenses reflected in the Operating
Budget;
(7) the indemnification of any Officer,
employee, agent or any other Person except as
specifically provided herein;
(8) executing or otherwise entering into, or
amending, modifying, or terminating, any
employment agreement, the election or removal of
any Officer or the hiring or firing of other
similarly compensated person with or without
cause, and the borrowing of a Member's employee(s)
on a temporary basis in accordance with
Section 8.8(j) below for a period in excess of
five consecutive days;
(9) setting or amending the compensation
level of any Officer or other similarly
compensated person;
(10) revaluing any property or asset;
(11) taking any action in its capacity as a
shareholder, partner or member of any Person
except any joint venture between the Company and
EEI, which is addressed in the following
subsection (b)(12);
(12) taking any action in its capacity as a
shareholder, partner or Member of any joint
venture between the Company and EEI to the extent
that such action is the equivalent of an action
requiring a Supermajority Vote under this
Section 8.1(c) (in the case of an action to which
a monetary value can be assigned, determined by
reference to the impact of such action on the
Company);
(13) taking action that will result in any
Company Property being burdened by a lien or other
encumbrance;
(14) subject to Section 8.1(d), entering
into, amending or terminating any contract or
commitment to acquire or transfer any asset, the
fair market value or aggregate consideration
(including assumed actual and contingent
liabilities) of which exceeds $250,000;
(15) approving the distribution of Company
Property to Members in accordance with
Section 10.4 below;
(16) executing or otherwise entering into, or
amending, modifying, or terminating, any agreement
with a Member, an Officer or employee of the
Company, an Affiliate of a Member, or a person
related by blood or marriage to an Officer or
employee of the Company, involving aggregate
consideration (including assumed actual and
contingent liabilities) or fair market value or
actual or contingent liability in excess of
$25,000, except that this subsection shall not
apply to any contract or commitment for the
transportation, balancing, storage, parking,
wheeling, purchase, or sale of natural gas, in
each case in the ordinary course of business,
provided that no such contract or commitment may
be executed until the Operating Policy described
in subsection (d)(12) below is adopted;
(17) (A) filing any claim or lawsuit against
any Person in an amount claimed in excess of
$50,000, or (B) settling any claim or lawsuit
where the fair market value of the settlement
amount exceeds $50,000;
(18) entering into any material amendment or
modification of a Hub Agreement or the extension
or renewal of a Hub Agreement other than the
agreements described in the definitions of
"California Hub," "Chicago Hub" or Ellisburg-Leidy
Hub"; or
(19) subject to Section 8.1(d)(5), any
decision that the Company shall engage in any
activities other than (i) activities involving the
transportation or storage of natural gas, or (ii)
activities related to the supply of natural gas,
including exploration, development, production,
marketing, manufacture or similar activities
related to the supply of natural gas, or (iii)
those described in clauses (a)-(e) and (g) of
Section 3.1.
(d) The approval by a Unanimous Vote shall be required
before any of the following acts involving the Company
may be taken:
(1) the admission of an Additional Member;
(2) transferring all or substantially all of
the assets of the Company;
(3) dissolving the Company;
(4) the filing of a petition as debtor in a
United States Bankruptcy Court or taking any
material affirmative act that would result in the
Company's Bankruptcy;
(5) making an aggregate expenditure in
excess of $5,000,000 during the first five (5)
years following the Effective Date for purposes of
entering a business, or line of business, other
than one described in clauses (a)-(e) and (g) of
Section 3.1;
(6) merging or consolidating the Company
with or into any other Person;
(7) a change in the name of the Company;
(8) approving the Company's participation in
any venture between the Company and EEI relating
to the development and operation of the Electronic
Trading System;
(9) entering into, amending, modifying or
terminating any contract or commitment for the
transportation, balancing, storage, parking,
wheeling, purchase or sale of natural gas prior to
(A) adopting the Operating Policy described in
subsection (d)(12) below and (B) amending or
otherwise modifying the Partnership Agreement
relating to the Ellisburg-Leidy Northeast Hub, in
order to reflect the substitution of the Company
for HSI as a partner thereunder, in form and
substance satisfactory to the Members;
(10) taking any action in its capacity as a
shareholder, partner or member of any joint
venture between the Company and EEI to the extent
that such action is the equivalent of an action
requiring a Unanimous Vote under this Section
8.1(d) (in the case of an action to which a
monetary value can be assigned, determined by
reference to the impact of such action on the
Company);
(11) entering into any modification or
amendment of this Company Agreement;
(12) approving and adopting written Company
operating procedures (the "Operating Policy"),
which Operating Policy shall be approved and
adopted within forty-five days of the execution of
this Company Agreement (the Executive Committee
may, by Unanimous Vote, approve and adopt interim
operating procedures to be effective until the
approval and adoption of the Operating Policy),
addressing, among other areas, procedures for the
execution and approval of agreements binding the
Company (including specific authority levels of
Members, Officers, and Company employees), forms
used in connection with derivatives transactions,
procedures for the execution and approval of
agreements between the Company and Members,
Affiliates, Officers, and/or Company employees,
tax recording and accounting procedures (including
procedures for calculating Net Profit and Net
Loss), retention and audit policies which
effectively monitor and control risks associated
in particular with market-making agreements, and
location of business headquarters; amending or
modifying any provision of the Operating Policy to
the extent the Operating Policy states that such
provision may be amended or modified only by
Unanimous Vote (any other amendment or
modification of the Operating Policy requires a
Supermajority Vote); or taking any actions in
contravention of the restrictions or limitations
in the Operating Policy;
(13) extending or renewing any of the
agreements described in the definitions of
"California Energy Hub," "Chicago Hub" or
"Ellisburg-Leidy Hub"; or
(14) extension of the term of the Company in
accordance with Section 2.6.
(e) Any other action required or permitted by the
Executive Committee under this Company Agreement and
not specifically addressed in this Section 8.1 may be
taken only with the approval in advance by a
Supermajority Vote of the Executive Committee.
(f) The Executive Committee by a Supermajority Vote
may from time to time adopt such rules, not
inconsistent with the provisions hereof, as it may deem
useful and appropriate to implement this Company
Agreement and to manage the Company's business and
affairs. The Executive Committee by a Supermajority
Vote may adopt accounting and financial control
procedures and policies, not inconsistent with this
Company Agreement, that are appropriate for the Company
with respect to such matters.
8.2 Composition and Term.
(a) The executive committee (the "Executive
Committee") shall be the Member's management committee
of the Company and shall be comprised of one individual
representative for each Member (such Member's
"Representative"). All Representatives shall be
entitled to receive notices and agendas of upcoming
Executive Committee meetings, attend all Executive
Committee meetings and participate in all discussions,
and receive minutes from previous Executive Committee
meetings. A Member may bring support staff to
Executive Committee meetings. Such staff shall be
subject to confidentiality requirements deemed
appropriate by the Executive Committee. The
Representative selected by each Member shall be
entitled to cast the following number of votes on
matters requiring the approval of the Executive
Committee: such Representative shall have one vote, or
fractional part thereof, for each percentage point, or
fractional part thereof, of Company Interest credited
to the Member appointing such Representative. For
example, a Representative appointed by a Member
credited with a ten and one-half percent (10.5%)
Company Interest would have ten and one-half (10-1/2)
votes of a total number of one hundred (100) votes.
(b) Until replaced pursuant to the terms of this
Company Agreement, NHS's Representative shall be Thomas
Nardi. HSI's Representative shall be Stephen
Bergstrom. Each Representative shall be entitled to
hold office until death, resignation or removal. A
Member may replace the Representative appointed by such
Member in the event of a vacancy. Any Representative
may be removed at any time, with or without cause, by
the Member entitled to appoint such Representative, but
not otherwise. Any Representative on the Executive
Committee may appoint a proxy (including another
Representative) to attend meetings and vote (including,
without limitation, voting on any matter before the
Executive Committee). Without limiting the generality
of the foregoing, in determining if a quorum is
present, all Representatives in attendance by means of
a proxy shall be included in the count of a quorum.
