<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[_] 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
DYNEGY INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3248415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 507-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO ____
-----
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: Common stock, $.01 par value per share,
155,250,733 shares outstanding as of August 12, 1999.
Page 1 of 38
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DYNEGY INC.
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Page
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets:
June 30, 1999 and December 31, 1998............................. 3
Condensed Consolidated Statements of Operations:
For the three months ended June 30, 1999 and 1998............... 4
Condensed Consolidated Statements of Operations:
For the six months ended June 30, 1999 and 1998................. 5
Condensed Consolidated Statements of Cash Flows:
For the six months ended June 30, 1999 and 1998................. 6
Notes to Condensed Consolidated Financial Statements............... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 33
Item 2. Not Applicable........................................ -
Item 3. Not Applicable........................................ -
Item 4. Submission of Matters to a Vote of Security Holders... 35
Item 5. Not Applicable........................................ -
Item 6. Exhibits and Reports on Form 8-K...................... 36
Page 2 of 38
<PAGE>
DYNEGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------- ---------------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,135 $ 28,367
Accounts receivable, net 1,566,718 1,563,558
Accounts receivable, affiliates 77,960 60,180
Inventories 193,598 149,901
Assets from risk management activities 383,301 219,105
Prepayments and other assets 86,927 96,130
---------- ----------
2,336,639 2,117,241
---------- ----------
Property, Plant and Equipment 2,626,587 2,446,878
Less: accumulated depreciation (569,832) (514,771)
---------- ----------
2,056,755 1,932,107
---------- ----------
Other Assets:
Investments in unconsolidated affiliates 535,479 502,613
Assets from risk management activities 461,909 135,100
Other assets 536,224 577,176
---------- ----------
$5,927,006 $5,264,237
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,477,770 $1,370,902
Accounts payable, affiliates 150,994 113,827
Accrued liabilities 156,079 290,381
Liabilities from risk management activities 399,094 251,213
---------- ----------
2,183,937 2,026,323
Long-Term Debt 1,212,446 962,239
Other Liabilities:
Non-Recourse Debt 60,744 84,651
Liabilities from risk management activities 341,900 40,747
Deferred income taxes 283,623 317,537
Other long-term liabilities 447,069 504,677
---------- ----------
4,529,719 3,936,174
---------- ----------
Company Obligated Preferred Securities of Subsidiary Trust 200,000 200,000
Commitments and Contingencies (Note 7)
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 June 30, 1999 and
December 31, 1998 75,418 75,418
Common stock, $0.01 par value, 400,000,000 shares authorized;
155,403,133 shares issued at June 30, 1999 and
153,298,220 shares issued at December 31, 1998 1,555 1,533
Additional paid-in capital 952,646 935,183
Retained earnings 185,253 133,340
Less: treasury stock, at cost; 1,200,700 shares at June 30, 1999 and
1,200,700 shares at December 31, 1998 (17,585) (17,411)
---------- ----------
Total Stockholders' Equity 1,197,287 1,128,063
---------- ----------
$5,927,006 $5,264,237
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 38
<PAGE>
DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands,
except per share data)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenues $ 3,160,757 $ 3,278,214
Cost of sales 3,035,010 3,170,299
------------------- -------------------
Operating margin 125,747 107,915
Depreciation and amortization 31,750 26,984
General and administrative expenses 47,091 44,377
------------------- -------------------
Operating income 46,906 36,554
Equity in earnings of unconsolidated affiliates 13,224 15,101
Other income 7,449 6,876
Interest expense (18,186) (18,091)
Other expenses (3,725) (1,239)
Minority interest in income of a subsidiary (4,158) (4,158)
------------------- -------------------
Income before income taxes 41,510 35,043
Income tax provision 13,534 11,602
------------------- -------------------
Net Income $ 27,976 $ 23,441
=================== ===================
Net Income Per Share:
Net income $ 27,976 $ 23,441
