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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10592
DESTEC ENERGY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 38-2875546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 CITYWEST BLVD., SUITE 150
HOUSTON, TEXAS 77042
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (713) 735-4000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $0.01 par value The New York Stock Exchange, Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 19, 1997 was approximately $227,100,969. As of March 19,
1997, there were 56,127,024 shares of common stock, $0.01 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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DESTEC ENERGY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I
Items 1, 2 and 3. Business, Properties and Legal Proceedings................................................ 1
Item 4. Submission of Matters to a Vote of Security Holders............................................ 15
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....................... 16
Item 6. Selected Financial Data........................................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 17
Item 8. Financial Statements and Supplementary Data.................................................... 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 61
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 61
Item 11. Executive Compensation......................................................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 67
Item 13. Certain Relationships and Related Transactions................................................. 68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 70
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended December 31, 1996
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to those, discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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PART I
ITEMS 1, 2, AND 3. BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS
BUSINESS
OVERVIEW
Destec Energy, Inc. (together with its subsidiaries, "Destec") is one of the
largest independent producers of electricity in the world. Destec is in the
business of (i) developing, operating and managing projects which produce
electricity, thermal energy and syngas; (ii) marketing and selling electricity,
thermal energy, natural gas and lignite; and (iii) investing in projects,
entities and natural resources which support its strategic objectives. As an
independent power company, Destec has interests in 24 operating facilities, the
majority of which Destec operates and manages. All of Destec's facilities,
except the Wabash Project (defined below), produce and sell electric power, and
the majority of these facilities produce thermal energy, principally steam, to
electric utilities and energy intensive industries. Four of Destec's 24
operating facilities are located outside the United States. The combined gross
capacity of these facilities is approximately 5,136 megawatts ("MW") of
electricity and over three million pounds per hour of steam. Destec currently
has two projects, representing approximately 850 MW of capacity in construction
or advanced development. See "Destec Energy's Projects -- Projects in Operation"
and "-- Projects in Advanced Development or Under Construction."
Destec is the successor to a portion of the energy businesses developed by
The Dow Chemical Company ("Dow"). Dow transferred to Destec certain assets,
technologies, personnel and expertise involved in the production and marketing
of electricity, steam and syngas. To complement these capabilities, in December
1989, Destec acquired PSE Inc., now known as Destec Holdings, Inc. ("DHI"), a
company with a 20-year history in the development, engineering, construction,
ownership and operation of gas-fired cogeneration facilities. Prior to its
initial public offering in March 1991, Destec was a wholly owned subsidiary of
Dow. Dow currently owns approximately 80.2% of Destec's outstanding common
stock. See "Recent Developments."
Destec's business strategy continues to be based on being the low-cost
producer of electric power by expanding and strengthening its position as a
developer, operator and marketer of electricity, thermal energy and syngas.
Assuming the Merger (defined below) is not consummated, Destec will continue to
utilize the cash flows from its existing business to invest in and develop power
and syngas projects in domestic and international markets. See "Recent
Developments."
Destec was incorporated in 1989 in Delaware. Its principal executive offices
are located at 2500 CityWest Boulevard, Suite 150, Houston, Texas 77042, and its
telephone number is (713) 735-4000.
RECENT DEVELOPMENTS
On January 17, 1997, Tiger Bay Limited Partnership, in which Destec holds an
equity interest of approximately 50%, executed an agreement for the sale of the
nominally rated 220 megawatt Tiger Bay cogeneration facility, located in Fort
Meade, Florida to a wholly owned subsidiary of Florida Power Corporation
("Florida Power") for approximately $445 million. Destec's estimated share of
the proceeds after repayment of partnership debt and the net settlement of other
partnership obligations is anticipated to be approximately $140 million. The
sale is subject to certain conditions, including, without limitation, regulatory
approvals and the sale of Destec.
On February 17, 1997, Destec executed an Agreement and Plan of Merger (the
"Merger Agreement"), by and among Destec, Dow, NGC Corporation ("NGC") and NGC
Aquisition Corporation II, a wholly owned subsidiary of NGC ("Purchaser"),
pursuant to which, among other things, Purchaser will merge with and into Destec
(the "Merger"). The surviving corporation after the Merger will be a wholly
owned subsidiary of NGC. Pursuant to the Merger Agreement, among other things,
each outstanding share of Destec's common stock, par value $0.01 per share (the
"Common Stock"), will be converted into
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the right to receive $21.65 in cash (the "Merger Consideration"). The
consummation of the Merger is subject to certain conditions, including the
approval by the holders of at least 66 2/3% of the outstanding Common Stock, as
well as the approval by federal antitrust authorities and the Federal Energy
Regulatory Commission ("FERC").
DESTEC'S PRODUCTS AND SERVICES
POWER PRODUCTION
BACKGROUND. The projects which Destec develops, operates and manage produce
energy in the form of electricity and syngas in cogeneration plants, exempt
wholesale generators and a coal gasification plant. A cogeneration plant
utilizes power production technology that results in the sequential generation
of two or more useful forms of energy (e.g., electricity and steam) from a
single fuel source (e.g., natural gas). The economic benefit from a cogeneration
project can be substantial, because the steam produced by a cogeneration plant
is sold to an industrial user. In contrast, exempt wholesale generators generate
electric power typically for a utility, but require no industrial user to
purchase any steam generated by the project. Destec's coal gasification plant
produces syngas, which serves as an alternative fuel in power generation
facilities.
Prior to 1992, regulatory constraints prevented Destec from developing
exempt wholesale generators and limited Destec's electric power production
operations to cogeneration facilities. See "-- Domestic Power Market."
Consequently, of the 23 electric power production facilities and one operating
coal gasification facility in which Destec has an interest, 17 are cogeneration
facilities. Since 1992, however, the power industry has emphasized exempt
wholesale generators. Destec management expects that, in the future, its
electric power production operations will also emphasize exempt wholesale
generators, in addition to cogeneration projects.
DOMESTIC POWER MARKET. Historically in the United States, regulated and
government-owned utilities have been the only significant producers of electric
power for sale to third parties. The energy crisis of the 1970s led to the
enactment of the federal Public Utility Regulatory Policies Act of 1978
("PURPA"), which encouraged companies other than utilities to enter the electric
power business by reducing regulatory constraints. In addition, PURPA and its
implementing regulations created unique opportunities for the development of
cogeneration facilities by requiring utilities to purchase electric power
generated in cogeneration plants meeting certain requirements (referred to as
"Qualifying Facilities"). See "Regulatory Matters -- Energy Regulation." As a
result of PURPA, a significant market for electric power produced by independent
power producers such as Destec developed in the United States. In 1992, Congress
enacted the Energy Policy Act of 1992 ("Energy Act"), which amended the Public
Utility Holding Company Act of 1935 ("PUHCA") to create new exemptions from
PUHCA for independent power producers selling electric energy at wholesale, to
increase electricity transmission access for independent power producers and to
reduce the burdens of complying with PUHCA's restrictions on corporate
structures for owning or operating generating or transmission facilities in the
United States or abroad. The Energy Act has enhanced the development of
independent power projects and has further accelerated the changes in the
electric utility industry that were initiated by PURPA. Implementation of
federal and state policies resulting in increased availability of transmission
access for wholesale and retail transactions could create additional markets and
competition for electricity power sales.
INTERNATIONAL POWER MARKET. As a result of the increased demand for power
generating capacity around the world, the fastest growing area of the power
industry today is the international sector. This has led to increased emphasis
by foreign governments toward privatization of state-owned utilities. Experts
estimate that the international market represents 85% of the world's new and
replacement power needs. At the same time, the national, provincial and local
laws of each host country, unique political and currency exchange requirements,
and the application of new worldwide environmental standards to international
projects, create new risks and obligations to be managed.
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As the international market for power has continued to expand, Destec has
formed Destec Energy (Asia) Pte, Ltd., a Singapore corporation ("Destec Asia")
to provide business development services in Asia and the Far East, complementing
the business development services provided by Destec Europe, S.A. in Europe,
Africa and the Middle East. Destec's business development services in Central
and South America are provided by Destec's Houston office. Each of these offices
assist Destec in identifying opportunities for the development, acquisition or
investment in projects in their respective regions. Destec's management is
evaluating several international development and acquisition projects in areas
including Asia, Australia, the Far East, Europe, Africa, the Middle East and
Latin America.
COAL GASIFICATION -- SYNGAS
Syngas is produced through a coal gasification process and can be used as a
substitute fuel for natural gas in gas-fired generating facilities. Destec
produces syngas through a proprietary coal gasification process that removes
sulfur and results in lower sulfur dioxide, nitrogen oxide and carbon dioxide
emissions than alternative coal-based technologies such as pulverized coal and
circulating fluidized bed boilers. The Clean Air Act and recent amendments
thereto contain provisions that regulate the amount of sulfur dioxide and
nitrogen oxide that may be emitted by a generating project, as these emissions
may be a cause of acid rain. Compliance with these environmental emission
regulations under the Clean Air Act, especially for coal-burning facilities, may
be enhanced by use of such coal gasification technology.
Key factors influencing the market potential for syngas and syngas-based
power generation include end users' commitment to coal-based energy production,
the extent of restructuring and plant life extensions of utility plants, the
availability and cost of delivered coal, the difference between natural gas and
coal prices, the availability of natural gas, regulatory efforts to reduce acid
rain and other related emissions, regulatory, strategic and legislative
incentives to utilize coal-based energy sources and the reliability and cost
effectiveness of syngas technology relative to natural gas and other coal-based
technologies. In recent years, the price of natural gas has been low relative to
the price of coal, which resulted in a shift from coal to natural gas as the
primary fuel source for new energy-producing facilities. As a result, syngas
technology has become less attractive.
Destec currently has an interest in one operating facility for the
production of syngas using its proprietary technology: the Wabash River Coal
Gasification Project in West Terre Haute, Indiana ("Wabash Project"), which
commenced commercial operation in 1995. In addition, until June 1996, Destec had
an interest in a facility near Plaquemine, Louisiana (the "LGTI Facility"),
which was constructed by Dow in 1987 and which was decommissioned by Destec in
1995. Each of these facilities was designed to convert coal through a
gasification process into a refined grade of syngas suitable for use as a fuel
in gas turbines.
In September 1991, the Wabash Project, a joint venture between Destec and
PSI Energy, Inc. ("PSI") was selected by the U.S. Department of Energy ("DOE")
to participate in the DOE's Clean Coal IV Program. Under this program and a
related agreement among the DOE, Destec and PSI, the DOE shares up to $219
million of the cost of the Wabash Project. In June 1996, Destec refinanced the
operating lease for the gasification portion of the Wabash Project. Under the
operating lease, a wholly owned subsidiary of Destec is the lessee and Destec
guarantees the payments of such subsidiary thereunder. The lease expires in
April 2001. Construction of the Wabash Project was completed in the third
quarter of 1995, with commercial operation achieved in the fourth quarter of
1995. After an initial demonstration period, the project is expected to operate
commercially as part of PSI's electrical generating system. Destec is currently
making improvements at the plant at an estimated cost of $14 million, with
completion expected in 1997.
The LGTI Facility was constructed pursuant to an agreement with the U.S.
Department of Treasury ("Treasury Department") that required the Treasury
Department to make certain payments ("Guaranteed Payments") for the sale of
syngas when such payments were earned under the agreement, through the first
quarter of 1997. The LGTI Facility also received revenues from Dow for the sale
of syngas. Substantially all
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of the Guaranteed Payments were earned by late 1995. In November 1995, the LGTI
Facility ceased operations and commenced decommissioning after a shutdown,
because it would not have been economical to restart and operate the plant given
that substantially all Guaranteed Payments had been earned. As a result,
approximately $0.1 million of the Guaranteed Payments will not be received. In
June 1996, Dow and Destec entered into a settlement agreement regarding the
decommissioning of the LGTI Facility under which Destec has agreed to reimburse
Dow for clean-up and disposal expenses up to a maximum of $250,000. Destec also
agreed to transfer the LGTI Facility and related equipment to Dow but retained
ownership of a slag (an inert, non-leaching ash by-product of gasification
process) pile on Dow property and will receive revenues from any Destec sale of
slag product to third parties. Destec has agreed to perform a clean closure of
the slag pile within five years.
POWER MARKETING
In August 1994, Destec designated a wholly owned subsidiary, Destec Power
Services, Inc. ("DPS"), to engage in the business of brokering and marketing
electric power at the wholesale level. In January 1995, Destec received approval
from the FERC to do business as a power marketer nationwide, and received the
necessary rate approvals and other regulatory exemptions for power marketing
activities. DPS has received an export permit from the Canadian National Energy
Board that authorizes the export of electricity from Canada into the United
States. DPS has also received an export license from the United States
Department of Energy that authorizes the export of electric energy from the
United States to Mexico. Formation of this subsidiary and receipt of regulatory
approval has enabled Destec to expand its range of products and enhance the
productivity and economic contribution of its existing generation assets. DPS
currently has significant power marketing activities in the States of California
and Texas. DPS is currently marketing power through its Western Operations and
Southern Operations located in Walnut Creek, California and Houston, Texas
respectively.
CALIFORNIA. Destec and Pacific Gas & Electric Company ("PG&E") have entered
into the first comprehensive control area and network transmission services
agreement between a utility and a power marketer. This agreement enables DPS to
purchase and aggregate power from a number of generating sources, including the
excess of firm contract capacity from Qualifying Facilities under contract with
PG&E. The network transmission services agreement also allows DPS to market
power directly to wholesale customers over PG&E's transmission lines. The FERC
accepted and approved this network transmission agreement in April 1995. See
"Regulatory Matters".
In September 1995, DPS entered into a contract with the Port of Oakland
Authority in Oakland, California, which provides that DPS will supply seven
megawatts of electricity to The Metropolitan Oakland International Airport for
five years which commenced January 1, 1996. Transmission services are provided
under the control area and network transmission agreement. The management of
Destec believes that the contract is a first between a power marketer and a full
requirements customer. In addition, DPS continues to pursue power marketing
agreements to enable DPS to secure low cost energy for marketing and to market
that energy to potential purchasers. PG&E has resisted DPS's attempt to
aggressively pursue various facets of such California wholesale opportunities.
TEXAS. Pursuant to an agreement between Destec and Dow, Destec provided
administrative, business management and marketing services with respect to
excess capacity and energy produced by Dow's Freeport, Texas cogeneration
facilities. Prior to expiration of a power sales agreement between Texas
Utilities Electric Company ("TUEC") and Dow in April 1995, Destec marketed 100
MW to TUEC. Since the expiration of this agreement, DPS has marketed, on behalf
of Dow, certain excess capacity and energy to purchasers from time to time and
has been compensated by Dow for such services.
For power marketing in Texas, Destec has focused on maximizing the value of
uncommitted capacity and energy from existing Texas operating projects and
through market opportunities. Through its Southern Operations, DPS is marketing
capacity, energy, and ancillary services to several utilities and power
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marketers including Central and Southwest Services, Inc, ("CSW"), Houston
Lighting & Power Company ("HL&P"), The Lower Colorado River Authority ("LCRA"),
South Texas Electric Cooperative ("STEC"), Texas-New Mexico Power Co. ("TNP"),
Enron Power Marketing and LG&E Power Marketing. In addition to these spot sales
and short-term contracts, DPS has a long-term contract with LCRA for capacity
and associated energy (up to 230 MW) and is nearing approval of a long-term,
full-requirements contract with another utility. DPS' Southern Operations also
markets power from the CoGen Lyondell facility (the "CLI Facility") and other
non-utility facilities and coordinates with other generators within the Electric
Reliability Council of Texas ("ERCOT") to market ancillary services.
In February 1996, CoGen Lyondell, Inc., a wholly owned subsidiary of Destec
("CLI"), and Lyondell Petrochemical Company ("LYO") formed a partnership that
was to sublease a portion of the CLI Facility. It was anticipated that the power
generated at the CLI Facility would be distributed to CLI and LYO in proportion
to their partnership percentages, pursuant to the self-generation exception
under the Texas Public Utility Regulatory Act. HL&P challenged the partnership
on the basis that the distribution of electricity under the partnership
structure would constitute a retail sale of electricity. A decision in HL&P's
favor was rendered in Austin District Court in September 1996. Destec is
currently pursuing an appeal of this decision. All deliveries of power from the
CLI Facility to LYO through a private transmission line have been postponed
indefinitely pending appeal.
Destec and DPS are attempting to negotiate new contracts for the sale of
power to industrials, utilities, municipalities, cooperatives and other
wholesale customers. No assurances, however, can be made that new contracts will
be obtained. In addition, the revenues generated from any new contracts will
likely not replace the revenue and gross margin under the agreement with Dow
relating to Dow's Freeport facility. The final negotiated price and quantity for
electricity sold under any contracts that are entered into may differ from the
previous or existing contracts. Contracts having significantly different terms
than the previous contracts substantially reduced Destec's revenues and its
gross margin in 1995 and 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In Texas, Destec is seeking legislative and regulatory changes which, if
enacted, would open additional Texas markets to independent power producers.
Certain regulatory proceedings at the PUCT may also affect future power sales in
Texas. See "Regulatory Matters -- State Regulation."
PROJECT SERVICES
Since its formation, Destec has utilized its expertise and significant
experience in the areas of development, engineering, environmental affairs,
operating services and management and fuel supply services of energy-producing
projects. These capabilities have also been used by Destec in evaluating
potential investment opportunities in both domestic and international markets.
DEVELOPMENT. The primary factors considered by management in evaluating
potential development, operation and investment opportunities continue to be the
anticipated rate of return on equity investment and cash flow of the project,
the existing and potential future relationship between Destec and the customer,
the availability and reliability of the fuel source and the existing and
potential competition for the proposed project. In particular, in the area of
international development, Destec seeks strategic international partners to
co-develop projects and share project risks. Destec continues to expect a
portion of its growth over the next few years to result from acquisitions of
industry-related operations, both in the United States and internationally.
ENGINEERING. Destec Engineering, Inc. ("Destec Engineering"), a wholly
owned subsidiary of Destec, historically provided expertise on engineering
processes, environmental permitting and conceptual and physical design to
enhance the construction and operation of Destec's cogeneration and independent
power projects and facilitate a smooth transition from the construction to the
operational stage of a project. As a result of Destec's new business strategy
adopted in 1994, Destec has changed the role of
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Destec Engineering. Destec Engineering's current role is to manage the
outsourced engineering contractors for each Destec project. Such management also
includes the oversight of all conceptual planning, feasibility studies,
environmental studies and plant, engineering and construction design. As to
those projects currently under active development, Destec Engineering continues
to serve in a more comprehensive role for the engineering and construction of
these projects. See Note 18 of the Notes to Consolidated Financial Statements
for a description of the restructuring.
OPERATING SERVICES. Destec currently provides, through certain of its
wholly owned subsidiaries (collectively, the "Operating Companies"), operating
services for 17 of the 24 power producing facilities in which it has an
interest. The Operating Companies provides these facilities with specialized and
comprehensive operating, maintenance, testing and start-up services. The
employees of the Operating Companies have developed experience and knowledge
from working with gas turbines that allows them to quickly and cost-effectively
develop solutions to problems without relying on manufacturer's representatives.
This translates into high availability and high reliability, as well as
efficient plant operations. One of Destec's Operating Companies also provides
services for the Wabash Project in Indiana, applying its syngas experience from
the LGTI Facility in Louisiana.
MANAGEMENT AND FUEL SUPPLY SERVICES. Asset management services are being
provided on 19 of the 24 projects in which Destec holds an interest. The
objective of the asset management group is to maximize the near-term and
long-term value of a project and ensure that the project owners are well
informed on both the financial and operating results of the project. To ensure
the ongoing profitability of each project, the asset management group
coordinates project activities with, and maintains relationships among, all
project stakeholders, which include owners, customers, lenders, suppliers, and
operators. Various activities are performed to obtain the ongoing profitability,
including: (i) negotiating new contracts and/or amending existing contracts,
(ii) developing annual and long-term business plans and forecasts, (iii)
developing and implementing profit improvement opportunities, (i.e. fuel
hedging, refinancing of project debt, capital improvements, and maintenance
scheduling), (iv) monitoring regulatory, legislative, and environmental affairs,
and (v) providing various accounting and financial services.
ENERGY RESOURCES
Destec owns, manages and invests in certain natural resource assets in
support of its strategic objectives.
LIGNITE. Lignite is a low rank of coal containing 20-45% moisture as mined
and having heating values of 5,500-8,300 Btu per pound. Destec controls lignite
deposits and other lignite-related properties located in two Texas counties,
comprising an aggregate of approximately 77,500 acres. Approximately 9,900 acres
of the total are owned in fee, and approximately 67,600 acres are held under
lease. The total tonnage of lignite owned, managed or leased by Destec is
estimated by Destec to be approximately 640 million tons.
Destec has leased 54,000 acres of these lignite properties to Dow under a
capital lease which requires rental payments to be made to Destec and provides
an option to Dow to purchase such properties at their book value plus cumulative
royalties. In February 1997, Dow delivered notice to Destec that it is
exercising such option and that the exercise price will be paid immediately
prior to the effective time (the "Effective Time") of the Merger. In connection
with the exercise of the option, the parties have agreed to terminate the
capital lease effective as of the Effective Time.
Pursuant to an agreement between HL&P and Dow, Dow leased to HL&P certain of
its lignite properties and assigned to HL&P certain lignite leases held by Dow.
With respect to all of the properties covered by the agreement, Dow received an
initial down payment from HL&P and continues to receive quarterly installment
payments under the lease. The full amount of HL&P's down payment is being
recouped by HL&P through an offset of 25% of the quarterly installment payments
made to Dow by HL&P. The down payment is expected to be fully recouped in 1997.
Dow has assigned to Destec the right
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to receive Dow's installment payments. The installment payments are based on a
specified rate, adjusted for inflation.
OIL AND GAS. In 1996, Destec continued to focus on maximizing the value of
its core producing areas, the San Juan Basin in New Mexico and, Colorado, and
the Antrim Shale formation in Michigan. In addition, in May 1996 Destec agreed
to acquire an interest in proved producing natural gas properties associated
with the Piceance Basin in western Colorado. Destec also owns oil and gas
mineral interests in the Cotton Valley Pinnacle Reef trend in East Texas.
Destec's portfolio of properties includes interests in 157,452 gross acres and
60,217 net acres and 457 gross producing natural gas wells. Destec has focused
its acquisition and development of gas reserves in areas that can benefit from
new technology. These include the improvements in the completion and production
technology of gas wells producing from coalbed methane reservoirs in the San
Juan Basin in New Mexico and the Antrim Shale in Michigan and tight gas sands in
the Piceance Basin of Colorado.
In all cases, Destec does not serve as the operator of the properties in
which it owns an interest. Destec continues to aggressively pursue large
conventional gas reserve acquisition opportunities that strategically fit within
Destec's business development strategy. In the natural resource area, Destec
competes with other companies which have interests in lignite, oil and gas.
DESTEC ENERGY'S PROJECTS
PROJECTS IN OPERATION
Destec has significant interests in 24 power projects, each listed below,
most of which utilize the technology and expertise developed by Destec. In July
1996, Destec completed the sale of its ownership interest in the 150 MW Blue
Mountain Power project and, therefore, this project is not included in the
following table. Sales revenues are recognized for the sale of electricity and
steam, but not for operating and management services, from the CoGen Lyondell
and CoGen Power facilities. Operating results, through December 31, 1996, for 20
projects were accounted for by Destec under the equity method of accounting.
Other than the Black Mountain, Commonwealth Atlantic, Crockett CoGen, Hartwell,
Indian Queens, Oyster Creek and Hazelwood projects, each of these projects was
designed, developed and is currently operated by Destec. Destec's share of
earnings from equity investments in these operating projects accounted for
approximately 33%, 27% and 6% of Destec's income before taxes for the years
ended December 31, 1996, 1995 and 1994. See "Management's Discussion and
Analysis -- Results of Operations."
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DATE OF ORIGINAL AMOUNT
ELECTRICITY % INTEREST COMMERCIAL PRIMARY POWER PURCHASER AND OF DEBT FINANCING
PROJECT AND LOCATION (IN MWS) IN PROJECT OPERATION CONTRACT EXPIRATION DATE(1) ($MM)
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CoGen Power 5 100% 1983 Great Lakes 57
Port Arthur, Texas Carbon Corporation(2)
CoGen Lyondell 590 Lessee(3) 1985 ARCO Chemical 220(3)
Channelview, Texas Company (1997)
Corona 47 40% 1988 Southern California 33
Corona, California Edison Company (2018)
Kern Front 48 50% 1989 Pacific Gas & Electric 39
Kern County, California Company (2009)
High Sierra 48 50% 1989 Pacific Gas & Electric 40
Kern County, California Company(2009)
Double "C" 48 50% 1989 Pacific Gas & Electric 40
Kern County, California Company (2009)
San Joaquin, 48 25% 1990 Pacific Gas & Electric 60
Stockton, California Company (2020)
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DATE OF ORIGINAL AMOUNT
ELECTRICITY % INTEREST COMMERCIAL PRIMARY POWER PURCHASER AND OF DEBT FINANCING
PROJECT AND LOCATION (IN MWS) IN PROJECT OPERATION CONTRACT EXPIRATION DATE(1) ($MM)
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Chalk Cliff 46 25% 1990 Pacific Gas & Electric 51
Kern County, California Company (2010)
<S> <C> <C> <C> <C> <C>
Badger Creek 46 50% 1991 Pacific Gas & Electric 58
Kern County, California Company (2011)
McKittrick 46 50% 1991 Pacific Gas and Electric 60
McKittrick, California Company (2011)
Live Oak 46 50% 1992 Pacific Gas & Electric 67
Kern County, California Company (2012)
Commonwealth Atlantic 340 50% 1992 Virginia Electric & 151
Chesapeake, Virginia Power Company (2017)
Black Mountain 85 50% 1993 Nevada Power 114
Las Vegas, Nevada Company (2023)
Hartwell Energy 300 50% 1994 Ogelthorpe Power 160
Hart County, Georgia Corporation (2019)
Oyster Creek 424 50% 1994 The Dow Chemical 410
Freeport, Texas Company (2014)
Tiger Bay(4) 212(5) 50.8% 1995 Florida Power 220
Polk County, Florida Corporation (2025)
Bear Mountain 46 50% 1995 Pacific Gas & Electric 57
Bakersfield, California Company (2015)
Michigan Power 123 50% 1995 Consumers Energy 189
Ludington, Michigan Company (2030)
Wabash 262(6) Lessee 1995 PSI Energy, Inc. (2020) 178
W. Terre Haute, Indiana
Crockett CoGen 240 8-12% 1996 Pacific Gas and Electric Company 260
Crockett, California (2026)
Los Mina 236 99% 1996 Corporacion Dominicana de 69(7)
Santo Domingo, Dominican Electricidad (2011)
Republic
Indian Queens 140 100% 1996 The National Grid Company 56(9)
Indian Queens, Cornwall, Electricity Pool of England and
England Wales(8)
Hazelwood 1,600 20% Various Victoria, Australia Transmission 1,051(10)
Victoria, Australia (1964-1971) Grid
Kingston 110 50% 1996 Ontario Hydro (2017) 143(11)
Ontario, Canada
</TABLE>
- ------------------------------
(1) Represents the contractual power purchaser of the largest amount of
electrical power.
(2) Contract is a month-to-month obligation.
(3) The CoGen Lyondell facility includes a sixth turbine addition, which became
operational in 1995, the generating capacity of which is 125 MW. This
addition was 100% Destec financed and is not part of the lease structure.
(4) Tiger Bay Limited Partnership, in which Destec has an approximate 50% equity
interest, has entered an agreement for the sale of the Tiger Bay
cogeneration facility. See "Recent Developments."
(5) The facility's maximum output is 218 MW.
(6) In equivalent MWs.
(7) This amount was 100% Destec financed.
8
<PAGE>
(8) The Indian Queens project has two primary sources of revenue. The project
sells real power (i.e., MW from the turbine) and capacity to the Electricity
Pool of England and Wales under a pooling and settlement agreement that has
no fixed termination date. The project also sells reactive power (i.e., MVAr
synchronous compensation from the generator) under an agreement with The
National Grid Company plc that expires in 2016.
(9) Converted to U.S. dollars at the assumed rate of U.S. $1.5540/L1.00.
(10) Converted to U.S. dollars at the assumed rate of A$0.7931/U.S. $1.00.
(11) Converted to U.S. dollars at the assumed rate of C$0.7289/U.S. $1.00.
PROJECTS IN ADVANCED DEVELOPMENT OR UNDER CONSTRUCTION
Destec is committed to pursuing opportunities to develop power projects in
the United States and internationally, and to seek new applications for its
power generation technology. Among the principal items involved in developing a
project are obtaining a commitment to purchase electric power and steam,
negotiating fuel supply and transportation contracts, selecting a site,
obtaining environmental and other governmental permits and approvals,
negotiating engineering contracts and arranging financing. These items are often
obtained independently of one another and success in obtaining one such item
does not necessarily result in success in obtaining any of the others. No
assurance can be given by Destec that all necessary items will be successfully
obtained for any of the projects currently in development or that any of the
projects discussed below will ultimately be completed. Management estimates that
a project requires from three to five years from opportunity identification to
the completion of financing.
The following table describes Destec's power projects currently under
construction or in advanced development and for which either an electric power
sales contract has been signed or a firm commitment for a substantial amount of
the project's output has been received. All information is provided based on the
status of such projects as of December 31, 1996, and is subject to change during
development and construction.
<TABLE>
<CAPTION>
ELECTRICITY % INTEREST EXPECTED
PROJECT AND LOCATION (IN MWS) IN PROJECT PRIMARY POWER PURCHASER COMPLETION DATE
- ----------------------------------- ------------- ----------- ----------------------------------- -----------------
<S> <C> <C> <C> <C>
Chiahui Power 450 50%(1) Taiwan Power 2000
Taiwan
Elsta CoGen 405 50% Deltan and PNEM 1997
Terneuzen, The Netherlands
</TABLE>
- ------------------------
(1) Destec owns a 50% interest in the Chiahui Project. Taiwan regulations
currently recognize foreign ownership of no more than 30% of such projects
at the present time. Destec is currently seeking legislation to permit such
ownership interests to exceed 30%.
COMPETITION
COMPETITION IN THE POWER MARKET
The independent power industry has grown rapidly over the past twenty years.
The demand for power may be met by generation capacity based on several
competing technologies, such as gas-fired or coal-fired cogeneration and power
generating facilities fueled by alternative energy sources including hydro
power, synthetic fuels, solar, wind, wood, geothermal, waste heat, solid waste
and nuclear sources. Destec competes with other non-utility generators,
regulated utilities, unregulated subsidiaries of regulated utilities and other
energy service companies in the development and operation of energy-producing
projects and the marketing of electric power. In the United States, the Energy
Act reduces certain restrictions currently applicable to certain projects which
are not Qualifying Facilities (as further defined below) under PURPA and
provides for the removal of certain impediments to competition in the power
generation industry. Although the provisions of the Energy Act apply only to
wholesale transactions, actions by many state authorities are also increasing
competition for industrial, commercial and other
9
<PAGE>
larger scale customers in the provision of services by Qualifying Facilities,
and independent power projects, as well as power marketers and other unregulated
suppliers. The development rights of Qualifying Facilities, which were
facilitated by certain provisions of PURPA, have not been affected, nor amended,
by the Energy Act. However, proposed legislation has been introduced in Congress
to repeal all or part of PURPA. These federal legislative proposals would not
abrogate or amend existing contracts with electric utilities and would only be
effective prospectively for new contracts.
Legislation to repeal PUHCA is also currently pending in Congress. Although
passage of stand alone legislation repealing PUHCA is not expected during the
current session, eventual repeal or modification of PUHCA is being considered.
Congressional repeal or modification of PUHCA will loosen the strictures
currently placed on utilities and others from acquiring generation and
transmission assets outside of their service territories. This will
significantly increase the competition Destec faces both domestically and
internationally.
The industry is presently characterized by rapid change in the regulatory
and commercial aspects of competition. Although the timing and ultimate effect
of these changes cannot be predicted, management of Destec believes that the
overall effect of the current changes will be to increase competition in the
generation, transmission and sale of electric power. See "Regulatory Matters --
Transmission and Wheeling."
COMPETITION IN THE COAL GASIFICATION-SYNGAS MARKET
In marketing the syngas produced by Destec's coal gasification technology,
Destec competes primarily with other major syngas producers, natural gas
suppliers and other coal technologies. Management believes that certain features
of Destec's proprietary coal gasification technology make it more energy
efficient and lower in capital costs than other coal gasification technologies.
Increased Clean Air requirements and market receptivity for clean coal
technologies may enhance the attractiveness of coal gasification technology for
the remainder of this decade. However, there are many other factors affecting
the development of syngas plants based on coal gasification technology,
including the price of competing fuels, such as natural gas, and the extent of
government participation in the development of alternative fuel technologies.
See "Destec's Products and Services -- Coal Gasification-Syngas" for a
discussion of these factors. At the present time, the cost of syngas relative to
competing fuels is adversely affecting the market for these plants. No assurance
may be given as to the likelihood or timing of any change in these factors.
Management of Destec believes that the largest market for coal gasification
technology may be outside North America, where coal is a more attractive fuel.
REGULATORY MATTERS
Destec is subject to various energy and environmental laws and regulations
at the federal, state and local levels in connection with the development,
ownership and operation of its projects and the sale of energy. Federal laws and
regulations developed by administrative agencies govern transactions with
utility companies, the types of fuel which may be utilized by a project, the
type of energy which may be produced by a project and the ownership and transfer
of interests in a project. State utility regulatory commissions must often
approve the rates and, in some instances, other terms and conditions on which
public utilities purchase electric power from Destec's projects. Under certain
circumstances where specific federal exemptions are otherwise unavailable, state
utility regulatory commissions may have broad jurisdiction over electric power
contracts. Energy-producing projects are also subject to federal, state and
local laws and administrative regulations which govern the emissions and other
substances produced by a project, as well as the geographical location, zoning,
land use and operation of a facility. Applicable federal environmental laws
typically have state and local enforcement monitoring and implementation
provisions. These environmental laws and regulations generally require that a
wide variety of permits and other approvals be obtained before the commencement
of construction or operation of an energy-producing facility and that the
facility then operate in compliance with such permits and approvals.
10
<PAGE>
Development of projects in international markets also creates exposure and
obligations to the national, provincial and local laws of each host country,
unique political and currency exchange requirements, the application of PUHCA to
international projects, worldwide environmental standards and requirements
imposed by multi-lateral lending institutions. Destec identifies and manages
those issues early in the development process to ensure compliance with such
laws and regulations.
Destec believes it is possible that changes in PURPA, PUHCA and other
related federal statutes may occur in the next several years. The nature and
impact of such changes on Destec's projects, operations and contracts is unknown
at this time. Destec is actively monitoring these developments directly and
through industry trade groups to determine such impacts as well as to evaluate
new business opportunities created by restructuring of the electric power
industry. Depending on the outcome of these legislative matters, changes in
legislation could have an adverse effect on current contract prices.
ENERGY REGULATION
As described below, the exemptions from extensive federal and state
regulation afforded by PURPA to Qualifying Facilities are important to Destec
and its competitors. Many of the projects that Destec currently owns meet the
requirements under PURPA to be Qualifying Facilities and are maintained on that
basis. As to those projects which are independent power projects, Destec has
structured them to ensure the necessary exemptions from PUHCA and state
regulation. Additionally, regulatory impositions on power marketing operations
are expected to be minimal under existing regulatory standards.
PURPA. The enactment in 1978 of PURPA and the adoption of regulations
thereunder by the FERC provide incentives for the development of small power
production facilities and cogeneration facilities meeting certain criteria. In
order to be a Qualifying Facility, a cogeneration facility must (i) produce not
only electricity but also a certain quantity of thermal energy (such as steam)
which is used for a purpose other than power generation, (ii) meet certain
energy operating and efficiency standards when oil or natural gas is used as a
fuel source and (iii) not be controlled or more than 50% owned by an electric
utility or electric utility holding company, or any combination thereof.
PURPA provides two primary benefits to Qualifying Facilities owned and
operated by non-utility generators. First, Qualifying Facilities under PURPA are
exempt from certain provisions of PUHCA, the Federal Power Act (the "FPA") and,
except under certain limited circumstances, state laws respecting rate and
financial regulation. Second, PURPA requires that electric utilities purchase
electricity generated by Qualifying Facilities at a price equal to the
purchasing utility's full "avoided cost" and that the utility sell back-up power
to the Qualifying Facility on a non-discriminatory basis. Avoided costs are
defined by PURPA as the "incremental costs to the electric utility of electric
energy or capacity or both which, but for the purchase from the Qualifying
Facility or Qualifying Facilities, such utility would generate itself or
purchase from another source." The FERC regulations also permit Qualifying
Facilities and utilities to negotiate agreements for utility purchases of power
at rates other than the purchasing utility's avoided cost. Although public
utilities are not required by PURPA to enter into long-term contracts, PURPA
helped to create a regulatory environment in which it has become more common for
such contracts to be negotiated or executed through selective procurement or
competitive bidding. If Congress amends PURPA, the statutory requirement that an
electric utility purchase electricity from a Qualifying Facility at full avoided
costs could be eliminated. Although current legislative proposals specify the
honoring of existing contracts, repeal of the statutory purchase requirements of
PURPA going forward could increase pressure to renegotiate existing contracts.
Any changes which result in lower contract prices could have an adverse effect
on Destec's operations and financial position. See "Competition -- Competition
in the Power Market."
PUHCA. Under PUHCA, any person (defined by PUHCA to include corporations
and partnerships and other legal entities) which owns or controls ten percent or
more of the outstanding voting securities of a "public utility company" or a
company which is a "holding company" of a "public utility company" is
11
<PAGE>
subject to registration with the Securities and Exchange Commission (the
"Commission") and regulation under PUHCA, unless such person is eligible for an
exemption, such as is available to Qualifying Facilities under PURPA, or as
established elsewhere under PUHCA. A registered holding company is required by
PUHCA to limit its operation to a single integrated utility system and to divest
any other operations not functionally related to the operation of that utility
system.
The Congress passed the Energy Act to promote further competition in the
development of new wholesale power generation sources. Through amendments to
PUHCA, the Energy Act encourages the development of independent power projects
which will be certified by the FERC as exempt wholesale generators ("EWGs"). The
owners or operators of these facilities are exempt from the provisions of PUHCA.
The Energy Act also provides the FERC with extensive new authority to order
electric utilities to provide other electric utilities, Qualifying Facilities
and independent power projects with access to their transmission systems.
However, the Energy Act does preclude the FERC from ordering transmission
services to retail customers and prohibits sham wholesale energy transactions
which appear to provide wholesale service, but actually are providing service to
retail customers.
A company engaged in the ownership or operation of electric power generation
and transmission facilities faces certain types of regulation for its
international activities. The principal regulatory consideration for
international projects is PUHCA, since it is broadly applicable to the ownership
and operation of power facilities (including generation and transmission
facilities) both inside and outside of the United States. For international
projects, the principal basis for exemption from PUHCA is by obtaining EWG
status from the FERC. EWG status is even more beneficial for international
projects because, although EWGs are not permitted to make retail sales in the
United States, retail sales by EWGs are generally allowed in international
markets. Another way to obtain an exemption from PUHCA for foreign ownership and
operation activities is by filing a foreign utility company determination
("FUCO") with the Commission. However, FUCO filings are less frequently used,
because unlike EWGs, no formal regulatory order is issued confirming the status
of a FUCO, and more rigorous state commission scrutiny is entailed.
Structuring Destec's activities to ensure that it is not a "holding company"
of a "public utility company" under PUHCA is also important in providing
financing and financial reporting flexibility to Destec. The cogeneration
facilities owned by Destec, or in which Destec has investments, are Qualifying
Facilities under PURPA. Destec has also pursued the development of independent
power projects which will not qualify for the benefits provided by PURPA, which
could subject these projects to PUHCA jurisdiction. To avoid such a consequence,
Destec has structured its participation in independent power projects in a
manner to qualify for exemptions under PUHCA provided by the Energy Act. Such
structures have permitted Destec to take ownership positions in a number of
independent power project projects. This strategy will protect the status of
Destec's existing cogeneration facilities as Qualifying Facilities under PURPA,
and not create adverse regulatory consequences.
The development of international power generation and transmission projects
also may entail other multi-national regulatory considerations arising under
United States law. Certain requirements exist for compliance with the Foreign
Corrupt Practices Act, and export/import controls and related trade laws may
apply to certain transactions. Free trade agreements may exist with certain
countries, such as Canada and Mexico, which can have important relevancy in the
structuring of business transactions in these markets. World Bank standards
exist for environmental regulations which also must be considered. Finally, tax
treaties may create certain requirements for project structuring to maximize the
tax planning and benefits to Destec. Destec seeks compliance with these
requirements in the project development and financing of its international
projects.
FPA. The FPA grants the FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce. The FPA provides the FERC
with ongoing as well as initial jurisdiction, enabling the FERC to revoke or
modify previously approved rates. Such rates may be based on a cost-of-service
approach or on rates that are determined through competitive bidding or
negotiation on a market basis.
12
<PAGE>
Although Qualifying Facilities under PURPA are exempt from rate-making and
certain other provisions of the FPA, independent power projects and certain
power marketing activities are subject to the FPA and to the FERC's rate-making
jurisdiction.
Utilities are not obligated to purchase power from projects subject to
regulation by the FERC under the FPA because they do not meet the requirements
of PURPA. However, because such projects would not be bound by PURPA's thermal
energy use requirement, they may have greater latitude in site selection and
facility size. All of the projects currently owned or operated by Destec as
Qualifying Facilities under PURPA are exempt from the FPA. Destec's EWGs,
Commonwealth Atlantic and Hartwell, are subject to the FPA and the jurisdiction
of the FERC, as is DPS. FERC has significantly relaxed the rules under which
power marketers and independent power producers, such as DPS and Destec's EWGs,
can sell or market power. With approval from FERC, such entities, with certain
exceptions, are exempted from cost-based rates and can make all sales at
market-based rates set through negotiations. Independent power projects in which
Destec currently participates have been granted market based rate authority and
comply with the FPA requirements governing approval of wholesale rates and
subsequent transfers of ownership interest in such projects.
STATE REGULATION
State public utility commissions, pursuant to state legislative authority,
will have jurisdiction over how any new federal initiatives are implemented in
each state and have broad jurisdiction over regulated independent power projects
which are not Qualifying Facilities under PURPA, and which are considered public
utilities in many states. Such jurisdiction would include the issuance of
certificates of public convenience and necessity to construct a facility as well
as regulation of organizational, accounting, financial and other corporate
matters on an ongoing basis. Although the FERC generally has exclusive
jurisdiction over the rates charged by an independent power project to its
wholesale customers, state public utility commissions have the practical ability
to influence the establishment of such rates by asserting jurisdiction over the
purchasing utility's ability to pass through the resulting cost of purchased
power to its retail customers. In addition, states may assert jurisdiction over
the siting and construction of independent power projects and, among other
things, issuance of securities, related party transactions and sale and transfer
of assets. The actual scope of jurisdiction over independent power projects by
state public utility regulatory commissions varies from state to state.
In Texas, unless otherwise exempted, the terms of supply contracts with
electric utilities are subject to review each time the utility seeks an
adjustment in the rates charged to its customers. Accordingly, during the entire
term of any contracts Destec has with utilities in Texas, such contracts are
subject to review by the Public Utility Commission of Texas ("PUCT").
The Texas Legislature passed a revised Public Utility Regulatory Act
("PURA") in 1995. This legislation recognizes power marketers and EWGs as
entities entitled to conduct business in Texas. Destec, through DPS, has
registered and is doing business as a power marketer in Texas. The legislation
also mandates that wholesale transmission service(s) in Texas meet federal
standards for non-discrimination and comparability. The PUCT conducted
rulemakings and other proceedings to implement these requirements and, as a
result, rules have been promulgated and transmission rates and terms and
conditions established. Non-discriminatory transmission tariff provisions for
the purchase and sale of ancillary serves, and an Independent System Operator
("ISO") to coordinate transmission within ERCOT have also been approved. PURA
also required the PUCT to study and submit reports on industry structure
(Project 15000), stranded investment (Project 15001), and the status of
competition (Project 15002) the reports were submitted January 15, 1997. Destec
actively participated in such proceedings. The 1997 Texas legislative session is
addressing further changes to the electric industry. While the final outcome of
any such legislation is uncertain, bills have been introduced that call for
retail access and customer choice beginning in 1999.
13
<PAGE>
In August 1996 the California State Legislature unanimously passed, and the
Governor signed, Assembly Bill 1890, the country's first comprehensive electric
industry restructuring legislation. The bill incorporates most of the California
Public Utilities Commission ("CPUC") December 1995 order regarding timing,
market structure, and transition issues. The law will enable California electric
consumers to have "direct access" to, and be able to choose among competing
suppliers of electricity. The bill codifies into law the January 1, 1998 start
date for the new market structure to be in place. It also calls for the creation
of a wholesale power pool ("Power Exchange"), the establishment of an ISO to
manage and control the transmission facilities, and the recovery by the
utilities of their "stranded cost" (i.e., incurred cost which can not be
recovered under market-pricing), including certain costs payable pursuant to
standard offer contracts, through a "competition transition charge."
Implementation of the restructuring called for by the new law will require
numerous state and federal regulatory filings and approvals, many of which are
currently in progress.
TRANSMISSION AND WHEELING
Energy-producing projects that sell power to customers which are not
geographically located near the project require that the project have the
capability of transmitting its power over utility power transmission grids to
the purchaser ("wheeling"). The FERC and state utility regulatory commissions
have jurisdiction over the wheeling of power to remote users; the prices and
related terms and conditions of wheeling in interstate commerce are regulated by
the FERC.
The PUCT has promulgated rules that require affected utilities to provide
wheeling service. These rules are in effect in the Electrical Reliability
Counsel of Texas system and the new transmission access provisions of the Energy
Act do not alter that federal and state jurisdictional balance.
Rules adopted at the FERC and a number of state utility regulatory
commissions require utilities to grant power producers increased access to
transmission and wheeling. The provisions of the Energy Act increase such
access. The Energy Act supports increased transmission access, and in April 1996
the FERC adopted rules (Order 888) to expand significantly transmission service
and access and provide alternative methods of pricing for transmission services.
Upon promulgation of the final rule by the FERC (and the PUCT for ERCOT), the
interstate transmission grid in the continental United States was opened to all
qualified persons that seek transmission services to wheel wholesale power.
Utilities are required to provide transmission customers non-discriminatory open
access to their transmission grids with rates, terms, and conditions comparable
to that which the utility imposes on itself. This provides Destec with increased
opportunities to sell and market the power produced by its independent power
projects. It also increases competition on a nationwide basis between
traditional and non-traditional power generators, such as Destec.
ENVIRONMENTAL REGULATION
The construction and operation of domestic and international energy and fuel
producing projects and the exploitation of natural resource properties are
subject to extensive federal, state and local laws and regulations adopted for
the protection of the environment and to regulate land use. The laws and
regulations applicable to Destec and projects in which it participates primarily
involve the discharge of emissions into the water and air, but can also include
wetlands preservation, noise regulation and a comprehensive Environmental Impact
Assessment which includes evaluation of the facility's impact on air, water,
ecology, human health and socioeconomic factors. These laws and regulations in
many cases require a lengthy and complex process of obtaining licenses, permits
and approvals from federal, state and local agencies. Obtaining necessary
approvals regarding the discharge of emissions into the air is critical to the
development of a project and can be time-consuming and difficult. Each
energy-producing project requires technology and facilities which comply with
federal, state and local requirements and sometimes extensive negotiations with
administrative agencies. Meeting the requirements of each jurisdiction with
authority
14
<PAGE>
over a project can delay or sometimes prevent the completion of a proposed
project, as well as require extensive modifications to existing projects.
Destec monitors environmental standards and evaluates its selection of
technology to ensure that applicable standards are being met. Based on current
trends, Destec expects that environmental and land use regulation will become
more stringent. Accordingly, Destec plans to continue to place a strong emphasis
on the development and use of state-of-the-art technology to minimize potential
impacts on the environment. In addition, Destec has developed expertise and
experience in obtaining necessary licenses, permits and approvals.
In November 1990, comprehensive amendments to the Clean Air Act were enacted
(the "1990 Amendments"). The first major revisions to the Clean Air Act since
1977, the 1990 Amendments vastly expand the scope of federal regulations and
enforcement in several significant respects. In particular, provisions relating
to non-attainment, air toxics, permitting, enforcement and acid deposition may
affect Destec's domestic projects. The Clean Air Act and the 1990 Amendments
contain provisions that regulate the amount of sulfur dioxide and nitrogen
oxides that may be emitted by a project. These emissions may be a cause of "acid
rain." Most of the domestic projects Destec owns, operates and has investments
in are fueled by natural gas and are not expected to be significantly affected
by the acid rain provisions of the 1990 Amendments. Destec's coal gasification
technology for the production of syngas is drawing interest from parties
attempting to determine ways to meet the acid rain provisions of the 1990
Amendments because the sulfur dioxide and nitrogen oxides emissions associated
with this technology are relatively low. Destec currently leases one such coal
gasification plant which is in operation in Indiana. See "Destec's Products and
Services -- Coal Gasification -- Syngas." In addition, carbon dioxide emissions
from Destec's coal gasification technology are among the lowest of all
commercially available coal-based systems.
One of the key elements of the 1990 Amendments is the inclusion of an
operating permit program in Title V. This program is intended to establish a
central point in tracking all applicable air quality requirements for every
source required to obtain a permit under the Clean Air Act. Final regulations
implementing these provisions were issued by the EPA in 1992. These regulations
created minimum requirements for the operating permit program. Each state was
required to submit a program for its implementation of the regulations for
approval to the EPA. Destec is required to submit complete operating permit
applications to those states in which it has operating projects which meet the
applicability standards under the 1990 Amendments. These new requirements affect
all of Destec's domestic operating facilities, except for Cogen Power, which is
not a source of pollutant emissions.
LEGAL PROCEEDINGS
Destec experiences routine litigation in the normal course of its business.
None of its pending litigation is expected to have a material effect on the
financial condition of Destec.
EMPLOYEES AND OFFICES
As of March 10, 1997, Destec had 668 active employees. None of Destec's
employees are covered by a collective bargaining agreement.
Destec leases its corporate headquarters in Houston, Texas and its regional
offices in Las Vegas, Nevada; Walnut Creek, California; North York, Ontario,
Canada; Chapultepec, Mexico; Sevres, France; and Singapore. Destec owns a
building in Bakersfield, California that serves as a central support facility
for its California projects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Destec's Common Stock is traded on the New York Stock Exchange, Inc.
("NYSE") under the symbol "ENG."
The following table shows the range of the low and high sales prices of
Destec's Common Stock during the last two fiscal years.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1995
1st Quarter................................................................ $ 9.38 $ 11.00
2nd Quarter................................................................ 9.88 14.38
3rd Quarter................................................................ 12.88 16.13
4th Quarter................................................................ 13.00 15.38
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1996
1st Quarter................................................................ $ 11.50 $ 13.75
2nd Quarter................................................................ 11.50 13.88
3rd Quarter................................................................ 11.88 14.38
4th Quarter................................................................ 12.50 16.25
</TABLE>
Since Destec's initial public offering in March 1991, Destec has paid no
dividends on its Common Stock. Destec currently intends to retain all earnings
for use in the operation and expansion of its business and, accordingly, does
not intend to pay cash dividends on its Common Stock in the near future. The
dividend policy of Destec will be reviewed from time to time by its Board of
Directors in light of Destec's earnings, financial condition, cash requirements
and such other business considerations as the Board of Directors deems relevant.
As of March 3, 1997, there were 771 record holders of Destec's Common Stock.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a five year summary of selected consolidated
financial data for Destec. The expiration of two Texas power purchase contracts
in 1994, and the expiration of the remaining power contract on April 30, 1995
substantially reduced Destec's revenues and operating income in 1995 from those
levels previously attained. The selected data for these years have been derived
from Destec's audited consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 577,912 $ 641,496 $ 726,693 $ 673,818 $ 507,561
Operating costs and expenses.......................... 556,577 651,411 613,021 541,469 397,105
Operating income (loss)............................... 21,335 (9,915) 113,672 132,349 110,456
Income before income taxes............................ 58,489 45,345 156,816 154,097 130,895
Income before cumulative effect of change in
accounting principle................................ 42,756 34,700 110,481 103,109 87,492
Cumulative effect of change in accounting principle
(2)................................................. -- -- -- -- 11,305
Net income............................................ $ 42,756 $ 34,700 $ 110,481 $ 103,109 $ 98,797
Per share amounts:
Income before cumulative effect of change in
accounting principle................................ $ 0.75 $ 0.59 $ 1.84 $ 1.67 $ 1.41
Cumulative effect of change in accounting principle
(2)................................................. -- -- -- -- 0.18
Net income per share (1).............................. $ 0.75 $ 0.59 $ 1.84 $ 1.67 $ 1.59
BALANCE SHEET DATA:
Total assets.......................................... $ 1,145,146 $ 1,047,812 $ 977,535 $ 858,425 $ 783,144
Long-term liabilities................................. $ 50,089 $ 46,172 $ 37,099 $ 32,809 $ 35,454
Project financing debt................................ $ 53,820 -- -- -- --
Total stockholders' equity............................ $ 787,742 $ 769,317 $ 745,135 $ 659,497 $ 572,591
</TABLE>
- ------------------------
(1) The weighted average shares outstanding were 56,932,000 at December 31,
1996, 58,659,000 at December 31, 1995, 60,151,000 at December 31, 1994,
61,865,000 at December 31, 1993, and 62,248,000 at December 31, 1992.
(2) Destec implemented Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forwardlooking statements reflecting the Company's
expectations in the near future; however, many factors which may affect the
actual results, especially contract prices and changing regulations, are
difficult to predict. Accordingly, there is no assurance that the Company's
expectations will be realized.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this report. Historical results and trends
which might appear should not be taken as indicative of future operations.
17
<PAGE>
OVERVIEW
Destec is an independent power producer and marketer of electricity, thermal
energy and syngas. In February 1997, Destec announced that its Board of
Directors (the "Board") had approved a Merger Agreement under which NGC
Corporation ("NGC") will acquire Destec in a merger ("Merger") for $21.65 in
cash for each outstanding share of Destec common stock, or approximately $1.27
billion in the aggregate. Following the Merger, Destec will become a wholly
owned subsidiary of NGC. The consummation of the Merger is subject to certain
conditions, including approval by holders of two-thirds of the outstanding
shares of common stock and by federal antitrust authorities and the Federal
Energy Regulatory Commission. The Dow Chemical Company ("Dow"), which owns over
80% of the outstanding common stock as of December 31, 1996, has agreed to vote
its shares of common stock for approval and adoption of the Merger. In January
1997, Tiger Bay Limited Partnership, in which Destec holds an equity interest of
approximately 50%, executed an agreement for the sale of the Tiger Bay
cogeneration facility, located in Fort Meade, Florida to a wholly owned
subsidiary of Florida Power Corporation for $445.0 million. Destec's estimated
share of the proceeds after repayment of partnership debt and the net settlement
of other partnership obligations is anticipated to be approximately $140.0
million. The sale is subject to certain conditions, including regulatory
approvals and the sale of Destec. See Note 22 of the Notes to Consolidated
Financial Statements for additional discussion. Destec's project portfolio
includes a total of twenty-four operating or substantially completed projects
consisting of nineteen power projects in the U.S., one syngas project in the
U.S. and four international power projects located in Australia, Canada, the
Dominican Republic and the United Kingdom. During 1996, Destec received revenues
from the sale of electricity, thermal energy and syngas from Destec's owned or
leased projects and from power marketing revenues earned by Destec Power
Services, Inc. ("DPS"). These revenues and revenues earned in 1995 from the sale
of syngas to Dow and from the sale of power from Dow's Freeport facility under
the Power Marketing Agreement ("PMA") are classified as "Power, steam and
syngas" in the "Summary of Statements of Consolidated Income" presented below.
Destec also received revenue from its oil and gas properties and lignite
properties (classified as "Energy resources"), from fees earned in connection
with its activities as an engineer and operator of various cogeneration projects
(classified as "Engineering and operations") and from fees earned as a developer
of power generation projects (classified as "Development"). The related costs
for each of these activities appears in the corresponding section of the summary
as "Operating Costs and Expenses." Gross margin for these activities represents
revenues less the related operating costs.
DOMESTIC POWER
Destec owns, leases or has an equity interest in nineteen operating power
projects in the U.S. Eleven of the nineteen projects are located in California
(17% based on invested capital at December 31, 1996), three are located in Texas
and the remainder are located in Virginia, Nevada, Georgia, Florida and
Michigan. In addition, DPS began selling excess power from Destec's facilities
as well as from other sources in June 1995.
These domestic projects, which represent 49% of Destec's invested capital in
equity investments, generally operate under energy sales contracts based upon
the purchasing utility's avoided costs. Competitive initiatives in several
states, as well as federal initiatives are designed to phase-in market based
pricing. The initiatives in California propose phasing in market based pricing
by the year 2002. These initiatives are generally not yet effective and will be
the subject of considerable debate and modification. Contract prices could
change as a result of the legislative process.
In February 1996, CoGen Lyondell ("CLI") and Lyondell Petrochemical Company
("LYO") formed Channelview CoGen General Partnership (the "Partnership") with
CLI as an 88% partner and LYO as a 12% partner. Houston Lighting and Power
Company ("HL&P") challenged the partnership on the basis that the structure is
actually a retail sale of electricity from CLI to LYO. A decision in HL&P's
favor was
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rendered in Austin District Court in September 1996. Destec is pursuing an
appeal of this judgment. As a result, deliveries of power to LYO via a private
transmission line are postponed indefinitely.
In July 1996, Destec completed the sale of its ownership interest in the 150
MW Blue Mountain Power project to The AES Corporation (see Note 7 of the Notes
to Consolidated Financial Statements).
DPS began selling power in June 1995 and is currently marketing power
through its Western Operations and Southern Operations located in Walnut Creek,
California and Houston, Texas, respectively. DPS' Western Operations are
currently marketing power under contracts with the Port of Oakland and Pacific
Gas & Electric Company ("PG&E"). The Port of Oakland contract provides that DPS
will supply 7 MW of electricity to the Metropolitan Oakland International
Airport effective January 1, 1996 for five years. DPS' Southern Operations are
marketing capacity, energy and ancillary services to several utilities and power
marketers including Central and Southwest Services, Inc. ("CSW"), HL&P, The
Lower Colorado River Authority ("LCRA"), South Texas Electric Cooperative,
Texas-New Mexico Power Co. ("TNP"), Enron Power Marketing, Inc., National Gas &
Electric, and LG&E Power Marketing, Inc. In addition to these spot sales and
short-term contracts, DPS has a long-term contract with LCRA for capacity and
associated energy (up to 230 MW) and is nearing approval of a long-term,
full-requirements contract with another utility. DPS' Southern Operations also
markets power from the CLI and other non-utility facilities and coordinates with
other generators within the Electric Reliability Council of Texas to market
ancillary services.
During 1996, Destec did not earn any revenue under the PMA for the sale of
capacity from Dow's Freeport facility due to the expiration of the two
underlying contracts in April and December 1994. The final PMA contract between
CLI and Texas Utilities Electric Company ("TUEC") expired in April 1995. In
February 1997, Dow and Destec formally terminated the PMA. Currently power
marketing activities are contracted by DPS as discussed above.
Destec and DPS are attempting to negotiate new contracts for the sale of
power to industrials, utilities, municipalities, cooperatives and other
wholesale customers. No assurances, however, can be made that new contracts will
be obtained. In addition, the revenues generated from any new contracts will
likely not replace the revenue and gross margin under the agreement with Dow
relating to Dow's Freeport facility. The final negotiated price and quantity for
electricity sold under any contracts that are entered into may differ from the
previous or existing contracts. Contracts having significantly different terms
than the previous contracts substantially reduced Destec's revenues and its
gross margin in 1995.
INTERNATIONAL POWER
Three of the international projects which were under construction at the
beginning of 1996 reached substantial completion or commercial operations during
1996. The Los Mina facility (Santo Domingo, Dominican Republic) commenced
commercial operations in May 1996, and the Indian Queens (Cornwall, United
Kingdom) and Kingston (Ontario, Canada) projects both reached substantial
completion in December 1996 and made a limited number of sales to outside
parties. In September 1996, Destec acquired an interest in the Hazelwood project
(Victoria, Australia) which was operational at the time it was purchased.
Currently, Destec is constructing the Elsta facility (Terneuzen, The
Netherlands) with completion expected in 1997. The Chiahui Power project
(Taiwan, Republic of China) is in active development, and Destec is currently in
negotiations with the Taiwan Power Company regarding development of the project.
In September 1996, an indirect wholly owned subsidiary of Destec, as part of
an international consortium, purchased for $1.9 billion the 1,600 MW Hazelwood
Power Station and the adjacent Hazelwood Mine in Victoria, Australia. The
consortium formed a partnership (the "Hazelwood partnership") to own and operate
the facility. Destec holds a 20% limited partnership interest in the Hazelwood
partnership and made an original equity contribution of $176.1 million in
September 1996 (see Note 8 of the Notes to Consolidated Financial Statements).
The remainder of Destec's investment is included in the
19
<PAGE>
project financing at the partnership level. The Hazelwood partnership is
planning a major capital expenditure program during the first three years of
ownership which may be funded from future capital contributions to refurbish two
of the eight operating units in order to maximize operating efficiencies and
upgrade environmental performance. The consortium will also seek further
investment opportunities in the Australian power industry.
SYNGAS
The Wabash River Coal Gasification facility ("Wabash"), a joint venture of
Destec and PSI Energy, Inc. ("PSI"), with cost-sharing supplied by the U.S.
Department of Energy ("DOE"), began commercial operations in November 1995 and
is constructed to process 2,700 tons of coal per day for the net production of
262 MW of electricity. The Wabash project has an agreement with PSI which
subjects Wabash to either an operating bonus or penalty depending on the
operating rate of the facility. The maximum bonus or penalty is $7.0 million per
operating year and is calculated based on the annual syngas production and is
settled at the end of 1999. As of December 31, 1996, Destec's accrual for the
potential penalty is $2.7 million. During 1996 Destec began making significant
equipment and process improvements in order to improve the reliability and
profitability of the Wabash facility. The total cost of the improvements, which
were financed through the new operating lease in August 1996, is estimated at
$14.0 million and completion is expected in 1997.
Destec's coal gasification facility (the "LGTI facility"), located near
Plaquemine, Louisiana, ceased operations in November 1995. Destec and Dow signed
an agreement in 1996 whereby the LGTI equipment and all related facilities,
except the slag pile, would be transferred to Dow. Destec has agreed to
reimburse Dow for clean-up and disposal expenses up to a maximum of
approximately $0.2 million. Destec has agreed to remove the slag pile at the
site in compliance with applicable federal, state and local legal requirements.
The cost of removal is expected to be offset by proceeds from the sale of the
slag.
ENERGY RESOURCES
Destec is engaged in the production and development of natural gas and oil.
Total proved gas reserves have increased to over 132 billion cubic feet
equivalents ("Bcfe") as of December 31, 1996. Current daily production averages
approximately 25 million cubic feet delivered per day ("Mmcfd") from interests
in three core producing areas: 1) the Antrim Shale in the Michigan Basin, 2) the
San Juan Basin in New Mexico, and 3) the Piceance Basin in western Colorado. The
Company also owns oil and gas mineral interests in the Cotton Valley Pinnacle
Reef trend in east Texas. Destec's portfolio of properties includes interests in
157,452 gross acres and 60,217 net acres and 457 gross producing natural gas
wells. Destec has focused its acquisition and development of gas reserves in
areas that can benefit from new technology. These include the improvements in
the completion and production technology of gas wells producing from coalbed
methane reservoirs in the San Juan Basin and the Antrim Shale in Michigan and
tight gas sands in the Piceance Basin of Colorado. Destec has chosen a strategy
of being a non-operator and elects to form alliances with successful operators
in each area of interest.
Destec controls, through the ownership of lignite leases or fee lands, five
lignite deposits and lignite-related properties in Freestone and Leon Counties,
Texas, comprising a total of 77,579 acres. Of the total, 9,896 acres are owned
in fee, and approximately 67,683 acres are held under lignite leases. The total
tonnage of these reserves is estimated to be approximately 640 million tons of
lignite as of December 31, 1996. See Note 22 of the Notes to Consolidated
Financial Statements for discussion of the effects the potential sale of
Destec's stock would have on Destec's lignite properties which are leased to
Dow.
In November 1996, Sonat Exploration Company ("Sonat"), a wholly owned
subsidiary of Sonat, Inc., announced the completion of a Cotton Valley Pinnacle
Reef well, the Blanton #1. This well is located on an 80-acre tract (the
"Sarandos tract"), which is owned by Destec and was leased to Sonat in May 1996.
Destec believes that it owns 100% of the minerals in the Sarandos tract and that
it has a 25% royalty interest in the Blanton #1 well. In January 1997 Destec
commenced an action to quiet title to the minerals
20
<PAGE>
and to resolve certain issues under the lease. Although Destec believes that it
will prevail in such action, there can be no assurance that this will be the
case.
See Note 5 of the Notes to Consolidated Financial Statements for discussion
of purchase/sale of oil and gas properties for 1994-1996.
RESULTS OF OPERATIONS
The following table sets forth a three year summary of Destec's statements
of consolidated income. This information has been derived from Destec's audited
Consolidated Financial Statements.
SUMMARY OF STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Power, steam and syngas.................................................... $ 232,625 $ 170,425 $ 317,595
Engineering and operations................................................. 301,147 436,051 358,398
Energy resources........................................................... 21,171 15,554 23,245
Development................................................................ 22,969 19,466 27,455
---------- ---------- ----------
Total Revenues........................................................... 577,912 641,496 726,693
---------- ---------- ----------
Operating Costs and Expenses:
Power, steam and syngas.................................................... 221,271 164,367 182,446
Engineering and operations................................................. 276,286 419,268 350,565
Energy resources........................................................... 12,025 12,660 14,740
Development................................................................ 12,546 20,456 19,702
Amortization of intangibles................................................ 2,471 2,469 2,471
Selling, general & administrative expenses................................. 31,978 32,191 33,137
Restructuring charges...................................................... -- -- 9,960
---------- ---------- ----------
Total Operating Costs and Expenses....................................... 556,577 651,411 613,021
---------- ---------- ----------
Earnings from equity investments............................................. 19,389 12,385 9,259
Gain on sale of oil and gas properties....................................... -- 11,890 17,196
Other income................................................................. 17,765 30,985 16,689
---------- ---------- ----------
Income before provision for taxes on income.................................. 58,489 45,345 156,816
Provision for taxes on income................................................ 15,733 10,645 46,335
---------- ---------- ----------
Net Income................................................................... $ 42,756 $ 34,700 $ 110,481
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
Certain amounts from previous years have been reclassified to conform to the
1996 presentation.
1996 COMPARED WITH 1995
REVENUES
Destec's revenue decreased $63.6 million or 10% for 1996 as compared to
1995. This decrease resulted from a $134.9 million decrease in engineering and
operations revenue, partially offset by a $62.2 million increase in power, steam
and syngas revenue, a $5.6 million increase in energy resources revenue and a
$3.5 million increase in development revenue.
The $134.9 million decrease in engineering and operations revenue resulted
primarily from lower engineering revenue recognition on the construction cost
related to the Elsta and Kingston projects in 1996, as compared to revenue
recognition on the Elsta, Kingston, Bear Mountain, Michigan Power and
21
<PAGE>
Wabash projects in the same period of 1995. The decrease was partially offset by
engineering revenue earned in 1996 from the Hazelwood partnership under the
Engineering Services Agreement (see Note 14 of the Notes to Consolidated
Financial Statements). Operations revenue also increased in 1996 due to fees
earned prior to start-up of the Kingston project which achieved substantial
completion in December 1996, to a full year of revenue earned on the Michigan
Power project which began operations in October 1995 and to fees earned prior to
start-up of the Elsta project. In addition, Destec earned performance bonuses in
1996 from the High Sierra and Double "C" facilities.
The $62.2 million increase in power, steam and syngas revenue was primarily
a result of higher power revenue due to the commencement of commercial
operations at the Los Mina facility in May 1996 and higher power and steam
revenue from the CLI and CoGen Power facilities as a result of higher gas prices
in 1996 as compared to the same period in 1995. CLI revenue was also favorably
affected by the full year of production from the sixth gas turbine which was
added in June 1995. In addition, revenue from DPS, which began selling power in
June 1995, was higher in 1996 as a result of increased sales from Southern
Operations under a contract with TNP and to various other customers through spot
sales. DPS sales from Western Operations also increased under contracts with
PG&E and the Port of Oakland in 1996. The net decrease in syngas revenue was due
to the decommissioning of the LGTI facility in November 1995, offset by
including a full year of revenues from the Wabash facility, which commenced
commercial operations in November 1995.