8.3 Annual and Regular Meetings. The Executive Committee
shall hold an annual meeting, and may hold regular meetings, at
such time and place as the Executive Committee determines by
resolution but in any event the Executive Committee shall, unless
the Executive Committee otherwise agrees, hold regular meetings
at the offices of the Company during the months of January,
April, July and October of each year.
8.4 Special Meetings. Special meetings of the Executive
Committee may be called by the Chairman, Vice Chairman, the
Executive Committee or any Member, upon notice to all
Representatives on the Executive Committee.
8.5 Notice of Meetings. Notice of a special meeting shall
state the purpose of the meeting and notice of special, annual
and regular meetings must be given in writing at least ten days
in advance of such meeting. Notice of such meeting may be waived
in writing by Unanimous Vote.
8.6 Quorum and Manner of Acting. The presence of all
Representatives shall constitute a quorum. If a quorum is
present, the action of those present, in accordance with
Section 8.1 above, shall constitute the action of the Executive
Committee. No action may be taken at a meeting of the Executive
Committee in the absence of a quorum. In the event a
Representative receives notice of an annual, regular or special
meeting and does not participate in such meeting either in person
or by proxy, such Representative shall be deemed to have attended
such meeting and voted not to take action submitted to the
Executive Committee for approval at such meeting. Any action the
Executive Committee may take may be taken without a meeting by
unanimous written consent of the Representatives. Meetings of
the Executive Committee may take place by telephone or any means
where any persons attending can hear and speak to each other.
8.7 No Compensation. No Representative on the Executive
Committee shall be entitled to compensation for his/her services,
or any reimbursement of expenses incurred, as a Representative on
the Executive Committee.
8.8 Officers.
(a) Generally. The Company shall have agents,
referred to as "Officers" of the Company. These agents
(whose authority is limited pursuant to the following
sentence) shall be appointed in the manner specified
below, shall have the titles and authority specified in
this Section 8.8 and shall not be considered "managers"
for purposes of the Act or the Code. Each Officer
shall have only the authority specified below, and
shall not be a general agent of the Company.
(b) Titles and Number. The Officers shall be the
Chairman, Vice Chairman, President, the Secretary and
the Treasurer. There shall be appointed from time to
time, in accordance with subsection (c) below, such
Vice Presidents, Assistant Secretaries, and Assistant
Treasurers as the Executive Committee may desire. Any
person may hold two or more offices, except that the
offices of President and Secretary may not be held by
the same person.
(c) Election and Term of Office. The Officers shall
be elected by the Executive Committee at the annual
meeting by Supermajority Vote in accordance with
Section 8.1(c)(8) above; provided that the following
Officers are hereby installed and authorized to act
until the first such annual meeting of the Executive
Committee: Miles Allen (President), Stephen Bergstrom
(Chairman), and Thomas Nardi (Vice Chairman). Each
Officer shall hold office until the annual meeting
following the date of election of such Officer. Any
Officer may be removed by the Executive Committee by
Supermajority Vote with or without cause. Vacancies in
any office shall be filled by the Executive Committee
by Supermajority Vote.
(d) Chairman and Vice Chairman of the Executive
Committee. Until replaced pursuant to the terms of
this Company Agreement, Stephen Bergstrom will be the
Chairman, and Thomas Nardi will be the Vice Chairman of
the Company. The Chairman, and in the absence of the
Chairman, the Vice Chairman, shall preside at meetings
of the Executive Committee, and shall exercise such
powers and perform such duties as may be assigned to
him/her by this Company Agreement or the Executive
Committee.
(e) President. The President, subject to the general
control of the Executive Committee, shall be
responsible for the day-to-day operation and direction
of the affairs of the Company, employees and agents,
shall supervise generally the affairs of the Company,
and, subject to the limitations imposed by this Company
Agreement, any employment agreement, any employee plan,
or any resolution of the Executive Committee, shall
have full authority to execute all documents and to
take all actions that the Company may legally take.
The President shall attend all meetings of the
Executive Committee (but shall not be entitled to vote
on matters before the Executive Committee) and exercise
such other powers and perform such other duties as may
be assigned to him/her by this Company Agreement or the
Executive Committee, including such duties and powers
stated in any employment agreement.
(f) Vice Presidents. In the absence of the President,
the Vice Presidents designated by the Executive
Committee shall, except as hereinafter provided, have
all of the powers and duties conferred upon the
President. Each of the Vice Presidents shall, subject
to the limitations imposed by this Company Agreement,
any employment agreement, any employee plan, or any
resolution of the Executive Committee, have the same
power as the President to sign certificates, contracts
and other instruments of the Company. Any Vice
President shall perform such other duties and may
exercise such other powers as may from time to time be
assigned to him by this Company Agreement, the
Executive Committee, the Chairman, the Vice Chairman or
the President.
(g) Secretary and Assistant Secretaries. The
Secretary shall attend and record or cause to be
recorded in books provided for that purpose the minutes
of the meetings or actions of the Members and the
meetings or actions of the Executive Committee or any
subcommittees thereof, shall see that all notices are
duly given in accordance with the provisions of this
Company Agreement and as required by law, shall be
custodian of all records (other than financial), shall
see that the books, reports, statements, certificates
and all other documents and records required by law are
properly kept and filed, and, in general, shall perform
all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to
him/her by the Executive Committee, the Chairman, or
the Vice Chairman. The Assistant Secretaries shall
exercise the powers of the Secretary during that
Officer's absence or inability or refusal to act.
(h) Treasurer and Assistant Treasurers. The Treasurer
shall keep or cause to be kept the books of account of
the Company and shall render statements of the
financial affairs of the Company in such form and as
often as required by this Company Agreement, the
Executive Committee, the Chairman, or the Vice
Chairman. The Treasurer, subject to the order of the
Executive Committee, shall have the custody of all
funds and securities of the Company. The Treasurer
shall perform all other duties commonly incident to
his/her office and shall perform such other duties and
have such other powers as the Executive Committee, the
Chairman, or the Vice Chairman shall designate from
time to time. The Assistant Treasurers shall exercise
the power of the Treasurer during that Officer's
absence or inability or refusal to act.
(i) Powers of Attorney. The Executive Committee may
grant powers of attorney or other authority as
appropriate to establish and evidence the authority of
the Officers.
(j) Borrowed Employees. Subject to Section 8.1(c)(8)
above, the Company may borrow a Member's employees, or
a Member's Affiliate's employees, with that Member or
Affiliate's consent, from time to time on a temporary
basis for purposes associated with the Company's
business. Expenses, salaries and benefits associated
with such borrowed employees shall be treated as
expenses, salaries and benefits incurred by the
Company, subject to the review and approval of the
Executive Committee. The lending Member shall furnish
all Representatives on the Executive Committee with a
monthly statement of such expenses, salaries and
benefits supported by invoices or other supporting
documents, and shall maintain adequate records in
accordance with generally accepted accounting
principles supporting the allocation of expenses,
salaries and benefits between the Company and the
lending Member.
(k) Seconded Employees. A Member shall have the right
to request that the Company accept placement of a
Member's employee, or an Affiliate's employee, as a
seconded employee. The Company, through a
Supermajority Vote of the Executive Committee, may
accept such request on written terms and conditions
acceptable to the Executive Committee. A seconded
employee will not be an employee of the Company and one
hundred percent (100%) of the expenses, salary and
benefits associated with a seconded employee shall be
borne by the Member or Affiliate placing a seconded
employee with the Company.
8.9 Expenses. The Company shall pay only those expenses
incurred by the Officers and employees that are directly
attributable to the Company's business.
