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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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
For the transition period from __________ to _____________
COMMISSION FILE NUMBER: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
AND EACH OF THE SUBSIDIARY GUARANTORS OF CERTAIN DEBT SECURITIES
Delaware 94-3248415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 507-6400
Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
Series A Participating Preferred Stock ----
6.75% Debt Securities due 2005 ----
7.625% Senior Notes due 2026 ----
Securities registered pursuant to Section 12(g)
of the Act: None
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 the filing
requirements for the past 90 days.
Yes X No
---- ----
The aggregate value of Common Stock held by non-affiliates of the registrant was
approximately $352,960,508 on March 27, 1997 (based on $15.375 per share, the
last sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape on such date). 150,358,638 shares of the registrant's Common
Stock were outstanding as of March 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE. PORTIONS OF PARTS I, II AND IV IN THE
ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. AS
TO PART III (ITEMS 10, 11, 12 AND 13), NOTICE AND PROXY STATEMENT FOR THE 1997
ANNUAL MEETING OF STOCKHOLDERS TO BE FILED NOT LATER THAN 120 DAYS AFTER
DECEMBER 31, 1996.
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 registrant's 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. [ ]
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NGC CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PAGE
PART I
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Item 1. Business........................................................................ 1
Item 1A Executive Officers.............................................................. 12
Item 2. Properties...................................................................... 14
Item 3. Legal Proceedings............................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............................. 20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....... 20
Item 6. Selected Financial Data......................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 22
Item 8. Financial Statements and Supplementary Data..................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 22
Item 11. Executive Compensation......................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 22
Item 13. Certain Relationships and Related Transactions................................. 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 23
Signatures................................................................................. 30
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For definitions of certain terms used herein, see "Item 1.
BUSINESS --DEFINITIONS."
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PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
NGC Corporation ("NGC" or the "Company") is a leading North American marketer
of natural gas, natural gas liquids, crude oil and power and is engaged in
natural gas gathering, processing and transportation through ownership and
operation of natural gas processing plants, fractionators, storage facilities
and pipelines. Acting in the role of a large-scale aggregator, processor,
marketer and reliable supplier of multiple energy products and services, NGC has
evolved into a reliable energy commodity and service provider. Through joint
ventures in both Canada and the United Kingdom, the Company has expanded
geographically its vision of providing customers with multiple energy commodity
needs combined with cost-effective products and value added services. For the
year ended December 31, 1996, the Company reported revenues of $7.3 billion and
net income of $113.3 million.
The Company is a holding company that conducts principally all of its business
through its subsidiaries. From inception of operations in 1984 until 1990,
Natural Gas Clearinghouse ("Clearinghouse") limited its activities primarily to
natural gas marketing. Starting in 1990, Clearinghouse began expanding its core
business operations through acquisitions and strategic alliances with certain of
its shareholders. In 1994, Clearinghouse initiated gas gathering, processing and
marketing operations in Canada through Novagas Clearinghouse Ltd. ("NCL"), a
joint venture with NOVA Corporation ("NOVA"), and energy marketing operations in
the United Kingdom through Accord Energy Limited ("Accord"), a joint venture
originally with British Gas plc ("British Gas") but now with Centrica plc
("Centrica") following that company's demerger from what is now called BG plc
("BG"). NOVA and BG are both major NGC shareholders. Effective March 1, 1995,
Clearinghouse and Trident NGL Holding, Inc. ("Holding"), a fully integrated
natural gas liquids company, merged and the combined entity was renamed NGC
Corporation ("Trident Combination"). On August 31, 1996, NGC completed a
strategic combination with Chevron U.S.A. Inc. and certain Chevron affiliates
(collectively "Chevron"), whereby substantially all of Chevron's midstream
assets were merged with NGC ("Chevron Combination"). By virtue of the growth of
NGC's core businesses combined with the synergies derived from the
aforementioned transactions, NGC has established itself as an industry leader
providing quality, competitively priced energy products and services to
customers throughout North America and in the United Kingdom.
The principal executive office of the Company is located at 1000 Louisiana,
Suite 5800, Houston, Texas 77002, and the telephone number of that office is
(713) 507-6400. NGC and its affiliates maintain marketing and/or regional
offices in Boston, Massachusetts; Phoenix, Arizona; Englewood, Colorado;
Rosemont, Illinois; Tulsa, Oklahoma; Oklahoma City, Oklahoma; Louisville,
Kentucky; Atlanta, Georgia; Tampa, Florida; Kansas City, Kansas; Dallas, Texas;
San Francisco, California; Pleasenton, California; Pittsburgh, Pennsylvania;
Mexico City, Mexico; London, England and Calgary, Canada.
________________________________________________________________________________
DEFINITIONS
As used in this Form 10-K, the abbreviations listed below are defined as
follows:
BBL. 42 U.S. gallons, the basic unit for measuring crude oil and
natural gas condensate.
MBBLS/D. Volume of one thousand barrels per day.
MMCF/D. Volume of one million cubic feet per day.
BCF. Volume of one billion cubic feet.
BPD. Barrels per day.
NGL. Natural Gas Liquids.
SPOT. The Henry Hub cash price posting for natural gas per the inside FERC
publication.
NYMEX New York Mercantile Exchange.
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BUSINESS
The Company reports operations under two business segments: (i) the natural
gas and power marketing segment and (ii) the natural gas liquids, crude oil and
gas transmission segment.
NATURAL GAS AND ELECTRIC POWER MARKETING
The Company's natural gas marketing activities consist of contracting to
purchase specific volumes of natural gas from suppliers at various points of
receipt to be supplied over a specific period of time; aggregating natural gas
supplies and arranging for the transportation of these gas supplies through
proprietary and third-party transmission systems; negotiating the sale of
specific volumes of natural gas over a specific period of time to local
distribution companies, utilities, power plants and other end-users; and
matching natural gas receipts and deliveries based on volumes required by
customers.
The Company is also a provider of power products and services in the United
States through its wholly owned subsidiary Electric Clearinghouse, Inc. ("ECI").
ECI provides its customers with a 24-hour-a-day, real-time resource for the sale
and purchase of power through access to wholesale markets throughout North
America. ECI helps customers remarket their fuel, optimize generation assets and
capacity utilization and maximize energy conversion and tolling opportunities.
In addition, ECI provides market aggregation and sales assistance and offers
risk-management services and strategies, which complement its marketing
activities.
NATURAL GAS PURCHASES. The Company purchases natural gas from a variety of
suppliers under contracts with varying terms and conditions intended to ensure a
stable supply of natural gas. When purchasing natural gas, the Company considers
price, location, liquids content and quantities available. In 1996, the Company
purchased natural gas in every major producing basin in the United States and
Canada from over 700 suppliers, ranging from major producers to small
independent companies. Pursuant to an ancillary agreement(s) entered into as
part of the Chevron Combination, NGC acquired the right to purchase and/or
market substantially all of the natural gas produced or controlled by Chevron in
the United States (except Alaska). The Chevron relationship provides the
Company with a significant stable supply of natural gas which, when combined
with gas supplies available from its network of other supply sources, allows it
to effectively manage gas supplies and reduces the risk of short-term supply
shortages during periods of peak demand.
TRANSPORTATION. The Company arranges for transportation of the natural gas it
markets from the supplier receipt point to the delivery point requested by the
purchaser by utilizing its proprietary management information system to schedule
and nominate pipeline transportation and monitor transportation availability.
The Company generally retains title to the natural gas from the receipt point to
the delivery point and obtains transportation on unaffiliated pipelines. The
Company believes that its understanding of the United States' pipeline network,
along with the scale and geographic reach of its gas marketing efforts, are
important to the Company's success as a gas marketer. These factors, as well as
its efficiency in utilizing the gas transportation network, allow the Company to
provide its suppliers with multiple outlets for their natural gas and, in times
of significant changes in demand or supply due to weather or other factors, to
route gas to areas of the United States where it is most needed. The Company
attempts to reduce transportation charges by taking advantage of its broad array
of transportation agreements and by negotiating competitive discounts. The
Company uses a variety of transportation arrangements to move its customers'
volumes, including short-term and long-term firm and interruptible agreements
with pipelines and brokered firm contracts with its customers.
NATURAL GAS SALES. The Company sells natural gas under sales agreements that
have varying terms and conditions intended to match seasonal and other changes
in demand. The Company's customer base consists primarily of gas and electric
utilities and industrial and commercial end-users. In 1996, sales were made to
over 1,050 customers located throughout the United States and parts of Canada.
For the year ended December 31, 1996, the Company's North American operations
sold an aggregate average of 7.4 Bcf per day of natural gas and during the
fourth quarter of 1996 sold an aggregate 9.4 Bcf of natural gas per day. As
part of the Chevron Combination's ancillary agreement(s), NGC acquired the right
to supply natural gas feedstocks to Chevron refineries and chemical plants in
the United States providing the Company with a significant stable purchaser of
monthly physical gas volumes.
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NATURAL GAS STORAGE, MARKETING HUBS AND MANAGEMENT INFORMATION SYSTEMS.
Natural gas storage capacity plays an important role in the Company's ability to
act as a full-service natural gas marketer by allowing it to manage relatively
constant gas supply volumes with uneven demand levels. Through the use of its
storage capabilities, the Company offers peak delivery services to satisfy
winter heating and summer electric-generating demands. Storage inventories also
provide performance security or "backup" service to the Company's customers. The
Company at various times leases short-term and long-term firm and interruptible
storage across the country.
The Company, together with three major gas utilities, maintains three natural
gas market area hubs to allow customers to manage short-term prices and help
solve imbalance and transportation problems. These strategic market hubs,
located where regional interstate pipelines converge, are designed to bring
buyers and sellers together over a broad geographic area. Services offered by
the hubs include wheeling, loaning, parking and title transfer, which complement
existing natural gas supply, transportation and storage services, and contribute
to a more efficient, reliable, cost-effective marketplace. Wheeling refers to
the simultaneous transfer of natural gas from one pipeline to another, while
loaning occurs when one party allows another party to borrow natural gas.
Parking services allow a customer to store natural gas in a hub for future
redelivery, while title transfer services allow a customer to assign title to
natural gas that is in storage.
The Company has developed an administrative, accounting and management
information system for its natural gas marketing and transportation businesses
and a complementary risk management information system. The Company believes
these proprietary systems provide it with a competitive advantage in its natural
gas marketing business.
FOREIGN MARKETS. In 1994, the Company formed joint ventures with two of its
principal stockholders, NOVA and British Gas for the purpose of providing energy
marketing services in Canada, the United Kingdom and Western Europe. At December
31, 1996, the Company owned an approximate 50 percent interest in NCL and a 49
percent interest in Accord and jointly controled each of these ventures. In
1997, the Company, along with NOVA and Centrica, have announced their intent to
restructure the ownership and operations of both NCL and Accord (see "STRATEGIC
BUSINESS COMBINATIONS AND RECENT DEVELOPMENTS").
NCL, formed by the Company and NOVA, is a full-service gas gathering,
processing, storage and marketing company operating in Canada. By combining the
Company's marketing and risk management capabilities with NOVA's established
operations and technical expertise, NCL strategically positioned itself to
provide Canadian producers and consumers with comprehensive, value-added
services. NCL supplies natural gas and provides related services to customers in
the utility, industrial, commercial and other core marketing segments across
Canada. During 1996, NCL marketed an average of 3.1 Bcf per day of natural gas.
Accord was formed by the Company and British Gas to develop energy marketing
and trading opportunities in the United Kingdom and, ultimately, Western Europe.
Accord is an active participant in the U.K. wholesale natural gas and crude oil
markets and purchases products from a wide assortment of producers, including
BG. During 1996, Accord sold an average 0.6 Bcf per day of natural gas.
ELECTRIC POWER MARKETING. The Company formed ECI in February 1994 to pursue
electric power marketing opportunities created as the domestic electric power
industry deregulates. On January 1, 1995, ECI's trading center began real-time
operations, trading and scheduling power 24 hours a day, 365 days a year. ECI
functions as an electricity risk management market maker, providing products and
services similar to those that are currently used in the natural gas industry to
manage customers' price risks and offers customers an individually tailored
package of services to manage fuel supply and power generation assets. The
Company sold 14.9 million megawatts of electricity during 1996 as compared with
3.5 million megawatts during 1995.
As power becomes deregulated and thus commoditized, its value relative to
natural gas will continue to become more closely intertwined. Complexity in the
marketplace will be ever-increasing and management of customer power
requirements will require a multi-commodity focus. NGC believes that
participation in the physical asset side of the power industry, achieved through
ownership of strategically located generating assets, will enable the Company to
expand services and to integrate the electric power marketing business more
fully into the Energy Store. As a result and as discussed further in STRATEGIC
BUSINESS COMBINATIONS AND RECENT
3
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DEVELOPMENTS, the Company has announced its intent to acquire Destec Energy ,
Inc. a leading independent power producer.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
The Company's natural gas liquids, crude oil and gas transmission segment
includes natural gas gathering and processing, fractionation, NGL marketing,
natural gas transmission and crude oil marketing and transportation operations.
The Company's natural gas liquids business complements its natural gas marketing
and power businesses by providing the Company's customers with a full range of
NGL products and related services.
NATURAL GAS GATHERING AND PROCESSING. The natural gas processing industry is
a major segment of the oil and gas industry, providing the necessary service of
refining raw natural gas into marketable pipeline quality natural gas and NGLs.
The Company currently owns interests in 57 gas processing plants, including 42
plants which it operates, and operates approximately 17,000 miles of natural gas
gathering pipeline systems. These assets are primarily located in the key
producing areas of Texas, Louisiana, Oklahoma and Kansas.
During the year ended December 31, 1996, the Company processed an average of
more than 2.5 Bcf per day of natural gas and produced an average of 94.3
thousand barrels per day of NGLs. As part of the Chevron Combination's ancillary
agreement(s), NGC acquired the right to process substantially all of Chevron's
processable natural gas in those geographic areas where it is economically
feasible for NGC to provide such service. Principally as a result of this
arrangement, the Company increased its volume activity during the fourth quarter
of 1996 to an average of more than 3.2 Bcf per day of natural gas processed
and an average of 140.9 thousand barrels per day of NGLs produced.
FRACTIONATION. The NGLs removed from the natural gas stream at gas processing
plants are generally in the form of a commingled stream of liquid hydrocarbons
(raw product). The commingled NGLs are separated at fractionation facilities
into the component products ethane, propane, normal butane, isobutane and
natural gasoline. At December 31, 1996, the Company had ownership interests in
three fractionation facilities, including the industry's largest, and received
169.1 thousand barrels per day of product for fractionation during the year. On
January 1, 1997, the Company divested itself of the Mont Belvieu I fractionator
in accordance with an agreement reached with the Federal Trade Commission
("FTC") related to the Chevron Combination. The Company realized a small after-
tax gain in 1997 relating to the sale. The Company is planning to construct a
fractionation facility in Louisiana that will have a production capacity of
55,000 barrels per day. The facility is expected to be operational in the fall
of 1998.
NGL MARKETING. The Company maintains a diversified NGL marketing program and
is the nation's leading service provider to propane retail marketers throughout
North America. The Company markets its own NGL production and also purchases
NGLs from third parties for resale. Through the Company's strategic combination
of pipeline connections, terminals, rail cars, trucks, barges and storage
facilities, the Company moves NGL products from producing regions in the Gulf
Coast and Midwest to most major domestic and international markets. The Company
operates large-scale marine terminals in Texas, Florida and Louisiana, which can
be used for both exporting and importing NGLs. These terminals offer importers a
variety of methods for transporting products to the marketplace. In addition,
Warren has access to over 60 million barrels of underground NGL storage
providing customers with the ability to store, trade, buy and sell specification
products. In 1996, the Company began utilizing Warren's storage, terminalling
and shipping assets and services to conduct international deepwater LPG
business. Management intends to expand these operations in 1997 through the
Company's wholly owned subsidiary NGC Global Energy, Inc. During 1996, the
Company sold approximately 245 thousand barrels per day of NGLs to over 1,000
customers and, during the fourth quarter of 1996, sold an approximate 431.5
thousand barrels per day of NGLs reflecting the material impact the Chevron
Combination had on this business.
TRANSMISSION OPERATIONS. The Company's transportation network is connected to
all of the nation's major gas liquids and natural gas pipeline systems. NGC
owns a 50 percent interest in a partnership which operates the West Texas
Pipeline, a pipeline capable of delivering 160,000 barrels per day of liquids to
fractionation facilities at Mont Belvieu, Texas. In addition, Warren's 12-inch
bi-directional Lake Charles, Louisiana, pipeline transports 50,000 barrels per
day of liquids and finished products between Lake Charles and Mont Belvieu.
Warren's extensive Houston-area gathering system provides market access to
refiners and chemical plants on the Houston
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Ship Channel. The Ozark Gas Transmission System ("Ozark"), acquired in mid-1995,
expanded the Company's natural gas transmission capabilities providing
throughput capacity of 170 million cubic feet of gas per day. Ozark gathers gas
from eastern Oklahoma and transports it to central Arkansas, where the system
interconnects with interstate pipelines that serve the Midwest and Northeast
markets. The Company also operates an intrastate natural gas pipeline system in
south-central Kansas, which serves markets in the Wichita area and throughout
the Midwest and Mid-Continent areas on interconnected intrastate and interstate
pipelines.
CRUDE OIL MARKETING. The Company provides a full range of crude oil marketing
services to producers, and serves the United States refining community as a
regionally diversified supplier of crude oil. Through its participation in major
trading centers in the Mid-Continent, Rocky Mountain and Gulf Coast areas, the
Company has established itself as a dependable source of competitively priced
crude oil. During 1996, the Company continued to utilize the 1,300-mile crude
oil gathering pipeline system acquired in 1995 to facilitate aggregation and
delivery of product to market, which further established NOTTI as a dependable
source of crude oil supply. Through acquisitions during 1996, the Company's
crude oil marketing business has positioned itself to expand operations in the
Gulf Coast area and in Canada. In May 1996, NGC Oil Trading and Transportation,
Inc. ("NOTTI") acquired the Grand Lakes Liquids System crude and condensate
operations in Cameron Parish, Louisiana, which included a 20-mile crude oil
gathering pipeline, a 100,000 barrel storage facility and truck-unloading and
barge loading capabilities. Also in 1996, NOTTI acquired Wilmar Energy
Marketing, a Calgary, Canada-based crude oil marketer and established NOTTI-
Canada. NOTTI-Canada's initial focus will be on expanding marketing and
gathering services within Canadian markets.
INTERNATIONAL OPPORTUNITIES
NGC's strategic investors, British Gas, NOVA and Chevron, provide excellent
international business opportunities. By combining NGC's multi-commodity energy
trading expertise with these business partners' international asset positions
and understanding of local governments, markets and customer needs, NGC Global,
Inc., a wholly owned subsidiary of NGC, will focus on bringing the Energy
Store's multi-commodity concept to new markets. As countries privatize or
deregulate their energy industries, NGC will work closely with its business
partners to explore opportunities that optimize value in selected overseas
markets.
RISK MANAGEMENT ACTIVITIES
The natural gas and power marketing segment's operations, exclusive of risk-
management activities, is relatively insensitive to commodity price fluctuations
since most of the segment's purchases and sales contracts do not contain fixed-
price provisions. Operating margins associated with the natural gas liquids,
crude oil and gas transmission segment are sensitive to changes in NGL prices
principally as a result of the contractual terms under which products are sold
by this segment. However, this segment's operating margin is relatively
insensitive to changes in natural gas prices as a result of the mitigating
impact of fuel costs and residue gas sales. The Company attempts to manage its
exposure to commodity price fluctuations through its risk-management activities.
NGC utilizes certain types of fixed-price contracts in connection with its
natural gas, NGL and crude oil marketing lines of business. These contracts
include contracts which commit the Company to purchase or sell energy
commodities at fixed prices in the future (i.e., fixed-price forward purchase
and sales contracts), futures and options contracts traded on the NYMEX and
swaps and options traded in the over-the-counter financial markets. The
availability and use of these types of contracts allow NGC to manage and hedge
its fixed-price purchase and sales commitments, to provide fixed-price
commitments as a service to its customers and suppliers, to reduce its exposure
relative to the volatility of cash market prices and to protect its investment
in storage inventories. The Company may, at times, have a bias in the market,
within established limits, resulting from the management of its portfolio. In
addition, by utilizing exchange for physical transactions allowed by the NYMEX,
which enable entities to take delivery of, or sell, a physical quantity of
natural gas in exchange for a futures position, NGC is able to secure additional
sources of physical natural gas supply, or create additional markets for
existing supply, through the use of natural gas futures contracts. These fixed-
price activities are referred to herein as risk management activities.
Although the Company generally attempts to balance its fixed-price physical
and financial purchase and sales contracts in terms of contract volumes and the
timing of performance and delivery obligations, net open positions
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often exist or are established due to the origination of new transactions and
the assessment of, and response to, changing market conditions. NGC will take
advantage of its bias in the market when it believes, based upon competitive
information gained from its energy marketing activities, that future price
movements will be consistent with its net open position. To the extent net open
positions exist, NGC is exposed to the risk that fluctuating market prices may
adversely impact its financial position or results of operations.
In addition to the risk associated with price movements, credit risk is also
inherent in the Company's risk management activities. Credit risk relates to the
risk of loss resulting from the nonperformance of contractual obligations by a
counterparty. NGC maintains credit policies with regard to its counterparties
which the Company believes significantly minimizes its overall credit risk.
NGC has established a risk management committee which oversees its risk
management activities. This committee meets regularly to establish the Company's
overall risk management strategy and to monitor and ensure compliance with risk
management limitations, policies and procedures.
STRATEGIC BUSINESS COMBINATIONS AND RECENT DEVELOPMENTS
STRATEGIC BUSINESS COMBINATIONS
CHEVRON COMBINATION. On August 31, 1996, NGC completed the Chevron
Combination with Chevron pursuant to which Chevron contributed substantially all
of its midstream assets (the "Contribution"), including substantially all of the
assets comprising Warren Petroleum Company and Chevron's Natural Gas Business
Unit and an undivided interest in those assets that constitute the West Texas
LPG Pipeline, into Midstream Combination Corp. ("Midstream"), a Delaware
corporation formed for purposes of the transaction. NGC which was formed
effective March 1, 1995, pursuant to the Trident Combination, was merged with
and into Midstream immediately following the Contribution and Midstream was
renamed NGC Corporation. In exchange for the Contribution, Chevron received
approximately 38.6 million shares of NGC common stock and approximately 7.8
million shares of NGC's Series A Participating Preferred Stock and NGC assumed
approximately $283 million of indebtedness. Immediately following closing of the
Chevron Combination, NGC paid approximately $128 million to Chevron and funded
such payment under the NGC Corporation Credit Agreement ("Credit Agreement").
In connection with the Chevron Combination, NGC and Chevron entered into
certain ancillary supply, sales and service agreements with respect to natural
gas, natural gas liquids and electricity. Pursuant to these ancillary
agreements, NGC has the right to, among other things, purchase and/or market
substantially all of the natural gas and natural gas liquids produced or
controlled by Chevron in the United States (except Alaska), to process
substantially all of Chevron's processable natural gas in those geographic areas
where it is economically feasible for NGC to provide such service, to supply
natural gas feedstocks to Chevron refineries and chemical plants in the United
States and to participate in existing and future opportunities to provide
electricity to Chevron's United States facilities as well as to purchase or
market excess electricity generated by those facilities.
TRIDENT COMBINATION. On March 14, 1995, NGC and Holding consummated the
Trident Combination. Pursuant to the terms of the Trident Combination, Holding,
the legally surviving corporation in the Combination, was renamed NGC
Corporation and (i) acquired through a tender offer (the "Tender Offer") 14.2
million shares of Holding common stock (representing approximately 50 percent of
the Holding common stock outstanding immediately prior to the consummation of
the Trident Combination) for $11.75 per share, net to the seller in cash; (ii)
acquired directly and indirectly, all of the outstanding general partnership
interests in Clearinghouse; (iii) the former owners of the partners of
Clearinghouse (the "Clearinghouse Owners") acquired 82 percent of the then
outstanding shares of NGC common stock (giving effect to the issuance, but not
allocation, of the "Contingent Shares" (as defined below)), and (iv) the
stockholders of Holding prior to consummation of the Combination retained shares
of common stock representing approximately 13 percent of the then outstanding
shares of NGC common stock (giving effect to the issuance, but not allocation,
of the Contingent Shares). The Contingent Shares totaled 5,461,538 shares of NGC
common stock and represented approximately 5 percent of the outstanding shares
of NGC common stock after giving effect to the issuance of such shares. Such
shares were allocated in March 1996 in a ratio of 17 percent to the former
stockholders of Holding and 83 percent to the Clearinghouse Owners.
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RECENT DEVELOPMENTS
On February 18, 1997, NGC announced that it had signed a merger agreement to
acquire Destec Energy, Inc. ("Destec"), a leading independent power producer
("IPP"), in a deal valued at $1.27 billion, or $21.65 per share of Destec common
stock. Simultaneous with this merger, NGC will sell Destec's international
facilities and operations to The AES Corporation for $407 million, inclusive of
cash and monetizable assets. Closing of this transaction is expected to occur by
the end of the second quarter of this year. NGC intends to finance the
transaction with interim financing provided by commercial banks from its
existing bank-credit group and existing cash. The balance of the interim
financing is expected to be retired from a combination of sales of non-strategic
domestic Destec assets within six to 12 months of closing of the merger, long-
term debt and a common and/or preferred stock issuance. Destec currently
operates 20 power generation facilities in key energy markets across the United
States as well as five international projects.
On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the FTC related to the
Chevron Combination. The Company realized a small after-tax gain in 1997
relating to the sale.
In early 1997, British Gas completed a restructuring with Centrica being
demerged from British Gas with the latter being renamed BG. Centrica became the
Company's joint venture partner in Accord while BG now holds the approximate 26
percent stake in NGC's common stock formerly held by British Gas.
Effective March 2, 1997, Centrica and the Company signed an agreement in which
they stated their intent to restructure Accord by converting certain common
stock interests in Accord to participating preferred stock interests. After
closing, which is expected to occur in the second quarter of 1997, Centrica and
the Company will own 75 percent and 25 percent, respectively, of the
participating preferred stock of Accord. The participating preferred stock will
have (a) the right to receive cumulative dividends on a priority basis to other
corporate distributions by Accord, and (b) limited voting rights. In addition,
Centrica will have the option to purchase the Company's participating preferred
stock interest at any time after July 1, 2000, and the Company will have the
right to acquire Centrica's participating preferred interest during the period
from January 1, 2001, through March 1, 2001, at formula based prices as defined
in the agreement. As part of the reorganization, NGC UK Limited ("NGC UK") will
assume control of Accord's existing crude oil marketing business. The
restructuring is contingent upon certain U.K. regulatory approvals. NGC intends
to expand its multi-commodity, energy-marketing concept in the UK through NGC UK
which will market natural gas, natural gas liquids and crude oil as well as
provide international LPG trading and transportation.
In October 1996, the Company and NOVA jointly announced their intent to
restructure the companies' Canadian natural gas operations. Under the
agreement, NGC will assume full control of NCL's gas and gas liquids marketing
business. NGC and NOVA will pursue separate midstream asset businesses in
Canada, with NOVA assuming full ownership of NCL's existing gathering and
processing business. The restructuring may also result in amendments to or
termination of various agreements between NCL and the Company or NOVA, including
their respective affiliates. NOVA will also own 100 percent of Pan-Alberta,
which is currently a subsidiary of NCL. NGC will operate its Canadian
businesses under the name NGC Canada, Inc. The transaction is expected to close
by April 30, 1997.
COMPETITION
All phases of the businesses in which NGC is engaged are highly competitive.
In connection with both domestic and foreign operations, the Company encounters
strong competition from companies of all sizes, having varying levels of
financial and personnel resources.
NGC competes in its gas marketing business with other natural gas merchants,
producers and pipelines for sales based on its ability to aggregate
competitively priced supplies from a variety of sources and locations and to
efficiently utilize transportation through third-party pipelines. In past years,
the spot marketing business had a low cost barrier to entry; therefore, a number
of the Company's competitors were privately owned and relatively small in size
and may have been comparatively undercapitalized to meet the increasing
financial requirements of the natural gas industry. However, with respect to its
marketing operations, NGC believes that market customers will increasingly
scrutinize the financial condition of their suppliers to assure that contract
obligations will be
7
<PAGE>
met; suppliers and transporters will demand more stringent credit terms to
secure the performance of natural gas merchants; the increased role of storage
and other risk management tools will add to the financial costs of doing
business; the increasing availability of pricing information to participants in
the natural gas industry will continue to exert downward pressure on per-unit
profit margins in the industry; suppliers will have to be multi-fuel marketers;
and large competitors, such as megamarketer alliances, will create competition
from entities having significant liquidity and other resources. As a result, NGC
believes its financial condition and its access to capital markets will play an
increasing role in distinguishing the Company from many of its competitors.
Operationally, NGC believes its ability to remain a low cost merchant and
effectively combine value-added services, competitively priced supplies and
price risk management will determine the level of success in its natural gas
marketing operations.
NGC's electric power business is similar to its gas marketing business in that
it provides natural gas contract services to electric utilities, markets and
supplies electricity and invests in power-related assets and joint ventures. As
a result, the competition issues incumbent upon the Company's gas marketing
operations similarly impact the Company's power marketing business. As with its
gas marketing operations, the Company believes it has the ability to establish
itself as a low cost and dependable merchant providing competitively priced
supplies and a variety of services which will differentiate NGC from the
competition.
The Company's natural gas liquids, NGL and crude oil marketing and gas
transmission businesses face significant competition from a variety of
competitors including major integrated oil companies, major pipeline companies
and their marketing affiliates and national and local gas gatherers, processors,
brokers, marketers and distributors of varying sizes and experience. The
principal areas of competition include obtaining gas supplies for gathering and
processing operations, obtaining supplies of raw product for fractionation, the
marketing of NGLs, crude oil, residue gas, helium, condensate and sulfur, and
the transportation of natural gas, NGLs and crude oil. Competition typically
arises as a result of the location and operating efficiency of facilities, the
reliability of services and price and delivery capabilities. The Company
believes it has the infrastructure, long-term marketing abilities, financial
resources and management experience to enable it to compete effectively.
REGULATION
GENERAL. The Company is subject to the laws, rules and regulations of the
countries in which it conducts its operations. Domestically, numerous
departments and agencies at federal, state and local levels have issued rules
and regulations affecting the energy industry, some of which carry substantial
penalties for non-compliance. Internationally, environmental and other
regulatory matters are evolving as detailed rules and procedures are established
and their application and interpretation defined. The regulatory burden on the
energy industry increases its cost of doing business and, consequently, affects
its profitability. Inasmuch as these rules and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations. These rules and regulations affect
the industry as a whole; therefore, the Company does not believe that it is
affected in a significantly different manner from its competitors.
REGULATORY MATTERS. The transportation and sale for resale of natural gas is
subject to regulation by the Federal Energy Regulatory Commission ("FERC") under
the Natural Gas Act of 1938, as amended ("NGA") and, to a lesser extent, the
Natural Gas Policy Act of 1978, as amended ("NGPA"). Interstate transportation
and storage services by natural gas companies, including interstate pipeline
companies, and the rates charged for such services, are regulated by the FERC.
Certain of the Company's pipeline activities and facilities are involved in
interstate transportation of natural gas, crude oil and NGLs, and are subject to
these or other federal regulations.
Legislative and regulatory changes began in 1978 with the passage of the NGPA,
which initiated the process of price deregulation of gas sold at the wellhead.
Since 1978, various federal laws have been enacted which have resulted in the
termination on January 1, 1993 of all price and non-price controls for natural
gas sold in "first sales."
Commencing in 1985, the FERC promulgated a series of orders and regulations
adopting changes that significantly altered the business of transporting and
marketing natural gas by fostering competition. The thrust of these regulations
was to induce interstate pipeline companies to provide nondiscriminatory
transportation services to producers, distributors and other shippers. The
effect of the foregoing regulations has been the creation of a more open access
market for natural gas purchases and sales and the creation of a business
environment which
8
<PAGE>
has fostered the evolution of various unregulated, privately negotiated natural
gas sales, purchase and transportation arrangements.
Order 636, issued in April 1992, as amended by Order 636-A (issued in August
1992) and Order 636-B (issued in November 1992), was a continuation of the
FERC's efforts to improve the competitive structure of the pipeline industry and
to maximize consumer benefits resulting from a competitive structure of the
pipeline industry and a competitive wellhead gas market. The FERC's goal, as
stated in Order 636, "is to recognize the current characteristics of the natural
gas industry -- and to create a regulatory framework that will accommodate the
meeting of as many gas sellers and gas buyers as possible."
In Order 636, the FERC required interstate pipelines that perform open access
transportation under blanket certificates to "unbundle" or separate their
traditional merchant sales services from their transportation and storage
services and to provide comparable transportation and storage services with
respect to all gas supplies whether purchased from the pipeline or from other
merchants such as marketers or producers. The pipelines must now separately
state the applicable rates for each unbundled service (i.e., for the gas
commodity, transportation and storage). The unbundling and separate pricing of
services has significantly affected the pipelines' merchant function and
required a major restructuring of the relationships between pipeline companies
and their customers.
Certain segments of the industry opposed aspects of Order 636, and many
parties sought judicial review of Order 636. Order 636 was substantially upheld
on appeal, with only a few issues being successfully challenged. While Supreme
Court review is certainly possible, it is not very likely that the Court will
hear an appeal from the D.C. Circuit. In addition, parties have sought judicial
review of most of the FERC orders approving individual pipeline restructuring
plans that were authorized pursuant to Order 636. While it appears that the
overall structure of Order 636 will remain intact, NGC cannot predict how
certain aspects of implementation by individual pipelines will fare.
On February 28, 1997, the FERC issued a Notice of Public Conference and
Opportunity to Comment relating to the natural gas industry. The FERC will take
public comment in both written and oral form on what its role should be in the
post Order 636 era. The FERC's Notice includes a broad array of subjects on
which it requests comment, portending a vibrant debate, but no particular
outcome.
GAS PROCESSING. The primary function of NGC's gas processing plants is the
extraction of NGLs and not natural gas transportation. The FERC has
traditionally maintained that a processing plant is not a facility for
transportation or sale for resale of natural gas in interstate commerce and
therefore is not subject to jurisdiction under the NGA. Even though the FERC has
made no specific declaration as to the jurisdictional status of the Company's
gas processing operations or facilities, NGC believes its gas processing plants
are primarily involved in removing NGLs and therefore exempt from FERC
jurisdiction. Nonetheless, certain facilities downstream of processing plants
are being considered for use in transporting gas between pipelines, which may
invoke FERC's jurisdiction. Such jurisdiction will apply to the downstream
facility as a pipeline, however, and not to the plants themselves.
GATHERING. The NGA exempts gas gathering facilities from the jurisdiction of
the FERC. Interstate transmission facilities, on the other hand, remain subject
to FERC jurisdiction. The FERC has historically distinguished between these two
types of facilities on a fact-specific basis. NGC believes its gathering
facilities and operations meet the current tests used by the FERC to determine a
nonjurisdictional gathering facility status. Some of the recent cases applying
these tests in a manner favorable to the determination of NGC's
nonjurisdictional status are still subject to rehearing and appeal. In addition,
the FERC's articulation and application of the tests used to distinguish between
jurisdictional pipelines and nonjurisdictional gathering facilities have varied
over time. While the Company believes current definitions create
nonjurisdictional status for NGC's gathering facilities, no assurance can be
given that such facilities will remain classified as gas gathering facilities
and the possibility exists that the rates, terms, and conditions of the services
rendered by those facilities, and the construction and operation of the
facilities will be subject to regulation by the FERC or by the various states in
the absence of FERC regulation.
PRORATION. The states of Texas and Oklahoma have adopted changes to oil and
gas production and proration regulations, as well as other regulatory changes,
that could affect volumes of gas available for purchase by NGC. To date, the
Company has not experienced any material reductions in available supplies due to
proration.
9
<PAGE>
Nevertheless, these or future proration regulation revisions may materially
affect NGC's ability to purchase gas supplies.
MARKET HUBS. The market hubs for which Hub Services, Inc., a wholly owned
subsidiary of NGC, serves as hub administrator are combined gas storage,
transportation and interchange facilities. To the extent the market hubs provide
services in intrastate commerce, the rates, terms and conditions of service are
regulated by the applicable state public utility commissions. To the extent the
market hubs provide service in interstate commerce subject to the NGA or NGPA,
the FERC has overlapping regulatory authority with respect to rates, terms and
conditions of service.
STATE REGULATORY REFORMS. State versions of Order 636 are proceeding. To
date, most programs are limited in scope. As these programs mature, they may
impact NGC's traditional wholesale customers' ability to sell gas. These
customers could be replaced with other sellers of gas as a wholesale market for
NGC sales. In addition, some states are considering regulating retail
marketers. At this point, the regulation appears restricted to retail sellers
and is not price regulation, but instead oriented towards terms and conditions
of service. NGC presently makes only limited retail sales.
Other state regulatory reforms impacting the Company's processing and
gathering operations and other businesses are proceeding. While the ultimate
impact of such legislation on the Company's businesses cannot be predicted with
certainty, the Company does not believe that the outcome of these matters will
have a material adverse effect on the Company's operations or competitiveness.
ELECTRIC REGULATION. Federal law, specifically the Federal Power Act,
regulates the transmission of electric power in interstate commerce and sales
for resale of that power. Through ECI, NGC makes wholesale power sales to
utilities. The FERC has asserted jurisdiction over these sales, but allows ECI,
as well as others, to make sales at market-based rates.
In 1996, the FERC issued Order 888, which provides that utilities subject to
its jurisdiction must allow access to others to sell power at wholesale. ECI
utilizes this open-access transmission to make wholesale power sales. Order 888
was upheld by the FERC in March of 1997, and is now destined to be appealed in
the U.S. Courts of Appeal on numerous grounds. NGC cannot predict the outcome
of such appeals. Meanwhile, second generation implementation issues arising out
of Order 888 abound. These include issues relating to power pool structures and
transmission pricing. These too will likely find their way to the courts, and
their outcome cannot be predicted.
State regulation over the electric industry is also changing. Various state
regulatory authorities and legislatures are moving towards allowing retail
customers access to the transmission grid. Each state differs in its preferred
pace and scope of retail transmission access.
OTHER REGULATORY ISSUES. The Company's gas purchases and sales are generally
not regulated by the FERC; however, as a gas merchant, the Company depends on
the gas transportation and storage services offered by various interstate and
intrastate pipeline companies to enable the sale and delivery of its gas
supplies. Additionally, certain other pipeline activities and facilities of the
Company are involved in interstate and intrastate transportation and storage
services and are subject to various federal and state regulations which
generally regulate rates, terms and conditions of service.
ENVIRONMENTAL MATTERS
NGC's operations are subject to extensive federal, state and local statutes,
rules and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Compliance with these
statutes, rules and regulations requires capital and operating expenditures
including those related to monitoring and permitting at various operating
facilities and remediation obligations. The Company's environmental expenditures
have not been prohibitive in the past, but are anticipated to increase in the
future with the trend toward stricter standards, greater regulation, more
extensive permitting requirements and an increase in the number of assets
operated by the Company subject to environmental regulation.
The vast majority of federal environmental remediation provisions are
contained in the Superfund laws -- the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund
10
<PAGE>
Amendments and Reauthorization Act ("SARA") and in the corrective action
provisions of the Federal Resource Conservation and Recovery Act ("RCRA").
Typically, the Environmental Protection Agency ("EPA") acts pursuant to
Superfund legislation to remediate facilities that are abandoned or inactive or
whose owners are insolvent; however, the legislation may be applied to sites
still in operation. Superfund law imposes liability, regardless of fault or the
legality of the original conduct, on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. These persons
include the current or previous owner and operator of a site and companies that
disposed, or arranged for the disposal, of the hazardous substance found at a
site. CERCLA also authorizes the EPA and, in certain instances, private parties
to take actions in response to threats to public health or the environment and
to seek recovery from such responsible party. RCRA provisions apply to
facilities that have been used to manage or are currently managing hazardous
waste and which are either still in operation or have recently been closed. As
amended, RCRA requires facilities to remedy any releases of hazardous wastes or
hazardous waste constituents at waste treatment, storage or disposal facilities.
NGC is subject to the environmental risks normally incident to the operation
and construction of storage facilities, pipelines, plants and other facilities
for gathering, processing, treating, storing and transporting natural gas and
other products including, but not limited to, uncontrollable flows of natural
gas, fluids and other substances into the environment, fires, pollution and
other environmental and safety risks. These activities are subject to
environmental and safety regulation by federal authorities and state authorities
residing in those states in which the Company owns assets or conducts business.
In addition, the design, construction, operation and maintenance of the
Company's pipeline facilities are subject to the safety regulations established
by the Secretary of the Department of Transportation pursuant to the Natural Gas
Pipeline Safety Act ("NGPSA"), or by state regulations meeting the requirements
of the NGPSA.
In connection with the Chevron Combination, Chevron agreed to indemnify NGC
against certain environmental liabilities related to the gathering, processing
and transportation assets that comprised a part of the Contribution. In each
case, the indemnification was limited to the extent that such liabilities relate
to such assets' operations prior to August 31, 1996. This indemnity is limited
and, among other things, expires August 31, 2001, and only covers liabilities
under environmental laws and regulations in effect at August 31, 1996. The
Company believes that Chevron has sufficient financial resources to satisfy its
environmental indemnity obligations.
In connection with the acquisition of substantially all of the natural gas
liquids business of OXY USA, Inc. ("OXY USA") by Holding in 1991, OXY USA agreed
to indemnify Holding for any liability, claims, damages, costs, duties of
remediation or loss of use resulting from certain claims or assessments (as
defined in that Acquisition Agreement) associated with periods prior to the
acquisition date generally for a period of ten years from the acquisition date.
The Acquisition Agreement provided, however, that Holding would contribute 30
percent of the first $25 million (i.e., up to a maximum of $7.5 million) of any
such liabilities, claims, damages, costs, duties of remediation or loss of use
resulting from or relating to any such emissions of environmental contaminants.
Such indemnity inured to the Company at the date of the Trident Combination.
The Company believes that OXY USA has sufficient financial resources to satisfy
its environmental indemnity obligations.
In acquiring other operating assets from third parties, NGC has often been
required to indemnify the seller against losses arising from pre-closing
environmental liabilities, although in other instances it has been indemnified
against such losses by the seller. To minimize its exposure for such
liabilities, environmental audits of the assets NGC wishes to acquire are made,
either by NGC personnel, outside environmental consultants, or a combination of
the two.
The Company has not heretofore incurred any material environmental liabilities
arising from its acquisition activities. The incurrence of a material
environmental liability, and/or the failure of an indemnitor to meet its
indemnification obligations with respect thereto, could have a material adverse
effect on NGC's operations and financial condition.
To the Company's knowledge, it is in substantial compliance with, and is
expected to continue to comply in all material respects with, applicable
environmental laws, regulations, orders and rules. Further, to the best of the
Company's knowledge, there are no existing, pending or threatened actions,
suits, investigations, inquiries, proceedings or clean-up obligations by any
governmental authority or third party relating to any violations of any
environmental laws with respect to the Company's assets which would have a
material adverse effect on the
11
<PAGE>
Company's operations and financial condition. NGC's aggregate expenditures for
compliance with laws and regulations related to the discharge of materials into
the environment or otherwise related to the protection of the environment
totaled $3.7 million in 1996. Total environmental expenditures for both capital
and operating maintenance and administrative costs are not expected to exceed
$15.6 million in 1997.
The Company's operations are subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and other comparable state statutes.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of SARA and similar state statutes require that
information be organized and maintained about hazardous materials used or
produced in its operations. Certain of this information must be provided to
employees, state and local government authorities and citizens. The Company
believes it is in substantial compliance with these rules and regulations.
OPERATIONAL RISKS AND INSURANCE
NGC is subject to all risks inherent in the various businesses in which it
operates. These risks include, but are not limited to, explosions, fires and
product spillage, which could result in damage to or destruction of operating
assets and other property, or could result in personal injury, loss of life or
pollution of the environment, as well as curtailment or suspension of operations
at the affected facility.
NGC maintains general public liability, property and business interruption
insurance in amounts that it considers to be adequate for such risks. Such
insurance is subject to deductibles that the Company considers reasonable and
not excessive.
The occurrence of a significant event not fully insured or indemnified
against, and/or the failure of a party to meet its indemnification obligations,
could materially and adversely affect NGC's operations and financial condition.
Moreover, no assurance can be given that NGC will be able to maintain insurance
in the future at rates it considers reasonable.
In 1996, one of the Company's subsidiaries, NIPC, Inc., was designated to
assist the Company in the management of certain liabilities principally relating
to environmental, litigation and credit reserves. Together with the involvement
of a third party whose primary consideration will be based on the realization of
savings by the Company, the subsidiary will attempt to find new ways to handle
these costs in a more efficient manner.
EMPLOYEES
The Company employs approximately 722 employees at its administrative offices
and approximately 1,171 employees at its operating facilities. Approximately
131 employees at Company-operated facilities are subject to collective
bargaining agreements with the Oil, Chemical and Atomic Workers International
Union or the Lake Charles Metal Trades Council. Management considers relations
with both union and non-union employees to be satisfactory.
ITEM 1A. EXECUTIVE OFFICERS
Set forth below are the names and positions of the current executive officers
of the Company, together with their ages, position(s) and years of service with
the Company.
12
<PAGE>
SERVED WITH
THE COMPANY
NAME AGE* POSITION(S) SINCE
C. L. Watson 47 Chairman of the Board, 1985
Chief Executive Officer, and
a Director of the Company
Thomas M. Matthews 53 President of the Company 1996
Stephen W. Bergstrom 39 Senior Vice President and a 1986
Director of the Company;
President of Clearinghouse
Stephen A. Furbacher 49 Senior Vice President of the 1996
Company and President of Warren
Petroleum Limited Partnership
James H. Current, Sr. 52 Senior Vice President of the 1996
Company and President of NGC
Global Energy Inc.
Kenneth E. Randolph 40 Senior Vice President, 1984
General Counsel and
Secretary of the Company
___________________________________________
* As of April 1, 1997.
The executive officers named above will serve in such capacities until the
next annual meeting of the Company's Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office.
C. L. Watson serves as Chairman of the Board, Chief Executive Officer and a
Director of the Company. He also served as President of NGC from March 1995 to
December 1996. Mr. Watson served as Chairman and as a member of the
Clearinghouse Management Committee from May 1989 and through March 1995, and as
Chief Executive Officer and President of Clearinghouse from September 1985
through March 1995. Prior to his employment with Clearinghouse, Mr. Watson
served as Director of Gas Sales for the Western United States for Conoco Inc.
Thomas M. Matthews joined the Company in December 1996 as President of NGC.
Prior to joining the Company, Mr. Matthews served as President and Chief
Executive Officer of Texaco Natural Gas from January 1996 through November 1996
and Vice President of Texaco, Inc. from November 1993 through November 1996.
Mr. Matthews also served as President of Texaco Refining and Marketing, Inc.
from December 1993 through December 1995. He joined Texaco U.S.A. as Vice
President-Gas in 1989. Prior to joining Texaco, Mr. Matthews spent eight years
with Tenneco as President of Tennessee Gas pipeline Company and Executive Vice
President of Tenneco Gas and sixteen years with Exxon in various domestic and
international engineering, management and executive positions, having last
served as Vice President-Exxon Gas.
Stephen W. Bergstrom serves as Senior Vice President and a Director of the
Company and as President of Clearinghouse. He served as Executive Vice President
of Clearinghouse and as a member of the Clearinghouse Management Committee from
May 1989 through March 1995. In addition, Mr. Bergstrom served as Senior Vice
President Gas Marketing and Supply of Clearinghouse from May 1987 through May
1990 and as Vice President Gas Supply of Clearinghouse from July 1986 through
May 1987. Prior to his employment with the Clearinghouse, Mr. Bergstrom served
as Vice President Gas Supply of Enron Gas Marketing, a subsidiary of Enron
Corporation.
Stephen A. Furbacher serves as President of Warren Petroleum Limited
Partnership and Senior Vice President of NGC Corporation and is a member of the
Management Committee. Mr. Furbacher manages the operations of NGC's natural gas
liquids fractionation, storage, transportation, terminalling and marketing
services. Prior to joining the Company in September 1996, Mr. Furbacher served
as President of Warren Petroleum Company, a division of Chevron U.S.A. Inc.
13
<PAGE>
James H. Current, Sr. serves as President of NGC Global Energy Inc., NGC's
international subsidiary, and is a Senior Vice President of the Company. Mr.
Current is responsible for expanding NGC's Energy Store concept worldwide
through the direction of non-U.S. natural gas, natural gas liquids and power
marketing businesses. Mr. Current also manages the Company's crude oil
marketing business worldwide. Prior to joining NGC in April 1996, Mr. Current
retired from Shell Oil Company as General Manager, Shell Gas Products and
Services.
Kenneth E. Randolph serves as Senior Vice President, General Counsel and
Secretary of the Company. He has served as Senior Vice President and General
Counsel of NGC (or its predecessor, Clearinghouse) since July 1987. In addition,
he served as a member of the Clearinghouse Management Committee from May 1989
through February 1994 and managed Clearinghouse's marketing operations in the
Western and Northwestern United States from July 1984 through July 1987. Prior
to his employment with the Company, Mr. Randolph was associated with the
Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
ITEM 2. PROPERTIES
All of the Company's operating assets are held through wholly owned
subsidiaries. The Company's operations are principally located in Texas,
Oklahoma, Louisiana, Kansas, Arkansas, Utah, western Canada and the United
Kingdom. Current year activity conducted in these areas is discussed under "Item
1. BUSINESS -- General." Following is a description of such properties owned by
the Company at December 31, 1996.
GATHERING SYSTEMS AND PROCESSING FACILITIES
NGC's natural gas processing services are provided at two types of gas
processing plants, referred to as field plants and straddle plants. Field plants
aggregate volumes from multiple producing wells into quantities that can be
economically processed to extract NGLs and to remove water vapor, solids and
other contaminants. Straddle plants are situated on third-party mainline natural
gas pipelines and serve to provide flexibility to changing market conditions by
allowing operators to extract NGLs from a natural gas stream when the market
value of NGLs separated from the natural gas stream is higher than the market
value of the same unprocessed natural gas. NGC owns an interest in 40 field
plants which are each associated with a gas gathering system that collects and
transports natural gas from individual wells to the plant. The Company owns an
interest in 35 of the gas gathering systems associated with its field plants.
The gathering systems associated with the other 5 field plants are owned
entirely by third parties. The remaining 17 gas processing plants in which NGC
owns an interest are straddle plants. The Company owns an interest in the gas
gathering systems associated with 2 of these straddle plants, with the remainder
being owned entirely by third parties. The following table provides certain
information, including operational data for the year ended December 31, 1996,
concerning the gathering systems and gas processing plants in which NGC owns an
interest.
<TABLE>
<CAPTION>
Location Total Plant
---------------------- ------------------------------
COUNTY/ PRACTICAL 1996 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
<S> <C> <C> <C> <C> <C> <C>
COMPANY OPERATED:
*Ambrose(4)(10)(12)..................... 100.00 Kay OK 400 0.0 0.0
Arbuckle............................... 100.00 Murray OK 2 0.9 39.9
*Barracuda(8)........................... 100.00 Cameron LA 190 132.0 3,815.8
Binger(4).............................. 100.00 Caddo OK 10 7.1 714.4
Breckenridge(4)(12).................... 100.00 Stephens TX 15 8.2 1,343.5
Bridger Lake(9)........................ 100 - 33.33 Summit UT 25 18.1 543.5
Canadian/Tonkawa(4)(14)................ 100.00 Hemphill TX 25 20.8 666.9
*Cameron(4)(12)(13)..................... 50.00 Cameron LA 425 114.0 2,444.4
*Cheney(12)............................. 100.00 Kingman KS 85 69.3 3,896.4
Chico(4)(12)........................... 100.00 Wise TX 100 65.8 10,140.0
East Texas(4)(12)...................... 100.00 Gregg TX 34 26.2 4,641.0
Eunice(4)(14).......................... 100.00 Lea NM 68 52.3 2,096.4
Eustace(4)(12)......................... 100.00 Henderson TX 70 37.1 2,497.1
Fashing(4)(14)......................... 44.74 Atascosa TX 65 35.1 101.6
Haynesville I.......................... 96.00 Claiborne LA 35 29.0 1,019.8
Haynesville II......................... 100.00 Claiborne LA 50 46.0 2,546.9
*Jayhawk(12)............................ 100.00 Grant KS 480 407.8 11,955.0
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Location Total Plant
---------------------- -------------------------------
COUNTY/ PRACTICAL 1996 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
<S> <C> <C> <C> <C> <C> <C>
Kellerville(4)(12)..................... 100.00 Wheeler TX 10 6.8 1,417.5
Leedy(4)(12)........................... 100.00 Roger Mills OK 50 35.7 1,116.2
Lefors(4)(12).......................... 100.00 Gray TX 12 6.3 1,562.7
*Lowry(12)(4)........................... 100.00 Cameron LA 265 136.7 3,751.1
Madill(4)(12).......................... 100.00 Marshall OK 25 18.0 1,002.5
Moores Orchard(4)(14).................. 100.00 Fort Bend TX 7 4.4 45.8
Monahans/Worsham(4)(14)................ 100.00 Ward TX 31 26.0 857.5
Monument(4)(14)........................ 100.00 Lea NM 80 67.8 2,300.4
New Hope(16)........................... 100.00 Franklin TX 30 14.8 110.2
Ringwood(4)(11)........................ 100.00 Major OK 62 58.1 3,910.1
Roberts Ranch(4)(12)................... 56.25 Midland TX 82 24.1 2,477.9
Rodman(4)(12).......................... 100.00 Garfield OK 50 51.0 3,729.1
Sand Hills(4)(14)...................... 100.00 Crane TX 100 137.5 2,258.7
Saunders/Vada/Bluitt(4)(14)............ 100.00 Lea NM 47 37.0 1,762.1
Shackelford(4)(12)..................... 100.00 Shackelford TX 15 10.2 1,442.9
Sherman(4)(14)......................... 100.00 Grayson TX 33 5.0 237.9
Sligo.................................. 100.00 Bossier LA 40 35.9 706.2
Spivey(5)(6)(12)....................... 3.87 Harper KS 66 0.5 28.2
*Stingray(8)............................ 100.00 Cameron LA 300 259.2 2,991.8
Texarkana(4)........................... 100.00 Miller AR 22 12.8 440.0
Waskom................................. 50.00 Harrison TX 52 0.0 0.0
West Seminole(4)(12)................... 40.14 Gaines TX 15 5.3 443.9
*Yscloskey(6)(12)(15)................... 30.40 St. Bernard LA 1,750 170.6 3,006.6
OUTSIDE OPERATED:
*Bluewater (14)......................... 16.72 Acadia LA 725 60.0 396.2
*Calumet (6)(12)(15).................... 21.91 St. Mary's LA 1,400 33.9 1,141.7
Corney Bayou(12)....................... 10.05 Union LA 50 0.4 8.2
Diamond M (4).......................... 7.67 Scurry TX 25 0.4 109.0
Dover Hennessey (4).................... 7.36 Kingfisher OK 80 2.7 141.9
*Grand Chenier (6)(12)(15).............. 6.46 Cameron LA 450 11.3 176.1
Indian Basin (4)(14)................... 14.19 Eddy NM 210 33.7 433.8
*Iowa (14).............................. 9.92 Jefferson Davis LA 500 31.5 156.1
*Laverne (12)(15)....................... 13.75 Harper OK 190 7.4 480.5
Maysville (4)(12)(15).................. 44.00 Garvin OK 135 32.9 4,233.9
*North Terrebone Robin (14)............. 0.83 Terrebone LA 1,200 7.8 60.2
*Patterson (14)......................... 1.09 St. Mary LA 400 0.0 0.0
*Sea Robin (14)......................... 18.70 Vermillion LA 1,000 39.5 1,053.2
Snyder (7)(12)......................... 3.25 Scurry TX 60 1.5 128.7
*Toca (14).............................. 8.86 St. Bernard LA 1,050 69.9 1,755.7
</TABLE>
- ---------------
* Indicates a straddle plant, all other gas processing
facilities are field plants.
(1) Gross to the facility.
(2) Gross production, net to the Company's ownership interest.
(3) Capacity data is at practical recovery rates.
(4) NGC owns the indicated percentage of an associated gas gathering system.
(5) NGC owns 2.19 percent of the associated gas gathering system.
(6) NGC ownership is adjustable and subject to periodic (usually annual)
redetermination.
(7) NGC owns the indicated percentage of the Snyder gas gathering system and
3.98 percent of the Diamond M gas gathering system which also supplies the
Snyder plant.
(8) This facility has no gathering lines.
(9) This facility consists of a 100 percent interest in a processing plant and
an NGL pipeline, a 100 percent interest in a crude oil pipeline and a 33.33
percent interest in reserves connected and dedicated to the plant. The
gathering system behind the processing plant gathers production from Utah
and Wyoming.
(10) This facility was shut down in December 1995.
(11) Includes Enid facility.
(12) These assets, or a portion thereof, were acquired in the Trident
Combination.
(13) Effective March 1, 1996, NGC no longer acts as operator of this facility.
15
<PAGE>
(14) These assets were acquired in the Chevron Combination. Consequently, the
"1996 Inlet Gas Throughput" and "NGL Production" statistics are for the
four month period ended December 31, 1996.
(15) Additional interest in this facility was acquired as part of the Chevron
Combination. Consequently, a portion of the "1996 Inlet Gas Throughput" and
"NGL Production" statistics are for the twelve months ended December 31,
1996, and a portion are for the four month period ended December 31, 1996.
(16) These assets were acquired effective August 1, 1996. Consequently, the
"1996 Inlet Gas Throughput" and "NGL Production" statistics are for the
five month period ended December 31, 1996.
FRACTIONATION FACILITIES
NGLs removed from a natural gas stream at gas processing plants are in the
form of a commingled stream of liquid hydrocarbons. The commingled hydrocarbons
are separated at fractionation facilities into the component NGL products
ethane, propane, normal butane, isobutane and natural gasoline. The following
table provides certain information concerning the fractionation facilities in
which NGC owns an interest, including operational data for the year ended
December 31, 1996.
LOCATION TOTAL PLANT
-------------- ---------------------------
COUNTY/ PRACTICAL 1996 INLET GAS
FRACTIONATION FACILITIES: % OWNED PARISH STATE CAPACITY(1) THROUGHPUT
(MBbls/d)
Warren Mont Belvieu (2).. 100.00 Chambers TX 205 163.6
Mont Belvieu I (3)....... 80.00 Chambers TX 110 80.0
Mont Belvieu II.......... 38.75 Chambers TX 110 105.3
_________________
(1) Capacity data is at practical recovery rates.
(2) Interest in this facility was acquired as part of the Chevron Combination.
Consequently, the "1996 Inlet Gas Throughput"
statistics are for the four month period ended December 31, 1996.
(3) On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the FTC related
to the Chevron Combination. The Company realized a small after-tax gain in
1997 relating to the sale.
In August 1995, the Company shutdown operations of its Lake Charles
fractionation facility principally as a result of operational inefficiencies
resulting from the age of the facility. The Company diverted daily production in
part to a third-party fractionator and in part to its fractionation facilities
at Mont Belvieu. NGC owns the liquids gathering system associated with the Lake
Charles facility.