Less: preferred stock dividends 97 97
------------------- -------------------
Net income applicable to common stockholders $ 27,879 $ 23,344
=================== ===================
Basic earnings per share $ 0.18 $ $0.15
=================== ===================
Diluted earnings per share $ $0.17 $ 0.14
=================== ===================
Basic shares outstanding 153,544 152,491
=================== ===================
Diluted shares outstanding 167,275 166,705
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 38
<PAGE>
DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands,
- --------------------------------------------------------------------------
except per share data)
- ----------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenues $ 6,205,730 $ 6,593,783
Cost of sales 5,959,906 6,388,879
------------------- -------------------
Operating margin 245,824 204,904
Depreciation and amortization 63,038 52,516
Severance charge --- 9,644
General and administrative expenses 96,633 86,983
------------------- -------------------
Operating income 86,153 55,761
Equity in earnings of unconsolidated affiliates 28,287 30,856
Other income 21,367 9,844
Interest expense (37,420) (34,096)
Other expenses (7,878) (2,595)
Minority interest in income of a subsidiary (8,316) (8,316)
------------------- -------------------
Income before income taxes 82,193 51,454
Income tax provision 26,146 15,674
------------------- -------------------
Net Income $ 56,047 $ 35,780
=================== ===================
Net Income Per Share:
Net income $ 56,047 $ 35,780
Less: preferred stock dividends 194 194
------------------- -------------------
Net income applicable to common stockholders $ 55,853 $ 35,586
=================== ===================
Basic earnings per share $ 0.37 $ 0.24
=================== ===================
Diluted earnings per share $ 0.34 $ 0.21
=================== ===================
Basic shares outstanding 153,150 152,219
=================== ===================
Diluted shares outstanding 165,229 166,880
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements
Page 5 of 38
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DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------------
1999 1998
----------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 56,047 $ 35,780
Items not affecting cash flows from operating activities:
Depreciation and amortization 57,719 49,961
Equity in earnings of affiliates, net of cash distributions (10,766) (5,099)
Risk management activities (41,971) (12,149)
Deferred income taxes 25,852 15,674
Other 575 1,650
Changes in assets and liabilities resulting from operating activities:
Accounts receivable (71,374) 65,803
Inventories (33,983) 4,269
Prepayments and other assets 39,340 (6,292)
Accounts payable 132,960 (16,421)
Accrued liabilities (21,755) (29,113)
Other, net (14,148) (10,824)
--------- ---------
Net cash provided by operating activities 118,496 93,239
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (170,532) (96,876)
Investment in unconsolidated affiliates, net (44,098) (65,392)
Proceeds from asset sales 16,650 ---
Other, net (39,061) 6,200
--------- ---------
Net cash used in investing activities (237,041) (156,068)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings --- 171,984
Repayments of long-term borrowings (13,040) (289,913)
Net proceeds from commercial paper and money market lines of credit 127,587 226,500
Other, net 3,766 (14,769)
--------- ---------
Net cash provided by financing activities 118,313 93,802
--------- ---------
Net change in cash and cash equivalents (232) 30,973
Cash and cash equivalents, beginning of period 28,367 23,047
--------- ---------
Cash and cash equivalents, end of period $ 28,135 $ 54,020
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
Note 1 -- Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to interim financial reporting as
prescribed by the Securities and Exchange Commission ("SEC"). These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, filed with the SEC.
The financial statements include all material adjustments, which, in the opinion
of management, were necessary for a fair presentation of the results for the
interim periods. Other than recognition of the previously disclosed severance
charge and the adoption of EITF 98-10, such adjustments consist only of normal
recurring adjustments. Interim period results are not necessarily indicative of
the results for the full year. The preparation of the 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.