ARTICLE IX
Contributions and Capital Accounts
9.1 Capital Contributions.
(a) In consideration for its respective Company Interest,
each Charter Member has made, or immediately shall make, the
Initial Capital Contribution to the Company. As such Initial
Capital Contributions, HSI will contribute 100% of HSI's assets,
all such assets being listed on Exhibit D, for a 99% Company
Interest, and NHS will contribute a promissory note (the "NHS
Note") in the principal amount of $[ ] for a 1% Company
Interest. The initial Capital Account position of each Charter
Member, after giving effect to such Capital Contributions, is set
forth on Exhibit D.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
(b) In addition to the Initial Capital Contributions, the
Members agree to make subsequent Capital Contributions in cash
for the purpose of developing and operating the Electronic
Trading System during the year (365 days) following execution of
this Company Agreement. The Company expects that the system will
be developed by the Company and EEI pursuant to a jointly owned
entity yet to be created. The Members' Capital Contributions
pursuant to this Section will in turn be used by the Company to
make a loan by the Company to the Company/EEI entity on terms and
conditions acceptable to the Executive Committee by a
Supermajority Vote. The additional Capital Contributions
pursuant to this Section will consist of an initial cash
contribution in the aggregate amount of $[ ] to be paid by
the Members in accordance with their respective Allocable Shares
at the time of such contribution. With respect to NHS's
contribution of its Allocable Share of such contribution ("NHS's
EEI Contribution"), $[ ] ( or such other amount as shall be
the principal amount of the NHS Note) of NHS's Contribution shall
be applied to prepay in full the NHS Note, and the Capital
Account of NHS shall reflect NHS's EEI contribution in full
without giving effect to application of a portion thereof to such
prepayment (i.e. such Capital Account shall be increased by the
amount of the NHS Note in full and NHS's EEI Contribution in
full). Such contributions shall be made to the Company no later
than ten (10) days following execution of the agreement creating
the venture between the Company and EEI. The Members hereby
commit to make additional cash Capital Contributions in one or
more installments during the first year (365 days) following
execution of this Company Agreement for purposes of the
development and operation of the Electronic Trading System in an
amount not to exceed $[ ] in aggregate, to be paid by the
Members in accordance with their respective Allocable Shares at
the time of such contribution. The timing and amount of such
installments shall be determined by the Executive Committee by
Supermajority Vote. Capital contributions for purposes of the
development and operation of the Electronic Trading System in
excess of the amounts designated above during the first year
following execution of this Company Agreement and thereafter
shall be subject to Supermajority Vote.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
(c) In addition to the amounts set forth above, each Member
shall in each Fiscal Year contribute, as a Capital Contribution,
its Allocable Share to the Operating Fund in accordance with
Section 6.2, as provided by Supermajority Vote of the Executive
Committee.
(d) Each Additional Member shall make the Initial Capital
Contribution described in such Additional Member's Admission
Agreement ("Admission Agreement"). The amount of the Additional
Member's Initial Capital Contributions, the time for making such
contributions, and any changes in the other Members' Capital
Accounts and Allocable Shares that result, shall be set forth in
such Additional Member's Admission Agreement.
(e) Notwithstanding Section 6.2, this Section 9.1 or
Section 9.2 or any other provision of this Company Agreement, (i)
Capital Contributions shall not exceed an amount of $10,000,000
in the aggregate for all Members during the initial five (5) year
term of the Company, and any extension of such term, unless the
Executive Committee decides otherwise by Unanimous Vote, and (ii)
the Capital Contributions of any Member shall not exceed the
limit set forth next to the name of such Member on Exhibit D
hereto during the initial five (5) year term of the Company, and
any extension of such term, unless such Member has so agreed.
9.2 Additional Capital Contributions. As and when the
Executive Committee determines by Supermajority Vote or Unanimous
Vote, as may be required by Section 8.1, that the Company needs
cash from time to time, each Member agrees that it shall make (a)
Capital Contributions to the Company in an amount in accordance
with its respective Allocable Share for the purposes determined
by the vote of the Executive Committee authorizing such Capital
Contributions in accordance with Section 8.1 and (b) Capital
Contributions to the Operating Fund in accordance with
Section 6.2 hereof.
9.3 Failure to Contribute. If a Member (a "Delinquent
Member") does not contribute, within 10 days of the date
required, all or any portion of a Capital Contribution that
Member is required to make as provided in this Company Agreement:
(i) the remaining Members in proportion to their
Allocable Shares or in such other percentages as they may
agree may make the Capital Contribution that the Delinquent
Member failed to make and the Allocable Shares of the
Members, including the Delinquent Member, shall be adjusted
to reflect the Delinquent Member's failure to make the
Capital Contribution and the resulting increase in the
Capital Accounts of the remaining Members and appropriate
adjustments in the Members' Company Interests; and/or
(ii) the remaining Members in proportion to their
Allocable Share or in such other percentages as they may
agree (the "Lending Member," whether one or more), may
advance the portion of the Delinquent Member's Capital
Contribution that is in default, with the following results:
(A) the sum advanced constitutes a loan (a
"Member Loan") from the Lending Member to the Company,
(B) the principal balance of the loan and all
accrued unpaid interest thereon will be due and payable
in accordance with terms and conditions agreed between
the Member(s) advancing the Member Loan and the
Executive Committee (excluding, for these purposes, the
Representative of the Delinquent Member), and
(C) the principal amount of the Member Loan will
bear interest at the Member Loan Rate from the day that
the Member Loan is made until the date that the Member
Loan, together with all interest accrued on it, is
repaid to the Lending Member; or
(iii) the remaining Members may rescind the request
for a Capital Contribution and forego the expense forming
the basis of the Capital Contribution.
(iv) in the event the remaining Members decide not to
take any one or more of the actions described in Sections
9.3(a)(i) through (iii) above, the remaining Members may
take such action (including court proceedings and the
exercise of any rights and remedies available at law or in
equity) as the remaining Members by Unanimous Vote of their
Representatives to the Executive Committee may deem
appropriate to obtain payment by the Delinquent Member of
the portion of the Delinquent Member's Capital Contribution
that is in default, together with interest thereon at the
Member Loan Rate from the date that the Capital Contribution
was due until the date that it is made, all at the cost and
expense of the Delinquent Member. In no event shall the
remaining Members be entitled to recover punitive, exemplary
or special damages from a Delinquent Member in any action or
Proceeding undertaken by the Remaining Members pursuant to
this Section 9.3(iv).
9.4 Maintenance of Capital Accounts. The Company, acting
through the Executive Committee, shall establish and maintain
Capital Account for each Member. The Capital Account of each
Member shall equal: (i) the initial Capital Account of each
Member, as set forth on Exhibit E (both before and after giving
effect to the initial HSI Dispositions described in Section 12.3;
(ii) increased by the aggregate Capital Contributions of such
Member (other than Capital Contributions reflected in the initial
Capital Account in accordance with clause (i) above and subject
in the case of NHS to the fifth sentence of Section 9.1(b));
(iii) increased by the Net Profit of the Company previously
allocated to such Member under Section 10.1, (iv) decreased by
the Net Losses, if any, of the Company previously allocated to
such Member under Section 10.1; and (v) decreased by the amount
of any cash and the value of any property distributed to such
Member on or before such time (net of any liabilities assumed by
the Member in conjunction with such distribution or to which the
distributed property is subject). Upon a distribution of
property other than cash to any Member, the value of such
property shall be restated on the books of the Company at its
fair market value immediately prior to such distribution and the
Capital Account of each Member shall be restated to reflect such
adjustment, determined as if the Company had sold such asset for
its fair market value and the resulting gain or loss had been
charged or credited to the Members' Capital Accounts as provided
in this Company Agreement. Following such adjustment to the
Member's books, the Capital Accounts of the Members receiving the
distributions shall be adjusted to reflect the amount of the
distribution.
9.5 Withdrawal of Capital. Except as otherwise provided
herein, no Member shall be entitled to withdraw all or any
portion of its Capital Contribution or receive interest on its
contributed capital or Capital Account.
