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FORM 8-K
CURRENT REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 2, 1998
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313) 436-9261
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ITEM 5. OTHER EVENTS
On November 2, 1998, CMS Energy Corporation ("CMS Energy") announced
that it has entered into a definitive Stock Purchase Agreement with
PanEnergy Corp ("PanEnergy"), a wholly owned subsidiary of Duke Energy
Company ("Duke"), to acquire all the stock of Panhandle Eastern Pipe Line
Company and its principal subsidiaries, Trunkline Gas Company and Pan Gas
Storage Company. It is also acquiring the stock of Panhandle Storage
Company and Trunkline LNG Company. (These companies together are
hereinafter referred to as the "Panhandle Companies".) Prior to the
closing, Panhandle Eastern Pipe Line Company's 5.3% interest in Northern
Border Pipeline LP and certain non-operating assets which are not material
in amount or revenue impact will be transferred to other subsidiaries of
Duke. In addition, certain intercompany accounts, including advances,
between the Panhandle Companies and Duke will be eliminated.
The purchase price for the stock of the Panhandle Companies is $1.9
billion in cash. The Panhandle Companies are expected to have
approximately $300 million of debt outstanding at the time of closing
which will become a part of CMS Energy's consolidated indebtedness.
The Panhandle Companies:
Panhandle Eastern Pipe Line Company and Trunkline Gas Company,
together with the two gas storage companies to be acquired, are primarily
engaged in the interstate transportation and storage of natural gas.
Panhandle Eastern Pipe Line Company's transmission system, which consists
of four large-diameter parallel pipelines and 13 mainline compressor
stations, extends a distance of approximately 1,300 miles from producing
areas in the Anadarko Basin of Texas, Oklahoma and Kansas through the
States of Missouri, Illinois, Indiana and Ohio into Michigan. Trunkline
Gas Company's transmission system extends approximately 1,400 miles from
the Gulf Coast area of Texas and Louisiana through the States of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan Border. The Trunkline system consists of three large
diameter parallel pipelines and 18 mainline compressor stations. It
connects with the intrastate gas transmission system of Consumers Energy
Company, CMS Energy's wholly-owned electric and gas utility subsidiary.
Consumers Energy is one of the largest gas transmission customers of the
two pipeline companies being acquired.
Trunkline Gas Company owns and operates two offshore Louisiana gas
supply systems consisting of 337 miles of pipeline extending approximately
81 miles into the Gulf of Mexico.
The combined throughput volumes for the two pipelines in 1997 was
1279 Tbtu. Principal customers include 20 utilities located in the Midwest
market area that encompasses large portions of Michigan, Ohio, Indiana,
Illinois, Missouri and Tennessee. A substantial portion of the delivered
volumes represents gas transported to these utilities under firm
agreements but gas is also transported for gas marketers, producers, other
pipelines, electric power generators and a variety of end users. Gas
transmission services are also provided under interruptible agreements.
Transportation service for Consumers Energy and a gas marketing subsidiary
of Duke each accounted for approximately 10% of the combined revenues of
the two pipelines.
The Panhandle Companies own and operate five underground gas storage
fields located in Illinois, Michigan, Kansas, Oklahoma and Louisiana with
a combined maximum working storage gas capacity of 70 bcf.
The Panhandle Companies compete with a number of interstate and
intrastate pipeline companies in the transportation and storage of natural
gas. The principal elements of competition among pipelines are rates,
terms of service and flexibility and reliability of service.
Trunkline LNG Company owns a liquified natural gas ("LNG")
regasification plant and related LNG tanker port, unloading facilities and
LNG and gas storage facilities located at Lake Charles, Louisiana. The LNG
plant has the capacity to deliver 700 Mmcf per day but has been operated
on a limited basis for a number of years.
The rates and operations of the Panhandle Companies are subject to
regulation by the Federal Energy Regulatory Commission.
Panhandle Eastern Pipe Line Company is subject to the informational
filing requirement of the Securities and Exchange Act of 1934 and, in
accordance therewith, is obligated to file reports and other information
with the Securities and Exchange Commission relating to its business,
financial condition and other matters. These reports contain financial
statements and other important information in addition to the information
provided above and are available through offices of the Commission.
However, the information contained in such reports does not include
information relative to Panhandle Storage Company or Trunkline LNG Company
and does not reflect the transfer of certain assets being retained by
subsidiaries of Duke as described above.
Stock Purchase Agreement
The only regulatory requirement for closing under the Stock Purchase
Agreement (the "Agreement") is compliance with the Hart-Scott- Rodino
Antitrust Improvements Act of 1976.
The Agreement provides that if, as a result of CMS Energy's
continuing due diligence investigation, CMS Energy learns of material
facts not previously disclosed or inconsistent with representations and
warranties made in the Agreement, CMS Energy may, on or prior to November
23, 1998, notify PanEnergy Corp of its intent to terminate the Agreement
and the Agreement will terminate unless PanEnergy corrects the asserted
misrepresentations within 30 days. The Agreement may be terminated by
PanEnergy if CMS Energy fails to provide firm commitment letters from
nationally recognized financial institutions to finance the $1.9 billion
purchase price. Based upon letters received from two major banks
indicating a willingness to provide bridge loan financing, CMS Energy
believes that the financial commitment requirements of the Agreement will
be met. Permanent financing plans are in the process of being formed and
negotiated and CMS Energy currently expects approximately $900 million to
be raised from the sale of common stock and/or securities convertible into
common stock and $1 billion from the issuance of debt securities by CMS
Energy and the Panhandle Companies. If CMS Energy is unable to provide the
appropriate financing commitments by November 23, 1998 or is unable to
close the purchase when it is otherwise would be obligated to close, it
must pay PanEnergy Corp a $75 million termination fee. The closing is
scheduled for January 4, 1999 but may be delayed by mutual agreement.
Item 7. Exhibits
10.1 Stock Purchase Agreement between PanEnergy Corp, Texas Eastern
Corporation and CMS Energy Corporation dated as of October 31, 1998
99.1 Press Release of CMS Energy Corporation dated November 2, 1998
SIGNATURES
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.
CMS ENERGY CORPORATION
Dated: November 2, 1998 By: /s/ Alan M. Wright
______________________________
Alan M. Wright
Senior Vice President and Chief
Financial Officer
Exhibit 10.1
STOCK PURCHASE AGREEMENT
BETWEEN
PANENERGY CORP,
TEXAS EASTERN CORPORATION
AND
CMS ENERGY CORPORATION
Dated as of October 31, 1998
TABLE OF CONTENTS
Section Page
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ARTICLE I DEFINITIONS AND TERMS
1.1 Specific Definitions . . . . . . . . . . . . . . . . .
1.2 Terms Defined Elsewhere in the Agreement . . . . . . .
1.3 Other Definitional Provisions . . . . . . . . . . . . . 9
1.4 References to Time . . . . . . . . . . . . . . . . . . 10
ARTICLE II PURCHASE AND SALE; REORGANIZATION OF SOLD
SUBSIDIARIES
2.1 Purchase and Sale of the Shares . . . . . . . . . . . . 11
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . 11
2.3 Reorganization of Sold Subsidiaries . . . . . . . . . . 11
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Deliveries by Acquiror . . . . . . . . . . . . . . . . 12
2.6 Deliveries by Sellers . . . . . . . . . . . . . . . . . 13
2.7 Adjustment to Purchase Price . . . . . . . . . . . . . 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Organization and Qualification . . . . . . . . . . . . 16
3.2 Capitalization; the PEPL Companies . . . . . . . . . . 16
3.3 Corporate Authorization . . . . . . . . . . . . . . . . 17
3.4 Consents and Approvals . . . . . . . . . . . . . . . . 17
3.5 Non-Contravention . . . . . . . . . . . . . . . . . . . 18
3.6 Binding Effect . . . . . . . . . . . . . . . . . . . . 18
3.7 SEC Reports . . . . . . . . . . . . . . . . . . . . . . 19
3.8 Statement of Assets and Liabilities; Books and
Records; LNG Liabilities . . . . . . . . . . . . . . 19
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . 20
3.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11 Employee Benefits . . . . . . . . . . . . . . . . . . . 21
3.12 Compliance with Laws . . . . . . . . . . . . . . . . . 23
3.13 Intellectual Property . . . . . . . . . . . . . . . . . 23
3.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . 24
3.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . 24
3.16 Title to Properties . . . . . . . . . . . . . . . . . . 24
3.17 Environmental Matters . . . . . . . . . . . . . . . . . 25
3.18 Labor Relations . . . . . . . . . . . . . . . . . . . . 26
3.19 Year 2000 Compliance . . . . . . . . . . . . . . . . . 27
3.20 Absence of Certain Changes . . . . . . . . . . . . . . 27
3.21 No Other Representations or Warranties . . . . . . . . 27
3.22 Disclosure Schedule . . . . . . . . . . . . . . . . . . 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR
4.1 Organization and Qualification . . . . . . . . . . . . 28
4.2 Corporate Authorization . . . . . . . . . . . . . . . . 28
4.3 Consents and Approvals . . . . . . . . . . . . . . . . 28
4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . 29
4.5 Binding Effect . . . . . . . . . . . . . . . . . . . . 30
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . 30
4.7 Financing . . . . . . . . . . . . . . . . . . . . . . . 30
4.8 No Other Representations or Warranties . . . . . . . . 30
ARTICLE V COVENANTS
5.1 Conduct of the Business . . . . . . . . . . . . . . . . 30
5.2 Access; Confidentiality . . . . . . . . . . . . . . . . 33
5.3 Reasonable Best Efforts . . . . . . . . . . . . . . . . 34
5.4 Antitrust Notification . . . . . . . . . . . . . . . . 36
5.5 Supplemental Disclosure . . . . . . . . . . . . . . . . 36
5.6 Further Assurances . . . . . . . . . . . . . . . . . . 37
5.7 Announcements . . . . . . . . . . . . . . . . . . . . . 37
5.8 No Solicitation . . . . . . . . . . . . . . . . . . . . 37
5.9 Employee Matters . . . . . . . . . . . . . . . . . . . 38
5.10 Preservation of Records . . . . . . . . . . . . . . . . 43
5.11 Other Agreements . . . . . . . . . . . . . . . . . . . 44
5.12 Related Party Payments . . . . . . . . . . . . . . . . 44
5.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . 44
5.14 Environmental Remediation . . . . . . . . . . . . . . . 46
5.15 Financing . . . . . . . . . . . . . . . . . . . . . . . 48
5.16 LNG Port Facility Bonds . . . . . . . . . . . . . . . . 49
5.17 Superfund Claims . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI CONDITIONS TO CLOSING
6.1 Conditions to the Obligations of Acquiror and Sellers . 50
6.2 Conditions to the Obligations of Acquiror . . . . . . . 50
6.3 Conditions to the Obligations of Sellers . . . . . . . 51
ARTICLE VII SURVIVAL; GENERAL INDEMNIFICATION
7.1 Survival . . . . . . . . . . . . . . . . . . . . . . . 52
7.2 Indemnification by Acquiror . . . . . . . . . . . . . . 52
7.3 Indemnification by Sellers . . . . . . . . . . . . . . 53
7.4 Procedure for Indemnification . . . . . . . . . . . . . 56
7.5 Characterization of Indemnification Payments . . . . . 58
7.6 Computation of Losses; Disputes . . . . . . . . . . . . 58
ARTICLE VIII TAX MATTERS; TAX INDEMNIFICATION
8.1 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 59
8.2 Tax Returns . . . . . . . . . . . . . . . . . . . . . . 61
8.3 Tax Contests . . . . . . . . . . . . . . . . . . . . . 63
8.4 Refunds and Credits . . . . . . . . . . . . . . . . . . 64
8.5 Assistance and Cooperation . . . . . . . . . . . . . . 64
8.6 Election Under Section 338(h)(10) . . . . . . . . . . . 64
8.7 Dispute Procedures . . . . . . . . . . . . . . . . . . 65
8.8 Survival . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE IX TERMINATION
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . 66
9.2 Effect of Termination . . . . . . . . . . . . . . . . . 67
9.3 Termination Fee . . . . . . . . . . . . . . . . . . . . 67
ARTICLE X GENERAL PROVISIONS
10.1 Extension; Waiver . . . . . . . . . . . . . . . . . . . 68
10.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . 68
10.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . 68
10.4 Governing Law . . . . . . . . . . . . . . . . . . . . . 68
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . 68
10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . 70
10.7 Disclosure Schedule . . . . . . . . . . . . . . . . . . 70
10.8 Headings; References . . . . . . . . . . . . . . . . . 70
10.9 Counterparts . . . . . . . . . . . . . . . . . . . . . 70
10.10 Parties in Interest; Assignment; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . . . . 70
10.11 Severability; Enforcement . . . . . . . . . . . . . . . 70
10.12 Consent to Jurisdiction; Exclusive Forum . . . . . . . 71
EXHIBITS
Exhibit A -- Form of Plan of Liquidation
Exhibit B -- Form of Opinion of Counsel to Acquiror
Exhibit C-1 -- Form of Opinion of Weil, Gotshal & Manges LLP
Exhibit C-2 -- Form of Opinion of Richard J. Kruse
Exhibit D-1 -- Agreement for Transition Services to be Provided by Sellers
Exhibit D-2 -- Agreement for Transition Services to be Provided by Sold
Subsidiaries
Exhibit E -- LNG Terminal & Transportation Agreement
Exhibit F -- Intellectual Property Agreement
Exhibit G -- Access and Support Agreement
Exhibit H -- Operation and Maintenance Agreement
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 31, 1998, between
PANENERGY CORP, a Delaware corporation ("PEC"), TEXAS EASTERN CORPORATION,
a Delaware corporation ("Eastern"; and together with PEC, the "Sellers")
and CMS ENERGY CORPORATION, a Michigan corporation ("Acquiror").
W I T N E S S E T H :
WHEREAS, PEC owns direct and indirect subsidiaries which are
engaged in the business of pipeline transportation and storage of natural
gas;
WHEREAS, PEC is the owner of (i) 1,000 shares of Common Stock,
without par value (the "PEPL Shares"), of Panhandle Eastern Pipe Line
Company, a Delaware corporation ("PEPL") and (ii) 1,000 shares of Common
Stock, par value $1.00 per share (the "PSC Shares"), of Panhandle Storage
Company, a Delaware corporation ("PSC");
WHEREAS, Eastern is the owner of 250 shares of Common Stock,
without par value (the "LNG Shares"; and together with the PEPL Shares and
the PSC Shares, the "Shares") of Trunkline LNG Company, a Delaware
corporation ("LNG", and collectively with PEPL and PSC, the "Sold
Subsidiaries"); and
WHEREAS, Sellers desire to sell, transfer and deliver to
Acquiror, and Acquiror desires to purchase from Sellers, all of the Shares,
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 Specific Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Acquiror" shall have the meaning set forth in the preamble to
this Agreement.
"Affiliate" shall mean, with respect to any specified Person, any
other Person directly or indirectly controlling, controlled by or under
common control with such specified Person, provided, that Duke Energy
Trading and Marketing, LLC and Texas Eastern Products Pipeline Company
shall not be deemed to be Affiliates of Parent or Sellers for any purpose
under this Agreement.
"Agreed Rate" shall mean the publicly announced base rate of
Citibank, N.A. at the Closing Date.
"Agreement" shall mean this Stock Purchase Agreement, together
with all exhibits and schedules hereto, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Applicable Laws" shall mean, with respect to any Person, all
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Authority applicable to such Person and its business,
properties and assets.
"Base Working Capital Amount" shall mean $56,139,918.87.
"Business" shall mean the business currently conducted by the
PEPL Companies, after giving effect to the transactions contemplated by
Section 2.3 of this Agreement.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which banks located in New York City are authorized or
required by law to close.
"Cash Equivalents" shall mean cash on hand, all other cash in any
bank checking, savings or similar accounts at any financial institution,
and checks, drafts and similar instruments and any publicly traded stocks,
bonds or similar marketable securities, certificates of deposit, commercial
paper, Eurodollar deposits and any other cash equivalents held in the name
of or for the account of any of the PEPL Companies.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. section 9601 et seq.).
"Closing" shall mean the closing of the transactions contemplated
by this Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"DOJ" shall mean the United States Department of Justice.
"Employee Arrangements" shall mean all employment and consulting
agreements, and all bonus and other incentive compensation, deferred
compensation, disability, severance, stock award, stock option, stock
purchase, collective bargaining or workers' compensation agreements, plans,
programs, policies and arrangements with respect to the employment or
termination of employment of any employee, officer, director or other
Person who is or was employed by any of the PEPL Companies or primarily
employed on matters relating to the Business.
"Employee Benefit Plans" shall mean all "employee benefit plans,"
as defined in Section 3(3) of ERISA, which either Seller, one of the PEPL
Companies or any ERISA Affiliate sponsor, maintain or contribute to or are
required to contribute to and in which any employee or former employee
employed by the PEPL Companies or primarily employed on matters relating to
the Business participates or is entitled to any benefit thereunder.
"Encumbrances" shall mean any and all mortgages, security
interests, liens, claims, pledges, restrictions, leases, charges or other
encumbrances.
"Environmental Claim" shall mean any notice of violation, action,
claim, lien, demand, abatement or other order or directive (conditional or
otherwise) by any Person or Governmental Authority for personal injury
(including sickness, disease or death), tangible or intangible property
damage, damage to the environment (including natural resources), nuisance,
pollution, contamination, trespass or other adverse effects on the
environment, or for fines, penalties or restrictions resulting from or
based upon (i) the existence, or the continuation of the existence, of a
Release (including, without limitation, sudden or non-sudden accidental or
non-accidental Releases) of, or exposure to, any Hazardous Material, odor
or audible noise; (ii) the transportation, storage, treatment or disposal
of Hazardous Materials; or (iii) the violation, or alleged violation, of
any Environmental Laws or Permits issued thereunder.
"Environmental Costs and Liabilities" shall mean any and all
claims (including Environmental Claims), actions, suits, proceedings,
liabilities (whether absolute or contingent), obligations, losses
(including liquidated damages or losses arising out of lender liability
claims), damages (including any penalty or punitive damages), judgment,
equitable relief granted, amounts paid in settlement, awards, demands,
offsets, counterclaims, clean-up obligations, interest, costs and expenses
(including the reasonable fees of attorneys, consultants, engineers and
other experts), and court costs (and other out-of-pocket expenses incurred
in investigating, preparing, or defending the foregoing or with respect to
any appeal) arising under or pursuant to any Environmental Law.
