SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported):
December 16, 1999
PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in charter)
Delaware 1-720 73-0400345
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 661-6600
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ITEM 5. OTHER EVENTS.
Phillips Petroleum Company, a Delaware corporation ("Phillips"),
Duke Energy Corporation, a North Carolina corporation ("Duke"), and Duke Energy
Field Services L.L.C., a Delaware limited liability company ("Field Services")
entered into a Contribution Agreement , dated as of December 16, 1999 (the
"Contribution Agreement"), pursuant to which Phillips and Duke will combine
certain of their continental United States and Canadian midstream natural gas
gathering, processing and marketing operations in Field Services. Phillips and
Duke, directly or through indirect wholly owned subsidiaries, will initially own
30.3% and 69.7%, respectively, of the voting and economic interests of Field
Services.
The foregoing summary of the Contribution Agreement and the
transactions contemplated thereby is qualified in its entirety by reference to
the Contribution Agreement which is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
In connection with the Contribution Agreement, Phillips, Duke and
Field Services simultaneously entered into a Governance Agreement, dated as of
December 16, 1999 (the "Governance Agreement"), which sets forth certain terms
and conditions governing Field Services.
The foregoing summary of the Governance Agreement and the
transactions contemplated thereby is qualified in its entirety by reference to
the Governance Agreement which is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
The press release issued by Phillips and Duke in connection with the
execution of the Contribution Agreement and the Governance Agreement is attached
hereto as Exhibit 99.3 and is incorporated herein by reference.
Phillips and Duke held an investor and analyst meeting on December
17, 1999 relating to the execution of the Contribution Agreement and the
Governance Agreement. Certain presentation materials used at the meeting are
attached hereto as Exhibit 99.4 and are hereby incorporated herein by reference.
<PAGE>
ITEM 7. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION
99.1 Contribution Agreement, dated as of December 16,
1999, by and among Phillips Petroleum Company, Duke
Energy Corporation and Duke Energy Field Services,
L.L.C.
99.2 Governance Agreement, dated as of December 16, 1999, by and
among Phillips Petroleum Company, Duke Energy Corporation
and Duke Energy Field Services, L.L.C.
99.3 Press Release, dated December 16, 1999.
99.4 Presentation Materials used at an investor and
analyst meeting on December 17, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
By: /s/ Rand C. Berney
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Name: Rand C. Berney
Title: Vice President and Controller
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
99.1 Contribution Agreement, dated as of December 16,
1999, by and among Phillips Petroleum Company, Duke
Energy Corporation and Duke Energy Field Services,
L.L.C.
99.2 Governance Agreement, dated as of December 16, 1999, by and
among Phillips Petroleum Company, Duke Energy Corporation
and Duke Energy Field Services, L.L.C.
99.3 Press Release, dated December 16, 1999.
99.4 Presentation Materials used at an investor and
analyst meeting on December 17, 1999.
Exhibit 99.1
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CONTRIBUTION AGREEMENT
by and among
PHILLIPS PETROLEUM COMPANY,
DUKE ENERGY CORPORATION
and
DUKE ENERGY FIELD SERVICES L.L.C.
Dated as of December 16, 1999
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<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
CERTAIN DEFINITIONS
ARTICLE II
CONTRIBUTION TO THE COMPANY
Section 2.1 The Company.....................................................10
Section 2.2 Contribution of DEFS to the Company.............................12
Section 2.3 Contribution of the PGC Subsidiaries to the Company.............12
ARTICLE III
THE CLOSING
Section 3.1 Closing Place and Date..........................................12
Section 3.2 Closing Date Deliveries.........................................12
Section 3.3 Post-Closing Adjustment.........................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PHILLIPS
Section 4.1 Corporate Organization..........................................14
Section 4.2 Authority; No Violation.........................................15
Section 4.3 Consents and Approvals..........................................16
Section 4.4 Permits; Compliance with Applicable Law.........................16
Section 4.5 Financial Statements; Undisclosed Liabilities...................17
Section 4.6 Broker's Fees...................................................17
Section 4.7 Absence of Certain Changes or Events............................17
Section 4.8 Legal Proceedings...............................................18
Section 4.9 [Intentionally omitted].........................................18
Section 4.10 Contracts.......................................................19
Section 4.11 Real Property...................................................20
Section 4.12 Environmental Matters...........................................21
Section 4.13 Intellectual Property...........................................22
Section 4.14 Employee Benefit Plans..........................................22
Section 4.15 Labor Relations.................................................23
Section 4.16 Transactions with Affiliates....................................23
Section 4.17 Personal Property...............................................24
Section 4.18 Year 2000.......................................................24
Section 4.19 Insurance.......................................................24
Section 4.20 Public Utility Holding Company Act..............................24
Section 4.21 Sufficiency of Contribution.....................................24
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF DUKE
Section 5.1 Corporate Organization..........................................25
Section 5.2 Authority; No Violation.........................................26
Section 5.3 Consents and Approvals..........................................27
Section 5.4 Permits; Compliance with Applicable Law.........................27
Section 5.5 Financial Statements; Undisclosed Liabilities...................27
Section 5.6 Broker's Fees...................................................28
Section 5.7 Absence of Certain Changes or Events............................28
Section 5.8 Legal Proceedings...............................................29
Section 5.9 [Intentionally omitted].........................................29
Section 5.10 Contracts.......................................................29
Section 5.11 Real Property...................................................31
Section 5.12 Environmental Matters...........................................32
Section 5.13 Intellectual Property...........................................33
Section 5.14 Employee Benefit Plans..........................................33
Section 5.15 Labor Relations.................................................34
Section 5.16 Transactions with Affiliates....................................34
Section 5.17 Personal Property...............................................34
Section 5.18 Year 2000.......................................................35
Section 5.19 Insurance.......................................................35
Section 5.20 Public Utility Holding Company Act..............................35
Section 5.21 The Company.....................................................35
Section 5.22 Sufficiency of Contribution.....................................35
ARTICLE VI
COVENANTS
Section 6.1 Investigation of Business; Access to Properties and Records......36
Section 6.2 Consents and Approvals...........................................37
Section 6.3 Further Assurances...............................................38
Section 6.4 Conduct of the Phillips Gas Business.............................38
Section 6.5 Conduct of the Duke Gas Business.................................40
Section 6.6 Preservation of Business.........................................41
Section 6.7 Public Announcements.............................................42
Section 6.8 PGC Easements....................................................42
Section 6.9 Assignment of Contracts, Leases, Permits, etc....................48
Section 6.10 Corporate Names..................................................49
Section 6.11 D&O Indemnification..............................................50
Section 6.12 Additional Agreements............................................50
Section 6.13 Expenses.........................................................50
Section 6.14 Insurance........................................................51
Section 6.15 Guaranties.......................................................51
Section 6.16 Actions by Affiliates of Phillips and Duke.......................52
Section 6.17 Financing........................................................52
Section 6.18 PGC Real Property................................................52
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Section 6.19 DEFS Real Property...............................................56
Section 6.20 FCC Licenses; Radio Towers.......................................56
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Duke's Obligation to Close.........................57
Section 7.2 Conditions to Phillips' Obligation to Close......................58
ARTICLE VIII
TERMINATION
Section 8.1 Termination......................................................59
Section 8.2 Procedure and Effect of Termination..............................60
ARTICLE IX
SURVIVAL; INDEMNIFICATION
Section 9.1 Indemnification by Company.......................................60
Section 9.2 Indemnification by Duke and Phillips.............................60
Section 9.3 Indemnification Procedure........................................61
Section 9.4 Survival.........................................................63
Section 9.5 Indemnification Limitation.......................................63
Section 9.6 Materiality Qualifiers...........................................64
ARTICLE X
EMPLOYEE MATTERS
ARTICLE XI
TAX MATTERS
ARTICLE XII
MISCELLANEOUS
Section 12.1 Counterparts....................................................64
Section 12.2 Governing Law; Jurisdiction and Forum; Waiver of Jury Trial.....65
Section 12.3 Entire Agreement................................................65
Section 12.4 Expenses........................................................65
Section 12.5 Notices.........................................................66
Section 12.6 Successors and Assigns..........................................67
Section 12.7 Headings; Definitions...........................................67
Section 12.8 Amendments and Waivers..........................................67
Section 12.9 Schedules.......................................................67
Section 12.10 Severability....................................................68
Section 12.11 Interpretation..................................................68
Section 12.12 Specific Performance............................................68
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ANNEXES
Annex A Employee Matters Annex
Annex B Tax Matters Annex
<PAGE>
CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated as of December 16,
1999, by and among PHILLIPS PETROLEUM COMPANY, a Delaware corporation
("PHILLIPS"), DUKE ENERGY CORPORATION, a North Carolina corporation ("DUKE") and
DUKE ENERGY FIELD SERVICES L.L.C., a Delaware limited liability company (the
"COMPANY").
RECITALS:
WHEREAS, Phillips and Duke (each, a "PARTY") desire to combine
certain of their continental United States and Canadian midstream natural gas
gathering, processing and marketing operations in the Company in order to
realize synergies and increase the efficiency and profitability of such
operations;
WHEREAS, each of Phillips and Duke intend that the Company shall be
the primary vehicle by which each Party conducts midstream natural gas gathering
and processing operations in the continental United States and Canada;
WHEREAS, Phillips and Duke desire to create a structure pursuant to
which Phillips and Duke shall, directly or through direct or indirect
wholly-owned subsidiaries, initially own 30.3% and 69.7%, respectively, of the
voting and economic interests of the Company, into which each of Phillips and
Duke shall contribute certain subsidiaries engaged in midstream gas gathering,
processing and marketing operations in the continental United States and Canada,
all as more fully provided for herein;
WHEREAS, the parties hereto, simultaneously with the execution of
this Agreement, shall enter into the Governance Agreement, dated as of the date
hereof (the "GOVERNANCE AGREEMENT");
WHEREAS, Phillips and Duke contemplate that if market conditions
permit, an Affiliate of the Company will conduct an initial public offering of
certain of its equity securities as soon as practicable after consummation of
the transactions contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"ACTUAL NET WORKING CAPITAL" shall have the meaning set forth in
Section 3.3(c).
"ADDITIONAL LINE PARTY" shall have the meaning set forth in
Section 6.8(i).
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"AFFILIATE" shall mean, with respect to any Person, a Person
directly or indirectly Controlling, Controlled by, or under common Control with
such Person.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"AMENDED LLC AGREEMENT" shall have the meaning set forth in
Section 2.1(a).
"ASSIGNABLE PGC LEASES" shall have the meaning set forth in
Section 6.18(b)(i).
"BASKET" shall mean (a) with respect to Duke's obligation under
Article IX, $75,000,000, and (b) with respect to Phillips' obligation under
Article IX, $50,000,000.
"BENEFICIALLY OWN" shall mean, with respect to any security, having
or sharing the power to direct or control the voting or disposition of such
security.
"BENEFICIAL OWNER" shall mean, with respect to any security, a
Person who Beneficially Owns such security, and "BENEFICIAL OWNERSHIP" has a
corresponding meaning.
"BUSINESS DAY" shall mean any day on which banks are generally open
to conduct business in the State of New York.
"CANROCK" shall mean the Canrock division of Duke Energy Services
Canada, Ltd., an Alberta corporation.
"CAP" shall mean (a) with respect to Duke's obligation under Article
IX, $600,000,000, and (b) with respect to Phillips' obligation under Article IX,
$400,000,000.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.3(a).
"CLAIMS" shall mean any rights, demands, claims, actions and causes
of action (whether for personal injuries or property, consequential or other
damages of any kind).
"CLOSING" shall have the meaning set forth in Section 3.1.
"CLOSING DATE" shall have the meaning set forth in Section 3.1.
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY INTERESTS" shall mean limited liability company
interests in the Company.
"CONTROL" shall mean the possession, directly or indirectly, through
one or more intermediaries, by any Person or group (within the meaning of
Section 13(d)(3) under the Exchange Act) of both of the following:
(a) (i) in the case of a corporation, Beneficial Ownership of more
than 25% of the outstanding equity securities thereof, (ii) in the case of a
limited liability company,
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partnership, limited partnership or venture, the right to more than 25% of the
distributions therefrom (including liquidating distributions); (iii) in the case
of a trust or estate, including a business trust, more than 25% of the
beneficial interest therein; and (iv) in the case of any other entity, more than
25% of the economic or beneficial interest therein; and
(b) in the case of any entity, the power or authority, through
ownership of voting securities, by contract or otherwise, to control or direct
the management and policies of the entity.
"CONTROLLED GROUP LIABILITY" shall have the meaning set forth in
Section 4.14(d).
"CORPORATION" shall have the meaning set forth in Section 3.2 of
the Governance Agreement.
"DAMAGES" means claims, liabilities, damages, penalties, judgments,
assessments, losses, costs and expenses, including reasonable attorneys' fees
and expenses, incurred by the party seeking indemnification under this
Agreement, net of (a) any insurance proceeds which such party receives in
respect of such matter net of any costs incurred by such party in the nature of
increased insurance premiums or similar costs related to such recovery
(determined on a reasonable present value basis) and (b) any indemnity payments
(less costs of collection thereof) which such party receives from parties other
than the party against whom such claim is asserted under this Agreement.
"DEFS" shall mean Duke Energy Field Services, Inc., a Delaware
corporation and a direct wholly-owned Subsidiary of DEFS Holding.
"DEFS CORPORATE SUBSIDIARIES" shall have the meaning set forth in
Section 2.1(b).
"DEFS EASEMENTS" shall have the meaning set forth in Section
5.11(c).
"DEFS EMPLOYEE" shall have the meaning set forth in Annex A.
"DEFS HOLDING" shall mean DEFS Holding Corp., a Delaware
corporation.
"DEFS INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 5.13(a).
"DEFS LEASES" shall have the meaning set forth in Section 5.11(b).
"DEFS LLC SUBSIDIARIES" shall have the meaning set forth in
Section 2.1(b).
"DEFS MATERIAL CONTRACTS" shall have the meaning set forth in
Section 5.10(a).
"DEFS MULTIPLE-USER EASEMENTS" shall mean those multiple-line rights
easements on which one or more lines are currently being used by Duke (or a Duke
Retained Affiliate) and one or more lines are currently being used by DEFS or a
DEFS Subsidiary.
"DEFS-OWNED FEE PROPERTIES" shall have the meaning set forth in
Section 5.11(a).
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"DEFS SEPTEMBER 30 BALANCE SHEET" shall have the meaning set forth
in Section 5.5.
"DEFS SEPTEMBER 30 FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 5.5.
"DEFS SUBSIDIARY" or "DEFS SUBSIDIARIES" shall have the meaning set
forth in Section 5.1(b).
"DESIGNATED REPRESENTATIVES" shall have the meaning set forth in
Section 6.1(a).
"DETTCO" shall have the meaning set forth in Section 2.1(b).
"DIRECT CLAIM" shall have the meaning set forth in Section 9.3(a).
"DUKE" shall have the meaning set forth in the Preamble.
"DUKE EXCLUDED ASSETS AND LIABILITIES" shall have the meaning set
forth in Section 2.1(d).
"DUKE INDEMNIFIED PERSON" shall have the meaning set forth in
Section 9.1.
"DUKE PLANS" shall mean all material employee benefit plans
providing benefits to any DEFS Employees that are sponsored or maintained by
Duke or any of its Affiliates or to which Duke or any of its Affiliates
contributes or is obligated to contribute on behalf of DEFS Employees, including
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
and any bonus, incentive, deferred compensation, stock purchase, stock option,
severance, change of control or fringe benefit plan.
"DUKE RETAINED AFFILIATES" shall mean, collectively, all Affiliates
of Duke other than DEFS and the DEFS Subsidiaries.
"DUKE SAVINGS PLAN" shall have the meaning set forth in Annex A.
"EASEMENT ASSIGNMENT DEADLINE" shall have the meaning set forth
in Section 6.8(d).
"EASEMENT CURATIVE ACTIONS" shall have the meaning set forth in
Section 6.8(f).
"ENVIRONMENTAL LAW" shall mean any and all principles of common law
and any and all laws, statutes, ordinances, rules, regulations, or orders of any
Governmental Entity pertaining to the protection of the environment or to
Hazardous Materials in any and all jurisdictions in which the party in question
and its Subsidiaries own property or conduct business, including the Clean Air
Act, the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, the Federal Water Pollution Control Act, the Occupational Safety and
Health Act of 1970, the Resource Conservation and Recovery Act of 1976, the Safe
Drinking Water Act, the Toxic Substances Control Act, the Hazardous & Solid
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Waste Amendments Act of 1984, the Superfund Amendments and Reauthorization Act
of 1986, the Hazardous Materials Transportation Act, the Oil Pollution Act of
1990, any state or local laws implementing or substantially equivalent to the
foregoing federal laws, and any state or local laws pertaining to the handling
of oil and gas exploration, production, gathering, and processing wastes or the
use, maintenance, and closure of pits and impoundments, and all other
environmental conservation or protection laws all as amended from time to time
from enactment or adoption through the date of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FCC LICENSES" shall mean licenses for radio and/or wireless
equipment and/or radio stations issued by the United States Federal
Communications Commission.
"FERC" shall mean the Federal Energy Regulatory Commission.
"FINANCING" shall have the meaning set forth in Section 6.17.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"GOVERNANCE AGREEMENT" shall have the meaning set forth in the
Recitals.
"GOVERNMENTAL ENTITY" shall mean any federal, state, political
subdivision or other governmental agency or instrumentality, foreign or
domestic.
"HAZARDOUS MATERIALS" shall mean: (a) any chemicals, materials or
substances defined or as included in the definition of "hazardous substances,"
"hazardous materials," "toxic substances," or words of similar import, under any
Environmental Law; (b) radioactive materials (other than naturally occurring
radioactive materials), asbestos in any form that is or could be friable,
polychlorinated biphenyls, radon, mercury, lead-based paint; (c) any petroleum
or petroleum products, natural gas or natural gas liquids; and (d) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any Governmental Entity; and (e) regulated constituents or
substances in concentrations or levels that exceed numeric or risk-based
standards established pursuant to Environmental Laws.
"HSR ACT" shall mean the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
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"INDEMNIFIED PARTY" shall mean the party seeking indemnification
under Article VI or IX.
"INDEMNIFYING PARTY" shall mean the party against whom an
indemnification claim is asserted under Article VI or IX.
"IPO" shall have the meaning set forth in the Governance
Agreement.
"KNOWLEDGE" shall have the meaning set forth in Section 12.11.
"LEASE CURATIVE ACTIONS" shall have the meaning set forth in
Section 6.18(b)(v).
"LIABILITIES" shall mean liabilities and obligations of any nature,
whether known or unknown, absolute, accrued, contingent or otherwise and whether
due or to become due.
"LIEN" shall mean any mortgage, pledge, hypothecation, security
interest, encumbrance, lien, charge or deposit arrangement or other arrangement
having the practical effect of the foregoing.
"MATERIAL ADVERSE EFFECT" shall mean, (a) with respect to the PGC
Subsidiaries, a material adverse effect on the business, operations, financial
condition or results of operations of the PGC Subsidiaries, taken as a whole,
and (b) with respect to any other Person, a material adverse effect on the
business, operations, financial condition or results of operations of such
Person and its Subsidiaries, taken as a whole, in each case excluding effects
reasonably attributable to the general state of the industries in which the PGC
Subsidiaries or such Person and its Subsidiaries, as applicable, operate
(including natural gas and petroleum price levels), to general economic
conditions in the United States (including prevailing interest rate and stock
market levels) or to the transactions contemplated by this Agreement or the
Governance Agreement.
"MATERIALITY REQUIREMENT" shall have the meaning set forth in
Section 9.6.
"MULTIEMPLOYER PLANS" shall have the meaning as set forth in
Section 4.14(c).
"NET WORKING CAPITAL" shall mean, with respect to the DEFS
Subsidiaries or the PGC Subsidiaries, current assets less current liabilities
(with the DEFS Subsidiaries' inventory of natural gas liquids and gas being
valued at market value, and excluding consolidated, combined, unitary and other
income tax accounts but including other tax accounts); PROVIDED, HOWEVER, that
the DEFS Subsidiaries' current assets shall be reduced by the Normal NGL and Gas
Inventory. For purposes of this calculation, (a) all items shall be determined
in accordance with GAAP, applied on a basis consistent with the DEFS September
30 Balance Sheet or the PGC September 30 Balance Sheet, as applicable, (b) both
acquisitions (i) set forth in Schedule 6.4(e) of the Phillips' Disclosure
Schedule or Schedule 6.5(e) of the Duke Disclosure Schedule or (ii) which are
approved by Duke or Phillips, as applicable, pursuant to Section 6.4 or 6.5
prior to the Closing Date, in each case with respect to which acquisition
documents have been executed and the closing has been consummated, shall be
excluded, and (c) the proceeds of sales of non-current assets approved by Duke
or Phillips, as applicable, pursuant to Section 6.4 or 6.5 (with
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respect to which sales documents have been executed and the closing has been
consummated) shall be excluded.
"NET WORKING CAPITAL STATEMENT" shall have the meaning set forth in
Section 3.3(a).
"NEUTRAL FIRM" shall have the meaning set forth in Section 3.3(c).
"NON-GOVERNMENT PGC LEASE" shall mean any PGC Lease the lessor under
which is not a Governmental Entity (which term shall include, for purposes of
this definition, the U.S. Bureau of Land Management and the University of
Texas).
"NORMAL NGL AND GAS INVENTORY" shall mean $17,000,000, which
represents Duke's good faith judgment as to the normal level of NGL and gas
inventory held in the line item called "NGL and Gas Inventory" on DEFS's
inventory detail schedules.
"PARTY" shall have the meaning set forth in the Recitals.
"PERMIT" shall have the meaning set forth in Section 4.4.
"PERMITTED ENCUMBRANCES" shall mean, with respect to or upon any of
the property or assets of the PGC Subsidiaries, or the DEFS Subsidiaries, as the
case may be, whether owned as of the date hereof or thereafter, any Liens,
claims, rights (including rights of Governmental Entities), reservations,
exceptions, easements, rights-of-way, conditions, restrictions (including
restrictive covenants and zoning and land use restrictions imposed by applicable
laws, regulations and ordinances), leases, and other similar title exceptions or
encumbrances affecting such property or assets that either (a) affect such
property or assets as of the date of this Agreement and are identified with
reasonable particularity in the appropriate Disclosure Schedule, or (b) were not
incurred in the borrowing of money and, individually and in the aggregate, do
not and will not materially detract from the value of such property or assets or
materially interfere with the use in the ordinary conduct of such Person's
business or present or impose any material financial obligations not reflected
in the financial statements described in Section 4.5 or Section 5.5, as
applicable. Without limiting the generality of the foregoing definition, the
following shall constitute "Permitted Encumbrances": (x) all rights to consent
by, required notices to, filings with, or other actions by governmental entities
or authorities in connection with the sale or conveyance of such properties or
assets, if the same are customarily obtained subsequent to the transfer of
title; and (y) the terms and conditions of all easements, rights of way, and
leases included within such properties and assets, but only to the extent such
terms and conditions would be acceptable to a reasonably prudent person
acquiring those easements, rights of way and leases for the purposes for which
they have been used.
"PERSON" shall mean any individual, partnership, firm, corporation,
association, joint venture, limited liability company, trust or other entity, or
any Governmental Entity.
"PGC" shall mean Phillips Gas Company, a Delaware corporation.
"PGC DIRECT LLC SUBSIDIARIES" shall mean the PGC LLC Subsidiaries
whose limited liability company interests are directly held by PGC.
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"PGC EASEMENTS" shall have the meaning set forth in Section
4.11(c).
"PGC EMPLOYEE" shall have the meaning set forth in Annex A.
"PGC GATHERING EASEMENTS" shall have the meaning set forth in
Section 6.8(e).
"PGC INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 4.13(a).
"PGC LEASED PROPERTY" shall mean any real property demised pursuant
to a PGC Lease.
"PGC LEASES" shall have the meaning set forth in Section 4.11(b).
"PGC LLC SUBSIDIARIES" shall have the meaning set forth in
Section 2.1(c).
"PGC MATERIAL CONTRACTS" shall have the meaning set forth in
Section 4.10(a).
"PGC MEMBER PARENT" shall mean Phillips Gas Company Shareholder,
Inc., a Delaware corporation and a wholly-owned subsidiary of Phillips.
"PGC MULTIPLE-USER EASEMENTS" shall mean those multiple-line rights
easements on which one or more lines are currently being used by Phillips (or a
Phillips Retained Affiliate) and one or more lines are currently being used by a
PGC Subsidiary.
"PGC-OWNED FEE PROPERTIES" shall have the meaning set forth in
Section 4.11(a).
"PGC PARTIAL EASEMENT RIGHTS" shall have the meaning set forth in
Section 6.8(a).
"PGC PIPELINE LEASE" shall have the meaning set forth in Section
6.18(b)(viii).
"PGC SEPTEMBER 30 BALANCE SHEET" shall have the meaning set forth in
Section 4.5.
"PGC SEPTEMBER 30 FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.5.
"PGC SINGLE-USER EASEMENTS" shall mean all PGC Easements that are
(i) single-line rights easements or (ii) multiple-line rights easements on which
each and every line currently being used is being used by a PGC Subsidiary.
"PGC SUBSIDIARY" or "PGC SUBSIDIARIES" shall have the meaning set
forth in Section 4.1(b).
"PGC TRUNKLINE EASEMENTS" shall have the meaning set forth in
Section 6.8(e).
"PHILLIPS" shall have the meaning set forth in the Preamble.
"PHILLIPS EXCLUDED ASSETS AND LIABILITIES" shall have the meaning
set forth in Section 2.1(e).
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"PHILLIPS INDEMNIFIED PERSON" shall have the meaning set forth in
Section 9.1.
"PHILLIPS PARTIAL EASEMENT RIGHTS" shall have the meaning set forth
in Section 6.8(a).
"PHILLIPS PLANS" shall mean all material employee benefit plans
providing benefits to any PGC Employees that are sponsored or maintained by
Phillips or any of its Affiliates or to which Phillips or any of its Affiliates
contributes or is obligated to contribute on behalf of PGC Employees, including
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
and any bonus, incentive, deferred compensation, stock purchase, stock option,
severance, change of control or fringe benefit plan.
"PHILLIPS RETAINED AFFILIATES" shall mean, collectively, all
Affiliates of Phillips other than the PGC Subsidiaries.
"PHILLIPS RETAINED EASEMENT" shall have the meaning set forth in
Section 6.8(c).
"PHILLIPS SAVINGS PLANS" shall have the meaning set forth in
Annex A.
"REFERENCE RATE" shall have the meaning set forth in Section
3.3(e).
"RETAINED PGC LEASE" shall have the meaning set forth in Section
6.18(b)(iii).
"RETURNS" or "TAX RETURNS" shall mean returns, declarations,
statements, reports, forms, property tax renditions or other documents or
information required to be filed with or supplied to any Taxing Authority.
"SECOND REQUEST " shall have the meaning set forth in Section
6.2(c).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHARED FCC LICENSES" shall have the meaning set forth in Section
6.20(b).
"SUBJECT EASEMENT LIABILITIES" shall have the meaning set forth
in Section 6.8(c).
"SUBJECT LEASE LIABILITIES" shall have the meaning set forth in
Section 6.18(b)(iv).
"SUBSIDIARY" shall mean, when used with respect to any Person, any
corporation, partnership, limited liability company, or other organization,
whether incorporated or unincorporated, of which such Person owns or controls,
directly or indirectly, 50% or more of the outstanding voting securities or
equivalent equity interests.
"TAX" or "TAXES" shall mean all taxes (whether federal, state, local
or foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, windfall profits, sales, use, occupation,
value added, AD VALOREM, transfer, franchise, withholding, payroll, employment,
excise, stamp, premium, capital stock, production, business and occupation,
disability, severance, or real or personal property taxes, fees, or assessments
of
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any kind whatsoever imposed by any Governmental Entity, together with any
interest or penalties imposed with respect thereto.
"TAXING AUTHORITY" shall mean any Governmental Entity having
jurisdiction over the assessment, determination, collection or other imposition
of any Tax.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section
9.3(a).
"TRADEMARKS AND LOGOS" shall have the meaning set forth in
Section 6.10.
"TRANSITION SERVICES AGREEMENT" shall have the meaning set forth
in Section 6.12.
"YEAR 2000 PROBLEM" shall mean the inability of any hardware,
software or process to recognize and correctly calculate dates or the failure of
computer systems, products or services to perform any of their intended
functions in a proper manner in connection with data containing any date.
ARTICLE II
CONTRIBUTION TO THE COMPANY
Section 2.1 THE COMPANY. (a) On or prior to the Closing Date, Duke
shall cause the limited liability company agreement of the Company to be amended
and restated in accordance with the principles set forth in the Governance
Agreement (the "AMENDED LLC AGREEMENT").
(b) On or prior to the Closing Date, Duke shall cause (i) the Class B
Subordinated Units of TE Products Pipeline, L.P. held by the Duke Energy
Transport and Trading Co., a Colorado corporation ("DETTCO") to be transferred
to a Subsidiary of Duke that is not a DEFS Subsidiary; (ii) all of the
outstanding stock or limited liability company interests of DETTCO to be
transferred to a DEFS Subsidiary; (iii) the assets and associated liabilities of
Canrock (other than intercompany indebtedness for borrowed money that Duke
elects not to transfer) to be transferred to a DEFS Subsidiary; and (iv) each
corporate Subsidiary of DEFS Holding, other than the Subsidiaries set forth in
Schedule 2.1(b)(iv) of the Duke Disclosure Schedule (such Subsidiaries listed on
the Duke Disclosure Schedule, the "DEFS CORPORATE SUBSIDIARIES"), to be merged
with and into, or converted into, a separate limited liability company organized
under the laws of the State of Delaware or such state under the laws of which
the DEFS corporate Subsidiary was organized (collectively, as merged or
converted, with any Subsidiary of DEFS Holding already in the form of a limited
liability company, the "DEFS LLC SUBSIDIARIES").
(c) On or prior to the Closing Date, Phillips shall cause each
corporate Subsidiary of PGC to be merged with and into, or converted into, a
separate limited liability company organized under the laws of the State of
Delaware (collectively, as merged or converted, with any Subsidiary of PGC
already in the form of a limited liability company, the "PGC LLC SUBSIDIARIES").
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(d) In addition to the provisions of Section 6.10, prior to the
Closing, Duke shall, or shall cause, the assets listed in Schedule 2.1(d) of the
Duke Disclosure Schedule and associated liabilities (the "DUKE EXCLUDED ASSETS
AND LIABILITIES") to be transferred out of the DEFS Subsidiaries.
(e) In addition to the provisions of Section 6.10, prior to the
Closing, Phillips shall, or shall cause, the assets listed in Schedule 2.1(e) of
the Phillips Disclosure Schedule and associated liabilities (the "PHILLIPS
EXCLUDED ASSETS AND LIABILITIES") to be transferred out of the PGC Subsidiaries.
(f) Unless otherwise agreed by the Parties prior to the Closing, at
the Closing, (i) all indebtedness for borrowed money between any DEFS
Subsidiary, on the one hand, and Duke or any of its Affiliates (excluding the
DEFS Subsidiaries), on the other hand, shall be distributed, capitalized,
discharged or otherwise canceled in a manner consistent with the pro forma
adjustments reflected in the DEFS September 30 Balance Sheet, and (ii) all
indebtedness for borrowed money between any PGC Subsidiary, on the one hand, and
Phillips or any of its Affiliates (excluding the PGC Subsidiaries), on the other
hand, shall be distributed, capitalized, discharged or otherwise canceled in a
manner consistent with the pro forma adjustments reflected in the PGC September
30 Balance Sheet.
(g) Immediately prior to the Closing, Duke either shall make
or cause to be made a capital contribution of cash to (or the release of
accounts payable of) the DEFS Subsidiaries or shall cause the DEFS Subsidiaries
to declare and effect a dividend or distribution of cash and/or accounts
receivable such that, as of the Closing, the Net Working Capital of the DEFS
Subsidiaries (as estimated in good faith at such time by Duke) shall equal zero.
(h) Immediately prior to the Closing, Phillips either shall make or
cause to be made a capital contribution of cash to (or the release of accounts
payable of) the PGC Subsidiaries or shall cause the PGC Subsidiaries to declare
and effect a dividend or distribution of cash and/or accounts receivable such
that, as of the Closing, the Net Working Capital of the PGC Subsidiaries (as
estimated in good faith at such time by Phillips) shall equal zero.
(i) [Intentionally omitted]
(j) At the Closing, the Company shall accept the contributions from
Duke referred to in Section 2.2 and in consideration therefor (i) DEFS Holding
shall become a member of the Company owning 69.7% of the Company Interests and
(ii) the Company shall make the distribution to DEFS Holding contemplated in
Section 3.2(c).
(k) At the Closing, the Company shall accept the contributions from
PGC referred to in Section 2.3 and in consideration therefor (i) PGC shall
become a member of the Company owning 30.3% of the Company Interests and (ii)
the Company shall make the distribution to PGC contemplated in Section 3.2(c).
Section 2.2 CONTRIBUTION OF DEFS TO THE COMPANY. Duke shall at the
Closing cause DEFS Holding to: (i) contribute, transfer, assign and deliver to
the Company all of the outstanding limited liability company interests in DEFS
and (ii) execute and deliver the Amended LLC Agreement.
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Section 2.3 CONTRIBUTION OF THE PGC SUBSIDIARIES TO THE COMPANY.
Phillips shall at the Closing cause PGC to (i) contribute, transfer, assign and
deliver to the Company all of the outstanding limited liability company
interests in each of the PGC Direct LLC Subsidiaries and (ii) execute and
deliver the Amended LLC Agreement.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING PLACE AND DATE. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place at the offices of the
Company, 370 17th Street, Suite 900, Denver, Colorado 80202, at 10:00 A.M.,
local time, on the fourth Business Day after the date on which all conditions to
each party's obligations hereunder have been satisfied or waived or such other
time and place upon which the parties may agree. The day on which the Closing
occurs is referred to as the "CLOSING DATE."
Section 3.2 CLOSING DATE DELIVERIES.
(a) PHILLIPS DELIVERIES. At the Closing, Phillips shall, or shall
cause PGC, as the case may be, to deliver the following:
(1) to Duke, the certificate required to be delivered by Phillips
pursuant to Section 7.1(a)(3); and
(2) to the Company, an assignment of the limited liability
company interests in each PGC Direct LLC Subsidiary, in a form reasonably
satisfactory to the Parties.
(b) DUKE DELIVERIES. At the Closing, Duke shall, or shall cause DEFS
Holding, as the case may be, to deliver the following:
(1) to Phillips, the certificate required to be delivered by Duke
pursuant to Section 7.2(a)(3); and
(2) to the Company, an assignment of the limited liability
company interests in DEFS in a form reasonably satisfactory to the Parties.
(c) COMPANY DELIVERIES. At the Closing, the Company shall deliver the
following:
(1) to PGC, (i) $1,200,000,000 in immediately available funds,
(ii) an amount equal to, and as reimbursement for, the purchase price of the
acquisition set forth in Schedule 6.4(e) of the Phillips Disclosure Schedule if
the closing thereof has occurred prior to the Closing, and (iii) an amount equal
to, and as reimbursement for, the aggregate purchase prices of any acquisitions
by the PGC Subsidiaries approved by Duke pursuant to Section 6.4 with respect to
which the closing has occurred prior to the Closing.
(2) to DEFS Holding, (i) $1,200,000,000 in immediately available
funds, (ii) an amount equal to, and as reimbursement for, the aggregate purchase
prices of any of
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the acquisitions set forth in Schedule 6.5(e) of the Duke Disclosure Schedule
with respect to which the closing has occurred prior to the Closing, and (iii)
an amount equal to, and as reimbursement for, the aggregate purchase prices of
any acquisitions by the DEFS Subsidiaries approved by Phillips pursuant to
Section 6.5 with respect to which the closing has occurred prior to the Closing.
Section 3.3 POST-CLOSING ADJUSTMENT. (a) Within 30 days after the
Closing, (i) Phillips will deliver to Duke and the Company an unaudited
statement of Net Working Capital of the PGC Subsidiaries as of the Closing Date
prepared on a basis consistent with the PGC September 30 Balance Sheet
(Phillips' "NET WORKING CAPITAL STATEMENT"), and (ii) Duke will deliver to
Phillips an unaudited statement of Net Working Capital of the DEFS Subsidiaries
as of the Closing Date, prepared on a basis consistent with the DEFS September
30 Balance Sheet (Duke's "NET WORKING CAPITAL STATEMENT").
(b) Each Party shall provide the other Party (and, if applicable, the
Neutral Firm), upon request, prompt and reasonable access to its books and
records and other supporting information reasonably necessary for the other
Party (and, if applicable, the Neutral Firm) to verify the determination of such
Party's Net Working Capital Statement.
(c) Unless, within 45 days after receipt by a Party of the other
Party's Net Working Capital Statement, the receiving Party notifies the
delivering Party that the receiving Party does not agree with the determination
of Net Working Capital as of the Closing Date set forth in such delivering
Party's Net Working Capital Statement, such delivering Party's Net Working
Capital determination shall be final and binding on the Parties and shall be
deemed such Party's "ACTUAL NET WORKING CAPITAL." If the receiving Party
notifies the delivering Party in writing during such period that the receiving
Party does not agree with the delivering Party's Net Working Capital
determination, then the Parties shall discuss such disagreement for 15 days from
the date of such written notice and, if such disagreement is not resolved at the
end of such 15-day period, the disagreement will be submitted to Arthur Andersen
L.L.P. (the "NEUTRAL FIRM"). The Neutral Firm will review the disagreement and,
as soon as possible but in any event not later than 60 days after the
disagreement was submitted to it, the Neutral Firm shall deliver to Phillips and
Duke its determination of the Actual Net Working Capital, which determination
shall be final and binding on the Parties and shall then be deemed such Party's
Actual Net Working Capital. The fees and expenses of the Neutral Firm will be
allocated between Phillips and Duke by the Neutral Firm.
(d) After a determination of either Party's Actual Net Working Capital
shall have become final and binding on Phillips and Duke as described in Section
3.3(b) above, (i) if such Party's Actual Net Working Capital exceeds zero, the
Company shall pay to such Party such difference, or (ii) if such Party's Actual
Net Working Capital is less than zero, such Party shall pay to the Company the
difference.
(e) The payments, together with interest thereon from and including
the Closing Date to but excluding such payment date at a rate equal to the rate
of interest from time to time announced publicly by Chase Manhattan Bank as its
prime rate (the "REFERENCE RATE"), will be made within seven days after the
determination of Actual Net Working Capital for both
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Parties has become final and binding as described above and will be made in
immediately available funds by wire transfer to an account designated by the
Person to receive the payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PHILLIPS
Phillips hereby represents and warrants to each of Duke and the
Company that, except as disclosed in the Phillips Disclosure Schedule:
Section 4.1 CORPORATE ORGANIZATION. (a) Phillips and PGC are duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation or organization. Each of Phillips and PGC has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction (whether federal,
state, local or foreign) in which the nature of the business conducted by it or
the character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure to be
so licensed or qualified, individually or in the aggregate, would not have a
Material Adverse Effect on either Phillips or PGC, as applicable. True and
complete copies of the certificate of incorporation and by-laws of PGC, in
effect as of the date of this Agreement, have previously been made available by
Phillips to Duke.
(b) Schedule 4.1(b) of the Phillips Disclosure Schedule sets forth a
complete list of all of the Subsidiaries of PGC (each a "PGC SUBSIDIARY" and
collectively, the "PGC SUBSIDIARIES") and their respective jurisdictions of
organization and capitalization and the organizational structure of PGC and its
Subsidiaries (without designating the names or ownership percentages of any
third party owners). All of the outstanding shares of capital stock or limited
liability company interests, as the case may be, of the PGC Subsidiaries are
validly issued, fully paid and non-assessable and are not subject to, nor were
they issued in violation of, any preemptive rights, and, except as set forth in
Schedule 4.1(b) of the Phillips Disclosure Schedule, such shares or limited
liability company interests, as the case may be, are owned by PGC or its
wholly-owned Subsidiaries free and clear of any Lien with respect thereto. Each
PGC Subsidiary (i) is duly organized and validly existing as a corporation or
limited liability company, as the case may be, under the laws of its
jurisdiction of organization, (ii) is duly licensed or qualified to do business
and in good standing in each jurisdiction (whether federal, state, local or
foreign) in which the nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified, individually or in the aggregate would not have a Material Adverse
Effect on the PGC Subsidiaries, and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its business
as now conducted. Except as described above, as of the date of this Agreement
there are not, and at the Closing there will not be, any capital stock, limited
liability company interests or other equity interests in the PGC Subsidiaries
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating any PGC Subsidiary to issue, transfer or sell any of its capital
stock or other equity interests, or any agreements, arrangements, or
understandings granting any Person any rights in any PGC Subsidiary similar to
capital stock, limited liability company interests or other
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equity interests. Except as set forth in Schedule 4.1(b) or 4.10(a)(3) of the
Phillips Disclosure Schedule, neither PGC nor any PGC Subsidiary holds any
interest in any corporation, partnership, joint venture or other entity.
Section 4.2 AUTHORITY; NO VIOLATION. (a) Phillips has full corporate
power and authority to execute and deliver this Agreement and the Governance
Agreement and to consummate the transactions contemplated by this Agreement and
the Governance Agreement. The execution and delivery of this Agreement and the
Governance Agreement and the consummation of the transactions contemplated by
this Agreement and the Governance Agreement have been duly and validly approved
by all corporate action on the part of Phillips. No other corporate proceedings
on the part of Phillips, GPM Holding or any of the PGC Subsidiaries are
necessary to approve this Agreement or the Governance Agreement and to
consummate the transactions contemplated by this Agreement and the Governance
Agreement. This Agreement has been duly and validly executed and delivered by
Phillips and, assuming due authorization, execution and delivery by Duke and the
Company, constitutes a valid and binding obligation of Phillips, enforceable
against Phillips in accordance with its terms. The Governance Agreement has been
duly and validly executed and delivered by Phillips and, assuming due
authorization, execution and delivery by Duke and the Company, constitutes the
valid and binding obligations of Phillips, enforceable against Phillips in
accordance with its terms.
(b) At the Closing, (i) PGC shall have good and marketable title to
all of the issued and outstanding limited liability company interests in each
PGC Direct LLC Subsidiary and (ii) PGC or a PGC Subsidiary shall have good and
marketable title to all of the issued and outstanding limited liability company
interests in each PGC Subsidiary, in each case free and clear of any Liens,
restrictions on transfer or voting or preemptive rights. Phillips and PGC have
the full corporate power, right and authority to transfer and convey, or cause
to be transferred and conveyed, to the Company at the Closing the limited
liability company interests in each PGC Direct LLC Subsidiary.
(c) The execution, delivery and performance of this Agreement and the
Governance Agreement by Phillips do not, and the consummation by Phillips of the
transactions contemplated by this Agreement and the Governance Agreement will
not, (i) constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws or other organizational documents of
Phillips or PGC, (ii) constitute a breach or violation of, or a default under,
or trigger any "change of control" rights or remedies under, or give rise to any
Lien, any acceleration of remedies, any buy-out right or any right of first
offer or refusal or of termination under, any indenture, license, contract,
agreement or other instrument to which PGC or of any of its Subsidiaries is a
party or by which any of them or their respective properties or assets may be
bound, or (iii) assuming compliance with the applicable requirements of the HSR
Act, violate any law, rule, regulation, judgment, decree or order applicable to
Phillips, PGC or any of the PGC Subsidiaries or any of their respective
properties or assets, except in the case of (ii) and (iii) above for such
breaches, violations, defaults, liens, accelerations or rights as would not
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect on the PGC Subsidiaries or to adversely affect the
ability of Phillips to consummate the transactions contemplated by this
Agreement or the Governance Agreement.
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Section 4.3 CONSENTS AND APPROVALS. Except for applicable requirements
of the HSR Act, no notice to, filing with, authorization of, exemption by, or
consent or approval of, or the taking of any other action in respect of any
Governmental Entity or any other Person on the part of Phillips, PGC or the PGC
Subsidiaries is necessary for the consummation by Phillips, PGC or any of the
PGC Subsidiaries of the transactions contemplated by this Agreement, except
where the failure to provide such notice, make such filing, or obtain such
authorization, exemption, consent or approval would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on the
PGC Subsidiaries or to adversely affect the ability of Phillips to consummate
the transactions contemplated by this Agreement or the Governance Agreement.
Section 4.4 PERMITS; COMPLIANCE WITH APPLICABLE LAW. As of the Closing
Date, each of the PGC Subsidiaries shall hold all licenses, franchises,
registrations, permits and authorizations (each, a "PERMIT") necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default under and/or in violation of any,
applicable law, statute, order, rule or regulation of any Governmental Entity
relating to any of the PGC Subsidiaries, except in each case where the failure
to hold such Permit or such noncompliance or default would not, individually or
in the aggregate, have a Material Adverse Effect on the PGC Subsidiaries. To
Phillips' knowledge, the business of the PGC Subsidiaries is not being and has
not been conducted in violation of any applicable law or any order, writ,
injunction or decree of any Governmental Entity, except for any such violations
which would not, individually or in the aggregate, have a Material Adverse
Effect on the PGC Subsidiaries. None of the PGC Subsidiaries has received any
notice or other communication from any Governmental Entity asserting (i) any
violation of law, statute, ordinance, order, rule or regulation, (ii) any
violation of or failure to comply with any term or requirement of any Permit, or
(iii) any revocation, withdrawal, suspension, cancellation, termination or
modification of any Permit, except for violations, failures to comply,
revocations, withdrawals, suspensions, cancellations, terminations or
modifications which would not in the aggregate reasonably be expected to have a
Material Adverse Effect on the PGC Subsidiaries. No notice of any pending
investigation or violation of, noncompliance with or alleged liability under,
any law, statute, ordinance, order, rule, regulation or Permit has been received
by any of the PGC Subsidiaries which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the PGC
Subsidiaries.