9.6 Capital Account, Allocations, and Distributions
Attributable to Transferred Interest. At the close of business
on any day that any interest in the Company has been transferred
or purchased, the transferee Member shall succeed to the Capital
Account of the transferor Member, and the Company's books shall
be closed so that Net Profits, Net Losses, credits and
distributions can be attributed to the Members based on their
interests in the Company when items were actually received, paid
or incurred.
9.7 Compliance with Section 704(b) of the Code. The
provisions of this Article as they relate to the maintenance of
Capital Accounts are intended, and shall be construed, and, if
necessary, modified, to cause the allocations of profits, losses,
income, gain and credit pursuant to Article XI to have
substantial economic effect under the Regulations promulgated
under Section 704(b) of the Code, in light of the distributions made
pursuant to this Company Agreement. Notwithstanding anything
herein to the contrary, this Company Agreement shall not be
construed as creating a deficit restoration obligation or, except
as otherwise specifically agreed herein, otherwise personally
obligating any Member to make a Capital Contribution in excess of
the Initial Capital Contribution.
ARTICLE X
Allocations and Distributions
10.1 Allocations of Net Profits and Net Losses. As of the
end of each Fiscal Year (or any other, shorter period selected by
the Executive Committee), the Net Profit or Net Loss of the
Company shall be determined in accordance with generally accepted
accounting principles, as provided in Section 4.2. The Net
Profit or Net Loss of the Company for any period shall be
allocated directly to each Member in accordance with such
Member's respective Allocable Share.
10.2 Allocations of Taxable Income or Taxable Loss. Except
as otherwise provided herein, for federal, state, and local
income tax purposes, the taxable income or taxable loss (and each
item of income, gain, loss, deduction, or credit) of the Company
for any period shall be allocated among the Members in proportion
to the Members' respective Allocable Shares and shall otherwise
be kept in accordance with applicable United States treasury
regulations promulgated under Section 704(b) of the Code.
10.3 Tax Allocations: Section 704(c). If any Company asset
has a book value different than its adjusted tax basis to the
Company for federal income tax purposes (whether by reason of the
contribution of such property to the Company, the revaluation of
such property hereunder or otherwise), allocations of income,
gain, loss, deduction, credit and tax preference under this
Section 10 with respect to such asset shall take account of any
variation between the adjusted tax basis of such asset for
federal income tax purposes and its book value in the manner
prescribed by Section 704(c) of the Code or the principles set
forth in Section 1.704-1(b)(2)(iv)(g) of the treasury
regulations, as the case may be, using the remedial allocation
method.
10.4 Distributions. Subject to the provisions of Article
XIII, the Company will make distributions of cash or cash
equivalents or property to the Members in such aggregate amounts
and at such time or times as the Executive Committee may
determine, by Supermajority Vote. Except as otherwise provided
in Section 13.3, all distributions shall be made to the Members
in proportion to their respective Allocable Shares.
ARTICLE XI
Taxes
11.1 Tax Elections. The Tax Matters Member shall, upon the
filing of the Company's first federal tax return, cause the
Company to file an election under Section 754 of the Code and the
treasury regulations thereunder to adjust the basis of the
Company assets under Section 734(b) or 743(b) of the Code, and
shall cause the Company to file a corresponding election under
the applicable sections of state and local law.
11.2 Tax Returns. The Executive Committee shall cause
federal, state and local tax returns for the Company to be
prepared and filed with the appropriate authorities in a timely
manner. In compliance with applicable regulations, the Company
shall cause to be delivered to each Person who was a Member at
any time during such Fiscal Year all information concerning the
Company necessary for the preparation of such Person's tax
returns, including a statement showing such Person's share of
taxable gain or taxable loss (or items thereof) for such year for
federal, state and local tax purposes.
11.3 Tax Matters Member. HSI is hereby appointed the "Tax
Matters Member" of the Company for all purposes pursuant to
Sections 6221 and 6231 of the Code. The Tax Matters Member shall
(i) furnish to each Member a copy of each notice or other
communication received from the Internal Revenue Service or
applicable state authority (except such notices or communications
as are sent directly to each such Member), (ii) keep each Member
informed of any administrative or judicial Proceeding, as
required by Section 6223(g) of the Code, (iii) allow each Member
an opportunity to participate in all administrative and judicial
Proceedings involving the tax matters of the Company, and (iv)
advise and consult with each Member as to proposed adjustments to
the federal or state income tax returns of the Company. The
Company shall not be obligated to pay any fees or other
compensation to the Tax Matters Member in its capacity as such,
provided that the Company shall reimburse the Tax Matters Member
for any and all out-of-pocket costs and expenses (including
reasonable attorneys' and other professional fees) incurred by it
in its capacity as Tax Matters Member. The Company shall
indemnify, defend and hold the Tax Matters Member harmless from
and against any loss, liability, damage, cost or expense
(including reasonable attorneys' fees) sustained or incurred as a
result of any act or decision concerning Company tax matters and
within the scope of such Member's responsibility as Tax Matters
Member, so long as such act or decision was not done fraudulently
or in bad faith or as a result of willful and wanton misconduct
or gross negligence or, with respect to any criminal Proceeding
against the Tax Matters Member, such Member had no reasonable
cause to believe its conduct was unlawful. The Tax Matters
Member shall consult with each other Member concerning the cost
of legal services. The Tax Matters Member may resign upon thirty
(30) days written notice to the Company. Notwithstanding the
foregoing, the Tax Matters Member is not authorized to take any
action with regard to the foregoing matters which would be
binding on either the Company or the Member without a
Supermajority Vote of the Executive Committee.
ARTICLE XII
Disposition of Company Interests
12.1 Right of Disposition. Each Member agrees not to
Dispose of its Company Interest, in whole or in part, or to
withdraw from the Company, except as provided in this Article.
In connection with any Disposition, each Member party to such
Disposition (including any Additional Member admitted as a Member
as a result of such Disposition) shall provide to the Company the
information required to revise Exhibits B and D only as to such
Members, and Exhibit E shall be so revised and distributed.
12.2 Dispositions not in Compliance with this Article Void.
Any attempted Disposition of a Company Interest, or any part
thereof, not in compliance with this Article is null and void ab
initio.
12.3 Initial HSI Disposition. Following execution of the
Company Agreement, HSI expects to Dispose of portions of its
initial Company Interest to the following Persons in the
following amounts: NHS [ ]%) of one hundred
percent (100%) of all Company Interests; PE [ ]%)
of one hundred percent (100%) of all Company
Interests; and LHI fourteen and a half percent (14.5%) of one
hundred percent (100%) of all Company Interests, subject to LHI's
obtaining the prior approval of the Securities and Exchange
Commission. HSI and NHS hereby agree that they, through their
Representatives to the Executive Committee, will approve HSI's
sale of the foregoing percentages of its Company Interest to NHS,
PE and LHI. Notwithstanding anything in this Article XII to the
contrary, HSI's Disposition of portions of its initial Company
Interest to NHS, PE and LHI in the percentages stated above shall
not be subject to the rights to match of Section 12.5 below, and
HSI shall not be under any obligation to reveal the purchase
price and other consideration associated with such Dispositions
to the Company or the Members. Following such Disposition or
Dispositions, PE and LHI shall be Additional Members for all
purposes under this Company Agreement and shall be liable for any
unpaid portion of any Capital Contribution provided for herein
for which HSI was liable prior to such Disposition, in an amount
based on, and not greater than, the Allocable Share of PE or LHI,
as applicable, after giving effect to such Disposition.
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 104(B)]
12.4 Disposition Between Members. Any Member may Dispose of
all or any part of its Company Interest to the other Member(s),
on a per capita basis among those Members wishing to obtain such
Company Interest, upon such terms as may be agreed between or
among them. In the case of a Disposition of all of the Company
Interest of a Member, the other Members may unanimously vote to
designate a third party or parties to purchase all or part of
such Company Interest and continue the business of the Company
without dissolution.