STORAGE AND TERMINAL FACILITIES
The following table provides information concerning terminal and storage
facilities owned by the Company:
<TABLE>
<CAPTION>
LOCATION
-------------------
COUNTY/
STORAGE AND TERMINAL FACILITIES: % OWNED PARISH STATE DESCRIPTION
<S> <C> <C> <C> <C>
Hackberry Storage............... 100.00 Cameron LA NGL storage facility
Mont Belvieu Storage............ 100.00 Chambers TX NGL storage facility
Hattiesburg Storage............. 100.00 Washington MS NGL storage facility
Hackberry Terminal.............. 100.00 Cameron LA Marine import/export terminal
Mont Belvieu Terminal........... 100.00 Chambers TX Product terminal facility
Warrengas Terminal.............. 100.00 Harris TX LPG import/export terminal
Calvert City Terminal........... 100.00 Marshall KY Product transport terminal
Greenville Terminal............. 100.00 Washington MS Propane terminal
Hattiesburg Terminal............ 50.00 Forrest MS Propane terminal
Lampton-Love Terminal........... 100.00 Forrest MS Product transport terminal
Pt. Everglades Terminal......... 100.00 Broward FL Marine propane terminal
Tampa Terminal.................. 100.00 Hillsborough FL Marine propane terminal
Mont Belvieu Transport.......... 100.00 Chambers TX Administrative offices and repair shop
Abilene Transport............... 100.00 Taylor TX Raw LPG transport terminal
Bridgeport Transport............ 100.00 Jack TX Raw LPG transport terminal
Gladewater Transport............ 65.00 Gregg TX Raw LPG transport terminal
Grand Lakes Tank Farm........... 100.00 Cameron LA Condensate Storage
</TABLE>
16
<PAGE>
MARKETING HUBS
Effective in June 1995, the Company, through its wholly owned subsidiary Hub
Services, Inc. ("HSI"), participated in the formation of Enerchange L.L.C.
("Enerchange") which owns and operates three natural gas market area hubs. These
marketing hubs are transportation and interchange facilities located in the
vicinity of an interconnection of two or more interstate pipelines. Each hub
takes deliveries from a large number of suppliers and provides these suppliers
with a wide variety of markets in which to sell their gas. By providing access
to a large number of gas buyers and sellers, a hub improves the gas market by
reducing transaction costs of matching buyers and sellers of gas, enhances the
reliability of gas supply and provides buyers and sellers a wide range of gas
marketing services. Each marketing hub provides customers with "wheeling",
"loaning", "parking" and "title transfer" services. "Wheeling" refers to the
simultaneous transfer of gas from one pipeline to another, while "loaning"
occurs when one party allows another party to borrow gas. "Parking" services
allow a customer to store gas in a hub for future redelivery and "title
transfer" services allow a customer to assign title to gas that is in storage. A
fee is charged by the hub for services provided to its customers.
The three gas marketing hubs are the Chicago Hub, the California Energy Hub
and the Ellisburg-Leidy Northeast Hub. These hubs are each operated by
Enerchange and HSI provides administrative services with respect to these hubs.
The hub operator generally provides asset management services, such as
determining the availability of hub services, confirming all nominations for hub
services and providing personnel to operate the hub. The hub administrator
typically provides marketing, accounting and administrative services. The
accounting and administrative services include performing credit checks on
prospective customers, negotiating and executing agreements with hub customers,
billing and making collections from customers, distributing revenues to hub
partner(s) and maintaining accounting records. Although HSI owns a revenue
interest in each hub, HSI provides administrative services independent of any
influence of NGC and the Company may only use a hub's services on a non-
discriminatory basis in accordance with the mandates of pertinent federal and
state regulations and contractual terms with its hub partners.
The following table provides information with respect to the marketing hubs in
which NGC indirectly owns an interest.
<TABLE>
<CAPTION>
HSI'S
REVENUE SERVICE NAMES OF
FACILITY NAME HSI'S PARTNERS INTEREST AREA CONNECTING PIPELINES
<S> <C> <C> <C> <C>
Chicago Hub............ NICOR Hub Services 51% Midwest ANR Pipeline Company, Midwestern Gas
Pacific Enerchange Transmission Company, Northern Natural
Leidy Hub Inc. Gas Company and Natural Gas Pipeline
Company of America
Ellisburg-Leidy
Northeast Hub........ NICOR Hub Services 51% Northeast Transcontinental Gas Pipeline Corporation,
Pacific Enerchange Tennessee Gas Pipeline, CNG
Leidy Hub Inc. Company, Columbia Gas Transmission
Company and National Fuel Gas Supply
Corporation
California Energy Hub.. NICOR Hub Services 51% California El Paso Natural Gas Company, Kern River
Pacific Enerchange Gas Transmission Company, Mojave
Leidy Hub Inc. Pipeline Operating Company, Pacific Gas
</TABLE>
NATURAL GAS AND CRUDE OIL PIPELINES
NGC owns interests in various interstate and intrastate pipelines and
gathering systems, the more significant of which include: (i) the Ozark Gas
Transmission System, a 266-mile interstate natural gas pipeline with design
capacity of 170 MMcf/d that transports gas from eastern Oklahoma to central
Arkansas, where the system interconnects with interstate pipelines that serve
Midwest and Northeast markets; (ii) a 1,300-mile crude oil system which gathers
crude oil in 25 central and southern Oklahoma counties, accessing more than half
of the state's production, and serves the U.S. crude oil trading hub in Cushing,
Oklahoma and the Wynnewood, Oklahoma refinery; (iii) the Kansas Gas Supply
Corporation that owns and operates an approximate 1,200 mile regulated
intrastate gas pipeline system in south-central Kansas maintaining current
capacity to transport approximately 100 MMcf/d of natural gas; and (iv) an
17
<PAGE>
extensive liquids gathering system at the Lake Charles fractionation facility
and a 12-inch liquids pipeline that connects the Lake Charles area facilities
with the Mont Belvieu fractionation facilities. The following table identifies
these and other pipeline and gathering system assets in which NGC owns an
interest:
<TABLE>
<CAPTION>
1996
PIPELINE SYSTEMS: % OWNED THROUGHPUT STATE DESCRIPTION
<S> <C> <C> <C> <C>
Ozark Gas Transmission System.. 100.00 132.7 MMcf/d OK/AR Interstate natural gas pipeline
Crude Oil Pipeline System...... 100.00 54.5 MBbls/d OK Intrastate crude oil pipeline
Kansas Gas Supply.............. 100.00 70.1 MMcf/d KS/OK Intrastate natural gas pipeline
Warren NGL Pipeline............ 100.00 99.0 MBbls/d TX/LA Liquids pipeline between Lake
Charles and Mont Belvieu
Bridger Lake/Phantex Pipeline.. 100.00 1.6 MBbls/d UT/WY Interstate liquids pipeline
Cominco Pipeline............... 100.00 5.9 MMcf/d TX Intrastate natural gas pipeline
Pelican Pipeline............... 100.00 40.4 MMcf/d LA Gas gathering pipeline
Vermillion Pipeline............ 100.00 46.0 MMcf/d Gulf of Mexico Gas gathering pipeline
Western Gas Gathering.......... 100.00 3.4 MMcf/d KS Gas gathering pipeline
Pawnee Rock (1)................ 100.00 4.5 MMcf/d KS Gas gathering pipeline
Bradshaw Gathering............. 50.00 27.4 MMcf/d KS Gas gathering pipeline
Lake Boudreaux................. 100.00 1.3 MMcf/d LA Gas gathering pipeline
Grand Lakes Liquids System..... 100.00 0.7 MBbls/d LA Intrastate liquids pipeline
</TABLE>
(1) Acquired in July of 1996 in exchange for the Company's interest in the Mesa
Pipeline. Throughput information reflects
statistics from the acquisition date through the end of 1996.
OTHER PROPERTY INVESTMENTS
Effective November 1, 1996, the Company and Chevron formed Venice Gas
Processing Company, a Texas Limited Partnership ("Partnership"), located in
Plaquemines Parish, Louisiana. The Partnership was formed for the purpose of
owning and operating the Venice Complex consisting of a 35,000 barrel per day
fractionator, gathering systems, a lean oil gas processing plant, NGL storage
facilities, a marine terminal and acreage. Expansion to the Venice Complex is
expected to include a 300 MMcf/d cryogenic gas processing plant and additional
gathering lines to access new Gulf of Mexico production. At December 31, 1996,
NGC owned an approximate 37 percent interest in the Partnership.
As part of the Contribution, NGC acquired an undivided 50 percent interest in
the West Texas Pipeline which is an interstate liquids pipeline capable of
transporting 160,000 Bpd from its origin in eastern New Mexico to fractionation
facilities in Mont Belvieu, Texas. The pipeline is owned and operated by the
West Texas Pipeline Limited Partnership and NGC owns a 50 percent interest in
that partnership.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to its properties in accordance
with standards generally accepted in the energy industry, subject to such
exceptions which, in the opinion of the Company, in the aggregate would not have
a material adverse effect on the use or value of said properties.
The operating agreements for certain of the Company's natural gas processing
plants and fractionation facilities grant a preferential purchase right to the
plant owners in the event any owner desires to sell its interest. Such
agreements may also require the consent of a certain percentage of owners before
rights under such agreements can be transferred. The Company is subject, as a
plant owner under such agreements, to all such restrictions on transfer of its
interest. In addition, Warren has granted OXY USA certain rights of first
refusal with respect to any future sale of certain assets.
Substantially all of NGC's gathering and transmission lines are constructed on
rights-of-way granted by the apparent record owners of such property. In some
instances, land over which rights-of-way have been obtained may be subject to
prior liens that have not been subordinated to the right-of-way grants. Permits
have been obtained from public authorities to cross over or under, or to lay
facilities in or along, water courses, county roads, municipal streets and state
highways, and in some instances, such permits are revocable at the election of
the grantor. Permits have also been obtained from railroad companies to cross
over or under lands or rights-of-way, many of which are
18
<PAGE>
also revocable at the grantor's election. Some such permits require annual or
other periodic payments. In a few minor cases, property was purchased in fee.
ACQUISITION AND CONSTRUCTION PROJECTS
A subsidiary of the Company is committed to contribute approximately $62
million to Venice during 1997. The funds will be used principally for the
construction of a cryogenic gas processing plant and an expansion of the
existing gas gathering system.
NGC, indirectly through subsidiaries, has formed a joint venture to develop
the Avoca storage project located in southeastern New York. The Company is
committed to contribute its respective share of construction costs of the
project. Current cost estimates commit the Company to approximately $10 million
of expenditures.
A subsidiary of the Company is committed to contribute a total of $10 million
to Indeck North American Power Fund, L.P. and Indeck North American Power
Partners, L.P. (collectively "Indeck"), two partnerships that are engaged in the
acquisition of electric power generating facilities. The contributions represent
the Company's pro rata share of funds to be used for selected acquisitions. At
December 31, 1996, the Company had paid $3.7 million of this commitment.
INDUSTRY SEGMENTS
Segment financial information is included in Note 13 of NGC's consolidated
financial statements and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
NGC is involved in certain legal proceedings that have arisen in the ordinary
course of business. Management believes the outcome of such proceedings, even
if adversely determined, will not have a material effect on NGC's business or
financial condition.
On February 26, 1996, Apache Corporation ("Apache") requested arbitration to
resolve issues arising under a gas marketing contract ("Contract") with
Clearinghouse pursuant to the arbitration provisions of such Contract. On
February 16, 1996, Clearinghouse responded by denying Apache's claims and by
alleging several counterclaims of its own with respect to Apache's performance
under the Contract. In connection with the arbitration proceedings, on April 9,
1996, Apache filed a lawsuit against Clearinghouse in the 55th Judicial District
Court of Harris County, Texas ("Court"). In that lawsuit, Apache alleges that
Clearinghouse is intentionally delaying the progress of the arbitration, and it
requests relief, pursuant to the Texas General Arbitration Act, in the form of
an order appointing a third arbitrator, compelling discovery and requiring
Clearinghouse to assign certain contracts allegedly belonging to Apache.
Clearinghouse filed a response to the lawsuit on May 6, 1996, asking that the
Court dismiss Apache's application for relief or abate the suit pending
resolution of all matters by the arbitration panel according to the terms of the
Contract. Clearinghouse also requested payment of all attorneys' fees and other
litigation expenses incurred in responding to and defending the lawsuit. On
September 18, 1996, the arbitration panel granted a revised discovery schedule
which moved the hearing previously scheduled for December 1996 to April 7, 1997.
On February 8, 1997, the arbitration was further postponed until
September 15, 1997. In the arbitration and again in the lawsuit, Apache claims
that it is entitled to actual damages in an undetermined amount in excess of $8
million and punitive damages.
Clearinghouse intends to vigorously defend the Apache suit and arbitration.
Based on review of the facts and through consultation with outside counsel, NGC
management believes the ultimate resolution of the Apache suit will not have an
adverse impact on the Company's financial position or results of operations, and
that any payments eventually made in connection with the arbitration and/or the
lawsuit will be substantially less than the amount claimed.
The Company assumed liability for various claims and litigation in connection
with the Chevron Combination, the Trident Combination and in connection with the
acquisition of certain gas processing and gathering facilities from Mesa
Operating Limited Partnership. NGC believes, based on its review of these
matters and consultation with outside legal counsel, that the ultimate
resolution of such items, individually or in the aggregate, will not have a
material adverse impact on the Company's financial position or results of
operations. Further, the Company is
19
<PAGE>
subject to various legal proceedings and claims which arise in the normal course
of business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's $0.01 par value common stock ("Common Stock") is listed and
traded on the New York Stock Exchange under the ticker symbol "NGL". The number
of stockholders of record of the Common Stock as of March 27, 1997, was 247.
The following table sets forth the high and low closing prices for
transactions involving the Company's Common Stock for each calendar quarter, as
reported on the New York Stock Exchange Composite Tape and related dividends
paid per common share during such periods.
High Low Dividend
------- ------- --------
1996
----
First Quarter.................. $12.750 $ 8.625 $0.0125
Second Quarter................. 16.125 12.250 0.0125
Third Quarter.................. 17.000 14.250 0.0125
Fourth Quarter................. 24.750 15.625 0.0125
1995 (a)
----
First Quarter.................. $11.500 $ 9.000 $0.0125
Second Quarter................. 10.375 8.750 0.0125
Third Quarter.................. 10.375 9.000 0.0125
Fourth Quarter................. 9.625 8.375 0.0125
------- ------- -------
_____________________
(a) Stock price and per share dividend rate information relates to
Holding for the period commencing on January 1, 1995
and continuing through and including March 13, 1995, and NGC
thereafter.
The holders of the Common Stock are entitled to receive dividends if, when and
as declared by the Board of Directors of the Company out of funds legally
available therefor. Consistent with the Board of Directors' intent to establish
a policy of declaring quarterly cash dividends, a cash dividend of $0.0125 per
share was declared and paid in each of the four quarters of 1996. Beginning in
the third quarter of 1996, the Company has paid quarterly cash dividends on its
Series A Preferred Stock of $0.0125 per share, or $0.05 per share on an annual
basis.
The NGC Corporation Credit Agreement and the Company's 7.625% and 6.75% Senior
Notes do not contain any specific restrictions on the ability of the Company or
any of its subsidiaries to declare and pay dividends in respect of its or their
capital stock, although certain financial covenants contained in such credit
agreement and in the indenture covering the 7.625% and 6.75% Senior Notes may
limit the ability of the Company to do so.
The indenture setting forth the terms and conditions of the 14% Senior
Subordinated Notes of Warren due 2001 and the 10.25% Subordinated Notes of
Warren due 2003 contain restrictions on Warren's ability to pay cash dividends
to NGC, which in turn may adversely affect NGC's ability to pay dividends to its
shareholders.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below was derived from, and is
qualified by reference to, the Consolidated Financial Statements of the Company,
including the Notes thereto, incorporated herein by reference. Please refer to
the Notes to Consolidated Financial Statements for information on transactions
and accounting classifications which have affected the comparability of the
periods presented below. The selected financial information should be read in
conjunction with the Consolidated Financial Statements and related Notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1996(1) 1995(2) 1994(3) 1993 1992
---------- --------- ---------- --------- -----------
(in thousands, except per share informaton)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $7,260,202 $3,665,946 $3,237,843 $2,790,977 $2,492,935
Operating margin 369,500 194,660 99,126 91,850 96,806
General and administrative expenses 100,032 68,057 47,817 36,585 41,103
Depreciation and amortization expense 71,676 44,913 8,378 7,594 7,221
Net income (4) $ 113,322 $ 92,705 $ 42,101 $ 45,997 $ 43,858
Net income per common share (5) $0.83 $0.82 n/a n/a n/a
Pro forma income per common share (6) n/a $0.40 $0.28 $0.30 $0.30
Weighted average common and common
equivalent shares outstanding 136,099 113,176 97,804 97,804 97,804
CASH FLOW DATA:
Cash flows from operating activities $ (30,954) $ 90,648 $ 17,170 $ 20,292 $ 66,869
Cash flows from investing activities (111,140) (310,623) (38,376) (7,911) (21,024)
Cash flows from financing activities 176,037 221,022 18,959 (46,418) (19,816)
OTHER FINANCIAL DATA:
EBITDA (7) $ 289,023 $ 142,538 $ 57,716 $ 57,553 $ 58,299
Dividends or distributions to partners, net 6,740 9,253 14,041 14,118 19,816
CAPEX, acquisitions and investments (8) 859,047 979,603 47,014 16,464 12,197
As of December 31,
-----------------------------------------------------------------
1996(1) 1995(2) 1994 1993 1992
---------- --------- ---------- --------- -----------
(in thousands)
BALANCE SHEET DATA:
Current assets $1,936,721 $ 762,939 $ 445,782 $ 402,602 $ 385,334
Current liabilities 1,548,987 705,674 404,144 375,662 357,946
Property and equipment, net (9) 1,691,379 948,511 114,062 84,539 90,037
Total assets 4,186,810 1,875,252 645,471 512,534 480,458
Long-term debt 988,597 522,764 33,000 --- 19,800
Total equity 1,116,733 552,380 152,213 120,689 88,745
</TABLE>
_________________
(1) The Chevron Combination was accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values as of
September 1, 1996, the effective date of the Chevron Combination for
accounting purposes, and the results of operations include Chevron's
operations from September 1, 1996, forward.
(2) The Trident Combination was accounted for under the purchase method of
accounting and, because the Clearinghouse Owners acquired approximately 82
percent of NGC, for accounting purposes Clearinghouse was considered the
acquiring company. Accordingly, the purchase price was allocated to the
Trident assets acquired and liabilities assumed based on their estimated
fair values as of March 1, 1995, the effective date of the Trident
Combination for accounting purposes, and the results of operations include
Trident's operations from March 1, 1995, forward.
(3) Results for the year ended December 31, 1994, include the effects of a
change to mark-to-market accounting for fixed-price natural gas
transactions.
(4) Net income does not include a provision for federal income taxes, other
than minimal amounts on the taxable income of Clearinghouse's corporate
subsidiaries, for the years ended December 31, 1994, 1993 and 1992,
respectively.
(5) Net income per common and common equivalent share is based on reported net
income for the period. The weighted average shares outstanding for the year
ended December 31, 1995, is based on the parameters discussed in
footnote (6).
(6) Pro forma net income per common and common equivalent share is based on
reported net income for the period adjusted for the incremental statutory
federal and state income taxes that would have been provided had
Clearinghouse been a taxpaying entity. The weighted average shares
outstanding for the year ended December 31, 1995, is based on the weighted
average number of common shares outstanding plus the common stock
equivalents that would arise from the exercise of outstanding options or
warrants, when dilutive. Pro forma weighted average shares outstanding of
97.8 million shares for the years ended December 31, 1994, 1993 and 1992,
respectively, give effect to the terms of the Trident Combination and the
common stock equivalent shares outstanding as of the effective date of the
Trident Combination assuming a common stock market price of $12 in all
periods.
(7) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its debt and
to make capital expenditures, not as a measure of operating results, and is
not presented in the Consolidated Financial Statements.
(8) Includes value assigned assets in the Chevron and Trident Combinations.
(9) The 1992 amount of $90.0 million includes $16.4 million of property, plant
and equipment classified as held for sale. These assets were sold in
March 1993.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appears on pages 26 through 38 of the
Annual Report to Shareholders and is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company appear on pages 39 through 62 of the
Annual Report to Shareholders and are incorporated herein by reference.
The financial statement schedule and supplementary data of the Company are set
forth at pages F-1 through F-5 inclusive, found at the end of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item 10 will be contained in the
definitive Proxy Statement of the Company for its 1997 Annual Meeting of
Stockholders (the "Proxy Statement") under the headings "Proposal 1 -- Election
of Directors" and "Executive Compensation -- Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after December 31, 1996. Reference is also made to the information
appearing in Part I of this Annual Report on Form 10-K under the caption "Item
1A. Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be contained in the
Proxy Statement under the heading "Executive Compensation" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of certain of the Company's outstanding
securities will be contained in the Proxy Statement under the heading "Principal
Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related party transactions will be contained in the
Proxy Statement under the headings "Principal Stockholders", "Proposal 1 --
Election of Directors" and "Executive Compensation -- Indebtedness of
Management" and "-- Certain Relationships and Related Transactions" and is
incorporated herein by reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
ANNUAL FORM
REPORT 10-K
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 39 F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995 40 --
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 41 --
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 42 --
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 43 --
Notes to Consolidated Financial Statements 44 --
FINANCIAL STATEMENT SCHEDULE
Condensed Financial Statements of the Registrant -- F-2
FINANCIAL STATEMENTS OF UNCONSOLIDATED AFFILIATE
Accord Energy Limited Annual Report for the year
ended December 31, 1996 and 1995 -- 1-20
23
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
2.1 - Combination Agreement and Plan of Merger, dated May, 22, 1996, by
and between NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(14)
2.2 - Amendment to Combination Agreement, dated as of August 29, 1996,
by and among NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(11)
+2.3 - Agreement and Plan of Merger by and among Destec Energy, Inc., The
Dow Chemical Company, NGC Corporation and NGC Acquisition
Corporation II dated as of February 17, 1997.
+2.4 - Asset Purchase Agreement by and between NGC Corporation and The
AES Corporation dated as of February 17, 1997.
+3.1 - Restated Certificate of Incorporation of NGC Corporation.
+3.2 - Amended and Restated By-Laws of NGC Corporation.
4.1 - Indenture, dated as of September 9, 1993, between Trident NGL,
Inc. and Ameritrust Texas National Association, as Trustee.(5)
4.2 - Form of Senior Subordinated Note (included in Exhibit 4.1).
4.3 - Indenture, dated as of August 30, 1991, between Trident NGL, Inc.
and Ameritrust Texas National Association, as Trustee.(1)
4.4 - Form of Senior Subordinated Note (included in Exhibit 4.3).
4.5 - Note Purchase Agreement, dated as of August 30, 1991, by and among
Trident NGL, Inc. and the Purchasers named therein.(2)
4.6 - Indenture, dated as of April 15, 1993, between Trident NGL, Inc.
and The First National Bank of Boston, as Trustee.(3)
4.7 - Form of Subordinated Note (included in Exhibit 4.6).
4.8 - First Supplemental Indenture, dated as of April 15, 1993, between
Trident NGL, Inc. and Ameritrust Texas National Association, as
Trustee.(3)
4.9 - Second Supplemental Indenture, dated as of September 9, 1993,
between Trident NGL, Inc. and Ameritrust Texas National
Association, as Trustee.(5)
4.10 - Warrant exercisable for 6,228 shares of Common Stock of NGC
Corporation registered in the name of J. Otis Winters.(4)
4.11 - Credit Agreement dated as of March 14, 1995, among NGC Corporation
and The First National Bank of Chicago, individually and as agent,
The Chase Manhattan Bank National Association and Nations Bank of
Texas N.A., individually and as co-agent, and certain other
lenders named therein.(9)
4.12 - Indenture, dated as of December 11, 1995, between NGC Corporation,
the Subsidiary Guarantors named therein and The First National
Bank of Chicago, as Trustee.(8)
4.13 - Form of Senior Notes (included in Exhibit 4.12).
4.14 - Consent and Second Amendment to Credit Agreement, dated as of July
26, 1996, among NGC Corporation and The First National Bank of
Chicago, individually and as agent, The Chase Manhattan
24
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
Bank National Association and NationsBank of Texas, N.A.,
individually as co-agent, and certain other lenders named
therein.(11)
4.15 - Letter of Credit Facility Agreement, dated as of September 1,
1996, by and among NGC Corporation and Canadian Imperial Bank of
Commerce, Individually and as Agent, and the Lenders named
therein. (11)
4.16 - Indenture, dated as of December 11, 1995, by and among NGC
Corporation, the Subsidiary Guarantors named therein and The First
National Bank of Chicago, as Trustee.(8)
4.17 - First Supplemental Indenture, dated as of August 31 1996, by and
among NGC Corporation, Midstream Combination Corp., the Subsidiary
Guarantors named therein and The First National Bank of Chicago,
as Trustee, supplementing and amending the Indenture dated as of
December 11, 1995.(11)
4.18 - Second Supplemental Indenture, dated as of October 11, 1996, by
and among NGC Corporation, Electric Clearinghouse, Inc. and The
First National Bank of Chicago, as Trustee, supplementing and
amending the Indenture dated as of December 11, 1995.(11)
4.19 - Indenture, dated September 26, 1996, among NGC, the Subsidiary
Guarantors named therein and The First National Bank of Chicago,
as Trustee.(12)
4.20 - Form of 7 5/8% Senior Debenture due October 15, 2026.(12)
10.1 - Agreement of Sale and Purchase of Assets, dated as of May 5, 1991,
as amended on June 6, 1991 and August 30, 1991, by and between OXY
USA Inc. and Trident Energy, Inc.(1)
10.2 - Master Agreement on Gas Processing, dated as of May 5, 1991, by
and between OXY USA Inc. and Trident NGL, Inc.(1)
10.3 - Product Sale and Delivery Agreement between Trident NGL, Inc., OXY
NGL Pipeline Company and OXY Petrochemicals, Inc. dated as of
August 30, 1991.(1)
10.4 - Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Lake Charles
facilities and Trident NGL Pipeline).(1)
10.5 - Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Hackberry storage
facilities and terminal).(1)
+10.6 - NGC Corporation Amended and Restated 1991 Stock Option Plan.
10.7 - Stock Purchase Agreement between Trident NGL Holding, Inc. and
J. Otis Winters.(5)
10.8 - Agreement for the Construction, Ownership and Operation of the
Mont Belvieu I Fractionation Facility between Trident NGL, Inc.
and Union Pacific Fuels, Inc. dated November 17, 1993.(6)
10.9 - Employment Agreement, dated as of May 19, 1992, between C. L.
Watson and Natural Gas Clearinghouse.(7)
10.10 - Employment Agreement, dated as of May 19, 1992, between Stephen W.
Bergstrom and Natural Gas Clearinghouse.(7)
10.11 - NGC Corporation Amended and Restated Employee Equity Option
Plan.(7) (See Appendix III to the Proxy Statement/Prospectus).
25
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.12 - The Amended and Restated Natural Gas Clearinghouse Deferred
Compensation Plan, dated February 28, 1992.(7)
10.13 - Natural Gas Clearinghouse Above Base Incentive Compensation Plan,
as amended and restated, effective as of January 1, 1994.(7)
10.14 - Unanimous Shareholder Agreement dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.15 - First Amendment to Unanimous Shareholders Agreement, dated May 20,
1994, among Novacorp International, Inc. (formerly NOVA Gas
Services Ltd.), NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.16 - Limited Partnership Agreement, dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.17 - Amended Contract for Processing Gas, dated January 1, 1995, by and
between Amoco Production Company and Trident NGL, Inc.(10)
10.18 - Employment Agreement dated April 2, 1996 by and between NGC
Corporation and Stephen A. Furbacher.(13)
10.19 - Lease Agreement entered into on June 12, 1996 between Metropolitan
Life Insurance Company and Metropolitan Tower Realty Company,
Inc., as landlord, and NGC Corporation, as tenant.(13)
10.20 - First Amendment to Lease Agreement entered into on June 12, 1996
between Metropolitan Life Insurance Company and Metropolitan Tower
Realty Company, Inc., as landlord, and NGC Corporation, as
tenant.(13)
10.21 - Contribution and Assumption Agreement, dated as of August 31,
1996, among Chevron U.S.A. Inc., Chevron Pipe Line Company,
Chevron Chemical Company and Midstream Combination Corp.(11)
10.22 - Scope of Business Agreement, dated May 22, 1996 between Chevron
Corporation and NGC Corporation.(13)
10.23 - Stockholders Agreement dated, May 22, 1996, among BG Holdings,
Inc., NOVA Gas Services (U.S.) Inc. and Chevron U.S.A. Inc.(13)
10.24 - Registration Rights Agreement, dated as of August 31,1996, among
NGC Corporation, BG Holdings, Inc., NOVA Gas Services (U.S.) Inc.
and Chevron U.S.A. Inc.(11)
10.25 - Master Alliance Agreement, dated as of September 1, 1996, among
Chevron U.S.A. Inc., Chevron Chemical Company, Chevron Pipe Line
Company, and other Chevron U.S.A. Inc. affiliates, NGC
Corporation, Natural Gas Clearinghouse, Warren Petroleum Company,
Limited Partnership, Electric Clearinghouse, Inc. and other NGC
Corporation affiliates.(11)
*10.26 - Natural Gas Purchase and Sale Agreement, dated as of August 30,
1996, among Chevron U.S.A. Inc. and Natural Gas Clearinghouse.(11)
*10.27 - Master Natural Gas Processing Agreement, dated as of September 1,
1996, among Chevron U.S.A. Inc. and Warren Petroleum Company,
Limited Partnership.(11)
*10.28 - Master Natural Gas Liquids Purchase Agreement, dated as of
September 1, 1996, among Warren Petroleum Company, Limited
Partnership and Chevron U.S.A. Inc.(11)
26
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
*10.29 - Gas Supply and Service Agreement, dated as of September 1, 1996,
among Chevron Products Company and Natural Gas Clearinghouse.(11)
10.30 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron U.S.A. Production
Company.(13)
10.31 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Chemical Company.(13)
10.32 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Products Company.(13)
*10.33 - Feedstock Sale and Refinery Product Purchase Agreements, dated as
of September 1, 1996, among Chevron Products Company and Warren
Petroleum Company, Limited Partnership.(11)
*10.34 - Refinery Product Sale Agreement (Hawaii), dated as of
September 1, 1996, among Warren Petroleum Company, Limited
Partnership and Chevron Products Company.(11)
*10.35 - Feedstock Sale and Refinery Product Master Services Agreement,
dated as of September 1, 1996, among Chevron Products Company and
Warren Petroleum Company, Limited Partnership.(11)
*10.36 - CCC Product Sale and Purchase Agreement dated as of September 1,
1996, among Warren Petroleum Company, Limited Partnership and
Chevron Chemical Company.(11)
*10.37 - CCC/WPC Services Agreement, dated as of September 1, 1996, among
Chevron Chemical Company and Warren Petroleum Company, Limited
Partnership.(11)
*10.38 - Operating Agreement, dated as of September 1, 1996, among Warren
Petroleum Company, Limited Partnership and Chevron Pipe Line
Company.(11)
10.39 - Galena Park Services Agreement, dated as of September 1, 1996,
among Chevron Products Company and Midstream Combination Corp.(11)
*10.40 - Venice Complex Operating Agreement, dated as of September 1, 1996,
among Chevron U.S.A. Inc. and Warren Petroleum Company, Limited
Partnership.(13)
*10.41 - Product Storage Lease and Terminal Access Agreement, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and Warren Petroleum
Company, Limited Partnership.(13)
10.42 - Lone Star Swap Transaction Confirmation Term Sheet, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and NGC
Corporation.(11)
*10.43 - West Texas LPG Pipeline Limited Partnership Agreement, dated as of
September 1, 1996, by and between Chevron Pipe Line Company, or an
affiliate thereof, and an affiliate of NGC Corporation.(11)
*10.44 - West Texas LPG Pipeline Operating Agreement, dated as of September
1, 1996, by and between Chevron Pipe Line Company, or an affiliate
thereof, and the West Texas LPG Pipeline Partnership.(11)
*10.45 - Time Charter, dated as of August 31, 1996, by and between
Midstream Barge Company, L.L.C. and Warren Petroleum Company,
Limited Partnership.(11)
*10.46 - Limited Liability Company Agreement of Midstream Barge Company,
L.L.C., dated as of August 31, 1996, by and between Chevron U.S.A.
Inc. and Warren Petroleum Company, Limited Partnership.(11)
27
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
+10.47 - Employment Agreement, dated as of November 15, 1996, between
Thomas M. Matthews and NGC Corporation.
+13 - Annual Report (portions incorporated by reference in this
Form 10-K).
+22.1 - Subsidiaries of the Registrant.
+23.1 - Consent of Arthur Andersen LLP.
___________________
+ Filed herewith
* Exhibit omits certain information which the Company has filed separately with
the Commission pursuant to a confidential treatment request pursuant to Rule
406 promulgated under the Securities Act of 1933, as amended.
(1) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-43871.
(2) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-46416.
(3) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1993 of Trident NGL, Inc.,
Commission File No. 1-11156.
(4) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1993 of Trident NGL Holding,
Inc., Commission File No. 1-11156.
(5) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-1, Registration No. 33-68842.
(6) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1993 of Trident NGL Holding, Inc.,
Commission File No. 1-11156.
(7) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-4, Registration No. 33-88907.
(8) Incorporated by reference to the Registration Statement of NGC Corporation
on Form S-3, Registration No. 33-97368.
(9) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, Commission File 1-11156, dated March 14, 1995.
(10) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1994, of NGC Corporation, Commission
File No. 1-11156.
(11) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1996 of NGC Corporation,
Commission File No. 1-11156.
(12) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, dated October 16, 1996, Commission File No. 1-11156.
(13) Incorporated by reference to exhibits to the Registration Statement of
Midstream Combination Corp. on Form S-4, Registration No. 333-09419.
28
<PAGE>
(14) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, dated May 22, 1996, Commission File No. 1-11156.
(b) Reports on Form 8-K of NGC Corporation.
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated October 9, 1996 (Announcement that the Company planned
to record a third-quarter pretax charge to earnings to provide a
reserve of approximately $4 million relating to the difference between
the cost associated with the Company's then-current lease at its
headquarters and the anticipated revenue from subletting that space
after the Company's relocation to downtown Houston in the first quarter
of 1997).
Current Report on Form 8-K on NGC Corporation, Commission File No.
1-11156 dated October 11, 1996 (Announcement of a lawsuit filed on
October 11, 1996, in the Queen's Bench of Alberta, Judicial District of
Calgary, by a group of Canadian producers against Pan-Alberta Gas Ltd.,
a 49.9% indirect subsidiary of the Company).
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated October 16, 1996 (On December 16, 1996, the Company sold
$175 million of its 7 5/8% Senior Debentures due October 15, 2026
pursuant to an underwritten public offering).
29
<PAGE>
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.
NGC CORPORATION
Date: March 28,1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
-------------------------------------
Stephen W. Bergstrom, Senior Vice
President and Director
Date: March 28, 1997 By: /s/ Stephen J. Brandon
-------------------------------------
Stephen J. Brandon, Director
Date: March 28, 1997 By: /s/ David R. Varney
-------------------------------------
David R. Varney, Director
Date: March 28, 1997 By: /s/ P. Nicholas Woollacott
-------------------------------------
P. Nicholas Woollacott, Director
Date: March 28, 1997 By:
-------------------------------------
C. Kent Jespersen, Director
Date: March 28, 1997 By:
-------------------------------------
Jeffrey M. Lipton, Director
Date: March 28, 1997 By:
-------------------------------------
Albert Terence Poole, Director
30
<PAGE>
Date: March 28, 1997 By: /s/ Darald W. Callahan
----------------------
Darald W. Callahan, Director
Date: March 28, 1997 By: /s/ Donald L. Paul
-------------------------------------
Donald L. Paul, Director
Date: March 28, 1997 By: /s/ Peter J. Robertson
-------------------------------------
Peter J. Robertson, Director
Date: March 28, 1997 By: /s/ Daniel L. Dienstbier
-------------------------------------
Daniel L. Dienstbier, Director
Date: March 28, 1997 By: /s/ J. Otis Winters
-------------------------------------
J. Otis Winters, Director
31
<PAGE>
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.
NATURAL GAS CLEARINGHOUSE
By: NGC Corporation, its general partner
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
of NGC Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller of NGC Corporation
(Principal Financial and Accounting
Officer)
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
-------------------------------------
Stephen W. Bergstrom, Senior Vice
President and Director of
NGC Corporation
Date: March 28, 1997 By: /s/ Stephen J. Brandon
-------------------------------------
Stephen J. Brandon, Director of NGC
Corporation
Date: March 28, 1997 By: /s/ David R. Varney
-------------------------------------
David R. Varney, Director of NGC
Corporation
Date: March 28, 1997 By: /s/ P. Nicholas Woollacott
-------------------------------------
P. Nicholas Woollacott, Director of
NGC Corporation
32
<PAGE>
Date: March 28, 1997 By:
-------------------------------------
C. Kent Jespersen, Director of
NGC Corporation
Date: March 28, 1997 By:
-------------------------------------
Jeffrey M. Lipton, Director of
NGC Corporation
Date: March 28, 1997 By:
-------------------------------------
Albert Terence Poole, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Daniel L. Dienstbier
-------------------------------------
Daniel L. Dienstbier, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ J. Otis Winters
-------------------------------------
J. Otis Winters, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Darald W. Callahan
-------------------------------------
Darald W. Callahan, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Donald L. Paul
-------------------------------------
Donald L. Paul, Director of
NGC Corporation
Date: March 28, 1997 By: /s/ Peter J. Robertson
-------------------------------------
Peter J. Robertson, Director
of NGC Corporation
33
<PAGE>
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.
WARREN NGL, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President
and Controller (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
34
<PAGE>
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.
WARREN ENERGY RESOURCES, LIMITED
PARTNERSHIP
By: Warren Energy, Inc., its general
partner
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-----------------------------------
Stephen A. Furbacher, President
and Director of Warren Energy, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President and
Director of Warren Energy, Inc.
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller of Warren Energy, Inc.
(Principal Financial and Accounting
Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and
Director of Warren Energy, Inc.
Date: March 28, 1997 By: /s/ Michael B. Barton
-------------------------------------
Michael B. Barton, Vice President
and Director of Warren Energy, Inc.
35
<PAGE>
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.
WARREN PETROLEUM COMPANY,
LIMITED PARTNERSHIP
By: Warren Petroleum G.P., Inc., its
general partner
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President
and Director of Warren Petroleum
G.P., Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President and
Director of Warren Petroleum G.P., Inc.
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni, Vice President and
Controller of Warren Petroleum
G.P., Inc. (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph,
Senior Vice President and
Director of Warren Petroleum
G.P., Inc.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
Senior Vice President and Director of
Warren Petroleum G.P., Inc.
36
<PAGE>
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.
WARREN GAS LIQUIDS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ William A. Zartler
-------------------------------------
William A. Zartler,
Vice President and Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
37
<PAGE>
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.
NGC OIL TRADING AND TRANSPORTATION, INC.
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr.,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr.,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
Date: March 28, 1997 By: /s/ Mike Barton
--------------------------------------
Mike Barton,
Vice President and Director
38
<PAGE>
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.
NGC UK LIMITED
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson,
Chairman of the Board and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the
Board and Director (Principal
Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Jacob S. Ulrich
-------------------------------------
Jacob S. Ulrich, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr., Director
39
<PAGE>
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.
NGC CANADA, INC.
Date: March 28, 1997 By: /s/ Rodney D. Wimer
-------------------------------------
Rodney D. Wimer, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Rodney D. Wimer
---------------------------------------
Rodney D. Wimer, President
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ C. L. Watson
---------------------------------------
C. L. Watson, Director
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ James T. Bruvall
---------------------------------------
James T. Bruvall, Director
40
<PAGE>
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.
WTLPS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
Senior Vice President and Director
41
<PAGE>
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.
WPC LP, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Charles H. Brownman
----------------------------------------
Charles H. Brownman, Director
Date: March 28, 1997 By: /s/ Mark J. Gentile
---------------------------------------
Mark J. Gentile, Director
Date: March 28, 1997 By: /s/ Jesse A. Finkelstein
---------------------------------------
Jesse A. Finkelstein, Director
42
<PAGE>
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.
NGC FUTURES, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Joel M. Staib
---------------------------------------
Joel M. Staib, Director
43
<PAGE>
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.
ELECTRIC CLEARINGHOUSE, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ C.L. Watson
---------------------------------------
C.L. Watson, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Dan W. Ryser
---------------------------------------
Dan W. Ryser, Director
44
<PAGE>
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.
HUB SERVICES, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Vincent T. McConnell
---------------------------------------
Vincent T. McConnell, Director
45
<PAGE>
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.
NGC STORAGE, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and (Principal
Financial and Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
46
<PAGE>
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.
NGC ANADARKO GATHERING SYSTEMS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
----------------------------------------
Stephen W. Bergstrom, Director
47
<PAGE>
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.
WARREN GAS MARKETING, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
--------------------0------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
48
<PAGE>
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.
WARREN NGL PIPELINE COMPANY
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
49
<PAGE>
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.
KANSAS GAS SUPPLY CORPORATION
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
----------------=----------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
50
<PAGE>
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.
WARREN INSTRASTATE GAS SUPPLY, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of NGC Corporation:
We have audited in accordance with generally accepted auditing standards the
financial statements included in NGC Corporation (a Delaware corporation) and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated March 14, 1997. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The financial statement schedule listed in Item 14 is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 14, 1997
F-1
<PAGE>
SCHEDULE I
NGC CORPORATION
CONDENSED BALANCE SHEETS OF REGISTRANT
(in thousands, except share data)
DECEMBER 31, DECEMBER 31,
1995 1996
----------- ----------
ASSETS
CURRENT ASSETS
Cash $ -- $ 6
Accounts receivable 108 --
Intercompany accounts receivable 337,876 450,631
Prepayments and other assets 2,793 5,053
----------- -----------
340,777 455,690
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 8,216 1,287
Less: accumulated depreciation (2,193) (196)
----------- -----------
6,023 1,091
----------- -----------
OTHER ASSETS
Investments in affiliates 1,219,027 547,866
Intercompany note receivable 237,000 237,000
Deferred taxes and other assets 13,262 36,393
----------- -----------
$ 1,816,089 $ 1,278,040
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Intercompany accounts payable $ 16,295 $ 390,233
Accrued liabilities 18,914 2,427
----------- -----------
35,209 392,660
Long-term debt 644,000 333,000
Deferred taxes 20,147 --
----------- -----------
699,356 725,660
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
50,000,000 shares authorized:
8,000,000 shares designated as
Series A Participating Preferred
Stock, 7,815,363 shares issued and
outstanding at December 31, 1996 75,418 --
Common stock, $0.01 par value,
400,000,000 shares
authorized: 149,846,503 shares issued
and outstanding at December 31, 1996,
and 110,493,411 shares issued and
105,031,874 shares outstanding at
December 31, 1995 1,498 1,105
Additional paid-in capital 896,432 515,785
Retained earnings 143,385 35,490
------------ -----------
1,116,733 552,380
------------ -----------
$ 1,816,089 $ 1,278,040
============ ============
See Note to Registrant's Financial Statements.
F - 2
<PAGE>
SCHEDULE I
NGC CORPORATION
STATEMENTS OF OPERATIONS OF THE REGISTRANT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995)
THROUGH DECEMBER 31, 1995
(in thousands)
1996 1995
------------- -------------
Depreciation and amortization $ (496) $ (196)
General and administrative expenses -- --
------------- -------------
Operating loss (496) (196)
Equity in earnings of affiliates 182,159 60,744
Intercompany interest and other income 17,968 13,570
Interest expense (28,071) (18,152)
Other expenses (1,915) (135)
------------- -------------
Income before income taxes 169,645 55,831
Income tax provision 56,323 16,056
------------- -------------
NET INCOME $ 113,322 $ 39,775
============= =============
See Note to Registrant's Financial Statements.
F - 3
<PAGE>
SCHEDULE I
NGC CORPORATION
STATEMENTS OF CASH FLOWS OF THE REGISTRANT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995) THROUGH
DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 113,322 $ 39,775
Items not affecting cash flows from operating activities:
Depreciation and amortization 1,996 196
Equity in earnings of affiliates, net of cash distributions (182,159) (60,744)
Deferred taxes 45,896 17,303
Other 7,466 1,475
Change in assets and liabilities resulting from operating activities:
Accounts receivable (108) --
Intercompany transactions (298,592) (60,398
Prepayments and other assets 2,260 (5,053)
Accrued liabilities 8,487 2,427
Other, net (1,193) 4,150
------------ ------------
Net cash used in operating activities (302,625) (60,869)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,055) --
Acquisition of Trident NGL, Inc. -- (166,900)
Other -- (1,333)
------------ ------------
Net cash used in investing activities (2,055) (168,233)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 1,542,000 1,224,039
Repayments of long-term borrowings (1,231,000) (891,039)
Intercompany advances -- (237,000)
Proceeds from sale of capital stock, options and warrants 858 725
Capital contributions -- 135,000
Dividends and other distributions (7,184) (2,617)
------------ ------------
Net cash provided by financing activities
304,674 229,108
------------ ------------
Net (decrease) increase in cash and cash equivalents (6) 6
Cash and cash equivalents, beginning of period 6 --
------------ ------------
Cash and cash equivalents, end of period $ -- $ 6
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid (net of amount capitalized)
$ 22,341 $ 16,339
============ ============
Taxes paid (net of refunds) $ 1,444 $ --
============ ============
Cash dividends paid to parent by consolidated or unconsolidated subsidiaries $ -- $ --
============ ============
</TABLE>
See Note to Registrant's Financial Statements.
F - 4
<PAGE>
SCHEDULE I
NGC CORPORATION
NOTE TO REGISTRANT'S FINANCIAL STATEMENTS
Note 1 -- BASIS OF PRESENTATION
NGC Corporation ("NGC" or the "Company") is a holding company that
principally conducts all of its business through its subsidiaries. The Company
is the result of a strategic business combination ("Trident Combination")
between Natural Gas Clearinghouse and Trident NGL Holding, Inc. ("Holding"),
under which Holding was renamed NGC Corporation. Pursuant to the terms of the
Trident Combination, Holding was the legally surviving corporation and
Clearinghouse was considered the acquiring company for accounting purposes
resulting in a new historical cost basis for Holding beginning March 1, 1995,
the effective date of the Trident Combination. The accompanying condensed
Registrant Financial Statements were prepared pursuant to rules promulgated by
the Securities and Exchange Commission. In accordance with these rules, the
accompanying statements reflect the financial position, results of operations
and cash flows of NGC, the holding company of NGC Corporation, at December 31,
1996, and for the year then ended, and at December 31, 1995, and for the ten
month period from the effective date of the Trident Combination through December
31, 1995. These statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto of NGC Corporation
incorporated by reference into this Form 10-K.
F - 5
<PAGE>
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1996
REGISTERED NO: 2877398
<PAGE>
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1996
Pages
-----
Director's Report...................................... 1-4
Statement of Directors' Responsibilities............... 5
Report of the Auditors................................. 6
Consolidated Profit and Loss Account................... 7
Balance Sheet.......................................... 8
Consolidated Cash Flow Statement....................... 9
Notes to the Financial Statements...................... 10-20
<PAGE>
ACCORD ENERGY LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 1996
The Directors present their report and audited financial statements for the year
ended 31 December 1996.
PRINCIPAL ACTIVITIES AND REVIEW OF BUSINESS
The principal trading activities of the group in the year were the wholesale
trading of natural gas and crude oil. There was no trading of electricity
carried out in the year but the group has continued to explore opportunities in
this area as it sees electricity trading as an integral part of its strategic
objective to be a major player in wholesale energy trading markets.
The 1996 results represent a significant improvement on last year's performance
in terms of growth of the business and financial results. Turnover from gas and
oil trading increased by 43% with a corresponding improvement in overall pre-tax
profits. The major contribution to these improvements came from the gas trading
business which recorded substantial growth in volumes traded during a period
which saw growing competition and the entry of more players to the market.
The year also saw the introduction of the Network Code and the commencement of
flexibility mechanism trading in which the group was actively involved. Volumes
traded by the company in this first period of operation were relatively small
but provided a marginal contribution to profits.
Maintaining the level of performance achieved in the year is likely to become
increasingly more difficult in view of the uncertainties in the gas trading
market and the several changes taking place in the UK gas market. However, the
directors are committed to maximising returns by ensuring that the company
remains a major player in the energy trading markets and that is pursues and
fully exploits all opportunities and products in both the UK and European
markets. In this context, the company sees its trading on the IPE gas futures
market as an additional tool for effective risk management and for providing
added value to its gas trading activities.
FINANCIAL RESULTS AND DIVIDENDS
The financial results are set out on pages 7 to 20. An interim dividend of
(Pounds) 7.2 million was approved by the Board and paid during the year. A
second interim dividend of (Pounds) 14.814 million has been proposed bringing
the total dividends for the year ended 31 December 1996 to (Pounds) 22.014
million. The Directors do not recommend the payment of a final dividend and
retained profits in the year have been transferred to reserves.
<PAGE>
DIRECTORS
The Directors who served during the period covered by this report are: -
NAME DATE APPOINTED DATE RESIGNED
- ---- -------------- ---------------
RA Gardner (Chairman) 30 January 1997
AW Burgess
30 January 1997
MS Clare
JH Current 23 September 1996 02 March 1997
CD Friedlander 12 February 1996
ML Hazelwood 08 July 1996 23 September 1996
P Jungels 12 February 1996 24 September 1996
HK Kaelber 02 March 1997
KE Randolph 02 March 1997
CL Watson 02 March 1997
Mr R A Gardner was appointed Director and Chairman on 1 December 1995.
DIRECTORS' INTERESTS
At no time during the year did any Director still holding office on
31 December 1996 have any beneficial interest in the shares of the Company or
any other company within the Group except for the interests in the shares of the
ultimate parent company, British Gas plc, as stated below: -
BENEFICIAL HOLDINGS
-------------------
1 JANUARY 1996 31 DECEMBER 1996
-------------- ----------------
AW Burgess 13,052 13,523
MS Clare - 471
Mr Gardner is also a Director of the ultimate parent company, British Gas plc.
His interests in the shares of British Gas plc and its subsidiary undertaking
are shown in the accounts of that company.
Details of options to purchase fully paid ordinary shares that were granted
under the parent company's Savings Related and Executive Share Option Schemes
and the awards of notional allocations of restricted shares under the parent
company's Long Term Incentive Scheme for Directors and other senior executives
are as follows:
SAVINGS RELATED OPTION SCHEME
-----------------------------
At 1 January 1996 Granted Exercised At 31 December 1996
----------------- ------- -------- -------------------
AW Burgess 8,075 - - 8,075
2
<PAGE>
EXECUTIVE OPTION SCHEME
-----------------------
At 1 January 1996 Granted Exercised At 31 December 1996
----------------- ------- --------- -------------------
AW Burgess 108,962 - - 108,962
MS Clare 49,063 - - 49,063
LONG TERM INCENTIVE SCHEME
--------------------------
Awards
in
At 1 January 1996 Year At 31 December 1996
----------------- ------ -------------------
AW Burgess 10,936 - 10,936
MS Clare 12,833 - 12,833
The awards represent the maximum award possible if performance criteria are met
at the end of the performance and retention period of five or six years.
All options and awards were granted under the terms of the parent company's
Savings Related Share Option Scheme, Executive Share Option Scheme or Long Term
Incentive Scheme, details of which are given in that company's report and
accounts for the year ended 31 December 1996.
DIRECTORS' INSURANCE
The Company has through its ultimate parent company, British Gas plc, maintained
insurance for the Directors in respect of their duties as Directors of the
Company.
DONATIONS
Provision has been made in the accounts for a net contribution of (Pounds)
126,000 for charitable purposes, which will be paid in 1997. No donations to
political organisations were provided for or made during the period.
EMPLOYEES
The Company depends on the skills and commitment of its employees in order to
achieve its long term objectives and is therefore committed to the development
of its staff. Employees at all levels are encouraged to actively participate and
make the fullest contribution to the growth and success of the Company. The
company's recruitment, training and promotion policies, which are based on
merit, have been developed to ensure equal opportunities for all employees
regardless of gender, race or disability.
3
<PAGE>
SHARE CAPITAL
The share capital is divided into 51 "A" shares and 49 "B" shares which at the
end of the year were held by GB Gas Holdings Limited and NGC Great Britain
Limited (formerly known as NGC UK Limited) respectively. The "A" shares held by
GB Gas Holdings were previously held by British Gas plc. In October 1996 British
Gas transferred legal and beneficial ownership of the "A" shares to GB Gas
Holdings Limited as a part of its corporate restructuring in advance of the
demerger. Following the demerger, approved in February 1997, the beneficial
ownership of the total issued capital of GB Gas Holdings Limited was transferred
to Centrica plc.
On 3rd March 1997 Centrica plc and NGC Corporation of Houston, Texas announced
that the two companies had reached agreement on the future ownership of Accord
Energy Limited. Under the terms of the agreement which is consistent with the
objectives set out at the time Centrica plc was demerged from British Gas,
Centrica plc will take operational control of Accord Energy Limited with NGC
Great Britain Limited's 49 shares being converted to participating preference
shares and 147 participating preference shares being issued to GB Gas Holdings.
The agreement is conditional upon regulatory clearances. The new share capital
of Accord Energy Limited will be approved at an Extraordinary General Meeting to
be convened once Centrica is satisfied regarding regulatory clearances.
Therefore the agreement does not yet have unconditional effect.
TAXATION STATUS
The close company provisions of the Income and Corporation Taxes Act 1988 do not
apply to the Company.
AUDITORS
Price Waterhouse have expressed their willingness to be re-appointed as Auditors
of the Company.
A resolution proposing the re-appointment of Price Waterhouse as Auditors to the
Company and to authorise the Directors to fix their remuneration will be put to
the Annual General Meeting.
BY ORDER OF THE BOARD Registered Office:
Charter Court
50 Windsor Road
Slough
Berkshire SL1 2HA
Registered in England
No 2877398
TERESA FURMSTON
COMPANY SECRETARY
DATE: 21 March 1997
4
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company and of the Group as at the end of the financial year
and of the profit or loss for that period.
The Directors consider that in preparing the financial statements, appropriate
accounting policies have been used and applied consistently. The Directors also
consider that reasonable and prudent judgements and estimates have been made and
applicable accounting standards have been followed.
The Directors are responsible for maintaining adequate accounting records, for
safeguarding the assets of the Group and for preventing and detecting fraud and
other irregularities.
The Directors, having prepared the financial statements, have requested the
Auditors to take whatever steps and undertake whatever inspections they consider
to be appropriate for the purposes of enabling them to give their audit report.
5
<PAGE>
REPORT OF THE AUDITORS TO THE MEMBERS OF ACCORD ENERGY LIMITED
We have audited the financial statements on pages 7 to 20 which have been
prepared under the historic cost principles and other accounting policies
described on pages 10 and 11.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 5, the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes assessment of the significant estimates and judgements made by the
Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary, in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 1996 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Act 1985.
Price Waterhouse
Chartered Accountants and Registered Auditors
Southwark Towers
32 London Bridge Street
London SE1 9SY
Date: 21 March 1997
6
<PAGE>
ACCORD ENERGY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
Year Year
to 31 Dec to 31 Dec
1996 1995
Notes (Pounds) 000 (Pounds) 000
TURNOVER 2 426,057 298,619
Cost of Sales (386,785) (270,710)
-------- --------
GROSS PROFIT 39,272 27,909
Administration expenses (7,217) (5,689)
-------- --------
OPERATING PROFIT 3 32,055 22,220
Net interest 5 1,321 1,063
-------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE 33,376 23,283
TAXATION
Tax on profit on ordinary activities 6 (11,139) (7,708)
-------- --------
PROFIT FOR THE FINANCIAL YEAR 22,237 15,575
Dividends 7 (22,014) (15,400)
-------- --------
RETAINED PROFIT 223 175
======== ========
All gains or losses for the year have been derived from continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 1996
There are no recognised gains or losses for the period other than those stated
in the profit and loss account.
The accompanying notes on pages 10 to 20 form part of these accounts.
7
<PAGE>
ACCORD ENERGY LIMITED
BALANCE SHEETS AS AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
GROUP COMPANY
---------------------------- ----------------------------
1996 1995 1996 1995
Notes (Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
FIXED ASSETS
<S> <C> <C> <C> <C> <C>
Tangible fixed assets 8 203 100 203 100
Investments 9 - - - -
---------- ---------- ---------- ----------
203 - 203 -
---------- ---------- ---------- ----------
CURRENT ASSETS
Stock 10 2,675 3,838 2,675 3,838
Debtors 11 53,700 38,453 53,700 38,453
(amounts falling due within one year
Cash at bank and in hand 22,416 10,184 22,416 10,184
---------- ---------- ---------- ----------
78,791 52,475 78,791 52,475
---------- ---------- ---------- ----------
CREDITORS 12 (78,137) (51,941) (78,137) (51,941)
(amounts falling due within one year)
NET CURRENT ASSETS 654 534 654 534
---------- ---------- ---------- ----------
Total assets less current liabilities 857 634 857 634
---------- ---------- ---------- ----------
CREDITORS 12 - - (414) (414)
(amounts falling due after more ---------- ---------- ---------- ----------
than one year)
NET ASSETS 857 634 443 220
---------- ---------- ---------- ----------
CAPITAL AND RESERVES
Called up share capital 13 - - - -
Profit and loss account 14 857 634 443 220
---------- ---------- ---------- ----------
SHAREHOLDERS' FUNDS 15 857 634 443 220
---------- ---------- ---------- ----------
</TABLE>
The financial statements on pages 7 to 20 were approved by the Board of
Directors on 21 March 1997 and were signed on its behalf by: -
MS Clare
Director
The accompanying notes on pages 10 to 20 form part of these accounts.
8
<PAGE>
ACCORD ENERGY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
Year Year
to 31 Dec to 31 Dec
1996 1995
Notes (Pounds) 000 (Pounds) 000
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 16 26,931 26,304
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 1,591 1,105
Interest paid (270) (42)
TAXATION (8,695) (2,932)
CAPITAL EXPENDITURE
Purchase of tangible fixed assets (125) (100)
ACQUISITIONS AND DISPOSALS - -
EQUITY DIVIDENDS PAID (7,200) (15,400)
MANAGEMENT OF LIQUID RESOURCES - -
FINANCING - -
--------- ---------
INCREASE IN CASH 12,232 8,935
</TABLE>
9
<PAGE>
ACCORD ENERGY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention and in accordance with applicable Accounting Standards in the
United Kingdom.
BASIS OF CONSOLIDATION
The consolidated profit and loss account, balance sheet and cash flow
statement include the financial statements of the Company and its
subsidiary undertakings made up to 31 December 1996.
GOODWILL
On the acquisition of a subsidiary or associated undertaking, fair values
are attributed to the net assets acquired. Goodwill which represents the
difference between the purchase consideration and the fair values, is
taken to reserves.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at purchase cost together with any
incidental costs of acquisition less depreciation.
Depreciation, which is charged in the year following the year of
acquisition, is calculated on a straight-line basis sufficient to write
off the cost of individual assets over their estimated useful lives. The
depreciation periods for the principal categories of assets are:
Fixtures and fittings : 5 years
Computer and office equipment : 5 years
INVESTMENTS
Investments are stated at cost less any permanent diminution in value.
STOCK
Stocks are valued at the lower of cost and net realisable value.
10
<PAGE>
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated
into pounds sterling at closing rates of exchange. Income and expenses in
foreign currencies are translated into pounds sterling at rates of
exchange prevailing at the time of the transactions.
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of
sales of energy products including gas, oil and electricity to customers
plus an estimate of sales not yet invoiced.
FORWARD COMMITMENTS
There is an exposure to price movements on open contracts and an accrual is
made for any potential losses on these contracts. Matched gains on open
contracts are recognised at time of delivery.
DEFERRED TAXATION
Provision is made for deferred taxation on all material timing differences
to the extent that it is probable that a liability or asset will
crystallise.
2. TURNOVER
Turnover of (Pounds)426.1 million (1995 - (Pounds) 298.6 million) comprises
sales of energy products.
3. Operating profit
The operating profit is stated after charging: -
1996 1995
(Pounds) 000 (Pounds) 000
Auditor's fees (statutory audit) 20 12
Auditor's fees (other non-audit services) - 11
-------- --------
20 23
-------- --------
11
<PAGE>
4. DIRECTORS AND EMPLOYEES
(A) DIRECTORS' REMUNERATION
None of the Directors, including the Chairman, received any remuneration
in respect of their services to the Company.
The total emoluments of the highest paid director for the period of his
directorship were (Pounds) nil (1995 - (Pounds) 482,588), which includes
salary, allowances and incentive payments relating to the Company's
performance.
The emoluments of Directors, excluding pension contributions, were in the
following bands:
Number
-----------
1996 1995
(Pounds) 480,001 to (Pounds) 485,000 - 1
(B) EMPLOYEE INFORMATION
The average number of personnel employed by the Group, including
executive directors and secondees from the shareholder companies, during
the period was 23 (1995 - 20) who were all based in the United Kingdom.