"Environmental Law" shall mean current local, county, state,
federal, and/or foreign law (including common law), statute, code,
ordinance, rule, regulation or other legal obligation relating to the
protection of the environment or natural resources, including, without
limitation, the Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. section 9601 et seq.), as amended, the Resource
Conservation and Recovery Act (42 U.S.C. section 6901 et seq.), as amended
("RCRA"), the Federal Water Pollution Control Act (33 U.S.C. section 1251
et seq.), as amended, the Clean Air Act (42 U.S.C. section 7401 et seq.),
as amended, the Toxic Substances Control Act (15 U.S.C. section 2601 et
seq.), as amended, the Occupational Safety and Health Act (29 U.S.C.
section 651 et seq.), as amended, the Hazardous Materials Transportation
Act (49 U.S.C. section 1801 et seq.), as amended, the Oil Pollution Act (33
U.S.C. section 2701 et seq.), the Safe Drinking Water Act (42 U.S.C.
section 300(f) et seq.), as amended, and any similar, implementing or
successor law, and any amendment, rule, regulation, or directive issued
thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or
not incorporated, that together with Parent or any PEPL Company would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA.
"Evaluation Material" shall mean all data, reports,
interpretations, forecasts and records (whether in oral or written form,
electronically stored or otherwise) containing or otherwise reflecting
information concerning the PEPL Companies, Sellers or the Business, that
one party or its Affiliates provides to the other party or its
Representatives and all notes, analyses, compilations, studies or other
documents in tangible form (whether in written form, electronically stored
or otherwise) that contain or otherwise reflect such information; but not
including:
(a) information that was already in the possession of the
Recipient or its Representatives prior to the date hereof and that was
not acquired or obtained from the other party;
(b) information that is obtained by the Recipient or its
Representatives from a source other than the supplying party or its
Representatives who, insofar as is known to the Recipient after
reasonable inquiry, is not prohibited by a contractual, legal or
fiduciary obligation to the supplying party from transmitting the
information to the Recipient or its Representatives; or
(c) information that is or becomes generally available to the
public other than as a result of a disclosure by the Recipient or its
Representatives in violation of the provisions of this Agreement.
"FERC" shall mean the United States Federal Energy Regulatory
Commission, or its predecessor agency, the United States Federal Power
Commission.
"FTC" shall mean the United States Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any foreign, federal, state
or local government, court, agency or commission or other governmental or
regulatory body or authority.
"Hazardous Material" shall mean any substance, material or waste
which is regulated by any Governmental Authority as hazardous, toxic, a
pollutant, contaminant or words of similar meaning including, without
limitation, petroleum, petroleum products, asbestos, urea formaldehyde and
polychlorinated biphenyls.
"Indemnified Party" shall mean any Person which is seeking
indemnification from an Indemnifying Party pursuant to the provisions of
this Agreement.
"Indemnifying Party" shall mean any party hereto from which any
Indemnified Party is seeking indemnification pursuant to the provisions of
this Agreement.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" of Sellers or any similar phrase shall mean the
actual knowledge, after reasonable inquiry, of those management employees
of Sellers and the PEPL Companies with responsibility for the Business
identified in Section 1.1(a) of the Disclosure Schedule.
"Legal Proceedings" shall mean any judicial, administrative or
arbitral actions, suits, proceedings (public or private), investigations or
governmental proceedings before any Governmental Authority.
"Material Adverse Effect" shall mean any change or effect that is
materially adverse to the business, financial condition or assets of the
Business, taken as a whole, as the same shall have existed as of September
30, 1998; provided, however, that Material Adverse Effect shall exclude any
change or effect due to (i) changes in the international, national,
regional or local wholesale or retail markets for natural gas, (ii) changes
in the North American, national, regional or local interstate natural gas
pipeline systems, (iii) rules, regulations or decisions of the FERC
affecting the interstate natural gas transmission industry as a whole, or
rate orders affecting (inter alia) one or more of the PEPL Companies,
(iv) any continuation of an adverse trend disclosed to or otherwise known
to Acquiror on or prior to the date hereof, (v) any condition described in
the Disclosure Schedule and (vi) the public announcement of the
transactions contemplated by this Agreement, or the consummation of the
transactions contemplated hereby.
"Parent" shall mean Duke Energy Corporation, a North Carolina
corporation.
"PEC Pension Plan" shall mean the Retirement Income Plan of
PanEnergy Corp and Participating Affiliates (as amended and restated
effective January 1, 1995).
"PEC Savings Plan" shall mean the Employees' Savings Plan of
PanEnergy Corp and Participating Affiliates.
"PEPL" shall have the meaning set forth in the recitals to this
Agreement.
"PEPL Cleanup Program" shall mean only those components
(assessment, air system decontamination, and remediation), of the program
generally described in Section 1.1(b) of the Disclosure Schedule, yet to be
completed at the 18 sites identified in Schedule 3.17(a). The remediation
component of the PEPL Cleanup Program will include the uncompleted remedial
actions for PCB and TPH (or its constituents of concern) in soils, sediment
and groundwater as specifically identified in the associated assessments
undertaken as part of such Program to the least stringent cleanup levels
applicable to the real property as it is currently used.
"PEPL Companies" shall mean PSC, LNG, PEPL, TGC, Pan Gas Storage
Company and Trunkline Gas Resources, Inc.
"Person" or "person" shall mean and includes any individual,
partnership, joint venture, corporation, Governmental Authority, business
trust, association, joint stock company, trust, unincorporated
organization, limited liability company or similar entity.
"Representatives" shall mean the Affiliates of a party to this
Agreement and the respective directors, officers, employees,
representatives or agents of such party.
"Securities Act" shall mean the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
"Sellers" shall have the meaning set forth in the preamble to
this Agreement.
"Shares" shall have the meaning set forth in the recitals to this
Agreement.
"Sold Subsidiaries" shall have the meaning set forth in the
recitals to this Agreement.
"Statement of Assets and Liabilities" shall mean the pro forma
balance sheet of the PEPL Companies, after giving effect to the
transactions contemplated by Section 2.3 of this Agreement, at
September 30, 1998 as set forth in Section 1.1(c) of the Disclosure
Schedule.
"Straddle Period" shall mean any taxable year or period beginning
before and ending after the Closing Date.
"Subsidiary" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture or other legal entity of which such
Person owns, either directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or similar governing body of
such corporation, partnership, joint venture or other legal entity and (ii)
each partnership in which such Person or another Subsidiary of such Person
is the general partner or otherwise controls such partnership.
"Tax" shall mean any domestic or foreign, federal, state or local
net income, gross income, receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer, stamp or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty thereon, addition to tax or additional amount imposed
by any Governmental Authority.
"Tax Returns" shall mean any return, report or statement required
to be filed with respect to any Tax (including any attachments thereto),
including any information return, claim for refund, amended return or
declaration of estimated Tax.
"TGC" shall mean Trunkline Gas Company, a Delaware corporation.
"TGC Cleanup Program" shall mean only those components
(assessment, air system decontamination, and remediation), of the program
generally described in Section 1.1(d) of the Disclosure Schedule, yet to be
completed at the 6 sites as identified in Schedule 3.17(a). The
remediation component of the TGC Cleanup Program shall only include the
uncompleted remedial actions for PCBs and TPH (or its constituents of
concern) in soils, sediment and groundwater as specifically identified in
the associated assessments undertaken as part of such Program to the least
stringent cleanup levels applicable to the real property as it is currently
used.
"WARN" shall mean the Worker Adjustment and Retraining
Notification Act.
"Wattenberg System" shall mean that pipeline system formerly
owned by PEPL, and located in Adams, Arapahoe, Boulder, Larimer, and Weld
Counties, Colorado, consisting of approximately 1,275 miles of pipe, 11
compressor station sites totaling approximately 45,000 horsepower of
compression, and related facilities and buildings, which was the subject of
an abandonment proceeding in Docket No. CP92-190-000 at the FERC. The
Wattenberg System was sold to KN Wattenberg Transmission Limited Liability
Company and KN Front Range Gathering Company by PEPL on April 1, 1993.
"Working Capital" shall mean current assets, less current
liabilities.
1.2 Terms Defined Elsewhere in the Agreement. For purposes of
this Agreement, the following terms shall have the meanings set forth in
the sections indicated:
Term Section
---- -------
Acquiror Indemnified Parties . . . . . . . . . . . . . . . . . . . 7.3(a)
Acquiror's 401(k) Plan . . . . . . . . . . . . . . . . . . . . . . 5.9(g)
Acquiror's Actuary . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Acquiror's Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Acquisition Transaction . . . . . . . . . . . . . . . . . . . . . . . 5.8
Allocation Schedule . . . . . . . . . . . . . . . . . . . . . . . . 8.6(b)
Asserted Liability . . . . . . . . . . . . . . . . . . . . . . . . 7.4(a)
Casualty Insurance Claims . . . . . . . . . . . . . . . . . . . . 5.13(a)
Claim Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4(a)
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Closing Statement . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(a)
Commitment Letters . . . . . . . . . . . . . . . . . . . . . . . . . 5.15
CPA Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(b)
Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2(b)
Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 3.22
Effective Pension Time . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6(a)
Environmental Permits . . . . . . . . . . . . . . . . . . . . . . 3.17(b)
Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
Excluded Employees . . . . . . . . . . . . . . . . . . . . . . . . 5.9(a)
Excluded Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 2.3(a)
Excluded Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(a)
Final Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(c)
414(l) Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Initial Transfer Amount . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . 5.13(a)
Lake Charles Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 5.16
LNG Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.16
LNG FERC Settlement . . . . . . . . . . . . . . . . . . . . . . 7.3(a)(ix)
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2(a)
Material Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14
Notice Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4(a)
Notified Party . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3(a)
Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(b)
Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(h)
Other Antitrust Regulations . . . . . . . . . . . . . . . . . . . . . 3.4
Parent Severance Plan . . . . . . . . . . . . . . . . . . . . . . 3.11(a)
PEC Review Period . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(b)
PEPL Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(a)
PEPL Employee Arrangements . . . . . . . . . . . . . . . . . . . 3.11(a)
PEPL Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 3.11(a)
PEPL Representatives . . . . . . . . . . . . . . . . . . . . . . . . 5.8
PEPL SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
Plans of Liquidation . . . . . . . . . . . . . . . . . . . . . . . 2.3(a)
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Qualifying Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.16
Recipient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2(b)
Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
Seller Indemnified Parties . . . . . . . . . . . . . . . . . . . . . 7.2
Sellers' Actuary . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Sellers' Investigation . . . . . . . . . . . . . . . . . . . . . 5.14(a)
Superfund Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 5.17
Tax Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3(a)
Tax Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(e)
Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(d)
Transferred Benefits . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Transferred Employees . . . . . . . . . . . . . . . . . . . . . . . 5.9(a)
True-Up Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
True-Up Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(f)
Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14(a)
1.3 Other Definitional Provisions. (a) The words "hereof",
"herein", and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
(d) As used in this Agreement, accounting terms which are
specifically defined under GAAP and are not otherwise defined herein shall
have the respective meanings given to them under GAAP.
(e) A Legal Proceeding shall not be "pending" unless and until
Sellers shall have received actual written notice thereof.
(f) References herein to the receipt of "notice" shall mean
written notice.
1.4 References to Time. All references in this Agreement to
times of the day shall be to Houston, Texas time.
ARTICLE II
PURCHASE AND SALE; REORGANIZATION
OF SOLD SUBSIDIARIES
2.1 Purchase and Sale of the Shares. On the terms and subject
to the conditions set forth herein, at the Closing, each Seller agrees to
sell, transfer and deliver to Acquiror, and Acquiror agrees to purchase
from each respective Seller, the Shares.
2.2 Purchase Price. The purchase price for the Shares shall be
$1,900,000,000 (the "Purchase Price"), as adjusted pursuant to Section 2.7.
2.3 Reorganization of Sold Subsidiaries. At or prior to the
Closing, Sellers shall take or shall cause the PEPL Companies to take the
following actions (collectively, and together with all other actions to be
taken pursuant to Section 5.9 of this Agreement prior to the Closing, the
"Reorganization"):
(a) transfer to PEC (in transactions that will include
liquidating distributions pursuant to plans of liquidation, substantially
in the form set forth in Exhibit A to this Agreement, "Plans of
Liquidation"), all of the shares of capital stock of the Subsidiaries of
PEPL set forth in Section 2.3(a) of the Disclosure Schedule (the "Excluded
Subsidiaries");
(b) transfer to any of the Sellers or any Affiliate of Sellers
that is not a PEPL Company (in transactions that will include liquidating
distributions pursuant to Plans of Liquidation all of the assets set forth
in Section 2.3(b) of the Disclosure Schedule (the "Excluded Assets");
(c) cause all intercompany payables, receivables and loans
between any PEPL Company, on the one hand, and Parent and its Subsidiaries
(other than the PEPL Companies), on the other hand, to be settled or
canceled, other than as set forth in Section 2.3(c) of the Disclosure
Schedule;
(d) transfer to (i) any Subsidiary of Parent that is not a Sold
Subsidiary, all employees who are not primarily employed on matters
relating to the Business and (ii) any PEPL Company, all employees agreed by
the parties pursuant to Section 5.9(a); and
(e) cause Trunkline A.P. Pipeline Company to assign to a newly
incorporated Subsidiary of PEPL (which shall conduct no business prior to
the Closing except as contemplated by this Section 2.3(e)), which shall
assume all obligations and rights of Trunkline A.P. Pipeline Company under
the contracts set forth in Section 2.3(e) of the Disclosure Schedule.
2.4 Closing. Subject to the satisfaction or waiver of all
conditions to the Closing set forth in Article VI, the Closing shall take
place at the offices of Weil, Gotshal & Manges LLP, 700 Louisiana, Suite
1600, Houston, Texas 77002 (or, if Acquiror shall request, at the offices
of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153)
at 10:00 A.M., local time, on January 4, 1999 or, on such other date, time
or place as the parties hereto may agree. If the Closing shall take place
on January 4, 1999, the effective date and time therefor shall be 12:00
A.M. on January 1, 1999, otherwise, the effective date and time shall be
12:00 A.M. on the date on which the Closing shall take place (such
effective date is referred to herein as the "Closing Date").
2.5 Deliveries by Acquiror. At the Closing, Acquiror shall
deliver to Seller the following:
(a) The Purchase Price, in immediately available funds by wire
transfer to each Seller's account set forth in Section 2.5(a) of the
Disclosure Schedule or such other account designated in writing by such
Seller not less than two Business Days prior to the Closing;
(b) the certificates and other documents to be delivered
pursuant to Section 6.3;
(c) a cross-receipt duly executed by the Acquiror acknowledging
receipt of the Shares;
(d) copies of the resolutions adopted by the directors of the
Acquiror, certified by the Secretary of the Acquiror as having been duly
and validly adopted and as being in full force and effect, authorizing the
execution and delivery by the Acquiror of this Agreement, and the
performance by the Acquiror of its obligations hereunder;
(e) the opinion of Acquiror's legal counsel, substantially in
the form of Exhibit B hereto;
(f) duly executed copies of each of the agreements described in
Section 5.11 of this Agreement; and
(g) all other documents and instruments reasonably required to
be delivered by Acquiror pursuant to this Agreement.
2.6 Deliveries by Sellers. At the Closing, the Sellers shall
deliver to Acquiror the following:
(a) a certificate or certificates representing the Shares, duly
and validly endorsed to or registered in the name of Acquiror or
accompanied by separate stock powers duly and validly executed by the
appropriate Seller and otherwise sufficient to vest in the Acquiror good
and marketable title to such Shares;
(b) the certificates and other documents to be delivered
pursuant to Section 6.2;
(c) a cross-receipt duly executed by the Sellers acknowledging
receipt of the Purchase Price;
(d) copies of the Articles of Incorporation and By-laws of each
of the PEPL Companies, certified by the Secretary of such entity as being
true and complete;
(e) copies of the resolutions adopted by the directors of the
Sellers, each certified by the Secretary of such Seller as having been duly
and validly adopted and as being in full force and effect, authorizing the
execution and delivery by such Seller of this Agreement, and the
performance by such Seller of its obligations hereunder;
(f) the stock books, stock ledgers, minute books and, if any,
corporate seals of the PEPL Companies, and all other books and records of
the PEPL Companies, all to the extent within the possession of the Sellers
or any Subsidiary thereof;
(g) certificates evidencing the good standing of each PEPL
Company under the laws of their respective jurisdictions of incorporation;
(h) letters from each director of the PEPL Companies evidencing
such director's resignation;
(i) the opinion of Sellers' legal counsels, substantially in the
forms of Exhibits C-1 and C-2 hereto;
(j) duly executed copies of each of the agreements described in
Section 5.11 of this Agreement; and
(k) such other agreements or documents as are reasonably
required to be delivered by the Sellers at or prior to the Closing Date
pursuant to this Agreement.
2.7 Adjustment to Purchase Price. (a) Within 60 days following
the Closing Date, PEC shall, at its expense, prepare, or cause to be
prepared, and shall deliver to Acquiror a statement (the "Closing
Statement"), which shall set forth in reasonable detail the amount of
Working Capital of the PEPL Companies, after giving effect to the
transactions contemplated by Section 2.3 of this Agreement, as of the
Closing Date. The Closing Statement shall be prepared on a basis
consistent with the Statement of Assets and Liabilities, using the same
accounting methods, policies, practices, procedures and adjustments as were
used in the preparation of the Statement of Assets and Liabilities. The
Closing Statement shall be prepared based on the books and records of the
PEPL Companies as of the Closing Date, and Acquiror shall grant PEC and its
representatives complete access to all books and records of the PEPL
Companies to enable PEC to prepare the Closing Statement. Acquiror shall
permit PEC to use employees of the PEPL Companies to assist in the
preparation of the Closing Statement, and Acquiror agrees to cooperate, and
shall not interfere, directly or indirectly, in the preparation of the
Closing Statement.
(b) Acquiror shall have 30 days to review the Closing Statement
and to inform PEC in writing of any disagreement (the "Objection") which it
may have with the Closing Statement. If PEC does not receive Acquiror's
Objection within such 30-day period, the amount of Working Capital set
forth in the Closing Statement delivered pursuant to Section 2.7(a) shall
be deemed to have been accepted by Acquiror and shall become binding upon
Acquiror. If Acquiror does timely deliver Acquiror's Objection to PEC, PEC
shall then have 30 days from the date of receipt (the "PEC Review Period")
to review and respond to Acquiror's Objection. PEC and Acquiror agree to
attempt in good faith to resolve any disagreements with respect to the
determination of Working Capital as of the Closing Date. If PEC and
Acquiror are unable to resolve all of their disagreements with respect to
the determination of Working Capital as of the Closing Date within 10 days
following the expiration of the PEC Review Period, they may refer, at the
option of either party, their differences to Ernst & Young LLP, or if Ernst
& Young LLP, shall decline to accept such engagement, an internationally
recognized firm of independent public accountants selected jointly by PEC
and Acquiror, who shall determine only with respect to the differences so
submitted, whether and to what extent, if any, the amount of Working
Capital set forth in the Closing Statement requires adjustment. If PEC and
Acquiror are unable to so select the independent public accountants within
five days of Ernst & Young LLP declining to accept such engagement, either
Acquiror or PEC may thereafter request that the American Arbitration
Association make such selection (as applicable, Ernst & Young LLP the firm
selected by PEC and Acquiror or the firm selected by the American
Arbitration Association is referred to as the "CPA Firm"). PEC and
Acquiror shall direct the CPA Firm (i) that it shall not assign a value to
any particular item greater than the greatest value for such item claimed
by PEC or Acquiror or less than the smallest value for such item claimed by
PEC or Acquiror, in each case as presented to the CPA Firm, and (ii) to use
its best efforts to render its determination within 30 days. The CPA
Firm's determination shall be conclusive and binding upon PEC and Acquiror.