12.5 Third Party Disposition Procedures. A Member (the
"Selling Member") may sell all or any part of its Company
Interest to any third party purchaser permitted to be a member of
a limited liability company under the Act, for cash or other
consideration, provided that (i) the Selling Member allows the
remaining Members to match the offer, and (ii) each Member, in
the sole and absolute discretion of such Member, approves the
sale of such Company Interest to such third party purchaser and
such third party purchaser becoming an Additional Member. No
such third party purchaser may become an Additional Member
without execution of an Admission Agreement. To satisfy clause
(i) above, the Selling Member shall present a written offer to
the remaining Members, through the Executive Committee, stating
the name of the proposed purchaser and all the terms and
conditions of the proposed offer, including sales price. Each of
the remaining Members shall have the right for a period of thirty
(30) days from receipt of such written offer to elect to accept
such written offer on the same terms and conditions applicable to
such proposed purchaser. In the event that more than one of the
remaining Members accepts such offer to purchase such Company
Interest from the Selling Member, the remaining Members who wish
to purchase such Company Interest may do so on a per capita
basis, and the Members' Capital Accounts (and Allocable Shares)
will be ratably adjusted. In the event none of the remaining
Members elect to purchase the Company Interest from the Selling
Member, one or more of the remaining Members does not approve the
sale of such Company Interest to the third party purchaser (the
"Original Purchaser"), and the Selling Member elects to continue
its attempt to sell such Company Interest, the following
procedure shall apply:
(a) The Selling Member may present a written offer
from a different third party purchaser (the
"Replacement Purchaser") to the remaining Members in
accordance with this Section 12.5, provided that the
Replacement Purchaser offer must be presented to the
remaining Members on or before 5:00 p.m. Central Time
on the fifth business day following the Selling
Member's receipt of notice that the sale of its Company
Interest to the Original Purchaser was not approved.
(b) In the event the Selling Member does not present a
written offer from a Replacement Purchaser, or a sale
of the Selling Member's Company Interest to the
Replacement Purchaser is not approved, and the Selling
Member elects to continue its attempt to sell its
Company Interest, the Selling Member and the remaining
Members will engage a third party accounting firm,
investment banking firm, appraisal firm or other
valuation expert ("Third Party Appraiser") to determine
the fair market value of the Selling Member's Company
Interest. If the Selling Member and the remaining
Members are unable to agree on the Third Party
Appraiser, the Selling Member shall designate a third
party accounting firm, investment banking firm,
appraisal firm or other valuation expert and the
remaining Members shall designate a different such
third party and such two third parties shall select the
Third Party Appraiser.
(c) The Third Party Appraiser shall, to the extent
commercially practicable, determine the fair market
value of the Selling Member's Company Interest (the
"Appraised Value") by the date no more than 30 days
after engagement of the Third Party Appraiser, and the
Appraised Value shall take into consideration all
valuation factors that the Third Party Appraiser
considers relevant in the circumstances, including any
possible loss of value in such Company Interest that
may occur due to cessation of the Selling Member's
participation as a Member in the Company or possible
cessation of participation of any Affiliate of the
Selling Member as a party to any Hub Agreement.
(d) Each of the remaining Members shall purchase the
Selling Member's Company Interest, in a percentage
based on such remaining Member's Allocable Share, for a
purchase price equal to such remaining Member's pro
rata share of the lesser of (i) the fair market value
determined by the Third Party Appraiser or (ii) the
lowest third party written offer presented to the
remaining Members by the Selling Member. Nothing in
this subsection shall be construed to prevent the
remaining Members from electing to purchase the Company
Interest on a basis other than their Allocable Shares.
(e) The Selling Member shall bear all fees and
expenses associated with each Third Party Appraiser or
other valuation expert engaged.
(f) A Selling Member that (i) elects to sell its
Company Interest pursuant to this Section 12.5 and
presents a third party offer, and (ii) subsequently
elects to attempt to discontinue its attempt to sell
its Company Interest, shall not be entitled to attempt
to sell its Company Interest again pursuant to this
Section 12.5 during a period beginning on the day it
elects to discontinue its attempt to sell its Company
Interest and ending on the 180th day following such
election.
12.6 Withdrawal from Company. Upon a transfer of a Member's
entire Company Interest, such Member (the "Withdrawing Member")
shall be deemed to have withdrawn as a Member and shall have no
further rights or obligations as a Member hereunder (including,
without limitation, obligations under Section 7.1), except those
obligations set forth under Section 15.9. Nothing in this
Section 12.6 shall alter a Member's obligations set forth in
Section 6.1 or shall affect a Member's rights under Section 12.7.
12.7 Involuntary Regulatory Withdrawal. A Member may
withdraw from the Company in the event (a) a federal or state
governmental body, including, without limitation, a legislative,
regulatory or judicial body, by order, decree, statute, or
judgment (i) determines that such Member's continued ownership of
its Company Interest is contrary to statute, regulation or other
law; or (ii) imposes any condition on such Member or an Affiliate
of such Member that has a material adverse impact on the Member
or its Affiliate which arises from such Member's continued
participation in the Company as a Member, such Member's or
Affiliate's participation as a party to an agreement with the
Company, or otherwise in connection with the Company. In such an
event the Withdrawing Member may sell its Company Interest to the
other Members, on a per capita basis among those Members wishing
to obtain such Company Interest, upon such terms as may be agreed
between or among them. In the event (i) the Withdrawing Member
and the remaining Members are unable to agree on terms with
respect to the sale of the Withdrawing Member's Company Interest,
and (ii) the Withdrawing Member does not present a third party
written offer pursuant to Section 12.5 (thereby invoking the
procedures set forth in Section 12.5), the procedure applicable
to engagement of a Third Party Appraiser and the purchase of the
Company Interest by the remaining Members established in Section
12.5(b), (c), (d) and (e) shall apply, except that the remaining
Members shall purchase the Withdrawing Member's Company Interest
at eighty-five percent (85%) of the Appraised Value.
ARTICLE XIII
Dissolution and Winding Up
13.1 Dissolution. The Company shall be dissolved and its
affairs wound up upon the first to occur of the following events
("Dissolution Event"):
(a) the expiration of the term described in
Section 2.6;
(b) the unanimous written consent of all of the
Members;
(c) an event which makes it unlawful for the Company
business to be continued;
(d) the sale or disposition of all or substantially
all of the Company's assets and properties;
(e) the entry of a decree of judicial dissolution
under Section 18-802 of the Act; and
<PAGE>
(f) the withdrawal, Bankruptcy or dissolution of any
Member, including the occurrence of any event that
terminates the continued membership of any Member in
the Company under the Act, unless the business of the
Company is continued by Unanimous Vote of the Members
(calculated without regard to any Member that has
withdrawn, become Bankrupt or been dissolved) within
ninety (90) days following the occurrence of any such
event.
13.2 Effect of Dissolution. Upon dissolution, the Company
shall cease carrying on as distinguished from winding up the
Company business; however, the Company is not terminated, but
continues until the winding up of the affairs of the Company is
completed and the certificate of cancellation has been issued by
the Secretary of the State of Delaware. The Liquidating Trustee
shall in an orderly manner wind up the affairs of the Company and
make an accounting of the Capital Account of each Member and of
the Company assets, liabilities and operations from the date of
the last previous accounting to the date of such dissolution.