Note 2 - Business Combination
On June 14, 1999, Dynegy and Illinova Corporation ("Illinova") announced the
execution of definitive agreements for the merger of Illinova and Dynegy. Terms
of the merger agreement call for each entity to continue to exist, retaining
their respective historical assets and liabilities. However, rather than being
independent, publicly traded companies, they will instead be subsidiaries of a
newly established parent company ("Energy Convergence"), which will be named
Dynegy Inc.
In the combination, Dynegy shareholders, other than Chevron U.S.A. Inc.
("Chevron"), NOVA Gas Services (U.S.) Inc. ("NOVA") and BG Holdings, Inc., may
elect to exchange each Dynegy share for 0.69 of a share of Energy Convergence
Class A common stock, based on a fixed exchange ratio, or elect to receive
$16.50 per share in cash consideration, subject to proration. NOVA and BG
Holdings, Inc. have agreed to elect cash and thereby reduce their respective
ownership in Dynegy as part of this combination. Therefore, instead of receiving
Energy Convergence Class A common stock in exchange for their respective shares
of Dynegy common stock, NOVA and the parent of BG Holdings, Inc. will each
receive a combination of cash, subject to proration, and shares of Energy
Convergence Series A preferred stock. Chevron will receive shares of Energy
Convergence Class B common stock in exchange for all of its shares of Dynegy
common stock and Series A Preferred Stock, respectively. Additionally, as part
of the combination, Chevron will purchase between $200 million and $240 million
of additional Energy Convergence Class B common stock. Each share of Illinova
common stock will be converted into one share of Energy Convergence common
stock. After the combination, former Dynegy shareholders will own approximately
51 percent of the outstanding shares of Energy Convergence stock.
Approximately 60 percent of the consideration received by existing Dynegy
shareholders will be in the form of Energy Convergence stock and 40 percent will
be cash. In aggregate, the cash portion of the consideration will approximate
$1.06 billion. The amount of cash available will be insufficient to completely
satisfy cash elections and the cash portion of the consideration will be
prorated to shareholders electing to receive cash. The proration will impact
Dynegy shareholders in the following manner. For each 100 shares of Dynegy
common stock for which an election is made to receive cash, the shareholder will
receive cash consideration with respect to no less than 64 shares of Dynegy
common stock and no more than 83 shares of Dynegy common stock.
Energy Convergence plans to initially finance the cash component of the merger
with borrowings under a debt facility, the potential issuance of public debt and
the issuance of between $200 million and $240 million of Class B common stock to
Chevron. After the closing of the merger, Energy Convergence anticipates
repaying or refinancing a significant portion of the debt facility with proceeds
from an offering of equity securities, additional public debt issuances,
proceeds from potential asset sales and cash flow from operations.
Page 7 of 38
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DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
The merger is expected to close during the first quarter of 2000. Conditions
precedent to closing include:
. Filings with and/or receipt of approvals or compliance exemptions from the
Illinois Commerce Commission under Illinois law, the Securities and
Exchange Commission under the Public Utility Holding Company Act of 1935,
the Federal Energy Regulatory Commission under the Federal Power Act, and
the Federal Trade Commission and the Antitrust Division of the Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
. The sale of the Clinton nuclear facility by Illinova and the receipt of
approval by the Nuclear Regulatory Commission and other regulatory
agencies.
Dynegy will account for the merger as a purchase of Illinova. This accounting
treatment is based on various factors present in the merger, including the
majority ownership (and voting control) of Dynegy's shareholders following the
merger, the role of Dynegy's management following the merger (including the
service of C.L. Watson as Chairman and Chief Executive Officer) and the
influence of Chevron because of the size of its ownership interest and its
rights under the shareholder agreement, articles of incorporation and bylaws. As
a result, the consolidated financial statements of Energy Convergence after the
merger will reflect the assets and liabilities of Dynegy at historical book
values and the assets and liabilities of Illinova at fair values as of the close
date.