The $5.6 million increase in energy resources revenue was due to higher gas
prices in 1996 and higher production revenue as a result of the purchase of the
Southeast Piceance gas properties in April 1996. This increase was partially
offset by receiving no production revenue in 1996 from the gas properties which
were sold in September 1995.
The $3.5 million increase in development revenue resulted from the sale of
the Blue Mountain project in July 1996 (see Note 7 of the Notes to Consolidated
Financial Statements), partially offset by lower development fees earned from
the Elsta project in 1996, as compared to the development fees from the Bear
Mountain, Elsta, Kingston and Michigan Power projects earned in 1995.
OPERATING COSTS AND EXPENSES
Destec's total operating costs and expenses decreased $94.8 million or 15%
for 1996 as compared to 1995. This decrease resulted from a $143.0 million
decrease in engineering and operations cost, a $0.6 million decrease in energy
resources cost, a $7.9 million decrease in development cost and a $0.2 million
decrease in selling, general and administrative cost. These decreases were
partially offset by a $56.9 million increase in power, steam and syngas cost.
The $143.0 million decrease in engineering and operations cost resulted
primarily from lower construction costs related to the Elsta and Kingston
projects in 1996, as compared to construction costs on the Elsta, Kingston, Bear
Mountain, Michigan Power and Wabash projects in the same period of 1995.
The $0.6 million decrease in energy resources cost is a result of lower
production costs associated with the gas properties which were sold in September
1995, partially offset by increased production costs from the Southeast Piceance
gas properties purchased in April 1996.
The $7.9 million decrease in development cost was due to expensing costs
associated with the Bear Mountain project in 1995 which were previously
capitalized. No such expenses were incurred in 1996.
The $56.9 million increase in power, steam and syngas cost was primarily a
result of higher power costs due to the commencement of commercial operations at
the Los Mina facility in May 1996. Costs at the CLI facility increased in 1996
as compared to the same period in 1995 as a result of higher gas prices and
consumption (due to addition of a sixth gas turbine in June 1995). In addition,
DPS costs were higher in 1996 as a result of increased power marketing
activities in 1996 as compared to the same period in 1995.
22
<PAGE>
The net decrease in syngas cost was due to the decommissioning of the LGTI
facility, partially offset by including a full year of costs from the Wabash
facility; both events occurred in November 1995.
EQUITY INVESTMENTS, OTHER INCOME AND TAXES
Earnings from equity investments increased $7.0 million for 1996 as compared
to 1995. The increase was due primarily to contract capacity payment escalators
and to lower interest expense on the Oyster Creek project resulting from the
conversion of the term loan in July 1995 and on the California projects due to
lower interest rates and principal. Equity investments also included earnings in
1996 from the Bear Mountain and Crockett projects which became operational in
May 1995 and June 1996, respectively, and the acquisition of the operational
Hazelwood project in September 1996.
The sale of gas properties in the San Juan Basin, Colorado resulted in a
before tax gain of $11.9 million in 1995. There was no such event in 1996.
Other income decreased $13.2 million due primarily to a reduction in
interest income as a result of a lower average cash balance throughout 1996
compared to 1995.
The effective tax rate for the year ended December 31, 1996 was 26.9% as
compared to 23.5% for the year ended December 31, 1995. The 1996 tax rate was
higher than in 1995 primarily as a result of lower non-conventional fuels source
credits in 1996.
1995 COMPARED WITH 1994
REVENUES
Destec's revenue decreased $85.2 million or 12% for 1995 as compared to
1994. This decrease resulted primarily from a $147.2 million decrease in power,
steam and syngas revenue, a $7.7 million decrease in energy resources revenue
and a $8.0 million decrease in development revenue, partially offset by a $77.7
million increase in engineering and operations revenue. The decrease in power,
steam and syngas revenue resulted primarily from a decrease in PMA revenue due
to the expiration of the underlying power contracts, a decrease in syngas
revenue due to lower operating capacity at the LGTI facility in 1995 compared to
1994 and a decrease in revenue from the CLI facility as a result of the
reduction of firm capacity payments due to the expiration of the power contract
between CLI and TUEC on April 30, 1994. These decreases were partially offset by
revenue earned at the Wabash facility which commenced commercial operations in
November 1995 and by higher production at the CLI facility with the addition, in
1995, of a sixth gas turbine which provides additional capacity of approximately
120 MW. The decrease in energy resource revenue was due to lower natural gas
prices during 1995, as compared to the same period in 1994. In addition, the
1995 production revenue was lower as a result of the sale of oil and gas
properties in the third quarters ended September 30, 1995 and 1994. The decrease
in development revenue resulted from development activities on the Bear
Mountain, Elsta and Kingston projects earning less revenue than the development
activities on the Michigan Power project and settlements on the Northway and
Kingston projects during 1994. The increase in engineering and operations
revenue resulted primarily from increased engineering revenues resulting from
revenue recognition on the construction cost related to the Kingston, Elsta,
Bear Mountain, Michigan Power and Wabash projects in 1995, as compared to
revenue recognition on the Oyster Creek, Tiger Bay and Wabash projects in same
period of 1994 and increased operations revenue due to the start-up of
commercial operations in 1995 of the Tiger Bay, Bear Mountain and Michigan Power
projects on which Destec serves as operator and to fees earned prior to the
start-up of the Kingston project which achieved substantial completion in
December 1996.
OPERATING COSTS AND EXPENSES
Destec's total operating costs and expenses increased $38.4 million or 6%
for 1995 as compared to 1994. This increase resulted primarily from a $68.7
million increase in engineering and operations cost and a $0.8 million increase
in development cost, partially offset by a $18.1 million decrease in power,
steam and
23
<PAGE>
syngas cost, a $2.1 million decrease in energy resources cost, a $0.9 million
decrease in selling, general and administrative costs and a $10.0 million
decrease in charges related to the restructuring which occurred in 1994. The
increase in engineering and operations costs was primarily due to increased
construction activity for the Elsta, Bear Mountain, Michigan Power, Wabash and
Kingston projects in 1995, as compared to construction activity on only the
Oyster Creek, Tiger Bay and Wabash projects for the same period in 1994. The
increase in development costs was due to increased international development
activities in 1995 as compared to 1994. The decrease in power, steam and syngas
costs is primarily a result of decreased operating costs at the LGTI facility
due to a lower operating capacity in 1995, as compared to the same period in
1994. In addition, CLI refinanced and amended the operating lease at the CLI
facility which resulted in a reduction of operating costs. These decreases were
partially offset by higher costs resulting from the commencement of operations
at the Wabash facility and the recording of a decommissioning charge related to
the LGTI facility in 1995. The decrease in energy resources costs was a result
of lower production cost in 1995 compared to 1994 resulting from the sale of oil
and gas properties in the third quarters ended September 30, 1995 and 1994. The
decrease in selling, general and administrative costs resulted from the
restructuring in 1994 which reduced salary and lease costs.
Earnings from equity investments increased for 1995 as compared to 1994 due
to including a full year of activity for the Hartwell and Oyster Creek projects
which began operations in April and October 1994, respectively, as well as the
start-up of commercial operations for the Tiger Bay, Bear Mountain and Michigan
Power projects in January, April and October 1995, respectively. Other income
increased due primarily to increased interest income from a higher rate of
return as a result of a shift in investment strategy from tax-exempt to taxable
investments for the year ended December 31, 1995, as compared to the same period
of 1994. The effective tax rate was 23.5% and 29.5% in the years ended December
31, 1995 and 1994, respectively. The decrease in the effective tax rate was due
primarily to the positive results of an Internal Revenue Service ("IRS") audit
concluded in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, cash and cash equivalents totaled $111.4 million
and working capital totaled $210.3 million. For the year ended December 31,
1996, cash and cash equivalents increased $100.0 million. Working capital
decreased $193.3 million primarily as a result of Destec's investment in the
Hazelwood partnership (see Note 8 of the Notes to Consolidated Financial
Statements). The increase in cash and cash equivalents resulted mainly from
$56.1 million provided by Destec's operating activities, $19.7 million provided
by Destec's investing activities, which includes converting $325.8 million of
marketable securities to cash and cash equivalents, and $24.2 million provided
by Destec's financing activities. See Destec's "Statements of Consolidated Cash
Flows" for additional detail.
In August 1995, CLI refinanced and amended the terms of its operating lease
agreement which resulted in a reduction to operating costs for the facility. The
financing underlying the lease expires in August 2000. The lease is an operating
lease with an initial non-cancelable term of five years ending in 2000 and an
extended term of an additional 13 years ending in 2013. The lease allows for
termination after the initial term, subject to a penalty clause. CLI is required
to remit to the lessor, in addition to basic rentals as defined, variable
rentals associated with the leveraged portion of the lease. As of December 31,
1996, the future estimated minimum lease payments under the operating lease are
approximately $212.0 million.
Effective June 7, 1996, Gasification Services, Inc. ("GSI") refinanced its
operating lease agreement associated with the Wabash facility resulting in a
reduction in interest spreads and elimination of several financial covenants
associated with the original financing. The lease is backed by a Destec
guarantee which expires on April 30, 2001. At that time, Destec can refinance,
abandon and pay termination costs or purchase the facility. The future minimum
lease payments associated with the lease as of December 31, 1996 are
approximately $224.0 million. Under the Wabash lease agreement, the occurrence
of certain events ("Termination Events"), such as a change in control of Destec
(see Note 22 of the Notes to
24
<PAGE>
Consolidated Financial Statements), will automatically terminate the lease.
According to the Wabash lease agreement, if Dow shall fail to own a majority of
outstanding shares of Destec, the Guarantor, a Termination Event will occur.
Upon the date of the occurrence of any Termination Event, the lessee shall, on
the payment date relating to the payment of partnership rent next succeeding the
Termination Event date, purchase the lessor's interest in the property from the
lessor for a purchase price equal to the lease termination payment in accordance
with purchase provisions set forth in the agreement. The lease termination
payment is $193.3 million plus accrued interest from the date of last lease
payment.
At December 31, 1996 and 1995, respectively, Destec had outstanding
irrevocable letters of credit from banks totaling $35.4 million and $31.0
million. These letters of credit are pledged to support certain Destec equity
commitments and other development activities. As of December 31, 1996 Destec has
a corporate guarantee associated with an equity contribution to the Elsta
project of approximately $39.6 million which is expected to be made in 1998. The
Hazelwood partnership is planning a major capital expenditure program during the
first three years of ownership which may be funded from future capital
contributions to refurbish two of the eight operating units in order to maximize
operating efficiencies and upgrade environmental performance.
Destec contracted in 1993 to design, engineer, build and operate a
cogeneration facility in Polk County, Florida to be owned by a Delaware limited
partnership (the "Tiger Bay project") in which Destec has an approximate 50%
non-controlling equity interest. Destec has a commitment to loan up to an
additional $10.0 million (subordinated to the partnership's senior lenders) to
the Tiger Bay project based on the project steam host's ability to contractually
perform. In December 1993, Destec entered into a twenty year firm transportation
agreement with Florida Gas Transmission to maintain firm gas transportation
capacity which became effective in March 1995. Destec is required to pay
approximately $3.5 million per year over the contract life to maintain
transportation capacity. During 1996, Destec sold the excess capacity which the
Tiger Bay project was unable to utilize. Because the current market rate for
natural gas transportation capacity was less than Destec's contracted cost, a
resulting net fuel expense of $2.9 million was incurred in 1996.
In January 1997, Tiger Bay Limited Partnership, in which Destec holds an
equity interest of approximately 50%, executed an agreement for the sale of the
Tiger Bay cogeneration facility, located in Fort Meade, Florida to a wholly
owned subsidiary of Florida Power Corporation for $445.0 million. Destec's
estimated share of the proceeds after repayment of partnership debt and the net
settlement of other partnership obligations is anticipated to be approximately
$140.0 million. The sale is subject to certain conditions, including regulatory
approvals and the sale of Destec. See Note 22 of the Notes to Consolidated
Financial Statements for additional discussion.
As a result of operational defects in the administration of the Destec
Energy, Inc. Retirement and Savings Plan since 1991, Destec filed a Voluntary
Compliance Report ("VCR") with the IRS. If the VCR application is approved by
the IRS, Destec will make a contribution to the Plan of approximately $4.7
million (before tax effect) including accrued interest. Destec's management
believes that adequate reserves are provided as of December 31, 1996 for this
potential liability.
Since 1992, the Board of Directors authorized the repurchase of up to $95.0
million of Destec's common stock through 1999. As of December 31, 1996, Destec
had repurchased 6,816,549 and reissued 645,809 shares of common stock
repurchased under these programs.
In August 1996, Destec arranged non-recourse financing for the 140 MW Indian
Queens facility located in Cornwall, United Kingdom. The project financing,
which consists of a $56.6 million construction facility and $39.8 million in
term facility and other debt instruments, was arranged and underwritten by
Barclays Bank PLC. Through December 31, 1996 Destec has recorded advances under
the construction facility of $53.8 million in PROJECT FINANCING DEBT. The credit
agreement divides the facility into two tranches which carry interest at LIBOR
plus variable margins. The conversion of the construction loan to term is
expected to occur in early 1997. The term loan is collateralized by the
project's assets and matures over a
25
<PAGE>
period of 17 years. Interest costs of approximately $1.0 million incurred during
the construction of the facility were capitalized as of December 31, 1996. The
interest rates in effect as of December 31, 1996 were 6.52% on $24.0 million and
7.27% on $29.8 million. Under the terms of the credit agreement, the
unconsolidated financial statements of the Indian Queens project are subject to
various coverage ratios; however, because these are at the project level,
management does not believe they will affect Destec's ability to conduct
business.
Destec and Dow have extended credit to each other up to $350.0 million from
time to time under the Destec/Dow Credit Agreements. The agreements expired on
December 31, 1996, and management does not expect renewal at this time. At
December 31, 1995, cash equivalents included $4.4 million of cash advances to
Dow. Due to the expiration of the credit agreements no amounts were included in
cash equivalents at December 31, 1996. There were no outstanding borrowings from
Dow at December 31, 1996 and 1995.
Covenants contained in various agreements relating to certain of Dow's
indebtedness prohibit Dow from allowing Destec, subject to certain exceptions,
to encumber or otherwise pledge as security any of its properties or assets or
the capital stock of any of Destec's subsidiaries. In addition, Dow may not
permit Destec to incur indebtedness to the extent such occurrence would cause
Dow indebtedness on a consolidated basis to exceed 60% of Dow's consolidated
capitalization. As of December 31, 1996 Dow's indebtedness on a consolidated
basis was approximately 29% of consolidated capitalization. Dow's debt
instruments also restrict the ability of Dow and its subsidiaries to engage in
certain sale and lease-back transactions involving facilities which are material
to the business conducted by Dow and its subsidiaries located in the United
States taken as a whole. Destec's management believes that neither these
restrictions nor the expiration of the credit agreements discussed above will
significantly affect Destec's ability to conduct its business.
Management believes that current cash and cash equivalents and operating
cash flows will be sufficient to fund Destec's working capital, additions to
fixed assets and investments in projects.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Destec Energy, Inc.:
We have audited the consolidated balance sheets of Destec Energy, Inc. and
subsidiaries ("Destec") as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of Destec's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Destec at December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 18, 1997
27
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................ $ 111,446 $ 7,044
Cash equivalents--Dow................................................................ -- 4,422
------------ ------------
Total cash and cash equivalents.................................................. 111,446 11,466
------------ ------------
Marketable Securities................................................................ 2,999 328,799
Accounts Receivable:
Trade.............................................................................. 72,674 64,029
Dow................................................................................ 1,889 1,144
Affiliates......................................................................... 44,385 23,832
Other.............................................................................. 930 4,085
Notes receivable--affiliates......................................................... 6,328 2,983
Income taxes receivable.............................................................. 24,830 1,934
Deferred taxes--net.................................................................. 5,370 5,680
Costs and estimated earnings in excess of billings on uncompleted
contracts--affiliates.............................................................. 44,841 37,063
Recoverable project costs............................................................ 884 58,398
Prepaid expenses and other assets.................................................... 23,482 14,076
------------ ------------
Total current assets............................................................. 340,058 553,489
------------ ------------
Property--at cost.................................................................... 407,263 271,067
Accumulated depreciation, depletion and amortization............................... (71,590) (60,878)
------------ ------------
Property, net.................................................................... 335,673 210,189
------------ ------------
Lease receivable from Dow............................................................ 44,159 44,159
Equity investments................................................................... 323,250 139,784
Long-term notes receivable--affiliates............................................... 8,444 --
Goodwill (Net of accumulated amortization of $17,498 and $15,027 at December 31, 1996
and 1995, respectively)............................................................ 80,402 83,781
Other assets......................................................................... 13,160 16,410
------------ ------------
Total................................................................................ $1,145,146 $1,047,812
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable:
Trade.............................................................................. $ 64,635 $ 45,169
Dow................................................................................ 12,661 13,249
Accrued liabilities.................................................................. 48,792 49,951
Billings in excess of costs and estimated earnings on uncompleted
contracts--affiliates.............................................................. 3,646 41,309
Income taxes payable................................................................. -- 249
------------ ------------
Total current liabilities........................................................ 129,734 149,927
------------ ------------
Long-term liabilities................................................................ 50,089 46,172
Project financing debt............................................................... 53,820 --
Deferred taxes--net.................................................................. 71,844 34,720
Deferred income...................................................................... 51,917 47,676
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 50,000,000 shares authorized, none issued
Common stock, $.01 par value; 150,000,000 shares authorized, 62,250,000 issued..... 623 623
Additional paid-in capital......................................................... 394,296 394,296
Retained earnings.................................................................. 470,305 427,757
Unearned compensation--related to outstanding deferred stock....................... (543) --
Unrealized gains on investments.................................................... -- 651
Cumulative translation adjustments................................................. 3,726 --
Less 6,170,740 and 4,159,464 shares of treasury stock at cost at December 31, 1996
and 1995, respectively........................................................... (80,665) (54,010)
------------ ------------
Total stockholders' equity....................................................... 787,742 769,317
------------ ------------
Total................................................................................ $1,145,146 $1,047,812
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Power, steam, syngas and energy resources
affiliates...................................................... $ -- $ 10,887 $ 138,870
guaranteed payments............................................. -- 63,014 82,878
nonaffiliates................................................... 253,796 112,078 119,092
------------- ------------- -------------
Total power, steam, syngas, and energy resources.............. 253,796 185,979 340,840
Development, engineering and operations--affiliates............... 324,116 455,517 385,853
------------- ------------- -------------
Total Revenues...................................................... 577,912 641,496 726,693
------------- ------------- -------------
Operating Costs:
Power, steam, syngas and energy resources
affiliates...................................................... 1,891 61,693 80,856
nonaffiliates................................................... 231,405 113,208 116,330
------------- ------------- -------------
Total power, steam, syngas, and energy resources.............. 233,296 174,901 197,186
Development, engineering and operations--affiliates............... 288,832 441,850 370,267
------------- ------------- -------------
Total Operating Costs............................................... 522,128 616,751 567,453
------------- ------------- -------------
Amortization of intangibles......................................... 2,471 2,469 2,471
------------- ------------- -------------
Selling, General and Administrative Expenses:
Dow............................................................... 438 938 511
Direct............................................................ 31,540 31,253 32,626
------------- ------------- -------------
Total selling, general and administrative..................... 31,978 32,191 33,137
------------- ------------- -------------
Restructuring Charges............................................... -- -- 9,960
------------- ------------- -------------
Total operating costs and expenses............................ 556,577 651,411 613,021
------------- ------------- -------------
Operating Income (Loss)............................................. 21,335 (9,915) 113,672
------------- ------------- -------------
Earnings from equity investments.................................... 19,389 12,385 9,259
------------- ------------- -------------
Other Income:
Dow............................................................... 5,023 11,212 3,961
Other--Net........................................................ 11,944 18,767 12,361
Gain on sale of oil and gas properties............................ -- 11,890 17,196
Sundry income--Net................................................ 798 1,006 367
------------- ------------- -------------
Total Other Income.................................................. 17,765 42,875 33,885
------------- ------------- -------------
Income before provision for taxes................................... 58,489 45,345 156,816
Provision for taxes................................................. 15,733 10,645 46,335
------------- ------------- -------------
Net Income.......................................................... $ 42,756 $ 34,700 $ 110,481
------------- ------------- -------------
------------- ------------- -------------
Per Share Amounts:
Net Income Per Share................................................ $ 0.75 $ 0.59 $ 1.84
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding................................. 56,931,645 58,658,966 60,151,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income...................................................................................... $ 42,756 $ 34,700
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings from equity investments.............................................................. (19,389) (12,385)
Gain on sale of oil and gas properties........................................................ -- (11,890)
Deferred income, net.......................................................................... 4,241 8,097
Depreciation, depletion and amortization...................................................... 13,183 24,727
Cumulative translation adjustments............................................................ 3,726 --
Compensation recognized under Variable Pay Plan............................................... 779 --
Increase in deferred income taxes, net........................................................ 38,342 (1,793)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable......................................................................... (26,788) (19,786)
Notes receivable--affiliates................................................................ (3,345) (917)
Income taxes receivable..................................................................... (22,896) (1,934)
Costs and estimated earnings in excess of billings on uncompleted contracts--affiliates....... (7,778) (5,636)
Recoverable project costs..................................................................... 57,514 (12,739)
Prepaid expenses and other assets............................................................. (9,406) 1,246
Accounts payable............................................................................ 18,878 (5,181)
Accrued liabilities......................................................................... (1,159) (621)
Billings in excess of costs and estimated earnings on uncompleted contracts--affiliates..... (37,663) 38,437
Income taxes payable........................................................................ (249) (5,042)
Long-term liabilities....................................................................... 5,342 9,073
------------ ------------
Net Cash Provided by Operating Activities....................................................... 56,088 38,356
------------ ------------
Cash Flows From Investing Activities:
Investments in marketable securities.......................................................... (1,238,741) (1,965,288)
Proceeds from sale of marketable securities................................................... 1,563,890 1,637,140
Proceeds from sale of oil and gas properties.................................................. -- 34,052
Purchases of property, net.................................................................... (136,196) (33,103)
Long-term notes receivable--affiliates........................................................ (8,444) 1,976
Equity investments--contributions............................................................. (191,528) (62,449)
Equity investments--distributions............................................................. 27,451 15,914
Other assets.................................................................................. 3,250 1,900
------------ ------------
Net Cash Provided by (Used in) Investing Activities............................................. 19,682 (369,858)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from borrowings--Dow................................................................. -- --
Repayment of borrowings--Dow.................................................................. -- --
Proceeds from project financing debt.......................................................... 53,820 --
Proceeds from issuance of treasury stock...................................................... 1,352 1,856
Treasury stock purchases...................................................................... (30,962) (13,025)
------------ ------------
Net Cash Provided by (Used in) Financing Activities............................................. 24,210 (11,169)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents............................................ 99,980 (342,671)
Cash and Cash Equivalents at Beginning of Year.................................................. 11,466 354,137
------------ ------------
Cash and Cash Equivalents at End of Year........................................................ $ 111,446 $ 11,466
------------ ------------
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Schedule of Noncash Operating, Investing and Financing Activities:
Loss on sale of treasury stock................................................................ $ 208 $ 882
Unrealized loss on marketable securities...................................................... -- $ 651
Treasury stock issued under Variable Pay Plan................................................. $ 2,747 --
Unearned compensation......................................................................... $ 543 --
Hartwell note receivable conversion........................................................... -- --
Goodwill adjustment for ITC................................................................... $ 908 --
Cumulative translation adjustments............................................................ $ 3,726 --
Cash paid for:
Interest...................................................................................... -- $ 1,141
Income taxes.................................................................................. $ 1,180 $ 14,248
<CAPTION>
1994
----------
<S> <C>
Cash Flows From Operating Activities:
Net Income...................................................................................... $ 110,481
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings from equity investments.............................................................. (9,259)
Gain on sale of oil and gas properties........................................................ (17,196)
Deferred income, net.......................................................................... 7,214
Depreciation, depletion and amortization...................................................... 32,738
Cumulative translation adjustments............................................................ --
Compensation recognized under Variable Pay Plan............................................... --
Increase in deferred income taxes, net........................................................ (8,736)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable......................................................................... (2,001)
Notes receivable--affiliates................................................................ (134)
Income taxes receivable..................................................................... --
Costs and estimated earnings in excess of billings on uncompleted contracts--affiliates....... (9,458)
Recoverable project costs..................................................................... (38,139)
Prepaid expenses and other assets............................................................. (4,060)
Accounts payable............................................................................ 23,162
Accrued liabilities......................................................................... 7,949
Billings in excess of costs and estimated earnings on uncompleted contracts--affiliates..... (3,542)
Income taxes payable........................................................................ 1,283
Long-term liabilities....................................................................... 4,290
----------
Net Cash Provided by Operating Activities....................................................... 94,592
----------
Cash Flows From Investing Activities:
Investments in marketable securities.......................................................... --
Proceeds from sale of marketable securities................................................... --
Proceeds from sale of oil and gas properties.................................................. 21,525
Purchases of property, net.................................................................... (39,075)
Long-term notes receivable--affiliates........................................................ 1,634
Equity investments--contributions............................................................. (4,857)
Equity investments--distributions............................................................. 8,185
Other assets.................................................................................. 2,016
----------
Net Cash Provided by (Used in) Investing Activities............................................. (10,572)
----------
Cash Flows from Financing Activities:
Proceeds from borrowings--Dow................................................................. 108,163
Repayment of borrowings--Dow.................................................................. (108,163)
Proceeds from project financing debt.......................................................... --
Proceeds from issuance of treasury stock...................................................... 350
Treasury stock purchases...................................................................... (25,193)
----------
Net Cash Provided by (Used in) Financing Activities............................................. (24,843)
----------
Net Increase (Decrease) in Cash and Cash Equivalents............................................ 59,177
Cash and Cash Equivalents at Beginning of Year.................................................. 294,960
----------
Cash and Cash Equivalents at End of Year........................................................ $ 354,137
----------
----------
Supplemental Disclosures of Cash Flow Information:
Schedule of Noncash Operating, Investing and Financing Activities:
Loss on sale of treasury stock................................................................ --
Unrealized loss on marketable securities...................................................... --
Treasury stock issued under Variable Pay Plan................................................. --
Unearned compensation......................................................................... --
Hartwell note receivable conversion........................................................... $ 15,500
Goodwill adjustment for ITC................................................................... --
Cumulative translation adjustments............................................................ --
Cash paid for:
Interest...................................................................................... $ 898
Income taxes.................................................................................. $ 48,500
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL CUMULATIVE
---------------------- -------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS
--------- ----------- --------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994................... 62,250,000 $ 623 (1,240,831) $ (18,880) $ 394,296 $ -- $ 283,458
Net Income................................... -- -- -- -- -- -- 110,481
Cumulative translation adjustments........... -- -- -- -- -- -- --
Treasury stock acquired...................... -- -- (2,161,200) (25,193) -- -- --
Treasury stock reissued...................... -- -- 38,470 350 -- -- --
--------- ----- --------- --------- ----------- ------ -----------
Balance at December 31, 1994................. 62,250,000 623 (3,363,561) (43,723) 394,296 -- 393,939
Net Income................................... -- -- -- -- -- -- 34,700
Cumulative translation adjustments........... -- -- -- -- -- --
Treasury stock acquired...................... -- -- (986,749) (13,025) -- -- --
Treasury stock reissued...................... -- -- 190,846 2,738 -- -- (882)
--------- ----- --------- --------- ----------- ------ -----------
Balance at December 31, 1995................. 62,250,000 623 (4,159,464) (54,010) 394,296 -- 427,757
Net Income................................... -- -- -- -- -- -- 42,756
Cumulative translation adjustments........... -- -- -- -- -- 3,726 --
Treasury stock acquired...................... -- -- (2,345,500) (30,962) -- -- --
Treasury stock reissued...................... -- -- 334,224 4,307 -- -- (208)
--------- ----- --------- --------- ----------- ------ -----------
Balance at December 31, 1996................. 62,250,000 $ 623 (6,170,740) $ (80,665) $ 394,296 $ 3,726 $ 470,305
--------- ----- --------- --------- ----------- ------ -----------
--------- ----- --------- --------- ----------- ------ -----------
</TABLE>
The accompanying notes are in integral part of the consolidated financial
statements.
32
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Destec Energy, Inc. and its wholly owned subsidiaries ("Destec"), a Delaware
corporation and a majority owned subsidiary of The Dow Chemical Company ("Dow"),
was incorporated in May 1989. Prior to Destec's initial public offering (the
"Offering") in 1991, Dow transferred to Destec certain energy related operations
and associated assets and liabilities in exchange for all Destec's issued and
outstanding Common Stock.
Since 1992, the Destec Board of Directors (the "Board") has authorized the
repurchase of up to $95,000 of Destec's common stock through 1999. As of
December 31, 1996, Destec had repurchased 6,816,549 shares and reissued 645,809
shares of common stock repurchased under these programs.
In connection with the execution of the Tax Sharing Agreement (the "Tax
Agreement") discussed in Note 2, Dow will have a continuous, cumulative option
to purchase from Destec at current market prices such number of shares of common
stock of Destec as Dow determines necessary to allow Dow to continue to include
Destec in Dow's consolidated federal income tax return.
Destec is an independent power producer and marketer of electricity, thermal
energy and syngas for sale to electric utilities, Dow and other energy-intensive
industries. Revenues and costs associated with the sale of power, thermal
energy, syngas, energy resources (oil, gas and lignite) and associated with the
marketing of power through Destec Power Services, Inc. ("DPS"), a wholly owned
subsidiary of Destec, and the Power Marketing Agreement ("PMA") (through the
final contract expiration on April 30, 1995) are included as "Power, steam,
syngas and energy resources" revenues and operating costs in the accompanying
statements of consolidated income. Destec also designs, develops, operates, and
performs business management services for its cogeneration and syngas facilities
in the U.S. and abroad. Revenue and costs associated with the fees earned in
connection with these activities are included as "Development, engineering and
operations" revenues and operating costs in the accompanying statements of
consolidated income.
See Note 22 for discussion of the proposed merger of Destec with a wholly
owned subsidiary of NGC Corporation ("NGC").
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the assets, liabilities, revenue and expenses of all majority
owned subsidiaries. Investments in partnerships with ownership interests of 50%
or less and which Destec does not control are accounted for using the equity
method. All significant balances and transactions within the consolidated group
have been eliminated in consolidation.
REVENUE RECOGNITION--Revenues for the sale or marketing of electricity,
steam and syngas are recorded based upon output or product delivered as
specified under contract terms. Revenues from performance bonuses are recognized
when specified contractual targets are achieved. Energy resources revenues (oil,
gas and lignite) are recognized as production from these resources occurs or as
earned under contract.
Revenues resulting from long-term engineering and project construction
contracts are recognized using the percentage-of-completion accounting method.
The percentage of revenue recognized on each
33
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
contract is based on the most recent cost estimate available. Revisions of
estimates are reflected in the year in which the facts necessitating the
revision become known. When the current contract estimate indicates a loss, a
provision is made for the total anticipated loss.
Profits from engineering and construction contracts and development fees
received from partnerships in which Destec holds an equity interest are deferred
to the extent of Destec's ownership interest in the partnership. The deferred
income is amortized on a straight-line basis over the partnership debt term used
to finance the facility, except where the equity method of accounting permits
earlier recognition.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION--The preparation of
financial statements in conformity with generally accepted accounting principles
requires estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Destec's financial statements include amounts that
are based on management's best estimates and judgments. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include time deposits
and readily marketable securities with an original maturity of three months or
less. Until the expiration of the Destec Credit Agreement on December 31, 1996,
Destec periodically loaned excess cash to Dow. This agreement required Dow, upon
60 days written notice from Destec, to repay all or any portion of the then
outstanding loan balance.
MARKETABLE SECURITIES--Effective January 1, 1995 the Company adopted SFAS
No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES." All
of Destec's marketable securities are classified as "available for sale," and
accordingly, are reflected in the Consolidated Balance Sheets at fair market
value, with the aggregate unrealized gains or losses included as a component of
stockholders' equity. Adoption of SFAS No. 115 had no effect on reported
earnings. Cost for determining gains and losses on sales of marketable
securities is determined on the FIFO method.
RECOVERABLE PROJECT COSTS--Destec capitalizes certain project costs incurred
to procure equipment, to connect with utility transmission lines, and certain
other costs, once management determines it is probable these costs are
recoverable, until contracts for financing and sale are executed. If the
necessary contracts are not obtained and the costs incurred are not recoverable
through other projects or sale, the related costs are charged to expense. These
costs are classified as current if they are expected to be recovered in the next
12 months.
PROPERTY, GOODWILL AND DEPRECIATION, DEPLETION AND AMORTIZATION --Buildings
and equipment are carried at cost less accumulated depreciation. Depreciation is
based on the estimated service lives for depreciable assets and is generally
provided using the double declining balance method for all subsidiaries except
for Destec Holdings, Inc. and its subsidiaries which use the straight line
depreciation method. Estimated service lives range from three to thirty-two
years.
Cost associated with acquiring and developing lignite properties are
capitalized as incurred. Depletion and amortization of lignite properties are
recorded using the units-of-production method based on an estimate of proved
reserve quantities to be mined in the future.
34
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
The excess of the cost of investments in subsidiaries over the fair value of
assets acquired and liabilities assumed is shown as goodwill, which is amortized
over the estimated useful life of 40 years.
The Company evaluates long-lived assets, including goodwill, for impairment
based on the recoverability of the asset's carrying amount. When it is probable
that the undiscounted future cash flows will not be sufficient to recover the
asset's carrying amount, the asset is written down to its fair value. Destec
adopted SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" on January 1, 1996. The adoption of this
standard had no material impact on Destec's financial position or results from
operations.
Costs incurred to acquire or retain oil and gas properties, owned in fee or
under lease, are capitalized. Destec grants leases to exploration and production
companies, generally retaining royalty interests. Costs to acquire mineral
interests in oil and gas properties and to drill and equip developmental wells
are capitalized. Costs associated with oil and gas properties are amortized
using the units-of-production method based upon estimates of proved reserves.
The Company evaluates the recoverability of its oil and gas properties by
determining that the undiscounted future cash flows on an aggregated basis are
sufficient to recover the net carrying value.
Fully depreciated assets are retained in property and accumulated
depreciation accounts until they are removed from service. In the case of
disposals, assets and related depreciation are removed from the accounts and the
net amount, less proceeds from disposal, is charged or credited to income.
MAJOR MAINTENANCE--A major maintenance and repair reserve is recorded based
on Destec's scheduled maintenance plans for cogeneration and syngas facilities
operated or owned by Destec. This liability is classified as current if the
maintenance is expected to be incurred in the next 12 month period. Other
maintenance and repairs are charged to expense as incurred (see Notes 9 and 10).
RESEARCH EXPENSE--All expenses associated with research and development are
expensed in the year incurred. Research expenses were $213, $808 and $864 in
1996, 1995 and 1994, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company calculates the fair value
of financial instruments and includes this additional information in Note 3.
TAXES ON INCOME--Destec recognizes deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the book
carrying amounts and the tax basis of all balance sheet assets and liabilities.
These temporary differences are calculated using tax rates currently in effect.
Effective June 6, 1996, Destec is included in the consolidated federal
income tax return of Dow, as Dow's ownership increased above 80%. Destec and Dow
executed the Tax Agreement which requires Destec to calculate federal and state
income taxes on a stand-alone basis. The Tax Agreement allows Destec to reduce
its federal stand-alone tax liability by certain non-conventional fuels tax
credits which have been utilized in Dow's consolidated return, even where such
credits would not be otherwise currently usable by Destec. See Note 22 for
discussion of the effects the proposed merger of Destec with a wholly owned
subsidiary of NGC would have on the Tax Agreement.
NET INCOME PER SHARE--Net income per share is computed by dividing net
income by the weighted average number of shares outstanding during the year. The
shares described in Note 17 relating to the
35
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Destec Stock Plans are not considered in the net income per share calculation.
If these shares were to be included, they would not have had a material effect
on net income per share for the years ended December 31, 1996, 1995 and 1994,
respectively.
ACCOUNTING FOR STOCK BASED COMPENSATION--The Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," in October
1995. Destec adopted SFAS No. 123, effective January 1, 1996, and continues to
apply its current accounting policy under Accounting Principles Board ("APB")
Opinion No. 25 and has included additional footnote disclosures for the
pro-forma impact on net income and earnings per share of the application of the
fair value based method of accounting (see Note 17).
FOREIGN CURRENCY TRANSLATION--Assets and liabilities of certain foreign
subsidiaries are translated into U.S. dollars at current exchange rates in
effect at the end of the fiscal period, and related revenues and expenses are
translated at average exchange rates that prevailed during the period. Resulting
translation adjustments, as well as adjustments for intercompany transactions
which are long-term in nature are shown in stockholder's equity in CUMULATIVE
TRANSLATION ADJUSTMENTS. The foreign currency gain/loss on the remeasurement of
short-term foreign currency transactions of certain U.S. subsidiaries are
included in net income. The net CUMULATIVE TRANSLATION ADJUSTMENTS includes a
foreign currency gain of $3,917 and a loss of $191 for the year ended December
31, 1996. Foreign currency transaction gains of $3,841 were related to the
remeasurement of long-term intercompany loans. No adjustments were recorded for
the year ended December 31, 1995.
RECLASSIFICATIONS--Certain amounts from previous years have been
reclassified to conform to the 1996 presentation.
3. FINANCIAL INSTRUMENTS
The fair value of Destec's financial instruments such as cash, cash
equivalents, marketable securities, accounts and notes receivable, accounts and
notes payable, and other accrued liabilities, approximate carrying values at
December 31, 1996 and 1995.
Marketable securities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
DECEMBER 31, 1996 -------------------------------------
------------------------------------------------ GROSS
GROSS UNREALIZED
FAIR UNREALIZED HOLDING FAIR HOLDING
AMORTIZED MARKET ------------------------ AMORTIZED MARKET -------------
COST VALUE GAINS LOSSES COST VALUE GAINS
----------- --------- ----------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government bonds................... $ -- $ -- $ -- $ -- $ 180,380 $ 180,597 $ 259
Corporate bonds.................... 2,999 2,999 -- -- 99,768 100,200 465
Other.............................. -- -- -- -- 48,000 48,002 2
----------- --------- ----------- ----------- ---------- ---------- -----
Total.............................. $ 2,999 $ 2,999 $ -- $ -- $ 328,148 $ 328,799 $ 726
----------- --------- ----------- ----------- ---------- ---------- -----
----------- --------- ----------- ----------- ---------- ---------- -----
<CAPTION>
LOSSES
-----------
<S> <C>
Government bonds................... $ (42)
Corporate bonds.................... (33)
Other.............................. --
-----
Total.............................. $ (75)
-----
-----
</TABLE>
The corporate bond held at December 31, 1996 has a maturity date of May
1997.
36
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
In February 1994, Destec purchased a series of Dutch Guilder put options in
order to hedge its projected foreign currency risk associated with the
engineering contract for the Elsta project. The total premium cost for this
program was $6,450. The Dutch Guilder put options were purchased from Dow,
acting as an intermediary who in turn purchased the options from a bank. As of
December 31, 1996, no options have been exercised as put option prices have been
above Dutch Guilder exchange rates. These options have varying expiration dates
through August 1997; however, due to changes in foreign currency markets, the
options have no market value. As a result, the entire cost of this program was
expensed in 1994 as part of the project cost.
4. ENGINEERING AND CONSTRUCTION CONTRACTS
The following table reflects the amounts related to uncompleted engineering
and construction contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ -------------
<S> <C> <C>
Costs and estimated earnings..................................... $ 1,012,943 $ 1,071,352
Billings to date................................................. (971,748) (1,075,598)
------------ -------------
Net.............................................................. $ 41,195 $ (4,246)
------------ -------------
------------ -------------
</TABLE>
Amounts related to uncompleted engineering and construction contracts, all
of which are expected to be realized within one year, are included in the
accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts--affiliates................................................ $ 44,841 $ 37,063
Billings in excess of costs and estimated earnings on uncompleted
contracts--affiliates................................................ (3,646) (41,309)
--------- ----------
Total.................................................................. $ 41,195 $ (4,246)
--------- ----------
--------- ----------
</TABLE>
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS--AFFILIATES includes
$38,768 and $7,749 related to foreign projects as of December 31, 1996 and 1995,
respectively. Billings in excess of costs and estimated earnings--affiliates
includes $41,014 related to the Elsta project as of December 31, 1995.
Certain amounts are due, but not paid by Destec until the related outside
vendors have completed their obligations pursuant to contract retainage
provisions. The amounts retained under such contract provisions were $14,234 and
$11,291 at December 31, 1996 and 1995, respectively, and are expected to be paid
within one year.
In February 1996, CoGen Lyondell, Inc. ("CLI") and Lyondell Petrochemical
Company ("LYO") formed Channelview CoGen General Partnership (the "Partnership")
with CLI as an 88% partner and LYO as a 12% partner. Under the partnership
agreement, power generated at the CLI facility would be
37
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
4. ENGINEERING AND CONSTRUCTION CONTRACTS (CONTINUED)
distributed to the partners, in proportion to their partnership percentages,
under the self generation exception of the Texas Public Utility Regulatory Act.
Included in COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS--AFFILIATES at
December 31, 1996 is $3,873 related to the construction of a transmission line
between the CLI facility and the LYO facility. LYO entered into a note
receivable agreement with Destec to finance the construction. Note payments are
to begin once the construction is completed and accepted by LYO. Houston
Lighting and Power Company ("HL&P") challenged the partnership on the basis that
the structure is actually a retail sale of electricity from CLI to LYO. A
decision in HL&P's favor was rendered in Austin District Court in September
1996. Destec is pursuing an appeal of this judgement. As a result, deliveries of
power to LYO via the private transmission line are postponed indefinitely. If
delivery of the power is not approved by the courts and the line cannot be
utilized, LYO would be obligated to pay 50% of the note receivable, although
once accepted by LYO, title to the transmission line would remain with LYO.
5. PROPERTY
Property consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Land.................................................................. $ 3,655 $ 3,655
Buildings............................................................. 5,466 7,133
Construction in Progress.............................................. 57,385 24,051
Machinery and Equipment............................................... 183,345 107,465
Mineral Properties:
Lignite............................................................. 74,077 72,420
Oil and Gas......................................................... 83,335 56,343
---------- ----------
Total................................................................. $ 407,263 $ 271,067
---------- ----------
---------- ----------
</TABLE>
During 1995 and 1996, Destec constructed the Los Mina facility, located in
the Dominican Republic, which became operational in May 1996, and the Indian
Queens facility, located in the United Kingdom, which reached substantial
completion in December 1996. Total construction cost for the Los Mina and Indian
Queens facilities, which are wholly owned by Destec, was $130,720 through
December 31, 1996 (see Note 11).
In 1996, Destec acquired an undivided 45% interest in proved producing
natural gas properties and related undeveloped leasehold acreage and gas
pipeline system in northwest Colorado from Snyder Oil Corporation ("SOCO") for
approximately $22,000. The total proved reserves for Destec's interest in the
properties are estimated to be approximately 42 billion cubic feet. SOCO will
retain a majority working interest in the properties and will continue to
operate the wells. Destec has entered into a joint venture agreement with SOCO
covering the long-term development of the underlying properties and associated
gas pipeline.
In 1995 and 1994, Destec sold a group of non-conventional gas properties in
the San Juan Basin, Colorado, and a group of non-strategic oil and gas
properties in the Texas and Louisiana Gulf Coast areas,
38
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
5. PROPERTY (CONTINUED)
respectively. The sale of these properties resulted in pre-tax gains of $11,890
and $17,196 in 1995 and 1994, respectively. Included in Destec's lignite
properties are $6,526 of costs for each of 1996 and 1995, representing
properties currently being mined for which Destec is receiving royalty payments.
6. LEASE RECEIVABLE FROM DOW
Destec leases certain lignite properties to Dow under a lease which requires
annual rental payments through the year 2025. Dow pays an annual amount equal to
ten percent of the sum of (a) Destec's book value of the properties as of
December 29, 1989 plus (b) the cumulative advance royalties attributable to such
properties as of December 29, 1989 or approximately $4,400 per year. All
properties under this lease agreement not previously purchased by Dow will be
purchased on December 31, 2025 in exchange for a payment equal to the
properties' then book value. In addition, Dow has an option to purchase all of
Destec's interest in any one or more of the properties at a price equal to
Destec's book value of the properties as of the year end preceding the year in
which such option is exercised.
Destec has an agreement with Dow to manage, market and maintain certain
lignite-containing properties, including the above described leased properties.
Dow pays Destec a fee of $250 per year (adjusted annually for inflation) and all
out-of-pocket expenses. The term of this agreement is the same as the above
described lease agreement and may be terminated by either party upon one year's
notice. The amounts under this agreement, which are included as a reduction of
selling, general and administrative costs, related to Dow were $302, $295, and
$287 for 1996, 1995 and 1994, respectively.
See Note 22 for discussion of the effects the proposed merger of Destec with
a wholly owned subsidiary of NGC would have on Destec's lignite properties lease
and related management agreement with Dow.
7. SALE OF BLUE MOUNTAIN
In July 1996, Destec agreed to sell its ownership interest in the 150 MW
Blue Mountain Power Project to The AES Corporation. The sale of this project,
which was included in development revenue, had a positive after tax effect of
approximately $6,900 (considering an effective tax rate of 26.9%) or $0.12 per
share for the year ended December 31, 1996.
8. EQUITY INVESTMENTS
Destec holds non-controlling general and limited equity interests in twenty
partnerships which were formed to build, own and operate cogeneration
facilities. The lenders to these partnerships have recourse only against the
projects and the income and revenues therefrom and thus, the partnerships' debt
obligations are non-recourse to Destec. Destec's effective equity interest in
these partnerships ranges from 8% to 50%.
Seventeen of Destec's twenty projects accounted for under the equity method
are concentrated in the U.S. (49% based on invested capital at December 31,
1996). Additionally, eleven projects are located in California (17% based on
invested capital at December 31, 1996). These domestic projects generally
operate under energy sales contracts based upon the purchasing utility's avoided
cost. Competitive initiatives in several states, as well as federal initiatives
are designed to phase-in market based pricing. The
39
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
8. EQUITY INVESTMENTS (CONTINUED)
initiatives in California propose phasing in market based pricing by the year
2002. These initiatives are generally not yet effective and will be the subject
of considerable debate and modification; however, changes in contract prices
could result from the legislative process.
Destec has been engaged to perform project development, engineering,
construction, operations and maintenance and business management services
related to certain of these partnerships and has recognized revenues of
$324,116, $455,517, and $385,853 in 1996, 1995 and 1994, respectively. Assets
and liabilities associated with the performance of these services and the
advancement of funds are included in the balance sheet captions labeled
"Affiliates."
In September 1996, an indirect wholly owned subsidiary of Destec, as part of
an international consortium, purchased for $1,900,000 the 1,600 MW Hazelwood
Power Station and the adjacent Hazelwood Mine in Victoria, Australia. The
consortium formed a partnership (the "Hazelwood partnership") to own and operate
the Hazelwood facility. Destec holds a 20% limited partnership interest in the
Hazelwood partnership and made an original equity contribution of $176,104 in
September 1996. A wholly owned subsidiary of Destec entered into a separate
agreement with National Power PLC, another member of the international
consortium, in September 1996, which entitles Destec to receive approximately
$4,000 for each of the years ended December 31, 1997, 1998 and 1999. The total
amount of approximately $12,000 is recorded in NOTE RECEIVABLE--AFFILIATES,
LONG-TERM/SHORT-TERM as of December 31, 1996 and reduces Destec's original
equity contribution to $164,104. The remainder of Destec's investment is
included in the project financing at the partnership level. The Hazelwood
partnership is planning a major capital expenditure program which may be funded
from future capital contributions to refurbish two of the eight operating units
in order to maximize operating efficiencies and upgrade environmental
performance.
Unaudited pro forma net income and net income per share of Destec, as if the
acquisition had occurred at the beginning of the years and after giving effect
to certain pro forma adjustments related to the acquisition, were approximately
$38,990 and $0.68 and $29,492 and $0.50 for 1996 and 1995, respectively. Pro
forma revenue was $574,146 and $636,288 in 1996 and 1995, respectively. Such pro
forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1996 or 1995.
See Note 14 for discussion of the engineering services agreement with the
Hazelwood partnership.
Equity investments include Destec's equity contributions during the years
ended December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Bear Mountain................................................ $ 6,000 --
Crockett..................................................... $ 8,605 --
Hazelwood.................................................... $ 164,819 --
Michigan Power............................................... $ 11,489 --
Oyster Creek................................................. -- $ 29,432
Tiger Bay.................................................... -- $ 33,000
</TABLE>
40
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
8. EQUITY INVESTMENTS (CONTINUED)
The following is a summary of aggregated financial information for all
investments owned by Destec which are accounted for under the equity method:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
HAZELWOOD
1996 TOTAL 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEETS
Current assets...................................... $ 88,145 $ 433,687 $ 179,562
Construction in progress............................ -- 453,686 388,934
Property and equipment, net......................... 1,880,588 3,620,862 1,365,927
Other assets........................................ 34,312 94,369 43,363
------------ ------------ ------------
Total assets...................................... $ 2,003,045 $ 4,602,604 $ 1,977,786
------------ ------------ ------------
------------ ------------ ------------
Current liabilities................................. $ 25,649 229,226 $ 278,754
Construction related obligations.................... -- 107,224 14,297
Long-term debt and other liabilities................ 1,080,641 2,974,032 1,409,158
Equity.............................................. 896,755 1,292,122 275,577
------------ ------------ ------------
Total liabilities and equity...................... $ 2,003,045 $ 4,602,604 $ 1,977,786
------------ ------------ ------------
------------ ------------ ------------
Destec's share of equity............................ $ 165,462 $ 323,250 $ 139,784
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
HAZELWOOD
1996 TOTAL 1996 1995 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Sales........................................ $ 68,690 $ 640,091 $ 432,889 $ 274,549
Operating Income............................. 26,421 213,132 130,341 82,942
Net Income................................... 217 52,419 28,048 20,695
Destec's share of earnings from equity
investments................................ $ 43 $ 19,389 $ 12,385 $ 9,259
</TABLE>
See Note 22 for discussion of the potential sale of the Tiger Bay
cogeneration facility.
As of December 31, 1996, Destec has a corporate guarantee associated with an
equity contribution to the Elsta project of approximately $39,634. Destec
expects to make this equity contribution in 1998.
41
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Accrued maintenance and repair reserve.................................. $ 15,018 $ 21,460
Accrued employee benefits, payroll and other related costs.............. 16,067 11,419
Ad valorem taxes........................................................ 3,522 4,235
Accrued operating costs................................................. 9,965 6,866
Accrued obligation under purchase commitments........................... 1,562 1,216
Accrued restructuring charges........................................... 463 1,602
Other................................................................... 2,195 3,153
--------- ---------
Total................................................................. $ 48,792 $ 49,951
--------- ---------
--------- ---------
</TABLE>
Accrued employee benefits include vacations, deferred savings plan
contributions, deferred defined benefit contracts, incentive compensation and
awards under stock plans (see Notes 16 and 17). Accrued restructuring charges
are the remaining liabilities associated with Destec's 1994 plan to realign its
strategic objectives (see Note 18).
10. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Accrued maintenance and repair reserve.................................. $ 36,595 $ 30,112
Accrued energy resource obligations..................................... -- 756
Accrued restructuring charges........................................... 1,349 1,798
Long-term lease liability............................................... 3,677 3,633
Deferred stock liability................................................ 853 2,548
Long-term commitments................................................... 2,722 2,741
Other................................................................... 4,893 4,584
--------- ---------
Total................................................................. $ 50,089 $ 46,172
--------- ---------
--------- ---------
</TABLE>
Accrued restructuring charges are the remaining costs associated with
Destec's 1994 plan to realign its strategic objectives (see Note 18). Long-term
lease liability includes the long-term lease arrangement for office space at
corporate headquarters in Houston (see Note 15). Deferred stock liability
includes the value of the stock granted under the Destec stock compensation plan
(see Note 17). Long-term commitments include the accrued operating efficiency
penalty for the Wabash facility (see Note 12).
42
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
11. PROJECT FINANCING DEBT
In August 1996, Destec arranged non-recourse financing for the 140 MW Indian
Queens facility located in Cornwall, United Kingdom. The project financing,
which consists of a $56,562 construction facility and $39,850 in term facility
and other debt instruments, was arranged and underwritten by Barclays Bank PLC.
Through December 31, 1996 Destec has recorded advances under the construction
facility of $53,820 in PROJECT FINANCING DEBT. The credit agreement divides the
facility into two tranches which carry interest at LIBOR plus variable margins.
The conversion of the construction loan to term is expected to occur in early
1997. The term loan is collateralized by the project's assets and matures over a
period of 17 years. Under the terms of the credit agreement, the unconsolidated
financial statements of the Indian Queens project are subject to various
coverage ratios. Interest costs of approximately $1,000 incurred during the
construction of the facility were capitalized as of December 31, 1996. The
interest rates in effect as of December 31, 1996 were 6.52% on $23,996 and 7.27%
on $29,824.
12. SYNGAS
In 1992, Destec entered into an agreement with the U.S. Department of Energy
("DOE") and PSI Energy, Inc. ("PSI") for the design, construction and operation
of a syngas facility, the Wabash River Coal Gasification Repowering project
("Wabash facility"). The Wabash facility, located in Indiana, began commercial
operations in November 1995. The capacity of the facility is approximately 262
MW. Destec will provide coal gasification services for PSI under a 25 year
contract. Effective June 1996, Destec refinanced its operating lease agreement
associated with the Wabash facility to include certain improvements made to the
facility. Under the terms of the gasification services agreement with PSI,
Wabash is subject to either an operating bonus or penalty depending on the
operating rate of the facility. The maximum bonus or penalty is $7,000 per
operating year and is calculated based on the annual average syngas production.
Destec's accrual for this potential penalty was $2,722 and $1,741 as of December
31, 1996 and 1995, respectively. During 1996, Destec began making significant
equipment and process improvements in order to improve the reliability and
profitability of the Wabash facility. The total cost of the improvements is
estimated at $14,000 and completion is expected in 1997.
Under the terms of the DOE Agreement, the DOE paid $161,000 of the
construction costs and will pay 50% of certain operating costs during the first
three years of operation. These reimbursements, which are netted in operating
costs were $13,719 and $3,230 in 1996 and 1995, respectively.
Pursuant to a 1985 settlement agreement between Dow and a competitor, Dow
made a payment of $2,250 for the future use of coal gasification technology by
Dow and or its successors. In order for Destec, as Dow's successor, to receive
the benefit of this payment in connection with Wabash, Dow transferred the
benefit of this $2,250 payment to Destec. Thus, Destec received a $2,250 asset
from Dow and recorded it as additional-paid-in-capital. An additional $1,250
obligation related to the foregoing was accrued in 1995 and capitalized as part
of the project by Destec as the successor to the coal gasification business of
Dow after completion and start-up of this facility in November 1995.
43
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
12. SYNGAS (CONTINUED)
In connection with an agreement with the U.S. Department of Treasury, Destec
received certain guaranteed payments ("Guaranteed Payments") for the sale of
syngas to Dow that was produced at Destec's coal gasification facility (the
"LGTI facility"), located near Plaquemine, Louisiana. During 1995, Destec earned
$63,014, leaving a balance of $59 from the cumulative Guaranteed Payments of
$584,500. The remaining balance will not be earned because it was not economical
to restart the plant after the outage in November 1995. The LGTI facility was
fully depreciated as of September 1995. Destec and Dow signed an agreement in
1996 whereby the LGTI equipment and all related facilities, except the slag
pile, would be transferred to Dow. Destec has agreed to reimburse Dow for
clean-up and disposal expenses up to a maximum of approximately $250. Destec has
agreed to remove the slag pile at the site in compliance with applicable
federal, state and local legal requirements. The cost of removal is expected to
be offset by proceeds from the sale of the slag.
13. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
CURRENT:
Federal..................................................... $ (28,691) $ 8,249 $ 50,630
State and local............................................. 4,004 4,016 3,554
Foreign..................................................... 672 259 117
---------- --------- ---------
Total................................................... (24,015) 12,524 54,301
DEFERRED:
Federal..................................................... 40,517 (1,793) (8,736)
Foreign..................................................... (769) (86) 770
---------- --------- ---------
Total income tax provision.............................. $ 15,733 $ 10,645 $ 46,335
---------- --------- ---------
---------- --------- ---------
</TABLE>
44
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
13. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities computed at the statutory rate related
to temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Assets:
Accrued liabilities................................................ $ 2,487 $ 2,851
Billings in excess of costs........................................ (884) 438
Property........................................................... 1,054 1,988
Other assets....................................................... 2,124 2,124
Investment tax credit carryforward................................. 1,692 2,600
Alternative minimum tax credit carryforward........................ 7,390 7,245
Foreign net operating loss carryforward............................ 3,054 2,610
Long-term liabilities.............................................. 21,987 20,450
Deferred income.................................................... 14,776 13,094
----------- ----------
Total deferred tax assets........................................ 53,680 53,400
Valuation allowance.............................................. (4,661) (5,210)
----------- ----------
Deferred tax assets--net......................................... 49,019 48,190
----------- ----------
Liabilities:
Depreciation, depletion and amortization........................... (36,012) (8,951)
Mineral reserves................................................... (23,431) (22,272)
Equity investments................................................. (49,206) (39,737)
Other.............................................................. (6,844) (6,270)
----------- ----------
Deferred tax liabilities......................................... (115,493) (77,230)
----------- ----------
Total deferred taxes--net........................................ $ (66,474) $ (29,040)
----------- ----------
----------- ----------
</TABLE>
Amounts related to the above deferred tax assets and liabilities are
included in the accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Deferred taxes--net................................................. $ 5,370 $ 5,680
Long-term liability:
Deferred taxes--net................................................. (71,844) (34,720)
---------- ----------
Total deferred taxes--net......................................... $ (66,474) $ (29,040)
---------- ----------
---------- ----------
</TABLE>
45
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
13. INCOME TAXES (CONTINUED)
Major differences in taxes on income between amounts based on the statutory
tax rate and the combined tax provision are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Taxes at U.S. statutory rate................................ $ 20,498 $ 15,871 $ 54,886
State and local taxes, net of federal benefits.............. 2,603 2,610 2,924
Goodwill amortization....................................... 865 865 865
Energy resources tax credits................................ (2,093) (6,766) (6,953)
Tax exempt interest......................................... -- (163) (3,587)
Valuation allowance......................................... (549) 2,421 --
FSC benefit................................................. (1,811) (366) --
Foreign net operating loss carryforwards.................... (436) (2,351) --
Settlement of tax audit items............................... (3,000) (1,226) --
Other--net.................................................. (344) (250) (1,800)
--------- --------- ---------
Total tax provision..................................... $ 15,733 $ 10,645 $ 46,335
--------- --------- ---------
--------- --------- ---------
Effective tax rate...................................... 27% 23% 30%
</TABLE>
The change in valuation allowance during 1995 was a net increase of $2,421
due primarily to foreign tax losses which were not likely to be realizable at
that time. The change in valuation allowance during 1996 was a net decrease of
$549 due to investment tax credits utilized of $908 and foreign tax losses of
$359 which do no appear realizable at this time. During 1996, $908 of investment
tax credit carryforwards were utilized to reduce taxes payable and were
reflected as a reduction of goodwill. The valuation allowance includes
approximately $1,700 of investment tax credit carryforwards expiring in 2003
which may not be realized. These carryforwards are limited to use by the
subsidiary in which they were generated. See Note 22 for discussion of the
effects the proposed merger of Destec with a wholly owned subsidiary of NGC
would have on the Tax Agreement between Dow and Destec.
14. RELATED PARTY TRANSACTIONS
Destec engaged in several transactions with Dow which resulted in the
following balances:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash and cash equivalents--Dow........................................ $ -- $ 4,422
Accounts receivable--Dow.............................................. $ 1,889 $ 1,144
Lease receivable from Dow............................................. $ 44,159 $ 44,159
Accounts payable--Dow................................................. $ (12,661) $ (13,249)
</TABLE>
46
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
The transactions which resulted in these balances are described as follows:
Destec had entered into a PMA with Dow whereby Destec provided
administrative, business management and marketing services with respect to a
portion of the electricity generated at Dow's Freeport, Texas cogeneration
facilities and sold under contracts to the local utilities. The final contract
related to this agreement expired on April 30, 1995. For such services, Dow paid
Destec an amount based on a formula specified in the PMA. The resulting revenue
recorded and collected was $3,276 and $125,209 for the years ended December 31,
1995 and 1994, respectively.
The LGTI facility, which ceased operations in November 1995, provided fuel
to a Dow plant pursuant to a long-term fuel supply contract. Revenues from such
sales aggregated $7,611 and $13,661 for the years ended December 31, 1995 and
1994, respectively. No revenues for such sales were earned for the year ended
December 31, 1996. Destec and Dow signed an agreement in 1996 under which the
LGTI equipment and all related facilities, except the slag pile, were
transferred to Dow. Destec has agreed to reimburse Dow for clean-up and disposal
expenses up to a maximum of $250. Destec has agreed to remove the slag pile at
the site in compliance with applicable federal, state and local legal
requirements. The cost of removal is expected to be offset by proceeds from the
sale of the slag (see Note 12).
LGTI purchased from Dow certain materials and services (including research
and development) necessary for the operation of its facility pursuant to service
agreements. In addition, Dow performed the purchasing of all operating
activities of the LGTI facility. Costs incurred related to these services
aggregated $13,509 and $19,271 for the years ended December 31, 1995 and 1994,
respectively. During 1996, costs of $1,176 were incurred during the site
clean-up of the LGTI facility. Amounts of $523 and $3,274 relating to these
services were included in ACCOUNTS PAYABLE--DOW at December 31, 1996 and 1995,
respectively.
Destec and Dow have entered into an amended service agreement whereby
certain administrative services are provided to Destec at a fee of $122 per
calendar quarter. In the opinion of management, the service agreement is based
on reasonable estimates of the costs of such services.
Destec and Dow have extended credit to each other up to $350,000 from time
to time under the Destec/Dow Credit Agreements. The agreements expired on
December 31, 1996, and management does not expect renewal at this time. At
December 31, 1995, cash equivalents included $4,422 of cash advances to Dow. Due
to the expiration of the agreements no amounts were included in cash equivalents
at December 31, 1996. Interest due on Destec advances to Dow of $122 and $566 is
included in ACCOUNTS RECEIVABLE--DOW at December 31, 1996 and 1995,
respectively. There were no outstanding borrowings from Dow at December 31, 1996
and 1995.
Certain personnel, occupancy and engineering services are performed by both
Dow and Destec. The net amounts of $10,372 and $9,395 related to such services
were included in ACCOUNTS RECEIVABLE/ACCOUNTS PAYABLE--DOW at December 31, 1996
and 1995, respectively.
See Note 6 for discussion of lease receivable from Dow.
In 1993, Destec signed an agreement to develop the 405 MW Elsta facility in
the Netherlands to provide steam and electricity to Dow's Terneuzen facility as
well as electricity to the local distribution network. The project is expected
to commence commercial operations in 1997.
47
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
The Oyster Creek facility, in which Destec owns a 50% non-controlling
interest, commenced commercial operations in October 1994. The 424 MW facility
provides 369 MW of electricity and 1.1 million pounds per hour of process steam
to Dow who also operates and maintains the facility. See Note 22 for discussion
of the effects the proposed merger of Destec with a wholly owned subsidiary of
NGC would have on the Oyster Creek facility.
In October 1995, the Michigan Power project, in which Destec owns a 50%
non-controlling interest, commenced commercial operations. The 123 MW facility,
located in Ludington, Michigan, provides Dow with 320,000 pounds per hour of
process steam.
Dow and Destec entered into a registration rights agreement pursuant to the
Offering in which Dow has been granted certain demand and piggyback registration
rights with respect to the common stock of Destec owned by Dow as of such date
or acquired thereafter. Destec agrees to indemnify Dow for certain liabilities,
including liabilities under the Securities Act of 1933, in connection with such
registration.
Dow assigned to Destec certain patents, pending patent applications,
inventions, discoveries and information pertaining to coal gasification and
lignite beneficiation pursuant to the Offering. Dow retained a royalty-free
world-wide license to use this technology in Dow facilities for chemical
production. Dow and Destec have entered into (i) a First Amendment to Research
and Development Agreement, effective December 31, 1996 and (ii) a First
Amendment to Assignment Agreement, effective as of December 15, 1996. Pursuant
to the Research and Development Agreement, as amended, Destec engaged Dow to
provide certain research and development services with respect to intellectual
property relating to the gasification of carbonaceous materials and to lignite
beneficiation.
Covenants contained in various agreements relating to certain of Dow's
indebtedness prohibit Dow from allowing Destec, subject to certain exceptions,
to encumber or otherwise pledge as security any of its properties or assets or
the capital stock of any of Destec's subsidiaries. In addition, Dow may not
permit Destec to incur indebtedness to the extent such occurrence would cause
Dow indebtedness on a consolidated basis to exceed 60% of Dow's consolidated
capitalization. As of December 31, 1996, Dow's indebtedness on a consolidated
basis was approximately 29% of consolidated capitalization. Dow's debt
instruments also restrict the ability of Dow and its subsidiaries to engage in
certain sale and lease-back transactions involving facilities which are material
to the business conducted by Dow and its subsidiaries located in the United
States taken as a whole. Destec's management believes that these restrictions
will not significantly affect Destec's ability to conduct its business.
In September 1996, in conjunction with Destec's acquisition of a 20%
interest in the Hazelwood partnership (see Note 8), Destec entered into an
engineering services agreement with the Hazelwood partnership. This agreement
encompasses engineering consultation related to the capital improvement program
at the Hazelwood facility.
15. LEASE COMMITMENTS
Effective June 7, 1996, Gasification Services, Inc. ("GSI") refinanced its
operating lease agreement associated with the Wabash facility for a term of 5
years resulting in a reduction in interest spreads and elimination of several
financial covenants associated with the original financing. The future minimum
lease payments associated with the lease as of December 31, 1996 are
approximately $224,000. Destec has
48
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
15. LEASE COMMITMENTS (CONTINUED)
guaranteed GSI's performance pursuant to this new lease agreement. Under the
Wabash lease agreement, the occurrence of certain events ("Termination Events"),
such as a change in control of Destec (see Note 22), will automatically
terminate the lease. According to the Wabash lease agreement, if Dow shall fail
to own a majority of outstanding shares of Destec, the Guarantor, a Termination
Event will occur. Upon the date of the occurrence of any Termination Event, the
lessee shall, on the payment date relating to the payment of partnership rent
next succeeding the Termination Event date, purchase the lessor's interest in
the property from the lessor for a purchase price equal to the lease termination
payment in accordance with purchase provisions set forth in the agreement. The
lease termination payment is $193,300 plus accrued interest from the date of
last lease payment.
Destec also has an operating lease for the CLI facility with future
estimated minimum lease payments as of December 31, 1996 of approximately
$212,000. The lease agreement is an operating lease with an initial
non-cancelable term of 5 years ending in 2000 and an extended term of an
additional 13 years ending in 2013. The lease allows for termination after the
initial term, subject to a penalty clause. CLI is required to remit to the
lessor, in addition to basic rentals as defined, variable rentals associated
with the leveraged portion of the lease. Dow has guaranteed Destec's performance
pursuant to this lease agreement. See Note 22 for discussion of the effects the
potential sale of Destec's stock would have on the CLI lease guarantee by Dow.
In addition to the aforementioned lease agreement, Destec also leases
certain office space under operating leases.
Future minimum rentals under noncancelable operating leases in effect at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RENTAL SUBLEASE NET
EXPENSE REVENUE RENTAL
---------- --------- ----------
<S> <C> <C> <C>
1997................................................................. $ 29,078 $ (903) $ 28,175
1998................................................................. 29,889 (903) 28,986
1999................................................................. 31,007 (903) 30,104
2000................................................................. 195,570 (903) 194,667
2001 and thereafter.................................................. 174,581 (827) 173,754
---------- --------- ----------
Total minimum lease payments....................................... $ 460,125 $ (4,439) $ 455,686
---------- --------- ----------
---------- --------- ----------
</TABLE>
The years 2000 and 2001 include lease termination payments.
Total rental expense on operating leases was $25,716, $20,168 and $24,996 in
1996, 1995 and 1994, respectively.