The fees and disbursements of the CPA Firm shall be shared equally by PEC
and Acquiror. PEC and Acquiror shall make readily available to the CPA
Firm all relevant books and records relating to the Closing Statement and
all other items reasonably requested by the CPA Firm. Neither Sellers nor
Acquiror has retained the Ernst & Young LLP audit services group during the
past two years, and will not retain Ernst and Young LLP audit services
group prior to the completion of the determination of the Final Amount
pursuant to this Section 2.7.
(c) If the Working Capital of the PEPL Companies, after giving
effect to the transactions contemplated by Section 2.3 of this Agreement,
as of the Closing Date determined in accordance with the procedures set
forth in this Section 2.7 (the "Final Amount") is less than the Base
Working Capital Amount, PEC shall, within 10 days following the
determination of the Final Amount, pay to Acquiror an amount in cash equal
to such difference, and if the Final Amount is greater than the Base
Working Capital Amount, Acquiror shall, within such 10 days, pay to PEC an
amount in cash equal to such difference.
(d) The amount payable by PEC to Acquiror or from Acquiror to
PEC, as the case may be, under this Section 2.7 shall be accompanied by the
payment of interest thereon at the Agreed Rate, computed from the Closing
Date to the date of payment of such amount, and shall be wire transferred
to an account designated by Acquiror or PEC, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, subject to Sections 3.21 and 3.22, hereby jointly and
severally represent and warrant to Acquiror as follows:
3.1 Organization and Qualification. Each Seller and each PEPL
Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own and operate its assets
and properties and to carry on its business as currently conducted. Each
PEPL Company is duly qualified to do business and is in good standing in
each jurisdiction where the ownership or operation of its assets and
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or in good standing, as the
case may be, would not have a Material Adverse Effect. Section 3.1 of the
Disclosure Schedule sets forth the name, jurisdiction of incorporation and
capitalization of each PEPL Company and the jurisdictions in which such
PEPL Company is qualified to do business.
3.2 Capitalization; the PEPL Companies. (a) The authorized
capital stock of (i) PEPL consists of 1,000 shares of Common Stock, without
par value, (ii) PSC consists of 1,000 shares of Common Stock, par value
$1.00 per share and (iii) LNG consists of 2,000 shares of Common Stock,
without par value. The Shares constitute the only shares of capital stock
of the Sold Subsidiaries issued and outstanding. The Shares are duly
authorized, validly issued, fully paid and nonassessable and are owned, of
record and beneficially, by the Seller indicated on Section 3.2(a) of the
Disclosure Schedule, free and clear of all Encumbrances. Upon transfer of
the Shares to Acquiror in accordance with the terms of Article II hereof,
Acquiror will receive valid title to the Shares, free and clear of all
Encumbrances.
(b) As of the Closing Date, the Sold Subsidiaries will not have
any Subsidiary other than the PEPL Companies. All the outstanding shares of
capital stock of each Subsidiary of the Sold Subsidiaries which is a PEPL
Company are owned directly or indirectly by the Sold Subsidiaries, free and
clear of all Encumbrances and all material claims or charges of any kind,
and are validly issued, fully paid and nonassessable. Sellers have
heretofore delivered to Acquiror complete and correct copies of the
certificate of incorporation and by-laws of each of the PEPL Companies, as
presently in effect.
(c) Other than pursuant to this Agreement, there are no
outstanding subscriptions, options, warrants, rights, puts, calls,
commitments, or other contracts, arrangements or understandings issued by
or binding upon any PEPL Company requiring or providing for, and there are
no outstanding debt or equity securities of any PEPL Company which upon the
conversion, exchange or exercise thereof would require or provide for, the
issuance, transfer or sale by any PEPL Company of any new or additional
equity interests in any PEPL Company (or any other securities of any PEPL
Company which, with notice, lapse of time or payment of monies, are or
would be convertible into or exercisable or exchangeable for equity
interests in any PEPL Company). There are no voting trusts or other
agreements or understandings to which either Seller or any PEPL Company is
a party with respect to the voting of the capital stock of any PEPL
Company. There is no indebtedness having general voting rights of any of
the PEPL Companies issued and outstanding. There are no outstanding
contractual obligations of any PEPL Company to repurchase, redeem or
otherwise acquire any common stock of a PEPL Company or any Affiliate of a
PEPL Company, or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any PEPL Company or any other
entity.
3.3 Corporate Authorization. Each Seller has the requisite
corporate power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance by each Seller of this Agreement and the consummation by each
Seller of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of each Seller.
3.4 Consents and Approvals. Except as set forth in Section 3.4
of the Disclosure Schedule, no consent, approval or authorization of, or
registration, declaration or filing with, any Governmental Authority is
required by either Seller or any PEPL Company in connection with the
execution, delivery and performance by either Seller of this Agreement and
the consummation by either Seller of the transactions contemplated by this
Agreement, except (i) for the filing of a premerger notification and report
form by Sellers under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR Act"), (ii) as may be required under any local,
state, federal (other than the HSR Act) or foreign antitrust statute,
antitrust law, antitrust regulation or antitrust rule applicable to
Acquiror, any Seller, or any PEPL Company ("Other Antitrust Regulations"),
(iii) as may be required under any environmental, health, employment or
safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the transactions contemplated by this
Agreement, and (iv) for such other consents, approvals, orders,
authorizations, registrations, declarations and filings, the failure of
which to be obtained or made would not, individually or in the aggregate,
have a Material Adverse Effect.
3.5 Non-Contravention. Except as set forth in Section 3.5 of
the Disclosure Schedule, the execution, delivery and performance by each
Seller of this Agreement, and the consummation of the transactions
contemplated hereby, do not and will not (i) violate any provision of the
Certificate of Incorporation or the By-laws of either Seller or any PEPL
Company, (ii) subject to obtaining the consents and approvals referred to
in Section 3.5 of the Disclosure Schedule, conflict with, or result in the
breach of, or constitute a default under, or result in the termination,
cancellation or acceleration (whether after the filing of notice or the
lapse of time or both) of any right or obligation material to the PEPL
Companies taken as a whole under any agreement (including, without
limitation, any collective bargaining agreement), lease, contract, note,
mortgage, indenture, trust, commitment, understanding, arrangement or
restriction of any kind to which any of the PEPL Companies is a party or
bound or to which the Shares are subject, or (iii) subject to the
exceptions set forth in Section 3.4, violate, or result in a breach of or
constitute a default under any Applicable Law or judgment, order, writ,
injunction or decree of any Governmental Authority to which any Seller, any
PEPL Company, the Shares or any of the property or assets of the PEPL
Companies is subject, other than, in the cases of clauses (ii) and (iii),
any conflict, breach, termination, default, cancellation, acceleration,
loss or violation that, individually or in the aggregate, would not have a
Material Adverse Effect or materially impair or delay the ability of either
Seller to perform its obligations under this Agreement or consummate the
transactions contemplated by this Agreement. The transactions
contemplated by this Agreement will not trigger any right of first refusal
or similar right held by a third party.
3.6 Binding Effect. This Agreement has been duly executed and
delivered by each Seller and, assuming it has been duly executed and
delivered by Acquiror, constitutes a valid and legally binding obligation
of each Seller, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
3.7 SEC Reports. PEPL has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since
January 1, 1995, each of which has complied in all material respects with
all applicable requirements of the Securities Act, and the Securities
Exchange Act of 1934, as amended, each as in effect on the dates such
forms, reports and documents were filed. PEPL has provided to Acquiror
prior to the date hereof (i) its Annual Reports on Form 10-K for each of
the fiscal years ended December 31, 1995, 1996 and 1997 and (ii) all other
reports or registration statements filed by PEPL with the SEC since
January 1, 1995 (the "PEPL SEC Reports"). None of such forms, reports or
documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements contained in the PEPL SEC Reports were prepared in
accordance with GAAP as in effect as of the dates of such filings, applied
on a consistent basis during the periods involved (except as may be stated
in the notes thereto) and fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of
PEPL and its Subsidiaries, as of the dates and for the periods referred to
therein.
3.8 Statement of Assets and Liabilities; Books and Records; LNG
Liabilities. (a) Subject to the matters set forth in Section 1.1(c) of the
Disclosure Schedule, the Statement of Assets and Liabilities (i) fairly
presents, in all material respects, the pro forma financial condition of
the Business as of the date thereof and (ii) was prepared in accordance
with GAAP and is consistent with the regular books and records of the PEPL
Companies in all material respects.
(b) To the Knowledge of Sellers, the books of account, minute
books and stock record books of each of the PEPL Companies are complete and
correct in all material respects and have been maintained in accordance
with sound business practices, including the maintenance of an adequate
system of internal controls.
(c) Except as reflected in the Statement of Assets and
Liabilities, there are no material undisclosed liabilities of LNG as of
such date; it being understood that nothing in this representation is
intended to address any Environmental Costs and Liabilities or other
matters which are the subject of any representation or warranty set forth
in Section 3.17.
3.9 Litigation. Except as set forth in Section 3.9 of the
Disclosure Schedule or as disclosed in the PEPL SEC Reports, as of the date
hereof, there are no Legal Proceedings pending or, to the Knowledge of
Sellers, threatened against or involving any Seller or any PEPL Company
that, individually or in the aggregate, are reasonably likely to (i) have a
Material Adverse Effect or (ii) materially impair or delay the ability of
either Seller to perform its obligations under this Agreement or consummate
the transactions contemplated by this Agreement. Except as set forth in
Section 3.9 of the Disclosure Schedule or as disclosed in the PEPL SEC
Reports, as of the date hereof, there is no order, judgment, injunction or
decree of any Governmental Authority outstanding against any Seller or any
of the PEPL Companies that, individually or in the aggregate, would have
any effect referred to in the foregoing clauses (i) and (ii).
3.10 Taxes. Except as set forth in Section 3.10 of the
Disclosure Schedule:
(a) each PEPL Company has (i) timely filed (or there has been
timely filed on its behalf) with the appropriate Governmental Authorities
all Tax Returns required to be filed, and all such Tax Returns are true,
correct and complete in all material respects and (ii) paid all Taxes shown
due on such Tax Returns;
(b) all deficiencies asserted or assessments made as a result of
any examinations by the IRS or any other taxing authority of the Tax
Returns of, or covering or including, any PEPL Company have been fully paid
or reserved for in accordance with GAAP in the appropriate financial
statements, and there are no other actions, suits, investigations, audits
or claims by any taxing authority in progress, nor has any PEPL Company
received any written notice from any taxing authority that it intends to
conduct such an audit or investigation;
(c) all Taxes that any PEPL Company is required by law to
withhold or to collect for payment have been duly withheld and collected,
and have been paid over to the appropriate Governmental Authorities or
accrued, reserved against and entered on the books of the PEPL Companies in
accordance with GAAP;
(d) no property owned by any PEPL Company (i) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform
Act of 1986, (ii) constitutes "tax-exempt use property" within the meaning
of Section 168(h)(1) of the Code or (iii) is "tax-exempt bond financed
property" within the meaning of Section 168(g) of the Code;
(e) neither Seller is a foreign person within the meaning of
Section 1445 of the Code;
(f) Sellers and each PEPL Company are members of a "selling
consolidated group" as such term is defined in Treasury Regulation Section
1.338(h)(10)-1(c);
(g) there are no outstanding requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessments of any Taxes or deficiencies against any PEPL Company;
(h) no power of attorney has been granted by or with respect to
any PEPL Company with respect to any matter relating to Taxes; and
(i) no PEPL Company is a party to, is bound by or has any
obligations under any Tax sharing agreement, Tax indemnification agreement
or similar contract or arrangement.
3.11 Employee Benefits. (a) Section 3.11(a) of the Disclosure
Schedule sets forth a complete and correct list of all material Employee
Benefit Plans and all material Employee Arrangements, including, but not
limited to, the severance plan applicable to the PEPL Employees (the
"Parent Severance Plan") and the Employee Benefit Plans and Employee
Arrangements solely applicable to the PEPL Employees (the "PEPL Employee
Benefit Plans" and "PEPL Employee Arrangements", respectively). No PEPL
Employee Benefit Plan is subject to Title IV of ERISA.
(b) With respect to each material Employee Benefit Plan and each
material Employee Arrangement referred to above, a complete and correct
copy of each of the following documents (if applicable) has been provided
or made available to Acquiror: (i) the most recent plan document or
agreement and all amendments thereto and (ii) the most recent summary plan
description and all related summaries of material modifications. With
respect to each material PEPL Employee Benefit Plan, a complete and correct
copy of each of the following documents (if applicable) has been made
available to Acquiror: (i) the annual report on Form 5500 and attached
schedules filed with the IRS in the last three years, (ii) the most recent
actuarial report and (iii) the most recent determination letter received
from the IRS.
(c) Except as set forth in Section 3.11(c) of the Disclosure
Schedule, none of the PEPL Employee Benefit Plans is subject to Section
4063, 4064 or 4202 of ERISA.
(d) The PEPL Employee Benefit Plans and their related trusts
intended to qualify under Sections 401 and 501(a) of the Code,
respectively, have been determined by the IRS to qualify under such
Sections, as amended by the Tax Reform Act of 1986.
(e) the PEC Pension Plan was fully funded on a Pension Benefit
Guaranty Corporation termination basis for all accrued benefit obligations
as of the most recent valuation date, and there has been no material
adverse change in the funding status of such plan to date.
(f) All contributions required to have been made by the PEPL
Companies or Sellers under any PEPL Employee Benefit Plan or any Applicable
Law to any trusts established thereunder or in connection therewith have
been made by the due date therefor (including any valid extensions).
(g) Except as set forth in Section 3.11(g) of the Disclosure
Schedule, the PEPL Employee Benefit Plans and PEPL Employee Arrangements
have been maintained in accordance with their terms and Applicable Laws,
except where any failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect.
(h) Except as set forth in Section 3.11(h) of the Disclosure
Schedule, no Employee Benefit Plan or Employee Arrangement provides
medical, surgical, hospitalization, death or similar benefits (whether or
not insured) for employees or former employees of any PEPL Company for
periods extending beyond their retirement or other termination of service,
other than (i) coverage mandated by Applicable Laws, (ii) death benefits
under any "pension plan," or (iii) benefits the full cost of which is borne
by such current or former employee (or his or her beneficiary).
(i) Except as set forth in Section 3.11(i) of the Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event,
(i) entitle any PEPL Employee to severance pay, unemployment compensation
or any other payment, except as expressly provided in this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee.
(j) Except as set forth in Section 3.11(j) of the Disclosure
Schedule, there are no claims pending, or to the Knowledge of Sellers,
threatened in writing (i) by or on behalf of any Employee Benefit Plan or
Employee Arrangement which could affect the PEPL Employees, (ii) by any
PEPL Employee covered under any such plan or arrangement, or (iii)
otherwise involving any PEPL Employee Benefit Plan or PEPL Employee
Arrangement (in each case, other than routine claims for benefits).
3.12 Compliance with Laws. Except as set forth in Section 3.12
of the Disclosure Schedule, (i) each of the PEPL Companies is in compliance
with all Applicable Laws, (ii) the PEPL Companies have all permits,
licenses, certificates of authority, orders and approvals of, and have made
all filings, applications and registrations with, Governmental Authorities
that are required in order for the PEPL Companies to conduct the Business
as presently conducted, and such permits and licenses are in full force and
effect, and (iii) none of Sellers nor any of the PEPL Companies have
received any notice, and no claim or action has been filed, commenced, or
to the Knowledge of Sellers, threatened against a PEPL Company alleging any
violation of the matters set forth in clauses (i) and (ii) in each case
with such exceptions to clauses (i), (ii) and (iii) as would not,
individually or in the aggregate, have a Material Adverse Effect; it being
understood that nothing in this representation is intended to address any
matters which are the subject of the representation and warranty set forth
in Section 3.17.
3.13 Intellectual Property. Except as set forth in Section 3.13
of the Disclosure Schedule, the PEPL Companies will, on the Closing Date,
by operation of the Intellectual Property Agreement attached hereto as
Exhibit F, own or possess licenses or other legally enforceable rights to
use all patents, copyrights, trademarks, service marks, trade names, logos,
intellectual property, software object and source code provided for in such
Intellectual Property Agreement as are necessary to conduct the Business as
currently conducted, except those the lack of which would not, individually
or in the aggregate, have a Material Adverse Effect; and none of Sellers or
any of the PEPL Companies has any Knowledge of any conflict by Sellers or
any of the PEPL Companies with the rights of others therein which,
individually or in the aggregate, would have a Material Adverse Effect.
3.14 Contracts. Section 3.14(a) of the Disclosure Schedule sets
forth a list, as of the date hereof, of each material written contract and
lease and each material oral contract or lease to which any of the PEPL
Companies is a party, other than (i) any purchase or sale orders arising in
the ordinary course of business, (ii) any contract involving the payment or
receipt of less than $1,000,000 in the aggregate and (iii) any contract
listed in any other Section of the Disclosure Schedule (each contract set
forth in Section 3.14(a) of the Disclosure Schedule being referred to
herein as a "Material Contract"). Section 3.14(b) of the Disclosure
Schedule sets forth a list, as of the date hereof, of each material
contract that any PEPL Company has with an Affiliate. Except as set forth
in Section 3.14(a) of the Disclosure Schedule, each Material Contract is a
valid and binding agreement of the PEPL Company which is a party thereto
and, to the Knowledge of Sellers, is in full force and effect. Except as
set forth in Section 3.14(a) of the Disclosure Schedule, Sellers have no
Knowledge of any default under any contract, which default has not been
cured or waived and which default would have a Material Adverse Effect.
3.15 Brokers. Except for Merrill Lynch & Co., whose fees will
be paid by Sellers or Parent, there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Sellers or the PEPL Companies who is entitled to any fee or
commission from Sellers or the PEPL Companies in connection with the
transactions contemplated by this Agreement.
3.16 Title to Properties. Each of the PEPL Companies has good
and valid title to all of the material tangible assets and properties which
it owns and which are reflected on the Statement of Assets and Liabilities
(except for assets and properties sold, consumed or otherwise disposed of
in the ordinary course of business since the date of the Statement of
Assets and Liabilities), and such tangible assets and properties are owned
free and clear of all Encumbrances, except for (a) Encumbrances listed in
Section 3.16 of the Disclosure Schedule, (b) liens for current Taxes not
yet due and payable or for Taxes the validity of which is being contested
in good faith, (c) Encumbrances to secure indebtedness reflected on the
Statement of Assets and Liabilities or indebtedness incurred in the
ordinary course of business consistent with past practice after the date
thereof, (d) mechanic's liens, materialmen's liens and other Encumbrances
which have arisen in the ordinary course of business, (e) Encumbrances
which will be discharged on or prior to the Closing Date, and
(f) Encumbrances which, in the aggregate, would not have a Material Adverse
Effect.