Staff costs for these persons were as follows: -
1996 1995
(Pounds) 000 (Pounds) 000
Salaries & wages 1,296 853
Social Security 92 69
Pensions 56 43
-------- --------
1,444 965
-------- --------
In addition, provisions amounting to (Pounds) 4.7 million which includes
social security costs of (Pounds) 0.5 million (1995 - (Pounds) 3.9 million
which includes social security costs of (Pounds) 0.3 million) were made in
the year for incentive payments relating to company performance.
12
<PAGE>
5. NET INTEREST
1996 1995
(Pounds) 000 (Pounds) 000
Interest receivable from Group undertakings 1,561 1,081
Interest receivable from third parties 30 24
Interest payable to Group undertakings (258) (31)
Interest payable to third parties (12) (11)
-------- --------
Net interest receivable 1,321 1,063
-------- --------
Interest payable is on loans and overdrafts wholly repayable within five
years.
6. TAXATION
1996 1995
(Pounds) 000 (Pounds) 000
UK - corporation tax @ 33% 9,208 8,846
- deferred corporation tax 1,899 (1,138)
- prior year adjustment 32 -
-------- --------
Taxation charge 11,139 7,708
There is no unprovided deferred taxation.
7. DIVIDENDS
1996 1995
(Pounds) 000 (Pounds) 000
Interim dividend 7,200 15,400
Second Interim dividend (proposed) 14,814 -
------- -------
22,014 15,400
------- -------
The interim dividend of (Pounds) 7.2 million (1995 - (Pounds) 15.4 million)
was paid in September 1996. No final dividend is proposed.
13
<PAGE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Group Company
------------------ -----------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
COST
Balance at 1 January 1996 100 - 100 -
Additions 125 100 125 100
Disposals - - - -
------------ ------------ ----------- -----------
Balance at 31 December 1996 225 100 225 100
------------ ------------ ----------- -----------
DEPRECIATION
Balance at 1 January 1996 - - - -
Provision in year 22 - 22 -
Disposals - - - -
------------ ------------ ----------- -----------
Balance at 31 December 1996 22 - 22 -
------------ ------------ ----------- -----------
NET BOOK VALUE
As at 31 December 1996 203 100 203 100
</TABLE>
The additions to tangible fixed assets in the year are computer and office
equipment type assets.
9. FIXED ASSET INVESTMENTS
Fixed asset investments represent shares in wholly owned subsidiaries and
are shown below at cost.
Company
------------
1996 1995
(Pounds) (Pounds)
Balance at 1 January 1996 5 5
Additions - -
Balance at 31 December 1996 5 5
-------- --------
14
<PAGE>
SUBSIDIARY UNDERTAKINGS
Country of
registration of Class of Company
incorporation shares held holding
(%)
Accord Electric Limited England Ordinary 100
Accord Gas Limited England Ordinary 100
Accord Oil Limited England Ordinary 100
Accord Power Limited England Ordinary 100
As at 31 December 1996 these subsidiaries were dormant.
10. STOCK
Group Company
------------------ ------------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
Gas in storage 2,675 3,838 2,675 3,838
----------- ----------- ------------ -----------
11. DEBTORS
<TABLE>
<CAPTION>
Group Company
----------------- -----------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
Trade debtors 88 56 88 56
Accrued income 40,529 36,240 40,529 36,240
Amounts owed by group undertakings 13,057 246 13,057 246
Other debtors 26 12 26 12
Deferred corporation tax - 1,899 - 1,899
------------ ------------ ------------ ------------
53,700 53,700 38,453 38,453
------------ ------------ ------------ ------------
</TABLE>
15
<PAGE>
12. CREDITORS
<TABLE>
<CAPTION>
Group Company
------------------ ------------------
1996 1995 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
AMOUNTS FALLING DUE WITHIN ONE YEAR:-
-Trade creditors - 247 - 247
-Amounts owed to group undertakings 33,401 16,843 33,401 16,843
-Taxation and social security 9,467 6,904 9,467 6,904
-Other creditors 13,007 1,826 13,007 1,826
-Accruals and deferred income 22,262 26,121 22,262 26,121
----------- ------------ ------------ ------------
78,137 51,941 78,137 51,941
AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR:-
-Amounts owed to subsidiary
undertakings - - 414 414
------------ ------------ ------------ ------------
- - 414 414
------------ ------------ ------------ ------------
</TABLE>
As part of its normal trading operations the company has entered into
forward purchase and sales contracts totalling (Pounds) 999 million at 31
December 1996 (1995 - (Pounds) 634 million). It is exposed to market risk
of price movements in relation to any unmatched element of the above
commitments and included in the accruals amounts shown above is an accrual
of (Pounds) nil (1995 - (Pounds) 5.6 million) against potential losses
arising out of these contracts.
13. CALLED UP SHARE CAPITAL
AUTHORISED 1996 1995
(Pounds)000 (Pounds)000
51 ordinary "A" shares of (Pounds)1 each 51 51
49 ordinary "B" shares of (Pounds)1 each 49 49
----------- -----------
100 100
----------- -----------
ALLOTTED AND FULLY PAID
51 ordinary "A" shares of (Pounds)1 each 51 51
49 ordinary "B" shares of (Pounds)1 each 49 49
----------- -----------
100 100
----------- -----------
16
<PAGE>
With the exception of voting rights which on aggregate are shared equally
by the two categories of shares, the amounts payable on a winding up and
the rights to dividends are on the basis of the percentage interests in
each category of shares.
14. RESERVES
Group Company
(Pounds) 000 (Pounds) 000
PROFIT AND LOSS ACCOUNT:
Balance at 1 January 1996 634 220
Transfer from profit and loss account
during the period 223 223
-------- --------
Balance at 31 December 1996 857 443
-------- --------
The Company's profit for the year after taxation was (Pounds) 22.237
million (1995 - (Pounds) 15.575 million).
As permitted by Section 230(3) of the Companies Act 1985, no profit and
loss account is presented for the Company.
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
Profit for the period 22,237 15,575 22,237 15,575
Dividends (22,014) (15,400) (22,014) (15,400)
------------ ----------- ------------ -----------
Net addition to shareholders' funds 223 175 223 175
Shareholders' funds at 1 January 1996 634 459 220 45
------------ ----------- ------------ -----------
Shareholders' funds at 31 December 1996 857 634 443 220
------------ ----------- ------------ -----------
</TABLE>
17
<PAGE>
16. CASH FLOW STATEMENT
(a) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
1996 1995
(Pounds) 000 (Pounds) 000
Operating profit 32,055 22,220
Depreciation 22 -
(Increase)/decrease in stock 1,163 (2,951)
(Increase)/decrease in debtors (17,129) (12,254)
Increase/(decrease) in creditors 10,820 19,289
----------- -----------
26,931 26,304
----------- -----------
(b) ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD
1996 1995
(Pounds) (Pounds)
Balance at 1 January 1996 100 100
----------- -----------
Balance at 31 December 1996 100 100
----------- -----------
(c) ANALYSIS OF CASH
1996 1995
(Pounds)000 (Pounds)000
Balance at 1 January 1996 10,184 1,249
Net increase in cash flow 12,232 8,935
--------- ---------
22,416 10,184
--------- ---------
Cash at bank and in hand 22,416 10,184
========= =========
18
<PAGE>
17. RELATED PARTY TRANSACTIONS
As part of its normal trading activities during the year, the group
conducted business with the two shareholder companies and companies within
their group of companies. All transactions were of a trading nature under
arms length commercial arrangements and mainly relate to the purchase/sale
of energy products.
The net monetary value of related transactions during the year ended 31
December 1996 and the amount of the net outstanding balances at 31 December
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
CHARGED TO AMOUNTS OWED BY ACCORD ENERGY LTD.
ACCORD ENERGY ----------------------------------
LTD. IN AT AT
YEAR 31 DEC `96 31 DEC `95
(POUNDS) 000 (POUNDS) 000 (POUNDS) 000
<S> <C> <C> <C>
British Gas Group 192,054 12,789 16,589
Natural Gas Clearinghouse 465 465 187
</TABLE>
18. PENSIONS
The company's own defined contribution pension scheme commenced on 1
December 1995. Under the scheme, defined contributions are made by the
employer to an independently administered fund and in the case of certain
employees, who are not members of the company scheme, to their personal
pension arrangements. The assets of the scheme are held separately from
those of the company and managed by an external pension fund management
organisation appointed by the Trustees. The pensions cost charge for the
year includes contributions payable by the company under this scheme
amounting to (Pounds) 55,400 (1995 - (Pounds) 31,000), of which (Pounds)
6,600 was payable at year end and is included in creditors.
Prior to the commencement of the above scheme, the company made
contributions for those employees seconded from the parent company, British
Gas plc., in accordance with the pension scheme operated by that company.
The details of the scheme are given in that company's report and accounts
for the year ended 31 December 1996. The total contributions made by the
company for the year under these arrangements amounted to (Pounds) nil
(1995 - (Pounds) 12,000).
19
<PAGE>
19. ULTIMATE PARENT COMPANY
The Directors regard British Gas plc, a company registered in England, as
the ultimate parent company as at 31 December 1996 and British Gas plc is
in the only company to consolidate the accounts of this Company. Copies of
the parent company's consolidated financial statements may be obtained from
100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT.
Under the agreement reached between Centrica plc and NGC Corporation of
Houston, Texas in March 1997, Centrica plc, which was demerged from British
Gas plc, will take operational control of Accord Energy Limited subject to
regulatory clearances. As from this date the Directors will regard Centrica
plc, a company registered in England, as the ultimate parent company and
the only company to consolidate the accounts of the Company.
20
<PAGE>
Exhibit 2.3
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
DESTEC ENERGY, INC.,
THE DOW CHEMICAL COMPANY,
NGC CORPORATION
and
NGC ACQUISITION CORPORATION II
dated as of
February 17, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................... 1
Section 1.2 Closing.................................................. 2
Section 1.3 Effective Time........................................... 2
Section 1.4 Certificate of Incorporation; By-Laws.................... 2
Section 1.5 Directors and Officers of the Surviving Corporation...... 3
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock.............................. 3
Section 2.2 Exchange of Certificates................................. 4
Section 2.3 Company Equity-Based Awards.............................. 7
Section 2.4 Dissenter's Rights....................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY - DESTEC
Section 3.1 Organization............................................. 9
Section 3.2 Capitalization...........................................10
Section 3.3 Authorization; Validity of Agreement.....................11
Section 3.4 No Violations; Consents and Approvals....................12
Section 3.5 SEC Reports and Financial Statements.....................13
Section 3.6 Absence of Certain Changes...............................14
Section 3.7 Absence of Undisclosed Liabilities.......................15
Section 3.8 Proxy Statement..........................................15
Section 3.9 Employee Benefit Plans; ERISA............................16
Section 3.10 Litigation; Compliance with Law..........................20
Section 3.11 Intellectual Property....................................21
Section 3.12 Significant Agreements...................................21
Section 3.13 Taxes....................................................22
Section 3.14 Environmental Matters....................................23
Section 3.15 Required Vote by Company Stockholders....................25
Section 3.16 Brokers..................................................25
Section 3.17 Public Utility Company; Public Utility
Regulatory Policies Act. .........................25
Section 3.18 Fairness Opinion.........................................27
Section 3.19 Excluded Subsidiaries....................................27
Section 3.20 No Other Representations or Warranties...................27
A-i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DOW
Section 4.1 Organization.............................................27
Section 4.2 Authorization; Validity of Agreement.....................27
Section 4.3 No Violations; Consents and Approvals....................28
Section 4.4 Title to Shares..........................................29
Section 4.5 Brokers..................................................29
Section 4.6 No Other Representations or Warranties...................29
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Section 5.1 Organization.............................................29
Section 5.2 Authorization; Validity of Agreement.....................30
Section 5.3 No Violations; Consents and Approvals....................30
Section 5.4 Proxy Statement..........................................32
Section 5.5 Interim Financial Condition..............................32
Section 5.6 Financing................................................32
Section 5.7 Surviving Corporation After the Merger...................32
Section 5.8 Beneficial Ownership of Shares; Interested
Stockholder........................................32
Section 5.9 Brokers..................................................33
Section 5.10 Public Utility Company; Public Utility
Regulatory Policies Act............................33
Section 5.11 Absence of Litigation....................................33
Section 5.12 No Prior Activities......................................34
Section 5.13 No Other Representations or Warranties...................34
ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company........................34
Section 6.2 Acquisition Proposals....................................36
Section 6.3 Audited Financial Statements.............................38
Section 6.4 Access to Information....................................38
Section 6.5 Further Action; Reasonable Best Efforts..................39
Section 6.6 Employee Benefits........................................40
Section 6.7 Stockholders' Meeting; Proxy Statement...................42
Section 6.8 Directors' and Officers' Insurance and
Indemnification....................................43
Section 6.9 Publicity................................................46
Section 6.10 No Solicitation..........................................46
Section 6.11 Certain Arrangements.....................................46
Section 6.12 Voting Agreement.........................................47
A-ii
<PAGE>
Section 6.13 Employee Benefits Indemnification........................47
Section 6.15 Acquisition Proposals....................................48
Section 6.16 Tax Matters..............................................48
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To
Effect the Merger..................................53
Section 7.2 Conditions to Parent and Purchaser's Obligations to
Effect the Merger..................................53
Section 7.3 Conditions to the Company's Obligation to
Effect the Merger..................................54
ARTICLE VIII
TERMINATION
Section 8.1 Termination..............................................55
Section 8.2 Effect of Termination....................................55
Section 8.3 Fee......................................................56
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses........................................56
Section 9.2 Specific Performance.....................................56
Section 9.3 Amendment; Waiver........................................56
Section 9.4 Survival.................................................57
Section 9.5 Notices..................................................57
Section 9.6 Interpretation...........................................59
Section 9.7 Headings; Schedules. ...................................59
Section 9.8 Counterparts.............................................59
Section 9.9 Entire Agreement.........................................59
Section 9.10 Severability.............................................60
Section 9.11 Governing Law............................................60
Section 9.12 Assignment...............................................60
Section 9.13 Consent to Jurisdiction..................................60
A-iii
<PAGE>
LIST OF SCHEDULED DISCLOSURES
Disclosure Schedule
- ---------- --------
List of Subsidiaries............................................... 3.1
Capital Stock Obligations....................................... 3.2(a)
Certain Subsidiaries............................................ 3.2(b)
Certain Violations or Terminations.............................. 3.4(a)
Certain Notices and Filings..................................... 3.4(b)
Certain Actions.................................................... 3.6
Certain Disclosed Liabilities...................................... 3.7
Employee Benefit Plans/ERISA Plans.............................. 3.9(a)
Employee Benefit Plans Compliance............................... 3.9(f)
Post-Retirement Plans........................................... 3.9(h)
Severance Benefits.............................................. 3.9(j)
Employee Information............................................ 3.9(k)
Pending Proceedings............................................... 3.10
Infringements on Intellectual Property............................ 3.11
Dow Agreements..................................................3.12(a)
Significant Agreements in Breach or Default.....................3.12(b)
Required Consents...............................................3.12(c)
Pending Tax Proceedings........................................... 3.13
Certain Environmental Matters...................................3.14(a)
Environmental Claims............................................3.14(b)
QF Projects.....................................................3.17(b)
EWG Projects....................................................3.17(c)
FUCO Projects...................................................3.17(d)
Certain Indebtedness............................................ 6.1(d)
Interim Benefits and Compensation Changes....................... 6.1(e)
Termination of Certain Agreements...............................6.11(a)
Release of Dow as Obligor.......................................6.11(b)
A-iv
<PAGE>
TABLE OF DEFINED TERMS
Term Section
- ---- -------
Acquisition Proposal.................................................. 6.2(d)
AES................................................................... 6.2(a)
affiliates.............................................................9.6
Allocation Schedule.................................................. 6.16(a)
Antitrust Division.....................................................6.5(c)
associates.............................................................9.6
Assertion..............................................................6.8(c)
Balance Sheet............................................................ 3.5
beneficial ownership...................................................9.6
Board..................................................................3.3(a)
Certificate of Merger..................................................1.3
Certificates...........................................................2.2(b)
Change in Control..................................................... 6.6(a)
Closing................................................................1.2
Closing Date............................................................. 1.2
Code.......................................................3.9(b)(v), 6.16(a)
Company............................................................. Recitals
Company Common Stock................................................ Recitals
Company Employees......................................................6.6(c)
Company SEC Documents..................................................3.5
Competition Laws.......................................................6.5(c)
Confidentiality Agreements.............................................6.4
Delaware Courts .......................................................9.13
DGCL.................................................................Recitals
Disclosure Schedule................................................... 3.1(b)
Dissenting Shares......................................................2.4
Dow..................................................................Recitals
Dow Agreements........................................................3.12(a)
Dow Shares...........................................................Recitals
Effective Time........................................................1.3
Environmental Claim................................................3.14(e)(i)
Environmental Laws................................................3.14(e)(ii)
ERISA.................................................................3.9(a)
ERISA Plans...........................................................3.9(a)
EWG Projects......................................................... 3.17(c)
Exchange Act..........................................................3.4(b)
Exchange Fund.........................................................2.2(a)
Excluded Subsidiaries.................................................3.1(a)
FERC .................................................................3.17(b)
Forms................................................................ 6.16(a)
FPA ..................................................................3.17(a)
FTC...................................................................6.5(c)
FUCO Projects........................................................ 3.17(d)
GAAP..................................................................3.5
Governmental Entity...................................................3.4(b)
Hazardous Substances............................................ 3.14(c)(iii)
HSR Act...............................................................6.5(c)
Immaterial Subsidiaries...............................................3.1(a)
A-v
<PAGE>
include[s]/[ing]......................................................9.6
Indemnified Liability.................................................6.8(b)
Indemnified Parties...................................................6.8(b)
Indemnified Party.....................................................6.8(b)
Indemnitors...........................................................6.8(c)
Intellectual Property.................................................3.11
made available....................................................... 9.6
Material Adverse Effect...............................................3.1(a)
Merger................................................................1.1
Merger Consideration..................................................2.1(a)
Parent.............................................................. Recitals
Parent Plans..........................................................6.6(b)
Paying Agent..........................................................2.2(a)
Person................................................................3.1(a)
Plans.................................................................3.9(a)
Preferred Stock.......................................................3.2(a)
Proceeding........................................................... 6.16(g)
Proxy Statement.......................................................6.7(b)
PUHCA ................................................................3.17(a)
Purchaser........................................................... Recitals
Purchaser Common Stock................................................2.1
QF Projects.......................................................... 3.17(b)
Section 338(h)(10) Elections......................................... 6.14(a)
Securities Act........................................................3.5
SEC...................................................................3.5
Secretary of State....................................................1.3
Shares.............................................................. Recitals
Significant Agreements ...............................................3.12(a)
Special Meeting.......................................................6.7(a)
Stock Plan............................................................2.3(a)
Stock Purchase Agreement ............................................Recitals
Stock Purchase Plan...................................................2.3(c)
Subscriber............................................................2.3(c)
Subsidiary............................................................3.1(a)
Surviving Corporation.................................................1.1
Taxes.................................................................3.13
Tax Claim............................................................ 6.16(f)
Tax Return............................................................3.13
Tax Sharing Agreement................................................ 6.16(b)
Transfer Taxes.................................................. 6.16(c)(iii)
Variable Pay Plan......................................................2.3(b)
A-vi
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 17, 1997,
by and among Destec Energy, Inc., a Delaware corporation (the "Company"),
The Dow Chemical Company, a Delaware corporation ("Dow"), NGC
Corporation, a Delaware corporation ("Parent"), and NGC Acquisition
Corporation II, a wholly owned subsidiary of Parent and a Delaware
corporation ("Purchaser").
WHEREAS, the Boards of Directors of Parent, Purchaser, Dow
and the Company have each approved, and the Boards of Directors of
Parent, Purchaser and the Company deem it advisable and in the best
interests of their respective stockholders to consummate, the acquisition
of the Company by Parent upon the terms and subject to the conditions set
forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of Parent, Purchaser and the Company have each approved this
Agreement and the merger of Purchaser with and into the Company in
accordance with the terms of this Agreement and the General Corporation
Law of the State of Delaware (the "DGCL"); and
WHEREAS, the number of shares of common stock, $.01 par value
of the Company (referred to herein as "Shares" or "Company Common Stock")
owned by Dow is set forth on Schedule A hereto (the "Dow Shares") and Dow
has agreed to vote all of the Dow Shares in favor of the approval of this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set
forth herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to
conditions of this Agreement and in accordance with the DGCL, at the
Effective Time (as defined in Section hereof), Purchaser shall be merged
(the "Merger") with and into the Company and the separate corporate
existence of Purchaser shall cease. After the Merger,
<PAGE>
the Company shall continue as the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and Purchaser shall vest in the
Surviving Corporation and all obligations, duties, debts and liabilities of the
Company and Purchaser shall be the obligations, duties, debts and liabilities of
the Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., New York time, on the second
business day after satisfaction or waiver of all of the conditions set
forth in Article hereof, at the offices of Skadden, Arps, Slate, Meagher
& Flom LLP, 919 Third Avenue, New York, New York 10022, unless an earlier
date or place is agreed to in writing by the parties hereto. The date on
which the Closing occurs is referred to herein as the "Closing Date."
Section 1.3 Effective Time. On or as promptly as practicable
following the Closing Date, Purchaser and the Company will cause an
appropriate Certificate of Merger (the "Certificate of Merger") to be
executed and filed with the Secretary of State of the State of Delaware
(the "Secretary of State") in such form and executed as provided in the
DGCL. The Merger shall become effective on the date and time on which the
Certificate of Merger has been duly filed with the Secretary of State, or
such later date and time as shall be agreed upon by Purchaser, Dow and
the Company and set forth therein, and such time is hereinafter referred
to as the "Effective Time."
Section 1.4 Certificate of Incorporation; By-Laws. Pursuant to
the Merger, (x) the Amended and Restated Certificate of Incorporation of
the Company shall be amended in the form of the Certificate of
Incorporation of Purchaser, as in effect immediately prior to the
Effective Time, and shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and
such Amended and Restated Certificate of Incorporation, and (y) the
By-laws of Purchaser, as in effect immediately prior to the Effective
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<PAGE>
Time, shall be the By-laws of the Surviving Corporation until thereafter
amended as provided by law, the Amended and Restated Certificate of
Incorporation and such By-laws.
Section 1.5 Directors and Officers of the Surviving
Corporation.
(a) The directors of Purchaser immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until their successors shall have been duly
elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
(b) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation
until their respective successors are duly elected and qualified, or
their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the
Company, Parent, Purchaser or the holders of any shares of Company Common
Stock or the common stock, par value $.01 per share, of Purchaser (the
"Purchaser Common Stock"):
(a) Each issued and outstanding share of Company Common Stock
(other than Shares to be cancelled in accordance with Section and other
than Dissenting Shares (as defined herein) covered by Section 2.4)
shall be converted into the right to receive $21.65 per share in cash,
payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such share of Company Common Stock in the manner provided in Section 2.2.
All such shares of Company Common Stock, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired
and shall cease to
3
<PAGE>
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2. Any payment made pursuant to this Section 2.1(a) shall be made net
of applicable withholding taxes to the extent such withholding is required by
law.
(b) Each issued and outstanding share of Purchaser Common
Stock shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation.
(c) Each share of Company Common Stock that is held by the
Company as treasury stock and each share of Company Common Stock owned by
Parent, Purchaser or any other Subsidiary of Parent shall be cancelled
and retired and shall cease to exist and no payment of any consideration
shall be made with respect thereto.
Section 2.2 Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate the
Company's registrar and transfer agent, or such other bank or trust
company as agreed in writing by the parties, to act as paying agent for
the holders of Shares in connection with the Merger, pursuant to an
agreement providing for the matters set forth in this Section 2.2 and
such other matters as may be appropriate and the terms of which shall be
reasonably satisfactory to the Company (the "Paying Agent"), to receive
the funds to which holders of Shares shall become entitled pursuant to
Sections 2.1(a) and 2.3. Prior to the Effective Time, Parent will deposit
or cause to be deposited in trust with the Paying Agent for the benefit
of holders of Company Common Stock the funds necessary to complete the
payments contemplated by Section 2.1(a) (the "Exchange Fund") on a timely
basis; provided, that no such deposit shall relieve Parent of its obligation
to pay the Merger Consideration pursuant to Section 2.1(a). Notwithstand-
ing anything to the contrary in this Section 2.2, Parent and the Company
will make arrangements with the Paying Agent to the reasonable
satisfaction of Dow such that Dow, and any other stockholder of the
Company that is present at the office of the Paying Agent in person or
through a personal representative (it being understood
4
<PAGE>
that Dow need not be present at the office of the Paying Agent because it will
be present at the Closing) and gives the Company at least two days prior written
notice that it will be present at that office, will receive, as soon as possible
after the Effective Time (but in any event on the same date as the Effective
Time) in same day funds by wire transfer to such accounts as Dow or such
stockholders shall specify with at least two days prior written notice, the
Merger Consideration (in the case of Dow without any deduction or offset
whatsoever for any purpose, including deductions for withholding taxes so long
as Dow has complied with applicable tax law in completing and delivering any
required forms) for each of its or their shares of Company Common Stock
(provided that Dow and any such stockholders have surrendered the Certificates
(as defined below) for their shares of Company Common Stock to the Paying Agent
and, with respect to stockholders other than Dow, complied with the terms and
conditions of Section 2.2(b) hereof).
(b) At the Effective Time, Parent will instruct the Paying
Agent to promptly, and in any event not later than five business days
following the Effective Time, mail to each holder of record of a
certificate or certificates (other than holders who are paid on the
Closing Date pursuant to the last sentence of Section 2.2(a)), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates"), whose Shares were converted
pursuant to Section 2.1(a) into the right to receive the Merger Consideration
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by the
Company, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration for each share of Company Common Stock
formerly represented by such Certificate, to be mailed (or made available
for collection by hand if so elected by the surrendering holder) within
5
<PAGE>
three business days of receipt thereof, and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger
Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed
or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of the Paying Agent that such tax
either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate (other than Certificates
representing Company Common Stock held by Parent or Purchaser, or any
Subsidiary of Parent or Purchaser, or Dissenting Shares (as defined in
Section 2.4)) shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2. Any portion of the Exchange Fund which
remains unclaimed by the former holders of Shares for twelve months after
the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any former holders of Shares shall thereafter look only to
the Surviving Corporation for any cash to which they are entitled as a
result of the Merger. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any
former holder of Shares pursuant to this Agreement such amounts as the
Surviving Corporation is required to deduct and withhold with respect to
making such payment under the Code (as hereinafter defined), or any
provision of state, local or foreign tax law. To the extent that such
amounts are withheld by or on behalf of the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the former holder of Shares in respect of which such
deduction and withholding was made by the Surviving Corporation.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed, the Paying
Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliver-
6
<PAGE>
able in respect thereof as determined in accordance with this Article II;
provided that the Person to whom the Merger Consideration is paid shall, as a
condition precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the Certificate claimed to
have been lost, stolen or destroyed.
(d) After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger
Consideration as provided in this Article .
Section 2.3 Company Equity-Based Awards.
(a) Immediately prior to the Effective Time, each option
granted by the Company pursuant to the Destec Energy, Inc. 1990 Award and
Option Plan, as amended on February 14, 1997 (the "Stock Plan") to
purchase shares of Company Common Stock, whether or not exercisable,
which is outstanding and unexercised at such time, shall be cancelled to
the Company and each grantee thereof shall be entitled to receive
immediately prior to the Effective Time, in lieu of the shares of Company
Common Stock that would otherwise have been issuable upon exercise, an
amount in cash computed by multiplying (i) the excess, if any, of (x) the
Merger Consideration over (y) the per share exercise price applicable to
such option by (ii) the number of such shares of Company Common Stock
then subject to such option. Prior to the Closing, the Company will use
its reasonable best efforts to obtain a written acknowledgement by any
holder of an option whose per share exercise price is greater than the
Merger Consideration that the payment made pursuant to this section
2.3(a) is being made in consideration of the cancellation of such
recipient's award and other rights under the Stock Plan.
(b) Immediately prior to the Effective Time, each share of
Deferred Stock and Restricted Stock awarded
7
<PAGE>
under the Stock Plan or awarded or subject to award under the Destec Energy,
Inc. 1995 Variable Pay Plan, as amended through February 14, 1997 (the "Variable
Pay Plan"), shall become fully vested and nonforfeitable, and shall be cancelled
to the Company and each grantee thereof shall be entitled to receive immediately
prior to the Effective Time, in lieu of the shares of Company Common Stock that
would otherwise have been deliverable, an amount in cash computed by multiplying
(i) the Merger Consideration and (ii) the number of such shares of Deferred
Stock or Restricted Stock.
(c) In accordance with the terms of the Destec Energy, Inc.
Employees' Stock Purchase Plan, as amended on February 14, 1997 (the
"Stock Purchase Plan"), immediately prior to the Effective Time, (i) each
participant (a "Subscriber") in the Stock Purchase Plan shall be entitled
to receive a cash lump sum in an amount equal to the cash amounts
previously deducted from such Subscriber in respect of the current Plan
Year (as defined in the Stock Purchase Plan) and (ii) each Subscriber who
is a Subscriber as of the Change in Control Date (as defined in the Stock
Purchase Plan) shall be entitled to receive an amount in cash equal to
the product of (x) the number of shares subscribed for by such Subscriber
in respect of the Plan Year (as defined in the Stock Purchase Plan) and
(y) the excess, if any, of the Merger Consideration over the lower of the
Plan Price or the Market Price for such Plan Year (as such terms are
defined in the Stock Purchase Plan).
(d) All payments made pursuant to this Section 2.3 shall be
subject to applicable withholding taxes.
Section 2.4 Dissenter's Rights. Notwithstanding anything in
this Agreement to the contrary, Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the
Merger or consented thereto in writing and who has delivered a written
demand for appraisal of such shares in accordance with Section 262 of the
DGCL, if such Section 262 provides for appraisal rights for such Shares
in the Merger ("Dissenting Shares"), shall not be converted into the
right to receive the Merger Consideration, as provided in Section 2.1(a)
hereof, unless and until such holder fails to perfect or effectively withdraws
or otherwise loses his right to appraisal and payment under the DGCL. If,
8
<PAGE>
after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses his right to appraisal, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such
holder is entitled, without interest or dividends thereon. Dow hereby
waives any and all rights under the DGCL to make a demand for appraisal
in connection with the Merger and covenants and agrees with Parent and
Purchaser not to take any action under Section 262 of the DGCL or
otherwise that would be inconsistent with Section 6.12 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser
that:
Section 3.1 Organization. (a) The Company and each of its
Subsidiaries (as hereinafter defined) is a corporation or other entity
duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation or organization, has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and is
qualified or licensed to do business as a foreign corporation or Person
(as hereinafter defined) and is in good standing in each jurisdiction in
which the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so organized,
existing and in good standing or to have such power and authority, or to
be so qualified or licensed would not have a Material Adverse Effect. As
used in this Agreement, the term "Material Adverse Effect" shall mean a
material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole, but excluding any such
effect resulting from general economic conditions and any occurrence or
condition affecting generally the independent power industry. The Company
has previously delivered to Parent a complete and correct copy of each of
its Amended and Restated Certificate of Incorporation and By-Laws, as
currently in effect. "Subsidiary" shall mean with respect to any Person,
any
9
<PAGE>
corporation or other entity of which 50% or more of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions
with respect to such entity is directly or indirectly owned by such
Person, other than immaterial or inactive corporations or other entities
(together, the "Immaterial Subsidiaries") and, with respect to the
Company, other than Hartwell Energy Limited Partnership, Commonwealth
Atlantic Limited Partnership and Nevada Cogeneration Associates No. 2
(collectively, the "Excluded Subsidiaries"). "Person" shall mean an
individual, partnership, joint venture, trust, corporation, limited
liability company or other legal entity or Governmental Entity.
(b) Schedule 3.1 of the disclosure schedule delivered by the
Company to Parent prior to the date hereof (the "Disclosure Schedule")
lists each of the Company's Subsidiaries, together with the jurisdiction
of incorporation or organization of each such Subsidiary.
(c) None of the Immaterial Subsidiaries have liabilities or
obligations that would result in a Material Adverse Effect.
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
150,000,000 shares of Company Common Stock and 50,000,000 preferred
shares, par value $1.00 per share (the "Preferred Stock"). As of December
31, 1996, (i) 56,079,260 shares of Company Common Stock were issued and
outstanding, (ii) 6,170,740 shares of Company Common Stock were issued
and held in the treasury of the Company and (iii) there were no shares of
Preferred Stock issued and outstanding. Since December 31, 1996, the
Company has not issued any shares of capital stock of any class of the
Company other than issuances of shares of Company Common Stock pursuant
to awards under the Stock Plan, the Variable Pay Plan or the Stock
Purchase Plan outstanding as of such date. All the outstanding shares of
the Company's capital stock are duly authorized, validly issued, fully
paid and non-assessable. Except as set forth in Schedule 3.2(a) of the
Disclosure Schedule, as of the date hereof, there are no existing (i)
options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements or commitments of any
10
<PAGE>
character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in,
the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual
obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any capital stock of the Company or any
Subsidiary of the Company or (iii) voting trusts or voting or similar
agreements to which the Company is a party with respect to the voting of
the capital stock of the Company. As of the date hereof, there are no
existing awards of stock appreciation rights under the Stock Plan or the
Variable Pay Plan.
(b) Except as set forth in Schedule 3.2(b) of the Disclosure
Schedule and except for directors qualifying shares or shares issued
under similar arrangements, all of the outstanding shares of capital
stock (or equivalent equity interests of entities other than
corporations) of each of the Company's Subsidiaries are beneficially
owned, directly or indirectly, by the Company.
(c) Australian Power Partners B.V. owns a 20% partnership
interest in the Hazelwood Power Partnership and Destec Australia Energy
Finance Pty. Ltd. owns a 12.55% limited partnership interest in Hazelwood
Finance Limited Partnership.
Section 3.3 Authorization; Validity of Agreement.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval
of its stockholders as contemplated by Section 6.7 hereof, to consummate
the transactions contemplated hereby. The execution and delivery by the
Company of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors
of the Company (the "Board") and, other than approval and adoption of
this Agreement by the holders of at least 66 2/3% of the outstanding
shares of Company Common Stock, no other corporate proceedings on the
part of the Company are necessary to authorize the execution and delivery
of this Agreement by the Company and the consummation of the transactions
contemplated hereby. This Agreement has been duly exe-
11
<PAGE>
cuted and delivered by the Company and, assuming due authorization, execution
and delivery of this Agreement by Parent, Dow and Purchaser, is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
(b) The Board has duly approved the transactions contemplated
by this Agreement for the purposes of Section 203 of the DGCL such that
the provisions of Section 203 of the DGCL will not apply to the
transactions contemplated by this Agreement.
Section 3.4 No Violations; Consents and Approvals.
(a) Except as set forth in Schedule 3.4(a) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions
contemplated hereby will (i) assuming stockholder approval as
contemplated by Section 6.7 hereof has been obtained, violate any
provision of the Amended and Restated Certificate of Incorporation or
By-Laws of the Company or the equivalent organizational documents of its
Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration)
under, the provisions of any note, mortgage, indenture, guarantee, lease,
license, contract, agreement or other instrument to which the Company or
any of its Subsidiaries is a party or by which any of them or any of
their assets may be bound or (iii) assuming that all consents,
authorizations and approvals contemplated by Section 3.4(b) have been
obtained and all filings contemplated thereby have been made, violate any
order, writ, injunction, decree, statute, rule or regulation applicable
to the Company, any of its Subsidiaries or any of their assets; in each
case, except for such violations, breaches, defaults, terminations,
amendments, cancellations or accelerations which (x) would not prevent
the Merger, (y) would not result in a Material Adverse Effect or (z)
result from the regulatory status of Parent or Purchaser.
(b) Except as disclosed in Schedule 3.4(b) of the Disclosure
Schedule, no filing or registration with, notification to, or
authorization, consent or approval
12
<PAGE>
of, any U.S., state, local or foreign court, legislative, executive or
regulatory authority or agency (a "Governmental Entity") is required in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
(i) applicable requirements under Competition Laws (as defined in Section
6.5(b)), (ii) applicable requirements under the Securities Exchange Act of 1934,
as amended and the regulations thereunder (the "Exchange Act"), (iii) the filing
of the Certificate of Merger with the Secretary of State, (iv) applicable
requirements under state securities or "blue sky" laws of various states or non-
United States change-in-control or investment laws or regulations, and (v) such
other consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings (x) the failure of which to be obtained or made would
not prevent the Merger or result in a Material Adverse Effect or (y) required as
a result of the regulatory status of Parent or Purchaser.
Section 3.5 SEC Reports and Financial Statements. The Company
has filed with the Securities and Exchange Commission (the "SEC") all
reports, forms and documents required to be filed by it since January 1,
1994 under the Exchange Act and has heretofore made available to Parent
(i) its Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 and December 31, 1995, respectively, and its Amendment to its
Annual Report on Form 10-K/A for the year ended December 31, 1995, (ii)
its Quarterly Reports on Form 10-Q for the periods ended March 31, June
30 and September 30, 1996, respectively, (iii) all proxy statements
relating to meetings of stockholders of the Company since January 1, 1994
(in the form mailed to stockholders), (iv) all other forms, reports and
registration statements filed by the Company with the SEC since January
1, 1994 (other than registration statements on Form S-8 or Form 8-A,
filings on Form T-1 or preliminary materials and registration statements
in forms not declared effective) and (v) the unaudited consolidated
balance sheet as of December 31, 1996 (the "Balance Sheet"). The
documents described in clauses (i)-(iv) above are referred to in this
Agreement collectively as the "Company SEC Documents". As of their
respective dates, the Company SEC Documents (a) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or
13
<PAGE>
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act of 1933 (the "Securities Act"), as the case may be, and the applicable rules
and regulations of the SEC thereunder. The consolidated financial statements
included in the Company SEC Documents and the Balance Sheet have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except as
otherwise noted therein and except that the interim financial statements and the
Balance Sheet are subject to year end adjustment and do not contain all footnote
disclosures required by GAAP) and fairly present in all material respects the
consolidated financial position and the consolidated results of operations and
cash flows of the Company and its consolidated Subsidiaries as at the dates
thereof or for the periods presented therein. No variation in the balance sheet
included in the audited financial statements for the year ended December 31,
1996 delivered to Parent pursuant to Section 6.3 hereof from the Balance Sheet
will result in a Material Adverse Effect.
Section 3.6 Absence of Certain Changes. Except as disclosed
in the Company SEC Documents or as disclosed in Schedule 3.6 to the
Disclosure Schedule, from December 31, 1996 until the date of this
Agreement, (i) there has not been a Material Adverse Effect and (ii)(a)
the Company has not declared, set aside or paid any dividend or other
distribution with respect to its capital stock, (b) neither the Company
nor any of its Subsidiaries has issued or disposed of any additional
shares of, or securities convertible into or exchangeable for, or
options, warrants, or rights of any kind to acquire, any shares of its
capital stock of any class or any other ownership interest, other than
issuances of shares of the Company in respect of the exercise of options,
warrants or rights outstanding as of such date and other than the
issuance of shares or ownership interests in the Company or any wholly
owned Subsidiary, (c) the Company and its Subsidiaries have not incurred
any material indebtedness for borrowed money other than short term
indebtedness incurred in the ordinary course of business and indebtedness
of Subsidiaries incurred in connection with the acquisition, development,
construc-
14
<PAGE>
tion or operation of power generation or energy producing facilities, which
indebtedness is without recourse to the Company or its assets (other than the
assets or earnings of such Subsidiary or such facility), and (d) the Company has
not changed any of the accounting principles or practices used by the Company or
its Subsidiaries, except as required as a result of a change in law, SEC
guidelines or GAAP (or, if applicable with respect to Subsidiaries, applicable
foreign generally accepted accounting principles).
Section 3.7 Absence of Undisclosed Liabilities. Except as and
to the extent disclosed in the Company SEC Documents or as disclosed in
Schedule 3.7 to the Disclosure Schedule, since the date of the Balance
Sheet, the Company and its Subsidiaries have not incurred any liabilities
that would be required to be reflected or reserved against in a
consolidated balance sheet of the Company and its Subsidiaries prepared
in accordance with GAAP, except for such liabilities as would not result
in a Material Adverse Effect and except for liabilities and obligations
resulting from the execution and delivery of this Agreement or relating
to the transactions contemplated hereby.
Section 3.8 Proxy Statement. The Proxy Statement (as defined
in Section 6.7(b)) (and any amendment thereof or supplement thereto) at
the date mailed to Company stockholders and at the time of the Special
Meeting (as defined in Section 6.7(a)), (i) will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading and (ii) will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder; except that no representation is made by the Company with
respect to statements made in the Proxy Statement based on information
supplied by Parent or Purchaser for inclusion in the Proxy Statement.
Section 3.9 Employee Benefit Plans; ERISA.
(a) Schedule 3.9(a) of the Disclosure Schedule contains a
true and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase,
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stock option, restricted stock, deferred stock, stock appreciation right,
vacation policy, superannuation, severance or termination pay, hospitalization
or other medical, life or other insurance, flexible benefit, cafeteria plan,
supplemental unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to by
the Company or its Subsidiaries, for the benefit of any employee or former
employee of the Company or any of its Subsidiaries employed in the United States
(the "Plans"). Schedule identifies each of the Plans (collectively, the "ERISA
Plans") that is an "employee benefit plan," as defined in section 3(3) of the
Employee Retirement Security Income Plan of 1974, as amended ("ERISA").
(b) With respect to each Plan, the Company has heretofore
delivered or made available to Purchaser a true and complete copy of each
of the following documents:
(i) the Plan (including all amendments thereto);
(ii) the most recent annual report and actuarial report
with respect to each such Plan, if required under ERISA;
(iii) the most recent report on Form 5500 and Summary
Plan Description, together with each Summary of Material
Modifications required under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third
party funding vehicle, the trust or other funding agreement
(including all amendments thereto) and the latest financial
statements thereof; and
(v) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code").
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(c) Neither the Company nor any of its Subsidiaries sponsors,
maintains, contributes to or has any obligation with respect to a Plan
which is either a defined benefit plan or a money purchase plan or which
is subject to Title IV of ERISA.
(d) No direct or indirect liability under Title IV of ERISA
has been incurred by the Company or any of its Subsidiaries with respect
to any Plan and the Company does not reasonably expect that it or any of
its Subsidiaries will incur liabilities under such Title, other than
liabilities that would not have a Material Adverse Effect.
(e) No ERISA Plan is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any ERISA Plan a plan described
in section 4063(a) of ERISA.
(f) No ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each ERISA Plan ended prior to
the Closing Date. Each ERISA Plan intended to be "qualified" within the
meaning of section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified (or timely application has been made
therefor); to the knowledge of the Company, no event has occurred since
the date of such determination that would adversely affect such
qualification; and each trust maintained thereunder has been determined by the
Internal Revenue Service to be exempt from taxation under section 501(a) of the
Code. Except as disclosed in Schedule 3.9(f) of the Disclosure Schedule, each
Plan has been operated and administered in all material respects in accordance
with its terms and applicable law, including but not limited to ERISA and the
Code, the Company and its Subsidiaries have substantially performed all
obligations, whether arising by operation of law or by contract, required to be
performed by them in connection with the Plans, each employee benefit plan,
policy and arrangement applicable to employees of the Company and its
Subsidiaries who are employed outside of the United States has been operated and
administered in all material respects in accordance with its terms and
applicable law and the Company and its Subsidiaries have substantially performed
all obligations, whether arising by operation
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of law or by contract, required to be performed by them in connection with each
such plan, policy and arrangement, except where a failure to so operate or
administer or to perform such obligations would not result in a Material Adverse
Effect. There are no pending, or to the actual knowledge of the Company,
threatened, material claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits). Except as disclosed in Schedule 3.9(f)
of the Disclosure Schedule, as of the date hereof, there is no matter pending
(other than routine qualification determination filings) with respect to any of
the Plans before any Governmental Entity, other than matters that could not
reasonably be expected to have a Material Adverse Effect.
(g) Neither the Company nor any of its Subsidiaries, nor any
of the ERISA Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with
which the Company or any of its Subsidiaries, any of the ERISA Plans, any
such trust, or any trustee or administrator thereof, or any party dealing
with the ERISA Plans or any such trust could be subject to either (i)
breach of fiduciary duty liability damages under section 409 of ERISA,
(ii) a civil penalty assessed pursuant to section 502(c), (i) or (l) of
ERISA or (iii) a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code, except where such damages, penalty or tax would not reasonably be
expected to have a Material Adverse Effect.
(h) Except as set forth in Schedule 3.9(h) to the Disclosure
Schedule, no Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or
former employees of the Company or its Subsidiaries beyond their
retirement or other termination of service (other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension benefit plan," as that term is defined in
section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or (iv) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
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(i) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to section 501(c)(9) of the
Code, satisfies the requirements of such section and has received a
favorable determination letter from the Internal Revenue Service
regarding such exempt status.
(j) Except as disclosed in Schedule 3.9(j)(i) of the
Disclosure Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (1) require
the Company or any of its Subsidiaries to make a larger contribution to,
or pay greater benefits under, any Plan or (2) create or give rise to any
additional vested rights or service credits under any Plan. Except as
disclosed in Schedule 3.9(j)(ii) of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to any agreement, nor has
the Company or any of its Subsidiaries established any policy or
practice, requiring any such entity to make a payment or provide any
other form of compensation or benefit to any person performing services
for the Company or any of its Subsidiaries upon termination of such
services which would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement. In
connection with the consummation of the transactions contemplated by this
Agreement, no payments have or will be made hereunder, under the Plans,
or under any other agreement (including, without limitation, the
employment and severance agreements listed in Schedule 3.9(j)(iii) of
the Disclosure Schedule) which, in the aggregate, would result in impo-
sition of the sanctions imposed under sections 280G and 4999 of the Code.
(k) Schedule 3.9(k)(i) of the Disclosure Schedule contains a
true and complete list of each employment or severance agreement and, to
the actual knowledge of the Management Committee and the General Counsel,
each consulting agreement with an individual providing for payment
obligations in excess of $350,000, pertaining to any employee of the
Company or any of its Subsidiaries. The Company has heretofore delivered
or made available to Purchaser a true and complete copy of each such
employment and severance agreement. Schedule 3.9(k)(ii) of the Disclosure
Schedule sets forth by number and employment classification the
approximate numbers of employees employed by the Company and its
Subsidiaries as
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of the date of this Agreement. None of said employees are subject to union or
collective bargaining agreements with the Company or any of its Subsidiaries.
Section 3.10 Litigation; Compliance with Law.
(a) Except as set forth in Schedule 3.10 of the Disclosure
Schedule or as disclosed in the Company SEC Documents and except for
claims under Environmental Laws (which are the subject of Section 3.14),
there is no (i) suit, claim, action, proceeding or investigation (A)
pending or, to the actual knowledge of the Company, threatened, against
the Company or any of its Subsidiaries which if determined adversely to
the Company or such Subsidiaries would have a Material Adverse Effect or
(B) as of the date hereof, pending or, to the actual knowledge of the
Company, threatened, against the Company or any of its Subsidiaries which
if determined adversely to the Company or such Subsidiaries would prevent
the Merger or (ii) judgment, decree, injunction, rule or order of a
Governmental Entity or arbitrator outstanding against the Company or any
of its Subsidiaries (x) which would have a Material Adverse Effect or (y)
in effect as of the date hereof which would prevent the Merger.
(b) Except as disclosed in the Company SEC Documents and
except for Environmental Laws (which are the subject of Section 3.14), the
operations of the Company and its Subsidiaries are not being conducted in
violation of any law, statute, regulation, and judgment, decree, order or
injunction of any Governmental Entity, except where such violations would
not have a Material Adverse Effect.
(c) The Company and its Subsidiaries hold all licenses,
permits, variances and approvals of Governmental Entities necessary for
the lawful conduct of their respective businesses as currently conducted
except for licenses, permits, variances or approvals under Environmental
Laws (which are the subject of Section 3.14) and except where the failure to
hold such licenses, permits, variances or approvals would not have a
Material Adverse Effect.
Section 3.11 Intellectual Property. Except as set forth on
Schedule 3.11 of the Disclosure Schedule, the Company and its
Subsidiaries own, or possess licenses
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or other valid rights to use, all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, service marks, service mark
rights, trade secrets, applications to register, and registrations for, the
foregoing trademarks, service marks, know-how and other proprietary rights and
information (collectively, "Intellectual Property") necessary in connection with
the business of the Company and its Subsidiaries as currently conducted, except
where the failure to possess such rights or licenses or valid rights to use
would not have a Material Adverse Effect. To the actual knowledge of the
Company, except as disclosed in Schedule 3.11 of the Disclosure Schedule, (i)
the conduct of the business of the Company and its Subsidiaries as currently
conducted does not infringe upon any Intellectual Property of any third party
except where such infringement would not result in a Material Adverse Effect and
(ii) no Person is infringing upon any Intellectual Property of the Company or
its Subsidiaries except where such infringement would not result in a Material
Adverse Effect. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the loss
of, or any encumbrance on, the rights of the Company or any Subsidiary with
respect to the Intellectual Property owned or used by them, except where such
loss or encumbrance would not have a Material Adverse Effect.
Section 3.12 Significant Agreements.
(a) Schedule 3.12(a) of the Disclosure Schedule lists all
contracts, agreements and commitments between the Company or any of its
Subsidiaries, on the one hand, and on the other hand Dow or any of its
affiliates (other than the Company and its Subsidiaries) that will
survive the consummation of the Merger, excluding contracts, agreements
and commitments which collectively are immaterial to the Company and
except for this Agreement and the other agreements entered into in
connection with this Agreement (the "Dow Agreements"). The Company has
heretofore made available to Parent complete and correct copies of the
Dow Agreements and the contracts or agreements of the Company included as
exhibits to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended by the Company's Form 10-K/A (the Dow
Agreements and such other agreements and
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contracts being referred to herein as the "Significant Agreements").
(b) Except as set forth in Schedule 3.12(b) of the Disclosure
Schedule, to the knowledge of the Company each of the Significant
Agreements is in full force and effect and enforceable in accordance with
its terms; neither the Company nor any of its Subsidiaries has received
written notice of cancellation or termination of any Significant
Agreement; and there exists no event of default or occurrence, condition
or act on the part of the Company or any of its Subsidiaries or, to the
knowledge of the Company, on the part of the other parties to the
Significant Agreements which constitutes or would constitute (with notice
or lapse of time or both) a breach of or default under any of the
Significant Agreements; except where the failure to be in full force and
effect would not have, and such breaches and defaults as would not result
in, a Material Adverse Effect.
(c) Except as disclosed on Schedules 3.4(a) and Schedule
3.12(c) of the Disclosure Schedule, no consents from any third parties
under any Significant Agreements are required in connection with the
consummation of the Merger, except for such consents, which if not
received, would not result in a Material Adverse Effect or prevent the
consummation of the Merger.
(d) Other than the Significant Agreements, and any contract,
agreement or commitment previously provided or made available to Parent
or Purchaser, there are no contracts or agreements, the performance of
which would result in a Material Adverse Effect.
Section 3.13 Taxes. (a) The Company and its Subsidiaries have
(i) filed (or there have been filed on their behalf) with the appropriate
governmental authorities all material Tax Returns (as hereinafter
defined) required to be filed by them and such Tax Returns are true,
correct and complete, and (ii) paid or withheld or made provision in
accordance with GAAP (or there has been paid or provision has been made
on their behalf) for the payment of all material Taxes (as hereinafter
defined) that are due and payable or required to be withheld for all
taxable periods and portions thereof through the date hereof; (b) except
as set forth on Schedule 3.13 of the Disclosure Schedule, no federal,
state, local or foreign
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audits or other administrative proceedings or court proceedings are presently
pending with regard to any material Taxes of the Company or its Subsidiaries,
and no assessment, deficiency or adjustment has been asserted with regard to any
such Taxes that the Company and its Subsidiaries have not paid or have not made
provision for in accordance with GAAP or are contesting in good faith; (c) there
are no material liens for Taxes upon any property or assets of the Company or
any Subsidiary thereof, except for liens for Taxes not yet due and payable and
liens for Taxes that are being contested in good faith; and (d) except as set
forth on Schedule 3.13 of the Disclosure Schedule there is not in force any
extension of time for the assessment or payment of any Tax with respect to the
Company or any Subsidiary of the Company.
For purposes of this Agreement, "Taxes" shall mean any and
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, excise, stamp,
real or personal property, ad valorem, withholding, estimated, social
security, unemployment, occupation, use, service, service use, license,
net worth, payroll, franchise, severance, transfer, recording or other
taxes, assessments or charges imposed by any Governmental Entity and any
interest, penalties, or additions to tax attributable thereto. For
purposes of this Agreement, "Tax Return" shall mean any return, report or
similar statement required to be filed with respect to any Tax (including
any attached schedules), including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
Section 3.14 Environmental Matters.
(a) Except as disclosed in the Company SEC Documents or as
disclosed in Schedule 3.14(a) of the Disclosure Schedule, the Company and its
Subsidiaries are in compliance with all applicable Environmental Laws (as
hereinafter defined), which compliance includes the possession of permits
and governmental authorizations required under applicable Environmental
Laws and compliance with the terms and conditions thereof, except where
such non-compliance would not result in a Material Adverse Effect.
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(b) Except as disclosed in the Company SEC Documents or as
disclosed in Schedule 3.14(b) of the Disclosure Schedule, there are no
Environmental Claims (as hereinafter defined) pending or, to the actual
knowledge of the Company, threatened, against the Company or its
Subsidiaries that would result in a Material Adverse Effect.
(c) As of the date hereof, to the actual knowledge of the
Management Committee and the General Counsel of the Company, except as
previously disclosed or contained in materials previously provided or
made available to Parent or Purchaser, the Company and its Subsidiaries
are not subject to any remedial obligations required under Environmental
Laws that would result in a Material Adverse Effect.
(d) Parent and Purchaser acknowledge that the representations
and warranties contained in this Section 3.14 are the only representations and
warranties being made by the Company with respect to compliance with, or
liability or claims under, Environmental Laws or with respect to
permits issued or required under Environmental Laws, that no other
representation by the Company contained in this Agreement shall apply
to any such matters and that no other representation or warranty, express
or implied, is being made with respect thereto.
(e) As used in this Agreement:
(i) the term "Environmental Claim" means any claim,
action, investigation or written notice to the Company or its
Subsidiaries by any person or entity alleging potential liability
(including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, personal injuries, or penalties) arising
out of, based on, or resulting from (a) the presence, or release
into the environment, of any Hazardous Substance (as hereinafter
defined) at any location, whether or not owned or operated by the
Company or its Subsidiaries or (b) circumstances forming the basis
of any violation, or alleged violation of any applicable
Environmental Law;
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(ii) the term "Environmental Laws" means all federal,
state, local and foreign laws and regulations, decrees and legal
requirements including judicial and administrative decrees, as in
effect and as interpreted as of the date hereof, relating to
pollution or protection of the environment, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Hazardous Substances; and
(iii) the term "Hazardous Substance" means chemicals,
pollutants, contaminants, solid and hazardous wastes, hazardous and
toxic substances, and oil and petroleum products.
Section 3.15 Required Vote by Company Stockholders. The
affirmative vote of the holders of at least 66 2/3% of the outstanding
Shares entitled to vote hereon is the only vote of any class of capital
stock of the Company required by the DGCL, the Amended and Restated
Certificate of Incorporation or the By-Laws of the Company to adopt this
Agreement and approve the transactions contemplated hereby.
Section 3.16 Brokers. Except for Morgan Stanley & Co.
Incorporated, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made
by or on behalf of the Company. The Company is solely responsible for the
fees and expenses of Morgan Stanley & Co. Incorporated, the amount of
which has been previously disclosed to Parent.
Section 3.17 Public Utility Company; Public Utility
Regulatory Policies Act.
(a) Neither the Company nor any of its Subsidiaries is (i)
subject to regulation as a "holding company" or a "subsidiary company" of
a holding company or a "public utility company" under Section 2(a) of the
Public Utility Holding Company Act of 1935 ("PUHCA"), (ii) except with
respect to the Company's Subsidiaries that are "exempt wholesale
generators" (as such term is de-
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fined in Section 32 of PUHCA) or engaged in power marketing activities, subject
to regulation under the Federal Power Act, as amended ("FPA"), other than as
contemplated by 18 C.F.R. ss. 292.601(c) or 18 C.F.R. ss. 35.12 or (iii) except
with respect to the Company's Subsidiaries that are "exempt wholesale
generators" (as such term is defined in Section 32 of PUHCA) or engaged in power
marketing activities, subject to any state law or regulation with respect to
rates or the financial or organizational regulation of electric utilities, other
than as contemplated by 18 C.F.R. ss. 292.602(c).
(b) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to the
requirements under the Public Utility Regulatory Policies Act of 1978, as
amended (16 U.S.C. ss. 796, et seq.), and the regulations of the Federal
Energy Regulatory Commission ("FERC") promulgated thereunder, as amended
from time to time, necessary to be a "qualifying cogeneration facility"
and/or a "qualifying small power production facility" (the "QF Projects")
meets such requirements. Schedule 3.17(b) sets forth a complete list of
the QF Projects.
(c) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to
regulation as an "exempt wholesale generator" (as such term is defined in
Section 32 of PUHCA) ("EWG Projects") as of the date hereof meets the
requirements to maintain "exempt wholesale generator" status. A complete
list of the Company's EWG Projects is disclosed in Schedule 3.17(c) of
the Disclosure Schedule.
(d) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to
regulation as a "foreign utility company" (as such term is defined in
Section 33 of PUHCA) ("FUCO Projects") as of the date hereof meets the
requirements to maintain "foreign utility company" status. A complete
list of the Company's FUCO Projects is disclosed in Schedule 3.17(d) of
the Disclosure Schedule.
Section 3.18 Fairness Opinion. The Company has received the
opinion of Morgan Stanley & Co. Incorporated to the effect that, as of
the date hereof, the consideration to be received by the stockholders of
the
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Company in the Merger is fair to such stockholders from a financial point of
view.
Section 3.19 Excluded Subsidiaries. To the actual knowledge
of the Management Committee and the General Counsel of the Company, there
is no event or condition with respect to any Excluded Subsidiary that, if
the Excluded Subsidiaries were included in the definition of
Subsidiaries, would result in a breach of any representation or warranty
set forth in this Article III.
Section 3.20 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article III,
neither the Company nor any other Person makes any other express or
implied representation or warranty on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DOW
Dow represents and warrants to Parent and Purchaser as
follows:
Section 4.1 Organization. Dow is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
Section 4.2 Authorization; Validity of Agreement. Dow has the
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby (which,
for purposes of this Agreement shall include all of Dow's obligations
under Section 6.12 hereof). The execution and delivery by Dow of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by the board of directors of Dow and no other
corporate proceedings on the part of Dow are necessary to authorize the
execution and delivery of this Agreement by Dow and the consummation of
the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Dow and, assuming due authorization, execution
and delivery of this Agreement by the Company, Parent and Purchaser, is a
valid and binding obligation of Dow enforceable against Dow in accordance
with its terms.
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Section 4.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by
Dow nor the consummation by Dow of the transactions contemplated hereby
will (i) violate any provision of the Certificate of Incorporation or
By-Laws of Dow; (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation, or
acceleration) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebt-
edness, lease, license, contract, agreement or other instrument or
obligation to which Dow is a party or by which its assets may be bound;
or (iii) assuming that all consents, authorizations and approvals
contemplated by Section 4.3(b) below have been obtained and all filings
contemplated thereby have been made, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Dow or any of its
properties or assets; in each case, except for any such violations,
breaches, defaults, terminations, amendments, cancellations or
accelerations which would not individually or in the aggregate be
reasonably expected to prevent the consummation by Dow of the
transactions contemplated by this Agreement.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is
required in connection with the execution and delivery of this Agreement
by Dow or the consummation by Dow of the transactions contemplated
hereby, except (i) applicable requirements under Competition Laws; (ii)
applicable requirements under the Exchange Act; (iii) applicable
requirements under state securities and Blue Sky laws; (iv) applicable
requirements pursuant to (s) 203 of the FPA; and (v) such other consents,
approvals, orders, authorizations, notifications, registrations,
declarations and filings, the failure of which to be obtained or made
would not prevent the consummation by Dow of the transactions
contemplated by this Agreement.