Section 4.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Phillips
has previously made available to Duke true, correct and complete copies of (i)
the audited consolidated balance sheets of PGC and its Subsidiaries as of
December 31, 1998 and 1997 and the related audited consolidated statements of
income and cash flows for the periods then ended and (ii) the unaudited proforma
combined balance sheet of the PGC Subsidiaries (exclusive of income taxes and
with proforma adjustments to eliminate intercompany borrowings) as of September
30, 1999 (the "PGC SEPTEMBER 30 BALANCE SHEET"), a copy of which is attached as
Schedule 4.5 of the Phillips Disclosure Schedule, and the related unaudited
combined statement of income for the nine-month period then ended (together with
the PGC September 30 Balance Sheet, the "PGC SEPTEMBER 30 FINANCIAL
STATEMENTS").
The financial statements referred to in this Section 4.5 fairly
present (except that, in the case of the PGC September 30 Financial Statements,
such financial statements are
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incomplete in that they do not include footnotes and do include proforma
adjustments as described above, and subject, in the case of the PGC September 30
Financial Statements, to recurring audit adjustments, none of which either
individually or in the aggregate is material) the results of the consolidated
(or combined) operations and consolidated (or combined) financial positions of
PGC and its Subsidiaries or the PGC Subsidiaries (as adjusted in the manner
described above relating to the PGC September 30 Financial Statements), as the
case may be, for the respective fiscal periods or as of the respective dates
therein set forth. Each of such statements described in this Section 4.5
complies with applicable accounting requirements with respect thereto; and each
of such statements has been prepared in accordance with GAAP (except that, in
the case of the PGC September 30 Financial Statements, such statements are
incomplete in that they do not include footnotes and do include proforma
adjustments as described above) consistently applied during the periods
involved. The PGC Subsidiaries do not have any liabilities required by GAAP to
be set forth on a consolidated balance sheet of the PGC Subsidiaries, except (i)
as set forth on the PGC September 30 Balance Sheet, and (ii) for liabilities
incurred in the ordinary course of business since September 30, 1999 and which
would not have a Material Adverse Effect on the PGC Subsidiaries.
Section 4.6 BROKER'S FEES. Neither Phillips nor any of its
Subsidiaries (including the PGC Subsidiaries) nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
the transactions contemplated by this Agreement or the Governance Agreement
which would be payable by the Company, Duke, any Duke Subsidiary or any PGC
Subsidiary.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for changes
or events consented to or approved by Duke in writing pursuant to Section 6.4,
from September 30, 1999 through the date of this Agreement, the business of the
PGC Subsidiaries has been operated in the ordinary and normal course in all
material respects and there has not been:
(a) any event (whether covered by insurance or not) which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on the PGC Subsidiaries;
(b) any increase in compensation (including severance or termination
pay) payable to or to become payable to any consultants, officers, directors,
employees or agents working in connection with the business of any PGC
Subsidiary or any change in any insurance, pension or other benefit plan,
payment or arrangement made to, for or with any of such consultants, officers,
directors, employees or agents, in each case other than (i) general increases or
changes reasonably consistent with past practices and applicable to at least 10%
of the employees of Phillips and its Subsidiaries, or (ii) other increases that
are in accordance with past practice and are not material in the aggregate;
(c) any change in financial accounting methods, principles or
practices by any PGC Subsidiary materially affecting its assets, Liabilities or
businesses, except insofar as may have been required by a change in GAAP;
(d) any indebtedness for borrowed money incurred by any of the PGC
Subsidiaries other than from Phillips or its Affiliates, any issuance of debt
securities by any of
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the PGC Subsidiaries other than to Phillips or its Affiliates, any assumption,
guarantee, endorsement or other action which would result in any of the PGC
Subsidiaries having responsibility for the obligations of any other Persons, or
any mortgage or encumbrance on properties or assets of any of the PGC
Subsidiaries other than Liens that do not materially restrict or detract from
the value of such properties or assets; or
(e) any declaration, setting aside or payment of any dividend or any
other similar distribution (other than in cash), directly or indirectly, with
respect to any PGC Subsidiary's securities except as permitted by Section
2.1(e), Section 2.1(f)(ii) or Section 2.1(h).
Section 4.8 LEGAL PROCEEDINGS. (a) As of the date of this Agreement,
neither Phillips nor PGC nor any of their respective Subsidiaries is a party to
any, and there are no pending or, to Phillips' knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against or otherwise affecting PGC or
any of its Subsidiaries which (i) would reasonably be expected to result in
material injunctive relief or in damages to PGC and its Subsidiaries in excess
of $10,000,000 in the aggregate or (ii) would adversely affect the ability of
Phillips to consummate the transactions contemplated by this Agreement or the
Governance Agreement.
(b) As of the date of this Agreement, there are no injunctions,
orders, judgments or decrees imposed upon or otherwise affecting PGC or any of
its Subsidiaries or assets which, individually or in the aggregate, have had, or
would reasonably be expected to have, a Material Adverse Effect on the PGC
Subsidiaries.
Section 4.9 [Intentionally omitted]
Section 4.10 CONTRACTS. (a) Schedule 4.10(a) of the Phillips
Disclosure Schedule sets forth a true and complete list as of the date of this
Agreement of all contracts, agreements and commitments of the following
categories, whether oral or written, express or implied, to which any of the PGC
Subsidiaries is party or by which any of their respective properties or assets
are bound (excluding the agreements contemplated by this Agreement or the
Governance Agreement) (collectively, the "PGC MATERIAL CONTRACTS"):
(1) any contract (other than gas purchase agreements) involving
or requiring expenditures or receipts by any PGC Subsidiary of more than
$2,000,000 in any calendar year and not cancelable or terminable within one year
from the Closing Date;
(2) any contract involving or requiring expenditures or receipts
by any PGC Subsidiary of more than $5,000,000 in any calendar year (or other
material contract) that grants a right of first refusal or a right of first
negotiation or other preferential right to a third party;
(3) any partnership or joint venture agreements with regard to
material assets of the PGC Subsidiaries;
(4) any contract containing covenants limiting the freedom of any
of the PGC Subsidiaries to engage in any line of business or compete with any
Person or operate at any location;
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(5) any contract between any of the PGC Subsidiaries, on one
hand, and any Affiliate of Phillips (other than the PGC Subsidiaries), on the
other hand;
(6) any collective bargaining agreement;
(7) any employment, personal services, consulting,
noncompetition, severance, golden parachute or similar contract, for officers,
directors or other individuals and requiring payments by the PGC Subsidiary in
excess of $250,000 per year;
(8) any contract pertaining to the purchase, sale, processing,
treating, compression, gathering, storage, exchange, transportation or
transmission of natural gas in all its forms and all other hydrocarbons
(including liquid products, but excluding gas purchase agreements), together
with all deposits (either in products or cash) related to such contracts
involving the delivery or receipt of more than 10,000 mcf per day;
(9) any contract entered into since January 1, 1996 for the
acquisition or disposition, sale or lease of properties or assets of the PGC
Subsidiaries (by merger, purchase or sale of assets or stock or otherwise)
requiring aggregate expenditures or receipts by the PGC Subsidiaries in excess
of $10,000,000; and
(10) any commitment or agreement to enter into any of the
foregoing.
(b) As of the date of this Agreement, each PGC Material Contract is a
valid, binding and enforceable (except as such enforceability may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally) obligation of the applicable PGC Subsidiary. As of the date of
this Agreement, there is no default under any PGC Material Contract by any PGC
Subsidiary or, to Phillips' knowledge, by any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by any PGC Subsidiary, or to Phillips'
knowledge, any other party, which default or event, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on the
PGC Subsidiaries. As of the date of this Agreement, no party to any PGC Material
Contract has given notice to any PGC Subsidiary or made a claim against any PGC
Subsidiary with respect to any breach or default thereunder which breach or
default, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect on the PGC Subsidiaries. As of the date of this
Agreement, there has been no amendment or modification of any of the PGC
Material Contracts except as specifically listed in Schedule 4.10(a) of the
Phillips Disclosure Schedule. The enforceability of any PGC Material Contract
shall not be impaired by the execution and delivery of this Agreement or the
Governance Agreement or the consummation of the transactions contemplated hereby
or thereby, and, as of the date of this Agreement, no PGC Material Contract
requires that a transaction of the kind contemplated by this Agreement or the
Governance Agreement receive the approval of any party to such PGC Material
Contract, except where such impairments or failures to receive approvals,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the PGC Subsidiaries.
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(c) Except for certain indebtedness which shall be canceled without
liability to the PGC Subsidiaries prior to the Closing as provided in Section
2.1(f) and liabilities reflected in the PGC September 30 Balance Sheet, as of
the date of this Agreement, none of the PGC Subsidiaries is a party to any loan
agreement, mortgage, indenture, security agreement or other agreement or
instrument relating to the borrowing of money by, or any extension of credit to,
any of the PGC Subsidiaries.
(d) As of the date of this Agreement, Phillips has delivered to Duke
or otherwise made available to Duke at the offices of Phillips or its
Subsidiaries true, correct and complete copies of all PGC Material Contracts.
Section 4.11 REAL PROPERTY. (a) FEE PROPERTIES. Except as otherwise
set forth on Schedule 4.11(a) of the Phillips Disclosure Schedule, as of the
date of this Agreement, the PGC Subsidiaries own beneficially all real property
listed on Schedule 4.11(a) of the Phillips Disclosure Schedule (collectively,
the "PGC-OWNED FEE PROPERTIES") and have (or will on the Closing Date have) good
and marketable record title to each such PGC-Owned Fee Property, free and clear
of all Liens and encumbrances, except for Permitted Encumbrances. Except as
otherwise set forth on Schedule 4.11(a) of the Phillips Disclosure Schedule,
record legal title to each PGC-Owned Fee Property is owned by the PGC
Subsidiaries, Phillips or a Phillips Retained Affiliate as of the date of this
Agreement. Schedule 4.11(a) of the Phillips Disclosure Schedule identifies all
real property assets the fee title to which is owned, beneficially and/or of
record, by the PGC Subsidiaries as of the date of this Agreement and which are
material to the business of the PGC Subsidiaries.
(b) REALTY LEASES. As of the date of this Agreement, with respect to
all leases of real property of or used by the PGC Subsidiaries (collectively,
the "PGC LEASES"), (i) beneficial title to or interest in the PGC Leases is held
by the PGC Subsidiaries, and (ii) beneficial and record legal title to or
interest in the PGC Leases is owned or held by the PGC Subsidiaries, Phillips or
a Phillips Retained Affiliate, free and clear of Liens, encumbrances and claims
of those claiming by, through, or under Phillips or the PGC Subsidiaries, but
not otherwise, subject to Permitted Encumbrances. Schedule 4.11(b) of the
Phillips Disclosure Schedule identifies all leases of real property, other than
easements and rights of way, a leasehold interest in which is owned,
beneficially and/or of record, by the PGC Subsidiaries as of the date of this
Agreement and which are material to the business of the PGC Subsidiaries. Except
as otherwise set forth in Schedule 4.11(b) of the Phillips Disclosure Schedule,
as of the date of this Agreement each of the PGC Leases is a valid, binding and
enforceable (except as such enforceability may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally)
obligation of each of the lessee and of the lessor under such PGC Lease. As of
the date of this Agreement, except where, individually or in the aggregate,
there would not reasonably be expected to be a Material Adverse Effect on the
PGC Subsidiaries or as otherwise set forth in Schedule 4.11(b) of the Phillips
Disclosure Schedule, (A) the enforceability of any of the PGC Leases will not be
impaired by the execution or delivery of this Agreement or the Governance
Agreement, and (B) no PGC Subsidiary is currently participating in any
discussions or negotiations regarding termination of any PGC Lease of a property
at which such PGC Subsidiary conducts business operations prior to the scheduled
expiration of such PGC Lease by reason of a breach or alleged breach by the
tenant thereunder.
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(c) EASEMENTS. As of the date of this Agreement, with respect to
pipeline easements, rights of way, licenses and land use permits of or used by
the PGC Subsidiaries (collectively, the "PGC EASEMENTS"), beneficial and record
legal title to or interest in the PGC Easements is owned or held by a PGC
Subsidiary, Phillips or a Phillips Retained Affiliate, free and clear of Liens,
encumbrances and claims of those claiming by, through, or under Phillips or the
PGC Subsidiaries, but not otherwise, subject to Permitted Encumbrances.
Section 4.12 ENVIRONMENTAL MATTERS. As of the date of this Agreement,
except for matters that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the PGC Subsidiaries, (i) the
properties, operations and activities of the PGC Subsidiaries have been and are
in compliance with all applicable Environmental Laws; (ii) the PGC Subsidiaries
are not subject to any existing, pending or, to Phillips' knowledge, threatened,
action, suit, proceeding or remediation activity under any Environmental Law;
(iii) Hazardous Materials have not at any time been released or disposed of at
the properties currently owned, operated, leased or used by the PGC
Subsidiaries, and Hazardous Materials were not released or disposed of at
properties previously owned, operated, leased or used by the PGC Subsidiaries at
any time prior to the sale or other disposition of such previously owned
properties; (iv) the previous and current methods of releasing or disposing of
Hazardous Materials generated, used, treated, recycled or stored at, upon or
under the properties previously or currently owned, operated, leased or used by
any of the PGC Subsidiaries have been disclosed to Duke, and the PGC
Subsidiaries are not subject to any liability under applicable Environmental
Laws arising in connection with the transportation and off-site disposal of any
such Hazardous Materials; and (v) Phillips has not restricted access for the
review of and copying by Duke all of the environmental reports, documents, data
and other information prepared by or for any of the PGC Subsidiaries relating to
the properties previously or currently owned, operated, leased or used by any of
the PGC Subsidiaries; PROVIDED, HOWEVER, that the foregoing representations, as
they apply to any property, operation, activity or PGC Subsidiary prior to the
date such property, operation, activity or PGC Subsidiary became owned or
controlled, directly or indirectly, by Phillips, shall be limited to Phillips'
knowledge.
Section 4.13 INTELLECTUAL PROPERTY. (a) As of the date of this
Agreement, except for the Phillips Trademarks and Logos, PGC and its
Subsidiaries collectively have such ownership of or such rights by license or
other agreement to use all patents and patent applications, trademarks and
service marks, trademark and service mark registrations and applications, trade
names, logos, copyrights and copyright registrations and applications
technology, know-how, processes and other intellectual property rights, United
States or foreign (collectively, the "PGC INTELLECTUAL PROPERTY"), as are
necessary to permit the PGC Subsidiaries to conduct their business as currently
conducted, except where the failure to have such ownership, license or right to
use would not, individually or in the aggregate, have a Material Adverse Effect
on the PGC Subsidiaries.
(b) As of the date of this Agreement, (i) to Phillips' knowledge,
neither the use of the PGC Intellectual Property nor the conduct of the business
of the PGC Subsidiaries as currently conducted infringes the intellectual
property rights of any third party and there are no present or threatened
infringements of the PGC Intellectual Property by any third party, except, in
either case, for such infringements which would not, individually or in the
aggregate, have a Material Adverse Effect on the PGC Subsidiaries; and
(ii) there are no pending or, to Phillips'
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knowledge, threatened proceedings or litigation or other adverse claims by any
person relating to the use by any of the PGC Subsidiaries of any PGC
Intellectual Property or any third party intellectual property.
Section 4.14 EMPLOYEE BENEFIT PLANS. (a) Schedule 4.14(a) of the
Phillips Disclosure Schedule includes a complete list of all Phillips Plans that
are in effect as of the date of this Agreement. None of the Phillips Plans
listed in Schedule 4.14(a) of the Phillips Disclosure Schedule is sponsored or
maintained by any PGC Subsidiary.
(b) As of the date of this Agreement, with respect to each Phillips
Plan listed in Schedule 4.14(a) of the Phillips Disclosure Schedule, Phillips
has delivered or made available to Duke a true, correct and complete copy of all
plan documents and the current summary plan description.
(c) As of the date of this Agreement, no Phillips Plans listed in
Schedule 4.14(a) of the Phillips Disclosure Schedule are "multiemployer plans"
within the meaning of Section 4001(a)(3) of ERISA ("MULTIEMPLOYER PLANS"). None
of the PGC Subsidiaries or any of their respective ERISA Affiliates has, at any
time during the last six years, contributed to or been obligated to contribute
to any Multiemployer Plan, and none of the PGC Subsidiaries or any of their
respective ERISA Affiliates has incurred any withdrawal liability under Part I
of Subtitle E of Title IV of ERISA that has not been satisfied in full.
(d) There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability that would be a liability of any
of the PGC Subsidiaries following the Closing. "CONTROLLED GROUP LIABILITY"
means any and all liabilities (i) under Title IV of ERISA, (ii) under Section
302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of
a failure to comply with the continuation coverage requirements of Section 601
ET SEQ. of ERISA and Section 4980B of the Code and (v) under corresponding or
similar provisions of foreign laws or regulations.
(e) Except as specifically provided in Annex A and except for stock
options granted by Phillips to PGC Employees, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (either alone or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any PGC Employee. The consummation of the transactions
contemplated by this Agreement will not constitute a "change in ownership or
control" of Phillips within the meaning of Proposed Treasury Regulation Section
1.280G-1.
(f) The Phillips Savings Plans are intended to be qualified under
Section 401(a) of the Code.
Section 4.15 LABOR RELATIONS. As of the date of this Agreement, each
of the PGC Subsidiaries is in material compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work, employment discrimination, equal opportunity,
affirmative action, workers' compensation, unemployment insurance, immigration
and occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, except for
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failures to comply that would not, individually or in the aggregate, reasonably
be expected to cause a Material Adverse Effect on the PGC Subsidiaries. As of
the date of this Agreement, there is no labor strike, slowdown, stoppage or
lockout actually pending, or, to the knowledge of Phillips, threatened against
or affecting any of the PGC Subsidiaries. Except as identified on Schedule 4.15
of the Phillips Disclosure Schedule, there are no collective bargaining
agreements or other labor union agreement or understandings to which any of the
PGC Subsidiaries is a party by which any of them is bound. As of the date of
this Agreement, none of the PGC Subsidiaries that is not a party to or bound by
any collective bargaining agreements or other labor union agreements or
understandings has any knowledge of any labor union organizing activity within
the last five years. As of the date of this Agreement, there is no labor
dispute, strike, slowdown, stoppage or lockout actually pending, or, to the
knowledge of Phillips, threatened against or affecting any of the PGC
Subsidiaries. As of the date of this Agreement, the PGC Subsidiaries are in
material compliance with and has not triggered any requirements under the
Workers Adjustment Restraining Notification Act or similar laws with respect to
PGC Employees.
Section 4.16 TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement and the Governance Agreement, (i) no director or
officer of Phillips or its Affiliates (other than the PGC Subsidiaries) is
currently directly or indirectly a party to any transaction with any PGC
Subsidiary, including any agreement, arrangement or understanding, written or
oral, providing for the employment of, furnishing of services by, rental of real
or personal property from or otherwise requiring payment to any such director or
officer and (ii) none of the PGC Subsidiaries has any outstanding material
contract, agreement or other arrangement with the Phillips or any of its
Affiliates (other than the PGC Subsidiaries) or has engaged in any material
transaction with Phillips or its Affiliates (other than the PGC Subsidiaries)
since January 1, 1999.
Section 4.17 PERSONAL PROPERTY. As of the date of this Agreement, the
PGC Subsidiaries own, or hold valid leasehold interests in, the personal
property owned or used by them, in each case, free and clear of all Liens,
except for such Liens which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the PGC
Subsidiaries.
Section 4.18 YEAR 2000. The PGC Subsidiaries have initiated a review
and assessment of the Year 2000 Problem, have developed a plan for addressing
the Year 2000 Problem on a timely basis and have to date implemented such plan,
except where their failure to do so would not reasonably be expected to have a
Material Adverse Effect on the PGC Subsidiaries. As of the date of this
Agreement, except as would not reasonably be expected to have a Material Adverse
Effect on the PGC Subsidiaries, to Phillips' knowledge, none of the assets or
equipment owned or utilized by the PGC Subsidiaries will fail to perform because
of, or due in any way to, a Year 2000 Problem. As of the date of this Agreement,
to Phillips' knowledge, no vendor, supplier or customer of any of the PGC
Subsidiaries is reasonably expected to experience a Year 2000 Problem that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the PGC Subsidiaries.
Section 4.19 INSURANCE. Each PGC Subsidiary is, and has been
continuously since June 18, 1997 (or, if later, the date such PGC Subsidiary
became a Subsidiary of Phillips), insured with Phillips-affiliated insurance
companies or with third-party insurers in such amounts
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and against such risks and losses as are customary in all material respects for
companies conducting the business as conducted by the PGC Subsidiaries during
such time period. As of the date of this Agreement, none of the PGC Subsidiaries
has received any notice of cancellation or termination with respect to any
insurance policy of any of the PGC Subsidiaries which would reasonably be
expected to have a Material Adverse Effect on the PGC Subsidiaries. Phillips has
made available to Duke accurate and complete copies of all insurance policies in
effect as of the date of this Agreement.
Section 4.20 PUBLIC UTILITY HOLDING COMPANY ACT. None of the PGC
Subsidiaries is a "public utility company" or a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 4.21 SUFFICIENCY OF CONTRIBUTION. Except as disclosed
elsewhere in this Agreement or in the Phillips Disclosure Schedule, the PGC
Subsidiaries collectively hold all right, title and interest of Phillips and its
Affiliates in and to all properties, rights, assets and liabilities (other than
the Phillips Excluded Assets and Liabilities) used by Phillips and its
Affiliates in conducting their midstream natural gas gathering, processing and
marketing operations in the continental United States and Canada as of the date
of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF DUKE
Duke hereby represents and warrants to each of Phillips and the
Company that, except as disclosed in the Duke Disclosure Schedule:
Section 5.1 CORPORATE ORGANIZATION. (a) Duke and DEFS Holding are duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation or organization. Each of Duke and DEFS
Holding has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction (whether
federal, state, local or foreign) in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified, individually or in the aggregate, would not have
a Material Adverse Effect on either Duke or DEFS Holding, as applicable. True
and complete copies of the certificate of incorporation and by-laws of DEFS
Holding, in effect as of the date of this Agreement, have previously been made
available by Duke to Phillips.
(b) Schedule 5.1(b) of the Duke Disclosure Schedule sets forth a
complete list of all Subsidiaries of DEFS Holding (together with DETTCO and any
Subsidiary of DETTCO, each a "DEFS SUBSIDIARY" and collectively, the "DEFS
SUBSIDIARIES") and their respective jurisdictions of organization and
capitalization and the organizational structure of DEFS Holding and its
Subsidiaries (without designating the names or ownership percentages of any
third party owners). All of the outstanding shares of capital stock or limited
liability company interests, as
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the case may be, of each of the DEFS Subsidiaries are validly issued, fully paid
and non-assessable and are not subject to, nor were they issued in violation of,
any preemptive rights. Except as set forth in Schedule 5.1(b) of the Duke
Disclosure Schedule, and except with respect to DETTCO and its Subsidiaries,
such shares or limited liability company interests, as the case may be, are
owned by DEFS Holding or its wholly-owned Subsidiaries free and clear of any
Lien with respect thereto. At the Closing, all of the outstanding shares of
capital stock or limited liability company interests of DETTCO will be owned by
DEFS free and clear of any Lien with respect thereto and all of the outstanding
shares of capital stock or limited liability company interests of any Subsidiary
of DETTCO will be owned by DETTCO free and clear of any Lien with respect
thereto. Each DEFS Subsidiary (i) is duly organized and validly existing as a
corporation or limited liability company, as the case may be, under the laws of
its jurisdiction of organization, (ii) is duly licensed or qualified to do
business and in good standing in each jurisdiction (whether federal, state,
local or foreign) in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified, individually or in the aggregate, would not have a
Material Adverse Effect on DEFS, and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its business
as now conducted. Except as described above, as of the date of this Agreement
there are not, and at the Closing there will not be, any capital stock, limited
liability company interests or other equity interests in the DEFS Subsidiaries
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating any DEFS Subsidiary to issue, transfer or sell any of its capital
stock or other equity interests, or any agreements, arrangements, or
understandings granting any Person any rights in any DEFS Subsidiary similar to
capital stock, limited liability company interests or other equity interests.
Except as set forth in Schedule 5.1(b) or 5.10(a)(3) of the Duke Disclosure
Schedule, no DEFS Subsidiary holds any interest in any corporation, partnership,
joint venture or other entity.
Section 5.2 AUTHORITY; NO VIOLATION. (a) Each of Duke and the Company
has full corporate power and authority to execute and deliver this Agreement and
the Governance Agreements and to consummate the transactions contemplated by
this Agreement and the Governance Agreement (except that the board of directors
of the Company has not approved the IPO). The execution and delivery of this
Agreement and the Governance Agreement and the consummation of the transactions
contemplated by this Agreement and the Governance Agreement have been duly and
validly approved by all corporate action on the part of each of Duke and the
Company. No other corporate proceedings on the part of either Duke, DEFS
Holding, the DEFS Subsidiaries or the Company are necessary to approve this
Agreement or the Governance Agreement and to consummate the transactions
contemplated by this Agreement and the Governance Agreement (except that the
board of directors of the Company has not approved the IPO). This Agreement has
been duly and validly executed and delivered by each of Duke and the Company
and, assuming due authorization, execution and delivery by Phillips, constitutes
a valid and binding obligation of each of Duke and the Company, enforceable
against each of Duke and the Company in accordance with its terms. The
Governance Agreement has been duly and validly executed and delivered by each of
Duke and the Company and, assuming due authorization, execution and delivery by
Phillips, constitutes the valid and binding obligations of each of Duke and the
Company, enforceable against each of Duke and the Company in accordance with its
terms.
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(b) At the Closing (i) DEFS Holding shall have good and marketable
title to all of the issued and outstanding limited liability company interests
in DEFS and (ii) DEFS or a DEFS Subsidiary shall have good and marketable title
to all of the issued and outstanding limited liability company interests in each
DEFS LLC Subsidiary and all of the issued and outstanding capital stock and
other equity interests of each DEFS Corporate Subsidiary, in each case free and
clear of any Liens, restrictions on transfer or voting or preemptive rights.
Duke and DEFS Holding have the full corporate power, right and authority to
transfer and convey, or cause to be transferred and conveyed, to the Company at
the Closing the limited liability company interests in DEFS.
(c) The execution, delivery and performance of this Agreement and the
Governance Agreement by Duke do not, and the consummation by Duke of the
transactions contemplated by this Agreement and the Governance Agreement will
not, constitute (i) a breach or violation of, or a default under, the
certificate of incorporation or by-laws or other organizational documents of
Duke or DEFS Holding, (ii) constitute a breach or violation of, or a default
under, or trigger any "change of control" rights or remedies under, or give rise
to any Lien, any acceleration of remedies, any buy-out right, or any right of
first offer or refusal or of termination under, any indenture, license,
contract, agreement or other instrument to which DEFS Holding or of any of its
Subsidiaries is a party or by which any of them or their respective properties
or assets may be bound, or (iii) assuming compliance with the applicable
requirements of the HSR Act, violate any law, rule, regulation, judgment, decree
or order applicable to Duke, DEFS Holding or any of the DEFS Subsidiaries or any
of their respective properties or assets, except in the case of (ii) and (iii)
above for such breaches, violations, defaults, liens, accelerations or rights as
would not reasonably be expected, individually or in the aggregate, to result in
a Material Adverse Effect on DEFS or to adversely affect the ability of Duke to
consummate the transactions contemplated by this Agreement or the Governance
Agreements.
Section 5.3 CONSENTS AND APPROVALS. Except for applicable requirements
of the HSR Act, no notice to, filing with, authorization of, exemption by, or
consent or approval of, or the taking of any other action in respect of any
Governmental Entity or any other Person on the part of Duke, DEFS Holding, or
the DEFS Subsidiaries is necessary for the consummation by Duke, DEFS Holding,
or any of the DEFS Subsidiaries of the transactions contemplated by this
Agreement, except where the failure to provide such notice, make such filing, or
obtain such authorization, exemption, consent or approval would not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect on DEFS or to adversely affect the ability of Duke to consummate
the transactions contemplated by this Agreement or the Governance Agreement.
Section 5.4 PERMITS; COMPLIANCE WITH APPLICABLE LAW. As of the Closing
Date, each of the DEFS Subsidiaries shall hold all Permits necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default under and/or in violation of any,
applicable law, statute, order, rule or regulation of any Governmental Entity
relating to any of the DEFS Subsidiaries, except in each case where the failure
to hold such Permit or such noncompliance or default would not, individually or
in the aggregate, have a Material Adverse Effect on DEFS. To Duke's knowledge,
the business of the DEFS Subsidiaries is not being and has not been conducted in
violation of any applicable law or any order, writ, injunction or decree of any
Governmental Entity, except for any such violations
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which would not, individually or in the aggregate, have a Material Adverse
Effect on DEFS. None of the DEFS Subsidiaries has received any notice or other
communication from any Governmental Entity asserting (i) any violation of law,
statute, ordinance, order, rule or regulation, (ii) any violation of or failure
to comply with any term or requirement of any Permit, or (iii) any revocation,
withdrawal, suspension, cancellation, termination or modification of any Permit,
except for violations, failures to comply, revocations, withdrawals,
suspensions, cancellations, terminations or modifications which would not in the
aggregate reasonably be expected to have a Material Adverse Effect on DEFS. No
notice of any pending investigation or violation of, non-compliance with or
alleged liability under, any law, statute, ordinance, order, rule, regulation or
Permit has been received by any of the DEFS Subsidiaries which would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on DEFS.
Section 5.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Duke has
previously made available to Phillips true, correct and complete copies of (i)
the audited combined balance sheets of DEFS and its Subsidiaries, DETTCO and
Subsidiaries, Panhandle Field Services, Inc., and Panhandle Gathering Company as
of December 31, 1998 and 1997 and the related audited combined statements of
income and cash flows for the periods then ended (such statements include the
investment in TEPPCO which is an Excluded Asset) and (ii) the unaudited proforma
combined balance sheet of DEFS and its Subsidiaries (with proforma adjustments
to eliminate intercompany advances, notes, income taxes, and the investment in
TEPPCO and to include DETTCO, Canrock and goodwill related to Mega) as of
September 30, 1999 (the "DEFS SEPTEMBER 30 BALANCE SHEET"), a copy of which is
attached as Schedule 5.5 of the Duke Disclosure Schedule, and the related
unaudited combined statement of income for the nine-month period then ended
(together with the DEFS September 30 Balance Sheet, the "DEFS SEPTEMBER 30
FINANCIAL STATEMENTS").
The financial statements referred to in this Section 5.5 fairly
present (except that such financial statements are incomplete in that they do
not include footnotes, and subject, in the case of the DEFS September 30
Financial Statements, to recurring audit adjustments, none of which either
individually or in the aggregate is material) the results of the combined
operations and combined financial positions of DEFS and its Subsidiaries (as
adjusted in the manner described above relating to the DEFS September 30
Financial Statements) for the respective fiscal periods or as of the respective
dates therein set forth. Each of such statements described in this Section 5.5
complies with applicable accounting requirements with respect thereto; and each
of such statements has been prepared in accordance with GAAP (except that such
statements are incomplete in that they do not include footnotes and do include
proforma adjustments as described above) consistently applied during the periods
involved. Neither DEFS nor any of its Subsidiaries (as adjusted in the manner
described above) has any liabilities required by GAAP to be set forth on a
combined balance sheet of DEFS and its Subsidiaries, except (i) as set forth on
the DEFS September 30 Balance Sheet, and (ii) for liabilities incurred in the
ordinary course of business since September 30, 1999 and which would not have a
Material Adverse Effect on DEFS.
Section 5.6 BROKER'S FEES. Neither Duke nor any of its Subsidiaries
(including DEFS Holding and its Subsidiaries) nor any of their respective
officers or directors has employed
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any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement or the Governance Agreement which would be payable by the
Company, Phillips, any Phillips Subsidiary or any DEFS Subsidiary.
Section 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for changes
or events consented to or approved by Phillips in writing pursuant to Section
6.5, from September 30, 1999 through the date of this Agreement, the business of
the DEFS Subsidiaries has been operated in the ordinary and normal course in all
material respects and there has not been:
(a) any event (whether covered by insurance or not) which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on DEFS;
(b) any increase in compensation (including severance or termination
pay) payable to or to become payable to any consultants, officers, directors,
employees or agents working in connection with the business of any DEFS
Subsidiary or any change in any insurance, pension or other benefit plan,
payment or arrangement made to, for or with any of such consultants, officers,
directors, employees or agents, in each case other than (i) general increases or
changes reasonably consistent with past practices and applicable to at least 10%
of the employees of Duke and its Subsidiaries, or (ii) other increases that are
in accordance with past practice and are not material in the aggregate;
(c) any change in financial accounting methods, principles or
practices by any DEFS Subsidiary materially affecting its assets, Liabilities or
businesses, except insofar as may have been required by a change in GAAP;
(d) any indebtedness for borrowed money incurred by any of the DEFS
Subsidiaries other than from Duke or its Affiliates, any issuance of debt
securities by any of the DEFS Subsidiaries other than to Duke or its Affiliates,
any assumption, guarantee, endorsement or other action which would result in any
of the DEFS Subsidiaries having responsibility for the obligations of any other
Persons, or any mortgage or encumbrance on properties or assets other than Liens
that do not materially restrict or detract from the value of such properties or
assets; or
(e) any declaration, setting aside or payment of any dividend or any
other similar distribution (other than in cash), directly or indirectly, with
respect to any DEFS Subsidiary's securities except as permitted by Section
2.1(b)(i), Section 2.1(d), Section 2.1(f) or Section 2.1(g).
Section 5.8 LEGAL PROCEEDINGS. (a) As of the date of this Agreement,
neither Duke nor DEFS Holding nor any of their respective Subsidiaries is a
party to any, and there are no pending or, to Duke's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against or otherwise
affecting DEFS Holding or any of its Subsidiaries which (i) would reasonably be
expected to result in material injunctive relief or in damages to DEFS Holding
and its Subsidiaries in excess of $10,000,000 in the aggregate or (ii) would
adversely affect the ability
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of Duke to consummate the transactions contemplated by this Agreement or the
Governance Agreement.
(b) As of the date of this Agreement, there are no injunctions,
orders, judgments or decrees imposed upon or otherwise affecting the DEFS
Subsidiaries or assets which, individually or in the aggregate, have had, or
would reasonably be expected to have, a Material Adverse Effect on DEFS.
Section 5.9 [Intentionally omitted]
Section 5.10 CONTRACTS. (a) Schedule 5.10(a) of the Duke Disclosure
Schedule sets forth a true and complete list as of the date of this Agreement,
of all contracts, agreements and commitments of the following categories,
whether oral or written, express or implied, to which any of the DEFS
Subsidiaries is a party or by which any of their respective properties or assets
are bound (excluding the agreements contemplated by this Agreement or the
Governance Agreement) (collectively, the "DEFS MATERIAL CONTRACTS"):
(1) any contract (other than gas purchase agreements) involving
or requiring expenditures or receipts by any DEFS Subsidiary more than
$2,000,000 in any calendar year and not cancelable or terminable within one year
from the Closing Date;
(2) any contract involving or requiring expenditures or receipts
by any DEFS Subsidiary of more than $5,000,000 in any calendar year (or other
material contract) that grants a right of first refusal or a right of first
negotiation or other preferential right to a third party;
(3) any partnership or joint venture agreement with regard to
material assets of the DEFS Subsidiaries;
(4) any contract containing covenants limiting the freedom of any
of the DEFS Subsidiaries to engage in any line of business or compete with any
Person or operate at any location;
(5) any contract between any of the DEFS Subsidiaries, on one
hand, and any Affiliate of Duke (other than the DEFS Subsidiaries), on the other
hand;
(6) any collective bargaining agreement;
(7) any employment, personal services, consulting,
noncompetition, severance, golden parachute or similar contract, for officers,
directors or other individuals and requiring payments by the DEFS Subsidiary in
excess of $250,000 per year;
(8) the top ten contracts by volume pertaining to the purchase,
sale, processing, treating, compression, gathering, storage, exchange,
transportation or transmission of natural gas in all its forms and all other
hydrocarbons (excluding liquid products and excluding gas purchase contracts)
together with all deposits (either in products or cash) related to such
contracts in each of the DEFS Subsidiaries' eight operating areas and the NGL
business unit of DEFS;
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(9) any contract entered into since January 1, 1996 for the
acquisition or disposition, sale or lease of properties or assets of the DEFS
Subsidiaries (by merger, purchase or sale of assets or stock or otherwise)
requiring aggregate expenditure or receipts by the DEFS Subsidiaries in excess
of $10,000,000; and
(10) any commitment or agreement to enter into any of the
foregoing.
(b) As of the date of this Agreement, each DEFS Material Contract is
a valid, binding and enforceable (except as such enforceability may be subject
to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
or other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally) obligation of the applicable DEFS Subsidiary. As of the date
of this Agreement, there is no default under any DEFS Material Contract by any
DEFS Subsidiary or, to Duke's knowledge, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or both
would constitute a default thereunder by any DEFS Subsidiary, or to Duke's
knowledge, any other party, which default or event, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
DEFS. As of the date of this Agreement, no party to any DEFS Material Contract
has given notice to any DEFS Subsidiary or made a claim against any DEFS
Subsidiary with respect to any breach or default thereunder which breach or
default, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect on DEFS. As of the date of this Agreement, there has
been no amendment or modification of any of the DEFS Material Contracts except
as specifically listed in Schedule 5.10(a) of the Duke Disclosure Schedule. The
enforceability of any DEFS Material Contract shall not be impaired by the
execution and delivery of this Agreement or the Governance Agreement or the
consummation of the transactions contemplated hereby or thereby, and, as of the
date of this Agreement, no DEFS Material Contract requires that a transaction of
the kind contemplated by this Agreement or the Governance Agreement receive the
approval of any party to such DEFS Material Contract, except where such
impairments or failures to receive approvals, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on DEFS.
(c) Except for certain indebtedness which shall be canceled without
liability to the DEFS Subsidiaries prior to the Closing as provided in Section
2.1(f) and liabilities reflected in the DEFS September 30 Balance Sheet, as of
the date of this Agreement, none of the DEFS Subsidiaries is a party to any loan
agreement, mortgage, indenture, security agreement or other agreement or
instrument relating to the borrowing of money by, or any extension of credit to,
any of the DEFS Subsidiaries.
(d) As of the date of this Agreement, Duke has delivered to Phillips
or otherwise made available to Phillips true, correct and complete copies of all
DEFS Material Contracts.
(e) DE Fuels, Inc. is party to a Master Natural Gas Liquids Purchase
Agreement, dated November 20, 1998, with Union Pacific Resources Company and
Union Pacific Fuels, Inc. which contains confidentiality provisions which
restrict the disclosure of the terms of such contract. Duke has reviewed this
contract and is satisfied that the terms of this contract reflect customary arms
length contract arrangements.
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Section 5.11 REAL PROPERTY. (a) FEE PROPERTIES. Except as otherwise
set forth in Schedule 5.11(a) of the Duke Disclosure Schedule, as of the date of
this Agreement, the DEFS Subsidiaries own beneficially all real property listed
in Schedule 5.11(a) of the Duke Disclosure Schedule (collectively, the
"DEFS-OWNED FEE PROPERTIES") and have good and marketable record title to each
DEFS-Owned Fee Property, free and clear of all Liens and encumbrances, except
for Permitted Encumbrances. Schedule 5.11(a) of the Duke Disclosure Schedule
identifies all real property assets the fee title to which is owned,
beneficially and/or of record, by the DEFS Subsidiaries as of the date of this
Agreement and which are material to the business of the DEFS Subsidiaries.
(B) REALTY LEASES. As of the date of this Agreement, with respect to
all leases of real property of or used by the DEFS Subsidiaries (collectively,
the "DEFS LEASES"), beneficial and record legal title to or interest in the DEFS
Leases is owned or held by the DEFS Subsidiaries, free and clear of Liens,
encumbrances and claims of those claiming by, through or under Duke or the DEFS
Subsidiaries, but not otherwise, subject to Permitted Encumbrances. Schedule
5.11(b) of the Duke Disclosure Schedule identifies all leases of real property,
other than easements and rights of way, a leasehold interest in which is owned,
beneficially and/or of record, by the DEFS Subsidiaries as of the date of this
Agreement and which are material to the business of the DEFS Subsidiaries.
Except as otherwise set forth in Schedule 5.11(b) of the Duke Disclosure
Schedule, as of the date of this Agreement, each of the DEFS Leases is a valid,
binding and enforceable (except as such enforceability may be subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws, now or hereafter in effect, relating to or limiting creditors' rights
generally) obligation of such DEFS Subsidiary and of the lessor under such DEFS
Lease. As of the date of this Agreement, except where, individually or in the
aggregate, there would not reasonably be expected to be a Material Adverse
Effect on DEFS or as otherwise set forth in Schedule 5.11(b) of the Duke
Disclosure Schedule, (i) the enforceability of any of the DEFS Leases will not
be impaired by the execution or delivery of this Agreement or the Governance
Agreement, and (ii) no DEFS Subsidiary is currently participating in any
discussions or negotiations regarding termination of any DEFS Lease of a
property at which such DEFS Subsidiary conducts business operations prior to the
scheduled expiration of such DEFS Lease by reason of a breach or alleged breach
by the tenant thereunder.
(C) EASEMENTS. As of the date of this Agreement, with respect to
pipeline easements, rights of way, licenses and land use permits of or used by
the DEFS Subsidiaries (collectively, the "DEFS EASEMENTS"), beneficial and
record legal title to or interest in the DEFS Easements is owned or held by a
DEFS Subsidiary free and clear of Liens, encumbrances and claims of those
claiming by, through, or under such DEFS Subsidiary, but not otherwise, subject
to Permitted Encumbrances.
Section 5.12 ENVIRONMENTAL MATTERS. As of the date of this Agreement,
except for matters that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on DEFS, (i) the properties,
operations and activities of the DEFS Subsidiaries have been and are in
compliance with all applicable Environmental Laws; (ii) the DEFS Subsidiaries
are not subject to any existing, pending or, to Duke's knowledge, threatened,
action, suit, proceeding or remediation activity under any Environmental Law;
(iii) Hazardous Materials have not at any time been released or disposed of at
the properties currently owned,
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operated, leased or used by the DEFS Subsidiaries and Hazardous Materials were
not released or disposed of at properties previously owned, operated, leased or
used by the DEFS Subsidiaries at any time prior to the sale or other disposition
of such previously owned properties; (iv) the previous and current methods of
releasing or disposing of Hazardous Materials generated, used, treated, recycled
or stored at, upon or under the properties previously or currently owned,
operated, leased or used by the DEFS Subsidiaries have been disclosed to
Phillips and the DEFS Subsidiaries are not subject to any liability under
applicable Environmental Laws arising in connection with the transportation and
off-site disposal of any such Hazardous Materials; and (v) Duke has not
restricted access for the review of and copying by Phillips all of the
environmental reports, documents, data and other information prepared by or for
the DEFS Subsidiaries relating to the properties previously or currently owned,
operated, leased or used by any of the DEFS Subsidiaries; PROVIDED, HOWEVER,
that the foregoing representations, as they apply to any property, operation,
activity or DEFS Subsidiary prior to the date such property, operation, activity
or DEFS Subsidiary became owned or controlled, directly or indirectly, by Duke,
shall be limited to Duke's knowledge.
Section 5.13 INTELLECTUAL PROPERTY. (a) As of the date of this
Agreement, except for the Duke Trademarks and Logos, DEFS and its Subsidiaries
collectively have such ownership of or such rights by license or other agreement
to use all patents and patent applications, trademarks and service marks,
trademark and service mark registrations and applications, trade names, logos,
copyrights and copyright registrations and applications, technology, know-how,
processes and other intellectual property rights, United States or foreign
(collectively, the "DEFS INTELLECTUAL PROPERTY"), as are necessary to permit the
DEFS Subsidiaries to conduct their business as currently conducted, except where
the failure to have such ownership, license or right to use would not,
individually or in the aggregate, have a Material Adverse Effect on DEFS.
(b) As of the date of this Agreement, (i) to Duke's knowledge, neither
the use of the DEFS Intellectual Property nor the conduct of the business of the
DEFS Subsidiaries as currently conducted infringes the intellectual property
rights of any third party and there are no present or threatened infringements
of the DEFS Intellectual Property by any third party, except, in either case,
for such infringements which would not, individually or in the aggregate, have a
Material Adverse Effect on DEFS; and (ii) there are no pending or, to Duke's
knowledge, threatened proceedings or litigation or other adverse claims by any
person relating to the use by any of the DEFS Subsidiaries of any DEFS
Intellectual Property or any third party intellectual property.
Section 5.14 EMPLOYEE BENEFIT PLANS. (a) Schedule 5.14(a) of the
Duke Disclosure Schedule includes a complete list of all Duke Plans that are in
effect as of the date of this Agreement.
(b) As of the date of this Agreement, with respect to each Duke Plan
listed in Schedule 5.14(a) of the Duke Disclosure Schedule, Duke has delivered
or made available to Phillips a true, correct and complete copy of all plan
documents and the current summary plan description.