3.17 Environmental Matters. (a) Section 3.17(a) of the
Disclosure Schedule sets forth all locations included in the PEPL Cleanup
Program and the TGC Cleanup Program.
(b) Except as set forth in Section 3.17(b) of the Disclosure
Schedule or as disclosed in the PEPL SEC Reports, to the Knowledge of
Sellers:
(i) the PEPL Companies presently are in material compliance
with all applicable Environmental Laws, and during the past five years
have been in material compliance with Environmental Laws, except for
historical non-compliance that could not reasonably be expected to
result in the PEPL Companies incurring material Environmental Costs
and Liabilities;
(ii) none of the PEPL Companies has received any written
request for information, or has been notified that it is a potentially
responsible party, under CERCLA or any similar state law with respect
to any on-site or off-site location for which liability is currently
being asserted;
(iii) there are no material writs, injunctions, decrees,
orders or judgments outstanding, or any actions, suits, proceedings or
investigations pending or threatened, involving any PEPL Company
relating to (A) compliance by the PEPL Companies with any
Environmental Law, or (B) the release, disposal, discharge, spill,
treatment, storage or recycling of Hazardous Materials into the
environment at any location which could reasonably be expected to
result in any of the PEPL Companies incurring any material liability
under Environmental Laws;
(iv) each of the PEPL Companies has obtained, currently
maintains and is in material compliance with all material permits,
licenses and other authorizations which are required under
Environmental Laws for the operation of their respective businesses
(collectively, "Environmental Permits"), all such Environmental
Permits are in effect and no appeal nor any other action is pending to
revoke any such Environmental Permit; and
(v) no cleanup, investigation or remedial action has
occurred at the properties that are currently owned, leased, operated
or otherwise used by the PEPL Companies that could result in the
assertion or creation of a lien on such property by any Governmental
Authority with respect thereto and for which the PEPL Companies would
be responsible, nor has any such assertion of a lien been made by any
Governmental Authority with respect thereto which has not been
removed.
(c) To the Knowledge of Sellers, except as set forth in Section
3.17(b) of the Disclosure Schedule and except for Environmental Costs and
Liabilities related to the PEPL Cleanup Program and the TGC Cleanup Program
and the Wattenburg System, there is no non-compliance with Environmental
Laws prior to the Closing which could reasonably be expected to result in
any of the PEPL Companies incurring any material liability under
Environmental Law.
(d) There are no other sites in the PEPL Cleanup Program or the
TGC Cleanup Program other than the locations identified in Section 3.17(a)
of the Disclosure Schedule.
(e) Except as set forth in Section 3.17(b) of the Disclosure
Schedule, to the Knowledge of Sellers, there are no material Environmental
Costs and Liabilities which may arise based on activities prior to the
Closing Date at the properties that are currently, or previously were,
owned, leased, operated or otherwise used by LNG.
3.18 Labor Relations. (a) Except as set forth in Section
3.18(a) of the Disclosure Schedule, (i) none of the PEPL Companies is a
party to any labor or collective bargaining agreements, and there are no
labor or collective bargaining agreements which pertain to the PEPL
Employees, (ii) within the preceding three years, there have been no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the Knowledge of Sellers,
threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority with
respect to the PEPL Companies and (iii) within the preceding three years,
to the Knowledge of Sellers, there have been no organizing activities
involving the PEPL Companies with respect to any group of employees of the
PEPL Companies.
(b) Except as set forth in Section 3.18(b) of the Disclosure
Schedule, (i) there are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor
disputes pending or, to the Knowledge of Sellers, threatened in writing
against or involving the PEPL Companies and (ii) there are no unfair labor
practice charges, grievances or complaints pending or, to the Knowledge of
Sellers, threatened in writing by or on behalf of any employee or group of
employees of the PEPL Companies which, if individually or collectively
resolved against the PEPL Companies, would have a Material Adverse Effect.
(c) Except as set forth in Section 3.18(c) of the Disclosure
Statement, (i) there has been no "mass layoff" or "plant closing" as
defined by WARN with respect to the PEPL Companies within the six (6)
months prior to the date hereof, and (ii) there has been no "employment
loss" as defined by WARN with respect to the PEPL Employees within the
ninety (90) days prior to the date hereof.
3.19 Year 2000 Compliance. Sellers have informed Acquiror of
their analysis of, the status of development of contingency plans for, and
forecasted expenditures with respect to year 2000 compliance of material
computer software and computer firmware of the PEPL Companies, as such
analysis, contingency plan development and forecast of expenditures exist
on the date hereof. Sellers have developed and implemented such analysis,
have worked on the development of contingency plans and forecasted
expenditures for the PEPL Companies using the same general methodology as
was applicable to the other Subsidiaries of Parent engaged in the
interstate pipeline business.
3.20 Absence of Certain Changes. Since September 30, 1998 and
until the date hereof, the PEPL Companies have conducted their respective
businesses in the ordinary course of business, consistent with past
practice, and none of the PEPL Companies has, during such period, taken any
of the actions described in Sections 5.1 (i) through (xvi), except in
connection with entering into this Agreement.
3.21 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither
Seller nor any other Person makes any other express or implied
representation or warranty on behalf of Sellers.
3.22 Disclosure Schedule. On or prior to the date hereof,
Sellers have delivered to Acquiror a schedule (the "Disclosure Schedule")
setting forth, among other things, items of disclosure relating to any or
all of the representations and warranties of Sellers; provided, that (i) no
such item is required to be set forth in the Disclosure Schedule as an
exception to a representation or warranty if its absence would not result
in the related representation or warranty being deemed untrue or incorrect
and (ii) the mere inclusion of an item in the Disclosure Schedule shall not
be deemed an admission by Sellers that such item represents a material
exception or fact, event or circumstance or that such item would result in
a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Sellers as follows:
4.1 Organization and Qualification. Acquiror is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own and operate its assets and properties and to carry on its
business as currently conducted. Acquiror is duly qualified to do business
and is in good standing in each jurisdiction where the ownership or
operation of its assets and properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
in good standing, as the case may be, would not materially impair or delay
the ability of Acquiror to perform its obligations under this Agreement or
consummate the transactions contemplated by this Agreement.
4.2 Corporate Authorization. Acquiror has the requisite
corporate power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance by Acquiror of this Agreement and the consummation by Acquiror
of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate and stockholder action on the part of
Acquiror.
4.3 Consents and Approvals. No consent, approval or
authorization of, or registration, declaration or filing with, any
Governmental Authority is required by Acquiror in connection with the
execution, delivery and performance by Acquiror of this Agreement and the
consummation by Acquiror of the transactions contemplated by this
Agreement, except (i) for the filing of a premerger notification and report
form by Acquiror under the HSR Act, (ii) as may be required under any Other
Antitrust Regulations, (iii) as may be required under any environmental,
health, employment or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the transactions
contemplated by this Agreement, and (iv) for such other consents,
approvals, orders, authorizations, registrations, declarations and filings,
the failure of which to be obtained or made would not, individually or in
the aggregate, materially impair or delay the ability of Acquiror to
perform its obligations under this Agreement or consummate the transactions
contemplated by this Agreement. On or prior to the date hereof, Acquiror
has delivered to Sellers a true and complete copy of the opinion letter of
Rodger A. Kershner, Senior Vice President and General Counsel, which states
that in the opinion of Rodger A. Kershner, there are no consents,
approvals, filings or notices which must be made or obtained with or from
regulatory authorities of the State of Michigan in connection with the
execution, delivery and performance by Acquiror of this Agreement and the
consummation by Acquiror of the transactions contemplated by this
Agreement.
4.4 Non-Contravention. Except as set forth in Section 4.4 of
the Disclosure Schedule, the execution, delivery and performance by
Acquiror of this Agreement, and the consummation by Acquiror of the
transactions contemplated hereby, do not and will not (i) violate any
provision of the Certificate of Incorporation or the By-laws of Acquiror;
(ii) conflict with, or result in the breach of, or constitute a default
under, or result in the termination, cancellation or acceleration (whether
after the filing of notice or the lapse of time or both) of any material
right or obligation of Acquiror or any of its Subsidiaries under, any
material agreement, lease, contract, note, mortgage, indenture or other
obligation of Acquiror or its Subsidiaries; or (iii) subject to the
exceptions set forth in the first sentence of Section 4.3, violate, or
result in a breach of or constitute a default under any Applicable Law or
judgment, decree or order of any Governmental Authority to which Acquiror
or any of its Subsidiaries is subject, other than, in the case of clauses
(ii) and (iii), any conflict, breach, termination, default, cancellation,
acceleration, loss or violation which, individually or in the aggregate,
would not materially impair or delay the ability of Acquiror to perform its
obligations under this Agreement or consummate the transactions
contemplated by this Agreement.
4.5 Binding Effect. This Agreement constitutes a valid and
legally binding obligation of Acquiror enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
4.6 Brokers. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, whose fees will be paid by Acquiror, there is no investment
banker, broker, finder or other intermediary which has been retained by or
is authorized to act on behalf of Acquiror or any Subsidiary of Acquiror
who is entitled to any fee or commission from Acquiror in connection with
the transactions contemplated by this Agreement.
4.7 Financing. On or prior to the date hereof, Acquiror has
delivered to Sellers (i) a true and complete copy of a commitment letter
from Bank of America NT&SA, Barclays Bank PLC and Union Bank of California,
N.A. to provide to Acquiror a $600,000,000 six-month bridge revolving
credit facility to be used solely to make debt or equity investments in
power or energy projects, (ii) a letter dated October 28, 1998 pursuant to
which NationsBanc Montgomery Securities confirmed it was highly confident
of its ability to arrange for Acquiror up to a $950 million of debt
financing to finance a portion of the Purchase Price, (iii) a letter dated
October 28, 1998 pursuant to which NationsBanc Montgomery Securities
confirmed it was highly confident of its ability to arrange for the PEPL
Companies as Acquiror's subsidiaries up to $1 billion of debt financing to
finance a portion of the Purchase Price, and (iv) a letter dated October
29, 1998 pursuant to which the Chase Manhattan Bank confirmed that it was
highly interested in the possible arrangement of $1 billion of senior
credit facilities to finance a portion of the Purchase Price.
4.8 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, neither
Acquiror nor any other Person makes any other express or implied
representation or warranty on behalf of Acquiror.
ARTICLE V
COVENANTS
5.1 Conduct of the Business. Except as otherwise contemplated
by this Agreement or as set forth in Section 5.1 of the Disclosure Schedule
or in any other Section of the Disclosure Schedule, during the period from
the date hereof to the Closing, Sellers shall, and shall cause the PEPL
Companies to, taking into account any matters that may arise that are
attributable to the pendency of the transactions contemplated by this
Agreement, (a) conduct the Business only in the ordinary course, consistent
with past practice and (b) use their respective reasonable best efforts to
preserve the business organization of the PEPL Companies intact, keep
available the services of the current officers and employees of the PEPL
Companies and maintain the existing relations with franchisees, customers,
suppliers, creditors and business partners having business dealings with
the PEPL Companies. In addition, from and after the date hereof to the
Closing Date, except as otherwise contemplated by this Agreement or as set
forth in Section 5.1 of the Disclosure Schedule, Sellers shall not permit
any PEPL Company to, without the prior written consent of Acquiror (which
consent shall not be unreasonably withheld or delayed):
(i) amend its Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents or merge with or into
or consolidate with any other person;
(ii) issue, sell, pledge, dispose of or encumber, or authorize
or propose the issuance, sale, pledge, disposition or encumbrance of,
any shares of, or securities convertible or exchangeable for, or
options, puts, warrants, calls, commitments or rights of any kind to
acquire, any of its capital stock or subdivide or in any way
reclassify any shares of its capital stock or change or agree to
change in any manner the rights of its outstanding capital stock;
(iii) except as may be required by agreements or arrangements
identified in the Disclosure Schedule, grant any severance or
termination pay to, or enter into, extend or amend any employment,
consulting, severance or other compensation agreement with, or
otherwise increase the compensation or benefits provided to any of its
directors, officers or other employees whose annual base salary is in
excess of $100,000;
(iv) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any properties or assets
material to the Business having a fair market value in excess of $1
million individually or $10 million in the aggregate, other than
(A) sales made in the ordinary course of business consistent with past
practice or (B) sales of obsolete or other assets not presently
utilized in the Business;
(v) implement any change in its accounting principles,
practices or methods, other than as may be required by GAAP or any
Governmental Authority and other than as may be necessary or advisable
in connection with the transactions contemplated hereby;
(vi) make, change or revoke any Tax election or make any
agreement or settlement regarding Taxes of any PEPL Company with any
Tax authority, if such action would affect Acquiror or any of its
Affiliates (including any PEPL Company) for taxable periods commencing
after the Closing Date;
(vii) (a) declare, set aside or pay any dividend or other
distribution payable other than in Cash Equivalents, with respect to
any shares of any class or series of capital stock of the PEPL
Companies; (b) split, combine or reclassify any shares of any class or
series of capital stock of the PEPL Companies; or (c) redeem, purchase
or otherwise acquire directly or indirectly any shares of any class or
series of capital stock of the PEPL Companies, or any instrument or
security which consists of or includes a right to acquire such shares;
(viii) organize any new Subsidiary or acquire any capital
stock of, or equity or ownership interest in, any other Person;
(ix) modify, amend or terminate any Material Contract or
waive, release or assign any material rights or claims under a
Material Contract, except in the ordinary course of business and
consistent with past practice;
(x) (A) incur or assume any long-term debt, or except in the
ordinary course of business consistent with past practice, incur or
assume short-term indebtedness (other than intercompany indebtedness)
exceeding $5 million in the aggregate from the date hereof until the
Closing; (B) modify the terms of any indebtedness or other liability,
other than modifications of short-term debt in the ordinary and usual
course of business and consistent with past practice; (C) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of
any other Person, except as described in Section 5.1(a)(x) of the
Disclosure Schedule; (D) enter into any material commitment or
transaction (including, but not limited to, any material capital
expenditure or purchase, sale or lease of material assets or real
estate); or (E) dispose of or permit to lapse any rights to any
material intellectual property used or useful in the Business;
(xi) permit any insurance policy naming it as a beneficiary or
a loss payable payee to be canceled or terminated, except policies
providing coverage for losses not in excess of $1 million;
(xii) enter into any contract or transaction relating to the
purchase of assets material to the PEPL Companies, taken as a whole,
other than in the ordinary course of business consistent with past
practices;
(xiii) pay, repurchase, discharge or satisfy any of its claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with
past practice;
(xiv) except as set forth in Section 2.3, adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of any PEPL
Company;
(xv) take any action that would or is reasonably likely to
materially impair the ability of the Sellers to consummate the Closing
in accordance with the terms hereof or materially delay such
consummation; and
(xvi) authorize any of, or commit or agree to take any of, the
actions referred to in paragraphs (i) through (xv) above.
5.2 Access; Confidentiality. (a) Prior to the Closing, Sellers
shall, and shall cause the PEPL Companies to, permit Acquiror and its
financing sources to have reasonable access, during normal business hours
and upon reasonable advance notice, to the properties, books, records,
accountants (subject to their availability) and executive-level personnel
of Sellers and the PEPL Companies relating to the Business, and shall
furnish, or cause to be furnished, to Acquiror, all other information
concerning the Business or the PEPL Companies that is available as Acquiror
may reasonably request. The foregoing shall entitle Acquiror to conduct
Phase I environmental assessments at the properties of the PEPL Companies
consistent with ASTM Standard E1527-97 prior to November 16, 1998.
Acquiror shall coordinate the schedule of such assessments with Sellers.
In connection with any access contemplated by this Section 5.2(a),
Acquiror's representatives shall cooperate with Sellers' and PEPL's
representatives and shall use their reasonable best efforts to minimize any
disruption of the Business.
(b) Except as hereinafter provided, without the prior written
consent of Acquiror or Sellers, as appropriate, who delivered such
information, Evaluation Material will be held in confidence and not
disclosed by the receiving party (the "Recipient") or its Representatives
or used by the Recipient or its Representatives other than directly or
indirectly in connection with consideration of this Agreement or in
connection with the performance of the agreements contemplated by Section
5.11 of this Agreement. Except as otherwise expressly provided in this
Agreement, the Recipient further agrees to disclose Evaluation Material
only to its Representatives who need to know the Evaluation Material to
evaluate the transactions contemplated by this Agreement, or to accomplish
the purpose of the agreements contemplated pursuant to Section 5.11 of this
Agreement, and who are informed of its confidential nature and agree to be
bound by the terms of this Section. The Recipient agrees to be fully
responsible for any breach of this provision by any of its Representatives.
In addition, Acquiror will not provide Evaluation Material to any employee
of Acquiror engaged in procurement, contracting of or management of
pipeline services or pipeline-related regulatory activities.
(c) In addition, Acquiror and Sellers each agree that it will
not for a period of 24 months from the date of the signing of this
Agreement, except as contemplated by Section 5.9(a), employ or attempt to
employ or divert an employee of the other party or any of its affiliates,
provided, however, that neither Acquiror nor Sellers shall be prohibited
from (a) employing any such employee who contacts Acquiror or Seller, as
applicable, on his or her own initiative and without any direct or indirect
solicitation by Acquiror or Seller, as applicable, and (b) conducting
generalized solicitations for employees (which solicitations are not
specifically targeted at employees of the other party) through the use of
media advertisements, professional search firms or otherwise.
5.3 Reasonable Best Efforts. (a) Upon the terms and subject to
the conditions set forth in this Agreement, Sellers and Acquiror shall use
their respective reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with
the other in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including (i) the obtaining of
all necessary actions or nonactions, waivers, consents and approvals from
Governmental Authorities and the making of all necessary registrations and
filings with, and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Authority, (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the obtaining of transfers,
modifications or amendments to permits required as a result of the
execution of this Agreement or the consummation of the transactions
contemplated hereby, (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement
or the consummation of any of the transactions contemplated by this
Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Authority vacated or
reversed and (v) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully
carry out the purposes of, this Agreement; provided, however, that,
notwithstanding the foregoing, the actions of Sellers and Acquiror with
respect to filings, approvals and other matters pursuant to the HSR Act and
Other Antitrust Regulations shall be governed by Section 5.4.
(b) Prior to the Closing, each party shall promptly consult with
the other parties hereto with respect to, provide any necessary information
with respect to, and provide the other parties (or their respective
counsel) with copies of, all filings made by such party with any
Governmental Authority or any other information supplied by such party to a
Governmental Authority in connection with this Agreement and the
transactions contemplated hereby. Each party hereto shall promptly inform
the others of any communication received by such party from any
Governmental Authority regarding any of the transactions contemplated
hereby. If any party hereto or Affiliate receives a request for additional
information or documentary material from any Governmental Authority with
respect to any of the transactions contemplated hereby, then such party
shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request.