16. BENEFIT PLANS
Certain of Destec's officers and employees formerly participated in benefit
plans sponsored by Dow during their employment with Dow. All amounts contributed
or paid by Dow on behalf of Destec's employees pursuant to the Dow plans have
been charged to Destec and are reflected in Destec's
49
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
16. BENEFIT PLANS (CONTINUED)
consolidated financial statements. Dow satisfied all pension obligations related
to these employees and officers prior to the implementation of Destec's own
benefit plans and, accordingly, no accrued benefit obligation was transferred to
Destec. Deferred defined compensation contracts (the "Agreements") were extended
to former Dow employees in order to replace the future value of their then
vested interest in the Dow benefit plans. These contracts provide for certain
future payments which accrue over various terms of future employment to be made
to these employees upon retirement, termination, or in certain cases, a change
in the control of Destec, to supplement the Destec deferred tax savings plan
which was implemented at the same date and which is outlined below. Should
Destec be unable to perform under the Agreements, Dow has guaranteed these
payments which were $2,689 and $2,833 as of December 31, 1996 and 1995,
respectively. See Note 22 for discussion of the effects the proposed merger of
Destec with a wholly owned subsidiary of NGC would have on Dow's guaranty
related to these payments.
The Destec Energy, Inc. Retirement and Savings Plan ("Retirement and Savings
Plan") is a deferred tax savings plan which covers all of its full-time
employees. Amounts owed to the Retirement and Savings Plan (including amounts
withheld from employees and not yet paid to the plan) and included in ACCRUED
LIABILITIES for 1996 and 1995, were $6,416 and $3,765, respectively. Destec
recorded expenses of $3,204, $3,274 and $2,776 for the years ended 1996, 1995
and 1994, respectively, related to this plan. Additionally, Destec has a
non-qualified deferred compensation plan and an executive salary continuation
plan pursuant to which certain key officers and/or former employees of Destec
participate.
As a result of operational defects in the administration of the Retirement
and Savings Plan since 1991, Destec filed a Voluntary Compliance Report ("VCR")
with the Internal Revenue Service ("IRS"). If the VCR application is approved by
the IRS, Destec will make a contribution to the Plan of approximately $4,689
(before tax effect) including accrued interest (included in ACCRUED LIABILITIES
as discussed above). Destec's management believes that adequate reserves are
provided as of December 31, 1996 for this potential liability.
Effective January 1, 1994, Destec adopted an unfunded defined benefit
postretirement plan for continuation of group medical benefits which is
accounted for under SFAS No. 106 "Employers' Accounting for Postretirement
Benefits other than Pensions." Upon eligible retirement, Destec contributes
(with certain caps) 50% of group medical premium cost for employees and
dependents. The accumulated postretirement benefit obligation is $1,091 which
will be amortized over approximately 10 years. The significant assumptions used
in the valuation of this obligation were a 1996 discount rate of 7.5%, an
average retirement age of 65 and the 1983 Group Annuity Mortality Table. Destec
recorded expenses of $238 and $320 for the years ended December 31, 1996 and
1995, respectively, for service costs and amortization of the accumulated
postretirement benefit obligation related to this plan.
Between May 1994 and September 1996, Destec entered into severance and
services agreements (the "Agreements") with certain employees, fourteen of which
are remaining as of December 31, 1996. Each Agreement provides that in the event
of a change in control of Destec, and the termination of the employee, under
certain circumstances the employee is entitled to receive (i) certain severance
and/or advisory service payments equal in the aggregate to two times the sum of
(a) annual salary plus (b) average annual bonus over the preceding three years
(payment would include a pro rata portion of an employee's current year target
bonus if termination occurs during the year), (ii) the continuation of certain
benefits for two years, and (iii) reimbursement of certain legal fees that may
be incurred (generally not to exceed $25
50
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
16. BENEFIT PLANS (CONTINUED)
per employee). The terms of the Agreements continue through December 31, 1997,
with automatic one-year extensions beginning on January 1, 1997, unless the
Company gives notice of non-extension by September 30 of the preceding year.
Under the Agreements, a change in control of Destec includes: (i) any change
required to be reported under Regulation 14A of the Securities Exchange Act of
1934, (ii) with the exception of The Dow Chemical Company, any entity acquiring
20% or more of the combined voting power of Destec's common stock, (iii) any
change in the current Board of Directors during any subsequent two year period
which would result in the current Board being less than a majority, or (iv) if
all or substantially all of the assets of Destec are sold, liquidated or
distributed. Under certain of these Agreements, employees may be required to
provide advisory services to the Company for up to one year after termination of
employment in the event of a change of control. The Company's maximum contingent
liability for these severance and advisory service payments is estimated to be
approximately $12,000 at December 31, 1996. The proposed merger of Destec with a
wholly owned subsidiary of NGC (see Note 22) constitutes a change in control
under the Agreements.
17. STOCK COMPENSATION PLANS
At December 31, 1996, Destec has stock-based compensation plans under which
shares or options could be granted to employees. Destec measures compensation
cost for those plans using the intrinsic value method of accounting prescribed
by APB Opinion No. 25 "Accounting for Stock Issued to Employees." Given the
terms of the plans, no compensation cost has been recognized for the fixed stock
option plans or the stock purchase plan.
Destec's reported net income and earnings per share would have been reduced
had compensation cost for Destec's stock-based compensation plans been
determined using the fair value method of accounting as set forth in SFAS No.
123 "Accounting for Stock-Based Compensation." For purposes of estimating the
fair value disclosures below, the fair value of each stock option has been
estimated on the grant date with a Black-Scholes option-pricing model using the
following weighted-average assumptions: dividend yield of 0%; expected
volatility of 29.69%; risk-free interest rate of 6.35%; and expected lives of 10
years for fixed stock option plans and 0.83 years for the Stock Purchase Plan.
The effects of using the fair value method of accounting on net income and
earnings per share are indicated in the pro forma amounts below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C> <C>
Net Income As Reported......................... $ 42,756 $ 34,700 $ 110,481
Pro Forma........................... $ 39,123 $ 32,758 $ 106,208
Net Income per Share As Reported......................... $ 0.75 $ 0.59 $ 1.84
Pro Forma........................... $ 0.69 $ 0.56 $ 1.77
</TABLE>
FIXED STOCK OPTION PLAN
Under the Amended and Restated 1990 Award and Option Plan (the "1990 Plan"),
Destec may grant up to 1% of the total outstanding shares of common stock on the
first day of such year, increased in any year by 25% of the shares available. As
of December 31, 1996, there were 56,079,260 shares outstanding. The option price
per share may not be less than the fair market value on the date the option is
granted and
51
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
17. STOCK COMPENSATION PLANS (CONTINUED)
each option is exercisable into one share of common stock. The options under the
1990 Plan are exercisable from one to three years after the grant date according
to individual agreements set forth at the time of the award. All options expire
between the sixth and thirteenth anniversary of their respective vesting dates
according to individual agreements.
The following tables summarize information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
WEIGHTED WEIGHTED
1996 AVERAGE AVERAGE
----------------------- EXERCISE EXERCISE
FIXED OPTIONS SHARES SHARES PRICE SHARES PRICE
- ------------------------------------------- ---------- ---------- ----------- ---------- -----------
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year....... 2,131,408 $ 14.06 1,968,067 $ 14.89 1,134,325 $ 17.77
Granted.................................... 683,350 $ 12.44 411,264 $ 9.63 895,112 $ 11.31
Exercised.................................. (17,659) $ 10.46 (12,846) $ 12.03 -- --
Forfeited.................................. (12,103) $ 14.44 (235,077) $ 13.36 (61,370) $ 16.10
---------- ----------- ---------- ----------- ---------- -----------
Outstanding at end of year................. 2,784,996 $ 13.68 2,131,408 $ 14.06 1,968,067 $ 14.89
---------- ----------- ---------- ----------- ---------- -----------
Options exercisable at end of year......... 1,789,763 $ 14.56 1,277,314 $ 16.22 1,005,525 $ 18.03
Weighted-average fair value of options
granted during the year.................. $ 6.96 $ 5.39 $ 6.33
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISABLE EXERCISABLE AT EXERCISABLE
EXERCISABLE PRICES DECEMBER 31, 1996 LIFE PRICE DECEMBER 31, 1996 PRICE
- ------------------ ----------------- --------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
$ 9.63 to $14.94 1,806,271 7.22 years $ 11.41 811,038 $ 10.57
$ 15.00 to $18.69 769,600 6.01 years $ 16.12 769,600 $ 16.12
$ 19.56 to $24.44 209,125 6.34 years $ 24.35 209,125 $ 24.35
</TABLE>
STOCK PURCHASE PLANS
Destec has an Employees' Stock Purchase Plan (the "Purchase Plan") which
offers employees of Destec the right to purchase shares of the Company's common
stock. The employees are eligible to subscribe for shares at a price set by the
Company's Stock Award Committee up to 10% of each employee's gross annual salary
as of the beginning of the plan year. The purchase price of the stock is 85% of
the market price at the measurement date. Approximately 36% to 57% of the
eligible employees have participated in the Purchase Plan in the last three
years.
52
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
17. STOCK COMPENSATION PLANS (CONTINUED)
A summary of the status of Destec's stock purchase plan as of December 31,
1996, 1995 and 1994 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1995 1994
----------------------- ----------------------
WEIGHTED WEIGHTED
1996 AVERAGE AVERAGE
---------------------- EXERCISE EXERCISE
STOCK PURCHASE PLAN SHARES SHARES PRICE SHARES PRICE
- ----------------------------------------------- --------- ---------- ----------- --------- -----------
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year........... 100,529 $ 11.85 186,925 $ 8.15 64,041 $ 15.00
Granted........................................ 72,503 $ 11.25 103,422 $ 11.85 187,051 $ 8.15
Exercised...................................... (83,505) $ 11.84 (178,651) $ 8.18 (37,647) $ 14.99
Forfeited...................................... (17,804) $ 11.85 (11,167) $ 8.63 (26,520) $ 14.99
--------- ----------- ---------- ----------- --------- -----------
Outstanding at end of year..................... 71,723 $ 11.25 100,529 $ 11.85 186,925 $ 8.15
--------- ----------- ---------- ----------- --------- -----------
Options exercisable at end of year............. -- -- -- -- -- --
Weighted-average fair value of options granted
during the year.............................. $ 2.94 $ 3.10 $ 2.13
</TABLE>
DEFERRED STOCK PLANS
Under the 1990 Plan, Destec grants deferred stock to certain employees. The
vesting period for such grants is generally 5 years. After the vesting period,
the shares are issued to the employee. The number of deferred stock awards
granted prior to 1993, in February 1993 and in February 1996 were 71,600, 38,900
and 16,100, respectively. Total awards exercised and forfeited as of December
31, 1996 were 17,600 and 37,850, respectively. Compensation expense equal to the
fair market value of the shares on the date of the grant is recognized in the
period of the grant and amounted to $207, $369 and $310 for 1996, 1995 and 1994,
respectively. The number of deferred shares outstanding were 71,150, 77,300 and
90,800 as of December 31, 1996, 1995 and 1994, respectively.
1995 VARIABLE PAY PLAN
In 1995, as part of Destec's variable pay plan, Destec offered all full-time
employees the opportunity to take a portion of their individual cash awards in
restricted stock. The restricted stock would vest at the end of each of the next
three years. In addition, if Destec achieved certain thresholds, as defined by
the Compensation Committee, the Company would match each restricted share with a
deferred share. Destec expensed $779 and $1,425 in 1996 and 1995, respectively.
During 1996, 219,556 shares were issued; of this amount, 92,183 shares were
vested and 4,195 shares were canceled, leaving 123,178 shares outstanding as of
December 31, 1996.
See Note 22 for discussion of the effects the proposed merger of Destec with
a wholly owned subsidiary of NGC would have on the stock-based compensation
plans.
18. RESTRUCTURING CHARGES
In September 1994, Destec's management finalized a study to refocus its
business development efforts from domestic to international markets and to
de-emphasize vertical integration. In order to implement
53
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
18. RESTRUCTURING CHARGES (CONTINUED)
this shift in focus, management developed a restructuring plan to reduce and
realign the current work force and reduce overhead. In order to fully implement
this plan, Destec recorded a restructuring charge of $10,000 in 1994 as a
component of operating costs. Components of the charge were approximately $5,500
for termination pay and benefits, $3,100 for vacated lease space (net of
revenues from potential sublease) and $1,400 related to the write-off of
leasehold improvements and office equipment. Destec's remaining accruals
relating to this charge were $1,812 and $3,400 as of December 31, 1996 and 1995,
respectively. Destec's charges against the restructuring accrual were $1,588 and
$4,520 for 1996 and 1995, respectively. The balance remaining at the end of 1996
is for vacated lease space net of sublease revenues.
19. COMMITMENTS AND CONTINGENCIES
Destec is a defendant in certain lawsuits in which legal and financial
responsibility cannot be determined at this time. Management believes that
resolution of these matters will not materially affect Destec's Consolidated
Financial Statements.
At December 31, 1996 and 1995, respectively, Destec had outstanding
irrevocable letters of credit from banks totaling $35,401 and $30,996. These
letters of credit are pledged to support certain Destec equity commitments and
other development activities.
See Note 4 for discussion of the LYO Partnership Agreement.
See Note 12 for discussion of the Wabash operating penalty.
See Note 15 for discussion of lease commitments related to the Wabash and
CLI facilities.
Destec contracted in 1993 to design, engineer, build and operate a
cogeneration facility in Polk County, Florida to be owned by a Delaware limited
partnership ("Tiger Bay") in which Destec has an approximate 50% non-controlling
equity interest. Destec has a commitment to loan up to an additional $10,000
(subordinated to the partnership's senior lenders) to the Tiger Bay project
based on the project steam host's ability to contractually perform. In December
1993, Destec entered into a 20 year firm transportation agreement, effective in
March 1995, with Florida Gas Transmission to maintain firm gas transportation
capacity. Destec is required to pay approximately $3,500 per year over the
contract life to maintain transportation capacity. During 1996, Destec sold the
excess capacity which the Tiger Bay project was unable to utilize. Because the
current market rate for natural gas transportation capacity was less than
Destec's contracted cost, a resulting net fuel expense of $2,867 and $2,124 was
incurred in 1996 and 1995, respectively.
Pursuant to an agreement dated September 6, 1996, Destec has agreed to pay
the investment banking firm of Morgan Stanley & Co. Incorporated ("Morgan
Stanley") to assist Destec in exploring strategic alternatives to maximize
shareholder value. If the Merger discussed in Note 22 is consummated, Destec
will pay a total fee of approximately $5,100 (against which any previously paid
fees would be credited) for services performed. If the Merger is not consummated
the fee would be between $200 and $450. In addition to the foregoing
compensation, Destec has agreed to reimburse Morgan Stanley for its expenses,
including reasonable fees and expenses of its counsel, and to indemnify Morgan
Stanley for liabilities and expenses arising out of the engagement and the
transactions in connection therewith, including liabilities under federal
securities laws.
54
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
19. COMMITTMENTS AND CONTINGENCIES (CONTINUED)
In January 1997, Tiger Bay Limited Partnership, in which Destec holds an
equity interest of approximately 50%, executed an agreement for the sale of the
Tiger Bay cogeneration facility, located in Fort Meade, Florida to a wholly
owned subsidiary of Florida Power Corporation for $445,000. Destec's estimated
share of the proceeds after repayment of partnership debt and the net settlement
of other partnership obligations is anticipated to be approximately $140,000.
The sale is subject to certain conditions, including regulatory approvals and
the closing of the proposed merger of Destec and NGC (see Note 22).
Destec has entered into a long-term gas supply agreement for approximately
30 Mmcf per day of natural gas to be supplied at market prices to seven of the
California cogeneration facilities in which Destec owns an equity interest. The
term of this agreement is for a 10-year period, expiring in 2002, with
provisions for a 5-year renegotiated extension.
20. MAJOR CUSTOMERS
The following represents the percentages of revenue from individual sources
which exceed 10% of Destec's total revenue:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Electric Utilities(1)..................................... 21% 10% --
Foreign Governments(2).................................... 10% -- --
Guaranteed Payments....................................... -- 10% 11%
Dow....................................................... -- -- 19%
Elsta project(3).......................................... 37% 16% --
Kingston project(3)....................................... -- 11% --
Michigan Power project(3)................................. -- 10% --
Tiger Bay project(3)...................................... -- -- 11%
Wabash River project(3)................................... -- 18% 17%
</TABLE>
- ------------------------
(1) Destec's sales to electric utilities increased significantly in 1996. The
CLI facility, which contributed approximately 16% of Destec's total revenue,
is currently operating slightly above a break-even point. The majority of
the CLI facility's sales are to HL&P at tariff prices approved by the Public
Utilities Commission of Texas for cogenerators. During 1996, DPS sold power
on behalf of CLI to various utility customers. The Wabash facility began
operating in November 1995 and contributed approximately 5% of Destec's
total revenue through sales to PSI (see Note 12). The remainder of sales to
Electric Utilities resulted from DPS marketing power from various sources to
a number of different electric utilities.
(2) The Los Mina facility, located in the Dominican Republic, commenced
commercial operations in the second quarter of 1996 and sells power to
Corporacion Dominicana de Electricidad which is a government owned utility
in the Dominican Republic.
(3) Revenues related to the Elsta, Kingston, Michigan Power, Tiger Bay and
Wabash projects result from development, engineering and operating
activities necessary to construct and operate these facilities.
55
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
21. FOREIGN OPERATIONS
<TABLE>
<CAPTION>
UNITED FOREIGN
STATES OPERATIONS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
1996
Total revenue--affiliates.......................................... $ 324,116 $ -- $ 324,116
Total revenue--nonaffiliates....................................... 196,468 57,328 253,796
Operating income................................................... 15,111 6,224 21,335
Investments in and advances to unconsolidated subsidiaries......... 157,747 165,503 323,250
Other identifiable assets.......................................... 600,184 87,681 687,865
Gross plant properties............................................. 107,050 76,295 183,345
Plant depreciation................................................. (45,465) (3,849) (49,314)
Capital expenditures............................................... $ 25,123 $ 111,073 $ 136,196
- --------------------------------------------------------------------------------------------------------
1995
Total revenue--affiliates.......................................... $ 466,404 -- $ 466,404
Total revenue--nonaffiliates....................................... 175,092 -- 175,092
Operating income................................................... (9,915) -- (9,915)
Investments in and advances to unconsolidated subsidiaries......... 139,758 26 139,784
Other identifiable assets.......................................... 821,516 20,924 842,440
Gross plant properties............................................. 104,491 -- 104,491
Plant depreciation................................................. (38,903) -- (38,903)
Capital expenditures............................................... $ 13,456 $ 19,647 $ 33,103
- --------------------------------------------------------------------------------------------------------
1994
Total revenue--affiliates.......................................... $ 524,723 -- $ 524,723
Total revenue--nonaffiliates....................................... 201,970 -- 201,970
Operating income................................................... 113,672 -- 113,672
Investments in and advances to unconsolidated subsidiaries......... 80,864 -- 80,864
Other identifiable assets.......................................... 862,653 -- 862,653
Gross plant properties............................................. 68,868 -- 68,868
Plant depreciation................................................. (34,850) -- (34,850)
Capital expenditures............................................... $ 39,075 $ -- $ 39,075
- --------------------------------------------------------------------------------------------------------
</TABLE>
Destec currently has interest in the following foreign projects:
<TABLE>
<CAPTION>
PROJECT NAME MW LOCATION % OWNERSHIP
- ------------------------------------- --------- ----------------------------------------- ---------------
<S> <C> <C> <C>
Los Mina............................. 236 Santo Domingo, Dominican Republic 100
Indian Queens........................ 140 Cornwall, United Kingdom 100
Kingston............................. 110 Ontario, Canada 50
Hazelwood............................ 1,600 Victoria, Australia 20
Elsta (start-up est. 1997)........... 405 Terneuzen, The Netherlands 50
</TABLE>
The Los Mina facility commenced commercial operations in May 1996, and the
Indian Queens and Kingston projects both reached substantial completion in
December 1996 and made a limited number of sales to outside parties. In
September 1996, Destec acquired a 20% interest in the Hazelwood project
56
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
21. FOREIGN OPERATIONS (CONTINUED)
which was operational at the time it was purchased. Because the Los Mina
facility began operating in May 1996, it is the only foreign project which
contributed significant operating revenue during 1996 (see Note 20).
22. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
On January 17, 1997, Tiger Bay Limited Partnership, in which Destec holds an
equity interest of approximately 50%, executed an agreement for the sale of the
nominally rated 220 MW Tiger Bay cogeneration facility, located in Fort Meade,
Florida to a wholly owned subsidiary of Florida Power Corporation for
approximately $445,000. Destec's estimated share of the proceeds after repayment
of partnership debt and the net settlement of other partnership obligations is
anticipated to be approximately $140,000. The sale is subject to certain
conditions, including, without limitation, regulatory approvals and the sale of
Destec.
On February 17, 1997, Destec executed an Agreement and Plan of Merger (the
"Merger Agreement"), by and among Destec, Dow, NGC Corporation ("NGC") and NGC
Acquisition Corporation II, a wholly owned subsidiary of NGC ("Purchaser"),
pursuant to which, among other things, Purchaser will merge with and into Destec
(the "Merger"). The surviving corporation after the Merger will be a wholly
owned subsidiary of NGC. Pursuant to the Merger Agreement, among other things,
each outstanding share of common stock of Destec will be converted into the
right to receive $21.65 in cash (the "Merger Consideration"), or approximately
$1,270,000 in the aggregate. The consummation of the Merger is subject to
certain conditions, including the approval by the affirmative vote of at least
66 2/3% of the outstanding shares of Destec common stock entitled to vote, as
well as the approval by federal antitrust authorities and the Federal Energy
Regulatory Commission. Dow, which owns 80% of the outstanding common stock, has
agreed to vote its shares of common stock for approval and adoption of the
Merger Agreement.
Destec has various agreements with its principal stockholder, Dow and its
subsidiaries and affiliates (the "Dow Agreements"). Certain of the Dow
Agreements and certain agreements among Destec, Dow and NGC entered into on
February 17, 1997, will be affected by the consummation of the Merger Agreement
and the transactions contemplated thereby, as described below.
The Merger Agreement provides that, upon the consummation of the Merger, NGC
and Purchaser will cause Dow to be released as an obligor under the following
agreements: (i) Guaranty, dated as of August 11, 1995, by Dow for the benefit of
CoGen Funding, Limited Partnership relating to Dow's guarantee of the payment of
the lease obligations of CLI (the "CLI Guaranty"); and (ii) Guaranty, dated as
of December 18, 1991, by Dow in favor of Destec and certain identified
individuals, relating to Dow's guarantee of the performance of Destec of its
obligations under certain compensation adjustment agreements with Destec
employees formerly employed by Dow (the "Compensation Guaranty").
In connection with the release of Dow as obligor under the CLI Guaranty, NGC
and Dow have entered into an Indemnity Agreement, dated as of February 17, 1997,
whereby NGC has agreed to use its reasonable best efforts to terminate the CLI
Guaranty or substitute NGC in Dow's stead under the CLI Guaranty; and in any
event, indemnify Dow against any losses arising out of the CLI Guaranty. In
connection with the release of Dow as obligor under the Compensation Guaranty,
Destec, Dow, and NGC have entered into a Waiver, Release and Substitution
agreement, dated as of February 17, 1997, whereby
57
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
22. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (CONTINUED)
(i) NGC has agreed to be substituted in Dow's stead and to assume all of Dow's
rights and obligations under or in connection with the Compensation Guaranty,
(ii) NGC has agreed to indemnify Dow for any and all liability which may arise
under or in connection with Compensation Guaranty, (iii) Destec has consented to
such substitution, and (iv) Destec and NGC have released and discharged Dow from
any and all claims or liabilities based upon any duty or obligation to Destec or
the individuals covered by the compensation adjustment agreements in connection
with the Compensation Guaranty.
Destec and Dow have entered into a First Amendment to the Tax Sharing
Agreement, dated February 17, 1997 pursuant to which the most recent tax sharing
agreement between Dow and Destec was amended to provide, among other things, (i)
the provisions of such tax sharing agreement apply to this deconsolidation of
Destec from the consolidated group of corporations for which Dow files tax
returns for U.S. Federal income tax purposes; (ii) on the Closing Date of the
Merger Agreement, Dow will pay to Destec $10,000 as an advance payment of
amounts expected to be paid to Destec under such tax sharing agreement with
respect to the 1997 tax year; (iii) Dow will be treated as having actually
utilized all deduction, losses, credits and other tax attributes of Destec prior
to Destec's deconsolidation, with the effect that Destec will be entitled to
payments for such items by Dow pursuant to such tax sharing agreement; and (iv)
Destec will not be liable to Dow for taxes with respect to certain transactions.
The First Amendment to the Tax Sharing Agreement will be effective as of the
Effective Time of the Merger Agreement.
Pursuant to the First Amended Lease Agreement, dated as of January 1, 1990,
as amended between Destec Properties Limited Partnership, a wholly owned
subsidiary of Destec ("Destec Properties"), and Dow, Dow has given notice that
it is exercising its option to purchase all of Destec's interest in certain
specific lignite reserves. The exercise price of approximately $44,000 will be
paid to Destec immediately prior to the effective time of the Merger.
Consequently, Destec Properties and Dow have entered into (i) a Termination
Agreement Concerning the First Amended Lease Agreement, entered into February
17, 1997, to become effective as of the effective time of the Merger and (ii) a
Termination Agreement concerning the First Amended Lignite Properties
Maintenance Agreement, entered into February 17, 1997, to become effective at
the effective time of the Merger, pursuant to which Destec will provide limited
consulting and training with respect to the management and maintenance of the
lignite reserves to Dow at no additional cost.
Pursuant to the Oyster Creek Agreement, dated February 17, 1997, by and
among Destec, Dow and NGC, Dow has obtained a right of first refusal with
respect to the stock of certain Destec subsidiaries related to the Oyster Creek
cogeneration facility and waived its right to exercise an option to purchase the
partnership interests of such company subsidiaries in Oyster Creek Limited that
would become exercisable in the event Dow no longer holds a majority interest of
the common stock of Destec.
Pursuant to a Site Development Agreement, dated February 17, 1997, by and
between Dow and Destec, for five years, Dow will include Destec in the Dow
notification to potential third party (power company) bidders with respect to
energy generation facility projects at certain Dow sites put to bid and invite
the Company to participate in the bid process. In the event that Dow does not
provide such notification and an invitation to bid, Dow will pay the Company the
amount of damages which the Company shows it suffered up to a cap of $25 per
project.
Dow and Destec have entered into a First Amendment to Research & Development
Agreement, effective December 31, 1996. Pursuant to the Research & Development
Agreement, dated March 1, 1990,
58
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
22. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (CONTINUED)
Destec engaged Dow to provide certain research and development services with
respect to intellectual property relating to gasification of carbonaceous
materials and to lignite beneficiation, which intellectual property was assigned
to Destec by Dow pursuant to an Assignment Agreement, dated March 1, 1990. The
First Amendment to Research & Development Agreement provides, in pertinent part,
the term of the Research & Development Agreement will continue through December
31, 1997, unless the parties otherwise agree to in writing, and further
identifies three individual Dow employees that will continue to provide research
and development support services pursuant to such agreement, with Dow receiving
$125 per man year of effort (for a total of 2 1/2 man years) as compensation for
such services. In addition, the amendment deleted the parties' undertaking
relative to further joint technology development made in the Research &
Development Agreement. Pursuant to the Assignment Agreement, Dow assigned to
Destec certain patents and technology. The First Amendment to Assignment
Agreement modifies the license granted to Dow and its subsidiaries to practice
the technology pertaining to gasification of carbonaceous materials and to
lignite beneficiation and any improvements to such technology so as to apply
only to improvements made prior to December 31, 1997 (or prior to any extension
of the term of such agreement). In addition, the First Amendment to Assignment
Agreement terminates Dow's license to Destec to use certain hardware and
software and also terminated Destec's right of refusal to perform design,
engineering and construction services to any coal gasification facility Dow
desired to construct and operate.
Certain of Destec's stock compensation plans discussed in Note 17 will be
affected by the consummation of the Merger Agreement and the transaction
contemplated thereby, as described below:
Pursuant to the Destec Energy, Inc. Amended and Restated 1990 Award and
Option Plan, as amended on February 14, 1997, and related stock option
agreements, immediately prior to a change in control, (i) all options
outstanding (whether or not then exercisable) shall be cashed-out and each
grantee shall be entitled to receive (in lieu of shares of Destec's Common Stock
otherwise deliverable in respect of such option) cash in an amount (subject to
applicable withholding) equal to the spread between the exercise price of the
options and the Merger Consideration and (ii) each outstanding award of Deferred
Stock and Restricted Stock (whether or not then vested) will be cashed-out and
each awardee will be entitled to receive (in lieu of shares of Destec's Common
Stock otherwise deliverable in respect of such awards) an amount (subject to
applicable withholding) equal to the Merger Consideration multiplied by the
aggregate number of shares of Deferred Stock or Restricted Stock awarded to such
awardee.
Pursuant to the Destec Energy, Inc. Employees' Stock Purchase Plan, as
amended February 14, 1997 (the "Stock Purchase Plan"), upon the occurrence of a
change in control (i) all payroll deductions under the Stock Purchase Plan will
cease and each subscriber will receive a cash payment in an amount equal to the
cash amounts previously deducted from such subscriber's pay in respect to the
Plan Year during which such change in control occurs and (ii) each subscriber
who is employed by Destec on the date of such change in control will be entitled
to receive, in respect of such Plan Year, a cash payment (subject to applicable
withholding) for each share of Destec's Common Stock subscribed to equal to the
spread between the Merger Consideration and the lower of the subscription price
or the Market Price.
Under the terms of the Destec Energy, Inc. 1995 Variable Pay Plan, as
amended November 14, 1995 and as further amended February 14, 1997 (the
"Variable Pay Plan"), and related award agreements, each outstanding share of
Restricted Stock or Deferred Stock awarded under the Variable Pay Plan will be
cashed-out and each awardee will be entitled to receive, in cancellation of all
then outstanding awards of Restricted Stock or Deferred Stock (whether or not
vested) and in lieu of shares of Destec Common Stock
59
<PAGE>
DESTEC ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)
22. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (CONTINUED)
otherwise deliverable in respect of such awards, an amount in cash (subject to
applicable withholding) equal to the Merger Consideration multiplied by the
aggregate number of shares of Restricted Stock and Deferred Stock subject to
such award.
Effective February 17, 1997, the date all stock plans were frozen pending
the consummation of the Merger, the total amount to be paid related to the
cash-out of the stock plans discussed above was approximately $27,300.
23. QUARTERLY STATISTICS (UNAUDITED)
The following table summarizes the unaudited quarterly statistics for the
years ended December 31, 1996 and 1995. In the opinion of management, all
adjustments necessary for a fair presentation of the unaudited results for the
periods are included.
<TABLE>
<CAPTION>
1ST 2ND 3RD(1) 4TH YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1996
Revenues............................................. $ 157,761 $ 127,982 $ 147,338 $ 144,831 $ 577,912
Operating income..................................... 5,599 2,067 11,469 2,200 21,335
Income before provision for taxes.................... 13,886 11,214 22,122 11,267 58,489
Net Income........................................... $ 9,433 $ 7,639 $ 18,263 $ 7,421 $ 42,756
Net Income Per Share................................. $ 0.16 $ 0 .13 $ 0.33 $ 0.13 $ 0.75
Market Price Range of common stock(4):
High................................................. $ 13.75 $ 13.88 $ 14.38 $ 16.25
Low.................................................. $ 11.50 $ 11.50 $ 11.88 $ 12.50
<CAPTION>
1ST 2ND(2) 3RD(3) 4TH YEAR
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1995
Revenues............................................. $ 164,925 $ 207,594 $ 100,545 $ 168,432 $ 641,496
Operating income (loss).............................. 2,462 (673) (6,050) (5,654) (9,915)
Income before provision for taxes.................... 10,335 11,085 18,402 5,523 45,345
Net Income........................................... $ 7,234 $ 7,759 $ 14,684 $ 5,023 $ 34,700
Net Income Per Share................................. $ 0.12 $ 0 .13 $ 0.25 $ 0.09 $ 0.59
Market Price Range of common stock(4):
High................................................. $ 11.00 $ 14.38 $ 16.13 $ 15.38
Low.................................................. $ 9.38 $ 9.88 $ 12.88 $ 13.00
</TABLE>
- ------------------------
(1) The net income for the third quarter of 1996 increased as a result of the
sale of the 150 MW Blue Mountain Power Project (See Note 7).
(2) The second quarter of 1995 revenue increase resulted primarily from the
commencement of engineering revenue recognition on the Elsta project.
(3) The net income increased in the 3rd quarter of 1995 due to the sale of oil
and gas properties.
(4) As reported by the New York Stock Exchange.
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There was no reported disagreement on any matter of accounting principles or
procedures of financial statement disclosure in 1996 with Destec's independent
public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of Destec's directors and executive officers and
their business experience during the past five years. All executive officers are
expected to hold their offices until the next annual meeting of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH DESTEC
- ---------------------------- --- ----------------------------------------------------
<S> <C> <C>
Charles F. Goff 56 Chairman of the Board and
Chief Executive Officer
Keys A. Curry, Jr. 61 President and Chief Operating Officer; Director
Enrique M. Larroucau 54 Senior Vice President, Chief Financial
Officer and Treasurer
L. Edward Jackowski, Jr. 55 Senior Vice President -- Engineering,
Project Development
Rodney M. Webb 56 Senior Vice President -- Gasification
Business Unit
Craig E. Hess 53 Vice President and Controller
Marian M. Davenport 43 Vice President, General Counsel
and Secretary
Rick A. Bowen 42 Vice President -- Business Development
The Americas
Gareth J. Mann 41 Vice President-Business Development
Europe, Africa, Middle East, Asia
and the Far East
Cassandra C. Carr 52 Director
Jack E. Earnest 68 Director
Robert W. Gallant 61 Director
Jack G. Helfenstein 61 Director
Michael D. Parker 50 Director
J. Pedro Reinhard 52 Director
Joel V. Staff 53 Director
</TABLE>
CHARLES F. GOFF joined Destec in May 1989 as a Director and was elected
Chairman of the Board in December 1995. In June 1989, Mr. Goff was elected
President and Chief Executive Officer. Mr. Goff served as Chief Executive
Officer until February 1990 when he was elected Chief Operating Officer. In
September 1992, Mr. Goff was again elected Chief Executive Officer of Destec.
Mr. Goff's current term as a Director of Destec will expire at the 1997 Annual
Meeting of Stockholders.
KEYS A. CURRY, JR. joined Destec in February 1990. In December 1995, Mr.
Curry was elected President of Destec and has also served as Chief Operating
Officer of Destec since his election in February 1993.
61
<PAGE>
Mr. Curry was elected as a Director in November 1990. Mr. Curry's current term
as a Director of Destec will expire at the 1998 Annual Meeting of Stockholders.
ENRIQUE M. LARROUCAU joined Destec in June 1993 as Vice President, Treasurer
and Chief Financial Officer. In May 1994, Mr. Larroucau was elected Senior Vice
President. Prior to joining Destec, Mr. Larroucau was Treasurer for Dow Latin
America from March 1981 to May 1993.
L. EDWARD JACKOWSKI, JR. joined Destec in June 1990 as Vice
President-Engineering and was elected Senior Vice President Engineering in
September 1991. In November 1994, Mr. Jackowski was named Senior Vice President,
Engineering, Project Development.
RODNEY M. WEBB joined Destec in May 1989 as Vice President-Operations and
Technology and was elected Senior Vice President-Operations and Technology in
February 1990. In November 1994, Mr. Webb was named Senior Vice
President-Gasification Business Unit.
CRAIG E. HESS joined Destec in June 1992 as Controller. In May 1996, Mr.
Hess was elected Vice President. Prior to joining Destec, Mr. Hess was
Controller of Dow's Texas Operations from October 1988 to June 1992.
MARIAN M. DAVENPORT held the position of Assistant General Counsel and
Assistant Secretary of PSE Inc. from August 1986 to December 1989. Following the
Destec-PSE merger, Ms. Davenport held various positions in the Legal Department
of Destec. She was serving as Staff Counsel in February 1994, when she was named
Director-Project Development. In January 1996, Ms. Davenport was elected Vice
President, General Counsel and Secretary of Destec.
RICK A. BOWEN joined Destec in February, 1990 as Manager-Mergers and
Acquisitions. In January, 1993, Mr. Bowen was named Director, Business
Development-North America and was elected Vice President, Business
Development-The Americas in February 1995. Prior to joining Destec, Mr. Bowen
was Manager-Project Administration for PSE, Inc.
GARETH J. MANN joined Destec in April 1991 as Project Development
Manager-Central United States. In December 1992 Mr. Mann was named Commercial
Development Manager for Europe and in December 1993 he was named Director,
Commercial Development-Europe. In November 1994, Mr. Mann was elected Vice
President, Business Development-Europe, Africa, Middle East, Asia and the Far
East. Prior to joining Destec, Mr. Mann had his own company, Power Systems
Australia, which provided development services for cogeneration and independent
power projects in Australia and New Zealand.
CASSANDRA C. CARR has been a Director of Destec since August 1992 and Senior
Vice President-Human Resources for SBC Communications Inc. since May 1994. From
July 1993 until April 1994, Ms. Carr was President-Texas, Southwestern Bell
Telephone Company. From 1991 until July 1993, Ms. Carr was Vice President of
Southwestern Bell Telephone of Texas. Ms. Carr's current term as a Director of
Destec will expire at the 1999 Annual Meeting of Stockholders.
JACK E. EARNEST has been a Director of Destec since March 1991. Mr. Earnest
has been engaged in the private practice of law in oil and gas matters since
1983. Prior to that time, Mr. Earnest served as General Counsel for Texas
Eastern Corporation, President of Transcontinental Gas Pipeline Corporation and
Vice President-Natural Gas of Mobil Oil Corporation. Mr. Earnest's current term
as a Director of Destec will expire at the 1999 Annual Meeting of Stockholders.
ROBERT W. GALLANT has been a Director of Destec since May 1989. Mr. Gallant
retired from Dow effective December 31, 1995. From December 1992 until that
time, Mr. Gallant served as Vice President and Director of Operations of Dow
North America. From August 1990 to December 1992. Mr. Gallant was Vice
President-Texas Operations of Dow U.S.A. Mr. Gallant's current term as a
Director of Destec will expire at the 1997 Annual Meeting of Stockholders.
62
<PAGE>
JACK G. HELFENSTEIN has been a Director of Destec since February 1993. From
February 1993 until his retirement in September 1994, Mr. Helfenstein served as
Global Vice President-Hydrocarbons and Energy of Dow. From October 1987 until
September 1994, Mr. Helfenstein was Executive Vice President-Chemicals &
Performance Products and Hydrocarbons for Dow Europe. Mr. Helfenstein's current
term as a Director of Destec will expire at the 1999 Annual Meeting of
Stockholders.
MICHAEL D. PARKER has been a Director of Destec since February 1995. Mr.
Parker has served as Dow Group Vice President, Vice President for Chemicals and
Metals and President of Dow North America since October 1995. Mr. Parker became
a director of Dow in July 1995. From 1993 until October 1995, Mr. Parker served
as Group Vice President of Dow's Chemicals & Performance Products and
Hydrocarbons & Energy Business. From 1988 until 1993, Mr. Parker was President
of Dow Chemical Pacific Limited in Hong Kong. Mr. Parker's current term as a
Director of the Company will expire at the 1998 Annual Meeting of Stockholders.
J. PEDRO REINHARD has been a Director of Destec since February 1996. Mr.
Reinhard has been Chief Financial Officer of Dow since October 1995 as well as
Chairman of Dow's Finance Committee. In 1995, Mr. Reinhard was elected to the
Board of Directors of Dow. Mr. Reinhard has served as the Treasurer of Dow since
1988 and was named Vice President of Dow in 1990. In February 1995, Mr. Reinhard
was named Financial Vice President for Dow. Mr. Reinhard's current term as a
Director of Destec will expire at the 1998 Annual Meeting of Stockholders.
JOEL V. STAFF has been a Director of Destec since February 1993. Mr. Staff
has been President and Chief Executive Officer of National-Oilwell, L.P. since
July 1993. From 1984 until May 1993, Mr. Staff was Senior Vice President of
Baker Hughes, Incorporated and its predecessor, Baker International Corporation.
Mr. Staff's current term as a Director of Destec will expire at the 1997 Annual
Meeting of Stockholders.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires Destec's directors and executive officers, and persons who own
more than ten percent of a registered class of Destec's equity securities, to
file with the Securities and Exchange Commission ("Commission") and the NYSE
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of Destec. Officers, directors and greater than ten
percent stockholders are required by the Commission's regulations to furnish
Destec with copies of all Section 16(a) forms they file.
Based solely on its review of the forms received by it and written
representations from certain reporting persons that they were not required to
file Forms 5 for the fiscal year ended December 31, 1996, Destec believes that
during the year ended December 31, 1996, all filing requirements applicable to
Destec's officers, directors and greater than 10% stockholders were met.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors of Destec who are also employees are not paid any fees or
compensation for their services as members of Destec's Board of Directors or any
committee thereof.
Each director of Destec who is not an employee of Destec receives an annual
retainer of $15,000 for his or her service as a member of the Board of Directors
and an attendance fee of $1,000, plus reasonable expenses for each Board of
Directors' meeting he or she attends. Such outside directors also receive an
attendance fee of $1,000 for each committee meeting attended, if such meeting is
not held on the same day as a Board of Directors' meeting. Directors who are not
employees of Destec are not eligible to participate in Destec's benefit plans.
63
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following Summary Compensation Table sets forth the cash compensation
and certain other components of the compensation of (i) Charles F. Goff,
Destec's Chairman of the Board of Directors and Chief Executive Officer, and
(ii) each of the other four most highly compensated executive officers of Destec
serving as such through December 31, 1996 ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
----------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------- RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/
PRINCIPAL POSITIONS(1) YEAR SALARY BONUS(2) COMPENSATION(3) AWARDS(4) SARS
- --------------------------------- --------- --------- --------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles F. Goff.................. 1996 $ 324,240 $1,001,408 $ 0 $ 0 148,300
Chairman of the Board 1995 311,770 571,112 0 0 70,000
and Chief Executive Officer 1994 299,058 324,000 0 0 151,575
Keys A. Curry, Jr................ 1996 270,200 833,102 0 0 123,550
President, and Chief 1995 259,808 475,926 0 0 47,600
Operating Officer 1994 249,439 270,000 0 0 126,375
Enrique M. Larroucau............. 1996 216,160 623,218 0 0 87,850
Senior Vice President, 1995 207,846 317,289 0 0 33,500
Chief Financial Officer 1994 199,388 180,000 50,600 0 86,050
and Treasurer
Rodney M. Webb................... 1996 171,305 130,242 0 0 0
Senior Vice President-- 1995 167,906 170,816 0 0 22,250
Gasification Business Unit 1994 162,864 117,360 0 0 56,275
Gareth J. Mann................... 1996 159,954 128,228 257,548 0 32,500
Vice President, Business 1995 142,948 140,754 174,081 0 11,650
Development--Europe 1994 114,377 36,808 116,187 0 5,000
Africa, Middle East, Asia
and the Far East
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITIONS(1) COMPENSATIONS(5)
- --------------------------------- -----------------
<S> <C>
Charles F. Goff.................. $ 12,000
Chairman of the Board 12,000
and Chief Executive Officer 19,471
Keys A. Curry, Jr................ 12,000
President, and Chief 12,000
Operating Officer 19,620
Enrique M. Larroucau............. 12,000
Senior Vice President, 12,120
Chief Financial Officer 82,577
and Treasurer
Rodney M. Webb................... 12,000
Senior Vice President-- 12,120
Gasification Business Unit 19,620
Gareth J. Mann................... 12,000
Vice President, Business 8,577
Development--Europe 6,570
Africa, Middle East, Asia
and the Far East
</TABLE>
- ------------------------
(1) The positions shown represent the offices held by such persons as of
December 31, 1996.
(2) Bonuses earned during 1995 were paid under Destec's 1995 Variable Pay Plan
and include (i) cash amounts paid and (ii) the value, as of the date of
grant, of awards of restricted stock and deferred stock. Shares of
restricted stock and deferred stock were paid to each of the Named Executive
Officers in the following amounts: Mr. Goff, 18,300 shares of restricted
stock and 18,300 shares of deferred stock; Mr. Curry, 15,250 shares of
restricted stock and 15,250 shares of deferred stock; Mr. Larroucau, 10,167
shares of restricted stock and 10,167 shares of deferred stock; Mr. Webb,
4,933 shares of restricted stock and 4,933 shares of deferred stock; and Mr.
Mann, 2,914 shares of restricted stock and 2,914 shares of deferred stock.
Thirty-three percent of such shares of restricted stock will vest on
December 31 of each of 1996, 1997 and 1998. Thirty-three percent of such
shares of deferred stock will vest on December 31 of each of 1996, 1997 and
1998 if the fair market value of the Common Stock achieves certain targets
during the 30-day period preceding such date. Under the terms of the 1995
Variable Pay Plan, immediately prior to a change in control, each awardee
will be entitled to receive, in cancellation of all then outstanding awards
of restricted or deferred stock and in lieu of shares of Common Stock
otherwise deliverable in respect of such awards, an amount in cash (subject
to applicable withholding) equal to the per share consideration received in
connection with such change in control multiplied by the aggregate number of
shares of restricted stock and deferred stock subject to such award. Holders
of restricted stock have the right to receive dividends during the
restriction period.
(3) With the exception of Messrs. Larroucau and Mann, the amounts ascribed to
personal benefits for each Named Executive Officer were below the required
disclosure threshold amounts. When Mr. Larroucau joined Destec in June 1993,
Destec agreed to pay for his temporary housing and moving expenses incurred
in 1993 and 1994. Amounts shown for Mr. Mann represent foreign service
premiums, rental subsidies, foreign tax advances and foreign fringe
benefits.
(4) The payment of shares of restricted stock and deferred stock earned during
1995 under Destec's 1995 Variable Pay Plan is reported in the 1995 "Bonus"
column of this table. The number and aggregate value (each as of December
31, 1996) of each of the Named Executive Officers' aggregate restricted
stock and deferred stock holdings are as follows: Mr. Goff, 24,400 shares
with a value of $381,250; Mr. Curry, 20,334 shares with a value of $317,719;
Mr. Larroucau, 13,556 shares with a value of $211,813; Mr. Webb, 6,578
shares with a value of $102,781; and Mr. Mann, 3,886 shares with a value of
$60,719. On December 31, 1996, thirty-three percent of the shares of
restricted stock and thirty-three percent of the shares of deferred stock
paid under the 1995 Variable Pay Plan vested.
64
<PAGE>
(5) With the exception of Mr. Larroucau, the amounts shown in this column
represent Destec contributions to Destec's Retirement and Savings Plan for
each Named Executive Officer. The amounts shown for Mr. Larroucau include
payments made on Mr. Larroucau's behalf in connection with his pension
account with Dow's International Employee Pension Plan during 1994. Mr.
Larroucau's pension account with Dow became dormant effective January 1,
1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1996 to the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO PER SHARE GRANT DATE
SARS(1) EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED 1996(2) PRICE(3) DATE VALUE(4)
- ------------------------------------------- ----------- ---------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Charles F. Goff............................ 148,300 21.70% 12.3125 2/20/06 $ 1,014,372
Keys A. Curry, Jr.......................... 123,550 18.08% 12.3125 2/20/06 845,082
Enrique M. Larroucau....................... 87,850 12.86% 12.3125 2/20/06 600,894
Rodney M. Webb............................. 0 -- -- -- --
Gareth J. Mann............................. 32,500 4.76% 12.3125 2/20/06 222,300
</TABLE>
- ------------------------
(1) Destec made no SAR grants in 1996. All options granted to Named Executive
Officers in 1996 will vest ratably over a three-year period that began
February 21, 1996.
(2) In 1996, a total of 649,850 options to purchase Common Stock were granted to
Destec employees at a per share exercise price of $12.3125 and 33,500 at a
per share exercise price of $14.9375.
(3) The exercise price is the average of the high and low trading price of the
Common Stock on the date of grant, as reported on the consolidated
transaction reporting system for the NYSE issues on such date.
(4) The values assigned to each reported option are shown using the
Black-Scholes option pricing model. In assessing these values it should be
kept in mind that no matter what theoretical value is placed on an option on
the date of grant, its ultimate value will be dependent on the market value
of the Common Stock at a future date, and that value will depend on the
efforts of such executives to foster the future success of Destec for the
benefit of not only the executives, but all of Destec's stockholders.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information concerning the
unexercised options to purchase Common Stock held by the Named Executive
Officers at December 31, 1996. Also reported are the values for "in-the-money"
options which represent the positive spread between the exercise price of any
such existing stock options and the year-end price of the Common Stock. None of
the Named Executive Officers exercised options for Common Stock in 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT 12/31/96
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles F. Goff........................................... 246,394 237,881 $ 730,724 $ 877,562
Keys A. Curry, Jr......................................... 191,062 198,238 540,000 731,351
Enrique M. Larroucau...................................... 69,170 138,230 354,827 508,267
Rodney M. Webb............................................ 75,153 32,872 243,613 141,761
Gareth J. Mann............................................ 26,950 32,500 95,588 107,656
</TABLE>
65
<PAGE>
SEVERANCE AND SERVICES AGREEMENTS
Destec has entered into severance and services agreements (the "Services
Agreements") with certain of its employees, of which 14 are remaining as of
December 31, 1996. The Named Executive Officers currently covered by such
Services Agreements include Messrs. Goff, Curry, Larroucau, Webb and Mann. In
addition, Messrs. Bowen, Hess and Jackowski and Ms. Davenport, who serve as
executive officers of Destec, are also covered by such Services Agreements. Each
Services Agreement provides that in the event of a change of control of Destec,
and the termination of the employee under certain circumstances, the employee is
entitled to receive (i) certain severance and/or advisory service payments equal
in the aggregate to two times the sum of (a) annual salary plus (b) average
annual bonus over the preceding three years, (ii) a pro rata target bonus in
respect of the year in which termination occurs , (iii) the continuation of
certain benefits for two years, and (iv) reimbursement of certain legal fees and
expenses incurred as a result of such termination (not to exceed $25,000 per
employee). Under Mr. Goff's Services Agreement, Destec would also be required to
make an additional payment to the extent that any excise tax is imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). Each
of the remaining Services Agreements provides that no payment shall be made to
an individual that would not be deductible by virtue of Section 280G of the
Code. The terms of the Services Agreements continue through December 31, 1997,
with automatic one-year extensions beginning on January 1, 1997, unless Destec
gives a notice of non-extension by September 30 of the preceding year. Under the
Services Agreements, a Change of Control of Destec includes: (i) any change
required to be reported under Regulation 14A of the Securities Exchange Act of
1934, (ii) with the exception of Dow, any entity acquiring 20% or more of the
combined voting power of Destec's common stock, (iii) any change in the current
Board of Directors during any subsequent two year period which would result in
the current Board being less than a majority, or (iv) a circumstance where all
or substantially all of the assets of Destec are sold, liquidated or
distributed. Under certain of these agreements, employees may be required to
provide advisory services to Destec for up to one year after termination of
employment in the event of a Change of Control. Destec's maximum contingent
liability for these severance and advisory service payments is estimated to be
approximately $12 million at December 31, 1996. The consummation of the Merger
will constitute a Change of Control under the Services Agreements. See Note 22
of the Notes to Consolidated Financial Statements.
COMPENSATION ADJUSTMENT AGREEMENTS
Beginning in November 1991, Destec entered into Compensation Adjustment
Agreements ("Compensation Agreements") with former Dow employees in order to
induce these employees to leave the Dow benefit plans and join Destec. These
Compensation Agreements provide for certain future payments to be made to these
employees upon retirement, termination, and in certain cases, a change in the
control of Destec. These Compensation Agreements supplement Destec's deferred
tax savings plan to ensure that these employees would receive the pension
benefits they would have accrued had they remained employed by Dow.
Messrs. Charles F. Goff and Rodney M. Webb, each a Named Executive Officer,
will receive payments under Compensations Agreement when they each retire from
Destec. The amount to be received by each officer was calculated by (i)
projecting his Dow pension at the earliest date it is unreduced ("Projection
Date"), (ii) subtracting both the projected Destec contribution to him under
Destec's deferred tax savings plan and any pension amounts the individual would
receive from Dow from his projected Dow pension, and (iii) annuitizing the
short-fall. In the event any of these employees remain employed by Destec beyond
the Projection Date, he will continue to accrue benefits under his Compensation
Agreement. Assuming a retirement age of 65, Messrs. Goff and Webb would be
eligible to receive a lump sum payment of $763,152 and $612,321, respectively.
66
<PAGE>
SALARY CONTINUATION PLAN
In 1986, PSE Inc., which is now known as Destec Holdings, Inc. ("DHI"),
established the PSE Executive Salary Continuation Plan (the "Salary Continuation
Plan") for certain of its executives. The Salary Continuation Plan will pay the
beneficiary of a deceased participant on a monthly basis over a period not to
exceed 180 months following his/her death while employed or after total and
permanent disability or retirement an amount not to exceed one-half of the
participant's salary at the time of death (or time of disability or retirement).
The Salary Continuation Plan is an unfunded, nonqualified death benefit plan.
DHI financed the Salary Continuation Plan through the use of corporate-owned
life insurance on the lives of participants. Mr. Keys A. Curry, Jr. is the only
remaining executive officer of the Company who is a participant in the Salary
Continuation Plan and is thereby eligible for payments under the plan, as
described above, based upon Mr. Curry's salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of Destec's Compensation Committee are Messrs. Jack E.
Earnest, Robert W. Gallant and Michael D. Parker. Mr. Enrique J. Sosa, who
served on the Compensation Committee during 1996, resigned from the Board of
Directors, and thereby the committee, effective February 22, 1996. Mr. Parker
was elected to fill this position on May 1, 1996. The service of these
individuals on the Compensation Committee does not create any corporate
interlocks or insider participation between Destec's Compensation Committee and
another entity.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth, as of March 19, 1997, the name of each
person who, to the knowledge of Destec, owned beneficially more than five
percent of the shares of Common Stock outstanding at such date, the number of
shares owned by such person and the percentage of outstanding shares represented
thereby:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED CLASS
- --------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
The Dow Chemical Company................................................... 45,000,000 80.2%
2030 Willard H. Dow Center
Midland, Michigan 48640
</TABLE>
67
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding beneficial ownership of
Destec's Common Stock as of March 19, 1997, by all directors, each Named
Executive Officer and the directors and all of Destec's executive officers as a
group. The Common Stock is the only class of voting securities of Destec.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1)
- ----------------------------------------------------------------------------- ----------------------
<S> <C>
Charles F. Goff.............................................................. 297,240(2)
Keys A. Curry, Jr. .......................................................... 237,746(3)
Cassandra C. Carr............................................................ 1,500
Jack E. Earnest.............................................................. 1,000
Jack G. Helfenstein.......................................................... 1,000
Robert W. Gallant............................................................ 2,000
Michael D. Parker............................................................ 0
J. Pedro Reinhard............................................................ 0
Joel V. Staff................................................................ 2,000
Enrique M. Larroucau ........................................................ 94,830(4)
Rodney M. Webb .............................................................. 88,319(5)
Gareth J. Mann .............................................................. 33,778(6)
Directors and Executive Officers as a group (16 persons) .................... 928,039(7)
</TABLE>
- ------------------------
(1) Includes deferred and restricted stock awarded under Destec's Variable Pay
Plan.
(2) Includes 246,394 shares of Common Stock that Mr. Goff has the right to
acquire upon exercise of options in the next sixty days.
(3) Includes 191,062 shares of Common Stock that Mr. Curry has the right to
acquire upon exercise of options in the next sixty days.
(4) Includes 69,170 shares of Common Stock that Mr. Larroucau has the right to
acquire upon exercise of options in the next sixty days.
(5) Includes 75,153 shares of Common Stock that Mr. Webb has the right to
acquire upon exercise of options in the next sixty days.
(6) Includes 26,950 shares of Common Stock that Mr. Mann has the right to
acquire upon exercise of options in the next sixty days.
(7) Includes an aggregate of 745,640 shares of Common Stock that the Executive
Officers as a group have the right to acquire upon the exercise of options
in the next sixty days.
As of March 19, 1997, the percentage of Common Stock owned by all of
Destec's directors and executive officers as a group was approximately 1.6%. As
of March 19, 1997, the percentage of each class of Dow's equity securities
beneficially owned by all of Destec's directors and executive officers as a
group did not equal one percent of any class of Dow's equity securities.
68
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE DOW AGREEMENTS
Destec has various agreements with Dow, its principal stockholder (the "Dow
Agreements"), some of which were entered into when Destec was a wholly owned
subsidiary of Dow and, therefore, are not the result of arm's length
negotiations between two independent parties. Since the date of Destec's initial
public offering, Destec's Audit Committee has adopted policies and procedures to
deal with any conflicts of interest between Destec and Dow, including any
conflict of interest under the Dow Agreements. Any modifications to existing
agreements and the execution of new agreements between Destec and Dow are
negotiated in accordance with the Audit Committee's policies. All agreements,
including the agreements set forth below, comport with such policies. The
paragraph below describes agreements involving amounts exceeding $60,000 entered
into between Destec and Dow since December 31, 1995.
Destec and Dow have entered into a Tax Sharing Agreement, effective May 15,
1996 (the "Tax Sharing Agreement"), which provides for payments between Destec
and Dow with respect to certain taxes. The Tax Sharing Agreement applies to
taxes paid by Dow with respect to its consolidated U.S. federal income tax
return and state and local combined tax returns that include Destec. With
respect to federal income taxes, the amount of Destec's payment to Dow is based
on the amount of tax Destec would pay if it filed its returns on a stand-alone
basis. With respect to state and local taxes, Destec generally bears its pro
rata share of combined tax liability. Pursuant to the Tax Sharing Agreement, Dow
is required to make payments to Destec for certain tax attributes of Destec used
by Dow to reduce its tax liability.
Destec and Dow have entered into a First Amendment to the Tax Sharing
Agreement, dated February 17, 1997, pursuant to which the Tax Sharing Agreement
was amended to provide, among other things, that (i) the provisions of such tax
sharing agreement apply to the deconsolidation of Destec from the consolidated
group of corporations for which Dow files tax returns for U.S. Federal income
tax purposes; (ii) on the closing date of the Merger, Dow will pay to Destec $10
million as an advance payment of amounts expected to be paid to Destec under
such tax sharing agreement with respect to the 1997 tax year; (iii) Dow will be
treated as having actually utilized all deductions, losses, credits and other
tax attributes of Destec and its subsidiaries prior to Destec's deconsolidation,
with the effect that Destec will be entitled to payment for such items by Dow
pursuant to such tax sharing agreement; and (iv) Destec will not be liable to
Dow for taxes with respect to certain transactions. The First Amendment to the
Tax Sharing Agreement will be effective as of the Effective Time under the
Merger Agreement.
In June 1996, Destec and Dow entered into a settlement agreement regarding
the decommissioning of a facility near Plaquemine, Louisiana, constructed by Dow
in 1987 and in which Destec had an interest (the "LGTI Facility"), pursuant to
which the LGTI equipment and all related facilities (except the slag pile) would
be transferred to Dow. Destec has agreed to reimburse Dow for clean-up and
disposal expenses up to a maximum of $250,000. Destec has agreed to remove the
slag pile at the site in compliance with applicable federal, state and local
requirements. The cost of removal is expected to be offset by proceeds from the
sale of the slag.
See Note 22 of the Notes to Consolidated Financial Statements for a
description of certain agreements between Destec and Dow entered into in
connection with the Merger Agreement.
SEVERANCE AND SERVICES AGREEMENTS
Since January 1, 1996, Destec has entered into a Service Agreement with one
executive officer. See "Executive Compensation--Severance and Services
Agreements."
69
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors Report.................................................................... 27
Consolidated Balance Sheets.................................................................... 28
Statements of Consolidated Income.............................................................. 30
Statements of Consolidated Cash Flows.......................................................... 31
Statements of Consolidated Stockholders' Equity................................................ 32
Notes to Consolidated Financial Statements..................................................... 33
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
No schedules are included because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
<TABLE>
<C> <S>
3. EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Destec Energy, Inc.
(incorporated by reference to Exhibit 3.1 to Destec's Registration
Statement on Form S-1, Registration No. 33-36086).
3.2* By-Laws of Destec Energy, Inc., as amended on December 6, 1996.
10.1 Power Marketing Agreement dated as of July 1, 1989, as amended as of July
1, 1990, and as further amended as of September 1, 1990 between The Dow
Chemical Company and Destec Ventures, Inc. (incorporated by reference to
Exhibit 10.1 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.2** Agreement for Purchase and Sale of Electric Energy and Capacity dated as of
January 1, 1985 between Houston Lighting and Power Company and The Dow
Chemical Company (incorporated by reference to Exhibit 10.2 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.3 Master Services Agreement dated as of October 1, 1989, as amended as of
July 1, 1990, among The Dow Chemical Company, Destec Energy, Inc. and
Destec Ventures, Inc. (incorporated by reference to Exhibit 10.4 to
Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.4 Letter amendment dated October 25, 1990 to Master Services Agreement dated
as of October 1, 1989, as amended as of July 1, 1990, among The Dow
Chemical Company, Destec Energy, Inc. and Destec Ventures, Inc.
(incorporated by reference to Exhibit 10.4 to Destec's Registration
Statement on Form S-1, Registration No. 33-36086).
10.5 Agreement for the Exchange of Property for Stock dated June 29, 1989, as
amended as of June 30, 1990, between The Dow Chemical Company and Destec
Energy, Inc. (incorporated by reference to Exhibit 10.5 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.6 First Amended Lease Agreement dated as of January 1, 1990 between Destec
Ventures, Inc. and The Dow Chemical Company (incorporated by reference to
Exhibit 10.6 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.7 First Amended Lignite Properties Maintenance Agreement dated as of January
1, 1990 between Destec Ventures, Inc. and The Dow Chemical Company
(incorporated by reference to Exhibit 10.7 to Destec's Registration
Statement on Form S-1, Registration No. 33-36086).
</TABLE>
70
<PAGE>
<TABLE>
<C> <S>
10.8 Site Development Agreement dated as of May 1, 1990 between The Dow Chemical
Company and Destec Energy, Inc. (incorporated by reference to Exhibit 10.8
to Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.9** Assignment Agreement dated as of March 1, 1990 between The Dow Chemical
Company and Destec Energy, Inc. (incorporated by reference to Exhibit 10.9
to Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.10 Research & Development Agreement dated as of March 1, 1990 between The Dow
Chemical Company and Destec Energy, Inc. (incorporated by reference to
Exhibit 10.10 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.11 Engineering Services Agreement dated as of November 1, 1989 between Dow
Engineering Company and Destec Energy, Inc. (incorporated by reference to
Exhibit 10.11 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.12 Registration Rights Agreement dated as of July 1, 1990 between The Dow
Chemical Company and Destec Energy, Inc. (incorporated by reference to
Exhibit 10.12 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.13 Lease Agreement dated as of January 24, 1985 between CoGen Lyondell, Inc.
(Lessee) and United States Trust Company (Lessor) and supplement thereto
dated as of December 30, 1985 (incorporated by reference to Exhibit 10.1 to
PSE Inc.'s Registration Statement on Form S-1, Registration No. 33-4370,
filed March 27, 1986).
10.14 Restated Lease Guaranty Agreement dated as of April 30, 1986, by and among
PSE Inc. (Guarantor), General Electric Capital Corporation (Owner
Participant) and United States Trust Company (Owner Trustee) (incorporated
by reference to Exhibit 10.26 to PSE Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1986, File No. 1-9124).
10.15 Price Guaranty Commitment dated as of April 26, 1984 among The Dow Chemical
Company, Louisiana Gasification Technology, Inc. and the United States
Synthetic Fuels Corporation (incorporated by reference to Exhibit 10.17 to
Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.16 Memorandum of Intent dated July 1, 1990 between The Dow Chemical Company
and Destec Energy, Inc. (incorporated by reference to Exhibit 10.18 to
Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.17 Power Supply Option dated as of July 1, 1990 between The Dow Chemical
Company and Destec Energy, Inc. (incorporated by reference to Exhibit 10.19
to Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.18 Option Agreement dated as of June 30, 1990 between Rofan Energy, Inc. and
Destec Energy, Inc. (incorporated by reference to Exhibit 10.20 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.19 Gas Purchase Agreement dated as of April 26, 1984 between The Dow Chemical
Company and Louisiana Gasification Technology, Inc. (incorporated by
reference to Exhibit 10.24 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.20 Land Lease Agreement dated as of April 26, 1984 between The Dow Chemical
Company and Louisiana Gasification Technology, Inc. (incorporated by
reference to Exhibit 10.25 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
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10.21 Operating Agreement dated April 26, 1984 between Louisiana Gasification
Technology, Inc. and The Dow Chemical Company (incorporated by reference to
Exhibit 10.26 to Destec's Registration Statement on Form S-1, Registration
No. 33-36086).
10.22 Services Agreement dated April 26, 1984, as amended January 1, 1987,
between Louisiana Gasification Technology, Inc. and The Dow Chemical
Company (incorporated by reference to Exhibit 10.27 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.23 Technology License Agreement dated April 26, 1984 between The Dow Chemical
Company and Louisiana Gasification Technology, Inc. (incorporated by
reference to Exhibit 10.28 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.24 A written description of The Dow Chemical Company's Executive Award Plan
(incorporated by reference to Exhibit 10.29 to Destec's Registration
Statement on Form S-1, Registration No. 33-36086).
10.25 A written description of The Dow Chemical Company Executives' Supplemental
Plan, as amended through December 31, 1981, for certain employees of The
Dow Chemical Company (incorporated by reference to Exhibit 10(b) to The Dow
Chemical Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1981, File No. 1-3433).
10.26 Amendment adopted December 14, 1982 to The Dow Chemical Company Executives'
Supplemental Plan (incorporated by reference to Exhibit 10(b) to The Dow
Chemical Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982, File No. 1-3433).
10.27 The Dow Chemical Company 1979 Award and Option Plan, as amended through
December 31, 1982 (included as a part of and incorporated by reference to
the prospectus contained in Post-Effective Amendment No. 4 to The Dow
Chemical Company's Registration Statement on Form S-8, Registration No.
2-64560, filed June 23, 1983).
10.28 Amendment adopted April 12, 1984 to The Dow Chemical Company 1979 Award and
Option Plan, amending the provisions of Section 8(c) of that Plan
(incorporated by reference to Exhibit 10(ff) to The Dow Chemical Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1984,
File No. 1-3433).
10.29 Amendment adopted April 18, 1985 to The Dow Chemical Company 1979 Award and
Option Plan, amending the provisions of Section 2(o) of that Plan
(incorporated by reference to Exhibit 10(fff) to The Dow Chemical Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1985,
File No. 1-3433).
10.30 A written description of The Dow Chemical Company's Executive Post
Retirement Life Insurance Program, adopted effective December 1, 1983
(incorporated by reference to Exhibit 10(h) to The Dow Chemical Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1985,
File No. 1-3433).
10.31 Amendments adopted October 3, 1987 to The Dow Chemical Company 1979 Award
and Option Plan and The Dow Chemical Company Executives' Supplemental Plan
(incorporated by reference to Exhibit 10(j) to The Dow Chemical Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-3433).
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10.32 A written description of The Dow Chemical Company's Management Achievement
Recognition System adopted on April 8, 1987 (incorporated by reference to
Exhibit 10(k) to The Dow Chemical Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, File No. 1-3433).
10.33 A copy of The Dow Chemical Company 1988 Dividend Unit Plan adopted on
February 10, 1988 (incorporated by reference to Exhibit 10(l) to The Dow
Chemical Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-3433).
10.34 Summary of amendment effective January 1, 1989 to The Dow Chemical Company
Executives' Supplemental Plan (incorporated by reference to Exhibit 10(m)
to The Dow Chemical Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 1-3433).
10.35 The Dow Chemical Company 1988 Award and Option Plan adopted by the
stockholders at the 1988 Annual Meeting (included as a part of and
incorporated by reference to the prospectus contained in The Dow Chemical
Company's Registration Statement on Form S-8, Registration No. 33-21748,
filed May 16, 1988).
10.36** Amended and Restated Cogenerated Electricity Agreement dated as of
September 17, 1990 by and between The Dow Chemical Company and Texas
Utilities Electric Company (incorporated by reference to Exhibit 10.48 of
Destec's Registration Statement on Form S-1, Registration No. 33-36086).
10.37** Amended and Restated Cogenerated Electricity Agreement dated as of
September 17, 1990 by and between CoGen Lyondell, Inc. and Texas Utilities
Electric Company (incorporated by reference to Exhibit 10.49 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.38** Surety Agreement dated as of September 17, 1990 by and between Destec
Energy, Inc. and Texas Utilities Electric Company (incorporated by
reference to Exhibit 10.50 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.39 Destec Energy, Inc. Amended and Restated 1990 Award and Option Plan
(incorporated by reference to Exhibit 10.39 to Destec's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, File Number
1-10592).