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(c) As of the date of this Agreement, no Duke Plans listed in Schedule
5.14(a) of the Duke Disclosure Schedule are Multiemployer Plans. None of the
DEFS Subsidiaries or any of their respective ERISA Affiliates has, at any time
during the last six years, contributed to or been obligated to contribute to any
Multiemployer Plan, and none of the DEFS Subsidiaries or any of their respective
ERISA Affiliates has incurred any withdrawal liability under Part I of Subtitle
E of Title IV of ERISA that has not been satisfied in full.
(d) There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability that would be a liability of any
of the DEFS Subsidiaries following the Closing.
(e) Except as specifically provided in Annex A and except for stock
options and other equity based incentive awards granted by Duke to DEFS
Employees, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any
DEFS Employee. The consummation of the transactions contemplated by this
Agreement will not constitute a "change in ownership or control" of Duke within
the meaning of Proposed Treasury Regulation Section 1.280G-1.
(f) The Duke Savings Plan is intended to be qualified under Section
401(a) of the Code.
Section 5.15 LABOR RELATIONS. As of the date of this Agreement, each
of the DEFS Subsidiaries is in material compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work, employment discrimination, equal opportunity,
affirmative action, workers' compensation, unemployment insurance, immigration
and occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, except for failures to comply that would not, individually or in the
aggregate, reasonably be expected to cause a Material Adverse Effect on DEFS. As
of the date of this Agreement, there is no labor strike, slowdown, stoppage or
lockout actually pending, or, to the knowledge of Duke, threatened against or
affecting any of the DEFS Subsidiaries. Except as identified in Schedule 5.15 of
the Duke Disclosure Schedule, there are no collective bargaining agreements or
other labor union agreement or understandings to which any of the DEFS
Subsidiaries is a party by which any of them is bound. As of the date of this
Agreement, none of the DEFS Subsidiaries that is not a party to or bound by any
collective bargaining agreements or other labor union agreements or
understandings has any knowledge of any labor union organizing activity within
the last five years. As of the date of this Agreement, there is no labor
dispute, strike, slowdown, stoppage or lockout actually pending, or to the
knowledge of Duke, threatened against or affecting any of the DEFS Subsidiaries.
As of the date of this Agreement, the DEFS Subsidiaries are in material
compliance with and has not triggered any requirements under the Workers
Adjustment Restraining Notification Act or similar laws with respect to DEFS
Employees.
Section 5.16 TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement and the Governance Agreement, (i) no director or
officer of Duke or its Affiliate (other than the DEFS Subsidiaries) is currently
directly or indirectly a party to any
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transaction with any DEFS Subsidiary, including any agreement, arrangement or
understanding, written or oral, providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payment to any such director or officer and (ii) none of the DEFS Subsidiaries
has any outstanding material contract, agreement or other arrangement with Duke
or any of its Affiliates (other than the DEFS Subsidiaries ) or has engaged in
any material transaction with Duke or its Affiliates (other than the DEFS
Subsidiaries) since January 1, 1999.
Section 5.17 PERSONAL PROPERTY. As of the date of this Agreement, the
DEFS Subsidiaries own, or hold valid leasehold interests in, the personal
property owned or used by them, in each case, free and clear of all Liens,
except for such Liens which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on DEFS.
Section 5.18 YEAR 2000. The DEFS Subsidiaries have initiated a review
and assessment of the Year 2000 Problem, have developed a plan for addressing
the Year 2000 Problem on a timely basis and have to date implemented such plan,
except where their failure to do so would not reasonably be expected to have a
Material Adverse Effect on DEFS. As of the date of this Agreement, except as
would not reasonably be expected to have a Material Adverse Effect on DEFS, to
Duke's knowledge, none of the assets or equipment owned or utilized by any of
the DEFS Subsidiaries will fail to perform because of, or due in any way to, a
Year 2000 Problem. As of the date of this Agreement, to Duke's knowledge, no
vendor, supplier or customer of the DEFS Subsidiaries is reasonably expected to
experience a Year 2000 Problem that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on DEFS.
Section 5.19 INSURANCE. Each DEFS Subsidiary is, and has been
continuously since June 18, 1997 (or, if later, the date such DEFS Subsidiary
became a Subsidiary of Duke), insured with Duke-affiliated insurance companies
or with third-party insurers in such amounts and against such risks and losses
as are customary in all material respects for companies conducting the business
as conducted by the DEFS Subsidiaries during such time period. As of the date of
this Agreement, none of the DEFS Subsidiaries has received any notice of
cancellation or termination with respect to any insurance policy of any of the
DEFS Subsidiaries which would reasonably be expected to have a Material Adverse
Effect on DEFS. Duke has made available to Phillips accurate and complete copies
of all insurance policies in effect as of the date of this Agreement.
Section 5.20 PUBLIC UTILITY HOLDING COMPANY ACT. None of the DEFS
Subsidiaries is a "public utility company" or a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 5.21 THE COMPANY. The Company has not and prior to the Closing
Date will not engage in any activities of any nature except as provided in or
contemplated by this Agreement or the Governance Agreement.
Section 5.22 SUFFICIENCY OF CONTRIBUTION. Except as disclosed
elsewhere in this Agreement or in the Duke Disclosure Schedule, the DEFS
Subsidiaries (excluding any Duke
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Excluded Assets and Liabilities but including the contract referred to in
Section 5.10(e)) collectively hold all right, title and interest of Duke and its
Affiliates, in and to all properties, rights, assets and liabilities (other than
the Duke Excluded Assets and Liabilities) used (i) by Duke in conducting its
midstream natural gas gathering and processing operations in the continental
United States and Canada as of the date of this Agreement and (ii) by DEFS
Subsidiaries in conducting its natural gas marketing operations as of the date
of this Agreement.
ARTICLE VI
COVENANTS
Section 6.1 INVESTIGATION OF BUSINESS; ACCESS TO PROPERTIES AND
RECORDS. (a) From the date of this Agreement through the Closing, Duke and
Phillips shall cause the DEFS Subsidiaries and the PGC Subsidiaries,
respectively, to afford to representatives of the other Party reasonable access
to their offices, properties, books and records during normal business hours, in
order that the other Party may have a full opportunity to make such
investigations as it desires of their affairs (including Phase I environmental
testing); PROVIDED, HOWEVER, that such investigation shall be at reasonable
times and upon reasonable notice and shall not unreasonably disrupt the
personnel and operations of Duke or any of the DEFS Subsidiaries or Phillips or
any of the PGC Subsidiaries, respectively. All requests for access to the
offices, properties, books, and records relating to the DEFS Subsidiaries or the
PGC Subsidiaries shall be made to such representatives designated in writing by
Duke or Phillips, as appropriate (the "DESIGNATED REPRESENTATIVES"), which
Designated Representatives shall be solely responsible for coordinating all such
requests and all access permitted hereunder. Neither Duke nor Phillips nor their
respective representatives shall contact any of the employees, customers or
suppliers of the other Party and its Subsidiaries, in connection with the
transactions contemplated by this Agreement and the Governance Agreement,
whether in person or by telephone, mail or other means of communication, without
the specific prior written authorization of the other Party's Designated
Representatives, which consent shall not be unreasonably withheld.
(b) Any information provided to a Party or its representatives
pursuant to this Agreement or the Governance Agreement shall be held by such
Party and its representatives in accordance with, and shall be subject to the
terms of, Section 6.4 of the Governance Agreement. From and after the Closing,
each Party shall, and shall cause its Affiliates to, maintain in confidence and
not use nonpublic information of the other Party, except as otherwise
specifically permitted by this Agreement or the Governance Agreement or as
required by law.
(c) Except as contemplated by this Agreement and the Governance
Agreement, each of Phillips and Duke agrees, and agrees to cause its
representatives not to, until the earlier of the Closing or termination of this
Agreement in accordance with its terms, not to (i) enter into any agreement with
any third party, or engage in any discussions with attorneys, investment
bankers, other advisors or representatives or any third party, regarding a
transaction involving the sale or a public offering of, or creation of a joint
venture involving, all or any material portion of the operations of the PGC
Subsidiaries or the DEFS Subsidiaries, as applicable, or (ii) solicit, initiate
or encourage offers in respect thereof or otherwise prepare for
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or take any actions intended to prepare for an initial public offering of all or
any material portion of such business.
(d) The Company agrees to (i) hold all of the books and records of
each of the DEFS Subsidiaries and the PGC Subsidiaries existing on the Closing
Date and not to destroy or dispose of any thereof for a period of four years
from the Closing Date or such longer time as may be required by law, and
thereafter, if it desires to destroy or dispose of such books and records, to
offer first in writing at least 60 days prior to such destruction or disposition
to surrender them to Duke or Phillips, respectively, and (ii) following the
Closing Date to afford Duke and Phillips, their respective accountants and
counsel, during normal business hours, upon reasonable notice, full access to
such books and records to the extent that such access may be requested for any
legitimate purpose at no cost to Duke or Phillips (other than for reasonable
out-of-pocket expenses); PROVIDED, HOWEVER, that nothing herein shall limit any
of Duke's or Phillips' respective rights of discovery pursuant to any legal
proceeding. The Company shall have the same rights, and Duke and Phillips,
respectively, the same obligations, as are set forth above in this Section
6.1(c) with respect to any books, non-privileged records and employees of Duke
or Phillips pertaining to the Company and its Subsidiaries, with the exception
of Tax Returns. The Company will provide additional information to the extent
reasonably requested and required by Duke or Phillips for a legitimate purpose.
Section 6.2 CONSENTS AND APPROVALS. (a) Subject to the terms and
conditions of this Agreement and the Governance Agreement, each of Duke and
Phillips agrees to use its reasonable best efforts to promptly (i) take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Governance Agreement, (ii) obtain and maintain all approvals, consents,
registrations, permits, authorizations and other confirmations required to be
obtained from any third party (including any Governmental Entity), that are
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement and the Governance Agreement from other parties to material loan
agreements, leases and other contracts, (iii) to lift or rescind any injunction
or restraining order or other order adversely affecting its ability to
consummate the transactions contemplated by this Agreement and the Governance
Agreement and (iv) to fulfill all conditions to this Agreement and the
Governance Agreement. Subject to applicable laws relating to the exchange of
information, Duke and Phillips shall reasonably cooperate with and inform each
other as to all submissions and communications relating to the DEFS Subsidiaries
or the PGC Subsidiaries, as the case may be, made with any third party and/or
any Governmental Entity in connection with the transactions contemplated by this
Agreement and the Governance Agreement. In no event, however, shall either of
Duke or Phillips be obligated to pay any money to any Person or to offer or
grant other financial or other accommodations to any person in connection with
its obligations under this Section 6.2.
(b) Notwithstanding anything to the contrary in this Agreement, in the
event of any sale of non-current assets approved by Duke or Phillips, as
applicable, pursuant to Sections 6.2, 6.4, 6.5, or 6.6(c) at the Closing all
after-Tax proceeds from such sale shall be held by the DEFS Subsidiary or the
PGC Subsidiary (or its respective successor entity) that previously held the
sold asset and the representations and warranties in Articles IV and V shall be
deemed to be adjusted appropriately.
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(c) In furtherance and not in limitation of the foregoing, each of
Duke and Phillips agrees to (i) make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement as promptly as practicable and in any event
within ten Business Days of the date of this Agreement, (ii) if the Federal
Trade Commission or the Department of Justice, as applicable, issues a request
for additional documentary material and information pursuant to the HSR Act (a
"SECOND REQUEST") in connection with the transaction contemplated by this
Agreement, respond to the Second Request as promptly as possible and, in any
event, certify compliance with the Second Request within 60 days of the date of
issue of the Second Request and (iii) complete the review process under the HSR
Act to permit the consummation of the transactions contemplated by this
Agreement and the Governance Agreement including causing the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
possible.
Section 6.3 FURTHER ASSURANCES. (a) Subject to Section 6.8, Duke and
Phillips agree that, from time to time, whether before, at or after the Closing
Date, each of them will execute and deliver, or cause to be executed and
delivered, such further instruments of conveyance and transfer and take such
other action as may be necessary to carry out the purposes and intents of this
Agreement and the Governance Agreement.
(b) To the extent not already in the possession of the Company or its
Subsidiaries on or before the Closing Date, Duke shall deliver to the Company
all original agreements, documents, books, records and files relating to the
ownership or operation of the DEFS Subsidiaries' businesses or their respective
properties or assets, including, all books of account, journals and ledgers,
correspondence, memoranda, maps, plats, customer lists, information and account
histories, supplier lists and information, personnel records relating to DEFS
Employees, engineering plans, property records, title insurance policies,
records relating to all DEFS Easements (regardless of whether a DEFS Subsidiary
is the holder of record title thereof), stock certificates and stock transfer
records, minute books and corporate seals.
(c) To the extent not already in the possession of the Company or its
Subsidiaries on or before the Closing Date, Phillips shall deliver to the
Company all original agreements, documents, books, records and files relating to
the ownership or operation of the PGC Subsidiaries' businesses or their
respective properties or assets, including, all books of account, journals and
ledgers, correspondence, memoranda, maps, plats, customer lists, information and
account histories, supplier lists and information, personnel records relating to
PGC Employees, engineering plans, property records, title insurance policies,
records relating to all PGC Easements (regardless of whether a PGC Subsidiary is
the holder of record title thereof), stock certificates and stock transfer
records, minute books and corporate seals.
Section 6.4 CONDUCT OF THE PHILLIPS GAS BUSINESS. From the date of
this Agreement through the Closing, except as disclosed in Schedule 6.4 of the
Phillips Disclosure Schedule or otherwise provided for in, or contemplated by,
this Agreement or the Governance Agreement, and, except as consented to or
approved by Duke in writing, Phillips covenants and agrees that:
(a) each of the PGC Subsidiaries shall operate its business in the
ordinary course in substantially the same manner as conducted as of the date
hereof;
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(b) none of the PGC Subsidiaries shall (i) amend its respective
certificate or articles of incorporation or by-laws or comparable organizational
documents or (ii) make any change in its authorized or issued capital stock,
limited liability company interests or other equity interests;
(c) none of the PGC Subsidiaries shall (i) issue, sell or agree to
issue or sell any shares of its capital stock, limited liability company
interests or any other securities (including any securities convertible into, or
options with respect to, or warrants to purchase or rights to subscribe for, any
shares of its capital stock, limited liability company interests or other
securities) or (ii) redeem, purchase or otherwise acquire, directly or
indirectly, any securities of any of the PGC Subsidiaries;
(d) except in the ordinary course of business or as otherwise provided
for in or contemplated by this Agreement or the Governance Agreement, none of
the PGC Subsidiaries shall enter into any joint venture, partnership or other
similar arrangement;
(e) except (i) in the ordinary course of business (including the
purchase of natural gas and supplies in the ordinary course of business), (ii)
for the acquisition set forth in Schedule 6.4(e) of the Phillips Disclosure
Schedule and any other acquisition involving expenditures of less than
$10,000,000, or (iii) as otherwise provided for in or contemplated by this
Agreement or the Governance Agreement, none of the PGC Subsidiaries shall (A)
acquire any material assets or securities of any Person or any interests therein
or (B) except pursuant to Section 6.2, sell, assign, license, transfer, lease
(as lessor) or otherwise dispose of any material assets or securities;
(f) except as contemplated by PGC's 2000 capital expenditure forecasts
set forth in Schedule 6.4(f) of the Phillips Disclosure Schedule, and except for
acquisitions permitted under Section 6.4(e), none of the PGC Subsidiaries shall
make or authorize any capital expenditure or expenditures that (i) in the
aggregate are in excess of 5% of PGC's 2000 capital expenditure forecast and
(ii) will be paid for by the Company following the Closing;
(g) none of the PGC Subsidiaries shall make any change in any of its
present financial accounting methods and practices, except as required by
changes in GAAP;
(h) except as contemplated in Section 2.1(e), Section 2.1(f) and
Section 2.1(h), none of the PGC Subsidiaries shall declare or pay any dividend
or make any similar distribution or payment, directly or indirectly, with
respect to securities of any PGC Subsidiary;
(i) except where the applicable PGC Subsidiary is in good faith
contesting the same (with appropriate reserves), none of the PGC Subsidiaries
shall fail to pay when due (i) any trade accounts payable; (ii) any payments
required by any indentures, mortgages, financing arrangements, loan agreements
or similar arrangements; or (iii) any other obligations;
(j) except in the ordinary course of business or as otherwise provided
for in or contemplated by this Agreement or the Governance Agreement, none of
the PGC Subsidiaries shall (i) incur any indebtedness for borrowed money other
than from Phillips or its Affiliates, issue any debt securities other than to
Phillips and its Affiliates or assume, guarantee, endorse or
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otherwise be responsible for the obligations of any other persons or (ii)
mortgage or encumber any of their respective properties or assets other than
with Liens that do not materially restrict or detract from the value of such
properties or assets; and
(k) none of Phillips or its Affiliates (including PGC Subsidiaries)
shall agree to take any action prohibited by this Section 6.4.
Notwithstanding the provisions of this Section 6.4, nothing in this
Agreement or the Governance Agreement shall be construed or interpreted to
prevent the PGC Subsidiaries from (i) paying or making regular or special
dividends or other distributions consisting of cash, (ii) making or accepting
inter or intra company advances to, from or with one another or with Phillips or
any of its Affiliates or (iii) engaging in any transaction incident to the
normal cash management procedures of Phillips and its Affiliates prior to the
Closing, PROVIDED that as of the Closing, the Net Working Capital of the PGC
Subsidiaries shall equal zero.
Section 6.5 CONDUCT OF THE DUKE GAS BUSINESS. From the date of this
Agreement through the Closing, except as disclosed in Schedule 6.5 of the Duke
Disclosure Schedule or otherwise provided for in, or contemplated by, this
Agreement or the Governance Agreement, and, except as consented to or approved
by Phillips in writing, Duke covenants and agrees that:
(a) each of the DEFS Subsidiaries shall operate its business in the
ordinary course in substantially the same manner as conducted as of the date
hereof;
(b) none of the DEFS Subsidiaries shall (i) amend its respective
certificate or articles of incorporation or by-laws or comparable organizational
documents or (ii) make any change in its authorized or issued capital stock,
limited liability company interests or other equity interests;
(c) none of the DEFS Subsidiaries shall (i) issue, sell or agree to
issue or sell any shares of its capital stock, limited liability company
interests or any other securities (including any securities convertible into, or
options with respect to, or warrants to purchase or rights to subscribe for, any
shares of its capital stock, limited liability company interests or other
securities) or (ii) redeem, purchase or otherwise acquire, directly or
indirectly, any securities of any of the DEFS Subsidiaries;
(d) except in the ordinary course of business or as otherwise provided
for in or contemplated by this Agreement or the Governance Agreement, none of
the DEFS Subsidiaries shall enter into any joint venture, partnership or other
similar arrangement;
(e) except (i) in the ordinary course of business (including the
purchase of natural gas and supplies in the ordinary course of business) (ii)
for the acquisitions set forth in Schedule 6.5(e) of the Duke Disclosure
Schedule and any other acquisition involving expenditures of less than
$10,000,000, or (iii) as otherwise provided for in or contemplated by this
Agreement or the Governance Agreement, none of the DEFS Subsidiaries shall (A)
acquire any material assets or securities of any Person or any interests therein
or (B) except pursuant to Section 6.2, sell, assign, license, transfer, lease
(as lessor) or otherwise dispose of any material assets or securities;
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(f) except as contemplated by DEFS's 2000 capital expenditure
forecasts set forth in Schedule 6.5(f) of the Duke Disclosure Schedule, and
except for acquisitions permitted under Section 6.5(c), none of the DEFS
Subsidiaries shall make or authorize any capital expenditure or expenditures
that (i) in the aggregate are in excess of 5% of DEFS's 2000 capital expenditure
forecast and (ii) will be paid for by the Company following the Closing;
(g) none of the DEFS Subsidiaries shall make any change in any of its
present financial accounting methods and practices, except as required by
changes in GAAP;
(h) except as contemplated in Section 2.1(b)(i), Section 2.1(d),
Section 2.1(f) and Section 2.1(g), none of the DEFS Subsidiaries shall declare
or pay any dividend or make any similar distribution or payment, directly or
indirectly, with respect to securities of any DEFS Subsidiary;
(i) except where the applicable DEFS Subsidiary is in good faith
contesting the same (with appropriate reserves), none of the DEFS Subsidiaries
shall fail to pay when due (i) any trade accounts payable or (ii) any payments
required by any indentures, mortgages, financing arrangements, loan agreements
or similar arrangements;
(j) except in the ordinary course of business or as otherwise provided
for in or contemplated by this Agreement or the Governance Agreement, none of
the DEFS Subsidiaries shall (i) incur any indebtedness for borrowed money other
than from Duke or its Affiliates, issue any debt securities other than to Duke
and its Affiliates or assume, guarantee, endorse or otherwise be responsible for
the obligations of any other persons or (ii) mortgage or encumber any of their
respective properties or assets other than with Liens that do not materially
restrict or detract from the value of such properties or assets; and
(k) none of Duke or its Affiliates (including the DEFS Subsidiaries)
shall agree to take any action prohibited by this Section 6.5.
Notwithstanding the provisions of this Section 6.5, nothing in this
Agreement or the Governance Agreement shall be construed or interpreted to
prevent the DEFS Subsidiaries from (i) paying or making regular or special
dividends or other distributions consisting of cash, (ii) making or accepting
inter or intra company advances to, from or with one another or with Duke or any
of its Affiliates or (iii) engaging in any transaction incident to the normal
cash management procedures of Duke and its Affiliates prior to the Closing,
PROVIDED that as of the Closing, the Net Working Capital of the DEFS
Subsidiaries shall equal zero.
Section 6.6 PRESERVATION OF BUSINESS. (a) Subject to the terms and
conditions of this Agreement and the Governance Agreement, Duke shall, and shall
cause the DEFS Subsidiaries to, use reasonable efforts to preserve the business
of the DEFS Subsidiaries intact, to keep available to the DEFS Subsidiaries and
the Company the services of the DEFS Employees and to preserve the goodwill of
customers and others having business relations with the DEFS Subsidiaries in all
material respects.
(b) Subject to the terms and conditions of this Agreement and the
Governance Agreement, Phillips shall, and shall cause the PGC Subsidiaries to,
use reasonable efforts to preserve the business of the PGC Subsidiaries intact,
to keep available to the PGC Subsidiaries
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and the Company the services of the PGC Employees and to preserve the goodwill
of customers and others having business relations with the PGC Subsidiaries in
all material respects.
(c) Prior to the Closing, Duke shall cause the DEFS Subsidiaries to
consummate the sale and disposition of their interest in that certain
partnership identified on the Duke Disclosure Schedule as the General
Partnership for Westana Gathering Company.
Section 6.7 PUBLIC ANNOUNCEMENTS. Except as otherwise required by law,
each of Duke and Phillips will consult with the other and obtain the consent of
the other (which consent shall not be unreasonably withheld or delayed) before
issuing, or permitting any agent or Affiliate to issue, any press releases or
otherwise making or permitting any agent or Affiliate to make, any public
statements with respect to this Agreement or the Governance Agreement or the
transactions contemplated hereby and thereby.
Section 6.8 PGC EASEMENTS. (a) For purposes of this Agreement, all of
the PGC Easements shall be classified as either "PGC Single-User Easements" or
"PGC Multiple-User Easements". Phillips holds legal title to numerous PGC
Easements for the benefit of the PGC Subsidiaries (or, in the case of certain
PGC Multiple-User Easements, for the joint benefit of one or more PGC
Subsidiaries, with respect to certain existing pipelines used in connection with
such PGC Subsidiaries' business, and Phillips, with respect to the remainder of
such PGC Multiple-User Easement). In addition, the PGC Subsidiaries hold legal
title to certain PGC Multiple-User Easements for the joint benefit of Phillips,
with respect to certain existing pipelines used in connection with Phillips'
business, and a PGC Subsidiary, with respect to the remainder of such PGC
Multiple-User Easement. Duke and the Company acknowledge and agree that it will
not be feasible prior to Closing to effect comprehensive assignments of record
legal title with respect to all of the PGC Single-User Easements, or all of the
partial easement rights ("PGC PARTIAL EASEMENT RIGHTS") in PGC Multiple-User
Easements held by Phillips for the benefit of the PGC Subsidiaries, nor will it
be feasible prior to Closing to effect comprehensive assignments of legal title
with respect to all of the partial easement rights ("PHILLIPS PARTIAL EASEMENT
RIGHTS") in PGC Multiple-User Easements owned by the PGC Subsidiaries for the
benefit of Phillips.
(b) Accordingly, (i) at or prior to the Closing, Phillips shall assign
to the PGC Subsidiaries all of Phillips' beneficial interest in all PGC
Single-User Easements and all PGC Partial Easement Rights in PGC Multiple-User
Easements owned by Phillips; (ii) at or prior to the Closing, Phillips shall
cause the PGC Subsidiaries to assign to Phillips all of the beneficial interest
in all Phillips Partial Easement Rights in PGC Multiple-User Easements owned by
the PGC Subsidiaries; (iii) subsequent to the Closing, Phillips will continue to
hold record legal title to those PGC Single-User Easements described in the
second sentence of Section 6.8(a) (and all PGC Partial Easement Rights in each
PGC Multiple-User Easement held by Phillips) for the use and benefit of the
affected PGC Subsidiary, and otherwise upon and subject to the applicable
provisions of this Section 6.8, until such time as record legal title to such
PGC Single-User Easement or such PGC Partial Easement Rights, as the case may
be, shall have been assigned to a PGC Subsidiary pursuant to Section 6.8(d)
hereof; and (iv) subsequent to the Closing, the applicable PGC Subsidiaries will
continue to hold legal title to all Phillips Partial Easement Rights in each PGC
Multiple-User Easement owned by any PGC Subsidiary for the use and benefit of
Phillips, and otherwise upon and subject to the applicable provisions of this
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Section 6.8, until such time as record legal title to such Phillips Partial
Easement Rights shall have been assigned to Phillips pursuant to Section 6.8(h)
hereof.
(c) In connection with any PGC Single-User Easement (or any PGC
Partial Easement Rights in a PGC Multiple-User Easement held by Phillips) to
which Phillips, pursuant to this Section 6.8, shall retain legal title
subsequent to the Closing for the benefit (in whole or part) of any PGC
Subsidiary (each a "PHILLIPS RETAINED EASEMENT"), Phillips shall hold such
Phillips Retained Easement and exercise and enforce its rights thereunder for
the use and benefit of, and in such manner as may be reasonably directed by, the
appropriate PGC Subsidiary. Without limiting the generality of the foregoing,
Phillips shall not, without the prior written consent of the Company in each
instance, execute any document or instrument, or take any other affirmative
action, that is intended or could reasonably be expected to have the effect of
terminating, surrendering, canceling, revoking, limiting, rescinding or
otherwise impairing or interfering with any such Phillips Retained Easement, or
the rights, privileges and benefits of any PGC Subsidiary with respect thereto,
including any assignment or other disposition of any such Phillips Retained
Easement in favor of any Person other than the Company or a PGC Subsidiary. In
connection with Phillips Retained Easement, Duke and Phillips agree as follows:
(i) Phillips shall indemnify, defend and hold harmless the Company
and its Subsidiaries from and against any and all Damages, excluding
consequential and punitive Damages, suffered or incurred by the Company or
such Subsidiaries after Closing as a result of the failure of Phillips to
have assigned such Phillips Retained Easement to the PGC Subsidiaries by
the Closing Date (all necessary third party consents having been obtained);
PROVIDED, HOWEVER, that such indemnity shall not extend to any Damages
resulting from or attributable to the failure or inability of the Company
to obtain financing for the transactions contemplated by this Agreement.
(ii) The Company shall indemnify, defend and hold harmless Phillips
and the Phillips Retained Affiliates from and against any and all Damages,
excluding consequential and punitive Damages, suffered or incurred by such
entities after Closing in respect of such Phillips Retained Easement to the
extent such Damages consist of Subject Easement Liabilities that the
Company would have been responsible for, had such Phillips Retained
Easement been assigned to the PGC Subsidiaries by the Closing Date (all
necessary third party consents having been obtained).
As used in this Section 6.8(c), the term "SUBJECT EASEMENT LIABILITIES" shall
mean, with respect to a Phillips Retained Easement, any and all payment
obligations to third parties, including lease rentals, renewal fees, ad valorem
and other taxes, arising and relating to the period from and after Closing in
respect of such Phillips Retained Easement.
(d) Prior to the Closing, Phillips, in consultation with the Company,
shall develop a timetable and action plan pursuant to which record legal title
to all of the PGC Single-User Easements (and all of the PGC Partial Easement
Rights in PGC Multiple-User Easements) which are to be held by Phillips
subsequent to the Closing for the benefit of the PGC Subsidiaries will be
assigned of record to the PGC Subsidiary whose related pipelines or equipment
make use of such PGC Single-User Easements (or such PGC Partial Easement Rights,
as the case may be) as expeditiously as is reasonably practicable, but in any
event not later than
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the applicable date stated in Section 6.8(e) (as extended pursuant to the terms
hereof, the "EASEMENT ASSIGNMENT DEADLINE"). Subsequent to the Closing, all of
such PGC Single-User Easements (and all of such PGC Partial Easement Rights in
PGC Multiple-User Easements) shall, subject to the provisions of the last
sentence of Section 6.8(e) hereof, be assigned to the applicable PGC Subsidiary
in accordance with such timetable and action plan. Each assignment of legal
title to a PGC Single-User Easement (or any PGC Partial Easement Rights in a PGC
Multiple-User Easement, as the case may be) shall be by special warranty
assignment in recordable form customary for the state in which the property
affected by such PGC Single-User Easement or PGC Multiple-User Easement is
located, and shall be without warranty of title or completeness other than a
special warranty of title as against those claiming by, through, or under
Phillips and not otherwise, and subject to Permitted Encumbrances. Counsel for
the Company shall have the right to monitor Phillips' process of preparing such
assignments and the property descriptions therefor from time to time at
Phillips' offices. Such counsel shall also have the right to review selected
samples of such assignments and descriptions to check whether same accurately
reflect the contents of Phillips' files. All such assignments and descriptions
shall be reasonably satisfactory to the Company and its counsel. Phillips shall
cause each such special warranty assignment to be filed of record in the
appropriate land title recording office, and shall pay all recording fees, deed
stamp taxes and other costs incurred in connection with such recordation.
Phillips shall use reasonable efforts to complete such assignments in the order
of the relative value of the applicable PGC Easements, with the most valuable
PGC Easements to be assigned first; PROVIDED, HOWEVER, that nothing contained in
this sentence shall be construed as requiring Phillips to assign any PGC
Gathering Easement prior to the Easement Assignment Deadline for the PGC
Trunkline Easements as set forth in Section 6.8(e) (as each such term is
hereinafter defined). If requested to do so by the Company, Phillips shall use
reasonable efforts to change the order in which PGC Single-User Easements (and
PGC Partial Easement Rights) are scheduled to be assigned pursuant to this
Section 6.8 to accommodate the business requirements of the Company; PROVIDED,
HOWEVER, that if the Company shall request Phillips to defer the assignment of
any PGC Trunkline Easement until after the assignment of any PGC Gathering
Easement (including, without limitation, under the circumstances described in
Section 6.8(f) hereof), then the Easement Assignment Deadline specified in
Section 6.8(e) with respect to the PGC Trunkline Easements shall be extended as
to such PGC Trunkline Easement to the extent reasonably necessary to enable
Phillips to comply with such request.
(e) The PGC Easements relating to the pipelines identified in Schedule
6.8(e) annexed to this Agreement are herein called the "PGC TRUNKLINE
EASEMENTS". The PGC Easements, other than the PGC Trunkline Easements, are
herein called the "PGC GATHERING EASEMENTS". With respect to the PGC Trunkline
Easements for which legal title is to be assigned subsequent to the Closing
pursuant to Section 6.8(d), the applicable Easement Assignment Deadline is 120
days following the date of this Agreement, subject to the provisions of the last
sentence of this Section 6.8(e). With respect to the PGC Gathering Easements for
which record legal title is to be assigned subsequent to the Closing pursuant to
Section 6.8(d), the applicable Easement Assignment Deadline is 14 months from
the date of this Agreement subject to the provisions of the last sentence of
this Section 6.8(e). Not later than 30 days after each of the Easement
Assignment Deadlines, Phillips shall furnish the Company a certificate of a duly
authorized officer of Phillips, certifying that the obligations of Phillips
required to have been performed on or prior to such Easement Assignment Deadline
have been complied with in all material respects as of the date of such
officer's certificate, or to the extent that such certification cannot
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accurately be made, specifying the reasons therefor; PROVIDED that no such
certificate shall affect Phillips' obligations or the Company's rights under the
other provisions of this Section 6.8. Notwithstanding anything appearing to the
contrary in Section 6.8(d) hereof or in this Section 6.8(e), with respect to any
Phillips Retained Easement the assignment of which requires the consent or
approval of any Governmental Entity or other third party, (i) the Easement
Assignment Deadline for such Phillips Retained Easement that would otherwise be
applicable to such Phillips Retained Easement but for the operation of this
sentence shall be extended by 60 days in the case of a PGC Trunkline Easement
and 90 days in the case of a PGC Gathering Easement, but in each case no later
than that date which is 30 calendar days after such consent or approval shall
have been obtained; and (ii) Phillips shall continue subsequent to the Closing
to use commercially reasonable efforts to obtain such consent or approval.
(f) At any time following Closing but prior to the applicable Easement
Assignment Deadline, the Company may notify Phillips in writing that the
Company, because of significant business needs or opportunities of the Company
as to which time is of the essence (as determined in good faith by the General
Counsel of the Company), requires Phillips to complete promptly the transfer of
record legal title to the PGC Subsidiaries of specified Phillips Retained
Easements identified by the Company as being directly involved in such business
needs or opportunities. If Phillips fails to complete such transfer within 30
days following such notice, the Company shall have the right, but not the
obligation, to take such of the following actions as it reasonably deems
necessary or appropriate to remedy such failure ("EASEMENT CURATIVE ACTIONS"):
(i) the preparation of an assignment (conforming to the requirements set forth
in Section 6.8(d)hereof) for the applicable Phillips Retained Easement, (ii) the
payment of any amounts required to be paid to a third party for the granting of
any consents required for such assignment, (iii) obtaining a new easement for
the existing pipeline, (iv) provided that none of the other Easement Curative
Actions are reasonably likely, in the good faith opinion of the Company, to
remedy such failure, obtaining an easement for a replacement pipeline and laying
a pipeline in such easement; and (v) such other actions as are reasonable under
the circumstances. Phillips shall give the Company and its representatives
reasonable access to any records in the possession of Phillips or its
Subsidiaries necessary for the Company to prepare such assignments and property
descriptions therefor, PROVIDED such access does not unreasonably interfere with
any significant business need or opportunity as to which time is of the essence.
Within 20 days following request, Phillips shall reimburse the Company for all
commercially reasonable costs incurred by the Company for the Easement Curative
Actions (including reimbursement for Company personnel time at their normal
hourly rates). The provisions of this Section 6.8(f) shall not limit the
indemnification obligations of Phillips under Section 6.8(c).
(g) With respect to any Phillips Retained Easements that (i) have not
been transferred to the applicable PGC Subsidiary as of the applicable Easement
Assignment Deadline due to the failure to obtain a Governmental Entity or other
third party consent and (ii) with respect to which Phillips shall have
diligently used commercially reasonable efforts to obtain such consent during
the period beginning on the date hereof and ending on the applicable Easement
Assignment Deadline and Phillips agrees to provide the Company a summary of its
efforts in that regard to date, Duke and Phillips agree as follows:
(i) Phillips shall have the right, for a period of 10 days following
such Easement Assignment Deadline, to approach the Company and propose any
lawful
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arrangements (including an extension of the Easement Assignment Deadline)
that Phillips believes will ultimately lead to the receipt of the
applicable unobtained consent within a reasonable period of time or
eliminate (in a lawful way) the need therefor, in either case without
exposing the Company to any undue risks;
(ii) The Company shall consider any such proposals in good faith and
shall act in a commercially reasonable manner (considering the interests of
both parties) in deciding whether to accept or reject any such proposal;
and
(iii) For so long as the Company is considering any such proposal made
by Phillips, the Company will refrain from exercising its rights under the
remaining provisions of this Section 6.8(g) with respect to the applicable
PGC Easement.
Subject to the preceding provisions of this Section 6.8(g), at any time
following the applicable Easement Assignment Deadline, the Company may take one
or more Easement Curative Actions with respect to any PGC Easements which shall
not have been transferred by such Easement Assignment Deadline (without regard
to the existence of any significant business need or opportunity as to which
time is of the essence) and, in such event, the Company and Phillips shall have
the same rights and obligations as stated in Section 6.8(f) with respect to such
Easement Curative Actions; provided, however, that the Company may take the
Easement Curative Actions described in clauses (i) and (ii) of the third
sentence of Section 6.8(f) upon prior written notice to Phillips even in the
absence of commercially reasonable business needs of the Company or a PGC
Subsidiary, and nevertheless Phillips shall reimburse the Company for its
reasonable costs incurred in connection with the taking of the Easement Curative
Actions. Each of Duke and the Company acknowledges and agrees that its remedies
against Phillips for any failure on the part of Phillips to complete the
transfer of legal title to any PGC Easement by the applicable Easement
Assignment Deadline, or any earlier date required under Section 6.8(f) (but not
its other obligations under this Section 6.8), shall be limited exclusively to
(A) seeking indemnification upon and subject to the terms, conditions and
limitations set forth in Section 6.8(c), and (B) taking one or more of the
Easement Curative Actions described in clauses (i) through (v) of Section 6.8(f)
hereof, upon and subject to the terms, conditions and limitations set forth in
Section 6.8(f) or this Section 6.8(g), as applicable.
(h) As expeditiously as is reasonably practicable, but in any event
not later than that date which is nine months after the Closing, record legal
title to all of the Phillips Partial Easement Rights which are held by any PGC
Subsidiaries subsequent to the Closing for the benefit of Phillips shall be
assigned of record to Phillips or the Phillips Retained Affiliate designated by
Phillips. Each assignment of record legal title to any Phillips Partial Easement
Rights in a PGC Multiple-User Easement shall be by special warranty assignment
in recordable form customary for the state in which the property affected by
such PGC Multiple-User Easement is located, and shall be without warranty of
title or completeness other than a special warranty of title as against those
claiming by, through, or under the Company or any PGC Subsidiary and not
otherwise, and subject to Permitted Encumbrances. Phillips shall prepare forms
of assignment and the property descriptions therefor and furnish the same for
review and approval by the Company and its counsel, such approval not to be
unreasonably withheld or delayed. Phillips shall cause each such special
warranty assignment to be filed of record in the appropriate land title
recording office, and shall pay all recording fees, deed stamp taxes and
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other costs incurred in connection with such recordation. If requested to do so
by Phillips, the Company and the PGC Subsidiaries shall use reasonable efforts
to schedule the assignment of Phillips Partial Easement Rights pursuant to this
Section 6.8(h) so as to accommodate the business requirements of Phillips.
(i) The instrument creating any PGC Multiple-User Easement may give
the easement holder the right to lay one or more additional pipelines on and
across the servient tenement. The partial assignment of such easement to be
completed pursuant to the provisions of this Section 6.8 shall provide that (i)
both assignor and assignee shall have the right to lay a replacement pipeline
and (ii) either assignor or assignee (but not both) shall have the right to lay
additional pipelines (unless expressly permitted by the provisions of the
instrument creating such easement). The party (as between assignor and assignee)
to receive such right to lay additional pipelines (the "ADDITIONAL LINE PARTY")
shall be (i) the party with the greater number of existing pipelines across the
easement or (ii) if each party has the same number of existing pipelines across
the easement, the party who has the greater demonstrated need (present or
projected future over a period of three years) for additional pipeline capacity
at such location. The determination of each party's "demonstrated need" for
additional pipeline capacity shall be on a case-by-case basis. The Company and
Phillips shall share information and attempt to reach agreement as promptly as
possible with respect to each such PGC Easement. If, however, such parties fail
to reach agreement within ten (10) days after written notice given by either
party to the other, then the issue of which party shall be the Additional Line
Party for a particular PGC Easement shall be submitted to a mutually agreeable
third party whose determination shall be binding on the Company and Phillips. At
any time and from time to time following the execution and delivery of a partial
assignment, the Additional Line Party shall consider and accommodate where
lawful and feasible consistent with the Additional Line Party's needs, a request
by the other party to the partial assignment and to the extent permitted
pursuant to the provisions of the underlying easement instrument and applicable
law, for a grant to such other party of the right to lay an additional pipeline
on and across the servient tenement or the establishment of an agency,
subcontracting, sublicensing or subleasing arrangement satisfactory to both
parties under which such other party would obtain the claims, rights and
benefits and assume the corresponding liabilities and obligations thereunder
with respect to an additional pipeline.
(j) If Duke or any Duke Retained Affiliate holds legal title to any of
the DEFS Easements for the benefit of DEFS or the DEFS Subsidiaries (or, in the
case of certain DEFS Multiple-User Easements, for the joint benefit of one or
more DEFS Subsidiaries, with respect to certain existing pipelines used in
connection with such DEFS Subsidiaries' business, and Duke or such Duke Retained
Affiliate, as the case may be, with respect to the remainder of such DEFS
Multiple-User Easement), or DEFS and the DEFS Subsidiaries hold legal title to
any of the DEFS Multiple-User Easements for the joint benefit of Duke or any
Duke Retained Affiliate, with respect to certain existing pipelines used in
connection with Duke's business, and DEFS or a DEFS Subsidiary, with respect to
the remainder of such DEFS Multiple-User Easement, then reciprocal covenants
corresponding to the covenants of Phillips set forth in Sections 6.8(a) through
6.8(h) hereof relating to the PGC Easements shall be deemed incorporated in this
Agreement and shall be applicable to and binding upon the parties hereto with
respect to the affected DEFS Easements.
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Section 6.9 ASSIGNMENT OF CONTRACTS, LEASES, PERMITS, ETC.
(a) Anything in this Agreement or the Governance Agreement to the contrary
notwithstanding, this Agreement and the Governance Agreement shall not
constitute an agreement to assign any contract, lease or Permit or any claim,
right or benefit if an attempted assignment thereof, without the consent of a
third party, would constitute a breach or other contravention thereof, be
ineffective with respect to any party thereto or in any way adversely affect the
rights of the Company, a DEFS Subsidiary or a PGC Subsidiary thereunder.
(b) With respect to any contract, lease or Permit necessary to the
conduct of business of the DEFS Subsidiaries or the PGC Subsidiaries as
presently conducted (and any claim, right or benefit arising thereunder or
resulting therefrom) and not currently held by a DEFS Subsidiary or a PGC
Subsidiary, other than the matters addressed in Sections 6.8, 6.18 and 6.19
(including the PGC Easements) and 6.20, Duke, Phillips and the Company will use
their reasonable best efforts to obtain as expeditiously as possible the written
consent of the other parties to such contract, lease or Permit for the
assignment or, if required, novation, thereof to the Company or a DEFS
Subsidiary or a PGC Subsidiary, as applicable, or, alternatively, written
confirmation from such parties reasonably satisfactory in form and substance to
Duke and Phillips that such consent is not required. In furtherance of the
foregoing, except with regard to the matters addressed in Sections 6.8, 6.18,
6.19 and 6.20 as soon as practicable following the date hereof, Duke and
Phillips shall submit to the other party or parties thereto documentation
seeking the written waiver or approval of such other contracting party or
parties thereto to the transfer and assignment of all of Duke's or Phillips', as
applicable, claims, rights, benefits and liabilities thereunder to the Company
or a DEFS Subsidiary or a PGC Subsidiary, as applicable.
(c) The failure by the Parties to obtain any required consent, waiver,
confirmation, novation or approval with respect to any contract, lease, Permit,
PGC Easement, DEFS Easement or FCC License shall not relieve either Party from
its obligation to consummate at the Closing the transactions contemplated by
this Agreement or the Governance Agreement or any other obligations hereunder or
thereunder unless such failures would in the aggregate have a Material Adverse
Effect on DEFS or the PGC Subsidiaries.
(d) Except with regard to the matters addressed in Sections 6.8, 6.18,
6.19 and 6.20, if any consent, waiver, confirmation, novation or approval is not
obtained prior to the Closing with respect to any contract, lease or Permit
necessary to the conduct of the business of the DEFS Subsidiaries or the PGC
Subsidiaries as presently conducted, then Duke or Phillips, as applicable, shall
establish an agency type or other arrangement satisfactory to the other Party
and to the Company under which Duke or Phillips, as applicable, shall hold such
interest, lease or Permit for the DEFS Subsidiary or PGC Subsidiary, as
applicable, and the affected DEFS Subsidiary or PGC Subsidiary would obtain the
claims, rights and benefits and assume the corresponding liabilities and
obligations thereunder in accordance with this Agreement (including by means of
any subcontracting, sublicensing or subleasing arrangement) or under which Duke
or Phillips, as applicable, would enforce at the direction of and for the
benefit of the DEFS Subsidiary or PGC Subsidiary, as applicable, with the DEFS
Subsidiary or PGC Subsidiary, as applicable, assuming and agreeing to pay Duke's
or Phillips' obligations and expenses, any and all claims, rights and benefits
of Duke or Phillips against a third party thereto; PROVIDED that Duke's or
Phillips' obligation to maintain any such arrangement shall terminate upon the
earliest to occur of: (1) the expiration or termination of such contract, lease
or Permit
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in accordance with its terms (without regard to any extensions,
automatic or otherwise); or (2) with regard to a Permit, such time as the
Company, the DEFS Subsidiary or the PGC Subsidiary, as the case may be, shall
obtain a Permit in reasonable substitution therefor, or have its application for
such substitute Permit denied. In any such arrangement, (i) Duke or Phillips, as
applicable, shall promptly pay to the DEFS Subsidiary or PGC Subsidiary, as
applicable, when received all moneys relating to the period after the Closing
Date received by it under any contract or any claim, right or benefit arising
thereunder not transferred pursuant to this Section 6.9 and (ii) the applicable
DEFS Subsidiary or PGC Subsidiary shall promptly pay, perform or discharge when
due any obligation or liability arising thereunder after the Closing Date.