(c) As of the date hereof, neither Dow, nor any of its
properties or assets is subject to any order, writ, judgment, injunction,
decree, determination or
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award which would prevent the consummation by Dow of the transactions
contemplated hereby.
Section 4.4 Title to Shares.
(a) The Dow Shares described in Schedule A represent all of
the Shares beneficially owned by Dow. Dow is the sole record and
beneficial owner of the Dow Shares.
(b) There are no options or rights to acquire, or any
agreements to which Dow is a party relating to, the Dow Shares, other
than this Agreement.
Section 4.5 Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Dow (it being understood that
Morgan Stanley & Co. Incorporated is acting as investment banker for the
Company and is entitled to a fee from the Company in connection with the
transactions contemplated by this Agreement).
Section 4.6 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article IV,
neither Dow nor any other Person makes any other express or implied
representation or warranty on behalf of Dow.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as
follows:
Section 5.1 Organization. Parent is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Each of Parent and
Purchaser has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted and is qualified or licensed to do business as a foreign
corporation and is
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in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so organized, existing and in good standing or to have such
power and authority, or to be so qualified or licensed would not have a material
adverse effect on the business or financial condition of Parent and its
Subsidiaries, taken as a whole, or materially impair or delay the consummation
of the transactions contemplated by this Agreement. Parent has previously
delivered to the Company complete and correct copies of its certificate of
incorporation and by-laws and the certificate of incorporation and by-laws of
Purchaser, in each case as currently in effect.
Section 5.2 Authorization; Validity of Agreement. Each of
Parent and Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by Parent and Purchaser
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of
Parent and Purchaser and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize the execution and delivery
of this Agreement by Parent and Purchaser and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Parent and Purchaser and, assuming due authorization,
execution and delivery of this Agreement by the Company and Dow, is a
valid and binding obligation of each of Parent and Purchaser enforceable
against each of them in accordance with its terms.
Section 5.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by
Parent and Purchaser nor the consummation by Parent and Purchaser of the
transactions contemplated hereby will (i) violate any provision of the
respective certificate of incorporation or by-laws of Parent or
Purchaser, (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any material note, bond, mortgage,
indenture, guarantee, other evidence of
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indebtedness, license, lease, contract, agreement or other instrument or
obligation to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their assets may be bound or (iii) assuming that all consents,
authorizations and approvals contemplated by Section 5.3(b) have been obtained
and all filings contemplated thereby have been made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets; except for such violations,
breaches, defaults, terminations, amendments, cancellations or accelerations
which would not materially impair or delay the consummation of the transactions
contemplated by this Agreement.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is
required in connection with the execution and delivery of this Agreement
by Parent and Purchaser or the consummation by Parent and Purchaser of
the transactions contemplated hereby, except (i) applicable requirements
under Competition Laws, (ii) applicable requirements under the Exchange
Act, (iii) the filing of the Certificate of Merger with the Secretary of
State, (iv) applicable requirements under state securities or "blue sky"
laws of various states or non-United States change-in-control laws or
regulations, (v) applicable requirements pursuant to ss. 203 of the FPA
and (vi) such other consents, approvals, orders, authorizations,
notifications, registrations, declarations and filings the failure of
which to be obtained or made would not materially impair or delay the
consummation of the transactions contemplated by this Agreement.
Section 5.4 Proxy Statement. None of the information supplied
by Parent or Purchaser for inclusion in the Proxy Statement (including
any amendments or supplements thereto) will, at the date mailed to
stockholders and at the time of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
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Section 5.5 Interim Financial Condition. The unaudited
balance sheet of Parent for the interim period ending September 30, 1996
has been prepared in accordance with GAAP (except as otherwise noted
therein and except that the unaudited balance sheet is subject to
year-end adjustment and does not contain all footnote disclosures
required by GAAP) and fairly presents in all material respects the
financial position of Parent as of the date thereof. Since such date,
there has not been an adverse effect in Parent's financial condition that
would materially adversely affect the ability of Parent or Purchaser to
consummate the Merger.
Section 5.6 Financing. Parent and Purchaser will have
sufficient funds available (through existing credit arrangements or
otherwise) at the Closing to pay the Merger Consideration and to perform
their obligations hereunder and the obligations of the Surviving
Corporation and its Subsidiaries following the Effective Time.
Section 5.7 Surviving Corporation After the Merger. At and
immediately after the Effective Time, and after giving effect to the
Merger and the other transactions contemplated in connection therewith
(and any changes in the Surviving Corporation's assets and liabilities as
a result thereof), the Surviving Corporation will not (i) be insolvent
(either because its financial condition is such that the sum of its debts
is greater than the fair value of its assets or because the present fair
saleable value of its assets will be less than the amount required to pay
its probable liabilities on its debts as they mature), (ii) have
unreasonably small capital with which to engage in its business or (iii)
have incurred or plan to incur indebtedness beyond its ability to pay
such debts as they mature.
Section 5.8 Beneficial Ownership of Shares; Interested
Stockholder. None of Parent, Purchaser or any of their respective
affiliates or associates beneficially owns more than 5% of the
outstanding shares of Company Common Stock or any securities convertible
into or exchangeable for Company Common Stock.
Section 5.9 Brokers. Except for Chase Securities Inc., no
broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contem-
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plated by this Agreement based upon arrangements made by or on behalf of Parent
and Purchaser. Parent and Purchaser are solely responsible for the fees and
expenses of Chase Securities Inc.
Section 5.10 Public Utility Company; Public Utility
Regulatory Policies Act.
(a) Neither Parent, Purchaser nor any of their respective
Subsidiaries is (i) subject to regulation as a "holding company" or a
"subsidiary company" of a holding company or a "public utility company"
under Section 2(a) of the PUHCA, (ii) except with respect to their power
marketing activities, subject to regulation under the FPA, other than as
contemplated by 18 C.F.R. (s) 292.601(c) or (iii) subject to any state
law or regulation with respect to rates or the financial or
organizational regulation of electric utilities, other than as contem-
plated by 18 C.F.R. (s) 292.602(c).
(b) Neither Parent, Purchaser nor any of their respective
Subsidiaries is engaged in any activities that would require any filing
with, or receipt of regulatory approvals from, the Federal Energy
Regulatory Commission under (s)(s) 203 (except with respect to their
power marketing activities), 204 or 205 of the FPA in connection with
the consummation of the transactions contemplated by this Agreement.
Section 5.11 Absence of Litigation. As of the date hereof,
there is no suit, claim, action, proceeding or investigation pending
against, or to the actual knowledge of Parent and Purchaser, threatened
against, Parent or Purchaser or any of their respective properties before
any Governmental Entity or arbitrator which challenges or seeks to
prevent, enjoin, alter or delay the Merger or any of the other
transactions contemplated by this Agreement. As of the date hereof,
neither Parent nor Purchaser nor any of their respective properties is
subject to any judgment, decree, order or injunction of any Govern-
mental Entity or arbitrator which would prevent or delay the consummation
of the transactions contemplated hereby.
Section 5.12 No Prior Activities. Since the date of its
incorporation, Purchaser has not engaged in any activities other than
in connection with or as contemplated by this Agreement or in connection
with arrang-
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ing any financing required to consummate the transactions contemplated hereby.
Section 5.13 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article V,
neither Parent, Purchaser nor any other Person makes any other express or
implied representation or warranty on behalf of Parent or Purchaser.
ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company. The Company
covenants and agrees that after the date hereof and prior to the
Effective Time, except as (i) contemplated by this Agreement, (ii)
required by applicable law, by any Significant Agreement or by any Plan
disclosed on Schedule 3.9(a) of the Disclosure Schedule or (iii) agreed
to in writing by Parent:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course and, to the extent consistent
therewith, the Company shall use its reasonable best efforts to preserve
its business organization and the business organization of its
Subsidiaries intact and maintain existing relations with customers,
suppliers and employees;
(b) the Company shall not amend its Amended and Restated
Certificate of Incorporation or By-Laws and shall not authorize or vote
in favor of, directly or indirectly, any amendment by its Subsidiaries of
their respective organizational documents;
(c) the Company shall not declare, set aside or pay any
dividend or other distribution with respect to its capital stock; and
neither the Company nor its Subsidiaries shall (i) issue or dispose of
any additional shares of, or securities convertible into or exchangeable
for, or options, warrants, or rights to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries other than
issuances of shares of Company Common Stock pursuant to securities,
options, warrants, calls, commitments or rights existing at the date
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hereof and disclosed to Purchaser in writing (including as disclosed in
the Company SEC Documents); or (ii) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock;
(d) Neither the Company nor its Subsidiaries shall incur any
indebtedness for borrowed money other than (i) short term indebtedness
incurred in the ordinary course of business (ii) indebtedness of
Subsidiaries incurred in connection with the acquisition, development,
construction or operation of power generation or energy producing
facilities, which indebtedness is without recourse to the Company or its
assets (other than the assets or earnings of such Subsidiary or such
facility), and (iii) other indebtedness not in excess of $15 million in
the aggregate;
(e) except as set forth in Schedule 6.1(e) of the Disclosure
Schedule, neither the Company nor its Subsidiaries shall (i) except for
increases in the ordinary course of business consistent with past
practice or to reflect promotions, grant any material increase in the
compensation payable or to become payable by the Company or any of its
Subsidiaries to any employee; (ii) adopt or otherwise materially
increase, or accelerate the payment or vesting of the amounts payable
under any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock appreciation right,
restricted stock purchase, insurance, pension, retirement or other
employee benefit plan agreement or arrangement; or (iii) enter into or
amend in any material respect any existing employment or severance
agreement or consulting agreement with any individual consultant (which
consulting agreement provides for payments in excess of $350,000) or,
except in accordance with the existing written policies of the Company,
existing contracts or agreements or in the ordinary course of business
consistent with past practice, grant any severance or termination pay to
any officer, director, employee or individual consultant of the Company
or any of its Subsidiaries;
(f) neither the Company nor its Subsidiaries shall change the
accounting principles used by it unless required by law, SEC guidelines
or GAAP (or, if applicable with respect to Subsidiaries, applicable
foreign generally accepted accounting principles);
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(g) The Company shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire any material assets except
in the ordinary course of business or incur or commit to incur, or
consent to the incurrence by any of the Excluded Subsidiaries, of any
capital expenditures (as such term is defined under GAAP) not included in
the 1997 project financial models previously provided to Parent except
for such capital expenditures not in excess of $1 million per project or
more than $15 million in the aggregate; and
(h) The Company shall not permit any individual to subscribe
for any additional shares of Company Common Stock under the Stock
Purchase Plan.
(i) neither the Company nor its Subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the
foregoing.
Section 6.2 Acquisition Proposals.
(a) The Company and its Subsidiaries will not, directly or
indirectly through their respective officers, directors, employees,
representatives and agents, (i) initiate, facilitate, encourage or
solicit the making of any Acquisition Proposal (as hereinafter defined)
or (ii) except as permitted below, engage in negotiations or discussions
with, or furnish any non-public information to, any third party relating
to an Acquisition Proposal. Notwithstanding anything to the contrary
contained in this Agreement, at any time prior to the approval of the
Merger by the Company's stockholders the Company and the Board (i) may
participate in negotiations or discussions (including, as a part thereof,
making any counterproposal) with or furnish information to any third
party that delivers a written Acquisition Proposal to the Company which
was not solicited or encouraged after the date hereof if the Board
determines in good faith, after consultation with its outside counsel,
that the failure to participate in such discussions or negotiations or to
furnish such information could reasonably be expected to constitute a
breach of the Board's fiduciary duties under applicable law and (ii)
without qualifying the obligations of the Company pursuant to Section
6.7(a) hereof, shall be permitted to (x) take and disclose to the
Company's stockholders a position with respect to the Merger or another
Acquisition Proposal, or amend or with-
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draw such position, pursuant to Rules 14d-9 and 14e-2 under the Exchange Act or
(y) make disclosure to the Company's stockholders, in each case if the Board
determines in good faith, after consultation with its outside counsel, that the
failure to take such action could reasonably be expected to constitute a breach
of the Board's fiduciary duties under, or otherwise violate, applicable law. The
Company, Dow and their respective Subsidiaries, officers, directors, employees,
representatives and agents shall immediately cease all existing activities,
discussions and negotiations with any parties other than Parent and The AES
Corporation ("AES") conducted heretofore with respect to an Acquisition
Proposal.
(b) The Company shall promptly advise Parent in writing of
any inquiries or proposals relating to an Acquisition Proposal and any
actions taken pursuant to Section 6.2(a) (including the material terms
thereof and the identity of the other parties involved).
(c) Any action by the Board pursuant to the second sentence
of Section 6.2(a) shall not change the approval of the Board with respect
to this Agreement for purposes of Section 203 of the DGCL.
(d) For purposes of this Agreement, "Acquisition Proposal"
shall mean any proposal made by a third party relating to (i) a merger,
recapitalization, share exchange, consolidation, business combination,
sale of shares of capital stock or securities convertible into or
exercisable or exchangeable for capital stock, tender offer or exchange
offer or similar transaction involving the Company including, without
limitation, any single or multi-step transaction or series of related
transactions or, (ii) the acquisition of any material portion of the
business or assets of the Company and its Subsidiaries or (iii) any
public announcement of a proposal, plan or intention to do any of the
foregoing, in each case other than the transactions contemplated by this
Agreement and other than the transactions related to the Company's
disposition of its interest in the Tiger Bay project partnership to
Florida Power Corporation or its affiliates.
Section 6.3 Audited Financial Statements. The Company will
deliver to Parent a copy of audited finan-
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cial statements for the year ended December 31, 1996 (and any consolidating
financial statements used in the preparation thereof) promptly after such
audited financial statements have been made publicly available.
Section 6.4 Access to Information. From the date of this
Agreement until the Effective Time, the Company shall afford to Parent
and its authorized representatives and, solely with respect to the
international operations of the Company and its Subsidiaries, to AES and
its authorized representatives, reasonable access during normal business
hours upon reasonable prior notice to all of its books and records and,
during such period, the Company shall furnish promptly to Parent or AES,
as applicable, such financial data and other information concerning its
business, properties and personnel as Parent or AES may reasonably
request. Parent or AES and their respective authorized representatives
will conduct all such inspections in a manner which will minimize any
disruptions of the business and operations of the Company and its
Subsidiaries. Until the Effective Time, Parent and Purchaser and AES will
hold any such information in accordance with the provisions of the
confidentiality agreement between the Company and Parent, dated as of
November 6, 1996, or between the Company and AES, dated as of October 24,
1996, (as the case may be "Confidentiality Agreements"), and will cause
such information to be so held by their Representatives (as defined in
the Confidentiality Agreement). Upon a termination of this Agreement
pursuant to Section 8.1, Parent, Purchaser, AES and their respective
Representatives shall return (and hold confidential) all information
provided pursuant to this Section 6.4 and all other Information (as
defined in the Confidentiality Agreements) pursuant to the procedures set
forth in the Confidentiality Agreements. The foregoing shall not require
the Company to permit any inspection or to disclose any information which
in the reasonable judgment of the Company would result in the disclosure
of any trade secrets of third parties or violate any obligation of the
Company with respect to confidentiality if the Company shall have used
its reasonable best efforts to obtain the consent of such third party to
such inspection or disclosure.
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Section 6.5 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions herein
provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using reasonable best efforts
to obtain all necessary authorizations, consents and approvals, and to
effect all necessary registrations and filings. Each of the parties
hereto will furnish to the other parties such necessary information and
reasonable assistance as such other parties may reasonably request in
connection with the foregoing and will provide the other parties with
copies of all filings made by such party with any Governmental Entity or
any other information supplied by such party to a Governmental Entity in
connection with this Agreement, and the transactions contemplated hereby.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of the Surviving Corporation shall take
or cause to be taken all such necessary action. In addition, the Company
agrees to use its reasonable best efforts to assist AES in obtaining any
necessary authorization, consent and approval with respect to a sale
after the Effective Time by Parent or Purchaser to AES of any assets
relating to the international operations of the Company and its Subsid-
iaries.
(b) Parent, Purchaser, Dow and the Company shall use their
respective reasonable best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated hereby
under the laws, rules, guidelines or regulations of any Governmental
Entity. Without limiting the foregoing, each of the parties shall
cooperate in good faith and consult with each other with respect to
filings, communications, agreements, arrangements or consents, written or
oral, formal or informal, with the FERC and shall further use their
reasonable best effort to obtain any approvals required to be received
from the FERC in connection with the consummation of the transactions
contemplated by this Agreement.
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(c) Without limiting Section 6.5(b), Dow and Parent shall, as
soon as practicable, file Notification and Report Forms under the HSR Act
(as defined below) with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust
Division") and shall use reasonable best efforts to respond as promptly
as practicable to all inquiries received from the FTC or the Antitrust
Division for additional information or documentation; and Parent and
Purchaser shall use their reasonable best efforts to take or cause to be
taken all actions necessary, proper or advisable to obtain any consent,
waiver, approval or authorization relating to any Competition Law that is
required for the consummation of the transactions contemplated by this
Agreement, provided, however, that the foregoing shall not obligate
Parent or Purchaser to take any action which would have a material
adverse effect on the combined businesses of the Company and its
Subsidiaries, and Parent and its affiliates, taken as a whole.
"Competition Laws" means federal, state, local or foreign statutes,
rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of
monopolization, lessening of competition or restraint of trade and
includes the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
Section 6.6 Employee Benefits.
(a) Parent and Purchaser hereby agree to honor without
modification or contest, and agree to cause the Surviving Corporation to
honor without modification or contest, and to make required payments when
due under, all Plans and other agreements listed on Schedule 3.9(k) of
the Disclosure Schedule in existence as of the date hereof (or as
modified to the extent permitted by Section 6.1); provided, however, that
nothing herein shall be construed as preventing Parent from amending or
terminating any Plan, to the extent permitted under the terms of such
Plan. Purchaser and Parent hereby acknowledge that, notwithstanding the
terms of any Plan or award or agreement entered into thereunder, the
Merger constitutes a "Change in Control" for purposes of such Plans,
awards and agreements and agree to abide by the provisions of any Plan
which relate to a Change in Control, including the accelerated vesting
and/or payment of equity-based
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awards under the Stock Plan, Variable Pay Plan and the Stock Purchase Plan.
(b) Parent and Purchaser hereby agree that, for a period of
one year immediately following the Effective Time, they shall, or shall
cause the Surviving Corporation to either (i) continue to maintain the
employee benefit plans, policies and arrangements established,
maintained or contributed to by the Company or its Subsidiaries for the
benefit of the employees and former employees of the Company and its
Subsidiaries (whether employed in the U.S. or outside the U.S.) on terms
no less favorable in the aggregate than those provided on the date
hereof to such employees and former employees of the Company and its
Subsidiaries or (ii) provide that such employees and former employees
of the Company and its Subsidiaries may participate in analogous plans of
Parent which provide benefits which in the aggregate are substantially
similar to those provided to them under such plans on the date hereof
(such analogous plans being referred to herein as the "Parent Plans").
(c) Parent and Purchaser agree that for purposes of all plans
referred to in Section 6.6(b) and Parent Plans (including all policies
and employee fringe benefit programs, including vacations, of the
Surviving Corporation) under which an employee's benefit depends, in
whole or in part, on length of service, credit will be given to
individuals employed by the Company and its Subsidiaries as of the
Effective Time ("Company Employees") for service previously credited with
the Company or its Subsidiaries prior to the Effective Time, provided,
that such crediting of service does not result in duplication of
benefits, and provided that such crediting of service shall not be given
for benefit accrual purposes under any defined benefit plan. Company
Employees shall also be given credit for any deductible or co-payment
amounts paid in respect of the Plan year in which the Effective Time
occurs, to the extent that, following the Effective Time, they
participate in any Parent Plan for which deductibles or co-payments are
required. Parent and Purchaser shall also cause each Parent Plan to waive
(i) any preexisting condition restriction which was waived under the
terms of any analogous Plan immediately prior to the Effective Time or
(ii) waiting period limitation which would otherwise be applicable to a
Company Employee on or after the Effective Time to the extent
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such Company Employee had satisfied any similar waiting period limitation under
an analogous Plan prior to the Effective Time.
Section 6.7 Stockholders' Meeting; Proxy Statement.
(a) The Company shall, in accordance with applicable federal
securities laws, the DGCL, the Amended and Restated Certificate of
Incorporation and the By-laws of the Company, duly call, give notice of,
convene and hold a special meeting of its stockholders (the "Special
Meeting") as promptly as practicable after the date hereof for the
purpose of considering and taking action upon this Agreement and such
other matters as may be appropriate at the Special Meeting.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not take any action which interferes with the convening of the
Special Meeting or the taking of a stockholders' vote at that meeting.
(b) The Company shall prepare and file with the SEC, and
Parent, Dow and Purchaser shall cooperate with the Company in such
preparation and filing, a preliminary proxy statement or information
statement relating to this Agreement and the transactions contemplated
hereby and use its reasonable best efforts to furnish the information
required to be included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement
and, promptly after the completion of any SEC review or notification from
the SEC that the preliminary proxy materials will not be subject to
comment, cause a definitive proxy statement or information statement (the
"Proxy Statement") to be mailed to its stockholders. Subject to the
fiduciary obligations of the Board under applicable law, the Company
shall include in the Proxy Statement the recommendation of the Board that
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby.
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(c) Parent agrees that (i) it will provide the Company with
all information concerning Parent or Purchaser necessary or appropriate
to be included in the Proxy Statement and (ii) at the Special Meeting or
any postponement or adjournment thereof (or at any other meeting at which
the Merger or this Agreement are considered by stockholders), it will
vote, or cause to be voted, all of the Shares then owned by, or with
respect to which proxies are held by it, Purchaser or any of its other
Subsidiaries and affiliates, if any, in favor of the approval and
adoption of this Agreement.
(d) The Company, Parent and Purchaser shall cooperate with one
another in the preparation and filing of the Proxy Statement and shall use
their reasonable best efforts to promptly obtain and furnish the
information required to be included in the Proxy Statement and to respond
promptly to any comments or requests made by the SEC with respect to the
Proxy Statement. Each party hereto shall promptly notify the other parties
of the receipt of comments of, or any requests by, the SEC with respect to
the Proxy Statement, and shall promptly supply the other parties with
copies of all correspondence between such party (or its representatives)
and the SEC (or its staff) relating thereto. The Company, Parent and
Purchaser each agree to correct any information provided by it for use in
the Proxy Statement which shall have become, or is, false or misleading.
Section 6.8 Directors' and Officers' Insurance and
Indemnification.
(a) The Certificate of Incorporation and By-laws of the
Surviving Corporation shall contain provisions with respect to
indemnification set forth in Article VI of the Company's Amended and
Restated Certificate of Incorporation and Article VII of the Company's
By-laws on the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after
the Effective Time (or, in the case of matters occurring prior to the
Effective Time which have not been resolved prior to the sixth
anniversary of the Effective Time, until such matters are finally
resolved), in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Effective Time
were directors or officers of the Company in respect of actions or
omissions occurring at or prior
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to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement).
(b) Parent agrees that at all times after the Merger it shall
indemnify, or shall cause the Surviving Corporation and its Subsidiaries
to indemnify, each person who is now, or has been at any time prior to
the date hereof, an employee, director or officer of the Company or of
any of the Company's Subsidiaries (individually an "Indemnified Party"
and collectively the "Indemnified Parties"), to the full extent permitted
by applicable law, with respect to any claim, liability loss, damage,
cost or expense, whenever asserted or claimed ("Indemnified Liability"),
based in whole or in part on, or arising in whole or in part out of, any
matter existing or occurring at or prior to the Effective Time; provided,
however, that such indemnity for any such employee seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such employee shall be required only if such proceeding (or
part thereof) was authorized by Parent, the Surviving Corporation or a
Subsidiary thereof employing such employee; and provided, further, that
notwithstanding the immediately preceding clause if a written claim
received from or on behalf of an indemnified party is not paid in full
within ninety days after such receipt, the claimant may at any time
thereafter bring suit against the Surviving Corporation or Parent to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. Parent shall, and shall cause the Surviving
Corporation to, maintain in effect for not less than six years after the
Effective Time policies of directors' and officers' liability insurance
with a coverage amount of $75 million and equivalent in all other
material respects to those maintained by or on behalf of the Company and
its Subsidiaries on the date hereof (and containing terms and conditions
which are no less advantageous to the persons currently covered by such
policies as insured) with respect to matters existing or occurring at or
prior to the Effective Time.
(c) Without limiting the foregoing, in the event any
Indemnified Party becomes involved in any capacity in any action,
proceeding or investigation based in whole or in part on, or arising in
whole or in part out of, any matter, including the transactions
contem-
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plated hereby, existing or occurring at or prior to the Effective Time, then to
the extent permitted by law Parent shall, or shall cause the Surviving
Corporation to, periodically advance to such Indemnified Party its legal and
other expenses (including the cost of any investigation and preparation incurred
in connection therewith), subject to the provision by such Indemnified Party of
an undertaking to reimburse the amounts so advanced in the event of a final
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto. Promptly after receipt by an Indemnified Party of
notice of the assertion (an "Assertion") of any claim or the commencement of any
action against him in respect to which indemnity or reimbursement may be sought
against Parent, the Company, the Surviving Corporation or a Subsidiary of the
Company or the Surviving Corporation ("Indemnitors") hereunder, such Indemnified
Party shall notify any Indemnitor in writing of the Assertion, but the failure
to so notify any Indemnitor shall not relieve any Indemnitor of any liability it
may have to such Indemnified Party hereunder except to the extent that such
failure shall have materially and irreversibly prejudiced Indemnitor in
defending against such Assertion. Indemnitors shall be entitled to participate
in and, to the extent Indemnitors elect by written notice to such Indemnified
Party within 30 days after receipt by any Indemnitor of notice of such
Assertion, to assume the defense of such Assertion, at their own expense, with
counsel chosen by Indemnitors and reasonably satisfactory to such Indemnified
Party. Notwithstanding that Indemnitors shall have elected by such written
notice to assume the defense of any Assertion, such Indemnified Party shall have
the right to participate in the investigation and defense thereof, with separate
counsel chosen by such Indemnified Party, but in such event the fees and
expenses of such counsel shall be paid by such Indemnified Party unless such
separate counsel is required due to a conflict of interest, in which case the
Indemnitors shall be responsible for the fees and expenses of separate counsel.
No Indemnified Party shall settle any Assertion without the prior written
consent of Parent, which shall not be unreasonably withheld, nor shall any
Indemnitors settle any Assertion without either (i) the written consent of all
Indemnified Parties against whom such Assertion was made, or (ii) obtaining an
unconditional general release from the party making
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the Assertion for all Indemnified Parties as a condition of such settlement.
(d) The provisions of this Section 6.8 are intended for the
benefit of, and shall be enforceable by, the respective Indemnified
Parties.
Section 6.9 Publicity. None of the Company, Parent, Dow,
Purchaser nor any of their respective affiliates shall issue or cause the
publication of any press release or other announcement with respect to
this Agreement, the Merger or the other transactions contemplated hereby
or thereby without prior consultation with the other parties, except as
may be required by law or by any listing agreement with a national
securities exchange after prior notice has been given to, and all
reasonable efforts have been made to consult with the other parties.
Section 6.10 No Solicitation. Dow agrees that, for a period
commencing on the date hereof and ending on the first anniversary of the
Closing Date, it will not to the knowledge of the elected officers of
Dow, directly or indirectly, solicit for employment any employee of the
Company or any of its Subsidiaries.
Section 6.11 Certain Arrangements. (a) Upon the Effective
Time, the Company and Dow shall cause to be terminated the agreements set
forth in Schedule 6.11(a) of the Disclosure Schedule. Except as provided
in the immediately preceding sentence or if terminated pursuant to their
respective terms, the Dow Agreements in effect immediately prior to the
consummation of the Merger shall continue in full force and effect
following the Effective Time, in accordance with their terms.
(b) Upon the Effective Time, Parent and Purchaser shall cause
Dow to be released as an obligor under the arrangements set forth in
Schedule 6.11(b) of the Disclosure Schedule including agreeing that
Parent shall become liable for or cause another to become liable for such
obligation.
(c) Effective as of the purchase by Purchaser of the Dow
Shares, Dow and its Subsidiaries, on the one hand, and the Company and
its Subsidiaries, on the other hand, shall settle and repay all
outstanding intercompany
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obligations between them for borrowed money, in accordance with the terms of
such obligations.
Section 6.12 Voting Agreement.
(a) For so long as this Agreement is in effect, Dow shall
vote, or cause to be voted, all of the Dow Shares in favor of the
approval and adoption of this Agreement and the transactions contemplated
thereby.
(b) For so long as this Agreement is in effect, in any
meeting of the stockholders of the Company, however called, and in any
action by consent of the stockholders of the Company, Dow shall vote or
cause to be voted all of Dow's Shares against: (i) any Acquisition
Proposal; (ii) any other proposed corporate action of the Company
requiring stockholder approval that would prevent or materially delay the
consummation of the transactions contemplated by this Agreement; or (iii)
any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation of the
Company or Dow under this Agreement.
Section 6.13 Employee Benefits Indemnification. With respect
to claims made within three years after the Effective Time, from and
after the Effective Time, Dow shall be liable for, and shall indemnify
the Company and its Subsidiaries for and hold such entities harmless
against any obligations arising out of any employee benefit plans (within
the meaning of section 3(3) of ERISA) established, maintained or
contributed to by Dow or any corporation (other than the Company or any
of its Subsidiaries), trade, business, or entity under common control
with Dow, within the meaning of Section 414(b), (c), (m) or (o) of the
Code or section 4001 of ERISA.
Section 6.14 The Dow Shares. Dow agrees not to (either
directly or indirectly): (i) sell, transfer, pledge, assign, hypothecate
or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
assignment, hypothecation or other disposition of the Dow Shares
(including, without limitation, through the disposition or transfer of
control of another person); (ii) grant any proxies with respect to the
Dow Shares, deposit
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the Dow Shares into a voting trust or enter into a voting agreement with respect
to any of the Dow Shares; or (iii) take any action which would be reasonably
expected to make any representation or warranty of Dow herein untrue or
incorrect in any material respect.
Section 6.15 Acquisition Proposals.
(a) Dow will not, directly or indirectly through any officer,
director, employee, representative, or agent (i) initiate, facilitate,
encourage or solicit the making of any Acquisition Proposal, (ii) engage
in negotiations or discussions with, or furnish any non-public
information to, any third party relating to an Acquisition Proposal, or
(iii) agree to or approve any Acquisition Proposal; provided, that Dow
shall not be deemed to have breached its obligations contained in this
Section 6.15 by reason of any action taken by the Company or its Board
permitted by the second sentence of Section 6.2(a) of this Agreement.
(b) Dow shall immediately advise Parent in writing of the
receipt by Dow of any inquiries or proposals relating to an Acquisition
Proposal.
Section 6.16 Tax Matters.
(a) Dow and Parent shall make a joint election for the
Company (and all U.S. corporations that are Subsidiaries of the Company)
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended
(the "Code") and under any applicable similar provisions of state or
local law with respect to the purchase of the Dow Shares or any deemed
purchase of such Subsidiaries (collectively, the "Section 338(h)(10)
Elections"). On the Closing Date, Dow and Parent shall exchange completed
and executed copies of Internal Revenue Service Form 8023-A and any
similar state or local forms (collectively, the "Forms"). If any changes
are required in the Forms as a result of information which is first
available after such Forms are prepared, the parties will promptly agree
on such changes. After all required schedules to support the Forms are
completed, Dow and Parent shall file the Forms, which filing shall be
made within the time period specified under applicable law. Dow, Parent,
and the Company shall make all required filings relating to the Section
338(h)(10) Elections in connection with
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<PAGE>
their federal and applicable state and local income tax returns, and shall
cooperate fully with each other with respect to such filings.
Within 180 days following the Closing Date, Parent shall (i)
draft a schedule (the "Allocation Schedule") allocating the Modified
Adjusted Deemed Sales Price (as defined in Section 1.338(h)(10)-1(f) of
the Treasury regulations) and the Adjusted Deemed Sales Price (as defined
in Section 1.338-3(d) of the Treasury regulations) for the Company and
each Subsidiary for which Section 338(h)(10) Elections or elections under
Section 338(g) of the Code will be made, among the assets of the Company
and each such Subsidiary and (ii) deliver such Allocation Schedule to
Dow. The Allocation Schedule shall be reasonable and shall be prepared in
accordance with Section 338(h)(10) of the Code and the Treasury
regulations thereunder. Each of Parent, on the one hand, and Dow (upon
its consent to the Allocation Schedule, which consent shall not be
unreasonably withheld) on the other hand, shall report the transactions
contemplated hereby, and file all Tax Returns, in each case, for federal,
state, local and foreign Tax purposes in accordance with the Allocation
Schedule.
(b) Nothing contained herein shall be construed as altering
the rights, obligations and duties of Dow, the Company and any
Subsidiaries of the Company to each other pursuant to the Tax Sharing
Agreement between Dow and the Company and its Subsidiaries dated May 15,
1996 (the "Tax Sharing Agreement") previously disclosed to Parent and
Purchaser. The Tax Sharing Agreement shall continue to govern the rights
and obligations of the Company and Dow with respect to the taxable
periods for which it is effective. The Tax Sharing Agreement shall be
amended effective as of the Closing Date in the form of the First
Amendment to the Tax Sharing Agreement which has been previously
distributed to Parent.
Parent shall pay or cause the Company to pay to Dow all
amounts required to be paid to Dow under the Tax Sharing Agreement. Dow
shall pay to the Company all amounts Dow is required to pay to the
Company under the Tax Sharing Agreement.
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(c) (i) Dow shall be liable for, and shall indemnify Parent
and Purchaser for and hold Parent and Purchaser harmless against (A) all
income Taxes imposed for any taxable year on Dow's "affiliated group" (as
defined in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or
unitary group for state, local or foreign tax purposes that includes Dow
and (B) any incremental amount of state and local income Taxes (not
including the use of any losses or other Tax attributes) imposed on the
Company and its Subsidiaries (other than any amount of state or local
Taxes imposed on a combined or unitary group that includes Dow) for the
taxable year that includes the Closing Date, to the extent that such
amount is incurred as a result of the Section 338(h)(10) Elections or any
election under Section 338(g) of the Code. Dow shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for
which Dow is liable to Purchaser pursuant to this paragraph (c)(i) of
this Section 6.16.
(ii) Parent and Purchaser shall be liable for, and shall
indemnify Dow for and hold Dow harmless against, all Taxes of or imposed
on the Company or any Subsidiary of the Company for any taxable period
other than those Taxes referred to in paragraph (c)(i) of this Section
6.16. Parent shall be entitled to any refund of (or credit for) Taxes
allocable or attributable to Taxes for which Parent is liable to Dow
pursuant to this paragraph (c)(ii) of Section 6.16.
(iii) Notwithstanding anything to the contrary contained
herein, Parent shall assume and pay all sales, use, privilege, transfer,
stock transfer, real property transfer, documentary, gains, stamp,
duties, recording and similar Taxes and fees (including any penalties,
interest or additions) imposed upon any party incurred in connection with
any of the transactions contemplated by this Agreement (collectively,
"Transfer Taxes") except for such Transfer Taxes imposed on Dow with
respect to the sale of the Dow Shares, and Parent shall, at its own
expense, accurately file all necessary Tax Returns and other
documentation with respect to any Transfer Tax other than Tax Returns
which Dow is responsible for filing under applicable law. Parent and Dow
agree to timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an
50
<PAGE>
exemption from (or otherwise reduce), or file Tax Returns with respect to, such
Transfer Taxes.
(d) (i) Dow shall file or cause to be filed when due all Tax
Returns Dow has elected to file pursuant to the Tax Sharing Agreement and
Dow shall remit or cause to be remitted any Taxes due in respect of such
Tax Returns, and Parent shall file or cause to be filed when due all Tax
Returns other than those Tax Returns Dow has elected to file pursuant to
the Tax Sharing Agreement that are required to be filed by or with
respect to the Company and each of its Subsidiaries and Parent shall
remit or cause to be remitted any Taxes due in respect of such Tax
Returns.
(ii) None of Parent or any affiliate of Parent shall (or
shall cause or permit the Company or any of its Subsidiaries to) amend,
refile or otherwise modify any Tax Return relating in whole or in part to
the Company or any of its Subsidiaries with respect to any taxable year
or period ending on or before the Closing Date without the prior written
consent of Dow.
(iii) Parent shall promptly cause the Company and each
Subsidiary to prepare and provide to Dow all Tax information materials,
including, without limitation, schedules and work papers which the
Company is required to provide Dow pursuant to the Tax Sharing Agreement.
Each of Dow and Parent shall (and shall cause their respective affiliates
to): (A) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
clause (i) of this Section 6.16(d), (B) cooperate fully in preparing for
any audits of, or disputes with taxing authorities regarding, any Tax
Returns of the Company and each Subsidiary of the Company, and (C) make
available to the other party and to any taxing authority as reasonably
requested all information, records, and documents relating to Taxes of
the Company and each Subsidiary of the Company, provided, Dow or Parent
(or respective affiliates) has access to information, records or
personnel concerning such Tax Returns that is not available to the other
party.
(e) Dow or Parent shall pay the other party for the Taxes for
which Dow or Parent, respectively, is liable pursuant to paragraph (c) of
Section 6.16 upon the
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written request of the party entitled to the payment, setting forth in detail
the nature and the amount of the Taxes to which the payment relates.
(f) Each of Dow and Parent shall (and shall cause their
respective affiliates to): (A) provide timely notice to the other in
writing of any notice of deficiency, proposed adjustment, adjustment,
assessment, audit, examination, suit, dispute or other claim ("Tax
Claim") delivered, sent, commenced or initiated to or against the Company
or any Subsidiary of the Company by any Taxing authority with respect to
taxable periods for which the other may have a liability under this
Section 6.16, and (B) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
(g) Dow shall have the sole right to represent the Company's
and each of its Subsidiaries' interests in any Tax Claim, Tax audit or
administrative or court proceeding ("Proceeding") relating to any Taxes
(A) imposed for any taxable year on Dow's "affiliated group" (as defined
in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or
unitary group of Dow, (B) imposed on the Company or any Subsidiary of the
Company as a result of the Section 338(h)(10) Elections or elections
under Section 338(g) of the Code (or similar provision under state, local
or foreign law) pursuant to paragraph (a) of Section 6.16. None of
Parent, any of its affiliates, the Company or any Subsidiaries of the
Company may settle any Proceeding for any taxable year which may be the
subject of indemnification by Dow under paragraph (c) of Section 6.16
without the prior written consent of Dow, which consent may not be
unreasonably withheld. Parent shall have the sole right to represent the
Company's and each of its Subsidiaries' interests in any Proceeding
relating to any Taxes for which Parent could be liable to Dow pursuant to
Section 6.16(c) of this Agreement. If the resolution of any Proceeding
could adversely affect a party other than the party with the sole right
to represent the Company's or any Subsidiary's interest in any Tax Claim
then such other party shall have the right to participate in such
Proceeding at its own cost and expense.
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(h) Any payment by Parent, Purchaser or Dow pursuant to this
Section 6.16 shall be an adjustment to the Merger Consideration.
(i) The obligations set forth in this Section 6.16 shall be
unconditional and absolute and shall remain in effect without limitation
as to time.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To Effect
the Merger. The respective obligation of each party to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions:
(a) Any approval required under the FPA to consummate the
Merger shall have been obtained;
(b) Any waiting period applicable to the Merger under the HSR
Act and under any other Competition Law that requires a filing prior to
the Effective Time shall have terminated or expired;
(c) This Agreement shall have been approved and adopted by
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of Company Common Stock; and
(d) No statute, rule, injunction, order, decree or regulation
shall have been enacted or promulgated by any Governmental Entity of
competent jurisdiction which prohibits the consummation of the Merger or
makes the Merger illegal.
Section 7.2 Conditions to Parent and Purchaser's Obligation
to Effect the Merger. The obligation of Parent and Purchaser to effect
the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing Date of each of the following conditions:
(a) The Company and Dow shall have performed in all material
respects all of their respective covenants and agreements under this
Agreement required to be
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<PAGE>
performed at or prior to the Closing provided, that with respect to such
covenants and agreements of the Company, the foregoing condition shall be deemed
satisfied so long as no failure to perform any such covenant or agreement shall
have had or would have a Material Adverse Effect.
(b) The representations and warranties of Dow set forth in
this Agreement shall be true and correct in all material respects (except
in the case of any representation and warranty made as of a specified
date, which need only be true as of such date) as of the date of the
Closing as if such representations and warranties were made on such date;
and
(c) The representations and warranties of the Company set
forth in this Agreement shall be true and correct (except in the case of
any representation and warranty made as of a specified date, which need
only be true as of such date) as of the date of the Closing as if such
representations and warranties were made on such date; provided, that the
foregoing condition shall be deemed satisfied so long as no failure to be
so true and correct shall have had or would have a Material Adverse
Effect.
Section 7.3 Conditions to the Company's Obligation to Effect
the Merger. The obligation of the Company to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Closing of each
of the following conditions:
(a) Parent and Purchaser shall have performed in all material
respects all of their covenants and agreements under this Agreement
required to be performed at or prior to the Closing; and
(b) The representations and warranties of Parent and
Purchaser set forth in this Agreement shall be true and correct in all
material respects (except in the case of any representation and warranty
made as of a specified date, which need only be true as of such date) as
of the date of the Closing as if such representations and warranties were
made on such date.
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ARTICLE VIII
TERMINATION
Section 8.1 Termination. Notwithstanding anything herein to
the contrary, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) By the mutual consent of Parent, Dow and the Company; or
(b) By the Company, Dow or Parent, if: (i) the Merger has not
been consummated on or prior to December 31, 1997, or such other date, if
any, as Parent, Dow and the Company shall agree upon; provided that the
right to terminate this Agreement under this Section 8.1(b)(i) shall not
be available to a party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Effective Time to occur on or before such date; (ii) if the stockholders
of the Company fail to approve and adopt this Agreement at the Special
Meeting (including any postponement or adjournment thereof) or (iii) any
Governmental Entity shall have issued a statute, order, decree or
regulation or taken any other action (which statute, order, decree,
regulation or other action the parties hereto shall use their reasonable
best efforts to lift) in each case permanently restraining, enjoining
or otherwise prohibiting the Merger or making the Merger illegal and such
statute, order, decree, regulation or other action shall have become
final and non-appealable.
Section 8.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 8.1, written notice
thereof shall forthwith be given to the other party or parties specifying
the provision hereof pursuant to which such termination is made, and this
Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Purchaser, Dow or the Company except as
set forth in Section 9.1 hereof and Section 8.3 hereof and except with
respect to the requirement to comply with the Confidentiality Agreements
and return and hold confidential Information pursuant to the procedures
set forth in Section 6.4. The termination of this Agreement shall not
relieve
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any party from liability for breach of this Agreement except as provided in the
second sentence of Section 8.3 hereof.
Section 8.3 Fee. The Company shall promptly pay to Parent a
fee of $65,000,000 in the event that this Agreement is terminated
pursuant to Section 8.1(b)(ii). If this Agreement is terminated pursuant
to Section 8.1(b)(ii) hereof, the payment of such fee shall be the sole
and exclusive remedy against the Company, Dow and their respective
Affiliates, officers, directors and representatives in connection with
this Agreement and the transactions contemplated hereby.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as contemplated by this
Agreement, all costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
Section 9.2 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or in equity.
Section 9.3 Amendment; Waiver.
(a) This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at
any time before or after approval by the stockholders of the Company of
the matters presented in connection with the Merger, but after any such
approval no amendment shall be made without the approval of such
stockholders if such amendment changes the Merger Consideration or alters
or changes any of the other terms or conditions of this Agreement if such
alteration or change would materially adversely affect the rights of such
stockholders. This Agreement
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may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
(b) At any time prior to the Effective Time, the parties may
(i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties of the other parties contained herein
or in any document, certificate or writing delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions of the
other parties hereto contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
Section 9.4 Survival. The respective representations and
warranties of Parent, Purchaser, Dow and the Company contained herein or
in any certificates or other documents delivered prior to or as of the
Effective Time shall not survive beyond the Effective Time, provided
however that the representations and warranties of Dow in Section 4.4 of
this Agreement shall survive indefinitely following the Effective Time.
The covenants and agreements of the parties hereto (including the
Surviving Corporation after the Merger) shall survive the Effective Time
without limitation (except for those which, by their terms, contemplate a
shorter survival period).
Section 9.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier or when delivered
by hand or (c) the expiration of five business days after the day when
mailed in the United States by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
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(a) if to the Company, to:
Destec Energy, Inc.
2500 CityWest Blvd.
Suite 150
Houston, Texas 77042
Telephone: (713) 735-4261
Facsimile: (713) 735-4267
Attention: Marian M. Davenport, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2001
Attention: Roger S. Aaron, Esq.
(b) If to Dow, to:
The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Telephone: (517) 636-1000
Facsimile: (517) 636-0861
Attention: Jane M. Gootee, Esq.
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telephone: (312) 782-0600
Facsimile: (312) 701-7711
Attention: Scott J. Davis, Esq.
and :
(c) if to Parent or Purchaser, to:
NGC Corporation
13430 Northwest Freeway, Suite 1200
Houston, Texas 77040-6095
Telephone: (713) 507-6816
Facsimile: (713) 507-6808
Attention: Kenneth E. Randolph, Esq.
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with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telephone: (713) 758-2222
Facsimile: (713) 758-2346
Attention: T. Mark Kelly and
Keith R. Fullenweider
Section 9.6 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom
such information is to be made available. The words "affiliates" and
"associates" when used in this Agreement shall have the respective
meanings ascribed to them in Rule 12b-2 under the Exchange Act. The
phrase "beneficial ownership" and words of similar import when used in
this Agreement shall have the meaning ascribed to it in Rule 13d-3 under
the Exchange Act.
Section 9.7 Headings; Schedules. The headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. Any matter
disclosed pursuant to any Schedule to the Disclosure Schedule shall be
deemed to be disclosed for all purposes under this Agreement but such
disclosure shall not be deemed to be an admission or representation as to
the materiality of the item so disclosed.
Section 9.8 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but
all of which shall be considered one and the same agreement.
Section 9.9 Entire Agreement. This Agreement and the
Confidentiality Agreement, and certain other agreements executed by the
parties hereto as of the date of this Agreement, constitute the entire
agreement, and supersedes all prior agreements and understandings
(written and oral), among the parties with respect to the subject matter
hereof.
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Section 9.10 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
Section 9.11 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
Section 9.12 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors and
assigns, and except to the extent necessary to enforce the provisions of
Sections 2.1, 2.3, and 6.8, the provisions of this Agreement are not
intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.13 Consent to Jurisdiction. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Delaware and of the
United States of America located in the State of Delaware (the "Dela-
ware Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such Delaware
Courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in
an inconvenient forum.
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IN WITNESS WHEREOF, Parent, Purchaser, Dow and the Company
have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
DESTEC ENERGY, INC.
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, M&A
NGC CORPORATION
By: /s/ Kenneth E. Randolph
-------------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
and General Counsel
NGC ACQUISITION CORPORATION II
By: /s/ Kenneth E. Randolph
------------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
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SCHEDULE A
Number of Shares
----------------
The Dow Chemical Company 45,000,000
A-1
<PAGE>
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
by and between
NGC CORPORATION
and
THE AES CORPORATION
dated as of
February 17, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 17, 1997, by and between NGC
Corporation, a Delaware corporation ("NGC"), and The AES Corporation, a Delaware
corporation ("Parent").
WHEREAS, simultaneously with the execution and delivery hereof, Parent, NGC
or its affiliate, Destec Energy, Inc., a Delaware corporation (the "Company"),
and The Dow Chemical Company, a Delaware corporation ("Dow"), are entering into
an agreement and plan of merger (the "Merger Agreement") pursuant to which the
Company has agreed to merge with a subsidiary of NGC (the "Merger");
WHEREAS, the Company owns and operates certain international businesses and
assets;
WHEREAS, Parent desires to cause a wholly-owned subsidiary, a Delaware
corporation ("Purchaser"), to buy and immediately following the Merger, NGC
desires to cause the Company to sell the international businesses and assets of
the Company and its subsidiaries, and Purchaser is willing to assume certain
related liabilities and obligations of the Company and its subsidiaries, all
upon the terms and conditions hereinafter set forth; and
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent and NGC have each approved the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of the International Assets. Subject to the
terms and conditions of this Agreement, on the Closing Date (as hereinafter
defined), and immediately following the consummation of the Merger, NGC shall
cause the Company to sell, convey, assign, transfer and deliver (or cause to be
sold, conveyed, assigned, transferred and delivered) to Purchaser, and the
Purchaser shall purchase and acquire the international assets of the Company,
including, without limitation, all of the Company's or its Subsidiaries' (as
defined in the Merger Agreement) right, title and interest in and to the
following:
<PAGE>
(i) all of the issued and outstanding shares of capital stock (or
their equivalent under local law) (the "Purchased Shares") as set forth in Part
I of Schedule 1.1 of the disclosure schedule attached hereto (the "Disclosure
Schedule"), which when delivered to Purchaser at the Closing (as hereinafter
defined) will be free and clear of any liens, claims, security interests,
charges, leases, licenses or sublicenses created by, through or under NGC
("Liens");
(ii) all rights, options and other interests in projects or projects
in development outside of the United States, including those set forth in Part
II of Schedule 1.1 of the Disclosure Schedule;
(iii) all contracts and other agreements associated with or relating
to the projects known as Elsta, Los Mina, Indian Queens, Hazelwood and Kingston
Cogen (collectively, the "Projects"), including those listed on Part III of
Schedule 1.1 of the Disclosure Schedule;
(iv) all licenses, permits or franchises issued by any Governmental
Entity (as hereinafter defined) relating to the Projects; and
(v) those other assets and properties set forth in Part IV of
Schedule 1.1 of the Disclosure Schedule.
The assets being sold, conveyed, assigned, transferred and delivered to
Purchaser by the Company hereunder are hereinafter referred to as the
"International Assets" or the "International Businesses."
Section 1.2 Instruments of Conveyance and Transfer. At the Closing, NGC
shall cause the Company to (a) deliver or cause to be delivered to Purchaser
stock certificates, stock powers, assignments and other good and sufficient
instruments of transfer, conveyance and assignment as the Purchaser and its
counsel shall deem necessary or appropriate to vest in Purchaser all of the
Company's and the Subsidiaries' right, title and interest in and to the
International Assets, and (b) transfer to Purchaser all of the Company's and its
Subsidiaries' right, title and interest in and to the contracts, agreements,
commitments, books, records, files and other data relating to the International
Assets.
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Section 1.3 Assumed Liabilities. At the Closing, Purchaser shall deliver to
the Company an undertaking (the "Assumption Agreement") in the form to be agreed
upon whereby Purchaser, on and as of the Closing Date, assumes and agrees to
pay, perform and discharge when due, (i) the liabilities and obligations of the
Company and its Subsidiaries primarily attributable to the International Assets
including, without limitation, the liabilities and obligations listed on
Schedule 1.3 of the Disclosure Schedule, (ii) with respect to any corporate
liabilities of the Company unknown to NGC or Parent that are not primarily
attributable to the International Assets or to the Company's domestic assets, a
pro rata portion of such corporate liabilities calculated based on a fraction
the numerator of which is the Purchase Price and the denominator of which is the
Merger Consideration (as defined in the Merger Agreement), (iii) all liabilities
and obligations with respect to the International Employees described in Section
6.2, including, without limitation, all liabilities and obligations relating to
the International Employees under (a) the Destec Energy, Inc. 1996 Variable Pay
Plan, (b) the Destec Energy, Inc. 1995 Variable Pay Plan, (c) the Destec Special
Recognition Award (SRA) Program, (d) the Destec Energy, Inc. Amended and
Restated 1990 Award and Option Plan, (e) the Destec Foreign Service Policy, (iv)
all severance costs, obligations under employment agreements and consulting
agreements, and employee benefit liabilities arising as a result of (I) the
termination of employment of any International Employees from and after the
Closing Date or (II) the transactions consummated under this Agreement in
respect of the International Employees (the cost, obligations and liabilities
under this clause (iv) are collectively the "International Employee
Obligations"), and (v) each liability or obligation relating to any
International Employee (with respect to employee benefit plans, in excess of any
assets owned by the Company or the Subsidiaries and directly related to such
plan or held by any trust with respect thereto sponsored or maintained by the
Company or the Subsidiaries (other than the International Assets) which are
available to satisfy or otherwise offset such liability or obligation), relating
to any bonus, deferred compensation, incentive compensation, stock purchase,
stock option, restricted stock,
<PAGE>
deferred stock, stock appreciation right, vacation policy, superannuation,
severance or termination pay, hospitalization or other medical, life or other
insurance, flexible benefit, cafeteria plan, supplemental unemployment benefits,
profit sharing, pension, or retirement plan, program, agreement or arrangement,
employment agreements, consulting agreements and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or contributed to
by the Company or its Subsidiaries (the "International Employee Plans") and (vi)
all obligations and liabilities with respect to transfer stamp taxes or similar
taxes arising in connection with the purchase of the International Assets by
Purchaser. The liabilities and obligations assumed by Purchaser in accordance
with this Section 1.3 are hereinafter referred to as the "Assumed Liabilities."
Section 1.4 Excluded Liabilities. Any liability of the Company or any
affiliate thereof other than the Assumed Liabilities shall not be assumed by
Purchaser or its affiliates including, without limitation, all liabilities and
obligations relating to the Plans (as defined in the Merger Agreement), except
for any of the International Employee Obligations and the International Employee
Plans. The liabilities that are not to be assumed by Purchaser or its
affiliates in accordance with this Section 1.4 are hereinafter referred to as
the "Excluded Liabilities."
Section 1.5 Closing. Unless this Agreement shall have been terminated and
the transactions contemplated herein shall have been abandoned pursuant to
Section 8.1 hereof, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place after all of the conditions herein or
incorporated herein are satisfied or waived immediately following the Effective
Time (as defined in the Merger Agreement), at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, unless an
earlier date or place is agreed to in writing by the parties hereto. The date
on which the Closing occurs is referred to herein as the "Closing Date."
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Section 1.6 Purchase Price and Payment. (a) In consideration for the
International Assets and subject to the terms and conditions of this Agreement,
Purchaser shall on the Closing Date assume the Assumed Liabilities as provided
in Section 1.3 hereof pursuant to the Assumption Agreement and shall transfer to
or to the order of the Company in immediately available funds in New York City
an amount equal to U.S. $407,055,000 (the "Base Purchase Price"), as adjusted as
set forth in accordance with the provisions of this Section 1.6 (the "Purchase
Price"). NGC and Purchaser agree to negotiate in good faith to adjust the Base
Purchase Price to be paid at the Closing if allocations of net cash flow to be
made pursuant to Section 1.6(c) between the date hereof and the Closing Date are
expected to be at least $10,000,000.
(b) One business day prior to the proposed Effective Time, Parent or
Purchaser shall deposit the Base Purchase Price in trust with the Paying Agent
(as defined in the Merger Agreement) in a segregated account (the "AES Fund").
NGC shall instruct the Paying Agent that the AES Fund shall not be released
without the written consent of Parent and NGC. Parent shall give its written
consent upon satisfaction of the conditions set forth in Article VII of this
Agreement. The AES Fund shall be deposited in an interest bearing account. If
the conditions set forth in Article VII of this Agreement have not been
satisfied by 12:00 noon on the second business day after the AES Fund was
initially deposited, or such later date or time as Parent in its sole discretion
may agree, NGC shall instruct the Paying Agent to return the AES Fund to Parent
or Purchaser, as the case may be, including all interest earned thereon. Upon
release of the AES Fund other than to Parent or Purchaser, NGC shall instruct
the Paying Agent to promptly pay the interest earned on the AES Fund until the
Effective Time of the Merger to Parent or Purchaser, as the case may be.
(c) The Base Purchase Price shall be adjusted as set forth in this clause (c)
to reflect the following allocation of the net cash flow of the Company and its
Subsidiaries for the period from January 1, 1997 to the
<PAGE>
Closing Date: the net cash flow of the Company and its Subsidiaries for the
period from and including January 1, 1997 to and excluding the Closing will be
allocated in a fair and reasonable manner between the International Assets, on
the one hand, and the Company and its Subsidiaries (other than the International
Assets), on the other hand. Within three business days after such allocation
becomes final and binding upon Parent and NGC pursuant to clause (d) below, if
the net cash flow so allocated to the International Assets is greater than zero,
Parent shall cause Purchaser to pay the Company such difference, and if the net
cash flow so allocated to the International Assets is less than zero, NGC shall
cause the Company to pay Purchaser such difference. Any such adjusting payment
shall bear interest at 7.5% per annum for the period from and including the
Closing Date through and excluding the date of payment to the party to which it
is owed pursuant to this Section 1.6(c).
(d) Within 60 days after the Closing Date, NGC shall deliver to Parent a
proposed settlement statement (the "Proposed Settlement Statement") prepared in
good faith setting forth the allocation of such net cash flows between the
International Assets and the Company and its Subsidiaries (other than the
International Assets), together with supporting documentation in reasonable
detail. NGC shall provide Parent with full access to the same information
available to NGC for purposes of determining such allocation of net cash flow.
If Parent objects to the Proposed Settlement Statement, it shall so notify NGC
in writing within 30 days after receipt of the Proposed Settlement Statement,
which notice shall set forth in reasonable detail any such objections. If
Parent fails to deliver any such objection within such 30-day period, Parent
shall be deemed to have accepted the Proposed Settlement Statement (including
the calculation of the Purchase Price therein). NGC and Parent shall promptly
meet to attempt to resolve any such objections, and if they fail to resolve such
objections within 30 days after receipt by NGC of Parent's objections, such
objections shall be resolved by an independent accounting firm (the
"Accountants") selected by Deloitte & Touche and Arthur
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Andersen & Co., with Parent and NGC to bear the fees and expenses of the
Accountants pro rata in inverse proportion to the amounts of their respective
awards with respect to the disputed items. The Purchase Price as determined by
agreement by NGC and Parent, by failure of Parent to deliver an objection as
described above or by the Accountants pursuant to this Section 1.6(d) shall be
final and binding upon the parties.
Section 1.7 Allocation of Purchase Price. The Purchase Price shall be
allocated among the International Assets in writing, by the parties hereto prior
to the Closing. The parties hereto agree that the net book value of any
International Asset may not be indicative of its fair market value.
Section 1.8 Transfer of Purchased Assets, Assignment of Contractual Rights,
Governmental Consents, Etc. (a) Anything contained in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement or an
attempted agreement to transfer, sublease or assign any contract, license,
lease, commitment, purchase order, sales order or other agreement or any claim,
right, benefit, license, permit or authorization arising thereunder or resulting
therefrom if a transfer, sublease or assignment or an attempted transfer,
sublease or assignment thereof, without the consent of any other party thereto,
would be ineffective, would constitute a breach thereof or would in any way
affect the rights of the Purchaser thereunder. Additionally, this Agreement
shall not constitute an agreement or an attempt to transfer any of the
International Assets, the transfer of which may require the prior consent of any
United States or foreign governmental authority or agency until such consent is
obtained. NGC, Parent and Purchaser shall use their reasonable best efforts to
obtain the consent of any such governmental authority and to obtain the consent
of the other party to any of the agreements referred to above, to the transfer
of the International Assets to the Purchaser in all cases in which such consent
is required for such transfer. Except as otherwise agreed between NGC and
Parent pursuant to
<PAGE>
Section 1.8(b) hereof, if, upon the satisfaction of all conditions to the
Closing, any such consent (governmental or otherwise) is not obtained or if a
transfer, sublease, or assignment or an attempted transfer, sublease or
assignment of any of the International Assets would be ineffective, would
constitute a breach thereof or would in any way materially affect the rights
thereunder such that the Purchaser would not in fact receive all of the rights
or ownership to the International Assets as provided in this Agreement (any such
International Assets, the "Deferred Assets"), title to the Deferred Assets shall
be retained by the Company but there shall be no reduction or reimbursement of
the Purchase Price. After the Closing, NGC, the Company, Parent and Purchaser
shall continue to use their reasonable best efforts to (i) cooperate to attempt
to obtain any such consents and (ii) to transfer to Parent or Purchaser pursuant
to reasonable and lawful arrangements the benefits and liabilities with respect
to the Deferred Assets effective as of the Closing. After the Closing, such
efforts shall include, without limitation, the enforcement for the benefit of
the Purchaser (at Purchaser's cost) of any and all rights of NGC, the Company or
their subsidiaries against third parties to any contract or agreement and the
transfer or sale of such Deferred Asset to any person or entity designated by
the Purchaser (and the net proceeds from any such transfer or sale shall be for
Purchaser's account). NGC shall cooperate with Parent and the Company in all
reasonable requests Parent, Purchaser or the Company shall make in connection
with the obtaining of all such consents and approvals. Upon receipt of the
required consents or approvals with respect to any Deferred Assets, NGC shall
cause the Company to transfer such Deferred Asset (and the liabilities related
thereto) to Parent or Purchaser, without recourse except as to encumbrances in
each case created by, through or under NGC, the Company or their affiliates from
and after the Closing. Any such transfer shall to the extent possible be
effective as of the Closing, and arrangements will be made to transfer the net
cash flow between the Deferred Assets, on the one hand, and the Company and the
Subsidiaries (excluding the International Assets) on the other hand attributable
to projects so
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<PAGE>
transferred for the period from the date of the Closing through the date of such
transfer, to the extent that they were not theretofore transferred.