Illinova is the holding company for: Illinois Power Company, an electric and
natural gas utility that serves approximately 650,000 customers over a 15,000
square-mile area of Illinois; Illinova Generating, Inc., which invests in,
develops and operates independent power projects worldwide; and Illinova Energy
Partners, Inc., which markets energy and energy-related services in the United
States and Canada. At December 31, 19998, Illinova had approximately $6.8
billion in assets and 1998 revenues of $2.4 billion.
Note 3 - Accounting Policy Change
Effective January 1, 1999, the Company adopted the provisions of Emerging Issues
Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management
Activities" ("EITF 98-10") pursuant to the implementation requirements stated
therein. The resulting effect of adoption of the provisions of EITF 98-10 was to
alter the Company's comprehensive method of accounting for energy-related
contracts, as defined in that statement. The cumulative effect of this change in
accounting principle was not expected to be material to the estimated annual
1999 results of operations. The pro forma effect on prior periods of the
adoption of the provisions of EITF 98-10 was not determinable.
Previously, only North American fixed-price natural gas transactions were
measured at fair value, net of future servicing costs and reserves as estimated
by the Company. The Company now accounts for all energy trading activities at
fair value as of the balance sheet date and recognizes currently the net gains
or losses resulting from the revaluation of these contracts to market in its
results of operations. As a result, substantially all of the operations of the
Company's world-wide gas marketing, power marketing, and crude marketing
operations are now accounted for under a mark-to-market accounting methodology.
Generally, revenue recognition for the Company's natural gas liquids processing,
fractionation, transportation and marketing activities, as well as its power
generation businesses, remain on an accrual-based accounting methodology. Sales
and purchases by these businesses are not trading operations, as defined in the
statement, and therefore not subject to the provisions of EITF 98-10.
The Company continues to analyze the effects of adoption of the rules
promulgated by Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"). Provisions in
Statement No. 133 will affect the accounting and disclosure of contractual
arrangements and operations of the Company. The Financial Accounting Standards
Board recently deferred implementation of the provisions of Statement No. 133 to
fiscal periods beginning after June 15, 2000. Dynegy intends to adopt the
provisions of Statement No. 133 within the timeframe and in accordance with the
requirements provided by that statement.
Management believes the adoption of the provisions of EITF 98-10 and Statement
No. 133 may affect the variability of future periodic results reported by
Dynegy, as well as its competitors, as market conditions and resulting trading
portfolio
Page 8 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
valuations change from time to time. Such earnings variability, if any, will
likely result principally from valuation issues arising from imbalances between
supply and demand created by illiquidity in certain commodity markets resulting
from, among other things, a lack of mature trading and price discovery
mechanisms, transmission and/or transportation constraints resulting from
regulation or other issues in certain markets and the need for a representative
number of market participants maintaining the financial liquidity and other
resources necessary to compete effectively. Management will monitor exposure to
these and other market and business risks and will adjust valuation factors
accordingly as indicated by changing circumstances.
Note 4 -- Earnings Per Share
Basic earnings per share represents the amount of earnings for the period
available to each share of common stock outstanding during the period. Diluted
earnings per share represents the amount of earnings for the period available to
each share of common stock outstanding during the period plus each share that
would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the period. Differences
between basic and diluted shares outstanding in all periods are attributed to
the Series A Convertible Participating Preferred Stock, options outstanding and
a warrant.
Note 5 -- Unconsolidated Affiliates
During the second quarter 1999, Dynegy and its industry partner restructured
certain investments held jointly in California-based power generation
facilities. West Coast Power LLC, a Delaware Limited Liability Company, was
formed to own and operate power generation facilities in the State of
California. Formation of the new partnership consisted of a roll-up of four
existing partnerships, each owned 50 percent by Dynegy, plus a $39 million cash
contribution. As a result of the restructuring, the four existing partnerships
are now owned by West Coast Power LLC, which is owned 100 percent by WCP
Holdings. Dynegy owns a 50 percent interest in WCP Holdings.