10.40 Form of Destec Energy, Inc. Retirement and Savings Plan (incorporated by
reference to Exhibit 10.52 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.41 Loan Agreement dated as of November 5, 1990 between Destec Energy, Inc., as
borrower, and The Dow Chemical Company, as lender (incorporated by
reference to Exhibit 10.53 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.42 Loan Agreement dated as of January 1, 1991 between Destec Energy, Inc., as
lender, and The Dow Chemical Company, as borrower (incorporated by
reference to Exhibit 10.54 to Destec's Registration Statement on Form S-1,
Registration No. 33-36086).
10.43 A written description of The Dow Chemical Company Corporate Performance
Award Plan (incorporated by reference to Exhibit 10.55 to Destec's
Registration Statement on Form S-1, Registration No. 33-36086).
10.44 A written summary of The Dow Chemical Company Area Performance Award Plan
(incorporated by reference to Exhibit 10.56 to Destec's Registration
Statement on Form S-1, Registration No. 33-36086).
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10.45 Deferred Defined Compensation Contract between Destec Energy, Inc. and
Charles F. Goff, dated November 1, 1991 (incorporated by reference to
Exhibit 10.45 to Destec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File Number 1-10592).
10.46 Deferred Defined Compensation Contract between Destec Energy, Inc. and
Rodney M. Webb, dated November 1, 1991 (incorporated by reference to
Exhibit 10.46 to Destec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File Number 1-10592).
10.47 Deferred Defined Compensation Contract between Destec Energy, Inc. and
Richard H. Davis, dated November 1, 1991 (incorporated by reference to
Exhibit 10.47 to Destec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File Number 1-10592).
10.48 Severance and Services Agreement between Destec Energy, Inc. and Charles F.
Goff, dated May 3, 1994 (incorporated by reference to Exhibit 10.48 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.49 Severance and Services Agreement between Destec Energy, Inc. and Keys A.
Curry, Jr., dated May 3, 1994 (incorporated by reference to Exhibit 10.49
to Destec's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, File Number 1-10592).
10.50 Severance and Services Agreement between Destec Energy, Inc. and Enrique M.
Larroucau, dated May 3, 1994 (incorporated by reference to Exhibit 10.50 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.51 Severance and Services Agreement between Destec Energy, Inc. and Rodney M.
Webb, dated May 3, 1994 (incorporated by reference to Exhibit 10.51 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.52 Severance and Services Agreement between Destec Energy, Inc. and Rick A.
Bowen, dated July 17, 1995 (incorporated by reference to Exhibit 10.52 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.53 Severance and Services Agreement between Destec Energy, Inc. and Craig E.
Hess, dated May 3, 1994 (incorporated by reference to Exhibit 10.53 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.54 Severance and Services Agreement between Destec Energy, Inc. and Lige E.
Jackowski, Jr., dated May 3, 1994 (incorporated by reference to Exhibit
10.54 to Destec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File Number 1-10592).
10.55 Severance and Services Agreement between Destec Energy, Inc. and Gareth J.
Mann, dated July 17, 1995 (incorporated by reference to Exhibit 10.55 to
Destec's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File Number 1-10592).
10.56* Severance and Services Agreement between Destec Energy, Inc. and Marian M.
Davenport dated May 21, 1996.
10.57* First Amendment to Severance and Services Agreement between Destec Energy,
Inc. and Enrique M. Larroucau dated February 14, 1997.
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10.58 Form of Salary Continuation Plan between Power Systems Engineering, Inc.
and Keys A. Curry, Jr. dated March 6, 1986 (incorporated by reference to
Exhibit 10.56 to Destec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File Number 1-10592).
10.59** Release and Waiver Agreement between Destec Energy, Inc. and Stephen R.
Wright dated December 20, 1995.
10.60** Consulting Agreement between Destec Energy, Inc. and Stephen R. Wright
dated December 20, 1995.
10.61* Tax Sharing Agreement effective as of May 15, 1996 between Destec Energy,
Inc. and The Dow Chemical Company.
10.62* First Amendment to the Tax Sharing Agreement dated as of February 17, 1997
between Destec Energy, Inc. and The Dow Chemical Company.
10.63* Oyster Creek Agreement effective as of February 17, 1997 between Destec
Energy, Inc., The Dow Chemical Company and NGC Corporation.
10.64* Site Development Agreement dated as of February 17, 1997 between Destec
Energy, Inc. and The Dow Chemical Company.
10.65* First Amendment to Research and Development Agreement effective as of
December 31, 1996 between Destec Energy, Inc. and The Dow Chemical Company.
10.66* First Amendment to Assignment Agreement effective as of December 15, 1996
between Destec Energy, Inc. and The Dow Chemical Company.
10.67* Computerized Process Control Agreement executed by the last party on August
2, 1993 between Destec Energy, Inc. and Rofan Services Inc.
10.68* First Amendment to Computerized Process Control Agreement effective as of
January 1, 1997 between Destec Energy, Inc. and Rofan Services Inc.
10.69* Termination Agreement Concerning the First Amendment Lease Agreement dated
February 17, 1997 between Destec Properties Limited Partnership and The Dow
Chemical Company.
10.70* Termination Agreement Concerning the First Amended Lignite Properties
Maintenance Agreement dated February 17, 1997 between Destec Properties
Limited Partnership and The Dow Chemical Company.
10.71* Waiver, Release and Substitution made as of February 17, 1997 regarding
guaranty of certain Compensation Adjustment Agreements among Destec Energy,
Inc., The Dow Chemical Company and NGC Corporation.
10.72* Purchase Agreement dated as of January 17, 1997 among Tiger Bay Limited
Partnership, FPC Acquisition L.L.C. and Florida Power Corporation.
10.73* Destec Energy, Inc. Employees Stock Purchase Plan, as amended February 14,
1997.
10.74* Destec Energy, Inc. 1995 Variable Pay Plan, as amended November 14, 1995
and as further amended February 14, 1997.
10.75* Amendment, adopted February 14, 1997, to Destec Energy, Inc. Amended and
Restated 1990 Award and Option Plan.
10.76+ Share Sale Agreement dated August 4, 1996, among State Electricity
Commission of Victoria, the State of Victoria, the Buyers (as defined) and
the Guarantors (as defined) (incorporated by reference to Exhibit 2.1 to
Destec's Current Report on Form 8-K dated September 13, 1996).
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10.77+ Asset Sale Agreement dated August 4, 1996, between Hazelwood Power
Corporation Ltd. and Hazelwood Power Partnership (incorporated by reference
to Exhibit 2.2 to Destec's Current Report on Form 8-K dated September 13,
1996).
11* Statement regarding computation of per share earnings.
22* List of subsidiaries of Destec Energy, Inc.
25* Powers of Attorney from certain of the directors of Destec Energy, Inc.
whose signatures are to be affixed to this Form 10-K for the year ended
December 31, 1996.
99 Agreement and Plan of Merger dated as of February 17, 1997 by and among
Destec Energy, Inc., The Dow Chemical Company, NGC Corporation and NGC
Acquisition Corporation II (incorporated by reference to Exhibit 99.1 to
Destec's Current Report on Form 8-K dated February 17, 1997, File Number
1-10592).
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- ------------------------
* Filed herewith.
** Confidential Treatment has been requested and granted with respect to
portions of this Exhibit.
+ Confidential Treatment has been requested with respect to portions of this
Exhibit.
(b) REPORTS ON FORM 8-K.
Destec filed the following current reports on Form 8-K during the quarter
ended December 31, 1996:
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<CAPTION>
DATE OF REPORT EVENT REPORTED
- ------------------------------ -----------------------------------------------------------------------
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September 13, 1996 Announcement that a consortium which includes an indirect wholly owned
(Amendment on Form 8-K/A subsidiary of Destec completed the acquisition of the Hazelwood Power
filed November 26, 1996) Station and adjacent coal mine.
Announcement that the Board of Directors had retained the investment
banking firm of Morgan Stanley & Co. Incorporated to assist Destec in
exploring strategic alternatives to maximize shareholder value,
October 1, 1996 including a possible sale of Destec.
October 23, 1996 Announcement of Destec's net income for third quarter 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1997.
DESTEC ENERGY, INC.
(Registrant)
By: /s/ CHARLES F. GOFF
--------------------------------------
Charles F. Goff
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange of 1934, this report
has been signed by the following persons in the capacities indicated, on the
26th day of March 1997:
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SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
/s/ CHARLES F. GOFF Chairman of the Board and Chief Executive
------------------------------------------- Officer (Principal Executive Officer)
Charles F. Goff
/s/ KEYS A. CURRY, JR. President and Chief Operating Officer
------------------------------------------- and Director
Keys A. Curry, Jr.
/s/ ENRIQUE M. LARROUCAU Senior Vice President, Chief Financial Officer
------------------------------------------- and Treasurer (Principal Financial Officer)
Enrique M. Larroucau
/s/ CRAIG E. HESS Vice President and Controller
------------------------------------------- (Principal Accounting Officer)
Craig E. Hess
/s/ CASSANDRA C. CARR* Director
-------------------------------------------
Cassandra C. Carr
/s/ JACK E. EARNEST* Director
-------------------------------------------
Jack E. Earnest
/s/ JACK G. HELFENSTEIN* Director
-------------------------------------------
Jack G. Helfenstein
/s/ ROBERT W. GALLANT* Director
-------------------------------------------
Robert W. Gallant
/s/ MICHAEL D. PARKER* Director
-------------------------------------------
Michael D. Parker
/s/ J. PEDRO REINHARD* Director
-------------------------------------------
J. Pedro Reinhard
/s/ JOEL V. STAFF* Director
-------------------------------------------
Joel V. Staff
*By: /s/ CHARLES F. GOFF
--------------------------------------
Charles F. Goff
ATTORNEY-IN-FACT
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77
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Document No. 619-00123
<PAGE>
DESTEC ENERGY, INC.
BYLAWS
AS AMENDED
DECEMBER 6, 1996
<PAGE>
DESTEC ENERGY, INC.
SECTION I
CAPITAL STOCK
Section 1.1 CERTIFICATES. Every holder of stock in the Company shall
be entitled to have a certificate signed in the name of the Company by the
Chairman of the Board of Directors or the President or an Executive Vice
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company certifying the number of
shares in the Company owned by such holder. If such certificate is countersigned
(a) by a transfer agent other than the Company or its employee, or, (b) by a
registrar other than the Company or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Company with the same
effect as if such person were such officer, transfer agent, or registrar at the
date of issue. The certificates representing the capital stock of the Company
shall be in such form as shall be approved by the Board of Directors.
Section 1.2 RECORD OWNERSHIP. The certificates of each class or series of
a class of stock shall be numbered consecutively. A record of the name and
address of the holder of each certificate, the number of shares represented
thereby and the date of issue thereof shall be made on the Company's books. The
Company shall be entitled to treat the holder of record of any share of stock as
the holder in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
required by the laws of the State of Delaware.
As Amended December 6, 1996
<PAGE>
Section 1.3 TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be
made on the books of the Company only by direction of the person named in the
certificate or such person's attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby, which certificate shall be canceled before the new
certificate is issued.
Section 1.4 LOST CERTIFICATES. Any person claiming a stock certificate in
lieu of one lost, stolen or destroyed shall give the Company an affidavit which
the Company determines in its discretion is satisfactory as to such person's
ownership of the certificate and of the facts which go to prove its loss, theft
or destruction. Such person shall also, if required by policies adopted by the
Board of Directors, give the Company a bond, in such form as may be approved by
the General Counsel or his or her staff, sufficient to indemnify the Company
against any claim that may be made against it on account of the alleged loss of
the certificate or the issuance of a new certificate.
Section 1.5 TRANSFER AGENTS; REGISTRARS: RULES RESPECTING CERTIFICATES.
The Board of Directors may appoint, or authorize any officer or officers to
appoint, one or more transfer agents and one or more registrars. The Board of
Directors may make such further rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates of the
Company.
Section 1.6 RECORD DATE. The Board of Directors may fix in advance a
date, not exceeding sixty days preceding the date of any meeting of
stockholders, payment of dividend or other distribution, allotment of rights, or
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, as the record date for determination of the stockholders entitled
to notice of and to vote at any such meeting and any adjournment thereof, or to
receive any such dividend or other distribution or allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to participate in any such other lawful action, and in such
case such stockholders and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such
Page 2 of 24 As Amended December 6, 1996
<PAGE>
notice of and to vote at such meeting and any adjournment thereof, or to
receive such dividend or other distribution or allotment of rights, or to
exercise such rights, or to participate in any such other lawful action, as
the case may be, notwithstanding any transfer of any stock on the books of
the Company after any such record date fixed as aforesaid.
SECTION II
MEETINGS OF STOCKHOLDERS
Section 2.1 ANNUAL MEETING. The annual meeting of the holders of such
classes or series of stock as are entitled to notice hereof and to vote
thereat pursuant to the provisions of the Certificate of Incorporation (the
"Annual Meeting of Stockholders") for the election of Directors and for the
transaction of such other business as may properly come before the meeting
shall be held on such date as the Board of Directors shall each year fix.
Each such annual meeting shall be held at such place, within or without the
State of Delaware, and hour as shall be determined by the Board of Directors.
The day, place and hour of each annual meeting shall be specified in the
notice of annual meeting pursuant to Section 2.4 of this Section II.
The annual meeting of stockholders may be adjourned by the presiding
officer of the meeting for any reason (including, if the presiding officer
determines that it would be in the best interests of the Company to extend the
period of time for the solicitation of proxies) from time to time and place to
place until the presiding officer shall determine that the business to be
conducted at the meeting is completed, which determination shall be conclusive.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors; (b) otherwise properly brought before the meeting by or at the
direction of the
Page 3 of 24 As Amended December 6, 1996
<PAGE>
Board of Directors; or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Company, not less than 60 days nor more than 180 days prior to
the anniversary date of the immediately preceding annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
45 days later than the anniversary date of the immediately preceding annual
meeting, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the date on which
notice of the date of the annual meeting was mailed or public disclosure was
made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, (b) the name and address, as they appear on the Company's books, of
the stockholder proposing such proposal; (c) the class and number of shares
of the Company which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. In addition, if the
stockholder's ownership of shares of the Company, as set forth in the notice,
is solely beneficial, documentary evidence of such ownership must accompany
the notice. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Section 2.1. The presiding officer of an
annual meeting shall, if the facts warrant, determine and declare to the
meeting that any business which was not properly brought before the meeting
is out of order and shall not be transacted at the meeting.
Section 2.2 SPECIAL MEETINGS. Except as otherwise required by law,
special meetings of the stockholders may be called only by the Chairman of the
Board, the President, or the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors. Each special meeting
Page 4 of 24 As Amended December 6, 1996
<PAGE>
shall be held at such place, within or without the State of Delaware, and
hour as shall be determined by the Board of Directors. The day, place and
hour of each special meeting shall be specified in a notice of special
meeting. At any special meeting of stockholders, only such business shall be
conducted as shall be provided for in the resolution or resolutions calling
the special meeting or, where no such resolution or resolutions have been
adopted, only such business shall be conducted as shall be provided in the
notice to stockholders of the special meeting. Any special meeting of
stockholders may be adjourned by the presiding officer of the meeting for any
reason (including, if the presiding officer determines that it would be in
the best interests of the Company to extend the period of time for the
solicitation of proxies) from time to time and from place to place until the
presiding officer shall determine that the business to be conducted at the
meeting is completed, which determination shall be conclusive.
Section 2.3 STOCKHOLDER ACTION; HOW TAKEN. Any action required or
permitted to be taken by the stockholders of the Company must be effected at a
duly called annual or special meeting of such holders and may not be effected by
any consent in writing by such holders.
Section 2.4 NOTICE OF MEETING. Subject to Section VI of these Bylaws,
notice of every meeting of the stockholders shall be given in the manner
prescribed by law.
Section 2.5 QUORUM. Except as otherwise required by law, the Certificate
of Incorporation or these Bylaws, the holders of not less than one-third of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the act of the majority of such quorum
shall be deemed the act of the stockholders.
If a quorum shall fail to attend any meeting, the presiding officer of the
meeting may adjourn the meeting to another place, date or time, without notice
other than announcement at the meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the
Page 5 of 24 As Amended December 6, 1996
<PAGE>
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be reconvened with
those present constituting a quorum, then except as otherwise required by law,
those present at such reconvened meeting shall constitute a quorum and all
matters shall be determined by a majority of votes cast at such reconvened
meeting.
Section 2.6 VOTING LIST. The officer who has charge of the stock ledger
of the Company shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.7 VOTING. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Certificate of Incorporation or of these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. Every stockholder having the
right to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing signed by such stockholder (which for purposes of this
section may include a signature and form of proxy pursuant to a facsimile or
telegraphic form of proxy or any other instrument
Page 6 of 24 As Amended December 6, 1996
<PAGE>
acceptable to the Inspector of Election), bearing a date not more than three
years prior to voting, unless such instrument provides for a longer period,
and filed with the Secretary of the Company before, or at the time of, the
meeting. If such instrument shall designate two or more persons to act as
proxies, unless such instrument shall provide to the contrary, a majority of
such proxies present at any meeting at which their powers thereunder are to
be exercised shall have and may exercise all the powers of voting or giving
consents thereby conferred, or if only one be present, then such powers may
be exercised by that one; or, if a majority does not agree on any particular
issue, each proxy so attending shall be entitled to exercise such powers in
respect of the same portion of the shares as he is of the proxies
representing such shares.
Section 2.8 VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the Bylaws of such corporation may prescribe, or in the
absence of such provisions, as the Board of Directors of such corporation may
determine, in either case either specifically with respect to such shares or
generally with respect to any action to be taken by such corporation. Shares
standing in the name of a deceased person may be voted by the executor or
administrator of such deceased person, either in person or by proxy. Shares
standing in the name of a guardian, conservator or trustee may be voted by such
fiduciary, either in person or by proxy, but no such fiduciary shall be entitled
to vote shares held in such fiduciary capacity without a transfer of such shares
into the name of such fiduciary. Shares standing in the name of a receiver may
be voted by such receiver. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the books
of the Company, he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent the stock and vote thereon.
Page 7 of 24 As Amended December 6, 1996
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Section 2.9 TREASURY STOCK. The Company shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
Section 2.10 PROCEDURE. The order of business and all other matters of
procedure at every meeting of the stockholders shall be determined by the
presiding officer of the meeting, who shall be the Chairman of the Board of
Directors, the President or such other officer of the Company as designated by
the Board. The presiding officer of the meeting shall have all the powers and
authority vested in a presiding officer by law or practice without restriction,
including, without limitation, the authority, in order to conduct an orderly
meeting, to impose reasonable limits on the amount of time at the meeting taken
up in remarks by any one stockholder and to declare any business not properly
brought before the meeting to be out of order. The presiding officer of each
meeting shall appoint one or more Inspectors of Election to serve at every
meeting of the stockholders.
SECTION III
BOARD OF DIRECTORS
Section 3.1 NUMBER AND QUALIFICATIONS. The business and affairs of the
Company shall be managed by or under the direction of its Board of Directors.
The number of Directors constituting the entire Board of Directors shall be
not less than six nor more than fifteen, as authorized from time to time
exclusively by a vote of a majority of the entire Board of Directors. As used
in these Bylaws, the term "entire Board of Directors" means the total
authorized number of Directors that the Company would have if there were no
vacancies.
Section 3.2 NOMINATION OF DIRECTORS. Nominations for the election of
Directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder of record of stock of the Company
entitled to vote at such meeting and entitled to vote in the election of
Page 8 of 24 As Amended December 6, 1996
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Directors generally. However, any stockholder entitled to vote in the election
of Directors may nominate one or more persons for election as Directors at a
meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been received, either by personal delivery or by
United States mail, postage prepaid, by the Secretary of the Company not later
than (i) with respect to an election to be held at an annual meeting of
stockholders, 90 days prior to the anniversary date of the date of the
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of Directors, the
close of business on the tenth day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations); and (e) the consent of
each nominee to serve as a Director of the Company if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
Section 3.3 RESIGNATION. A Director may resign at any time by giving
written notice to the Chairman of the Board, to the President, or to the
Secretary. Unless otherwise stated in such notice of resignation, the acceptance
thereof shall not be necessary to make it effective; and such resignation shall
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take effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.
Section 3.4 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without prior notice at such time and place as shall from time
to time be determined by the Board of Directors. A meeting of the Board of
Directors for the election of officers and the transaction of such other
business as may come before it may be held without notice immediately
following the annual meeting of stockholders.
Section 3.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President or at
the request in writing of no less than one-third plus one of the Directors
then in office.
Section 3.6 NOTICE OF SPECIAL MEETINGS. Notice of the time and place
of each special meeting shall be mailed to each Director at least two days
before the meeting or telegraphed or telecopied to such Director at least one
day before the meeting. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified
in any notice or written waiver of notice unless so required by the
Certificate of Incorporation or by the Bylaws. Unless limited by law, by the
Certificate of Incorporation or by the Bylaws, any and all business may be
transacted at any special meeting.
Section 3.7 PLACE OF MEETINGS. The Directors may hold their meetings
and have an office or offices outside of Delaware.
Section 3.8 QUORUM. A majority of the total number of Directors then
holding office shall constitute a quorum. In the event of lack of a quorum, a
majority of the Directors present may adjourn the meeting from time to time
without notice other than announcement at the meeting, until a quorum shall
be obtained.
Page 10 of 24 As Amended December 6, 1996
<PAGE>
Section 3.9 ORGANIZATION. The Chairman of the Board, or, in the
absence of the Chairman of the Board, the President, or, in the absence of
both, a member of the Board selected by the members present, shall preside at
meetings of the Board. The Secretary of the Company shall act as secretary,
but in the absence of the Secretary the presiding officer may appoint a
secretary.
Section 3.10 COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as the Compensation Committee may determine
pursuant to Section 4.4(a) of these Bylaws. Any Director may serve the
Company in any other capacity and receive compensation.
SECTION IV
COMMITTEES OF THE BOARD
Section 4.1 CREATION AND ORGANIZATION. The standing committees of the
Board of Directors shall be an Executive Committee, an Audit Committee, and a
Compensation Committee, having the respective duties assigned to each in this
Section IV and any other duties assigned to such committee by resolution
passed by a majority of the entire Board of Directors from time to time. Each
such standing committee shall consist of one or more Directors and such other
ex-officio members as the Board of Directors shall from time to time determine.
The chairman of each standing committee shall be one of such committee's
members who shall be designated as that committee's chairman by a majority of
the entire Board of Directors. Members of each standing committee shall be
elected by a majority of the entire Board of Directors at its first meeting
after each annual meeting of stockholders. Vacancies in any standing
committee shall be filled by a majority vote of the entire Board of
Directors. The Board of Directors may appoint executive employees of the
Company or its subsidiaries to be ex-officio members of any standing
committee except the Executive Committee. Ex-officio members of standing
committees shall be entitled to be present at all meetings of their
respective committees and to participate in committee discussions. Each
standing committee shall fix its own rules of
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<PAGE>
procedure by majority vote and shall meet where and as provided by such
rules, but the presence of a majority of its members shall be necessary to
constitute a quorum.
The Board of Directors may from time to time appoint such special
committees with such powers and such members as it may designate in a
resolution or resolutions adopted by a majority of the entire Board of
Directors.
Section 4.2 EXECUTIVE COMMITTEE. During the intervals between the
meetings of the Board of Directors, the Executive Committee shall possess and
may exercise all the powers of the Board of Directors in the management and
direction of the business and affairs of the Company, including the power and
authority:
(a) To the extent authorized in a resolution or resolutions
providing for the issuance of shares of Common Stock and
Preferred Stock adopted by the Board of Directors, to fix the
designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution
of assets of the Company or the conversion into, or the exchange
of such shares for, shares of any other class or any other series
of any class of stock of the Company, to fix the number of shares
of any series of Preferred Stock or to authorize the increase or
decrease of the shares of any series of Preferred Stock provided,
however, that the issuance of stock and the declaration of
dividends on stock shall require the approval of the Board of
Directors as evidenced by its adoption of a resolution providing
therefore; and
(b) To adopt a certificate of ownership and merger in accordance
with the General Corporation Law of Delaware.
The Executive Committee shall consist of the Chairman and the President
and such other Directors as appointed by the Board and shall keep minutes of
its meetings.
Page 12 of 24 As Amended December 6, 1996
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Section 4.3 AUDIT COMMITTEE. The Audit Committee shall:
(a) Prior to each annual meeting of stockholders, submit a recommendation
in writing to the Board of Directors for the selection of independent
public accountants to be appointed by the Board of Directors in advance
of the annual meeting of stockholders and submitted for ratification or
rejection at such meeting;
(b) Annually consult with the independent public accountants with
regard to the proposed plan of audit and from time to time consult
privately with them and also with the internal auditor and the Controller
with regard to the adequacy of internal controls;
(c) Upon completion of the report of audit by the independent public
accountants and before the date of the annual meeting of stockholders,
(i) review the financial statements of the Company, and (ii) meet with
the independent public accountants and review with them the results of
their audit and any recommendations made to the management; and
(d) Periodically, but at least annually, review the terms of all
material transactions and arrangements entered into between the Company
and The Dow Chemical Company ("Dow"). None of the members of the Audit
Committee will be employees, officers or otherwise affiliated with the
Company, or Dow except as stockholders.
Section 4.4 COMPENSATION COMMITTEE. The Compensation Committee shall
consist of three or more members. At least one member of the Compensation
Committee shall be a Director who is not an employee of Dow, the Company or
any subsidiaries thereof. The Compensation Committee shall establish rates of
salary, bonuses, retirement and other compensation (except awards of stock or
stock options) for all Directors and Officers of the Company as defined in
the Securities Exchange Act of 1934, as amended, or the regulations of the
Securities and Exchange Commission, and for such other personnel as the Board
of Directors may from time to time delegate to it; provided, however, that no
Page 13 of 24 As Amended December 6, 1996
<PAGE>
member of the Committee may vote upon his or her own rate of salary or his or
her own bonus, retirement or other compensation except for such items as are
applicable to a group that also included personnel who are not Directors or
Officers, and his or her participation in such items is determined by formula.
Section 4.5 STOCK AWARD COMMITTEE. The Stock Award Committee shall
consist of two or more members, each of whom shall be "disinterested persons"
as defined in Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, or any future rule of the
Securities and Exchange Commission with respect to the same subject matter.
At least one member of the Stock Award Committee shall be a Director who is
not an employee of Dow, the Company or any subsidiaries thereof. The Stock
Award Committee shall make awards of stock or stock options for all Directors
and Officers of the Company as defined in the Securities Exchange Act of
1934, as amended, or the regulations of the Securities and Exchange
Commission, and for such other personnel as the Board of Directors may from
time to time delegate to it; provided, however, that no member of the
Committee may vote upon his or her awards except for such items as are
applicable to a group that also included personnel who are not Directors or
Officers, and his or her participation in such items is determined by formula.
Section 4.6 POWERS RESERVED TO THE BOARD. No committee of the Board of
Directors shall have the power or authority to:
(a) Recommend the amendment of the Certificate of Incorporation or amend
these Bylaws;
(b) Adopt or approve any agreement of merger or consolidation with
relation to the company;
(c) Recommend to the stockholders a sale, lease or exchange of all or
substantially all of the assets and property of the Company;
Page 14 of 24 As Amended December 6, 1996
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(d) Recommend to the stockholders a dissolution of the Company
or a revocation of a dissolution of the Company;
(e) To authorize the issuance of stock; or
(f) To declare dividends on stock.
No committee of the Board of Directors shall take any action that is
required by these Bylaws, the Certificate of Incorporation or the General
Corporation Law of Delaware to be taken by a vote of a specified proportion
of the entire Board of Directors.
SECTION V
OFFICERS
Section 5.1 DESIGNATION. The officers of the Company shall be a
Chairman of the Board and a Vice-Chairman of the Board, a President, one or
more Executive Vice Presidents, one or more Vice Presidents, a Treasurer, one
or more Assistant Treasurers, a Secretary, one or more Assistant Secretaries,
a Controller, one or more Assistant Controllers and a General Counsel. The
Board of Directors also may elect or appoint, or provide for the appointment
of, such other officers or agents as may from time to time appear necessary
or advisable in the conduct of the business and affairs of the Company.
Section 5.2 ELECTION AND TERM. At its first meeting after each annual
meeting of stockholders, the Board of Directors shall elect the officers. The
term of each officer shall be until the first meeting of the Board of Directors
following the next annual meeting of stockholders and until such officer's
successor is chosen and qualified.
Section 5.3 RESIGNATION. Any officer may resign at any time by giving
written notice to the President or the Secretary. Unless otherwise stated in
such notice of resignation, the acceptance thereof shall not be necessary to
make it effective; and such resignation shall take effect at the time specified
therein or, in the absence of such specification, it shall take effect upon the
receipt thereof.
Page 15 of 24 As Amended December 6, 1996
<PAGE>
Section 5.4 REMOVAL. Except where otherwise expressly provided in a
contract authorized by the Board of Directors, any officer elected by the Board
of Directors may be removed at any time with or without cause by the affirmative
vote of a majority of the entire Board of Directors.
Section 5.5 VACANCIES. A vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
Section 5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
chief executive officer of the Company and shall preside at all meetings of
stockholders and of the Board of Directors. The Chairman shall have power to
sign certificates of stock, contracts and instruments of conveyance, checks,
drafts, notes, orders for payment of money, authorized bonds, and similar
obligations.
Section 5.7 PRESIDENT. The President shall be the chief operating officer
of the Company and, subject to the Board of Directors, shall be in general and
active charge of the business and affairs of the Company. The President shall
have power to sign certificates of stock, contracts and instruments of
conveyance, checks, drafts, notes, orders for payment of money, authorized
bonds, and similar obligations. In the absence or disability of the Chairman,
the President shall preside at the meetings of stockholders and of the Board of
Directors. The President shall perform such other duties as may be assigned by
the Chairman.
Section 5.8 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall assist the President in the performance of such duties as the President
may designate. In addition, the Vice-Chairman shall, as requested by the
President or the Chairman, act as chairman of one or more of the special
committees appointed by the Board of Directors from time to time.
Section 5.9 EXECUTIVE VICE PRESIDENTS. The Executive Vice President shall
assist the President in the management of the business and affairs of the
Company and shall perform such other duties as may be assigned by the Chairman
or the President.
Page 16 of 24 As Amended December 6, 1996
<PAGE>
Section 5.10 VICE PRESIDENTS. Each Vice President shall have such powers
and perform such duties as may be reassigned by the President or the Board of
Directors. The Board of Directors may designate a Financial Vice President and
one or more Vice Presidents as Senior Vice Presidents or Group Vice Presidents.
Section 5.11 TREASURER. The Treasurer shall have charge of all funds of
the Company and shall perform all acts incident to the position of Treasurer,
subject to the control of the Board of Directors.
Section 5.12 ASSISTANT TREASURERS. Each Assistant Treasurer shall have
such powers and perform such duties as may be assigned by the Treasurer or the
Board of Directors.
Section 5.13 SECRETARY. The Secretary shall keep the minutes, and give
notices, of all meetings of stockholders and Directors and of such committees as
directed by the Board of Directors. The Secretary shall have charge of such
books and papers as the Board of Directors may require. The Secretary (or any
Assistant Secretary) is authorized to certify copies of extracts from minutes
and of documents in the Secretary's charge and anyone may rely on such certified
copies to the same effect as if such copies were originals and may rely upon any
statement of fact concerning the Company certified by the Secretary (or any
Assistant Secretary). The Secretary shall perform all acts incident to the
office of Secretary, subject to the control of the Board of Directors.
Section 5.14 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
such powers and perform such duties as may be assigned by the President or by
resolution of the Secretary or the Board of Directors.
Section 5.15 CONTROLLER. The Controller shall be in charge of the
accounts of the Company. The Controller shall have such other powers and perform
such other duties as may be assigned by the Chairman or the Board of Directors
and shall submit such reports and records to the Board of Directors as it may
request.
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<PAGE>
Section 5.16 ASSISTANT CONTROLLERS. Each Assistant Controller shall have
such powers and perform such duties as may be assigned by the Controller or the
Board of Directors.
Section 5.17 GENERAL COUNSEL. The General Counsel shall be in charge of
all matters concerning the Company involving litigation or legal counseling. The
General Counsel shall have such other powers and perform such other duties as
may be assigned by the President or by resolution of the Board of Directors and
shall submit such reports to the Board of Directors as it may request.
Section 5.18 COMPENSATION OF OFFICERS. The officers of the Company shall
receive such compensation for their services as the Compensation Committee may
determine pursuant to Section 4.4(a) of these Bylaws.
SECTION VI
NOTICE
Section 6.1 METHODS OF GIVING NOTICE. Except as otherwise expressly
provided, whenever under the provisions of the General Corporation Law of
Delaware, the Certificate of Incorporation or these Bylaws, notice is
required to be given to any director, member of any committee or stockholder,
such notice shall be in writing and delivered personally or mailed to such
director, member or stockholder; provided that in the case of a director or a
member of any committee, such notice may be given orally or by telephone,
telex, telecopy or telegram. If mailed, notice to a director, member of a
committee or stockholder shall be deemed to be given when deposited in the
United States mail first class in a sealed envelope, with postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
stockholder's address as it appears on the records of the Company or, in the
case of a director or a member of a committee, to such person at his business
address. If sent by telex or telecopy, notice to a director or member of a
committee shall be deemed to be given when sent, subject to confirmation by
telex or telecopy, respectively. If sent by telegraph, notice to a director
or member of a
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<PAGE>
committee shall be deemed to be given when the telegram, so addressed, is
delivered to the telegraph company.
Section 6.2 WRITTEN WAIVER. Whenever any notice is required to be given
under the provisions of the General Corporation Law of Delaware, the Certificate
of Incorporation or these Bylaws, (i) a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, or (ii) attendance at any meeting by the person or persons
entitled to said notice, except when such attendance is for the express purpose
of objecting, at the beginning of such meeting, to the transaction of any
business because the meeting is not lawfully called or convened, shall be deemed
equivalent thereto.
SECTION VII
INDEMNIFICATION
Section 7.1 THIRD PARTY ACTIONS. The Company shall indemnify, to the
full extent permitted by the laws of the State of Delaware, any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Company), by reason of the fact that such person (a) is or was a
director, officer or employee of the Company, or (b) is or was a director,
officer or employee of the Company and is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order,
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<PAGE>
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the Company, nor, with
respect to any criminal action or proceeding, that such person had reasonable
cause to believe that his or her conduct was unlawful. Any repeal, amendment
or modification of this Section 7.1 shall not affect any rights or
obligations then existing between the Company and any then incumbent or
former director, officer or employee with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon such state of facts.
Section 7.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Company
shall indemnify, to the full extent permitted by the laws of the State of
Delaware, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that such person (a) is or was a director, officer or employee of the
Company, or (b) is or was a director, officer or employee of the Company and
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall
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<PAGE>
deem proper. Any repeal, amendment or modification of this Section 7.2 shall
not affect any rights or obligations then existing between the Company and
any then incumbent or former director, officer or employee with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon
such state of facts.
Section 7.3 SUCCESS ON THE MERITS. To the extent that a director, officer
or employee of the Company has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 7.1 and 7.2
herein, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 7.4 INDEMNIFICATION OF AGENTS. The Company may, to the extent
deemed advisable by the Board of Directors, indemnify any person who is or was
an agent (other than a director, officer or employee) of the Company, if such
person would be entitled to such indemnity under the provisions of the preceding
three paragraphs had such person been acting in the capacity of a director,
officer or employee of the Company.
Section 7.5 DETERMINATION OF CONDUCT. Any indemnification under Sections
7.1, 7.2 and 7.4 herein (unless ordered by a court) shall be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Sections 7.1, 7.2 and 7.4 herein.
Such determination shall be made (a) by the Board of Directors by a
majority vote of the directors who were not parties to such action, suit or
proceeding, even though less than a quorum, or (b) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion.
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<PAGE>
Section 7.6 PAYMENT OF EXPENSES IN ADVANCE. Expenses (including
attorneys' fees) incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer or employee, to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Company as authorized in this Section VII.
Section 7.7 DEFINITIONS. For purposes of this Section VII references to
"the Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or who was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section VII, with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
For purposes of this Section VII, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to any employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Section VII.
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<PAGE>
Section 7.8 INDEMNITY NOT EXCLUSIVE. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other Sections of this
Section VII shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
other bylaw, agreement, vote of stockholders or disinterested directors or
otherwise both as to action by the person in an official capacity and as to
action in another capacity while holding such office, it being the policy of the
Company that indemnification of the persons specified in Sections 7.1 or 7.2
above shall be made to the fullest extent permitted by the laws of the State of
Delaware. The provisions of this Section VII shall not be deemed to preclude
the indemnification of any person who is not specified in Sections 7.1 or 7.2
above, but whom the Company has the power or obligation to indemnify under the
laws of the State of Delaware or otherwise.
Section 7.9 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Section VII shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 7.10 INSURANCE. The Company may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against and incurred
by such person in any such capacity, or arising out of the person's status as
such, whether or not the Company would have the power or the obligation to
indemnify the director, officer, employee or agent of the Company against such
liability under the provisions of this Section VII.
Page 23 of 24 As Amended December 6, 1996
<PAGE>
SECTION VIII
MISCELLANEOUS
Section 8.1 SEAL. The corporate seal shall have inscribed upon it the
name of the Company, the year "1989" and the words "Corporate Seal", and
"Delaware". The Secretary shall be in charge of the seal and may authorize a
duplicate seal to be kept and used by any other officer or person.
Section 8.2 EXECUTIVE OFFICE. The principal executive office of the
Company shall be located in the City of Houston, County of Harris, State of
Texas, where the books of account and records shall be kept. The Company also
may have offices at such other places, both within and without Delaware, as the
Board of Directors from time to time shall determine or the business and affairs
of the Company may require.
SECTION IX
AMENDMENT OF BYLAWS
Section 9.1 A majority of the entire Board of Directors shall have
power to amend, alter, change, adopt and repeal the Bylaws of the Company at
any regular or special meeting subject to the requirements of the Certificate
of Incorporation. The stockholders also shall have power to amend, alter,
change, adopt and repeal the Bylaws of the Company at any annual or special
meeting subject to the requirements of the Certificate of Incorporation.
Page 24 of 24 As Amended December 6, 1996
<PAGE>
EXHIBIT 10.56
[LETTERHEAD]
SEVERANCE AND SERVICES AGREEMENT
May 21, 1996
Marian M. Davenport
Dear Marian:
Destec Energy, Inc., a Delaware corporation (the "Company") considers it
essential to the best interests of its stockholders to foster the continuous
employment of key management personnel. Further, the Board of Directors of
the Company (the "Board") recognizes that the possibility of a change in
control exists, and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the management of the Company and its subsidiaries, including yourself, to
their assigned duties without distraction in the face of potentially
disturbing circumstances arising from any possible change in control of the
Company.
In order to induce you to remain in the employ of the Company, the
Company agrees that you shall receive the severance benefits set forth in
this letter agreement (this "Agreement") in the event your employment with
the Company is terminated subsequent to a Change in Control (as defined in
Section 2 hereof) under the circumstances described below. In addition, in
order to procure for the Company and its stockholders the benefits of your
expertise and experience following a termination of your employment, this
Agreement also sets forth terms pursuant to which you will provide consulting
services.
1. TERM OF AGREEMENT. The term of this Agreement (the "Term") shall
commence on the date hereof and shall continue in effect through December 31,
1996; provided, however, that commencing on January 1, 1997 and each January
1 thereafter, the original Term of this Agreement shall automatically be
extended for one additional year unless, not later than September 30 of the
preceding year, the Company shall have given notice that it does
<PAGE>
not wish to extend the Term. Notwithstanding any such notice by the Company
not to extend the Term, if a Change in Control shall have occurred during the
original or extended Term, the Term shall continue in effect for a period of
twenty-four (24) months beyond the Term in effect immediately before such
Change in Control.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a Change in Control, as set forth below. For purposes
of this Agreement, a "Change in Control" shall mean a change in control of
the Company of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement; provided that,
without limitation, a Change in Control shall be deemed to have occurred if:
(A) with the exception of The Dow Chemical Company, any individual,
partnership, firm, corporation, association, trust, unincorporated
organization or other entity, or any syndicate or group deemed to be a
person under Section 14(d)(2) of the Exchange Act, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities entitled to vote in the election of
directors of the Company;
(B) during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement) individuals who at the
beginning of such period constituted the Board and any new directors, whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least three-quarters (3/4) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(C) all or substantially all of the assets of the Company are sold,
liquidated or distributed.
If the Company executes an agreement, the consummation of which results
in the occurrence of a Change in Control as described above, then a Change in
Control shall be deemed to have occurred as of the date of the execution of
such agreement.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a Change in Control shall have
occurred, you shall be entitled to the benefits provided in Subsection 4(D)
hereof upon the subsequent termination of your employment during the Term
unless such termination is because of your death or Retirement, by the
Company for Cause or Disability, or by you other than for Good Reason.
<PAGE>
(A) DISABILITY; RETIREMENT. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6) consecutive
months, and within thirty (30) days after written Notice of Termination is
given you shall not have returned to the full-time performance of your
duties, the Company may terminate your employment for "Disability." Any
question as to the existence of your Disability upon which you and the
Company cannot agree shall be determined by a qualified independent physician
selected by you (or, if you are unable to make such selection, it shall be
made by any adult member of your immediate family), and approved by the
Company. The determination of such physician made in writing to the Company
and to you shall be final and conclusive for all purposes of this Agreement.
Termination of your employment based on "Retirement" shall mean your
voluntary termination of employment on a Retirement Date as defined in the
Company's Retirement and Savings Plan (the "Retirement Plan") as in effect
immediately prior to the occurrence of a Change in Control whether or not you
are a participant in the Retirement Plan or in accordance with any retirement
arrangement established with your consent with respect to you.
(B) CAUSE. Termination by the Company of your employment for
"Cause" shall mean termination upon (i) the willful and continued failure by
you substantially to perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental
illness or from your Retirement or any such actual or anticipated failure
resulting from termination by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have
not substantially performed your duties, or (ii) the willful engaging by you
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act or failure
to act on your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that your action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth
above in clause (i) or (ii) of the first sentence of this Subsection and
specifying the particulars thereof in detail.
(C) GOOD REASON. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, any of the following:
<PAGE>
(i) INCONSISTENT DUTIES. A meaningful and detrimental
alteration in your position or in the nature or status of your
responsibilities (including those as a director of the Company, if any)
from those in effect immediately prior to the Change in Control;
(ii) REDUCED SALARY OR BONUS OPPORTUNITY. A reduction by the
Company in your annual base salary as in effect on the date hereof or
as the same may be increased from time to time; a failure by the Company
to increase your salary at a rate commensurate with that of other key
executives of the Company; or a reduction in your annual bonus below the
greater of (a) the annual bonus which you received, or to which you were
entitled, immediately prior to the Change in Control, or (b) the average
annual bonus paid to you by the Company for the three years preceding the
year in which the Change in Control occurs;
(iii) RELOCATION. The relocation of the office of the Company
where you are employed at the time of the Change in Control (the "CIC
Location") to a location which in your good faith assessment is an area
not generally considered conducive to maintaining the executive offices
of a company such as the Company because of hazardous or undesirable
conditions including without limitation a high crime rate or inadequate
facilities, or to a location which is more than fifty (50) miles away
from the CIC Location or the Company's requiring you to be based more
than fifty (50) miles away from the CIC Location (except for required
travel on the Company's business to an extent substantially consistent
with your customary business travel obligations in the ordinary course
of business prior to the Change in Control);
(iv) COMPENSATION PLANS. The failure by the Company to continue
in effect any compensation plan in which you participate prior to the
Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan in connection with the Change in Control, or the failure by the
Company to continue your participation therein on at least as favorable
a basis, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the
time of the Change in Control;
(v) BENEFITS AND PERQUISITES. The failure by the Company to
continue to provide you with benefits at least as favorable in the
aggregate to those enjoyed by you under the Company's savings, life
insurance, medical, health and accident, disability, and fringe benefit
plans and programs (including without limitation programs, if any,
relating to use of a car, secretary, office space, telephones, expense
reimbursement and club dues) in which you were participating at the time
of the Change in Control; or the failure by the Company to provide you
with the number of paid vacation days
<PAGE>
to which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control;
(vi) NO ASSUMPTION BY SUCCESSOR. The failure of the Company to
obtain an agreement reasonably satisfactory to you from any successor to
assume and agree to perform this Agreement, as contemplated in Section 5
hereof or, if the business of the Company for which your services are
principally performed is sold at any time after a Change in Control, the
failure of the Company to obtain such an agreement from the purchase or
such business unless the purchaser shall agree to provide you with the
same or a comparable position, duties, compensation and benefits (as
described in (iv) and (v) above) as provided to you by the Company
immediately prior to the Change of Control; or
(vii) NO NOTICE. Any purported termination of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (D) below (and, if applicable, the
requirements of Subsection (B) above); for purposes of this Agreement,
no such purported termination shall be effective.
(D) NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(E) DATE OF TERMINATION, ETC. "Date of Termination" shall mean (i) if
your employment is terminated for Disability, thirty (30) days after a Notice
of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30) day period), and
(ii) if your employment is terminated pursuant to Subsection (B) or (C) above
or for any other reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination pursuant to
Subsection (B) above shall not be less than thirty (30) days, and in the case
of a termination pursuant to Subsection (C) above shall not be less than
thirty (30) nor more than sixty (60) days, respectively, from the date such
Notice of Termination is given).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
Change in Control upon termination of your employment or during Disability
during the Term, the Company shall cause there to be provided to you the
following benefits:
<PAGE>
(A) DISABILITY. During any period that you fail to perform your
full-time duties with the Company as a result of your Disability, you shall
continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all compensation payable to
you under the Company's disability insurance coverage or other plan during
such period, until your employment is terminated pursuant to Subsection 3(A)
hereof. Thereafter, your benefits shall be determined in accordance with the
Company's insurance programs and other benefit or pension plans then in
effect including those listed in Subsection 3(C)(iv) hereof.
(B) TERMINATION FOR OTHER THAN GOOD REASON OR FOR CAUSE. If your
employment shall be terminated by the Company for Cause or by you other than
for Good Reason, death or Retirement, the Company shall pay you your full
base salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given and any amounts to be paid to you
pursuant to the Company's benefit and savings plans then in effect, including
those listed in Subsection 3(C)(iv), and the Company shall have no further
obligations to you under this Agreement.
(C) RETIREMENT; DEATH. If your employment shall be terminated for
Retirement, or by reason of your death, your benefits shall be determined in
accordance with the Company's benefit and savings plans then in effect,
including those listed in Subsection 3(C)(iv).
(D) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. If your
employment by the Company shall be terminated by the Company other than for
Cause, Retirement or Disability or by you for Good Reason, then you shall be
entitled to the benefits provided below:
(i) BASE SALARY AND BONUS. The Company shall pay you your full
base salary through the Date of Termination at the rate in effect at the time
the Notice of Termination is given and shall pay you, not later than the
fifth (5th) day following the Date of Termination, bonus compensation for the
year in which such termination occurs equal to a PRO RATA portion (based on
the number of days elapsed up to and including the Date of Termination) of
your target bonus for such year;
(ii) SEVERANCE PAYMENT. In lieu of any further salary payments to
you for periods subsequent to the Date of Termination, the Company shall pay
as severance pay to you, not later than the fifth (5th) day following the
Date of Termination, a lump sum severance payment (the "Severance Payment")
equal to 2.00 times the sum of:
(1) the greater of (a) your annual rate of base salary in
effect on the Date of Termination and (b) your annual rate of base salary in
effect immediately prior
<PAGE>
to the Change in Control, (such greater amount being referred to
herein as the "Salary Factor"), plus
(2) an amount (the "Bonus Factor") calculated by multiplying
the Salary Factor by a percentage equal to the greater of (a) the
average percentage bonus (annualized in the case of any bonus paid
with respect to a partial year) paid to you in respect of the three
years preceding the Date of Termination, (or the period of your
employment, if less than three (3) years) determined for each such
year as a percentage of the base salary paid to you in respect of
the relevant year, and (b) the average percentage bonus (annualized
in the case of any bonus paid with respect to a partial year) paid
to you in respect of the three years preceding the Change in
Control, (or the period of your employment, if less than three (3)
years) determined for each such year as a percentage of the base
salary paid to you in respect of the relevant year.
(iii) LEGAL FEES AND EXPENSES. The Company shall also pay to you
all legal fees and expenses incurred by you as a result of such
termination (including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement), provided,
however, that payments under this Subsection 4(D)(iii) shall not exceed
$25,000 unless you are successful in enforcing the rights you assert
under this Agreement. For purposes of the preceding sentence, you will
be considered to have been "successful" in enforcing such rights if you
receive an award or payment of an amount which is at least fifty percent
(50%) of the amount sought.
(iv) INSURANCE BENEFITS FOR 24 MONTHS. For a twenty-four (24)
month period after such termination, the Company shall arrange to
provide you with life, disability, accident and health insurance
benefits substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits otherwise
receivable by you pursuant to this Subsection 4(D) (iv) shall be reduced
to the extent comparable benefits are actually received by you during
the twenty-four (24) month period following your termination, and any
such benefits actually received by you shall be reported to the Company.
(v) EMPLOYEE BENEFIT PLANS. You shall be entitled to receive all
benefits payable to you under the Company's benefit and savings plans,
not otherwise specifically provided for in Subsection 4(D), including
those listed in Subsection 3(C) (iv).
(E) NO MITIGATION. You shall not be required to mitigate the amount of
any payment provided for in this Section 4
<PAGE>
by seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Section 4 be reduced by any compensation
earned by you as the result of employment by another employer or by pension
benefits after the Date of Termination, or otherwise except as specifically
provided in this Section 4.
5. ADVISORY ARRANGEMENT. If your employment by the Company shall
be terminated by the Company other than for Cause, Retirement or Disability
or by you for Good Reason, then for a period of 0 months following the date
of such termination of employment (the "Advisory Period"), you shall be
engaged by the Company as an advisor on the following terms and conditions:
(A) ADVISORY SERVICES. During the Advisory Period you will
perform advisory services for the Company and its subsidiaries as the Board
may reasonably request from time to time, it being understood that you will
be expected to provide at least 0 days of advisory services. You agree to
make yourself available on a reasonable basis during the Advisory Period to
provide such services. Advisory services will be performed at times and
places mutually convenient to you and the Company.
(B) INDEPENDENT CONTRACTOR. As an advisor to the Company you will
act in the capacity of an independent contractor and not as an employee of
the Company. The Company will not exercise discretion or control over you in
the performance of your advisory services, nor shall it require your
compliance with orders or instructions. You will act solely in an advisory
capacity and in consequence will not have authority to act for the Company or
to give instructions or orders on behalf of the Company or to make any
decisions or commitments for or on behalf of the Company.
(C) COMPENSATION. The Company will pay you, in consideration for
the advisory services to be provided hereunder, an aggregate amount equal to
0 times the sum of the Salary Factor and the Bonus Factor, plus reimbursement
of your reasonable out of pocket expenses. Such amount shall be paid in
equal monthly installments over the term of the Advisory Period. The Company
retains the right to withhold and deduct from any such payment all sums which
it may be required to deduct or withhold pursuant to applicable law.
6. REDUCTION OF PAYMENTS IN CERTAIN CASES. Notwithstanding
anything herein to the contrary, in no event will the Company be obligated to
make any payments to you that would not be deductible by virtue of Section
280G(a) of the Internal Revenue Code of 1986, as amended (the "Code"). If,
for purposes of Section G of the Code, any amount or benefit otherwise due to
you under this Agreement (including without limitation any amount due to
you pursuant to Section 5) and under any other plan or program of the Company
(including without limitation any amount attributable to the accelerated
vesting of any stock options upon a Change in Control) would constitute a
"parachute payment", as such term is
<PAGE>
defined in Section 280G(b)(2) of the Code, then the aggregate of such amounts
will be reduced to $1.00 less than the minimum amount that would result in
any such payments being considered a "parachute payment." The determination
to be made with respect to this Section 6 shall be made by an accounting firm
(the "AUDITOR") jointly selected by the Company and you and paid by the
Company. If you and the Company cannot agree on the firm to serve as the
Auditor, then you and the Company shall each select one accounting firm and
these two firms shall jointly select the accounting firm to serve as the
Auditor. If a determination is made by the Auditor that a reduction in the
aggregate of all payments due to you upon a Change in Control is required by
this Section 6, you shall have the right to specify the portion of such
reduction, if any, that will be made under this Agreement and each plan or
program of the Company (which reduction may include, without limitation, the
waiver of the accelerated vesting of any stock options). If you do not so
specify within 60 days following the date of a determination by the Auditor
pursuant to the preceding sentence, the Company shall determine, in its sole
discretion, the portion of such reduction, if any, to
be made under this Agreement and each plan or program of the Company.
7. SUCCESSORS; BINDING AGREEMENT.
(A) ASSUMPTION BY SUCCESSOR. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, the
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(B) ENFORCEABILITY BY BENEFICIARIES. This Agreement shall inure to
the benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees, If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no such designee,
to your estate.
8. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Vice President, Human Resources, with a copy to the General Counsel of the
Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have
<PAGE>
furnished to the other in writing in accordance herewith, except that notice
of change of address shall be effective only upon receipt.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this Agreement and this
Agreement shall supersede all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, with respect
to the subject matter hereof.
10. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
12. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Assocation then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction.
13. NO CONTRACT OF EMPLOYMENT. Nothing in this Agreement shall be
construed as giving you any right to be retained in the employ of the Company.
14. HEADINGS. The headings contained in this Agreement are intended
solely for convenience and shall not affect the rights of the parties to this
Agreement.
15. GOVERNING LAW. The validity interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Delaware applicable to contracts entered into and performed in such State.
16. SOURCE OF PAYMENTS. All payments provided under this Agreement,
other than payments made pursuant to a benefit plan which may provide
otherwise, shall be paid in cash from the general funds of the Company, and
no special or separate fund shall be established, and no other segregation of
assets made, to assure payment. You shall have no right, title or interest
whatever in or
<PAGE>
to any investments which the Company may make to aid the Company in meeting
its obligations hereunder. Nothing contained in this Agreement, and no
action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship, between the Company
and you or any other person. To the extent that you or any other person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor of the Company.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
DESTEC ENERGY, INC.
/s/ C. F. GOFF
-------------------------------
C. F. Goff
Chairman of the Board and
Chief Executive Officer
Agreed to as of this 21st day of May, 1996.
/s/ MARIAN M. DAVENPORT
- -----------------------------------
Marian M. Davenport
<PAGE>
FIRST AMENDMENT TO SEVERANCE AND SERVICES AGREEMENT
This First Amendment to Severance and Services Agreement (this "Amendment")
dated as of February 14, 1997, is by and between Destec Energy, Inc., a
Delaware corporation (the "Company"), and Enrique M. Larroucau ("Employee").
W I T N E S S E T H
WHEREAS, the Company and Employee entered that certain Severance and
Services Agreement (the "Agreement") dated as of May 3, 1994, pursuant to which
the Company agreed to provide certain severance benefits to Employee in the
event Employee's employment with the Company is terminated subsequent to Change
in Control (as defined in the Agreement) under certain circumstances; and
WHEREAS, the Company and Employee wish to modify the Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The text of Subsection 4(D)(ii) be deleted in its entirety, and the
following be substituted in its place:
(ii) SEVERANCE PAYMENT. In lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Company shall
pay as severance pay to you, not later than the fifth (5th) day
following the Date of Termination, a lump sum severance payment (the
"Severance Payment") equal to 1.30 times the sum of:
(1) the greater of (a) your annual rate of base salary in effect
on the Date of Termination, and (b) your annual rate of base
salary in effect immediately prior to the Change in Control,
(such greater amount being referred to herein as the "Salary
Factor"), plus
(2) an amount (the "Bonus Factor") calculated by multiplying the
Salary Factor by a percentage equal to the greater of (a) the
average percentage bonus (annualized in the case of any bonus
paid with respect to a partial year) paid to you in respect of
the three years preceding the Date of Termination, (or the period
of your employment, if less than three (3) years) determined for
each such year as a percentage of the base salary paid to you in
respect of the relevant year, and (b) the average percentage
bonus (annualized in the case of any bonus paid with respect to a
partial year) paid to you in respect of the three years preceding
the Change in Control, (or the period of your
<PAGE>
employment, if less than three (3) years determined for each such
year as a percentage of the base salary paid to you in respect of
the relevant year.
2. The text of Section 5 be deleted in its entirety, and the
following be substituted in its place:
5. ADVISORY ARRANGEMENT. If your employment by the Company
shall be terminated by the Company other than for Cause,
Retirement or Disability or by you for Good Reason, then for a
period of four (4) months following the date of such termination
of employment (the "Advisory Period"), you shall be engaged by
the Company as an advisor on the following terms and conditions:
(A) ADVISORY SERVICES. During the Advisory Period you will
perform advisory services for the Company and its subsidiaries as
the Board may reasonably request from time to time, it being
understood that you will be expected to provide at least 60 days
of advisory services. You agree to make yourself available on a
reasonable basis during the Advisory Period to provide such
services. Advisory services will be performed at times and
places mutually convenient to you and the Company.
(B) INDEPENDENT CONTRACTOR. As an advisor to the Company you
will act in the capacity of an independent contractor and not as
an employee of the Company. The Company will not exercise
discretion or control over you in the performance of your
advisory services, nor shall it require your compliance with
orders or instructions. You will act solely in an advisory
capacity and in consequence will not have authority to act for
the Company or to give instructions or orders on behalf of the
Company or to make any decisions or commitments for or on behalf
of the Company.
(C) COMPENSATION. The Company will pay you, in consideration
for the advisory services to be provided hereunder, an aggregate
amount equal to 0.7 times the sum of the Salary Factor and the
Bonus Factor, plus reimbursement of your reasonable out of pocket
expenses. Such amount shall be paid in equal monthly
installments over the term of the Advisory Period. The Company
retains the right to withhold and deduct from any such payment
all sums which it may be required to deduct or withhold pursuant
to applicable law.
3. The Agreement, as hereby amended, is and shall remain the binding
obligation of the Company and, except to the extent amended by this
Amendment, all the terms, provisions, conditions, agreements, covenants,
representations, warranties, and powers contained in the Agreement shall be
and remain in full force and effect and the same are hereby ratified and
confirmed.
<PAGE>
4. All references in the Agreement to "this Agreement" and any other
reference of similar import shall henceforth mean the Agreement as amended
by this Amendment.
5. In the event of any inconsistency or conflict between this Amendment
and the Agreement, the terms, provisions and conditions of this Amendment
shall govern and control.
6. Capitalized terms used herein shall have the meanings described in the
Agreement unless otherwise defined herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on the date first written above.
DESTEC ENERGY, INC.
By: /s/ C. F. GOFF
---------------------------------------
C. F. Goff
President and Chief Executive Officer
/s/ ENRIQUE M. LARROUCAU
------------------------------------------
Enrique M. Larroucau
<PAGE>
TAX SHARING AGREEMENT
BETWEEN THE DOW CHEMICAL COMPANY
AND
DESTEC ENERGY, INC. AND ITS SUBSIDIARIES
EFFECTIVE AS OF MAY 15, 1996
<PAGE>
TABLE OF CONTENTS
1. Definitions 2
2. Scope and Cooperation 7
3. Filing of Returns 8
4. Pro Forma Destec Return 11
5. Payments by Destec 17
6. Payments to Destec 18
7. Use of Attributes; Additional Rights and Obligations
Upon Deconsolidation 18
8. Adjustments 21
9. Remittances by and to Destec 23
10. Carrybacks 24
11. Allocation of Dow Group Consolidated Tax Liability
for Purposes of Determining Earnings and Profits 25
12. Dow Control of Conduct of Audits; Litigation; Expenses 25
13. Partnership Interests 26
14. Administration; Resolution of Disputes 26
15. Additional Agreements 27
16. Indemnification Against Joint and Several Liability 30
17. Interpretation 31
18. Effect of Agreement 31
19. Term 31
20. Assignment 32
21. Confidentiality 32
22. Documentation 32
23. Additional Members 32
24. Tax Law Changes 33
25. Successors and Assigns 33
26. Counterparts 33
27. Headings 33
28. Severability 33
29. Entire Agreement 34
30. Notices 34
31. Governing Law 34
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<PAGE>
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT is made and entered into as of May 15, 1996
by and among THE DOW CHEMICAL COMPANY, a Delaware corporation ("Dow"), as
Common Parent, on behalf of itself and the other members of the Dow Group
(other than any member of the Destec Group), and DESTEC ENERGY, INC., a
Delaware corporation ("Destec"), on behalf of itself and the other members of
the Destec Group.
WHEREAS, Dow is the Common Parent of the Dow Group, and files a
Consolidated Return for the Dow Group, which currently excludes the Destec
Group;
WHEREAS, Destec is the Common Parent of an Affiliated Group comprised of
Destec and its Subsidiaries, and files a Consolidated Return for the Destec
Group;
WHEREAS, certain state and local consolidated, combined or unitary
income or franchise tax returns are filed for various Members or for the Dow
Group;
WHEREAS, Dow currently owns approximately 78 percent of the total issued
and outstanding shares of the common stock of Destec, and Dow's ownership of
Destec shares may increase to 80 percent, resulting in the corporations
comprising the Destec Group being considered to be Members of the Dow Group;
WHEREAS, the parties hereto were parties to a Tax Agreement effective
September 25, 1990 and now wish to modify that agreement and to provide for
the sharing of the Dow Group Consolidated Tax Liability and the state and
local income and franchise tax liabilities relating to such consolidated,
combined or
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<PAGE>
unitary returns and certain other matters relating to the inclusion of the
Destec Group in the Dow Group going forward; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS.
The following terms as used in this Agreement, shall have the meanings
set forth below:
(a) AFFILIATED GROUP shall have the meaning attributed to that term in
Section 1504(a) of the Code.
(b) AGREEMENT shall mean this Tax Sharing Agreement, as amended from
time to time.
(c) BUSINESS DAY shall have the meaning attributed to that term in
Section 15(f) of this Agreement.
(d) CODE shall mean the Internal Revenue Code of 1986, as amended, and
shall include corresponding provisions of any subsequently enacted federal
tax laws.
(e) COMBINED RETURN, shall mean any non-federal tax return that (a) is
filed on a combined, consolidated or unitary basis between or among (i) the
Dow Group, or any Member thereof, and (ii) the Destec Group, or any Member
thereof, and (b) where any Member of the Dow Group (other than the Destec
Group) makes any payment to the appropriate state or local tax authority on
behalf of all Members of the Dow Group and the Destec Group included in such
return.
(f) COMMON PARENT shall have the meaning of that term as it is used in
the Consolidated Return Regulations.
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<PAGE>
(g) COMPLETION, for any Taxable Year of the Dow Group, shall mean the
date on which the Pro Forma Destec Tax Return for such Taxable Year is
delivered to Dow pursuant to Section 4 of this Agreement.
(h) CONSOLIDATED RETURN, for any Taxable Year of the Dow Group shall
mean a consolidated federal income tax return filed pursuant to section 1501
of the Code by the Common Parent for such Taxable Year.
(i) CONSOLIDATED RETURN REGULATIONS shall mean Income Tax Regulations
Sections 1.1502-1 through 1.1502-100(26 C.F.R.), as amended from time to time.
(j) DESIGNATED CREDIT shall have the meaning attributed to that term in
Section 4(f) of this Agreement.
(k) DESTEC GROUP shall mean Destec and those present and future
corporations that would be considered Includible Corporations of an
Affiliated Group of which Destec would be the Common Parent if it were not
includible in the Dow Group.
(l) DESTEC GROUP CONSOLIDATED TAX LIABILITY shall for any Taxable Year
mean the consolidated federal income tax liability imposed under sections 11,
55 and 59A of the Code or any successor provisions thereto, determined on the
basis of the Pro Forma Destec Return, as adjusted by Dow pursuant to this
Agreement. In making such computation for any such Taxable Year, such
liability shall be determined:
(i) on the basis of the highest rate of corporate tax in effect
for such taxable year under section 11 of the Code, as though such rate
were the only income tax rate in effect for such Taxable Year,
(ii) on the assumption that the "exemption amount" specified in
Section 55 of the Code for such Taxable Year is zero, and
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<PAGE>
(iii) on the further assumption that the amount specified in
Section 59A(a)(2) of the Code for such Taxable Year is zero.
(m) DESTEC GROUP STATE AND LOCAL TAX LIABILITY shall equal, for each
Combined Return, (i) the sum of the Separate Taxable Incomes for all Members
of the Destec Group that are included in a Combined Return and have nexus in
the jurisdiction for which the Combined Return is filed, divided by (ii) the
sum of the Separate Taxable Incomes for all Members of the Destec Group and
the Dow Group that are included in the Combined Return and have nexus in such
jurisdiction, multiplied by (iii) the total tax liability, net of any tax
credits, reflected on such Combined Return.
(n) DOW GROUP, as of any particular date, shall mean the Affiliated
Group of which Dow (or any successor thereto) is the Common Parent as of such
date.
(o) DOW GROUP CONSOLIDATED TAX LIABILITY shall mean the consolidated
federal income tax liability of the Dow Group for any Taxable Year for which
the Dow Group files a Consolidated Return.
(p) EFFECTIVE DATE shall mean the date on which Destec becomes a Member
of the Dow Group.
(q) FINAL DETERMINATION shall mean with respect to any issue or item
(i) the execution of a final and irrevocable closing agreement or other
settlement agreement with the Service or the relevant state or local taxing
authorities, (ii) the expiration of the time for filing a claim for refund
or, if a refund claim has been timely filed, the expiration of the time for
instigating suit in respect of such refund claim, (iii) the expiration of the
time for filing a petition with the Tax Court or the relevant state or local
tribunal if no such petition has been filed and no suit has been instigated
in respect of the subject matter of such petition, or (iv) a final
unappealable decision of any court of competent jurisdiction.
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<PAGE>
(r) INCLUDIBLE CORPORATION shall have the meaning attributed to that
term in section 1504(b) of the Code.
(s) INCOME TAX REGULATIONS shall mean the regulations (26 C.F.R), as
amended from time to time, promulgated pursuant to the Code.
(t) MEMBER, for any Taxable Year of the Dow Group, shall mean any
corporation (or any predecessor or successor in interest to such corporation
under section 381 of the Code or otherwise which was or is an Includible
Corporation) which at any time during such Taxable Year is an Includible
Corporation that is included in the Dow Group and shall include any such
corporation which at any time during such Taxable Year is the Common Parent.
(u) PURCHASE PRICE PER SHARE shall have the meaning attributed to that
term in Section 15(c) of this Agreement.
(v) PRO FORMA DESTEC RETURN shall have the meaning attributed to that
term in Section 4(a) of this Agreement.
(w) REFUNDABLE DESIGNATED CREDIT shall have the meaning attributed to
that term in Section 4(f)(iii) of this Agreement.
(x) SEPARATE TAXABLE INCOME means, for any non-federal jurisdiction,
with respect to any Member of the Destec Group or the Dow Group, the taxable
income allocable to such jurisdiction for any taxable year (but in no case
less than zero), determined without reference to any carrybacks or
carryforwards of any net operating loss, net capital loss, charitable
contribution or other item attributable to any other taxable period, as
determined on a basis that is consistent with the manner in which the Members
of the Destec Group and the Dow Group's Separate Taxable Income has been
determined in the past. If no Combined Return has previously been filed in
a state or local tax jurisdiction for a Member of the Destec Group or the Dow
Group, the Separate Taxable Income shall be determined by Dow in a
reasonable manner in accordance with its past practice of computing
6
<PAGE>
Separate Taxable Income for other Members joining in the filing of a Combined
Return in such jurisdiction.
(y) SERVICE shall mean the Internal Revenue Service.
(z) SUBSIDIARY shall mean as to any entity (including the parent
corporation) a corporation that would be an Includible Corporation in an
Affiliated Group of which the parent corporation would be the Common Parent.
(aa) TAXABLE YEAR shall mean (a) any taxable year or portion thereof
beginning on or after January 1, 1996 with respect to which a Consolidated
Return is filed on behalf of the Dow Group which includes Destec (or any
successor corporation) or (b) any taxable year beginning on or after the
Effective Date with respect to which a Combined Return is filed by Dow or any
Subsidiary or Dow (other than Destec or any Subsidiary of Destec) which
includes Destec or any Subsidiary of Destec; provided, however, that if
Destec or a Subsidiary of Destec is included in the Dow Group for only a
portion of a Taxable Year of the Dow Group, the "Taxable Year" with respect
to Destec or such Subsidiary shall include only that portion of the Taxable
Year in which Destec or such Subsidiary is included in the Dow Group.