(b) With respect to the project known as "Hazelwood," NGC and Parent
acknowledge that there is a question as to whether consents of the Government of
Victoria of Australia that are required pursuant to certain financing, project
and other documents relating to the Hazelwood project will be received at or
prior to the Closing. Therefore, NGC and Parent agree to fully cooperate to
determine whether such consents will be received prior to or at Closing by
acting together to seek such consents as expeditiously as possible. If after 15
days from the date of this Agreement it appears to either of the parties that
such consents are not reasonably likely to be received prior to or at the
Closing, NGC and the Parent agree to negotiate in good faith with respect to (i)
whether reasonable and lawful arrangements (which do not violate any law or
contractual obligations applicable to the Hazelwood project) can be designed to
achieve the transfer described above with respect to the Hazelwood project,
including to the extent feasible trust arrangements, put/call arrangements, or
obligations on the part of NGC to cause the timely sale of the Hazelwood project
(with proceeds thereof to be delivered to Parent or Purchaser with adjustments
to be agreed upon to reflect benefits and liabilities of the Hazelwood project
from the date of the Closing through the date of the sale of the Hazelwood
project), and (ii) whether the structure of the transactions contemplated in
this Agreement and the Merger Agreement could be "flipped" so that the Parent or
its affiliate merges with the Company and immediately thereafter the Parent
causes the Company to sell its assets (other than the International Assets) to
NGC. In addition, NGC agrees that, if after such 15 days it appears that the
consents will not be received prior to or at the Closing, it shall as
expeditiously as possible seek the third party consents necessary to consummate
such a flipped transaction. Notwithstanding anything herein to the contrary,
NGC shall not be under any obligation to consummate such a flipped transaction
if a necessary third party consent is not
<PAGE>
obtainable after a reasonable good faith effort on NGC's behalf to obtain such a
consent or NGC determines in good faith that such a transaction would be
significantly adverse to NGC.
(c) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE III
AND EXCEPT AS OTHERWISE PROVIDED IN SECTION 1.1(i), THE INTERNATIONAL ASSETS ARE
BEING SOLD TO PURCHASER AS IS, WHERE IS, WITH ALL FAULTS, DEFECTS, LIENS AND
OTHER ENCUMBRANCES; PROVIDED THAT THE FOREGOING SHALL NOT AFFECT PARENT'S RIGHTS
UNDER SECTION 7.1.
ARTICLE II
[Intentionally Omitted]
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NGC AND THE COMPANY
NGC represents and warrants to Parent and Purchaser as follows:
Section 3.1 Organization. NGC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. NGC has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and is or will be
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on the
business or financial condition of NGC and its subsidiaries, taken as a whole,
or materially impair or delay the consummation of the transactions contemplated
by this Agreement. NGC has previously delivered to the Parent and Purchaser
complete and correct copies of its certificate of incorporation and by-laws, as
currently in effect, and prior to the Closing NGC will have delivered to Parent
complete and correct copies of
10
<PAGE>
the certificate of incorporation and by-laws of the Company, as in effect at the
time of such delivery.
Section 3.2 Authorization; Validity of Agreement. NGC has the requisite
corporate power and authority to execute and deliver this Agreement. NGC has,
and as of the Closing the Company will have, the requisite corporate power and
authority to consummate the transactions contemplated hereby. The execution and
delivery by NGC of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by NGC's Board of Directors and no
other corporate proceedings on the part of NGC are necessary to authorize the
execution and delivery of this Agreement by NGC and the consummation of the
transactions contemplated hereby. The consummation of the transactions
contemplated hereby will be duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company will be
necessary to authorize the transactions contemplated hereby. This Agreement has
been duly executed and delivered by NGC and, assuming due authorization,
execution and delivery of this Agreement by Parent, is a valid and binding
obligation of NGC enforceable against it in accordance with its terms.
<PAGE>
Section 3.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by NGC nor the
consummation by NGC of the transactions contemplated hereby will (i) violate any
provision of the respective certificates of incorporation or by-laws of NGC or,
as of the Closing, the Company, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other instrument or obligation to which NGC or, with respect to agreements
entered into by or on behalf of NGC ("New Agreements"), the Company is a party,
or by which NGC or, pursuant to New Agreements, the Company or any of their
respective assets are bound or (iii) assuming that all consents, authorizations
and approvals contemplated by Section 3.3(b) or Section 1.8 have been obtained
and all filings contemplated thereby have been made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to NGC, any of its
subsidiaries (excluding for purposes of this clause (iii) the Company and its
subsidiaries) or any of their properties or assets; except for such violations,
breaches, defaults, terminations, amendments, cancellations or accelerations
which would not materially impair or delay the consummation of the transactions
contemplated by this Agreement.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by NGC or the consummation by NGC
of the transactions contemplated hereby, except (i) applicable requirements
under Competition Laws (as hereinafter defined), (ii) applicable requirements
under the Securities Exchange Act of 1934, as amended and the regulations
thereunder (the "Exchange Act") and (iii) such other consents, approvals,
orders, authorizations, notifications, registrations,
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<PAGE>
declarations and filings the failure of which to be obtained or made would not
materially impair or delay the consummation of the transactions contemplated by
this Agreement.
Section 3.4 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither NGC nor
any other Person (as defined in the Merger Agreement) makes any other express or
implied representation or warranty on behalf of NGC.
ARTICLE IV
[Intentionally Omitted]
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent represents and warrants and Purchaser as of the Closing will represent
and warrant to NGC as follows:
Section 5.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
Purchaser as of the Closing will be a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Parent has and as of
the Closing Purchaser will have all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
or will be conducted and is or will be qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the business or financial condition of Parent
and its Subsidiaries, taken as a whole, or materially impair or delay the
consummation of the transactions contemplated by this Agreement. Parent has
previously delivered to NGC complete and correct copies of its certificate of
incorporation and by-laws, as currently in effect and prior to the Closing
Parent
<PAGE>
will have delivered to NGC complete and correct copies of the certificate of
incorporation and by-laws of Purchaser, as in effect at the time of such
delivery.
Section 5.2 Authorization; Validity of Agreement.
Parent has the requisite corporate power and authority to execute and deliver
this Agreement. Parent has, and as of the Closing Purchaser will have, the
requisite corporate power and authority to consummate the transactions
contemplated hereby. The execution and delivery by Parent of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Parent and no other corporate
proceedings on the part of Parent are necessary to authorize the execution and
delivery of this Agreement by Parent and the consummation of the transactions
contemplated hereby. The consummation of the transactions contemplated hereby
will be duly authorized by the Board of Directors of Purchaser and no other
corporate proceedings on the part of Purchaser will be necessary to authorize
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and, assuming due authorization, execution and delivery of
this Agreement by NGC, is a valid and binding obligation of Parent enforceable
against Parent in accordance with its terms.
Section 5.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by Parent nor the
consummation by Parent and Purchaser of the transactions contemplated hereby
will (i) violate any provision of the respective certificates of incorporation
or by-laws of Parent or Purchaser, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other
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instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which any of them or any of their assets may be bound or (iii) assuming
that all consents, authorizations and approvals contemplated by Section 5.3(b)
have been obtained and all filings contemplated thereby have been made, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets; except for
such violations, breaches, defaults, terminations, amendments, cancellations or
accelerations which would not materially impair or delay the consummation of the
transactions contemplated by this Agreement.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by Parent or the consummation by
Parent and Purchaser of the transactions contemplated hereby, except (i)
applicable requirements under Competition Laws, (ii) applicable requirements
under the Exchange Act and (iii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made would not materially impair or delay the
consummation of the transactions contemplated by this Agreement.
Section 5.4 Financing. One business day prior to the Effective Time, Parent
and Purchaser will have sufficient funds available (through existing credit
arrangements or otherwise) to pay the Purchase Price and to perform their
obligations hereunder.
Section 5.5 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent and Purchaser.
Section 5.6 Public Utility Company; Public Utility Regulatory Policies Act.
Neither Parent nor its Subsidiaries
<PAGE>
is subject to regulation as a "holding company" or a "subsidiary company" of a
holding company or a "public utility company" under Section 2(a) of the Public
Utility Holding Company Act of 1935.
Section 5.7 Absence of Litigation. As of the date hereof, there is no suit,
claim, action, proceeding or investigation pending against, or to the actual
knowledge of Parent, threatened against, Parent or any of its respective
properties before any Governmental Entity or arbitrator which challenges or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. As of the date hereof, neither Parent nor any of its respective
properties is subject to any judgment, decree, order or injunction of any
Governmental Entity or arbitrator which would prevent or delay the consummation
of the transactions contemplated hereby.
Section 5.8 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article V, neither Parent,
Purchaser nor any other Person makes any other express or implied representation
or warranty on behalf of Parent or Purchaser.
ARTICLE VI
COVENANTS
Section 6.1 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using
reasonable best efforts to effect all necessary registrations and filings. Each
of the parties hereto will furnish to the other parties such necessary
information and reasonable assistance as such other
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parties may reasonably request in connection with the foregoing and will provide
the other parties with copies of all filings made by such party with any
Governmental Entity or any other information supplied by such party to a
Governmental Entity in connection with this Agreement, and the transactions
contemplated hereby. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of the Company, including any successor, shall take or
cause to be taken all such necessary action.
(b) Parent and NGC shall use their respective reasonable best efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated hereby under the laws, rules, guidelines or
regulations of any Governmental Entity. Without limiting the foregoing, Parent
and NGC shall, as soon as practicable, file Notification and Report Forms under
the HSR Act (as defined below) with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and shall use reasonable best efforts to respond as promptly as practicable to
all inquiries received from the FTC or the Antitrust Division for additional
information or documentation; and Parent and NGC shall use their reasonable best
efforts to take or cause to be taken all actions necessary, proper or advisable
to obtain any consent, waiver, approval or authorization relating to any
Competition Law that is required for the consummation of the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
obligate Parent or NGC to take any action which would have a material adverse
effect on the International Assets. "Competition Laws" means statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization, lessening of competition or
restraint of trade and includes the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act").
<PAGE>
Section 6.2 Employee Benefits.
(a) For purposes of this Agreement, the term "International Employees" means
those employees of the Company and the Subsidiaries who devote a substantial
amount of time to the International Business and those consultants whose
services relate primarily to the International Businesses. Parent and Purchaser
hereby agree to honor without modification or contest, and to make required
payments when due under, all portions of the International Employee Plans in
existence on the date hereof (or as modified to the extent permitted by the
Merger Agreement); provided, however, that nothing in this Section 6.2 shall be
construed to limit the ability of Parent and Purchaser to amend or terminate
such Plans after the Closing to the extent permitted under the terms of the
International Employee Plans.
(b) Parent and Purchaser hereby agree that for a period of one year
immediately following the Effective Time, they shall, or shall cause the
International Entities (as hereinafter defined) to either (i) continue to
maintain the International Employee Plans on terms no less favorable in the
aggregate than those provided to the International Employees and former
international employees on the date hereof or (ii) provide that International
Employees and former international employees may participate in analogous plans
of Parent which provide benefits which in the aggregate are substantially
similar to those provided to them under the International Employee Plans on the
date hereof.
Section 6.3 Indemnification. (a) NGC shall, and NGC shall cause the Company
to, jointly and severally indemnify, defend and hold Parent, Purchaser and their
affiliates harmless against and in respect of (i) all claims asserted by third
parties with respect to Excluded Liabilities and (ii) all costs and expenses
(including expenses of investigation, settlement negotiation and attorneys'
fees) incurred by Parent or Purchaser in connection with any action, suit,
proceeding, demand, claim, investigation, assessment or
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judgment incident to any of the matters indemnified against in this Section
6.3(a).
(b) Parent shall, and Parent shall cause the Purchaser to, jointly and
severally indemnify, defend and hold NGC, the Company and their affiliates
harmless against and in respect of (i) claims asserted by third parties with
respect to the Assumed Liabilities, (ii) all credit support obligations,
guarantees and contribution obligations relating to the International Assets,
including but not limited to those listed on Schedule 1.3 of the Disclosure
Schedule with respect to which the Company and its Subsidiaries have not been
fully released by the Closing to the reasonable satisfaction of NGC and (iii)
all costs and expenses (including expenses of investigation settlement
negotiation and attorneys' fees) incurred by the Company, NGC and their
affiliates in connection with any action, suit, proceeding, demand, claim,
investigation assessment or judgment incident to any of the matters indemnified
against in this Section 6.3(b).
(c) Promptly after receipt by an indemnified party under this Section 6.3 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6.3, notify the indemnifying party in writing of the
claim or the commencement of that action, provided that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to the indemnified party except to the extent that the indemnifying party is
prejudiced by such failure to notify. If any such claim shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein, and to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and to settle and compromise any such claim or action;
provided, however, such settlement or compromise shall be effected only with the
consent of the indemnified party, which consent shall not be unreasonably
withheld. After notice from the
<PAGE>
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6.3 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation (including related
reasonable attorney's fees and expenses), provided, however, that the
indemnified party shall have the right to employ counsel to represent it if, in
the indemnified party's reasonable judgment, it is advisable for the indemnified
party to be represented by separate counsel), and in that event the fees and
expenses of such separate counsel shall be paid by the indemnified party unless
the named parties to any such claim or action (including any impleaded parties)
include both the indemnifying party and the indemnified party and in the opinion
of counsel to the indemnified party (which counsel is reasonably satisfactory to
the indemnifying party) representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them, in
which case the reasonable fees and expenses of separate counsel (which counsel
is reasonably satisfactory to the indemnifying party) shall be paid by the
indemnifying party. Purchaser and the Company shall each render to each other
such assistance (including by asserting reasonable counterclaims and bringing
suit against third parties) as may reasonably be requested in order to insure
the proper and adequate defense of any such claim or proceeding.
(d) The indemnities provided in this Agreement shall survive the Closing.
(e) The parties agree that the indemnification payments made pursuant to this
Agreement shall be treated for tax purposes as an adjustment to the Purchase
Price, unless otherwise required by applicable law.
Section 6.4 Publicity. None of NGC, Parent, Purchaser nor any of their
respective affiliates shall issue or cause the publication of any press release
or other
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announcement with respect to this Agreement, or the other transactions
contemplated hereby without prior consultation with the other parties, except as
may be required by law or by any listing agreement with a national securities
exchange after prior notice has been given to, and all reasonable efforts have
been made to consult with the other parties.
Section 6.5 Corporate Names; Termination of Trademark Licensing Agreements.
(a) Each of Parent and Purchaser shall change any of the names of the
corporations or other Persons included as part of the International Assets which
contain "Destec" to corporate names not containing "Destec" within 90 days after
the transfer of such Person to Purchaser and shall use their respective
reasonable best efforts to remove all corporate names, service marks, trademarks
and trade names containing "Destec" (the "Destec Names") from any of the
International Assets within one year after the Closing Date. After the Closing
Date, neither Parent nor Purchaser shall seek to obtain any rights to or use the
Destec Names except as specifically provided in this Section 6.5.
(b) All trademark licensing agreements by and between the Company and any of
the entities included as part of the International Assets shall be terminated as
of the Closing Date subject to the provisions of this Section 6.5.
Section 6.6 No Non-Compete Obligation.
The parties hereby acknowledge that the consummation of the transactions
contemplated hereby will not create an obligation of (i) NGC or its affiliates
not to compete in any business with Parent, Purchaser or their respective
affiliates; provided that none of NGC, the Company or their affiliates shall use
any confidential information obtained from the Company in connection with NGC
entering into the Merger Agreement or this Agreement to so compete or (ii)
Parent or its affiliates not to compete in any business with NGC, the Company or
their respective affiliates; provided
<PAGE>
that none of Parent, Purchaser or their affiliates shall use any confidential
information obtained from the Company in connection with Parent entering into
this Agreement.
Section 6.7 Obligations under Merger Agreement. If the conditions to NGC's
obligations under the Merger Agreement have been satisfied, NGC will consummate
the Merger; provided, that Parent shall be in compliance with Section 1.6(b) of
this Agreement.
Section 6.8 Transfer Taxes. Parent shall cause Purchaser to pay all transfer
taxes, stamp taxes or similar taxes arising in connection with the sale and
purchase of the International Assets hereunder.
Section 6.9 Merger Agreement Break-Up Fee. NGC shall promptly pay to Parent
its pro rata share of any proceeds received by NGC pursuant to Section 8.3 of
the Merger Agreement.
Section 6.10 Site Development Agreement. If the Company receives notice from
The Dow Chemical Company ("Dow") under Section 3.1 of the Site Development
Agreement between the Company and Dow dated February 17, 1997 with respect to
any project outside the United States of America, NGC shall cause the Company to
promptly send to Purchasers a copy of such notice.
Section 6.11 Certain Confidentiality Obligations. Parent hereby agrees to be
bound by the terms and conditions of Section 6.4 of the Merger Agreement.
Section 6.12 Tax Matters.
(a) NGC and Parent shall make a joint election for the International Entities
(as hereinafter defined) that are U.S. corporations under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code") and under any
applicable similar provisions of state or local law
22
<PAGE>
(collectively, the "Section 338(h)(10) Elections"). On the Closing Date, NGC and
Parent shall exchange completed and executed copies of Internal Revenue Service
Form 8023-A and any similar state or local forms (collectively, the "Forms"). If
any changes are required in the Forms as a result of information which is first
available after such Forms are prepared, the parties will promptly agree on such
changes. After all required schedules to support the Forms are completed, NGC
and Parent shall file the Forms, which filing shall be made within the time
period specified under applicable law. NGC, Parent, the International Entities
and the Company shall make all required filings relating to the Section
338(h)(10) Elections in connection with their federal and applicable state and
local income tax returns, and shall cooperate fully with each other with respect
to such filings. For purposes of this Agreement, "International Entities" means
those Persons which own, or have any rights to or interest in (direct or
indirect), the International Assets.
Within 180 days following the Closing Date, Parent shall (i) draft a schedule
(the "Allocation Schedule") allocating the Modified Adjusted Deemed Sales Price
(as defined in Section 1.338(h)(10)-1(f) of the Treasury regulations), and the
Adjusted Deemed Sales Price (as defined in Section 1.338-3(d) of the Treasury
Regulations for the International Entities for which Section 338(h)(10)
Elections or Section 338(g) elections will be among the International Assets and
(ii) deliver such Allocation Schedule to NGC. The Allocation Schedule shall be
reasonable and shall be prepared in accordance with Section 338 of the Code and
the Treasury regulations thereunder. Each of Parent, on the one hand, and NGC
(upon its consent to the Allocation Schedule, which consent shall not be
unreasonably withheld) on the other hand, shall report the transactions
contemplated hereby, and file all Tax Returns (as defined below), in each case,
for federal, state, local and foreign Tax purposes in accordance with the
Allocation Schedule.
NGC represents and warrants that it will make joint Section 338(h)(10)
Elections with Dow for the International
<PAGE>
Entities that are U.S. corporations and will file Section 338(g) elections only
for those International Entities designated by Parent. Parent represents and
covenants that it will not file, or permit to be filed by any affiliate, Section
338(g) Elections except for those International Entities designated for such
Elections pursuant to the preceding sentence.
(b) Nothing contained herein shall be construed as altering the rights,
obligations and duties of Dow, the Company and any Subsidiaries of the Company
to each other pursuant to the Tax Sharing Agreement between Dow, the Company and
its Subsidiaries dated May 15, 1996 (the "Tax Sharing Agreement") (attached
hereto as Exhibit 6.12). The Tax Sharing Agreement shall continue to govern the
rights and obligations of Dow, the Company and any Subsidiaries of the Company
with respect to the taxable periods for which it is effective. Parent
acknowledges that the Tax Sharing Agreement shall be amended effective as of the
Closing Date in the form of the First Amendment to the Tax Sharing Agreement,
which has been previously distributed to Parent.
Parent shall pay or cause the International Entities to pay to NGC all amount
required to be paid by the International Entities to Dow under the Tax Sharing
Agreement. NGC shall pay to the International Entities all amounts Dow is
required to pay to the International Entities under the Tax Sharing Agreement.
(c) (i) NGC shall be liable for, and shall indemnify Parent and Purchaser
for and hold Parent and Purchaser harmless against (A) all income Taxes (as
defined below) imposed for any taxable year on Dow's "affiliated group" (as
defined in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or unitary group
for state, local or foreign tax purposes that include Dow (not including the use
of any losses or other Tax attributes) (B) any incremental amount of state and
local income Taxes imposed on the International Entities (other than any amount
of state or
24
<PAGE>
local Taxes imposed on a combined or unitary group that includes Dow) for the
taxable year that includes the Closing Date, to the extent that such amount is
incurred as a result of the Section 338(h)(10) Elections or any election under
Section 338(g) of the Code and (C) all liability for income Taxes imposed on any
International Entities pursuant to Section 1.1502-6 of the Treasury Regulations
or any comparable provision of state or local law. NGC shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for which NGC
is liable to Parent or Purchaser pursuant to this paragraph (c)(i) of this
Section 6.12.
(ii) Parent and Purchaser shall be liable for, and shall indemnify NGC
for and hold Seller harmless against all Taxes of or imposed on any of the
International Entities for any taxable period other than those Taxes referred to
in paragraph (c)(i) of this Section 6.12. Parent shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for which
Parent is liable to NGC pursuant to this paragraph (c)(ii) of Section 6.12.
(iii) Notwithstanding anything to the contrary contained
herein, Parent shall assume and pay all sales, use, privilege, transfer, stock
transfer, real property transfer, documentary, gains, stamp, duties, recording
and similar Taxes and fees and all foreign Taxes (including any penalties,
interest or additions) imposed upon any party incurred in connection with any of
the transfers contemplated by this Agreement (collectively, "Transfer Taxes")
and Parent shall, at its own expense, accurately file all necessary Tax Returns
and other documentation with respect to any Transfer Tax other than Tax Returns
which Seller is responsible for filing under applicable law. Parent and Seller
agree to timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or file Tax
Returns with respect to, such Transfer Taxes.
(d) (i) Parent acknowledges that Dow shall file or cause to be filed when
due all Tax Returns Dow has elected to file pursuant to the Tax Sharing
Agreement and Dow shall remit or cause to be remitted any Taxes due in respect
of such Tax
<PAGE>
Returns, and Parent shall file or cause to be filed when due all Tax Returns
other than those Tax Returns Dow has elected to file pursuant to the Tax Sharing
Agreement that are required to be filed by or with respect to the International
Entities and Parent shall remit or cause to be remitted any Taxes due in respect
of such Tax Returns.
(ii) None of Parent or any affiliate of Parent shall (or shall cause
or permit the Company or any of its Subsidiaries to) amend, refile or otherwise
modify any Tax Return relating in whole or in part to the Company or any of its
Subsidiaries with respect to any Company or any of its Subsidiaries with respect
to any taxable year or period ending on or before the Closing Date without the
prior written consent of NGC.
(iii) Parent shall promptly cause the International Entities
to prepare and provide to, or at the direction of, NGC, all Tax information
materials, including, without limitation, schedules and work papers which the
Company is required to provide Dow pursuant to the Tax Sharing Agreement. Each
of NGC and Parent shall (and shall cause their respective affiliates to): (A)
assist the other party and/or Dow in preparing any Tax Returns which such other
party or Dow is responsible for preparing and filing in accordance with clause
(i) of this Section 6.12, (B) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of the Company and
each Subsidiary of the Company, and (C) make available to the other party and to
any taxing authority as reasonably requested all information, records, and
documents relating to Taxes of the Company and each Subsidiary of the Company,
provided, NGC or Parent (or respective affiliates) has access to information,
records or personnel concerning such Tax Returns that is not available to the
other party.
(e) NGC or Parent shall pay the other party for the Taxes for which NGC or
Parent, respectively, is liable pursuant to paragraph (c) of Section 6.12 upon
the written request of the party entitled to the payment, setting forth in
detail the nature and the amount of the Taxes to which the payment relates.
26
<PAGE>
(f) Each of NGC and Parent shall (and cause their respective affiliates to):
(A) provide timely notice to the other in writing of any notice of deficiency,
proposed adjustment, adjustment, assessment, audit, examination, suit, dispute
or other claim ("Tax Claim") delivered, sent, commenced or initiated to or
against the Company or any Subsidiary of the Company by any Taxing authority
with respect to taxable periods for which the other may have a liability under
this Section 6.12, and (B) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
(g) Parent acknowledges that Dow shall have the sole right to represent the
Company's and each of its Subsidiaries' interests in any Tax Claim, Tax audit or
administrative or court proceeding ("Proceeding") relating to any Taxes (A)
imposed for any taxable year on Dow's "affiliated group" (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(b) of the Code) or any other combined or unitary group of Dow, (B) imposed
on the Company or any Subsidiary of the Company as a result of the Section
338(h)(10) Elections (or similar provision under state, local or foreign law)
pursuant to paragraph (a) of Section 6.12. None of Parent, any of its
affiliates, or any International Entities may settle any Proceeding for any
taxable year which may be the subject of indemnification by NGC under paragraph
(c) of Section 6.12 without the prior written consent of NGC, which consent may
not be unreasonably withheld. Parent shall have the sole right to represent the
International Entities' interests in any Proceeding relating to any Taxes for
which Parent could be liable to NGC pursuant to Section 6.12(c) of this
Agreement. If the resolution of any Proceeding could adversely affect a party
other than the party with the sole right to represent the Company's or any
Subsidiary's interest in any Tax Claim then such other party shall have the
right to participate in such Proceeding at its own cost and expense.
<PAGE>
(h) Any payment by Parent, Purchaser or NGC pursuant to this Section 6.12
shall be an adjustment to the Purchase Price.
(i) For purposes of this Agreement, "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, estimated, social security, unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording or other taxes, assessments or charges imposed by
any Governmental Entity and any interest, penalties, or additions to tax
attributable thereto. For purposes of this Agreement, "Tax Return" shall mean
any return, report or similar statement required to be filed with respect to any
Tax (including any attached schedules), including, without limitation,, any
information return, claim for refund, amended return or declaration of estimated
Tax.
(j) The obligations set forth in this Section 6.12 shall be unconditional and
absolute and shall remain in effect without limitation as to time.
Section 6.13 Financing Commitment.
Parent agrees that:
(a) Within 10 days of the signing of this agreement, Parent will provide to
NGC a commitment letter substantially in the form of that original letter dated
February 17, 1997 from Morgan Guaranty Trust Company of New York and J.P. Morgan
Securities, Inc. (Morgan) except that (a) clauses (iii) and (iv) shall be
deleted in their entirety and (b) a termsheet evidencing the substantive terms
and conditions under which Morgan will finance AES's purchase of the
International Assets shall be referenced and attached.
28
<PAGE>
(b) No later than three weeks before the special meeting of Destec's
stockholders to approve the Agreement and Plan of Merger, Parent will provide to
NGC either (a) evidence that Parent has sufficient cash on hand to fund its
obligations under this Agreement or (b) a commitment letter substantially in the
form described in (a) above except the due diligence condition in clause (i)
therein shall be deleted in its entirety, or (c) such other evidence of a firm
financing commitment as may be reasonably satisfactory to NGC and Parent.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Purchaser's Obligation to Purchase the
International Assets. The obligation of Purchaser to purchase the International
Assets hereunder shall be subject to the satisfaction or waiver by Purchaser at
or prior to the Closing of the following: (a) the representations and
warranties of NGC and the Company set forth in this Agreement shall be true and
correct (except in the case of any representation and warranty made as of a
specified date, which need only be true as of such date) as of the date of the
Closing as if such representations and warranties were made on such date except
for such representations and warranties the failure of which to be true and
correct would not have a material adverse effect on the transactions
contemplated by this Agreement; (b) no representation, warranty, condition,
covenant or other term in the Merger Agreement relating to the International
Assets shall be amended, modified or waived, which amendment, modification or
waiver could reasonably be expected to have a material adverse effect on the
International Assets taken as a whole, without the prior written consent of
Parent or Purchaser; (c) the Merger Agreement shall have been consummated,
without waiver of any of the conditions contained in the Merger Agreement, which
waiver could reasonably be expected to have a material adverse effect on the
International Assets taken as a whole, without the written consent of Parent or
Purchaser.
<PAGE>
Section 7.2. Conditions to NGC's Obligation to Sell the International Assets.
The obligation of NGC to sell the International Assets hereunder shall be
subject to the satisfaction or waiver by NGC at or prior to the Closing of the
following: (a) the Merger shall have been consummated, (b) the representations
and warranties of the Parent and Purchaser set forth in this Agreement shall be
true and correct (except in the case of any representation and warranty made as
of a specified date, which need only be true as of such date) as of the date of
the Closing as if such representations and warranties were made on such date
except for such representations and warranties the failure of which to be true
and correct would not have a material adverse effect on the transactions
contemplated by this Agreement and (c) Purchaser shall have complied with
Section 1.6(b) hereof.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing:
(a) By the mutual written consent of Parent and NGC; or
(b) By Parent or NGC, if: (i) the Merger Agreement is terminated; (ii) the
transactions contemplated by this Agreement have not been consummated on or
prior to December 31, 1997, or such other date, if any, as Parent and NGC shall
agree upon; provided that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to a party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date; or (iii) any Governmental Entity
shall have issued a statute, order, decree or regulation or taken any other
action (which statute, order, decree, regulation or other action the parties
30
<PAGE>
hereto shall use their reasonable best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or making such transactions illegal and such
statute, order, decree, regulation or other action shall have become final and
non-appealable.
Section 8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall terminate, and there
shall be no liability on the part of Parent, Purchaser or NGC except as set
forth in Section 9.1 hereof; provided that the termination of this Agreement
shall not relieve any party from liability for breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as contemplated by this Agreement, all
costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such expenses.
Section 9.2 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 9.3 Amendment; Waiver.
(a) This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time. This Agreement
may not be
<PAGE>
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
(b) At any time prior to the Closing, the parties may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance with any of the agreements
or conditions of the other parties hereto contained herein. Any agreement on
the part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
Section 9.4 Survival. The respective representations and warranties of
Parent, Purchaser and NGC contained herein or in any certificates or other
documents delivered prior to or as of the Closing shall not survive beyond the
Closing. The covenants and agreements of the parties hereto shall survive the
Closing without limitation (except for those which, by their terms, contemplate
a shorter survival period).
Section 9.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to NGC, to:
NGC Corporation
13430 Northwest Freeway
32
<PAGE>
2500 Citywest Blvd.
Suite 1200
Houston, Texas 77040-6095
Telephone: (713)
Facsimile: (713) 507-6505
Attention: Hugh Tarpley
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telephone: (713) 758-2222
Facsimile: (713) 758-2346
Attention: T. Mark Kelly, Esq.
Keith R. Fullenweider, Esq.
and
(b) if to Parent, to:
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Telephone: (703) 522-1315
Facsimile: (703) 528-4510
Attention: Katherine Oster
with a copy to: Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-5100
Facsimile: (212) 541-5369
Attention: John T. Baecher, Esq.
Section 9.6 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to
<PAGE>
a Section of this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information referred
to has been made available if requested by the party to whom such information is
to be made available. The words "affiliates" and "associates" when used in this
Agreement shall have the respective meanings ascribed to them in Rule 12b-2
under the Exchange Act. The phrase "beneficial ownership" and words of similar
import when used in this Agreement shall have the meaning ascribed to it in Rule
13d-3 under the Exchange Act.
Section 9.7 Headings; Schedules. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any matter disclosed pursuant to any Schedule
to the Disclosure Schedule shall be deemed to be disclosed for all purposes
under this Agreement but such disclosure shall not be deemed to be an admission
or representation as to the materiality of the item so disclosed.
Section 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
Section 9.9 Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings (written and
oral) among the parties with respect to the subject matter hereof, including,
without limitation, that certain Joint Bidding Agreement, dated February 10,
1997, by and between Parent and NGC.
Section 9.10 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions
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<PAGE>
of this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 9.11 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
Section 9.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns. The provisions of this Agreement
are not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.13 Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such Delaware Courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
<PAGE>
IN WITNESS WHEREOF, Parent and NGC have caused this Agreement to be signed by
their respective officers thereunto duly authorized as of the date first written
above.
NGC CORPORATION
By: /s/ Kenneth E. Randolph
--------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
and General Counsel
THE AES CORPORATION
By: /s/ Kenneth R. Woodcock
--------------------------
Name: Kenneth R. Woodcock
Title: Senior Vice President
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EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NGC CORPORATION
NGC Corporation hereby adopts a Restated Certificate of Incorporation and
states as follows:
1. The present name of the corporation is "NGC Corporation." The
corporation was originally incorporated under the name Midstream Combination
Corp. pursuant to its original Certificate of Incorporation, which was filed
with the Secretary of State of the State of Delaware on May 22, 1996;
2. The Restated Certificate of Incorporation (i) was duly adopted in
accordance with Section 245 of the Delaware General Corporation Law by the Board
of Directors without a vote of stockholders; (ii) only restates and integrates
and does not further amend the provisions of the Certificate of Incorporation of
the corporation as heretofore amended by that certain Certificate of Merger
merging NGC Corporation with and into Midstream Combination Corp., which filed
with the Secretary of State of the State of Delaware on August 30, 1996; and
(iii) there is no discrepancy between the provisions of the Certificate of
Incorporation as so amended and the provisions of the Restated Certificate of
Incorporation; and
3. The Restated Certificate of Incorporation restates and integrates the
Certificate of Incorporation as heretofore amended by the Certificate of Merger
as follows:
FIRST: The name of the corporation is NGC Corporation (the
"Corporation").
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 450,000,000 shares, divided into
two classes as follows: (i) 50,000,000 shares of Preferred Stock, par value
$0.01 per share ("Preferred Stock"); and (ii) 400,000,000 shares of Common
Stock, par value $0.01 per share ("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and the Common Stock of
the Corporation are as follows:
<PAGE>
B. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such designations and powers,
preferences, and rights, and qualifications, limitations, and restrictions
thereof as are stated and expressed herein and in the resolution or resolutions
providing for the issuance of such series adopted by the board of directors of
the Corporation as hereafter prescribed.
2. Authority is hereby expressly granted to and vested in the board
of directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more series, and with respect to each such series of
the Preferred Stock, to fix and state by the resolution or resolutions from time
to time adopted providing for the issuance thereof the following:
(i) whether or not such series is to have voting rights, full, special, or
limited, or is to be without voting rights, and whether or not such series is to
be entitled to vote as a separate class either alone or together with the
holders of one or more other series or class of stock;
(ii) the number of shares to constitute such series and the designations
thereof;
(iii) the preferences, and relative, participating, optional, or other
special rights, if any, and the qualifications, limitations, or restrictions
thereof, if any, with respect to any such series;
(iv) whether or not the shares of any such series shall be redeemable at
the option of the Corporation or the holders thereof or upon the happening of
any specified event, and, if redeemable, the redemption price or prices (which
may be payable in the form of cash, notes, securities, or other property), and
the time or times at which, and the terms and conditions upon which, such shares
shall be redeemable and the manner of redemption;
(v) whether or not the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the annual amount thereof, and the terms
and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock of
the Corporation, or other property, or a combination thereof, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or classes
or series of stock, whether such dividends shall be cumulative or noncumulative,
and if cumulative, the date or dates from which such dividends shall accumulate;
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(vii) the preferences, if any, and the amounts thereof which the holders
of any such series shall be entitled to receive upon the voluntary and
involuntary dissolution of, or upon any distribution of the assets of, the
Corporation;
(viii) whether or not the shares of any such series, at the option of the
Corporation or the holder thereof or upon the happening of any specified event,
shall be convertible into or exchangeable for the shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, securities, or other property of the Corporation and the conversion price
or prices or ratio or ratios or the rate or rates at which such exchange may be
made, with such adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and
(ix) such other special rights and provisions with respect to any such
series as may to the board of directors of the Corporation seem advisable.
3. The shares of each series of the Preferred Stock may vary from the
shares of any other class or series thereof in any or all of the foregoing
respects. The board of directors of the Corporation may increase the number of
shares of the Preferred Stock designated for any existing series by a resolution
adding to such series authorized and unissued shares of the Preferred Stock not
designated for any other series. The board of directors of the Corporation may
decrease the number of shares of the Preferred Stock designated for any existing
series by a resolution, subtracting from such series unissued shares of the
Preferred Stock designated for such series, and the shares so subtracted shall
become authorized, unissued and undesignated shares of the Preferred Stock.
C. Provisions Relating to the Series A Participating Preferred Stock.
1. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred"), $0.01 par value per share, and the number of shares of Preferred
Stock constituting such series shall be 8,000,000.
2. Dividends and Distribution. Subject to the provision for adjustment
hereinafter set forth, the holders of the Series A Preferred shall be entitled
to receive dividends or distributions equal per share in amount and kind to any
dividend or distribution payable on shares of Common Stock, when and as the same
are declared by the Board of Directors out of any funds legally available
therefor and paid to the holders of Common Stock, and no dividend may be
declared and paid on Common Stock unless an identical dividend or distribution
is declared and paid concurrently on Series A Preferred. If, however, at any
time after the date of original issuance of Series A Preferred, the Corporation
shall subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares of Common Stock or combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, and in each such case, the amount to which holders of the Series A
Preferred were entitled immediately
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prior to such event shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of the Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of the Common Stock outstanding immediately prior to such event. The
Corporation will have the right to issue shares of capital stock that are senior
or junior to or on a parity with the Series A Preferred with respect to
dividends without the approval or consent of the holders of Series A Preferred.
3. Voting Rights. Except as provided by law, the holders of the Series A
Preferred shall have no voting rights on any matter.
4. Redemption. The shares of the Series A Preferred shall not be
redeemable.
5. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, no
distribution shall be made to the holders of Common Stock or any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred unless, prior thereto, the holders of the Series A
Preferred shall have received $1.00 per share. All assets of the Corporation
available for distribution after the liquidation preferences are fully met of
the Series A Preferred and any shares senior to or on a parity with the Series A
Preferred with respect to liquidation preferences shall be distributed ratably
among the holders of the Series A Preferred and Common Stock in proportion to
the number of shares of Series A Preferred and Common Stock outstanding at the
time of such liquidation, dissolution or winding up of the Corporation. The
Corporation will have the right to issue shares of capital stock that are senior
or junior to or on a parity with the Series A Preferred with respect to the
liquidation, winding-up or dissolution of the Corporation without the approval
or consent of the holders of the Series A Preferred.
6. Conversion. The Series A Preferred may be converted at the option of
the holder thereof, or shall be converted automatically without any action on
the part of the holder thereof, into shares of Common Stock, on the terms and
conditions set forth in this Section 6. For purposes of this section 6, the
term "affiliate" shall mean any corporation, partnership or other entity that is
an "affiliate" within the meaning of the regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as such regulations
are in effect on the date hereof, and the term "Person" shall mean any
individual, firm, corporation, partnership, association, trust, joint venture,
legal entity, political subdivision or instrumentality or other organization.
(A) Right to Convert. Subject to the provisions for adjustment
hereinafter set forth, each share of the Series A Preferred shall be
convertible, at the option of the holder, at any time after the date of issuance
of such share, into one share of Common Stock as follows:
(i) To the extent necessary (a) to avoid dilution of the
holder's percentage ownership of the issued Common Stock, provided that, with
respect to dilution resulting from the issuance of additional compensatory
options as approved
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by not less than eighty-five percent (85%) of the entire Board of Directors, the
holder would have no such conversion right so long as its ownership of Common
Stock would still be greater than twenty percent (20%) of the issued Common
Stock, assuming for this purpose that all shares of Common Stock subject to
currently exercisable options and warrants were issued and outstanding, or (b)
to maintain a percentage ownership of the issued Common Stock at least equal to
that of the then largest other stockholder of the Corporation;
(ii) To the extent necessary, if any Person other than the holder of
Series A Preferred or an affiliate of such holder makes a tender offer for
Common Stock and such holder desires to tender the shares of the Series A
Preferred in the same proportion as it tenders Common Stock;
(iii) Upon approval by the stockholders of the Corporation of any
merger or recapitalization proposal in which the Series A Preferred would be
treated differently than Common Stock; and
(iv) Upon approval by the Corporation's stockholders of any (a) sale
of all or substantially all of the assets of the Corporation or (b) liquidation,
dissolution or winding up of the Corporation.
(B) Automatic Conversion. Subject to the provisions for adjustment
hereinafter set forth, each share of the Series A Preferred shall be
automatically converted into one share of Common Stock upon a sale or other
transfer (by operation of law, merger or otherwise) by the holder of such shares
to any Person other than an affiliate of the holder.
(C) Conversion Rate Adjustments. The Conversion Rate of the Series A
Preferred shall be subject to adjustment as hereinafter set forth. If at any
time the Corporation shall subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, and in each such case, the number of shares of
Common Stock into which each share of the Series A Preferred is convertible
shall be adjusted so that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock which
the holder of a share of the Series A Preferred would have been entitled to
receive after the happening of any and all of the events described above had
such share been converted into Common Stock immediately prior to the happening
of such event or the record date therefor, whichever is earlier.
(D) Mechanics of Conversion. The holder of any shares of the Series A
Preferred may exercise its option to convert such shares into shares of Common
Stock by surrendering for such purpose to the Corporation, at its principal
office or at such other office or agency maintained by the Corporation for that
purpose, a certificate or certificates representing the shares of the Series A
Preferred to be converted accompanied by a written notice stating that
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<PAGE>
such holder elects to convert all or a specified whole number of such shares in
accordance with the provisions of this Section 6 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. In case such notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. As promptly as practicable, and in any event within five business
days after the surrender of such certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes, the
Corporation shall deliver or cause to be delivered (i) certificates representing
the number of validly issued, fully paid and nonassessable shares of Common
Stock of the Corporation to which the holder of the Series A Preferred so
converted shall be entitled (and/or any other consideration to which the holders
of such shares of Common Stock would then be entitled) and (ii) if less than the
full number of shares of the Series A Preferred evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, for the number of shares evidenced by such surrendered certificate
or certificates less the number of shares converted. Such conversions shall be
deemed to have been made upon receipt by the Corporation of such notice and such
surrendered certificate or certificates representing the shares of the Series A
Preferred to be converted, so that the rights of the holder thereof shall cease
except for the right to receive Common Stock of the Corporation in accordance
herewith (and/or any other consideration to which the holders of such shares of
Common Stock would then be entitled), and such holder shall be treated for all
purposes as having become the record holder of such Common Stock of the
Corporation at such time.
D. Provisions Relating to the Common Stock.
1. Except as otherwise required by law, and subject to any special
voting rights which may be granted any series of Preferred Stock in the board of
directors resolution which creates such series, each holder of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
other holder's name on the records of the Corporation on each matter submitted
to a vote of the stockholders.
2. Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as, and if
declared by the board of directors of the Corporation, out of funds legally
available therefor, dividends payable in cash, stock, or otherwise.
3. Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock and the holders of any bonds, debentures, or other obligations
of the Corporation shall have been paid in full the amounts to which they shall
be entitled (if any), or a sum sufficient for such payment in full shall have
been set aside, the remaining net assets of the Corporation shall be distributed
pro rata to the holders of the Common Stock and the holders of Series A
Preferred in accordance with their respective rights and interest, to the
exclusion of the holders of any other series of the Preferred Stock and any
bonds, debentures, or other obligations of the Corporation.
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4. Without the consent of the holders of eighty-five percent (85%)
of the outstanding Common Stock, the Corporation may (and may permit any
subsidiary of the Corporation over which it has control to) sell the following
products:
(i) crude oil;
(ii) other products usually and normally refined as petroleum products from
crude oils; and
(iii) natural gas liquids or liquefied petroleum gases;
irrespective of where such sales or products are made, only when the seller has
no actual knowledge that the sale is not for consumption or resale in one or
more of the following areas:
(i) the United States or any of its territories or possessions;
(ii) any country wholly located in the Western Hemisphere and/or Europe or
surrounded by the Mediterranean Sea;
(iii) any country all of the territory of which was formerly contained
within the Union of Soviet Socialist Republics;
(iv) any country whose territory is contained within the territories
constituting as of the date hereof the countries known as Algeria, Angola,
Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Cote
D'Ivoire, Equatorial Guinea, Gabon, Gambia, Ghana, Greenland, Guinea, Guinea
Bissau, Iceland, Liberia, Libya, Mali, Mauritania, Mongolia, Morocco, Niger,
Nigeria, Rio Muni, Senegal, Sierra Leone, Togo, Tunisia, Turkey, Western Sahara
and/or Zaire;
(v) Antarctica; and
(vi) international waters;
unless (a) otherwise permitted by the terms of that certain Scope of Business
Agreement, dated May 22, 1996, between the Corporation and Chevron Corporation,
as the same may from time to time be amended in accordance with the terms
thereof, or (b) such Scope of Business Agreement is terminated pursuant to its
terms, upon which termination the provisions of this paragraph 4 shall be of no
further force and effect. A copy of such Scope of Business Agreement, as the
same may be amended, shall be available for inspection by any stockholder of the
Corporation at the principal offices of the Corporation. Except as indicated
above or as may otherwise be provided in this Certificate of Incorporation or by
Delaware law, stockholders shall have no right to approve specific business
activities of the Corporation, and the above provisions shall not otherwise
affect corporate powers and purposes as stated in Article III.
7
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E. General.
1. Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (in any form, but not less
in value than the par value thereof) as may be fixed by the board of directors
of the Corporation, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing conditions.
Shares so issued for which the consideration shall have been paid or delivered
to the Corporation shall be deemed fully paid stock and shall not be liable to
any further call or assessment thereon, and the holders of such shares shall not
be liable for any further payments in respect of such shares.
2. The Corporation shall have authority to create and issue rights and
options entitling their holders to purchase or otherwise acquire shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the board of directors of the Corporation. The board of directors
of the Corporation shall be empowered to set the exercise price, duration, times
for exercise, and other terms of such options or rights; provided, however, that
the consideration to be received (which may be in any form) for any shares of
capital stock subject thereto shall have a value not less than the par value
thereof.
FIFTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means any other corporation, partnership,
association, firm, trust, joint venture, other legal entity, political
subdivision, or instrumentality or other organization) in which one or more of
its directors, officers, or stockholders are directors, officers, or
stockholders, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee which authorizes the
contract or transaction, or solely because his, her, or their votes are counted
for such purpose, if (i) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee thereof
(to the extent permitted by applicable law), or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the board of directors or of a committee which authorizes the
contract or transaction.
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SIXTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he (i) is or was a director or officer of the Corporation or
(ii) while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the General Corporation Law of Delaware, as the same exists or may
hereafter be amended. Such right shall be a contract right and shall include
the right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the General Corporation Law of Delaware, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within 60 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense are not permitted under the General Corporation Law of Delaware, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee or
directors thereof, independent legal counsel, or stockholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee or directors thereof, independent legal
counsel or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his heirs, executors, administrators,
and personal representatives. The rights conferred above shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, bylaw, resolution of stockholders or directors, agreement, or
otherwise. The Company shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if the initiation of such proceeding (or part thereof) by the indemnitee was
authorized by the board of directors of the Company.
The Corporation's obligation, if any, to indemnify or advance expenses to
any person who was or is serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise shall be reduced by any amount such person may collect as
indemnification or advancement from such other foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
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As used herein, the term "proceeding" means any threatened, pending, or
completed action suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
Any repeal or amendment of this Article SIXTH shall be prospective only and
shall not affect the rights of any such director or officer or the obligations
of the Corporation with respect to any claim arising from or related to the
services of such director or officer in any of the foregoing capacities prior to
any such repeal or amendment to this Article SIXTH.
SEVENTH: The board of directors shall have the power to make, adopt,
alter, amend, and repeal from time to time the Bylaws of the Corporation and to
make from time to time new Bylaws of the Corporation (subject to the right of
the stockholders entitled to vote thereon to adopt, alter, amend, and repeal
Bylaws made by the board of directors or to make new Bylaws) to the extent and
in the manner provided in the Bylaws; provided, however, that the stockholders
of the Corporation shall be entitled to adopt, alter, amend, or repeal Bylaws
made by the board of directors or to make new Bylaws solely upon the affirmative
vote of the holders of a majority of the outstanding shares of the Common Stock.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve
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intentional misconduct or knowing violation of law, (iii) under Section 174 of
the General Corporation Law of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or amendment of
this Article EIGHTH by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation arising from an act or omission occurring prior to
the time of such repeal or amendment. In addition to the circumstances in which
a director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article EIGHTH, a director shall not be liable to
the Corporation or its stockholders to such further extent as permitted by any
law hereafter enacted, including without limitation any subsequent amendment to
the General Corporation Law of Delaware.
NINTH: The number of directors constituting the board of directors shall
be fixed by, or in the manner provided in, the Bylaws of the Corporation. Each
director of the Corporation shall hold office until the next annual meeting of
stockholders or until his or her successor shall have been duly elected and
qualified. Directors need not be elected by written ballot.
EXECUTED this 21st day of November, 1996.
NGC CORPORATION
By: /s/ C. L. Watson
------------------------
C. L. Watson
Chairman of the Board and
Chief Executive Officer
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NGC CORPORATION
A Delaware Corporation
As Amended by an Amendment
adopted by the Board of Directors
on February 7, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent ........................................ 1
1.2 Other Offices ...................................................... 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting ..................................................... 1
2.2 Special Meeting .................................................... 1
2.3 Place of Meetings .................................................. 2
2.4 Notice ............................................................. 2
2.5 Voting List......................................................... 2
2.6 Quorum ............................................................. 2
2.7 Required Vote; Withdrawal of Quorum ................................ 3
2.8 Method of Voting; Proxies .......................................... 3
2.9 Record Date ........................................................ 3
2.10 Conduct of Meeting ................................................. 4
2.11 Inspectors ......................................................... 4
ARTICLE THREE: DIRECTORS
3.1 Management ......................................................... 5
3.2 Number; Term; Advisory Director..................................... 5
3.3 Removal; Vacancies ................................................. 5
3.4 Meetings of Directors .............................................. 5
3.5 First Meeting ...................................................... 5
3.6 Election of Officers ............................................... 6
3.7 Regular Meetings ................................................... 6
3.8 Special Meetings ................................................... 6
3.9 Notice ............................................................. 6
3.10 Quorum; Vote Required; Actions Requiring Approval .................. 6
3.11 Procedure .......................................................... 9
3.12 Presumption of Assent .............................................. 9
3.13 Compensation ....................................................... 9
3.14 Interested Directors ............................................... 9
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ARTICLE FOUR: COMMITTEES
4.1 Executive Committee................................................ 10
4.2 Other Committees .................................................. 10
4.3 Number; Qualification; Term ....................................... 10
4.4 Authority ......................................................... 10
4.5 Committee Changes ................................................. 11
4.6 Alternate Members of Committees ................................... 11
4.7 Regular Meetings .................................................. 11
4.8 Special Meetings .................................................. 11
4.9 Quorum; Majority Vote ............................................. 11
4.10 Minutes ........................................................... 11
4.11 Compensation ...................................................... 11
4.12 Responsibility .................................................... 12
ARTICLE FIVE: NOTICE
5.1 Method ............................................................ 12
5.2 Waiver ............................................................ 12
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office..................................... 12
6.2 Removal ........................................................... 13
6.3 Vacancies ......................................................... 13
6.4 Authority ......................................................... 13
6.5 Compensation ...................................................... 13
6.6 Chairman of the Board ............................................. 13
6.7 President ......................................................... 13
6.8 Vice Presidents ................................................... 14
6.9 Treasurer ......................................................... 14
6.10 Assistant Treasurers .............................................. 14
6.11 Secretary ......................................................... 14
6.12 Assistant Secretaries ............................................. 14
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares ........................................... 15
7.2 Replacement of Lost or Destroyed Certificates ..................... 15
7.3 Transfer of Shares ................................................ 15
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7.4 Registered Stockholders ........................................... 15
7.5 Regulations ....................................................... 16
7.6 Legends ........................................................... 16
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Reserves .......................................................... 16
8.2 Books and Records ................................................. 16
8.3 Fiscal Year ....................................................... 16
8.4 Seal .............................................................. 16
8.5 Resignations ...................................................... 16
8.6 Securities of Other Corporations .................................. 17
8.7 Telephone Meetings ................................................ 17
8.8 Invalid Provisions ................................................ 17
8.9 Mortgages, etc. ................................................... 17
8.10 Headings .......................................................... 17
8.11 References ........................................................ 17
8.12 Amendments ........................................................ 17
iii
<PAGE>
BYLAWS
OF
NGC CORPORATION
A Delaware Corporation
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may be properly brought before the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be called
by the board of directors pursuant to a resolution adopted by a majority of the
directors, by the Chairman of the Board, by the President, or by any holder or
holders of record of at least 10% of the outstanding shares of capital stock of
the Corporation then entitled to vote on any matter for which the respective
special meeting is being called (considered for this purpose as one class).
Subject to applicable law, a special meeting shall be held on such date and at
such time as shall be designated by the persons(s) calling the meeting and
stated in the notice of the meeting or in a duly executed waiver of notice of
such meeting. Only such business shall be transacted at a special meeting as may
be stated or indicated in the notice of such meeting given in accordance with
these Bylaws or in a duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at any
place within or without the State of Delaware designated by the board of
directors. A
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2
special meeting of stockholders may be held at any place within or without the
State of Delaware designated in the notice of the meeting or a duly executed
waiver of notice of such meeting. Meetings of stockholders shall be held at the
principal office of the Corporation unless another place is designated for
meetings in the manner provided herein.
2.4 Notice. A written or printed notice stating the place, day and time of
each meeting of the stockholders and, in the case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chairman of the Board, the President,
the Secretary or the officer or person(s) calling the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is to be
sent by mail, it shall be directed to such stockholder at such stockholder's
address as it appears on the records of the Corporation, unless such stockholder
shall have filed with the Secretary of the Corporation a written request that
notices to such stockholder be mailed to some other address, in which case it
shall be directed to such stockholder at such other address. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall attend such meeting in person or by proxy and shall not, at the beginning
of such meeting, object to the transaction of any business because the meeting
is not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by such officer or through a transfer agent appointed by the board of directors,
shall prepare a complete list of stockholders entitled to vote thereat arranged
in alphabetical order and showing the address of each stockholder and number of
shares of capital stock registered in the name of each stockholder. For a period
of ten days prior to such meeting, such list shall be kept on file at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of meeting or a duly executed waiver of notice of such meeting or,
if not so specified, at the place where the meeting is to be held, and shall be
open to examination by any stockholder during ordinary business hours. Such list
shall be produced at such meeting and kept at the meeting at all times during
such meeting and may be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the voting power of the
outstanding shares of capital stock entitled to vote on a matter, present in
person or by proxy, shall constitute a quorum at any meeting of stockholders,
except as otherwise provided by law, the certificate of incorporation of the
Corporation, these Bylaws, or any rule or regulation applicable to the
Corporation or of any applicable national securities exchange. If a quorum shall
not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy
(or, if no stockholder entitled to
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3
vote is present, any officer of the Corporation), may adjourn the meeting from
time to time without notice other than announcement at the meeting (unless the
board of directors, after such adjournment, fixes a new record date for the
adjourned meeting), until a quorum shall be present, in person or by proxy. At
any adjourned meeting at which a quorum shall be present, in person or by proxy,
any business may be transacted which may have been transacted at the original
meeting had a quorum been present; provided that, if the adjournment is for more
than 30 days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the voting power of
the outstanding shares of capital stock entitled to vote thereat who are
present, in person or by proxy, shall decide any questions brought before such
meeting, unless the question is one on which, by express provision of law, the
certificate of incorporation of the Corporation, these Bylaws, or any rule or
regulation applicable to the Corporation or of any applicable national
securities exchange, a different vote is required, in which cases such express
provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough shares of
capital stock to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share of capital stock, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders. Elections of
directors need not be by written ballot. At any meeting of stockholders, every
stockholder having the right to vote may vote either in person or by proxy
executed in writing by the stockholder or by such stockholder's duly authorized
attorney-in-fact. Each such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
three years from the date of its execution, unless otherwise provided in the
proxy. If no date is stated in a proxy, such proxy shall be presumed to have
been executed on the date of the meeting at which it is to be voted. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
coupled with an interest sufficient in law to support an irrevocable power or
unless otherwise made irrevocable by law.
2.9 Record Date. For the purposes of determine stockholders entitled (a)
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, (b) to receive payment of any dividend or other distribution or
allotment of any rights, or (c) to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the board
<PAGE>
4
of directors for any such determination of stockholders, such date in
any case to be not more than 60 days and not less than ten days prior to such
meeting nor more than 60 days prior to any other action. If no record date is
fixed:
(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date of the
adjourned meeting.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has been
filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall chair all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or non-
acting officer under these Bylaws or by a person appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his or her ability. The
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the results
and certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting, the inspectors shall make a report in writing of
any challenge, request or matter determined by them and shall execute a
certificate of any fact
<PAGE>
5
found by them. No director or candidate for the office of director shall act as
an inspector of an election of directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation or these Bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Term; Advisory Director. The number of directors constituting
the board of directors shall be thirteen. Each director shall hold office until
the next annual meeting of stockholders following his or her election, and until
his or her successor shall have been duly elected and qualified, or until his or
her earlier death, resignation or removal. In addition to the thirteen
directors who shall be elected by the stockholders of the Corporation, the board
of directors may also designate, by resolution of the Board, an advisory
director who shall be entitled to attend all meetings of the Board, but shall
not be entitled to vote on any matters before the Board. Except as set forth in
this Section 3.2, the advisory director shall have no rights as a director
either under the certificate of incorporation of the Corporation, these Bylaws,
Delaware law or any other agreement to which the Corporation is a party.
Notwithstanding the foregoing, an advisory director shall be entitled to receive
compensation for his or her services as a director in the same amount and manner
that such director would be entitled to receive compensation as an employee
director or non-employee director, as the case may be, if such director were
elected by the stockholders of the Corporation.
3.3 Removal; Vacancies. Any or all of the directors may be removed, with or
without cause, upon the affirmative vote or consent of the holders of a majority
of the voting power of the outstanding shares of each class of capital stock
then entitled to vote in person or by proxy at an election of such directors.
Any vacancies occurring in the board of directors caused by death, resignation,
retirement, disqualification, removal or other termination from office of any
director may be filled by the vote of at least eleven directors then in office
or by the affirmative vote, at any annual meeting or any special meeting of the
stockholders called for the purpose of filling such directorship or
directorships, of the holders of a majority of the outstanding shares of each
class of capital stock then entitled to vote in person or by proxy at an
election of such directors. Each successor director so chosen shall hold office
for the unexpired term of his or her predecessor in office.
3.4 Meetings of Directors. The directors may hold their meetings and may
have an office and keep the records of the Corporation, except as otherwise
provided by law, in such place or places within or without the State of Delaware
as the board of directors may from time to time determine or as shall be
specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.5 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
<PAGE>
6
3.6 Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.7 Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.8 Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board or any two or more directors.
3.9 Notice. The Secretary shall give notice of each special meeting to
each director at least five business days before the meeting. Notice of any such
meeting need not be given to any director who, either before or after the
meeting, submits a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him
or her. The purpose of any special meeting shall be specified in the notice or
waiver of notice of such meeting.