Section 6.10 CORPORATE NAMES. (a) The Company and Duke acknowledge
that, from and after the Closing Date, the Company and Duke shall have no rights
with respect to any names, marks, trade names, trademarks and logos
(collectively, "TRADEMARKS AND LOGOS") incorporating "Phillips" or "66" by
themselves or in combination with any other Trademark or Logo, including the
corporate design logos associated therewith, and that Phillips shall retain
absolute and exclusive proprietary rights thereto or goodwill represented
thereby or pertaining thereto. The Company agrees that promptly after the
Closing Date it shall amend and cause to be amended the certificate of
incorporation or other organizational documents of Phillips Natural Gas Company
(or its successor entity) to remove the "Phillips" name and that from and after
the Closing Date, the Company and Duke shall not, nor shall they permit any of
their respective Affiliates to, use any name, phrase or logo incorporating
"Phillips" or "66" or such corporate design logo or any confusingly similar
name, phrase, logo or corporate design logo in or on any of its literature,
sales materials or products or otherwise in connection with the sale of any
products or services; PROVIDED, HOWEVER, that the Company may continue to use
any signage, printed literature, sales materials, purchase orders and sales or
lease agreements, and sell any products, that are included in the inventories of
PGC on the Closing Date and that bear a name, phrase or logo incorporating
"Phillips" or "66" or such corporate design logo, until the supplies thereof
existing on the Closing Date have been exhausted, but in any event for not
longer than 180 days from the Closing Date.
(b) (i) Except as set forth in Section 6.10(b)(ii), the Company and
Phillips acknowledge that, from and after the Closing Date, the Company and
Phillips shall have no rights with respect to Trademarks and Logos incorporating
"Duke" by itself or in combination with any other Trademark or Logo, including
the corporate design logos associated therewith, and that Duke shall retain
absolute and exclusive proprietary rights thereto or goodwill represented
thereby or pertaining thereto.
(ii) Duke shall grant the Company and the Corporation a royalty-free
license to the word "Duke", which shall be terminable at the option of Duke if
(A) Duke's ownership interest, both direct and indirect, in the Company or the
Corporation, as applicable, at any time, is less than or equal to 35% or (B)
Duke no longer controls, directly or indirectly, the management and policies of
the Company or the Corporation, as applicable. Such license shall include
appropriate restrictions with respect to the nature and quality of goods and
services in connection with which the Duke name or mark are used. The Company
agrees that if Duke provides notice to the Company that (1) its ownership
interest, both direct and indirect, in the Company, at any time, is less than or
equal to 35% or (2) it no longer controls, directly or
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indirectly, the management and policies of the Company, and that Duke wishes to
terminate the Company's license to the Duke name, the Company shall amend its
limited liability company agreement or other organizational documents and cause
to be amended the certificates of incorporation or other organizational
documents of the Corporation and its Subsidiaries, as applicable, to remove the
"Duke" name and that thereafter the Company shall not, nor shall it permit the
Corporation or any of its Affiliates to, use any name, phrase or logo
incorporating "Duke" or such corporate design logo or any confusingly similar
name, phrase, logo or corporate design logo in or on any of its literature,
sales materials or products or otherwise in connection with the sale of any
products or services; PROVIDED, HOWEVER, that the Company or the Corporation, as
applicable, may continue to use any signage, printed literature, sales
materials, purchase orders and sales or lease agreements, and sell any products,
that are included in its inventories on such date and that bear a name, phrase
or logo incorporating "Duke" or such corporate design logo, until the supplies
thereof existing on such date have been exhausted, but in any event for not
longer than 180 days from the date of such notice.
Section 6.11 D&O INDEMNIFICATION. The parties hereto agree that the
transactions contemplated by this Agreement and the Governance Agreement shall
not affect or diminish any duties and obligations of indemnification from Duke
or Phillips or their respective Affiliates (other than the DEFS Subsidiaries and
the PGC Subsidiaries) existing as of the Closing Date in favor of employees,
agents, directors or officers of the DEFS Subsidiaries or the PGC Subsidiaries,
respectively, arising by virtue of their respective certificates of
incorporation or by-laws or other organizational documents in the form in effect
at the date of this Agreement or arising by operation of law or arising by
virtue of any contract, resolution or other agreement or document existing at
the date of this Agreement, and such duties and obligations shall continue in
full force and effect and shall be honored by the Company for so long as they
would (but for the transactions contemplated by this Agreement and the
Governance Agreement) otherwise survive and continue in full force and effect.
Section 6.12 ADDITIONAL AGREEMENTS. Simultaneously with the execution
of this Agreement, Duke, Phillips and the Company are entering into the
Governance Agreement. At or prior to the Closing, Duke, Phillips and the Company
shall enter into a transition services agreement (the "TRANSITION SERVICES
AGREEMENT"), providing for the provision of certain transitional services by
Duke and Phillips to be reasonably requested by the Company at fully-burdened
cost for a period of not more than one year after the Closing Date.
Section 6.13 EXPENSES. Pre-Closing expenses and accruals of the DEFS
Subsidiaries arising out of the transactions contemplated by this Agreement and
the Governance Agreement and all other pre-Closing expenses of the DEFS
Subsidiaries shall be borne by Duke. Pre-Closing expenses and accruals of the
PGC Subsidiaries arising out of the transactions contemplated by this Agreement
and the Governance Agreement and all other pre-Closing expenses of the PGC
Subsidiaries shall be borne by Phillips.
Section 6.14 INSURANCE. (a) Duke and the Company acknowledge that the
programs and policies of insurance maintained by Phillips to provide coverage in
favor of the PGC Subsidiaries shall be terminated effective 12:01 A.M. on the
day following the Closing Date. From and after the Closing Date, all risk of
loss with respect to properties and assets of the PGC Subsidiaries shall be
borne by the Company. With respect to events occurring prior to the
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Closing Date, the PGC Subsidiaries shall be entitled to the benefits of
insurance from independent sources (not affiliated with Phillips) maintained by
or for the benefit of the PGC Subsidiaries with respect to properties and assets
of the PGC Subsidiaries; PROVIDED, HOWEVER, that notwithstanding anything to the
contrary contained in this Agreement or the Governance Agreement, from and after
the Closing Date, the PGC Subsidiaries shall not be entitled to any insurance
recovery from any Phillips-affiliated insurance company. Further, the Company
shall indemnify and hold harmless Phillips from any retroactive premiums imposed
by any insurer under programs or policies maintained by Phillips prior to
Closing as a result of any claims made after the Closing Date with respect to
the properties and assets of the PGC Subsidiaries regardless of the date of
loss.
(b) Phillips and the Company acknowledge that the programs and
policies of insurance maintained by Duke to provide coverage in favor of the
DEFS Subsidiaries shall be terminated effective 12:01 A.M. on the day following
the Closing Date. From and after the Closing Date, except as agreed to by the
Company and Duke, all risk of loss with respect to properties and assets of the
DEFS Subsidiaries shall be borne by the Company. With respect to events
occurring prior to the Closing Date, the DEFS Subsidiaries shall be entitled to
the benefits of insurance from independent sources (not affiliated with Duke)
maintained by or for the benefit of the DEFS Subsidiaries with respect to
properties and assets of the DEFS Subsidiaries; provided, however, that
notwithstanding anything to the contrary contained in this Agreement or the
Governance Agreement, from and after the Closing Date, except as agreed to by
the Company and Duke, the DEFS Subsidiaries shall not be entitled to any
insurance recovery from any Duke-affiliated insurance company. Further, the
Company shall indemnify and hold harmless Duke from any retroactive premiums
imposed by any insurer under programs or policies maintained by Duke prior to
Closing as a result of any claims made after the Closing Date with respect to
the properties and assets of the DEFS Subsidiaries regardless of the date of
loss.
Section 6.15 GUARANTIES. (a) In the event that after the Closing Date
Phillips or any Affiliate of Phillips (other than the PGC Subsidiaries) remains
liable for any guarantees (whether of payment or performance), letters of credit
or other undertakings it has delivered prior to the Closing Date to others for
the benefit of any PGC Subsidiary, the Company agrees to indemnify and hold
harmless Phillips or such Affiliate of Phillips from any cost, expense or loss
(including reasonable attorneys' fees) incurred by Phillips or such Affiliate of
Phillips arising directly or indirectly therefrom with respect to pre-Closing
periods except insofar as such cost, expense or loss constitutes or arises from
a matter with respect to which the Company or any of its Affiliates (including
the PGC Subsidiaries) is entitled to indemnification hereunder. Any such
guarantees, letters of credit or other undertakings (including performance
guarantees) are set forth in Schedule 6.15(a) of the Phillips Disclosure
Schedule. Any reasonable out-of-pocket expense incurred by Phillips with respect
to maintaining such support for periods after the Closing Date shall be
reimbursed to Phillips by the Company. The Company shall use its best efforts
(including an offer of a substitute guarantee, letter of credit or undertaking)
to cause or procure the release, within six months of the Closing Date, of all
liabilities or obligations of Phillips or any Affiliate of Phillips (other than
the PGC Subsidiaries) with respect to such guaranties, letters of credit or
other undertakings from any of the liabilities or obligations of any PGC
Subsidiary for post-Closing periods.
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(b) In the event that after the Closing Date Duke or any Affiliate of
Duke (other than the Company and the DEFS Subsidiaries) remains liable for any
guarantees (whether of payment or performance), letters of credit or other
undertakings it has delivered prior to the Closing Date to others for the
benefit of any DEFS Subsidiary, the Company agrees to indemnify and hold
harmless Duke or such Affiliate of Duke from any cost, expense or loss
(including reasonable attorneys' fees) incurred by Duke or such Affiliate of
Duke arising directly or indirectly therefrom with respect to pre-Closing
periods except insofar as such cost, expense or loss constitutes or arises from
a matter with respect to which the Company or any of its Affiliates (including
the DEFS Subsidiaries) is entitled to indemnification hereunder. Any such
guarantees, letters of credit or other undertakings (including performance
guarantees) are set forth in Schedule 6.15(b) of the Duke Disclosure Schedule.
Any reasonable out-of-pocket expense incurred by Duke with respect to
maintaining such support for periods after the Closing Date shall be reimbursed
to Duke by the Company. The Company shall use its best efforts (including an
offer of a substitute guarantee, letter of credit or undertaking) to cause or
procure the release, within six months of the Closing Date, of all liabilities
or obligations of Duke or any Affiliate of Duke (other than the Company and the
DEFS Subsidiaries) with respect to such guaranties, letters of credit or other
undertakings from any of the liabilities or obligations of any DEFS Subsidiary
for post-Closing periods.
Section 6.16 ACTIONS BY AFFILIATES OF PHILLIPS AND DUKE. Each of
Phillips and Duke shall ensure that each of their respective Affiliates (other
than, following the Closing, the Company and the Corporation) takes all actions
necessary to be taken by such Affiliate in order to fulfill the obligations of
Phillips or Duke, as the case may be, under this Agreement and the Governance
Agreement.
Section 6.17 FINANCING. (a) Prior to the Closing, each of Duke and
Phillips shall use its reasonable best efforts and cooperate with each other to
cause the Company to secure bank credit facilities of at least the sum of (i)
$2,400,000,000, (ii) an amount equal to the aggregate purchase prices of any of
the acquisitions set forth in Schedule 6.4(e) of the Phillips Disclosure
Schedule and in Schedule 6.5(e) of the Duke Disclosure Schedule with respect to
which acquisition documents have been executed or the closing has been
consummated, (iii) an amount equal to the aggregate purchase prices of any
acquisitions approved by Duke or Phillips, as applicable, pursuant to Section
6.4 or 6.5 prior to the Closing Date with respect to which acquisition documents
have been executed or the closing has been consummated, and (iv) an amount
reasonably necessary for working capital purposes for the Company, on reasonably
available commercial terms mutually agreeable to the parties hereto
(collectively, the "FINANCING").
Section 6.18 PGC REAL PROPERTY. (a) FEE PROPERTIES. (i) Record title
to any PGC-Owned Fee Property that is not owned of record by any of the PGC
Subsidiaries as of the date hereof shall be conveyed to the appropriate PGC
Subsidiary on or prior to the Closing Date by general warranty deed in form
customary for the state in which such PGC-Owned Fee Property is located.
Phillips shall cause each such general warranty deed to be prepared, executed
and filed of record in the appropriate land title recording office, and shall
pay all recording fees, deed stamp taxes and other costs incurred in connection
with such recordation.
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(ii) If any PGC-Owned Fee Property is currently being used
simultaneously by Phillips (or a Phillips Retained Affiliate) and by a PGC
Subsidiary in their respective business operations, then Phillips and Duke, both
acting reasonably and in good faith, shall jointly prepare and agree upon a
mutually acceptable arrangement whereby Phillips (or such Phillips Retained
Affiliate, as the case may be) will be permitted to continue subsequent to the
Closing to use and occupy such PGC-Owned Fee Property for substantially the same
purpose, in substantially the same manner and to substantially the same extent
as prior to the Closing. Any such shared-use arrangement with respect to a
PGC-Owned Fee Property (A) shall be finalized not later than the date on which
fee title to such PGC-Owned Fee Property is conveyed of record to the applicable
PGC Subsidiary, (B) shall be structured so as to minimize the interference of
any use of such PGC-Owned Fee Property by either party to such arrangement with
any use of such PGC-Owned Fee Property by the other party, and (C) shall provide
for reasonable rights of ingress and egress to and from such PGC-Owned Fee
Property where necessary. It is anticipated that any such shared-use
arrangements with respect to PGC-Owned Fee Properties will in most cases consist
of perpetual easements or licenses granted by a PGC Subsidiary to Phillips or a
Phillips Retained Affiliate. However, in the case of certain PGC-Owned Fee
Properties (identified in Schedule 4.11(a) of the Phillips Disclosure Schedule)
it may be necessary or desirable for a PGC Subsidiary to reconvey to Phillips or
a Phillips Retained Affiliate fee title to the portion of such PGC-Owned Fee
Property that is being used by Phillips or such Phillips Retained Affiliate, as
the case may be. In any such case, Phillips shall pay, or cause the applicable
Phillips Retained Affiliate to pay, all recording fees, deed stamp taxes and
other costs incurred in connection with such reconveyance.
(b) REALTY LEASES. (i) Not later than the Closing Date, Phillips shall
prepare and deliver to the Company an updated schedule of PGC Leases, which
updated schedule shall indicate, with respect to each Non-Government PGC Lease
that is not held of record by any of the PGC Subsidiaries as of the date hereof,
whether assignment of such PGC Lease requires the consent of the lessor
thereunder (those Non-Government PGC Leases which do not require lessor consent
being sometimes referred to in this Agreement, collectively, as "ASSIGNABLE PGC
LEASES"). The information set forth on the updated PGC Lease schedule shall be
for the information and benefit of the Company only, and shall not confer upon
any lessor or other third party any consent or approval right that is not
expressly provided for in the applicable PGC Lease.
(ii) Each Assignable PGC Lease shall be assigned to the
appropriate PGC Subsidiary on or prior to the Closing Date by special warranty
assignment in recordable form customary for the state in which the property
demised by such Assignable PGC Lease is located. Phillips shall cause each such
special warranty assignment to be prepared, executed and filed of record in the
appropriate land title recording office, and shall pay all recording fees, deed
stamp taxes and other costs incurred in connection with such recordation.
(iii) From and after the Closing, with respect to any PGC Lease
the leasehold estate under which continues to be held of record by Phillips or a
Phillips Retained Affiliate ("RETAINED PGC LEASE"), Phillips shall continue to
use commercially reasonable efforts to obtain the consent of the lessor under
such Retained PGC Lease to the assignment thereof to the appropriate PGC
Subsidiary. Phillips shall pay and be responsible for and shall indemnify,
defend and hold harmless the Company from and against any amounts reasonably
required to be
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paid in order to obtain the consent of the lessor under any Retained PGC Lease
to the assignment thereof. If and when the requisite consent to assignment shall
be obtained with respect to any Retained PGC Lease, such Retained PGC Lease
shall be assigned to the appropriate PGC Subsidiary by special warranty
assignment in recordable form customary for the state in which the property
demised by such Retained PGC Lease is located. Phillips shall cause each such
special warranty assignment to be prepared, executed and filed of record in the
appropriate land title recording office, and shall pay all recording fees, deed
stamp taxes and other costs incurred in connection with such recordation.
(iv) At all times from and after the Closing while the leasehold
estate under any Retained PGC Lease shall continue to be held of record by
Phillips or any Phillips Retained Affiliate, Phillips or such Phillips Retained
Affiliate, as the case may be, shall hold such Retained PGC Lease and exercise
and enforce its rights thereunder for the use and benefit of, and in such manner
as may be reasonably directed by, the appropriate PGC Subsidiary. In connection
with any Retained PGC Lease, Duke and Phillips agree as follows:
(A) Phillips shall indemnify, defend and hold harmless the
Company and its Subsidiaries from and against any and all Damages,
excluding consequential and punitive Damages, suffered or incurred by
the Company or such Subsidiaries after Closing as a result of the
failure of Phillips to have assigned such Retained PGC Lease to the
PGC Subsidiaries by the Closing Date (all necessary third party
consents having been obtained); provided, however, that such indemnity
shall not extend to any Damages resulting from or attributable to the
failure or inability of the Company to obtain financing for the
transactions contemplated by this Agreement.
(B) The Company shall indemnify, defend and hold harmless
Phillips and the Phillips Retained Affiliates from and against any and
all Damages, excluding consequential and punitive Damages, suffered or
incurred by such entities after Closing in respect of such Retained
PGC Lease to the extent such Damages consist of Subject Lease
Liabilities that the Company or its Subsidiaries would have been
responsible for, had such Retained PGC Lease been assigned to the PGC
Subsidiaries by the Closing Date (all necessary third party consents
having been obtained).
As used in this Section 6.18, the term "SUBJECT LEASE LIABILITIES" shall mean,
with respect to a Phillips Retained Easement, any and all payment obligations to
third parties, including lease rentals, renewal fees, ad valorem and other
taxes, arising and relating to the period from and after Closing in respect of
such Retained PGC Lease.
(v) At any time following the Closing Date, the Company may
notify Phillips in writing that the Company, because of significant business
needs or opportunities, as to which time is of the essence (as determined in
good faith by the General Counsel of the Company), requires Phillips to complete
promptly the transfer of record legal title to the PGC Subsidiaries of specified
Retained PGC Leases identified by the Company. If Phillips fails to complete
such transfer within 30 days following such notice, the Company shall have the
right, but not the obligation, to take such reasonable actions as it deems
necessary or appropriate to remedy such failure ("LEASE CURATIVE ACTIONS"). The
Lease Curative Actions may include (i) the preparation of an assignment in the
form required under Section 6.18(b)(ii) for the applicable
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Retained PGC Lease, (ii) the payment of any amounts required to be paid to a
third party for the granting of any consents required for such assignment, (iii)
obtaining a new lease from the landowner to replace the Retained PGC Lease, (iv)
provided that none of the other Lease Curative Actions are reasonably likely, in
the good faith opinion of the Company, to remedy such failure, obtaining a lease
for a new site for the affected facilities and moving them to the new site, and
(v) such other actions as are reasonable under the circumstances. Phillips shall
give the Company and its representatives reasonable access to any records in the
possession of Phillips or its Subsidiaries necessary for the Company to prepare
such assignments and property descriptions therefor, provided such access does
not unreasonably interfere with any significant business need or opportunity as
to which time is of the essence. Within twenty (20) days following the request,
Phillips shall reimburse the Company for all commercially reasonable costs
incurred by the Company for the Lease Curative Actions (including reimbursement
for Company personnel time at their normal hourly rates). The provisions of this
Section 6.18(b)(v) shall not limit the indemnification obligations of Phillips
under Section 6.18(b)(iv).
(vi) If any PGC Leased Property is currently being used
simultaneously by Phillips (or a Phillips Retained Affiliate) and by a PGC
Subsidiary in their respective business operations, then Phillips and Duke, both
acting reasonably and in good faith, shall jointly prepare and agree upon a
mutually acceptable arrangement whereby Phillips (or such Phillips Retained
Affiliate, as the case may be) will be permitted to continue subsequent to the
Closing to use and occupy such PGC Leased Property for substantially the same
purpose, in the substantially the same manner and to substantially the same
extent as prior to the Closing. Any such shared-use arrangement with respect to
a PGC Leased Property (A) shall be finalized not later than the date on which
the related PGC Lease is assigned of record to the applicable PGC Subsidiary,
(B) shall be structured so as to minimize the interference of any use of such
PGC Leased Property by either party to such arrangement with any use of such PGC
Leased Property by the other party, (C) shall provide for reasonable rights of
ingress and egress to and from such PGC Leased Property where necessary, and (D)
shall provide for Phillips to retain liability for all pre-Closing environmental
conditions as to the portion of the leased property used by Phillips or a
Phillips Retained Affiliate.
(vii) If all or part of any pipeline owned or used by the PGS
Subsidiaries is constructed upon any PGC Lease (a "PGC PIPELINE LEASE"), then
(A) all of the provisions of Section 6.8 shall apply (in lieu of the provisions
of this Section 6.18(b)) to such PGC Pipeline Lease to the same extent as a PGC
Easement, (B) if such PGC Pipeline Lease relates to a pipeline identified in
Exhibit 6.8(e) annexed to this Agreement, then Phillips shall cause record legal
title to such PGC Pipeline Lease to be transferred to the PGC Subsidiaries not
later than the Easement Assignment Deadline for the PGC Trunkline Easements as
set forth in Section 6.8(e), and (C) Phillips shall cause record legal title to
any PGC Pipeline Lease not referenced in the preceding clause (B) to be
transferred to the PGC Subsidiaries not later than the Easement Assignment
Deadline for the PGC Gathering Easements as set forth in Section 6.8(e).
Section 6.19 DEFS REAL PROPERTY. In the event that Duke or any Duke
Retained Affiliate holds legal title to any of the DEFS-Owned Fee Properties or
the leasehold estate under any of the DEFS Leases for the benefit of the DEFS
Subsidiaries, then reciprocal covenants corresponding to the covenants set forth
in Section 6.18 hereof relating to the PGC-Owned Fee Properties or the PGC
Leases, as the case may be, shall be deemed incorporated in this
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Agreement and shall be applicable to and binding upon the parties hereto with
respect to the affected DEFS-Owned Fee Property or the leasehold estate under
the affected DEFS Lease, as the case may be.
Section 6.20 FCC LICENSES; RADIO TOWERS. (a) Prior to the Closing
Date, or as soon thereafter as practicable, Phillips shall use commercially
reasonable efforts to assign, or cause to be assigned, to the PGC Subsidiaries
all of the FCC Licenses used solely by them but held of record by Phillips or a
Phillips Retained Affiliate as of the date hereof, including those identified on
Schedule 6.20(a) of the Phillips Disclosure Schedule. Phillips shall cause each
such assignment to be filed with the Federal Communications Commission, shall
use commercially reasonable efforts to obtain any approvals and consents from
such Commission necessary for such transfer and shall pay all fees and other
costs incurred in connection with such assignment.
(b) This clause (b) applies to any FCC License identified in Schedule
6.20(a) of the Phillips Disclosure Schedule that is currently being used
simultaneously by Phillips or a Phillips Retained Affiliate and by a PGC
Subsidiary in their respective business operations ("SHARED FCC LICENSE"). Prior
to the Closing, Phillips shall use commercially reasonable efforts to obtain two
FCC Licenses in replacement of the Shared FCC License, one in the name of and
for the benefit of Phillips or such Phillips Retained Affiliate and the second
in the name of and for the benefit of the PGC Subsidiary. Phillips shall pay, or
cause the applicable Phillips Retained Affiliate to pay, all fees and other
costs incurred in connection with the issuance of such replacement FCC Licenses.
In the event that Phillips is unable to obtain two replacement licenses,
Phillips will transfer the Shared FCC License to the PGC Subsidiary subject to a
mutually acceptable arrangement whereby Phillips or such Phillips Retained
Affiliate, as the case may be, shall be permitted to continue to use such FCC
License subsequent to the Closing for substantially the same purpose, in
substantially the same manner and to substantially the same extent as prior to
the Closing. Any such shared-use arrangement with respect to the Shared FCC
License shall be finalized not later than the date on which the Shared FCC
License is transferred. Phillips shall pay, or shall cause the applicable
Phillips Retained Affiliate to pay, all fees and other costs incurred in
connection with such assignment.
(c) If Phillips or a Phillips Retained Affiliate, as of the date of
this Agreement, owns the radio tower corresponding to any FCC License identified
in Schedule 6.20(a) of the Phillips Disclosure Schedule, then Phillips and Duke,
both acting reasonably and in good faith, shall jointly prepare and agree upon a
mutually acceptable arrangement whereby Phillips or such Phillips Retained
Affiliate, as the case may be, shall be permitted to continue to use such radio
tower subsequent to the Closing for substantially the same purpose, in
substantially the same manner and to substantially the same extent as prior to
the Closing. Phillips shall use commercially reasonable efforts to obtain, prior
to Closing, consent of third party tower lessors for the assignment to the PGC
Subsidiary of all tower leases corresponding to the FCC Licenses required to be
transferred herein. In those instances where the third party lessor does not
consent to such transfer, Phillips and Duke shall prepare and agree upon a
shared use agreement with respect to the radio tower as described below. Any
such shared-use arrangement with respect to a radio tower (i) shall be finalized
not later than the date on which title to such radio tower is conveyed of record
to the affected PGC Subsidiary, (ii) shall be structured so as to minimize the
interference of any use of such radio tower by either party to such arrangement
with any use of such radio tower by the other party, and (iii) shall provide for
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reasonable rights of ingress and egress to and from such radio tower where
necessary. It is anticipated that any such shared-use arrangements with respect
to radio towers will in most cases consist of (A) the transfer by Phillips or
the Phillips Retained Affiliate to the PGC Subsidiaries of record legal title to
such radio tower and the fee property on which such tower is located and (B) the
grant by the affected PGC Subsidiary of a perpetual easement or license to
Phillips or a Phillips Retained Affiliate. Phillips shall cause a general
warranty deed for each such transfer to be prepared, executed and filed of
record in the appropriate land title recording office, and shall pay all
recording fees, deed stamp taxes and other costs incurred in connection with
such recordation.
(d) Prior to the Closing Date, or as soon thereafter as practicable,
Duke shall use commercially reasonable efforts to cause to be assigned to the
DEFS Subsidiaries all of the FCC Licenses used solely by them but held of record
by third parties as of the date hereof, including those identified on Schedule
6.20(d) of the Duke Disclosure Schedule. Duke shall use its commercially
reasonable efforts to (i) cause each such assignment to be filed with the
Federal Communications Commission, and (ii) obtain any approvals and consents
from such Commission necessary for such transfer, and Duke shall pay all fees
and other costs incurred in connection with such assignment (other than such
fees and costs paid by such third parties).
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 CONDITIONS TO DUKE'S OBLIGATION TO CLOSE. Duke's
obligation to consummate the transactions contemplated by this Agreement and the
Governance Agreement on the terms specified herein shall be subject to the
satisfaction or waiver on or prior to the Closing Date of all of the following
conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS OF PHILLIPS. (1) The
representations and warranties of Phillips contained in this Agreement shall be
true and correct both when made and on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date (except for representations and warranties expressly made as of an
earlier date, in which case as of such date), except for such failures to be
true and correct (without giving effect to any Materiality Requirement) which,
individually or in the aggregate, do not have a Material Adverse Effect on the
PGC Subsidiaries.
(2) The covenants and agreements of Phillips to be performed on
or before the Closing Date in accordance with this Agreement and the Governance
Agreement shall have been duly performed in all material respects.
(3) Duke shall have received at the Closing a certificate dated
the Closing Date and validly executed on behalf of Phillips by an officer of
Phillips to the effect that the conditions specified in clauses (1) and (2) of
this Section 7.1(a) have been satisfied.
(b) REGULATORY APPROVALS. Any waiting periods applicable to the
transactions contemplated by this Agreement under applicable United States
antitrust or trade regulation laws and regulations, including under the HSR Act,
shall have expired or been terminated.
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(c) NO INJUNCTION OR PROCEEDINGS. At the Closing Date, (i) there shall
be no statute, rule, regulation, injunction, restraining order or decree of any
nature of any Governmental Entity of competent jurisdiction that is in effect
that restrains or prohibits the consummation of a material portion of the
transactions contemplated by this Agreement and (ii) no action or proceeding
before any Governmental Entity shall have been instituted by a Governmental
Entity to restrain or prohibit the consummation of a material portion of the
transactions contemplated by this Agreement or the Governance Agreement.
(d) MATERIAL ADVERSE EFFECT. From September 30, 1999 through the
Closing, other than actions contemplated by Section 6.2, no Material Adverse
Effect on the PGC Subsidiaries shall have occurred and there shall exist no fact
or circumstances which would reasonably be expected to have a Material Adverse
Effect on the PGC Subsidiaries.
(e) FINANCING. The Company shall have obtained the Financing
contemplated by Section 6.17.
Section 7.2 CONDITIONS TO PHILLIPS' OBLIGATION TO CLOSE. Phillips'
obligation to consummate the transactions contemplated by this Agreement and the
Governance Agreement on the terms specified herein shall be subject to the
satisfaction or waiver on or prior to the Closing Date of all of the following
conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS OF DUKE. (1) The
representations and warranties of Duke contained in this Agreement shall be true
and correct both when made and on and as of the Closing Date, with the same
effect as though such representations and warranties had been made on and as of
such date (except for representations and warranties expressly made as of an
earlier date, in which case as of such date), except for such failures to be
true and correct (without giving effect to any Materiality Requirement) which,
individually or in the aggregate, do not have a Material Adverse Effect on DEFS.
(2) The covenants and agreements of Duke to be performed on or
before the Closing Date in accordance with this Agreement and the Governance
Agreement shall have been duly performed in all material respects.
(3) Phillips shall have received at the Closing a certificate
dated the Closing Date and validly executed on behalf of Duke by an officer of
Duke to the effect that the conditions specified in clauses (1) and (2) of this
Section 7.2(a) have been satisfied.
(b) REGULATORY APPROVALS. Any waiting periods applicable to the
transactions contemplated by this Agreement under applicable United States
antitrust or trade regulation laws and regulations, including under the HSR Act,
shall have expired or been terminated.
(c) NO INJUNCTION OR PROCEEDINGS. At the Closing Date, (i) there shall
be no statute, rule, regulation, injunction, restraining order or decree of any
nature of any Governmental Entity of competent jurisdiction that is in effect
that restrains or prohibits the consummation of a material portion of the
transactions contemplated by this Agreement and (ii) no action or proceeding
before any Governmental Entity shall have been instituted by a Governmental
Entity to restrain or prohibit the consummation of a material portion of the
transactions contemplated by this Agreement or the Governance Agreement.
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(d) MATERIAL ADVERSE EFFECT. From September 30, 1999 through the
Closing, other than actions contemplated by Section 6.2, no Material Adverse
Effect on DEFS shall have occurred and there shall exist no fact or
circumstances which would reasonably be expected to have a Material Adverse
Effect on DEFS.
(e) FINANCING. The Company shall have obtained the Financing
contemplated by Section 6.17.
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing by:
(a) The mutual written consent of Duke and Phillips;
(b) Either Duke or Phillips if the Closing has not occurred by the
close of business on September 30, 2000, PROVIDED that the failure to consummate
the transactions contemplated by this Agreement did not result from the failure
by the party seeking termination of this Agreement to fulfill any material
undertaking or commitment provided for herein that is required to be fulfilled
prior to the Closing;
(c) Either Duke or Phillips if the other Party shall have breached or
failed to perform in any material respect any of its respective representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform (i) would give rise to the failure of a condition
set forth in Section 7.1(a) or 7.2(a), as applicable, and (ii) cannot be or has
not been cured within 30 days after the giving of written notice to Duke or
Phillips, as applicable; or
(d) Either Duke or Phillips in the event that any order, law, statute,
ordinance, rule, regulation or decree becomes effective (and final and
nonappealable) permanently restraining, enjoining or otherwise prohibiting or
making illegal or otherwise prohibiting the consummation of a material portion
of the transactions contemplated by this Agreement or the Governance Agreement,
upon notification of the non-terminating party by the terminating party.
Section 8.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement by either or both of Duke and Phillips pursuant to
Section 8.1, written notice thereof shall forthwith be given by the terminating
party to the other parties hereto, and this Agreement shall thereupon terminate
and become void and have no effect, and the transactions contemplated by this
Agreement shall be abandoned without further action by the parties hereto,
except that the provisions of Section 6.1(b) shall survive the termination of
this Agreement; PROVIDED, HOWEVER, that such termination shall not relieve any
party hereto of any liability for any willful breach of this Agreement. If this
Agreement is terminated as provided herein, the Governance Agreement shall
simultaneously be terminated, and all filings, applications and other
submissions made pursuant hereto shall, to the extent practicable, be withdrawn
from the
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agency or other persons to which they were made by the party making
such filing, application or other submission.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
Section 9.1 INDEMNIFICATION BY COMPANY. Subject to the provisions of
this Article IX, the Company shall indemnify and hold harmless each of Phillips
and its Affiliates (other than the Company and its Subsidiaries) (each a
"PHILLIPS INDEMNIFIED PERSON") and Duke and its Affiliates (other than the
Company and its Subsidiaries) (each a "DUKE INDEMNIFIED PERSON") from and
against any and all Damages incurred by such Phillips Indemnified Person or Duke
Indemnified Person in connection with (i) any failure by the Company to perform
any covenant or other agreement hereunder, (ii) all Liabilities of a Phillips
Indemnified Person or a Duke Indemnified Person arising under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
solely by virtue of its status as an owner of any of the PGC Subsidiaries or the
DEFS Subsidiaries prior to the Closing Date, except in each case for matters
indemnified under Sections 9.2(a) and 9.2(b), and (iii) all Liabilities made the
responsibility of the Company and/or its Subsidiaries pursuant to Annex A.
Section 9.2 INDEMNIFICATION BY DUKE AND PHILLIPS. (a) Subject to the
provisions of this Article IX, Duke shall indemnify and hold harmless Phillips
and its Affiliates and the Company and its Affiliates (excluding Duke and, prior
to the IPO, DEFS Holding, but including the DEFS Subsidiaries following the
Closing) from and against any and all Damages incurred by Phillips and its
Affiliates or the Company and its Affiliates (excluding Duke and, prior to the
IPO, DEFS Holding but including the DEFS Subsidiaries following the Closing) in
connection with (i) a breach of any representation or warranty made by Duke
hereunder or in any schedule, exhibit or other document attached to or delivered
pursuant to this Agreement, (ii) any failure by Duke to perform any covenant or
agreement hereunder, (iii) all Liabilities included in Duke Excluded Assets and
Liabilities and (iv) all Liabilities made the responsibility of Duke and/or its
Subsidiaries (other than the Company and its Subsidiaries) pursuant to Annex A.
(b) Subject to the provisions of this Article IX, Phillips shall
indemnify and hold harmless Duke and its Affiliates and the Company and its
Affiliates (excluding Phillips and, prior to the IPO, PGC and PGC Member Parent
but including the PGC Subsidiaries following the Closing) from and against any
and all Damages incurred by Duke and its Affiliates or the Company or its
Affiliates (excluding Phillips, prior to the IPO, and PGC and PGC Member Parent,
but including the PGC Subsidiaries following the Closing) in connection with (i)
a breach of any representation or warranty made by Phillips hereunder or in any
schedule, exhibit or other document attached to or delivered pursuant to this
Agreement, (ii) any failure by Phillips to perform any covenant or agreement
hereunder, (iii) all Liabilities included in Phillips Excluded Assets and
Liabilities and (iv) all Liabilities made the responsibility of Phillips and/or
its Subsidiaries pursuant to Annex A.
(c) Matters relating to indemnification for Taxes shall not be
governed by this Article IX (other than this Section 9.2(c)), except to the
extent otherwise provided in Annex B.
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The parties hereto agree that the indemnification provisions in Article XI shall
be the exclusive remedy of the parties with respect to breaches of the
representations and warranties in Sections 6.1 and 6.2 of Annex B, except for
actions grounded in fraud, with respect to which the remedies and limitations
set forth in this Agreement shall not apply or in any manner limit the scope or
availability of any other remedy at law or in equity.
Section 9.3 INDEMNIFICATION PROCEDURE. All claims by any Indemnified
Party under Article VI or this Article IX shall be asserted and resolved as
follows:
(a) In the event that (i) any claim, demand or proceeding is asserted
or instituted in writing by any Person other than the parties to this Agreement
or their Affiliates which could give rise to Damages for which an Indemnifying
Party could be liable to an Indemnified Party under this Agreement (such claim,
demand or proceeding, a "THIRD PARTY CLAIM") or (ii) any Indemnified Party shall
have a claim to be indemnified by any Indemnifying Party under this Agreement
which does not involve a Third Party Claim (such claim, a "DIRECT CLAIM"), the
Indemnified Party shall promptly send to the Indemnifying Party a written notice
specifying the nature of such claim, together with information reasonably
available to the Indemnified Party with respect to such claim (a "CLAIM
NOTICE"), PROVIDED that, subject to the last sentence of Section 9.4, a delay in
notifying the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations under this Agreement except to the extent that such failure shall
have caused actual prejudice to the Indemnifying Party. In the case where the
Company is the Indemnified Party, either Duke or Phillips may assert an
indemnity claim on behalf of the Company and each shall be considered an
Indemnified Party for purposes of this Section 9.3 in connection with any Third
Party Claim or Direct Claim for which the other is the Indemnifying Party.
(b) In the event of a Third Party Claim, the Indemnifying Party shall
have 30 days after receipt of the Claim Notice relating to such Third Party
Claim to elect to undertake, conduct and control, through counsel of its own
choosing (PROVIDED that such counsel is reasonably acceptable to the Indemnified
Party) and at its own expense, the settlement or defense of such Third Party
Claim (in which case the Indemnifying Party shall not thereafter be responsible
for the fees and expenses of any separate counsel retained by any Indemnified
Party except as set forth below). If the Indemnifying Party elects to undertake
such defense, it shall promptly assume and hold such Indemnified Party harmless
from and against the full amount of any Damages resulting from such Third Party
Claim to the extent provided herein. Notwithstanding an Indemnifying Party's
election to undertake, conduct and control such Third Party Claim, the
Indemnified Party shall have the right to employ separate counsel, and the
Indemnifying Party shall bear the reasonable fees, costs and expenses of such
separate counsel, if the use of the counsel selected by the Indemnifying Party
to represent the Indemnified Party would present such counsel with a conflict of
interest. If the Indemnifying Party elects to undertake such defense, (i) the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting such Third Party Claim, and, if appropriate and related to
such Third Party Claim, the parties will reasonably cooperate with each other in
connection with making any counterclaim against the person asserting the Third
Party Claim, or any cross-complaint against any Person, (ii) such Third Party
Claim may not be settled or compromised by the Indemnified Party without the
prior written consent of the Indemnifying Party; PROVIDED that in the event any
Indemnified Party settles or compromises or consents to the entry of any
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judgment with respect to any Third Party Claim without the prior written consent
of the Indemnifying Party, such Indemnified Party shall be deemed to have waived
all rights against the Indemnifying Party for indemnification under this Article
IX, and (iii) the Indemnifying Party shall not, except with the consent of the
Indemnified Party, enter into any settlement that does not include as an
unconditional term thereof the giving by the third party asserting such claim to
all Indemnified Parties of (A) unconditional release from all liability with
respect to such Third Party Claim or (B) consent to entry of any judgment. If
the Indemnifying Party does not notify the Indemnified Party of its election to
undertake the defense of such Third Party Claim within 30 days after receipt of
the Claim Notice relating to such Third Party Claim, the Indemnified Party shall
have the right to contest, settle, compromise or consent to the entry of any
judgment with respect to such Third Party Claim and in doing so shall not
thereby waive any right to indemnity therefor pursuant to this Article IX,
PROVIDED that at any time thereafter the Indemnifying Party may assume the
defense of such Third Party Claim.
(c) In the event of a Direct Claim, the Indemnifying Party shall
notify the Indemnified Party within 30 days of receipt of a Claim Notice whether
or not the Indemnifying Party disputes such claim.
(d) From and after the delivery of a Claim Notice under this
Agreement, at the reasonable request of the Indemnifying Party the Indemnified
Party shall grant the Indemnifying Party and its representatives all reasonable
access to the books, records and properties of such Indemnified Party to the
extent reasonably related to the matters to which the Claim Notice relates. All
such access shall be granted during normal business hours and shall be granted
under conditions which will not unreasonably interfere with the business and
operations of such Indemnified Party. The Indemnifying Party will not, and shall
cause its representatives not to, use (except in connection with such Claim
Notice) or disclose to any third Person other than the Indemnifying Party's
representatives (except as may be required by applicable law) any information
obtained pursuant to this Section 9.3, which is designated as confidential by
the Indemnified Party.
Section 9.4 SURVIVAL. The representations and warranties of the
parties contained in this Agreement shall survive the Closing and remain
enforceable for 18 months from the Closing Date; PROVIDED that (i) the
representations and warranties set forth in Section 4.12 and 5.12
(Environmental) shall survive the Closing and remain enforceable for 36 months
from the Closing Date, (ii) the representations and warranties set forth in
Sections 4.1, 4.2, 4.3, 4.6, 5.1, 5.2, 5.3 and 5.6 shall survive the Closing and
remain enforceable without time limit and (iii) the representations and
warranties set forth in Annex B shall survive to the extent provided in Annex B.
No claim for indemnity under this Article IX for any breach of a representation
or warranty may be brought unless the appropriate Claim Notice shall have been
delivered to the Indemnifying Party prior to expiration of the applicable
survival period. Notwithstanding the foregoing, any covenants or agreements
contained in this Agreement (including any covenants or agreements contained in
any representation or warranty) shall survive the Closing and remain enforceable
without time limit.
Section 9.5 INDEMNIFICATION LIMITATION. (a) Each Indemnified Party
under this Article IX shall use its reasonable efforts to mitigate Damages for
which it seeks indemnification hereunder and shall assign to the Indemnifying
Party all of such Indemnified Party's claims for
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recovery against third parties as to Damages, whether by insurance coverage,
contribution claims, subrogation or otherwise.
(b) Except as otherwise provided herein, each of Duke's and Phillips'
obligation to indemnify the other Party and its Affiliates and the Company and
its Affiliates as provided in Section 9.2 shall not become effective until the
aggregate of all Damages sustained by the other Party and its Affiliates and the
Company and its Affiliates as described in Section 9.2 shall have exceeded the
Basket. If the aggregate amount of Damages sustained by the other Party and its
Affiliates and the Company and its Affiliates as described in Section 9.2
exceeds the applicable Basket then the other Party and its Affiliates and the
Company and its Affiliates shall be entitled to assert claims under this Article
IX for indemnification for the amount of such Damages in excess of the
applicable Basket only; PROVIDED that each of Duke's and Phillips' obligation
under this Article IX shall not exceed the applicable Cap in the aggregate, and
PROVIDED, FURTHER, that none of Duke, Phillips or the Company or their
respective Affiliates shall be entitled to assert claims for indemnification
under this Article IX unless the aggregate amount of Damages claimed in any
individual Claim Notice exceeds $500,000 in the aggregate.
(c) Notwithstanding the foregoing, the indemnification provision set
forth in Section 9.2(a)(ii), Section 9.2(a)(iii), Section 9.2(a)(iv), Section
9.2(b)(ii), Section 9.2(b)(iii) and Section 9.2(b)(iv) shall not be subject
to the Basket or Cap.
(d) The parties hereto agree that the indemnification provisions in
Articles VI and IX shall be the exclusive remedy of the parties with respect to
breaches of the representations and warranties in Articles IV and V, except for
actions grounded in fraud, with respect to which the remedies and limitations
set forth in this Agreement shall not apply or in any manner limit the scope or
availability of any other remedy at law or in equity.
Section 9.6 MATERIALITY QUALIFIERS. For purposes of determining
Damages and rights to indemnification under this Article IX, the representations
and warranties set forth in Articles IV and V shall be read without giving
effect to any Materiality Requirement set forth therein; provided, that
representations and warranties qualified by "Material Adverse Effect" shall be
deemed to be true to the extent the breach thereof is reasonably attributable to
the general state of the industries in which such Party and its Subsidiaries
operate (including natural gas and petroleum price levels), to general economic
conditions in the United States (including prevailing interest rate and stock
market levels) or to the transactions contemplated by this Agreement or the
other Transaction Agreements. As used in this Agreement, a "MATERIALITY
REQUIREMENT" shall mean any requirement in a representation or warranty that a
condition, event or state of fact be "material," correct or true in "all
material respects," have a "Material Adverse Effect," or be or not be
"reasonably expected to have a Material Adverse Effect" (or other words or
phrases of similar effect or impact) in order for such condition, event or state
of facts to cause such representation or warranty to be inaccurate.
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ARTICLE X
EMPLOYEE MATTERS
The provisions of Annex A are hereby incorporated herein.