13.3 Distribution of Assets on Dissolution. Upon the
winding up of the Company, the Company Property shall be
distributed:
(a) to creditors, including Members who are creditors
(other than by reason of the operation and effect of
Section 18-601 or Section 18-604 of the Act) to the extent
otherwise permitted by law, whether as a result of any Member
Loan or otherwise, in satisfaction of the Company's
liabilities, including, without limitation, principal
and interest attributable to any Member Loan; and then
(b) to the establishment of any reserves which the
Liquidating Trustee may deem reasonably necessary for
any contingent or unforeseen liabilities or obligations
of the Company arising out of or in connection with the
Company. Such reserves may be paid over by the
Liquidating Trustee to an agent, as escrowee, to be
held by him for the purpose of disbursing such reserves
in payment of any of the aforementioned contingencies,
and, at the expiration of such period as the
Liquidating Trustee shall deem advisable, for
distributing the balance thereafter remaining in the
manner hereinafter provided; and then
(c) to Members in satisfaction of liabilities for
distributions under Section 18-601 or Section 18-604 of the
Act; and then
(d) thereafter, to Members to the extent of and in
proportion with their respective positive Capital
Account; and then
(e) the remainder, if any, to the Members in
proportion to their respective Allocable Shares as in
effect at the moment of the event giving rise to such
dissolution.
13.4 Winding Up and Certificate of Cancellation. The
winding up of the Company shall be completed when all debts,
liabilities, and obligations of the Company have been paid and
discharged or reasonably adequate provision therefor has been
made, and all of the remaining property and assets of the Company
have been distributed to the Members. Upon the completion of
winding up of the Company, a certificate of cancellation shall be
delivered to the Secretary of the State of Delaware for filing.
The certificate of cancellation shall set forth the information
required by the Act.
13.5 Termination. A reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the
discharge of liabilities to creditors so as to enable the
Executive Committee (or other Person winding up the Company's
affairs) to minimize the normal losses attendant upon a
liquidation. Each of the Members shall be furnished, by the
Executive Committee, with a statement setting forth the assets
and liabilities of the Company as of the date of complete
liquidation. Upon compliance with the distribution plan set
forth in Section 13.3 hereof (including payment over to the
agent-escrowee if there are sufficient funds therefor), the
Company terminates.
13.6 Use of Company Identity. Unless the Members agree
otherwise in a signed written agreement approved by Unanimous
Vote of the Executive Committee, no Member or Affiliate shall use
the Company's telephone number, address, name (or any deceptively
similar name) or logo for twelve (12) months after the
termination of the Company.
ARTICLE XIV
Amendment
This Company Agreement may be amended or modified from time
to time only by a written instrument (including, without
limitation, any Admission Agreement) adopted by the Unanimous
Vote of the Executive Committee. No Member shall have any vested
rights in this Company Agreement which may not be modified
through an amendment to this Company Agreement.
ARTICLE XV
Miscellaneous Provisions
15.1 Entire Agreement. This Company Agreement represents
the entire agreement with respect to the subject matter hereof
among all the Members and between the Members and the Company.
15.2 Successors and Assigns. Subject to the provisions on
Disposition set forth herein, this Company Agreement shall bind
and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
15.3 Governing Law. THIS COMPANY AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE.
15.4 Notices. All notices required or permitted to be given
or made under this Company Agreement shall be given or made in
writing. Such notices shall be delivered by hand delivery, by
facsimile or similar electronic means, by nationally recognized
overnight courier, or by certified or registered mail, return
receipt requested, addressed as set forth in Exhibit B hereof or
any amendment thereto. Any party may change its address for the
purpose of this Section 15.4 by notice to the other(s) given in
the manner set forth above.
15.5 Rights of Creditors and Third Parties under Company
Agreement. This Company Agreement is entered into among the
Company and the Members for the exclusive benefit of the Company,
its Members, and their successors and permitted assignees. This
Company Agreement is expressly not intended for the benefit of
any creditor of the Company or any other Person (other than any
Person with a right to indemnification under Section 6.9 hereof).
Except and only to the extent provided by applicable statute, no
such creditor or third party shall have any rights under this
Company Agreement or any agreement between the Company and any
Member with respect to any Capital Contribution or otherwise.
15.6 No Action for Partition. No Member shall have any
right to maintain any action for partition with respect to the
property of the Company.
15.7 Title to Company Property. Title to Company Property
shall be held in the name of the Company or its nominee.
15.8 Company Funds. Company funds shall be deposited in one
or more accounts with a bank or banks located within the United
States and approved by the Executive Committee. Pending use in
the business of the Company or distribution to the Members, the
funds of the Company may, in the discretion of the Executive
Committee, be deposited in a bank account or accounts, or
invested in such interest-bearing taxable or nontaxable
investments, including without limitation, checking and savings
accounts, certificates of deposit and time or demand deposits in
commercial banks, U.S. government securities, securities
guaranteed by U.S. Government agencies, bankers' acceptances,
Eurodollar deposits and notes, both fixed rate and floating
securities issued by money market mutual funds, savings and loan
association deposits, deposits in members of the Federal Home
Loan Bank System, or commercial paper, rated A-1 or better by
Standard & Poor's Corporation or Prime-1 or better by Moody's
Commercial Paper Division of Moody's Investor Services, Inc., or
the successor to either of them, provided that the Executive
Committee shall not cause the Company to make any such deposits
or Investments that have a remaining maturity of more than one
year or that would require registration of the Company under the
Investment Company Act of 1940. Such funds shall not be
commingled with funds of any other Person.
15.9 Confidentiality. Except as hereinafter provided, the
Company and each Member (a) shall treat as confidential and not
disclose to any unauthorized third party (including a Member's
employees or Affiliates who have no need to know) any
confidential information obtained either directly or indirectly
from any other Member pursuant to this Company Agreement and
designated by such Member as confidential in writing prior to or
at the time of delivery pursuant to this Agreement, or
confidential information developed or acquired on behalf of the
Company by the Executive Committee or the Company's Officers or
employees (collectively "Confidential Information"), and (b)
shall not use any such Confidential Information for any purpose
other than in connection with the activities of the Company
pursuant to this Company Agreement, or the activities of a Member
or an Affiliate pursuant to the Hub Agreements. The limitations
in this Section 15.9 shall not apply to the extent Confidential
Information: (i) was already in the possession of the receiving
Member, or its Affiliate, at the time it obtained such
Confidential Information; (ii) was or is published or otherwise
is or becomes generally available to the public through no fault
of such receiving Member, or its Affiliate, (iii) was or is
lawfully made available to such Member or its Affiliate without
restriction by any Person which is not bound by an obligation of
confidentiality or use with respect to the information; (iv) was
or is independently developed by such Member or its Affiliate; or
(v) is required to be disclosed by operation of law or
regulation, required in any Proceeding, requested by a regulatory
body and the disclosing Member deems it advisable, in its
discretion, to comply with the request, or deemed advisable to be
disclosed in the good faith judgment of the disclosing Member in
any Proceeding. In the event disclosure is required or
requested, the disclosing Member shall exercise all reasonable
efforts to disclose such Confidential Information pursuant to a
confidentiality agreement or protective order. The Members and
the Executive Committee shall establish and enforce reasonable
procedures for the protection of Confidential Information and
shall restrict disclosure of such Confidential Information to
those of the Company's employees, Officers, agents, and
Affiliates of each Member and the Company who need to know such
Confidential Information in connection with their functions and
the purposes of the Company as set forth herein. Each Member and
the Executive Committee shall take such reasonable and prudent
steps and precautionary measures as may be required to ensure
compliance with this Section 15.9 by such of their or the
Company's employees, Officers, agents, Affiliates and other
Persons as shall be given access to such Confidential Information
and shall be responsible for compliance by its employees,
officers, agents and Affiliates. Nothing in this Section 15.9
shall be construed to prohibit a Member's disclosure to its
attorneys, auditors, or other consultants.
15.10 Transaction Costs. Each Member shall each bear
and pay its own transaction costs relating to the negotiation and
execution of this Company Agreement.
HUB SERVICES, INC.
By: /s/ Stephen Bergstrom_________
Title: President _________________
NICOR HUB SERVICES, INC.
By:/s/ Thomas Nardi_______________
Title:Vice President______________
EXHIBIT A
CERTIFICATE OF FORMATION
OF
ENERCHANGE, L.L.C.