2. SCOPE AND COOPERATION.
(a) SCOPE. This Agreement relates solely to (i) federal income tax
liabilities and (ii) income tax liabilities with respect to certain state and
local jurisdictions in which Destec and/or any Subsidiary of Destec
participated with Dow or any Subsidiary of Dow (other than Destec or any of
its Subsidiaries) in the filing of a Combined Return. Under this Agreement,
the Destec Group will, with certain modifications set forth in this
Agreement, compute its tax liability as if the Destec Group was not part of
the Dow Group. However, so long as Destec or any Subsidiary of Destec is a
Member of the Dow Group, the Destec Group is obligated to provide information
and make payments of the Destec Group
7
<PAGE>
Consolidated Tax Liability and the Destec Group State and Local Tax Liability
to Dow, and is subject to the standards and control of Dow in preparing and
filing the Consolidated Return (and any Combined Return).
(b) COOPERATION. Dow and Destec shall cooperate, and each shall cause
its respective Subsidiaries to cooperate fully in the implementation of this
Agreement on a consolidated basis, including but not limited to, providing
promptly to the requesting party such assistance and documentation (at the
expense of the providing party if related to any Taxable Year) as may be
requested by such party in connection with the preparation or filing of the
Consolidated Return (and any Combined Return), and the conduct of any audit
or other examination, or judicial or administrative proceeding or
determination relating thereto.
3. FILING OF RETURNS.
(a) APPOINTMENT OF DOW AS AGENT FOR CONSOLIDATED RETURN. Destec and
each of its Subsidiaries hereby appoint Dow as their agent, with respect to
all periods during which Destec or such Subsidiary, as the case may be, is a
Member of the Dow Group, for the purpose of filing the Consolidated Return
and of making any election or application or taking any action in connection
therewith on behalf of Destec and such Subsidiary. Nothing herein shall be
construed as requiring Dow to file a Consolidated Return for any Taxable Year;
PROVIDED, HOWEVER, that if Dow decides not to file a Consolidated Return it
shall notify Destec in writing within a period reasonably sufficient to
permit Destec to file timely returns for Members of the Destec Group.
(b) DOW CONTROL OVER CONSOLIDATED RETURN. Dow shall prepare and file,
or cause to be prepared and filed, the Consolidated Return and any other
documents or statements required to be filed with the Service that pertain to
the determination of the Dow Group Consolidated Tax Liability for each
Taxable Year of the Dow Group. In its sole and absolute discretion, but
after prior good faith consultation with Destec on issues which impact the
Destec Group Consolidated
8
<PAGE>
Tax Liability (if requested by the Tax Director of Destec), Dow shall have
the right with respect to any Consolidated Return that it has filed or will
file to determine (regardless of the manner in which an item or matter may
have been reported by Destec on a Pro Forma Destec Return):
(i) the manner in which such Consolidated Return, as well as any
other documents or statements incidental or related thereto shall be
prepared and filed, including without limitation, the manner in which
any item of income, gain, loss, deduction, expense or credit of Destec
or any Subsidiary of Destec shall be reported therein or thereon;
(ii) whether any extensions (including extensions of the date for
filing or any statute of limitations) with respect to any Consolidated
Return will be requested;
(iii) the elections that will be made in any such Consolidated
Return by any Member, including without limitation, elections by Destec
or any Subsidiary of Destec;
(iv) whether to file an amended Consolidated Return and to prosecute,
compromise or settle any claim for refund set forth therein; and
(v) whether any refunds to which the Dow Group may be entitled
shall be passed by way of cash refund or credited against the Dow Group
Consolidated Tax Liability for any Taxable Year or Taxable Years of the
Dow Group.
Destec and each Subsidiary of Destec hereby irrevocably appoints Dow as its
agent and attorney-in-fact to take any action (including the execution of
documents) as Dow may deem appropriate to effect the foregoing. Nothing
contained in this Agreement shall limit Dow's discretion to determine the
manner in which any item shall be reported on the Consolidated Return.
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<PAGE>
(c) APPOINTMENT OF DOW AS AGENT FOR CERTAIN COMBINED RETURNS. Destec
and each Subsidiary of Destec hereby appoint Dow as their agent with respect
to all periods during which Destec or such Subsidiary, as the case may be, is
a Member of the Dow Group, for the purpose of filing any Combined Return that
Dow (or any Subsidiary of Dow, other than Destec or any of its Subsidiaries)
may elect to file, and for making any election or application or taking any
action (including any extension of statutes of limitation) in connection
therewith on behalf of Destec and such Subsidiary. Destec and each of its
Subsidiaries hereby consent to the filing of such returns, and to the making
of such elections and applications. Nothing contained in this Agreement
shall be construed as requiring Dow or any Subsidiary of Dow to file a
Combined Return on behalf of Destec or any Subsidiary of Destec for any
Taxable Year. Dow shall in its sole and absolute discretion determine
whether and with respect to which jurisdictions Destec or any of its
Subsidiaries shall participate in the filing of any Combined Return.
(d) OTHER RETURNS. Destec and its Subsidiaries shall be solely
responsible for filing all tax returns not described in subsections (b) and
(c) of this Section 3 and that relate solely to Destec and/or its
Subsidiaries.
(e) ASSISTANCE AND RESPONSIBILITY FOR SUPPORT OF RETURNS; PROVISION OF
FINANCIAL DATA. Destec and its Subsidiaries shall assist Dow in the filing,
to the extent permitted by law, of a Consolidated Return and such Combined
Returns as Dow elects to file or cause to be filed, by maintaining such books
and records and providing such information as may be necessary or useful in
the filing of such returns and executing any documents and taking any actions
which Dow may reasonably request in connection therewith including without
limitation designing and implementing systems, processes and programs for the
compilation and review of financial data; the review of transactions and
accounting methods; and the preparation of returns and of supporting
documentation to assure that such returns and all related reports and
schedules are complete and accurate. Destec
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<PAGE>
shall, at its own expense, provide Dow with all information required by Dow
to reflect completely and accurately the financial results of the Destec
Group in the Dow Group's Consolidated Return (or a Combined Return). Such
information shall be in such form as determined by Dow from time to time and
shall be delivered to Dow on a mutually agreed upon date, but in no event
later than the first business day in June of the year following such Taxable
Year. Destec shall, at its own expense, maintain sufficient books, records
and expertise to support all returns, positions taken thereon and methods
used to prepare such returns until there has been a Final Determination with
respect to all issues included on such returns. Dow and Destec shall provide
one another with such other information concerning such returns and the
application of payments made under this Agreement as Dow or Destec may
reasonably request of one another.
4. PRO FORMA DESTEC RETURN.
(a) INITIAL PREPARATION OF PRO FORMA DESTEC RETURN. For each Taxable
Year for which a Consolidated Return is filed and Destec or any Subsidiary of
Destec is a Member of the Dow Group, Destec shall prepare on behalf of the
Destec Group a pro forma consolidated federal income tax return as the Common
Parent of the Destec Group (the "Pro Forma Destec Return") covering that
portion of the Taxable Year in which the Destec Group is included in the Dow
Group. The Pro Forma Destec Return shall be complete and accurate, and shall
be in such form and include such information as shall be determined from time
to time by Dow. The Pro Forma Destec Return shall be prepared in accordance
with subsections (b) and (c) of this Section 4 and shall report the
consolidated federal taxable income (including, for all purposes of this
Agreement, alternative minimum taxable income) for such Taxable Year that,
the Destec Group would have reported if it had not been included in the
Consolidated Return filed for the Dow Group with respect to such Taxable Year
and all prior Pro Forma Destec Returns had been actual returns. The
provisions of the Code that require consolidated calculations, including
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<PAGE>
without limitation, sections 861, 1201, 1212 and 1231, shall be applied
separately to the Destec Group, but with any simplifying conventions approved
or suggested by the Tax Director of Dow. The Pro Forma Destec Return shall
include gains and losses with respect to deferred intercompany transactions
if, and only if, and to the extent that, such gains or losses are actually
restored and reflected on the Dow Group's Consolidated Return.
(b) STANDARDS FOR POSITIONS TAKEN ON PRO FORMA DESTEC RETURN. Destec
shall prepare the Pro Forma Destec Return by reporting the tax treatment of
any item by utilizing such positions that, in Destec's discretion, are
appropriate for the Destec Group; provided, that each position is more likely
than not to be ultimately sustained; and provided further that the elections
made and the positions taken by Destec on the Pro Forma Destec Return shall
be consistent with the elections made and the positions reflected on the
relevant portion of the Dow Group's Consolidated Return (including carryovers
or carrybacks of net operating losses, net capital losses, excess tax credits
or other tax attributes from prior or subsequent taxable years). Destec may
utilize a position on the Pro Forma Destec Return that does not meet this
standard but that does have a reasonable basis in law and in fact; BUT ONLY
IF Destec has obtained, after prior notice to and consultation with Dow,
Dow's written consent to utilize such position on Pro Forma Destec Return for
such Taxable Year. Except as otherwise required by tax law, Destec may not
utilize a position on the Pro Forma Destec Return that is inconsistent with
any position utilized on a Pro Forma Destec Return or Consolidated Return for
a prior taxable year.
(c) STANDARDS FOR METHODS AND ELECTIONS ON PRO FORMA DESTEC RETURN. The
Pro Forma Destec Return shall reflect any elections made and tax accounting
methods used by Dow with respect to the Dow Group's Consolidated Return that
in the sole and absolute discretion of Dow, but after prior good faith
consultation with Destec (if requested by the Tax Director of Destec), should
be made, taken or
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<PAGE>
used consistently by the Dow Group in filing such Consolidated Return. Destec
may utilize any other election, method or simplifying convention subject to
Dow's approval, which approval shall not be unreasonably withheld, in
preparing the Pro Forma Destec Return. Notwithstanding the foregoing, Destec
may not utilize any election or method in preparing the Pro Forma Destec
Return for a Taxable Year that is inconsistent with any election, position or
method utilized on a Pro Forma Destec Return or Consolidated Return for a
prior taxable year if the effect of such treatment is to allow a double
deduction or benefit with respect to any item (or unless Destec has
eliminated such double deduction or benefit in a manner acceptable to Dow).
(d) DELIVERY TO DOW OF PRO FORMA DESTEC RETURN; ASSISTANCE. Destec will
deliver to Dow the Pro Forma Destec Return on a mutually agreed date, but in
no event later than the due date of the Dow Group's Consolidated Return
(taking into account any extensions thereof that have been granted to Dow).
Appropriate personnel of Destec or a Destec Subsidiary that are responsible
for the preparation of the Pro Forma Destec Return shall be available upon
reasonable notice to meet with appropriate personnel of Dow to discuss all
aspects of such return and upon request by Dow shall furnish or make
available for inspection any and all documents used in preparation of the Pro
Forma Destec Return (documents relied upon by Destec in ascertaining whether
any position is more likely than not to be ultimately sustained or has a
reasonable basis in law or in fact shall be furnished only to the principal
tax legal officer of Dow under cover of the attorney-client privilege and
work product doctrine).
(e) ADJUSTMENT BY DOW OF PRO FORMA DESTEC RETURN. Dow, within 60 days
of the due date of the Dow Group's Consolidated Return (taking into account
any extensions thereof that have been granted to Dow) shall adjust the Pro
Forma Destec Return, as appropriate in accordance with the terms of this
Agreement and after prior notice to and good faith consultation with Destec,
to correct any error
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<PAGE>
of fact or law thereon or any error in mechanical calculation and any failure
to reflect the principles set forth in this Section 4; provided, however,
that if Dow proposes an adjustment to the Pro Forma Destec Return because of
Dow's belief that Destec's position is not more likely than not to be
sustained and Destec objects to such adjustment, Dow and Destec shall jointly
select and pay for a nationally recognized law firm to render an opinion as
to whether the position advocated by Destec is more likely than not to be
sustained if challenged, in which case, the adjustment proposed by Dow can
only be made if the opinion from the nationally recognized law firm confirms
that the position advocated by Destec is NOT more likely than not to be
sustained if challenged. In the event that Dow and Destec are unable to agree
on a nationally recognized law firm, Dow shall nominate three such firms
(excluding the firms of King & Spalding, Miller & Chevalier, and Groom and
Nordberg) which have not provided Dow significant tax services in the past
three years, and Destec shall select one of the nominated firms to render
such opinion if the firm is able to do so. Acceptance by Dow of the Pro Forma
Destec Return shall not necessarily indicate agreement by Dow nor relieve
Destec of liability for any adjustment made upon audit or other assessment.
Similarly, any failure by Dow to properly and fully adjust the Pro Forma
Destec Return within the 60-day period set forth in this Section 4(e) shall
not prevent Dow, in its sole and absolute discretion, but after prior good
faith consultation with the Tax Director of Destec, from making subsequent
adjustments in accordance with the procedures of this Section 4(e), as
circumstances warrant within the applicable statute of limitation
(determined as if the Pro Forma Destec Return were an actual return that is
subject to any extensions that have been granted by Dow with respect to the
Consolidated Return) nor relieve Destec of liability for such adjustments. If
as a result of such adjustment any amounts due to or from Destec under this
Agreement differ from the corresponding amounts prior to such adjustment,
payment of such difference shall be made to Destec or
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<PAGE>
by Destec in the manner provided in Section 9 within 10 days following such
adjustments.
(f) UTILIZATION OF CREDITS TO REDUCE DESTEC GROUP CONSOLIDATED TAX
LIABILITY UNDER CERTAIN CIRCUMSTANCES. For purposes of computing the Destec
Group Consolidated Tax Liability for a Taxable Year, the portion of the
income tax credits described in section 29 of the Code which cannot otherwise
under this Agreement be utilized by the Destec Group in computing such
liability because of statutory or income limitations, may be utilized by the
Destec Group pursuant to this section 4(f) (such unutilized credits shall
hereinafter be referred to as "Designated Credits").
(i) USE OF DESIGNATED CREDITS IN CURRENT TAXABLE YEAR. Amounts of
Designated Credits generated in a Taxable Year may be applied to reduce the
Destec Group Consolidated Tax Liability (including alternative minimum tax
liability) for the Taxable Year, but not below zero, notwithstanding the
impact of any statutory or income limitations, but only if and to the extent
that such Designated Credits reduce the Dow Group Consolidated Tax Liability
for such Taxable Year.
(ii) USE OF REFUNDABLE DESIGNATED CREDITS IN CURRENT TAXABLE YEAR.
The limitation set forth in Section 4(f)(i) of this Agreement that prevents
Designated Credits from reducing the Destec Group Consolidated Tax Liability
below zero shall not apply to Refundable Designated Credits. Subject to the
limitations set forth below, Refundable Designated Credits generated in the
current Taxable Year may be utilized to reduce the Destec Group Consolidated
Tax Liability with respect to such Taxable Year below zero (and result in a
negative amount that is refundable to Destec to the extent provided herein),
but only if and to the extent that such Refundable Designated Credits reduce
the Dow Group Consolidated Tax Liability. Notwithstanding the foregoing,
Destec will not be permitted to utilize
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Refundable Designated Credits with respect to a Taxable Year pursuant to
this Section 4(f) in an amount greater than $10 million with respect to
any Taxable Year. Refundable Designated Credits that are utilized shall
be applied against the $10 million limitation in the year that they are
utilized. In the event that the amount of Refundable Designated Credits
that can be utilized pursuant to this Section 4(f) with respect to a
Taxable Year is less than the applicable limitation amount, such excess
shall not increase the available limitation in any subsequent Taxable
Year. Dow shall refund in cash to Destec 100% of the Refundable
Designated Credits that are permitted to be utilized pursuant to this
Section 4(f) within 60 days of the Completion date for such Taxable Year.
(iii) DEFINITION OF REFUNDABLE DESIGNATED CREDITS. For purposes
of this Agreement, Refundable Designated Credits are Designated Credits
that are generated by resources purchased by the Destec Group prior to
May 15, 1996, and cannot be utilized under Section 4(f)(i) solely
because of the limitation contained therein that prevents Designated
Credits from reducing the Destec Group Tax Liability below zero. For
purposes of determining whether Designated Credits are Refundable
Designated Credits with respect to a particular Taxable Year, Designated
Credits that reduce the Destec Group Consolidated Tax Liability below
zero shall first be considered to have been generated by resources
purchased by the Destec Group on or after May 15, 1996, to the extent
Designated Credits are generated by such resources in such Taxable Year.
(iv) RESTRICTION ON DOUBLE BENEFIT. Nothing in this Section 4(f)
or any other provision of this Agreement shall be construed to entitle
Destec or any Subsidiary of Destec to receive a double benefit or
compensation with respect to any Designated Credit, Refundable
Designated Credit or a carryforward or carryback thereof. Nothing in
this Section 4(f) is intended to limit the Destec Group's ability to
carry back or carry forward credits,
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including Designated Credits or Refundable Designated Credits, pursuant
to Section 8(b).
5. PAYMENTS BY DESTEC.
(a) GENERAL AND DESTEC GROUP CONSOLIDATED TAX LIABILITY. For each
Taxable Year of the Dow Group, Destec shall pay to Dow the amount of the
Destec Group Consolidated Tax Liability and the Destec Group State and Local
Tax Liability, in the amounts, at the time or times and in the manner as
herein provided.
(i) In the event that the estimated Destec Group Consolidated Tax
Liability for such Taxable Year is greater than zero, Destec shall make
quarterly payments of its estimated Destec Group Consolidated Tax
Liability for such Taxable Year. The amount of each such quarterly
payment shall be determined by Destec and shall equal the amount which
Destec would be required under Section 6655(d) of the Code (or under any
successor section of the Code) to pay to the Service for such quarter
were Destec to make installment payments of the Destec Group
Consolidated Tax Liability for such Taxable Year in accordance with the
provisions of such section.
(ii) If the actual Destec Group Consolidated Tax Liability for such
Taxable Year exceeds the total estimated payments, if any, which Destec
made pursuant to Section 5(a)(i) hereof for such Taxable Year, Destec
shall pay an amount equal to such excess to Dow.
(iii) Each of the quarterly payments required to be made by
pursuant to Section 5(a)(i) hereof shall be made in the manner provided
in Section 9(a) hereof on or before the due date for the payment of the
respective quarterly estimate of the Dow Group Consolidated Tax
Liability for such Taxable Year.
(b) DESTEC GROUP STATE AND LOCAL TAX LIABILITY. For each Taxable Year
with respect to which Destec or any of its Subsidiaries particpates in the
filing of a
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Combined Return, Destec shall pay to Dow, within 30 days of receipt of a bill
from Dow, the Destec Group's State and Local Tax Liability for such Taxable
Year.
(c) OTHER TAXES. Destec shall be solely responsible for paying tax
with respect to all tax returns that Destec or any of its Subsidiaries have
responsibility for filing pursuant to this Agreement.
6. PAYMENTS TO DESTEC.
(a) For each Taxable Year of the Dow Group, if the payments made by
Destec pursuant to Section 5(a)(i) hereof of the estimated Destec Group
Consolidated Tax Liability for such Taxable Year exceeds the actual Destec
Group Consolidated Tax Liability for such Taxable Year, Dow shall pay to
Destec an amount equal to such excess.
(b) Any payment that Destec may be entitled to receive for such Taxable
Year pursuant to Section 6(a) hereof shall be paid to Destec in the manner
provided in Section 9(a) hereof on or before 45 calendar days after
Completion.
7. USE OF ATTRIBUTES; ADDITIONAL RIGHTS AND OBLIGATIONS UPON
DECONSOLIDATION.
(a) In determining the Dow Group Consolidated Tax Liability and in
preparing the Consolidated Return for each taxable year, Dow may utilize on
behalf of the Dow Group all the tax attributes and other items of income,
gain, loss, deduction, expense, credit, etc. of Destec and its Subsidiaries
arising in such taxable year or which arose in another taxable year or
taxable years and which properly may be carried back or carried forward to
such taxable year, without regard to whether such attributes and items are
concurrently being, have previously been or may subsequently be utilized in
determining for any Taxable Year or Taxable Years, the Destec Group
Consolidated Tax Liability. Except as expressly provided in Section 4,
Section 7(b), and Section 8 of this Agreement, neither Destec nor any of its
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Subsidiaries shall in any manner be entitled to any compensation for the use
of any attributes and other items of income, gain, loss, deduction, expense,
credit, etc. of Destec and its Subsidiaries. Moreover, in the event Destec
or any of its Subsidiaries ceases for any reason to be a Member of the Dow
Group either (A) after any of its tax attributes or items of income, gain,
loss, deduction, expense, credit, etc. has been utilized by Dow on behalf of
the Dow Group in determining the Dow Group Consolidated Tax Liability for any
Taxable Year or Taxable Years of the Dow Group, but before Destec has
utilized such attribute or item (in whole or in part) in determining for any
Taxable Year or Taxable Years, the Destec Group Consolidated Tax Liability or
(B) after any of its tax attributes or items of income, gain, loss,
deduction, expense, credit, etc. has been utilized by Destec on behalf of the
Destec Group in determining the Destec Group Consolidated Tax Liability for
any Taxable Year or Taxable Years, but before Dow has utilized such attribute
or item (in whole or in part) in determinig for any Taxable Year or Taxable
Years, the Dow Group Consolidated Tax Liability, neither Dow nor Destec, as
the case may be, shall be obligated or required to compensate such other
party in any manner for any amount as a result of the occurrence of such
event, except as expressly provided in Section 7(b) below.
(b) In the event Destec or any of its Subsidiaries ceases for any reason
to be a Member of the Dow Group, then within 90 days after the filing of the
Consolidated Return for the last Taxable Year that Destec or such Subsidiary
was included therein, Dow shall inform Destec or such Subsidiary, as the case
may be, of the amount of consolidated loss and credit carryovers as of the
end of the Taxable Year that are allocable to Destec or such Subsidiary,
pursuant to the Consolidated Return Regulations. In the event that Dow
determines that the amount of any particular category of loss or credit
carryover attributes so allocated to Destec or such Subsidiary exceeds the
amount of loss and credit attributes of such category (other than Designated
Credits that reduced the Destec Group Tax Liability for any Taxable Year
pursuant to Section 4(f) of this Agreement) that
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would have been available to Destec or such Subsidiary if the Destec Group
had not been included in the Dow Group for the current Taxable Year and all
prior Taxable Years and all Pro Forma Destec Returns had been actual returns,
then Destec or such Subsidiary shall pay to Dow within 10 days of
notification of the determination described in this Section 7(b), an amount
equal to the value of such attributes, as described below. In the event that
Dow determines that (A) the amount of loss and credit carryover attributes of
any particular category so allocated to Destec or such Subsidiary is less
than (B) the amount of the loss and credit attributes of such category (other
than Designated Credits that reduced the Destec Group Tax Liability for any
Taxable Year pursuant to Section 4(f) of this Agreement) that would have been
available to Destec or such Subsidiary if the Destec Group that not been
included in the Dow Group for the current Taxable Year and all prior Taxable
Years and all Pro Forma Destec Returns had been actual returns, then Dow
shall pay to Destec or its Subsidiaries, within 10 days of notification of
the determination described in this Section 7(b), an amount equal to the
value such attributes would have had, as described below. Dow's
determinations pursuant to this Section 7(b) shall be presumptively correct
and shall be binding on the parties hereto. At Destec's request, the
calculation of any such amounts shall be verified by a Big Six accounting
firm jointly selected by Dow and Destec, whose fees and expenses shall be
shared equally by Dow and Destec, and whose final determination shall be
final and binding on the parties hereto. For purposes of this Section 7(b),
tax credits shall be valued on a dollar-for-dollar basis and losses or
deductions shall be valued at 38 percent of their nominal amount.
(c) If a Member at any time acquires the assets and properties of
another Member pursuant to a transaction to which Section 381 of the Code
applies or otherwise, the acquiring Member shall, from and after the date of
such acquisition, be responsible for all of the undertakings and obligations
of such other Member hereunder and shall, from and after such date, be
entitled to receive any and all
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payments that such other Member would be entitled to receive hereunder.
Provided such other Member ceases to exist solely as a result of such
transaction, such event shall not, except as expressly provided herein, in
any way result in any acceleration of the time at which any payments
hereunder are due to or from such other Member, and, except as expressly
provided herein to the contrary, all such payments shall be made to or by
the acquiring Member at the same time or times that such payments would be
payable to or by such other Member had such other Member continued to exist
as a Member hereunder.
8. ADJUSTMENTS.
(a) If any adjustment is made with respect to a Taxable Year during
which Destec or any of its Subsidiaries is a member of the Dow Group to any
item of income, gain, loss, deduction expense or credit of Destec or any
Subsidiary of Destec by reason of the filing of an amended Consolidated
Return (or an amended Combined Return), a claim for refund with respect to
such Taxable Year or an audit with respect to such Taxable Year by the
Service (or the applicable state and local taxing authority), the amounts, if
any, due to or from Destec under this Agreement shall be redetermined by
taking into account any such adjustment and applying the procedures set
forth in this Agreement. Dow shall have sole and absolute discretion, but
after prior good faith consultation with the Tax Director of Destec, to
determine whether and in what amount an adjustment applies to Destec or any
of its Subsidiaries. If, as a result of such redetermination, any amounts due
to or from Destec under this Agreement differ from the amounts previously
paid, then except as herein provided, payment of such difference together
with any interest, penalty or addition to tax properly allocated to Destec
shall be made to Destec or by Destec in the manner provided in Section 9(a)
as follows: (a) in the case of an adjustment resulting in a credit or refund
of tax, within 10 calendar days of the date on which such refund or notice
of such credit is received by Dow or Destec with respect to such adjustment,
or (b) in the case of an adjustment
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resulting in a payment of additional tax, within 10 calendar days of the date
on which such additional tax is paid. Any interest, penalty or addition to
tax will be allocated as Dow, in its discretion, deems just and proper in
view of all applicable circumstances (to the extent practicable, however,
such allocations shall reflect the amount of interest that the Destec Group
would have paid on a stand alone basis). Neither acceptance of a Pro Forma
Destec Return nor failure by Dow to file consistently with such Pro Forma
Destec Return shall relieve Destec of liability for an adjustment under this
Section 8(a).
(b) REFUND OF TAX SHARING PAYMENT. In the event that the Pro Forma
Destec Return (or the corresponding calculation with respect to the Destec
Group State and Local Tax Liability) for any Taxable Year reflects a net
operating loss, net capital loss, Designated Credit, excess tax credit or
other tax attribute, such attributes (other than Designated Credits that have
reduced the Destec Group Consolidated Tax Liability pursuant to Section
4(f)(i) and (ii) and Designated Credits described in section 4(f)(iii), which
may be carried forward pursuant to Section 4(f)(iii)), may be carried back or
carried forward, as the case may be, and utilized in calculating the Destec
Group Consolidated Tax Liability (or the Destec Group State and Local Tax
Liability) for prior or subsequent Taxable Years in the same manner as such
attributes would have been carried back or carried forward and deducted if
the Pro Forma Destec Returns had been actual returns or, in the case of state
and local tax, under applicable state or local provisions, as such
provisions would have been applied to a Combined Return, but after taking
into account any limitation on the use of such attributes imposed pursuant
to the Code or the Income Tax Regulations (or with respect to a Combined
Return, applicable state or local provisions). In such case the Destec Group
Consolidated Tax Liability (or the Destec Group State and Local Tax Liability)
shall be recomputed for the Taxable Year or Years to which such attributes
are carried and for any subsequent Taxable Years to take into account such
attributes, and payments made pursuant to Sections 5 and 6 of this Agreement
shall be appropriately
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<PAGE>
adjusted. In the case of any carryback of attributes pursuant to this Section
8(b), any payment between Dow and Destec required by such adjustment shall be
paid within 45 days after Completion (or the corresponding date with respect
to the relevant Combined Return) for the year in which such attribute arises.
(c) For purposes of Section 8(b), if the Pro Forma Destec Return for a
Taxable Year reflects a net operating loss, in addition to the carryback
provisions set forth in Section 8(b), the Destec Group can also carry back
and recalculate its Destec Group Consolidated Tax Liability for any taxable
year prior to a Taxable Year that would otherwise be permitted under the Code
and applicable Income Tax Regulations (assuming the Destec Group had never
become a Member of the Dow Group), and if such carryback would have resulted
in a refund of the Destec Group Consolidated Tax Liability for such taxable
year, and if the net operating loss is reflected in the Dow Group
Consolidated Return and reduces the Dow Group Consolidated Tax Liability for
the Taxable Year in which it occurs, Dow will pay Destec the lesser of (a)
the amount of such refund that Destec would otherwise have received from the
Service resulting from such carryback, or (b) the amount by which the Dow
Group Consolidated Tax Liability for the Taxable Year was reduced by the
reflection of the net operating loss.
(d) Except as provided in Section 8(a) or 8(b) of this Agreement, Destec
may not amend a Pro Forma Destec Tax Return for a prior Taxable Year or
otherwise cause a redetermination of the Destec Group Consolidated Tax
Liability for a prior Taxable Year. Nothing in this Section 8 shall be
construed to entitle Destec or any Subsidiary of Destec to receive a double
benefit or compensation with respect to any attribute.
9. REMITTANCES BY AND TO DESTEC.
(a) Until such time as Dow notifies Destec in writing to the contrary,
any and all payments that Destec agrees to make hereunder shall be made and
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<PAGE>
remitted by Destec directly to Dow. Dow shall be responsible for making all
payments required to be made hereunder to Destec.
(b) Any payment required to be made hereunder by Destec or Dow that is
not made on or before the date on which such payment is due under the terms
of this Agreement shall bear interest at the rate specified from time to time
pursuant to section 6621(a)(2) of the Code, and the party to whom such
payment is due shall be entitled to receive interest computed at such rate
upon the late payment of any such amount which is required at any time to be
paid hereunder.
10. CARRYBACKS.
If part or all of an unused consolidated net operating loss or tax credit of
Destec or one of its Subsidiaries arises in a year in which Destec or such
Subsidiary is not a Member of the Dow Group and is carried back to a year in
which Destec or such Subsidiary is a Member of the Dow Group, any refund or
reduction in tax liability arising from the carryback will be retained by or
allocated to Dow. Dow shall have no obligation to pay to Destec or its
Subsidiaries the amount of any refund or credit of federal income tax that
Dow may receive as a result of such carryback (nor will such occurrence
affect the amount of compensation, if any, to which Destec or any of its
Subsidiaries is entitled pursuant to Section 7(b) of this Agreement).
11. ALLOCATION OF DOW GROUP CONSOLIDATED TAX LIABILITY FOR PURPOSES OF
DETERMINING EARNINGS AND PROFITS.
The Dow Group Consolidated Tax Liability for each Taxable Year of the
Dow Group shall, for purposes of determining the earnings and profits of each
Member, be allocated among the Members in accordance with the methods
prescribed in Section 1.1552-1(a)(1) of the Income Tax Regulations.
Notwithstanding the foregoing, Dow may, in its sole and absolute discretion,
change the method set forth above to the extent that it is permitted to do so
by applicable law; provided
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<PAGE>
further that such change in method is consistently applied to all Members of
the Dow Group.
12. DOW CONTROL OF CONDUCT OF AUDITS, LITIGATION, EXPENSES.
(a) In any audit, conference or other proceeding with the Service or the
relevant state or local authorities, or in any judicial proceedings
concerning the determination of the Dow Group Consolidated Return Liability
or the state or local income tax liability of any consolidated, combined or
unitary group including Dow or any of its Subsidiaries (other than Destec or
a Subsidiary of Destec) and Destec (for any of the Subsidiaries of Destec),
Dow shall have the exclusive right to contest (with the participation of the
Tax Director of Destec in (a) any examination by the Service at the district
level or by any state or local authority, or (b) in the preparation and
submission of any protest brief or other submission to the Service's
appellate division or in any similar administrative proceeding before any
state or local authority), compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of such proceeding and to extend
or refuse to extend the applicable time period for making assessments or
adjustments. Destec and each Subsidiary of Destec hereby appoints Dow as its
agent for the purpose of conducting such contest or proposing and concluding
any such compromise and settlement. Dow shall have control over the
proceedings, but shall confer in good faith with Destec regarding any proposed
adjustment bearing on any material liability of Destec pursuant to this
Agreement. Destec shall support any audit or other examination or judicial or
administrative proceeding with respect to any Taxable Year, at its own
expense, in any reasonable way requested by Dow. Nothing herein shall limit
Dow's discretion to determine whether and in what amount an item arising from
Destec or any Destec Subsidiary shall be conceded or otherwise compromised
and whether and in what amount an item results in an adjustment to Destec
described in Section 8(a);
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provided, however, that such decision shall be made only after full and
complete good faith consultation with the Tax Director of Destec.
(b) EXPENSES. Destec shall reimburse Dow for all expenses (including
without limitation, legal and accounting fees) incurred by Dow in the course
of proceedings described in this Section 12 to the extent such expenses are
allocable, in Dow's sole and absolute discretion, but after prior good faith
consultation with Destec (if requested by the Tax Director of Destec), to
Destec Group Items.
13. PARTNERSHIP INTERESTS.
In connection with any partnership interest for which Destec or a Destec
Subsidiary is the Tax Matters Partner, Destec shall to the maximum extent
feasible make elections, use accounting methods, and report positions with
respect to such partnership interest that are consistent with positions
reported on the Dow Group's Consolidated Return and report positions on the
Pro Forma Destec Return that are consistent with those reported for such
partnership interest on the Dow Group's Consolidated Return. Destec shall
confer in good faith with Dow in advance regarding any such item which may be
or could be inconsistent with items on the Dow Group's Consolidated Return.
14. ADMINISTRATION; RESOLUTION OF DISPUTES.
The provisions of this Agreement will be administered by Dow. Except as
otherwise expressly governed by the terms of this Agreement, Dow may use any
reasonable method in making any computations or allocations hereunder, and
Dow's calculations will be conclusive unless a written objection is provided
to Dow within one year of such calculations. If written objection is timely
made by Destec, the disputed issue (other than disputes described in Section
4(e) of this Agreement, which disputes shall be governed solely by such
provision) shall be resolved by a Big Six accounting firm jointly selected by
Dow and Destec, whose
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determination will be conclusive and binding upon the parties and whose fees
and expenses shall be shared equally by Dow and Destec. Nothing in this
Section 14 is intended to limit Dow's discretion in making any computations,
allocations or determinations that may expressly be made under this Agreement
in Dow's sole and absolute discretion.
15. ADDITIONAL AGREEMENTS. In order to permit the exercise of Destec's
employee stock options outstanding on the date of this Agreement in
accordance with their terms, and in order to permit Destec to continue to
issue and sell securities for financing, incentive compensation and other
purposes, and in connection therewith to avoid the inadvertent exclusion of
the Destec Group from the Dow Group as a result of a reduction to below 80% of
Dow's ownership of Destec caused by the exercise of such options or the
issuance or sale of securities by Destec, Destec and Dow agree as follows:
(a) SHARE PURCHASE RIGHT. In the event that, after the Effective Date,
Destec shall become obligated to, or otherwise undertakes to issue or sell
additional, unissued or treasury shares, whether by the exercise of options,
warrants, conversion or exchange rights, or otherwise, and upon completion of
such issuance or sale (a "Disqualifying Sale") Destec will cease to be a
Member of the Dow Group, Dow is hereby granted the right to acquire from
Destec, prior to the completion of the Disqualifying Sale and at the Purchase
Price Per Share (as defined in subsection (c) below) for the day immediately
preceding the date of the Destec Notice (as defined in subsection (b) below),
that number of whole shares of additional, unissued or treasury shares of
Destec necessary to prevent Dow's ownership from falling below the level
required to prevent Destec from ceasing to be a Member of the Dow Group. The
right granted in this Section 15 is a continuing right and may be exercised
by Dow from time to time during the term of this Agreement as may be
necessary in order to maintain Destec as a Member of the Dow Group; PROVIDED,
however, that if at any time Dow shall elect not to
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<PAGE>
exercise the rights granted in this Section 15 and permit the issuance or
sale by Destec of a number of additional, unissued or treasury shares
sufficient to cause Destec to cease to be a Member of the Dow Group, the
rights granted in this Section 15 shall immediately terminate.
(b) NOTIFICATION PROCEDURES. Destec agrees to give Dow notice (the
"Destec Notice") at least ten Business Days prior to the completion (by
delivery of certificates representing the shares against payment therefor) of
a Disqualifying Sale in order to permit Dow to exercise its share purchase
right contained in Section 15. The Destec Notice shall contain (i) a
statement of the number of shares to be issued in the Disqualifying Sale (ii)
a calculation of the number of shares which Dow is entitled to purchase
pursuant to this Section 15, (iii) a statement of the Purchase Price Per
Share and the aggregate purchase price required to be paid by Dow for such
shares, and (iv) a form of Purchase Notice and accompanying letter containing
the representations required to be made by Dow pursuant to Section 15(d).
(c) PURCHASE PRICE PER SHARE. The Purchase Price Per Share for shares
of Destec capital stock on any day means the average (mean) of the reported
"high" and "low" sale prices for such shares as reported in THE WALL STREET
JOURNAL'S NYSE-Composite Transactions listing for such day (corrected for
obvious typographical errors), or if such shares are not reported in such
listing, then the average of the reported "high" and "low" sale prices on the
largest national securities exchange (based on the aggregate dollar value of
securities listed) on which such shares are listed or traded, or if such
shares are not listed or traded on any national securities exchange, then the
average of the reported "high" and "low" sale prices for such shares in the
national market system or the over-the-counter market, as applicable, of the
National Association of Securities Dealers Automated Quotation System, or, if
such prices shall not be reported thereon, the average between the closing
bid and asked prices reported by the National
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Quotation Bureau Incorporated, or, in all other cases, the value established
by the Board of Directors of Destec in good faith.
(d) PURCHASE PROCEDURE. In the event that Dow determines to exercise
its purchase right contained in Section 15, it shall deliver to Destec prior
to the expiration of the ten Business Day period referred to in subsection
15(b) above notice of its election to purchase all, but not less than all, of
the shares Dow is entitled to purchase under this Section 15 (the "Purchase
Notice"). The Purchase Notice shall be (i) sent concurrently with payment of
the Purchase Price Per Share for each share being purchased and (ii)
accompanied by a letter containing representations by Dow that (A) it
understands that the Destec shares have not been registered under the
Securities Act of 1933, as amended, or any state securities law, in reliance
on exemptions therefrom, (B) it has had access to and an opportunity to
inspect relevant business, financial and other corporate information and data
of Destec sufficient to enable it to evaluate the merits and risks of the
purchase of the Destec shares, (C) persons acting on behalf of Destec have
made available to it the opportunity to ask questions and receive answers
regarding the financial condition, results of operation and business affairs
of Destec, (D) it has such knowledge and experience in financial and business
matters, particularly with respect to the electric power industry, that it is
capable of evaluating the merits and risks of the purchase of the Destec
shares, (E) it is purchasing the Destec shares for its own account, for
investment purposes and not with a view to, or for offer or sale for Destec
in connection with, any distribution thereof, and it is not participating in
any such distribution or the underwriting of any such distributions, (F) it
understands that the Destec shares must be held until the resale thereof is
subsequently registered under applicable securities laws, or an exemption
from registration is available, and (G) it agrees that the stock transfer
records of Destec will reflect a stop transfer instruction with respect to
the shares, and that certificates representing the Destec shares will be
stamped or otherwise imprinted with the following legend:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAW. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR AN OPINION OF COUNSEL TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(e) SPECIAL AGREEMENTS OF DESTEC. Destec agrees to take all corporate
action required in order to permit Dow to exercise its continuing right
contained in this Section 15, including the adoption of resolutions approving
an amendment or amendments to Destec's certificate of incorporation
increasing the number of authorized but unissued shares of capital stock to a
number sufficient to permit the exercise of such right and, in the event that
any such amendment is required, Destec agrees not to complete the sale or
issuance of the shares giving rise to Dow's right to exercise its purchase
right hereunder prior to the approval of the necessary amendment by Destec's
stockholders and the filing of such amendment with the Secretary of State of
the State of Delaware.
(f) CERTAIN DEFINITIONS. As used in this agreement, the term "Business
Day" shall mean a day in the City of Houston, Harris County, Texas, that is
not a legal holiday or a day on which banking institutions are authorized or
obligated by law to close.
16. INDEMNIFICATION AGAINST JOINT AND SEVERAL LIABILITY.
Except as may be expressly provided otherwise in this Agreement, Dow
shall be liable for, and agrees to defend, hold harmless and indemnify the
Destec Group from and against, any and all taxes (and any interest, penalties
and similar amounts relating thereto) of the Dow Group (other than the Destec
Group),
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including, but not limited to, any such taxes (and any interest, penalties
and similar amounts relating thereto) for which the Destec Group (or any
Member thereof) is or may be or become liable for under any successor or
transferee liability law or other similar law or under Section 1.1502-6 or
1.1502-78(b)(2) of the Income Tax Regulations or any similar provision under
any applicable foreign, state, or local law.
17. INTERPRETATION.
This Agreement is intended to provide for the calculation and allocation
of certain federal and state and local income tax liabilities between the Dow
Group (other than Destec and its Subsidiaries) and the Destec Group, and any
situation or circumstance concerning such calculation and allocation that is
not specifically contemplated hereby or provided for herein shall be dealt
with in a manner consistent with the underlying principles of calculation and
allocation in this Agreement.
18. EFFECT OF AGREEMENT.
This Agreement shall determine the liability of Dow and Destec as to the
matters provided for herein, whether or not such determination is effective
for purposes of the Code or of state or local revenue laws, for financial
reporting purposes or for any other purpose.
19. TERM.
This Agreement will apply to Taxable Years ending after the Effective
Date and all subsequent Taxable Years, unless Dow and Destec agree in writing
to terminate this Agreement. Notwithstanding such termination, this
Agreement will continue in effect with respect to any payment or refunds due
for all Taxable Years prior to termination. Destec or any Subsidiary of
Destec that leaves the Dow Group will be bound by this Agreement. The failure
of one or more parties
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hereto to qualify for inclusion in the Consolidated Return filed by Dow will
not operate to terminate this Agreement with respect to the other parties as
long as two or more parties hereto continue to so qualify.
20. ASSIGNMENT.
Rights and obligations under this Agreement will not be assignable by
any party without the prior written consent of the other parties.
21. CONFIDENTIALITY.
Dow, Destec and the Subsidiaries of Destec agree that any information
furnished among one another pursuant to this Agreement is confidential and,
except as and to the extent required during the course of the preparation of
returns or the conduct of an audit or litigation, shall not be disclosed to
other persons.
22. DOCUMENTATION.
All material, including but not limited to, returns, supporting
schedules, work papers, correspondence, and other documents relating to the
Consolidated Return and any Combined Returns filed for a Taxable Year subject
to this Agreement will be made available to any party to the Agreement during
regular business hours for a minimum period equal to applicable federal and
state record retention requirements (or the applicable statute of limitations
period).
23. ADDITIONAL MEMBERS.
The parties hereto specifically recognize that from time to time other
Subsidiaries of Dow and Destec may become or become again Members of the Dow
Group and hereby agree that this Agreement shall be deemed to have been
adopted and affirmed, or readopted and reaffirmed, by such Subsidiary. Dow and
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Destec shall, upon the written request of the other, cause any of their
respective Subsidiaries formally to ratify and execute this Agreement.
24. TAX LAW CHANGES.
Any alteration, modification, addition, deletion, or other change in the
Code or the Income Tax Regulations (or the applicable state and local tax
provisions) will automatically be applicable to this Agreement when changed.
25. SUCCESSORS AND ASSIGNS.
This Agreement will bind and inure to the benefit of the respective
successors and assigns of the parties hereto; but no assignment will relieve
any party of its obligations hereunder without the written consent of the
other parties.
26. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
27. HEADINGS.
The headings in this Agreement are inserted for convenience only and
shall not constitute a part hereof or affect the interpretation of this
Agreement.
28. SEVERABILITY.
If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the maximum extent practicable. In any
event, all other provisions of this Agreement shall be deemed valid, binding
and enforceable to their full extent.
33
<PAGE>
29. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and, except as expressly contained
herein there are no written or oral promises, covenants, undertakings,
representations or warranties of the parties with respect to the subject
matter hereof.
30. NOTICE.
Any notices or other communications required or permitted by this
Agreement shall be effective upon receipt, shall be in writing personally
delivered or mailed by registered or certified mail, return receipt
requested, or sent by facsimile to the persons and addresses shown below:
(a) The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Attention: Mr. Chuck Hahn, Director of Taxes
(b) Destec Energy, Inc.
P.O. Box 4411
Houston, Texas 77210-4411
Attention: Mr. Charles A. Smith, Jr., Director of Taxes
with a copy to:
Destec Energy, Inc.
P.O. Box 4411
Houston, Texas 77210-4411
Attention: Ms. Marian Davenport, General Counsel
31. GOVERNING LAW.
34
<PAGE>
This Agreement shall be construed and interpreted, and all rights and
liabilities of the parties hereto with respect to this Agreement shall be
governed by the laws of the State of Delaware, U.S.A.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers as of the
date first set above.
THE DOW CHEMICAL COMPANY
BY /s/ CHARLES J. HAHN
------------------------------------
Charles J. Hahn
Tax Director and Assistant Secretary
DESTEC ENERGY, INC.
BY /s/ ENRIQUE LARROUCAU
------------------------------------
Enrique Larroucau
Senior Vice President, CFO
and Treasurer
35
<PAGE>
FIRST AMENDMENT TO THE TAX SHARING AGREEMENT
This FIRST AMENDMENT TO THE TAX SHARING AGREEMENT (the "Amendment") is
entered into as of the 17th day of February, 1997, by and among THE DOW
CHEMICAL COMPANY, a Delaware corporation ("Dow"), as Common Parent, on behalf
of itself and the other members of the Dow Group (other than any member of
the Destec Group), and DESTEC ENERGY, INC., a Delaware corporation
("Destec"), on behalf of itself and the other members of the Destec Group.
WHEREAS, Dow and Destec entered into a Tax Sharing Agreement, effective
May 15, 1996 (the "Agreement");
WHEREAS, Dow has agreed to sell the Destec stock it owns pursuant to
the Agreement and Plan of Merger, dated February 17, 1997, among Dow, Destec,
NGC Corporation, a Delaware corporation ("NGC"), and NGC Acquisition
Corporation II, a Delaware corporation (the "Acquisition Agreement");
WHEREAS, pursuant to the Acquisition Agreement, Dow and NGC intend to
make a joint election for Destec (and all U.S. corporations that are
subsidiaries of Destec) under Section 338(h)(10) of the Code and NGC or a
successor of NGC intends to make elections under Section 338(g) of the Code
for certain non-U.S. direct or indirect subsidiaries;
WHEREAS, the corporations which comprise the Destec Group will no
longer be Members of the Dow Group after the date of the Effective Time as
defined in the Acquisition Agreement, and therefore Dow and Destec deem it
necessary to amend the Agreement in certain respects; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained in this Amendment, the parties agree as
follows:
Paragraph 1. Capitalized terms used in this Amendment and not
otherwise defined in this Amendment have the meaning ascribed to such terms
in the Agreement.
Paragraph 2. Section 1(aa) of the Agreement shall be amended by
changing clause (b) thereof by deleting "the Effective Date" and inserting in
place thereof "January 1, 1996".
Paragraph 3. Section 5 of the Agreement shall be amended by adding at
the end thereof the following paragraph (d):
(d) Lignite. In determining the Destec Group Consolidated Tax
Liability and the Destec Group State and Local Tax Liability for
the Final Taxable Year, the Pro Forma Destec Return shall exclude
any amount of gain resulting from the exercise by Dow of its rights
to purchase lignite containing properties from Destec pursuant to
the First Amended Lease Agreement dated January 1, 1990 between
Destec Ventures, Inc., as lessor, and Dow, as lessee.
Paragraph 4. Section 5 of the Agreement shall be amended by adding at
the end thereof the following paragraph (e):
<PAGE>
(e) Payments With Respect To Final Taxable Year. The Destec
Group Consolidated Tax Liability and the Destec Group State and
Local Tax Liability for the Final Taxable Year shall be calculated
assuming no elections under Section 338(h)(10) or 338(g) of the
Code will be made. For purposes of calculating the amount of any
payment from Dow to Destec pursuant to Section 7(b) of this
Agreement, Destec shall be treated as ceasing to be a Member of the
Dow Group at the end of the Final Taxable Year pursuant to a stock
sale and no consolidated loss or credit carryovers as of the end of
the Final Taxable Year shall be considered allocable to Destec
under the Consolidated Return Regulations, and Dow will be treated
as having utilized all items of loss, deduction, credit or similar
tax attributes of the Destec Group in determining the Dow Group
Consolidated Tax Liability and the Dow Group State and Local Tax
Liability for the Final Taxable Year. At the Effective Time under
the Acquisition Agreement, Dow shall pay Destec $10 million, which
amount shall be netted or offset against any amount owed by Dow to
Destec with respect to the Final Taxable Year pursuant to the
Agreement. If by January 31, 1999, $10 million exceeds the
cumulative amount owed by Dow to Destec pursuant to the Tax Sharing
Agreement with respect to the Final Taxable Year, then Destec shall
refund to Dow the amount of such excess within 10 business days.
Paragraph 5. Section 8 of the Agreement shall be amended by adding at
the end thereof the following paragraph (e):
(e) If an adjustment described in Section 8(a) gives rise to
an obligation of Destec to make a payment to Dow pursuant to this
Section 8, and as a result of such adjustment Dow receives a refund
of tax or a reduction of its liability for taxes (including by
reason of a reduction of the gain recognized by the Dow Group as a
result of an election with respect to Destec under Section
338(h)(10) of the Code), the amount of such payment from Destec to
Dow shall be reduced by the amount of such refund (including any
interest or penalties included therein) or such reduction,
provided, however, that if such refund is received or such
reduction is taken into account after the date of such payment,
Destec shall pay the full amount of such payment to Dow, and Dow
shall pay an amount equal to such refund or the amount of such
reduction to Destec within 10 business days after the date such
refund is received or such reduction is taken into account.
Paragraph 6. Section 15 of the Agreement is hereby deleted.
Paragraph 7. Section 19 of the Agreement shall be amended by inserting
the following sentence after the first sentence:
This Agreement shall not affect the application of the Tax Agreement
between Dow and Destec effective September 25, 1990 and the Tax
Agreement between Dow and Destec effective January 5, 1992 with
respect to taxable years or portions thereof that are not Taxable Years.
<PAGE>
Paragraph 8. All provisions of the Agreement remain in full force and
effect, except (a) as modified by this Amendment, and (b) to the extent that
Section 12 or 16 of the Agreement conflicts with any of the provisions of
Section 6.14 of the Acquisition Agreement, in which case the provisions of
Section 6.14 of the Acquisition Agreement shall govern.
Paragraph 9. Section 16 of the Agreement shall be amended by deleting
the words "of the Dow Group (other than the Destec Group)" and adding in its
place the words "due with respect to a Consolidated Return or a Combined
Return".
Paragraph 10. Section 5(a) of the Agreement shall be amended by
deleting in the first sentence thereof the words "and the Destec Group State
and Local Tax Liability".
Paragraph 11. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, U.S.A.
Paragraph 12. This Amendment shall be effective as of the Effective
Time under the Acquisition Agreement.
Paragraph 13. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, and said
counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first set forth above.
THE DOW CHEMICAL COMPANY
By /s/ B.G. Taylorson
----------------------------------
Name: B.G. Taylorson
Title: Corporate Director,
Mergers & Acquisitions
DESTEC ENERGY, INC.
By /s/ Enrique M. Larroucau
----------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE>
OYSTER CREEK AGREEMENT
This Oyster Creek Agreement (this "Agreement"), effective as of February
17, 1997, is by and among Destec Energy, Inc. ("Destec"), a Delaware
corporation, The Dow Chemical Company ("Dow"), a Delaware corporation and NGC
Corporation ("NGC"), a Delaware corporation.
WITNESSETH:
-----------
WHEREAS, Oyster Creek Limited (the "Partnership"), a Texas
limited partnership, which was formed pursuant to an Agreement of Limited
Partnership, dated May 28, 1991, as amended and restated by the Amended and
Restated Agreement of Limited Partnership (the "Restated Partnership
Agreement"), dated September 9, 1992, by and among OCG CoGen, Inc. ("DGP"), a
Delaware corporation, Oyster Creek CoGen ("DLP"), a Delaware corporation
(collectively referred to in this Agreement as the "Destec Partners"),
Transco Oyster Creek Company, a Delaware corporation and TEVCO Cogeneration
Company, a Delaware corporation, has entered into that certain Ground Lease
and Agreement (the "Ground Lease"), dated as of August 31, 1992, by and
between Dow and the Partnership; and
WHEREAS, pursuant to the Ground Lease the Partnership has constructed a
cogeneration facility upon certain leased premises located within Dow's
manufacturing complex at or near Oyster Creek, Texas (the "Project"); and
WHEREAS, DGP and DLP are each a wholly owned subsidiary of Destec, the
majority of the voting securities of which are owned by Dow; and
WHEREAS, NGC desires to acquire Destec pursuant to an Agreement and Plan
of Merger, dated February 17, 1997, by and among Destec, Dow, NGC and NGC
Acquisition Corporation II (the "Acquisition"); and
WHEREAS, pursuant to an Option Agreement, dated August 31, 1992 (the
"Original Option Agreement"), DGP and DLP granted Dow various rights,
including without limitation, an option to purchase, on the terms and
conditions set forth therein, the partnership interests of DGP and DLP (the
"Original Option"), as such interests are restated pursuant to the Restated
Partnership Agreement (the "Subject Interests"); and
WHEREAS, pursuant to the Original Option Agreement, upon the
consummation of the Acquisition, Dow has the right to exercise the Original
Option and purchase from DGP and DLP the Subject Interests; and
WHEREAS, in order to induce Dow to waive its right
<PAGE>
to exercise the Original Option upon the consummation of the Acquisition, the
parties are entering into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the receipt and sufficiency of which are
mutually acknowledged, the parties agree as follows:
1. Upon the consummation of the Acquisition, Dow hereby waives its
right to exercise its option under Section 1(a) of the Original Option
Agreement (but no other rights under the Original Option Agreement).
2. NGC and Destec agree that, from and after the closing of the
Acquisition, Destec shall not, directly or indirectly, sell or transfer any
or all of the stock of the Destec Partners (the "Partners Stock") other than
to an affiliate of Destec (which shall then be bound by this Agreement)
unless Destec has given Dow a right of first refusal with respect to the
Partners Stock on the following terms:
(a) Prior to presenting Dow with a specific proposal from a party
not affiliated with Destec to purchase the Partners Stock, Destec shall give
Dow at least 14 days written notice that Destec is considering a sale of the
Partners Stock and the identity and address of the prospective buyer or
buyers (collectively referred to as, the "Prospective Buyer"). The
Prospective Buyer must have sufficient financial resources to consummate a
transaction.
(b) At any time after the period described in subparagraph (a), if
Destec has received a bona fide written proposal to purchase the Partners
Stock which is not subject to financing conditions from a Prospective Buyer
which Destec wishes to accept, Destec shall furnish Dow with a copy of such
proposal and shall offer to sell the Partners Stock to Dow on substantially
the same terms and conditions as set forth in such proposal. Destec's offer
to sell the Partners Stock to Dow is referred to herein as the "Offer". Dow
shall then have 14 days in which to decide to accept such Offer. If Dow does
not accept such Offer within that 14-day period, Destec shall have the right,
for the next 90 days, to sell the Partners Stock to the Prospective Buyer on
terms no more favorable to the Prospective Buyer than those set forth in the
Offer.
(c) Destec shall not present Dow with more than two Offers in any
12-month period.
3. Any notice, request, or other communication given or made pursuant
to this Agreement shall be effective when received and shall be in writing
and shall be hand delivered or sent by mail, courier, or facsimile or other
electronic communication, addressed as follows:
<PAGE>
NGC
NGC Corporation
13430 Northwest Freeway, Suite 1200
Houston, Texas 77040-6095
Attention: General Counsel
Facsimile: (713) 507-6808
DESTEC
2500 CityWest Blvd., Suite 150
Houston, Texas 77042
Attention: General Counsel
Facsimile: (713) 735-4267
THE DOW CHEMICAL COMPANY
Texas Operations - Legal Department
APB Building
2301 Brazosport Boulevard
Freeport, Texas 77541-3257
Attention: Division Counsel
Facsimile: (409) 238-3587
or in each case to such other person or address or addresses as one party may
notify in writing to the other.
4. The parties to this Agreement agree that Section 13.1(b) of the
Restated Partnership Agreement shall not be amended without the prior written
consent of Dow.
5. This Agreement shall not be construed to modify or eliminate rights
of the parties contained in other agreements, including without limitation
the Ground Lease or the Original Option (other than Dow's rights to exercise
its option under Section 1(a) of the Original Option Agreement upon the
consummation of the Acquisition).
IN WITNESS WHEREOF, the parties to this Agreement have executed multiple
copies of this Oyster Creek Agreement to be effective as of the date first
above written.
THE DOW CHEMICAL COMPANY
By: /s/ B.G. Taylorson
------------------------------
Name: B.G. Taylorson
Title: Corporate Director,
Mergers & Acquisitions
<PAGE>
DESTEC ENERGY, INC.
By:
/s/ Enrique M. Larroucau
------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
NGC CORPORATION
By: /s/ Kenneth E. Randolph
------------------------------
Name: Kenneth E. Randolph
-------------------
Title: Senior Vice President
and General Counsel
-------------------
<PAGE>
SITE DEVELOPMENT AGREEMENT
This SITE DEVELOPMENT AGREEMENT entered into as of February 17, 1997
is by and between THE DOW CHEMICAL COMPANY ("TDCC") and DESTEC ENERGY, INC.
("Destec").
RECITALS:
A. TDCC and its direct and indirect wholly owned subsidiaries own and
operate manufacturing sites in the United States and other countries;
B. A number of Dow's manufacturing sites have the need for on-site
electrical power and steam generation;
C. Destec has a global capability to design, construct and operate
facilities that generate electrical power and steam;
D. Destec desires the opportunity to be included in the bid process in
the event Dow decides to utilize third parties (energy companies) to build
electric power and steam generation facilities at a Dow manufacturing site.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" means this Site Development Agreement.
1.2 "Destec" has the meaning stated in the preamble.
1.3 "Dow" means TDCC and its wholly owned subsidiaries. The term
"third parties", when used in this Agreement, does not include any Dow entity.
1.4 "Effective Time" has the same meaning ascribed to that term in the
Agreement and Plan of Merger, dated February 17, 1997, by and among Destec,
Dow, NGC Corporation and NGC Acquisition Corporation II.
1.5 "Energy Generation Facility" means a new, or replacement of
substantially all of a, facility designed and constructed to generate at
least 15 megawatts of electricity on a continuous basis and/or at least
100,000 lbs. per hour of steam (as a product of the cogeneration of electricity)
for use in one or more Dow manufacturing processes at a Site. Refurbishment,
maintenance (even though extensive), and modifications to existing facilities
are not included in the definition of Energy Generation Facility.
1.6 "Site" means a current or planned manufacturing location owned
by Dow which has or will have continuous electrical power demands in excess of
15 megawatts per hour and/or process steam demands in excess of 100,000 lbs.
per hour under normal operating conditions.
1.7 "TDCC" has the meaning stated in the preamble.
2. TERM
The term and effectiveness of this Agreement begin at the Effective Time
and expire five years from the Effective Time.
3. NOTIFICATION AND INVITATION TO BID
3.1 During the term of this Agreement, Dow will include Destec in the Dow
notification to potential third party (power company) bidders with respect to
all Energy Generation Facility projects at a Site put to bid and invite Destec
to participate in the bid process.
3.2 In the event Destec elects to participate in the bidding process,
Destec will follow the applicable bidding process procedure. Other than the
preferential notice and invitation to bid as provided in Section 3.1, Destec
will compete on a level playing field with all other bidders.
3.3 In the event that Dow does not provide notification and an invitation
to bid (however captioned at the time) to Destec according to Section 3.1, Dow
will pay Destec the amount of damages which Destec shows it suffered up to a
cap of $25,000 per project. Notwithstanding the foregoing, the amount of
damages suffered by Destec shall in no way include damages suffered by any
other entity pursuant to Section 4.2.
<PAGE>
4. NONASSIGNABILITY
4.1 Except as otherwise expressly stated elsewhere in this Agreement,
neither party to this Agreement may assign this Agreement or any part of this
Agreement to a third party without the prior written consent of the other
party, which consent may be withheld at the party's sole discretion.
4.2 Notwithstanding Section 4.1, Destec may provide the notification
referred to in Section 3.1, with respect to projects outside the United States
of America, to The AES Corporation and then either Destec and/or The AES
Corporation may submit a bid with respect to such projects under the terms and
conditions set forth in this Agreement. The failure of Dow to provide
notification and an invitation to bid shall in no way expand the amount of
damages which Destec may claim pursuant to Section 3.3 and shall not provide
any obligation on the part of Dow with respect to any entity other than Destec
pursuant to Section 3.3.
5. NOTICE
5.1 Any notice, request or communication specifically provided for or
permitted to be given under this Agreement must be in writing and may be
delivered by hand delivery, mail, courier service, or electronic transmission
such as Telex, facsimile, telegram or electronic mail, and shall be deemed
effective upon receipt. For purposes of notice the addresses of the parties are:
If to TDCC:
The Dow Chemical Company
Business Director, Energy
400 W. Sam Houston Parkway S.
Houston, TX 77042
Facsimile: 713-978-3690
with a copy to:
The Dow Chemical Company
Manager, Power & Utilities Tech Center
Freeport, TX 77541
Facsimile: 409-238-0284
If to DESTEC:
Destec Energy, Inc.
Attention: General Counsel
2500 CityWest Boulevard, Suite 150
Houston, TX 77042
Facsimile: 713-735-4267
5.2 Each party may change its address and its representative for notice
by the giving of written notice of the change to the other party.
6. ENTIRE AGREEMENT
6.1 This Agreement constitutes the entire agreement between the parties
relating to the specific subject matter set forth in this Agreement. There are
no terms, obligations, covenants, representations, statements or conditions
other than those specifically noted or referred to in this Agreement.
Modifications of this Agreement must be made in accordance with Section 7 below.
7. MODIFICATION OF AGREEMENT
7.1 The parties agree that this Agreement may be modified only upon mutual
assent and that any and all agreements made by the parties to amend, extend,
revise or discharge this Agreement, in whole or in part and on one or more
occasions, shall not be invalid or unenforceable because of a lack of
consideration, provided any such amendments, extensions, revisions or
discharges of this Agreement are in writing, captioned as an amendment to
this Agreement and executed by the parties.
8. CONSTRUCTION
8.1 THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES SHALL
BE GOVERNED BY THE LAWS OF MICHIGAN BOTH AS TO INTERPRETATION AND PERFORMANCE,
WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS. THE PARTIES AGREE THAT ANY
DISPUTES UNDER THIS AGREEMENT SHALL BE SUBMITTED TO THE COURTS IN THE STATE
OF MICHIGAN, AND NO OTHER VENUE.
<PAGE>
This Agreement has been duly executed by authorized representatives of
the parties.
THE DOW CHEMICAL COMPANY
By: /s/ B.G. Taylorson
----------------------------------
Name: B.G. Taylorson
Title: Corporate Director, Mergers
& Acquisitions
DESTEC ENERGY, INC.
By: /s/ Enrique M. Larroucau
----------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President, Chief
Financial Officer and Treasurer
<PAGE>
FIRST AMENDMENT TO
RESEARCH & DEVELOPMENT AGREEMENT
This FIRST AMENDMENT TO RESEARCH & DEVELOPMENT AGREEMENT (this
"First Amendment"), effective as of December 31, 1996 (the "Effective
Date") by and between THE DOW CHEMICAL COMPANY ("Dow") and DESTEC ENERGY,
INC. ("Destec").
RECITALS:
WHEREAS, Dow and Destec entered into the Research & Development
Agreement, effective as of March 1, 1990 (the "Agreement"), whereby
Destec engaged Dow to provide certain research and development services
with respect to intellectual property relating to the gasification of
carbonaceous materials and to lignite beneficiation, which intellectual
property was assigned to Destec by Dow pursuant to the Assignment
Agreement effective as of March 1, 1990; and
WHEREAS, Dow and Destec desire to amend the Agreement.
NOW, THEREFORE, Dow and Destec hereby agree to the following terms,
covenants, conditions and obligations as amendment and supplement to the
Agreement:
1. All terms, covenants, obligations and conditions in the
Agreement not superseded or amended by this First Amendment remain in
full force and effect as originally written in the Agreement. All
capitalized terms used in this First Amendment and not otherwise defined
in this First Amendment have the meaning assigned to such term in the
Agreement.
2. Article II of the Agreement is hereby deleted in its entirety
and replaced by the following text:
Article II - Term. This Agreement shall terminate on December
31, 1997, unless otherwise agreed in writing by the parties.
3. Sections 4.1, 4.2 and 4.3 are deleted in their entirety and
replaced by the following text for Sections 4.1 and 4.2:
4.1 In order to conduct the research activities Dow shall
provide personnel for such research activities at such level of
support to be mutually agreed to by both Dow and Destec in
accordance with Section 5.5.
4.2 As requested in writing by Destec, the Dow research and
development personnel assigned to Destec activities, as
identified in Section 5.5 (the "Designated Dow R&D Person(s)"),
shall conduct such studies, investigation, inquiries,
experiments, analyses and research and development activities
as are requested by Destec, through its Gasification Business
Unit ("GBU") Director (or the equivalent functional department)
or the designee of the GBU Director, and agreed to by Dow and
such Designated Dow R&D Person(s). Such written requests may
take the form of Goals and Objectives which are reviewed at
least quarterly for progress or which may be altered at the
request of Destec and agreed to by Dow. The written requests
for such assignments shall constitute the research plan of the
parties (the "Research Plan").
<PAGE>
4. The following Section 5.5 is added to Article 5 of the
Agreement:
5.5 From the Effective Date through December 31, 1997, Dow
shall provide two and one-half (2 1/2) man years of effort for
research and development support pursuant to this Agreement. To
the extent that such individuals remain Dow employees (they are
not subject to employment contract and Dow is not required by
virtue of this Agreement to retain them in Dow's employment),
Dow shall dedicate the following Dow personnel to such efforts
until December 31, 1997:
Personnel Location Time Allocated to Destec
-------------------------------------------------------------
Albert Tsang Terre Haute, IN 100%
Cliff Keeler Terre Haute, IN 100%
Doug Merrick Midland, MI 50%
5. Sections 6.1, 6.2 and 6.3 are hereby deleted in their entirety.
6. Section 9.1 is hereby deleted in its entirety and replaced by
the following text:
9.1 (a) Destec will reimburse Dow for (i) a fee of One Hundred
Twenty-Five Thousand and No/100 Dollars ($125,000.00) per man
year of effort for services of each of the Designated Dow R&D
Person(s), such fee to be prorated, (ii) reasonable travel
expenses incurred by Dow personnel, including the Designated
Dow R&D Person(s), at Destec's request, (iii) the fully
absorbed costs plus a five percent (5%) adder for any services
provided by Dow to Destec other than the services of the
Designated Dow R&D Person(s) (e.g. analytical services,
computer services), and (iv) all reasonable out-of-pocket
expenses incurred for patent filing fees, prosecution costs and
maintenance fees associated with any patent applications filed
or patents obtained by Dow under Section 7 of the Agreement on
behalf of Destec. Reimbursement by Destec of costs incurred by
Dow under Section 7 of the Agreement in excess of 110% of the
agreed upon patent obtention and maintenance fees shall require
the advance written consent of Destec.
(b) In addition to the foregoing, Destec shall pay the
reasonable relocation expenses of any Designated Dow R&D
Person(s), for which relocation is required in order to
effectuate the terms of Section 5.5. In the event that any
change in location is at the request of Dow, then Dow shall be
responsible for the relocation expenses of such Designated Dow
R&D Person(s). Upon the termination of this Agreement, any
relocation expenses of the Designated Dow R&D Person(s) located
at Destec's Terre Haute facility, which are incurred due to
such termination, are to be the responsibility of Dow.
7. Section 9.3 is amended by deleting the phrase "the Dow Louisiana
Division in Plaquemine, Louisiana" from the 3rd sentence, and
substituting the phrase "Dow's offices located in Midland, Michigan" in
place thereof.
8. With respect to any Destec employees currently working at the
Wabash Project as of February 17, 1997, who are subsequently hired by
Dow, Dow will make such individuals available to Destec under the terms
of this Agreement, at Destec's request, at fully absorbed cost plus 30%
until December 31, 1998.
IN WITNESS WHEREOF, the parties have executed this First Amendment
as of the day and year first above written.
THE DOW CHEMICAL COMPANY
By: /s/ B. G. Taylorson
----------------------------------
Name: B. G. Taylorson
Title: Corporate Director,
Mergers & Acquisitions
DESTEC ENERGY, INC.