5.4 Antitrust Notification. (a) Sellers and Acquiror shall
file on November 9, 1998 with (i) the FTC and the DOJ, the notification and
report form required for the transactions contemplated hereby and any
supplemental information requested in connection therewith pursuant to the
HSR Act and (ii) any other applicable Governmental Authority all filings,
reports, information and documentation required for the consummation of the
transactions contemplated hereby pursuant to Other Antitrust Regulations.
Each of Sellers and Acquiror shall furnish to each other's counsel such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission that is
necessary under the HSR Act and Other Antitrust Regulations.
(b) Each of Sellers and Acquiror shall use its best efforts to
obtain any clearance required under the HSR Act and Other Antitrust
Regulations for the consummation of the transactions contemplated by this
Agreement and shall keep each other apprised of the status of any
communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ and other Governmental Authorities
and shall comply promptly with any such inquiry or request.
(c) Each of Sellers and Acquiror shall use its best efforts to
take any action reasonably necessary to vigorously defend, lift, mitigate
and rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions contemplated hereby,
including, without limitation, promptly appealing any adverse court or
administrative order or injunction.
(d) Notwithstanding anything to the contrary in this Section
5.4, Acquiror shall not be required to consent to any material limitations
on its ownership or operation (or that of any of its Affiliates) of all or
a material portion of Acquiror's business or assets or the businesses or
assets of the PEPL Companies, taken as a whole, or compel the Acquiror, its
Affiliates or the PEPL Companies to dispose of or hold separate any
material portion of the business or assets of the Acquiror or the PEPL
Companies taken as a whole. For the purposes of this Section 5.4(d), the
determination of materiality shall be made by the Board of Directors of
Acquiror in its reasonable judgment.
5.5 Supplemental Disclosure. Sellers shall confer on a regular
and frequent basis with Acquiror, report on operational matters and
promptly notify Acquiror of, and furnish Acquiror with, any information it
may reasonably request with respect to, any event or condition or the
existence of any fact that would cause any of the conditions to Acquiror's
obligation to consummate the transactions contemplated by this Agreement
not to be completed, and Acquiror shall promptly notify Sellers of, and
furnish Sellers with any information it may reasonably request with respect
to, any event or condition or the existence of any fact that would cause
any of the conditions to Sellers' obligation to consummate the transactions
contemplated by this Agreement not to be completed. Sellers shall give
notice to the Acquiror promptly after becoming aware of (i) the occurrence
or non-occurrence of any event whose occurrence or non-occurrence would be
likely to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the
date hereof to the Closing Date or (ii) any failure of the Sellers, or any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder that would create a Material Adverse Effect.
5.6 Further Assurances. At any time after the Closing Date,
Sellers, on the one hand, and Acquiror, on the other hand, shall promptly
execute, acknowledge and deliver any other assurances or documents
reasonably requested by Acquiror or Sellers, as the case may be, and
necessary for it to satisfy its respective obligations hereunder or obtain
the benefits contemplated hereby.
5.7 Announcements. Prior to the Closing, neither Sellers nor
Acquiror will issue any press release or otherwise make any public
statement with respect to this Agreement and any of the transactions
contemplated hereby without the prior consent of the other (which consent
shall not be unreasonably withheld), except as expressly permitted by and
in accordance with the terms of the Confidentiality Agreement. The parties
agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
5.8 No Solicitation. Sellers will not, and will not cause or
permit the PEPL Companies or any of their or the PEPL Companies' directors,
officers, employees, representatives or agents (collectively, the "PEPL
Representatives") to, directly or indirectly, (i) negotiate, undertake,
authorize, recommend, propose or enter into, either as the proposed
surviving, merged, acquiring or acquired corporation, any transaction
involving a merger, consolidation, business combination, purchase or
disposition of any material amount of the assets or capital stock or other
equity interest in the PEPL Companies other than the transactions
contemplated by this Agreement (an "Acquisition Transaction"),
(ii) facilitate, encourage, solicit or initiate discussions, negotiations
or submissions of proposals or offers in respect of an Acquisition
Transaction, (iii) furnish or cause to be furnished, to any Person, any
information concerning the business, operations, properties or assets of
the PEPL Companies in connection with an Acquisition Transaction, or
(iv) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or
seek any of the foregoing. Sellers will inform in writing immediately
following the receipt by any Seller, any PEPL Company or any PEPL
Representative of any written proposal in respect of any Acquisition
Transaction.
5.9 Employee Matters. (a) Prior to December 1, 1998, Sellers
and Acquiror shall agree on those employees currently employed by Parent or
its Affiliates (other than the PEPL Companies) who are primarily employed
on matters relating to the Business and who will become employees of the
PEPL Companies (the "Transferred Employees"). All Transferred Employees
and employees of the PEPL Companies employed on the Closing Date, including
employees not actively at work by reason of layoff, sick leave, absence,
vacation, short term disability or other approved leave of absence are
hereinafter referred to as the "PEPL Employees." The term "PEPL Employees"
shall not include employees who as of the Closing Date are "disabled"
(within the meaning of the long term disability plans applicable to the
PEPL Companies), former employees and retired employees of the PEPL
Companies, and employees transferred from the PEPL Companies pursuant to
Section 2.3(d) hereof (collectively, the "Excluded Employees"). Acquiror
agrees that all PEPL Employees will remain employees of a PEPL Company
immediately following the Closing at not less than the compensation levels
in place immediately prior to the Closing.
(b) The PEPL Companies will cease participation in all Employee
Benefit Plans and Employee Arrangements other than the PEPL Employee
Benefit Plans, PEPL Employee Arrangements and Parent Severance Plan as of
the Closing Date.
(c) Effective as of the Closing Date, and provided that such
does not conflict with the terms of the collective bargaining agreements
applicable to the PEPL Employees, Acquiror shall cause to be maintained
compensation and benefits for the PEPL Employees for a period of not less
than two years following the Closing Date which are comparable to and on
the same terms and conditions, as provided for similarly situated employees
of Acquiror and its Affiliates, provided, however, that it is understood
and agreed by the parties that the PEPL Employees shall be covered under
the provisions of Acquiror's retiree medical plan applicable to persons
hired after January 1, 1991. Effective as of the Closing Date, Acquiror
shall cause the PEPL Companies to (i) assume the obligations of Parent and
its Affiliates arising under the Parent Severance Plan and (ii) maintain
the Parent Severance Plan during the 18 months following the Closing Date,
in each case, solely with respect to the PEPL Employees, and Acquiror shall
indemnify Parent and its Affiliates for any liability with respect to any
PEPL Employee under such plan, including any liability that may arise as a
result of the transactions contemplated by this Agreement.
(d) Except as provided in Section 5.9(f) hereof, service by the
PEPL Employees with the PEPL Companies or any of their Affiliates prior to
the Closing Date shall be recognized under any benefit plan or arrangement
established, maintained or contributed to by Acquiror, the PEPL Companies,
or any of their Affiliates after the Closing Date for the benefit of any
PEPL Employee for all purposes, including but not limited to eligibility,
vesting, benefit accruals and eligibility for retirement, provided, that
such recognition does not result in any duplication of benefits. All
liabilities with respect to any PEPL Employee arising under, in connection
with or relating to any Employee Benefit Plan or Employee Arrangement
(other than the Parent Severance Plan, PEPL Employee Benefit Plans and PEPL
Employee Arrangements with respect to which Acquiror or the PEPL Companies
assume all liabilities relating to the PEPL Employees whenever arising)
shall be assumed and paid by the PEPL Companies, provided that the Closing
Statement shall include an accrued liability in the amount of $1,000,000
relating to such liabilities.
(e) Effective as of the Closing Date, Acquiror shall cause to
be waived any pre-existing condition limitation under the medical and
dental benefit plans applicable to PEPL Employees or their respective
dependents, and shall cause the dollar amount of all expenses incurred by
the PEPL Employees and their respective dependents prior to the Closing
Date not to be recognized for purposes of computing any maximum benefit
limitations under the relevant employee welfare benefit plans of Acquiror.
(f) Effective as of 11:59 P.M. on December 31, 1998 (the
"Effective Pension Time"), Acquiror, PEPL Companies or the applicable
Affiliate thereof shall have in effect a defined benefit plan ("Acquiror's
Plan") intended to be qualified pursuant to Section 401(a) of the Code that
will provide benefits to the PEPL Employees, and that complies with Section
411(d)(6) of the Code with respect to Transferred Benefits (as defined
below). Each PEPL Employee participating in the PEC Pension Plan
immediately prior to the Effective Pension Time shall become a participant
in Acquiror's Plan as of the Effective Pension Time. Acquiror's Plan shall
provide for the assumption of all accrued benefits and other ancillary
benefits of the PEC Pension Plan relating to the PEPL Employees, including
any benefits arising from the transactions contemplated by this Agreement
(the "Transferred Benefits"), calculated as of the Effective Pension Time,
subject to the transfer of assets equal to the amount as described below.
Following the completion of such transfer of assets from the PEC Pension
Plan to Acquiror's Plan as provided below, the Acquiror's Plan and the PEPL
Companies shall be solely responsible for such Transferred Benefits. The
PEPL Employees shall cease accrual of benefits under the PEC Pension Plan
effective as of the Effective Pension Time.
Notwithstanding Section 5.9(d) above, except as provided in this
Section 5.9(f), service by the PEPL Employees with the PEPL Companies or
any of their Affiliates prior to the Closing Date shall not be required to
be recognized for benefit accrual purposes for any tax qualified pension
plan maintained by Acquiror, the PEPL Companies, or any of their Affiliates
after the Closing Date.
Notwithstanding the above paragraph, Acquiror's Plan shall
provide that each PEPL Employee shall be entitled to receive a benefit
thereunder not less than the benefit such employee would have received
under the PEC Pension Plan as in effect on the date hereof assuming (i)
such employee's service under the PEC Pension Plan is equal to the sum of
(A) the service of such employee which is recognized under the PEC Pension
Plan immediately prior to the Effective Pension Time and (B) the service of
such employee following the Effective Pension Time which is recognized
under Acquiror's Plan and (ii) the compensation of such employee taken into
account for purposes of computing the benefit under the PEC Pension Plan is
the compensation such employee received irrespective of whether such
compensation is associated with service immediately prior to the Effective
Pension Time, service following the Effective Pension Time, or a
combination thereof.
Sellers shall cause Hewitt Associates LLC based in Atlanta
("Sellers' Actuary") to determine the amount of assets for the Transferred
Benefits obligation to be transferred from the PEC Pension Plan to
Acquiror's Plan (the "Transfer Amount"). The Transfer Amount shall be
determined effective as of the Effective Pension Time by Sellers' Actuary
on the basis of the assumptions set forth in Section 5.9(f) of the
Disclosure Schedule. In connection therewith, Sellers shall cause Sellers'
Actuary to determine the amounts of charges and credits to the funding
standard account under Section 412 of the Code, the funding standard
account credit balance and the annual amortization charges and credits
(such amounts determined under the provisions of IRS Service Revenue Ruling
81-212 and other applicable guidance) to be allocated between the PEC
Pension Plan and the Acquiror's Plan as a result of the transfer of assets
and liabilities anticipated under this Section 5.9(f). The actuarial
calculation of the liabilities shall be reviewed by an actuarial firm
designated by Acquiror ("Acquiror's Actuary") for accuracy and to ensure
that such calculation was performed in accordance with Section 5.9(f) of
the Disclosure Schedule. At the Closing, provided that (i) Acquiror has
received a favorable determination letter from the IRS to the effect that
Acquiror's Plan meets the requirements for qualification under Section
401(a) of the Code (or an opinion of Acquiror's counsel, reasonably
satisfactory to Sellers, to such effect), (ii) Sellers have received a
favorable determination letter from the IRS to the effect that the PEC
Pension Plan meets the requirements for qualification under Section 401(a)
of the Code (or an opinion of Sellers' counsel reasonably satisfactory to
Acquiror to such effect), and (iii) the applicable regulatory filing
requirements have been met, Sellers shall cause to be transferred from the
Trust Fund for the PEC Pension Plan to the trust established for Acquiror's
Plan, an amount in the form of cash or readily marketable securities
reasonably acceptable to Acquiror equal to 85% of the amount reasonably
estimated by Sellers' Actuary in good faith to be equal to the Transfer
Amount (the "Initial Transfer Amount"), plus interest at an annual rate of
5.4% from the Effective Pension Time to the date of transfer. As soon as
practicable after the final determination of the Transfer Amount (the
"True-Up Date"), Sellers shall cause a second transfer to be made to
Acquiror's Plan, in cash or readily marketable securities reasonably
acceptable to Acquiror, of the "True-Up Amount." The True-Up Amount shall
be equal to the sum of (i) the excess of the Transfer Amount over the
Initial Transfer Amount and (ii) interest at an annual rate of 5.4% from
the Effective Pension Time to the True-Up Date on the amount described in
clause (i) above.
If for any reason the Initial Transfer Amount actually
transferred from the PEC Pension Plan to the Acquiror's Plan is more than
the Transfer Amount, then on the True-Up Date or as soon thereafter as
practicable, Acquiror's Plan shall pay to the PEC Pension Plan an amount,
in cash or readily marketable securities reasonably acceptable to the
Acquiror, equal to the amount by which the Initial Transfer Amount exceeds
the Transfer Amount, plus interest thereon from the date of overpayment to
the date on which such amount is paid to the PEC Pension Plan at an annual
rate of 5.4%.
Acquiror shall indemnify and hold Parent and its Affiliates
harmless from (i) any liability arising from the failure of the Acquiror's
Plan to comply with Section 411(d)(6) of the Code with respect to the
Transferred Benefits and (ii) any liability attributable to the Transferred
Benefits.
(g) 401(k) Plan. Sellers shall take all such action necessary
and appropriate to cause each PEPL Employee participating in the PEC
Pension Plan as of the Closing Date to become eligible to receive a
distribution of his or her accrued benefit thereunder as a result of the
transactions contemplated by this Agreement. Acquiror shall cause the
Employees' Savings and Incentive Plan of Consumers Energy Company to accept
a rollover pursuant to Section 402(a) of the Code and a direct transfer
pursuant to Section 401(a)(31) of the Code in respect of such
distributions.
(h) Prior to and effective as of the Closing Date, Sellers shall
take all such action necessary to cause each option to purchase shares of
Parent common stock ("Seller Option") which is vested and unexercised
immediately prior to the Closing Date granted by Sellers or their
Affiliates to any PEPL Employee ("Optionee") to remain fully exercisable
for a period of thirty (30) days after the Closing (or such longer period
as may be provided in any Seller Option as of the date hereof).
(i) Except as otherwise provided in this Section 5.9 or in the
Parent Severance Plan, any PEPL Employee Benefit Plan or any PEPL Employee
Arrangement, no provision of this Agreement shall be construed to prohibit
the PEPL Companies or any Affiliate thereof from terminating the employment
of any PEPL Employee, with or without cause, or amending or terminating any
employee benefit plans or employee arrangements applicable to the PEPL
Employees, including, but not limited to, any PEPL Employee Benefit Plan or
PEPL Employee Arrangement maintained or contributed to by the PEPL
Companies, Acquiror or their Affiliates.
(j) Acquiror shall recognize any seniority rights of any
Excluded Employee who is on long term disability as of the Closing Date and
who offers to return to work with any PEPL Company and, if such employee
returns to work with any PEPL Company, such employee shall be treated as a
PEPL Employee effective as of such date.
(k) Acquiror shall indemnify and hold Sellers and their
Affiliates harmless with respect to any PEPL Employee from any employment-
related liability, whether arising prior to or after the Closing Date.
Except as otherwise provided in this Section 5.9, Sellers and their
Affiliates shall indemnify and hold Acquiror and its Affiliates harmless
with respect to any Excluded Employee from (i) any employment-related
liability and (ii) any liability relating to, arising under or in
connection with any Employee Benefit Plan or Employee Arrangement,
including any liability under COBRA, whether arising prior to or after the
Closing Date.
(l) Sellers and Acquiror agree to cooperate to carry out the
duties and responsibilities contained in this Section 5.9. In addition,
Sellers agree to make available to Acquiror such information as Acquiror
may reasonably request to facilitate the determination of (i) the period of
service of any PEPL Employee with the PEPL Companies or any of their
Affiliates prior to the Closing Date, (ii) individual service accruals and
salary histories of the PEPL Employees and (iii) such other information as
Acquiror may reasonably request to carry out the provisions of this Section
5.9.
5.10 Preservation of Records. Acquiror agrees that it shall, at
its own expense, preserve and keep the records held by it relating to the
Business that could reasonably be required after the Closing by Sellers for
as long as is specified for such categories of records in document
retention program applicable to the Business in effect on the Closing Date
(a copy of which has been provided to Acquiror). In addition, Acquiror
shall make such records available to Sellers as may be reasonably required
by Sellers in connection with, among other things, any insurance claim,
legal proceeding or governmental investigation relating to the Business.
Notwithstanding the foregoing, Sellers shall retain with respect to each
PEPL Company all original books, records, reports, Tax Returns and all
other information relating to Taxes for taxable periods that end on or
prior to the Closing Date. At Acquiror's request, Sellers shall provide
copies of such retained materials (including computer files and similar
electronic media), at Acquiror's expense, to Acquiror.
5.11 Other Agreements. Each of PEC and Acquiror agrees that it
shall, on or prior to the Closing, enter into (i) a Transition Services
Agreement for PEC Services, substantially in the form of Exhibit D-1
hereto, with respect to transition services to be provided by PEC or its
Affiliates to the Sold Subsidiaries or their Affiliates, (ii) a Transition
Services Agreement for Sold Subsidiary Services, substantially in the form
of Exhibit D-2 hereto, with respect to transition services to be provided
by the Sold Subsidiaries to PEC or its Affiliates, (iii) a LNG Terminal &
Transportation Agreement, substantially in the form of Exhibit E hereto,
with respect to terminaling and transportation services to be provided to
PEC by Acquiror, (iv) an Intellectual Property Agreement, substantially in
the form of Exhibit F hereto, with respect to Intellectual Property to be
utilized by both Sellers and the PEPL Companies following the Closing Date,
(v) an Access and Support Agreement, substantially in the form of Exhibit G
hereto, with respect to PEC's access to certain data and employees of the
Business in connection with PEC's defense of certain retained litigation
and (vi) an Operation and Maintenance Agreement, substantially on the terms
reflected in Exhibit H hereto, with such modifications as may be negotiated
in good faith by the parties prior to the Closing Date. Each of PEC and
Acquiror shall, and shall cause its respective subsidiaries to, perform
their respective obligations under the agreements described above. In
addition each of PEC and Acquiror agrees that it shall, on or prior to the
Closing, negotiate and enter into definitive agreements relating to the
field services and joint operations described in Section 5.11 of the
Disclosure Schedule.