3.10 Quorum; Vote Required; Actions Requiring Approval. (a) Except as
provided in Section 3.10(b), at all meetings of the board of directors, seven
directors shall constitute a quorum for the transaction of business. If at any
meeting of the board of directors there is less than a quorum present, a
majority of those present or any director solely present may adjourn the meeting
from time to time without further notice. Unless the act of a greater number is
required by law, the certificate of incorporation of the Corporation or these
Bylaws, the act of a majority of the directors present at a meeting at which a
quorum is in attendance shall be the act of the board of directors.
(b) Notwithstanding anything to the contrary herein (and subject to
the provisions of Section 4.1 of these Bylaws), the Corporation shall not take
(or permit to be taken in its capacity as a shareholder or partner or otherwise
permit any Subsidiary of the Corporation to take) any of the following actions
unless approved by the affirmative vote of at least eleven directors:
(i) any sale of all or substantially all of the assets of the
Corporation or any Subsidiary;
(ii) any merger, consolidation, liquidation or dissolution of the
Corporation or any Subsidiary or any purchase or other acquisition of any common
stock or preferred stock of the Corporation;
<PAGE>
7
(iii) adopting any resolution proposing an amendment to the certificate
of incorporation of the Corporation;
(iv) the Corporation or any Subsidiary entering into any line of
business that neither the Corporation nor any Subsidiary is engaged in on
Effective Time (as such term is defined in that certain Combination Agreement
and Plan of Merger among the Corporation and certain other parties dated as of
May 22, 1996);
(v) the Corporation or any Subsidiary paying any dividend or otherwise
making any distribution to any person;
(vi) the Corporation or any Subsidiary issuing any stock or other
security or ownership interests to any person;
(vii) the Corporation or any Subsidiary engaging in any oil or gas
futures activities, or other trading activities relating to oil or gas pricing,
including, without limitation, hedging, swaps, options or speculation (such
activities referred to herein as "trading activities"), that, based on the
average oil or gas pricing during the 6 months preceding the date of such
activity, could result in exposure to loss to the Corporation in excess of
$10,000,000 as to any single transaction, other than trading activities which
offset physical transactions and are accounted for as a hedge, and in no event
shall the uncovered portion of the trading activities of the Corporation and its
Subsidiaries, in the aggregate, result in an exposure to loss to the Corporation
in excess of $10,000,000;
(viii) amending or terminating any contract, commitment or employee
compensation plan if the execution of or entering into such contract, commitment
or plan was approved by the board of directors pursuant to this Section 3.10(b)
(or would have been subject to board of director approval pursuant to this
Section 3.10(b) if this Section 3.10 had been in effect at the time of execution
of or entering into such contract, commitment or plan);
(ix) approving a different method in which the Corporation keeps its
books;
(x) the commencement by the Corporation or any Subsidiary of a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other voluntary case
or proceeding to be adjudicated a bankrupt or insolvent or the consent by it to
the entry of a decree or order for relief against it in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the
<PAGE>
8
filing by it of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of action in furtherance
of any such action;
(xi) the Corporation or any Subsidiary taking any action in its
capacity as a shareholder, partner, member or owner of any interest in a person
which, if taken by the Corporation itself, would require the approval of the
board of directors pursuant to this Section 3.10(b);
(xii) the Corporation or any Subsidiary (A) making, or committing to
make, any payment in excess of $10,000,000 per transaction or contract (or
series of related transaction or contracts), whether as or in connection with a
capital expenditure, asset purchase, purchase of goods or services, investment,
rental, settlement, equity contribution, loan, guaranty or otherwise, (B)
borrowing any amount in excess of $10,000,000 per transaction or contract (or
series of related transactions or contracts), (C) disposing of or otherwise
transferring any asset (or related assets) whose fair market value exceeds
$10,000,000 or (D) entering into any contract or transaction (or series of
contracts or transactions) pursuant to which the Corporation or any Subsidiary
is to receive more than $10,000,000; provided, however, if the amount in
question is in excess of $10,000,000 but less than $25,000,000, any action
referred to in (A), (B), (C) or (D) (including any such action that is also
subject to Section 3.10(b)(vii) and any other such action that is subject to any
of the other provisions of Section 3.10(b) except for the Corporation issuing
any stock or other security or ownership interests to any person or paying any
dividend or otherwise making any distribution to any person) need not be
approved as aforesaid by the board of directors if approved by the unanimous
vote of the Executive Committee;
(xiii) any change in the fiscal year of the Corporation;
(xiv) the appointment or removal of the Corporation's Chief Executive
Officer, President, Chief Financial Officer or any Senior Vice President;
(xv) the filling of any vacancy in the board of directors of the
Corporation; and
(xvi) the establishment of any committee of the board of directors of
the Corporation.
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9
Notwithstanding the foregoing, if one or more directors give written notice to
the Secretary that such director or directors intend to abstain pursuant to
Section 3.14 of these Bylaws on a matter that is subject to this Section
3.10(b), then in lieu of the approval otherwise required herein such action may
be approved by the affirmative vote of at least such number of directors equal
to eleven less the number of directors that have given such notice. For
purposes of these Bylaws, "Subsidiary" means (i) any corporation or other entity
a majority of the capital stock of which having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is at the time owned, directly or indirectly, with power to vote, by the
Corporation, or (ii) a partnership, joint venture or limited liability company
in which the Corporation holds, directly or indirectly, a majority interest with
respect to voting power, rights to receive distributions or report earnings, or
capital accounts, provided that none of Novagas Clearinghouse Limited
Partnership, Novagas Clearinghouse Limited, Novagas Clearinghouse Pipelines
Limited Partnership or Novagas Clearinghouse Pipelines Limited shall be deemed
to be a Subsidiary as currently constituted or as changed in connection with the
transactions contemplated by that certain Combination Agreement and Plan of
Merger dated as of May 22, 1996 among NGC Corporation, Chevron U.S.A. Inc. and
Midstream Combination Corp. and shall not be considered a Subsidiary solely by
reason of an increase in the Corporation's equity interest in any one or more of
the foregoing entities from approximately 49% to approximately 51%.
3.11 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
3.12 Presumption of Assent. A director of the Corporation who is present at
the meeting of the board of directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his abstention or
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent or
abstention by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
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10
3.13 Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, however, that nothing contained
herein shall be construed to preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.
3.14 Interested Directors. A director who has an interest in a transaction
or matter within the meaning of Section 144 of the Delaware General Corporation
Law (or in which the Stockholder that nominated such director pursuant to that
certain Stockholders Agreement dated May 22, 1996 among the Corporation and
certain other persons (the "Stockholders Agreement") has an interest) that is
the subject of review or action by the board of directors shall (i) disclose
such interest to the board of directors, (ii) abstain from voting with respect
to such transaction or matter and (iii) give written notice to the Secretary of
the Corporation that he or she intends to so abstain. If one or more directors
give written notice to the Secretary that such director or directors intend to
abstain pursuant to this Section 3.14 with respect to any action by the Board of
Directors, then in lieu of the approval otherwise required under these Bylaws
for such action, such action may be approved by the affirmative vote of at least
the number of directors that would otherwise have been required less the number
of directors that have given such notice.
ARTICLE FOUR: COMMITTEES
4.1 Executive Committee. The board of directors, acting by resolution
adopted by at least eleven directors, may elect from among its members an
Executive Committee of four members, which committee shall have the authority to
approve actions to the extent specified in Section 3.10(b) of these Bylaws and,
with respect to actions not subject to Section 3.10(b), any other actions that a
majority of the board of directors could approve except to the extent restricted
by law or the certificate of incorporation of the Corporation. In the event of a
vacancy, the Executive Committee shall have no authority to take any action
until such vacancy is filled.
4.2 Other Committees. In addition to the Executive Committee, the board of
directors may, by resolution adopted by at least eleven directors, designate one
or more other committees (an "Additional Committee").
4.3 Number; Qualification; Term. Each Additional Committee shall consist of
one or more directors appointed by resolution adopted by at least eleven
directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by at least eleven directors. Each committee
member shall serve as such until the
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11
earliest of (i) the expiration of his or her term as director, (ii) his or her
resignation as a committee member or as a director, or (iii) his or her removal
as a committee member or as a director.
4.4 Authority. Each Additional Committee, to the extent expressly provided
in the resolution adopted by at least eleven directors establishing such
committee, shall have and may exercise all of the authority of the board of
directors in the management of the business and property of the Corporation
except to the extent expressly restricted by such resolution or by law, the
certificate of incorporation of the Corporation, or these Bylaws.
Notwithstanding the foregoing, no committee (other than the Executive Committee
as provided in, but only to the extent provided in, Section 3.10(b)) may approve
or authorize the actions specified in Section 3.10(b).
4.5 Committee Changes. The board of directors by resolution adopted by at
least eleven directors shall have the power at any time to fill vacancies in, to
change the membership of, and to discharge any committee.
4.6 Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee.
4.7 Regular Meetings. Regular meetings of any committee may be held without
notice at such time and place as may be designated from time to time by the
committee and communicated to all members thereof.
4.8 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. The purpose of any special
meeting shall be specified in the notice or waiver of notice of such meeting.
4.9 Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business; provided, however, that the quorum for the
transaction of business by the Executive Committee shall be all members thereof.
If a quorum is not present at a meeting of any committee, a majority of the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. The act of a
majority of the members present at any meeting at which a quorum is in
attendance shall be the act of a committee, unless the act of a greater number
is required by law, the certificate of incorporation of the Corporation, or
Section 3.10(b) or any other provision of these Bylaws.
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12
4.10 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.11 Compensation. Committee members may, by resolution of the board of
directors, be allowed a stated salary or a fixed sum and expenses of attendance,
if any, for attending any committee meetings.
4.12 Responsibility. The designation of any committee and the delegation of
authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these Bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (i) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his or her address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (ii) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice required
or permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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13
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
be a Chairman of the Board, a President, a Secretary, and such other officers as
the board of directors may from time to time elect or appoint, including one or
more Vice Presidents (with each Vice President to have such descriptive title,
if any, as the board of directors shall determine) and a Treasurer. The board of
directors may also from time to time elect or appoint a Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, or Principal Accounting
Officers, each with such powers and duties as may be assigned by the board of
directors. Each officer shall hold office until his or her successor shall have
been duly elected and shall have qualified, until his or her death, or until he
or she shall resign or shall have been removed in the manner hereinafter
provided. Any two or more offices may be held by the same person. None of the
officers need be a stockholder or a director of the Corporation or a resident of
the State of Delaware, but the Chairman shall be a director.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these Bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these Bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall be
fixed from time to time by the board of directors or a committee of directors
appointed for such purpose by the board of directors: provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board shall, subject to the
supervision of the board of directors of the Corporation, have the general
management and control of the Corporation. Such officer shall preside at all
meetings of the stockholders and
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14
of the board of directors and shall have such duties as may from time to time
be assigned by the board of directors.
6.7 President. The President shall, subject to the supervision of the board
of directors of the Corporation, have general charge, management, and control of
the properties and operations of the Corporation in the ordinary course of its
business, with all such powers with respect to such properties and operations as
may be reasonably incident to such responsibilities. In the absence or inability
to act of the Chairman of the Board, the President shall exercise all of the
powers and discharge all of the duties of the Chairman of the Board. As between
the Corporation and third parties, any action taken by the President in the
performance of the duties of the Chairman of the Board shall be conclusive
evidence that the Chairman of the Board is absent or unable to act.
6.8 Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned to him or her by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
6.9 Treasurer. The Treasurer shall have custody of the Corporation's funds
and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designed by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him or her by the board of directors, the
Chairman of Board or the President. The Assistant Treasurers (in the order of
their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer
during that officer's absence or liability to act.
6.11 Secretary. Except as otherwise provided in these Bylaws, the Secretary
shall keep the minutes of all meetings of the board of directors and of the
stockholders in books provided for that purpose, and he or she shall attend to
the giving and service of all notices. The Secretary may sign with the Chairman
of the Board or the President or any other authorized officer of the
Corporation, in the name of the Corporation, all contracts of the
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15
Corporation and affix the seal of the Corporation thereto. The Secretary shall
have charge of the certificate books, transfer books, and stock papers as the
board of directors may direct, all of which shall at all reasonable times be
open to inspection by any officer of the Corporation upon application at the
office of the Corporation during business hours. The Secretary shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the board of directors, the Chairman of the Board, and the President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such powers
and duties as may be assigned to him or her by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Secretary) shall exercise the powers of the Secretary during
that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates representing shares of stock of
the Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or as Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he or she were such officer, transfer agent, or registrar
at the date of issue. The certificates shall be consecutively numbered and shall
be entered in the books of the Corporation as they are issued and shall exhibit
the holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of directors
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates representing shares to be lost
or destroyed. When authorizing such issue of a new certificate or certificates
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such a manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that be
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16
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferrable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat the
holder of record of any share or shares 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 such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by law.
7.5 Regulations. The board of directors shall have the power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer, registration and replacement of certificates for shares of
stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to insure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.2 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the
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17
office of its transfer agent or registrar, a record of its stockholders, giving
the names and addresses of all stockholders and the number and class of the
shares held by each.
8.3 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors.
8.4 Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
8.5 Resignations. Any director, committee member, or officer may resign by
so stating at any meeting of the board of directors or by giving written notice
to the board of directors, the Chairman of the Board, the President or the
Secretary. Such resignation shall take effect at the time specified therein or,
if no time is specified therein, immediately upon its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
8.6 Securities of Other Corporations. Except as otherwise provided in these
Bylaws or resolution of the board of directors, the Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
8.7 Telephone Meetings. Members of the board of directors and members of a
committee of the board of directors may participate in and hold a meeting of the
board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this section shall
continue presence in person at such meeting, except where a person participates
in the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
8.8 Invalid Provisions. If any part of these Bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
8.9 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation of the Corporation
unless the resolutions, if any, of the board of directors authorizing such
execution expressly state that such attestation is necessary.
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18
8.10 Headings. The headings used in these Bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.11 References. Whenever herein the singular number is used, the same
shall include the plural here appropriate, and words of one gender should
include the other gender where appropriate.
8.12 Amendments. These Bylaws may only be amended or repealed by the
affirmative vote or consent of at least eleven directors of the Corporation or
by the holders of a majority of the outstanding Common Stock.
<PAGE>
EXHIBIT 10.6
NGC CORPORATION
AMENDED AND RESTATED 1991 STOCK OPTION PLAN
I. PURPOSES
NGC Corporation, a Delaware corporation (the "Company"), desires to afford
certain of its directors and key employees (herein, "Key Persons") and the Key
Persons of any Related Entity (as defined below) who are responsible for the
continued growth of the Company an opportunity to acquire a proprietary interest
in the Company, and thus to create in such Key Persons an increased interest in
and a greater concern for the welfare of the Company and its stockholders.
From and after December 8, 1995, for all purposes under the Plan, the term
"Related Entity" shall mean (i) Novagas Clearinghouse Ltd., (ii) Accord Energy
Ltd., and (iii) any corporation, partnership, limited liability company or
partnership, association, trust or other organization now existing or hereafter
formed or acquired which, directly or indirectly, controls, is controlled by, or
is under common control with, the Company; provided, however, that (1) for
purposes of Articles V, VI, and VIII of the Plan and (2) with respect to
Incentive Options (as defined below) granted prior to May 10, 1996, for purposes
of Article XII of the Plan, the term "Related Entity" shall mean a subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired. For purposes of the preceding sentence, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any entity or organization, shall
mean the possession, directly or indirectly, of the power (A) to vote more than
50% of the securities having ordinary voting power for the election of directors
of the controlled entity or organization, or (B) to direct or cause the
direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by contract
or otherwise. As used in the Plan, the terms "subsidiary corporation" and
"parent corporation" shall mean, respectively, a corporation coming within the
definition of such terms contained in Sections 424(f) and 424(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
The stock options ("Options") offered pursuant to this Amended and
Restated 1991 Stock Option Plan (the "Plan") are a matter of separate inducement
and are not in lieu of any salary or other compensation for services of any Key
Person.
The Company, by means of the Plan, seeks to retain the services of persons
now holding key positions and to secure the services of persons capable of
filling such positions.
The Options granted under the Plan are intended to be either incentive
stock options ("Incentive Options") within the meaning of Section 422 of the
Code, or options that do not meet the requirements for Incentive Options ("Non-
Qualified Options"), but the Company makes no warranty as to the qualification
of any Option as an Incentive Option.
<PAGE>
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
Subject to the adjustments provided in Article XIII hereof, the total
number of shares of capital stock of the Company that may be purchased pursuant
to the exercise of Options granted under the Plan shall not exceed, in the
aggregate, 9,892,610 shares of authorized voting common stock, par value $0.01
per share, of the Company (the "Shares"); provided, however, that
notwithstanding any provision in the Plan to the contrary, the Committee (as
defined below) may not grant Options under the Plan that could result in more
than 6,692,610 Shares (subject to adjustment in the same manner as provided in
Article XIII hereof with respect to the maximum number of Shares subject to the
Plan) being issued upon the exercise of such Options unless the proposed
transaction with Chevron U.S.A. Inc. ("Chevron") to combine substantially all of
Chevron's gas gathering, processing and marketing operations with the Company is
consummated. As used herein, the authorized common stock of the Company shall
be referred to as "Company Stock."
Shares that may be acquired under the Plan may be authorized but unissued
Shares, Shares of issued stock held in the Company's treasury, issued Shares
reacquired by the Company, or a combination thereof, in each case as the
Committee may determine from time to time at its sole option. If and to the
extent that Options granted under the Plan expire or terminate without having
been exercised, new Options may be granted with respect to the Shares covered by
such expired or terminated Options, provided that the grant and the terms of
such new Options shall in all respects comply with the provisions of the Plan;
provided, however, that no Option shall be granted under the Plan after the
Termination Date (as defined below).
The Company may from time to time grant to certain Key Persons of the
Company or a Related Entity Options under the terms hereinafter set forth;
provided, however, that, except with respect to Options then outstanding, if not
sooner terminated under the provisions of Article XX, the Plan shall terminate
upon and no further Options shall be granted after May 9, 2006 (the "Termination
Date"). Notwithstanding any provision in the Plan to the contrary, Incentive
Options may be granted only to Key Persons who are employed by the Company or a
Related Entity that is a subsidiary corporation or parent corporation of the
Company on the date of grant of any such Option.
III. ADMINISTRATION
The Plan shall be administered by the Option committee, or any successor
thereto, of the Board of Directors of the Company (the "Board of Directors"), or
by any other committee appointed by the Board of Directors to administer this
Plan (the "Committee"). The number of individuals that shall constitute the
Committee shall be no less than two individuals. A majority of the Committee
shall constitute a quorum (or if the Committee consists of only two members,
then both members shall constitute a quorum), and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by a majority of the Committee, shall be the acts of the Committee. The
Committee shall be comprised exclusively
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<PAGE>
of "outside directors", as such term is used pursuant to Section 162(m) of the
Code and any rules and regulations promulgated thereunder. At any time that the
Company shall have a class of equity securities registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i)
each member of the Committee shall be required to also be a "disinterested
person" to administer the Plan within the meaning of Rule 16b-3, as amended
(herein so called), or other applicable rules under Section 16(b) of the
Exchange Act, and the Committee shall administer the Plan so as to comply at all
times with the Exchange Act and (ii) no member of the Committee shall be
eligible for grants or awards hereunder.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or any other number that Rule 16b-3 or Section 162(m) of the Code
(or other applicable rules or regulations) may require from time to time.
Subject to the express provisions of the Plan, the Committee shall have
authority, in its discretion, to determine the Key Persons to whom Options shall
be granted, the time when such Options shall be granted to Key Persons, the
number of Shares which shall be subject to each Option, the purchase price of
each Share which shall be subject to each Option, the period(s) during which
such Options shall be exercisable (whether in whole or in part), and the other
terms and provisions thereof. In determining the Key Persons to whom Options
shall be granted and the number of Shares for which Options shall be granted to
each Key Person, the Committee shall consider the length of service, the
contributions to the Company, its parents and subsidiaries taken as a whole, and
the responsibilities and duties of each Key Person.
Subject to the express provisions of the Plan, the Committee also shall
have authority to construe the Plan and Options granted thereunder, to amend, or
in the case of material amendments to the Plan, to recommend to the Board of
Directors and the stockholders of the Company the amendment of, the Plan, to
amend Options granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective Options (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan. The Committee
also shall have the authority to require, in its discretion, as a condition of
the granting of any such Option, that an employee recipient agree (i) not to
sell or otherwise dispose of Shares acquired pursuant to the exercise of an
Incentive Option for a period of two (2) years from the grant of such Incentive
Option nor within one (1) year from the date of the acquisition of such Shares
pursuant to the exercise of such Incentive Option and (ii) that in the event of
termination of employment of such employee, other than as a result of dismissal
without cause, such employee will not, for a period to be fixed at the
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time of the grant of the Option, enter into any other employment or participate
directly or indirectly in any other business or enterprise which is competitive
with the business of the Company or any Related Entity, or enter into any
employment in which such employee will be called upon to utilize special
knowledge obtained through employment with the Company or any Related Entity.
The Committee shall also have the authority to require, as a condition to the
granting of any Option, that the person receiving such Option agree not to sell
or otherwise dispose of such Option, any Company Stock acquired pursuant to such
Option or any other "derivative security" (as defined by Rule 16a-l(c) under the
Exchange Act) for a period of six (6) months following the later of (i) the date
of the grant of such Option or (ii) the date when the exercise price of such
Option is fixed if such exercise price is not fixed at the date of grant of such
Option.
Subject to and consistent with the express provisions of the Code and Rule
16b-3 promulgated under the Exchange Act, the Committee shall have plenary
authority, in lieu of requiring a cash payment from the Key Person upon the
exercise of an Option, to:
(a) provide the establishment of procedures for a Key Person (1) to
have withheld from the total number of Shares to be acquired upon the
exercise of an Option that number of Shares having a fair market value (as
defined herein) which, together with such cash as shall be paid in respect
of fractional Shares, shall equal the Option exercise price, (2) to
exercise an Option by delivering that number of Shares of Company Stock
already owned by such Key Person having a fair market value which shall
equal the Option exercise price, (3) to exercise a portion of an Option by
delivering that number of Shares or Share of Company Stock already owned
by such Key Person having a fair market value which shall equal the
partial Option exercise price and to deliver the Shares thus acquired by
such Key Person in payment of Shares to be received pursuant to the
exercise of additional portions of such Option, the effect of which shall
be that such Key Person can in sequence utilize such newly acquired Shares
in payment of the exercise price of the entire Option, together with such
cash as shall be paid in respect of fractional Shares, if any, or (4) to
utilize a combination of the methods stated in clauses (1) and (3) above,
or of cash and one or both of such methods, in payment of the exercise
price of all or a portion of such Option; provided, however, that in the
case of an Incentive Option, no Shares shall be used to pay the exercise
price unless such Shares were not acquired through the exercise of an
Incentive Option or, if so acquired, have been held for more than two
years since the grant of such Option and for more than one year since the
exercise of such Option; and
(b) if appropriate, to provide an arrangement through registered
broker-dealers whereby temporary financing may be made available by the
broker-dealer to a Key Person who wishes to deliver Shares of the Company
in partial or full payment of the exercise price of such Key Person's
Option, under the rules and regulations of the Board of Governors of the
Federal Reserve, for the purpose of assisting the Key Person in the
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exercise of an Option, such authority to include the payment by the
Company of the commissions of the broker-dealer.
The determination of the Committee on matters referred to in this
Article III shall be conclusive.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company. No member or former member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted hereunder.
IV. ELIGIBILITY
Grants of Incentive Options and Non-Qualified Options may be made under
the Plan, subject to and in accordance with the terms of the Plan, to Key
Employees. As used herein, the term "Key Employee" shall mean any employee of
the Company or any Related Entity, including officers and directors of the
Company or any Related Entity who are also employees of the Company or any
Related Entity, who are regularly employed on a salaried basis and who are so
employed on the date of such grant, whom the Committee identifies as having a
direct and significant effect on the performance of the Company or any Related
Entity. Notwithstanding the preceding provisions of this Article IV, Incentive
Options may be granted only to Key Employees who are employed by the Company or
a Related Entity that is a subsidiary corporation or parent corporation of the
Company on the date of grant of any such Option.
Grants of Non-Qualified Options shall be made, subject to and in
accordance with the terms hereof, to individuals not regularly employed by the
Company who serve as directors of the Company ("Outside Director Participants").
The adoption of this Plan shall not be deemed to give any person a right
to be granted any Options.
Subject to the adjustment provisions contained in Article XIII, the
aggregate number of Shares with respect to which Options granted to any Key
Employee (which for purposes of this sentence shall include the Chairman of the
Board, whether or not such person would otherwise be considered an Key Employee)
are exercisable shall not exceed 1,063,083.
V. LIMITATION ON EXERCISE OF INCENTIVE OPTIONS
Except as otherwise provided under the Code, to the extent that the
aggregate fair market value of stock with respect to which Incentive Options are
exercisable for the first time by an employee during any calendar year (under
all stock Option plans of the Company and any Related
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Entity) exceeds $100,000, such Options shall be treated as Non-Qualified
Options. For purposes of this limitation (i) the fair market value of stock is
determined as of the time the Option is granted, and (ii) the limitation will be
applied by taking into account Options in the order in which they were granted.
VI. OPTION PRICE AND PAYMENT
The price ("Exercise Price") for each Share purchasable under any Option
granted hereunder shall be such amount as the Committee shall, in its best
judgment made in good faith, determine on the basis of facts and circumstances
and the requirements, if any, of Section 162(m) of the Code and any rules or
regulations promulgated thereunder to be not less than one hundred percent
(100%) of the fair market value per Share at the date such Option is granted;
provided, however, that in the case of an Incentive Option granted to a person
who, at the time such Incentive Option is granted, owns shares of the Company or
any Related Entity which possesses more than ten percent (10%) of the total
combined voting power of all classes of shares of the Company or of any Related
Entity, the Exercise Price for each Share purchasable thereunder shall be such
amount as the Committee, in its best judgment, shall determine to be not less
than one hundred ten percent (110%) of the fair market value per Share at the
date the Incentive Option is granted. In determining stock ownership of a Key
Employee for any purposes under the Plan, the rules of Section 424(d) of the
Code shall be applied, and the Committee may rely on representations of fact
made to it by the Key Employee and believed by it to be true.
If the Shares are listed on a national securities exchange in the United
States on the date any Option is granted, the fair market value per share shall
be deemed to be the average of the high and low quotations at which such Shares
are sold on such national securities exchange on the date such Option is
granted. If the Shares are listed on a national securities exchange in the
United States on such date but the Shares are not traded on such date, or such
national securities exchange is not open for business on such date, the fair
market value per Share shall be determined as of the closest preceding date on
which such exchange shall have been open for business and the Shares were
traded. If the Shares are listed on more than one national securities exchange
in the United States on the date any such Option is granted, the Committee shall
determine which national securities exchange shall be used for the purpose of
determining the fair market value per Share. If the Shares are not listed on a
national securities exchange on such date, the last reported bid price in the
over-the-counter market shall be the fair market value per share, or if the
Shares are not traded on the over-the-counter market on such date, the fair
market value per share shall be determined by the Committee in good faith.
Notwithstanding the prior provisions of this paragraph, to the extent that
Section 162(m) of the Code or any rule or regulation promulgated thereunder
provides a different or inconsistent definition of "fair market value," such
definition shall be applied in determining the fair market value per share of
Options issued hereunder. For purposes of establishing the fair market value of
Shares or underlying Options, the fair market value shall be determined without
regard to any restriction on transfer thereof.
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For purposes of this Plan, the determination by the Committee of the fair
market value of a Share shall be conclusive.
Upon the exercise of an Option granted hereunder, the Company shall cause
the purchased Shares to be issued only when it shall have received the full
purchase price for the Shares in cash or by certified check, except as otherwise
provided in Article III hereof.
VII. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of Directors shall determine.
VIII. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Subject to Article V, any Incentive Option granted hereunder shall be
exercisable during a period of not more than ten (10) years from the date of
grant of such Option at such times and in such amounts as the Committee shall
determine at such date of grant; provided, however, that in the case of an
Incentive Option granted to a person who, at the time the Incentive Option is
granted, owns shares in the Company or in any Related Entity which possesses
more than ten percent (10%) of the total combined voting power of all classes of
shares of the Company or of any Related Entity, such Option shall expire not
more than five (5) years from the date of grant.
Any Non-Qualified Option granted hereunder shall be exercisable at such
times, in such amounts and during such period or periods as the Committee shall
determine at the date of the grant of such Option.
The Committee shall have the right to accelerate, in whole or in part,
from time to time, conditionally or unconditionally, rights to exercise any
Option granted hereunder.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part. If any Option granted hereunder shall terminate prior to the Termination
Date, the Committee shall have the right to use the Shares as to which such
Option shall not have been exercised to grant one or more additional Options to
any eligible Key Person, but any such grant of an additional Option shall be
made prior to the close of business on the Termination Date.
In no event shall an Option granted hereunder be exercised for a fraction
of a share.
IX. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the optionee as to
all or part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the Corporate
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Secretary of the Company at the principal business office of the Company,
specifying the number of Shares to be purchased and specifying a business day
not more than fifteen (15) days from the date such notice is given, for the
payment of the purchase price against delivery of the Shares being purchased.
Subject to the terms of Articles III, XV, XVII and XVIII, the Company shall
cause certificates for the Shares so purchased to be delivered to the Optionee
at the principal business office of the Company, against payment of the full
purchase price in cash or by certified check except as otherwise provided in
Article III.
X. STOCK APPRECIATION RIGHTS
[DELETED]
XI. NONTRANSFERABILITY OF OPTIONS
An Option granted hereunder shall not be transferable, whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution, and any Option granted hereunder shall be exercisable, during the
lifetime of the holder, only by such holder.
XII. TERMINATION OF EMPLOYMENT AND SERVICE
Upon termination of a Key Person's service with the Company and all
Related Entities, any Option previously granted hereunder, unless otherwise
specified by the Committee in the Option, shall, to the extent not theretofore
exercised, terminate and become null and void, provided that:
(a) if the recipient shall die while in the service of the Company or
a Related Entity or during either the three (3) month or one (1) year
period, whichever is applicable, specified in clause (b) below and at a
time when such recipient was entitled to exercise an Option as herein
provided, the legal representative of such recipient, or such person who
acquired such Option by bequest or inheritance or by reason of the death
of the recipient, may, not later than one (1) year from the date of death,
exercise such Option, to the extent not theretofore exercised, in respect
of any or all of such number of Shares as specified by the Committee in
such Option; and
(b) if the service of any recipient to whom such Option shall have
been granted shall terminate by reason of the recipient's retirement (at
such age or upon such conditions as shall be specified by the Committee),
disability (as described in Section 22(e)(3) of the Code) or dismissal by
the Company or a Related Entity other than for cause (as defined below),
and while such recipient is entitled to exercise such Option as herein
provided, such recipient shall have the right to exercise such Option so
granted, to the extent not theretofore exercised, in respect of any or all
of such number of Shares as specified by the Committee in such Option, at
any time up to and including (i) three (3) months after the date of such
termination in the case of termination by reason of
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retirement or dismissal other than for cause and (ii) one (1) year after
the date of termination in the case of termination by reason of
disability.
If a recipient voluntarily terminates his or her employment or service as
an Outside Director Participant, or is discharged for cause, any Option granted
hereunder shall, unless otherwise specified by the Committee in the Option,
forthwith terminate with respect to any unexercised portion thereof.
Each Incentive Option by its terms shall require the recipient to remain
in the continuous employ of the Company or any subsidiary corporation or parent
corporation of the Company from the date of grant of the Incentive Option until
no more than three (3) months prior to the date of exercise of the Incentive
Option (except as otherwise provided herein in the event of death or
disability).
Notwithstanding the preceding paragraphs of this Article XII, if the
service of any recipient with the Company and all Related Entities is
terminated, whether voluntarily or involuntarily, within a one-year period
following a change in control of the Company (as defined in Article XIII), other
than a termination of such service for cause, such recipient shall have the
right to exercise all or any portion of the Option, whether vested or unvested,
at any time up and to and including three (3) months after the date of such
termination, at which time such Option shall cease to be exercisable.
Notwithstanding the immediately preceding paragraphs of this Article XII,
no Option may be exercised after the expiration of the period of exercisability
provided for in such Option.
If an Option granted hereunder shall be exercised by the legal
representative of a deceased recipient or former recipient, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason of
the death of any recipient or former recipient, written notice of such exercise
shall be accompanied by a certified copy of letters testamentary or equivalent
proof of the right of such legal representative or other person to exercise such
Option.
For the purposes of the Plan, the term "for cause" shall mean (i) with
respect to an employee who is a party to a written agreement with, or
alternatively, participates in a compensation or benefit plan of the Company or
a Related Entity, which agreement or plan contains a definition of "for cause"
or "cause" (or words of like import) for purposes of termination of employment
thereunder by the Company or such Related Entity, "for cause" or "cause" as
defined in the most recent of such agreements or plans, or (ii) in all other
cases, as determined by the Committee, in its sole discretion, (a) the willful
commission by an employee of a criminal or other act that causes or will
probably cause substantial economic damage to the Company or a Related Entity or
substantial injury to the business reputation of the Company or a Related
Entity; (b) the continuing willful failure of an employee to perform the duties
of such employee to the Company or a Related Entity (other than such failure
resulting from the employee's incapacity due to physical or mental illness)
after written notice thereof (specifying the
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particulars thereof in reasonable detail) and a reasonable opportunity to be
heard and cure such failure are given to the employee by the Committee; (c) the
order of a court of competent jurisdiction requiring the termination of the
employee's employment; or (d) in the case of an Outside Director Participant,
the failure of such Outside Director Participant to act in good faith or the
taking of any action that constitutes a material breach of such person's
fiduciary duty to the Company. For purposes of the Plan, no act, or failure to
act, on the employee's part shall be considered "willful" unless done or omitted
to be done by the employee not in good faith and without reasonable belief that
the employee's action or omission was in the best interest of the Company or a
Related Entity.
For the purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and the Company or a Related Entity if, at the
time of the determination, the individual was an "employee" of the Company or
such Related Entity. If an individual is on military, sick leave or other bona
fide leave of absence such individual shall be considered an "employee" for
purposes of the exercise of an Option and shall be entitled to exercise such
Option during such leave if the period of such leave does not exceed 90 days,
or, if longer, so long as the individual s right to reemployment with the
Company (or a Related Entity) is guaranteed either by statute or by contract.
If the period of leave exceeds ninety (90) days, the employment relationship
shall be deemed to have terminated on the ninety-first (91) day of such leave,
unless the individuals right to reemployment is guaranteed by statute or
contract.
A termination of employment shall not be deemed to occur by reason of (i)
the transfer of an employee from employment by the Company to employment by a
Related Entity or (ii) the transfer of an employee from employment by a Related
Entity to employment by the Company or by another Related Entity.
XIII. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTION
In the event of any change in the outstanding Shares through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
split-up, split-off, spin-off, combination of shares, exchange of shares, or
other like change in capital structure of the Company, an adjustment shall be
made to each outstanding Option such that each such Option shall thereafter be
exercisable for such securities, cash and/or other property as would have been
received in respect of the Shares subject to such Option had such Option been
exercised in full immediately prior to such change, and such an adjustment shall
be made successively each time any such change shall occur. The term "Shares"
shall after any such change refer to the securities, cash and/or property then
receivable upon exercise of an Option. In addition, in the event of any such
change, the Committee shall make any further adjustment as may be appropriate to
the maximum number of Shares subject to the Plan, the maximum number of Shares
of which Options may be granted to any one recipient, and the number of Shares
and price per Share subject to outstanding Options as shall be equitable to
prevent dilution or enlargement of rights under such Options, and the
determination of the Committee as to these matters shall be conclusive.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option shall
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comply with the rules of Section 424(a) of the Code, and (ii) in no event shall
any adjustment be made which would render any Incentive Option granted hereunder
other than an incentive stock option for purposes of Section 422 of the Code.
In the event of a change in control of the Company, all then outstanding
vested Options shall immediately become exercisable. For purposes of the Plan,
a "change in control" of the Company occurs if: (a) any "person" (defined as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act, as
amended), other than a stockholder of the Company as of the date of the adoption
of the Plan by the Board of Directors or any affiliate of any such stockholder,
is or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing fifty percent or more of the combined voting power of the
Company's outstanding securities then entitled to vote for the election of
directors; (b) the Board of Directors shall approve the sale of all or
substantially all of the assets of the Company; or (c) the Board of Directors
shall approve any merger, consolidation, issuance of securities or purchase of
assets, the result of which would be the occurrence of any event described in
clause (a) above.
The Committee in its discretion may determine that, upon the occurrence of
a transaction described in the preceding paragraph, each Option outstanding
hereunder shall terminate within a specified number of days after notice to the
holder, and such holder shall receive, with respect to each Share subject to
such Option, cash in an amount equal to the excess of the fair market value of
such Share immediately prior to the occurrence of such transaction over the
exercise price per Share of such Option immediately prior to the occurrence of
such transaction. The provisions contained in the preceding sentence shall be
inapplicable to an Option granted within six (6) months before the occurrence of
a transaction described above if the holder of such Option is subject to the
reporting requirements of Section 16(a) of the Exchange Act.
XIV. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any Related
Entity thereof to continue the employment of any holder of an Option; and it
shall not impose any obligation on the part of any holder of an Option to remain
in the employ of the Company or of any Related Entity.
XV. PURCHASE FOR INVESTMENT
Except as hereafter provided, the holder of an Option granted hereunder
shall, upon any exercise thereof, execute and deliver to the Company a written
statement, in form satisfactory to the Company, in which such holder represents
and warrants that such holder is purchasing or acquiring the Shares acquired
thereunder for such holder's own account, for investment only and not with a
view to the resale or distribution thereof, and agrees that any subsequent offer
for sale or sale or distribution of any of such Shares shall be made pursuant to
either (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the "Securities Act"), which Registration Statement has
become effective and is current with regard to the Shares
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being offered or sold, or (b) a specific exemption from the registration
requirements of the Securities Act and any applicable state securities law or
regulation, but in claiming such exemption the holder shall, prior to any offer
for sale or sale of such Shares, obtain a prior favorable written opinion, in
form and substance satisfactory to the Company, from counsel for or approved by
the Company, as to the applicability of such exemption thereto. Notwithstanding
the prior sentence, no exercise of an Option shall be deemed to be effective if
the Company, in its sole discretion, determines that a violation of any federal
or state securities law, or rule or regulation promulgated thereunder, would
result therefrom. The foregoing restrictions shall not apply to (i) issuances by
the Company so long as the Shares being issued are registered under the
Securities Act and a prospectus in respect thereof is current or (ii)
reofferings of Shares by affiliates of the Company (as defined in Rule 405 or
any successor rule or regulation promulgated under the Securities Act) if the
Shares being reoffered are registered under the Securities Act and a prospectus
in respect thereof is current.
XVI. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Subject to the provisions of Articles III, XV and XVIII hereof, upon any
exercise of an Option which may be granted hereunder and payment of the purchase
price in full in cash or by certified check, a certificate or certificates for
the Shares as to which the Option has been exercised shall be issued by the
Company in the name of the person exercising the Option and shall be delivered
to or upon the order of such person.
The Company may endorse such legend or legends upon the certificates for
Shares issued upon exercise of an Option granted hereunder and may issue such
"stop transfer" instructions to its transfer agent in respect of such Shares as,
in its discretion, it determines to be necessary or appropriate to (i) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act or any state "blue sky" law or regulation, (ii) implement the
provisions of the Plan and any agreement between the Company and the optionee or
grantee with respect to such Shares, or (iii) permit the Company to determine
the occurrence of a disqualifying disposition, as described in Section 421(b) of
the Code, of Shares transferred upon exercise of an Incentive Option granted
under the Plan.
The Company shall pay all issue taxes with respect to the issuance of
Shares to the person exercising the Option, as well as all fees and expenses
necessarily incurred by the Company in connection with such issuance.
All Shares issued as provided herein shall be fully paid and non-
assessable to the extent permitted by law.
XVII. WITHHOLDING TAXES
The Company may require a Key Person exercising a Non-Qualified Option
granted hereunder, or disposing of Shares acquired pursuant to the exercise of
an Incentive Option in a
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disqualifying disposition (within the meaning of Section 421(b) of the Code), to
reimburse the Company or Related Entity, as appropriate, for any taxes required
by any governmental authority to be withheld or otherwise deducted and paid by
such corporation in respect of the issuance or disposition of Shares. In lieu
thereof, the Company or Related Entity, as appropriate, shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such Corporation to the Key Person upon such terms and conditions as the
Committee shall prescribe. At any time that the Company or a Related Entity
becomes subject to a withholding obligation under applicable law with respect to
the exercise of a Non-Qualified Option except as set forth below, a Key Person
may elect to satisfy, in whole or in part, the Key Person's related personal tax
liabilities (an "Election") by (i) the payment of cash, (ii) electing to have
such amount withheld from sums otherwise due to the Key Person, (iii) subject to
the other requirements of this Section XVII, directing the Company or the
subsidiary to withhold from Shares issuable in the related exercise either a
specified number of Shares or Shares having a specified value in each case with
a value not in excess of such tax liabilities, (iv) subject to the requirements
of Section 16(b) of the Exchange Act and the rules promulgated thereunder,
tendering Shares previously issued pursuant to an exercise or other shares of
the Company's common stock owned by the Key Person or (v) combining any or all
of the foregoing options; provided, that the Company will not be required to
redeem any Shares or shares of nonvoting or other common stock in violation of
applicable laws. An Election shall be irrevocable. The withheld Shares and other
shares tendered in payment should be valued at their fair market value on the
date that the withholding obligation arises (the "Tax Date"). The Committee may
disapprove of any Election, suspend, or terminate the right to make Elections or
provide that the right to make Elections shall not apply to particular grants,
Shares or exercises. If a Key Person is a person subject to Section 16 of the
Exchange Act and such Key Person intends to satisfy all or any portion of such
withholding obligation by directing the withholding of Shares issuable or
tendering Shares, then (1) any Election by such Key Person must be made (i) at
least six months prior to the relevant Tax Date or (ii) on or prior to the
relevant Tax Date and during a period that begins on the third business day
following the date of release for publication of the Company's quarterly or
annual summary statements of sales and earnings and that ends on the twelfth
business day following such date and (2) the Election may not be made with
respect to an exercise, or the withholding obligation arising thereon, if the
relevant Non-Qualified Option was granted six months or less prior to the date
of Election. The Committee may impose any other conditions or restrictions on
the right to make an Election as it shall deem appropriate. If the Key Person
has informed the Company in writing that such withholding would subject such Key
Person to liability under Section 16(b) of the Exchange Act, the Company shall
not be authorized to effect any such withholding without the prior written
consent of the Key Person. The Committee may prescribe such rules as it
determines with respect to Key Persons subject to the reporting requirements of
Section 16(a) of the Exchange Act to effect such tax withholding in compliance
with the Rules established by the Securities and Exchange Commission (the
"Commission") under Section 16 of the Exchange Act and the positions of the
staff of the Commission thereunder expressed in no-action letters exempting such
tax withholding from liability under Section 16(b) of the Exchange Act.
XVIII. LISTING OF SHARES AND RELATED MATTERS
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Upon the consummation of a public offering of voting common stock of the
Company which is underwritten on a firm commitment basis by a nationally-
recognized investment banking firm, (i) each granted but unexercised Option
shall be deemed from the date thereof to be an option to purchase voting common
stock of the Company instead of an option to purchase nonvoting common stock of
the Company, and (ii) all Options granted after the date thereof shall be
options to purchase voting common stock of the Company and not nonvoting common
stock of the Company.
If at any time the Board of Directors shall determine in its discretion
that the listing, registration or qualification of the Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, no Shares shall be issued unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board of Directors. During such suspension of the issuance of Shares,
neither the Company nor its parents or subsidiaries shall be liable for any
payment of interest or fees of any kind on Shares not yet issued. Under no
circumstances shall the Company be required to effect any registration or
qualification of any Shares under any federal or state securities laws.
XIX. AMENDMENT OF THE PLAN
The Board of Directors or the Committee, as the case may be, may, from
time to time, amend the Plan, provided that no amendment shall be made, without
the approval of the stockholders of the Company, that will (i) increase the
total number of Shares reserved for Options under the Plan (other than an
increase resulting from an adjustment provided for in Article XIII), (ii) reduce
the exercise price of any Option granted hereunder below the price required by
Article VI, (iii) modify the provisions of the Plan relating to eligibility,
(iv) materially increase the benefits accruing to participants under the Plan,
(v) increase the number of Shares which may be granted to an individual Key
Employee under the Plan, (vi) adversely affect the Plan's qualification under
Section 162(m)(4)(C) of the Code, (vii) adversely affect the qualification of
Incentive Options under Section 422 of the Code or (viii) otherwise materially
modify the Plan. The Committee shall be authorized to amend the Plan and the
Options granted thereunder to permit the Incentive Options granted thereunder to
qualify as incentive stock Options within the meaning of Section 422 of the Code
and to qualify the Plan under Section 162(m)(4)(C) of the Code. The rights and
obligations under any Option granted before amendment of the Plan or any
unexercised portion of such Option shall not be adversely affected by amendment
of the Plan or the Option without the consent of the holder of the Option.
XX. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors may at any time suspend or terminate the Plan. The
Plan, unless sooner terminated by action of the Board of Directors, shall
terminate at the close of business on
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the Termination Date. An Option may not be granted while the Plan is suspended
or after it is terminated. Rights and obligations under any Option granted while
the Plan is in effect shall not be altered or impaired by suspension or
termination of the Plan, except upon the consent of the person to whom the
Option was granted. The power of the Committee to construe and administer any
Options granted prior to the termination or suspension of the Plan under Article
III nevertheless shall continue after such termination or during such
suspension.
XXI. SAVINGS PROVISION
With respect to persons subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
XXII. GOVERNING LAW
The Plan, such Options as may be granted thereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware from time to time obtaining.
XXIII. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be deemed
to affect the validity of any other provision.
XXIV. EFFECTIVE DATE OF AMENDMENT AND RESTATEMENT OF THE PLAN
The Plan as set forth herein constitutes an amendment and restatement of
the Trident NGL Holding, Inc. Amended and Restated 1991 Stock Option Plan, as
previously adopted by Trident NGL Holding, Inc. (a predecessor to the Company).
This amendment and restatement of the Plan shall be effective as of May 10,
1996, provided this amendment and restatement of the Plan is approved by the
stockholders of the Company on such date at the Company's 1996 Annual Meeting of
Stockholders.
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EXHIBIT 10.47
November 15, 1996
Mr. Thomas Matthews
17402 Ridge Top Drive
Houston, Texas 77090
Dear Tom:
Subject to the ratification of this Agreement by the Compensation,
Corporate Governance and Human Resources Committee ("Compensation Committee") of
the Board of Directors of NGC Corporation, set forth below are the terms of your
employment by NGC Corporation (hereinafter referred to collectively as "NGC" or
the "Company").
1. Title and Duties
Your title shall be President of NGC Corporation. Your duties will
include the oversight of NGC, together with its Chairman and Chief Executive
Officer. Your initial responsibilities will include direction of NGC's Warren
division, Global Energy Services, Legal, Regulatory and Legislative Affairs, and
Information Technology departments. Prior to a change in control of the Company
as described in Paragraph 2(c), these assignments may be modified, and any such
modification made prior to a change in control shall not constitute a
constructive termination for purposes of Paragraph 2(c) of this Agreement.
Following such a change in control, no such modification may be made in your
duties except to the extent that no constructive termination would occur under
Paragraph 2(c) as a result of such modification. You shall devote your full
time, energy and skill to the performance of your duties for NGC, and will
exercise due diligence and reasonable care in the performance of such duties.
2. Term
(a) Unless earlier terminated as provided for herein, the term of this
Agreement will be for five years, beginning on December 1, 1996 (the "Term").
(b) If your employment with NGC is terminated due to your voluntary
resignation or by the Company for "cause", this Agreement shall terminate
immediately (except for the confidentiality, non-competition and non-
solicitation provisions of Paragraph 4), and the Company shall have no further
obligation to you except for the payment of amounts due before the date of such
termination. You further agree that the benefits which you have received from
the execution of this Agreement through the date of such termination constitute
sufficient consideration for your obligations pursuant to Paragraph 4,
notwithstanding the fact that the Company has no further obligation to you
except for the payment of amounts due before the date
<PAGE>
Mr. Thomas Matthews Page 2 November 15, 1996
of such termination. For purposes of this Agreement, you may be terminated for
"cause" by the Board of Directors of NGC as a result of (i) refusal to implement
or adhere to policies or directives of the Board of Directors of NGC; (ii)
serious misconduct, dishonesty or disloyalty, directly related to the
performance of duties for the Company, which results from a willful act or
omission or from gross negligence, and which is materially or potentially
materially injurious to the operations, financial condition or business
reputation of the Company or any significant subsidiary thereof; (iii) your
being convicted (or entering into a plea bargain admitting criminal guilt) in
any criminal proceeding that may have an adverse impact on the Company's
reputation and standing in the community; (iv) drug or alcohol abuse; (v)
willful and continued failure to perform your duties under this Agreement; or
(vi) any other material breach of this Agreement by you that is not cured within
thirty days after written notice of such breach is delivered to you from the
Company. For these purposes, no act or failure to act shall be considered
"willful" unless it is done, or omitted to be done, in bad faith without
reasonable belief that the action or omission was in the best interest of the
Company.
(c) If your employment is terminated during the Term of this Agreement
due to resignation following "constructive termination" (as defined below) or
for any other reason other than your voluntary resignation, death, disability,
or discharge for cause, you shall receive as your sole compensation (i) your
Base Salary as described in Paragraph 3(a), guaranteed bonus as described in
Paragraph 3(b) and company medical and life insurance coverage for the remainder
of the Term, or for two years from the date of actual termination of employment,
whichever provides the longer period of payment and coverage, and (ii) any
employee stock options granted to you during the Term of this Agreement shall
become vested as of the date of resignation due to such constructive termination
or discharge not for cause, but only up to the percentage that would have been
vested had you remained in regular employment to the end of the Term of this
Agreement.
For purposes of this Agreement a "constructive termination" shall be
deemed to have occurred in the event that (i) your Base Salary as defined in
Paragraph 3(a), bonus compensation under Paragraph 3(b), option grants under
Paragraph 3(d) or other compensation as described in Paragraph 3(e) and 3(f) is
reduced; (ii) except as provided in Paragraph 1 as in effect before a change in
control of the Company, or after the occurrence of change in control of the
Company, a significant diminution in your responsibilities, authority or scope
of duties is effected by the Board of Directors or as the result of the change
in control of the Company, and such diminution is made without your written
consent (without regard to whether or not any change is made to your title); or
(iii) the Company materially breaches this Agreement. For purposes of this
Agreement, a "change in control of the Company" means the occurrence of any of
the following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule l3d-3
under the Exchange Act), directly or indirectly, of more than 50% of the total
voting stock of the Company; (b) the Company is merged with or into or
consolidated with another person and, immediately after giving effect to
<PAGE>
Mr. Thomas Matthews Page 3 November 15, 1996
the merger or consolidation, (A) less than 50% of the total voting power of the
outstanding voting stock of the surviving or resulting person is then
"beneficially owned" (within the meaning of Rule l3d-3 under the Exchange Act)
in the aggregate by (x) the stockholders of the Company immediately prior to
such merger or consolidation, or (y) if a record date has been set to determine
the stockholders of the Company entitled to vote with respect to such merger or
consolidation, the stockholders of the Company as of such record date and (B)
any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the
Exchange Act) has become the direct or indirect "beneficial owner" (as defined
in Rule l3d-3 under the Exchange Act) of more than 50% of the voting power of
the voting stock of the surviving or resulting person; (c) the Company, either
individually or in conjunction with one or more of its subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the
subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the properties and assets of the Company and the
subsidiaries, taken as a whole (either in one transaction or a series of related
transactions), to any person (other than the Company or a wholly owned
subsidiary); or (d) the liquidation or dissolution of the Company. Any
resignation by you as a result of assertion of a constructive termination shall
be communicated by delivery to the Board of Directors of the Company thirty
days' advance written notice of such constructive termination and the grounds
therefor, during which period the Company shall be entitled to cure or remedy
the matters set forth in such notice to your reasonable satisfaction. Unless you
withdraw such notice prior to the expiration of such thirty day period, such
resignation shall take effect upon the expiration of thirty days from the date
of the delivery of such notice. Any other resignation by you shall be
communicated by thirty days' advance written notice.
(d) If you die, or become disabled and cannot perform your duties, you
(or your estate) shall be entitled to the Base Salary (as defined in Paragraph 3
(a)) payable to you hereunder for three months following the month in which you
die or become disabled, plus the amount of any guaranteed bonus as described in
Paragraph 3(b) guaranteed pursuant to Paragraph 3(b) for the year of death or
disability, prorated through the date of death or disability. For purposes of
this Agreement, you shall be disabled as of the first date on which you become
eligible to receive disability benefits under the Company's long-term disability
plan (or Social Security disability benefits at a time when the Company does not
maintain a long-term disability plan or such plan is not available to you).
3. Compensation
(a) Each year during the Term hereof, you will be paid a base salary
of $600,000 per annum ("Base Salary"), payable in accordance with the Company's
payroll guidelines. Increases may be made to your Base Salary at the discretion
of the Board of Directors based upon your individual performance.
<PAGE>
Mr. Thomas Matthews Page 4 November 15, 1996
(b) You shall be a participant in the Company's Incentive Compensation
Plan. You shall receive a guaranteed bonus of at least $300,000 per annum during
the five year Term. As part of NGC's incentive compensation program, you will
have the opportunity to earn up to 200% of your Base Salary, dependent upon
NGC's financial performance and other personal strategic objectives, determined
in accordance with such program.
(c) On December 1, 1996, you will receive an initial amount of
discounted stock options under NGC's Employee Equity Option Plan (EEOP) with an
immediate in-the-money value of $1,000,000. The options are subject to the
vesting, forfeiture and other terms and conditions of the EEOP. "In-the-money"
for this purpose shall mean fair market value, if such stock could be sold on
the date of grant, in excess of the stated exercise price, regardless of whether
such options are then exercisable.
(d) Each year during the Term of this Agreement, commencing December
1, 1996 you will receive stock option grants, with an exercise price equal to
market price on date of grant, under the NGC Corporation Amended & Restated 1991
Stock Option Plan, with a five year projected value of $1,000,000. You
recognize that the projected value is subject to the future market performance
of the Company stock and that there is no guarantee that the actual value of
such options will achieve that value. "Projected value" means that at the end
of five years from date of grant, assuming increase in market price of 15% per
annum during the five years, the stock option may be exercised to obtain stock
having a market price of $1,000,000 over the exercise price. These options are
subject to the vesting, forfeiture and other terms and conditions of the NGC
Corporation Amended & Restated 1991 Stock Option Plan.
(e) You will be entitled to participate in NGC's benefits programs for
senior management executives, including, without limitation, NGC's deferred
compensation plan for executives, and NGC's Alternative Benefits for Senior
Executives Plan.
(f) The Company will pay an additional $5,000 on your behalf to
provide you with additional life insurance and disability coverage in excess of
the death benefit or disability coverage under NGC's standard executive employee
and benefit plans. You shall select such coverage and shall own the insurance
policies providing such coverage. You will be responsible for coverage and
effectiveness of the policies, the Company's only obligation being to pay such
amounts.
(g) You will be eligible for five weeks of vacation in 1997. After
1997 you shall be eligible for vacation in line with the vacation plan of the
Company but not less than five weeks in any year.
<PAGE>
Mr. Thomas Matthews Page 5 November 15, 1996
4. Confidentiality
You recognize and acknowledge that:
(a) You will have access to certain information concerning the Company
that is confidential and proprietary and constitutes valuable and unique
property of the Company. You agree that you will not at any time, either during
or after your employment, disclose to others, use, copy or permit to be copied,
except pursuant to your duties on behalf of the Company or its successors,
assigns or nominees, any secret or confidential information of the Company
(whether or not developed by you) without the prior written consent of the Board
of Directors of the Company. The term "secret or confidential information of
the Company" (sometimes referred to herein as "Confidential Information") shall
include, without limitation, the Company's plans, strategies, potential
acquisitions, costs, prices, systems for buying, selling, and/or trading natural
gas, natural gas liquids, crude oil, coal, and electricity, client lists,
pricing policies, financial information, the names of and pertinent information
regarding suppliers, computer programs, policy or procedure manuals, training
and recruiting procedures, accounting procedures, the status and content of the
Company's contracts with its suppliers or clients, or servicing methods and
techniques at any time used, developed, or investigated by the Company, before
or during your tenure of employment to the extent any of the foregoing are (i)
not generally available to the public and (ii) maintained as confidential by the
Company. You further agree to maintain in confidence any confidential
information of third parties received as a result of your employment and duties
with the Company.
(b) At the termination of your employment you will deliver to the
Company, as determined appropriate by the Company, all correspondence,
memoranda, notes, records, client lists, computer systems, programs, or other
documents and all copies thereof made, composed or received by you, solely or
jointly with others, and which are in your possession, custody, or control at
such date and which are related in any manner to the past, present, or
anticipated business of the Company.
(c) To protect and safeguard the Company's trade secrets and
Confidential Information and also the Company's goodwill with its suppliers and
clients, for a period of twenty-four months following the termination of your
employment for any reason you will not, within a 50 mile radius of any location
where the Company had an office at any time during the Term hereof or any
location where a client or supplier of the Company (which is a material client
or supplier at any time during the Term hereof) had an office at any time during
the Term hereof, without the prior written consent of the Board of Directors of
the Company, directly or indirectly, engage in or be interested in (as owner,
partner, shareholder, employee, director, agent, consultant or otherwise), any
business which is a competitor of the Company, as hereinafter defined. For
purposes of this Agreement, a "competitor of the Company" is any entity,
including without limitation a corporation, sole proprietorship, partnership,
joint venture, syndicate, trust or any other form of organization or a parent,
subsidiary or division of any of the
<PAGE>
Mr. Thomas Matthews Page 6 November 15, 1996
foregoing, which, during such period or the immediately preceding fiscal year of
such entity, was engaged in the unregulated marketing, gathering, transportation
or processing of natural gas or derivatives of natural gas or other hydrocarbons
or electricity. For purposes of this paragraph, the following entities shall not
be deemed to be competitors of the Company: (i) a Local Distribution Company
("LDC") to the extent that any purchases or sales by such LDC are only for
consumption on its system; (ii) a natural gas producer to the extent that such
producer sells only its own production or production of other working interest
owners in wells in which it owns an interest; (iii) a natural gas pipeline
company in the jurisdictional aspects of its business, i.e., other than a
nonjurisdictional marketing affiliate or production affiliate (except as to such
production affiliates own production as described in clause (ii) of this
Paragraph 4(c)). The terms of this Section 4.3(c) shall not apply to your
present or future investments in the securities of companies listed on a
national securities exchange or traded on the over-the-counter market to the
extent such investments do not exceed one percent (1%) of the total outstanding
shares of the Company.
(d) For a period of twenty-four months after the expiration or
termination of your employment for whatever reason, you shall not induce or
otherwise entice any employee of the Company to leave the Company, nor shall you
attempt to hire any of the Company's employees.
(e) You agree that the foregoing restrictions contain reasonable
limitations as to the time, geographical area, and scope of activity to be
restrained and that these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company, including but not limited to the protection of Confidential
Information. You agree that, in the event of a breach or threatened breach by
you of any of the provisions of this Paragraph 4, the Company shall be entitled
to injunctive relief restraining and preventing you from any violation thereof,
as any such breach or threatened breach would cause irreparable injury to the
Company for which it would have no adequate remedy at law. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available for any such breach or threatened breach, including the recovery of
damages from you. You also agree that the general public shall not be harmed by
enforcement of this Paragraph 4. Should any provision in this Paragraph 4 be
held unreasonably broad with respect to the restrictions as to time,
geographical area, or scope of activity to be restrained, any such restriction
shall be construed by limiting and reducing it to the extent necessary to render
it reasonable, and as so construed, such provision shall be enforced.