ARTICLE XI
TAX MATTERS
The provisions of Annex B are hereby incorporated herein.
ARTICLE XII
MISCELLANEOUS
Section 12.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered (including by facsimile) to the other
party.
Section 12.2 GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY
TRIAL. (a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to the choice of law
principles thereof.
(b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware in
any action arising out of or relating to this Agreement or the Governance
Agreement, and hereby irrevocably agrees that all claims in respect of such
action may be heard and determined in such Delaware state or federal court. Each
party hereto hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties hereto further agree, to the extent permitted by law,
that final and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.
(c) To the extent that any party hereto has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
party hereto hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement and the Governance Agreement.
(d) Each party hereto waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement or the
Governance Agreement. Each party hereto certifies that it
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has been induced to enter into this Agreement and the Governance Agreement by,
among other things, the mutual waivers and certifications set forth above in
this Section 12.2.
Section 12.3 ENTIRE AGREEMENT. This Agreement and the Governance
Agreement, and the schedules and exhibits hereto and thereto, together with the
Confidentiality Agreements dated August 11, 1999 and August 26, 1999 between
Duke and Phillips, contain the entire agreement between the parties with respect
to the subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set forth or
referred to herein. Except for Sections 6.8, 6.11, 6.15 and 6.18, Article IX and
Article XI, which are intended to benefit, and to be enforceable by, any of the
indemnified parties thereunder, this Agreement is not intended to confer upon
any Person not a party hereto (and their successors and assigns) any rights or
remedies hereunder.
Section 12.4 EXPENSES. Any sales, use, transfer, gains, excise or
similar Taxes (but not income Taxes) incurred in connection with any transfers
required by this Agreement shall be paid and borne as follows:
(a) with respect to any transfer between the Company, on the one hand,
and Duke or any of its Affiliates (other than the DEFS Subsidiaries and the
Company), on the other hand, 50% by each of the transferor and the transferee;
(b) with respect to any transfer between the Company, on the one hand,
and Phillips or any of its Affiliates (other than the PGC Subsidiaries), on the
other hand, 50% by each of the transferor and the transferee;
(c) with respect to any transfers between Duke or any Duke Retained
Affiliate, on the one hand, and any of the DEFS Subsidiaries, on the other hand,
100% by Duke; and
(d) with respect to any transfer between Phillips or any Phillips
Retained Affiliate, on the one hand, and any of the PGC Subsidiaries, on the
other hand, 100% by Phillips.
Section 12.5 NOTICES. All notices and other communications to be given
to any party hereunder shall be sufficiently given for all purposes hereunder if
in writing and delivered by hand, courier or overnight delivery service or three
days after being mailed by certified or registered mail, return receipt
requested, with appropriate postage prepaid, or when received in the form of a
telegram or facsimile and shall be directed to the address or facsimile number
set forth below (or at such other address or facsimile number as such party
shall designate by like notice):
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(a) If to Phillips:
Phillips Petroleum Company
1266 Adams Building
Bartlesville, Oklahoma 74004
Attention: Clyde W. Lea
Fax No.: (918) 662-2301
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Fax No.: (212) 403-2000
(b) If to Duke:
Duke Energy Corporation
5400 Westheimer Court, 8th Floor
Houston, Texas 77056-5310
Attention: Richard K. McGee
Fax No.: (713) 627-5510
With a copy to:
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
Attention: Bruce R. Bilger
Fax No.: (713) 615-5429
(c) If to the Company:
Duke Energy Field Services L.L.C.
370 17th Street, Suite 900
Denver, Colorado 80202
Attention: Martha B. Wyrsch
Fax No.: (303) 605-8902
With a copy to:
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
Attention: Bruce R. Bilger
Fax No.: (713) 615-5429
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Section 12.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that no party hereto will
assign its rights or delegate any or all of its obligations under this Agreement
without the express prior written consent of each other party hereto.
Section 12.7 HEADINGS; DEFINITIONS. The Section and Article headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated and except in the Annexes hereto, wherein
references to Sections or Articles shall mean Articles or Sections of such Annex
unless otherwise stated. All capitalized terms defined herein are equally
applicable to both the singular and plural forms of such terms.
Section 12.8 AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
all parties hereto. Either party hereto may, only by an instrument in writing,
waive compliance by the other parties hereto with any term or provision of this
Agreement on the part of such other party hereto to be performed or complied
with. The waiver by any party hereto of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between the parties, shall constitute a waiver
of any such right, power or remedy.
Section 12.9 SCHEDULES. The disclosure or inclusion of any matter or
item in any Schedule to the Phillips Disclosure Schedule or the Duke Disclosure
Schedule shall not be deemed an acknowledgment or admission that any such matter
or item is required to be disclosed or is material for purposes of the
representations and warranties set forth in this Agreement or whether the
subject matter of such disclosure may have a Material Adverse Effect on the PGC
Subsidiaries or DEFS. Phillips and Duke shall not be prejudiced in any manner
whatsoever by, and no presumptions shall be created by virtue of, any disclosure
of any matter in the Phillips Disclosure Schedule or the Duke Disclosure
Schedule, respectively, which is not expressly required to be disclosed under
this Agreement. Information disclosed in any schedule hereto shall only
constitute a disclosure with respect to the specific Section of this Agreement
in which such schedule is referenced.
Section 12.10 SEVERABILITY. If any provision of this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality or
enforceability of the other provisions of this Agreement shall not be affected
thereby, and there shall be deemed substituted for the provision at issue a
valid, legal and enforceable provision as similar as possible to the provision
at issue.
Section 12.11 INTERPRETATION. For the purposes of this Agreement,
"KNOWLEDGE" shall mean, with respect to Phillips, except as otherwise specified
in this Agreement, the actual knowledge (after due inquiry) of the persons
identified in Schedule 12.11 of the Phillips Disclosure Schedule, and with
respect to Duke, the actual knowledge (after due inquiry) of the persons
identified in Schedule 12.11 of the Duke Disclosure Schedule. The phrase
"including"
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shall be deemed to be followed by "without limitation." The words "hereof,"
"hereby," "herein," "hereunder" and similar terms in this Agreement shall refer
to this Agreement as a whole and not any particular Section or article in which
such words appear. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 12.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy at law or in equity.
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IN WITNESS WHEREOF, each of the undersigned, intending to be legally
bound, has caused this Agreement to be duly executed and delivered on the date
first set forth above.
PHILLIPS PETROLEUM COMPANY
By: /s/ John A. Carrig
-----------------------------------
Name:
Title:
DUKE ENERGY CORPORATION
By: /s/ Fred J. Fowler
-----------------------------------
Fred J. Fowler
Group President, Energy Transmission
DUKE ENERGY FIELD SERVICES L.L.C.
By: /s/ J. W. Mogg
-----------------------------------
Jim W. Mogg
Authorized Person
<PAGE>
ANNEX A
EMPLOYEE MATTERS ANNEX
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINITIONS. (a) Capitalized terms used and not defined in
this Annex shall have the respective meanings ascribed to them in the
Contribution Agreement. Notwithstanding the foregoing, references to
"Subsidiaries" of Duke in this Annex shall not include the Company, DEFS or any
of their respective Subsidiaries, except where specifically so provided.
(b) As used in this Annex, the following terms shall have the
respective meanings set forth below:
"BONUSES" shall have the meaning set forth in Section 3.2.
"CHANGE IN CONTROL SEVERANCE PLAN" shall mean the PanEnergy Corp
Change in Control Severance Benefits Plan, as amended.
"COBRA COVERAGE" shall mean continuation of health coverage required
pursuant to Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA.
"CONTINUED EMPLOYEE" shall mean a Retained DEFS Employee or a
Transferred PGC Employee.
"DEFS EMPLOYEE" shall mean any individual who is, immediately before
the Closing Date, (i) an Employee of DEFS or (ii) an Employee of Duke or a
Subsidiary of Duke (including the Company, DEFS or one of their respective
Subsidiaries) principally employed in connection with the assets held as of the
date of execution of the Contribution Agreement by Canrock.
"DUKE FSP" shall mean the Dependent Care Expense Reimbursement
Plan and the Medical Care Expense Reimbursement Plan components of the Duke
Energy Corporation Cafeteria Plan.
"DUKE SAVINGS PLAN" shall mean the Duke Energy Retirement Savings
Plan.
"ELIGIBLE EXPENSES" shall mean eligible expenses under an Old
Welfare Plan for the plan year in which the Closing Date occurs that are
recorded as such by the applicable plan administrator as of the 45th day after
the Closing Date and reported to the Company on or before the 60th day after the
Closing Date.
"EMPLOYEE" shall mean an employee of the relevant entity who is, on
the relevant day, either (i) actively at work or (ii) not actively at work but
not classified as a terminated employee (including without limitation, on sick
leave or other approved leave of absence with
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the right of reinstatement). Notwithstanding the foregoing, the term "Employee"
shall not include any individual who is on an inactive employee status leave.
"NEW FSP" shall have the meaning set forth in Section 4.5(d).
"NEW WELFARE PLANS" shall have the meaning set forth in Section
4.5(c).
"OLD WELFARE PLANS" shall have the meaning set forth in Section
4.5(c).
"PARENT PLANS" shall mean the Duke Plans and the Phillips Plans.
"PGC EMPLOYEE" shall mean any individual who is, immediately before
the Closing Date, an Employee of Phillips or a Subsidiary of Phillips
principally employed in the businesses conducted by the PGC Subsidiaries,
including each such Employee who is seconded to PGC.
"PHILLIPS FSP" shall mean the Health Care Account and Child Care
Account components of the Phillips Petroleum Company Flexible Spending Plan.
"PHILLIPS SAVINGS PLANS" shall mean the Thrift Plan of Phillips
Petroleum Company and the Long Term Stock Savings Plan of Phillips Petroleum
Company.
"RELEASE" means (i) in the case of a Transferred PGC Employee, a
release of claims against the Company and Phillips and their respective
Subsidiaries, in form and substance acceptable to Phillips and the Company, and
(ii) in the case of a Retained DEFS Employee, a release of claims against the
Company and Duke and their respective Subsidiaries, in form and substance
acceptable to Duke and the Company.
"REQUIRED SEVERANCE AMOUNT" shall mean any severance benefits, pay
in lieu of notice, or other similar benefits payable to a Continued Employee by
the Company or any of its Subsidiaries, which becomes payable on account of such
Continued Employee's termination of employment pursuant to any applicable law,
statute, regulation, court order, or other legal requirement, including without
limitation, the Worker Adjustment and Retraining Notification Act, as amended.
"RETAINED DEFS EMPLOYEE" shall mean (i) a DEFS Employee whose
employment is not terminated or transferred to Duke or a Subsidiary of Duke
before the Closing Date pursuant to Section 2.2 below or (ii) a DEFS Employee
described in clause (ii) of the definition of such term whose employment
actually transfers pursuant to the last sentence of Section 2.2.
"SEVERANCE AMOUNT" with respect to any Continued Employee shall mean
two weeks' base pay for each full year of service completed by such Continued
Employee, plus an additional week's base pay for each such full year of service
in excess of 15 years, but in no event less than 12.5 weeks' base pay nor more
than 60 weeks' base pay, and reduced by (i) the Required Severance Amount and
(ii) such number of weeks not in excess of 8.5 that such Continued Employee is
required to work after receiving notification of termination of employment;
provided, that if such Continued Employee would not have been entitled to cash
severance under the Phillips Layoff Plan as in effect on the date of the
execution of the
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Contribution Agreement if he or she had been covered by such plan and terminated
employment from Phillips under the same circumstances as his or her termination
from the Company and its Subsidiaries, the Severance Amount shall be zero. For
these purposes, years of service shall include both years of service with
Phillips or Duke and their respective Subsidiaries (including, in the case of
Duke, the Company, DEFS and their respective Subsidiaries), as applicable, and
years of service with the Company and its Subsidiaries, and shall not be deemed
to have been interrupted by reason of the Continued Employee's becoming an
employee of the Company and its Subsidiaries (including DEFS and its
Subsidiaries).
"SEVERANCE COSTS" shall mean all Liabilities relating to or arising
out of providing severance pay or benefits, redundancy pay or benefits, pay in
lieu of notice, or other similar pay or benefits under applicable laws,
contracts or employee benefit plans or arrangements.
"TERMINATION COSTS" shall mean all Liabilities incurred in
connection with, arising out of or in connection with the termination of
employment of any Employee (whether actual or constructive), including
Liabilities relating to or arising out of any claim of discrimination or other
illegality in connection with such termination, but excluding Severance Costs.
"TRANSFERRED PGC EMPLOYEE" shall mean a PGC Employee whose
employment actually transfers pursuant to Section 2.1 below.
"WELFARE BENEFIT PLANS" shall mean "welfare plans" as defined in
Section 3(1) of ERISA.
ARTICLE II
TRANSFER OF EMPLOYEES TO THE COMPANY
Section 2.1 TRANSFER OF PGC EMPLOYEES. Phillips shall make all PGC
Employees available to the Company for employment and, subject to the terms of
any applicable collective bargaining agreements, shall transfer to the Company
on the Closing Date the PGC Employees who are selected for employment by the
Company before the Closing Date.
Section 2.2 SELECTION AND RETENTION OF DEFS EMPLOYEES. Duke shall make
all DEFS Employees available to the Company for employment and, subject to the
terms of any applicable collective bargaining agreements, shall, before the
Closing Date, either terminate the employment of, or transfer to Duke or a
Subsidiary of Duke, (a) all DEFS Employees who are not selected for employment
by the Company before the Closing Date and (b) all employees, if any, of DEFS
and its Subsidiaries who are not Employees. Notwithstanding the foregoing, with
respect to a DEFS Employee described in clause (ii) of the definition of such
term who is selected for employment by the Company, Duke shall cause the
employment of such DEFS Employee to be transferred either (i) to the Company on
the Closing Date or (ii) to a DEFS Subsidiary on or before the Closing Date.
Section 2.3 NO RESTRICTIONS ON CHANGES; SELECTION PROCESS. Nothing in
this Annex shall require or be construed or interpreted as requiring the Company
and its Subsidiaries to continue the employment of any of their employees
(including Continued Employees) or to prevent the Company or any of its
Subsidiaries from changing the terms and conditions of
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employment (including compensation and benefits) of any of their employees
(including Continued Employees) following the Closing Date, except as
specifically provided in Sections 4.1(c), 4.2, 4.4(b), 4.5(c) and 4.5(d). The
selection of Continued Employees shall take place in accordance with Section 6.1
of the Governance Agreement.
Section 2.4 LIABILITIES FOR SELECTION; EMPLOYEE LIABILITIES GENERALLY.
Except as specifically provided in Section 4.2 below, the Company and its
Subsidiaries shall be solely responsible for any and all Termination Costs and
other Liabilities relating to or arising out of the selection process set forth
in Sections 2.1 and 2.2 above, including any Termination Costs or Severance
Costs with respect to Continued Employees arising out of or relating to the
transfer of their employment to the Company and its Subsidiaries or any
subsequent action by the Company and its Subsidiaries, but excluding any
Severance Costs under Phillips Plans and Duke Plans. Any and all Liabilities
arising out of or relating to the employment of any Continued Employee by Duke
or any of its Subsidiaries (including the Company, DEFS and their respective
Subsidiaries) or Phillips or any of its Subsidiaries before the Closing Date
that are not specifically provided for in this Annex shall remain the
responsibility of Duke and its Subsidiaries, or Phillips and its Subsidiaries,
as applicable. Any and all Liabilities arising out of or relating to the
employment of any Continued Employee by the Company or any of its Subsidiaries
on or after the Closing Date that are not specifically provided for in this
Annex shall be the responsibility of the Company and its Subsidiaries.
Section 2.5 INDIVIDUAL AGREEMENTS. (a) With respect to each of the
agreements listed in Schedule 2.5(a)(i) to this Annex to which a Retained DEFS
Employee is a party, Duke and its Subsidiaries shall retain all Liabilities
thereunder, but the Company shall make payments to Duke equal to the amount of
compensation expense arising under such agreement that is charged to the Company
under GAAP, as and when such expense is charged under GAAP; provided, that the
amounts that the Company shall be required to pay Duke shall not include any
amounts attributable to the acceleration or enhancement of compensation or
benefits under such agreements as a result of a change in control of Duke.
Effective as of the Closing Date, the Company shall assume all obligations and
Liabilities of Duke and its Subsidiaries under each agreement listed in Schedule
2.5(a)(ii) to this Annex, but only if the individual party to such agreement is
a Retained DEFS Employee. It is acknowledged and agreed that: (i) the
compensation payable to Retained DEFS Employees after the Closing Date pursuant
to the agreements listed in Schedule 2.5(a)(i) and Schedule 2.5(a)(ii) to this
Annex shall be considered as part of their ongoing compensation from the Company
and its Subsidiaries, for purposes of determining their overall compensation and
benefits from the Company and its Subsidiaries; (ii) the Company shall be
entitled to all tax deductions and other benefits associated with the
compensation payable under such agreements for which it pays Duke under the
first sentence of this Section 2.5(a) and which it pays as a result of its
assumption of obligations and Liabilities under the second sentence of this
Section 2.5(a); and (iii) Duke and the Company shall cooperate to ensure that
all tax withholding and reporting required in connection with the compensation
pursuant to the agreements listed in Schedule 2.5(a)(i) to this Annex is
properly implemented.
(b) Except as specifically provided above in Section 2.5(a), Phillips
and its Subsidiaries, or Duke and its Subsidiaries, as applicable, shall assume,
retain and remain solely responsible for all Liabilities under any individual
employment, severance, retention, bonus, equity compensation, or other contracts
or agreements between themselves or any of their
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Subsidiaries (including, in the case of Duke, the Company and its Subsidiaries)
and any Transferred PGC Employee, or Retained DEFS Employee, respectively, in
effect before the Closing Date.
ARTICLE III
COMPENSATION
Section 3.1 COMPENSATION GENERALLY. Without limiting the scope of
Section 2.4, except as provided in the following sentence and in Section 2.5(a)
and Section 3.2, Duke or Phillips or their respective Subsidiaries, as
applicable, shall retain all liability and responsibility for wages, salary,
overtime pay, bonuses, incentive pay, and other cash compensation of Continued
Employees attributable to periods before the Closing Date. Effective as of the
Closing Date, the Company and its Subsidiaries shall assume and be solely
responsible for (a) all accrued but unused vacation and sick leave entitlements
of Continued Employees attributable to periods before the Closing Date and (b)
all wages, salary, overtime pay, bonuses, incentive pay, vacation pay, sick pay
and other cash compensation of Continued Employees attributable to the period
beginning on the Closing Date. From and after the Closing Date, the Company
shall provide to Continued Employees all wages, salary, overtime pay, bonuses,
vacation pay, sick pay, other cash compensation and cash and equity-based
incentive compensation on such terms as may be determined from time to time by
the Company in its sole discretion.
Section 3.2 INCENTIVE COMPENSATION. The Company shall determine the
amounts of the annual bonuses (the "BONUSES") earned by Continued Employees for
the year in which the Closing Date occurs under its bonus plans, and Phillips
(in the case of Transferred PGC Employees) and Duke (in the case of Retained
DEFS Employees) shall reimburse the Company for a pro-rata portion of the
Bonuses, based upon the number of full calendar months in such year before the
Closing Date. Such reimbursement shall include the employer's share of any
employment taxes relating to such pro-rata Bonuses for the period before the
Closing Date and required to be paid by the Company or any of its Subsidiaries.
ARTICLE IV
EMPLOYEE BENEFITS
Section 4.1 EMPLOYEE BENEFITS GENERALLY. (a) Effective as of the
Closing Date, except as provided in Section 4.2(b), the Continued Employees
shall cease to be active participants in the Parent Plans. Effective as of the
Closing Date, neither the Company nor any of its Subsidiaries shall be a
participating employer in any Parent Plan. Phillips and Duke shall remain solely
responsible for all liabilities with respect to the Phillips Plans and the Duke
Plans, respectively, and the Company and its Subsidiaries shall not assume any
Parent Plan and shall have no obligations and shall assume no liabilities with
respect to the Parent Plans, in each case except as specifically provided in
Section 4.2(b) and Section 4.5(d) below.
(b) From and after the Closing Date, the Company and its Subsidiaries
shall be solely responsible for providing Continued Employees with employee
benefits, including without limitation welfare, savings and pension benefits,
which shall be designed by the
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Company in its sole discretion. Phillips and Duke shall provide the Company and
its Subsidiaries with all necessary transition assistance to enable them to
develop and implement their compensation and benefit plans and programs.
(c) For purposes of eligibility to participate and vesting under all
compensation and benefit plans applicable to Continued Employees on or after the
Closing Date, the Company and its Subsidiaries shall give Continued Employees
credit for all applicable service with Duke and its Subsidiaries (including the
Company, DEFS and their respective Subsidiaries), or Phillips and its
Subsidiaries, as applicable, before the Closing Date. For these purposes, the
applicable service for a Transferred PGC Employee shall be determined by the
elapsed time since his or her Service Award Entry Date as recorded in the
personnel records of Phillips.
Section 4.2 SEVERANCE BENEFITS. (a) Phillips and its Subsidiaries
shall be solely responsible for all Severance Costs, if any, with respect to any
PGC Employee who does not become a Transferred PGC Employee. Duke and its
Subsidiaries shall be solely responsible for all Severance Costs, if any, with
respect to any DEFS Employee who does not become a Retained DEFS Employee.
(b) Without limiting the generality of the foregoing and except as
provided in this Section 4.2(b), Duke and its Subsidiaries shall remain solely
responsible for all Liabilities under the Change in Control Severance Plan. Each
Retained DEFS Employee who was covered by the Change in Control Severance Plan
immediately before the Closing Date shall continue to be covered by such plan on
and after the Closing Date in accordance with the terms and conditions of such
plan. If any Retained DEFS Employee who is covered by the Change in Control
Severance Plan terminates employment with the Company and its Subsidiaries on or
after the Closing Date under circumstances entitling him or her to severance pay
or benefits under the Change in Control Severance Plan, and if the Retained DEFS
Employee executes a Release, then the Company shall reimburse Duke for the
lesser of (i) the amount of the cash severance paid to such individual under the
Change in Control Severance Plan and (ii) the applicable Severance Amount.
Further, in such event, the Company shall cause such Retained DEFS Employee (and
his or her covered dependents) to be provided with extended coverage under one
or more of the New Welfare Plans to the extent necessary to satisfy the
requirements of Section 6 of the Change in Control Severance Plan, and Duke
shall reimburse the Company for the cost of such extended coverage.
(c) The Company and its Subsidiaries shall provide to each Transferred
PGC Employee whose employment terminates on or before the six-month anniversary
of the Closing Date cash severance benefits at least equal to the sum of the
applicable Severance Amount and the applicable Required Severance Amount,
subject to the execution by such Transferred PGC Employee of a Release.
Section 4.3 PENSION BENEFITS. Effective as of the Closing Date,
Phillips shall cause the Transferred PGC Employees to be 100% vested in their
accrued benefit under the Retirement Income Plan of Phillips Petroleum Company
as required by the terms thereof, and Duke may, in its sole discretion, cause
the Retained DEFS Employees to be 100% vested in their accrued benefit under the
Duke Energy Retirement Cash Balance Plan.
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Section 4.4 SAVINGS PLANS. (a) Effective as of the Closing Date,
Phillips shall cause the Transferred PCG Employees to be 100% vested in their
accrued benefit under the Phillips Savings Plans, and Duke shall cause the
Retained DEFS Employees to be 100% vested in their accrued benefits under the
Duke Savings Plan.
(b) The Company, Phillips and Duke shall take all reasonable steps
necessary and appropriate so that Continued Employees who participated in the
Phillips Savings Plans or the Duke Savings Plan, as applicable, and who have
loans outstanding from any such plan as of the Closing Date may continue to
repay such loans using voluntary payroll deductions from their paychecks from
the Company and its Subsidiaries.
Section 4.5 WELFARE BENEFITS. Without limiting the generality of the
above provisions, this Section 4.5 contains certain specific provisions
regarding the provision of benefits under Welfare Benefit Plans, unemployment
compensation benefits and workers compensation benefits.
(a) Effective as of the Closing Date, the Company shall cause the
Continued Employees to be eligible to be covered by such Welfare Benefit Plans
sponsored by the Company and/or one or more of its Subsidiaries as the Company
shall determine to implement.
(b) Except as specifically provided in Section 4.5(d) below:
(i) Phillips and its Subsidiaries shall be solely responsible for (A) claims of
Transferred PGC Employees and their eligible beneficiaries and dependents for
workers compensation, unemployment compensation and under Welfare Benefit Plans
that are incurred before the Closing Date, and (B) claims relating to COBRA
Coverage attributable to "qualifying events" occurring on or before the Closing
Date with respect to any Transferred PGC Employees and their eligible
beneficiaries and dependents; (ii) Duke and its Subsidiaries shall be solely
responsible for (I) claims of Retained DEFS Employees and their eligible
beneficiaries and dependents for workers compensation, unemployment compensation
and under Welfare Benefit Plans that are incurred before the Closing Date, and
(II) claims relating to COBRA Coverage attributable to "qualifying events"
occurring on or before the Closing Date with respect to any Retained DEFS
Employees and their eligible beneficiaries and dependents; and (iii) the Company
and its Subsidiaries shall be solely responsible for (x) claims of Continued
Employees and their eligible beneficiaries and dependents for workers
compensation and unemployment compensation benefits and claims under Welfare
Benefit Plans that are incurred on or after the Closing Date, and (y) claims
relating to COBRA Coverage attributable to "qualifying events" occurring after
the Closing Date with respect to Continued Employees and their beneficiaries and
dependents. A medical/dental claim shall be considered incurred on the date when
the medical services are rendered or medical supplies are provided, and not when
the condition arose or when the course of treatment began. An unemployment
compensation or workers compensation claim shall be considered incurred before
the Closing Date if the occurrence leading up to the claim occurs before the
Closing Date.
(c) Each Continued Employee who is employed on a regular basis shall
be immediately eligible to participate, without any waiting time, in any and all
Welfare Benefit Plans sponsored by the Company and its Subsidiaries for the
benefit of Continued Employees (such plans, collectively, the "NEW WELFARE
PLANS") to the extent coverage under such New Welfare Plan replaces coverage
under a comparable Phillips Plan or Duke Plan, in which such
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Continued Employee was previously eligible to participate (such plans,
collectively, the "OLD WELFARE PLANS"). For purposes of each New Welfare Plan
providing medical, dental, pharmaceutical and/or vision benefits, the Company
shall cause all pre-existing condition exclusions and actively-at-work
requirements of such New Welfare Plan to be waived for Continued Employees and
their eligible beneficiaries and dependents, to the extent such exclusions and
restrictions did not apply under the applicable Old Welfare Plan, and the
Company shall cause any Eligible Expenses incurred by any Continued Employee and
his or her eligible beneficiaries and dependents during the portion of the plan
year of the Old Welfare Plan ending on the Closing Date, to be taken into
account under such New Welfare Plan for purposes of satisfying all deductible,
coinsurance and maximum out-of-pocket requirements applicable to such Continued
Employee and his or her eligible beneficiaries and dependents for the applicable
plan year as if such amounts had been paid in accordance with such New Welfare
Plan.
(d) The Company shall establish one or more flexible spending plans
(collectively, the "NEW FSP") in which Continued Employees shall be eligible to
participate following the Closing Date. Phillips, Duke and the Company shall
take all reasonable steps necessary or appropriate so that the account balances
under the Phillips FSP or the Duke FSP, as applicable, of each Continued
Employee who has elected to participate therein in the year in which the Closing
Date occurs shall be transferred, as soon as practicable after the Closing Date,
from the Phillips FSP or the Duke FSP, as applicable, to the New FSP, and so
that the contribution elections of each such Continued Employee as in effect
immediately before the Closing Date remain in effect under the New FSP
immediately after the transfer of such account balance. If the aggregate amount
of the transferred account balances of Transferred PGC Employees or Retained
DEFS Employees is negative, then the Company shall pay Phillips or Duke, as
applicable, the amount of such aggregate negative balance promptly following
such account balance transfer. Notwithstanding the provisions of Section 4.5(b),
from and after the date a Continued Employee's FSP account is transferred in
accordance with this Section 4.5(d), the Company shall be solely responsible
for, and shall satisfy from the New FSP, all claims, whether incurred before, on
or after the Closing Date, for which such Continued Employee was entitled to
seek reimbursement under the Phillips FSP or the Duke FSP for the year in which
the Closing Date occurs.
ARTICLE V
TAX BENEFITS
Section 5.1 TAX BENEFITS GENERALLY. It is the intention of Phillips,
Duke and the Company that any tax deductions or other tax benefits associated
with any compensation or benefits payable to Continued Employees by any of them
be enjoyed by the party that bears the economic cost thereof, whether through
direct payment or provision of such compensation or benefits or through
reimbursement, and they agree to cooperate to ensure such result to the greatest
extent possible, through allocation of partnership deductions, adjustment of the
amounts of any reimbursement or otherwise.
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ANNEX B
TAX MATTERS ANNEX
ARTICLE I
CERTAIN DEFINITIONS
Any capitalized term used in this Annex but not otherwise defined
herein shall have the meaning ascribed to such term in the Contribution
Agreement or, if not defined in the Contribution Agreement, the Governance
Agreement (including Annex F thereof). Any Section reference in this Annex shall
refer to such section of this Annex, except as otherwise indicated. As used in
this Annex, the following terms shall have the respective meanings set forth
below:
Section 1.1 "CONTRIBUTION AGREEMENT" shall mean the Agreement to which
this Annex is attached and of which it forms a part.
Section 1.2 "DUKE GROUP" shall mean Duke and its Subsidiaries (other
than the Company, any DEFS Subsidiary, any PGC Subsidiary or any other
Subsidiary of the Company).
Section 1.3 "INCOME TAXES" means federal, state, local or foreign
Taxes measured by net income or capital gain.
Section 1.4 "PHILLIPS GROUP" shall mean Phillips and its Subsidiaries
(other than the Company, any DEFS Subsidiary, any PGC Subsidiary or any other
Subsidiary of the Company).
Section 1.5 "POST-CLOSING PERIOD" for any Person means any taxable
period beginning, with respect to such Person, after the Closing Date, and the
portion, beginning after the Closing Date, of any taxable period that includes,
with respect to such Person, but does not end on, the Closing Date.
Section 1.6 "PRE-CLOSING PERIOD" for any Person means any taxable
period ending, with respect to such Person, on or prior to the Closing Date, and
the portion, ending on the Closing Date, of any taxable period that includes,
with respect to such Person, but does not end on, the Closing Date.
Section 1.7 "RETURNS" or "TAX RETURNS" means returns, declarations,
statements, reports, forms, property tax renditions or other documents or
information required to be filed with or supplied to any Taxing Authority.
Section 1.8 "SECTION 3.1(C) TAX PROCEEDING" shall have the meaning set
forth in Section 3.1(c).
Section 1.9 "TAX MATTERS ANNEX" shall mean this Annex B.
Section 1.10 "TAX PROCEEDING" means any Tax audit, contest, litigation
or other proceeding with or against a Governmental Entity.
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ARTICLE II
TAX INDEMNIFICATION
Section 2.1 INDEMNIFICATION BY DUKE. Subject to Section 2.4(b), Duke
shall indemnify and hold harmless the Company and each of its Subsidiaries and
each member of the Phillips Group against:
(a) Any and all Income Taxes of any DEFS Subsidiary for any
Pre-Closing Period (or of any consolidated, combined, unitary or affiliated
group of which any DEFS Subsidiary is or has ever been a member or of any other
group with whom any DEFS Subsidiary has ever joined (or been required to join)
in filing any combined, consolidated or unitary Tax Return, in each case, for
any Pre-Closing Period);
(b) Any and all Taxes with respect to the operations, assets,
investments and activities of Duke and its Subsidiaries (other than those
operations, assets, investments and activities of the DEFS Subsidiaries),
including any several liability of any of the DEFS Subsidiaries for Taxes of
Duke or any of its Subsidiaries (other than any of the DEFS Subsidiaries) that
would not have arisen but for Treasury Regulation Section 1.1502-6 or any
comparable or similar provisions under state, local or foreign laws or
regulations;
(c) Any and all Taxes imposed on or with respect to any of the
conversions or mergers described in Section 2.1(b) of the Contribution Agreement
and (except as set forth in Section 12.4 of the Contribution Agreement) any and
all Taxes arising from or relating to the Duke Excluded Assets and Liabilities
or their transfer pursuant to Section 2.1(d) of the Contribution Agreement and
(except as set forth in Section 12.4 of the Contribution Agreement) any and all
Taxes arising from the transactions described in Section 2.1(b)(i), (ii) and
(iii) of the Contribution Agreement;
(d) Any and all Taxes of any DEFS Subsidiary (or with respect to any
asset transferred to the Company by any member of the Duke Group pursuant to the
Contribution Agreement) for a Pre-Closing Period; and
(e) Any and all Damages resulting from a breach of the representation
contained in Section 6.1(d) or (e), such Damages to be determined without regard
to the Materiality Requirement set forth in Section 6.1.
Section 2.2 INDEMNIFICATION BY PHILLIPS. Subject to Section 2.4(b),
Phillips shall indemnify and hold harmless the Company and each of its
Subsidiaries and each member of the Duke Group against:
(a) Any and all Income Taxes of any PGC Subsidiary for any Pre-Closing
Period (or of any consolidated, combined, unitary or affiliated group of which
any PGC Subsidiary is or has ever been a member or of any other group with whom
any PGC Subsidiary has ever joined (or been required to join) in filing any
combined, consolidated or unitary Tax Return, in each case, for any Pre-Closing
Period);
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(b) Any and all Taxes with respect to the operations, assets,
investments and activities of Phillips and its Subsidiaries (other than those
operations, assets, investments and activities of the PGC Subsidiaries),
including any several liability of any of the PGC Subsidiaries for Taxes of
Phillips or any of its Subsidiaries (other than any of the PGC Subsidiaries)
that would not have arisen but for Treasury Regulation Section 1.1502-6 or any
comparable or similar provisions under state, local or foreign laws or
regulations;
(c) Any and all Taxes imposed on or with respect to any of the
conversions or mergers described in Section 2.1(c) of the Contribution Agreement
and (except as set forth in Section 12.4 of the Contribution Agreement) any and
all Taxes arising from or relating to the Phillips Excluded Assets and
Liabilities or their transfer pursuant to Section 2.1(e) of the Contribution
Agreement;
(d) Any and all Taxes of any PGC Subsidiary (or with respect to any
asset transferred to the Company by any member of the Phillips Group pursuant to
the Contribution Agreement) for a Pre-Closing Period; and
(e) Any and all Damages resulting from a breach of the representation
contained in Section 6.2(d) or (e), such Damages to be determined without regard
to the Materiality Requirement set forth in Section 6.2.
Section 2.3 INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify and hold harmless Duke, Phillips and each of their respective
Subsidiaries (other than the Company and each of its Subsidiaries) against any
and all Taxes of the Company, any DEFS Subsidiary, any PGC Subsidiary or any of
their respective Subsidiaries (or with respect to any asset transferred to the
Company by any member of the Duke Group or the Phillips Group pursuant to the
Contribution Agreement) for any Post-Closing Period (other than (i) Income Taxes
for such periods or portions thereof of any Person that would not have been
imposed on such Person but for such Person's direct or indirect acquisition or
ownership of membership interests in the Company and (ii) Taxes covered by the
indemnification set forth in Section 2.1(e) or 2.2(e)).
Section 2.4 NO BASKET AND CAP ON TAX INDEMNITIES.
(a) Notwithstanding Section 9.5 of the Contribution Agreement, the
indemnification provided in Sections 2.1, 2.2 and 2.3 shall not be subject to
the limitations set forth in Section 9.5 of the Contribution Agreement.
(b) The amount of any indemnification pursuant to Section 2.1 or 2.2
shall be reduced to the extent of the amount accrued as a liability for the
indemnified Tax to the extent such accrual was taken into account in the
calculation of Phillips' Actual Net Working Capital or Duke's Actual Net Working
Capital under Section 3.3 of the Contribution Agreement, as the case may be.
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ARTICLE III
TAX PROCEDURES
Section 3.1 PROCEDURES FOR TAX PROCEEDINGS. Notwithstanding Section
9.3 of the Contribution Agreement:
(a) and notwithstanding any other provision, Duke shall be entitled to
control in all respects, including with respect to settlement, any Tax
Proceeding with respect to any consolidated, combined, affiliated or unitary
group of which Duke or any member of the Duke Group is the common parent or any
other consolidated, combined, affiliated or unitary Tax Returns that include any
member of the Duke Group (whether or not such Tax Returns also include the
Company or any Subsidiary thereof) and neither Phillips nor any Subsidiary of
Phillips shall be entitled to participate in any such Tax Proceeding.
(b) and notwithstanding any other provision, Phillips shall be
entitled to control in all respects, including with respect to settlement, any
Tax Proceeding with respect to any consolidated, combined, affiliated or unitary
group of which Phillips, PGC or any member of the Phillips Group is the common
parent or any other consolidated, combined, affiliated or unitary Tax Returns
that include any member of the Phillips Group (whether or not such Tax Returns
also include the Company or any Subsidiary thereof) and neither Duke nor any
Subsidiary of Duke shall be entitled to participate in any such Tax Proceeding.
(c) in the case of any Tax Proceeding (other than a Tax Proceeding
described in Section 3.1(a) or (b) of this Tax Matters Annex or Section 4.4(d)
of Annex F to the Governance Agreement) (a "Section 3.1(c) Tax Proceeding"), the
provisions of Section 9.3 of the Contribution Agreement shall apply; PROVIDED,
HOWEVER, that: (i) in the case of any Section 3.1(c) Tax Proceeding, for
purposes of Section 9.3 of the Contribution Agreement and this Section 3.1(c),
references to the "Agreement" or "Article IX" in Article IX of the Contribution
Agreement shall also refer to this Tax Matters Annex, "Indemnified Party" shall
include the party seeking indemnification under this Annex B and "Indemnifying
Party" shall include the party against whom an indemnification claim is asserted
under this Annex B, (ii) the Indemnifying Party shall defend any Section 3.1(c)
Tax Proceeding as if it were the only party in interest with respect to the
Taxes covered by such Section 3.1(c) Tax Proceeding, (iii) in the case of a
Section 3.1(c) Tax Proceeding for a taxable period that begins on or before the
Closing Date and ends after the Closing Date, whichever of the Company and its
Subsidiaries, on the one hand, and Duke or Phillips, on the other hand, is
reasonably expected to have the greater liability with respect to such Section
3.1(c) Tax Proceeding shall be considered the "Indemnifying Party" for purposes
of Section 9.3 of the Contribution Agreement and this Section 3.1(c) and
whichever of the Company and its Subsidiaries, on the one hand, and Duke or
Phillips, on the other hand, is reasonably expected to have the lesser liability
with respect to such Section 3.1(c) Tax Proceeding shall be considered the
"Indemnified Party" for purposes of such Sections, and the costs of such Section
3.1(c) Tax Proceeding shall be borne by the Indemnifying Party and the
Indemnified Party in proportion to such expected liabilities and (iv) in the
case of a Section 3.1(c) Tax Proceeding in which the Company is the Indemnifying
Party and a member of the Duke Group or the Phillips Group is the Indemnified
Party or a Section 3.1(c) Tax Proceeding in which Duke or Phillips is the
Indemnifying Party and the Company or any of its Subsidiaries is
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the Indemnified Party, the Indemnifying Party shall not, except with the consent
of the Indemnified Party (which consent shall not be unreasonably withheld),
enter into any settlement of any such Section 3.1(c) Tax Proceeding (PROVIDED
FURTHER, HOWEVER, that, in the event that the Indemnified Party withholds
consent under this clause (iv) to a proposed settlement, the Indemnified Party
shall assume the defense of such Section 3.1(c) Tax Proceeding at its sole cost
for expenses incurred thereafter and the liability of the Indemnifying Party
shall not exceed the amount that such liability would have been under the
proposed settlement).
Section 3.2 FILING RESPONSIBILITY.
(a) Duke shall prepare and file, or shall cause the DEFS Subsidiaries,
as the case may be, to prepare and file, with respect to the DEFS Subsidiaries,
all Tax Returns with respect to taxable periods ending on or prior to the
Closing Date. Duke shall prepare and file, or shall cause to be prepared and
filed, any consolidated, combined, affiliated or unitary Tax Return that
includes Duke or any member of the Duke Group (whether or not such Tax Return
also includes the Company or any Subsidiary thereof) and any consolidated,
combined, affiliated or unitary Tax Return that includes any DEFS Subsidiary for
any Pre-Closing Period. All such Tax Returns (other than any consolidated,
combined, affiliated or unitary Tax Returns) shall be filed in a manner that is
consistent with past practice.
(b) Phillips shall prepare and file, or shall cause the PGC
Subsidiaries, as the case may be, to prepare and file, with respect to the PGC
Subsidiaries, all Tax Returns with respect to taxable periods ending on or prior
to the Closing Date. Phillips shall prepare and file, or shall cause to be
prepared and filed, any consolidated, combined, affiliated or unitary Tax Return
that includes Phillips or any member of the Phillips Group (whether or not such
Tax Return also includes the Company or any Subsidiary thereof) and any
consolidated, combined, affiliated or unitary Tax Return that includes any PGC
Subsidiary for any Pre-Closing Period. All such Tax Returns (other than any
consolidated, combined, affiliated or unitary Tax Returns) shall be filed in a
manner that is consistent with past practice.
(c) The Company shall file or cause to be filed all Tax Returns with
respect to the Company or any of its Subsidiaries for which neither Duke nor
Phillips has filing responsibility pursuant to (a) or (b) above. Any such Tax
Returns that include any Pre-Closing Period shall be filed in a manner that is
consistent with past practice of the applicable Subsidiary included in such Tax
Return. Any Tax Returns for which the Company has filing responsibility under
this clause (c) shall be filed consistent with Annex F of the Governance
Agreement to the extent that such Annex F is applicable to such Tax Returns. The
Company shall not, and shall cause its Subsidiaries not to, file any amended Tax
Return for any Pre-Closing Period, without the prior written consent of Duke, in
the case of any such Tax Return that could affect the indemnification
obligations of Duke under this Annex or any Taxes for which Duke is otherwise
responsible, or Phillips, in the case of any such Tax Return that could affect
the indemnification obligations of Phillips under this Annex or any Taxes for
which Phillips is otherwise responsible.
(d) Upon the filing of any Tax Return with respect to any Pre-Closing
Period, if the amount of Tax shown as due on such Tax Return is less than the
amount accrued therefor as a liability to the extent such accrual was taken into
account in determining Phillips' Actual Net Working Capital or Duke's Actual Net
Working Capital pursuant to Section 3.3 of the
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Contribution Agreement, as the case may be, the Company shall distribute to
Phillips or Duke, as the case may be, an amount of cash equal to the excess of
such accrual over the amount of Tax so shown.
Section 3.3 COOPERATION AND EXCHANGE OF INFORMATION. Duke, Phillips,
the Company and the Corporation shall (and shall cause their respective
Subsidiaries to) cooperate with one another with respect to Tax matters. As soon
as practicable, but in any event within 30 days after the request of Duke or
Phillips, from and after the Closing Date, the Company shall deliver to Duke or
Phillips, respectively, such information and data concerning the Company and its
Subsidiaries and make available such employees of the Company and its
Subsidiaries as Duke or Phillips may reasonably request (including providing the
information and data reasonably required by Duke's and Phillips' customary Tax
and accounting questionnaires) in order to enable Duke and Phillips to complete
and file all Tax Returns which they each may be required to file with respect to
the Company and its Subsidiaries or to respond to Tax audits or other inquiries
relating to Taxes by any Governmental Entities with respect to such operations
and to otherwise enable Duke and Phillips each to satisfy their respective
accounting, Tax and other legitimate business requirements. Such cooperation and
information shall include provision of powers of attorney to Duke or Phillips
relating to Tax matters (E.G., for the purpose of signing Returns and defending
audits) and promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Governmental Entity that relate to
the Company and its Subsidiaries, and providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Governmental Entities and
records concerning the ownership and tax basis of property, which the Company,
the Corporation and their Subsidiaries may possess. The Company and the
Corporation shall (and shall cause their respective Subsidiaries to) make their
respective employees and facilities available on a mutually convenient basis to
provide explanation of any documents or information provided hereunder. The
above provisions of this Section 3.3 shall cease to apply with respect to
taxable periods beginning after the consummation of the IPO, except to the
extent that failure of such provisions to apply could reasonably be expected to
affect any member of the Phillips Group or the Duke Group (other than in its
capacity as a direct or indirect shareholder, or affiliate of such a
shareholder, of the Corporation). Notwithstanding any other provision, (i) Duke
shall not be required to provide any Person with any consolidated, combined,
affiliated or unitary Income Tax Return or copy thereof that includes Duke or
any other member of the Duke Group and (ii) Phillips shall not be required to
provide any Person with any consolidated, combined, affiliated or unitary Income
Tax Return or copy thereof that includes Phillips or any other member of the
Phillips Group.
ARTICLE IV
REFUNDS
Section 4.1 DUKE REFUNDS. Duke shall be entitled to any refunds or
credits of Taxes of any consolidated, combined, affiliated or unitary group of
which Duke or any member of the Duke Group is the common parent or any other
consolidated, combined, affiliated or unitary Income Tax refund or credit with
respect to any Tax Return that includes any member of the Duke Group. Duke shall
be entitled to any other refunds or credits of Taxes of or with respect to any
DEFS Subsidiary (or with respect to any asset transferred to the Company by any
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member of the Duke Group pursuant to the Contribution Agreement) attributable to
or arising in any Pre-Closing Period (plus any interest received with respect
thereto), but not in duplication of any refund or credit reflected as an asset
to the extent taken into account in determining Duke's Actual Net Working
Capital pursuant to Section 3.3 of the Contribution Agreement. Duke shall be
entitled to any Income Tax refund or credit that would not have arisen but for
the acquisition or ownership by Duke (or any other member of the Duke Group) of
membership interests in the Company.