5.12 Related Party Payments. Except as otherwise provided in
this Agreement and the other agreements and documents contemplated hereby,
all liabilities and obligations of the PEPL Companies to Sellers and other
Subsidiaries of Parent (other than the PEPL Companies) shall be paid or
otherwise settled on or prior to the Closing.
5.13 Insurance. (a) Sellers and Acquiror agree that Casualty
Insurance Claims relating to the Business (including reported claims and
including incurred but not reported claims) will remain with the PEPL
Companies immediately following the Closing. For purposes hereof,
"Casualty Insurance Claims" shall mean workers' compensation, auto
liability, general liability and products liability claims and claims for
damages caused to PEPL facilities generally insured under all risk, real
property, boiler and mechanical breakdown insurance coverage. The Casualty
Insurance Claims are subject to the provisions of policies of insurance
with insurance carriers and contractual arrangements with insurance
adjusters maintained by PEC or its Affiliates prior to the Closing
(collectively, the "Insurance Policies"). With respect to the Casualty
Insurance Claims, the following procedures shall apply: (i) Parent or its
Affiliates shall continue to administer, adjust, settle and pay, on behalf
of the PEPL Companies, all Casualty Insurance Claims with dates of
occurrence prior to the date of Closing; provided, that PEC will obtain the
consent of Acquiror prior to adjusting, settling or paying any Casualty
Insurance Claim of an amount greater than $10,000 and provided, further,
that PEC shall permit Acquiror to join PEC in any settlement negotiations
with claimants, insurers or insurance adjusters; and (ii) PEC shall invoice
PEPL at the end of each month for Casualty Insurance Claims paid on behalf
of PEPL by PEC. Acquiror shall cause PEPL to pay the invoice within 15
days of its date. In the event that PEPL does not pay PEC within 15 days
of such invoice, interest at the rate of 10% per annum shall accrue on the
amount of such invoice. Casualty Insurance Claims to be paid by PEPL
hereunder shall include all costs necessary to settle claims including, but
not limited to, compensatory, medical, legal and other allocated expenses.
In the event that any Casualty Insurance Claim exceeds a deductible or
self-insured retention under the Insurance Policies, PEPL shall be entitled
to the benefit of any insurance proceeds that may be available to discharge
any portion of such Casualty Insurance Claim.
(b) Sellers make no representation or warranty with respect to
the applicability, validity or adequacy of any Insurance Policy, and
Sellers shall not be responsible to Acquiror or any of its Affiliates for
the failure of any insurer to pay under any such Insurance Policy.
(c) Nothing in this Agreement is intended to provide or shall be
construed as providing a benefit or release to any insurer or claims
service organization of any obligation under any Insurance Policy. Sellers
and Acquiror confirm that the sole intention of this Section 5.13 is to
divide and allocate the benefits and obligations under the Insurance
Policies between them as of the Closing Date and not to affect, enhance or
diminish the rights and obligations of any insurer or claims service
organization thereunder. Nothing herein shall be construed as creating or
permitting any insurer or claims service organization the right of
subrogation against Sellers or Acquiror or any of their Affiliates in
respect of payments made by one to the other under any Insurance Policy.
(d) If Acquiror requests a copy of an insurance policy relating
to a pending or threatened Casualty Insurance Claim, Sellers shall provide
a copy of all relevant insurance policies which insure such Casualty
Insurance Claim within five Business Days, provided, that if Sellers cannot
provide such policy within five days after exercising reasonable best
efforts to locate such policy, Sellers shall continue to exercise their
reasonable best efforts to provide such policy to Acquiror as soon as
possible thereafter.
5.14 Environmental Remediation. (a) Sellers have conducted or
have caused to be conducted an environmental investigation at the real
property on which is located certain of the material operations of the PEPL
Companies ("Sellers' Investigation") and have made available to Acquiror
copies of reports of Sellers' Investigation, which reports are identified
on Section 3.17 of the Disclosure Schedule. In connection with Sellers'
Investigation, Sellers have developed or caused to be developed the PEPL
Cleanup Program and the TGC Cleanup Program, which established programs
regarding further investigation and remediation of certain real property to
address the presence of polychlorinated biphenyls (PCB) and petroleum
hydrocarbons in the environment (the "Work").
(b) As of the Closing, PEC shall have implemented, but not
completed, the Work required by the PEPL Cleanup Program and the TGC
Cleanup Program. From and after the Closing, PEC agrees to complete all of
the Work required by the PEPL Cleanup Program and the TGC Cleanup Program
at PEC's sole cost and expense. In undertaking the Work, PEC shall: (1)
comply in all material respects with applicable Environmental Laws; (2)
provide Acquiror with a written scope of work related to any phase of the
Work, including, but not limited to, the type, location, number and
laboratory analyses to be conducted in connection with such work, the
identity of all significant contractors related to such work, and the
schedule for such work; (3) provide Acquiror with reasonable prior notice
of any field work to be conducted in connection with the Work and
coordinate with Acquiror to ensure that such field work does not
unreasonably interfere with any of Acquiror's or the PEPL Companies'
operations or pose an unreasonable risk of harm to persons or property; (4)
allow employees and representatives of Acquiror and the PEPL Companies to
be present to observe all field work conducted by Sellers in connection
with the Work; (5) promptly provide Acquiror and the PEPL Companies with
copies of all final and complete data, documents, correspondence, reports,
or other information related to the Work; (6) provide Acquiror and the PEPL
Companies with a reasonable opportunity to review and comment on any
submissions to be provided to governmental regulators with respect to the
Work and make reasonable efforts to accommodate the comments of Acquiror
and the PEPL Companies, provided that the comments are consistent with the
scope of work and the approach of the PEPL and TGC Cleanup Programs; (7)
provide Acquiror and the PEPL Companies with reasonable advance notice of
all meetings with governmental regulators with respect to the Work, and
allow Acquiror and the PEPL Companies and their representatives to attend
(but not to actively participate in) such meetings; (8) furnish evidence,
in a form reasonably acceptable to Acquiror, of general liability,
automotive and workers compensation insurance issued to Sellers and/or its
contractors and consultants, naming Acquiror and the PEPL Companies as
additional insureds, and protecting Acquiror and the PEPL Companies and
their agents, employees, tenants and invitees from and against personal
injury and property damage with respect to the performance of the Work; (9)
not permit any lien to be filed against any of the property of the PEPL
Companies for any labor or materials in connection with the Work, and, in
the event that such lien is filed, shall cause such lien to be removed no
later than 30 days after the filing of such lien; (10) to the extent
permitted by Environmental Law, maintain responsibility and liability for
managing all waste materials generated in connection with the performance
of the Work, including, but not limited to, the proper disposal of any
contaminated media, pollutants or hazardous waste that is generated in
connection with the Work; (11) plug in compliance with applicable
Environmental Laws any and all groundwater monitoring wells installed
pursuant to the PEPL Cleanup Program and the TGC Cleanup Program and repair
and restore, to the extent practical, any areas of the real property
adversely impacted by soil borings taken by Sellers as part of the PEPL
Cleanup Program and the TGC Cleanup Program; and (12) ensure that
implementation of the Work does not prevent or materially impair the PEPL
Companies from using the property as currently used.
(c) Subject to Section 5.14(b), Acquiror shall assist and shall
cause its and the PEPL employees to reasonably assist PEC, its agents or
representatives with undertaking the Work, provided, that such assistance
shall not require it or any of the PEPL Companies to incur any out-of-
pocket costs or expenses not reimbursable by Sellers pursuant to this
Agreement. Acquiror will not knowingly or intentionally obstruct, hinder,
or increase the scope or the expense of the Work and will not seek to
influence any Governmental Authority to increase the scope of the Work,
impose more stringent cleanup criteria or otherwise make it more difficult
or costly for Sellers to complete the Work required under the PEPL and TGC
Cleanup Programs. Acquiror shall afford PEC and its agents and
representatives, including, but not limited to environmental contractors
and consultants, with reasonable cooperation, including, but not limited to
reasonable access to any of the real property for which Work is required,
relevant records and personnel. Reasonable cooperation shall also include,
but not be limited to: (i) providing access to water, telephone lines,
electricity and other readily available utilities reasonably necessary to
undertake any Work; (ii) permission to operate, maintain and upgrade any
equipment, associated piping, monitoring and extraction wells and other
items and appurtenances necessary to operate and maintain any necessary
remediation system; (iii) notification by Acquiror as soon as practicable
of any event or environmental condition at any site subject to Work that
Acquiror reasonably believes could adversely affect PEC's continuing
obligations under this section; (iv) procuring additional Environmental
Permits, if necessary, in order to undertake the required Work; and
(v) filing any necessary reports with Governmental Authorities.
5.15 Financing. (a) On or prior to November 23, 1998, Acquiror
will deliver to Sellers (i) true and complete copies of firm commitment
letters from nationally recognized financial institutions to provide debt
financing, subject to the execution of definitive financing arrangements
and other normal conditions applicable to credits of a similar nature, for
use as payment of a portion of the Purchase Price in an amount not less
than $1,900,000,000, less any amount that Acquiror places in escrow
pursuant to Section 5.15(b) (the "Commitment Letters") and (ii) all waivers
necessary to consummate the transactions contemplated by this Agreement
including, without limitation, those referenced on Section 4.4 of the
Disclosure Schedule. Acquiror agrees to extend the termination date of the
Commitment Letters upon their original expiration for a period ending on
the Closing Date or the termination of this Agreement pursuant to Article
IX.
(b) Acquiror agrees to promptly notify Sellers if at any time
prior to the Closing Date it no longer believes in good faith that it will
be able to borrow at least $1,900,000,000, less any amount that Acquiror
places in escrow pursuant to this Section 5.15(b), substantially on the
terms described in the Commitment Letters. Acquiror shall not borrow any
amounts available under any facilities established pursuant to the
Commitment Letters, except for use in paying the Purchase Price at Closing
or any amount remaining available under such facilities after payment in
full of the Purchase Price; provided, that the foregoing restriction shall
not apply to the extent that Acquiror places cash in escrow for the payment
of the Purchase Price, pursuant to an escrow agreement reasonably
satisfactory to Sellers.
5.16 LNG Port Facility Bonds. Acquiror understands that certain
of the facilities comprising the operations of LNG (the "LNG Facilities")
were financed with the proceeds of bonds issued by the Lake Charles Harbor
and Terminal District, the interest on which is excludable, for federal
income tax purposes, from the gross income of the holders thereof (the
"Lake Charles Bonds"). Acquiror further understands that the federal tax-
exempt status of the Lake Charles Bonds is based on, among other things,
the LNG Facilities being property that is used (or property that is
functionally related and subordinate to property that is used) to off-load
products from waterborne vessels that dock at the LNG Facilities and to
store temporarily the products off-loaded (the "Qualifying Use"). Acquiror
represents to Sellers that it has no intention or expectation of using the
LNG Facilities for any purpose other than the Qualifying Use described in
the preceding sentence. Acquiror agrees that it will notify Sellers in
writing of any use of the Facilities different than the Qualifying Use
described above as soon as practicable after it decides to commence such
different use and in no event later that five business days after such
different use commences.
5.17 Superfund Claims. Sellers covenant and agree that after
the Closing, Sellers shall have the sole and exclusive responsibility for
conducting, defending and prosecuting on behalf of the Acquiror and the
PEPL Companies any claim against or obligation of TGC under CERCLA, RCRA or
the analogous Arkansas laws as a result of TGC being identified as a
potentially responsible party at the South Eighth Street Superfund Site, in
West Memphis, Arkansas, and the Gurley Pit Superfund Site in Edmonson,
Arkansas (collectively, the "Superfund Claims"); provided, Acquiror and the
PEPL Companies shall cooperate with Sellers with respect to the conduct,
defense, and prosecution of any Superfund Claims, which cooperation shall
include, but not be limited to, providing timely and adequate notice of any
claims, consenting to settlements, and making people and records available,
although Acquiror and the PEPL Companies shall not be required to incur any
out-of-pocket expenses unless Sellers have agreed to reimburse all such
out-of-pocket expenses.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to the Obligations of Acquiror and Sellers. The
respective obligation of each party to effect the Closing is subject to the
satisfaction of the following conditions or written waiver thereof by each
party hereto (to the extent permitted under Applicable Laws) on or prior to
the Closing Date:
(a) No Injunctions or Restraints. No statute, rule, regulation,
decree, preliminary or permanent injunction, temporary restraining order or
other order of any nature of any U.S. federal or state Governmental
Authority shall be in effect that restrains or prevents the transactions
contemplated hereby; provided, however, that in the case of a decree,
injunction or other order, each of the parties shall use its best efforts
to prevent the entry of any such injunction or other order and to appeal as
promptly as possible any decree, injunction or other order.
(b) HSR Act. The applicable waiting periods under the HSR Act
shall have expired or been terminated.
(c) Consents Obtained. All consents set forth in Section 6.1(c)
of the Disclosure Schedule shall have been obtained.
6.2 Conditions to the Obligations of Acquiror. The obligation
of Acquiror to effect the Closing is further subject to the satisfaction of
the following conditions, any or all of which may be waived in writing on
or prior to the Closing Date by Acquiror.
(a) Representations and Warranties. The representations and
warranties of Sellers made herein shall be true and correct in all material
respects at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement and except to the extent that any
representation or warranty is expressly made as of a specified date, in
which case such representation or warranty shall be true and correct in all
material respects only as of such date. Acquiror shall have received a
certificate from each Seller to that effect dated the Closing Date and
signed on behalf of such Seller by an authorized officer of such Seller.
(b) Agreements. Each Seller shall have performed in all
material respects all of its material obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Acquiror
shall have received a certificate from each Seller to that effect dated the
Closing Date and signed on behalf of such Seller by an authorized officer
of such Seller.
(c) Government Action. There shall not be pending any suit,
action or proceeding by any Governmental Authority, domestic or foreign,
(i) seeking to prohibit or impose, in connection with the transactions
contemplated hereby, any material limitations on Acquiror's ownership or
operation (or that of any of its Subsidiaries or Affiliates) of all or a
material portion of Acquiror's business or assets, or the businesses or
assets of the PEPL Companies, or to compel the Acquiror or its Subsidiaries
and Affiliates or the PEPL Companies to dispose of or hold separate any
material portion of the business or assets of the PEPL Companies or the
Acquiror, (ii) seeking to restrain or prohibit the consummation of the
Closing or the performance of any of the other transactions contemplated
hereby or (iii) seeking to impose material limitations on the ability of
the Acquiror effectively to exercise full rights of ownership of the
Shares.
(d) Material Adverse Effect. There shall not have occurred any
Material Adverse Effect.
(e) Resignation of Directors of the PEPL Companies. All of the
directors of the PEPL Companies shall have tendered their resignations as
members of such board to such PEPL Company.
6.3 Conditions to the Obligations of Sellers. The obligation of
Sellers to effect the Closing is further subject to the satisfaction of the
following conditions, any or all of which may be waived in writing on or
prior to the Closing Date by Sellers:
(a) Representations and Warranties. The representations and
warranties of Acquiror made herein shall be true and correct in all
material respects, at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement and except to the extent that
any representation or warranty is expressly made as of a specified date, in
which case such representation or warranty shall be true and correct in all
material respects, only as of such date. Sellers shall have received a
certificate to that effect dated the Closing Date and signed on behalf of
Acquiror by an authorized officer of Acquiror.
(b) Agreements. Acquiror shall have performed in all material
respects all of its material obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Sellers shall
have received a certificate to that effect dated the Closing Date and
signed on behalf of Acquiror by an authorized officer of Acquiror.
(c) Government Action. There shall not be pending any suit,
action or proceeding by any Governmental Authority, domestic or foreign,
seeking to restrain or prohibit the consummation of the Closing or the
performance of any of the other transactions contemplated hereby.
ARTICLE VII
SURVIVAL; GENERAL INDEMNIFICATION
7.1 Survival. All of the representations and warranties of
Sellers and Acquiror contained in this Agreement (other than in Section
3.10) and all claims and causes of action with respect thereto shall
terminate on March 31, 2000 and notices of such claims for indemnification
under Section 7.2(a) or 7.3(a) must be given prior to March 31, 2000. In
the event notice of such claim for indemnification under Section 7.2(a) or
Section 7.3(a) is given (within the meaning of Section 10.5) within the
applicable survival period, the representations and warranties that are the
subject of such indemnification claim shall survive with respect to such
claim until such time as such claim is finally resolved.
7.2 Indemnification by Acquiror. (a) Subject to Section 7.1 and
7.2(b), and except as otherwise provided in Article VIII, Acquiror hereby
agrees that it shall indemnify, defend and hold harmless Sellers and their
respective stockholders, directors, officers, employees, representatives,
advisors, agents and Affiliates (the "Seller Indemnified Parties") from,
against and in respect of any and all damages, claims, losses, charges,
actions, suits, proceedings, deficiencies, Taxes, interest, penalties, and
reasonable costs and expenses (but not including, consequential, exemplary,
special and punitive damages and lost profits, other than such damages
awarded to any third party against an Indemnified Party) (collectively, the
"Losses") arising out of, relating to or resulting from, directly or
indirectly:
(i) any breach of any representation or warranty made by
Acquiror contained in this Agreement;
(ii) the breach of any covenant or agreement of Acquiror
contained in this Agreement; and
(iii) except as otherwise provided in Article VIII or
specifically enumerated as an item as to which Sellers will indemnify
Acquiror pursuant to Section 7.3, all liabilities and obligations of
the PEPL Companies and/or the Business, regardless of when they arose
or arise and regardless of by whom or when asserted (including,
without limitation, all liabilities and expenses attributable to the
PEPL Employee Benefit Plans and the PEPL Employee Arrangements or
otherwise to be assumed or paid by Acquiror or the PEPL Companies
pursuant to Section 5.9).
(b) Acquiror shall not be liable to the Seller Indemnified
Parties for any Losses with respect to the matters enumerated in Section
7.2(a)(i) unless the Losses therefrom exceed an aggregate amount equal to
$45 million (the "Deductible"), and then only for such Losses in excess of
such amount, and only up to an aggregate amount equal to $250 million. For
purposes of this Section 7.2 only, the representations and warranties of
Acquiror contained in this Agreement shall be read without giving effect to
any "materiality" exceptions; provided, that Losses relating to any single
breach or series of related breaches of such representations and warranties
shall be deemed to not constitute a Loss, and therefore shall not consume
the Deductible or be indemnifiable hereunder, unless such Losses relating
to any single breach or series of related breaches exceed $1 million.
(c) Notwithstanding any other provision in this Agreement to the
contrary, this Section 7.2 shall not apply to any claim of indemnification
with respect to Tax matters. Claims for indemnification with respect to
Tax matters shall be governed by Article VIII.