This Certificate of Formation is being executed as of
June 12, 1995, for the purpose of forming a limited liability
company pursuant to the Delaware Limited Liability Company Act, 6
Del. C. Sections 18-101, et seq. (the "Act").
The undersigned, being duly authorized to execute and file
this Certificate, do hereby certify as follows:
1. Name. The name of the limited liability company is
Enerchange, L.L.C. (the "Company").
2. Registered Office and Registered Agent. The Company's
registered office in the State of Delaware is located at
Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, New Castle County, Delaware 19801. The registered agent
of the Company for service of process at such address is The
Corporation Trust Company, Inc.
3. Dissolution. The Company does not have a specific date
of dissolution.
4. Management. The business and affairs of the Company
shall be managed by or under the direction of the Members.
IN WITNESS WHEREOF, the undersigned, being all the Members of
the Company, have duly executed this Certificate of Formation as
of the day and year first above written.
HUB SERVICES, INC.
By:_________________________________
Title:______________________________
NICOR HUB SERVICES, INC.
By:_________________________________
Title:______________________________
EXHIBIT B
ADDRESSES FOR NOTICE
HUB SERVICES, INC.
One O'Hare Centre
6250 Des Plaines River Road, Suite 5005
Rosemont, Illinois 60018
Attn: Miles Allen
Telephone: (708) 692-4770
Facsimile: (708) 692-4779
NICOR HUB SERVICES, INC.
1844 Ferry Road
Naperville, Illinois 60563-9600
Attn: Robert Gilpin
Daron Riebe
Telephone: (708) 983-8676
Facsimile: (708) 983-5537
PACIFIC ENERCHANGE
633 West Fifth Street
Los Angeles, California 90071
Attn: James Harrigan
Telephone: (213) 244-3840
Facsimile: (213) 244-8282
JCH\821 EXHIBIT C
NAMES AND ADDRESSES OF CHARTER MEMBERS
HUB SERVICES, INC.
One O'Hare Centre
6250 Des Plaines River Road, Suite 5005
Rosemont, Illinois 60018
Attn: Miles Allen
Telephone: (708) 692-4770
Facsimile: (708) 692-4779
NICOR HUB SERVICES, INC.
1844 Ferry Road
Naperville, Illinois 60563-9600
Attn: Robert Gilpin
Daron Riebe
Telephone: (708) 983-8676
Facsimile: (708) 983-5537
[ ]
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
[ ]
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
ENERCHANGE, L.L.C.
ADMISSION AGREEMENT
This Admission Agreement is entered into this ____ day of
____, 199_, by and among Enerchange, L.L.C., a Delaware limited
liability company ("the Company") and ________________________.
WITNESSETH
WHEREAS, the Company was created pursuant to that certain
Limited Liability Company Agreement ("the Company Agreement")
effective June 12, 1995, executed by HSI and NHS; and
WHEREAS, the Company Agreement provides for the admission of
Additional Members and requires an Additional Member to execute an
Admission Agreement;
NOW THEREFORE, in consideration of the mutual agreements,
promises, and undertakings hereinafter set forth, the Company and
_______ agree as follows:
1. Capitalized words appearing in this Admission Agreement
shall carry the definitions set forth in the Company Agreement
unless the text of this Admission Agreement states otherwise.
2. Upon execution of this Admission Agreement, ______ shall
become a Member of the Company, shall be treated as a party to the
Company Agreement for all purposes and shall be credited with a
Company Interest of fourteen _________ percent (__%) of one
hundred percent (100%) of all Company Interests and an initial
Capital Account of $__________.
3. _____ hereby ratifies and adopts the entirety of the
Company Agreement and agrees to accept all benefits granted to
Members of the Company and to assume all obligations imposed on
Members of the Company, including, without limitation, the
obligation to make all Capital Contributions required of Members
pursuant to Sections 9.1(b), 9.1(c) and 9.2 of the Company
Agreement. The Company and _____ hereby acknowledge that ____ is
not required to make an Initial Capital Contribution pursuant to
Section 9.1(a) of the Company Agreement [and that _____'s
agreement to make all other Capital Contributions required by the
Company Agreement satisfies the requirement of Section 9.1(d) of
the Company Agreement.]
4. Exhibits B and E to the Company Agreement are hereby
amended as to _____ [and the Member from which ____ acquired its
Company Interest] and new Exhibits B and E are hereby substituted
to the Company Agreement, which Exhibits are attached to this
Admission Agreement, reflecting the admission of ____ as a Member
of the Company (i) owning a _____ percent Company Interest and the
reduction of the Capital Account of _____ as Seller to _____
percent (__%) and (ii) having a Capital Account of $________ and
the reduction of the Capital Account of [seller] to $__________.
5. Except as set forth in this Admission Agreement, the
original terms and conditions of the Company Agreement shall
remain in full force and effect.
ENERCHANGE, L.L.C.
By:
Title:
______________________
By:
Title:
______________________
By:
Title:
JCH/ENERADM
[ ]
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT
TO RULE 104(B)]
EXHIBIT F-1
Opinion of Stryker, Tams and Dill
(Designated as Exhibit EX-5 for EDGAR purposes)
STRYKER, TAMS & DILL
Two Penn Plaza East
Newark, N.J. 07105
July 7, 1995
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, DC 20549
Re: National Fuel Gas Company
Leidy Hub, Inc.
Ladies and Gentlemen:
This opinion relates to the joint application-
declaration, filed on or about the date hereof (the
"Application-Declaration"), by National Fuel Gas Company
("National") and one of its wholly-owned subsidiaries, Leidy Hub,
Inc. ("LHI"), under the Public Utility Holding Company Act of
1935, as amended.
The Application-Declaration seeks authorization for the
following transactions:
(i) the execution and performance of a Purchase
Agreement between LHI and Hub Services, Inc., a corporation
unaffiliated with National, pursuant to which LHI will acquire a
14.5% ownership interest in Enerchange, L.L.C., a Delaware
member-managed limited liability company ("Enerchange");
(ii) the purchase by LHI of additional ownership
interests in Enerchange, and the making of loans by LHI to
Enerchange, in each case from time to time in accordance with the
pertinent provisions of the Limited Liability Company Agreement
of Enerchange; and
(iii) the guaranty by National (the "National
Guaranties") and/or LHI (the "LHI Guaranties") of certain
obligations to be incurred by LHI, Enerchange and/or QuickTrade,
L.L.C., a to-be-formed Delaware member-managed, limited liability
company which will be a subsidiary of Enerchange ("QuickTrade"),
in connection with activities undertaken by Enerchange and/or
QuickTrade relating to the storage, transmission and/or supply of
natural gas, as delineated in the Gas Related Activities Act of
1990 (15 U.S.C. Section 79k).
Based upon the foregoing and subject to the
qualifications and assumptions hereinafter set forth, we are of
the opinion that:
1. National is a corporation duly organized and
validly existing under the laws of the State of New Jersey;
2. If (i) the proposed transactions are approved by
the Board of Directors of National and consummated in accordance
with the order or orders of the Securities and Exchange
Commission thereon, (ii) the Board of Directors of LHI approves
the execution, delivery and performance by LHI of the Purchase
Agreement described in the Application-Declaration, and (iii) all
authorizations and approvals from appropriate governmental and
regulatory authorities, if required in connection with (a) the
participation by LHI in Enerchange, (b) the participation by
Enerchange in QuickTrade, or (c) the activities of Enerchange or
QuickTrade, are obtained, and (iv) the proposed loans by LHI to
Enerchange are appropriately documented and evidenced on the
respective books of LHI and Enerchange:
A. All laws of the State of New Jersey applicable to
the proposed transaction will have been complied with;
B. Upon the due execution and delivery by National of
appropriate instruments of guaranty, the obligations incurred by
National under the National Guaranties, insofar as New Jersey law
is applicable, will be duly authorized and within the power and
authority of National and, to that extent, will be valid and
binding obligations of National; and
C. The legal rights of the holders of any securities
issued by National will not have been violated.