Section 4.2 PHILLIPS REFUNDS. Phillips shall be entitled to any
refunds or credits of Taxes of any consolidated, combined, affiliated or unitary
group of which Phillips or any member of the Phillips Group is the common parent
or any other consolidated, combined, affiliated or unitary Income Tax refund or
credit with respect to any Tax Return that includes any member of the Phillips
Group. Phillips shall be entitled to any other refunds or credits of Taxes of or
with respect to any PGC Subsidiary (or with respect to any asset transferred to
the Company by any member of the Phillips Group pursuant to the Contribution
Agreement) attributable to or arising in any Pre-Closing Period (plus any
interest received with respect thereto), but not in duplication of any refund or
credit reflected as an asset to the extent taken into account in determining
Phillips' Actual Net Working Capital pursuant to Section 3.3 of the Contribution
Agreement. Phillips shall be entitled to any Income Tax refund or credit that
would not have arisen but for the acquisition or ownership by Phillips (or any
other member of the Phillips Group) of membership interests in the Company.
Section 4.3 COMPANY REFUNDS. The Company shall be entitled to any
refunds or credits of Taxes of the Company or any of its Subsidiaries (or with
respect to any asset transferred to the Company by any member of the Phillips
Group or the Duke Group pursuant to the Contribution Agreement) other than such
refunds or credits to which Duke or Phillips is entitled under Section 4.1 or
4.2 above. In the event that the amount of any actual Tax refund or credit is
less than the amount of such refund or credit reflected as an asset to the
extent taken into account in determining Duke's Actual Net Working Capital
pursuant to Section 3.3 of the Contribution Agreement, then Duke shall pay the
Company in cash the excess of such amount so reflected over such actual Tax
refund or credit within 10 days of receipt or utilization by the Company or any
of its Subsidiaries of such actual Tax refund or credit (but not in duplication
of any amount otherwise owed by Duke under this Annex). In the event that the
amount of any actual Tax refund or credit is less than the amount of such refund
or credit reflected as an asset to the extent taken into account in determining
Phillips' Actual Net Working Capital pursuant to Section 3.3 of the Contribution
Agreement, then Phillips shall pay the Company in cash the excess of such amount
so reflected over such actual Tax refund or credit within 10 days of receipt or
utilization by the Company or any of its Subsidiaries of such actual Tax refund
or credit (but not in duplication of any amount otherwise owed by Phillips under
this Annex).
Section 4.4 PROMPT PAYMENT. The Company shall promptly (and shall
cause its Subsidiaries promptly to) forward to Duke or Phillips or reimburse
Duke or Phillips for any refund due Duke or Phillips (pursuant to the terms of
this Article IV) after receipt thereof.
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ARTICLE V
MISCELLANEOUS
Section 5.1 SURVIVAL. The provisions of this Tax Matters Annex (other
than Sections 6.1(a), (b) and (c) and Sections 6.2(a), (b) and (c)) shall
survive the Closing until the expiration of each statute of limitations
applicable to any Pre-Closing Period (or, to the extent relating to any
Post-Closing Period, the expiration of the statute of limitations applicable to
such Post-Closing Period). The provisions of Sections 6.1(a), (b) and (c) and
Sections 6.2(a), (b) and (c) shall not survive the Closing.
Section 5.2 TREATMENT OF INDEMNITY PAYMENTS. Duke, Phillips and the
Company shall (and shall cause their respective Subsidiaries to) treat any
indemnity payment made pursuant to this Annex or the Contribution Agreement and
any payment made pursuant to Section 3.3 of the Contribution Agreement as an
adjustment to the cash distribution provided in Section 3.2(c)(1) or 3.2(c)(2),
as appropriate, of the Contribution Agreement, unless otherwise required
pursuant to a "determination" within the meaning of Code Section 1313(a).
Section 5.3 TAX SHARING AGREEMENTS. Any Tax sharing agreement or
arrangement between Duke, on the one hand, and any DEFS Subsidiary, on the other
hand, shall be terminated as of the Closing Date and shall thereafter have no
further effect for any taxable year (whether the current year, a future year, or
a past year). Any Tax sharing agreement or arrangement between Phillips, on the
one hand, and any PGC Subsidiary, on the other hand, shall be terminated as of
the Closing Date and shall thereafter have no further effect for any taxable
year (whether the current year, a future year, or a past year).
Section 5.4 ALLOCATION OF CERTAIN TAXES.
(a) If any DEFS Subsidiary or PGC Subsidiary is permitted but not
required under applicable state, local or foreign Income Tax laws to treat
either the day before the Closing Date or the Closing Date as the last day of a
taxable period, then, solely for purposes of such state, local or foreign Income
Tax laws, such day shall be treated as the last day of a taxable period.
(b) In the case of any Taxes that are imposed on a periodic basis and
are payable for a period that begins on or before the Closing Date and ends
after the Closing Date, the portion of such Tax that shall be allocable to the
portion of the period ending on the Closing Date shall (i) in the case of any
Taxes, other than Income Taxes and Taxes based upon or related to receipts, be
deemed to be the amount of such Taxes for the entire period, whether actually
paid before, during, or after such period, multiplied by a fraction the
numerator of which is the number of calendar days in the period ending on (and
including) the Closing Date and the denominator of which is the number of
calendar days in the entire period, and (ii) in the case of any Taxes based upon
or related to income or receipts (including but not limited to withholding
Taxes), be deemed equal to the amount which would be payable if the taxable year
ended on the close of business on the Closing Date; PROVIDED, HOWEVER, that any
franchise Tax measured by assets or capital shall be allocable to the taxable
period for which the right to do business obtained by the payment of such
franchise Tax relates, regardless of whether such franchise Tax
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is measured by assets or capital relating to another taxable period. Clause (i)
of the preceding sentence shall be applied with respect to Taxes, if any, for
such period relating to capital (including net worth or long-term debt) or
intangibles by reference to the level of such items on the Closing Date. The
portion of any Taxes (or refunds) that are imposed on a periodic basis, payable
for a period that begins on or before the Closing Date and ends after the
Closing Date and not allocable to the portion of such period ending on the
Closing Date shall be allocable to the portion of the period beginning after the
Closing Date.
(c) If the amount of any Tax described in Section 5.4(b), or any
refund thereof or credit therefor, is voluntarily redetermined or redetermined
by a Taxing Authority, the principles of Section 5.4(b) shall apply to the
amount as so redetermined.
Section 5.5 PREDECESSORS AND SUCCESSORS. For purposes of this Annex,
any reference to a corporation shall include a reference to any limited
liability company into which such corporation is merged or converted and any
reference to a limited liability company shall include a reference to any
corporation which merged into, or was converted into, such limited liability
company; provided, however, that, notwithstanding the Merger, the Corporation
shall not be considered a PGC Subsidiary.
Section 5.6 DUKE SUBSIDIARIES AND PGC SUBSIDIARIES. In the event that
the merger provided in Section 3.2 of the Governance Agreement occurs, then for
purposes of this Annex (other than Sections 6.1(e) and 6.2(e)), the term "DEFS
Subsidiary" shall include DEFS Holding, the term "PGC Subsidiary" shall include
PGC and Phillips Member Parent, and the term "Closing Date," when used in
connection with such entities, shall mean the date of such merger. For purposes
of this Annex, the term "DEFS Subsidiary" shall include the Company for the
Pre-Closing Period and shall include any entity that is a Subsidiary of DEFS
Holding immediately prior to the Closing and a Subsidiary of the Company
immediately after the Closing (or is otherwise contributed directly or
indirectly by Duke to the Company). For purposes of this Annex, the term "PGC
Subsidiary" shall include any entity that is a Subsidiary of PGC immediately
prior to the Closing and a Subsidiary of the Company immediately after the
Closing (or is otherwise contributed directly or indirectly by Phillips to the
Company).
ARTICLE VI
TAX REPRESENTATIONS
Section 6.1 DUKE TAX REPRESENTATIONS. Duke hereby represents and
warrants to each of Phillips and the Company that, except (i) in the case of
clauses (a), (b) and (c), as disclosed in Section B-6.1 of the Duke Disclosure
Schedule and (ii) to the extent that any breach, failure or inaccuracy,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the DEFS Subsidiaries:
(a) as of the date of this Agreement, all Tax Returns that are
required to be filed by or with respect to any of the DEFS Subsidiaries have
been duly filed and all such Tax Returns are complete and accurate;
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(b) as of the date of this Agreement, all Taxes shown to be due on
the Tax Returns referred to in clause (a) have been paid in full;
(c) as of the date of this Agreement, no waivers of statutes of
limitation have been given by or requested with respect to any Tax Returns of
any of the DEFS Subsidiaries;
(d) the aggregate regular federal income tax bases of the depreciable
and amortizable property to be contributed by DEFS Holding to the Company
pursuant to Section 2.2 of the Contribution Agreement and the years in which
such basis is scheduled to be depreciated or amortized for regular federal
income tax purposes, as of December 31, 1999, is not less than the amounts set
forth in Schedule B-6.1(d) of the Duke Disclosure Schedule; and
(e) as of the Closing Date, for United States federal income tax
purposes, each DEFS Subsidiary (organized under the laws of the United States, a
State of the United States or any political subdivision thereof) will constitute
a partnership or will be disregarded as an entity separate from its owner
(within the meaning of Treasury Regulation Section 301.7701-3).
Section 6.2 PHILLIPS TAX REPRESENTATIONS. Phillips hereby represents
and warrants to each of Duke and the Company that, except (i) in the case of
clauses (a), (b) and (c), as disclosed in Section B-6.2 of the Phillips
Disclosure Schedule and (ii) to the extent that any breach, failure or
inaccuracy, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on the PGC Subsidiaries:
(a) as of the date of this Agreement, all Tax Returns that are
required to be filed by or with respect to any of the PGC Subsidiaries have been
duly filed and all such Tax Returns are complete and accurate;
(b) as of the date of this Agreement, all Taxes shown to be due on
the Tax Returns referred to in clause (a) have been paid in full;
(c) as of the date of this Agreement, no waivers of statutes of
limitation have been given by or requested with respect to any Tax Returns of
any of the PGC Subsidiaries;
(d) the aggregate regular federal income tax bases of the depreciable
and amortizable property to be contributed by PGC to the Company pursuant to
Section 2.3 of the Contribution Agreement and the years in which such basis is
scheduled to be depreciated or amortized for regular federal income tax
purposes, as of December 31, 1999, is not less than the amounts set forth in
Schedule B-6.2(d) of the Phillips Disclosure Schedule; and
(e) as of the Closing Date, for United States federal income tax
purposes, each PGC Subsidiary (organized under the laws of the United States, a
State of the United States or any political subdivision thereof) will constitute
a partnership or will be disregarded as an entity separate from its owner
(within the meaning of Treasury Regulation Section 301.7701-3).
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Exhibit 99.2
-----------------------------------------------
GOVERNANCE AGREEMENT
by and among
PHILLIPS PETROLEUM COMPANY,
DUKE ENERGY CORPORATION
and
DUKE ENERGY FIELD SERVICES L.L.C.
-----------------------------------------------
Dated as of December 16, 1999
-----------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions..........................................1
ARTICLE II
BOARD OF DIRECTORS PRIOR TO THE IPO
Section 2.1 Management of the Company's Affairs..................6
Section 2.2 Removal and Replacement of Directors.................7
Section 2.3 Meetings of the Company Board........................7
Section 2.4 Notice of Board of Directors Meetings................8
Section 2.5 Actions by the Company Board.........................8
Section 2.6 Action by Unanimous Written Consent..................8
ARTICLE III
THE IPO
Section 3.1 Efforts..............................................8
Section 3.2 Formation of the Corporation.........................9
Section 3.3 Post-IPO Ownership...................................9
ARTICLE IV
BOARD OF DIRECTORS FOLLOWING THE IPO
Section 4.1 Composition of the Corporation Board................11
Section 4.2 Removal and Replacement of Directors................11
Section 4.3 Meetings of the Corporation Board...................12
Section 4.4 Notice of Board of Directors Meetings...............12
Section 4.5 Actions by the Corporation Board....................12
Section 4.6 Action by Unanimous Written Consent.................12
Section 4.7 Committees of the Corporation Board.................12
ARTICLE V
POST-IPO MANAGEMENT
Section 5.1 General.............................................13
ARTICLE VI
OTHER AGREEMENTS
Section 6.1 Employees...........................................13
Section 6.2 Constituent Documents of the Company and
the Corporation; Further Assurances...............13
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PAGE
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Section 6.3 Auditors; Corporate Reports; Annual Financial
Statements........................................13
Section 6.4 Confidentiality.....................................14
Section 6.5 Business Opportunity Understanding..................15
Section 6.6 Special Buy-out Right...............................15
ARTICLE VII
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND LOSS,
DISTRIBUTIONS AND TAX STATUS
ARTICLE VIII
LIQUIDITY AND TRANSFER RESTRICTIONS
Section 8.1 Structure; Transfers................................17
Section 8.2 Right of First Offer................................17
Section 8.3 Change of Control...................................18
Section 8.4 Open Market Purchases and Transfers Post-IPO........20
Section 8.5 Registration Rights.................................20
Section 8.6 Anti-Dilution.......................................21
Section 8.7 Void Transfers......................................22
ARTICLE IX
TERMINATION
Section 9.1 Survival of Agreement; Term.........................22
Section 9.2 Termination.........................................22
ARTICLE X
MISCELLANEOUS
Section 10.1 Counterparts........................................23
Section 10.2 Governing Law; Jurisdiction and Forum; Waiver
of Jury Trial.....................................23
Section 10.3 Entire Agreement....................................24
Section 10.4 Expenses............................................24
Section 10.5 Notices.............................................24
Section 10.6 Successors and Assigns..............................25
Section 10.7 Headings; Definitions...............................25
Section 10.8 Amendments and Waivers..............................26
Section 10.9 Severability........................................26
Section 10.10 Interpretation......................................26
Section 10.11 Specific Performance................................26
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ANNEXES
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Annex A Specific Pre-IPO Governance Issues
Annex B Examples of Determinations of Phillips' Corporation Interest and Duke's
Corporation Interest at Various IPO Levels
Annex C Specific Post-IPO Governance Issues
Annex D Business Opportunities Agreement
Annex E [Intentionally Omitted]
Annex F Capital Accounts, Allocations of Profit and Loss, Distributions and Tax
Status
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<PAGE>
GOVERNANCE AGREEMENT, dated as of December 16, 1999 (this
"AGREEMENT"), by and among PHILLIPS PETROLEUM COMPANY, a Delaware corporation
("PHILLIPS"), DUKE ENERGY CORPORATION, a North Carolina corporation ("DUKE") and
DUKE ENERGY FIELD SERVICES L.L.C., a Delaware limited liability company (the
"COMPANY").
RECITALS:
WHEREAS, the parties hereto have simultaneously herewith
entered into the Contribution Agreement, dated as of December 16, 1999 (the
"CONTRIBUTION AGREEMENT");
WHEREAS, the parties hereto desire to set forth certain terms
and conditions governing the Company and the Corporation (as defined below);
WHEREAS, Phillips and Duke (each, a "PARTY") contemplate that
if market conditions permit, the Corporation will conduct an initial public
offering of certain of its equity securities as soon as practicable after
consummation of the transactions contemplated by this Agreement and the
Contribution Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
"AFFILIATE" shall mean, with respect to any Person, a Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"APPRAISER COMMITTEE" shall have the meaning set forth in Section
6.6(b).
"AVERAGE MARKET PRICE" shall mean, with respect to the Corporation
Common Stock to be sold by the Company to the public in the IPO, the average of
the closing prices, as reported on the NYSE Composite Tape, on each of the
first five days of trading on the NYSE (exclusive of the pricing day).
"BENEFICIAL OWNER" shall mean, with respect to any security, a
Person who Beneficially Owns such security, and "BENEFICIAL OWNERSHIP" has a
corresponding meaning.
<PAGE>
"BENEFICIALLY OWN" shall mean, with respect to any security, having
or sharing the power to direct or control the voting or disposition of
such security.
"BUSINESS ACTIVITY" shall have the meaning set forth in Annex D.
"BUSINESS DAY" shall mean any day on which banks are generally open
to conduct business in the State of New York.
"BUY-OUT NOTICE" shall have the meaning set forth in Section 6.6(a).
"BUY-OUT RIGHT" shall have the meaning set forth in Section 6.6(a).
"CHANGE OF CONTROL" shall mean an event (such as a Transfer of
voting securities) that causes a Person that holds a Company Interest or a
Corporation Interest, as the case may be, to cease to be Controlled by such
Person's Parent; PROVIDED, HOWEVER, that an event that causes Duke or Phillips
to be Controlled by another Person shall not constitute a Change of Control, and
a Transfer by either a Duke Shareholder or a Phillips Shareholder of its
Corporation Interest, shall not constitute a Change of Control (it being the
intent of the parties that such Transfers shall be governed by and subject to
the right of first offer provisions set forth in Section 8.2 hereof).
"CHANGING PARTY" shall have the meaning set forth in Section
8.3(b).
"CHANGING PARTY APPRAISER" shall have the meaning set forth in
Section 8.3(c).
"CLOSING DATE" shall have the meaning set forth in Section 3.1
of the Contribution Agreement.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY BOARD" shall have the meaning set forth in Section 2.1(a).
"COMPANY INTEREST" shall mean, with respect to any Person, such
Person's equity interest in the Company at the time of measurement.
"CONTRIBUTION AGREEMENT" shall have the meaning set forth in the
Recitals.
"CONTRIBUTION CLOSING" shall have the meaning set forth in Section
2.1(a).
"CONTROL" shall mean the possession, directly or indirectly,
through one or more intermediaries, by any Person or group (within the meaning
of Section 13(d)(3) under the Securities Exchange Act of 1934, as amended) of
both of the following:
(a) (i) in the case of a corporation, Beneficial Ownership of
more than 25% of the outstanding equity securities thereof; (ii) in the
case of a limited liability company, partnership, limited partnership
or venture, the right to more than 25% of the distributions therefrom
(including liquidating distributions); (iii) in the case of a trust or
estate, including a business trust, more than 25% of the beneficial
interest therein; and (iv) in the
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case of any other entity, more than 25% of the economic or beneficial
interest therein; and
(b) in the case of any entity, the power or authority, through
ownership of voting securities, by contract or otherwise, to control or
direct the management and policies of the entity.
"CONTROL ACCEPTANCE" shall have the meaning set forth in
Section 8.3(b).
"CONTROL APPRAISER COMMITTEE" shall have the meaning set forth in
Section 8.3(c).
"CONTROL NOTICE" shall have the meaning set forth in Section 8.3(b).
"CONTROL OFFER PERIOD" shall have the meaning set forth in Section
8.3(b).
"CORPORATION" shall have the meaning set forth in Section 3.2.
"CORPORATION BOARD" shall have the meaning set forth in Section 4.1.
"CORPORATION COMMON STOCK" shall have the meaning set forth in
Section 3.2.
"CORPORATION INTEREST" shall mean, with respect to any Person,
such Person's percentage ownership (direct and indirect), exclusive of any
Market Shares owned (directly or indirectly) by such Person, of the outstanding
Corporation Common Stock at the time of measurement.
"DEMAND REGISTRATION" shall have the meaning set forth in Section
8.5(a).
"DEMAND REQUEST" shall have the meaning set forth in Section 8.5(a).
"DESIGNATED BUSINESS" shall have the meaning set forth in Annex D.
"DIRECTOR" shall mean (a) with respect to the Company, each
member of the Company Board, and (b) with respect to the Corporation, each
member of the Corporation Board.
"DUKE" shall have the meaning set forth in the Preamble.
"DUKE APPRAISER" shall have the meaning set forth in Section 6.6(a).
"DUKE MEMBER" shall mean DEFS Holding Corp., a Delaware
corporation and a wholly-owned indirect Subsidiary of Duke.
"DUKE POST-IPO DIRECTORS" shall have the meaning set forth in
Section 4.1.
"DUKE PRE-IPO DIRECTORS" shall have the meaning set forth in
Section 2.1(b).
"DUKE SHAREHOLDER" shall mean the holder of any Corporation
Common Stock (other than Market Shares) that is Duke or a Subsidiary of Duke.
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<PAGE>
"ENTERPRISE VALUE" shall have the meaning set forth in Section
3.3(b)(1)(E).
"FAIR MARKET VALUE" shall mean, with respect to any Person's
Company Interest or Corporation Interest, a purchase price equal to the value
that would be obtained for such Company Interest or Corporation Interest, as the
case may be, in an arm's-length transaction between an informed and willing
buyer under no compulsion to buy and an informed and willing seller under no
compulsion to sell such Company Interest or Corporation Interest, as the case
may be.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"GOVERNMENTAL ENTITY" shall mean any federal, state, political
subdivision or other governmental agency or instrumentality, foreign or
domestic.
"INDEPENDENT DIRECTORS" shall mean directors meeting the
independence and experience requirements, as set forth by the New York Stock
Exchange as of the date of the IPO for membership on an audit committee of a
board of directors, with respect to each of Phillips, Duke, the Company and the
Corporation.
"IPO" shall mean the initial offering of shares of Corporation
Common Stock in a transaction registered under the Securities Act.
"LLC AGREEMENT" shall have the meaning set forth in Section
9.2(b)(i).
"MARKET SHARES" shall mean shares purchased by a Person
through open-market purchases, other than those shares purchased to prevent
dilution in accordance with Section 8.6.
"MEMBER" shall have the meaning set forth in Section 2.1(a).
"MERGER" shall have the meaning set forth in Section 3.2.
"NEUTRAL APPRAISER" shall have the meaning set forth in Section
6.6(b).
"NEUTRAL CONTROL APPRAISER" shall have the meaning set forth in
Section 8.3(c).
"NON-CHANGING PARTY" shall have the meaning set forth in Section
8.3(b).
"NON-CHANGING PARTY APPRAISER" shall have the meaning set forth
in Section 8.3(b).
"NON-TRANSFERRING ENTITY" shall have the meaning set forth in
Section 8.2.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OFFICERS" shall have the meaning set forth in Section 2.1(a).
"PARENT" shall mean, with respect to a particular Person, the
Person that Controls such particular Person and that is not itself Controlled by
any other Person.
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"PARTIES' CORPORATION INTEREST" shall have the meaning set forth
in Section 3.3(1)(B).
"PARTIES' EQUITY VALUE" shall have the meaning set forth in
Section 3.3(1)(D).
"PARTY" shall have the meaning set forth in the Recitals.
"PERSON" shall mean any individual, partnership, limited
liability company, firm, corporation, association, joint venture, trust or other
entity or any Governmental Entity.
"PHILLIPS" shall have the meaning set forth in the Preamble.
"PHILLIPS APPRAISER" shall have the meaning set forth in Section
6.6(b).
"PHILLIPS ENTERPRISE VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(F).
"PHILLIPS EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(G).
"PHILLIPS MEMBER" shall mean Phillips Gas Company, a Delaware
corporation and a wholly-owned Subsidiary of Phillips.
"PHILLIPS MEMBER PARENT" shall mean Phillips Gas Company
Shareholder, Inc., a Delaware corporation and a wholly-owned Subsidiary of
Phillips which owns all of the outstanding common stock of Phillips Member.
"PHILLIPS POST-IPO DIRECTORS" shall have the meaning set forth
in Section 4.1.
"PHILLIPS PRE-IPO DIRECTORS" shall have the meaning set forth in
Section 2.1(b).
"PHILLIPS SHAREHOLDER" shall mean the holder of any
Corporation Common Stock (other than Market Shares) that is Phillips or a
Subsidiary of Phillips.
"PHILLIPS VETO" shall mean the failure of the requisite number
of directors of the Corporation Board to vote in favor of any of the actions
described in Sections 2, 4(a), 4(c), 5 and 6 of Annex C where none of the
Phillips Post-IPO Directors voted in favor of such action; PROVIDED, HOWEVER,
that if any of the Duke Post-IPO Directors failed to vote in favor of such
action, such failure of the requisite number of directors of the Corporation
Board to vote in favor of such action shall not constitute a Phillips Veto.
"POST-IPO PERIOD" shall have the meaning set forth in Section
4.1.
"PRE-IPO PERIOD" shall have the meaning set forth in Section
2.1(b).
"PUBLIC'S CORPORATION INTEREST" shall have the meaning set
forth in Section 3.3(b)(1)(A).
"PUBLIC'S EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(C).
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<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHAREHOLDER" shall have the meaning set forth in Section 8.2.
"SUBSIDIARY" shall mean, when used with respect to any Person,
any Affiliate of such Person that is Controlled by such Person.
"TOTAL CORPORATION INTEREST" shall mean, with respect to any
Person, the sum of (i) such Person's Corporation Interest and (ii) any Market
Shares owned (directly or indirectly) by such Person (expressed as a percentage
of the outstanding Corporation Common Stock at the time of measurement).
"TOTAL EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(H).
"TRANSFER" shall mean any sale, assignment or other transfer,
whether by operation of law or otherwise (but not any deemed transfer pursuant
to Section 338 of the Code, as defined in Annex F, of the assets of a
corporation or its Subsidiary in connection with the purchase of the stock of
such corporation). "TRANSFERRED" and "TRANSFERRING" shall have correlative
meanings.
"TRANSFER NOTICE" shall have the meaning set forth in Section
8.2.
"TRANSFERRING ENTITY" shall have the meaning set forth in
Section 8.2.
ARTICLE II
BOARD OF DIRECTORS PRIOR TO THE IPO
Section 2.1 MANAGEMENT OF THE COMPANY'S AFFAIRS. (a) From and upon
the closing of the Contribution Agreement (the "CONTRIBUTION CLOSING"), all
management powers over the business and affairs of the Company shall be
exclusively vested in a board of directors ("COMPANY BOARD") and, subject to the
direction of the Company Board, the officers of the Company (the "OFFICERS").
The Officers and Directors shall collectively constitute "managers" of the
Company within the meaning of the Delaware Limited Liability Company Act.
Neither the Duke Member nor the Phillips Member (each a "MEMBER") by virtue of
its status as a member of the Company, shall have any management power over the
business and affairs of the Company or actual or apparent authority to enter
into contracts on behalf of, or to otherwise bind, the Company. Except as
otherwise specifically provided in this Agreement, the authority and functions
of the Company Board on the one hand and of the Officers on the other shall be
identical to the authority and functions of the board of directors and officers,
respectively, of a corporation organized under the Delaware General Corporation
Law. Thus, except as otherwise specifically provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Company Board, which may delegate from time to time such authority and duties as
it deems appropriate to one or more of the Officers, who shall be agents of the
Company.
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(b) The Company Board shall consist of five persons, and from and upon
the Contribution Closing until the consummation of the IPO (such period, the
"PRE-IPO PERIOD") (i) Duke shall cause the Duke Member to appoint three
Directors who shall be individuals designated by Duke ("DUKE PRE-IPO DIRECTORS")
and (ii) Phillips shall cause the Phillips Member to appoint two Directors who
shall be individuals designated by Phillips (the "PHILLIPS PRE-IPO DIRECTORS").
Each Director elected to the Company Board shall serve until his or her
successor is duly appointed or until his or her earlier removal or resignation.
(c) Neither Member nor any Affiliate of, or any director appointed by,
either Member shall have any obligation or owe any duty, fiduciary or otherwise,
to the Company or to any other Member or its Affiliates, including any
obligation (i) to offer business opportunities to the Company, (ii) to refrain
from pursuing business opportunities that may have a competitive impact upon the
Company or (iii) to refrain from taking any other action that will or may be
detrimental to the Company, and neither Member nor any Affiliate of such Member
shall, by virtue of the relationship established pursuant to the Transaction
Documents, have any other obligations to take or refrain from taking any other
action that may impact the Company. The provisions of this Section 2.1(c)
constitute an agreement to modify or eliminate fiduciary duties pursuant to the
provisions of Section 18-1101 of the Delaware Limited Liability Company Act.
Section 2.2 REMOVAL AND REPLACEMENT OF DIRECTORS. Duke shall have the
right to cause the Duke Member, during the Pre-IPO Period, at any time and for
any reason (or for no reason), to remove any or all of the Duke Pre-IPO
Directors. Phillips shall have the right to cause the Phillips Member, during
the Pre-IPO Period, at any time and for any reason (or for no reason), to remove
any or all of the Phillips Pre-IPO Directors. During the Pre-IPO Period, should
any director of the Company be unwilling or unable to continue to serve, or
otherwise cease to serve (including by reason of his or her involuntary removal
or the expiration of any applicable term of office), then (i) in the case of a
vacancy of a Duke Pre-IPO Director, Duke shall cause the Duke Member to fill the
resulting vacancy on the Company Board by a Person designated by Duke and (ii)
in the case of a vacancy of a Phillips Pre-IPO Director, Phillips shall cause
the Phillips Member to fill the resulting vacancy in the Company Board by a
Person designated by Phillips.
Section 2.3 MEETINGS OF THE COMPANY BOARD. (a) During the Pre-IPO
Period, regular meetings of the Company Board shall be held quarterly.
(b) During the Pre-IPO Period, either Member may request a special
meeting of the Company Board at any time on two Business Days' prior notice.
(c) During the Pre-IPO Period, a quorum for meetings of the Company
Board shall be at least three directors, present in person, by telephone or
represented by proxy.
(d) During the Pre-IPO Period, meetings of the Company Board may be
conducted via telephone or other similar means.
Section 2.4 NOTICE OF BOARD OF DIRECTORS MEETINGS. During the Pre-IPO
Period, written notice of all regular meetings of the Company Board must be
given to all
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directors at least 15 days prior to any regular meeting of the Company Board and
two Business Days prior to any special meeting of the Company Board.
Section 2.5 ACTIONS BY THE COMPANY BOARD. (a) Except as set forth in
Section 2.5(b), all decisions of the Company Board during the Pre-IPO Period
shall require the affirmative vote of a majority of the directors present at a
meeting at which a quorum is present.
(b) During the Pre-IPO Period, no action shall be taken by the Company
Board with respect to the matters set forth on Annex A without the prior
approval of at least four of the five directors of the Company Board.
Section 2.6 ACTION BY UNANIMOUS WRITTEN CONSENT. During the Pre-IPO
Period, to the extent permitted by applicable law, the Company Board may act
without a meeting so long as all members of the Company Board shall have
executed a written consent with respect to any such Company Board action taken
in lieu of a meeting.
ARTICLE III
THE IPO
Section 3.1 EFFORTS. The Company agrees to use its reasonable best
efforts to prepare for, effect and consummate the IPO (market conditions
permitting) as soon as practicable following the Contribution Closing, including
selecting underwriters, preparing and filing with the SEC a registration
statement and filings under applicable state securities or "blue sky" laws or
similar securities laws and determining the terms of the IPO; PROVIDED that,
notwithstanding anything to the contrary in this Agreement, the Company shall
not consummate any IPO on or before the date two years after the consummation of
the Contribution Closing without the prior written consent of Phillips if the
consummation of the IPO (including the potential effect of any underwriters'
over-allotment) in accordance with the provisions of this Agreement would result
in (i) Phillips' Corporation Interest being less than 20% upon consummation of
the IPO or (ii) an Enterprise Value immediately following the IPO of less than
$4,400,000,000; PROVIDED, FURTHER, that for purposes of the calculations
contemplated in (i) and (ii) in the preceding proviso, the "Average Market
Price" shall be the proposed public offering price of the Corporation Common
Stock in the IPO. Each of Duke and Phillips agree to (i) provide reasonable
assistance to the Company in effecting the IPO and (ii) cause any Duke
Shareholder or Phillips Shareholder, respectively, not to Transfer any or all of
their shares of Corporation Common Stock for a period of six months following
the consummation of the IPO and to agree to such other customary terms as are
reasonably requested by the underwriters in connection with the IPO.
Section 3.2 FORMATION OF THE CORPORATION. Each of Duke and Phillips
agree to take such corporate action as is necessary and desirable to cause
Phillips Member Parent to be merged with and into the Duke Member, with the Duke
Member surviving (such surviving corporation, the "CORPORATION," and such
merger, the "MERGER"), immediately prior to the consummation of the IPO.
Phillips represents, warrants and agrees that at the time of such Merger, (i)
Phillips Member Parent shall have no assets or liabilities, contingent or
otherwise, other than through its ownership of its interest in Phillips Member
and (ii) Phillips Member shall
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have no assets or liabilities, contingent or otherwise, other than through its
ownership of its interest in the Company. Duke represents, warrants and agrees
that at the time of the Merger, the Duke Member shall have no assets or
liabilities, contingent or otherwise, other than through its ownership of its
interest in the Company. Following the Merger and prior to the consummation of
the IPO, the percentage of the total number of issued and outstanding shares of
Corporation Common Stock owned by (i) Phillips and its Affiliates (other than
the Corporation and its Subsidiaries) shall equal the quotient, expressed as a
percentage, of (x) Phillips' Corporation Interest upon the consummation of the
IPO determined in accordance with Section 3.3(b)(2) divided by (y) the sum of
Phillips' Corporation Interest and Duke's Corporation Interest upon the
consummation of the IPO determined in accordance with Section 3.3(b)(2) and
Section 3.3(b)(3), respectively, and (ii) Duke and its Affiliates (other than
the Corporation and its Subsidiaries) shall equal the quotient, expressed as a
percentage, of (x) Duke's Corporation Interest upon consummation of the IPO
determined in accordance with Section 3.3(b)(3) divided by (y) the sum of Duke's
Corporation Interest and Phillips' Corporation Interest upon consummation of the
IPO determined in accordance with Section 3.3(b)(3) and Section 3.3(b)(2),
respectively. If necessary, for purposes of the above calculation only, Duke and
Phillips shall estimate in good faith the Average Market Price and the number of
shares of Corporation Common Stock to be sold to the public. Duke agrees to
cause the Duke Shareholder and Phillips agrees to cause the Phillips
Shareholder, respectively, to vote its shares to cause the Corporation upon
consummation of the IPO to have a single class of common stock (the "CORPORATION
COMMON STOCK") outstanding and no other classes of capital stock or other
securities (except for options to purchase shares of the Corporation Common
Stock issued to officers, directors and employees of the Corporation or the
Company or its Subsidiaries).
Section 3.3 POST-IPO OWNERSHIP. (a) Each of Duke and Phillips
presently intends that, if the IPO occurs, approximately 20% of the Corporation
Common Stock shall be sold to the public by the Corporation pursuant to the IPO;
PROVIDED, HOWEVER, that this percentage may vary depending on market conditions
and other factors.
(b) Each of Duke and Phillips agrees to take, or cause to be taken,
such action (including the Merger and any adjustments by the Corporation to the
number of shares of Corporation Common Stock owned by Duke and Phillips) as is
necessary and desirable to provide that upon the end of the fifth day of trading
on the NYSE (excluding the pricing day and without regard to the exercise of any
underwriters' over-allotment), each of Duke and Phillips shall own, directly or
indirectly, excluding any Corporation Common Stock purchased directly or
indirectly by either Party in the IPO, a percentage of the outstanding
Corporation Common Stock determined as follows:
(1) For purposes of this Agreement, the following definitions
shall apply:
(A) "PUBLIC'S CORPORATION INTEREST" shall mean the quotient,
expressed as a percentage, of (x) the number of shares of the Corporation Common
Stock sold by the Company in the IPO (without giving effect to any underwriters'
over-allotment) divided by (y) the number of shares of Corporation Common Stock
outstanding immediately after the IPO (without giving effect to any
underwriters' over-allotment).
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(B) "PARTIES' CORPORATION INTEREST" shall mean the
difference between (x) 100% and (y) the Public's Corporation Interest.
(C) "PUBLIC'S EQUITY VALUE" shall mean the product of (i)
the Average Market Price multiplied by (ii) the number of shares sold by the
Company in the IPO.
(D) "PARTIES' EQUITY VALUE" shall mean the product of (i)
the quotient of (x) the Parties' Corporation Interest divided by (y) the
Public's Corporation Interest multiplied by (ii) the Public's Equity Value.
(E) "ENTERPRISE VALUE" shall mean the sum of (x) the
Parties' Equity Value and (y) $2,400,000,000; PROVIDED that, from and after the
date two years after the consummation of the Contribution Closing, "ENTERPRISE
VALUE" shall mean $5,500,000,000.
(F) "PHILLIPS ENTERPRISE VALUE" shall mean the product of
(x) the Enterprise Value and (y) .389.
(G) "PHILLIPS EQUITY VALUE" shall mean the difference
between (x) Phillips Enterprise Value and (y) $1,200,000,000.
(H) "TOTAL EQUITY VALUE" shall mean the quotient of (x) the
Public's Equity Value divided by (y) the Public's Corporation Interest.
(2) Phillips' Corporation Interest shall equal the quotient,
expressed as a percentage, of (x) Phillips Equity Value divided by (y) Total
Equity Value.
(3) Duke's Corporation Interest shall equal the difference
between (x) the Parties' Corporation Interest and (y) Phillips' Corporation
Interest.
Annex B sets forth examples of determinations of Phillips'
Corporation Interest and Duke's Corporation Interest at various Public's Equity
Values. The percentages and calculations set forth in this Section 3.3 do not
give effect to any underwriters' over-allotment. In the event that there is an
underwriters' over-allotment and such over-allotment is exercised, each Party's
Corporation Interest and the interest of the public in the Corporation (prior to
such exercise) shall all be reduced pro rata.
ARTICLE IV
BOARD OF DIRECTORS FOLLOWING THE IPO
Section 4.1 COMPOSITION OF THE CORPORATION BOARD. Following the IPO
(the "POST-IPO PERIOD") until the termination of this Agreement, Duke agrees to,
and to cause its Subsidiaries to, make nominations and vote Duke's Total
Corporation Interest, and Phillips agrees to, and to cause its Subsidiaries to,
make nominations and vote Phillips' Total Corporation Interest, so that (a) the
Corporation shall be managed by a board of directors (the "CORPORATION BOARD")
that shall be comprised of 11 Persons, including: (i) so long as Duke's
Corporation Interest equals or exceeds 30%, (A) seven individuals designated by
Duke (the "DUKE POST-IPO
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DIRECTORS"), including at least two Independent Directors, and (B) so long as
Phillips' Corporation Interest equals or exceeds 20%, four individuals
designated by Phillips (the "PHILLIPS POST-IPO DIRECTORS"), including at least
one Independent Director and (ii) if Duke's Corporation Interest equals or
exceeds 20% but is less than 30%, (A) the number of Duke Post-IPO Directors
shall equal the product, rounded to the nearest whole number, of (1) 11 and (2)
the quotient of (x) Duke's Corporation Interest divided by (y) the sum of (I)
Duke's Corporation Interest and (II) Phillips' Corporation Interest; (B) the
number of Phillips Post-IPO Directors shall equal the difference between (1) 11
and (2) the number of Duke IPO Directors, (C) if there are more Duke Post-IPO
Directors than Phillips Post-IPO Directors, then at least two of the Duke IPO
Directors and at least one of the Phillips Post-IPO Directors must be
Independent Directors and (D) if there are more Phillips Post-IPO Directors than
Duke Post-IPO Directors, then at least two of the Phillips Post-IPO Directors
and at least one of the Duke Post-IPO Directors must be Independent Directors,
and (b) the Chairman of the Board shall be one of the Directors designated by
whichever of the Parties has the right at such time to designate more Directors.
Each Director of the Corporation Board will serve as a Director of the
Corporation Board until his or her successor is duly elected and qualified or
until his or her earlier resignation or removal.
Section 4.2 REMOVAL AND REPLACEMENT OF DIRECTORS. Duke agrees to, and
to cause its Subsidiaries to, and Phillips agrees to, and to cause its
Subsidiaries to, vote its respective Total Corporation Interest during the
Post-IPO Period to remove (i) any or all of the Duke Post-IPO Directors at the
request of Duke at any time and for any reason (or for no reason) and (ii) any
or all of the Phillips Post-IPO Directors at the request of Phillips at any time
and for any reason (or for no reason). During the Post-IPO Period, should any
Director of the Corporation be unwilling or unable to continue to serve, or
otherwise cease to serve (including by reason of his or her involuntary removal
or at the expiration of any applicable term of office), then Duke shall, and
shall cause its Subsidiaries to, and Phillips shall, and shall cause its
Subsidiaries to, make nominations and vote its shares to fill the resulting
vacancy on the Corporation Board by a Person designated by Duke, in the case of
a vacancy of a Duke Post-IPO Director, and by a Person designated by Phillips,
in the case of a vacancy of a Phillips Post-IPO Director, but in each case in
accordance with the Independent Director requirements of Section 4.1.
Section 4.3 MEETINGS OF THE CORPORATION BOARD. (a) The Corporation
Board shall meet at least quarterly.
(b) A special meeting of the Corporation Board may be called at any
time on two Business Days' prior notice at the request of (i) the Chairman of
the Corporation Board or (ii) any four directors of the Corporation Board.
(c) During the Post-IPO Period, a quorum for meetings of the
Corporation Board shall be at least six directors, present in person, by
telephone or represented by proxy.
(d) Meetings of the Corporation Board may be conducted via telephone
or other similar means.
Section 4.4 NOTICE OF BOARD OF DIRECTORS MEETINGS. Written notice of
all regular meetings of the Corporation Board must be given to all directors at
least 15 days prior to
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any regular meeting of the Corporation Board and two Business Days
prior to any special meeting of the Corporation Board.
Section 4.5 ACTIONS BY THE CORPORATION BOARD. (a) The business and
affairs of the Corporation shall be managed by the Corporation Board. Except as
set forth in Sections 4.5(b), all decisions of the Corporation Board shall
require the affirmative vote of a majority of the directors present at a meeting
at which a quorum is present.
(b) During the Post-IPO Period, no action shall be taken by the
Corporation Board with respect to the matters set forth on Annex C without the
prior approval of at least eight of the 11 directors of the Corporation Board.
Section 4.6 ACTION BY UNANIMOUS WRITTEN CONSENT. To the extent
permitted by applicable law, the Corporation Board may act without a meeting so
long as all members of the Corporation Board shall have executed a written
consent with respect to any the Corporation Board action taken in lieu of a
meeting.
Section 4.7 COMMITTEES OF THE CORPORATION BOARD. (a) To the extent
not inconsistent with the provisions of Section 4.5, the Corporation Board may
establish committees of the Corporation Board and may delegate certain of its
responsibilities to such committees, PROVIDED that so long as Phillips and Duke
are entitled to designate directors of the Corporation pursuant to Section 4.1,
each committee of the Corporation Board, other than the audit committee, shall
include at least one Phillips Post-IPO Director who is not an Independent
Director and one Duke Post-IPO Director who is not an Independent Director.
(b) The Corporation Board shall have an audit committee comprised of
three Independent Directors, which audit committee shall establish a written
audit committee charter in accordance with the rules of the NYSE, as amended
from time to time.
ARTICLE V
POST-IPO MANAGEMENT
Section 5.1 GENERAL. Following the IPO, the executive officers of the
Corporation shall be selected by, and serve at the pleasure of, the Corporation
Board. Such officers shall have the authority and duties delegated to each of
them, respectively, by the Corporation Board from time to time.
ARTICLE VI
OTHER AGREEMENTS
Section 6.1 EMPLOYEES. Prior to the Contribution Closing, Duke shall
cause the Duke Member, in consultation with the Phillips Member, to select the
employees currently utilized in the business and operations of the Phillips
Member and its Subsidiaries and the Duke Member and its Subsidiaries who will be
offered employment with the Company and its
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Subsidiaries. Duke intends for the Duke Member to make employment decisions
without regard to previous employer-affiliation and with the goal of retaining
the best talent from each of the Duke Member and its Subsidiaries and the
Phillips Member and its Subsidiaries.
Section 6.2 CONSTITUENT DOCUMENTS OF THE COMPANY AND THE CORPORATION;
FURTHER ASSURANCES. (a) The parties hereto shall take all such action as is
appropriate to ensure that the constituent documents of the Company (as of the
time of the Contribution Closing) and the Corporation (as of the time of the
IPO) embody the governance and management principles set forth in this
Agreement, as appropriate.
(b) The parties hereto agree that, from time to time, whether before,
at or after the Contribution Closing or the IPO, each of them will execute and
deliver, or cause to be executed and delivered, such further agreements
(including a limited liability company agreement with respect to the Company and
a stockholders' agreement and a registration rights agreement with respect to
the Corporation and the Corporation Common Stock) and instruments and take such
other action as may be necessary to effectuate the provisions, purposes and
intents of this Agreement.
Section 6.3 AUDITORS; CORPORATE REPORTS; ANNUAL FINANCIAL STATEMENTS.
(a) AUDITORS. Immediately following the Contribution Closing, the auditors of
the Company shall be Deloitte & Touche L.L.P.
(b) CORPORATE REPORTS. (1) During the Pre-IPO Period, each Member and
its respective representatives shall be entitled to reasonable access, during
regular business hours and upon reasonable advance notice, to the corporate
books and records and properties, and the executive officers and
representatives, of the Company and its Subsidiaries, for any reasonable
purpose, including in order to conduct any investigation or audit of the
business, financial position and financial statements of any such entity;
PROVIDED that nothing herein shall authorize access to classified or controlled
unclassified information, except as authorized by applicable law.