By: /s/ Enrique M. Larroucau
----------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE>
FIRST AMENDMENT TO ASSIGNMENT AGREEMENT
This FIRST AMENDMENT TO ASSIGNMENT AGREEMENT (this "First Amendment"),
effective as of December 15, 1996 ("Effective Date"), is by and between THE
DOW CHEMICAL COMPANY ("Dow"), a Delaware corporation with its principal
offices at 2030 Dow Center, Midland, Michigan 48674, and DESTEC ENERGY, INC.
("Destec") a Delaware corporation with its principal offices at 2500 CityWest
Boulevard, Suite 150, Houston, Texas 77042.
RECITALS:
A. Dow and Destec entered into the Assignment Agreement effective as
of March 1, 1990 (the "Agreement"), which assigns from Dow to Destec certain
patents and technology pertaining to gasification of carbonaceous materials
and to lignite; and
B. Dow and Destec desire to amend certain provisions of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this First Amendment, the receipt and sufficiency of which are
mutually acknowledged, the parties agree as follows:
1. Paragraph 3.1 of the Agreement is hereby deleted in its entirety and
replaced by the following text:
3.1 In consideration of the assignment contained in Paragraph 2.1 of
this Agreement, Destec hereby grants to Dow and to entities and
partnerships at least 49% owned by Dow (such entities and partnerships
being collectively termed "Subsidiaries") a non-exclusive,
royalty-free, worldwide license to practice the technology contained in
the Know How, Patent Disclosures and Patent Properties for internal use by
Dow or its Subsidiaries in their own facilities. This non-exclusive,
royalty-free, worldwide license includes any improvements made in the
technology by Destec or to which Destec has the right to sublicense between
the Effective Date and the later of (i) December 31, 1997, or (ii) during
any extension beyond December 31, 1997 of the term of the Research &
Development Agreement between Dow and Destec effective as of March 1, 1990,
under which Dow provides to Destec certain research and development
services with respect to the intellectual property assigned under the
Agreement.
2. Paragraph 3.2 of the Agreement is hereby deleted in its entirety and
shall have no further force or effect after the Effective Date of this First
Amendment.
3. Article IV of the Agreement is hereby deleted in its entirety and shall
have no further force or effect after the Effective Date of this First
Amendment.
4. Article V of the Agreement is hereby deleted in its entirety and shall
have no further force or effect after the Effective Date of this First
Amendment.
5. Paragraph 6.4 of the Agreement is hereby amended by changing the address
for notice to Dow to:
The Dow Chemical Company
Patent Department, 1790 Building
Attn.: Patent General Counsel
Midland, MI 48674
6. Exhibits A, B and C of the Agreement are hereby deleted in their
entirety and replaced with Exhibits A, B and C attached to this First
Amendment.
7. Except as amended by this First Amendment, the Agreement remains in full
force and effect.
<PAGE>
This First Amendment has been executed by authorized representatives of
the parties.
THE DOW CHEMICAL COMPANY
By: /s/ B. G. Taylorson
--------------------------
Name: B. G. Taylorson
Title: Corporate Director,
Mergers & Acquisitions
DESTEC ENERGY, INC.
By: /s/ Enrique M. Larroucau
--------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE>
COMPUTERIZED PROCESS CONTROL AGREEMENT
(HARDWARE AND SOFTWARE)
This SYSTEMS supply and service agreement, hereinafter "Agreement," is
made and entered into by and between Rofan Services Inc. (hereinafter "RSI")
and Destec Energy, Inc. (hereinafter "DEI"), located at:
RSI:
Address: 2030 Dow Center
Midland, Michigan 48674
Corporation of: State of Delaware
DEI:
Address: 2500 Citywest Boulevard, Suite 150
Houston, Texas 77042
Corporation of: State of Delaware
RSI and DEI hereby agree this Agreement consists in its entirety of this
executed covering document and the following attachments:
Appendix A - Service Agreement
Appendix B - Intellectual Property Provisions for
Subcontracts Required Under Cooperative
Agreement No. DE-FC21-92MC29310
Appendix C - Certain Contract Clauses Required
by Cooperative Agreement
No. DE-FC21-92MC29310
Schedule 1 - System Charges
RSI agrees to supply to DEI in accordance with the terms and conditions
of this Agreement one or more MOD5 PROCESS CONTROL SYSTEMS for its PLANT(S)
described in Schedule 1 attached hereto and made a part hereof. It is
contemplated that Schedule 1 may be amended from time to time as SYSTEMS are
added and modified under this Agreement. This Agreement constitutes
<PAGE>
the entire understanding between RSI and DEI pertaining to all MOD5 PROCESS
CONTROL SYSTEMS for DEI's PLANT(S) and supersedes any prior or
contemporaneous agreements and all negotiations, representations and
proposals written or oral pertaining to this subject.
ARTICLE 1 - DEFINITIONS
Terms used in this Agreement shall have the meanings ascribed to them as
follows:
a. MOD5 PROCESS CONTROL SYSTEM (SYSTEM) means specially designed, direct
digital control, redundant computer technology for providing process
control and supplying process operation information. SYSTEM comprises
MOD5 HARDWARE, MOD5 SOFTWARE, and an associated MINICOMPUTER.
b. MOD5 HARDWARE means a user defined hardware configuration designed to
implement the SYSTEM which comprises two or more MOD CANS, two or more
MOD5 COMPUTERS, and one or more INTERFACE PROCESSORS.
c. MOD CAN is a modular input/output device with associated electronics
which receives inputs and originates output relative to PLANT
instrumentation. Each MOD CAN provides static graphics displaying
immediate information on conditions of selected signals and data.
d. MOD5 COMPUTER is a specially designed, high speed control computer.
e. INTERFACE PROCESSOR is an electronic functional interconnection within
a SYSTEM between MOD5 COMPUTER(S) and MINICOMPUTER(S), which contains
hardware, dedicated executable software, and firmware, otherwise
primarily comprised of one or more MODSERVERS.
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f. MINICOMPUTER is a member of a family of computers manufactured by the
Digital Equipment Corporation comprising VAX hardware executing the
currently supported version of the VMS operating system specified by
RSI, said computers otherwise referred to as VAX/VMS systems, to be
separately acquired by DEI.
g. DOWTRAN is a specific language designed for the process control
application engineer to convert and express the CONTROL SCHEMA into the
APPLICATION PROGRAM for a manufacturing process. The APPLICATION
PROGRAM is further transformed into COMPILED DOWTRAN using a MOD5
COMPILER.
h. MOD5 OVERHEADS means the executable operating systems software for the
MOD5 COMPUTER that executes the COMPILED DOWTRAN and implements
diagnostics, inputs, outputs, alarms and event logging.
i. DOWTRAN SUPPORT TOOLS are utility programs which execute on the
MINICOMPUTER to assist the application engineer in writing the
APPLICATION PROGRAM in DOWTRAN.
j. APPLICATION PROGRAM, to be provided by DEI, is a human readable
representation of the CONTROL SCHEMA in DOWTRAN.
k. COMPILED DOWTRAN is the machine readable code which results from the
compilation process executed by the MOD5 COMPILER to convert the
APPLICATION PROGRAM written in DOWTRAN into said machine readable code.
l. CONTROL SCHEMA, to be provided by DEI, comprises the entire collection
of concepts, process dynamics and control models, and associated
decision models which are referenced to define the APPLICATION PROGRAM.
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m. MOD5 COMPILER is a computer program which executes on the MINICOMPUTER
to produce COMPILED DOWTRAN from the APPLICATION PROGRAM written in
the DOWTRAN language.
n. GPI means an executable subset of process information and related
software specially designed and developed for execution on the
MINICOMPUTER which displays and stores process information and
related information to assist operations personnel.
o. MOD5 SOFTWARE means MOD5 OVERHEADS, DOWTRAN SUPPORT TOOLS, MOD5
COMPILER, GPI, and NEW SOFTWARE VERSIONS.
p. PRODUCT NOTICE is a change in hardware design and/or software design
and/or announcements of new products.
q. HARDWARE MAINTENANCE means periodic testing, calibration, replacement
of faulty or worn out parts, substitution or addition of new
electronic capabilities according to PRODUCT NOTICES, and general
overall maintenance of the HARDWARE components.
r. HARDWARE CONSUMABLES include, without limitation, fuses, light bulbs,
chart paper, and other such utility sundry items which are not
considered a part of HARDWARE MAINTENANCE that DEI may require to
operate the PLANT in a comprehensive manner.
s. NEW SOFTWARE VERSION means a uniquely identified, revised, and
improved release of MOD5 SOFTWARE directed to improve process
efficiencies and/or reliability.
t. PLANT means DEI's facilities listed in the attached Schedule 1.
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u. INSTALLATION DATE is the date on which a given SYSTEM has been
physically installed in a PLANT. This date shall be confirmed in
writing to RSI by the PLANT Manager, but in any case shall be deemed
to be no later than thirty (30) days after start up of the PLANT.
v. MODSERVER is a specially configured, commercially available computer
specified by RSI which executes a commercially available operating
system and RSI supplied application software to connect a MOD5
COMPUTER to a GPI system.
w. SHIPMENT DATE is the date on which the MOD5 HARDWARE has been
transferred to the carrier.
x. EFFECTIVE DATE is the date of execution of the last party to sign.
ARTICLE 2 - TERM
The term of this Agreement shall begin on the execution date hereof and,
subject to the provisions herein for termination, shall continue for a period
of fifteen (15) years after the INSTALLATION DATE of the last SYSTEM to be
supplied hereunder. It shall thereafter continue from year to year until
terminated in its entirety, pursuant to the provisions of Articles 4 and 10
herein by either RSI or DEI. The obligations of Article 5 shall survive any
expiration or accelerated termination of this Agreement for a period of five
(5) years.
ARTICLE 3 - PAYMENTS
3.1 SYSTEM CHARGES. Charges for SYSTEMS supplied hereunder are set
forth in the accompanying Schedule 1.
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3.2 TAXES AND SHIPPING. DEI shall pay all taxes, however designated,
which are levied or based on the MOD5 HARDWARE and/or MOD5 SOFTWARE or their
use including without limitation property taxes, local fees or excise taxes
but excluding taxes withheld based on RSI's net income. In the event DEI
defaults in the payment of any such tax, RSI may pay such tax and shall be
reimbursed by DEI, with interest, as an additional charge. DEI shall be
responsible for paying MOD5 HARDWARE shipping costs F.O.B. RSI shipping point.
ARTICLE 4 - TERMS OF POSSESSION AND USE
4.1 RSI and DEI agree that all MOD5 HARDWARE and MOD5 SOFTWARE
(excluding components sent off site to be repaired and the MINICOMPUTER to be
acquired by DEI directly from an appropriate source of such computers)
supplied by RSI hereunder will be kept by DEI in its sole possession and
control and will at all times be located at the PLANT(S) designated in the
attached Schedule 1.
4.2 DEI shall enjoy all rights of possession and use of SYSTEM(S)
supplied hereunder subject to RSI's rights under Paragraph 4.3, upon one
year's prior written notice to DEI, upon occurrence of one or more of the
following conditions:
(a) DEI breaches the secrecy obligations of Article 5;
(b) DEI fails to make payments within sixty (60) days after notice
of payments in arrears;
(c) The Dow Chemical Company (TDCC) equity holdings of DEI, direct
and indirect, decline below twenty percent (20%), or events occur from
which such event may be reasonably predicted and that an affiliate of
TDCC will no longer be operating PLANT ("Affiliate" in this context is
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an entity in which TDCC may exercise a substantial amount of control);
(d) TDCC, as the result of (i) governmental action, or (ii) DEI
financial distress (including any assignment of assets for the benefit of
creditors) faces loss of at least joint control, direct or indirect, over
DEI assets in which SYSTEM(S) are installed.
(e) RSI discontinues support of SYSTEMS acquired by DEI hereunder.
4.3 In the event:
(a) conditions of Paragraph 4.2(a) and (b) occur, RSI may terminate
this Agreement and its support of SYSTEMS supplied hereunder and optionally
reacquire SYSTEMS for a charge equal to one hundred percent (100%) of the
unamortized book value as carried on DEI's books.
(b) conditions of Paragraph 4.2(c), (d) or (e) occur within
fifteen (15) years of the EFFECTIVE DATE, RSI shall have the following
options:
(i) to reacquire SYSTEMS for a charge equal to one hundred
percent (100%) of the unamortized book value as carried on DEI's books;
(ii) to provide an alternative computer driven process
capability at least equivalent in functionality to that of the SYSTEM,
any new hardware being for the account of DEI and intangible charges
being for the account of RSI; or
(iii) to allow DEI to retain existing SYSTEM on the condition
that DEI procures for its own account a competent technical advisor for
continued support of the existing SYSTEM
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in which event proprietary MOD5 SOFTWARE will be made available to such
advisor, provided such advisor agrees to preserve confidentiality and
limit use of any RSI proprietary information for DEI's benefit.
(c) Notwithstanding the provisions of Article 4.2, Paragraphs 4.3(a) and
4.3(b), in the event that RSI elects to discontinue support of SYSTEMS
pursuant to Paragraph 4.2(e), RSI may only elect to implement the options
specified in Paragraphs 4.3(b)(i) and 4.3(b)(ii) with DEI's prior written
consent.
4.4 RSI understands and acknowledges that, as the normal course of
DEI's business, DEI obtains debt and equity financing for its power
generations and coal gasification projects on a non-recourse off balance
sheet basis and accordingly may arrange partnership and/or leveraged lease
structures involving third parties for its projects, including the Wabash
River Coal Gasification Repowering Project (the "Wabash Project"). DEI
intends to seek to obtain debt and equity financing for the Wabash Project.
Accordingly, DEI and RSI agree to work together in good faith to negotiate,
revise and/or restructure this Agreement and take such other actions as
necessary to enable DEI to obtain such financing on reasonable commercial
terms.
4.5 Subject to DEI's reasonable operating, safety and secrecy
requirements, DEI shall permit access of RSI or RSI designees to the PLANT(S)
to permit the removal of the SYSTEM supplied hereunder.
4.6 The APPLICATION PROGRAM produced by DEI shall be considered
derivative software and as such retainable by DEI with the proviso that DEI
will diligently pursue protecting RSI's interests pursuant to Article 5.
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<PAGE>
ARTICLE 5 - CONFIDENTIALITY
MOD5 HARDWARE and MOD5 SOFTWARE are unique, valuable properties. DEI
agrees to maintain and protect RSI's proprietary interests therein and will
accordingly, subject to DEI's obligations to the U.S. Department of Energy
pursuant to the Cooperative Agreement dated July 2, 1992 pertaining to the
Wabash Project, keep all information pertaining thereto in confidence and
not use the same except as is necessary to the enjoyment and exercise of the
rights granted by RSI hereunder at the PLANT(S) listed in the attached
Schedule I. DEI will take diligent action to fulfill the foregoing
obligations by instruction and agreement with its employees or agents
respecting the confidentiality of this information and shall obtain from such
agents their written commitments to comply with terms of confidentiality.
ARTICLE 6 - SOFTWARE COPIES
MOD5 SOFTWARE may only be copied, in whole or part, with proper
inclusion of RSI's copyright notice and any other proprietary notice required
by RSI, as necessary and incidental to the use of such software for archival
and backup purposes or to replace a worn or defective copy. All such copies
shall be subject to the terms and conditions of this Agreement and shall be
kept and used at the designated PLANT(S). If DEI is unable to operate the
MOD5 SOFTWARE on originally installed equipment, the MOD5 SOFTWARE may be
transferred temporarily to another system during the period of equipment
malfunction. Should the hardware or equipment system be upgraded and
replaced by another system acquired from RSI, MOD5 SOFTWARE acquired
hereunder may be transferred and used on the replacement system.
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ARTICLE 7 - WARRANTIES AND DISCLAIMERS
7.1 THE EXPRESSED WARRANTIES HEREIN CONTAINED ARE IN LIEU OF ANY AND
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTY OF
MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE. RSI warrants that
MOD5 HARDWARE and MOD5 SOFTWARE as delivered will operate substantially as
indicated in documentation provided by RSI. RSI will promptly replace or
adjust any defective component of MOD5 HARDWARE, or MOD5 SOFTWARE, except for
HARDWARE CONSUMABLES. Within a period of two (2) years after delivery of
MOD5 HARDWARE and MOD5 SOFTWARE components, DEI shall examine and test same
to determine that each component thereof is in proper working order and
capable of operating as indicated in said documentation provided by RSI. DEI
shall promptly, upon discovery, notify RSI of any alleged deficiency which
may exist.
7.2 RSI warrants the MOD5 HARDWARE AND MOD5 SOFTWARE as delivered by
RSI under this Agreement shall not infringe the copyrights or patent rights
of a third party existing on their INSTALLATION DATE. Upon prompt written
notice from DEI providing all pertinent details of a claim of such asserted
infringement, RSI undertakes to investigate and at RSI's expense to settle or
to defend against such a claim, provided DEI grants any necessary authority
and gives its full support and cooperation, or to obtain the right for DEI to
continue to use the SYSTEM, or to replace or modify the allegedly infringing
components of the SYSTEM which RSI has so delivered to avoid any such claim
that is found to be valid. Without prejudice to the generality of the
foregoing, such expense shall extend to reasonable attorneys' fees incurred
by DEI in respect of such claim. If an award is rendered against DEI, in any
litigation that RSI defends hereunder for infringement by the components of
the SYSTEM which RSI has so delivered, then RSI shall reimburse DEI for
damages and costs awarded by the judicial authority in respect to those
components.
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7.3 DEI acknowledges that it is responsible for each APPLICATION
PROGRAM and is not relying on RSI's skill or judgment to select or furnish
goods suitable for operations of a particular process and that there are no
warranties which are not contained in this Agreement. DEI acknowledges that
it has made the selection of the SYSTEM. RSI shall not be liable for
special, incidental or consequential damages arising out of or in connection
with the performance of the SYSTEM. RSI shall not be responsible for any
loss or damage caused by, nor shall any sums due hereunder abate by reason
of, any interruption in or loss of service or use of the equipment or any
part thereof arising from any reason not solely attributable to RSI. Without
limiting the generality of the foregoing, examples of the foregoing include
errors in the APPLICATION PROGRAM, normal wear and tear of the SYSTEM, or
gradual deterioration of the SYSTEM.
7.4 RSI's total obligation after INSTALLATION DATE under this Article
shall in no event exceed fifty percent (50%) of the total amount of the fees
actually received by RSI under this Agreement.
7.5 DEI may terminate this Agreement by written notice to RSI if RSI
defaults in the performance of any of its material obligations hereunder.
For the purpose of this Agreement, a notice by facsimile shall be deemed a
written notice and shall be effective on receipt. DEI does not waive any
other remedies that may be available to it by operation of law or otherwise.
ARTICLE 8 - LIABILITY, INDEMNITY AND RISK OF LOSS
8.1 DEI assumes all risks and liabilities, whether or not covered by
insurance, and shall indemnify and hold RSI and its employees harmless for
any liability, claim, loss, damage or expense for injuries to or deaths of
persons and for damage to property, howsoever arising from or incident to the
possession,
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use; operation or storage of MOD5 HARDWARE and MOD5 SOFTWARE, and operation
of the SYSTEM save and except for any matter attributable to the negligence
or wilful misconduct of RSI. Said assumption of risks and liabilities by DEI
shall apply whether such injury or death to persons be to agents or employees
of DEI or be to third persons and whether such damage be to property of DEI
or to property of others.
8.2 DEI shall, except for normal wear and tear, be liable for any and
all loss or damage to the equipment and software during the period from the
date that the acquired component is delivered to DEI's premises until the
date that element is redelivered to RSI, including but not limited to, loss
or damage caused by fire, lightning, sprinkler leakage, tornado, typhoon and
wind storms, water damage, earthquake, collapse of building or structures,
strikes, riots and civil commotion, vandalism and malicious mischief,
burglary, theft, hostile or warlike actions in time of peace or war,
insurrections, revolutions, civil war or usurpation of power, or nuclear
reaction, nuclear radiation or radioactive contamination. During the term of
this Agreement and until equipment is redelivered to RSI, DEI shall be liable
for the prompt repair of equipment at its sole cost and expense. If
equipment or software is irreparably damaged, lost, stolen or destroyed, DEI
agrees to promptly replace or bear the cost of replacing same.
ARTICLE 9 - SYSTEM MAINTENANCE, REPAIRS, INSTALLATION AND MINICOMPUTER
9.1 Throughout the term of this Agreement after installation of the
SYSTEM, DEI shall maintain site conditions to provide an acceptable operating
environment for the SYSTEM as referenced in documentation provided by RSI.
DEi is responsible for maintenance not provided under the Service Agreement
attached hereto as Appendix A, and installation of the SYSTEM. DEI will
maintain the SYSTEM in a current and up-to-date
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condition adapting the same and the APPLICATION PROGRAM to accommodate
PRODUCT NOTICES and NEW SOFTWARE VERSIONS when recommended by RSI, which will
be supplied by RSI or by vendors approved by RSI. Such adaptations will
address (1) improvements in operating reliability, (2) enhancements in
functionality reasonably solicited by DEI and deemed appropriate for
implementation by RSI or (3) management of issues related to obsolescence in
the SYSTEM. RSI will counsel DEI, as required pursuant to the attached
Service Agreement, to accomplish the foregoing and DEI shall permit RSI or
RSI's designee access to the SYSTEM for providing any necessary assistance,
such access to include network access if deemed appropriate. This paragraph is
fundamental to the basic purposes of this Agreement and may not be severed
from this Agreement.
9.2 RSI agrees to supply Maintenance Services, including maintenance and
adjustment of MOD5 HARDWARE parts and Enhancement Services, solely in
accordance with the SERVICE AGREEMENT which is incorporated as Appendix A of
this Agreement. RSI is not responsible for supply of the MINICOMPUTER, but
DEI shall acquire rights for the services of MINICOMPUTER at DEI's PLANT.
Unless otherwise agreed in writing, DEI shall, at its expense, obtain and
keep in full effect throughout the term of this Agreement, a contract from
the manufacturer of the MINICOMPUTER providing for maintenance service and
will otherwise maintain the MINICOMPUTER and associated software in good
working order and make all necessary and recommended adjustments and repairs
thereto.
9.3 DEI will at all times cooperate with RSI in allowing the
manufacturer of the MINICOMPUTER and RSI to control and install all PRODUCT
NOTICES on equipment as shall be determined necessary or desirable by the
manufacturer or RSI. Subject to DEI's reasonable operating, safety and
secrecy requirements, DEI shall grant PLANT access to the MINICOMPUTER and
SYSTEM to the manufacturer, RSI and RSI's designee during normal working hours
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for inspection, repair, maintenance, installation of PRODUCT NOTICES
and for any other reasonable purpose, said access to include network access if
deemed appropriate. DEI shall immediately notify RSI of all details
concerning any malfunction arising out of the alleged or apparent improper
manufacture, functioning or operation of the SYSTEM components supplied by
RSI.
ARTICLE 10 - EXPIRATION AND RENEWAL
Upon expiration of the term of this Agreement as specified in Article 2
hereof, this Agreement shall thereafter continue in effect from year to year
unless this Agreement is terminated by either RSI or DEI upon the terms and
conditions set forth below.
10.1 DEI may terminate this Agreement upon one (1) year's prior written
notice to RSI and upon such termination DEI shall have the following options:
(a) to obtain and install at its own expense, an alternative
computer driven process control system from a third party; or
(b) to retain existing SYSTEM on the condition that DEI procures
for its own account a competent technical advisor for continued support of
the existing SYSTEM in which event proprietary MOD5 SOFTWARE will be made
available to such advisor, provided such advisor agrees to preserve
confidentiality and limit use of any RSI proprietary information for DEI's
benefit.
10.2 RSI may terminate this Agreement upon two (2) years' prior written
notice to DEI and upon such termination shall allow DEI to either:
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(a) obtain and install an alternative computer-driven process under
the conditions specified in Paragraph 10.1(a) above; or
(b) retain existing SYSTEM under the conditions specified in
Paragraph 10.1(b) above.
10.3 In the event termination of this Agreement by either party under
the provisions of this Article 10 causes a party unreasonable and unforeseen
hardship, the parties shall negotiate in good faith to modify the terms for
expiration and/or renewal to equitably readjust the burdens of such event.
ARTICLE 11 - NOTICES
DEI and RSI agree that notices required hereunder shall be deemed
received the seventh day after mailing, if mailed air postage prepaid to RSI
or DEI as the case may be at their respective address given below.
If to RSI, to: Rofan Services Inc.
2030 Dow Center
Midland, MI 48674
Attention: M. N. Trask, Vice President
If to DEI, to: Destec Energy, Inc.
2500 Citywest Boulevard, Suite 150
Houston, TX 77042
Attention: R. M. Webb,
Senior Vice President
Copy to: E. J. Troxclair, Plant
Manager, Wabash Project
Either party may change such address for notice by sending to the other party
a written notice.
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ARTICLE 12 - SEVERABILITY
Any provision hereof prohibited by, or unlawful or unenforceable under,
any applicable law of any jurisdiction shall be ineffective as to such
jurisdiction without invalidating the remaining provisions of this Agreement.
In the event a material provision is affected, the parties shall reformulate
their mutual undertakings in such manner as to preserve, as much as possible,
their original intentions and objects of this Agreement, consistent with the
laws of such jurisdiction.
ARTICLE 13 - ALTERATIONS
Except for DEI's preparation and modification of APPLICATION PROGRAM, no
alterations to MOD5 SOFTWARE source code or to MOD5 HARDWARE shall be made
without first obtaining in each instance the prior written approval of RSI
which approval shall be expeditiously considered and not be unreasonably
withheld. If after such written approval has been obtained, the alterations
or attachments interfere with the normal or satisfactory maintenance,
operation or insurability of the MOD5 HARDWARE, or MOD5 SOFTWARE or any part
thereof in such manner as to increase the cost of maintenance or insurance
thereof or to create a safety hazard, DEI will upon notice from RSI to that
effect promptly remove the alterations or attachments and restore such MOD5
SOFTWARE source code or MOD5 HARDWARE to its normal condition.
ARTICLE 14 - CONFLICTS AND ASSIGNABILITY
This Agreement does not operate as an acceptance of any conflicting
terms or conditions and shall prevail over any conflicting provision of any
subsequent purchase order or other instrument of DEI, it being understood
that any purchase order or the request of DEI acted upon by RSI shall be for
the
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convenience of DEI only but shall not operate to amend or modify in any
respect the terms hereof. This Agreement may only be altered, modified,
supplemented or deviated from by further agreement in writing executed by an
authorized representative of each RSI and DEI. DEI and RSI each acknowledge
that by executing this Agreement they each have reviewed the attachments
listed above and agree to be legally bound and dutifully perform their
respective obligations thereunder. This Agreement may not be assigned by
either party without the other party's prior written approval except to a
parent, affiliate or sister company of RSI or DEI.
ARTICLE 15 - APPLICABLE LAW
The law of the State of Indiana shall be applied in the construction and
interpretation of this Agreement. No law of conflicts or choice of law shall
supersede this provision except as provided in Article 5.
ARTICLE 16 - DEPARTMENT OF ENERGY (DOE) REQUIREMENTS
RSI agrees to comply with the provisions of Appendix B entitled
"Intellectual Property Provisions for Subcontracts Required Under Cooperative
Agreement No. DE-FC21-92MC29310" and
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Appendix C entitled "Certain Contract Clauses Required by Cooperative
Agreement No. DE-FC21-92MC29310" attached hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf by their duly authorized representatives.
ROFAN SERVICES INC. DESTEC ENERGY, INC.
By: /s/ M. N. Trask By: /s/ R. M. Webb
--------------------------- ---------------------------
Name: M. N. Trask Name: R. M. Webb
------------------------- ------------------------
Title: Vice President Title: Senior Vice President
------------------------ -----------------------
Date: July 31/93 Date: 8/2/93
------------------------ ------------------------
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APPENDIX A
SERVICE AGREEMENT
MOD5 PROCESS CONTROL SYSTEM TRAINING,
MAINTENANCE AND ENHANCEMENT
1. SERVICES
To facilitate efficient use of SYSTEMS, RSI agrees to provide and DEI
agrees to acquire SYSTEM Training, Maintenance, and Enhancement Services as
provided hereunder. RSI and DEI further agree to cooperate in discussing NEW
SOFTWARE VERSIONS and in reviewing and modifying the APPLICATION PROGRAM, and
installing derived COMPILED DOWTRAN in a timely manner consistent with the
secure and efficient operations of DEI's PLANT to accommodate any provided NEW
SOFTWARE VERSIONS. DEI has responsibility to acquire, through separate
arrangements with RSI or another party, training and/or services necessary to
apply DOWTRAN to the CONTROL SCHEMA to produce an APPLICATION PROGRAM.
(i) Training Services shall consist of training in methods which RSI
deems appropriate for implementing the SYSTEM in a PLANT by DEI.
This shall include, but is not limited to, training in producing
the APPLICATION PROGRAM and COMPILED DOWTRAN, SYSTEM operation,
HARDWARE MAINTENANCE, SYSTEM repair, use of DOWTRAN, application of
MOD5 OVERHEADS, and use of DOWTRAN SUPPORT TOOLS. Such training
shall further include education in the use of the INTERFACE
PROCESSOR, MOD5 COMPILER, MOD5 COMPUTER, and GPI to provide process
information and process information management capabilities. During
such training period, RSI will assist DEI's technical employees in
writing a manual containing the necessary programming, operating,
and maintenance procedures for the SYSTEM and the use of GPI on the
MINICOMPUTER.
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(ii) Maintenance Services for MOD5 HARDWARE and MOD5 SOFTWARE include
the notification of and assistance for implementation, where
necessary, of PRODUCT NOTICES for MOD5 HARDWARE and MOD5 SOFTWARE,
on-request preventive maintenance based on the specific needs of
MOD5 HARDWARE, and remedial maintenance advice for MOD5 HARDWARE,
MOD5 SOFTWARE, firmware, and other HARDWARE MAINTENANCE conducted
by DEI. RSI shall render service promptly. Subassemblies and
printed circuit boards will be furnished to DEI on exchange basis
for defective units. Acquisition and installation of HARDWARE
CONSUMABLES shall be the responsibility of DEI.
(iii) Enhancement Services shall include the delivery and assistance in
the installation of NEW SOFTWARE VERSIONS.
(iv) DEI shall be responsible for the appointment of a computer systems
professional or process control professional fluent in the English
language having a level of technical qualifications and experience
acceptable to RSI, whose acceptance will not be unreasonably
withheld, as manager for the SYSTEM. The SYSTEM manager shall
enter into a secrecy agreement with RSI to protect RSI's technology
and shall cooperate with RSI in enabling outside access to the
SYSTEM when appropriate.
2. SERVICE LIMITATIONS
Services are contingent upon the proper use of the SYSTEM in accordance
with SYSTEM training provided under Article 1 above. Services do not include
any of the following: electrical work external to the SYSTEM, INTERFACE
PROCESSOR, or MINICOMPUTER; replacing or providing HARDWARE CONSUMABLES;
refinishing SYSTEM; or maintenance of accessories, attachments,
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<PAGE>
machines, or other devices not provided by RSI. Service shall not
include practices which in RSI's judgment are unsafe or impractical
for RSI to render because of alterations to the SYSTEM or
connection of the PLANT by mechanical or electrical means to
machine devices furnished by a supplier other than RSI. Service
will not be performed on a SYSTEM located in an unsafe or hazardous
environment, as determined by RSI. Service to be provided does not
include service necessitated by elements external to the SYSTEM
which are not within RSI's operation or maintenance instructions or
installation site preparation guidelines including, but not
limited to, humidity, temperature, power failure, surges, air
conditioning, grounding, static charge control, service resulting
from accident, neglect, alterations, improper use or misuse of the
SYSTEM or by repairs attempted by DEI's personnel or service to a
version other than the installed version of MOD5 SOFTWARE and MOD5
HARDWARE.
3. SERVICE CHARGES
(i) For Training Services, Maintenance Services and Enhancement
Services described in Paragraphs 1(i), (ii) and (iii) respectively
performed at DEI's PLANT, DEI shall pay RSI a service charge in the
amount of RSI's standard charge for such services, plus reasonable
travel and living expenses. This fee is presently $125.00 per hour.
This charge is waived during the first ninety (90) calendar days
after the INSTALLATION DATE.
(ii) For home based maintenance and support services described
in paragraphs 1(ii) and (iii) above conducted at the home locations
of RSI and its suppliers, DEI shall pay RSI a quarterly fee
determined by multiplying the total number of MOD CANS it has in
its SYSTEMS (Schedule 1) by a standard service fee. This standard
service fee shall be subject to RSI's reasonable annual adjustment
to spread RSI's annual support costs on a pro rata basis on written
notice.
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<PAGE>
(iii) For all other services, as may be provided under Article
1. SERVICES above, including training of DEI's employees conducted
in RSI designee facilities away from DEI's PLANT, DEI shall pay
RSI's reasonable costs in providing such services and shall
moreover be responsible for the travel and living expenses of DEI's
employees involved in such training when away from their regular
place of employment.
(iv) Service charges accruing under Paragraph 3(ii) above will
be invoiced on a calendar quarterly basis and shall be payable
within thirty (30) days of receipt of an invoice therefor. All
other service charges will be invoiced as incurred.
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APPENDIX B
INTELLECTUAL PROPERTY PROVISIONS
FOR
SUBCONTRACTS
REQUIRED UNDER COOPERATIVE
AGREEMENT NO. DE-FC21-92MC29310
<PAGE>
INTELLECTUAL PROPERTY PROVISIONS FOR SUBCONTRACTS
PAGE
----
1. NOTICE AND ASSIGNMENT REGARDING PATENT AND COPYRIGHT
INFRINGEMENT ................................................ 1
2. INTELLECTUAL PROPERTY INDEMNITY ............................. 1
3. ADDITIONAL TECHNICAL DATA REQUIREMENTS ...................... 2
4. RIGHTS IN TECHNICAL DATA .................................... 2
Note:
In these clauses, the term "Joint Venture" means Participant as defined at
clause 4(a)(9); and, the term "Cooperative Agreement" means Cooperative
Agreement No. DE-FC21-92MC29310 between Wabash River Coal Gasification
Repowering Project joint Venture and the Department of Energy as defined at
clause 4(a)(6).
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<PAGE>
1. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT
(a) The Subcontractor shall report to both the Joint Venture and to the
Contracting Officer for the Cooperative Agreement, promptly and in
reasonable written detail, each notice or claim of patent or
copyright infringement based on the performance of this Subcontract
of which the Subcontractor has knowledge.
(b) In the event of any claim or suit against either the Joint Venture or
the Government on account of any alleged patent or copyright
infringement arising out of the performance of this Subcontract or
out of the use of any supplies furnished or work or services
performed hereunder, the Subcontractor shall furnish when requested
by the Joint Venture or the Contracting Officer for the Cooperative
Agreement all evidence and information in the possession of the
Subcontractor pertaining to such suit or claim. Such evidence and
information furnished to the Government shall be furnished at the
expense of the Government except where the Subcontractor has agreed
to indemnify the Government.
2. INTELLECTUAL PROPERTY INDEMNITY
(a) The Subcontractor shall indemnify both the Joint Venture and the
Government and their officers, agents, and employees against
liability, including costs, for infringement of U.S. Letters Patent
(except U.S. Letters Patent issued upon an application which is now
or may hereafter be kept secret or otherwise withheld from issue by
order of the Government) resulting from Subcontractor's (a)
furnishing or supplying standard parts or components which have been
sold or offered for sale to the public on the commercial open market;
(b) utilizing its normal practices or methods which normally are or
have been used in providing goods and services in the commercial open
market in the performance of the Subcontract; or (c) utilizing any
parts, components, practices, or methods to the extent to which the
Subcontractor has secured indemnification from liability. The
foregoing indemnity shall not apply unless the Subcontractor shall
have been informed as soon as practicable by the Joint Venture or the
Government of the suit or action alleging such infringement and shall
have been given such opportunity as is afforded by applicable laws,
rules, or regulations to participate in the defense thereof; and
further, such indemnity shall not apply to a claimed infringement
which is settled without the consent of the Subcontractor unless
required by final decree of a court of competent jurisdiction or
<PAGE>
to an infringement resulting from addition to or change in such
supplies or components furnished or construction work performed for
which addition or change was made subsequent to delivery or
performance by the Subcontractor.
(b) The Subcontractor shall indemnify and save and hold harmless the
Joint Venture and the Government, including their officers, agents,
and employees acting within the scope of their official duties
against any liability, including costs and expenses for violation
by the Subcontractor of proprietary rights or copyrights arising
out of delivery or use of any data furnished or utilized by the
Subcontractor in the course of or under this Subcontract.
3. ADDITIONAL TECHNICAL DATA REQUIREMENTS
(a) In addition to the Technical Data specified elsewhere in this
Subcontract to be delivered, the Contracting Officer may, at any
time during the Cooperative Agreement performance or within 1 year
after completion of Phase III, call for the Subcontractor to
deliver any Technical Data first produced or specifically used in
the performance of this Subcontract, except technical data
pertaining to items of standard commercial design.
(b) The provisions of the Rights in Technical Data clause included in
this Subcontract are applicable to all Technical Data called for
under this Additional Technical Data Requirements clause.
Accordingly, nothing contained in this clause shall require the
Subcontractor to actually deliver any Technical Data, the delivery
of which is excused by Paragraph (e) of the Rights in Technical
Data clause.
(c) When Technical Data are to be delivered under this clause, the
Subcontractor will be compensated for appropriate costs for
converting such data into the prescribed form for reproduction, and
for delivery.
4. RIGHTS IN TECHNICAL DATA (Long Form)
(a) Definitions.
(1) "Technical Data" means recorded information, regardless of form or
characteristic, of a scientific or technical nature. It may, for
example, document research, experimental, developmental, or
demonstration, or engineering work, or be usable or used to define
a design or process, or to procure, produce, support, maintain,
2
<PAGE>
or operate material. The data may be graphic or pictorial
delineations in media such as drawings or photographs, text in
specifications or related performance or design type documents or
computer software (including computer programs, computer software
data bases, and computer software documentation).
Examples of Technical Data include research and engineering
data, engineering drawings and associated lists,
specifications, standards, process sheets, manuals, technical
reports, catalog item identification, and related information.
Technical Data as used herein do not include financial reports,
cost analyses, and other information incidental to Subcontract
administration.
(2) "Proprietary Data" means Technical Data which embody trade
secrets developed at private expense, such as design procedures
or techniques, chemical composition of materials, or
manufacturing methods, processes, or treatments, including
minor modifications thereof, provided that such data:
(i) Are not generally known or available from other sources
without obligation concerning their confidentiality;
(ii) Have not been made available by the owner to others
without obligation concerning their confidentiality; and
(iii) Are not already available to the Government without
obligation concerning their confidentiality.
Appendix 2 to this Exhibit is Participant's assertion
of Proprietary Data categories.
(3) "Contract Data" means Technical Data first produced in the
performance of this Subcontract, Technical Data which are specified
to be delivered under this Subcontract, Technical Data that may be
called for under the Additional Technical Data Requirements clause
of this Cooperative Agreement, if any, or Technical Data actually
delivered in connection with this Subcontract.
(4) "Unlimited Rights" means rights to use, duplicate, or disclose
Technical Data, in whole or in part, in any manner and for any
propose whatsoever, and to
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<PAGE>
permit others to do so.
(5) "Government" means the Government of the United States of
America.
(6) "Cooperative Agreement" means Cooperative Agreement No.
DE-FC21-92MC29310 between Wabah River Coal Gasification Repowering
Project Joint Venture and the Department of Energy.
(7) "Know-how" means unpatented technical information, assistance,
training or expertise including drawings, designs, specifications,
blueprints, or manuals owned or controlled by the Subcontractor.
(8) "Facility" means the coal gasification combined cycle repowering
facility located at PSI Energy, Inc.'s Wabash River Generating
Station at West Terre Haute, Indiana, that is to be designed,
constructed, and operated as part of the Cooperative Agreement.
(9) "Participant" means the Wabash River Coal Gasification Repowering
Project Joint Venture and its successors and assigns. The Wabash
River Coal Gasification Repowering Project Joint Venture is a joint
venture consisting of Destec Energy, Inc., and PSI Energy, Inc.,
formed by Joint Venture Agreement dated April 30, 1991. This Joint
Venture Agreement has been amended and superseded by the Amended
Restated Joint Venture Agreement dated May 6, 1992.
(10) "Protected Clean Coal Technology Data" means Technical Data or
commercial or financial data first produced in the performance of
this Subcontract which, if it had been obtained from and first
produced by a Non-Federal party, would be a trade secret or
commercial or financial information that is privileged or
confidential under the meaning of 5 U.S.C. 552(b)(4), and which is
marked as being Protected Clean Coal Technology Data by a Party to
this Subcontract.
Appendix 3 to this Exhibit classifies Protected Clean Coal
Technology Data.
(11) "CGCC Technology" means all the patented and/or unpatented Technical
Data and know-how required to design, procure, construct, and
operate a coal gasification combined-cycle system, consisting of
the combination of the following basic elements and
4
<PAGE>
process: an oxygen-blown, two-stage entrained flow gasifier,
capable of utilizing high sulfur bituminous coal to produce
synthetic fuel gas, a gas mixture composed substantially of
hydrogen and carbon monoxide; a gas conditioning system for
removing sulfur compounds and particulates; systems or mechanical
devices for improved coal feed; a combined-cycle power generation
system, wherein the conditioned synthetic fuel gas is combusted
in a combustion turbine generator to make electrical power and
wherein steam, produced from cooling synthetic fuel gas from a
heat recovery steam generator in the combustion turbine exhaust,
is used to feed a steam turbine generator to generate a second
source of electrical power; and the control system and algorithms
necessary to integrate and control the overall system as required
by the operator, as demonstrated under the Cooperative Agreement
including any improvements or modifications embodied during
commercialization by/or through the Participant which are
incorporated in the system.
(b) Allocation of Rights.
(1) The Government shall have:
(i) Unlimited Rights in Contract Data except as otherwise
provided below with respect to Proprietary Data or
Protected Clean Coal Technology Data. Contract Data
identified in Appendix 4 this Exhibit shall be made
available to the Government with Unlimited Rights;
(ii) The right to remove, cancel, correct, or ignore any
marking not authorized by the terms of this Subcontract on
any Technical Data furnished hereunder, if in response to
a written inquiry by DOE concerning the propriety of the
markings, the Participant with the assistance of the
Subcontractor fails to respond thereto within 60 days or
fails to substantiate the propriety of the markings. DOE
will notify the Participant of the action taken;
(iii) No rights under this Subcontract in any Technical Data
which are not Contract Data.
5
<PAGE>
(2) The Participant and Subcontractor shall have:
(i) The right to withhold Proprietary Data in accordance with
the provisions of this clause; and
(ii) The right to use for their private purposes, subject to
patent, security, or other provisions of this Subcontract,
Contract Data first produced in the performance of this
Subcontract, provided the data requirements of this
Subcontract have been met as of the date of the private
use of such date. The Subcontractor agrees that to the
extent it receives or is given access to Proprietary Data
or other technical, business, or financial data in the
form of recorded information from DOE or a DOE Contractor,
including that of Participant, or Subcontractor, the
Subcontractor shall treat such data in accordance with any
restrictive legend contained thereon unless use is
specifically authorized by prior written approval of the
Contacting Officer; and
(iii) The right to mark, with DOE's concurrence, as Protected
Clean Coal Technology Data, any data first produced in the
performance of this Subcontract by its employees, in
accordance with paragraph (h) of this clause.
(3) Nothing contained in this Rights in Technical Data clause shall
imply a license to the Government under any patent or be
construed as affecting the scope of any licenses or other rights
otherwise granted to the Government under any Patent.
(c) Copyrighted material.
(1) The Subcontractor shall not, without prior written authorization
of the Patent Counsel, establish a claim to statutory copyright
in any Contract Data first produced in the performance of this
Subcontract. To the extent such authorization is granted, the
Government reserves for itself and others acting on its behalf a
royalty-free, nonexclusive, irrevocable, worldwide license for
Governmental purposes to publish, distribute, translate,
duplicate, exhibit, and perform any such data copyrighted by the
Subcontractor. To the extent such authorization is granted, the
6
<PAGE>
Participant is granted a royalty-free, nonexclusive, irrevocable,
worldwide, transferable license to incorporate and utilize any
such data copyrighted by the subcontractor in the CGCC
Technology.
(2) The Subcontractor agrees not to include in the Technical Data
delivered under this Subcontract any material copyrighted by the
Subcontractor and not to knowingly include any material
copyrighted by others, without first granting or obtaining at no
cost a license therein for the benefit of the Government and the
Participant of the same scope as set forth in Paragraph (c)(1)
above. If such royalty-free licenses are unavailable and the
Subcontractor nevertheless determines that such copyrighted
material must be included in the Technical Data to be delivered,
rather than merely incorporated therein by reference, the
Subcontractor shall obtain the written authorization of the
Contracting Officer to include such copyrighted material in the
Technical Data prior to its delivery.
(3) The Subcontractor agrees that upon written application by the DOE
it will grant to the extent practicable a non-exclusive license
to responsible third parties in any copyrighted work that is
utilized, tested or embodied by the Subcontractor in the
performance of work under this Subcontract to practice the CGCC
Technology system which is the subject of the Cooperative
Agreement on terms and conditions which are reasonable under the
circumstances.
(d) Lower Tier Subcontracting. It is the responsibility of the
Subcontractor to obtain from the contractors and lower tier
subcontractors Technical Data and rights therein, on behalf of the
Government and the Participant, necessary to fulfill the
Subcontractor's obligations to the Government and the Participant with
respect to such data. In the event of refusal by a lower tier
subcontractor to accept a clause affording the Government and the
Participant such rights, the Subcontractor shall:
(1) Promptly submit written notice to the Participant and the
Contracting Officer of the Cooperative Agreement setting forth
reasons for the lower tier subcontractor refusal and other
pertinent information which may expedite disposition of the
matter; and
7
<PAGE>
(2) Not proceed with the Subcontract without written authorization of
the Contracting Officer.
(3) As used in this Rights in Technical Data clause, the term
Contractor or Subcontractor includes any person or entity
responsible for fulfilling the Participant's obligations to the
Government with respect to technical data.
(e) Withholding of Proprietary Data. Notwithstanding the inclusion of the
additional Technical Data Requirements Clause in this Subcontract or
any provision of this Subcontract specifying the delivery of Technical
Data, the Subcontractor may withhold Proprietary Data from delivery,
provided that the Subcontractor furnishes in lieu of any such
Proprietary Data so withheld Technical Data disclosing the source,
size, configuration, mating and attachment characteristics, functional
characteristics, and performance requirements ("Form, Fit, and
Function" data, e.g., specification control drawings, catalog sheets,
envelope drawings, etc.), or a general description of such Proprietary
Data where "Form, Fit, and Function" data are not applicable. The
Government shall acquire no rights to any Proprietary Data so withheld
except that such data shall be subject to the "Inspection rights"
provisions of paragraph (f), the "Limited rights in Proprietary Data"
provisions of Paragraph (g), the "Availability of contact and other
data" provisions of paragraph (h), the "Commercialization of CGCC
Technology" provisions of Paragraph (i).
(f) Inspection rights. Except as may be otherwise specified in this
Subcontract for specific items of Proprietary Data, which are not
subject to this paragraph, the Contracting Officer's representatives,
at all reasonable times up to 3 years after final payment under the
Cooperative Agreement, may inspect at the Subcontractor's facility any
Proprietary Data withheld under Paragraph (e) for the purpose of
verifying that such data properly fell within the withholding
provisions of Paragraph (e) or for evaluating work performance.
(g) Limited rights in Proprietary Data. Except as may be otherwise
specified in this Subcontract as Technical Data which are not subject
to this paragraph, the Subcontractor shall, upon written request from
the Contracting Officer at any time prior to 3 years after final
payment under this Cooperative Agreement, promptly deliver to the
Government any "Proprietary Data" withheld pursuant to paragraph (e)
of the Rights in Technical Data clause of this Subcontract. The
following legend and no other is authorized to be affixed on any
"Proprietary
8
<PAGE>
Data" delivered pursuant to this provision, provided the "Proprietary
Data" meets the conditions for initial withholding under Paragraph (e)
of the Rights in Technical Data clause. The Government will
thereafter treat the "Proprietary Data" in accordance with such
legend.
LIMITED RIGHTS LEGEND
This "Proprietary Data" furnished under Cooperative Agreement
DE-FC21-92MC29310 with the United States Department of Energy
(Project) may be duplicated and used by the Government with the
express limitations that the "Proprietary Data" may not be
disclosed outside the Government or be used for purposes of
manufacture without prior permission of the Participant, except
that further disclosure or use may be made solely for the
following purposes:
(1) This "Proprietary Data" may be disclosed for evaluation
purposes under the restriction that the "Proprietary Data"
be retained in confidence and not be further disclosed.
(2) This "Proprietary Data" may be disclosed to DOE
contractors or DOE consultants who are supporting DOE in
the Government's Clean Coal Technology program of which
this Cooperative Agreement is a part, for information or
use in performing work or monitoring progress under the
Project, and under the restriction that the "Proprietary
Data" be retained in confidence and not be further
disclosed; or
(3) This "Proprietary Data" may be used by the DOE or others
on its behalf for emergency repair and overhaul work at
the Facility under the restriction that the "Proprietary
Data" be retained in confidence and not be further
disclosed.
Non DOE personnel shall be required to sign and submit to
the Participant and Subcontractor a Non-Disclosure
Agreement (Appendix 1 of Attachment B) if Proprietary Data
must be disclosed to them.
This legend shall be marked on any reproduction of this data in
whole or in part.
(Note: Copy of "Appendix 1 of Attachment B" is attached as
Appendix 1 to this Exhibit.)
9
<PAGE>
(h) Availability of contract or other data.
(1) The Subcontractor will, for the entire period of
Subcontractor's participation in the project at the
Facility (including operation of the Facility) throughout
the term of this Cooperative Agreement and for three years
thereafter, whether or not under a Government Cooperative
Agreement, keep and maintain all Technical Data, including
Proprietary Data and data obtained from subcontractors and
licensors, necessary to construct and/or operate the
Facility, and all data including business and financial
data necessary to evaluate the technical and economical
operation of the Facility. Subcontractor shall provide to
Participant such data as necessary to permit the
Government and its representative the right to inspect at
the Facility any data kept and maintained pursuant to this
paragraph.
(2) If the Subcontractor withdraws from this Subcontract or
defaults, the Government shall have the right to have all
data kept and maintained pursuant to Paragraph (1) above,
delivered to the Participant and the Government or
otherwise disposed of as the Contracting Officer shall
direct upon such termination. Any Proprietary Data
delivered pursuant to this paragraph shall be marked as
provided in Paragraph (g) above with the addition to the
legend thereof as follows: (4) This "Proprietary Data" may
be used by the Government or others, including the
Participant, on its behalf in confidence to the extent
necessary to enable completion of Phases II and/or III
under the Cooperative Agreement.
(3) The Subcontractor agrees to and does hereby grant to the
Government, including the Participant, or others acting on
its behalf, an irrevocable non-exclusive paid-up license
in and to any Proprietary Data of the Subcontractor which
are incorporated or embodied in the design or construction
or utilized in the operation of the Facility: (1) to
practice, or to have practiced, by or for the Government
at the Facility, and (2) to transfer such license with the
transfer of that Facility. Further, the Subcontractor
agrees to obtain an equivalent license from its
contractors, subcontractors, and licensors, if any. The
license granted pursuant to this subparagraph shall be for
the limited purpose of completion, repair or operation of
the demonstration facility.
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<PAGE>
(i) Commercialization of CGCC Technology.
(1) The Subcontractor agrees to obtain sufficient rights to
meet Participant's commitments to commercialize and/or
license CGCC Technology as set forth in the Cooperative
Agreement.
(j) The Subcontractor acknowledges that full and comprehensive
compliance of its reporting requirements under this Subcontract
may include disclosure of Proprietary Data to the Government for
exercise of the Government's rights in accordance with this
rights in Technical Data Clause. Recognizing that the Government
intends to publish information about the project which is the
subject of the Cooperative Agreement while preserving the
Proprietary Data of the Participant and the Subcontractor, the
Participant and Subcontractor agree to submit all deliverables as
stand-alone documents which do not contain Proprietary Data. Any
Proprietary Data needed for fullness of reporting shall be
included in a proprietary appendix containing data in which
either the Participant or the Subcontractor assert a proprietary
claim.
(k) Protected Clean Coal Technology Data.
(1) Notwithstanding any other provisions of this Rights in
Technical Data clause, the Participant or the
Subcontractor may, with concurrence of DOE, (i) claim and
mark as Protected Clean Coal Technology Data any data
first produced in the performance of this Subcontractor by
their employees, and (ii) so claim and mark, following
mutual agreement of the other party, any data first
produced in the performance of this Subcontract by the
other party's employees.
(2) Any such claimed Protected Clean Coal Technology Data will
be clearly marked as "Protected Clean Coal Technology
Data", will be treated as such, and, except as otherwise
provided herein, will not be published, disseminated or
disclosed to others outside the Government by the
Government for a period, as approved by DOE, of up to 5
years after completion of the operations phase of the
Cooperative Agreement without the prior written
authorization of the Participant. The marking shall
include the following legend and such other restrictions
or limitations on use or disclosure as may be applicable
or appropriate.
11
<PAGE>
PROTECTED CLEAN COAL TECHNOLOGY DATA
This Protected Clean Coal Technology Data was produced
under a Cooperative Agreement identified as DE-FC21-
92MC29310 under a DOE Clean Coal Technology Project and
may not be published, disseminated or disclosed to others
by the Government until 5 years after completion of the
operations phase of the above Cooperative Agreement,
unless express written authorization is obtained from the
Participant. Upon expiration of the period of protection
set forth in this legend, the Government shall be marked
on any reproduction of this data, in whole or in part.
(3) Any such marked Protected Clean Coal Technology Data may
be used by the DOE or others on its behalf for emergency
repair and overhaul work at the Facility, subject to the
restrictions on disclosure, publication, and dissemination
in the Legend.
(4) Any such marked Protected Clean Coal Technology data
shall, upon the request of DOE, be made available to DOE
contractors or DOE consultants who are supporting DOE in
the Government's Clean Coal Technology program of which
this Cooperative Agreement is a part, subject to the
restrictions on disclosure, publication, and dissemination
in the Legend, for use in performing work or monitoring
progress under the Project.
(5) With respect to use of Protected Clean Coal Technology
Data by non DOE personnel as provided for in paragraphs
(3) and (4) above, non DOE personnel shall be required to
sign and submit to the Participant a Non-Disclosure
Agreement (Appendix 1) if such data must be disclosed to
them.
(6) The Participant shall have the right to license such
Protected Clean Coal Technology Data or include such
Protected Clean Coal Technology Data in a license with
other technology developed under this Clean Coal
Technology Project and, in accordance with paragraph (j)
of the Cooperative Agreement, agrees to license such
Protected Clean Coal Technology Data to responsible third
parties. Such licenses shall include terms and conditions
that are reasonable under the circumstances, including
obligations of confidentiality.
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<PAGE>
(7) The obligations of confidentiality and restrictions on
publication and dissemination shall end for any Protected
Clean Coal Technology Data:
(i) At the end of the protected period, as indicated
in the Legend, i.e. 5 years after completion of
the operations phase of the Cooperative Agreement;
(ii) If the data becomes publicly known or available
from other sources without a breach of the
obligations of confidentiality with respect to the
Protected Clean Coal Technology Data;
(iii) If the same data is independently developed by
someone who did not have access to the Protected
Clean Coal Technology Data and such independently
developed data is made available without
obligations of confidentiality;
(iv) Five years, as agreed to by DOE, after a
determination not to enter into the operations
phase of the Cooperative Agreement, or after the
operations phase is terminated prior to
completion; or
(v) If the Participant disseminates or authorizes
another to disseminate such data without
obligations of confidentiality.
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APPENDIX 1
NON-DISCLOSURE AGREEMENT
I,______________________, as an employee of ______________________________,
operating under the terms and conditions of a contract or subcontract with the
United States Department of Energy (DOE), understand that during the course of
performing duties under such contract or subcontract, I may be furnished or
provided access to Proprietary data and/or Protected Clean Coal Technology Data
and/or information that is the property of _____________________and is submitted
for review or evaluation in the course of or under Cooperative Agreement
No._______________ between the ______________________ and DOE, and that such
data and/or information shall be used only as directed.
I certify that I will not disclose such Proprietary data and/or Protected Clean
Coal Technology Data and/or information to any non-DOE employees except those
who have executed same or similar Non-Disclosure Agreement nor to any DOE
employees without a need to know.
I certify that I will not disclose any Proprietary data and/or Protected Clean
Coal Technology Data and/or information except as provided herein, and that I
will take adequate precaution to protect any such data and/or information
relating to such technology which may come into my custody or control which is
marked with the Limited Rights Legend specified in paragraph 9(g) of the Rights
in Technical Data clause of the said Cooperative Agreement and with individual
pages marked with the legend, "Proprietary Data" and/or "Protected Clean Coal
Technology Data."
As used herein, Proprietary data and/or Protected Clean Coal Technology Data
and/or information means technical data to which I may be given access by
_________________, which may embody trade secrets developed at private expense,
such as design procedures or techniques, chemical composition of materials, or
manufactured methods, processes, or treatments including modifications thereof,
provided that such data:
(1) are not or have not been generally known or available from other sources
without obligation concerning their confidentiality; and
(2) have not been made available by the Participant or its subcontractors, to
others, including the U.S. Government, without obligation concerning their
confidentiality.
B1-1
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This non-disclosure agreement shall not be assigned, delegated, nor any right or
duty hereunder be transferred to any other individual or organization. The
Participant may enforce this agreement.
_________________________ ____________________________
Date Signature
_________________________ _____________________________
Witness Company
B1-2
<PAGE>
APPENDIX 2
PROPRIETARY DATA
The following shall constitute a definition of the categories of Technical data
which the Participant claims to be Proprietary data under the Rights in
Technical Data Clause 9. These data are available for inspection pursuant to
the provisions of Clause 9(f).
1. Computer source codes, design correlations and formulae, detailed design
calculations, and calculational procedures and techniques.
2. Design and manufacturing methodologies.
3. Correspondence, including reports, meeting minutes and notes, calculations,
and other documentation used for communications within and/or between the
Participant's organizations regarding commercial aspects of the Project.
4. Data, reports, or correspondence related to non-project activities,
including that related to other similar projects, to the extent such data,
reports, or correspondence are utilized in performance of work under this
Cooperative Agreement.
5. The control system details for the coal slurry preparation, coal
gasification, heat recovery, and fuel gas cleaning processing steps from
coal feed conveyor to gas turbine fuel flow. This includes computer
algorithms, computer software, computer software databases, computer
software documentation, theory, and hierarchy.
6. The theory, equations, and computer code describing the chemical
kinetics thermodynamics and heat, momentum, and mass transfer of the
relevant coal gasification, heat recovery, and fuel gas cleaning
processing steps from coal feed conveyor to gas turbine fuel flow.
7. Vendor/subcontractor Proprietary data supplied to the Participant.
8. Detailed gasification process heat and material balance data (flow,
pressure, temperature and key chemical components).
9. Detailed Piping and Instrumentation Diagrams (P&ID).
10. Facility operating procedures.
B2-1
<PAGE>
APPENDIX 3
PROTECTED CLEAN COAL TECHNOLOGY DATA
The following shall constitute a definition of the categories of Protected Clean
Coal Technology Data as defined under the Rights in Technical Data Clause 9
provided that these data do not divulge or allow derivation of Proprietary data.
Pursuant to Clause 9(1), these data are classified for marking as Protected
Clean Coal Technology Data.
1. Correspondence, including reports, meeting minutes and notes, calculations,
and other documentation used for communications between the Participant and
the Participant's subcontractors regarding technical and commercial aspects
of the Project.
2. Correspondence, including reports, meeting minutes and notes, calculations,
and other documentation used for communications between the Participant and
the Participant's subcontractors regarding technical and commercial aspects
of the Project.
3. Summary Process Flow Diagram (SPFD), including heat and material balance
data (flow, pressure, temperature, and key chemical components) of major
interconnecting streams, for major process steps including the following:
Coal handling
Air separation
Slurry preparation
Gasification
High temperature heat recovery (syngas)
Particulate removal
Low temperature heat recovery and fuel gas saturation
Acid gas removal
Sulfur recovery
Tail gas incineration
Combustion turbine generator
Heat recovery steam generator
Steam turbine generator/condenser
Make-up/demineralized water
Cooling water
Sour water treatment
Gasification plant waste water treatment
4. Individual Process Flow Diagrams (IPFD) for each of the major process
steps.
5. Facility operating logs and laboratory analysis records.
6. Scope of supply specifications for Project equipment and subsystems, and
process equipment list identifying equipment manufacturers.
7. Detailed physical drawings of the Project and its components.
B3-1
<PAGE>
8. Detailed Facility information related to capital cost for major equipment
components, capital cost by work breakdown structure tasks, and fixed and
operating costs listed by categories such as labor, fuel and feedstock,
chemicals, maintenance, supplies, etc.
9. General arrangement details of major equipment.
B3-2
<PAGE>
APPENDIX 4
CONTRACT DATA WITH UNLIMITED RIGHTS
The following shall constitute a definition of Contract Data for which the
Government shall have Unlimited Rights pursuant to Clause 9(b) of the Rights in
Technical Data Clause provided that these data do not divulge or allow
derivation of Proprietary data or Protected Clean Coal Technology Data.
1. Physical and chemical properties of feed coal, feed coal slurry, slag,
recycle char, raw syngas, sour syngas, and sweet syngas.
2. Major equipment list, overall plot plans and representative elevation
drawings, and nominal capacities for major systems including, but not
limited to, air separation, coal preparation and feed, gasification and
slag removal, product gas cooling and steam generation, particulate removal
and recycle, desulfurization, sulfur recovery, gas turbine cycle, gas
turbine heat recovery, and steam generator cycle.
3. Summary Process Block Diagram (SPBD) depicting major process steps and
major interconnecting streams with qualitative descriptions of the process
steps.
4. Overall material and energy balance including stream data (flow, pressure,
and temperature) of the major interconnecting streams of the following
process blocks: coal gasification, combustion turbine generator, heat
recovery steam generator and steam turbine generator.
5. Total capital costs for the facility and total fixed and operating costs of
the Facility, and general economics of the CGCC Technology when applied to
commercial plants.
6. Operating performance data, start-up and operating experience, overall
plant and component availability, qualitative materials performance, and
qualitative control philosophy description for the Facility.
7. Compositions and flow rates of all solid, liquid, and gaseous streams
discharged to the environment, as required by and submitted to regulatory
agencies.
8. All other data generated under the Cooperative Agreement not otherwise
classifiable under the Rights in Technical Data Clause 9 as being
Proprietary data or Protected Clean Coal Technology Data. In the event
that the Participant inadvertently fails to mark any such data as
Proprietary Data or Protected Clean Coal Technology Data, upon notification
to the COTR the Participant shall have the right within ninety (90) days of
submission to DOE to redesignate such data as Proprietary Data or Protected
Clean Coal Technology Data as appropriate and said data will be treated by
the DOE as such.
B4-1
<PAGE>
CERTAIN CONTRACT CLAUSES REQUIRED BY
COOPERATIVE AGREEMENT NO. DE-FC21-92MC29310
DEFINITIONS
PRIME CONTRACTOR shall mean the Wabash River Coal Gasification Repowering
Project Joint Venture, Destec Energy, Inc. or PSI Energy, Inc., as applicable.
CONTRACTOR shall mean that entity entering into a subcontract with the
Prime Contractor in connection with Cooperative Agreement No. DE-FC21-92MC29310.
EQUAL EMPLOYMENT OPPORTUNITY
For construction contracts over $10,000, the Contractor shall comply with
Executive Order 11246 of September 24, 1965 entitled "Equal Employment
Opportunity," as amended by Executive Order 11375 of October 13, 1967, as
supplemented in U.S. Department of Labor regulations (41 CFR Part 60) and any
amendments thereto as may be adopted hereafter.
ANTI-KICKBACK PROCEDURES
For all construction or repair contracts, the Contractor shall comply with
the Copeland Anti-Kickback Act (18 U.S.C. 874) as supplemented in U.S.
Department of Labor regulations (29 CFR Part 3) and any amendments thereto as
may be adopted hereafter.
CONTRACT WORK HOURS AND
SAFETY STANDARDS ACT--OVERTIME COMPENSATION
For construction contracts over $2,000 and for all contracts over $2,500
involving the services of mechanics or laborers. The Contractor shall comply
with Sections 103 and 107 of the Contract Work Hours and Safety Standards Act
(40 U.S.C. 347-330) as supplemented by U.S. Department of Labor regulations (29
CFR Part 5) and any amendments thereto as may be adopted hereafter.
REPORTING REQUIREMENTS
The Contractor shall provide the Prime Contractor with all documents, books,
records or other information necessary for the Prime Contractor to comply with
Article XV of the Schedule of Articles of Cooperative Agreement No. DE-FC21-
92MC29310 and Attachment C, Federal Assistance Reporting Checklist, attached
thereto and incorporated by reference therein.
1
<PAGE>
RECORDS RETENTION
For contracts over $10,000, the Contractor shall retain all financial and
performance records, supporting documents, statistical records, and other
records of the Contractor which the Contractor considers reasonably pertinent to
this contract. The period of required retention shall be from the date each
such record is received by the Contractor until three years after one of the
following dates, whichever is latest: Contractor's receipt of final payment
under this Contract; or the date of termination of this Contract. If any claim,
litigation, negotiation, investigation, audit, or other action involving the
records starts before the expiration of the three-year retention period, the
Contractor shall retain the records until such action is completed and all
related issues are resolved, or until the end of the three-year retention
period, whichever is later.
ACCESS TO RECORDS
For contracts over $10,000, the Prime Contractor, DOE, and the Comptroller
General of the United States, or any of their duly authorized representatives
shall have access to any books, documents, papers, or other records (including
those on electronic media) of the Contractor which are pertinent to this
contract. The purpose of such access is limited to the making of audits,
examinations, excerpts, and transcripts. The right of access described in this
paragraph shall last as long as the Contractor retains records which are
pertinent to this contract.
CLEAN AIR AND WATER
For contracts and subcontracts over $100,000, the Contractor and its
subcontractors shall comply with all applicable standards, orders, or
requirements issued under section 306 of the Clean Air Act (42 U.S.C. 1857(h)),
section 508 of the Clean Water Act (33 U.S.C. 1368), Executive Order 11738,
Environmental Protection Agency regulations (40 CFR Part 15) and any amendments
thereto as may be adopted hereafter.
ENERGY POLICY AND CONSERVATION
The Contractor shall comply with all mandatory standards and policies relating
to energy efficiency contained in the energy conservation plan of the State of
Indiana issued pursuant to the Energy Policy and Conservation Act (42 U.S.C.
6201, ET SEQ.).
2
<PAGE>
SCHEDULE 1
SYSTEM CHARGES
SITE: Wabash River Coal Gasification Repowering Project,
Terre Haute, Indiana
SYSTEM DESIGN SPECIFICATIONS:
18 MOD CANS with programmable graphics
10 MOD5 COMPUTERS
4 MODSERVERS
and associated MOD5 SOFTWARE as described in the
Agreement.
CHARGES:
Charges for the SYSTEM supplied hereunder accrue as follows:
$286,188.00 on the SHIPMENT DATE;
$572,376.00 on the INSTALLATION DATE; and
$286,188.00 on the date the SYSTEM is released to
operations.
These charges shall be payable within sixty (60) days after
the date specified.
<PAGE>
FIRST AMENDMENT TO
COMPUTERIZED PROCESS CONTROL AGREEMENT
This FIRST AMENDMENT TO COMPUTERIZED PROCESS CONTROL AGREEMENT
(this "First Amendment"), effective as of January 1, 1997, is by and
between ROFAN SERVICES INC. ("RSI") and DESTEC ENERGY, INC. ("DEI").
RECITALS:
WHEREAS, RSI and DEI entered into the Computerized Process Control
Agreement, executed by the last party on August 2, 1993 (the
"Agreement"), whereby the parties set forth their understanding
pertaining to the MOD5 Process Control Systems for DEI's Plants (as those
terms are defined in the Agreement); and
WHEREAS, RSI and DEI now desire to amend the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, RSI and DEI hereby
agree to the following terms, covenants, conditions and obligations as
amendment and supplement to the Agreement:
1. All terms, covenants, obligations and conditions in the
Agreement not superseded or amended by any provisions in this First
Amendment remain in full force and effect as originally written in the
Agreement. All capitalized terms used and not otherwise defined in this
First Amendment have the meaning assigned to such terms in the Agreement.
2. Subparagraphs 4.2(c), (d) and (e) of the Agreement are deleted
in their entireties.
3. Subparagraphs 4.3(b) and (c) of the Agreement are deleted in
their entireties.