7.3 Indemnification by Sellers. (a) Subject to Sections 7.1
and 7.3(b), and except as otherwise provided in Article VIII, Sellers
hereby agree to jointly and severally indemnify, defend and hold harmless
Acquiror and its directors, officers, employees, representatives, advisors,
agents and Affiliates (other than employees of the PEPL Companies) (the
"Acquiror Indemnified Parties") from, against and in respect of any Losses
arising out of, relating to or resulting from, directly or indirectly:
(i) any breach of any representation or warranty made by
Sellers contained in this Agreement;
(ii) the breach of any covenant or agreement of Sellers
contained in this Agreement; provided, that with respect to the
covenant contained in Section 5.14, Sellers shall have no obligation
to indemnify the Acquiror Indemnified Parties for any Losses incurred
due to Acquiror's decision to voluntarily undertake any of the Work;
and provided, further, that (A) if Sellers refuse to complete the Work
notwithstanding the covenant set forth in Section 5.14 or (B) if
Acquiror or the PEPL Companies are ordered by a Governmental Authority
to undertake any investigation or remediation that is encompassed in
the Work, and, after giving Sellers reasonable and timely notice of
the Governmental Authority's order, the Sellers have refused to
undertake such part of the Work encompassed by the Governmental
Authority order, then Sellers shall have an obligation to indemnify
the Acquiror Indemnified Parties for Losses they reasonably incur with
respect to any portion of the Work undertaken by Acquiror or the PEPL
Companies under such circumstances;
(iii) any liabilities and expenses attributable to Employee
Benefit Plans (other than PEPL Employee Benefit Plans) and Employee
Arrangements (other than PEPL Employee Arrangements), except for
liabilities and expenses to be paid by Acquiror and/or PEPL pursuant
to Section 5.9;
(iv) any liabilities and expenses of the PEPL Companies
attributable to the Wattenberg System;
(v) any liabilities and expenses attributable to (A)
Anadarko Petroleum Corporation v. PanEnergy Pipe Line Company,
Panhandle Eastern Pipe Line Company, PanEnergy Corporation and
Panhandle Eastern Corporation, et al. (Cause No. 97-25497) and (B)
Riverside Pipeline Company, L.P., Kansas Pipeline Partnership, The
Bishop Pipeline Company, Syenergy Pipeline Company, L.P., Kansas
Natural Partnership, Kansok Partnership, Riverside Pipeline
Partnership and Margasco v. Wolverine Eastern Pipe Line Company (Case
No. 97-0642-CV-W-4); provided, that Sellers shall have no obligation
to indemnify the Acquiror Indemnified Parties for any Losses pursuant
to clause (A) of this Section 7.3(a)(v) in excess of the Losses which
would be incurred under the "Order On Compliant" issued October 20,
1998 by the FERC (85 FERC paragraph 61,090) as in effect at the
Closing, without giving effect to any subsequent change, modification,
or amendment which may be made by the FERC by any subsequent order
issued on or after the Closing, unless Acquiror and/or the PEPL
Companies have taken all reasonable steps to oppose the issuance of
the subsequent order effecting such change, modification or amendment,
or, if issued, to seek rehearing of the subsequent order before the
FERC or the appeal courts, and despite such efforts such subsequent
order remains in full force and effect;
(vi) any liabilities and expenses attributable to the
contracts set forth in Section 7.3(a)(vi) of the Disclosure Schedule;
(vii) any Environmental Costs and Liabilities attributable to
the Superfund Claims; provided, that Acquiror and the PEPL Companies
have complied with their obligations under Section 5.17 of this
Agreement;
(viii) any fines assessed by the Illinois Environmental
Protection Agency and actually incurred by the PEPL Companies (after a
good faith attempt to obtain a reduction in any assessment) as a
result of the currently alleged violations by PEPL of the existing air
permit at the Glenarm, IL, compressor station, but not any other
costs, expenses, liabilities or obligations of any nature relating
thereto, including, without limitation, the costs of any required
capital improvements necessary to bring the Glenarm, IL, compressor
unit into compliance with current or future air regulation; and
(ix) the liability, if any, for customer refunds owed by TGC
pursuant to Article VIII ("Provisions Respecting the LNG Terminal") of
"the Offer of Settlement" dated July 15, 1992 (the "LNG FERC
Settlement") approved by the FERC Order dated August 28, 1992 (60 FERC
paragraph 61,209) to the extent such refunds are in fact made in
accordance with the LNG FERC Settlement.
(b) Sellers shall not be liable to the Acquiror Indemnified
Parties for any Losses with respect to the matters enumerated in Sections
7.3(a)(i) unless the Losses therefrom exceed an aggregate amount equal to
the Deductible, and then only for such Losses in excess of the Deductible,
and only up to an aggregate amount equal to $250 million. For purposes of
this Section 7.3 only, the representations and warranties of Sellers
contained in this Agreement shall be read without giving effect to any
"Material Adverse Effect" or "materiality" exceptions; provided, that
Losses relating to any single breach or series of related breaches of such
representations and warranties shall be deemed to not constitute a Loss,
and therefore shall not consume the Deductible or be indemnifiable
hereunder, unless such Losses relating to any single breach or series of
related breaches exceed $1 million.
(c) Notwithstanding any other provision in this Agreement to the
contrary, this Section 7.3 shall not apply to any claim of indemnification
with respect to Tax matters. Claims for indemnification with respect to
Tax matters shall be governed by Article VIII.
7.4 Procedure for Indemnification. Subject to Section 7.1, all
claims for indemnification under this Article VII shall be asserted and
resolved as follows:
(a) In the event that any claim or demand, or other circumstance
or state of facts which could give rise to any claim or demand, for which
an Indemnifying Party may be liable to an Indemnified Party hereunder, is
asserted or sought to be collected by a third party (an "Asserted
Liability"), the Indemnified Party shall as soon as reasonably possible
notify the Indemnifying Party in writing of such Asserted Liability,
specifying the nature of such Asserted Liability (the "Claim Notice");
provided, that no delay on the part of the Indemnified Party in giving any
such Claim Notice shall relieve the Indemnifying Party of any
indemnification obligation hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such delay. The
Indemnifying Party shall have 60 days (or less if the nature of the
Asserted Liability requires) from its receipt of the Claim Notice (the
"Notice Period") to notify the Indemnified Party whether or not the
Indemnifying Party desires, at the Indemnifying Party's sole cost and
expense and by counsel of its own choosing, to defend against such Asserted
Liability; provided, that if, under applicable standards of professional
conduct a conflict on any significant issue between the Indemnifying Party
and any Indemnified Party exists in respect of such Asserted Liability,
then the Indemnifying Party shall reimburse the Indemnified Party for the
reasonable fees and expenses of one additional counsel (who shall be
reasonably acceptable to the Indemnifying Party). The Indemnifying Party
shall not, without the prior written consent of the Indemnified Party
(which consent shall not be unreasonably withheld), consent to any
settlement unless such settlement (i) includes a complete release of the
Indemnified Party and (ii) does not require the Indemnified Party to make
any payment or forego or take any action. Notwithstanding the foregoing,
the Indemnified Party shall have the right to control, pay or settle any
Asserted Liability which the Indemnifying Party shall have undertaken to
defend so long as the Indemnified Party shall also waive any right to
indemnification therefor by the Indemnifying Party. If the Indemnifying
Party undertakes to defend against an Asserted Liability, the Indemnified
Party shall cooperate fully with the Indemnifying Party and its counsel in
the investigation, defense and settlement thereof, but the Indemnifying
Party shall control the investigation, defense and settlement thereof. If
the Indemnified Party desires to participate in any such defense it may do
so at its sole cost and expense. If the Indemnifying Party elects not to
defend against such Asserted Liability, then the Indemnifying Party shall
have the right to participate in any such defense at its sole cost and
expense, but the Indemnified Party shall control the investigation, defense
and settlement thereof at the reasonable cost and expense of the
Indemnifying Party. The Indemnifying Party shall not be liable for any
settlement of any Asserted Liability effected without its prior written
consent (which consent shall not be unreasonably withheld).
(b) In the event that an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted by a third party, the Indemnified Party shall send a
Claim Notice with respect to such claim to the Indemnifying Party. The
Indemnifying Party shall have 60 days from the date such Claim Notice is
delivered during which to notify the Indemnified Party in writing of any
good faith objections it has to the Indemnified Party's Claim Notice or
claims for indemnification, setting forth in reasonable detail each of the
Indemnifying Party's objections thereto. If the Indemnifying Party does
deliver such written notice of objection within such 60-day period, the
Indemnifying Party and the Indemnified Party shall attempt in good faith to
resolve any such dispute within 60 days of the delivery by the Indemnifying
Party of such written notice of objection.
(c) With respect to the liabilities for which Sellers may be
required to provide indemnification pursuant to Section 7.3(a)(i) resulting
from a breach or alleged breach of Section 3.17, the Acquiror Indemnified
Parties shall cooperate with Sellers, provide Sellers as promptly as
possible with all relevant materials, information and data requested by
Sellers and shall grant Sellers, without charge, reasonable access to
employees and premises of the PEPL Companies, including the right to
conduct environmental tests thereon and to take samples therefrom.
(d) Acquiror acknowledges that the indemnification provisions
contained in Section 5.9, this Article VII and Article VIII, together with
the termination rights under Article IX, constitute Acquiror's sole
remedies with respect to any of the matters arising out of or in connection
with this Agreement, the Disclosure Schedule or any Exhibit hereto.
Acquiror acknowledges and agrees that: (i) Acquiror and its representatives
have the experience and knowledge to evaluate the business, financial
condition, assets and liabilities of the PEPL Companies; and (ii) in
determining to acquire the Shares and, therefore, the Business and the
underlying assets and liabilities of the PEPL Companies (including the real
property, fixtures and the tangible personal property), Acquiror has made
its own investigation into, and based thereon Acquiror has formed an
independent judgment concerning, the Shares, the Business and the
underlying assets and liabilities of the PEPL Companies (including the real
property, fixtures and the tangible personal property). It is therefore
expressly understood and agreed that, except as otherwise provided in this
Agreement, Acquiror accepts the condition of the real property and tangible
personal property of the PEPL Companies "AS IS, WHERE IS" without any
representation, warranty or guarantee, express or implied, as to
merchantability, fitness for a particular purpose or otherwise as to the
condition, size, extent, quantity, type or value of such property.
Acquiror hereby waives, releases and agrees not to make any claim or bring
any contribution, cost recovery or other action against Sellers, their
respective Affiliates, and, if applicable, their respective directors,
officers, shareholders, partners, attorneys, accountants, agents and
employees and their heirs, successors and assigns, under the Environmental
Laws, common law, or any federal, state or local environmental or other law
or regulation now existing or hereafter enacted other than for Losses which
Sellers are expressly required to indemnify Acquiror under this Article VII
or for specific performance of Sellers' obligations under Section 5.14.
Acquiror agrees that it will not bring any such claim or action under any
Environmental Laws or any other environmental or other law or regulation
which seeks to allocate liabilities between Acquiror and Sellers in a
different manner than as expressly set forth in this Agreement or in a more
costly manner than would be the case under applicable Environmental Laws or
other laws in effect on the date hereof.
7.5 Characterization of Indemnification Payments. All amounts
paid by Acquiror or Sellers, as the case may be, under this Article VII or
Article VIII shall be treated as adjustments to the Purchase Price for all
Tax purposes.
7.6 Computation of Losses; Disputes. The amount of any Losses
for which indemnification is provided under Section 5.9, this Article VII
or Article VIII shall be reduced by (x) any related Tax benefits if and
when actually realized or received, and (y) any insurance recovery if and
when actually realized or received in each case in respect of such Losses.
Any such recovery shall be promptly repaid by the Indemnified Party to the
Indemnifying Party following the time at which such recovery is realized or
received pursuant to the previous sentence, minus all reasonably allocable
costs, charges and expenses incurred by the Indemnified Party in obtaining
such recovery. Notwithstanding the foregoing, if (x) the amount of
Indemnifiable Losses for which the Indemnifying Party is obligated to
indemnify the Indemnified Party is reduced by any Tax benefit or insurance
recovery in accordance with the provisions of the previous sentence, and
(y) the Indemnified Party subsequently is required to repay the amount of
any such Tax benefit or insurance recovery or such Tax benefit or insurance
recovery is disallowed, then the obligation of the Indemnifying Party to
indemnify with respect to such amounts shall be reinstated immediately and
such amounts, plus interest at the Agreed Rate, shall be paid promptly to
the Indemnified Party in accordance with the provisions of this Agreement.
ARTICLE VIII
TAX MATTERS; TAX INDEMNIFICATION
8.1 Tax Matters. (a) Taxes. Sellers shall be jointly and
severally liable for, shall promptly defend and shall indemnify and hold
each of the Acquiror Indemnified Parties harmless from and against, any and
all Losses suffered or incurred by any Acquiror Indemnified Party resulting
from, arising out of, based upon or relating to, the following:
(i) any and all Taxes imposed on any member of a
consolidated, combined or unitary group of which any PEPL Company (or
any predecessor) is or was a member on or prior to the Closing Date,
by reason of the liability of any PEPL Company pursuant to Treasury
Regulation Section 1.1502-6(a) or any similar foreign, state or local
law or regulation;
(ii) any breach of any of the representations and warranties
contained in Section 3.10;
(iii) except as provided in Section 8.1(d), any and all Taxes
imposed on any PEPL Company resulting from, arising out of, based on
or relating to the transactions contemplated by Section 2.3;
(iv) any and all Taxes imposed on any PEPL Company (or any
predecessor), or for which any PEPL Company (or any predecessor) may
otherwise be liable, for any taxable year or period that ends on or
before the Closing Date and, with respect to any Straddle Period, the
portion of such Straddle Period deemed to end on and including the
Closing Date; and
(v) any and all Taxes imposed by any taxing authority on
any PEPL Company resulting from, arising out of, based on or relating
to the Election made pursuant to Section 8.6.
provided, however, that Sellers shall not be liable for and shall not
indemnify the Acquiror Indemnified Parties against any liability for Taxes
resulting from transactions or actions taken by the Acquiror, any PEPL
Company or any of their respective Affiliates on the Closing Date but after
the Closing shall have occurred that are outside the ordinary course of
business and not contemplated by this Agreement ("Excluded Taxes").
(b) Acquiror shall be liable for, shall promptly defend and
shall indemnify and hold the Seller Indemnified Parties harmless from and
against any and all Losses suffered or incurred by any of them resulting
from, arising out of, based upon or relating to, the following:
(i) any and all Taxes imposed on any PEPL Company for any
taxable year or period that begins after the Closing Date and,
with respect to any Straddle Period, the portion of such Straddle
Period beginning after the Closing Date;
(ii) Excluded Taxes; and
(iii) any failure by Acquiror to timely pay any and all Taxes
required to be borne by Acquiror referred to in Section 8.1(d).
(c) To the extent permitted by law or administrative practice,
(A) the taxable year of each PEPL Company that includes the Closing Date
shall be treated as closing on (and including) the Closing Date and (B) all
transactions not in the ordinary course of business occurring on the
Closing Date but after the Closing shall have occurred shall be reported on
Acquiror's consolidated United States federal income Tax Return to the
extent permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) and
shall be similarly reported on other Tax Returns of Acquiror or its
Affiliates to the extent permitted by law. For purposes of paragraphs
(a)(iv) and (b)(i) above, where it is necessary to apportion between
Sellers and Acquiror the Tax liability of an entity for a Straddle Period
(which is not treated under the immediately preceding sentence as closing
on the Closing Date), such liability shall be apportioned between the
period deemed to end at the close of the Closing Date and the period deemed
to begin at the beginning of the day following the Closing Date on the
basis of an interim closing of the books, except that (1) exemptions,
allowances or deductions that are calculated on a time basis (such as the
deduction for depreciation) shall be apportioned on a time basis and (2)
Taxes (such as real property Taxes) imposed on a periodic basis shall be
allocated on a daily basis over the period to which such Taxes relate.
Property Taxes shall be deemed to relate to the one-year period beginning
on the assessment date except for Indiana property Taxes, which shall be
deemed to relate to the calendar year in which the assessment date occurs.
(d) Any real property transfer or gains tax, sales tax, use tax,
stamp tax, stock transfer tax or other similar tax, including any
penalties, interest and additions to tax (collectively, "Transfer Taxes")
imposed by reason of the transactions contemplated by this Agreement,
including Section 2.3, shall be borne 50% by Acquiror and 50% by Sellers.
(e) On or before the Closing Date, Sellers shall terminate, or
cause to be terminated, all agreements between any of the PEPL Companies
and the Sellers or any of their Subsidiaries other than the PEPL Companies
that provide for the allocation of any Taxes. Thereafter, all obligations
between any of the PEPL Companies and the Sellers or any of their
Subsidiaries other than the PEPL Companies with respect to Taxes shall be
governed solely by this Agreement.
8.2 Tax Returns.
(a) (i) Sellers shall file or cause to be filed when due all Tax
Returns that are required to be filed (taking into account extensions) by
or with respect to each PEPL Company on or before the Closing Date, and
Sellers shall remit (or cause to be remitted) any Taxes due in respect of
such returns. (ii) Sellers shall also file or cause to be filed when due
all Tax Returns relating to Taxes of a consolidated, combined or unitary
group of which a PEPL Company and Sellers (or any Affiliate of Sellers
other than a PEPL Company) were members on or prior to the Closing Date,
that are required to be filed by or with respect to each PEPL Company for
taxable years or periods ending on or before the Closing Date, and Sellers
shall remit (or cause to be remitted) any Taxes due in respect of such Tax
Returns. (iii) Sellers shall prepare or cause to be prepared all Tax
Returns that are due after the Closing Date (including extensions) with
respect to each PEPL Company that relate to taxable years or periods ending
on or before the Closing Date and shall submit such Tax Returns to Acquiror
for Acquiror's approval (which shall not be unreasonably withheld or
delayed) 20 days prior to the due date (including extensions) for the
filing of such Tax Returns. Acquiror shall thereafter timely file such Tax
Returns. Sellers shall pay to Acquiror the amount of Taxes shown due on
such Tax Returns upon the written request of Acquiror no later than five
business days prior to the due date (including extensions) for the filing
of such Tax Returns. All Tax Returns referred to in this Section 8.2(a)
shall be prepared in a manner consistent with prior practice and in
accordance with applicable law.
(b) Acquiror shall file or cause to be filed when due all other
Tax Returns that are required to be filed by or with respect to each PEPL
Company after the Closing Date, and Acquiror shall remit (or cause to be
remitted) any Taxes due in respect of such Tax Returns.
(c) Any Tax Return required to be filed by Acquiror pursuant to
Section 8.2(b) that relates in whole or in part to Taxes for which Sellers
are liable pursuant to Section 8.1 shall be submitted to Sellers for
Sellers' approval not less than 20 days prior to the due date (including
extensions) for the filing of such Tax Return, which approval shall not be
unreasonably withheld or delayed. Sellers shall pay to Acquiror the amount
of Taxes for which Sellers are liable pursuant to Section 8.1(a) hereof,
but which are payable with any Tax Return to be filed by Acquiror pursuant
to Section 8.2(b) upon the written request of Acquiror, setting forth in
detail the computation of the amount owed, no later than five business days
prior to the due date (including extensions) of any such Tax Return. No
payment pursuant to this Section 8.2(c) will affect Acquiror's right to
indemnification pursuant to Section 8.1(a) hereof, should the amount of
Taxes as ultimately determined (on audit or otherwise), for the periods
covered by such Tax Returns and which are the responsibility of Sellers,
exceed the amount of Sellers' payment under this Section 8.2(c).