(2) During the Pre-IPO Period, each Member shall be supplied not
later than 45 days after the end of each of the first three calendar quarters of
each year with unaudited financial statements of the Company and each of its
Subsidiaries on a consolidated basis, including a balance sheet, an income
statement and a statement of cash flows, as well as a comparison of actual
performance with any applicable business plan and such tax information as either
Member may reasonably request.
(3) During the Pre-IPO Period, the Company Board shall be
supplied not later than 45 days after the end of each calendar month with
unaudited financial statements of the Company and each of its Subsidiaries on a
consolidated basis, including a balance sheet, an income statement and a
statement of cash flows, as well as a comparison of actual performance with any
applicable business plan and, within 45 days of the end of each calendar
quarter, budget and cash flow forecasts showing the position of the Company and
its Subsidiaries on a consolidated basis for the next 12-month period together
with such additional information as the Company Board may reasonably request.
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(c) ANNUAL FINANCIAL STATEMENTS. (1) During the Pre-IPO Period,
annual financial statements for the Company and its Subsidiaries on a
consolidated basis shall be prepared in accordance with GAAP and subject to an
audit by Deloitte & Touche L.L.P.
(2) During the Pre-IPO Period, the Company shall make available
to each Member simultaneously the consolidated annual audited financial
statements for the Company and its Subsidiaries, taken as a whole, and the
reports of the auditors thereon as soon as practicable after the issuance by the
auditors of such reports.
(3) During the Pre-IPO Period, the Company and its Subsidiaries
shall prepare annual financial statements in respect of each fiscal year for
presentation to the auditors within one month from the end of that fiscal year
and shall use reasonable best efforts to ensure that the auditors will issue
their reports on such financial statements by March 15 of each year.
Section 6.4 CONFIDENTIALITY. (a) Each Member and its respective
Affiliates shall keep confidential all information which is obtained by them as
Members or otherwise pursuant to this Agreement or any other Transaction
Document, whether that information is (1) generated or commissioned by the
Company or any of its Subsidiaries or (2) related to the business affairs of any
of the Members or of their respective Affiliates.
(b) The restrictions in Section 6.4(a) shall not apply to:
(1) information which enters the public domain otherwise than by
breach of this Agreement;
(2) information already in the possession of a Member or any of
its Affiliates before disclosure to it under this Agreement and which was not
acquired directly or indirectly from the other Member or any of its Affiliates
and which is not the subject of a confidentiality agreement in favor of the
provider of such information;
(3) information lawfully obtained from a third party that is
free to disclose such information;
(4) information developed or created by a Member or any of its
Affiliates (other than the Company or its Subsidiaries) independent of this
Agreement;
(5) information required to be disclosed at any time after the
date one year after the Contribution Closing by a Member or any of its
Affiliates to a third party contemplating purchasing shares in that Member in
order to permit such third party to decide whether or not to proceed and what
price to offer; PROVIDED that such third party shall prior to any such
disclosure have entered into a confidentiality agreement with such Member and
its Affiliates on terms no less strict than the terms of this Section 6.4;
(6) information requested by any Governmental Entity entitled by
law to require the same; PROVIDED that prior to such disclosure if practicable,
the disclosing Member shall notify in writing the owner of such information
(where the identity of such owner can be reasonably determined) that such
request has been made; PROVIDED, FURTHER, that the Member seeking to rely on an
exemption contained in this Section 6.4(b) shall provide such evidence as
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the other Member may reasonably require to prove that the information sought to
be exempted falls within the relevant category; and
(7) information that a Member or its Affiliates must disclose
under applicable securities laws or stock exchange regulations.
(c) The restrictions contained in Section 6.4(a) shall last until the
earlier of the consummation of the IPO and the date two years from the relevant
disclosure.
Section 6.5 BUSINESS OPPORTUNITY UNDERSTANDING. Each of Duke and
Phillips presently intends that the Corporation shall be the primary vehicle by
which it conducts the midstream gas gathering and processing business in the
United States and Canada. However, in order to clarify any duties that Duke, as
the owner of a controlling interest in the Corporation, may owe to the
Corporation, the certificate of incorporation or bylaws of the Corporation (or
an agreement binding on the Corporation) shall contain a business opportunity
agreement substantially in the form of Annex D.
Section 6.6 SPECIAL BUY-OUT RIGHT. (a) Following the one year
anniversary of the consummation of the IPO, if a Phillips Veto occurs with
regard to different proposals proposed in good faith at three separate meetings
(with at least two months between the first and third meetings) of the
Corporation Board within any 18-month period, Duke shall have the right (the
"BUY-OUT RIGHT"), exercisable upon written notice (the "BUY-OUT NOTICE") at any
time after the third such Phillips Veto, but not later than the thirtieth day
after the end of the eighteenth month after the occurrence of the first of the
three Phillips Vetoes that are the basis for the exercise of the Buy-Out Right,
to purchase all (but not less than all) of Phillips' Corporation Interest
pursuant to this Section 6.6. The Buy-Out Notice shall set forth the name of a
nationally recognized appraisal firm (which may be an investment banking,
accounting or other firm that performs appraisal and valuation services)
designated by Duke as its appraisal firm (the "DUKE APPRAISER").
(b) Within 15 days from the date of receipt of the Buy-Out Notice,
Phillips shall notify Duke in writing of the name of an appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) designated as Phillips' appraisal firm (the "PHILLIPS
APPRAISER"); PROVIDED, HOWEVER, that if Phillips fails to select an appraisal
firm, the Phillips Appraiser shall be Ernst & Young L.L.P. (PROVIDED, FURTHER,
that if Ernst & Young L.L.P. fails to accept the appointment within 30 days from
the date of Phillips' receipt of the Buy-Out Notice, the Appraiser Committee
shall consist solely of the Duke Appraiser). If applicable, the Duke Appraiser
and the Phillips Appraiser shall jointly choose a third appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) within 15 days after the appointment of the Phillips
Appraiser (PROVIDED, HOWEVER, that if they fail to select a third appraisal firm
within 15 days after the appointment of the Phillips Appraiser, such third firm
(which shall be an investment banking, accounting or other firm that performs
appraisal and valuation services) will be selected by the American Arbitration
Association at the request of either party within 10 days after such request)
(the "NEUTRAL APPRAISER," and together with the Duke Appraiser and the Phillips
Appraiser, the "APPRAISER COMMITTEE"). Once the Appraiser Committee has been
selected, each of Duke and Phillips shall submit proposed Fair Market Values of
Phillips' Corporation Interest to the
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Appraiser Committee, together with any supporting documentation such party deems
appropriate, as soon as practicable, but in no event earlier than 30 days after
the date of receipt of the Buy-Out Notice nor later than (i) 30 days after the
date of selection of the Neutral Appraiser, or (ii) in the event of the failure
of Ernst & Young L.L.P. to accept the appointment within the required time
period, 60 days from the date of Phillips' receipt of the Buy-Out Notice. If
either Party fails to submit its proposed Fair Market Value within the required
time period, the Fair Market Value proposed by the other Party (assuming such
other Party has submitted its proposed value within the required time period)
shall be deemed to be the Fair Market Value of Phillips' Corporation Interest
for purposes of this Section 6.6. If both Parties submit their respective
proposed values on a timely basis, the Appraiser Committee shall determine, by
majority vote, the Fair Market Value of Phillips' Corporation Interest as of the
date of the Buy-Out Notice as promptly as possible (and in any event on or
before the 30th day after submittal of the competing proposals), which
determination shall be final and binding on the parties. The cost of such
appraisal shall be paid in equal portions by each of Duke and Phillips. The
Company shall provide to each of Duke and Phillips and, if applicable, the
Appraisal Committee, all information reasonably requested by them.
(c) The closing of Duke's acquisition of Phillips' Corporation
Interest shall be consummated on or before the 60th day after the determination
of the Fair Market Value in accordance with Section 6.6(b). The acquisition
shall be consummated at a closing held at the principal offices of the
Corporation (unless otherwise mutually agreed by Duke and Phillips) at which
time the purchase price, payable in the form of immediately available funds,
shall be delivered to Phillips, and Phillips shall deliver or cause to be
delivered to Duke such transfer documentation reasonably acceptable to Duke as
shall be required to evidence the transfer of Phillips' Corporation Interest,
free and clear of all liens and encumbrances, except those created under this
Agreement.
ARTICLE VII
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND LOSS, DISTRIBUTIONS AND
TAX STATUS
The provisions of Annex F are hereby incorporated herein.
ARTICLE VIII
LIQUIDITY AND TRANSFER RESTRICTIONS
Section 8.1 STRUCTURE; TRANSFERS. For the period from the Contribution
Closing until the consummation of the IPO ("BLACKOUT PERIOD"), (i) Duke shall
cause the Duke Member to own and hold all of Duke's Company Interest and no
other assets or liabilities, and (ii) Phillips shall cause (A) the Phillips
Member to own and hold all of Phillips' Company Interest and no other assets or
liabilities and (B) Phillips Member Parent to own and hold all of the capital
stock of Phillips Member and no other assets or liabilities.
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Section 8.2 RIGHT OF FIRST OFFER. If either a Duke Shareholder or a
Phillips Shareholder (each, a "SHAREHOLDER") desires to Transfer all or any
portion of its Corporation Interest (other than pursuant to a registered public
offering), to a Person other than an Affiliate then prior to effecting or making
such Transfer, the Person desiring to make such Transfer (a "TRANSFERRING
ENTITY") shall notify in writing the other Party (the "NON-TRANSFERRING
ENTITY"), of the terms and conditions upon which it proposes to effect such
Transfer (which notice shall be herein referred to as a "TRANSFER NOTICE" and
shall include all material price and non-price terms and conditions). The
Non-Transferring Entity shall have the right to acquire all (but not less than
all) of the Corporation Interest that is the subject of the Transfer Notice on
the same terms and conditions as are set forth in the Transfer Notice. The
Non-Transferring Entity shall have 30 days following delivery of the Transfer
Notice during which to notify the Transferring Entity whether or not it desires
to exercise its right of first offer. If the Non-Transferring Entity does not
respond during the applicable period set forth above for exercising its
purchasing right under this Section 8.2, such Non-Transferring Entity shall be
deemed to have waived such right. If the Non-Transferring Entity elects to
purchase all, but not less than all, of the Corporation Interest that is the
subject of the Transfer Notice, the closing of such purchase shall occur at the
principal place of business of the Corporation on the tenth day following the
first date on which all applicable conditions precedent have been satisfied or
waived (but in no event shall such closing take place later than the date that
is 60 days (subject to extension for regulatory approvals, but in no event more
than 180 days) following the date on which the Non-Transferring Entity agrees to
purchase all of the Corporation Interest that is the subject of the Transfer
Notice). The Transferring Entity and the purchasing Non-Transferring Entity
agree to use commercially reasonable efforts to cause any applicable conditions
precedent to be satisfied as expeditiously as possible. At the closing, (i) the
Transferring Entity shall execute and deliver to the purchasing Non-Transferring
Entity (A) an assignment of the Corporation Interest described in the Transfer
Notice, in form and substance reasonably acceptable to the purchasing
Non-Transferring Entity and (B) any other instruments reasonably requested by
the purchasing Non-Transferring Entity to give effect to the purchase; and (ii)
the purchasing Non-Transferring Entity shall deliver to the Transferring Entity
the purchase price specified in the Transfer Notice in immediately available
funds or other consideration as specified in the Transfer Notice. If the
Non-Transferring Entity does not elect to purchase the Corporation Interest
pursuant to this Section 8.2, or having elected to so purchase such Corporation
Interests fails to do so within the time period required by this Section 8.2,
the Transferring Entity shall be free for a period of 180 days after the
expiration of the offer period referred to above or the date of such failure, as
applicable, to enter into a definitive written agreement with an unaffiliated
third party regarding the Transfer of its Corporation Interest on terms and
conditions that satisfy the following criteria:
(1) the amount of consideration to be paid by the purchasing
party may not be less than the consideration set forth in the Transfer Notice;
(2) the form of consideration may not be materially different
from that set forth in the Transfer Notice, except to the extent any change in
the form of consideration makes the terms of the transaction less favorable from
the purchaser's standpoint; and
(3) the terms and conditions set forth in such definitive
written agreement, when considered together with the form and amount of
consideration to be paid by such purchasing party, may not render the terms of
such transaction, taken as a whole, materially
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inferior (to the Transferring Entity from an economic standpoint) to those set
forth in the Transfer Notice (it being agreed that the granting by the
Transferring Entity of representations, warranties and indemnities with respect
to the business or properties of the Corporation, as applicable, or any of its
subsidiaries that are different from or in addition to any such provisions
referenced in the Transfer Notice shall not be considered to be more favorable
to the purchaser for purposes of this clause (c)).
If such a definitive written agreement is entered into with an unaffiliated
third party within such time period, the Transferring Entity shall be free for a
period of 270 days following the execution of such definitive written agreement
to consummate the Transfer of its Corporation Interest in accordance with the
terms thereof. If such Transfer is not consummated within such time period in
accordance with the terms of such definitive written agreement, the requirements
of this Section 8.2 shall apply anew to any further efforts by the Transferring
Entity to Transfer its Corporation Interest.
Section 8.3 CHANGE OF CONTROL. (a) If (i) a Change of Control occurs
with respect to the Duke Member (prior to the IPO) or a Duke Shareholder,
Phillips shall have the option to purchase such Duke Member's Company Interest
(prior to the IPO) or such Duke Shareholder's Corporation Interest (following
the IPO), as the case may be, for Fair Market Value pursuant to the provisions
of Section 8.3(b), (c) and (d), and (ii) a Change of Control occurs with respect
to the Phillips Member (prior to the IPO) or a Phillips Shareholder, Duke shall
have the option to purchase such Phillips Member's Company Interest (prior to
the IPO) or such Phillips Shareholder's Corporation Interest (following the
IPO), as the case may be, pursuant to the provisions of Section 8.3(b), (c) and
(d).
(b) In the event of a transaction giving rise to a Change of Control
with respect to the Duke Member (prior to the IPO), Duke Shareholder, Phillips
Member (prior to the IPO) or Phillips Shareholder, as applicable, the Party who
has (or whose Subsidiaries have) experienced such a Change of Control
transaction (the "CHANGING PARTY") shall promptly (and in any event within three
days of the consummation of such transaction) deliver notice (the "CONTROL
NOTICE") to the other Party (the "NON-CHANGING PARTY") of such Change of Control
transaction. The Non-Changing Party shall have the right, to be exercised by
notice (the "CONTROL ACCEPTANCE") on or before the 60th day following receipt of
the Control Notice (the "CONTROL OFFER PERIOD"), to elect to purchase the
Company Interest or Corporation Interest of the Changing Party for Fair Market
Value as of the date of the Change of Control. The Control Acceptance shall set
forth the name of a nationally recognized appraisal firm (which may be an
investment banking, accounting or other firm that performs appraisal and
valuation services) designated by the Non-Changing Party as its appraisal firm
(the "NON-CHANGING PARTY APPRAISER").
(c) If the Non-Changing Party timely delivers the Control Acceptance
during the Control Offer Period, within 15 days from the date of receipt of the
Control Acceptance, the Changing Party shall notify the Non-Changing Party in
writing of the name of an appraisal firm (which may be an investment banking,
accounting or other firm that performs appraisal and valuation services)
designated as the Changing Party's appraisal firm (the "CHANGING PARTY
APPRAISER"); PROVIDED, HOWEVER, that if the Changing Party fails to select an
appraisal firm, and the Non-Changing Party is Duke, the Non-Changing Party
Appraiser shall be Deloitte &
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Touche L.L.P., or, if the Non-Changing Party is Phillips, the Non-Changing Party
Appraiser shall be Ernst & Young L.L.P.; PROVIDED, FURTHER, that if Deloitte &
Touche L.L.P. or Ernst & Young L.L.P., as the case may be, fails to accept the
appointment within 30 days from the date of receipt by the Non-Changing Party of
the Control Notice, the Control Appraiser Committee shall consist solely of the
Non-Changing Party Appraiser. If applicable, Non-Changing Party Appraiser and
the Changing Party Appraiser shall jointly choose a third appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) within 15 days after the appointment of the Non-Changing
Party Appraiser (PROVIDED, HOWEVER, that if they fail to select a third
appraisal firm within 15 days after the appointment of the Non-Changing Party
Appraiser, such third firm (which shall be an investment banking, accounting or
other firm that performs appraisal and valuation services) will be selected by
the American Arbitration Association at the request of either party within 10
days after such request) (the "NEUTRAL CONTROL APPRAISER," and together with the
Changing Party Appraiser and the Non-Changing Party Appraiser, the "CONTROL
APPRAISER COMMITTEE"). Once the Control Appraiser Committee has been chosen,
each of the Changing Party and Non-Changing Party shall submit proposed Fair
Market Values of the Changing Party's Company Interest or Corporation Interest,
as the case may be, to the Control Appraiser Committee, together with any
supporting documentation such party deems appropriate, as soon as practicable,
but in no event earlier than 30 days after the date of receipt of the Control
Acceptance nor later than (i) 30 days after the date of selection of the Neutral
Appraiser or (ii) in the event of the failure of Deloitte & Touche L.L.P. or
Ernst & Young L.L.P., as the case may be, to accept the appointment within the
required time period, 60 days from the date of receipt by the Non-Changing Party
of the Control Notice. If either Party fails to submit its proposed Fair Market
Value within the required time period, the Fair Market Value proposed by the
other Party (assuming such other Party has submitted its proposed value within
the required time period) shall be deemed to be the Fair Market Value of the
Changing Party's Corporation Interest for purposes of this Section 8.3. If both
Parties submit their respective proposed values on a timely basis, the Control
Appraiser Committee shall determine, by majority vote, the Fair Market Value as
of the date of the Change of Control of the Changing Party's Company Interest or
Corporation Interest, as the case may be, as promptly as possible (and in any
event on or before the 30th day after submittal of the competing proposals),
which determination shall be final and binding on the parties. The cost of such
appraisal shall be paid in equal portions by Duke and Phillips. Each of the
Changing Party and the Non-Changing Party shall provide to the other and, if
applicable, the Control Appraisal Committee, all information reasonably
requested by them.
(d) The closing of the Non-Changing Party's acquisition of the
Changing Party's Company Interest or Corporation Interest, as the case may be,
shall be consummated on or before the 60th day after the determination of the
Fair Market Value in accordance with Section 8.3(c). The acquisition shall be
consummated at a closing held at the principal offices of the Company or the
Corporation (unless otherwise mutually agreed by the Changing Party and the
Non-Changing Party) at which time the purchase price, payable in the form of
immediately available funds, shall be delivered to the Changing Party, and the
Changing Party shall deliver or cause to be delivered to the Non-Changing Party
such transfer documentation reasonably acceptable to the Non-Changing Party as
shall be required to evidence the transfer of the Changing Party's Company
Interest or Corporation Interest, as the case may be, free and clear of all
liens and encumbrances, except those created under this Agreement.
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(e) Each of Duke and Phillips agrees that prior to consummation of the
IPO, as a condition to the consummation of any transaction that will result in a
Change of Control of the Duke Member or the Phillips Member, respectively, it
will cause the new Parent of the Duke Member or the Phillips Member,
respectively, to assume the obligations of Duke or Phillips, as applicable,
under this Agreement.
Section 8.4 OPEN MARKET PURCHASES AND TRANSFERS POST-IPO. In and
following the IPO, subject to applicable federal and state securities laws, each
Shareholder and its Affiliates may make open-market purchases or sales of shares
of Corporation Common Stock.
Section 8.5 REGISTRATION RIGHTS. Each of Duke and Phillips agrees to
take such corporate action as is necessary and desirable to cause the
Corporation to enter into a registration rights agreement which shall grant each
Party the registration rights set forth in this Section 8.5, and shall contain
other customary and reasonable terms and conditions.
(a) DEMAND REGISTRATIONS. At any time following the six-month
anniversary of the IPO, each of the Parties shall have the right on two
occasions to request the Corporation to file a registration statement under the
Securities Act in respect of all or a portion of the shares of Corporation
Common Stock owned by it or its Affiliates (excluding the Corporation and its
Subsidiaries) (so long as such request covers at least 3% of the shares of
Corporation Common Stock then-outstanding) (a "DEMAND REQUEST"). Subject to
customary exceptions, (including any period within 60 days prior to, and 180
days (or such shorter period as may be agreed to by the underwriters) after the
effective date of, a Corporation-initiated registration, and any period of up to
180 days if the Corporation Board determines that filing of the registration
statement would require disclosure of pending matters or information the
disclosure of which would likely be detrimental to the Corporation or materially
interfere with its business or pending transaction), as promptly as practicable,
but in no event later than 60 days after the Corporation receives a Demand
Request, the Corporation shall file with the SEC and thereafter use its
reasonable best efforts to cause to be promptly declared effective (and kept
effective for the lesser of 90 days or until all shares registered have been
sold) a registration statement (a "DEMAND REGISTRATION") providing for the
registration of at least such number of shares of Corporation Common Stock as
such Party shall have demanded be registered.
(b) PIGGYBACK REGISTRATION. If, at any time following the IPO, the
Corporation proposes to register any shares of Corporation Common Stock under
the Securities Act on a registration statement on Form S-1, Form S-2 or Form S-3
(or successor forms) (whether or not pursuant to a Demand Registration under
Section 8.5(a)), subject to customary limitation and proration provisions, the
Corporation shall give each Party (or its Subsidiaries, if applicable) the
opportunity to include such Party's shares of Corporation Common Stock in such
registration statement.
(c) OTHER REGISTRATION PROVISIONS. Other provisions will include:
customary indemnification by the Corporation for liabilities incurred under
Federal and state securities laws; the agreement by holders of shares of
Corporation Common Stock who own more than 5% of the shares of Corporation
Common Stock outstanding or whose shares are included in the registration
statement (in each case if requested by the underwriters) not to sell any shares
of the Corporation Common Stock for a period of up to 90 days following the
effective date of the
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<PAGE>
registration statement; that all registration expenses, except the underwriting
discounts and fees of counsel for the Party, will be borne by the Corporation;
registration rights may only be transferred to transferees who after the
transfer hold at least 10% of the outstanding Corporation Common Stock; that the
Corporation may preempt any demand registration with a primary registration; and
that the underwriter in any demand registration shall be selected by the holders
of 2/3 of the shares being covered by the Demand Request but must be acceptable
to the Corporation. For purposes of exercise of Demand Requests, transferees
shall be included with Duke or Phillips, as the case may be, based on who was
the original transferor of such shares.
Section 8.6 ANTI-DILUTION. If, at any time following the IPO, the
Corporation offers or issues additional shares of the Corporation Common Stock
or additional shares of any other previously issued and outstanding capital
stock in a public offering, each Party shall have the opportunity to subscribe
for and purchase such number of shares of the Corporation Common Stock or such
other capital stock, as the case may be, such that such Party's Corporation
Interest or ownership percentage of such capital stock, as the case may be,
following the offering or issuance remains equal to such Party's Corporation
Interest or ownership percentage of such capital stock, as the case may be,
immediately prior to the offering or issuance.
Section 8.7 VOID TRANSFERS. Any purported Transfer of all or any
portion of a Company Interest or Corporation Interest not permitted by this
Article VIII shall be void. The provisions of this Article VIII with respect to
Company Interests and Corporation Interests shall apply equally to any rights or
options to purchase, or securities convertible into or exchangeable for, the
Company Interests or Corporation Interests.
ARTICLE IX
TERMINATION
Section 9.1 SURVIVAL OF AGREEMENT; TERM. Except as set forth below,
this Agreement shall not be terminated or amended, nor any provision hereof
waived, except by an instrument in writing signed by each of the parties hereto.
Notwithstanding the foregoing, any provision of this Agreement which
specifically provides for termination of such provision on an earlier date shall
terminate on such other date.
Section 9.2 TERMINATION. (a) This Agreement shall be terminated
immediately upon the termination of the Contribution Agreement in accordance
with its terms.
(b) (i) On or prior to the Contribution Closing Date, the provisions
hereof applicable or relating to the Company shall be incorporated into the
amended limited liability company agreement of the Company (the "LLC AGREEMENT")
prepared pursuant to Section 2.1 of the Contribution Agreement, and upon
execution thereof at the Contribution Closing, such provisions hereof applicable
or relating to the Company and incorporated into the LLC Agreement shall
terminate and cease to be effective. Any provisions hereof applicable or
relating to both the Company and the Corporation shall be incorporated into the
LLC Agreement only as, and to the extent, they apply or relate to the Company
and shall terminate and cease to be effective only in that regard and to such
extent.
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<PAGE>
(ii) On or prior to the consummation of the IPO, Duke and Phillips
shall execute and deliver a shareholders agreement and a registration rights
agreement which incorporate all provisions hereof applicable or relating to the
Corporation, both of which shall become effective upon the consummation of the
IPO. The shareholders agreement shall survive until either Duke's Total
Corporation Interest or Phillips' Total Corporation Interest is less than 20%,
and the registration rights under the registration rights agreement shall
survive as to Duke until Duke's Corporation Interest is less than 10% and as to
Phillips until Phillips' Corporation Interest is less than 10%. Upon compliance
with this Section 9.2(b) and the effectiveness of both such agreements, the
provisions of this Agreement incorporated into such agreements shall terminate.
(c) In the case of termination or partial termination in accordance
with this Section 9.2, upon such termination, this Agreement or the appropriate
provisions shall become void and have no effect; PROVIDED, HOWEVER, that such
termination shall not relieve any party hereto of any liability for any breach
of this Agreement or such provisions that occurred prior to such termination.
ARTICLE X
MISCELLANEOUS
Section 10.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered (including by facsimile) to the other
party.
Section 10.2 GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY
TRIAL. (a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to the choice of law
principles thereof.
(b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware in
any action arising out of or relating to this Agreement or the Contribution
Agreement, and hereby irrevocably agrees that all claims in respect of such
action may be heard and determined in such Delaware state or federal court. Each
party hereto hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties hereto further agree, to the extent permitted by law,
that final and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.
(c) To the extent that any party hereto has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
party hereto hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement and the Contribution Agreement.
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<PAGE>
(d) Each party hereto waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement or the
Contribution Agreement. Each party hereto certifies that it has been induced to
enter into this Agreement and the Contribution Agreement by, among other things,
the mutual waivers and certifications set forth above in this Section 10.2.
Section 10.3 ENTIRE AGREEMENT. This Agreement (including agreements
incorporated herein and the Confidentiality Agreements dated August 11, 1999 and
August 26, 1999 between Duke and Phillips), the Contribution Agreement, and the
schedules and exhibits hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the parties
other than those set forth or referred to herein. This Agreement is not intended
to confer upon any person not a party hereto (and their successors and assigns)
any rights or remedies hereunder.
Section 10.4 EXPENSES. Except as set forth in this Agreement, whether
or not the transactions contemplated by this Agreement or the Contribution
Agreement are consummated, all legal and other costs and expenses incurred in
connection with this Agreement and the Contribution Agreement and the
transactions contemplated by this Agreement and the Contribution Agreement shall
be paid by the party incurring such costs and expenses.
Section 10.5 NOTICES. All notices and other communications to be
given to any party hereunder (including notices to directors under Section 2.4
and Section 4.4) shall be sufficiently given for all purposes hereunder if in
writing and delivered by hand, courier or overnight delivery service or three
days after being mailed by certified or registered mail, return receipt
requested, with appropriate postage prepaid, or when received in the form of a
telegram or facsimile and shall be directed, if to a party hereunder, to the
address or facsimile number set forth below (or at such other address or
facsimile number as such party shall designate by like notice):
(a) If to Phillips:
Phillips Petroleum Company
1266 Adams Building
Bartlesville, Oklahoma 74004
Attention: Clyde W. Lea
Fax No.: (918) 662-2301
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Fax No.: (212) 403-2000
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<PAGE>
(b) If to Duke:
Duke Energy Corporation
5400 Westheimer Court, 8th Floor
Houston, Texas 77056-5310
Attention: Richard K. McGee
Fax No.: (713) 569-2491
With a copy to:
Vinson & Elkins, LLP
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
Attention: Bruce R. Bilger
Fax No.: (713) 517-5429
(c) If to the Company:
Duke Energy Field Services L.L.C.
370 17th Street, Suite 900
Denver, Colorado 80202
Attention: Martha B. Wyrsch
Fax No.: (303) 605-8902
With a copy to:
Vinson & Elkins, LLP
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
Attention: Bruce R. Bilger
Fax No.: (713) 517-5429
Section 10.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that no party hereto will
assign its rights or delegate any or all of its obligations under this Agreement
without the express prior written consent of each other party hereto.
Section 10.7 HEADINGS; DEFINITIONS. The section and article headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated and except in the Annexes hereto, wherein
references to Sections or Articles shall mean Articles or Sections of such Annex
unless otherwise stated. All capitalized terms defined herein are equally
applicable to both the singular and plural forms of such terms.
Section 10.8 AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
all parties hereto. Either
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<PAGE>
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision of this Agreement on the part of
such other party hereto to be performed or complied with. The waiver by any
party hereto of a breach of any term or provision of this Agreement shall not be
construed as a waiver of any subsequent breach. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between the parties, shall constitute a waiver of any such right, power
or remedy.
Section 10.9 SEVERABILITY. If any provision of this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality or
enforceability of the other provisions of this Agreement shall not be affected
thereby, and there shall be deemed substituted for the provision at issue a
valid, legal and enforceable provision as similar as possible to the provision
at issue.
Section 10.10 INTERPRETATION. The phrase "including" shall be deemed
to be followed by "without limitation." In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
Section 10.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy at law or in equity, including
temporary restraining orders or temporary or permanent injunctions.
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed and delivered on the date first set forth above.
PHILLIPS PETROLEUM COMPANY
By: /s/ John A. Carrig
-----------------------------------
Name:
Title:
DUKE ENERGY CORPORATION
By: /s/ Fred J. Fowler
-----------------------------------
Fred J. Fowler
Group President, Energy Transmission
DUKE ENERGY FIELD SERVICES L.L.C.
By: /s/ J. W. Mogg
-----------------------------------
Jim W. Mogg
Authorized Person
<PAGE>
ANNEX A
SPECIFIC PRE-IPO GOVERNANCE ISSUES
1. Compensation policies for employees of the Company, including specific
compensation and benefit plans and programs, to the extent such
policies are of the type that would customarily be considered by a
compensation committee of the board of directors of a comparably sized,
publicly-traded corporation; PROVIDED, HOWEVER, that these policies
shall not include the hiring and firing and compensation of senior
officers and managers, evaluating their performance and planning for
their succession.
2. Entering a new line of business outside of the midstream gas gathering,
processing, marketing and transportation businesses (and directly
related activities) in the United States and Canada.
3. A change in auditors.
4. Distributions and dividends (other than tax distributions as set forth
in Section 3.6(a)(i) of Annex F and the distributions described in
Section 3.2(c) of the Contribution Agreement) prior to the IPO.
5. The following transactions:
a) Any merger, consolidation, recapitalization, acquisition,
divestiture, joint venture or alliance (or a related series of
such transactions) involving the acquisition or expenditure
(in the form of cash or otherwise) of in excess of
$100,000,000 in value to or from the Company;
b) Any shut-down of a facility having a fair market value in excess of
$100,000,000;
c) Entering into any sales contract or commitment that has a term
of 5 years or more and that involves annual revenues to the
Company in excess of 5% of the Company's total annual sales
revenues for the most recently completed fiscal year;
d) Admittance of any new member/equity holder in the Company
prior to the IPO (it being understood that the IPO is not
subject to Section 2.5(b));
e) Requirement of any additional capital contribution by either Member;
and
f) Liquidation or dissolution of the Company.
6. Any capital expenditure in excess of $100,000,000 (other than a capital
expenditure to effect any merger, consolidation, recapitalization,
acquisition, divesture, joint venture or alliance).
7. Any borrowing in excess of $200,000,000 (other than borrowings described
in clauses (i) through (iii) of Section 6.17 of the Contribution
Agreement).
<PAGE>
8. The settlement of any action or claim against the Company involving
payment by the Company of in excess of $25,000,000, excluding amounts
covered or reimbursed by insurance.
9. Entering into transactions with either Party or Affiliates of either
Party on terms that are clearly less favorable than those terms that
are within the range of comparable transactions between unaffiliated
third parties.
If a particular action that the Company proposes to take is reflected in an
operating or capital budget of the Company that has been approved by four or
more directors, no further approval of such action is required before it may be
taken, notwithstanding the inclusion of such action in this Annex A.
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<PAGE>
ANNEX B
EXAMPLES OF DETERMINATIONS OF PHILLIPS' CORPORATION INTEREST
AND
DUKE'S CORPORATION INTEREST AT VARIOUS IPO RESULTS
(dollars in millions)
<TABLE>
<CAPTION>
Enterprise Value
-----------------------------------------------------------------------------------------------------------
$4,500 $5,000 $5,500 $6,000
------------------------ ------------------------ ------------------------ -----------------------
Phillips Duke Phillips Duke Phillips Duke Phillips Duke
Petroleum Energy Petroleum Energy Petroleum Energy Petroleum Energy
Company Corporation Company Corporation Company Corporation Company Corporation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-IPO % of
Enterprise Value 38.9% 61.1% 38.9% 61.1% 38.9% 61.1% 38.9% 61.1%
Pre-IPO
Enterprise Value $1,751 $2,750 $1,945 $3,055 $2,140 $3,361 $2,334 $3,666
Cash Value 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
------ ------ ------ ------ ------ ------ ------ ------
Pre-IPO
Equity Value $ 551 $1,550 $ 745 $1,855 $ 940 $2,161 $1,134 $2,466
====== ====== ====== ====== ====== ====== ====== ======
Pre-IPO
% Interest 26.2% 73.8% 28.7% 71.3% 30.3% 69.7% 31.5% 68.5%
Public's Equity
Value Assuming
20% IPO $525 $650 $775 $900
Post-IPO
Corporation
Interest 21.0% 59.0% 22.9% 57.1% 24.2% 55.8% 25.2% 54.8%
Post-IPO
Equity Value $ 551 $1,550 $ 745 $1,855 $ 940 $2,161 $1,134 $2,466
Cash Value 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
------ ------ ------ ------ ------ ------ ------ ------
Post-IPO
Enterprise
Value $1,751 $2,750 $1,945 $3,055 $2,140 $3,361 $2,334 $3,666
====== ====== ====== ====== ====== ====== ====== ======
Post-IPO %
of Enterprise
Value 38.9% 61.1% 38.9% 61.1% 38.9% 61.1% 38.9% 61.1%
</TABLE>
<PAGE>
ANNEX C
SPECIFIC POST-IPO GOVERNANCE ISSUES
1. Compensation policies for employees of the Corporation, including
specific compensation and benefit plans and programs, to the extent
such policies are of the type that would customarily be considered by a
compensation committee of the board of directors of a comparably sized,
publicly-traded corporation; PROVIDED, HOWEVER, that these policies
shall not include the hiring and firing and compensation of senior
officers and managers, evaluating their performance and planning for
their succession.
2. Entering a new line of business outside of the midstream gas gathering,
processing, marketing and transportation businesses (and directly
related activities) in the United States and Canada.
3. A change in auditors.
4. The following transactions:
a) Any merger, consolidation, recapitalization, acquisition,
divestiture, joint venture or alliance (or a related series of
such transactions) involving the acquisition or expenditure
(in the form of cash or otherwise) of in excess of
$200,000,000 in value to or from the Corporation;
b) Any shut-down of a facility having a fair market value in excess of
$100,000,000;
c) Entering into any sales contract or commitment that has a term
of 5 years or more and that involves annual revenues to the
Corporation in excess of 5% of the Corporation's total annual
sales revenues for the most recently completed fiscal year;
d) Liquidation or dissolution of the Corporation.
5. Any capital expenditure in excess of $200,000,000 (other than a capital
expenditure to effect any merger, consolidation, recapitalization,
acquisition, divestiture, joint venture or alliance).
6. Any borrowing in excess of $200,000,000.
7. The settlement of actions or claims against the Corporation involving
payment by the Corporation of in excess of $25,000,000, excluding
amounts covered or reimbursed by insurance.
8. Entering into transactions with either Party or Affiliates of either
Party on terms that are clearly less favorable than those terms that
are within the range of comparable transactions between unaffiliated
third parties.
<PAGE>
If a particular action that the Corporation proposes to take is reflected in an
operating or capital budget of the Corporation that has been approved by eight
or more directors, no further approval of such action is required before it may
be taken, notwithstanding the inclusion of such action in this Annex C.
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<PAGE>
ANNEX D
BUSINESS OPPORTUNITIES AGREEMENT
1. SCOPE OF BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES. The
Corporation agrees that, except with the consent of Duke (which consent Duke may
withhold in its sole discretion and which it shall have no duty, fiduciary or
otherwise, to grant), the Corporation and its Subsidiaries will not engage in
any business other than the midstream gas gathering, processing, marketing and
transportation business in the United States and Canada (the "DESIGNATED
BUSINESS"). The Corporation hereby renounces any interest or expectancy in any
Business Activity that does not consist exclusively of the Designated Business.
2. CORPORATE OPPORTUNITIES. (a) In anticipation that Duke is
currently, and will remain, a substantial stockholder of the Corporation, and in
anticipation that the Corporation and Duke may engage in the same or similar
activities or lines of business and have an interest in the same or similar
areas of business, and in recognition of the benefits to be derived by the
Corporation through its continued contractual, corporate and business relations
with Duke (including services of employees, officers and directors of Duke as
officers and directors of the Corporation), the provisions of this Business
Opportunities Agreement are set forth to regulate and define the conduct of
certain affairs of the Corporation as they may involve Duke and its employees,
officers and directors, and the powers, rights, duties, liabilities, interests
and expectancies of the Corporation in connection therewith.
(b) Duke shall have the right to engage (and shall have no duty to
refrain from engaging) in the same or similar activities or lines of business as
the Corporation, and the Corporation shall not be deemed to have any interest or
expectancy, and hereby renounces any interest or expectancy, in any business
opportunity, transaction, or other matter (each a "BUSINESS ACTIVITY") in which
Duke engages or seeks to engage, PROVIDED that such Business Activity is
conducted by Duke in accordance with the standards in paragraph 3 below. Neither
Duke nor any employee, officer, director or agent thereof shall be liable to the
Corporation or its stockholders for breach of any fiduciary or other duty by
reason of any such Business Activity of Duke or of such person's participation
therein. In the event that Duke acquires knowledge of a potential Business
Activity, unless such Business Activity is pursued in violation of the standards
set forth in Section 3 hereof, Duke shall have no duty to communicate or offer
to the Corporation the opportunity to participate in such Business Activity and
shall not be liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder of the Corporation by reason of the fact that
Duke conducts, pursues or acquires such Business Activity for itself, directs
such Business Activity to another person, or does not communicate information
regarding such Business Activity to the Corporation, and no officer, director,
employee or other agent of Duke who serves as a director or officer of the
Corporation or of any subsidiary of the Corporation shall have any duty to
communicate or offer the opportunity to participate in such Business Activity to
the Corporation or any liability to the Corporation or its stockholders for
breach of any fiduciary duty as a director or officer of the Corporation by
reason of the fact that Duke conducts, pursues or acquires such Business
Activity for itself, directs such Business Activity to another person, or does
not communicate information regarding such Business Activity to the Corporation
<PAGE>
3. STANDARDS FOR SEPARATE CONDUCT OF BUSINESS. In the event that
Duke or any director or officer of the Corporation who is also a director,
officer, employee or agent of Duke acquires knowledge of a potential Business
Activity, Duke, or any such person on behalf of Duke, may pursue such Business
Activity, and such pursuit shall be in accordance with the standards set forth
in this Section 3, if (i) such knowledge was acquired by Duke or any such person
other than through disclosure of information by or on behalf of a director,
officer, employee or agent of the Corporation in or during the course of such
person's relationship with the Corporation and other than solely in, and as a
direct result of, such person's service as a director or officer of the
Corporation (it being understood that if the opportunity to pursue such Business
Activity is separately identified by Duke or one of its officers, directors,
employees or agents or separately presented to Duke or one of its officers,
directors, employees or agents, Duke, or any such officer, director, employee or
agent on behalf of Duke, shall be free to pursue such opportunity even if it
also came to the attention of another officer, director, employee or agent of
Duke as a result of and in his or her capacity as a director or officer of the
Corporation), and (ii) such Business Activity is developed and pursued solely
through the use of personnel and assets of Duke (including such person in his or
her capacity as a director, officer, employee or agent of Duke). The Corporation
hereby renounces any interest or expectancy in any Business Activity that is
conducted by Duke or its officers, directors, employees or agents on behalf of
Duke in accordance with the foregoing standards. Nothing in these Business
Opportunities provisions shall allow any Duke Post-IPO Director to pursue a
Business Activity in the Designated Business solely for his or her personal
benefit (as opposed to for the benefit of Duke).
4. CONSENT. Any Person purchasing or otherwise acquiring any
interest in shares of the capital stock of the Corporation shall be deemed
to have consented to these provisions.
5. INTERPRETATION. For purposes of this Annex D, "Duke" shall
include all Subsidiaries and Affiliates of Duke (other than the Corporation and
its Subsidiaries).
6. AMENDMENT. Any proposed amendment to these provisions shall
require the approval of at least a majority of the members of the Corporation
Board who are not officers, directors or employees of Duke and who are otherwise
disinterested or of a committee of the Corporation Board consisting exclusively
of directors of the Corporation who are not officers, directors or employees of
Duke and who are otherwise disinterested.
7. TERM. The provisions of this Annex D shall terminate at such time
as Duke no longer owns, directly or indirectly, a majority of Corporation Common
Stock and no longer otherwise controls the Corporation, directly or indirectly.
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<PAGE>
ANNEX E
[INTENTIONALLY OMITTED]
<PAGE>
ANNEX F
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND
LOSS, DISTRIBUTIONS AND TAX STATUS
ARTICLE I
DEFINITIONS
For purposes of this Annex F, terms used in this Annex F shall have
the meanings set forth below in this Article I (such meanings to be equally
applicable to both the singular and plural forms of the terms defined) and if
not otherwise defined in this Article I shall have the meanings given to such
terms in the Governance Agreement or the Contribution Agreement (including Annex
B thereof). Any Section reference in this Annex shall refer to such Section of
this Annex, except as otherwise indicated.
Section 1.1 ADJUSTED CAPITAL ACCOUNT DEFICIT.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts that such Member is obligated to restore to the Company (pursuant
to this Agreement or otherwise) or is deemed to be obligated to restore
pursuant to (a) the penultimate sentence of Regulation Section
1.704-2(g)(1), or (b) the penultimate sentence of Regulation Section
1.704-2(i)(5); and
(ii) such Capital Account shall be deemed to be decreased by the items
described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Section 1.2 BOOK VALUE.
"BOOK VALUE" means (a) with respect to the assets of the Company
contributed in accordance with Section 2.1 of this Annex F by DEFS Holding
$3,360,500,000 and by PGC $2,139,500,000; (b) with respect to any asset of the
Company contributed in accordance with Section 2.2 hereof, the asset's fair
market value at the time of such contribution; and (c) with respect to any other
asset of the Company, the adjusted tax basis of such asset as of the relevant
date for U.S. Federal income tax purposes, except as follows:
(i) the Book Values of all Company assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective fair
market values (taking Code Section 7701(g) into account) as of the
following times:
<PAGE>
(1) the acquisition of an additional interest in the Company by
any new or existing Member in exchange for more than a DE
MINIMIS Capital Contribution if such adjustment is necessary
to reflect the relative economic interests of the interest
holders in the Company;
(2) the distribution by the Company to a Member of more than a
DE MINIMIS amount of money or Company property as
consideration for an interest in the Company if such
adjustment is necessary to reflect the relative economic
interests of the interest holders in the Company; and
(3) the liquidation of the Company within the meaning of
Regulation Section 1.704-1(b)(2)(iv)(f)(5)(ii);
(ii) the Book Value of any Company asset distributed in kind to
any Member shall be the gross fair market value of such asset (taking Code
Section 7701(g) into account) on the date of such distribution; and
(iii) the Book Value of Company assets shall be increased or
decreased, as appropriate, to reflect any adjustments to the adjusted tax
bases of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into account
in determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of "Profits"
and "Losses" in Section 1.22 hereof; PROVIDED, HOWEVER, that Book Values
shall not be adjusted pursuant to this subparagraph (iii) to the extent
that an adjustment pursuant to subparagraph (i) hereof is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iii).
The Book Value of an asset shall be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses and other items allocated pursuant to Article III hereof. The
foregoing definition of Book Value is intended to comply with the provisions of
Regulation Section 1.704-1(b)(2)(iv) and shall be interpreted and applied
consistently therewith.
Section 1.3 CAPITAL ACCOUNT.
"CAPITAL ACCOUNT" has the meaning given to such term in Section 2.3
hereof.
Section 1.4 CAPITAL CONTRIBUTION.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the
amount of any money and the initial Book Value of any property (other than
money) contributed to the Company with respect to the interest in the Company
held or purchased by such Member and credited to each such Member's Capital
Accounts pursuant to Article II hereof.
Section 1.5 CODE.
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
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Section 1.6 DEPRECIATION.
"DEPRECIATION" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for U.S. Federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted tax basis for U.S. Federal income tax purposes at the
beginning of such Fiscal Year, the depreciation, amortization or other cost
recovery deduction for such Fiscal Year or part thereof shall be an amount which
bears the same ratio to such Book Value as the U.S. Federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
or part thereof bears to such adjusted tax basis. If such asset has a zero
adjusted tax basis for U.S. Federal income tax purposes, the depreciation,
amortization or other cost recovery deduction for such asset for such Fiscal
Year shall be determined under a method reasonably selected by agreement among
the Members.