Also during the second quarter of 1999, affiliates of Mid-America Pipeline
Company became partners in the West Texas LPG Pipeline, Limited Partnership,
pursuant to a contribution of certain complementary transportation assets to the
partnership. As a result of the contribution, Dynegy's interest in the West
Texas LPG Pipeline, Limited Partnership was reduced to 39 percent effective May
1, 1999.
At June 30, 1999, Dynegy's investment in unconsolidated affiliates accounted for
by the equity method included: a 25 percent participating preferred stock
interest in Accord Energy Limited, a United Kingdom limited company; an
approximate 23 percent interest in Venice Energy Services Company, L.L.C.; a
38.75 percent partnership interest in Gulf Coast Fractionators; a 25 percent
interest in Midstream Barge Company, L.L.C.; a 39 percent partnership interest
in West Texas LPG Pipeline, Limited Partnership; interests ranging from eight to
50 percent in fourteen partnerships, each formed to build (or buy), own and
operate cogeneration power generation facilities; a 33.33 percent interest in
Waskom Gas Processing Company, a partnership that owns and operates a natural
gas processing, extraction and fractionation facility; a 50 percent interest in
NICOR Energy L.L.C., a retail energy alliance located in the Midwest; and a 20
percent interest in SouthStar Energy Services L.L.C., a retail energy alliance
located in the Southeast. Also at June 30, 1999, the Company had three cost-
basis investments: Indeck North American Power Fund, L.P., Indeck North American
Power Partners, L.P and Altra Energy Technologies, Incorporated. Summarized
unaudited combined income statement information for the unconsolidated
affiliates accounted for by the equity method is presented in the table below:
Page 9 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
===========================================================================
Six-Months Ended June 30,
--------------------------------------------------
1999 1998
--------------------------------------------------
Equity Equity
Total Share Total Share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
($ in thousands)
Revenues (1) $ 533,405 $ 211,180 $ 418,274 $ 176,610
========= ========= ========= =========
Operating margin (1) $ 182,343 $ 72,380 $ 166,783 $ 67,351
========= ========= ========= =========
Net income (1) $ 44,649 $ 19,233 $ 64,961 $ 21,856
========= ========= ========= =========
===========================================================================
</TABLE>
______________________
(1) The interim financial data for both periods presented is exclusive of
amounts attributable to the Company's investment in Accord as such
information was unavailable for the current period or is incompatible with
current presentation.
Note 6 - Long-Term Debt
On July 22, 1999, Dynegy issued $200,000,000 of 6.875% Senior Notes due July 15,
2002 and $200,000,000 of 7.45% Senior Notes due July 15, 2006. The senior notes,
which have been rated BBB+ by Standard & Poor's and Baa2 by Moody's Investor
Service, represent senior unsecured obligations of Dynegy and rank pari passu
with Dynegy's existing senior debt. Dynegy used the proceeds from the sale of
the notes to reduce commercial paper borrowings.