(d) None of Acquiror or any Affiliate of Acquiror shall (or
shall cause or permit any PEPL Company to) amend, refile or otherwise
modify any Tax Return relating in whole or in part to any PEPL Company with
respect to any taxable year or period ending on or before the Closing Date
(or with respect to any Straddle Period) without the prior written consent
of Sellers.
(e) Within 150 days after the Closing Date, Acquiror shall cause
each PEPL Company to prepare and provide to Sellers a package of Tax
information materials, including schedules and work papers (the "Tax
Package") required by Sellers to enable Sellers to prepare and file all Tax
Returns required to be prepared and filed by it pursuant to Section 8.2(a);
provided, however, that to the extent that information relating to the
Election (as defined in Section 8.6 of this Agreement) (including, but not
limited to, valuation information) is not available at the time that the
Tax Package is required to be provided to Sellers, Acquiror shall provide
Sellers with the balance of the Tax Package at such time and shall promptly
provide such other information to Sellers upon its becoming available. The
Tax Package shall be prepared in good faith in a manner consistent with
past practice.
8.3 Tax Contests.
(a) If a notice of deficiency, proposed adjustment, assessment,
audit, examination or other administrative or court proceeding, suit,
dispute or other claim (a "Tax Claim") shall be delivered, sent, commenced
or initiated, in writing, to or against Acquiror or Sellers, any of either
of their respective Affiliates, or any PEPL Company (a "Notified Party") by
any taxing authority with respect to Taxes for which the other party may
reasonably be expected to be liable pursuant to Sections 8.1(a) or (b), the
Notified Party shall, if informed thereof, promptly notify the other party
in writing of such Tax Claim; provided, however, that the failure of the
Notified Party to give the other party prompt notice as provided herein
shall not relieve the other party of its obligations under this Article
VIII except to the extent that such failure would have a material adverse
effect on such other party.
(b) Sellers shall have the sole right to represent each of the
PEPL Companies' interests in any Tax Claim relating to taxable periods
ending on or before the Closing Date and to employ counsel of its choice at
its expense. In the case of a Straddle Period, Sellers and Acquiror shall
jointly have the right to represent each of the PEPL Companies' interests
in any Tax Claim. None of Acquiror, any of its Affiliates, or any PEPL
Company may agree to any settlement or compromise of any Tax Claim that
affects (or that might reasonably be expected to affect) Sellers'
obligations pursuant to Section 8.1(a).
8.4 Refunds and Credits. Sellers shall be entitled to any and
all refunds or credits of Taxes that relate to Taxes for which the Sellers
have an obligation to indemnify the Acquiror Indemnified Parties under
Article VIII hereof. Upon receipt of any such refund or credit Acquiror,
any of the PEPL Companies or any of their respective Affiliates shall
promptly remit such refund or credit, together with any interest thereon
actually received, to the Sellers.
8.5 Assistance and Cooperation. After the Closing Date, each of
Sellers and Acquiror shall (and shall cause their respective Affiliates
to):
(i) timely sign and deliver such certificates or forms as
may be necessary or appropriate to establish an exemption from (or
otherwise reduce), or file Tax Returns or other reports with respect
to, Taxes described in Section 8.1(d);
(ii) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing in
accordance with Section 8.2;
(iii) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of each
PEPL Company, and consult with the other party and its counsel in
connection with audits and proceedings in which it is representing the
PEPL Companies; and
(iv) make available to the other and to any taxing authority
as reasonably requested in connection with any Tax Return described in
Section 8.2 or any proceeding described in Section 8.3, all
information relating to any Taxes or Tax Returns of each PEPL Company.
Notwithstanding the foregoing or any other provision in this Agreement,
neither Acquiror nor any of its Affiliates shall have the right to receive
or obtain any information relating to Taxes of Sellers or any of their
Affiliates other than information relating solely to the PEPL Companies.
8.6 Election Under Section 338(h)(10).
(a) Sellers and Acquiror shall make a joint election for each
PEPL Company under Section 338(h)(10) of the Code and under any comparable
provisions of state or local law (an "Election") with respect to the
purchase of the Shares. Sellers and Acquiror shall mutually execute and
complete copies of IRS Form 8023 and any similar state or local forms no
later than 60 days prior to the due date (including extensions) for filing
such forms or the Tax Returns to which such forms must be attached. If any
changes are required in these forms as a result of information that is
first available after such forms are prepared, the parties will promptly
agree on such changes.
(b) Within 120 days following the Closing Date, Acquiror and
Sellers shall negotiate and draft a schedule (the "Allocation Schedule")
allocating the Modified Adjusted Deemed Sales Price (as defined in Treasury
Regulation Section 1.338(h)(10)-1(f)) for each PEPL Company, among the
assets of such PEPL Company. The Allocation Schedule shall be prepared in
accordance with Section 338(h)(10) of the Code and the regulations
thereunder. Upon receipt of the Allocation Schedule, each of Acquiror and
Seller shall execute a copy thereof and return such copy to the other
party. The parties shall take no action inconsistent with, or fail to take
any action necessary for, the validity of the Election, and shall adopt and
utilize the asset values as determined on the Allocation Schedule for the
purpose of all Tax Returns filed by them, and shall not voluntarily take
any action inconsistent therewith upon examination of any Tax Return, in
any refund claim, in any litigation or otherwise with respect to such Tax
Returns, unless otherwise required by applicable law.
8.7 Dispute Procedures. If the parties disagree as to the
amount of any payment or allocation to be made under, or any other matter
arising out of, this Article VIII, the parties shall attempt in good faith
to resolve such dispute. If such dispute is not resolved within 15 days,
the parties shall submit such dispute for resolution by an independent
accounting firm mutually acceptable to Sellers and Acquiror. The report of
the independent accounting firm shall be final, binding and conclusive on
Sellers and Acquiror. The fees and expenses of such accounting firm shall
be borne 50% by Sellers, on the one hand, and 50% by Acquiror, on the other
hand.
8.8 Survival. The covenants and agreements of the parties set
forth in this Article VIII regarding Tax matters shall survive the Closing
Date and shall expire when all applicable statutes of limitation (including
any extensions thereof) with respect to such Taxes have expired. No claim
for the recovery of any Tax claim may be asserted by any Acquiror
Indemnified Party after the expiration of the applicable indemnification
period; provided, however, that claims first asserted in writing by any
Acquiror Indemnified Party with reasonable specificity prior to the
expiration of the applicable indemnification period shall not thereafter be
barred by the expiration of the applicable indemnification period.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated prior to the
Closing:
(a) by agreement of Acquiror and Sellers at any time prior to
the Closing;
(b) by Acquiror, in the event that, as a result of Acquiror's
diligence investigation regarding the Business conducted after the date of
this Agreement, Acquiror shall have learned of facts not previously
disclosed to or otherwise known by Acquiror which establish that Sellers'
representations and warranties are not true and correct in all material
respects, and Acquiror delivers a notice to Sellers which (i) specifies
such facts and the basis for such determination in reasonable detail, (ii)
states that the Board of Directors of Acquiror wishes to terminate this
Agreement; and (iii) is received by Sellers on or prior to 5:00 P.M. on
November 23, 1998; provided, that in any such case, such right of
termination shall not apply in the event that Sellers, within 30 days
following receipt of such notice, shall have taken such corrective action
as is necessary to cause Sellers' representations and warranties to be true
and correct in all material aspects;
(c) by either Acquiror, on the one hand, or Sellers, on the
other hand, by giving written notice of such termination to the other, if
the Closing shall not have occurred on or prior to March 31, 1999;
provided, however, that the terminating party is not in breach of its
obligations under this Agreement and provided, further that if on March 31,
1999, all of the conditions set forth in Article VI shall be satisfied or
waived in writing, other than the condition set forth in Section 6.1(b),
neither Acquiror nor Sellers may terminate this Agreement pursuant to this
Section 9.1(c) prior to June 30, 1999; or
(d) by Acquiror, so long as Acquiror is not then in breach of
its obligations under this Agreement, upon a breach of any covenant or
agreement on the part of Sellers set forth in this Agreement, or if any
representation or warranty of Sellers shall have been or become untrue, in
each case such that the conditions set forth in Section 6.2(a) or (b) would
not be satisfied and such breach or untruth (i) cannot be cured by the
Closing Date or (ii) has not been cured within 30 days of the date on which
Sellers receive written notice thereof from Acquiror;
(e) by Sellers, so long as Sellers are not then in breach of
their obligations under this Agreement, upon a breach of any covenant or
agreement on the part of Acquiror set forth in this Agreement, or if any
representation or warranty of Acquiror shall have been or become untrue, in
each case such that the conditions set forth in Section 6.3(a) or (b) would
not be satisfied and such breach or untruth (i) cannot be cured by the
Closing Date or (ii) has not been cured within 30 days of the date on which
Acquiror receives written notice thereof from Sellers;
(f) By Acquiror or Sellers if any Governmental Authority shall
have issued an order, decree or ruling or taken any other action, which
permanently restrains, enjoins or otherwise prohibits the acquisition by
Acquiror of the Shares and such order, decree, ruling or other action shall
have become final and nonappealable; or
(g) by Sellers, if Acquiror has not complied with the covenant
contained in Section 5.15 on or prior to November 23, 1998.
9.2 Effect of Termination. In the event of termination by
Sellers or Acquiror pursuant to Section 9.1, written notice thereof shall
promptly be given to the other party and, except as otherwise provided
herein, the transactions contemplated by this Agreement shall be terminated
and become void and have no effect, without further action by the other
party, other than the provisions of Section 5.2(b) and Article X. Nothing
in this Section 9.2 shall be deemed to release any party from any liability
for any breach by such party of the terms and provisions of this Agreement.
9.3 Termination Fee. In the event of the termination of this
Agreement (i) by Sellers pursuant to Section 9.1(e) or (g) or (ii) pursuant
to Section 9.1(c) and at the time of such termination pursuant to Section
9.1(c) Sellers shall have been legally permitted to and shall have offered
to proceed with the Closing, and all of the conditions to Closing set forth
in Section 6.1 and Section 6.2 (other than Section 6.2(e)) shall be
satisfied or shall have been waived by Acquiror and the Closing shall not
have occurred due to the refusal or inability of Acquiror to proceed, then
Acquiror shall pay to PEC, within two business days following the date of
termination, the sum of $75,000,000 as a termination fee, which the parties
agree shall constitute liquidated damages to Sellers in respect of any
breach by Acquiror of its obligations hereunder to consummate the
transactions contemplated hereby.
ARTICLE X
GENERAL PROVISIONS
10.1 Extension; Waiver. The parties hereto may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto; and (iii) waive compliance with any
of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party. The
failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
10.2 Amendment. This Agreement may be amended, modified or
supplemented only by written agreement of Acquiror and Sellers at any time
prior to the Closing Date with respect to any of the terms contained
herein.
10.3 Expenses. Each of the parties hereto shall pay the fees
and expenses of its respective counsel, accountants and other experts and
shall pay all other costs and expenses incurred by it in connection with
the negotiation, preparation and execution of this Agreement and the
consummation of the transactions contemplated hereby. Except as otherwise
specifically provided herein, Sellers shall pay any fees and expenses
incurred prior to Closing of any counsel, accountants and other experts of
any of the PEPL Companies in connection with the negotiation and
preparation of this Agreement. Acquiror shall pay all HSR filing fees in
connection with the transactions contemplated by this Agreement.
10.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to choice of law principles, including all matters of
construction, validity and performance.
10.5 Notices. Notices, requests, permissions, waivers, and
other communications hereunder shall be in writing and shall be deemed to
have been duly given if signed by the respective persons giving them (in
the case of any corporation the signature shall be by an officer thereof)
and delivered by hand or mailed registered or certified, return receipt
requested, postage prepaid and addressed as follows:
If to Sellers, to:
PanEnergy Corporation
5400 Westheimer Court
Houston, Texas 77056
Attention: General Counsel
and
Duke Energy Corporation
422 South Church Street
Charlotte, North Carolina 28202
Attention: General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Frederick S. Green, Esq.
and,
If to Acquiror, to:
CMS Energy Corporation
300 Town Center Drive, Suite 1100
Dearborn, Michigan 48126
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3987
Attention: Sheldon S. Adler, Esq.
Such names and addresses may be changed by notice given in accordance with
this Section 10.5. Notices, requests, permissions, waivers and other
communications properly given as aforesaid shall be effective when
delivered by hand, sent by telecopy, or on the third business day following
the date of mailing.
10.6 Entire Agreement. This Agreement, together with all
schedules, exhibits, annexes, certificates, instruments and agreements
delivered pursuant hereto contain the entire understanding of the parties
hereto and thereto with respect to the subject matter contained herein and
therein, and supersede and cancel all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or
written, respecting such subject matter. There are no restrictions,
promises, representations, warranties, agreements or undertakings of any
party hereto with respect to the transactions contemplated by this
Agreement other than those set forth herein or made hereunder.
10.7 Disclosure Schedule. The Disclosure Schedule is
incorporated into this Agreement by reference and made a part hereof.
10.8 Headings; References. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. All references herein to "Articles", "Sections" or "Exhibits"
shall be deemed to be references to Articles or Sections hereof or Exhibits
hereto unless otherwise indicated.
10.9 Counterparts. This Agreement may be executed in one or
more counterparts and each counterpart shall be deemed to be an original,
but all of which shall constitute one and the same original.
10.10 Parties in Interest; Assignment; No Third Party
Beneficiaries. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall inure to the benefit of and be
binding upon Sellers and Acquiror and shall inure to the sole benefit of
Sellers and Acquiror and their respective successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon
any other Person any rights or remedies under or by reason of this
Agreement.
10.11 Severability; Enforcement. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining
portions hereof. If it is ever held that any restriction hereunder is too
broad to permit enforcement of such restriction to its fullest extent, each
party agrees that a court of competent jurisdiction may enforce such
restriction to the maximum extent permitted by law, and each party hereby
consents and agrees that such scope may be judicially modified accordingly
in any proceeding brought to enforce such restriction.
10.12 Consent to Jurisdiction; Exclusive Forum. Each party
hereto irrevocably and unconditionally (i) submits, for itself and its
property, to the exclusive jurisdiction of any Federal Court sitting in New
York County (Southern District) of the State of New York in any suit,
action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment rendered in any such suit,
action or proceeding, (ii) waives any objection which it may now or
hereafter have to the laying of venue of any such suit, action or
proceeding in any such court, including any claim that any such suit,
action or proceeding has been brought in an inconvenient forum and (iii)
waives all rights to a trial by jury in any such suit, action or
proceeding. Any and all service of process and any other notice and any
such action or proceeding shall be effective against any party if given
personally or by registered or certified mail, return receipt requested, or
by any other means of mail that requires a signed receipt, postage prepaid,
mailed to such party as provided herein. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner
permitted by law. The Sellers and Acquiror hereby agree that neither
Sellers nor Acquiror shall bring an action arising out of or relating to
this Agreement against the other in any forum other than a Federal Court
sitting in New York County (Southern District) of the State of New York,
unless Federal jurisdiction in such action is not available, in which case
the exclusive forum shall be a state court sitting in New York County of
the State of New York.
[SIGNATURES BEGIN ON NEXT PAGE]
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
PANENERGY CORP
By: /s/ Fred J. Fowler
--------------------------------
Name: Fred J. Fowler
Title: President
TEXAS EASTERN CORPORATION
By: /s/ Fred J. Fowler
--------------------------------
Name: Fred J. Fowler
Title: President
CMS ENERGY CORPORATION
By: /s/ William T. McCormick
--------------------------------
Name: William T. McCormick, Jr.
Title: Chairman of the Board and
Chief Executive Officer
Exhibit 99.1
Press Release
DEARBORN, Mich., November 2, 1998 -- CMS Energy Corporation
(NYSE:CMS) announced today that it has executed a definitive agreement to
acquire Panhandle Eastern Pipe Line Company, Trunkline Gas Company and the
storage related to those systems and the Trunkline LNG Company terminal
from Duke Energy for $2.2 billion involving a cash payment of $1.9 billion
and existing Panhandle debt of $300 million.
The assets include: 11,500 miles of mainline gas pipe extending
from the Texas Gulf Coast to Michigan and from the Kansas/Oklahoma
mid-continent to Michigan, with a combined capacity of 3.5 billion cubic
feet per day; 340 miles of pipeline in the offshore Gulf of Mexico; 70
billion cubic feet of underground gas storage facilities; an LNG port,
unloading and regasification facilities with a production capacity of 700
million cubic feet per day and liquid storage of 1.8 million barrels.
William T. McCormick, Jr., Chairman and Chief Executive Officer
of CMS Energy, stated, "this acquisition positions CMS Energy as the
premier diversified energy company in the U.S. Midwest and an even stronger
global energy company. Panhandle's energy assets are an exceptionally good
strategic fit with CMS Energy because of their physical connection to our
substantial gas distribution and storage assets in Michigan and our
extensive gas gathering and processing assets in the U.S. mid-continent
area. Furthermore, there are numerous synergies that will result from
this first major geographically contiguous electric and gas convergence
merger as gas-fueled electric generation continues to grow rapidly in the
U.S. Midwest."
Importantly, Mr. McCormick said, "the acquisition is projected to
be immediately accretive to CMS Energy's earnings in 1999 (even with
additional common shares expected to be issued), generates surplus cash and
provides for additional earnings growth in the second year and beyond."
The transaction is expected to close in January 1999. It is
subject to the normal pre-merger Hart-Scott-Rodino Act notification.
With the Panhandle acquisition, CMS Energy's worldwide energy
assets would include ownership interest in:
o 22,000 miles of pipeline and 20,000 miles of gathering systems on
four continents.
o Six gas and electric distribution companies serving over four
million customers in North and South America with an additional
one-million customer company in the final stages of acquisition
in Asia.
o 15,000 megawatts from 30 major power plants operating on five
continents with an additional 5,000 megawatts in construction.
o One billion cubic feet/day of gas processing capacity, and 350
billion cubic feet of gas storage capacity in operation; 700
million cubic feet/day LNG terminal and a 2500 metric ton/day
methanol plant under construction.
CMS Energy Corporation is currently a $5 billion (sales), $10
billion (assets) international energy company operating throughout the U.S.
and in 21 countries around the world with businesses in electric and
natural gas utility operations; independent power production; natural gas
pipelines and storage; oil and gas exploration and production; and energy
marketing, services and trading. CMS Energy Corporation's principal
subsidiary is Consumers Energy, Michigan's largest utility and America's
fourth largest combination gas and electric utility.
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Information on CMS Energy is accessible on the Internet through the World
Wide Web at the following address: http://ww.cmsenergy.com/