5. Indemnification
If, at any time during or after the Term of this Agreement, you are
made a party to, or are threatened to be made a party in, any civil, criminal or
administrative action, suit or proceeding by reason of the fact that you are or
were a director, officer, employee, or agent of the Company, or of any other
corporation or any partnership, joint venture, trust or other
<PAGE>
Mr. Thomas Matthews Page 7 November 15, 1996
enterprise for which you served as such at the request of the Company, then you
shall be indemnified by the Company against expenses actually and reasonably
incurred by you or imposed on you in connection with, or resulting from, the
defense of such action, suit or proceeding, or in connection with, or resulting
from, any appeal therein if you acted in good faith and in a manner you
reasonably believed to be in or not opposed to the best interest of the Company,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe your conduct was unlawful, except with respect to matters as to which
it is adjudged that you are liable to the Company or to such other corporation,
partnership, joint venture, trust or other enterprise for gross negligence or
willful misconduct in the performance of your duties. As used herein, the term
"expenses" shall include all obligations actually and reasonably incurred by you
for the payment of money, including, without limitation, attorney's fees,
judgments, awards, fines, penalties and amounts paid in satisfaction of a
judgment or in settlement of any such action, suit or proceeding, except amounts
paid to the Company or such other corporation, partnership, joint venture, trust
or other enterprise by you.
6. Arbitration
Any controversy or claim arising out of or relating to this Agreement, or any
breach thereof, shall, except as provided in Paragraph 4, be adjusted only by
arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the City of Houston, Texas, or such other place as may be agreed upon at the
time by the parties to the arbitration. The arbitrator(s) shall, in their
award, allocate between the parties the costs of arbitration, which shall
include reasonable attorneys' fees of the parties, as well as the arbitrators'
fees and expenses, in such proportions as the arbitrator(s) deem just.
Notwithstanding the foregoing, you shall be entitled to seek specific
performance in a court of competent jurisdiction of your right to be paid your
full compensation until your separation from employment, during the pendency or
dispute of any controversy arising under or in connection with this Agreement.
7. Other Provisions
(a) This Agreement will be governed by, construed and enforced in
accordance with the laws of the state of Texas, excluding any conflicts of law,
rule or principle that might otherwise refer to the substantive law of another
jurisdiction.
(b) Except as otherwise indicated, this Agreement is not assignable
without the written authorization of both parties; provided that the Company may
assign this Agreement to any entity to which the Company transfers substantially
all of its assets or to any entity which is a successor to the Company by
reorganization, incorporation, merger or similar business
<PAGE>
Mr. Thomas Matthews Page 8 November 15, 1996
combination.
(c) Except as otherwise provided herein, the provisions of Paragraphs
4 and 5 of this Agreement shall survive the termination of this Agreement.
(d) This Agreement supersedes all previous employment agreements,
written or oral, between the Company and you. This Agreement may be amended
only by written amendment duly executed by both parties or their legal
representatives and authorized by action of the Board. Except as otherwise
specifically provided in this Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of a subsequent
breach of such condition or provision or a waiver of a similar or dissimilar
provision or condition at the same or at any prior or subsequent time.
(e) Any notice or other communication required or permitted pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested, addressed to the
intended recipient at his or its address set forth below and, in the case of a
notice or other communication to the Company, directed to the attention of the
Board of Directors with a copy to the Secretary of the Company, or to such other
address as the intended recipient may have theretofore furnished to the sender
in writing in accordance herewith, except that until any notice of change of
address is received, notices shall be sent to the following addresses:
If to you: If to the Company
--------- -----------------
T. M. Matthews C. L. Watson
17402 Ridgetop Drive 13430 N.W. Freeway, Suite 1200
Houston, Texas 77090 Houston, Texas 77040
(f) If any one or more of the provisions or parts of a provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision or part of a provision of this Agreement, but this
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been contained herein
and such provisions or part thereof shall be reformed so that it would be valid,
legal and enforceable to the maximum extent permitted by law.
(g) You shall not be required to mitigate damages (or the amount of
any
<PAGE>
Mr. Thomas Matthews Page 9 November 15, 1996
compensation provided under this Agreement to be paid) following your
termination of employment, by seeking employment or otherwise.
If the foregoing reflects your understanding of the terms of your
employment with the Company, please execute each copy of this letter in the
space provided below.
NGC CORPORATION
By: /s/ C. L. Watson
------------------------------
C. L. Watson
AGREED AND ACCEPTED this
17th day of November, 1996,
and effective as of December 1, 1996
/s/ Thomas Matthews
- ------------------------
Thomas Matthews
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Report of Independent Public Accountants 39
Management's Responsibility for Financial Statements 39
Consolidated Balance Sheets 40
Consolidated Statements of Operations 41
Consolidated Statements of Cash Flows 42
Consolidated Statements of Changes in Stockholders' Equity 43
Notes to Consolidated Financial Statements 44
Financial Summary 63
Corporate Information 64
Officers and Directors Inside Back Cover
KEY TERMS AND DEFINITIONS
Defined below are some of the industry terms used in this report.
VOLUMETRIC ABBREVIATIONS
Bbl .................................................................... barrel
Bpd ........................................................... barrels per day
Mbpd ................................................. thousand barrels per day
Mgals .................................................... thousands of gallons
MMgals .................................................... millions of gallons
Mcf ....................................................... thousand cubic feet
Bcf ........................................................ billion cubic feet
Bcf/d .............................................. billion cubic feet per day
INDUSTRY TERMS
FEEDSTOCK. Material introduced into a plant for processing another product.
FIELD PLANT. A gas processing plant, typically situated adjacent to a gas
field, that provides services such as gathering, compression, transportation
and processing to the producers in the field.
FRACTIONATION. The process of separating propane, butane, ethane, etc. from
the hydrocarbon stream.
GROSS NGL PRODUCTION. The total volume of natural gas liquids extracted from
a natural gas stream by a gas processing plant, adjusted for the Company's
ownership percentage in the plant.
MARKET HUB. A strategic location where several pipelines interconnect. It is
used by shippers for gaining access to multiple natural gas markets.
MEGAWATT HOUR. A unit of measurement that represents one million watt-hours,
or the amount of electricity needed to light 10,000 100-watt light bulbs for
one hour.
NATURAL GAS LIQUIDS (NGL). The liquid hydrocarbons ethane, propane, normal
butane, isobutane and natural gasoline typically contained in a natural gas
production stream and used principally as feedstocks for the petrochemical
and the petroleum refining industries, and as heating and engine fuel.
NET NGL PRODUCTION. Gross NGL production less volumes taken in-kind.
OPEN ACCESS. Transportation services on pipelines or electric transmission
systems that are available to all shippers on a nondiscriminatory basis.
REVERSE TOLLING. Supplying electric power to a generation facility and taking
the fuel in exchange.
STRADDLE PLANT. A gas processing plant situated on a third-party natural gas
pipeline.
TOLLING. Supplying fuel to a power generation facility to generate electric
power for a fee.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company is a leading North American marketer of natural gas, natural gas
liquids (NGL), crude oil and power, and is engaged in natural gas gathering,
processing and transportation through ownership and operation of natural gas
processing and fractionation plants; NGL storage, barge and terminaling
facilities; and natural gas, NGL and crude oil pipelines. Acting in the role
of a large-scale aggregator, processor, marketer and reliable supplier of
multiple energy products and services, NGC has evolved into a reliable energy
commodity and service provider. Through joint ventures in both Canada and the
United Kingdom, the Company has expanded geographically its vision of
providing customers with multiple energy commodity needs combined with
cost-effective products and value-added services.
From inception of operations in 1984 until 1990, Natural Gas Clearinghouse
(Clearinghouse) limited its activities primarily to natural gas marketing.
Starting in 1990, Clearinghouse began expanding its core business operations
through acquisitions and strategic alliances with certain of its stockholders.
In 1994, Clearinghouse initiated gas gathering, processing and marketing
operations in Canada through Novagas Clearinghouse, Ltd. (NCL), a joint venture
with NOVA Corporation (NOVA). Also in 1994, the Company began energy marketing
operations in the United Kingdom through Accord Energy Limited (Accord).
Effective March 1, 1995, Clearinghouse and Trident NGL Holding, Inc., a fully
integrated natural gas liquids company, merged, and the combined entity was
renamed NGC Corporation (Trident Combination). On August 31, 1996, NGC completed
a strategic combination with Chevron U.S.A. Inc. and certain Chevron affiliates
(collectively Chevron) whereby substantially all of Chevron's midstream assets
were merged with NGC (Chevron Combination). By virtue of the growth of NGC's
core businesses combined with the synergies derived from the aforementioned
transactions, NGC has established itself as an industry leader, providing
reliable, competitively priced energy products and services to customers
throughout North America and the United Kingdom.
RECENT DEVELOPMENTS
On February 18, 1997, NGC announced that it had signed a merger agreement to
acquire Destec Energy, Inc. (Destec), a leading independent power producer
(IPP), in a deal valued at $1.27 billion, or $21.65 per share of Destec
common stock. Simultaneous with this acquisition, NGC will sell Destec's
international facilities and operations to The AES Corporation for $407
million, inclusive of cash and monetizable assets. Closing of this
transaction is expected to occur by the end of the second quarter of this
year. NGC intends to finance the transaction with interim financing provided
by commercial banks from its existing bank-credit group and existing cash.
The balance of the interim financing is expected to be retired from a
combination of sales of nonstrategic Destec assets within six to 12 months of
closing of the merger, long-term debt and a common and/or preferred stock
issuance. Destec currently operates 20 power generation facilities in key
energy markets across the United States, as well as five international
projects.
On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the Federal Trade
Commission (FTC) related to the Chevron Combination. The Company realized a
small after-tax gain in 1997 related to the sale.
In October 1996, the Company and NOVA announced their intention to
restructure the companies' Canadian natural gas operations. Under the
agreement, NGC will assume full control of NCL's gas and gas liquids
marketing businesses. NGC and NOVA will pursue separate midstream asset
businesses in Canada. This restructuring may also result in amendments to, or
termination of, various agreements between NCL and the Company or NOVA,
including their respective affiliates. NOVA will also own 100 percent of
Pan-Alberta, which is currently a subsidiary of NCL. NGC will operate its
Canadian operations under the name of NGC Canada, Inc. The transaction is
expected to close by April 30, 1997.
In early 1997, British Gas completed a restructuring with Centrica plc
(Centrica) being demerged from British Gas and British Gas being renamed
BG plc. Centrica became the Company's joint venture partner in Accord,
while BG now holds the approximate 26-percent stake in NGC's common stock
formerly held by British Gas.
26
<PAGE>
Effective March 2, 1997, Centrica and the Company signed an agreement
in which they stated their intent to restructure Accord by converting certain
common stock interests in Accord to participating preferred stock interests.
After closing, which is expected to occur in the second quarter of 1997,
Centrica and the Company will own 75 percent and 25 percent, respectively, of
the participating preferred stock of Accord. The participating preferred
stock will have (a) the right to receive cumulative dividends on a priority
to other corporate distributions by Accord, and (b) limited voting rights. In
addition, Centrica will have the option to purchase the Company's
participating preferred stock interest at any time after July 1, 2000, and
the Company will have the right to acquire Centrica's participating preferred
interest during the period from January 1, 2001, through March 1, 2001, at
formula-based prices as defined in the agreement. As part of the
reorganization, NGC UK will assume control of Accord's existing crude oil
marketing business. The restructuring is contingent upon certain U.K.
regulatory approvals.
BUSINESS SEGMENTS
NGC's operations are reported in two segments: the Natural Gas and Power
Marketing Segment (Marketing) and the Natural Gas Liquids, Crude Oil and Gas
Transmission Segment (Liquids). Marketing consists of subsidiaries engaged in
the business of: contracting to purchase specific volumes of natural gas from
suppliers at various points of receipt to be supplied over a specific period
of time; aggregating natural gas supplies and arranging for the
transportation of these gas supplies through proprietary and third-party
transmission systems; negotiating the sale of specific volumes of natural gas
over a specific period of time to local distribution companies, utilities,
power plants and other end-users; and matching natural gas receipts and
deliveries based on volumes required by customers. Marketing also includes
the operations of Electric Clearinghouse, Inc. (ECI), a provider of electric
power products and services in the United States. Liquids consists of
subsidiaries engaged in the following businesses: natural gas gathering,
processing and fractionation; NGL marketing; natural gas transmission; and
crude oil marketing. The Liquids segment also includes the operations of NGC
Global Energy, Inc.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report contains various forward-looking statements and
information that are based on management's beliefs, as well as assumptions
made by, and information currently available to, management. When used in
this document, words such as "anticipate," "estimate," "project," and
"expect" are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated,
projected or expected. Among the key factors that may have a direct bearing
on NGC's results of operations and financial condition are: (i) competitive
practices in the industries in which NGC competes, (ii) fluctuations in
energy commodity prices, which have not been fully hedged or which are
inconsistent with NGC's open position in its energy marketing activities,
(iii) environmental liabilities to which NGC may become subject in the future
which are not covered by indemnity or insurance, and (iv) the impact of
current and future laws and governmental regulations (particularly
environmental regulations) affecting the energy industry in general and NGC's
operations in particular.
IMPACT OF PRICE FLUCTUATIONS
Marketing's operating margin, exclusive of risk-management activities, is
relatively insensitive to commodity price fluctuations since most of this
segment's purchase and sales contracts do not contain fixed-price provisions.
Generally, the prices contained in these contracts are tied to a current spot
or index price and, therefore, adjust directionally with changes in overall
market conditions. Commodity price fluctuations can, however, have a
significant impact on the operating margin
27
<PAGE>
derived from the segment's risk-management activities. NGC generally attempts to
balance its fixed-price physical and financial purchase and sales contracts in
terms of contract volumes, and the timing of performance and delivery
obligations. However, to the extent a net open position exists, NGC is exposed
to the risk that fluctuating market prices may adversely impact its financial
position or results of operations. The net open position is actively managed,
and the impact of a change in price on the Company's financial condition at a
point in time is not necessarily indicative of the impact of price movements
throughout the year. At December 31, 1996, a $0.10 increase or decrease in the
price of natural gas would have impacted net income by approximately $2.3
million either favorably or unfavorably. The impact of the $0.10 price movements
referred to above is before application of market reserves, which would likely
reduce the after-tax earnings impact of these price movements.
Operating margins associated with the Liquids segment's natural gas gathering,
processing and fractionation activities are sensitive to changes in NGL prices
principally as a result of the contractual terms under which products are sold
by these businesses. However, the Liquids segment's operating margin is
relatively insensitive to fluctuations in natural gas prices as a result of the
mitigating impact of fuel costs and residue gas sales. In order to manage its
exposure to price risks in the marketing of NGL and crude oil, the Company, from
time to time, will enter into financial instrument contracts to hedge purchase
and sale commitments and/or inventories.
SEASONALITY
NGC's revenue and operating margin are subject to fluctuations during the
year primarily due to the impact certain seasonal factors have on sales
volumes and the prices of natural gas, NGL and crude oil. Marketing's sales
volumes and operating margin are typically higher in the winter months than
in the summer months, reflecting increased demand due to greater heating
requirements and, typically, higher natural gas prices. The Liquids segment
is also subject to seasonal factors; however, such factors typically have a
greater impact on sales prices than on sales volumes. NGL prices typically
increase during the winter season due to greater heating requirements. The
Company's wholesale propane business typically experiences higher volumes and
prices in the fall and winter months due to greater demand for crop-drying
and space-heating requirements.
EFFECT OF INFLATION
Although NGC's operations are affected by general economic trends, management
does not believe inflation has had a material effect on the Company's results
of operations.
RESULTS OF OPERATIONS
[GRAPH APPEARS HERE]
28
<PAGE>
The following discussion of NGC's financial position, results of operations
and cash flows as of and for each of the years ended December 31, 1996, 1995
and 1994, respectively, is impacted by the strategic combinations previously
discussed. Specifically, the comparability of results between periods is
materially impacted as a result of both the Chevron and Trident Combinations
(collectively Combinations). The Combinations were each accounted for under
the purchase method of accounting and, accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed in each transaction
based on their estimated fair values as of the effective dates of each
merger. The results of operations and cash flows presented in the
consolidated financial statements contained elsewhere herein include the
results of the acquired operations as of the effective dates of each merger.
The Chevron Combination was effective September 1, 1996, and the Trident
Combination was effective March 1, 1995. The consolidated statements of
operations and of cash flows for the year ended December 31, 1994, reflect
the operating results and cash flows of Clearinghouse.
Year Ended December 31, 1996, Compared with Year Ended December 31, 1995
Normalized net income for the year ended December 31, 1996, totaled $115.8
million, or $0.85 per share, reflecting a $67.7 million improvement over
1995's normalized results of $48.1 million, or $0.43 per share. Normalized
results for 1996 are exclusive of a $2.5 million, $0.02 per share, charge
associated with the Company's relocation to its new downtown headquarters
while 1995's normalized results are exclusive of a $45.7 million, $0.40 per
share, income tax benefit related to the Trident Combination and a $1.1
million, $0.01 per share, charge associated with tornado damage at a gas
processing facility. The significant enhancement in normalized earnings is
generally reflective of across-the-board improvement in all of NGC's
businesses, as well as the incremental impact of the Combinations. NGC's
reported net income for the year ended December 31, 1996, increased to $113.3
million, or $0.83 per share, compared with $92.7 million, or $0.82 per share,
for the comparable 1995 period.
Operating Margin
Years Ended December 31,
------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Natural Gas and Power Marketing Segment $ 103.6 $ 63.8 $ 78.4
Natural Gas Liquids, Crude Oil
and Gas Transmission Segment:
Natural Gas Processing - Field Plants 122.8 48.9 12.1
Straddle Plants 42.2 26.9 1.4
Fractionation (1) 20.2 15.2 -
NGL Marketing 48.4 21.7 3.0
Crude Oil Marketing 11.6 3.5 2.4
Natural Gas Transmission 18.1 11.9 1.8
Other 2.6 2.8 -
------- ------ ------
265.9 130.9 20.7
------- ------ ------
Total Operating Margin $ 369.5 $194.7 $ 99.1
================================================================================
(1) Excludes earnings from Gulf Coast Fractionators
accounted for by the equity method.
Consolidated operating margin totaled $369.5 million for the year ended
December 31, 1996, compared with $194.7 million during the comparable 1995
period. Marketing's operating margin increased $39.8 million to $103.6
million principally as a result of higher margins earned during the first
quarter of 1996 as a result of the extreme cold weather during that period.
Liquids' operating margin of $265.9 million in 1996 exceeded 1995's operating
margin by $135.0 million principally as a result of improved commodity prices
period to period, and increased volumes resulting principally from the
incremental impact of the assets acquired in the Combinations. Consolidated
operating income totaled $197.8 million in 1996, compared with $81.7 million
for the equivalent 1995 period, reflecting an increase of $116.1 million. The
aforementioned increase in consolidated operating margin of $174.8 million
was partially offset by increases in both depreciation and amortization, and
general and administrative expenses. Depreciation and amortization expense
increased $26.8 million period to period, reflecting the incremental asset inv
estment by the Company occurring principally as a result of the
29
<PAGE>
Combinations. The $32.0 million increase in general and administrative expenses
period to period is reflective of the expansion of the Company's operations
principally as a result of the Combinations.
The Company's equity in the earnings of its unconsolidated affiliates
totaled $28.1 million for the year ended December 31, 1996, compared with
$21.1 million reported in 1995. The $7.0 million increase in equity earnings
reflects increased earnings accruing to the Company's interest in Gulf Coast
Fractionators (GCF) period to period, combined with incremental equity
earnings arising from the Company's 1996 investments in the West Texas LPG
Pipeline Partnership and the Venice Gas Processing Company, respectively, two
partnership affiliations between NGC and Chevron. NCL and Accord contributed
an aggregate $20.7 million to pre-tax earnings in 1996, as compared with
$19.2 million in the comparable 1995 period. Aggregate sales volumes for NCL
and Accord averaged 3.7 Bcf/d for the year ended December 31, 1996, compared
with 2.6 Bcf/d during 1995.
Interest expense increased to $46.2 million in 1996, as compared with
$32.4 million in the comparable 1995 period. The increase is reflective of
higher outstanding debt balances period to period, resulting primarily from
debt assumed in conjunction with the Combinations, and long-term borrowings
for capital expenditures and investments in unconsolidated affiliates.
Other income and expenses, net, of $10.0 million reported for the year
ended December 31, 1996, includes a $4.0 million charge associated with the
Company's relocation to its new downtown headquarters, $0.7 million in
minority interests in certain majority-owned subsidiaries and other
miscellaneous nonrecurring costs and expenses. Other income and expenses, net,
of $5.1 million reported for the year ended December 31, 1995, includes a
$1.8 million pre-tax charge for tornado damage at a gas processing plant,
$2.4 million in minority interests in certain majority-owned subsidiaries and
other miscellaneous nonrecurring costs and expenses.
The Company reported an income tax provision of $56.3 million on pre-tax
earnings of $169.6 million, resulting in an effective income tax rate for the
year ended December 31, 1996, of approximately 33 percent. Differences between a
statutory rate of 35 percent and the 1996 effective rate are primarily
attributed to permanent differences associated with certain foreign equity
investments and state income taxes. For the year ended December 31, 1995, the
Company reported an income tax benefit of $27.5 million on pre-tax income of
$65.2 million. During the first quarter of 1995, the Company recognized a $45.7
million income tax benefit in connection with the Trident Combination. The
income tax benefit, which can be used to reduce NGC's future income tax
liabilities, was a result of the recognition of the excess tax basis held by
certain Clearinghouse partners. After giving effect to the one-time benefit, the
1995 income tax provision totaled $18.2 million, resulting in an effective rate
of 28 percent. The difference between the effective rate and the statutory rate
is primarily attributed to precombination earnings of Clearinghouse that were
predominantly taxed as partnership income, permanent differences associated with
certain foreign equity investments and state income taxes.
Natural Gas and Power Marketing Segment
Years Ended December 31,
---------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Natural Gas Marketing
Average sales volume (Bcf/d):
U.S.(1) 4.3 3.5 3.5
Canada(2) 3.1 2.3 0.5
U.K.(3) 0.6 0.3 -
------- ------ ------
8.0 6.1 4.0
======= ====== ======
Power Marketing
Million megawatt hours sold 14.9 3.5
================================================================================
(1) Includes 0.1 Bcf/d in intercompany gas sales for the
years ended December 31, 1996 and 1995, respectively.
(2) Represents volumes marketed through NGC's Canadian
affiliate, NCL.
(3) Represents volumes marketed through NGC's U.K.
affiliate, Accord.
Marketing reported an operating margin of $103.6 million for the year ended
December 31, 1996, compared with $63.8 million for the comparable 1995
period. Domestic natural gas marketing volumes increased to 4.3 Bcf/d during
1996, an increase of 0.8 Bcf/d over the gas marketing volumes sold in 1995.
Further, domestic gas marketing volumes sold during
30
<PAGE>
the fourth quarter of 1996 totaled 6.1 Bcf/d, a 2.4 Bcf/d increase over the
comparable 1995 period, reflecting incremental market share attained principally
as a result of the Chevron Combination. In addition to the increase in marketed
volumes period to period, improvement in both physical and risk-management
margins in 1996, as compared with 1995, enhanced overall segment operating
results. The improved physical and risk-management margins period to period
principally reflect a combination of high margins realized during the first
quarter of 1996 as a result of extremely cold weather which geographically
reduced available gas supplies. In addition, lower margins were realized during
the first half of 1995 as a result of lower demand and increased competition,
which more than offset the strong margins realized by the segment in the fourth
quarter of 1995. Included in 1995's operating margin is $6.8 million related to
a service agreement between NGC Futures, Inc. (NGCF), a wholly owned subsidiary
of NGC and NCL, whereby NGCF provided NCL and its affiliates with natural gas
marketing and risk-management services. As a result of this service agreement,
NGC and its subsidiaries shared disproportionately in NCL's economic returns
resulting from the services provided. There were no amounts reflected in
Marketing's margin in 1996 relating to this agreement.
ECI improved its sales volumes dramatically during 1996, selling 14.9
million megawatt hours during the period, compared with 3.5 million megawatt
hours sold in 1995. ECI also improved its per unit margins period to period
principally as a result of an improved operating environment resulting from
the continued deregulation of the electric power industry.
Natural Gas Liquids, Crude Oil and Gas Transmission Segment
Years Ended December 31,
----------------------------
(Mbpd) 1996 1995 1994
- --------------------------------------------------------------------------------
Natural Gas Processing (Gross Volumes)
Field Plants 57.4 38.7 10.9
Straddle Plants 36.9 34.1 5.5
------ ------ ------
Total 94.3 72.8 16.4
====== ====== ======
Fractionation(1) 169.1 95.0 -
NGL Marketing 245.0 120.6 23.7
Crude Oil Marketing 106.0 60.9 47.4
================================================================================
(1) Excludes volumes from Gulf Coast Fractionators.
Reported operating margin for the Liquids segment of $265.9 million for the
year ended December 31, 1996, compares with $130.9 million for the equivalent
1995 period, reflecting an increase of $135.0 million. The two-fold growth in
the segment's results is reflective of improvement in all business lines, and
is particularly reflective of improved gas processing margins, growth in the
NGL and crude oil marketing businesses, and the substantial volume increase
effect and synergies realized as a result of the Combinations. Gas
processing's operating margin improved in excess of 117 percent period to
period, reflecting a combination of an overall improvement in 1996 of the
commodity price environment combined with a 30 percent increase in volumes
processed per day during the year. Fourth quarter 1996 volumes processed per
day of 140.9 thousand barrels increased 87 percent over the comparable 1995
period's production principally reflecting the impact of the Chevron
Combination. Eighty-two percent of the NGL volumes processed at the Company's
field plants during 1996 were processed under percentage-of-proceeds
contracts whereby NGC and the producer share in the proceeds from the sale of
NGL extracted from the gas stream and the residue gas. The balance was
processed under keep-whole contracts. Eighty-seven percent of the NGL
volumes processed during 1996 at the Company's straddle plant were processed
under keep-whole contracts, where NGC compensates the natural gas supplier
for the energy content removed from the gas stream, and the balance was
processed under percentage-of-proceeds contracts. Due to the integrated nature
of NGC's operations, from time to time the Company may reduce volumes processed
at its straddle plants in order to make additional sales of natural gas. In
addition, the Company maintains an active hedging program intended to protect
the Company from commodity-price risk. The segment's fractionation operations
improved its operating margin by 33 percent principally as a result of the
acquisition of a fractionator as part of the Chevron Combination. As discussed
previously, on January 1, 1997,
31
<PAGE>
the Company divested itself of the Mont Belvieu I fractionator as part of the
agreement reached with the FTC. Volumes sold by the segment's NGL marketing
operations increased 103 percent in 1996, as compared to volumes sold in 1995.
During the fourth quarter of 1996, the Company sold approximately 432 Mbpd of
NGL, a 184 percent increase over the comparable 1995 period, reflecting the
incremental impact of the Chevron Combination. In addition to the significant
volume increases discussed previously, commodity prices were also a factor in
achieving the more than 120 percent improvement in NGL marketing's operating
margin. Crude oil marketing's operating margin improved 231 percent period to
period, reflecting a 74 percent increase in volumes sold, as well as a
significant improvement in per unit sales margins. Natural gas gathering and
transmission improved its operating margin by 52 percent in 1996, as compared
with 1995, principally as a result of the inclusion of a full year's operations
of the Ozark Gas Transmission System, which was acquired at mid-year 1995,
improved operations on other pipelines period to period and the addition of
pipeline facilities acquired in 1996.
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
NGC's net income for the year ended December 31, 1995, increased to $92.7
million, or $0.82 per share, compared with $42.1 million for Clearinghouse in
the comparable 1994 period. Net income for the 1995 period includes a
nonrecurring income tax benefit of $45.7 million, or $0.40 per share, related
to the Trident Combination and an after-tax charge of $1.1 million, or $0.01
per share, related to tornado damage at a gas processing plant. Income before
income taxes totaled $65.2 million for the year ended December 31, 1995, a
$21.1 million increase over the comparable 1994 period.
Operating margin was $194.7 million in 1995, compared with $99.1 million in
1994, an increase of $95.6 million. The increase reflects improvement in the
Liquids operating margin of $110.2 million, offset by a $14.6 million decline in
Marketing's operating margin. Operating income was $81.7 million in 1995,
compared with $42.9 million for the equivalent 1994 period, an increase of $38.8
million. Increases in both operating margin and operating income are generally
attributable to the Trident Combination.
The Company's equity in the earnings of its unconsolidated affiliates
totaled $21.1 million for the year ended December 31, 1995, more than five
times the earnings recognized in the comparable 1994 period. NCL and Accord,
which both began significant operations during the latter half of 1994,
contributed an aggregate $19.2 million to pre-tax earnings in 1995, as
compared with $3.2 million in 1994. Aggregate sales volumes for NCL and
Accord, which averaged 2.6 Bcf/d for the year and 3.6 Bcf/d for the quarter
ended December 31, 1995, respectively, reflect NGC's growing international
market share. The remaining $1.9 million of equity earnings for the year
ended December 31, 1995, was primarily attributable to the Company's 38.75
percent ownership interest in GCF.
Interest expense increased to $32.4 million in 1995, as compared with
$2.4 million in the comparable 1994 period. The increase is reflective of
higher outstanding debt balances resulting primarily from debt assumed in
conjunction with the Trident Combination and long-term borrowings for capital
expenditures and investments in unconsolidated affiliates made during 1995.
Other income and expenses, net, of $5.1 million reported for the year
ended December 31, 1995, includes a $1.8 million pre-tax charge for tornado
damage at a gas processing plant, $2.4 million in minority interests in
certain majority-owned subsidiaries and other miscellaneous nonrecurring
costs and expenses. Amounts reported in the comparable 1994 period were
immaterial.
The Company reported an income tax benefit of $27.5 million on pre-tax
income of $65.2 million for the year ended December 31, 1995, which compares
with an income tax provision of $2.0 million on pre-tax income of $44.1
million for the comparable 1994 period. Reported results for 1994 do not
include a provision for federal income tax, other than minimal amounts on
taxable income of Clearinghouse's corporate subsidiaries, as the majority of
Clearinghouse's earnings for the period were taxed as partnership income.
During the first quarter of 1995, the Company recognized a $45.7 million
income tax benefit in connection with the Trident Combination. The income tax
benefit that can be used to reduce NGC's future income tax liabilities was a
result of the recognition of the excess tax basis held by certain
Clearinghouse partners. After giving effect to the one-time benefit, the 1995
income tax provision totaled $18.2 million, an effective rate of 28 percent.
The difference between the effective rate and the statutory rate is primarily
attributed to precombination earnings of Clearinghouse that were
predominantly taxed as partnership income, permanent differences associated
with certain foreign equity investments and state income taxes.
32
<PAGE>
NATURAL GAS AND POWER MARKETING
Marketing reported an operating margin of $63.8 million for the year ended
December 31, 1995, compared with $78.4 million for the comparable 1994
period. Although domestic natural gas marketing volumes were essentially
constant between the two periods, gas marketing margins were lower in 1995,
as compared with 1994, principally due to strong risk-management margins and
exceptionally strong physical gas marketing margins achieved in the first
quarter of 1994 as a result of strong demand created by significantly colder
weather in that period. Also, physical gas marketing margins were lower
during the first half of 1995, resulting from decreased demand due to
moderate temperatures and increased competition. Marketing's strong fourth
quarter 1995 operating margin of $27.4 million, which was $9.7 million higher
than the comparable 1994 period, was not enough to offset the lower operating
margin realized in the first half of 1995. Included in 1995's operating
margin is $6.8 million related to a service agreement between NGCF and NCL,
whereby NGCF provided NCL and its affiliates with natural gas marketing and
risk-management services.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported an operating margin of $130.9 million for the year ended
December 31, 1995, compared with $20.7 million for the equivalent 1994
period. Financial results for 1995 were positively impacted by the Trident
Combination and the synergies realized from that acquisition, the acquisition
and efficient operation of the Ozark Gas Transmission System and improved
liquids processing margins. Natural gas processing volumes and NGL marketing
sales volumes increased substantially in 1995, compared with 1994,
principally as a result of the Trident Combination. The Company also acquired
all of its fractionation capacity in the Trident Combination.
FIRST QUARTER 1997 EXPECTED RESULTS
NGC anticipates that first quarter 1997 results will be substantially below the
$0.26 per share reported in the first quarter of 1996. The lower earnings
expectation results principally from the precipitous drop in natural gas liquids
prices during the quarter that significantly decreased operating margins in the
Company's natural gas liquids marketing and gas processing businesses. Further,
the Company expects to record a lower-of-cost-or-market write-down of its
natural gas liquids inventory at March 31, 1997, also as a result of the drop in
natural gas liquids prices during the period.
PRO FORMA FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The pro forma information provided on the next page gives effect to the
Trident Combination as if it had occurred on January 1, 1994, and,
accordingly, combines the activities of both Clearinghouse and Trident for
each period. These pro forma results do not give effect to any cost savings
expected as a result of the Trident Combination. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
what the actual results of operations would have been had the Trident
Combination occurred at the beginning of the periods presented, nor does it
purport to indicate the future results of the Company.
33
<PAGE>
Natural Gas and Power Marketing Segment
Years Ended December 31,
------------------------------
1995 1994
- --------------------------------------------------------------------------------
Natural Gas Marketing
Average sales volume (Bcf/d):
U.S.(1) 3.5 3.5
Canada(2) 2.3 0.5
U.K.(3) 0.3 -
------ ------
Total 6.1 4.0
------ ------
Power Marketing
Million megawatt hours sold 3.5 -
================================================================================
(1) Includes 0.1 Bcf/d in intercompany gas sales for the
year ended December 31, 1995.
(2) Represents volumes marketed through NGC's
Canadian affiliate, NCL.
(3) Represents volumes marketed through NGC's U.K.
affiliate, Accord.
Natural Gas Liquids, Crude Oil and Gas Transmission Segment
Years Ended December 31,
------------------------------
(Mbpd) 1995 1994
- --------------------------------------------------------------------------------
Natural Gas Processing (Gross Volumes)
Field Plants 44.0 45.7
Straddle Plants 40.0 36.2
Fractionation (1) 134.5 135.1
NGL Marketing 136.1 119.3
Crude Oil Marketing 60.9 47.4
================================================================================
(1) Excludes volumes from Gulf Coast Fractionators.
Operating Margin
Years Ended December 31,
------------------------------
1995 1994
- --------------------------------------------------------------------------------
Natural Gas and Power Marketing $ 63.8 $ 78.4
Natural Gas Liquids, Crude Oil and Gas Transmission:
Natural Gas Processing
Field Plants 55.3 57.4
Straddle Plants 30.9 16.5
Fractionation (1) 17.0 19.5
NGL Marketing 24.0 18.6
Crude Oil Marketing 3.5 2.4
Natural Gas Transmission 12.5 4.3
Other 1.4 (9.7)
------ ------
144.6 109.0
------ ------
Total Operating Margin $208.4 $187.4
================================================================================
(1) Excludes earnings from Gulf Coast Fractionators
accounted for by the equity method.
34
<PAGE>
On a pro forma basis, net income for the year ended December 31, 1995,
was $46.1 million, or $0.39 per share, compared with $25.1 million, or $0.21
per share, for the same period in 1994. Pro forma 1995 net income excludes
the nonrecurring income tax benefit of $45.7 million. Pro forma operating
margin increased $21.0 million to $208.4 million, compared with $187.4
million in the equivalent 1994 period. The increase in pro forma operating
margin reflects a higher Liquids operating margin as a result of increased
volumes in natural gas processing, and NGL and crude oil marketing, and
improved Liquids' margins in 1995, as compared with 1994. The improved
Liquids operating margin was offset by a lower Marketing operating margin due
principally to lower physical gas marketing margins in 1995, as compared with
1994, generally as a result of the same factors that affected the actual
results for the years ended December 31, 1995 and 1994, discussed previously.
LIQUIDITY AND CAPITAL RESOURCES
NGC has historically relied upon operating cash flow and borrowings under its
credit facilities for its liquidity and capital resource requirements.
Operating Cash Flow
Cash flow from operating activities (before working capital changes) of
$202.0 million in 1996 showed significant improvement over 1995 and 1994
amounts, respectively, increasing 107 percent over the $97.5 million
reflected in 1995, and 373 percent over the $42.7 million reflected in 1994.
The positive trend is reflective of the significant growth in consolidated
earnings during the three-year period ended December 31, 1996, which resulted
from the impact of the Combinations, the synergies realized therefrom and the
general growth of the Company's core businesses. Net cash flow from operating
activities, as reported in the Consolidated Statements of Cash Flows,
reflected a net use of cash in 1996 of approximately $31.0 million, compared
with sources of cash of $90.6 million and $17.2 million during the years
ended December 31, 1995 and 1994, respectively. The net use of cash from
operations in 1996 is attributed to working capital changes. The approximate
$116 million consolidated inventory investment made during 1996 partially
reflects the increased inventory volume requirements needed to operate the
Liquids segment's businesses which have grown significantly period to period
principally as a result of the Chevron Combination, and partially reflect the
rising commodity market price environment during which the Company invested
in such inventory. Investments in natural gas, NGL and crude oil inventories
during the fourth quarter of 1996 were principally made in order to meet
anticipated market demands during the first quarter of 1997. In addition, the
Company's 1996 cash flow from operating activities was impacted by the timing
of cash receipts and disbursements primarily associated with its marketing
sales activities. The net cash outflow during the fourth quarter of 1996,
attributed to the relationship of accounts receivable to accounts payable,
has substantially reversed itself during the first quarter of 1997.
Management does not anticipate that the timing of cash inflows and outflows
will have a recurring negative impact on operating cash flow. The Company
funded the consolidated 1996 short-term working capital investment through
funds borrowed under the NGC Corporation Credit Agreement (Credit Agreement).
The increase in cash flows from operations in 1995, as compared with 1994,
was largely a result of the positive financial effect of the Trident
Combination.
Capitalization and Liquidity
CHEVRON COMBINATION. On August 31, 1996, NGC completed the Chevron
Combination pursuant to which Chevron contributed substantially all of its
midstream assets (Contribution), including substantially all of the assets
comprising Warren Petroleum Company and Chevron's Natural Gas Business Unit,
and an undivided interest in those assets that constitute the West Texas LPG
Pipeline, into Midstream Combination Corp. (Midstream), a Delaware
corporation formed for purposes of the transaction. NGC, which was formed
effective March 1, 1995, pursuant to the Trident Combination, was merged with
and into Midstream immediately following the Contribution, and Midstream was
renamed NGC Corporation. In exchange for the Contribution, Chevron received
approximately 38.6 million shares of NGC common stock and approximately 7.8
million shares of NGC's Series A Participating Preferred Stock, and NGC
assumed approximately $283 million
35
<PAGE>
of indebtedness. Immediately following closing of the Chevron Combination, NGC
paid approximately $128 million to Chevron and funded such payment under the
Credit Agreement.
NGC CORPORATION CREDIT AGREEMENT. On March 14, 1995, the Company entered
into the Credit Agreement, which established a five-year $550 million
revolving credit facility. The Credit Agreement provides for letters of
credit and borrowings for working capital, capital expenditures and general
corporate purposes of up to $550 million in the aggregate. The $550 million
commitment under the Credit Agreement reduces by $22.5 million each quarter
beginning in March 1998 and continuing through maturity. Certain amendments
were made to the Credit Agreement to accommodate the Chevron Combination. At
December 31, 1996, the Company had $136.2 million of capacity remaining under
the Credit Agreement.
LETTER OF CREDIT AGREEMENT. On September 1, 1996, the Company entered into a
new credit agreement (Letter of Credit Agreement), which established a
364-day, $300 million letter of credit facility. The Letter of Credit
Agreement provides for the issuance of letters of credit in support of the
Company's obligation to purchase substantially all of the natural gas
produced or controlled by Chevron in the United States (except Alaska). The
Company incurs a fee, which is determined based on the Company's unsecured
senior debt rating, on all issued and outstanding letters of credit under the
Letter of Credit Agreement.
SENIOR NOTES. In October 1996, NGC sold $175 million of 7.625% 30-year Senior
Debentures (Senior Debentures). The Senior Debentures were issued at a price
of 99.522 percent, which, after deducting underwriting discounts and
commissions, resulted in net proceeds to the Company of approximately $173
million. The net proceeds from the sale of such Senior Debentures were also
used to repay a portion of the outstanding indebtedness under the Credit
Agreement. Interest on the Notes is payable semiannually on April 15 and
October 15 of each year, commencing April 15, 1997. The Senior Debentures are
redeemable, at the option of the Company, in whole or in part from time to time,
at a formula based redemption price as defined in the associated indenture.
On December 15, 1995, the Company sold $150 million of 6.75% Senior
Notes due December 15, 2005 (Notes). The Notes were issued at a price of
99.984 percent, which, after deducting underwriting discounts and
commissions, resulted in net proceeds to the Company of approximately $149
million. Proceeds from the sale of the Notes were used to repay a portion of
the outstanding indebtedness under the Credit Agreement. Interest on the
Notes is payable semiannually on June 15 and December 15 of each year,
beginning June 15, 1996.
At December 31, 1996, the Company had $175 million of available debt
securities remaining under its $350 million shelf registration.
The Notes and Senior Debentures represent general unsecured obligations
of the Company, and are fully and unconditionally guaranteed, on a joint and
several basis, by certain of the Company's wholly owned subsidiaries
(collectively the Guarantors), as defined in the associated indentures. The
wholly owned subsidiaries, which have fully and unconditionally guaranteed,
on a joint and several basis, the Notes, are predominantly the same wholly
owned subsidiaries which have fully and unconditionally guaranteed, on a
joint and several basis, the Senior Debentures. Separate financial statements
of each of the Guarantors have not been provided because management has
determined that such information would not be material to investors as the
aggregate assets, liabilities, earnings and equity of the Guarantors are
substantially equivalent to the Company's consolidated assets, liabilities,
earnings and equity. The Company also has certain direct and indirect
subsidiaries that are not guarantors of the Notes or the Senior Debentures
(collectively Non-guarantor Subsidiaries). These Non-guarantor Subsidiaries,
both individually and in the aggregate, are inconsequential to NGC (and its
accounting predecessor, Clearinghouse) as of and for each of the three years
in the period ended December 31, 1996.
CHEVRON NOTE. As part of the Chevron Combination, NGC assumed approximately
$155 million payable to Chevron upon demand on or after August 31, 1998 (the
Chevron Note). NGC has the right, at any time on or after August 31, 1998, to
prepay in whole or in part the principal and accrued interest under the
Chevron Note. The Chevron Note bears interest at 7.95 percent per annum,
payable semiannually in arrears each February and August. Should Chevron
choose not to demand payment of the Chevron Note, then principal plus accrued
interest is payable in full on August 14, 2004. There are no financial
covenants associated with the Chevron Note. An unamortized premium balance of
$3.9 million
36
<PAGE>
associated with the Chevron Note is being amortized using the interest method,
resulting in an effective interest rate of 6.54 percent per annum.
WARREN NGL, INC. (WARREN, FORMERLY TRIDENT NGL, INC.) NOTES. At December 31,
1996, Warren had outstanding $105 million principal amount of 10.25%
Subordinated Notes due 2003 (interest payable semiannually in arrears each
April and October) and $65 million principal amount of 14% Senior
Subordinated Notes due 2001 (interest payable semi-annually in arrears each
February and August). Beginning in 1998, corresponding with the first call
dates, the Company may repurchase the Subordinated Notes and Senior
Subordinated Notes at 104.5 percent and 107 percent of the principal amount,
respectively, with such reacquisition prices reducing as the notes mature.
The indentures covering the Subordinated Notes and Senior Subordinated Notes
contain covenants that, among other things, require Warren to meet certain
financial tests; limit the amount of capital expenditures, dividends and
asset sales that can be made by Warren; and restrict the ability of Warren
and its subsidiaries to incur additional indebtedness, create or permit liens
and engage in certain transactions. Although Warren's net assets at
December 31, 1996, approximated $386 million, management does not believe that
the terms of the indentures materially restrict the ability of Warren to
transfer funds to the Company given that Warren is one of the Guarantors
combined with the level of advances made by NGC to Warren. The unamortized
premium balance associated with each of the Subordinated Notes and Senior
Subordinated Notes represents a fair value adjustment to the aggregate principal
balance of the notes recognized as part of the Trident Combination. The
unamortized premium balance of $14.8 million at December 31, 1996, is being
amortized using the interest method, and results in effective interest rates of
9.02 percent and 9.6 percent on the Subordinated Notes and Senior Subordinated
Notes, respectively.
Capital Expenditures, Commitments and Dividend Requirements
The Company's business strategy has been to grow horizontally across all
sectors of the midstream energy business segment through strategic
acquisitions or construction of core operating facilities in order to capture
the significant synergies, which management believes exist among these types
of assets and NGC's natural gas, NGL and electric power marketing businesses.
For 1997, the Company has budgeted to spend approximately $650 million in
connection with these and other capital projects. Included in the 1997
capital budget are projects in the Company's liquids business totaling $250
million, including maintenance capital, plant consolidations, amounts
committed to the Venice Gas Processing Company (Venice), and amounts required
to construct a new fractionation facility.
The remaining 1997 capital budget was intended to take advantage of
strategic energy acquisitions and construction opportunities that complement
the Company's businesses. As a result of the estimated $400 million committed
to the Destec acquisition, the Company will likely revise its capital
expenditure budget as other opportunities arise.
During 1996, the Company spent a net $111 million in acquisition,
capital projects and asset maintenance activities. These funds were expended
principally for maintenance of existing assets, the acquisition of processing
plants, gathering lines, pipelines and on other capital projects. In
addition, during 1996, the Company completed the acquisitions of LPG Services
Group, Inc., a propane gas marketing and distribution company, and Wilmar
Energy Marketing, a Calgary-based crude oil marketer. Investments in
unconsolidated affiliates included contributions of $18.6 million to the
Venice Gas Processing Company.
During 1995, the Company spent approximately $310 million in
acquisition and asset maintenance activities. The most significant component
of cash used in investing activities during the 1995 period related to the
acquisition cost and related expenses associated with the Trident
Combination. Approximately $166.9 million, exclusive of transaction related
costs, was required to consummate the tender offer related to the Trident
Combination. These funds were provided by British Gas, NOVA and
Clearinghouse. Specifically, British Gas and NOVA each contributed $67.5
million to their respective subsidiaries that participated in the Trident
Combination, and Clearinghouse provided $31.9 million to fund the balance.
Clearinghouse funded the $31.9 million and certain other costs associated
with the Combination through a combination of cash on hand and $25.0 million
in borrowings under its then existing credit agreement. In addition to the
Trident Combination, the Company expended an additional $145 million for the
acquisition of other assets, the most significant of which were the Ozark Gas
Transmission System, the Kerr-McGee pipeline and Pan-Alberta Gas, through a
contribution
37
<PAGE>
to NCL, as well as capital improvements at existing facilities and investments
in other unconsolidated affiliates.
During 1994, the Company spent $38.4 million on investing activities.
Such capital expenditures were used to maintain existing assets and to
acquire additional midstream natural gas assets, namely gas processing plants
and gathering systems.
A subsidiary of NGC is committed to contribute approximately $62
million to Venice during 1997. A subsidiary of NGC is committed to expend its
respective share of the construction costs related to the Avoca Natural Gas
Storage construction project. Current cost estimates commit the Company to
approximately $10 million of expenditures. NGC and NGC Holding Company, Inc.
have guaranteed the commitment by the subsidiary.
A subsidiary of the Company is committed to contribute approximately
$10 million to Indeck, which is engaged in the acquisition of electric power
generating facilities. The contribution represents the Company's pro rata
share of funds to be used for selected acquisitions. At December 31, 1996,
the Company had paid $3.9 million of this commitment.
A subsidiary of NGC has guaranteed its pro rata share of the unfunded
debt service reserve account of GCF. The obligation under the guarantee at
December 31, 1996, assuming the subsidiary had to fund such obligation as of
that date, approximated $2.5 million.
NGC currently declares an annual dividend of $0.05 per common and
preferred share payable in quarterly installments. During 1996 and 1995, NGC
paid a net $6.7 million and $9.3 million, respectively, in dividends and
distributions, principally to the holders of record of the Company's
outstanding shares of common stock and to the Clearinghouse partners. Prior
to the Trident Combination, Clearinghouse made distributions primarily to
enable Clearinghouse's partners to pay tax liabilities incurred as a result
of Clearinghouse generated income which was taken into account by the
Clearinghouse partners in computing their personal income tax liabilities.
Amounts distributed in 1994 under this arrangement totaled $14.0 million.
Environmental Matters
NGC's operations are subject to extensive federal, state and local statutes,
rules and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance
with these statutes, rules and regulations requires capital and operating
expenditures, including those related to monitoring and permitting at various
operating facilities, and the cost of remediation obligations. The Company's
environmental expenditures have not been prohibitive in the past, but are
anticipated to increase in the future with the trend toward stricter
standards, greater regulation, more extensive permitting requirements, and an
increase in the number of assets operated by the Company subject to
environmental regulation.
To the Company's knowledge, it is in substantial compliance with, and
is expected to continue to comply in all material respects with, applicable
environmental laws, regulations, orders and rules. Further, to the best of
the Company's knowledge, there are no existing, pending or threatened
actions, suits, investigations, inquiries, proceedings or clean-up
obligations by any governmental authority or third party relating to any
violations of any environmental laws with respect to the Company's assets that
would have a material adverse effect on the Company's operations and
financial condition. NGC's aggregate expenditures for compliance with laws
and regulations related to the discharge of materials into the environment or
otherwise related to the protection of the environment totaled $3.7 million
in 1996. Total environmental expenditures for both capital and operating
maintenance and administrative costs are not expected to exceed $15.6 million
in 1997. The increase in environmental expenditures period to period results
principally from the Company's increased investment in processing,
fractionation, storage and transportation assets.
Summary
The Company believes that cash flows from operating activities, combined with
the liquidity and flexibility provided by available funds under its existing
credit facilities and additional facilities from its groups of commercial
banks and the issuance of debt and/or capital stock securities, will allow it
to meet all foreseeable cash requirements, including working capital, capital
expenditures, debt service, dividends and costs associated with the Destec
acquisition.
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NGC Corporation:
We have audited the accompanying consolidated balance sheets of NGC
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1996,
1995 and 1994. These financial statements are the responsibility of the
Company'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, the financial statements referred to above present
fairly, in all material respects, the financial position of NGC Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995
and 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 14, 1997
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation of the
financial statements, it is necessary to make informed estimates and
judgments of the effects of certain events and transactions based on
currently available information.
NGC maintains accounting and other controls that management believes
provide reasonable assurance that financial records are reliable, assets are
safeguarded, and that transactions are properly recorded in accordance with
management's authorizations. However, limitations exist in any system of
internal control based upon the recognition that the cost of the system
should not exceed the benefits derived.
NGC's independent public accountants, Arthur Andersen LLP, are engaged
to audit the financial statements and to express an opinion thereon. Their
audit is conducted in accordance with generally accepted auditing standards
to enable them to report that the financial statements present fairly, in all
material respects, the financial position and results of operations of the
Company in conformity with generally accepted accounting principles.
The Audit Committee of the Board of Directors, composed of two
directors who are not employees of NGC, meet regularly with the independent
public accountants and management. The independent public accountants have
full and free access to the Audit Committee and meet with them, with and
without management being present, to discuss the results of their audit and
the quality of financial reporting.
39
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------
($ in thousands, except share data) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents (Note 1) $ 50,209 $ 16,266
Accounts receivable, net (Note 1) 1,373,560 560,574
Accounts receivable, affiliates 144,825 3,328
Inventories (Note 1) 257,005 74,263
Assets from risk-management activities
(Notes 1 and 3) 98,433 88,093
Prepayments and other assets 12,689 20,415
- --------------------------------------------------------------------------------
1,936,721 762,939
- --------------------------------------------------------------------------------
Property, Plant and Equipment (Note 5) 1,819,811 1,013,354
Less: accumulated depreciation (128,432) (64,843)
- --------------------------------------------------------------------------------
1,691,379 948,511
- --------------------------------------------------------------------------------
Other Assets
Investments in unconsolidated affiliates
(Note 6) 181,688 62,370
Assets from risk-management activities
(Notes 1 and 3) 171,528 26,380
Other assets 205,494 75,052
- --------------------------------------------------------------------------------
558,710 163,802
- --------------------------------------------------------------------------------
$4,186,810 $1,875,252
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $1,305,726 $ 542,228
Accounts payable, affiliates 39,070 23,427
Accrued liabilities 117,777 58,736
Liabilities from risk-management activities
(Notes 1 and 3) 86,414 81,283
- --------------------------------------------------------------------------------
1,548,987 705,674
- --------------------------------------------------------------------------------
Long-Term Debt (Note 7) 988,597 522,764
- --------------------------------------------------------------------------------
Other Liabilities
Liabilities from risk-management
activities (Notes 1 and 3) 127,725 22,570
Deferred income taxes (Note 8) 328,280 43,227
Other long-term liabilities 76,488 28,637
- --------------------------------------------------------------------------------
532,493 94,434
- --------------------------------------------------------------------------------
Commitments and Contingencies (Note 9)
Stockholders' Equity (Note 10)
Preferred stock, $.01 par value,
50,000,000 shares authorized:
8,000,000 shares designated as Series A
Participating Preferred Stock, 7,815,363
shares issued and outstanding at
December 31, 1996 75,418 -
Common stock, $.01 par value, 400,000,000
shares authorized:
149,846,503 shares issued and outstanding
at December 31, 1996, and 110,493,411 shares
issued and 105,031,874 shares outstanding
at December 31, 1995 1,498 1,105
Additional paid-in capital 896,432 515,785
Retained earnings 143,385 35,490
- --------------------------------------------------------------------------------
1,116,733 552,380
- --------------------------------------------------------------------------------
$4,186,810 $1,875,252
================================================================================
See notes to consolidated financial statements.
40
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------
(In thousands, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues (Note 1) $7,260,202 $3,665,946 $3,237,843
Cost of sales 6,890,702 3,471,286 3,138,717
- --------------------------------------------------------------------------------
Operating margin 369,500 194,660 99,126
Depreciation and amortization (Note 1) 71,676 44,913 8,378
General and administrative expenses 100,032 68,057 47,817
- --------------------------------------------------------------------------------
Operating income 197,792 81,690 42,931
Equity in earnings of unconsolidated
affiliates (Note 6) 28,075 21,060 3,803
Interest expense (46,202) (32,391) (2,381)
Other income and (deductions), net (10,020) (5,125) (248)
- --------------------------------------------------------------------------------
Income before income taxes 169,645 65,234 44,105
Income tax provision (benefit) (Note 8) 56,323 (27,471) 2,004
- --------------------------------------------------------------------------------
NET INCOME $ 113,322 $ 92,705 $ 42,101
================================================================================
Net Income Per Share (Note 1) Pro Forma Pro Forma
----------- -----------
Income before income taxes $ 169,645 $ 65,234 $ 44,105
Provision for income taxes 56,323 20,438 16,319
- --------------------------------------------------------------------------------
Net income 113,322 44,796 27,786
Less: preferred stock dividends 132 - -
- --------------------------------------------------------------------------------
Net income applicable to common
stockholders $ 113,190 $ 44,796 $ 27,786
================================================================================
Net income per common and common
equivalent share $ 0.83 $ 0.40 $ 0.28
================================================================================
Weighted average number of common
and common equivalent shares 136,099 113,176 97,804
================================================================================
See notes to consolidated financial statements.
41
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------
($ in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 113,322 $ 92,705 $ 42,101
Items not affecting cash flows from
operating activities:
Depreciation and amortization 73,176 44,913 8,378
Equity in earnings of affiliates,
net of cash distributions (21,729) (9,169) (3,803)
Risk-management activities
(Notes 1 and 3) (11,220) (2,951) (6,529)
Deferred income taxes (Note 8) 45,896 (28,281) 1,014
Amortization of bond premium (4,892) (3,214) -
Other 7,466 3,484 1,528
Change in assets and liabilities resulting
from operating activities:
Accounts receivable (Note 1) (954,418) (152,557) 28,440
Inventories (Note 1) (116,353) (23,403) (20,693)
Prepayments and other assets 7,726 (16,518) 5,660
Accounts payable 778,767 185,215 (37,831)
Accrued liabilities 47,148 11,611 (154)
Other, net 4,157 (11,187) (941)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (30,954) 90,648 17,170
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (97,651) (128,871) (36,452)
Business acquisitions, net of cash
acquired (Notes 2 and 4) (714) (165,267) -
Investment in unconsolidated
affiliates (Note 6) (30,875) (15,457) (10,562)
Investment in marketable securities, net - - 8,100
Proceeds from asset sales 3,600 - -
Other 14,500 (1,028) 538
- --------------------------------------------------------------------------------
Net cash used in investing activities (111,140) (310,623) (38,376)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings
(Note 7) 1,542,000 1,237,589 33,000
Repayments of long-term borrowings
(Note 7) (1,360,081) (1,143,039) -
Proceeds from sale of capital stock,
options and warrants 858 725 -
Capital contributions - 135,000 -
Dividends and other distributions, net (6,740) (9,253) (14,041)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 176,037 221,022 18,959
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 33,943 1,047 (2,247)
Cash and cash equivalents, beginning
of year 16,266 15,219 17,466
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 50,209 $ 16,266 $ 15,219
================================================================================
See notes to consolidated financial statements.
42
<PAGE>
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Clearinghouse NGC Corporation
-------------------------------- -----------------------------------------------------
Series A Preferred Common Stock Additional
Contributed Undistributed ------------------ ------------------ Paid-In Retained
(In thousands) Capital Earnings Shares Amount Shares Amount Capital Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 24,824 $ 95,865 -- $ -- -- $ -- $ -- $ --
Net income -- 42,101 -- -- -- -- -- --
Options granted -- 1,528 -- -- -- -- -- --
Partnership distributions -- (12,105) -- -- -- -- -- --
------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 24,824 127,389 -- -- -- -- -- --
Net income -- 52,930 -- -- -- -- -- 39,775
Capital contribution 135,000 -- -- -- -- -- -- --
Partnership distributions -- (5,227) -- -- -- -- -- --
Options granted -- 323 -- -- -- -- 1,692 --
Trident Combination (159,824) (175,415) -- -- 109,886 1,098 510,918 --
Dividends and other
distributions -- -- -- -- -- -- -- (4,285)
401(k) plan stock issuances -- -- -- -- 199 3 1,873 --
Stock options exercised -- -- -- -- 408 4 1,302
------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- -- -- -- 110,493 1,105 515,785 35,490
Chevron Combination -- -- 7,815 75,418 38,623 386 372,328 --
Net income -- -- -- -- -- -- -- 113,322
Options exercised -- -- -- -- 374 3 1,320 --
Dividends and other
distributions -- -- -- -- -- -- -- (5,427)
401(k) plan and profit
sharing stock issuances -- -- -- -- 309 4 4,175 --
Options granted -- -- -- -- -- -- 2,824 --
Other -- -- -- -- 48 -- --
------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ -- $ -- 7,815 $75,418 149,847 $ 1,498 $ 896,432 $ 143,385
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
NGC Corporation (NGC or the Company) is a holding company that principally
conducts all of its business through its subsidiaries. The Company is a
leading aggregator, processor, transporter and marketer of energy products
and services in North America. NGC also markets natural gas and crude oil in
the United Kingdom.
The accounting policies of NGC reflect industry practices and conform
to generally accepted accounting principles. The more significant of such
accounting policies are described below. The preparation of consolidated
financial statements in conformity with generally accepted accounting
principles requires management to develop estimates and make assumptions that
affect reported financial position and results of operations, and that impact
the nature and extent of disclosure, if any, of contingent assets and
liabilities. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of intercompany accounts and transactions.
Investments in affiliates in which the Company has a significant ownership
interest, generally 20 percent to 50 percent, are accounted for by the equity
method. Other investments are carried at cost. Certain reclassifications have
been made to prior-period amounts to conform with current period financial
statement classifications.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of all
demand deposits and funds invested in short-term investments with original
maturities of three months or less.
CONCENTRATION OF CREDIT RISK. NGC provides multiple energy commodity
needs principally to customers in the electric and gas distribution
industries, and to entities engaged in industrial and petrochemical
businesses. These industry concentrations have the potential to impact the
Company's overall exposure to credit risk, either positively or negatively,
in that the customer base may be similarly affected by changes in economic,
industry or other conditions. Receivables are generally not collateralized;
however, NGC believes the credit risk posed by industry concentration is
offset by the diversification and creditworthiness of the Company's customer
base.