In rendering the opinions expressed in paragraph 2(B)
and, to the extent that it relates to the National Guaranties and
the LHI Guaranties, paragraph 2(C), we have relied on the advice
of National that, insofar as any of the proposed transactions
involve the purchase of property (including, without limitation,
natural gas) by LHI, Enerchange or QuickTrade, (i) the obligation
of LHI, Enerchange or QuickTrade to pay the purchase price
therefor will, by contract, arise only upon the delivery of such
property, (ii) payment of the purchase price of such property
will be due within thirty (30) days after delivery, and (iii)
those payment terms are customary within the industry.
The opinion expressed in paragraph 2(B) is also based
upon the assumption that, consistent with the Application-
Declaration, (i) the obligations guaranteed by National pursuant
to the National Guaranties will not exceed in the aggregate $5
million and, independent of this dollar ceiling, (ii) the
proportionate amount of the outstanding obligations of Enerchange
or QuickTrade guaranteed by National will not exceed the direct
or, in the case of QuickTrade, indirect percentage ownership
interest of LHI therein.
We consent to the use of this opinion as an exhibit to
the Application-Declaration.
Very truly yours,
/s/ Stryker, Tams & Dill
STRYKER, TAMS & DILL
EXHIBIT F-2
Opinion of James R. Peterson
(Designated as Exhibit [EX-5] for EDGAR purposes)
July 7, 1994
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, DC 20549
Re: National Fuel Gas Company
Leidy Hub, Inc.
Ladies and Gentlemen:
This opinion relates to the joint application-
declaration, filed on or about the date hereof, as amended
(the "Application-Declaration"), by National Fuel Gas
Company ("National") and one of its wholly-owned
subsidiaries, Leidy Hub, Inc. ("LHI"), under the Public
Utility Holding Company Act of 1935, as amended.
The Application-Declaration seeks authorization
for the following transactions:
(i) the execution and performance of a Purchase
Agreement between LHI and Hub Services, Inc., a corporation
unaffiliated with National, by which Purchase Agreement LHI
would acquire a 14.5% ownership interest in Enerchange,
L.L.C., a Delaware member-managed limited liability company
("Enerchange"); and
(ii) the purchase by LHI of additional interests
in Enerchange, and the making of loans by LHI to Enerchange,
in each case from time to time in accordance with the
pertinent provisions of the Limited Liability Company
Agreement of Enerchange; and
(iii) the guaranty by National (the "National
Guaranties") and/or LHI (the "LHI Guaranties") of certain
obligations to be incurred by LHI, Enerchange and/or
Enerchange's subsidiary QuickTrade, L.L.C. a to-be-formed
Delaware member-managed limited liability company which will
be a subsidiary of Enerchange ("QuickTrade"), in connection
with activities undertaken by Enerchange and/or QuickTrade
relating to the storage, transmission and/or supply of
natural gas, as delineated in the Gas Related Activities Act
of 1990 (15 U.S.C. Section 79k).
Based upon the foregoing and subject to the
qualifications and assumptions hereinafter set forth, I am
of the opinion that:
1. LHI is a corporation duly organized and
validly existing under the laws of the State of New York;
2. Subject to the qualification that the
undersigned is not an attorney admitted to practice law in
the State of Delaware, and based solely on the undersigned's
review of:
(i) the original executed Limited Liability Company
Agreement of Enerchange, dated June 12, 1995,
(ii) warranties and representations made by the seller
Hub Services, Inc. in the Pre-Purchase Agreement
executed by LHI and Hub Services, Inc. on or about of
June 13, 1995,
(iii) a copy of the Certificate of Formation of
Enerchange, certified by the State of Delaware Office
of the Secretary of State to be a true and correct
copy of the Certificate filed in that office on June
13, 1995, and
(d) a good standing certificate issued by the State of
Delaware Office of the Secretary of State as of this
date, stating that Enerchange is a limited liability
company duly formed under the laws of the State of
Delaware and is in good standing and has a legal
existence so far as the records of that office show,
Enerchange appears to be a limited liability company duly
organized and validly existing under the laws of the State
of Delaware.
3. If (i) the proposed transactions are approved
by the Board of Directors of National and consummated in
accordance with the order or orders of the Securities and
Exchange Commission thereon, (ii) the Board of Directors of
LHI approves the execution, delivery and performance by LHI
of the Purchase Agreement described in the Application-
Declaration, and (iii) all authorizations and approvals from
appropriate governmental and regulatory authorities, if
required in connection with the participation by LHI in
Enerchange or in connection with the activities of
Enerchange, are obtained, and (iv) the proposed transactions
are appropriately documented and evidenced on the books of
LHI:
A. All laws of the State of New York applicable
to the proposed transactions will have been complied with;
B. Upon the due execution and delivery by LHI of
appropriate instruments of guaranty, the obligations
incurred by LHI thereunder, insofar as New York law is
applicable, will be duly authorized and within the power and
authority of LHI and, to that extent, will be valid and
binding obligations of LHI; and
C. The legal rights of the holders of any
securities issued by LHI will not have been violated.
In rendering the opinions expressed in paragraph
3(B) and, to the extent that it relates to the Guaranties,
paragraph 3(C), I have relied on the advice of LHI that,
insofar as any of the proposed transactions involve the
purchase of property (including, without limitation, natural
gas) by Enerchange or QuickTrade, (i) the obligation of
Enerchange or QuickTrade to pay the purchase price therefor
will, by contract, arise only upon the delivery of such
property, (ii) payment of the purchase price of such
property will be due within thirty (30) days after delivery,
and (iii) those payment terms are customary within the
industry.
I consent to the use of this opinion as an exhibit
to the Application-Declaration.
Very truly yours,
/s/ James R. Peterson
JAMES R. PETERSON
EXHIBIT H-1
Proposed Form of Public Notice
(Designated as EX-99 for EDGAR purposes)
Exhibit H-1
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. _______
In the Matter of
NATIONAL FUEL GAS COMPANY
10 Lafayette Square
Buffalo, NY 14203
LEIDY HUB, INC.
10 Lafayette Square
Buffalo, NY 14203
( )
NOTICE OF PROPOSED ACQUISITION OF AN INTEREST IN A BUSINESS
National Fuel Gas Company ("National"), a registered
holding company, and its wholly-owned subsidiary, Leidy Hub, Inc.
("LHI") have filed an Application-Declaration with this
Commission pursuant to Sections 9(a), 10, 11(b), 12(b), 13(b) of
the Public Utility Holding Company Act of 1935, as amended (the
"Act"), the Gas Related Activities Act of 1990, and Rules 16, 23,
24, 45 and 51 promulgated under the Act.
National and LHI propose that LHI enter into a purchase
agreement whereby LHI will acquire a 14.5% ownership interest in
Enerchange, L.L.C., a Delaware member-managed limited liability
company ("Enerchange"). Enerchange will engage in operating
natural gas market area hubs, and otherwise providing services to
customers who wish to buy, sell, transport, store or borrow gas
at various natural gas market area hubs including those in the
vicinity of Chicago, Los Angeles and/or Ellisburg and Leidy,
Pennsylvania. National and LHI are also seeking authority for
National and LHI to guarantee certain obligations of LHI,
Enerchange and/or an Enerchange affiliate to be incurred in
connection with Enerchange's business.
The Application-Declaration and any amendments thereto
are available for public inspection through the Commission's
Office of Public Reference. Interested persons wishing to
comment or request a hearing should submit their views in writing
to the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the applicant at the address
specified above. Proof of service (by Affidavit or, in case of
an attorney-at-law, by Certificate) should be filed with the
request. Any request for a hearing shall identify specifically
the issues of fact or law that are disputed. A person who so
requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in this matter.
After said date, the Application-Declaration, as filed or as it
may be amended, may be granted and/or permitted to become
effective.
For the Commission, by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