4. Paragraph 9.2 of the Agreement is deleted in its entirety and
replaced by the following text:
9.2 RSI agrees to supply Maintenance Services, including
maintenance and adjustment of MOD5 HARDWARE parts, solely in
accordance with the SERVICE AGREEMENT which is incorporated as
Appendix A of this Agreement. RSI is not responsible for supply
of the MINICOMPUTER, but DEI shall acquire rights for the
services of MINICOMPUTER at DEI's PLANT. Unless otherwise agreed
in writing, DEI shall, at its expense, obtain and keep in full
effect throughout the term of this Agreement, a contract from the
manufacturer of the MINICOMPUTER providing for maintenance
service and will otherwise maintain the MINICOMPUTER and
associated software in good working order and make all necessary
and recommended adjustments and repairs thereto.
5. In Paragraph 1, Services, of Appendix A on page 19, the initial
unnumbered subparagraph is amended by deleting the first sentence and
replacing it with the following text:
To facilitate efficient use of SYSTEMS, RSI agrees to provide
and DEI agrees to acquire SYSTEM Maintenance Services as
provided hereunder.
6. Subparagraph 1(i) of Appendix A on page 19 is deleted in its
entirety.
7. The first sentence of subparagraph 1(ii) of Appendix A on page
20 is deleted in its entirety and replaced by the following text:
(ii) Maintenance Services for MOD5 HARDWARE and MOD5 SOFTWARE
include the assistance for implementation, where necessary, of
PRODUCT NOTICES for MOD5 HARDWARE and MOD5 SOFTWARE, on-request
preventive maintenance based on the specific needs of MOD5
HARDWARE, and remedial maintenance advice for MOD5 HARDWARE,
MOD5 SOFTWARE, firmware, and other HARDWARE MAINTENANCE
conducted by DEI.
8. Subparagraph 1(iii) of Appendix A on page 20 is deleted in its
entirety.
9. Subparagraph 3(i) of Appendix A on page 21 is deleted in its
entirety and replaced by the following text:
(i) For Maintenance Services described in Paragraph 1(ii)
performed at DEI's PLANT, DEI shall pay RSI a service charge in
the amount of RSI's standard charge for such services, plus
reasonable travel and living expenses. This fee is initially
$125.00 per hour. This charge is waived during the first ninety
(90) calendar days after the INSTALLATION DATE.
10. Subparagraph 3(ii) of Appendix A on page 21 is deleted in its
<PAGE>
entirety and replaced by the following text:
(ii) For home based maintenance and support services described
in Paragraph 1(ii) above conducted at the home locations of RSI
and its suppliers, DEI shall pay RSI a quarterly fee determined
by multiplying the total number of MOD CANS it has in its
SYSTEMS (Schedule 1) by a standard service fee, or as otherwise
agreed in writing between DEI and RSI. This standard service
fee shall be subject to RSI's reasonable annual adjustment to
spread RSI's annual related support costs on a pro rata basis
on written notice.
11. This First Amendment shall be binding upon and inure to the
benefit of the successors and assigns of RSI and DEI. The pronouns of any
gender shall include the other gender and either the singular or plural
shall include the other.
IN WITNESS WHEREOF, the parties have executed this First Amendment
as of the day and year first above written.
ROFAN SERVICES INC.
By: /s/ B. G. Taylorson
------------------------------
Name: B. G. Taylorson
Title: Authorized Representative
DESTEC ENERGY, INC.
By: /s/ Enrique M. Larroucau
------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President, Chief
Financial Officer and
Treasurer
<PAGE>
TERMINATION AGREEMENT CONCERNING THE
FIRST AMENDED LEASE AGREEMENT
This TERMINATION AGREEMENT CONCERNING THE FIRST AMENDED LEASE AGREEMENT,
is by and between DESTEC PROPERTIES LIMITED PARTNERSHIP ("Destec"), a Nevada
limited partnership, and THE DOW CHEMICAL COMPANY, a Delaware corporation
("Dow").
WHEREAS, Destec Ventures, Inc. and Dow entered into a Lease Agreement
effective December 29, 1989 concerning certain fee simple, leasehold and
other property interests, including options to acquire fee or determinable
fee ownership, in various lignite-containing lands in Texas; and
WHEREAS, the Lease Agreement was amended, superseded and replaced in its
entirety by the First Amended Lease Agreement effective the 1st day of
January, 1990;
WHEREAS, Destec Ventures, Inc. assigned all its rights, title and
interest in the Lease Agreement and the First Amended Lease Agreement to
Destec Properties Limited Partnership by an Assignment executed as of
December 17, 1991;
WHEREAS, Destec Ventures, Inc. conveyed its fee simple properties
covered by the First Amended Lease Agreement to Destec Properties Limited
Partnership;
WHEREAS, Destec Ventures, Inc. assigned its leases covered by the First
Amended Lease Agreement to Destec Properties Limited Partnership; and
WHEREAS, Dow and Destec now mutually desire to terminate the First
Amended Lease Agreement because Dow has exercised its option to purchase all
of Destec's interests in all of the reserves covered by the First Amended
Lease Agreement;
NOW THEREFORE, in consideration of their mutual covenants and
undertakings Dow and Destec agree as follows:
1. FIRST AMENDED LEASE AGREEMENT. Effective as of the Effective Time,
as such term is defined in the Agreement and Plan Of Merger dated
February 17, 1997, by and among Destec Energy, Inc., Dow, NGC Corporation
and NGC Acquisition Corporation II, the First Amended Lease Agreement is
terminated; provided however, any remedies of either party for any breach
of the other party's obligations under that Agreement shall survive
termination of that Agreement.
<PAGE>
This Agreement has been duly executed by authorized representatives of
the parties.
DESTEC PROPERTIES LIMITED PARTNERSHIP
BY: DESTEC PROPERTIES, INC.
GENERAL PARTNER
By: /s/ Enrique M. Larroucau
---------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President, Chief
Financial Officer and Treasurer
THE DOW CHEMICAL COMPANY
By: /s/ B.G. Taylorson
---------------------------
Name: B.G. Taylorson
Title: Corporate Director, Mergers & Acquisitions
WITNESSES: (as to Destec) WITNESSES: (as to Dow)
/s/ Marian M. Davenport /s/ Jane M. Gootee
- ------------------------------ ------------------------------
/s/ David T. Pendergast /s/ Marc F. Sperber
- ------------------------------ ------------------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of February, 1997 before me and the two witnesses
indicated above appeared Enrique M. Larroucau, who, being duly sworn, stated
that he is the Senior Vice President, Chief Financial Officer and Treasurer
of Destec Properties, Inc., General Partner of Destec Properties Limited
Partnership, a Nevada limited partnership, and that the above Termination
Agreement Concerning the First Amended Lease Agreement was signed on behalf
of and is the free act and deed of said limited partnership.
/s/ Stephen F. Arcano
-----------------------------------
NOTARY PUBLIC
STATE OF NEW YORK
MY COMMISSION EXPIRES
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of February, 1997 before me and the two witnesses
indicated above appeared B.G. Taylorson who, being duly sworn, stated that he
is the Corporate Director, Mergers & Acquisition of The Dow Chemical Company,
a Delaware corporation, and that the above Termination Agreement Concerning
the First Amended Lease Agreement was signed on behalf of and is the free
act and deed of said corporation.
/s/ Laura Heiman
-----------------------------------
NOTARY PUBLIC
STATE OF NEW YORK
MY COMMISSION EXPIRES
<PAGE>
TERMINATION AGREEMENT CONCERNING THE
FIRST AMENDED LIGNITE PROPERTIES MAINTENANCE AGREEMENT
This TERMINATION AGREEMENT CONCERNING THE FIRST AMENDED LIGNITE
PROPERTIES MAINTENANCE AGREEMENT, is by and between DESTEC PROPERTIES LIMITED
PARTNERSHIP, a Nevada limited partnership ("Destec"), and THE DOW CHEMICAL
COMPANY, a Delaware corporation ("Dow").
WHEREAS, Destec Ventures, Inc. and Dow entered into a Lignite Properties
Maintenance Agreement, effective December 29, 1989; and
WHEREAS, the Lignite Properties Maintenance Agreement was amended,
superseded and replaced in its entirety by the First Amended Lignite
Properties Maintenance Agreement, effective January 1, 1990; and
WHEREAS, Destec Ventures, Inc. assigned all its right, title and
interest in the Lignite Properties Maintenance Agreement and the First
Amended Lignite Properties Maintenance Agreement to Destec Properties Limited
Partnership by an Assignment executed as of December 17, 1991.
WHEREAS, Dow and Destec now mutually desire to terminate the First
Amended Lignite Properties Maintenance Agreement because Dow has exercised
its option to purchase all of Destec's interests in all of the reserves
covered by the First Amended Lease Agreement and the First Amended Lease
Agreement has been terminated through mutual consent; and
WHEREAS, both Dow and Destec desire that there be an orderly transition
from Destec to Dow concerning the management and maintenance of the lignite
property interests in Texas and Louisiana;
NOW THEREFORE, in consideration of their mutual covenants and undertakings
Dow and Destec agree as follows:
1. FIRST AMENDED LIGNITE PROPERTIES MAINTENANCE AGREEMENT. Effective as
of the Effective Time as defined in the Agreement and Plan of
Merger, dated February 17, 1997, by and among Destec Energy,
Inc., Dow, NGC Corporation and NGC Acquisition Corporation II
(the "Effective Time"), the First Amended Lignite Properties
Maintenance Agreement is terminated; provided however, any
remedies of either party for any breach of the other party's
obligations under that Agreement shall survive termination
thereof.
2. FILES, RECORDS AND OTHER INFORMATION. On or before the Effective
Time, Destec agrees to deliver to Dow at Dow's Houston, Texas,
location all of the files, records and other information (in
Destec's possession or under Destec's control), whether stored
on paper or by electronic means, related to the Texas and
Louisiana property interests formerly subject to the First
Amended Lignite Properties Maintenance Agreement. The files,
records and other information will be delivered in an organized
fashion and as they were kept in the usual course of business.
3. CONSULTATION AND TRAINING. Destec agrees to make available for five
days, at no cost, each of its employees (to the extent such
individuals are still Destec employees) formerly responsible for
managing and maintaining the Texas and Louisiana lignite property
interests under the First Amended Lignite Properties Maintenance
Agreement to consult with and train the Dow employee or employees
managing those property interests after Dow has received and
organized the files, records and other information referred to in
paragraph 2 above.
4. QUESTIONS AND ANSWERS. As long as its employees formerly responsible
for managing and maintaining the Texas and Louisiana lignite
property interests under the First Amended
<PAGE>
Lignite Properties Maintenance Agreement remain employed by
Destec or one of its parents, subsidiaries or affiliates, Destec
agrees that the employees shall promptly provide answers to
Dow's reasonable questions concerning the property interests.
5. FEE. The fee provided for 1997 in section 3 of the First Amended
Lignite Properties Maintenance Agreement shall be pro-rated as
of the Effective Time.
This Agreement has been duly executed by authorized representatives of the
parties.
DESTEC PROPERTIES LIMITED PARTNERSHIP
BY: DESTEC PROPERTIES, INC.
GENERAL PARTNER
By: /s/ Enrique M. Larroucau
-----------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President, Chief
Financial Officer and Treasurer
THE DOW CHEMICAL COMPANY
By: /s/ B. G. Taylorson
-----------------------------------
Name: B. G. Taylorson
Title: Corporate Director, Mergers & Acquisitions
WITNESSES: (as to Destec) WITNESSES: (as to Dow)
/s/ Marian M. Davenport /s/ Jane M. Gootee
- ----------------------------- -----------------------------
/s/ David T. Pendergast /s/ Craig Jones
- ----------------------------- -----------------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of February, 1997 before me and the two witnesses
indicated above Enrique M. Larroucau who, being duly sworn, stated that he is
the Senior Vice President, Chief Financial Officer and Treasurer of Destec
Properties, Inc., General Partner of Destec Properties Limited Partnership, a
Nevada limited partnership, and that the Termination Agreement Concerning
the First Amended Lignite Properties Maintenance Agreement was signed on
behalf of and is the free act and deed of said limited partnership.
IN WITNESS WHEREOF, I have here set my hand and affixed my official seal
the day and year in this certificate first above written.
/s/ Stephen F. Arcano
------------------------------------
NOTARY PUBLIC
STATE OF NEW YORK
MY COMMISSION EXPIRES
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of February, 1997 before me and the two witnesses
indicated above appeared B.G. Taylorson who, being duly sworn, stated that he
is the Corporate Director, Mergers & Acquisitions of The Dow Chemical
Company, a Delaware corporation, and that the above Termination Agreement
Concerning the First Amended Lignite Properties Maintenance Agreement was
signed on behalf of and is the free act and deed of said corporation.
/s/ Laura Heiman
------------------------------------
NOTARY PUBLIC
STATE OF NEW YORK
MY COMMISSION EXPIRES
<PAGE>
WAIVER, RELEASE AND SUBSTITUTION
--------------------------------
This WAIVER, RELEASE AND SUBSTITUTION made as of February 17, 1997, by
and between Destec Energy, Inc., a Delaware corporation ("Destec"), The Dow
Chemical Company, a Delaware corporation ("TDCC") and NGC Corporation, a
Delaware corporation ("NGC").
RECITALS
A. Destec entered into certain Compensation Adjustment Agreements
dated November 1, 1991 (the "Compensation Adjustment Agreements");
B. TDCC gave Destec a Guaranty, dated December 18, 1991 (the
"Guaranty"), whereby TDCC agreed to guarantee the performance of Destec of
its covenants and agreements under the Compensation Adjustment Agreements;
C. TDCC has entered into an Agreement and Plan of Merger, dated
February 17, 1997, with NGC, Destec and NGC Acquisition Corporation II (the
"Acquisition Agreement") whereby NGC has agreed to acquire TDCC's interest in
Destec (the "Acquisition");
D. In connection with the Acquisition, TDCC desires to be released from
all of its obligations under or in connection with the Guaranty;
E. In connection with the Acquisition Agreement, NGC has agreed to be
substituted in TDCC's stead, to assume all of TDCC's obligations under or in
connection with the Guaranty and to indemnify TDCC for any and all liability
which may arise under or in connection with said Guaranty;
F. In accordance with the terms and conditions of this Waiver, Release
And Substitution, Destec consents to the substitution of NGC in TDCC's stead
and the assumption by NGC of all of TDCC's obligations under or in connection
with the Guaranty; and
G. In accordance with the terms and conditions of the Guaranty, Destec
and NGC give the waiver and release set forth in this Waiver, Release And
Substitution.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the parties set forth below and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, it is
agreed as follows:
1. SUBSTITUTION
Effective as of the Effective Time as that term is defined in the
Acquisition Agreement, NGC is hereby substituted in TDCC's stead and agrees
to assume all of TDCC's rights and obligations under or in connection with
the Guaranty.
<PAGE>
2. INDEMNIFICATION
As of the Effective Time, NGC on its own behalf and on behalf of its
successors and assigns, hereby agrees to indemnify and hold harmless TDCC,
its successors and assigns, and each of its officers, shareholders,
directors, partners, agents and employees, and their respective successors
and assigns (each "Indemnified Party" and collectively the "Indemnified
Parties"), and shall not seek contribution from TDCC, or any of the
Indemnified Parties, for any cost, damage, loss, liability, obligation,
penalty, claim, action, suit or expense, including attorneys' fees, imposed,
asserted or incurred in connection with any and all claims, rights, demands,
actions, suits, causes of action, damages, counterclaims, defenses, losses,
costs, obligations, liabilities and expenses of every kind or nature, known
or unknown, suspected or unsuspected, fixed or contingent, foreseen or
unforeseen, liquidated or unliquidated, whether arising heretofore or
hereafter, based upon any actual or alleged fiduciary or other duty or
obligation to Destec, the individuals with whom Destec entered into
Compensation Adjustment Agreements, or either of their respective successors
or assigns, whether based upon common law, statute, or otherwise, in
connection with the obligations set forth in the Guaranty.
3. CONSENT TO SUBSTITUTION
As of the Effective Time, Destec on its own behalf and on behalf of its
successors and assigns, hereby consents to the substitution of NGC in TDCC's
stead and the assumption by NGC of all of TDCC's obligations, under or in
connection with the Guaranty. After the date this Agreement is signed,
Destec and NGC will use reasonable best efforts to obtain the written consent
of the Destec employees with Compensation Adjustment Agreements still covered
by the Guaranty as of the date of this Agreement, which individuals are
listed on Schedule A.
4. WAIVER AND RELEASE
As of the Effective Time, Destec and NGC on their own behalf and on
behalf of their successors and assigns, hereby release and discharge TDCC,
its successors and assigns, and each of its officers, shareholders,
directors, partners, agents and employees, and their respective successors
and assigns (each a "Released Party" and collectively the "Released
Parties"), from any and all claims, rights, demands, actions, suits, causes
of action, damages, counterclaims, defenses, losses, costs, obligations,
liabilities and expenses of every kind or nature, including attorney's fees,
known or unknown, suspected or unsuspected, fixed or contingent, foreseen or
unforeseen, liquidated or unliquidated, whether arising heretofore or
hereafter, based upon any actual or alleged fiduciary or other duty or
obligation to Destec, the individuals with whom Destec entered into
Compensation Adjustment Agreements, or either of their respective successors
or assigns, whether based upon common law, statute, or otherwise, in
connection with the obligations set forth in the Guaranty;
5. MISCELLANEOUS
<PAGE>
A. Amendment and Modification: Any amendment or modification made to
this Waiver, Release And Substitution must be so made in a writing signed by
all the parties.
B. Successors and Assigns: This Waiver, Release And Substitution and
the provisions hereof shall inure to the benefit of and be binding upon the
successors and assigns of Destec, NGC and TDCC.
C. No Third-Party Beneficiaries: Except as otherwise expressly
provided nothing in this Waiver, Release And Substitution, expressed or
implied, is intended to confer any rights or remedies upon any person or
entity, other than the parties hereto, the Indemnified Parties and the
Released Parties.
D. Counterparts: This Waiver, Release And Substitution may be executed
in one or more counterparts, all of which together shall constitute one
agreement binding on all parties to this Waiver, Release And Substitution.
E. Applicable Law: This Waiver, Release And Substitution shall be
governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the undersigned, intending to be bound
hereby, have duly executed this Waiver, Release And Substitution
as of the day and year first above written.
DESTEC ENERGY, INC.,
a Delaware corporation
By: /s/ Enrique M. Larroucau
-----------------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice President, Chief
Financial Officer and Treasurer
THE DOW CHEMICAL COMPANY,
a Delaware Corporation
By: /s/ B.G. Taylorson
-----------------------------------------
Name: B.G. Taylorson
Title: Corporate Director, Mergers &
Acquisitions
NGC CORPORATION
a Delaware corporation
By: /s/ Kenneth E. Randolph
-----------------------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President and
General Counsel
<PAGE>
SCHEDULE A
P.A. Agnew J.J. Stauffacher
B.L. Audish K.W. Moser
F.E. Bozeman D.K. Livingstone
B.E. Ybarguen E.P. Hermann
M.D. Thomas L.D. Garman
D.G. Sundstrom C. Goff
<PAGE>
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
P.A. Agnew
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
B.L. Audish
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
F.E. Bozeman
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
B.E. Ybarguen
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
M.D. Thomas
Date:
<PAGE>
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
D.G. Sundstrom
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
J.J. Stauffacher
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
K.W. Moser
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
D.K. Livingstone
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
E.P. Hermann
<PAGE>
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
L.D. Garman
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
E.L. Spencer
Date:
IN WITNESS WHEREOF, the undersigned, consents to the Waiver, Release And
Substitution by and between Destec Energy, Inc., The Dow Chemical Company and
NGC Corporation made as of February 17, 1997.
By:
--------------------------------------
C.F. Goff
Date:
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT
Dated as of January 17, 1997
among
TIGER BAY LIMITED PARTNERSHIP,
FPC ACQUISITION L.L.C.
and
FLORIDA POWER CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS................................1
Section 1.01 Definitions....................................................1
Section 1.02 Terminology....................................................6
ARTICLE II
PURCHASE AND SALE............................6
Section 2.01 Purchase and Sale of Assets....................................6
Section 2.02 Purchase Price and Adjustment..................................7
Section 2.03 Allocation of Purchase Price...................................8
ARTICLE III
CLOSING DATE...............................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.......................8
Section 4.01 Representations and Warranties of Tiger Bay....................8
Section 4.02 Representations and Warranties of FPC and Guarantor...........12
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS; GUARANTY...............14
Section 5.01 Covenants of Tiger Bay........................................14
Section 5.02 Covenants of FPC and Guarantor................................16
Section 5.03 Guaranty......................................................17
ARTICLE VI
CONDITIONS TO CLOSING..........................17
Section 6.01 FPC's Obligation to Close.....................................17
<PAGE>
Section 6.02 Tiger Bay's Obligation to Close...............................19
ARTICLE VII
LIMITATIONS...............................20
Section 7.01 Representations and Warranties................................20
Section 7.02 Remedies......................................................20
ARTICLE VIII
TERMINATION RIGHTS............................21
Section 8.01 Termination...................................................21
Section 8.02 Limitation on Right to Terminate; Effect of Termination.......22
ARTICLE IX
GENERAL.................................23
Section 9.01 Exclusive Agreement; Schedules................................23
Section 9.02 Assignment....................................................23
Section 9.03 Amendments....................................................23
Section 9.04 Further Assurances............................................23
Section 9.05 Notices.......................................................23
Section 9.06 Governing Law.................................................24
Section 9.07 Severability..................................................24
Section 9.08 Counterparts..................................................25
Section 9.09 Expenses......................................................25
Section 9.10 Conditions to Tiger Bay's Obligations.........................25
SCHEDULES
Schedule 1.01(a) List of Other Assigned Contracts
Schedule 1.01(b) Permits
Schedule 1.01(c) Plant Site Description
Schedule 2.03 Allocation of $445,000,000.00 of the Purchase
Price Among Certain Assets of Tiger Bay Limited
Partnership
Schedule 4.01(c) Violations
Schedule 5.01(e) Consents and Approvals
Schedule 4.01(h) Environmental Matters
-ii-
<PAGE>
Schedule 4.01(j) Effectiveness and Enforceability of, and
Compliance with, Assigned Contracts
Schedule 4.01(m) Tax Disputes
Schedule 5.01(a) Changes
Schedule 6.02(i) Funds to be Released
EXHIBITS
Exhibit A Assignment and Assumption
Exhibit B Assignment and Substitution
Exhibit C Bill of Sale
Exhibit D Form of Opinion to Counsel to Tiger Bay
Limited Partnership
Exhibit E Form of Opinion of Florida Counsel to
Tiger Bay Limited Partnership
Exhibit F Form of Opinion of Counsel to FPC
Acquisition L.L.C. and Florida Power
Corporation
-iii-
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "AGREEMENT") dated as of the 17th day of
January, 1997 among TIGER BAY LIMITED PARTNERSHIP ("TIGER BAY"), FPC ACQUISITION
L.L.C. ("FPC") and FLORIDA POWER CORPORATION ("GUARANTOR").
RECITALS:
WHEREAS, Tiger Bay is the owner of a nominally rated 220 megawatt
cogeneration power plant located in Polk County, Florida and certain other
assets related thereto; and
WHEREAS, Tiger Bay wishes to sell certain of its assets, and FPC
wishes to purchase said assets, on the terms herein set forth;
NOW, THEREFORE, in consideration of the mutual promises made herein,
and subject to the conditions hereinafter set forth, the parties agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. The terms set forth below shall have the
meanings ascribed to them in this Article I or in the part of this Agreement
referred to below:
"ACCOUNTS PAYABLE" has the meaning specified in SECTION 2.02 (b)(ii).
"ACCOUNTS RECEIVABLE" has the meaning specified in SECTION
2.02(b)(ii).
"ADDITIONAL ASSETS" has the meaning specified in SECTION 2.02 (a)(ii).
"ADDITIONAL ASSETS CHARGE" has the meaning specified in SECTION
2.02(a)(ii).
"ADDITIONAL INVENTORY CONTRACTS" has the meaning specified in SECTION
2.02(a)(ii).
"AFFILIATE" means, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity. As
used in this definition, the term "control", including the correlative
terms "controlling", "controlled by" and "under common control with" shall
mean the possession, direct or indirect, of the power to direct or cause
the direction of the management or policies of an entity, whether through
ownership of voting securities, by contract or otherwise.
<PAGE>
"AGREEMENT" means this Purchase Agreement.
"ALLOCATION" has the meaning specified in SECTION 2.03.
"APPEAL PERIOD" has the meaning specified in SECTION 8.01(e).
"ASSETS" means the Plant, the Assigned Contracts, the Permits, to the
extent assignable, and the Books and Records.
"ASSIGNED CONTRACTS" means the Material Assigned Contracts and the
Other Assigned Contracts.
"ASSIGNMENTS" means, collectively, the forms of the (a) Assignment and
Assumption attached as EXHIBIT A, (b) Leasehold Assignment and Substitution
attached as EXHIBIT B and (c) Bill of Sale attached hereto as EXHIBIT C.
"BANKS" has the meaning specified in SECTION 6.01(g).
"BEST EFFORTS" means a party's best efforts in accordance with
reasonable commercial practice and without the incurrence of unreasonable
expense.
"BOARD APPROVAL" has the meaning specified in SECTION 6.02(g).
"BOOKS AND RECORDS" means the books, records, plans, specifications
and drawings of Tiger Bay related to or required for the operation and
maintenance of the Plant.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banks in Houston, Texas, New York, New York, or St. Petersburg,
Florida are authorized or required by law to be closed.
"CLOSING" has the meaning specified in ARTICLE III.
"CLOSING DATE" has the meaning specified in ARTICLE III.
"CONFIDENTIALITY AGREEMENT" has the meaning specified in SECTION
5.02(c).
"CREDIT AGREEMENT" has the meaning specified in SECTION 6.01(g).
"CREDIT SUPPORT OBLIGATIONS" means any letters of credit, guarantees
and security deposits created by or for the benefit of Tiger Bay with
respect to any of the Assigned Contracts.
"DELIVERED ADDITIONAL INVENTORY" has the meaning specified in SECTION
2.02(a)(ii).
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<PAGE>
"ENGINEERING OPINION" has the meaning specified in SECTION
8.01(d)(ii).
"ENVIRONMENTAL CLAIM" means and includes any investigation, notice of
violation, demand, allegation, action, suit, injunction, judgment, order,
consent decree, penalty, fine, lien, proceeding, or claim (whether
administrative, judicial or private in nature) arising: (A) pursuant to, or
in connection with, an actual or alleged violation of any Environmental
Requirement; (B) in connection with any Hazardous Substance or actual or
alleged activity associated with any Hazardous Substance; (C) from any
abatement, removal, remedial, corrective, or other response action in
connection with any Hazardous Substance, Environmental Requirement, or
other order or directive of any Governmental Entity or regulatory entity;
or (D) from any actual or alleged damage, injury, threat, or harm to
health, safety, welfare, natural resources, or the environment.
"ENVIRONMENTAL REQUIREMENT" means any applicable local, regional,
state or federal statute, rule, regulation, order, decree, judgment, code,
permit, by-law, variance, license or ordinance pertaining to: (A)
occupational health; (B) the conservation management, or use of natural
resources and wildlife; (C) the protection or use of surface water and
ground water; (D) the management, manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, release,
threatened release, abatement, removal, remediation, or handling of, or
exposure to, any Hazardous Substance; (E) pollution (including any release,
direct or indirect, to air, land, surface water and ground water); or (F)
land use, zoning or land development; and includes, without limitation, the
following federal statutes (and their implementing regulations and the
analogous state, regional and local statutes and regulations): the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. Section 9601 ET SEQ.; the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976, as amended
by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. s 6901
ET SEQ.; the Federal Water Pollution Control Act of 1972, as amended by the
Clean Water Act of 1977, as amended, 33 U.S.C. Section 1251 ET SEQ.; The
Toxic Substances Control Act of 1976, as amended, 15 U.S.C. Section 2601 ET
SEQ.; the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Section 1100 ET SEQ.; the Clean Air Act of 1966, as amended by the
Clean Air Act Amendments of 1990, 42 U.S.C. Section 7401, ET SEQ.; the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section
651 ET SEQ.; and the Safe Drinking Water Act of 1974, as amended, 42 U.S.C.
Section 300(f) ET SEQ., and Chapters 373, 376 and 403, Florida Statutes.
"FERC" means the Federal Energy Regulatory Commission.
"FGT" means Florida Gas Transmission Company.
"FPSC" means the Florida Public Service Commission.
-3-
<PAGE>
"GAS SALES CONTRACT" means, collectively, (i) the Gas Sales and
Purchase Contract dated September 22, 1993 between Tiger Bay and Vastar Gas
Marketing, Inc. and (ii) the Parent Guaranty dated September 22, 1993
issued by Atlantic Richfield Company as supplemented by the letter
agreement dated December 30, 1993 between Tiger Bay and Vastar Gas
Marketing, Inc., each as amended through the date hereof.
"GAS TRANSPORTATION AGREEMENTS" means (i) the Firm Transportation
Service Agreement (Rate Schedule FTS-1) dated December 30, 1993 between
Tiger Bay and FGT and (ii) the Firm Transportation Service Agreement (Rate
Schedule FTS-2) dated December 30, 1993 between Tiger Bay and FGT, each as
amended through the date hereof.
"GOVERNMENTAL APPROVAL" means any permit, license, variance,
certificate, consent, letter, clearance, closure, exemption, authorization,
decision or action or approval of any federal, state, regional or local
governmental authority with jurisdiction over any Environmental
Requirement.
"GOVERNMENTAL ENTITY" means any court, governmental department,
commission, council, board, agency or other instrumentality of the United
States of America or any state, county, municipality or local government.
"HAZARDOUS SUBSTANCE" means any substance, chemical, compound,
product, solid, gas, liquid, waste, by-product, pollutant, contaminant, or
material which is defined, listed, designated or regulated as hazardous or
toxic under any Environmental Requirement.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"LEASE" means the Lease Agreement dated June 15, 1993 between Tiger
Bay and USAC, as amended through the date hereof.
"LEGAL REQUIREMENT" means any applicable law, statute, decree,
judgment, rule, regulation, code, ordinance, permit, bylaw, variance,
order, or license of a Governmental Entity, but does not include any
Environmental Requirement.
"LIEN" means any lien, charge, mortgage, pledge, encumbrance,
hypothecation, conditional sales contract, or security interest.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition of Tiger Bay or the operation of the Plant, as the case
may be.
"MATERIAL ASSIGNED CONTRACTS" means the PPAs, the O&M Agreement, the
Gas Sales Contract, the Gas Transportation Agreements, the Steam Sale
Agreement, and the Lease.
-4-
<PAGE>
"NOTICES" has the meaning specified in SECTION 9.05.
"O&M AGREEMENT" means that certain Operation and Maintenance
Agreement, dated as of July 15, 1993, between Tiger Bay and Destec
Operating Company, as amended through the date hereof.
"OTHER ASSIGNED CONTRACTS" means the contracts listed on SCHEDULE
1.01(a).
"PARTNERSHIP AGREEMENT" means the Second Amended and Restated
Agreement of Limited Partnership of Tiger Bay dated as of December 30,
1993.
"PERMITS" means the governmental licenses, authorizations, permits and
approvals, including any Governmental Approvals, listed on SCHEDULE
1.01(b).
"PERMITTED ENCUMBRANCES" means (i) any encumbrances created under or
pursuant to the Assigned Contracts, (ii) the encumbrances and other title
exceptions listed on or referenced in title policy no. 10 0057 10 001396
dated December 30, 1993 issued by Chicago Title Insurance Company
(including attachments thereto), (iii) liens and security interests
securing indebtedness incurred pursuant to the Credit Agreement and (iv)
all other encumbrances on and exceptions that do not in the aggregate
substantially impair the use of the Assets as they are currently being
used, including restrictive protective covenants, ad valorem taxes and
assessments that are not yet due and payable, mineral and royalty
reservations, easements, zoning ordinances and regulations, and mechanics'
and materialmen's liens for repairs or alterations in the ordinary course.
"PLANT" means all of Tiger Bay's personal property, fixtures,
leasehold improvements and equipment (exclusive of the Delivered Additional
Inventory) (i) located on the Plant Site as of the Closing Date, including,
without limitation: (A) the General Electric 7-FA combustion turbine, the
Deltak heat recovery steam generator and the General Electric steam
turbine, (B) spare parts, (C) the equipment owned by Tiger Bay connecting
the Plant to FPC's transmission lines, and (D) all operations, maintenance,
environmental and safety manuals and other written procedures relating to
the Plant, and (ii) any of the aforementioned in (A) through (D) that is
normally located on the Plant Site but is located off the Plant Site as of
the Closing Date.
"PLANT SITE" means the property described on SCHEDULE 1.01(c).
"PPAs" means (i) the three Contracts for the Purchase of Firm Energy
and Capacity from a Qualifying Facility each dated November 30, 1988
between General Peat Resources L.P., whose interest was assigned to Tiger
Bay, and Guarantor, (ii) the Negotiated Contract for the Purchase of Firm
Capacity and Energy from a Qualifying Facility dated as of March 28, 1991
between EcoPeat Avon Park, whose interest was assigned to Tiger Bay, and
Guarantor and (iii) the Standard Offer Contract for Purchase of Firm Energy
and
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<PAGE>
Capacity from a Qualifying Facility dated July 1989 between Timber Energy
Resources Inc., whose interest was assigned to Tiger Bay, and Guarantor,
(iv) any interconnection agreements entered into between Tiger Bay and
Guarantor with respect to any of the foregoing, (v) Sections 3 and 4 of the
Lease Termination Agreement dated February 22, 1993 among Tiger Bay,
Guarantor and EcoPeat Avon Park and (vi) all letters, agreements, documents
or instruments which supplement, modify, clarify, waive or amend any of the
foregoing.
"PURCHASE PRICE" has the meaning specified in SECTION 2.02(a)(ii).
"PURCHASE PRICE ADJUSTMENT" has the meaning specified in SECTION
2.02(b)(ii).
"REMEDIAL ACTIONS" means those actions consistent with remedial
actions recommended by a Governmental Entity.
"SCHEDULED OUTAGE" has the meaning specified in SECTION 8.01(d)(i).
"STEAM SALE AGREEMENT" means the Steam Sale Agreement dated as of June
15, 1993 between Tiger Bay and USAC, as amended through the date hereof.
"USAC" means U.S. Agri-Chemicals Corporation.
SECTION 1.02 TERMINOLOGY. All article, section, subsection, schedule
and exhibit references used in this Agreement are to this Agreement unless
otherwise specified. All schedules and exhibits attached to this Agreement
constitute a part of this Agreement and are incorporated herein. Unless the
context of this Agreement clearly requires otherwise, (i) the singular shall
include the plural and the plural shall include the singular wherever and as
often as may be appropriate, (ii) the words "includes" or "including" shall mean
"including, without limitation", and (iii) the words "hereof", herein",
"hereunder" and similar terms in this Agreement shall refer to this Agreement as
a whole and not any particular section or article in which such words appear.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01 PURCHASE AND SALE OF ASSETS. Upon the terms and subject
to the conditions of this Agreement, including the terms of the Assignments, at
the Closing, (a) Tiger Bay will sell, assign, convey, transfer and deliver to
FPC, the Assets and the Additional Assets (as hereinafter defined), and (b) FPC
shall purchase the Assets and the Additional Assets, shall assume all of Tiger
Bay's obligations with respect to the Assets and the Additional Assets, and
shall indemnify Tiger Bay, its partners, officers, employees, directors and
agents, from and against any and all liabilities arising after the Closing out
of, related to, or in connection with FPC's ownership or operation of the Assets
and the Additional Assets, and shall use its Best Efforts to cause the other
-6-
<PAGE>
parties to the Assigned Contracts to release Tiger Bay from any liability
thereunder effective as of the Closing.
SECTION 2.02 PURCHASE PRICE AND ADJUSTMENT.
(a) PURCHASE PRICE.
(i) The consideration (the "Purchase Price") to be paid by FPC
for the Assets and the Additional Assets shall be the sum of
$445,000,000.00 and the Additional Assets Charge (as hereinafter defined).
Upon the terms and subject to the conditions of this Agreement, at the
Closing, Tiger Bay and FPC will execute and deliver the Assignment and
Substitution and the Bill of Sale, and Tiger Bay, FPC and Guarantor will
execute and deliver the Assignment and Assumption whereby (i) Tiger Bay
assigns the Assets and the Additional Assets to FPC, against payment
therefor by FPC to Tiger Bay of the Purchase Price, in immediately
available funds by wire transfer to one or more bank accounts designated by
Tiger Bay, and (ii) FPC assumes the obligations of Tiger Bay with respect
to the Assets and the Additional Assets, and FPC and Guarantor provide the
indemnities set forth in SECTION 2.01(a).
(ii) "Additional Assets Charge" means an amount equal to the sum
of all amounts, if any, paid by Tiger Bay to General Electric Company, Inc.
pursuant to the Additional Inventory Contracts as of the Closing Date.
"Additional Inventory Contracts" means the purchase order(s) issued by
Tiger Bay or Destec Energy, Inc. to General Electric Company, Inc. for the
spare parts and equipment required to perform the hot gas repair of the gas
turbine at the Plant scheduled to be performed during March and April 1998.
Tiger Bay shall provide to FPC a copy of each Additional Inventory Contract
upon issuance. "Delivered Additional Inventory" means all spare parts and
equipment referred to in the second sentence of this Section 2.02(a)(ii),
if any, that are delivered to the Plant Site pursuant to the Additional
Inventory Contracts on or before the Closing Date. "Additional Assets"
means the Additional Inventory Contracts and the Delivered Additional
Inventory.
(b) PURCHASE PRICE ADJUSTMENT.
(i) On the Closing Date, FPC or Tiger Bay, as appropriate, shall
pay to the other party in immediately available funds by wire transfer to
one or more bank accounts designated by the payee, an amount (the "Purchase
Price Adjustment") calculated in accordance with this SECTION 2.02(b). The
Purchase Price Adjustment shall equal the Accounts Receivable less the
Accounts Payable, as such terms are hereinafter defined. If the Purchase
Price Adjustment is positive, FPC shall pay such amount to Tiger Bay, and
if the Purchase Price Adjustment is negative, Tiger Bay shall pay such
amount to FPC, which may be accomplished by a setoff against the Purchase
Price.
-7-
<PAGE>
(ii) "Accounts Receivable" means all amounts owed to Tiger Bay
under the Material Assigned Contracts as of midnight on the day before the
Closing Date including amounts accrued but not yet due and payable to Tiger
Bay thereunder. "Accounts Payable" means (A) all amounts owing by Tiger Bay
under the Material Assigned Contracts including amounts accrued but not yet
due and payable and (B) an amount equal to Tiger Bay's pro rata share of
the ad valorem taxes with respect to the Plant payable in 1997 prorated
based on the number of days in 1997 the Plant is owned by Tiger Bay and
based on the 1996 tax assessment. To determine Accounts Receivable which
are accrued but not yet due and payable, Tiger Bay and FPC will agree upon
a good faith estimate of such amounts including a reading of any applicable
meters as of midnight on the day prior to the Closing Date.
SECTION 2.03 ALLOCATION OF PURCHASE PRICE. Tiger Bay and FPC shall
use the allocation of $445,000,000.00 of the Purchase Price among the Assets
shown on SCHEDULE 2.03 for purposes of all relevant filings and other
information provided by each to the Internal Revenue Service.
ARTICLE III
CLOSING DATE
The consummation of the transactions envisioned hereby (the "CLOSING")
shall be held at a location to be mutually agreed by the parties, at 10:00 A.M.,
local time, on the fifth Business Day after the last condition contained in
SECTIONS 6.01(c), 6.01 (h), 6.02(c), 6.02(g), 6.02(h) AND 6.02(j) is satisfied
or waived, or at such other time and date as may be mutually agreed to in
writing by the parties. The date on which the Closing actually occurs is
referred to herein as the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF TIGER BAY. Tiger Bay
hereby represents and warrants to FPC as follows:
(a) ORGANIZATION AND GOOD STANDING. Tiger Bay is a limited
partnership duly formed and validly existing under the laws of the State of
Delaware and is in good standing under the laws of the State of Florida and the
State of Texas. Tiger Bay is not qualified to do business as a foreign limited
partnership in any other jurisdiction. Neither the character of the properties
now owned or leased by Tiger Bay nor the nature of the business now conducted by
it requires it to be so qualified, except where the failure to be so qualified
would not be material to Tiger Bay.
(b) PARTNERSHIP AUTHORITY; AUTHORIZATION OF AGREEMENT; ENFORCEABILITY
OF THE AGREEMENT. Tiger Bay has all requisite power and authority to enter into
and perform this
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<PAGE>
Agreement. The execution, delivery and performance of this Agreement and the
other documents and instruments to be delivered by Tiger Bay pursuant hereto,
and the transactions contemplated hereby and thereby, have been duly authorized
by Tiger Bay, subject to the conditions set forth in SECTIONS 6.02(g) AND (k).
This Agreement has been, and each such other document or instrument will be,
duly executed and delivered by Tiger Bay and constitutes, or upon such execution
and delivery shall constitute, legal, valid and binding obligations of Tiger
Bay, enforceable against Tiger Bay in accordance with its respective terms,
subject, however, to applicable bankruptcy, reorganization, moratorium or
similar laws affecting creditors' rights generally and except as the
enforceability thereof may be limited by general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
(c) NO VIOLATION. Except as set forth on SCHEDULE 4.01(c) hereto,
the execution and delivery hereof by Tiger Bay does not, and the performance and
compliance with the terms and conditions hereof by it and the consummation of
the transactions contemplated hereby by Tiger Bay will not:
(i) violate or conflict with any provision of its certificate
of limited partnership or the Partnership Agreement;
(ii) violate or conflict with any Legal Requirement binding
upon it, which violation would materially and adversely affect Tiger Bay's
ability to perform its obligations under this Agreement or FPC's operation
of the Plant after Closing; or
(iii) violate or result in a default under (whether with notice
or the lapse of time or both), or accelerate or permit the acceleration of
the performance required by, or require any consent, authorization or
approval or trigger any preferential right of purchase under (A) any
mortgage, indenture, loan or credit agreement or any other material
agreement or instrument evidencing indebtedness for money borrowed, or any
financing lease to which it is a party or by which it is bound or to which
any of its properties is subject or (B) any other material lease, contract,
agreement or instrument to which it is a party or by which it is bound or
to which its properties is subject, which violation would materially and
adversely affect Tiger Bay's ability to perform its obligations under this
Agreement.
(d) NO DEFAULT; LEGAL REQUIREMENTS.
(i) Tiger Bay is not in material breach or violation of, or in
material default under, and no condition exists that with notice or lapse
of time or both would constitute such a default under, (A) any mortgage,
indenture, loan or credit agreement, evidence of indebtedness or other
material instrument evidencing or securing borrowed money, or any material
financing lease to which Tiger Bay is a party or its property is bound, (B)
any judgment, order or injunction of any court or governmental agency of
(C) any other material agreement, contract, lease, license or other
instrument.
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(ii) Tiger Bay is in compliance in all respects with all Legal
Requirements applicable to the Assets, except where the failure to so
comply does not have a Material Adverse Effect. Neither this SECTION
4.01(d)(ii) nor any other representation in this SECTION 4.01 (other than
SECTION 4.01(h)) is intended to, and none of them shall, cover
environmental matters, which are the subject of SECTION 4.01(h).
(e) APPROVALS AND CONSENTS. Except as set forth on SCHEDULE 4.01(e),
no material filing, consent, authorization or approval under any Legal
Requirement binding upon Tiger Bay is required to be made or obtained by Tiger
Bay in order to execute or deliver this Agreement or to consummate the
transactions contemplated by this Agreement. Except as set forth in SECTIONS
6.02(g) AND (k) and on SCHEDULE 4.01(e), no consent or approval of any third
party which is not a Governmental Entity is required for the execution and
delivery of this Agreement by Tiger Bay or for the performance by Tiger Bay of
its obligations hereunder. Except as set forth on SCHEDULE 4.01(e), all of the
Governmental Approvals necessary to permit Tiger Bay to lawfully conduct and
operate its business in the manner it is currently conducted and to permit Tiger
Bay to own and operate the Assets in the manner it currently owns and operates
such Assets have been obtained and are in full force and effect except where the
failure to obtain any such Governmental Approval or to maintain the
effectiveness of such Governmental Approval does not have a Material Adverse
Effect.
(f) LITIGATION. There are no suits, judicial or administrative
actions or proceedings pending or, to Tiger Bay's knowledge, threatened that
(i) challenge the validity or enforceability of this Agreement, or (ii) seek to
restrain or prevent any action to be taken by Tiger Bay pursuant to this
Agreement, or (iii) would have a material and adverse effect on Tiger Bay's
ability to perform its obligations under this Agreement.
(g) LIENS. Tiger Bay owns, leases or otherwise has the right to use
the Assets free and clear of all Liens, except for Permitted Encumbrances and
options or rights that (i) in the aggregate would not reasonably be expected to
materially interfere with the use or operation of such assets as they are
currently being used or operated or (ii) materially impair the value of such
assets taken as a whole.
(h) ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 4.01(h), Tiger Bay is in
compliance with all Environmental Requirements.
(ii) Except as set forth in SCHEDULE 4.01(h), Tiger Bay has
obtained or applied for and is in compliance with all Governmental
Approvals required by any Environmental Requirement. Any Governmental
Approvals that are not final as of the date hereof are listed on SCHEDULE
4.01(h), and Tiger Bay shall act to have all pending Governmental Approvals
rendered final in the ordinary course of its business and according to
Tiger Bay's own business plan. Except as set forth in SCHEDULE 4.01(h), all
Governmental
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Approvals currently required for operation of the Plant and for Tiger
Bay's use of the Plant Site are in full force and effect and no
administrative or judicial appeal of any Governmental Approval is pending.
Any Governmental Approvals that are not final as of the Closing Date shall
be identified on a revised and updated SCHEDULE 4.01(h).
(iii) Except as set forth in SCHEDULE 4.01(h):
(A) Tiger Bay has not caused any unremediated release,
threatened release, or disposal of any Hazardous Substance at the
Plant Site in contravention of any Environmental Requirement.
(B) Tiger Bay has not manufactured, used, generated,
stored, treated, transported, disposed of, released, or otherwise
managed any Hazardous Substance except pursuant to and in
accordance with any Environmental Requirement.
(C) Tiger Bay: (a) has no knowledge that any condition
exists that would give rise to any liability on its part for
response or corrective action, natural resources damage, or any
other harm or activity pursuant to any Environmental Requirement
at the Plant Site, nor has Tiger Bay engaged in any activity
which would give rise to such liability or harm; (b) is not
subject to, has no notice or knowledge of, or is not required to
give any notice of any Environmental Claim involving Tiger Bay or
the Plant Site; (c) is subject to no condition or occurrence at
the Plant Site which could form the basis of an Environmental
Claim against Tiger Bay; and (d) has not received any written or
oral request for information under, or any Environmental Claim by
any Governmental Entity arising out of, any Environmental
Requirement.
(D) Neither Tiger Bay, the Plant, nor the Plant Site
is subject to, and Tiger Bay has no knowledge of, any imminent
restriction on the ownership, occupancy, use or transferability
of the Plant Site in connection with any (a) Environmental
Requirement, or (b) release, threatened release, or disposal of
any Hazardous Substance;
(i) BROKERAGE OR FINDERS FEES. Tiger Bay has not used a broker or
finder in connection with this Agreement, and there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated hereby based on any arrangement or agreement by or on
behalf of Tiger Bay.
(j) ASSIGNED CONTRACTS. Except as set forth on SCHEDULE 4.01(j),
each Material Assigned Contract is in full force and effect and is valid and
enforceable against Tiger Bay in accordance with its terms. Except as set forth
in SCHEDULE 4.01(j), (i) Tiger Bay is in compliance with all applicable material
terms and requirements of each Material Assigned Contract and has not
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received any written notice that it is currently in violation of any applicable
term or requirement of any Material Assigned Contract, and (ii) Tiger Bay is in
compliance with all applicable material terms and requirements of each Other
Assigned Contract and has not received any written notice that it is currently
in violation of any applicable material term or requirement of any Other
Assigned Contract, which violation has a Material Adverse Effect.
(k) CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants,
structures and equipment of Tiger Bay which are part of the Plant (except the
combustion turbine) are in good operating condition adequate for the uses to
which they are being put, normal wear and tear excepted.
(l) BOOK AND RECORDS. The Books and Records have been maintained in
all material respects in accordance with sound business practice.
(m) STATE AND LOCAL TAXES. Tiger Bay has timely filed, and as of the
Closing Date will have timely filed, all state, county and local property,
sales, use, and other tax returns relating to its overall business required to
be filed on or prior to the Closing Date, taking into account any extensions of
the filing deadlines which have been validly granted, and such returns are and
will be true and correct in all material respects. Tiger Bay has paid, or by the
Closing Date will have paid, all material state, county, and local property,
sales, use, and all other taxes and assessments (including penalties and
interest in respect thereof, if any) that have become or are due with respect to
its overall business or the purchased assets regarding any period ended on or
prior to the Closing Date, whether shown on such returns or not. SCHEDULE
4.01(m) describes all pending property, sales, use or other tax disputes
relating to or arising out of Tiger Bay's overall business or affecting any of
the purchased assets, including the nature and amount of the controversy, the
respective positions of the parties as to any material amounts claimed to be due
thereunder and the current status thereof.
SECTION 4.02 REPRESENTATIONS AND WARRANTIES OF FPC AND GUARANTOR.
FPC or Guarantor, as the case may be, hereby represent and warrant to Tiger Bay
as follows:
(a) ORGANIZATION AND GOOD STANDING. FPC is a limited liability
company duly organized, validly existing and of active status under the laws
of the State of Florida. Guarantor is a duly organized, validly existing
corporation in good standing under the laws of the State of Florida. Each of
FPC and Guarantor has the necessary power and authority to carry on its
respective business as now being conducted.
(b) AUTHORITY OF FPC AND GUARANTOR; ENFORCEABILITY OF THE AGREEMENT.
Each of FPC and Guarantor has all requisite power and authority to enter into
and perform this Agreement. The execution, delivery and performance of this
Agreement and the other documents and instruments to be delivered by FPC, or by
FPC and Guarantor, as the case may be, pursuant hereto, and the transactions
contemplated hereby and thereby, have been duly authorized by FPC, or by FPC and
Guarantor, as the case may be. This Agreement has been, and each such document
or instrument will be, duly executed and delivered by FPC, or by FPC and
Guarantor, as the case may be, and
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constitutes, or upon such execution and delivery will constitute, legal, valid
and binding obligations of FPC, or of FPC and Guarantor, as the case may be,
enforceable against FPC, or against FPC and Guarantor, as the case may be, in
accordance with its respective terms, subject to applicable bankruptcy,
reorganization, moratorium or similar laws affecting creditors' rights generally
and except as the enforceability thereof may be limited by general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
(c) NO VIOLATIONS. The execution and delivery of this Agreement by
FPC and Guarantor does not and, the consummation of the transactions
contemplated hereby will not:
(i) violate or conflict with any of the provisions of the
certificate of formation or limited liability company agreement of FPC, or
the certificate of incorporation or bylaws of Guarantor,
(ii) violate or conflict with any Legal Requirement binding
upon either, which violation would materially and adversely affect FPC's or
Guarantor's ability to perform their respective obligations under this
Agreement; or
(iii) violate or result in a default under (whether with notice
or the lapse of time or both) or accelerate or permit the acceleration of
the performance required by, or require any consent, authorization or
approval under (A) any mortgage, indenture, loan or credit agreement or any
other material agreement or instrument evidencing indebtedness for money
borrowed, or any financing lease to which either is a party or by which
either is bound or to which any of their properties is subject or (B) any
other material lease, contract, agreement or instrument to which either is
a party or by which either is bound or to which any of their properties is
subject, which violation would materially and adversely affect FPC's or
Guarantor's ability to perform their respective obligations under this
Agreement.
(d) APPROVALS AND CONSENTS. No material filing, consent,
authorization or approval under any Legal Requirement binding upon FPC or
Guarantor is required to be made or obtained by FPC or Guarantor in order to
execute or deliver this Agreement or to consummate the transactions contemplated
by this Agreement by it, except the filings with the FERC and the FPSC described
in SECTIONS 6.01(c) and 6.02(c) and the filings required under the HSR Act. No
consent or approval of any third party which is not a Governmental Entity is
required for the execution and delivery of this Agreement by FPC or Guarantor or
for the performance by FPC or Guarantor of their respective obligations
hereunder.
(e) LITIGATION. There are no suits, judicial or administrative
actions or proceedings pending or, to the knowledge of FPC or Guarantor,
threatened that (i) challenge the validity of enforceability of this Agreement,
or (ii) seek to restrain or prevent any action to be taken by FPC or Guarantor
pursuant to this Agreement, or (iii) would have a material adverse effect on
FPC's or Guarantor's ability to perform their respective obligations under this
Agreement.
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(f) BROKERAGE OR FINDERS FEES. Neither FPC nor its Affiliates have
used a broker or finder in connection with this Agreement, and there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated hereby based on any arrangement or
agreement by or on behalf of FPC or its Affiliates.
(g) DUE DILIGENCE. FPC is generally familiar with the Plant and has
conducted limited due diligence with respect to the Assets and is aware that
there have been technical problems with the Plant's combustion turbine.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS; GUARANTY
SECTION 5.01 COVENANTS OF TIGER BAY. Tiger Bay covenants and agrees
with FPC as follows:
(a) CERTAIN CHANGES. Except as may be permitted hereunder or as
otherwise contemplated in this Agreement and except as set forth on SCHEDULE
5.01(a), from the date hereof through the Closing Date, without first obtaining
the written consent of FPC, which consent shall not be unreasonably withheld,
Tiger Bay will not:
(i) make any material change in the conduct of its business or
operations;
(ii) merge into or with or consolidate with any other entity or
acquire all or substantially all of the business or assets of any
corporation, person or entity;
(iii) (A) mortgage, pledge or subject the Assets to any Lien,
except for Permitted Encumbrances, or (B) sell, transfer or terminate any
Asset, or amend any of the Assigned Contracts or the Permits, except in the
ordinary course of business;
(iv) take any action or enter into any commitment with respect
to or in contemplation of any liquidation, dissolution, recapitalization,
reorganization or other winding up of its business or operation except as a
result of this Agreement; or
(v) consent to the entry of any decree or order by a
Governmental Entity which would have a material adverse effect on (A) its
ability to perform hereunder or (B) the operation of the Plant.
(b) OPERATION OF BUSINESS. From the date hereof until the Closing
Date, except as permitted hereunder or contemplated hereby or as consented to in
writing by FPC, (i) Tiger Bay shall carry on its business in the usual and
ordinary course and (ii) use its Best Efforts to preserve and maintain the
Assets in all material respects in as good a condition as of the date hereof,
normal wear and tear excepted, and to enforce the O&M Agreement against Destec
Operating Company.
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Notwithstanding any provision of SECTION 5.01 to the contrary, Tiger Bay shall
have the right to release and terminate any and all Credit Support Obligations
and any agreements related to the Credit Agreement.
(c) ACCESS. Tiger Bay will afford to FPC and its authorized
representatives, at FPC's sole expense, risk and cost, reasonable access from
the date hereof through the Closing Date, during normal business hours, to its
personnel, properties, books and records relating to the Assets and will furnish
to FPC such additional financial and operating data and other information
relating to the Assets as FPC may reasonably request, to the extent that such
access and disclosure would not violate the terms of any agreement to which
Tiger Bay is bound or any Legal Requirement; provided, however, that the
confidentiality of any data or information so acquired shall be maintained by
FPC and its representatives in accordance with SECTION 5.02(c); and further
provided that all requests for access shall be directed to Destec Management
Services Inc., or such other persons as Tiger Bay may designate from time to
time. Tiger Bay will provide or otherwise make available to FPC any and all
audits, investigations, reports, records, data, site assessments or any other
documents in its possession concerning Hazardous Substances, compliance with any
Environmental Requirement or any other environmental subject.
(d) ANTITRUST NOTIFICATION; FERC AND FPSC FILINGS. Tiger Bay or its
Affiliate will, as promptly as practicable (and, in any event, within 30 days
after the execution hereof) (i) file with the Federal Trade Commission and the
Department of Justice the notification and report form required to be filed by
it for the transactions contemplated hereby (and shall request early termination
of the waiting period) and any supplemental information which may be reasonably
requested in connection therewith pursuant to the HSR Act, and (ii) cooperate
with FPC and Guarantor in the filing of any applications to the FERC and the
FPSC for any approvals required in connection with the transactions envisioned
by this Agreement.
(e) PUBLIC ANNOUNCEMENTS. Subject to applicable securities law or
stock exchange requirements, at all times until the Closing Date, Tiger Bay
shall promptly advise and obtain the approval (which may not be withheld
unreasonably) of FPC before issuing or permitting any of its Affiliates to
issue, any press release or other announcement with respect to this Agreement or
the transactions contemplated hereby, provided that no further approval shall be
required for press releases or other announcements which are substantially
similar to previously approved releases or announcements provided a copy of such
release or announcement is furnished promptly to FPC.
(f) TRANSACTION COSTS. Tiger Bay shall bear and pay all of the
costs, fees and expenses incurred by or on its behalf in connection with the
transactions contemplated by this Agreement, including any brokerage
commissions, finders' fee or similar compensation in connection with the
transactions contemplated hereby based on any arrangement or agreement by or on
behalf of Tiger Bay.
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(g) BEST EFFORTS. Assuming that all of the conditions to Tiger Bay's
obligations to close under this Agreement have been satisfied, Tiger Bay will
use its Best Efforts to obtain the satisfaction of the conditions to Closing set
forth in SECTION 6.01.
(h) PERMITS. Tiger Bay shall cooperate with FPC, including, without
limitation, by executing all necessary forms, applications, or notices, in (i)
the transfer and assignment to FPC of the Permits, to the extent assignable, on
or immediately after the Closing Date, and (ii) obtaining any modification,
revision or reissuance of a Permit which is not transferable or assignable to
FPC on or immediately after the Closing Date. FPC shall bear all out-of-pocket
costs and expenses in connection with any such transfer, assignment,
modification, revision or reissuance.
(i) SALES AND USE TAXES. Within fifteen days following the Closing
Date, Tiger Bay shall file a final Florida sales and use tax return, if
required, and pay any and all outstanding sales and use tax (including penalties
and interest in respect thereof, if any). Following the Closing Date, Tiger Bay
will furnish FPC with a certificate from the Florida Department of Revenue
stating that no taxes, interest, or penalty are due.
SECTION 5.02 COVENANTS OF FPC AND GUARANTOR. FPC or Guarantor as
the case may be, covenant and agree with Tiger Bay as follows:
(a) ANTITRUST NOTIFICATION AND OTHER GOVERNMENTAL FILINGS. FPC or
its Affiliate will as promptly as practicable (and, in any event, within 30 days
after the execution hereof) file with the Federal Trade Commission and the
Department of Justice the notification and report form required for the
transactions contemplated hereby (and request early termination of the waiting
period) and any supplemental information which may be reasonably requested in
connection therewith pursuant to the HSR Act. FPC, or FPC and Guarantor, will as
promptly as practicable make any filings with the FERC and the FPSC required to
be filed by them to consummate the transactions contemplated hereby and will
diligently seek the actions required of the FERC and FPSC to permit the
consummation of the transactions contemplated hereby.
(b) PUBLIC ANNOUNCEMENTS. Subject to applicable securities law or
stock exchange requirements, at all times until the Closing Date, FPC and
Guarantor shall promptly advise, and obtain the approval (which may not be
withheld unreasonably) of, Tiger Bay before issuing, or permitting any of FPC's
or Guarantor's directors, officers, employees or agents, or any of FPC's or
Guarantor's Affiliates to issue, any press release or other announcement with
respect to this Agreement or the transactions contemplated hereby, provided that
no further approval shall be required for press releases or other announcements
which are substantially similar to previously approved releases or announcements
provided a copy of such release or announcement if furnished promptly to Tiger
Bay.
(c) CONFIDENTIAL INFORMATION. In the event that this Agreement is
terminated or, if not terminated, until the Closing Date, the confidentiality of
any data or information received by FPC or Guarantor regarding the business and
assets of Tiger Bay and its Affiliates shall be
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maintained by FPC, Guarantor and their representatives under the same terms as
contained in, and in accordance with, the Confidentiality Agreement dated July
10, 1996 executed by Guarantor and Tiger Bay (the "CONFIDENTIALITY AGREEMENT").
(d) TRANSACTION COSTS AND TAXES. FPC shall bear and pay all of the
costs, fees and expenses incurred by or on behalf of FPC in connection with the
transactions contemplated by this Agreement, including the filing fees under the
HSR Act or required to be paid to the FPSC or the FERC and any brokerage
commissions, finders' fee or similar compensation in connection with the
transactions contemplated hereby based on any arrangement or agreement by or on
behalf of FPC or its Affiliates. In addition, FPC shall pay any sales, use or
other transfer taxes or filing fees resulting from the execution, delivery and
performance of this Agreement.
(e) BEST EFFORTS. Assuming that all of the conditions to FPC's
obligations to close under this Agreement have been satisfied, FPC will use its
Best Efforts to obtain the satisfaction of the conditions to Closing set forth
in SECTION 6.02.
(f) PLANT OPERATIONS STAFF. Upon termination of the O&M Agreement,
FPC or Guarantor shall endeavor to employ the existing full-time Plant
operations staff.
(g) PERMITS; CREDIT SUPPORT OBLIGATIONS. FPC shall have the primary
responsibility for preparing all necessary forms, applications, or notices to
request the transfer or assignment to FPC of any Permit, to the extent
assignable, and shall use its Best Efforts to cause the Permits to be
transferred to it on the Closing Date. In addition, on or before the Closing
Date, FPC and Guarantor shall take whatever action is necessary to cause the
release and termination of the Credit Support Obligations, including, without
limitation, providing substitute credit supports acceptable to the other parties
to the Assigned Contracts.
SECTION 5.03 GUARANTY. Guarantor hereby unconditionally and
irrevocably guarantees to Tiger Bay (i) the accuracy of the representations and
warranties of FPC contained in this Agreement and any agreement, document or
instrument executed by FPC in connection with this Agreement, and (ii) the due
and timely performance by FPC of all of FPC's obligations under this Agreement
and any agreement, document or instrument executed by FPC in connection with
this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01 FPC'S OBLIGATION TO CLOSE. FPC's obligation to close
under this Agreement is subject to the fulfillment, on or before the Closing
Date, of each of the following conditions (except to the extent that FPC shall
have hereafter agreed in writing to waive one or more of such conditions):
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(a) COMPLIANCE WITH AGREEMENT. Tiger Bay shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed or complied with by it on or prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Tiger Bay contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date.
(c) GOVERNMENTAL FILINGS AND ORDERS. With respect to the filings
contemplated by SECTIONS 5.01(d) and 5.02(a), (i) the waiting period under the
HSR Act shall have expired, (ii) the FPSC shall have issued a final, non-
appealable order approving the transactions envisioned by this Agreement in form
and substance satisfactory to FPC and Guarantor; provided, however, that any
such FPSC order that provides for approval of the transfer by FPC to Guarantor,
following the Closing, of the Assets and the Additional Assets and for cost
recovery by Guarantor of the Purchase Price over a period not to exceed five
years shall be satisfactory to FPC and Guarantor, and (iii) the FERC shall have
issued an order approving the transfer by Tiger Bay to FPC of any of the Assets
and the Additional Assets over which it has jurisdiction and the transfer by FPC
to Guarantor of any of the Assets or the Additional Assets over which it has
jurisdiction.
(d) LITIGATION. There shall not be pending any litigation or
proceeding (filed by a person or entity other than FPC, Guarantor or their
Affiliates) to restrain or prohibit the transactions contemplated by this
Agreement or to obtain material damages or other material relief in connection
with the consummation of such transactions.
(e) ASSIGNMENTS. Tiger Bay shall have executed and delivered to FPC,
or to FPC and Guarantor, as the case may be, the Assignments. Tiger Bay shall
have executed and delivered to FPC all forms, applications and notices prepared
by FPC to request the transfer or assignment to FPC of any Governmental
Approval.
(f) CERTIFICATE. Tiger Bay shall have delivered to FPC a
certificate, dated the Closing Date, executed on its behalf by its duly
authorized representative to the effect that the conditions in SECTIONS 6.01(a)
and (b) are satisfied insofar as they relate to Tiger Bay.
(g) INDEBTEDNESS. Tiger Bay shall have delivered to FPC evidence
that the indebtedness of Tiger Bay to The Fuji Bank and Trust Company and the
other banks (collectively, the "Banks") under that certain Credit Agreement
dated December 31, 1993 among the Banks and Tiger Bay, as amended, (the "CREDIT
AGREEMENT") shall be repaid out of the proceeds of the Purchase Price, and that
any Permitted Encumbrances securing Tiger Bay's obligations under the Credit
Agreement shall be released.
(h) CONSENTS. Any consents of third parties required in connection
with the Assignments shall have been obtained.
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(i) AMENDMENT TO O&M AGREEMENT. The O&M Agreement shall have been
amended effective as of the Closing Date to enable either party thereunder to
terminate the O&M Agreement effective at any time after nine months after the
Closing Date upon 90 days prior written notice to the other party.
(j) OPINION OF COUNSEL. FPC shall have received the opinions of
Tiger Bay's counsel dated as of the Closing Date substantially in the forms
attached hereto as EXHIBITS D and E.
SECTION 6.02 TIGER BAY'S OBLIGATION TO CLOSE. The obligation of
Tiger Bay to close under this Agreement is subject to the fulfillment on the
Closing Date of each of the following conditions (except to the extent that
Tiger Bay shall have hereafter agreed in writing to waive one or more of such
conditions, provided, however, that the conditions set forth in SECTIONS 6.02(g)
AND 6.02(j) cannot be waived without the written consent of Polk County CoGen,
Inc.):
(a) COMPLIANCE WITH AGREEMENT. FPC and Guarantor shall have
performed and complied with all covenants to be performed or complied with by
each on or prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of FPC and Guarantor contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date.
(c) GOVERNMENTAL FILINGS AND ORDERS. With respect to the filings
contemplated by SECTIONS 5.01(d) and 5.02(a), (i) the waiting period under the
HSR Act shall have expired, (ii) the FPSC shall have issued a final, non-
appealable order approving the transactions envisioned by this Agreement in form
and substance satisfactory to FPC and Guarantor; provided, however, that any
such FPSC order that provides for approval of the transfer by FPC to Guarantor,
following the Closing, of the Assets and the Additional Assets and for cost
recovery by Guarantor of the Purchase Price over a period not to exceed 5 years
shall be satisfactory to FPC and Guarantor, and (iii) the FERC shall have issued
an order approving the transfer by Tiger Bay to FPC of any of the Assets or the
Additional Assets over which it has jurisdiction and the transfer by FPC to
Guarantor of any of the Assets or the Additional Assets over which it has
jurisdiction.
(d) LITIGATION. There shall not be pending any litigation or
proceeding (filed by a person or entity other than Tiger Bay or its Affiliates)
to restrain or prohibit the transactions contemplated by this Agreement or to
obtain material damages or other material relief in connection with the
consummation of such transactions.
(e) PAYMENT OF PURCHASE PRICE. Tiger Bay shall have received the
payment of the Purchase Price pursuant to SECTION 2.02.
(f) CERTIFICATE. FPC and Guarantor shall have delivered to Tiger Bay
a certificate, dated the Closing Date, executed on behalf of each by its
president or a vice president, to the effect that (i) the conditions of SECTIONS
6.02(a) and (b) have been satisfied insofar as they relate to FPC
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and Guarantor and (ii) FPC has had such access to the Assets and the Additional
Assets, the records of Tiger Bay and such of Tiger Bay's officers, directors and
agents as it desired in order to enable it to perform all the due diligence that
it desired to perform in order to enable it to evaluate the risks and merits of
the transactions contemplated hereby.
(g) BOARD APPROVAL. On or before January 21, 1997, or such later
date as may by mutually agreed to by FPC, Tiger Bay and Destec Energy, Inc., the
Board of Directors of Destec Energy, Inc. shall have duly approved the
consummation of the transactions contemplated by this Agreement (the "BOARD
APPROVAL").
(h) CONSENTS AND RELEASES. Any consents required from third parties
in connection with the Assignments shall have been obtained and Tiger Bay shall
have obtained releases, in form and substance satisfactory to Tiger Bay, of the
Assigned Contracts and the Credit Support Obligations and Tiger Bay shall have
received all funds in accounts identified on SCHEDULE 6.02(j).
(i) OPINION OF COUNSEL. Tiger Bay shall have received an opinion of
FPC's and Guarantor's counsel dated as of the Closing Date substantially in the
form of EXHIBIT F.
(j) CLOSING OF DESTEC SALE. The closing of the sale of Destec
Energy, Inc. shall have been consummated.