INVENTORIES. Inventories consisting primarily of natural gas in storage
of $30.6 million and $15.3 million, natural gas liquids of $194.5 million and
$37.0 million, and crude oil of $16.6 million and $9.5 million at December
31, 1996 and 1995, respectively, are valued at the lower of weighted average
cost or market. Materials and supplies inventory of $12.1 million and $12.5
million at December 31, 1996 and 1995, respectively, is carried at the lower
of cost or market using the specific identification method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment,
consisting principally of gas gathering, processing and fractionation
facilities, natural gas transmission lines, NGL and crude oil pipelines, and
supporting infrastructure is recorded at cost. Expenditures for major replacem
ents and renewals are capitalized while expenditures for maintenance, repairs
and minor renewals to maintain facilities in operating condition are
expensed. Depreciation is provided using the straight-line method over the
estimated economic service lives of the assets ranging from three years to 25
years. Composite depreciation rates are applied to functional groups of
property having similar economic characteristics. Gains and losses are not
recognized for retirements of property, plant and equipment subject to
composite depreciation rates (composite rate) until the asset group subject
to the composite rate is retired.
ENVIRONMENTAL COSTS. Environmental costs relating to current operations
are expensed or capitalized, as appropriate, depending on whether such costs
provide future economic benefit. Liabilities are recorded when environmental
assessment indicates that remedial efforts are probable, and the costs can be
reasonably estimated. Measurement of liabilities is based on currently
enacted laws and regulations, existing technology and undiscounted,
site-specific costs. Environmental liabilities, in connection with assets
that are sold or closed, are realized upon such sale or closure, to the
extent that they are probable, can be estimated and have not previously been
reserved. In assessing environmental liabilities, no offset is made for
potential insurance recoveries. Recognition of any joint and several
liability is based upon the Company's best estimate of its final pro rata
share of such liability.
44
<PAGE>
INTANGIBLE ASSETS. Intangible assets are generally amortized by the
straight-line method over an estimated useful life of 20 years.
REVENUE RECOGNITION. Revenues for product sales, and gas processing and
marketing services are recognized when title passes to the customer, or when
the service is performed. Fractionation and transportation revenues are
recognized based on volumes received in accordance with contractual terms.
The Company accounts for its fixed-price natural gas activities using
the mark-to-market method of accounting. Under such method, all fixed-price
natural gas contracts are recorded at fair value, net of future servicing
costs and reserves. Changes in the market value of contracts are recognized
as gain or loss in the period of change. The resulting unrealized gains and
losses are recorded as assets and liabilities from risk-management
activities.
The Company enters into financial instrument contracts to hedge
purchase and sale commitments and inventories of natural gas liquids and
crude oil in order to minimize the risk of market fluctuations. NGC also
monitors its exposure to fluctuations in interest rates and foreign currency
exchange rates, and may execute swaps, forward-exchange contracts or other
financial instruments to manage these exposures. Gains and losses from
hedging transactions are recognized in income and are reflected as cash flows
from operating activities in the periods in which the underlying commodity,
interest rate or foreign currency transaction is recognized. If the necessary
correlation to the commodity, interest rate or foreign currency transaction
being hedged ceases to exist, the gains or losses associated with such
contract(s) are no longer deferred, and are recognized currently.
INCOME TAXES. The Company files a consolidated United States federal
income tax return and, for financial reporting purposes, provides income
taxes for the difference in the tax and financial reporting bases of its
assets and liabilities in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Prior to March 1,
1995, the effective date of the merger between Natural Gas Clearinghouse
(Clearinghouse) and Trident NGL Holding, Inc. (Holding) (the Trident
Combination), the operations of Clearinghouse, a Colorado partnership, were
generally not subject to corporate federal income tax, and Clearinghouse's
earnings were generally allocated to and taken into account in computing the
taxable income of its partners.
EARNINGS PER SHARE. Net income per share is based on the weighted
average number of shares of common stock outstanding plus the common stock
equivalents that would arise from the exercise of outstanding options or
warrants, when dilutive. Primary and fully diluted earnings per share are the
same for all periods presented.
For the year ended December 31, 1994, a pro forma amount of 97.8
million shares outstanding was used to compute the pro forma earnings per
share. Such amount represents the equivalent number of shares obtained in the
Trident Combination by the owners of the partners of Clearinghouse, plus the
equivalent number of shares that would arise from the excercise of
outstanding options existing as of the effective date of the Trident
Combination, assuming a market value of $12 per share.
Pro forma net income used to compute pro forma earnings per share for
the years ended December 31, 1995 and 1994, reflect incremental statutory
federal and state income tax provisions applied to Clearinghouse's
partnership income for the periods prior to the effective date of the Trident
Combination. The incremental tax provision represents an estimate of the
aggregate federal and state income taxes that would have been provided had
Clearinghouse been a taxpaying entity during the respective accounting periods.
45
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS
THE CHEVRON COMBINATION. On August 31, 1996, NGC completed a strategic
combination (the Chevron Combination) with Chevron U.S.A. Inc. and certain
Chevron affiliates (collectively Chevron), pursuant to which, Chevron
contributed substantially all of its midstream assets (the Contribution),
including substantially all of the assets comprising Warren Petroleum Company
and Chevron's Natural Gas Business Unit, and an undivided interest in those
assets that constitute the West Texas LPG Pipeline, into Midstream
Combination Corp. (Midstream), a Delaware corporation formed for purposes of
the transaction. NGC, which was formed effective March 1, 1995, pursuant to
the Trident Combination, was merged with and into Midstream immediately
following the Contribution, and Midstream was renamed NGC Corporation. In
exchange for the Contribution, Chevron received approximately 38.6 million
shares of NGC common stock and approximately 7.8 million shares of NGC's
Series A Participating Preferred Stock (Series A Preferred), and NGC assumed
approximately $283 million of indebtedness. Immediately following closing of
the Chevron Combination, NGC paid approximately $128 million to Chevron, and
funded such payment under the NGC Corporation Credit Agreement (Credit
Agreement). In connection with the Chevron Combination, NGC and Chevron also
entered into certain ancillary supply, sales and service agreements with
respect to natural gas, natural gas liquids and electricity. Pursuant to
these ancillary agreements, NGC has the right to, among other things,
purchase and/or market substantially all of the natural gas and natural gas
liquids produced or controlled by Chevron in the United States (except Alaska),
to process substantially all of Chevron's processable natural gas in those
geographic areas where it is economically feasible for NGC to provide such
service, to supply natural gas feedstocks to Chevron refineries and chemical
plants in the United States, and to participate in existing and future
opportunities to provide electricity to Chevron's United States facilities,
as well as to purchase or market excess electricity generated by those
facilities.
The Chevron Combination was accounted for as an acquisition of assets
under the purchase method of accounting, and the results of operations of NGC
for the year ended December 31, 1996, include the results of the acquired
assets effective September 1, 1996. The purchase price of approximately $740
million, inclusive of assumed indebtedness and transaction costs, was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as of September 1, 1996. NGC is assessing its exposure
to contingencies assumed in the Chevron Combination which include, among
other things, litigation and certain environmental issues related to the
acquired facilities. Additionally, the Company is in the process of analyzing
certain strategic options to maximize plant synergies occurring as a result
of the Chevron Combination. Consequently, the purchase price allocation, as
presented herein, is considered preliminary. Management believes resolution
of these items will not materially impact the aforementioned purchase price
allocation.
THE TRIDENT COMBINATION. On March 14, 1995, Clearinghouse consummated
the combination with Holding, a fully integrated natural gas liquids company.
The purchase price of approximately $350 million, excluding transaction costs
and liabilities assumed, was allocated to the assets acquired and liabilities
assumed, based on their estimated fair values as of March 1, 1995, the
effective date of the Trident Combination for accounting purposes. The
Trident Combination was accounted for under the purchase method of
accounting, and the results of operations of Holding are included in the
accompanying financial statements effective March 1, 1995.
The following table reflects certain unaudited pro forma information
for the periods presented as if the Trident Combination had occurred on
January 1, 1994:
Years Ended December 31,
--------------------------
($ in thousands, except per share amounts) 1995 1994
- --------------------------------------------------------------------------------
Pro forma revenues $ 3,744,870 $ 3,804,213
- --------------------------------------------------------------------------------
Pro forma net income $ 46,067 $ 25,085
- --------------------------------------------------------------------------------
Pro forma net income per share $ 0.39 $ 0.21
46
<PAGE>
NOTE 3 - PRICE RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
PRICE RISK-MANAGEMENT ACTIVITIES. NGC utilizes fixed-price forward purchase
and sales contracts, futures and options contracts traded on the New York
Mercantile Exchange (NYMEX), and swaps and options traded in the
over-the-counter financial markets to manage and hedge its fixed-price purchase
and sales commitments; to provide fixed-price commitments as a service to
its customers and suppliers; to reduce its exposure relative to the
volatility of cash market prices; and to protect its investment in storage
inventories. The Company may, at times, take a bias in the market, within
established guidelines, resulting from the management of its portfolio. In
addition, by utilizing exchange for physical transactions allowed by the NYMEX,
which enables entities to take delivery of, or sell, a physical quantity of
natural gas in exchange for a futures position, NGC is able to secure
additional sources of physical natural gas supply, or create additional
markets for existing supply, through the use of natural gas futures
contracts. These fixed-price activities are referred to herein as
risk-management activities.
ACCOUNTING FOR PRICE RISK-MANAGEMENT ACTIVITIES - NATURAL GAS. The
Company uses the mark-to-market method of accounting for fixed-price natural
gas transactions. Under mark-to-market accounting, fixed-price forwards,
swaps, options, futures and other financial instruments with third parties
are reflected at market value, net of future servicing costs and reserves,
with resulting unrealized gains and losses recorded as assets and liabilities
from risk-management activities in the Consolidated Balance Sheets. These
assets and liabilities are affected by the actual timing of settlements
related to these contracts and current-period changes resulting primarily
from newly originated transactions and the impact of price movements. These
changes are recognized as revenues in the consolidated statements of
operations in the period in which the change occurs. Market prices used to
value outstanding financial instruments reflect management's consideration
of, among other things, closing exchange and over-the-counter quotations, the
time value of money and volatility factors underlying the commitments. These
market prices are adjusted to reflect the potential impact of liquidating
NGC's position in an orderly manner over a reasonable period of time under
present market conditions.
MARKET RISK. NGC generally attempts to balance its fixed-price physical
and financial purchase and sales contracts in terms of contract volumes and
the timing of performance and delivery obligations. However, net open
positions often exist, or are established due to the origination of new
transactions, and the Company's assessment of, and response to, changing
market conditions. NGC will take advantage of its bias in the market when it
believes, based on competitive information gained from its energy marketing
activities, that future price movements will be consistent with its net open
position. To the extent a net open position exists, NGC is exposed to the
risk that fluctuating market prices may adversely impact its financial
position or results of operations. The net open position is actively managed,
and the impact of a change in price on the Company's financial condition at a
point in time is not necessarily indicative of the impact of price movements
throughout the year. At December 31, 1996, a $0.10 increase or decrease in
the price of natural gas would have impacted net income by approximately $2.3
million either favorably or unfavorably. The impact of the $0.10 price
movements referred to above are before application of market reserves which
would likely reduce the after-tax earnings impact of these price movements.
MARKET RESERVES. In connection with the market valuation of its
fixed-price contracts, the Company maintains certain reserves for a number of
risks and costs associated with these future commitments. Among others, these
include reserves for credit risks based on the financial condition of
counterparties, reserves for product location (basis) differentials and
consideration of the time value of money for long-term contracts.
Counterparties in NGC's trading portfolio consist principally of financial
institutions, major oil and gas companies and local distribution companies.
The creditworthiness of these counterparties may impact its overall exposure
to credit risk, either positively or negatively; however, with regard to its
counterparties, NGC maintains credit policies that management believes
minimize overall credit risk. Determination of the credit quality of its
counterparties is based upon a number of factors, including credit ratings,
financial condition, project economics and collateral requirements. When
applicable, the Company employs standardized agreements that allow for the
netting of positive and negative exposures associated with a single
counterparty. Based on these policies, its current exposures and its credit
reserves, NGC does not anticipate a material adverse effect on the financial
position or results of operations as a result of counterparty nonperformance.
47
<PAGE>
The following table displays the mark-to-market results of NGC's
natural gas fixed-price transactions at December 31, 1996:
<TABLE>
<CAPTION>
Below
Investment Investment
Grade Grade
Credit Credit
($ in thousands) Quality Quality Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utilities and power generators $ 29,703 $ (1,160) $ 28,543
Financial institutions 12,587 7,023 19,610
Oil and gas producers 34,850 17,680 52,530
Industrial companies 8,577 12,311 20,888
Other 8,855 3,328 12,183
- -----------------------------------------------------------------------------------------------------------------------------------
Value of fixed-price transactions before reserves $ 94,572 $ 39,182 133,754
=======================================================================================================================
Reserves (40,302)
----------
Net value of fixed-price transactions $ 93,452
==========
</TABLE>
At December 31, 1996, the term of NGC's portfolio extends to 2007,
and the average remaining life of an individual transaction was 5.3 months.
The above table includes approximately $130 million and $92 million,
respectively, in unrealized gains and losses, which are reflected in accounts
receivable and accounts payable in the Consolidated Balance Sheets.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The estimated fair-value amounts have been determined by the
Company using available market information and selected valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair-value amounts.
The carrying values of current assets and liabilities approximate fair
values due to the short-term maturities of these instruments. The carrying
amounts and fair values of the Company's other financial instruments were:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1996 1995
-------------------------------------------------------------
Carrying Fair Carrying Fair
($ in thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit Agreement $ 319,000 $ 319,000 $ 183,000 $ 183,000
6.75% Senior Notes, due 2005 150,000 148,000 150,000 151,500
7.625% Senior Notes, due 2026 175,000 180,000 --- ---
Chevron Note 155,373 160,000 --- ---
14% Senior Subordinated Notes, due 2001 65,000 75,000 65,000 78,000
10.25% Subordinated Notes, due 2003 105,000 114,000 105,000 116,000
Risk-Management Contracts --- 8,285 --- (7,700)
================================================================================================================================
</TABLE>
The carrying amount of the Credit Agreement in the Consolidated Financial
Statements was assumed to approximate fair value. The fair values of the Senior
Notes, Senior Subordinated Notes and the Subordinated Notes were based on quoted
market prices by financial institutions that actively trade these debt
securities. The fair value of the Chevron Note was determined by a comparison to
publicly traded debt securities having similar terms and conditions. The fair
value of the Company's cost-basis investments was not estimated as the
investments were considered immaterial.
The fair value of commodity price and basis swaps and options was based
upon the estimated consideration that would be received to terminate those
swaps or options in a gain position, and the estimated cost that would be
incurred to terminate those swaps or options in a loss position. Such
transactions are referred to in the above table as "Risk-Management
48
<PAGE>
Contracts." The commodity swap and option agreements extend for a period of
up to 11 years. At December 31, 1996, and 1995, financial instruments related
to natural gas had an absolute notional contract quantity of 1.5 trillion
cubic feet and 881 billion cubic feet, respectively. In addition, financial
instruments related to crude oil and natural gas liquids had absolute
notional contract quantities of 2.0 million barrels and 3.3 million barrels
at December 31, 1996, and 0.2 million barrels and 2.5 million barrels at
December 31, 1995. The estimated fair value and cash flow requirements for
these commodity swaps and options were based upon the market prices in effect
at the financial statement date, and do not necessarily reflect NGC's entire
trading portfolio. Cash flow requirements related to these commodity price
swaps and options at December 31, 1996, were as follows:
December 31,
-----------
($ in thousands) 1996
- ------------------------------------------------------------------------------
Net premiums received to date $ 6,190
Net future cash inflows 2,095
------------
Net cash inflows $ 8,285
===============================================================================
Note 4 - Cash Flow Information
Detail of supplemental disclosures of cash flow and non-cash investing and
financing information was:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
($ in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid (net of amounts capitalized) $ 22,647 $ 32,909 $ 3,575
=======================================================================================================================
Taxes paid (net of refunds) $ 1,467 $ (150) $ 1,068
=======================================================================================================================
Detail of business acquired:
Current assets and other $ 76,465 $ 87,416 $ ---
Fair value of non-current assets 966,530 832,384 ---
Liabilities assumed, including deferred taxes (594,863) (572,680) ---
Capital stock issued and options exercised (448,132) (180,220) ---
Cash balance acquired --- (1,633) ---
- ------------------------------------------------------------------------------------------------------------------------
Cash paid, net of cash acquired $ --- $ 165,267 $ ---
========================================================================================================================
</TABLE>
In 1995, the Company recognized a one-time tax benefit of $45.7
million, which occurred in conjunction with the Trident Combination. The
deferred income tax benefit, which can be used to reduce NGC's future income
tax liabilities, resulted from the recognition of the excess tax basis held
by certain Clearinghouse partners. Also in 1995, the Company assumed a
liability of $2.5 million related to the purchase of a crude oil pipeline.
49
<PAGE>
Note 5 - PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment by segment and sub-segment
consisted of:
<TABLE>
<CAPTION>
December 31,
----------------------------
($ in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural gas and power marketing $ 15,869 $ 15,128
Natural gas liquids, crude oil and gas transmission:
Natural gas processing 1,105,637 663,971
Fractionation 303,608 188,199
Liquids marketing 237,102 25,000
Natural gas gathering and transmission 128,159 107,627
Crude oil 21,220 11,719
Other 8,216 1,710
- ------------------------------------------------------------------------------------------------------------------------------
1,819,811 1,013,354
Less: accumulated depreciation 128,432 64,843
- ------------------------------------------------------------------------------------------------------------------------------
$ 1,691,379 $ 948,511
==============================================================================================================================
</TABLE>
Interest capitalized related to costs of projects in process of
development totaled $1.2 million and $1.0 million during the years ended
December 31, 1996 and 1995, respectively. No interest was capitalized during
the year ended December 31, 1994.
Note 6 - UNCONSOLIDATED AFFILIATES
The equity method of accounting is used for investments in certain
partnerships and for investments in companies in which NGC has a voting
interest of between 20 percent and 50 percent. Such investments include:
NOVAGAS CLEARINGHOUSE, LTD. (NCL). NCL is an Alberta, Canada, limited
partnership formed in 1994 and based in Calgary, Canada. NGC owns an
aggregate 49.9 percent interest in the partnership. NCL offers natural gas
supply services to customers across Canada, and provides gas gathering,
processing, storage and marketing services to Canadian natural gas producers.
The Company shares disproportionately in the economic returns of NCL, as
compared with its ownership interest, resulting primarily from stipulations
contained in a service agreement entered into by a subsidiary of NGC with NCL
in 1995.
ACCORD ENERGY LIMITED (ACCORD). Accord is a limited partnership based
in London, England. It was formed in 1994 to market energy resources in the
United Kingdom and Europe. NGC owns 49 percent of the limited partnership.
GULF COAST FRACTIONATORS (GCF). GCF is a Texas Limited Partnership that
owns a natural gas liquids fractionation facility located in Mont Belvieu,
Texas. NGC acquired its 38.75 percent limited partner interest in GCF through
the Trident Combination. Effective December 1, 1996, the Company relinquished
its role as operator of GCF, pursuant to an agreement reached with the
Federal Trade Commission (FTC) related to the Chevron Combination. At
December 31, 1996, the unamortized excess of the Company's investments in GCF
over its equity in the underlying net assets of the affiliate approximated
$17.3 million. This amount is being amortized on the straight-line method over
the economic service life of the GCF assets.
WEST TEXAS LPG PIPELINE PARTNERSHIP (WEST TEXAS PARTNERSHIP). The West
Texas Partnership, a Texas Limited Partnership, holds all of the assets
comprising the West Texas Pipeline, an interstate natural gas liquids
pipeline. NGC owns a 49 percent interest in the West Texas Partnership
acquired as part of the Chevron Combination.
VENICE GAS PROCESSING COMPANY (VENICE). Venice is a Texas Limited
Partnership that owns and operates a natural gas processing, extraction,
fractionation and storage facility located in Plaquemines Parish, Louisiana.
NGC acquired its 37 percent interest in Venice effective November 1, 1996.
BARGE CO. Barge Co., a Delaware limited liability company, owns
pressurized LPG barges used in transporting LPG principally in the Gulf of
Mexico. NGC owns a 25 percent interest in Barge Co., acquired as part of the
Chevron Combination.
50
<PAGE>
AVOCA NATURAL GAS STORAGE (AVOCA). Avoca is a New York general
partnership engaged in the construction and operation of an underground,
salt-bed gas storage facility in Avoca, New York. The Company owns an
approximate 28 percent interest in the partnership.
QUICKTRADE L.L.C. (QUICKTRADE). Quicktrade, a Delaware limited
liability company, was formed to develop, implement and operate an electronic
trading system. The Company indirectly owns an approximate 26 percent
interest in Quicktrade.
NATGAS JOINT VENTURE (NATGAS). NATGAS was a joint venture with
Pan-Alberta Gas Ltd., based in Calgary, Canada, engaged in the natural gas
marketing business. The joint venture ceased operations in July 1994.
Aggregate equity method investment at December 31, 1996, 1995 and 1994,
was $177.8 million, $58.7 million and $14.4 million, respectively. Dividends
received on these investments in 1996 and 1995 totaled $7.3 million and $11.9
million, respectively. There were no dividends received in 1994. NCL and
Accord both utilize the accrual method of accounting for their
risk-management activities. Summarized aggregate financial information for
these investments, and NGC's equity share thereof was:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------------
Equity Equity Equity
($ in thousands) Total Share Total Share Total Share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 502,381 $ 238,078 $ 276,700 $ 135,400 $ 124,200 $ 61,700
Non-current assets 462,756 192,152 179,100 75,700 20,200 10,100
Current liabilities 455,967 223,200 280,000 135,300 106,100 52,700
Non-current liabilities 100,807 45,088 86,500 36,200 9,800 4,900
Operating margin 133,826 62,145 85,800 41,000 13,900 6,900
Net income 61,154 28,075 34,200 21,100 7,700 3,800
=================================================================================================================================
</TABLE>
The cost method of accounting is used to account for investment in
partnerships or companies in which NGC has a voting interest of less than 20
percent. At December 31, 1996, the Company had two cost-basis investments:
Indeck North American Power Fund, L.P. and Indeck North American Power
Partners, L.P. (collectively Indeck). Indeck was formed in 1995, and is
engaged in the acquisition and operation of power-generating facilities.
NGC's aggregate investment in these entities totaled $3.9 million and $3.7
million at December 31, 1996 and 1995, respectively, and NGC received an
aggregate of $0.6 and $0.5 million in dividends from Indeck during each of
those years.
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
($ in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit Agreement $ 319,000 $ 183,000
6.75% Senior Notes, due 2005 150,000 150,000
7.625% Senior Notes, due 2026 175,000 ---
Chevron Note 155,373 ---
14% Senior Subordinated Notes, due 2001 65,000 65,000
10.25% Subordinated Notes, due 2003 105,000 105,000
Other, non-interest bearing 825 1,125
Unamortized premium 18,674 18,939
- ------------------------------------------------------------------------------------------------------------------
988,872 523,064
Less: long-term debt due within one year 275 300
- ------------------------------------------------------------------------------------------------------------------
$ 988,597 $ 522,764
==================================================================================================================
</TABLE>
51
<PAGE>
CREDIT AGREEMENT. On March 14, 1995, the Company entered into the
Credit Agreement, which established a five-year $550 million revolving credit
facility. The Credit Agreement provides for letters of credit and borrowings
for working capital, capital expenditures and general corporate purposes. The
$550 million commitment under the Credit Agreement reduces by $22.5 million
each quarter beginning in March 1998, and continuing through maturity.
Generally, borrowings under the Credit Agreement bear interest at a
Eurodollar rate plus a margin that is determined based on the Company's
unsecured senior debt rating. At December 31, 1996, such margin was 0.3
percent, and the average interest rate applicable to borrowings under the
Credit Agreement approximated 6.8 percent. During the first quarter of 1995,
NGC entered into arrangements with financial institutions that effectively
capped the base Eurodollar rate on $100 million of borrowings at certain
rates through January 1998. The Credit Agreement contains certain financial
covenants that require the Company to meet certain financial position and
performance tests. Certain amendments were made to the Credit Agreement to
accommodate the Chevron Combination. At December 31, 1996, letters of credit
and borrowings under the Credit Agreement aggregated approximately $413.8
million, and the Company had $136.2 million of available capacity under the
Credit Agreement.
LETTER OF CREDIT AGREEMENT. On September 1, 1996, the Company entered
into a new credit agreement (the Letter of Credit Agreement) which
established a 364-day, $300 million letter of credit facility. The Letter of
Credit Agreement provides for the issuance of letters of credit in support of
the Company's obligation to purchase substantially all of the natural gas
produced or controlled by Chevron in the United States (except Alaska). The
Company incurs a fee that is determined based on the Company's unsecured
senior debt rating on all issued and outstanding letters of credit under the
Letter of Credit Agreement. At December 31, 1996, such fee was 0.3 percent,
and letters of credit outstanding totaled $300 million, resulting in no
unused capacity under the terms of the Letter of Credit Agreement. The
Company also incurs a commitment fee on the unused portion of the commitment
under the Letter of Credit Agreement. The commitment fee is determined based
on the Company's unsecured debt rating, and at December 31, 1996, such fee
was 0.06 percent per annum. The Letter of Credit Agreement contains certain
financial covenants that require the Company to meet certain financial
position and performance tests. In general, these financial covenants are
identical to those contained in the Credit Agreement.
6.75% SENIOR NOTES, DUE 2005. On December 15, 1995, the Company sold
$150 million of 6.75% Senior Notes, due December 15, 2005 (Notes). The Notes
were issued at a price of 99.984 percent, which, after deducting underwriting
discounts and commissions, resulted in net proceeds to the Company of
approximately $149 million. Proceeds from the sale of the Notes were used to
repay a portion of the outstanding indebtedness under the Credit Agreement.
Interest on the Notes is payable semiannually on June 15 and December 15 of
each year. The Notes represent general unsecured obligations of the Company,
and are fully and unconditionally guaranteed on a joint and several basis by
certain of the Company's wholly owned subsidiaries (collectively the Notes
Guarantors), as defined in the associated indenture. Upon issuance, the Notes
were priced based on the then existing yield for 10-year U.S. Treasury Notes
(10-Year Base Treasury Rate) plus a spread based principally on the Company's
credit rating. Prior to issuing the Notes, the Company entered into two
separate transactions with two separate financial institutions, the effect of
which was to lock in the 10-Year Base Treasury Rate at approximately 6.2
percent on the full $150 million face value of the Notes.
7.625% SENIOR NOTES, DUE 2026. In October 1996, NGC sold $175 million of
7.625% Senior Notes (Senior Debentures). The Senior Debentures were issued at a
price of 99.522 percent, which, after deducting underwriting discounts and
commissions, resulted in net proceeds to the Company of approximately $173
million. The net proceeds from the sale of such Senior Debentures were used to
repay a portion of the outstanding indebtedness under the Credit Agreement.
Interest on the Notes is payable semiannually on April 15 and October 15 of each
year, commencing April 15, 1997. The Senior Debentures are redeemable, at the
option of the Company, in whole or in part from time to time, at a formula-based
redemption price as defined in the associated indenture. The Senior Debentures
represent general unsecured obligations of the Company and are fully and
unconditionally guaranteed, on a joint and several basis, by certain of the
Company's wholly owned subsidiaries (collectively the Senior Debenture
Guarantors), also as defined in the associated indenture. Upon issuance, the
Senior Debentures were priced based on the then existing yield for 30-year U.S.
Treasury Notes (30-Year Base Treasury Rate) plus a spread based principally on
the Company's credit rating. Prior to issuing the Senior Debentures, the Company
entered into a transaction, the effect of which was to lock in the 30-Year Base
Treasury Rate at approximately 7.0 percent on $150 million of the $175 million
face value of the Senior Debentures.
52
<PAGE>
The wholly owned subsidiaries that have fully and unconditionally
guaranteed, on a joint and several basis, the Notes are predominantly the
same wholly owned subsidiaries that have fully and unconditionally
guaranteed, on a joint and several basis, the Senior Debentures. Separate
financial statements of each of the Notes Guarantors and Senior Debenture
Guarantors have not been provided because management has determined that such
information would not be material to investors as the aggregate assets,
liabilities, earnings and equity of the Notes Guarantors, and the aggregate
assets, liabilities, earnings and equity of the Senior Debenture Guarantors
are each separately substantially equivalent to the Company's consolidated
assets, liabilities, earnings and equity. The Company also has certain direct
and indirect subsidiaries that are not guarantors of the Notes or the Senior
Debentures (collectively Non-guarantor Subsidiaries). These Non-guarantor
Subsidiaries, both individually and in the aggregate, are inconsequential to
NGC (and its accounting predecessor, Clearinghouse) as of and for each of the
three years in the period ended December 31, 1996.
CHEVRON NOTE. As part of the Chevron Combination, NGC assumed
approximately $283 million of indebtedness attributed to the assets acquired
from Chevron. Approximately $128 million was paid to Chevron immediately
following closing of the Chevron Combination. The remaining principal balance
of approximately $155 million is payable to Chevron upon demand on or after
August 31, 1998, and is referred to herein as the Chevron Note. The Chevron
Note bears interest at 7.95 percent per annum, payable semiannually in
arrears each February and August. Should Chevron choose not to demand payment
of the Chevron Note, then principal plus accrued interest is payable in full
on August 14, 2004. NGC has the right, at any time on or after August 31,
1998, to prepay in whole or in part the principal and accrued interest
outstanding under the Chevron Note. There are no financial covenants
associated with the Chevron Note. An unamortized premium balance of $3.9
million associated with the Chevron Note is being amortized using the
interest method, resulting in an effective interest rate of 6.54 percent per
annum.
14% SENIOR SUBORDINATED NOTES, DUE 2001. The Senior Subordinated Notes
represent Warren NGL, Inc.'s (Warren - formerly Trident NGL, Inc.) unsecured
general obligations that mature on August 30, 2001, and bear interest at 14
percent per annum, payable semiannually in arrears each February and August.
The indenture governing the Senior Subordinated Notes contains certain
covenants that, among other things, require Warren to meet certain financial
tests; limit the amount of capital expenditures, dividend payments and asset
sales that can be made by Warren; and restrict the ability of Warren and its
subsidiaries to incur additional indebtedness, create or permit liens and
engage in certain transactions. Although Warren's net assets at December 31,
1996, approximated $386 million, management does not believe that the terms
of the indenture materially restrict the ability of Warren to transfer funds
to the Company given that Warren is both a Notes Guarantor and a Senior
Debenture Guarantor, combined with the level of advances made by NGC to
Warren. An unamortized premium balance of $8.2 million associated with the
Senior Subordinated Notes is being amortized using the interest method,
resulting in an effective interest rate of 9.6 percent per annum. Beginning
in 1998, corresponding with the first call date, the Senior Subordinated
Notes may be repurchased by the Company at an initial price of 107 percent of
the principal amount, with such reacquisition price reducing as the notes
mature.
10.25% SUBORDINATED NOTES, DUE 2003. The Subordinated Notes represent
Warren's unsecured general obligations that mature on April 15, 2003, and
bear interest at the rate of 10.25 percent per annum, payable semiannually in
arrears each April and October. The Subordinated Notes indenture contains
similar covenants to those contained in the Senior Subordinated Notes
indenture. An unamortized premium balance of $6.6 million associated with the
Subordinated Notes is being amortized using the interest method, resulting in
an effective interest rate of 9.02 percent per annum. Beginning in 1998,
corresponding with the first call date, the Subordinated Notes may be
repurchased by the Company at an initial price of 104.5 percent of the
principal amount, with such reacquisition price reducing as the notes mature.
Aggregate maturities of all long-term indebtedness are as follows:
1997-$0.3 million; 1998-$159.5 million; 1999-$0.3 million; 2000-$319.0
million; and 2001 and beyond-$509.8 million.
53
<PAGE>
NOTE 8 - INCOME TAXES
The Company is subject to federal, foreign and state income taxes on its
operations. Components of income tax provision (benefit) were:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
($ in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 10,427 $ --- $ 990
Deferred tax expense (benefit) 45,896 (27,471) 1,014
- --------------------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $ 56,323 $ (27,471) $ 2,004
===============================================================================================================================
</TABLE>
Included in the above table is a $45.7 million deferred tax benefit in
1995, resulting from book and tax bases differences associated with the
technical termination of the Clearinghouse partnership resulting from the
Trident Combination.
Deferred income taxes are provided for the temporary differences
between the tax basis of NGC's assets and liabilities and their reported
financial statement amounts. Significant components of deferred tax
liabilities and assets were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
($ in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Clearinghouse partnership basis differential $ 9,700 $ 38,747
Loss carryforward 78,456 87,690
Tax credits 13,627 5,400
Other 9,383 4,450
- ------------------------------------------------------------------------------------------------------------------------------------
111,166 136,287
Valuation allowance --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
111,166 136,287
Deferred tax liabilities:
Items associated with capitalized costs 439,446 179,514
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 328,280 $ 43,227
===================================================================================================================================
</TABLE>
Realization of the aggregate deferred tax asset is dependent on the
Company's ability to generate taxable earnings in the future. No valuation
allowance was established at December 31, 1996 and 1995, as management
believes the aggregate deferred asset will be fully realized in the future.
The income tax provision (benefit) for the years ended December 31,
1996, 1995 and 1994, was equivalent to effective rates of 33 percent, (42)
percent and 5 percent, respectively. Differences between taxes computed at
the U.S. federal statutory rate and the Company's reported income tax
provision (benefit) were:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
($ in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax at U.S. statutory rate $ 59,376 $ 22,832 $ 15,437
State taxes 3,393 1,305 ---
Foreign tax benefit (6,621) (3,846) ---
Clearinghouse partnership basis differential --- (45,736) ---
Partnership income --- (2,174) (13,433)
Other 175 148 ---
- -------------------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $ 56,323 $ (27,471) $ 2,004
===============================================================================================================================
</TABLE>
54
<PAGE>
At December 31, 1996, the Company had approximately $212 million of
regular tax net operating loss carryforwards. The net operating loss
carryforwards expire from 2006 through 2012. Certain provisions of the
Internal Revenue Code place an annual limitation on the Company's ability to
utilize tax carryforwards existing as of the date of the Trident Combination.
Management believes such carryforwards will be fully realized prior to
expiration.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION. On February 26, 1996, Apache Corporation (Apache) requested
arbitration to resolve issues arising under a gas marketing contract
(Contract) with Clearinghouse, pursuant to the arbitration provisions of such
Contract. On February 26, 1996, Clearinghouse responded by denying Apache's
claims, and by alleging several counterclaims of its own with respect to
Apache's performance under the Contract. In connection with the arbitration
proceedings, on April 9, 1996, Apache filed a lawsuit against Clearinghouse in
the 55th Judicial District Court of Harris County, Texas (Court). In that
lawsuit, Apache alleges that Clearinghouse is intentionally delaying the
progress of the arbitration, and it requests relief, pursuant to the Texas
General Arbitration Act, in the form of an order appointing a third
arbitrator, compelling discovery and requiring Clearinghouse to assign
certain contracts allegedly belonging to Apache. Clearinghouse filed a
response to the lawsuit on May 6, 1996, asking that the Court dismiss Apache's
application for relief or abate the suit pending resolution of all matters
by the arbitration panel according to the terms of the Contract.
Clearinghouse also requested payment of all attorneys' fees and other
litigation expenses incurred in responding to and defending the lawsuit. On
September 18, 1996, the arbitration panel granted a revised discovery
schedule which moved the hearing previously scheduled for December 1996, to
April 7, 1997. On February 6, 1997, the arbitration hearing was further
postponed until September 15, 1997. In the arbitration, and again in the
lawsuit, Apache claims that it is entitled to actual damages in an
undetermined amount in excess of $8 million, and punitive damages calculated
by tripling the actual damages. Clearinghouse intends to vigorously defend
the Apache suit and arbitration. Based on review of the facts and through
consultation with outside counsel, NGC management believes the ultimate
resolution of the Apache suit will not have a material adverse impact on the
Company's financial position or results of operations, and that any payments
eventually made in connection with the arbitration and/or lawsuit will be
substantially less than the amount claimed.
The Company assumed liability for various claims and litigation in
connection with the Chevron Combination, the Trident Combination and in
connection with the acquisition of certain gas processing and gathering
facilities from Mesa Operating Limited Partnership. NGC believes, based on
its review of these matters and consultation with outside legal counsel, that
the ultimate resolution of such items, individually or in the aggregate, will
not have a material adverse impact on the Company's financial position or
results of operations. Further, the Company is subject to various legal
proceedings and claims which arise in the normal course of business. In the
opinion of management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position of the Company.
COMMITMENTS. A wholly owned subsidiary of NGC is committed to expend
its respective share of the construction costs related to the Avoca storage
project. Current cost estimates commit the Company to approximately $10
million of expenditures. NGC and NGC Holding Company, Inc. have guaranteed
the commitment by the wholly owned subsidiary.
A subsidiary of the Company is committed to contribute approximately
$62 million to Venice during 1997.
A subsidiary of the Company is committed to contribute a total of $10
million to Indeck as its respective share of funds to be used for the
acquisition of selected electric power generating facilities. At December 31,
1996, the Company had paid $3.9 million of this commitment.
A subsidiary has guaranteed its pro rata share of the unfunded debt
service reserve account of GCF. The obligation under the guarantee at
December 31, 1996, assuming the subsidiary had to fund such obligation as of
that date, approximated $2.5 million.
OTHER COMMITMENTS. Minimum commitments in connection with office space,
equipment, reservation charges under gas purchase and firm transportation
contracts, and other leased assets by the Company are: 1997-$16.7 million;
1998-$10.5 million; 1999-$11.6 million; 2000-$11.1 million; and 2001 and
beyond-$47.5 million. Rental payments made during 1996, 1995 and 1994 totaled
$45.2 million, $24.9 million and $11.1 million, respectively.
55
<PAGE>
NOTE 10 - CAPITAL STOCK
The Company has authorized capital stock consisting of 450,000,000 shares, of
which 50,000,000 shares, $0.01 par value per share, are designated preferred
stock, and 400,000,000 shares, $0.01 par value per share, are designated
common stock.
PREFERRED STOCK. The Company's preferred stock may be issued from time
to time in one or more series, the shares of each series to have such
designations and powers, preferences, rights, qualifications, limitations and
restrictions, thereof as described in the Company's Certificate of
Incorporation. In order to provide for issuance of preferred shares, pursuant
to the terms of the Chevron Combination, 8,000,000 shares of preferred stock
were designated during 1996 as Series A Preferred, of which 7,815,363 shares
were issued effective September 1, 1996.
Except as provided by law, the holders of the Series A Preferred have
no voting rights, and such shares are not redeemable. At the holder's option,
each share of the Series A Preferred may be converted, subject to certain
adjustments and certain defined conditions precedent, into one share of
common stock. Such shares have certain preferences, as defined, in the event
of liquidation or dissolution of NGC, over all stock having a junior ranking.
Subject to certain anti-dilutive adjustments, as defined, the holders of the
Series A Preferred are entitled to receive dividends or distributions equal
per share in amount and kind to any dividend or distribution payable on
shares of the Company's common stock, when and as the same are declared by
the Company's Board of Directors out of funds legally available therefor and
paid to the holders of the Company's common stock.
Beginning in the third quarter of 1996, the Company has paid quarterly
cash dividends on the Series A Preferred of $0.0125 per share, or $0.05 per
share on an annual basis.
COMMON STOCK. At December 31, 1996, there were 149,846,503 shares of
common stock issued and outstanding. NGC pays quarterly cash dividends on
common stock of $0.0125 per share, or $0.05 per share on an annual basis.
Effective September 1, 1996, the Company issued 38,623,210 shares of
common stock to Chevron pursuant to terms of the Chevron Combination.
On February 29, 1996, a determination was made with regard to the
5,461,538 contingent shares distributable to the former owners of the
partners of Clearinghouse (Clearinghouse Owners) and the former shareholders
of Holding (Trident Shareholders), pursuant to the terms of the Trident
Combination. Such shares were allocated in a ratio of 17 percent to the
Trident Shareholders and 83 percent to the Clearinghouse Owners.
STOCK WARRANTS. At December 31, 1996, the Company had warrants
outstanding that entitle the holder thereof to purchase an aggregate 6,228
shares of common stock at an exercise price of $8.13 per share. The warrants
expire in October 2003.
STOCK OPTIONS. Each option granted is valued at an option price that
ranges from $2.03 per share to the fair market value per share at date of
grant. The difference between the option price and the fair market value, if
any, of each option on the date of grant is recorded as compensation expense
over a vesting period. Options granted at prices below fair market value do
not become exercisable until the fifth anniversary date of the date of grant,
at which time they became fully exercisable. Options granted at market value
vest and become exercisable ratably over a three-year period. Compensation
expense related to options granted totaled $2.8 million, $1.6 million and
$1.5 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Stock option transactions for 1996 and 1995 were:
56
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Option Option
Shares Price Shares Price
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 12,614,515 $ 2.13 -- $ 9.38 11,918,090 $ 2.13 -- $ 5.95
Options arising from Trident Combination --- --- 1,467,500 6.40 -- 8.64
Granted 1,841,851 2.03 -- 18.75 1,644,578 5.95 -- 9.38
Exercised (736,520) 2.03 -- 9.38 (1,451,633) 2.13 -- 8.64
Canceled or expired (312,636) 2.03 -- 9.38 (964,020) 2.13 -- 5.95
Other, contingent share issuance 512,638 2.03 -- 8.13 --- ---
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 13,919,848 $ 2.03 -- $18.75 12,614,515 $ 2.13 -- $ 9.38
- ------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 469,208 $ 2.03 -- $ 9.38 271,969 $ 6.40 -- $8.81
- ------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year at market $15.30 $18.00
Weighted average fair value of
options granted during the year below market $21.38 $19.50
========================================================================================================================
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model, with the following
weighted-average assumptions used for grants in both 1996 and 1995: dividends
of $0.05 per year; expected volatility of 43.3 percent; risk-free interest
rate of 5.9 percent and an expected life of 10 years. The Company accounts
for its stock option plan in accordance with Accounting Principle Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Had compensation
cost been determined consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share
(EPS) would have approximated the following pro forma amounts for the years
ended December 31, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
($ in thousands, except per share data) 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Earnings Net Earnings
Income Per Share Income Per Share
--------------------------------------------------------------
Pro forma amounts $ 107,580 $ 0.79 $ 43,570 $ 0.39
======================================================================================================================
(1) 1995 pro forma net income and per-share data exclude the effect of a tax benefit of $45.7 million related to the Trident
Combination and includes an incremental statutory federal and state income tax provision applied to Clearinghouse's partnership
income for the period prior to the effective date of the Trident Combination.
</TABLE>
As allowed by the transitional disclosure requirements of SFAS No. 123,
the preceding pro forma net income and pro forma EPS amounts do not include
the impact, if any, of applying the accounting methodology of SFAS No. 123 to
options granted prior to January 1, 1995. As a result, the impact of
compensation cost included in the pro forma net income and EPS amounts for
the years ended December 31, 1996 and 1995, respectively, may not be
indicative of amounts to be expected in future periods.
NOTE 11 - EMPLOYEE COMPENSATION, SAVINGS AND PENSION PLANS
ABOVE BASE INCENTIVE COMPENSATION PLAN. NGC has an Above Base Incentive
Compensation Plan (ABICP) to reward employees based on NGC's annual operating
income, as defined in the ABICP. Specific awards are at the discretion of the
Compensation Committee of the Board of Directors (Compensation Committee).
The ABICP was amended January 1, 1994, to provide for payment of no less than
10 percent, but not greater than 15 percent, of operating income, as defined.
PROFIT-SHARING/401(K) SAVINGS PLAN. Effective May 1, 1989, the Company
established the NGC Profit-Sharing/401(k) Savings Plan (Plan). The Plan meets
the requirements of Section 401(k) of the Internal Revenue Code, and is a
defined
57
<PAGE>
contribution plan subject to the provisions of the Employee Retirement Income
Security Act of 1974. The Plan and related trust fund are established and
maintained for the exclusive benefit of participating employees of NGC. All
eligible employees may participate in the Plan, and employee contributions are
matched dollar-for-dollar for the first 5 percent of compensation, subject to
Company performance. Employees vest in the Company's contributions ratably over
four years. The Company also makes profit-sharing contributions to employees'
accounts, regardless of their participation in the Plan, in an amount equal to 5
percent of the employees' annual base salary. At the discretion of the
Compensation Committee, an additional profit-sharing contribution of 5 percent
may be awarded (referred to as Discretionary Profit-Sharing Contribution).
Company matching contributions to the Plan and Discretionary Profit-Sharing
Contributions are made in Company common stock. During the years ended December
31, 1996, 1995 and 1994, NGC (or its accounting predecessor, Clearinghouse)
recognized aggregate costs related to the Plan and the profit-sharing
contributions of $5.3 million, $4.4 million and $3.8 million, respectively.
PENSION PLAN. Prior to the Trident Combination, Holding had adopted a
noncontributory defined benefit pension plan, and such plan remains in
existence at December 31, 1996. The Trident NGL, Inc. Retirement Plan
(Retirement Plan) is a qualified plan under the Internal Revenue Service
regulations, and all full-time hourly employees of Trident were eligible for
participation in the Retirement Plan. Benefits are based on years of service
and final average pay, as defined in the Retirement Plan document.
Contributions to the Retirement Plan in 1996 and 1995 totaled $1.1 million
and $1.1 million, respectively, representing the minimum amount required by
federal law and regulation. The Retirement Plan's funded status and amount
recognized in NGC's balance sheet at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
December 31,
-------------------------------
($ in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $4.8 million and $3.9 million in 1996 and 1995, respectively $ 5,320 $ 4,381
===============================================================================================================================
Projected benefit obligation $ 8,908 $ 7,773
Plan assets (6,031) (4,395)
- -------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 2,877 3,378
Unrecognized net gain from past experience
different from that assumed 3,090 2,825
- -------------------------------------------------------------------------------------------------------------------------------
Pension liability $ 5,967 $ 6,203
===============================================================================================================================
</TABLE>
Current-year pension expense is based on measurements of the projected
benefit obligation and the market-related value of the Retirement Plan assets
as of the end of the year. The projected benefit obligation at December 31,
1996, was based on a discount rate of 7.75 percent and an average long-term
rate of compensation growth of 3.5 percent. The expected long-term rate of
return on the Retirement Plan assets was estimated at 8.0 percent.
The components of net pension expense for the Retirement Plan were:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
($ in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost benefits earned during period $ 660 $ 712
Interest cost on projected benefit obligation 602 523
Expected return on plan assets (376) (144)
Termination benefits --- 433
Amortization of unrecognized gain (110) (55)
- -------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 776 $ 1,469
===============================================================================================================================
</TABLE>
58
<PAGE>
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company is a leading North American marketer of natural gas, natural gas
liquids, crude oil and electric power. NGC is also engaged in natural gas
gathering, processing and transportation activities, and has joint ventures
in Canada and the United Kingdom which expand NGC's operations
geographically. The Company routinely transacts business directly or
indirectly with three of its significant stockholders: Chevron; Nova
Corporation (NOVA), an Alberta, Canada company; and British Gas plc (British
Gas), a United Kingdom company, each of which own approximately 26 percent of
the outstanding shares of the Company's common stock. Chevron holds all of
the outstanding shares of the Series A Preferred.
Transactions between the Company and Chevron result principally from
the ancillary agreements described previously in Note 2. Transactions between
NGC and NOVA, primarily result from purchases and sales of natural gas
between NGC, NOVA and NCL. Transactions between NGC and British Gas are
limited to the operations of Accord which transacts business with
subsidiaries of British Gas for the purchase and sale of natural gas and
crude oil. It is management's opinion that these transactions are executed at
prevailing market rates. During the years ended December 31, 1996, 1995 and
1994, the Company recognized in revenues and cost of aggregate sales to, and
aggregate purchases from, these significant stockholders of $286.7 million
and $1.1 billion; $2.3 million and $152.6 million; and $20.9 million and
$218.9 million, respectively, resulting from the direct or indirect
relationships.
Effective June 1, 1995, NGC entered into a service agreement with NCL
whereby NGC Futures, Inc. (NGCF), a wholly owned subsidiary of NGC, provides
NCL and its affiliates natural gas marketing and risk-management services. As
a result, NGC shares disproportionately in NCL's economic returns resulting
from the services provided. For the year ended December 31, 1995, NGC, in
addition to its share of equity in the earnings of NCL, recognized $6.8
million of pre-tax earnings related to services rendered NCL by NGCF. No
amounts were recognized in 1996 related to services rendered by NGCF to NCL.
During 1994, Clearinghouse received notes from several employees
totaling $1.5 million. At December 31, 1994, $0.3 million of the original
notes issued remained outstanding. The notes were paid in full during 1995.
59
<PAGE>
NOTE 13 - SEGMENT INFORMATION
Operating segment information for 1996, 1995 and 1994 is presented below.
NGC's activities outside the United States are limited to the operations of
NCL and Accord, which are discussed in Note 6 - Unconsolidated Affiliates.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Natural
Natural Gas Liquids,
Gas and Crude Oil Corporate
Power and Gas and
($ in thousands) Marketing Transmission Eliminations Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 Summary Data:
Unaffiliated revenues $ 4,422,838 $ 2,837,353 $ 11 $ 7,260,202
Intersegment revenues 80,954 242,297 (323,251) ---
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 4,503,792 3,079,650 (323,240) 7,260,202
- --------------------------------------------------------------------------------------------------------------------------------
Operating margin 103,624 265,876 --- 369,500
Depreciation and amortization 3,667 67,513 496 71,676
Equity in earnings of unconsolidated affiliates 20,696 7,379 --- 28,075
Identifiable assets 2,117,136 3,272,014 (1,202,340) 4,186,810
Capital expenditures(1) 2,860 818,384 6,928 828,172
================================================================================================================================
(1) Amounts include the value assigned assets acquired in the Chevron Combination.
-----------------------------------------------------------------------
Natural
Natural Gas Liquids,
Gas and Crude Oil Corporate
Power and Gas and
($ in thousands) Marketing Transmission Eliminations Total
- --------------------------------------------------------------------------------------------------------------------------------
1995 Summary Data:
Unaffiliated revenues $ 2,423,136 $ 1,242,810 $ --- $ 3,665,946
Intersegment revenues 36,629 81,472 (118,101) ---
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 2,459,765 1,324,282 (118,101) 3,665,946
- --------------------------------------------------------------------------------------------------------------------------------
Operating margin 63,746 130,914 --- 194,660
Depreciation and amortization 2,092 42,625 196 44,913
Equity in earnings of unconsolidated affiliates 19,164 1,896 --- 21,060
Identifiable assets 915,972 1,460,204 (500,924) 1,875,252
Capital expenditures(2) 5,070 956,110 2,966 964,146
================================================================================================================================
(2) Amounts include the value assigned assets acquired in the Trident Combination.
-----------------------------------------------------------------------
Natural
Natural Gas Liquids,
Gas and Crude Oil Corporate
Power and Gas and
($ in thousands) Marketing Transmission Eliminations Total
- --------------------------------------------------------------------------------------------------------------------------------
1994 Summary Data:
Unaffiliated revenues $ 3,231,343 $ 6,500 $ --- $ 3,237,843
Intersegment revenues 3,502 80,284 (83,786) ---
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,234,845 86,784 (83,786) 3,237,843
- --------------------------------------------------------------------------------------------------------------------------------
Operating margin 78,410 20,716 --- 99,126
Depreciation and amortization 2,570 5,808 --- 8,378
Equity in earnings of unconsolidated affiliates 3,803 --- --- 3,803
Identifiable assets 527,353 118,118 --- 645,471
Capital expenditures 4,055 32,397 --- 36,452
================================================================================================================================
</TABLE>
60
<PAGE>
NOTE 14 - SUBSEQUENT EVENTS
On February 18, 1997, NGC announced that it had signed a merger agreement to
acquire Destec Energy, Inc. (Destec), a leading independent power producer
(IPP), in a deal valued at $1.27 billion, or $21.65 per share of Destec
common stock. Simultaneous with this acquisition, NGC will sell Destec's
international facilities and operations to The AES Corporation for $407
million, inclusive of cash and monetizable assets. NGC intends to finance the
transaction with interim financing provided by commercial banks from its
existing bank-credit group and existing cash. The balance of the interim
financing is expected to be retired from a combination of sales of
nonstrategic Destec assets within six to 12 months of closing the merger,
long-term debt and a common and/or preferred stock issuance. Destec currently
operates 20 power generation facilities in key energy markets across the
United States, as well as five international projects.
On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the FTC related to
the Chevron Combination. The Company realized a small after-tax gain in 1997
relating to the sale.
In October 1996, the Company and NOVA announced their intention to
restructure the companies' Canadian natural gas operations. Under the
agreement, NGC will assume full control of NCL's gas and gas liquids
marketing businesses. NGC and NOVA will pursue separate midstream asset
businesses in Canada, with NOVA assuming full ownership of NCL's existing
gathering and processing businesses. This restructuring may also result in
amendments to, or termination of, various agreements between NCL and the
Company or NOVA, including their respective affiliates. NOVA will also own
100 percent of Pan-Alberta, which is currently a subsidiary of NCL. NGC will
operate its Canadian operations under the name of NGC Canada, Inc. The
transaction is expected to close by April 30, 1997.
In early 1997, British Gas completed a restructuring with Centrica plc
(Centrica) being demerged from British Gas and British Gas being renamed BG
plc (BG). Centrica became the Company's joint venture partner in Accord,
while BG now holds the approximate 26 percent interest in NGC's common stock
formerly held by British Gas.
Effective March 2, 1997, Centrica and the Company signed an agreement
in which they stated their intent to restructure Accord by converting certain
common stock interests in Accord to participating preferred stock interests.
After closing, which is expected to occur in the second quarter of 1997,
Centrica and the Company will own 75 percent and 25 percent, respectively, of
the participating preferred stock of Accord. The participating preferred
stock will have (a) the right to receive cumulative dividends on a priority
to other corporate distributions by Accord, and (b) limited voting rights. In
addition, Centrica will have the option to purchase the Company's
participating preferred stock interest at any time after July 1, 2001, and
the Company will have the right to acquire Centrica's participating preferred
interest during the period from January 1, 2001, through March 1, 2001, at
formula-based prices as defined in the agreement. As part of the
reorganization, NGC UK will assume control of Accord's existing crude oil
marketing business. The restructuring is contingent upon certain U.K.
regulatory approvals.
61
<PAGE>
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's unaudited quarterly financial
information for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
($ in thousands, except per share data) 1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,647,123 $ 1,163,151 $ 1,495,482 $ 2,954,446
Operating margin 90,082 51,995 82,311 145,112
Income before income taxes 46,621 17,224 31,854 73,946
Net income 30,328 13,838 21,452 47,704
Net income per share 0.26 0.12 0.16 0.28
=============================================================================================================================
Quarters Ended
---------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
($ in thousands, except per share data) 1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------------------
Revenues $ 802,944 $ 841,028 $ 944,229 $ 1,077,745
Operating margin 31,486 43,399 56,963 62,812
Income before income taxes 11,747 6,162 22,386 24,939
Net income 55,274 4,873 14,608 17,950
Net income per share (1) 0.07 0.04 0.13 0.15
===============================================================================================================================
(1) Net income used to compute pro forma earnings per share for the first quarter of 1995 reflects incremental statutory federal and
state income tax provisions applied to Clearinghouse's partnership income. The incremental tax provision represents an estimate of
the aggregate federal and state income taxes that would have been provided had Clearinghouse been a taxpaying entity during the
respective accounting period.
</TABLE>
62
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF NGC CORPORATION
STATE OR JURISDICTION
OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------------
Accord Energy Limited United Kingdom
Bradshaw Gathering System Joint Venture Texas
Caney River Transmission Company Delaware
Clearinghouse Holdings, Inc. Delaware
ECI Capital Corporation Texas
Electric Clearinghouse, Inc. Texas
Ellisburg Leidy N.E. Hub (general partnership) Pennsylvania
Enerchange LLC (limited liability company) Delaware
Gulf Coast Fractionators (general partnership) Texas
Hub Services, Inc. Delaware
Kansas Gas Supply Corporation Delaware
LPG Services Group, Inc. Missouri
Natural Gas Clearinghouse (general partnership) Colorado
Natural Gas Clearinghouse, Inc. Delaware
Natural Gas Clearinghouse of Argentina, Inc. Delaware
Natural Gas Clearinghouse of Mexico, Inc. Delaware
NGC Anadarko Gathering Systems, Inc. Texas
NGC Avoca, Inc. Delaware
NGC Great Britain Ltd. United Kingdom
<PAGE>
STATE OR JURISDICTION
OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------------
NGC Canada, Inc. Alberta, Canada
NGC Cayuta, Inc. Delaware
NGC Futures, Inc. Texas
NGC GP, Inc. Delaware
NGC Global Energy, Inc. Delaware
NGC Global Liquids, Inc. Delaware
NGC Holding Company, Inc. Delaware
NGC Mexico, S.A. de C.V. Mexico
NGC Oil Trading and Transportation, Inc. Texas
NGC Regulated Holdings, Inc. Delaware
NGC Steuben, Inc. Delaware
NGC Storage, Inc. Delaware
NGC Transportation, Inc. Delaware
NGC UK Limited United Kingdom
NIPC, Inc. Texas
NOTTI Gathering Company, Inc. Delaware
NOTTI Pipeline Company Delaware
Novagas Clearinghouse Limited Partnership Alberta, Canada
(limited partnership)
O'Keene Gas Gathering Company Oklahoma
Ozark Pipeline, Inc. Delaware
2
<PAGE>
STATE OR JURISDICTION
OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------------
Phantex Pipeline Company Delaware
QuickTrade LLC (limited liability company) Delaware
Warren Arkansas Gathering, Inc. Arkansas
Warren Energy, Inc. Texas
Warren Energy Resources, Limited Partnership Delaware
(limited partnership)
Warren Gas Liquids, Inc. Delaware
Warren Gas Marketing, Inc. Delaware
Warren Intrastate Gas Supply, Inc. Delaware
Warren NGL, Inc. Delaware
Warren NGL Pipeline Company Delaware
Warren Petroleum Company, Limited Partnership Delaware
Warren Petroleum G.P., Inc. Delaware
Warren Transportation, Inc. Delaware
WPC LP, Inc. Delaware
WTLPS, Inc. Delaware
Waskom Gas Processing Company (general partnership) Texas
701289 Alberta Ltd. Alberta, Canada
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated March 14, 1997, incorporated by reference in this Form 10-K,
into NGC Corporation's previously filed registration statements on Form S-8
(File Nos. 33-75044, 33-96394 and 333-20773) and on Form S-3 (File Nos. 33-
89546 and 33-97368).
ARTHUR ANDERSEN LLP
Houston, Texas
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
ANNUAL REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 50,209 16,266
<SECURITIES> 0 0
<RECEIVABLES> 1,518,385 563,902
<ALLOWANCES> 0 0
<INVENTORY> 257,005 74,263
<CURRENT-ASSETS> 1,936,721 762,939
<PP&E> 1,819,811 1,013,354
<DEPRECIATION> (128,432) (64,843)
<TOTAL-ASSETS> 4,186,810 1,875,252
<CURRENT-LIABILITIES> 1,548,987 705,674
<BONDS> 0 0
0 0
75,418 0
<COMMON> 1,498 1,105
<OTHER-SE> 1,039,817 551,275
<TOTAL-LIABILITY-AND-EQUITY> 4,186,810 1,875,252
<SALES> 7,260,202 3,665,946
<TOTAL-REVENUES> 7,260,202 3,665,946
<CGS> (6,890,702) (3,471,286)
<TOTAL-COSTS> (171,708) (112,970)
<OTHER-EXPENSES> (10,020) (5,125)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (46,202) (32,391)
<INCOME-PRETAX> 169,645 65,234
<INCOME-TAX> (56,323) 27,471
<INCOME-CONTINUING> 113,322 92,705
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 113,322 92,705
<EPS-PRIMARY> 0.83 0.40
<EPS-DILUTED> 0.83 0.40
</TABLE>