Section 1.7 DISGUISED SALE AMOUNT.
"DISGUISED SALE AMOUNT" shall mean the excess of (X) $1,200,000,000
over (Y) the product of the Percentage Interest of PGC in the Company as of the
Closing Date and $2,400,000,000.
Section 1.8 DISTRIBUTION.
"DISTRIBUTION" means, with respect to any Member, the amount of money
and the Book Value of any property (other than money) distributed to such Member
pursuant to Section 3.6 hereof with respect to such Member's interest in the
Company.
Section 1.9 FISCAL YEAR.
"FISCAL YEAR" means the taxable year of the Company, which shall be a
fiscal year ending on December 31st.
Section 1.10 FLOW THROUGH SUBSIDIARIES.
"FLOW THROUGH SUBSIDIARIES" shall have the meaning set forth in
Section 4.2.
Section 1.11 MEMBER.
"MEMBER" means a member in the Company.
Section 1.12 NONRECOURSE DEDUCTIONS.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for any
Fiscal Year equals the excess, if any, of (i) the net increase in the amount of
Partnership Minimum Gain during such Fiscal Year over (ii) the aggregate amount
of any distributions during such Fiscal Year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Partnership Minimum Gain,
determined in accordance with Regulation Section 1.704-2(c).
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Section 1.13 NONRECOURSE LIABILITY.
"NONRECOURSE LIABILITY" shall have the meaning set forth in Regulation
Section 1.704-2(b)(3).
Section 1.14 OTHER MEMBER.
"OTHER MEMBER" shall have the meaning set forth in Section 3.6(a)(i).
Section 1.15 PARTNER NONRECOURSE DEBT.
"PARTNER NONRECOURSE DEBT" has the meaning ascribed to such term in
Regulation Section 1.704-2(b)(4).
Section 1.16 PARTNER NONRECOURSE DEBT MINIMUM GAIN.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" means the aggregate amount of
gain (of whatever character), determined for each Partner Nonrecourse Debt, that
would be realized by the Company if it disposed of the Company property subject
to such Partner Nonrecourse Debt in a taxable transaction in full satisfaction
thereof (and for no other consideration), determined in accordance with
Regulation Sections 1.704-2(i)(3) and (k), and the determination of a Member's
share of minimum gain attributable to a Partner Nonrecourse Debt in accordance
with Regulation Section 1.704-2(i)(5).
Section 1.17 PARTNER NONRECOURSE DEDUCTIONS.
"PARTNER NONRECOURSE DEDUCTIONS" means the excess, if any, of
(i) the net increase, if any, in the amount of Partner Nonrecourse Debt Minimum
Gain during any Fiscal Year over (ii) the aggregate amount of any distributions
during such Fiscal Year of proceeds of a Partner Nonrecourse Debt that are
allocable to an increase in Partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulation Sections 1.704-2(i)(2).
Section 1.18 PARTNERSHIP MINIMUM GAIN.
"PARTNERSHIP MINIMUM GAIN" means the aggregate amount of gain
(of whatever character), determined for each Nonrecourse Liability of the
Company, that would be realized by the Company if it disposed of the Company
property subject to such Nonrecourse Liability in a taxable transaction in full
satisfaction thereof (and for no other consideration), determined in accordance
with Regulation Sections 1.704-2(d) and (k), and the determination of a Member's
share of Partnership Minimum Gain in accordance with Regulation Section
1.704-2(g).
Section 1.19 PERCENTAGE INTEREST.
"PERCENTAGE INTEREST" means, with respect to the Company interests
issued to DEFS Holding pursuant to Section 2.1(j)(i) of the Contribution
Agreement, 69.7 percent, and with respect to the Company interests issued to PGC
pursuant to Section 2.1(k)(i) of the Contribution Agreement, 30.3 percent.
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Section 1.20 PGC CONTRIBUTION.
"PGC CONTRIBUTION" shall have the meaning set forth in Section 4.2(E).
Section 1.21 PGC DISTRIBUTION.
"PGC DISTRIBUTION" shall have the meaning set forth in Section 4.2(E).
Section 1.22 PROFITS AND LOSSES.
"PROFITS" and "LOSSES" means, for each Fiscal Year or part thereof,
the taxable income or loss of the Company for such Fiscal Year determined,
solely for U.S. Federal income tax purposes, in accordance with Code Section
703(a) (for this purpose, all items of income, gain, loss, or deduction required
to be stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments (without duplication):
(i) any income of the Company that is exempt from U.S. Federal
income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this Section 1.22 shall be added to such taxable income
or loss;
(ii) any expenditure of the Company that is (a) not deductible in
computing U.S. taxable income and not properly chargeable to the Members'
Capital Accounts as described in Code Section 705(a)(2)(B) or treated as
such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and (b) not
otherwise taken into account in computing Profits and Losses pursuant to
this Section 1.22, shall be subtracted from such taxable income or loss;
(iii) any Depreciation for such Fiscal Year or part thereof shall be
taken into account in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss;
(iv) gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for U.S. Federal income
tax purposes shall be computed with reference to the Book Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property for U.S. Federal income tax purposes differs from its Book Value;
(v) in the event the Book Value of any Company asset is adjusted
pursuant to subparagraphs (i) and (ii) of the definition of Book Value, the
amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the Book Value of the asset) or an item of loss (if
the adjustment decreases the Book Value of the asset) from the disposition
of such asset and shall be taken into account for purposes of computing
Profits and Losses;
(vi) to the extent an adjustment to the adjusted tax basis of any
Company asset under Code Section 734(b) is required, pursuant to Regulation
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as a result of a distribution other than in liquidation of
a Member's interest in the Company, the
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amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the adjusted tax basis of the asset) or an item of
loss (if the adjustment decreases the adjusted tax basis of the asset) from
the disposition of such asset and shall be taken into account for purposes
of computing Profits and Losses; and
(vii) notwithstanding any other provision of this definition, such
taxable income or loss shall be deemed not to include any income, gain,
loss, deduction or other item thereof specially allocated pursuant to
Sections 3.2(b), (c), (d), (e), (f) or (h) or the proviso in Section 3.1(b)
of this Annex F.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.2(b), (c), (d), (e),
(f) and (h) of this Annex F shall be determined by applying rules analogous to
those set forth in subparagraphs (i) through (vi) above.
Section 1.23 REGULATION.
"REGULATION" means the income tax regulations promulgated under the
Code by the U.S. Department of the Treasury (whether final or temporary).
Section 1.24 REGULATORY ALLOCATIONS.
"REGULATORY ALLOCATIONS" has the meaning given to it in Section 3.2(g)
hereof.
Section 1.25 SUBSIDIARY.
"SUBSIDIARY" shall have the meaning ascribed to such term in the
Contribution Agreement.
Section 1.26 TAX MATTERS PARTNER.
"TAX MATTERS PARTNER" has the meaning given to it in Section 4.4(a)
hereof.
ARTICLE II
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
Section 2.1 CAPITAL CONTRIBUTIONS.
The initial Capital Contributions made to the Company by the Members
shall be the property contributed by the Members pursuant to Article II of the
Contribution Agreement.
Section 2.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
The Members shall make additional Capital Contributions or loans to
the Company in accordance with the Contribution Agreement and the Governance
Agreement.
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Section 2.3 CAPITAL ACCOUNTS.
A "CAPITAL ACCOUNT" shall be maintained for each Member on the books
of the Company in compliance with the requirements of Code Section 704(b) and
the Regulations thereunder. The initial Capital Accounts of the Members shall be
(prior to reduction for the amount of any cash distributed to DEFS Holding and
PGC on the Closing Date), in the case of DEFS Holding, $3,360,500,000 and, in
the case of PGC, $2,139,500,000. Each Member's Capital Account shall be
increased by (i) the Capital Contributions of such Member, (ii) Profits and
items of income or gain allocated to such Member as set forth in Article III
hereof, (iii) any positive adjustment to such Capital Account by reason of an
adjustment to the Book Value of Company assets, and (iv) the amount of Company
liabilities assumed by such Member or which are secured by any property
distributed to such Member. Each Member's Capital Account shall be decreased by
(i) the amount of any cash and the Book Value of any property distributed to
such Member, (ii) Losses, Nonrecourse Deductions, Partner Nonrecourse
Deductions, and items of loss or deduction allocated to such Member as set forth
in Article III hereof, (iii) any negative adjustment to such Capital Account by
reason of an adjustment to the Book Value of Company assets, and (iv) the amount
of any liabilities of such Member assumed by the Company or which are secured by
property contributed by such Member to the Company. In determining the amount of
any liability for purposes of the preceding two sentences, there shall be taken
into account Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
ARTICLE III
PROFITS AND LOSSES
Section 3.1 ALLOCATION OF PROFIT AND LOSSES.
(a) IN GENERAL. This Section 3.1 sets forth the general rules for
book allocations to the Members and shall apply to allocations with respect to
the operations and liquidation of the Company, maintaining the books and records
of the Company and computing the Members' Capital Accounts or share of Profit,
Losses, other items or distributions pursuant to this Annex F, in each case as
required for U.S. Federal income tax purposes under Code Section 704(b) and the
Regulations thereunder. These provisions do not apply to the requirement that
the Company maintain books and records for financial reporting purposes in
accordance with Section 6.3 of the Governance Agreement.
(b) PROFITS AND LOSSES. Commencing on the Closing Date, Profits and
Losses shall be allocated among the Members in accordance with their respective
Percentage Interests in the Company; PROVIDED, HOWEVER, that the Company shall
make special allocations to the extent required pursuant to Article V of Annex A
to the Contribution Agreement.
Section 3.2 LIMITATIONS ON ALLOCATIONS.
Notwithstanding the general allocation rules set forth in Section 3.1
hereof, the following special allocation rules and limitations shall apply with
respect to maintaining the Company's books and records and computing the
Members' Capital Accounts or share of
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Profits, Losses, other items or distributions pursuant to this Annex F, in each
case as required for U.S. Federal income tax purposes under Code Section 704(b)
and the Regulations thereunder.
(a) LIMITATIONS ON LOSS ALLOCATIONS. The losses allocated to any
Member pursuant to Section 3.1(b) hereof with respect to any Fiscal Year shall
not exceed the maximum amount of losses that can be so allocated without causing
such Member to have an Adjusted Capital Account Deficit at the end of such
Fiscal Year. In the event some but not all of the Members would have Adjusted
Capital Account Deficits as a consequence of an allocation of losses pursuant to
Section 3.1(b) hereof, the limitation set forth in this Section 3.2(a) shall be
applied on a Member-by-Member basis and any such losses not allocable to a
Member as a result of such limitation shall be allocated to the other Members in
accordance with their positive Capital Account balances so as to allocate the
maximum possible losses to each Member under Regulation Section
1.704-1(b)(2)(ii)(d).
(b) QUALIFIED INCOME OFFSET. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such adjustment,
allocation, or distribution causes or increases an Adjusted Capital Account
Deficit for such Member, then, before any other allocations are made under this
Annex F or otherwise, such Member shall be allocated items of income and gain
(consisting of a PRO RATA portion of each item of Company income, including
gross income and gain) in an amount and manner sufficient to eliminate such
Adjusted Capital Account Deficit as quickly as possible; PROVIDED that an
allocation pursuant to this Section 3.2(b) shall be made only if and to the
extent that the Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article III have been made as if this
Section 3.2(b) were not in this Annex F. This Section 3.2(b) is intended to
constitute a "qualified income offset" as provided in Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(c) PARTNERSHIP MINIMUM GAIN CHARGEBACK. If there is a net decrease
in Partnership Minimum Gain during any Fiscal Year, then, except as provided in
Regulation Section 1.704-2(f)(2), (3), or (5), each Member shall be allocated
items of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, such Member's share of the
net decrease in Partnership Minimum Gain during such Fiscal Year. Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto and the items
to be so allocated shall be determined in accordance with Regulation Sections
1.704-2(f)(6) and 1.704-2(j)(2). To the extent that this Section 3.2(c) is
inconsistent with Regulation Section 1.704-2(f) or incomplete with respect to
such Regulations, the Partnership Minimum Gain chargeback provided for herein
shall be applied and interpreted in accordance with such Regulation.
(d) PARTNER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. If there is a
net decrease in Partner Nonrecourse Debt Minimum Gain during any Fiscal Year,
then, except as provided in Regulation Section 1.704-2(i)(4), each Member with a
share of Partner Nonrecourse Debt Minimum Gain shall be allocated items of
income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal
Years) in proportion to, and to the extent of, such Member's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain during such Fiscal Year.
Allocations pursuant to the previous sentence shall be made in proportion to the
respective
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amounts required to be allocated to each Member pursuant thereto and the items
to be so allocated shall be determined in accordance with Regulation Sections
1.704-2(i)(4) and 1.704-2(j)(2). To the extent that this Section 3.2(d) is
inconsistent with Regulation Section 1.704-2(i) or incomplete with respect to
such Regulation, the Partner Nonrecourse Debt Minimum Gain chargeback provided
for herein shall be applied and interpreted in accordance with such Regulation.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Fiscal
Year shall be specially allocated to the Members in proportion to each of their
respective Percentage Interests in the Company. This provision is to be
interpreted in a manner consistent with Regulation Sections 1.704-2(b)(1) and
1.704-2(e).
(f) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in which the
Members share the economic risk of loss for the Partner Nonrecourse Debt that
gave rise to those deductions. This allocation is intended to comply with the
requirements of Regulation Section 1.704-2(i) and shall be interpreted and
applied consistently therewith.
(g) LIMITED EFFECT AND INTERPRETATION. The special rules set forth
in Sections 3.2(a), (b), (c), (d), (e), and (f) (the "REGULATORY ALLOCATIONS")
shall be applied only to the extent required by applicable Regulations for the
resulting allocations provided for in this Section 3.2, taking into account such
Regulatory Allocations, to be respected for U.S. Federal income tax purposes.
The Regulatory Allocations are intended to comply with the requirements of
Regulation Sections 1.704-1(b), 1.704-2, and 1.752-1 through 1.752-5, inclusive,
and shall be interpreted and applied consistently therewith.
(h) OFFSETTING ALLOCATIONS. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide Company
Profits, Losses, and other similar items. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 3.2(h).
Therefore, notwithstanding any other provision of this Article III (other than
the Regulatory Allocations), the Company shall make such offsetting special
allocations of Company income, gain, loss or deduction in a manner such that,
after the offsetting allocations are made, each Member's Capital Account Balance
is, to the extent possible, equal to the Capital Account balance such Member
would have had if the Regulatory Allocations were not part of this Annex F and
all Company items were allocated pursuant to Section 3.1 hereof.
Section 3.3 RESTORATION OF NEGATIVE CAPITAL ACCOUNTS.
At no time shall a Member with a negative balance in its Capital
Account have any obligation to the Company or to any other Member to restore
such negative balance.
Section 3.4 INTERIM ALLOCATIONS RELATING TO TRANSFERRED COMPANY
INTERESTS.
Notwithstanding any other provision of this Annex F or the
Governance Agreement or the Contribution Agreement, in the event of a change in
a Member's Percentage Interest in the Company as a result of a Transfer or
deemed Transfer of a Member's interest in
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the Company during a Fiscal Year, the allocations required under this Article
III shall be made with respect to the Members for the portion of the Fiscal Year
through the date of the Transfer and after the date of the Transfer based on an
interim closing of the Company's books. The effective date of any such Transfer
shall be the actual date of the Transfer as recorded on the books of the
Company. This Section 3.4 shall also apply for purposes of computing a Member's
Capital Account.
Section 3.5 CODE SECTION 704(C) ALLOCATIONS.
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company or any Subsidiary thereof that is
treated as a partnership or disregarded entity for U.S. Federal income tax
purposes shall, solely for U.S. Federal income tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted tax
basis of such property to the Company for U.S. Federal income tax purposes and
its Book Value (computed in accordance with the definition of Book Value) using
the "Traditional Method with Curative Allocations" as defined in Regulation
Section 1.704-3(c).
(b) In the event the Book Value of any asset of the Company (or any
Subsidiary thereof that is treated as a partnership or disregarded entity for
U.S. Federal income tax purposes) is adjusted pursuant to subparagraph (i) of
the definition of Book Value or otherwise pursuant to Code Section 704(b) and
the Regulations thereunder, subsequent allocations of income, gain, loss and
deduction with respect to any such asset so adjusted shall take account of any
variation between the adjusted tax basis of such asset for U.S. Federal income
tax purposes and the Book Value in the same manner as under Code Section 704(c),
the Regulations thereunder and Section 3.5(a).
(c) Allocations pursuant to this Section 3.5 are solely for purposes
of U.S. Federal income taxes and shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of Profits, Losses
or other items allocated under Section 3.1 or 3.2.
Section 3.6 DISTRIBUTIONS.
(a) DISTRIBUTIONS OTHER THAN IN LIQUIDATION OF THE COMPANY. Except
as provided in Section 3.6(b) below (and taking into account deemed
distributions, if any, under Section 4.1 which are not re-contributed pursuant
to Section 4.1), Distributions of cash of the Company shall be made at the end
of each quarterly accounting period of the Company, and one Business Day prior
to the date of the IPO, to each Member of the Company in the following amounts:
(i) the greater of (A) the excess of (x) the product of (I) the
sum of the maximum United States regular Federal income tax rate applicable
to C corporations under Section 11 of the Code and 4.5 percent and (II) the
excess, if any, of taxable income and gain over taxable loss or deduction
of the Company allocated to such Member with respect to such period over
(y) the amount of any credits allocated to such Member with respect to such
period for United States regular Federal income tax
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purposes and State income tax purposes and (B) (x) such Member's Percentage
Interest in the Company multiplied by the quotient of (y) the amount
calculated under clause (A) with respect to such period for the other
Member (or Members) (the "OTHER MEMBER") divided by (z) the Other Member's
Percentage Interest in the Company; and
(ii) such Distributions as the Company Board may determine in its
discretion as permitted by the Governance Agreement.
Such Distributions pursuant to clause (i) shall be made in a manner
consistent with the estimated annual tax items of the Company, and
Distributions pursuant to clause (i) for each quarterly accounting period
(or portion thereof) shall be adjusted to the extent Distributions for
prior quarterly accounting periods did not correctly estimate such items.
(b) DISTRIBUTIONS IN LIQUIDATION OF THE COMPANY. Upon the dissolution
or liquidation of the Company, the proceeds of sale of the properties and assets
of the Company that have been sold in liquidation, and all other properties and
assets of the Company not otherwise sold (and valued at their fair market
value), shall be applied and distributed as follows, and in the following order
of priority: (i) first, to the payment of all debts and liabilities of the
Company and the expenses of liquidation not otherwise adequately provided for;
(ii) second, to the setting up of any reserves that are reasonably necessary for
any contingent unforeseen liabilities or obligations of the Company or of the
Members arising out of or in connection with the Company; (iii) third, to the
Members in proportion to the positive balances of each of their respective
Capital Accounts after all allocations have been made to such Capital Accounts
pursuant to this Annex F, until the remaining balances of such Capital Accounts
are zero; and (iv) fourth, the remaining proceeds to the Members in proportion
to each of their Percentage Interests in the Company.
ARTICLE IV
WITHHOLDING TAX MATTERS; TAX STATUS AND TREATMENT
Section 4.1 WITHHOLDING.
The Company shall comply with all withholding requirements under
U.S. Federal, state, local and foreign tax laws and shall remit amounts
withheld to, and file required forms with, such applicable Taxing Authorities.
To the extent that the Company withholds and pays over any amounts to any Taxing
Authority with respect to the distributions or allocations to any Member, the
amount withheld (or credited against withholding tax otherwise due) shall be
treated as a distribution to such Member in the amount of the withholding (or
credit). In the event of any claimed overwithholding by the Company, if the
Company is required to take any action in order to secure a refund or credit for
the benefit of a Member in respect of any amount withheld by it, it will take
any such action including, without limitation, applying for such refund on
behalf of the Member and paying it over to such Member. If any amount required
to be withheld was not withheld from actual distributions made to a Member, the
Member to which the distribution was made shall reimburse the Company for such
withholding. In the event of any underwithholding by the Company to a Member,
each Member agrees to indemnify and hold
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harmless the Company and its subsidiaries from and against any liability,
including interest and penalties, with respect to such underwithholding to such
Member. Each Member agrees to furnish the Company with any representations and
forms as shall reasonably be requested by the Company to assist the Company in
determining the extent of, and in fulfilling, the Company's withholding
obligations, if any. The provisions of this Section 4.1 shall be applied in a
manner, taking into consideration any tiered partnership structure that the
Company may be part of, that reflects the relative economic interests of each
Member in the Company.
Section 4.2 TAX STATUS.
The Company is intended to be treated as a partnership for U.S.
Federal income tax purposes, and each of the Subsidiaries of the Company
(organized under the laws of the United States, a State of the United States or
any political subdivision thereof) (the "FLOW THROUGH SUBSIDIARIES") is intended
to be treated as a partnership or disregarded entity for U.S. Federal income tax
purposes. Each of Duke, Phillips, the Members and the Company shall take no
action or position inconsistent with (or that could reasonably be expected to be
viewed by the Internal Revenue Service as inconsistent with), and shall make or
cause to be made all applicable elections with respect to: (A) the treatment of
the Company (or any successor thereto) as a partnership for U.S. Federal income
tax purposes and the treatment of each of the Flow Through Subsidiaries (or any
successor thereto) as a partnership or disregarded entity for U.S. Federal
income tax purposes; (B) the treatment of the Company as not a publicly traded
partnership for United States Federal income tax purposes; (C) the allocation of
the Financing under Regulation Section 1.752-3(a)(3) among the Members in
proportion to their Percentage Interests as of the Closing Date; (D) the
treatment of the contribution to the Company by DEFS Holding pursuant to Section
2.2 of the Contribution Agreement as a contribution pursuant to Code Section
721, the treatment of the distribution to DEFS Holding pursuant to Section
3.2(c)(2) of the Contribution Agreement (as adjusted pursuant to Section 3.3) as
a distribution pursuant to Code Section 731 and the treatment that, for purposes
of the Code, neither such contribution nor such distribution is a transfer that
constitutes a sale or exchange (or portion thereof) of property in whole or in
part to the Company by a Member in the Company acting in a capacity other than
as a Member of the Company; (E) the treatment of the contribution to the Company
by PGC pursuant to Section 2.3 of the Contribution Agreement (the "PGC
CONTRIBUTION") as a contribution pursuant to Code Section 721, the treatment of
the distribution to PGC pursuant to Section 3.2(c)(1) of the Contribution
Agreement (as adjusted pursuant to Section 3.3) (the "PGC DISTRIBUTION") as a
distribution pursuant to Code Section 731 and the treatment that, for purposes
of the Code, neither the PGC Contribution nor the PGC Distribution is a transfer
that constitutes a sale or exchange (or portion thereof) of property in whole or
in part to the Company by a Member in the Company acting in a capacity other
than as a Member of the Company (except in the case of this clause (E) that,
Duke, Phillips, the Members and the Company shall treat (except to the extent
Duke, Phillips, the Members and the Company agree in writing or are required by
the Neutral Firm to treat otherwise) an amount of the PGC Distribution equal to
the Disguised Sale Amount as proceeds of a sale by PGC to the Company under Code
Section 707(a) and shall treat an amount of the PGC Contribution equal in fair
market value to the Disguised Sale Amount as property that is sold by PGC to the
Company under Code Section 707(a) (such property treated as having been sold
having regular federal income tax basis equal to the aggregate regular Federal
income tax basis of the property contributed in the PGC Contribution multiplied
by a fraction the numerator of which is the Disguised Sale Amount and the
denominator of which is
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<PAGE>
the value of the property contributed in the PGC Contribution, such value being
for this purpose $2,139,500,000); and (F) the treatment of the merger of
Phillips Member Parent into DEFS Holding pursuant to Section 3.2 of the
Governance Agreement as a "reorganization" within the meaning of Section 368(a)
in which no gain or loss is recognized to PGC, DEFS Holding, the Company, Duke,
Phillips or any other Person.
Section 4.3 EXISTING STRUCTURE; INTERNAL RESTRUCTURINGS.
(a) Schedule 5.1(b) to the Duke Disclosure Schedule sets forth the
organizational structure of DEFS Holding and the DEFS Subsidiaries (showing the
respective owners among Duke and its Subsidiaries of DEFS Holding and the DEFS
Subsidiaries) as of the date hereof. From and after the date hereof and until
the Closing Date, except (i) for the mergers and conversions contemplated by
Section 2.1(b) of the Contribution Agreement and other transactions specifically
provided for in the Governance Agreement or the Contribution Agreement (so long
as such transactions do not result in a non-U.S. entity owning any DEFS
Subsidiary that is a United States person within the meaning of the Code or any
assets thereof), (ii) as consented to or approved by Phillips in writing, and
(iii) to the extent pursuant to a divestiture required by Section 6.2 of the
Contribution Agreement, Duke shall not, and shall cause the DEFS Subsidiaries
not to, cause any change to or restructuring of the ownership interests in the
entities that are DEFS Subsidiaries as of the date hereof.
(b) Schedule F-2 hereto sets forth the organizational structure of
PGC and the PGC Subsidiaries (showing the respective owners among Phillips and
its Subsidiaries of PGC and the PGC Subsidiaries) as of the date hereof. From
and after the date hereof and until the Closing Date, except (i) for the mergers
and conversions contemplated by Section 2.1(c) of the Contribution Agreement and
other transactions specifically provided for in the Governance Agreement or the
Contribution Agreement (so long as such transactions do not result in a non-U.S.
entity owning any PGC Subsidiary that is a United States person within the
meaning of the Code or any assets thereof), (ii) as consented to or approved by
Duke in writing, and (iii) to the extent pursuant to a divestiture required by
Section 6.2 of the Contribution Agreement, Phillips shall not, and shall cause
the PGC Subsidiaries not to, cause any change to or restructuring of the
ownership interests in the entities that are PGC Subsidiaries as of the date
hereof.
(c) For the period, if any, beginning at the time of consummation of
the IPO and ending on the second anniversary of the Closing Date, without the
prior written consent of Duke and Phillips: (i) the Company shall not make (or
enter into a plan or arrangement to make) any Distributions of cash or other
property to PGC in excess of the product of the aggregate Distribution to all
Members and PGC's Percentage Interest as of the Closing Date, (ii) the Company
shall not make (or enter into a plan or arrangement to make) any Distribution to
PGC of cash or other property other than Distributions to fund dividends by the
Corporation to its shareholders and Distributions pursuant to Section 3.6(a)(i)
hereof and (iii) PGC shall not be liquidated, shall not be merged into the
Corporation, shall not distribute to any shareholder of PGC the Company Interest
issued to PGC pursuant to Section 2.1(k) of the Contribution Agreement and shall
not be converted into, or merged into or otherwise caused to become, a
partnership or disregarded entity for federal income tax purposes (nor shall
there be any plan or arrangement to do so).
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<PAGE>
Section 4.4 TAX MATTERS PARTNER; TAX ELECTIONS; TAX PROCEEDINGS AND
RETURNS.
(a) The Company hereby elects to have a "tax matters partner" as
provided under Code Section 6231(a)(7)(B) (the "TAX MATTERS PARTNER"). DEFS
Holding is hereby designated as such Tax Matters Partner.
(b) The Company shall make all elections required under United States
Income Tax Laws and regulations and any similar state statutes and shall make
the following elections:
(i) Adopt the calendar year as the annual accounting period;
(ii) Adopt the accrual method of accounting; and
(iii) Adopt the maximum allowable accelerated method and shortest
permissible life for determining depreciation deductions.
(c) At the request of any Member, the Company shall make the
election provided for in Section 754 of the Code.
(d) In the case of any Tax Proceeding relating to any Income Tax
Return or any Income Tax items of the Company or any Subsidiary of the Company
for any Post-Closing Period, the Company shall be entitled to control such Tax
Proceeding; PROVIDED, HOWEVER, that (i) the Company shall promptly notify Duke
and Phillips (describing the jurisdiction and year(s) at issue and including a
copy of any materials received from the applicable Governmental Entity in
connection therewith) upon receipt of notice of any such Tax Proceeding and
shall thereafter promptly forward to Duke and Phillips copies of any
communications received from or sent to any Governmental Entity by the Company
or any of its Subsidiaries in connection with any such Tax Proceeding; (ii) the
Company shall provide Duke and Phillips with a timely and reasonably detailed
account of each stage of such Tax Proceeding and a copy of all documents
relating to such Tax Proceeding; (iii) the Company shall consult with Duke and
Phillips before taking any significant action in connection with such Tax
Proceeding; (iv) the Company shall consult with Duke and Phillips and offer Duke
and Phillips an opportunity to comment before submitting any written materials
prepared or furnished in connection with such Tax Proceeding (including, to the
extent practicable, any documents furnished to the applicable Governmental
Entity in connection with any discovery request); (v) the Company shall defend
such Tax Proceeding diligently and in good faith as if the Company were the
taxpayer in interest in connection with such Tax Proceeding, and (vi) (A) in the
case of any proposed settlement of any such Tax Proceeding, which settlement
will result in aggregate Tax payments by Phillips with respect to the period
beginning on the Closing Date and ending on the second anniversary of the
Closing Date (or, if the Tax Proceeding relates to a taxable period (or portion
thereof) after such second anniversary, then with respect to the two year period
beginning on the first day of the taxable period to which the Tax Proceeding
relates) of greater than $7,575,000, the Company shall not settle, compromise or
abandon any such Tax Proceeding without obtaining the prior written consent,
which consent shall not be unreasonably withheld, of Phillips and (B) in the
case of any proposed settlement of any such Tax Proceeding, which settlement
will result in aggregate Tax payments by Duke with respect to the period
beginning on the Closing Date and ending on the
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<PAGE>
second anniversary of the Closing Date (or, if the Tax Proceeding relates to a
taxable period (or portion thereof) after such second anniversary, then with
respect to the two year period beginning on the first day of the taxable period
to which the Tax Proceeding relates) of greater than $17,425,000, the Company
shall not settle, compromise or abandon any such Tax Proceeding without
obtaining the prior written consent, which consent shall not be unreasonably
withheld, of Duke. In the event that Duke or Phillips reasonably withholds such
consent pursuant to the preceding clause (vi)(A) or (B), the parties shall
negotiate in good faith to resolve their differences and, failing that, the
Neutral Firm shall resolve such disagreement. The above provisions of this
Section 4.4(d) shall cease to apply with respect to taxable periods beginning
after the consummation of the IPO, except to the extent that failure of such
provisions to apply could reasonably be expected to affect any member of the
Phillips Group or the Duke Group (other than in its capacity as a direct or
indirect shareholder, or affiliate of such a shareholder, of the Corporation).
(e) The Company shall present (such presentation to be made (i) in
the case of a Tax Return for a Company taxable year ending on December 31st, no
later than July 1st in the year following the end of such Company taxable year
and (ii) in the case of a Tax Return for a Company taxable year ending on a date
other than December 31st, no later than the date that is six months following
the end of such Company taxable year) any Federal Income Tax Returns of the
Company to Phillips for Phillips' review and shall revise such Tax Returns prior
to filing to reflect any reasonable comments requested in good faith by Phillips
in writing within 15 Business Days after such presentation of such Tax Returns
to Phillips; PROVIDED, HOWEVER, that in the event that the Company or Duke
disagrees with any such comments of Phillips, then the Company, Duke and
Phillips shall endeavor to resolve their disagreement over such comments and,
failing that, the Neutral Firm shall resolve such disagreement prior to the date
such Tax Returns are due (including extensions) and such Tax Returns shall be
filed in such manner as the Neutral Firm determines. The fees and expenses of
the Neutral Firm in connection with this Section 4.4(e) shall be allocated
between Phillips and Duke by the Neutral Firm. At Duke's or Phillips' request,
the Company shall make available to Duke and Phillips, respectively, for their
review at least 15 Business Days prior to the due date (including extensions)
any state, local or foreign Income Tax Returns of the Company or its
Subsidiaries. The above provisions of this Section 4.4(e) shall cease to apply
with respect to taxable periods beginning after the consummation of the IPO,
except to the extent that failure of such provisions to apply could reasonably
be expected to affect any member of the Phillips Group (other than in its
capacity as a direct or indirect shareholder, or affiliate of such a
shareholder, of the Corporation).
(f) COOPERATION AND EXCHANGE OF INFORMATION. Duke, Phillips, the
Company and the Corporation shall (and shall cause their respective Subsidiaries
to) cooperate with one another with respect to Tax matters. As soon as
practicable, but in any event within 30 days after the request of Duke or
Phillips, from and after the Closing Date, the Company shall deliver to Duke or
Phillips, respectively, such information and data concerning the Company and its
Subsidiaries and make available such employees of the Company and its
Subsidiaries as Duke or Phillips may reasonably request (including providing the
information and data reasonably required by Duke's and Phillips' customary Tax
and accounting questionnaires) in order to enable Duke and Phillips to complete
and file all Tax Returns which they each may be required to file with respect to
the Company and its Subsidiaries or to respond to Tax audits or other inquiries
relating to Taxes by any Governmental Entities with respect to such operations
and to
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<PAGE>
otherwise enable Duke and Phillips each to satisfy their respective accounting,
Tax and other legitimate business requirements. Such cooperation and information
shall include provision of powers of attorney to Duke or Phillips relating to
Tax matters (E.G., for the purpose of signing Returns and defending audits) and
promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Governmental Entity that relate to
the Company and its Subsidiaries, and providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Governmental Entities and
records concerning the ownership and tax basis of property, which the Company,
the Corporation and their Subsidiaries may possess. The Company and the
Corporation shall (and shall cause their respective Subsidiaries to) make their
respective employees and facilities available on a mutually convenient basis to
provide explanation of any documents or information provided hereunder. The
above provisions of this Section 4.4(f) shall cease to apply with respect to
taxable periods beginning after the consummation of the IPO, except to the
extent that failure of such provisions to apply could reasonably be expected to
affect any member of the Phillips Group or the Duke Group (other than in its
capacity as a direct or indirect shareholder, or affiliate of such a
shareholder, of the Corporation). Notwithstanding any other provision, (i) Duke
shall not be required to provide any Person with any consolidated, combined,
affiliated or unitary Income Tax Return or copy thereof that includes Duke or
any other member of the Duke Group and (ii) Phillips shall not be required to
provide any Person with any consolidated, combined, affiliated or unitary Income
Tax Return or copy thereof that includes Phillips or any other member of the
Phillips Group.
Section 4.5 DEBT REPAYMENT. From and after consummation of the IPO,
to the extent that proceeds from the IPO (or any other funds contributed to the
Company or any of its Subsidiaries) are used to repay debt owed by the Company
or any of its Subsidiaries (for so long as the Company or such Subsidiary is
treated as a partnership for federal income tax purposes), such funds shall be
contributed to the Company and its Subsidiaries by the limited liability company
interest holders or other equity interest holders in the Company or such
Subsidiaries in proportion to the allocation of debt to such holders provided in
Section 4.2(C) of this Annex F.
Exhibit 99.3
PHILLIPS PETROLEUM COMPANY
Public Relations
Bartlesville, Oklahoma 74004
http://www.phillips66.com
CONTACTS: FOR IMMEDIATE RELEASE
Kristi DesJarlais (Media) 918/661-6117
Howard Thill (Investors) 918/661-4757
DUKE ENERGY AND PHILLIPS PETROLEUM ANNOUNCE DEFINITIVE AGREEMENT
FORMING PREMIER GAS GATHERING AND PROCESSING COMPANY
DUKE ENERGY AND PHILLIPS PETROLEUM EACH TO RECEIVE $1.2 BILLION IN CASH;
IPO PLANNED FOR NEW COMPANY
BARTLESVILLE, Okla., Dec. 16, 1999 --- Phillips Petroleum (NYSE: P) and Duke
Energy (NYSE: DUK) today announced that they have signed definitive agreements
to combine Duke Energy's gas gathering and processing businesses and Phillips
Petroleum's Gas Processing and Marketing (GPM) unit to form a new midstream
company to be called Duke Energy Field Services (DEFS). This new company will
become the nation's largest midstream natural gas liquids business and the
premier gatherer and processor of natural gas in the continental United States,
with an expected enterprise value of between $5 billion and $6 billion. The
definitive agreements have been unanimously approved by both companies' boards
of directors. Due diligence has been completed. The transaction is expected to
close by the end of the first quarter 2000, subject to regulatory approval.
Under the terms of the agreement, the new company will seek to arrange
$2.4 billion of debt financing and, upon closing of the transaction, will make
one-time cash distributions of $1.2 billion to both Duke Energy and Phillips
Petroleum. In addition, the existing NGL arrangements between Phillips Petroleum
and GPM will be maintained by the new company for an initial term of fifteen
years. At closing, Duke Energy will own about 70 percent of the new company, and
Phillips Petroleum will own about 30 percent.
During the first half of 2000, following completion of the transaction and
subject to market conditions, it is expected that the new company will offer
approximately 20 percent of its equity to the public in an initial public
offering. The proceeds of the offering will be used to reduce debt incurred by
the new company in the transaction. DEFS will provide investors the opportunity
to participate directly in the future growth and consolidation of the gas
gathering and processing industry. Given the company's size and access to the
capital markets, it will immediately have the flexibility to pursue its growth
opportunities.
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<PAGE>
Duke Energy and Phillips Petroleum Announce Definitive Agreement
Forming Premier Gas Gathering and Processing Company
Page 2
The agreements governing DEFS set forth a formula which adjusts Duke Energy's
and Phillips Petroleum's post-IPO equity interests depending on the public
market valuation of the new company. Accordingly, assuming a value range for the
new company between $5 billion and $6 billion, Duke Energy's post-IPO equity
ownership in the new company would range between 55 and 57 percent, and Phillips
Petroleum's post-IPO ownership would range between 23 and 25 percent. Duke
Energy expects to consolidate the new company for financial reporting purposes;
Phillips Petroleum expects to account for its ownership in DEFS on an equity
basis.
Transaction Accretive to Both Duke Energy and Phillips Petroleum
The transaction will be immediately accretive to both Duke Energy and Phillips
Petroleum.
The transaction will help move Duke Energy toward the top of its targeted range
for growing earnings per share 8-10 percent annually. The $1.2 billion cash
payment will reduce the need for Duke Energy to issue equity to fund its capital
expenditure plans. Duke Energy is firmly focused on becoming the world's premier
global energy merchant.
Phillips Petroleum expects to retain approximately $1.15 billion, after taxes,
of the $1.2 billion that it will receive from this transaction. Phillips
Petroleum's proceeds from the transaction will be used initially to reduce debt,
as well as for other corporate purposes. As a result, Phillips Petroleum expects
its net debt-to-capital ratio to decline from 47 percent to approximately
40 percent.
Richard B. Priory, chairman, president and chief executive officer of Duke
Energy, said, "This innovative transaction demonstrates our ability to seize
opportunities for growth and value creation. This transaction is the most recent
and vivid example of Duke Energy's global energy merchant strategy. As the
energy industry changes, there will be opportunities for those companies with
the expertise, financial strength and assets to act quickly, decisively and
creatively.
"All of our energy businesses are top tier performers. By combining the assets
and people of Duke Energy's gas gathering and processing business with GPM, we
are building a new market leader. And, with the prospect of an IPO, we'll tap
new financing and ownership opportunities that will unlock the full value of the
new company," Priory said.
James J. Mulva, chairman, president and chief executive of Phillips Petroleum,
stated, "This transaction is an integral step in achieving our strategic
objectives recently communicated to the financial community. It monetizes a
substantial portion of the value of one of Phillips Petroleum's key non-E&P
assets, thereby increasing Phillips Petroleum's financial flexibility to pursue
attractive exploration and production growth opportunities. It also enhances and
makes more transparent the value of our GPM asset.
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<PAGE>
Duke Energy and Phillips Petroleum Announce Definitive Agreement
Forming Premier Gas Gathering and Processing Company
Page 3
"In Duke Energy, we have a company that intends to capture the potential in this
business and has an excellent record as both an operator of assets and a builder
of value. We are also maintaining both financial and operational integration
between Phillips Petroleum and the midstream business. Financially, Phillips
Petroleum will hold a significant ownership position in a publicly held
midstream company, with a strong growth platform of high quality assets,
financial resources and strong management. We believe the new company will have
greater access to capital to grow its business than the GPM unit historically
obtained as part of Phillips Petroleum. Operationally, we have ensured a
continued NGL supply for our downstream businesses," Mulva concluded.
About the New Duke Energy Field Services
The new company will have a strong position in most of the significant
hydrocarbon basins in the continental United States. The combined revenues and
EBITDA for the two businesses in the third quarter of 1999 was $1.6 billion and
$183 million, respectively. The new company will operate 67 plants and 57,000
miles of pipelines, and have an estimated17 TCF of contracted supply. It will
process approximately 5 BCFD of raw gas, and produce 400,000 BPD of NGL. Duke
Energy and Phillips Petroleum believe that the new company will realize
synergies, primarily from operating efficiencies.
James W. Mogg, currently president of Duke Energy's gathering and processing
business (also called Duke Energy Field Services), will become chairman,
president, and chief executive officer of the new company. Michael J. Panatier,
currently president and chief executive of GPM will become vice chairman.
"This combination represents the latest and most dramatic example of the
restructuring and consolidation in the midstream gas business. It immediately
creates shareholder value for both Duke Energy and Phillips Petroleum. By
combining DEFS and GPM's businesses, we will have the best collection of people
and assets in the gathering and processing industry. This transaction brings
together the fastest growing midstream business, DEFS, with one of the most
experienced, GPM. Additionally, Phillips Petroleum's assets and gas contracts
provide additional balance to our existing business," said Mogg.
The new company will be governed by a board of directors which will initially
consist of 3 directors to be chosen by Duke Energy and 2 directors to be
selected by Phillips Petroleum. Messrs. Priory and Mulva, have agreed to serve
on the DEFS board. Following the IPO, the board will be expanded from 5 to 11;
Duke Energy will choose 7 members (2 of whom will be independent) and Phillips
Petroleum will choose 4 (1 of whom will be independent).
DEFS will be headquartered in Denver, Colorado.
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<PAGE>
Duke Energy and Phillips Petroleum Announce Definitive Agreement
Forming Premier Gas Gathering and Processing Company
Page 4
Duke Energy's existing midstream business is the largest U.S. producer of NGL,
one of the largest natural gas gatherers and marketers and one of the largest
NGL marketers. In 1999, DEFS became the industry's top NGL producer by acquiring
UPR's natural gas gathering, processing, fractionation and NGL pipelines for
$1.35 billion. The company operates 52 plants today in Wyoming, Colorado,
Kansas, Oklahoma, New Mexico, Texas, along the Gulf Coast and in northwestern
Alberta, Canada.
Phillips Petroleum's NGL business, GPM, has operated Phillips Petroleum's gas
gathering and processing units in the continental United States since 1992. GPM
operates 15 plants in Texas, New Mexico and Oklahoma.
The NGL industry provides processing of natural gas and fractionation of natural
gas liquids to produce liquid products such as ethane, propane, butanes and
natural gasolines. Customers of the NGL business include gas and crude
producers, refineries, petrochemical plants and propane distributors.
Morgan Stanley Dean Witter acted as financial advisor to Duke Energy and Merrill
Lynch & Co. acted as financial advisor to Phillips Petroleum.
Phillips Petroleum is an integrated petroleum company engaged in oil and gas
exploration and production worldwide; refining, marketing and transportation
operations primarily in the United States; chemicals and plastics manufacturing
and sales around the globe; and technology development. Founded in Bartlesville,
Okla., in 1917, the company has 16,200 employees, $15 billion of assets and
$13 billion of revenues on an annual basis.
- # # # -
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This release contains forward-looking statements about Phillips' production,
exploration, and other operating results. These statements are not guarantees of
future performance, involve certain risks, uncertainties, and assumptions that
are difficult to predict, and are based upon assumptions as to future events
that may not prove accurate. Therefore, actual outcomes and results may differ
materially from what is expressed herein. Among the factors that could cause
such differences are crude oil and natural gas prices; refining and marketing
margins; potential failure to achieve, and potential delays in achieving,
expected production from existing and future oil and gas development projects;
and potential disruption or interruption of the Company's production facilities
due to accidents or political events. Such matters are detailed in the Company's
publicly available filings with the Securities and Exchange Commission. Copies
of the company's filings with the SEC are available free by calling Phillips at
918-661-3700. These reports are also available on the company's web site at
http://www.phillips66.com.
- --------------------------------------------------------------------------------
PUBLIC RELATIONS: Rob Phillips 918/661-9326 Kristi DesJarlais 918/661-6117
Cheryl Finkenbinder 918/661-6172
Exhibit 99.4
BENEFITS TO PHILLIPS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o Monetizes Portion of GPM at Attractive Value
o Creates Equity Interest in Premier Midstream Company
--Positioned for Future Growth
o Creates Financial Flexibility to Fund Phillips Growth in E&P
o Maintains Long Term Access to NGLs
<PAGE>
TRANSACTION IMPACT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o Immediately Accretive
o Retain 30% of New Company (pre-IPO)/ 20-25% (post-IPO)
o Net cash proceeds of $1.15 BN
o 1% Improvement in PPCO's ROCE
o Debt to Capital Ratio Improved from 47% to 40%
<PAGE>
PHILLIPS HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o $1.8BN 2000 Capital Budget
--$1.2 BN Dedicated to E&P
o 1999 Cost Reduction Program Completed
o Strong Second Half Financial and Operating Performance
o Expect Positive 1999 Reserve Replacement at Attractive F&D Costs
o Growth Projects Progressing: Bohai, Bayu-Undan, Hamaca, Qatar
Petrochemicals, and Sweeny Coker/CCR