ARTICLE VII
LIMITATIONS
SECTION 7.01 REPRESENTATIONS AND WARRANTIES. (a) The representations
and warranties of Tiger Bay contained in this Agreement or in any document or
instrument executed in connection herewith shall not survive the Closing.
(b) EXCEPT AS EXPRESSLY SET OUT HEREIN, TIGER BAY MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OR REPRESENTATION WITH RESPECT TO MERCHANTABILITY OR
FITNESS FOR ANY PURPOSE.
SECTION 7.02 REMEDIES. (a) The sole remedy of any party for any
breach by another party of any representation or warranty made by such party
herein is to terminate the Agreement pursuant to and in accordance with ARTICLE
VIII.
(b) Nothing herein shall restrict any party from pursuing any rights
or remedies available to it at law or in equity in the event of a breach by
another party of any covenant or obligation hereunder (exclusive of
ARTICLE VII); provided, however, that no party shall be liable to
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any other party for any consequential, incidental, special, or indirect damages
(including lost profits) or punitive damages, whether based on statute,
contract, tort or otherwise.
ARTICLE VIII
TERMINATION RIGHTS
SECTION 8.01 TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date as follows, and in no other manner:
(a) by mutual consent of FPC, Guarantor, and Tiger Bay;
(b) after January 21, 1997, or such later date for obtaining Board
Approval as has been mutually agreed to by FPC, Tiger Bay and Destec Energy,
Inc., by written notice from any party to the others, if the Board Approval has
not been obtained prior to the giving of such notice;
(c) prior to February 1, 1997, by written notice from FPC to Tiger
Bay that FPC's due diligence with respect to the Assets (except with respect to
the Plant gas turbine compressor) has been completed and the results were
unsatisfactory to it, and FPC is therefore terminating this Agreement;
(d) on or prior to April 30, 1997, by written notice from FPC to
Tiger Bay that:
(i) FPC's investigation of the Plant gas turbine compressor
conducted during the period of the outage of the Plant scheduled to begin
on March 15, 1997 (the "Scheduled Outage") has been completed; provided,
however, that if FPC requests that Tiger Bay open the compressor casing in
connection with such investigation, Tiger Bay shall do so and (A) FPC shall
reimburse Tiger Bay for all costs and expenses incurred by Tiger Bay to
open and close the compressor casing within twenty days after receipt of
Tiger Bay's invoice therefor, and (B) for purposes of the capacity factor
calculations pursuant to the PPAs, Guarantor shall exclude all the hours,
if any, by which the Scheduled Outage was extended due to the opening and
closing of the compressor casing at FPC's request; and
(ii) in the written opinion of FPC's professional engineer
performing or supervising such investigation rendered in good faith (the
"Engineering Opinion"), based on General Electric approved repair criteria
and performance versus aging data, such investigation has revealed that the
mechanical integrity of the compressor is compromised and/or that a
material loss of performance has resulted or will result in excess of that
which is to be expected from normal aging, unless Tiger Bay within ten days
after receipt of such notice and the Engineering Opinion shall have either
(i) offered in writing to repair or replace such compressor at no
additional cost to FPC, or (ii) shall have given FPC written notice that
Tiger Bay disputes the conclusion(s) reached in such Engineering Opinion.
In the event that Tiger Bay disputes the Engineering Opinion and such
dispute is not resolved by good faith
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negotiations between FPC and Tiger Bay within thirty days after FPC's
receipt of written notice of such dispute, termination hereunder shall
become effective at the end of such thirty-day period.
(e) by notice from Tiger Bay to FPC, if the Closing Date shall not
have occurred on or before July 1, 1997 (or such later date as may have been
agreed upon in writing by the parties); provided, however that if (i) by July 1,
1997 the FPSC has issued an order approving the transactions contemplated by
this Agreement satisfactory to FPC and Guarantor in accordance with SECTIONS
6.01(c)(ii) and 6.02(c)(ii) and no party has filed an appeal therefrom, but the
time period(s) for filing any such appeal (the "Appeal Period") shall not have
expired, and (ii) all conditions in SECTION 6.02 except SECTION 6.02(c)(ii) have
been fulfilled or waived in accordance therewith, then Tiger Bay may exercise
its right to terminate this Agreement pursuant to this SECTION 8.01(e) only if
an appeal of such FPSC order is filed during the Appeal Period.
(f) by any party by notice to the others, if a final non-appealable
judgment has been entered against such party or any of its Affiliates
restraining, prohibiting or declaring illegal the transactions contemplated
hereby; or
(g) by a non-defaulting party giving written notice to a defaulting
party provided that the non-defaulting party shall have previously given the
defaulting party written notice specifying the nature of the default and thirty
days have passed since such notice was given and the default has not been cured
or waived. A party shall be in default under this Agreement, and thereby a
defaulting party, in the event that (i) any representation or warranty made by
such party in this Agreement shall prove to be false or misleading in any
material respect, (ii) such party fails to perform any covenant set forth in
this Agreement, or (iii) such party fails to timely perform or satisfy any
material obligation set forth in this Agreement to be performed or satisfied by
it.
(h) by written notice from any party to the others, if the FPSC
issues an order denying approval of the transaction envisioned by this
Agreement, or if the FPSC fails to issue an order in accordance with SECTIONS
6.01(c)(ii) and 6.02(c)(ii) on or before July 1, 1997; provided, however, that
if by July 1, 1997 the FPSC has issued an order approving the transactions
contemplated by this Agreement satisfactory to FPC and Guarantor in accordance
with SECTIONS 6.01(c)(ii) and 6.02(c)(ii) and no party has filed an appeal
therefrom, but the Appeal Period shall not have expired, then a party may
exercise its right to terminate this Agreement pursuant to this SECTION 8.01(h)
only if an appeal of such FPSC order is filed during such Appeal Period.
SECTION 8.02 LIMITATION ON RIGHT TO TERMINATE; EFFECT OF TERMINATION.
A party shall not be allowed to exercise any right of termination pursuant to
SECTION 8.01 if the event giving rise to the termination right shall be due to
the failure of such party or its Affiliate to perform or observe in any material
respect any of the covenants set forth herein to be performed or observed by
such party of its Affiliate; provided that SECTIONS 4.01(i), 4.02(f), 5.01(f),
5.02(c), 5.02(d), 5.03, 8.01(d)(i), 8.02 and 9.09 shall survive any such
termination.
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ARTICLE IX
GENERAL
SECTION 9.01 EXCLUSIVE AGREEMENT; SCHEDULES. This Agreement and the
attached schedules and exhibits and the agreements and documents to be executed
pursuant hereto set forth the entire agreement and understanding of the parties
in respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and undertakings (oral or written) relating to the
subject matter hereof. The disclosures in the Schedules hereto are to be taken
as relating to the representations and warranties of Tiger Bay as a whole. The
inclusion of information in the Schedules hereto shall not be construed as an
admission that such information is material. In addition, matters reflected in
the Schedules are not necessarily limited to matters required by this Agreement
to be reflected on such Schedules. Such additional matters are set forth for
information purposes only and do not necessarily include other matters of a
similar nature. No representation, promise, inducement or statement of intention
has been made by any party which is not embodied in or superseded by this
Agreement or the Confidentiality Agreement or in the agreements and documents
to be executed pursuant hereto, and no party shall be bound by or liable for any
alleged representation, promise, inducement or statement of intention not so set
forth.
SECTION 9.02 ASSIGNMENT. This Agreement and the rights and
obligations hereunder shall not be assigned by any party hereto without the
prior written consent of the other parties, except that any party may assign an
interest in all of its rights hereunder to any Affiliate after the Closing;
provided that no assignment shall relieve the assigning party of any of its
warranties, representations, or obligations contained herein.
SECTION 9.03 AMENDMENTS. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the parties, or, in the case of a waiver, by or on behalf of the
party waiving compliance. The failure of any party at any time or times to
require performance of any provisions hereof shall in no manner affect the right
at a later time to enforce the same. No waiver by any party of any condition, or
of any breach of any term, covenant, representation or warranty contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of any breach of any other term, covenant, representation
or warranty. Notwithstanding the foregoing, in the event that the Closing
occurs, any condition not theretofore fulfilled will be deemed waived.
SECTION 9.04 FURTHER ASSURANCES. The parties agree to execute such
further instruments or documents as any party may from time to time reasonably
request in order to confirm or carry out the transactions contemplated in this
Agreement; provided that no such instrument or document shall expand a party's
liability beyond that contemplated in this Agreement.
SECTION 9.05 NOTICES. All notices, requests, demands and other
communications (collectively, "NOTICES") required or permitted to be given
hereunder shall be in writing and
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delivered personally, or by facsimile transmission or mailed first class,
postage prepaid, registered or certified mail, as follows:
If to Tiger Bay, to:
Tiger Bay Limited Partnership
2500 City West Blvd.
Suite 150
Houston, Texas 77042
Attention: Chuck Cook, Central Florida DGE, Inc.
Facsimile No. (713) 735-4169
If to FPC, to:
FPC Acquisition L.L.C.
3201 34th Street South
St. Petersburg, Florida 33733
Attention: Robert Dolan
Facsimile No. (813) 866-4922
If to Guarantor, to:
Florida Power Corporation
3201 34th Street South
St. Petersburg, Florida 33733
Attention: Robert Dolan
Facsimile No. (813) 866-4922
All notices shall be effective upon receipt. Any party may change its Notice
address by giving written Notice to the other in the manner specified above.
SECTION 9.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
SECTION 9.07 SEVERABILITY. In the event any of the provisions hereof
are held to be invalid or unenforceable under any Legal Requirement, the
remaining provisions hereof shall not be affected thereby. In such event, the
parties hereto agree and consent that such provisions and this Agreement shall
be modified and reformed so as to effect the original intent of the parties as
closely as possible with respect to those provisions which were held to be
invalid or unenforceable.
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SECTION 9.08 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which shall constitute but one agreement.
SECTION 9.09 EXPENSES. Except as expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each party shall pay its own expenses incident to the preparation of the
Agreement and for consummating the transaction.
SECTION 9.10 CONDITION TO TIGER BAY'S OBLIGATIONS. Except with
respect to the second sentence of this SECTION 9.10, Tiger Bay's obligations
hereunder shall be conditioned upon its receipt from the Banks of their
consent(s) to the execution of this Agreement. Tiger Bay shall use its Best
Efforts to obtain such consent(s) as soon as practicable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
TIGER BAY LIMITED PARTNERSHIP
By: Central Florida DGE, Inc.,
its general partner
By: /s/ Charles C. Cook
--------------------------
Name: Charles C. Cook
--------------------------
Title: Vice President
--------------------------
FPC ACQUISITION L.L.C.
By: /s/ Joseph H. Richardson
--------------------------
Name: Joseph H. Richardson
--------------------------
Title: President
--------------------------
For: Florida Power Corporation,
its sole member
FLORIDA POWER CORPORATION
By: /s/ Joseph H. Richardson
--------------------------
Name: Joseph H. Richardson
--------------------------
Title: President
--------------------------
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DESTEC ENERGY, INC.
EMPLOYEES' STOCK PURCHASE PLAN
The purpose of the Destec Energy, Inc. (the "Company") Employees' Stock
Purchase Plan (the "Plan") is to provide eligible employees with an opportunity
to purchase shares of common stock, par value $.01 ("Common Stock"), of the
Company at a discount from the prevailing stock market price through a payroll
deduction system.
1. IMPLEMENTATION OF PLAN. The Board of Directors of the Company (the
"Board") may, pursuant to the terms hereof, make available to all eligible
employees the opportunity to purchase shares of Common Stock at a discount
through a payroll deduction system. Each year the Board shall determine whether
it will make the Plan available to eligible employees (a "Plan Year") and will
offer Common Stock for subscription by all eligible employees pursuant to the
terms of this Plan.
2. ELIGIBLE EMPLOYEES. The Plan will be made available to employees who
are full-time U.S. or non-U.S. employees whose normal work week is twenty hours
or more and who are on the payroll of the Company or any corporation or
partnership in which the Company owns directly or indirectly ninety percent or
more of the voting power of such entity. Employees under majority age may
subscribe under the Plan if they meet the other requirements outlined above. An
eligible employee who accepts an offer of subscription for shares of Common
Stock under the Plan shall be referred to herein as a "Subscriber."
3. ADMINISTRATION AND INTERPRETATION. The Plan shall become effective as
of the date of its adoption by resolution of the Board and shall remain in
effect thereafter, unless terminated by the Company. Deloitte & Touche, L.L.P.,
or any successor determined by the Vice President of Human Resources, will
administer the Plan ("Third Party Plan Administrator") with the assistance of
the Vice President of Human Resources and payroll personnel of the Company. The
Vice President of Human Resources shall supervise the administration and
enforcement of the Plan according to its terms and shall have all powers
necessary to accomplish these purposes and discharge the duties imposed hereby,
including, but not limited to, the power to (i) construe and interpret the Plan,
(ii) determine all questions of eligibility, and (iii) compute the amount and
determine the manner and time of payment of all benefits under the Plan. The
Vice President of Human Resources (or his designee's) interpretation of any
provision of the Plan will be final and binding upon all parties concerned
unless otherwise determined by the Board.
4. STOCK SUBJECT TO PLAN. There is hereby established a Stock Purchase
Plan Reserve (the "Reserve"), to which shall be allocated 500,000 shares of
Common Stock. Upon the sale of shares of Common Stock pursuant to this Plan, the
Reserve shall be reduced by the number of shares so sold. Sales hereunder may be
made from authorized but unissued shares or from shares reacquired by the
Company.
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5. PARTICIPATION AND DURATION OF THE OFFER. Participation in the Plan is
completely voluntary. In any Plan Year, the Board shall advise eligible
employees in writing of the terms of the offer of subscription, including the
total number of shares of Common Stock available during the Plan Year, the
purchase price of the shares, any other terms, conditions and restrictions
relating thereto, and that such employee shall have a minimum of twenty (20)
days from the date of the writing to accept such offer of subscription in the
manner set forth in the offer. The Board may, in the exercise of its discretion,
extend the term of the offer of subscription.
6. THE PURCHASE PRICE. The purchase price of the shares of Common Stock
being offered under the Plan shall be determined by the resolution of the Board
designating a Plan Year and will be based on a discount from the market price
for the Common Stock over a ten day period in the month immediately preceding
the designation of the Plan Year (the "Plan Price"). In each Plan Year, the
Board shall also designate a date for the determination of the Market Price for
the Common Stock (the "Market Price Date"). The Market Price shall be the
average of the high and low trading prices of the Company's Common Stock as
reported in THE WALL STREET JOURNAL on the Market Price Date. If on the Market
Price Date, the Market Price is less than the Plan Price, the purchase price to
Subscribers under subscriptions still in effect under the Plan at the Plan
Completion Date, as defined below, shall be the Market Price rather than the
Plan Price. In that event, any amount by which the total withheld from the pay
of each Subscriber still participating in the Plan exceeds the total Market
Price of the shares for which his or her subscription is then in effect, shall
be refunded to the Subscriber.
7. NUMBER OF SHARES WHICH AN EMPLOYEE MAY PURCHASE. The Board may set a
minimum subscription which will be accepted for purchase of shares of Common
Stock. No employee may enter into a subscription for shares of Common Stock
having a total purchase price (based on the Plan Price) in excess of ten percent
of such employee's gross annual salary. For this purpose, "annual salary"
consists of regular base pay only and does not include any overtime pay, cash
awards or award and option plan compensation. The Board shall set the date for
determination of any eligible employee's annual salary and the size of an
eligible employee's permissible subscription in the Plan Year.
8. PRORATION IN THE EVENT OF OVERSUBSCRIPTION. The number of shares of
Common Stock which any individual employee may purchase pursuant to the Plan in
any Plan Year may be reduced in the unlikely event that the aggregate number of
shares that are purchased by all Subscribers in the Plan Year exceeds the number
of shares reserved by the Board for purposes of the Plan during a Plan Year.
Such reductions, if required, will be accomplished by prorating the shares
available for such Plan Year among the subscriptions received.
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<PAGE>
9. METHOD OF PAYMENT.
(a) PAYROLL DEDUCTIONS. Subject to a Subscriber's right to
prepayment as described in Paragraph 10 below, subscriptions will be
payable by means of payroll deductions on an after-tax basis only. No
Subscriber may satisfy his or her subscription by the method of a "lump
sum" of cash at the commencement of any Plan Year.
During any Plan Year, the Board shall designate the dates on which
payroll deductions pursuant to the Plan will begin (Plan Year Commencement
Date") and end ("Plan Year Completion Date"). Each Subscriber will
authorize such payroll deductions during the applicable period by executing
an authorization form in the time and manner determined by the Company, and
such amounts will be deducted in conformity with the Company's payroll
deduction schedule. The amount of deduction necessary for the purchase of
Common Stock by each Subscriber shall be determined by the Third Party Plan
Administrator. If a Subscriber misses any payment because of being
temporarily off the payroll and does not make up such payments, he or she
shall be required to make, on or before the Plan Year Completion Date, one
of the elections listed under Paragraph 12 below. Otherwise the Company
shall deliver the shares of Common Stock paid for up to that time (based on
the purchase price as set forth in Paragraph 6) and refund in cash any
excess remaining out of the amount deducted.
(b) PAYMENT TERMS APPLICABLE TO EMPLOYEES OUTSIDE OF THE UNITED
STATES. Subscribers residing outside the United States during any portion
of a Plan Year shall pay for their subscriptions by payroll deduction in
the currency in which they are paid. On the first day of each calendar
month during a Plan Year payment period, the Human Resources Department of
the Company (the "Human Resources Department") will calculate a new
conversion rate for converting the applicable currencies to U.S. dollars
based on the prevailing rates of exchange. Such conversion rates will be
used to determine the amount deducted from Subscribers' pay that month,
sufficient for their individual subscriptions based on the Plan Price. If a
subscription is reduced or canceled, or if the applicable purchase price is
the Market Price on the Plan Year Completion Date, any refund due the
Subscriber shall be paid in the currency in which the Subscriber is paid,
based on the then current conversion rate.
10. PREPAYMENT. The Board during a Plan Year shall set a date on and
after which a Subscriber may prepay, without penalty, the entire balance of
his or her subscription amount (the "Prepayment Date"). No prepayments will
be accepted before the Prepayment Date. Any such prepayment shall be based
upon the Plan Price, shall be final and shall not thereafter benefit from any
terms of the Plan or any Plan Year with respect to the Market Price.
11. CANCELLATION OR REDUCTION OF RIGHT TO PURCHASE. At any time before
final payment for shares of the Common Stock is completed (by payroll deduction,
prepayment or both) any Subscriber, other than an employee who is deemed to be
an affiliate of the Company under Paragraph 16, may cancel his or her
subscription for a Plan Year in its entirety or, once and once only, reduce (but
not increase) such subscription to a lesser number of shares of Common Stock
which shall not be less
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<PAGE>
than ten shares. If a Subscriber cancels his or her subscription in any Plan
Year in its entirety, he or she shall receive a cash refund of the entire amount
deducted for his or her subscription up to the time of cancellation. If a
Subscriber reduces his or her subscription in a Plan Year and if the sum of
prior deductions equals or exceeds the total purchase price (based on the Plan
Price) of the reduced subscription, such Subscriber may instruct the Third Party
Plan Administrator to reduce the number of shares of Common Stock for which he
or she has subscribed and to refund any excess of the prior deductions over the
purchase price of the reduced subscription. If the amount of prior deductions is
less than the total purchase price (based on the Plan Price) of the reduced
subscription, the Subscriber may:
(1) beginning on the Prepayment Date, immediately pay the
new unpaid balance and instruct the Third Party Plan
Administrator to issue the reduced number of shares of Common
Stock;
(2) leave the amount previously deducted with the Company
and instruct the Third Party Plan Administrator to reduce future
deductions in proportion to the subscription reduction; or
(3) instruct the Third Party Plan Administrator to refund
deductions previously made for the number of shares by which the
subscription is reduced and to reduce the amount of future
deductions to that necessary to pay for the reduced subscription.
All elections concerning the cancellation or reduction of subscriptions in
a Plan Year shall be made on appropriate forms to be provided by the Third Party
Plan Administrator. Any cancellation or reduction of a subscription or any
prepayment in connection with a reduction of a subscription shall be final and
shall not thereafter benefit from any terms of the Plan or any Plan Year with
respect to the Market Price. All repayments and cash refunds shall be paid
without interest.
12. RETIREMENT, LONG-TERM DISABILITY, ENTRY INTO MILITARY SERVICE OR
DEATH. If during the administration of any Plan Year, a Subscriber retires
under the Company's retirement plan, becomes a participant of a long-term
disability plan maintained by the Company, enters military service or dies, such
Subscriber or his or her executor, administrator or heirs, as the case may be,
shall have the following four options:
(1) to receive delivery of the shares of Common Stock paid
for up to that time (based on the Plan Price) if ten or more
shares have been paid for, and to receive in cash any excess
remaining out of the amount deducted;
(2) to receive a lesser number of shares (at least ten
shares) of Common Stock (based on the Plan Price) and a refund of
the balance in cash;
(3) to receive a cash refund of the entire amount
previously deducted; or
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(4) to pay up the balance of his or her subscription in
full and receive delivery of the total number of shares of Common
Stock paid for by him or her (based on the Plan Price).
Such options by a retired or disabled Subscriber, a Subscriber who has
entered the military service, or on behalf of a deceased Subscriber must be
exercised not later than the Plan Year Completion Date. In the event no election
is made by the Plan Year Completion Date, the Company shall deliver the shares
of Common Stock paid for up to that time (based on the purchase price as set
forth in Paragraph 6) and refund in cash any excess amount that was deducted.
All elections with respect to the options available to Subscribers under the
Plan who retire, become disabled or who enter the military service or on behalf
of deceased Subscribers shall be made on appropriate forms, to be provided by
the Third Party Plan Administrator. Any prepayment shall be final and shall not
thereafter benefit from any terms of the Plan with respect to the Market Price.
13. SEPARATION FROM EMPLOYMENT. If a Subscriber for shares of Common
Stock during a Plan Year leaves the employment of the Company or a Company
subsidiary (except in the case of transfer from one of such companies to another
in which case there will be no change, or except in cases of retirement, long-
term disability, entry into military service or death, which latter four cases
are governed by Paragraph 12, or except if such termination of employment is the
result of the Company closing a facility, which case is governed by Paragraph
14), such departing Subscriber shall at that time have the first three options
set forth in Paragraph 12. If such departing Subscriber leaves such employment
on or after the Prepayment Date, option 4 in Paragraph 12 is also available.
A departing Subscriber must elect one of the available options not later
than the day prior to the last day of such departing Subscriber's employment. In
the event no election is made by a departing Subscriber's last day of
employment, the Company shall treat such failure as an election to exercise
option 3 above and shall refund the entire amount accordingly. All elections
with respect to the foregoing options upon termination of employment shall be
made on appropriate forms to be provided by the Third Party Plan Administrator.
Any prepayment shall be final and shall not thereafter benefit from any terms of
the Plan with respect to the Market Price.
14. CLOSING A FACILITY. If a Subscriber for shares of Common Stock under
the Plan has his or her employment terminated by the Company during any Plan
Year, as a result of the Company closing a facility, such Subscriber shall have
the same four options as a departing Subscriber who leaves his or her employment
due to retirement, long term disability, entry into military service or death,
as set out in Paragraph 12, except that the Subscriber shall have a period of 30
days prior to his or her termination of employment to elect an option.
15. CHANGE IN CONTROL.
(a) EFFECT OF CHANGE IN CONTROL. Upon the occurrence of a
Change in Control, unless the Board determines otherwise, all
payroll deductions under the Plan will cease, and each Subscriber
in the Plan will have the opportunity to elect in writing,
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within 30 days following the Change in Control Date, one of the
four options specified in Section 12 of the Plan. If no election
is made by a Subscriber within such 30-day period, option 3 of
Section 12 shall apply. For purposes of option 4, any additional
payment required from the Subscriber shall be made by no later
than the end of such 30-day period.
(b) DEFINITIONS. "Change in Control" shall mean a change in
control of the Company of a nature that would be required to be
reported in response to Item 14 of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject
to such reporting requirement; provided; however, without
limitation, that a Change in Control shall be deemed to occur if:
(i) with the exception of The Dow Chemical Company, any
individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or
person, or any syndicate or group deemed to be a person
under Section 14(d)(2) of the Exchange Act, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power
of the Company's then outstanding securities entitled to
vote in the election of directors of the Company;
(ii) during any period of two consecutive years (not
including any period prior to the execution of this Plan)
individuals who at the beginning of such period constituted
the Board and any new directors, whose election by the Board
or nomination for election by the Company's stockholders was
approved by a vote of at least three quarters of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any
reason to constitute a majority thereof;
(iii) there occurs a reorganization, merger, consolidation
or other corporate transaction involving the Company (a
"Transaction"), in each case, with respect to which the
stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own
more than 50% of the combined voting power of the Company or
other corporation resulting from such Transaction; or
(iv) all or substantially all of the assets of the Company
are sold, liquidated or distributed.
"Change in Control Date" shall mean the earliest of (i) the date on which a
Change in Control occurs, (ii) the date on which the Company executes an
agreement, the consummation of which
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would result in the occurrence of a Change in Control, and (iii) the date the
Board approves a transaction or series of transactions, the consummation of
which would result in a Change in Control.
16. EMPLOYEES DEEMED "AFFILIATES" OF THE COMPANY. Under the Rules of the
Securities and Exchange Commission, the term "affiliates" includes directors,
officers and substantial stockholders of the Company. As participation in the
Plan in any Plan Year is limited to full-time employees of the Company, the term
"affiliates" refers to those employee officers of the Company who are subject to
the reporting requirements of Section 16 of the Exchange Act.
Subscriptions during a Plan Year by those employees who are "affiliates" of
the Company will be deemed to be irrevocable elections to participate in the
Plan during the Plan Year. Other than the circumstances described in Sections 12
and 13, or in the event of a Change in Control, such employees may not reduce or
prepay their subscriptions after the Prepayment Date but must allow for their
subscribed for shares to be paid for by payroll deduction over the entire term
of the Plan Year.
17. ISSUANCE OF STOCK CERTIFICATES. After a subscription under the Plan
is fully paid (or, at the Subscriber's option, upon prepayment, or reduction and
prepayment, of his or her subscription), the Subscriber will receive a
certificate for the number of shares of Common Stock for which he or she has
paid and shall then become a stockholder and have all the rights incident
thereto, including the right to such future dividends as may be from time to
time declared by the Board. No certificate shall be issued for less than ten
shares, and not more than one certificate shall be issued pursuant to any one
subscription. An election to receive such delivery shall be irrevocable. Before
the certificate is issued, the Subscriber will not be entitled to any dividends
on Common Stock subscribed for under the Plan, and he or she will not receive
any interest on subscription payments.
18. ASSIGNMENT. No eligible employee may assign his or her right to
subscribe to any other person, and no Subscriber may assign his or her
subscription to any other person. Any attempt to do so will provide cause for
the Vice President of Human Resources on behalf of the Company to treat the
action as if it were a withdrawal from the Plan for the Plan Year. After a stock
certificate has been issued, such certificate may be assigned the same as any
other stock certificate.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. If the Company
should declare a stock dividend or distribution (as distinguished from a cash
dividend) on its issued and outstanding Common Stock, or if the Common Stock is
in any manner reclassified, the price per share and the number of shares covered
by any subscription under the Plan, but unissued at the record date of such
stock dividend, distribution or reclassification, will be changed
proportionately. No fractional shares of Common Stock shall be issued pursuant
to such an adjustment, however, and the fair market value of any fractional
shares resulting from adjustments pursuant to this paragraph shall be paid in
cash to the Subscriber.
20. ADDITIONAL CONDITIONS FOR NON-U.S. SUBSCRIBERS. Additional conditions
may be incorporated in related agreements with eligible employees or Subscribers
residing in countries.
-21-
<PAGE>
outside the United States, as may be required to comply with the laws and
regulations of such countries relating to the purchase or taxation of U.S.
securities.
21. AMENDMENT. The Board may amend, alter or discontinue the Plan, but no
amendment or alteration shall be made during the administration of any Plan Year
which would impair the rights of any Subscriber, without his or her consent.
22. EMPLOYMENT RIGHTS. The Plan shall neither impose any obligation on
the Company to continue the employment of any employee, nor impose any
obligation on any employee to remain in the employ of the Company.
23. WITHHOLDING OF TAXES. The Third Party Plan Administrator, in
conjunction with the Human Resources Department, may make such provisions as it
may deem appropriate for the withholding of any taxes which it determines is
required in connection with the purchase of Common Stock under the Plan.
24. GOVERNING LAW. The Plan and rights to purchase Common Stock that may
be granted hereunder shall be governed by and construed in accordance with the
laws of the State of Texas.
-22-
<PAGE>
AMENDMENT NO. 1997-1 TO
DESTEC ENERGY, INC.
EMPLOYEES' STOCK PURCHASE PLAN
This Amendment No. 1997-1 is made to the Destec Energy, Inc. Employees'
Stock Purchase Plan (the "Plan"). Capitalized terms used by not defined herein
shall have the meanings ascribed to them in the Plan.
WHEREAS, Destec Energy, Inc. (the "Company") is considering entering into a
transaction or series of transactions which will result in a Change in Control
(within the meaning of the Plan);
WHEREAS, the Company has determined that it is in its best interest and
that of its stockholders to amend the Plan as set forth herein;
NOW, THEREFORE, pursuant to Section 21 of the Plan, the Plan is hereby
amended as follows:
1. Section 15(a) of the Plan is amended in its entirety to read as
follows:
(a) EFFECT OF CHANGE IN CONTROL. (i) Except as provided in
paragraph (ii) below, upon the occurrence of a Change in Control,
unless the Board determines otherwise, all payroll deductions under
the Plan will cease, and each Subscriber in the Plan will have the
opportunity to elect in writing, within 30 days following the Change
in Control Date, one of the four options specified in Section 12 of
the Plan. If no election is made by a Subscriber within such 30-day
period, option 3 of Section 12 shall apply. For purposes of option 4,
any additional payment required from the Subscriber shall be made by
no later than the end of such 30-day period.
(ii) Notwithstanding paragraph (i) above, immediately prior to
the occurrence of a transaction which is consummated pursuant to an
agreement or agreements which are executed on or prior to December 31,
1997 and (1) which constitutes a Change in Control within the meaning
of clause (i) of the definition thereof and (2) in connection with
which (or in connection with a related transaction) Company
stockholders will receive all cash in consideration for their shares,
all payroll deductions under the Plan shall cease, and each Subscriber
in the Plan shall be entitled to receive a
<PAGE>
cash lump sum in an amount equal to the cash amounts previously
deducted from such Subscriber in respect of the Plan Year during which
such Change in Control occurs. In addition, each Subscriber who is
employed by the Company on the Change in Control Date shall be
entitled to receive, in respect of such Plan Year, a cash lump sum
(subject to applicable withholding) in an amount equal to the product
of (i) the number of shares subscribed for by such Subscriber in
respect of such Plan Year, multiplied by (ii) the excess of the price
per share to be paid in the transaction constituting such Change in
Control over the lower of the Plan Price or the Market Price for such
Plan Year. Amounts payable hereunder shall be paid immediately prior
to consummation of the Change in Control.
The effective date of this Amendment No. 1997-1 shall be February 14, 1997.
Except as herein modified, the Plan shall remain in full force and effect.
Page 2 of 2
<PAGE>
DESTEC ENERGY, INC.
1995 VARIABLE PAY PLAN
(As amended through November 14, 1995)
I. PURPOSE
The purpose of the Destec Energy, Inc. 1995 Variable Pay Plan is to
provide a means through which the Company may reward its employees for their
contributions to the Company's financial success through incentives and reward
opportunities designed to enhance the future profitable growth of the Company.
Accordingly, the Plan provides for the granting of Awards of cash, Restricted
Stock, Deferred Stock or a combination thereof, as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
"AWARD" shall mean, individually or collectively, any Award of
cash, Restricted Stock or Deferred Stock.
"AWARD AGREEMENT" means the written agreement between Destec and
the Participant entered into in accordance with subparagraph (d) of
Article VII.
"BOARD" shall mean the Board of Directors of Destec.
"CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) Destec shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly owned
subsidiary of Destec), (ii) Destec sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other
than a wholly owned subsidiary of Destec), (iii) Destec is to be
dissolved and liquidated, (iv) any person or entity, including a
"group" as contemplated by Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 20% of the
outstanding shares of Destec's voting stock (based upon voting power),
or (v) as a result of or in connection with a contested election of
Directors, the persons who were Directors of Destec before such
election shall cease to constitute a majority of
<PAGE>
2
the Board; provided, however, that a Change in Control shall not be
deemed to occur as a result of the beneficial ownership of securities
of Destec by The Dow Chemical Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to any section and any
Regulations under such section.
"COMMITTEE" shall mean the Compensation Committee of the Board
consisting of at least two members of the Board who qualify as
"disinterested persons" for purposes of Rule 16b-3 under the Exchange
Act.
"COMPANY" shall mean, collectively, Destec and each subsidiary of
Destec (as defined in Section 424 of the Code).
"COMPANY COMPONENT" shall mean that portion of each Participant's
Award that is determined by the Company's 1995 financial performance.
"DEFERRED STOCK" shall mean an Award of Stock made in accordance
with Article IX of the Plan.
"DEFERRED STOCK PRICE" shall mean an average Market Price for the
Stock during the 30-day period ending on each of December 31, 1996,
1997 and 1998 or at least $10.00, $11.00 and $12.00, respectively.
"DESTEC" means Destec Energy, Inc., a Delaware corporation.
"DIRECTOR" shall mean an individual elected to the Board by the
stockholders of Destec or by the Board under applicable corporate law.
"DISABILITY" shall mean, in the judgment of the Committee, a
physical or mental incapacity or illness of a Participant which has
continued for at least six months and which is likely to be
indefinite.
"ELECTION CERTIFICATES" shall mean the certificate filed by each
Participant with the Company's Human Resources Department, in
accordance with subparagraph (c) of Article VIII below, which
specifies the portion of the Participant's Award to be paid in cash
and the portion of such Award to be paid in Restricted Stock, if any.
<PAGE>
3
An "EMPLOYEE" shall mean any person (including an officer or a
Director of Destec) in an employment relationship with the Company (as
defined in Section 424 of the Code).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended. Reference in the Plan to any section of the Exchange Act
shall be deemed to include any amendments or successor provisions to
any section and any regulations under such section.
"EXECUTIVE PARTICIPANTS" shall mean each Participant who is
subject to Section 16(a) of the Exchange Act at the time such
Participant's Award under the Plan is determined.
"INDIVIDUAL COMPONENT" shall mean that portion of each
Participant's Award that is determined by his job level and 1995 job
performance.
"MARKET PRICE" shall mean, as of any specified date, the average
of the reported high and low sales prices of the Stock on that date on
the New York Stock Exchange, as reported in THE WALL STREET JOURNAL,
or ir no prices are reported on that date, on the last preceding date
on which such prices of the Stock are so reported. In the event the
Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market
value shall be made by the Committee in such manner as it deems
appropriate.
"PLAN" shall mean this Destec Energy, Inc. 1995 Variable Pay
Plan, as may be amended from time to time.
"PARTICIPANT" shall mean an employee who has been notified of his
eligibility to participate in the Plan and receive an Award
thereunder. Unless the Plan provides otherwise, the term "Participant"
shall include "Executive Participants."
"RESTRICTED STOCK" shall mean an Award of Stock made in
accordance with Article VIII of the Plan.
"RESTRICTED STOCK PRICE" shall mean a per share price of $10.25.
"RETIREMENT" shall mean, solely for purposes of the Plan, a
voluntary resignation of employment with the Company with the prior
written approval of the Committee to such resignation.
<PAGE>
4
"STOCK" shall mean Destec's common stock, par value $.01 per
share.
"TARGET AWARD" shall mean an amount in dollars equal to the
target bonus that may be earned by the Participant for 1995 based on
the Participant's job level and base salary as of January 1, 1995 (or
date of hire, if later).
III. OVERVIEW AND CONDITIONS TO AWARDS
The Plan is designed to reward Participants for their contribution to
the Company's achievement of its 1995 performance goals of $25,000,000 profit
after tax and a stock price of $12.00 per share. Awards made under the Plan
consist of an Individual Component and a Company Component. The value of the
Individual Component is determined by the Participant's job level and his
individual job performance during 1995. The value of the Company Component is
determined by the Participant's job level and the extent to which the Company
achieves its profit after tax and stock price targets.
A Participant may elect to take a certain portion of his Award in the
form of Restricted Stock. If such an election is made, a Participant becomes
eligible to receive Deferred Stock from the Company at no additional cost. See
Articles VIII and IX and the performance matrix attached as Exhibit A, which
Exhibit shall constitute a part of the Plan.
IV. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan become effective on February 23, 1995, the date of its
adoption by the Committee. The Plan shall remain in effect until all Awards
granted under the Plan have vested, expired or terminated. In no event shall any
Awards be granted after June 30, 1999. The text of the Plan set forth herein
supersedes and replaces any prior versions of the Plan.
V. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by the Committee.
(b) POWERS. Subject to the provisions of the Plan, the Committee
shall have sole authority to determine which employees shall receive an Award,
the time or times when such Award shall be made, whether any Deferred Stock
shall be issued, and the number of shares of Deferred Stock to be issued to each
Participant. In making such determinations, other than Deferred Stock Awards,
the Committee may take into account the nature of the services rendered by each
employee, his present and potential contributions to
<PAGE>
5
the Company's success and such other factors as the Committee in its discretion
shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
terms of the Plan, the Election Certificates and the Award Agreements executed
thereunder, to prescribe such rules and Regulations relating to the Plan as it
may deem advisable to carry out the Plan, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any document or
agreement relating to an Award in the manner and to the extent it shall deem
expedient to carry it into effect. The determinations of the Committee on the
matters referred to in this Article V shall be conclusive.
VI. SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The aggregate number of shares of
Stock that may be issued under the Plan shall not exceed 500,000 shares. Shares
of Stock shall be deemed to have been issued under the Plan only to the extent
actually issued and delivered pursuant to an Award. To the extent that an Award
lapses or the rights of a Participant terminate, any shares of Stock subject to
such Award shall again be available for issuance under the Plan. Separate stock
certificates shall be issued by the Company for those shares acquired as
Restricted Stock and for those shares acquired as Deferred Stock.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of
an Award will be previously issued and outstanding Stock that has been
reacquired by Destec.
VII. ELIGIBILITY
(a) ELIGIBLE GROUP. All full-time employees of the Company are
eligible for participation in the Plan if they were hired before January 1,
1995. Employees hired between January 1 and September 30, 1995 will receive a
prorated award based on their job level and base salary, as of their hire date,
but will not be able to choose to receive a portion of their Award in Stock.
Each Participant's Target Award will be based upon the employee's job level and
base salary as of January 1, 1995 (or the date of hire, if later). If an
employee has serious performance problems in 1995, the employee may not receive
an Award under the Plan, as determined by his senior manager. No Awards may be
granted to any Director of Destec who is not an employee of the Company. All
Awards are subject to the limitations set forth in the Plan.
<PAGE>
6
(b) CONDITIONS TO AWARDS. Notwithstanding subparagraph (a) above,
all Awards are contingent upon the Company's achievement of $18,000,000 in
profits after tax for 1995.
(c) COMPONENTS OF AWARDS. Each Participant's Target Award is divided
into two components: the Individual Component and the Company Component.
A Participant's target Individual Component is determined by
multiplying the Participant's Target Award by a percentage ranging from 33% to
50% applicable to that Participant's job level. The Individual Component of a
Participant's Award can range from 0-200% of that target. The sum of all
Individual Components set by a senior manager for his department may not exceed
100% of the total of the target Individual Components of all of the Participants
within that senior manager's department.
A Participant's target Company Component is determined by multiplying
the Participant's Target Award by a percentage ranging from 50% to 67%
applicable to that Participant's job level. The Company Component of a
Participant's Award can range from 0-200% of that target. The multiplier
applicable to the Company Component for all Participants is determined by
reference to the performance matrix attached as Exhibit A which establishes
performance measures for the Company's 1995 after-tax profits and the Stock
price for the last two months of 1995.
(d) AWARD AGREEMENTS. Destec and each Participant shall enter into
an Award Agreement setting forth the terms and conditions of each Award and such
other matters as the Committee may deem relevant. Each Award Agreement shall be
signed by an officer of Destec on behalf of Destec and by the Participant. The
Award Agreement for each Executive Participant shall also set forth the
forfeiture and transfer restrictions applicable to Deferred Stock. At the time
of granting of Awards, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to the Awards. The Award
Agreements may also include, without limitation, provisions relating to tax
matters (including provisions (i) covering any applicable employee wage
withholding requirement and (ii) prohibiting an election by the Participant
under Section 83(b) of the Code), and any other matters not inconsistent with
the terms and provisions of the Plan that the Committee shall in its sole
discretion determine.
VIII. RESTRICTED STOCK AWARDS
(a) FORM OF PAYMENT OF AWARDS. Awards may be paid in cash or in a
combination of cash and Restricted Stock. Each Participant in the Plan may
irrevocably elect, in accordance with subparagraph (c) of this Article VIII, to
receive between zero and 30% of his Award in Restricted Stock, except that each
Executive Participant and member of
<PAGE>
7
Destec senior management will receive a minimum of 30%, and may voluntarily
elect up to a maximum of sixty percent, of his Award in Restricted Stock. Each
Participant's designated percentage of the Award to be paid in Restricted Stock,
if any, shall be converted into a number of whole shares based on a per share
price equal to the Restricted Stock Price.
(b) RESTRICTION PERIOD. For those employees who elect to receive
Restricted Stock as a part of their Award, the Restricted Stock will have a
three-year restriction period with the Restricted Stock vesting in three equal
installments on December 31 of 1996, 1997 and 1998. Except as otherwise provided
in Article X, the restriction period applicable to a particular Restricted Stock
Award shall not be changed except in the event of a Change in Control.
(c) ELECTION CERTIFICATES. Each Participant in the Plan must
complete an Election Certificate stating the percentage of their Award to be
made in Restricted Stock, if any, and the portion of their Award to be paid in
cash. All Election Certificates must be received by the Human Resources
Department by June 9, 1995. All elections to receive Restricted Stock are
irrevocable.
(d) RECEIPT FOR RESTRICTED STOCK. The Restricted Stock to be
received by a Participant, if any, shall be determined in accordance with each
Participant's Election Certificate and the results of individual and corporate
performance for the year.
(e) OTHER TERMS AND CONDITIONS. Restricted Stock awarded as part of
a Participant's Award shall be represented by a stock certificate registered in
the name of the Participant receiving such Restricted Stock Award. Each
Participant shall have the right to receive dividends during the restriction
period, to vote the Restricted Stock and to enjoy all other stockholder rights,
except that (i) the Participant shall not be entitled to delivery of the stock
certificate until the restriction period has expired, (ii) the Participant may
not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the
Restricted Stock during the restriction period, and (iii) a breach of the terms
or a failure to satisfy the conditions established by the Committee pursuant to
a Participant's Award Agreement shall cause a forfeiture of the Restricted
Stock.
IX. DEFERRED STOCK
(a) PROVISIONS APPLICABLE TO PARTICIPANTS WHO ARE NOT EXECUTIVE
PARTICIPANTS. Subject to Article X, each Participant who is not an Executive
Participant shall be eligible to earn a number of shares of Deferred Stock equal
to the aggregate number of shares of Restricted Stock awarded to the Participant
as part of the Award. One-third of the number of shares of Deferred Stock for a
Participant who is not an Executive Participant will be awarded on each of
December 31, 1996, 1997, and 1998, if the average Market Price
<PAGE>
8
for the 30-day period ending on such date equals or exceeds the Deferred Stock
Price applicable to that date. If the average Market Price of the Stock for the
30-day period ending on the applicable vesting date is below the Deferred Stock
Price, no Deferred Stock shall be awarded for that year. If, however, on a
subsequent vesting date the Market Price of the Stock equals or exceeds the
Deferred Stock Price applicable to that vesting date, a Participant who is not
an Executive Participant shall receive the number of shares of Deferred Stock to
be awarded as of that vesting date (i.e., one-third of the aggregate number of
shares of Deferred Stock that may be awarded hereunder) plus the aggregate
number of shares of Deferred Stock that were not awarded on prior vesting dates
because the average Market Price of the Stock on such vesting date did not equal
or exceed the Deferred Stock Price applicable to that vesting date. No shares of
Deferred Stock may be awarded or earned under the Plan after December 31, 1998.
All shares of Deferred Stock will be fully vested at the time such shares are
received by Plan Participants who are not Executive Participants and will be
awarded to the Participants at no cost, except that each Participant shall be
responsible for the payment of all amounts which are required to be withheld for
tax purposes in connection with the delivery of such shares. In no event may a
Participant receive a number of shares of Deferred Stock hereunder greater than
the number of shares of Restricted Stock awarded to the Participant and in which
the Participant ultimately vests.
(b) PROVISIONS APPLICABLE TO EXECUTIVE PARTICIPANTS. On the date
that shares of Restricted Stock are awarded to an Executive Participant in
accordance with Article VIII of the Plan, the Executive Participant shall also
be awarded a number of shares of Deferred Stock equal to the aggregate number of
shares of Restricted Stock awarded as of that date. Subject to Article X below,
the shares of Deferred Stock shall vest and become nonforfeitable as follows:
(A) one-third of the shares of Deferred Stock awarded to an Executive
Participant will vest on December 31, 1996, if the average Market Price for the
30-day period ending on such date equals or exceeds the Deferred Stock Price
applicable to that date; (B) one-third of the shares of Deferred Stock (plus any
portion that was scheduled to vest but which did not vest on a prior vesting
date because the average Market Price was less than the applicable Deferred
Stock Price) will vest on December 31, 1997, if the average Market Price for the
30-day period ending on such date equals or exceeds the Deferred Stock Price
applicable to that date and (C) one-third of the shares of Deferred Stock (plus
any portion that was scheduled to vest but which did not vest on a prior vesting
date because the average Market Price was less than the applicable Deferred
Stock Price) will vest on December 31, 1998, if the average Market Price for the
30-day period ending on such date equals or exceeds the Deferred Stock Price
applicable to that date. Any shares of Deferred Stock awarded to an Executive
Participant that have not vested as of December 31, 1998 shall be immediately
forfeited. Until such time as a share of Deferred Stock is forfeited, the
Executive Participant shall have the right to receive dividends on the shares,
to vote the shares and to enjoy all other stockholder rights except that (i) the
Executive Participant shall not be entitled to delivery of the stock certificate
until the restriction period has expired, (ii) the Executive Participant may not
sell, transfer, pledge, exchange, hypothecate or otherwise
<PAGE>
9
dispose of the shares of Deferred Stock until such time as the shares have
vested, and (iii) a breach of the terms or a failure to satisfy the conditions
established by the Committee pursuant to a Participant's Award Agreement shall
cause a forfeiture of the Deferred Stock.
X. TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL
(a) VOLUNTARY RESIGNATION OTHER THAN FOR RETIREMENT AND INVOLUNTARY
TERMINATION. Unless the Committee determines otherwise, upon a Participant's
resignation of employment from the Company for any reason (other than
Retirement) or the Participant's termination of employment by the Company for
any reason, the unvested portion of any shares of Restricted Stock and Deferred
Stock subject to the Award as of the date of such termination of employment
shall be immediately forfeited and, with respect to Participants who are not
Executive Participants, no additional shares of Deferred Stock may be earned
hereunder.
(b) DEATH AND DISABILITY.
(i) SHARES OF RESTRICTED STOCK. In the event a Participant's
employment terminates as a result of the Participant's death of Disability, the
Participant (or in the event of death, the Participant's estate) will
immediately vest in a portion of the shares of Restricted Stock awarded to the
Participant in accordance with the formula [(A x B/C) - D], where "A" equals the
number of shares of Restricted Stock subject to the Award at the time of grant,
"B" equals the whole number of calendar months (not greater than 36) elapsed
from January 1, 1996 to the last day of the month in which such termination of
employment occurs, "C" equals 36, and "D" equals the number of shares of
Restricted Stock subject to the Award in respect of which the Participant has
previously vested. The result shall be rounded to the nearest whole number.
(ii) SHARES OF DEFERRED STOCK. In the event that employment of a
Participant terminates as a result of the Participant's death of Disability, the
Participant (or in the event of death, the Participant's estate) will
immediately vest in (in the case of Executive Participants) or be entitled to
receive (in the case of Participants who are not Executive Participants) a
number of shares of Deferred Stock subject to an Award determined in accordance
with the formula [X-Y], where "X" equals the number of shares of Restricted
Stock which have vested in accordance with the Plan, including the previous
subparagraph, and "Y" equals the number of shares of Deferred Stock subject to
the Award previously distributed to the Participant (or in the case of an
Executive Participant, in which the Executive Participant previously vested).
(c) RETIREMENT. If the employment of a Participant ends as a result
of Retirement, the shares of Restricted Stock awarded to the Participant which
have not
<PAGE>
10
previously vested shall immediately vest and become nonforfeitable. The portion
of the Participant's Award representing shares of Deferred Stock shall remain
outstanding and shall vest, be paid or be forfeited, as the case may be, in the
manner contemplated by Article IX.
(d) FORFEITURE OF REMAINING SHARES. Any shares of Restricted Stock or
Deferred Stock which do not vest or become payable in accordance with the
provisions of the Article X in connection with a Participant's termination of
employment with the Company shall be forfeited.
(e) CHANGE IN CONTROL. In the event of a Change in Control, (A) all
shares of Restricted Stock previously awarded under the Plan shall become fully
vested and nonforfeitable, and (B) shares of Deferred Stock previously granted
to an Executive Participant, and shares of Deferred Stock subject to the Award
of a Participant who is not an Executive Participant shall vest, become
nonforfeitable and be immediately delivered to the Participant if either of the
following two vesting conditions have been met: (X) the highest price paid for
a share of Stock in the Change in Control equals or exceeds the Deferred Stock
Price applicable to the vesting date in the calendar year in which the Change in
Control occurs; of (Y) the average Market Price of a share of Stock for the 30-
day period ending on the date of the Change in Control equals or exceeds the
Deferred Stock Price applicable to vesting date in the calendar year in which
the Change in Control occurs.
XI. AMENDMENT AND TERMINATION
The Board may terminate the Plan at any time with respect to any
shares of Stock for which the Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, however, that no change in any Award theretofore granted
may be made that would impair the rights of a Participant without the consent of
the Participant.
XII. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the
Company nor the execution of an Election Certificate by a Participant shall be
deemed to give an employee any right to be granted an Award hereunder. Each
Award shall be subject to the terms of the Plan and the Award Agreement duly
executed on behalf of Destec and the Participant. In the event of any conflict
between the terms of the Plan and an Election Certificate or Award Agreement,
the terms of the Plan as construed by the Committee shall govern.
<PAGE>
11
(b) PLAN FUNDING. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the payment of any Award.
(c) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right of the
Company to terminate his employment at any time.
(d) ASSIGNMENT AND WITHDRAWAL. No Participant shall have any right
to assign his Awards under the Plan until such time as the shares of Stock
subject thereto have vested and become nonforfeitable in accordance with the
terms of the Plan and applicable Award Agreement.
(e) TAX WITHHOLDING. Amounts paid under the Plan shall be subject to
all applicable federal, state, and local withholding. The Committee may
authorize the Company to lend to a Participant an amount sufficient to satisfy
all or a portion of the tax obligation incurred by a Participant as a result of
the vesting or payment of an Award. Such loan shall be on a fully recourse basis
and shall be secured by all shares of Stock subject to an Award. The interest
payable on such a loan will be the applicable federal rate for mid-term loans
with monthly compounding of interest, as determined under section 1274(d) of the
Code, on the date the loan is made to the Participant. Under the terms of the
loan, principal and interest will be due at the earliest of (i) the date the
Participant's employment is terminated with the Company; (ii) the date on which
the Participant sells shares of Stock which have vested pursuant to the terms of
an Award; or (iii) the fifth anniversary of the date of grant of the Award. If
no loan is made to a Participant, then, at the time of the vesting or payment of
an Award, the Company shall be authorized to withhold from such Participant's
other cash earnings all amounts that are required to be withheld to satisfy any
applicable withholding obligation.
(f) CORPORATE CHANGES. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board or
the stockholders of Destec to make or authorize any adjustment,
recapitalization, reorganization or other change in Destec's capital structure
or its business, any merger or consolidation of Destec, any issue of debt or
equity securities ahead of or affecting the Stock or the rights thereof, the
dissolution or liquidation of Destec or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(g) ADJUSTMENTS. Any adjustment to outstanding Awards contemplated
by the Plan shall be subject to any required stockholder action.
<PAGE>
12
(h) OTHER SHARES, ETC. Except as hereinbefore expressly provided,
the issuance by Destec of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of Destec
convertible into such shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number of shares of Stock subject to the
Award theretofore granted, if any, or the Restricted Stock Price, if
applicable.
(i) CONSTRUCTION. As used in the Plan, the masculine pronoun shall
be deemed to include the feminine pronoun and a singular word shall, to the
extent applicable, include the plural. The headings of articles and paragraphs
herein are included only for convenience of reference and shall not affect the
meanings thereof.
(j) GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Texas, without regard to the choice of
law provisions thereof.
<PAGE>
EXHIBIT A
1995 VARIABLE PAY PLAN
PERFORMANCE AWARD MATRIX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
1995 STOCK PRICE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Below $10.25 $10.50 $11.00 $11.50 $12.00 $13.00
$10.25
--------------------------------------------------------------------------------
Below 0.00 0.00 0.00 0.00 0.00 0.00 0.00
$18.00
--------------------------------------------------------------------------------
$18.00 0.00 0.00 0.17 0.50 0.75 1.00 1.50
--------------------------------------------------------------------------------
1995 $21.50 0.25 0.25 0.42 0.75 1.00 1.25 1.75
After- --------------------------------------------------------------------------------
Tax $25.00 0.50 0.50 0.67 1.00 1.25 1.50 2.00
Profits --------------------------------------------------------------------------------
($Mms) $28.50 0.75 0.75 0.92 1.25 1.50 1.75 2.00
--------------------------------------------------------------------------------
$32.00 1.00 1.00 1.17 1.50 1.75 2.00 2.00
--------------------------------------------------------------------------------
$40.00 1.57 1.57 1.74 2.00 2.00 2.00 2.00
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMENDMENT NO. 1997-1 TO
DESTEC ENERGY, INC.
1995 VARIABLE PAY PLAN
This Amendment No. 1997-1 is made to the Destec Energy, Inc. 1995 Variable
Pay Plan, as amended through November 14, 1995 (the "Plan"). Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Plan.
WHEREAS, Destec Energy, Inc. (the "Company") is considering entering
into a transaction or series of transactions which will result in a Change in
Control of the Company within the meaning of the Plan;
WHEREAS, the Company has determined that it is in the best interest and
that of its stockholders to amend the Plan as set forth herein;
NOW, THEREFORE, pursuant to Article XI of the Plan, the Plan is hereby
amended as follows:
1. Section 10(e) of the Plan is amended in its entirety to read as
follows:
(e) CHANGE IN CONTROL. (i) Except as provided in paragraph (ii)
below, in the event of a Change in Control, (A) all shares of
Restricted Stock previously awarded under the Plan shall become fully
vested and nonforfeitable, and (B) shares of Deferred Stock previously
granted to an Executive Participant, and shares of Deferred Stock
subject to the Award of a Participant who is not an Executive
Participant shall vest, become nonforfeitable and be immediately
delivered to the Participant if either of the following two vesting
conditions have been met: (X) the highest price paid for a shares of
Stock in the Change in Control equals or exceeds the Deferred Stock
Price applicable to the vesting date in the calendar year in which the
Change in Control occurs, or (Y) the average Market Price of a share
of Stock for the 30-day period ending on the date of the Change in
Control equals or exceeds the Deferred Stock Price applicable to
vesting date in the calendar year in which the Change in Control
occurs.
(ii) Notwithstanding paragraph (i) above, immediately prior to
the occurrence of a transaction which is consummated pursuant to an
agreement or agreements which are executed on or prior to December 31,
1997 and (A) which constitutes a Change in
<PAGE>
Control (within the meaning of clause (iv) of the definition thereof)
and (B) in connection with which (or in connection with a related
transaction) Company stockholders will receive all cash in
consideration for their shares, (1) each Participant shall be entitled
to receive in cancellation of all then outstanding Awards of
Restricted Stock, and all then outstanding Awards of Deferred Stock
(whether previously granted to an Executive Participant or subject to
the Award of a Participant who is not an Executive Participant), in
either case whether or not such Awards are then vested and
nonforfeitable, and in lieu of shares of Stock otherwise deliverable
in respect of such Awards, an amount in cash (subject to applicable
withholding) computed by multiplying (x) the price per share to be
paid in the transaction constituting such Change in Control by (y) the
aggregate number of shares of Stock subject to such Awards.
The effective date of this Amendment No. 1997-1 shall be February 14, 1997.
Except as herein modified, the Plan shall remain in full force and effect.
Page 2 of 2
<PAGE>
AMENDMENT NO. 1997-1 TO
DESTEC ENERGY, INC.
AMENDED AND RESTATED
1990 AWARD AND OPTION PLAN
This Amendment No. 1997-1 is made to the Destec Energy, Inc. Amended and
Restated 1990 Award and Option Plan (the "Plan"). Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Plan.
WHEREAS, Destec Energy, Inc. (the "Company") is considering entering into
a transaction or series of transactions which will result in a Change in
Control of the Company, as defined in the Plan, without regard to the last
sentence of such definition;
WHEREAS, the Company has determined that it is in its best interest and
that of its stockholders to amend the Plan as set forth herein;
NOW, THEREFORE, pursuant to Section 11 of the Plan, the Plan is hereby
amended as follows:
1. Section 15.08(i) of the Plan is amended (a) by inserting immediately
following "(i) DEFERRED STOCK:" the following:
(A) Except as set forth in paragraph (B) below,
(b) by replacing the word "Upon" with "upon", and
(c) by inserting immediately following such section the following as a new
Section 15.08(i)(B):
(B) Notwithstanding paragraph (A) above, immediately prior to the
occurrence of a transaction which is consummated pursuant to an agreement
or agreements which are executed on or prior to December 31, 1997 and (1)
which constitutes a Change in Control within the meaning of clause (A) of
Section 15.08(iii) hereof and (2) in connection with which (or in
connection with a related transaction) Company stockholders will receive
all cash in consideration for their shares, each Awardee shall be entitled
to receive, in cancellation of all then outstanding Awards of Deferred
Stock (whether or not such Awards are then vested and nonforfeitable) and
in lieu of shares of Deferred Stock otherwise deliverable in respect of
such Awards, an amount in cash (subject to applicable withholding),
computed by multiplying (A) the price per share to be paid in the
transaction constituting such Change in Control by (B) the aggregate number
of shares of Deferred Stock subject to such Awards.
<PAGE>
2. Section 15.08(iii) of the Plan is amended by deleting therefrom the
last sentence thereof.
3. Section 15.08 of the Plan is amended by inserting the following as a
new Section 15.08(iv):
(iv) OPTIONS: Immediately prior to the occurrence of a
transaction which is consummated pursuant to an agreement or
agreements which are executed on or prior to December 31, 1997 and (a)
which constitutes a Change in Control within the meaning of clause (A)
of Section 15.08(iii) hereof and (b) in connection with which (or in
connection with a related transaction) Company stockholders will
receive all cash in consideration for their shares, each Awardee shall
be entitled to receive, in cancellation of each then outstanding
Option (whether or not such Option is then vested and nonforfeitable)
and in lieu of shares of Common Stock otherwise deliverable in
respect of such Option, an amount in cash (subject to applicable
withholding), computed by multiplying (1) the excess, if any, of (x)
the price per share to be paid in the transaction constituting such
Change in Control over (y) the per share exercise price applicable
to such Option by (2) the number of such shares of Common Stock
subject to such Option.
The effective date of this Amendment No. 1997-1 shall be February 14, 1997.
Except as herein modified, the Plan shall remain in full force and effect.
Page 2 of 2
<PAGE>
EXHIBIT 11
DESTEC ENERGY, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
For the Year Ended
December 31,
------------------------
1996 1995
-------- --------
PRIMARY EARNINGS PER SHARE (a)
Weighted average shares of common stock
outstanding 56,931,645 58,658,966
Effect of issuance of shares from assumed
exercise of stock options (treasury
stock method) 346,571 (66,932)
----------- -----------
Weighted average shares 57,278,216 58,592,034
----------- -----------
----------- -----------
Net income $ 42,756 $ 34,700
----------- -----------
----------- -----------
Primary earnings per share $ 0.75 $ 0.59
----------- -----------
----------- -----------
FULLY DILUTED EARNINGS PER SHARE
Weighted average shares per primary
earnings per share computation 57,278,216 58,592,034
Additional dilutive effect of stock
options (treasury stock method) 71,150 80,600
----------- -----------
----------- -----------
Weighted average shares 57,349,366 58,672,643
----------- -----------
----------- -----------
Net Income $ 42,756 $ 34,700
----------- -----------
----------- -----------
Fully diluted earnings per share $ 0.75 $ 0.59
----------- -----------
----------- -----------
__________
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraphs 14, 30 and 40 of APB
Opinion No. 15 because it produces antidilutive results for the years
ended December 31, 1996 and 1995.
<PAGE>
Exhibit 22
DESTEC ENERGY, INC.
SUBSIDIARIES
ENTITY JURISDICTION
- ------ ------------
CORPORATIONS:
Alamo Land Company Louisiana
Australian Power Holdings B.V. Amsterdam, The Netherlands
Australian Power Partners B.V. Amsterdam, The Netherlands
BCC CoGen, Inc. Texas
Bear Claw CoGen, Inc. Delaware
Bear Mountain CoGen, Inc. Texas
Black Mountain CoGen, Inc. Delaware
Brea Canyon CoGen, Inc. Texas
CC CoGen, Inc. Texas
CEC Prime, Inc. California
Chalk Cliff CoGen, Inc. Texas
Chesapeake Power Inc. New York
CoGen Lyondell, Inc. Texas
CoGen Poso Creek, Inc. Texas
CoGen Power, Inc. Texas
Corona Energy Corporation California
D.O.C. Dominicana, S.A. Dominican Republic
Destec Australian Energy Finance PTY The State of Victoria,
Limited Australia
Destec Australian Investments, Inc. Delaware
Destec Caribbean Holdings, Inc. Delaware
Destec Caribbean Services, Inc. Delaware
Destec Cayman Islands Holdings, Ltd. Cayman Islands
Destec Energy of Columbia, Inc. Delaware
Destec Constructors, Inc. Delaware
Destec-Crockett, Inc. Delaware
Destec Energy (Asia) Pte. Ltd. Singapore
Destec Energy Canada, Inc. Ontario, Canada
Destec Engineering, Inc. Texas
Destec Europe, S.A. France
Destec FSC Corporation Barbados
Destec Fuel Resources, Inc. Texas
Destec Gas Properties, Inc. Delaware
Destec Gas Services, Inc. Delaware
Destec Holdings, Inc. Delaware
Destec Latin America, Inc. Delaware
Destec Management Services, Inc. Texas
2
<PAGE>
ENTITY JURISDICTION
- ------ ------------
Destec North American Ventures, Inc. Delaware
Destec Operating Canada, Inc. Ontario, Canada
Destec Operating Company Texas
Destec Power Services, Inc. Delaware
Destec Properties, Inc. Delaware
Destec Taiwan, Inc. Delaware
Destec Ventures, Inc. Delaware
DOC Guatemala, S.A. Guatemala
Dominican Power Metering, Ltd. Cayman Islands
Dominican Power Partners LDC Cayman Islands
Double "C" CoGen, Inc. Texas
Elsta B.V. Amsterdam, The Netherlands
European Power Holdings B.V. Amsterdam, The Netherlands
Florida CoGen Development, Inc. Delaware
Gasification Services, Inc. Delaware
Hart County IPP, Inc. Delaware
Hartwell Independent Power Partners, Inc. Delaware
HEP CoGen, Inc. Texas
Hispaniola Power Ventures, Ltd. Cayman Islands
Indian Queens Power Limited England
James River Energy Corp. Virginia
Kern Front CoGen, Inc. Texas
Kingston Northern Lights, Inc. Ontario, Canada
Kingston Power Partners, Inc. Ontario, Canada
Live Oak CoGen, Inc. Texas
Louisiana Gasification Technology, Inc. Delaware
Michigan CoGen, Inc. Delaware
Michigan Power, Inc. Delaware
Northway CoGen, Inc. Texas
OCG CoGen, Inc. Delaware
Oyster Creek CoGen, Inc. Delaware
Piedmont (LP), Inc. Delaware
Polk County CoGen, Inc. Delaware
Port Arthur CoGen, Inc. Delaware
SJC CoGen, Inc. Texas
San Joaquin CoGen, Inc. Texas
Sierra CoGen, Inc. Texas
Terneuzen CoGen B.V. Amsterdam, The Netherlands
Terneuzen Operating Company B.V. Amsterdam, The Netherlands
UK Asset Management Services Limited England
UK Energy Holdings Limited England
PARTNERSHIPS:
Badger Creek Limited Texas
Bear Mountain Limited Texas
3
<PAGE>
ENTITY JURISDICTION
- ------ ------------
Chalk Cliff Limited Texas
CoGen Power, L.P. Delaware
Commonwealth Atlantic Limited
Partnership Virginia
Destec Gas Properties, L.P. Texas
Destec Properties Limited Partnership Nevada
Double "C" Limited Texas
Elsta B.V. & Co., C.V. Amsterdam, The Netherlands
Florida CoGen Development Company Texas
Hartwell Energy Limited Partnership Delaware
High Sierra Limited Texas
Kern Front Investment, L.P. Texas
Kern Front Limited Texas
Kingston CoGen Limited Partnership Ontario, Canada
Live Oak Limited Texas
McKittrick Limited Texas
Michigan Power Limited Partnership Michigan
Nevada Cogeneration Associates No. 2 Utah
Oyster Creek Limited Texas
PSE-CC Investment, L.P. Texas
PSE-HS Investment, L.P. Texas
San Joaquin CoGen Limited Texas
Tiger Bay Limited Partnership Delaware
4
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
24th day of March, 1995.
/s/ Cassandra C. Carr
----------------------------------
Cassandra C. Carr
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
24th day of March, 1997.
/s/ Jack E. Earnest
----------------------------------
Jack E. Earnest
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
21st day of March, 1997.
/s/ Robert W. Gallant
----------------------------------
Robert W. Gallant
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
25th day of March, 1997.
/s/ Jack G. Helfenstein
----------------------------------
Jack G. Helfenstein
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
21st day of March, 1997.
/s/ Michael D. Parker
----------------------------------
Michael D. Parker
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
25th day of March, 1997.
/s/ J. Pedro Reinhard
----------------------------------
J. Pedro Reinhard
<PAGE>
POWER OF ATTORNEY
Whereas, DESTEC ENERGY, INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as prescribed by the Commission pursuant to the Act, and the rules and
regulations of the Commission promulgated thereunder, with any and all
exhibits and other documents relating to said Annual Report.
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint CHARLES F. GOFF and KEYS A. CURRY, JR., and each
of them severally, his true and lawful attorney or attorneys with power to
act with or without the others, and with full power of substitution and
resubstitution, to execute in his name, place and stead, in his capacity as a
director of the Company, said Annual Report, any and all amendments to said
Annual Report and all instruments as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned in any and all
capacities every act whatsoever necessary or desirable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
21st day of March, 1997.
/s/ Joel V. Staff
----------------------------------
Joel V. Staff
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 111,446
<SECURITIES> 2,999
<RECEIVABLES> 119,878
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 340,058
<PP&E> 407,263
<DEPRECIATION> 71,590
<TOTAL-ASSETS> 1,145,146
<CURRENT-LIABILITIES> 129,734
<BONDS> 0
0
0
<COMMON> 623
<OTHER-SE> 787,119
<TOTAL-LIABILITY-AND-EQUITY> 1,145,146
<SALES> 577,912
<TOTAL-REVENUES> 577,912
<CGS> 522,128
<TOTAL-COSTS> 556,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58,489
<INCOME-TAX> 15,733
<INCOME-CONTINUING> 42,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,756
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,466
<SECURITIES> 328,799
<RECEIVABLES> 93,090
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 553,489
<PP&E> 271,067
<DEPRECIATION> 60,878
<TOTAL-ASSETS> 1,047,812
<CURRENT-LIABILITIES> 149,927
<BONDS> 0
0
0
<COMMON> 623
<OTHER-SE> 768,694
<TOTAL-LIABILITY-AND-EQUITY> 1,047,812
<SALES> 641,496
<TOTAL-REVENUES> 641,496
<CGS> 616,751
<TOTAL-COSTS> 651,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,345
<INCOME-TAX> 10,645
<INCOME-CONTINUING> 34,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,700
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