Note 7 -- Commitments and Contingencies
On April 17, 1997, Pacific Gas and Electric Company ("PG&E") filed a lawsuit in
the Superior Court of the State of California, City and County of San Francisco,
against Destec Energy, Inc., Destec Holdings, Inc. and Destec Operating Company
(wholly-owned subsidiaries of the Company now known respectively as Dynegy Power
Corp., Dynegy Power Holdings, Inc. and Dynegy Operating Company) as well as
against San Joaquin CoGen Limited ("San Joaquin" or the "Partnership") and its
general partners (collectively the "Dynegy Defendants"). Dynegy Power Corp. and
its affiliates now own all of the partnership interests in the Partnership as a
result of the purchase of the interests of the two outside partners in the
Partnership. In the lawsuit, PG&E asserts claims and alleges unspecified damages
for fraud, negligent misrepresentation, unfair business practices, breach of
contract and breach of the implied covenant of good faith and fair dealing. PG&E
alleges that due to the insufficient use of steam by San Joaquin's steam host,
the Partnership did not qualify as a cogenerator pursuant to the California
Public Utilities Code ("CPUC") Section 218.5, and thus was not entitled under
CPUC Section 454.4 to the discount the Partnership received under gas
transportation agreements entered into between PG&E and San Joaquin in 1989,
1991, 1993 and 1995. All of PG&E's claims in this suit arise out of the
Partnership's alleged failure to comply with CPUC Section 218.5. The defendants
filed a response to the suit on May 15, 1997. On October 20, 1997, PG&E named
Libbey-Owens-Ford ("LOF"), the Partnership's steam host, as an additional
defendant in the action. On March 30, 1998, the defendants filed their response
to PG&E's Second Amended Complaint, denying PG&E's allegations and alleging
certain counterclaims against PG&E. By Order dated July 20, 1998, the court
dismissed certain of defendants' counterclaims against PG&E, and abated certain
others, pending resolution by the CPUC. The trial date is currently December 13,
1999. The Partnership has previously advised the FERC of PG&E's claims, and
stated that it would submit any appropriate filings upon completion of its
investigation. If the facility was found not to have satisfied the California
cogeneration facility standards, there is a strong likelihood that it would also
fail to satisfy the more stringent federal standards. In accordance with the
terms of a Protective Order entered into by the parties at the commencement of
the litigation, PG&E has notified San Joaquin that it may make a FERC filing
seeking damages from San Joaquin and decertification of its status as a
qualifying facility under the federal standards. Under FERC precedent, if the
San Joaquin facility were found not to have been a qualifying facility, San
Joaquin could be required to refund to PG&E payments it received pursuant to the
Power Purchase Agreement in excess of PG&E's short-term energy costs during the
period of non-compliance, plus interest. In the event the court or FERC were to
determine that San Joaquin is liable to PG&E under the Gas Transportation
Agreement or Power Purchase Agreement due to LOF's failure to use sufficient
quantities of steam, San Joaquin notified LOF that it would seek to recover such
amounts from LOF under the terms of the Steam Purchase Agreement between San
Joaquin and LOF. The parties engaged in settlement discussions,
Page 10 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
which resulted in the execution of a Termination and Settlement Agreement
between PG&E and the Dynegy Defendants on March 9, 1999 (the "Settlement
Agreement"). The Settlement Agreement provides for, upon the receipt of CPUC
approval, a dismissal with prejudice of PG&E's claims against the Dynegy
Defendants, a release by PG&E of all claims relative to FERC matters and a
termination of the San Joaquin power purchase agreement as of December 31, 1999,
whereupon the San Joaquin facility will continue to operate as a merchant plant.
The Dynegy Defendants will seek to recover from LOF any losses resulting from
the settlement with PG&E. However, if the settlement is not ultimately
concluded, the Dynegy Defendants will seek to recover from LOF any losses or
amounts for which it may be found liable. Further, the Company's subsidiaries
intend to continue to vigorously defend this action. In the opinion of
management, the ultimate resolution of this lawsuit will not have a material
adverse effect on the Company's financial position or results of operations. On
April 15, 1999, the Dynegy Defendants filed suit against LOF in the Superior
Court of the State of California, County of San Francisco seeking to recover
damages the Dynegy Defendants have or will suffer as a result of LOF's failure
to purchase steam from the San Joaquin facility in quantities required by the
Steam Purchase Contract executed by San Joaquin and LOF. The lawsuit states
claims against LOF for breach of contract, breach of implied covenant of good
faith and fair dealing, fraud in the inducement/intentional misrepresentation,
negligent misrepresentation, fraudulent concealment and non-disclosure,
interference with contract and indemnity. The suit has been removed to the
United States District Court for the Northern District of California. Following
removal, LOF filed a motion to dismiss/stay based on the contention that the
issue of QF compliance is essential to the disposition of the suit and that the
FERC is vested with the exclusive jurisdiction to address QF compliance. The
motion is currently set for hearing on August 30, 1999.
On March 24, 1995, Southern California Gas Company ("SOCAL") filed a lawsuit in
the Superior Court of the State of California for the County of Los Angeles,
against Destec Energy, Inc., Destec Holdings and Destec Gas Services, Inc. (now
known respectively as Dynegy Power Corp., Dynegy Holdings, Inc. and Dynegy Gas
Services, Inc.), wholly-owned direct and indirect subsidiaries of the Company
(collectively, the "Defendants"), as well as against Chalk Cliff Limited and
McKittrick Limited (collectively, the "Partnerships"). The Company owns an
indirect 50 percent limited partnership interest in McKittrick Limited, and
Chalk Cliff Limited is now wholly-owned by subsidiaries of the Company through
the purchase of the interests of Dominion Energy, Inc. All general partners of
the Partnerships are also named defendants. The lawsuit alleged breach of
contract against the Partnerships and their respective general partners, and
interference and conspiracy to interfere with contracts against the Defendants.
The breach of contract claims arose out of the "transport-or-pay" provisions of
the gas transportation service agreements between the Partnerships and SOCAL.
SOCAL sought damages from the Partnerships for past damages and anticipatory
breach damages in an amount equal to approximately $31,000,000. On October 24,
1997, the Court granted SOCAL's Motion for Summary Judgment relating to the
breach of contract causes of action against the Partnerships and their
respective general partners, and requested that SOCAL submit a proposed order
consistent with that ruling for the Court's signature. On November 21, 1997, the
Partnerships filed for voluntary Chapter 11 bankruptcy protection in the Eastern
District of California. Normal business operations by the Partnerships continued
throughout the course of these reorganization proceedings. On January 12, 1998,
the Court entered a Final Order that (a) severed out the Partnerships due to
their Chapter 11 bankruptcy filings, (b) included a finding of contract
liability against the Defendants, (c) dismissed the tortious interference claims
against the Defendants, and (d) assessed damages in an aggregate amount of
approximately $31,000,000. On the same day, the Defendants filed their Notice of
Appeal, and posted a security bond with the Second Appellate District in Los
Angeles based on the lack of allegations made or proven by SOCAL which support
holding those entities liable in contract. On March 11, 1998, the Partnerships
and their respective general partners filed Notices of Appeal with respect to
certain findings of fact in the Court's January 12, 1998 Final Order that were
adverse to those defendants. On or about April 15, 1998, the Court entered a
final judgment against the Partnerships themselves in recognition of the lifting
of the automatic stay against those entities by the Bankruptcy Court. The
Partnerships filed their appeal of that final judgment on June 4, 1998. On
October 21, 1998, the Bankruptcy Court dismissed the voluntary bankruptcy
filings of the Partnerships and their respective lenders thereafter notified
each of the Partnerships of the occurrences of an Event of Default under the
Partnerships' respective credit agreements due to the existence of the SOCAL
judgment against them, and have instituted foreclosure proceedings as to the
projects. Additionally, receivers were named by the lenders and approved by the
Court for each of the projects. In early December 1998, the defendants filed
their opening appellate briefs in the appeal of the Court's final judgment. On
April 13, 1999, the Court granted a motion by SOCAL to amend the final judgment
to include a finding that Destec Energy, Inc. is the alter ego of the
Partnerships and their respective general partners. The Court's order named
Page 11 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
Dynegy as the successor to Destec Energy, Inc. Dynegy has appealed the Court's
ruling and will vigorously defend against SOCAL's claims.
The PG&E and SOCAL litigations represent pre-acquisition contingencies acquired
by the Company in the Destec Acquisition. In a related matter, Chalk Cliff and
San Joaquin have each guaranteed the obligations of the other partnership,
represented by the project financing loans used to construct the power
generation facilities owned by the respective Partnerships. In the opinion of
management, the election by the lender of its option under the terms of such
arrangements would not have a material adverse effect on the Company's financial
position or results of operations.
On August 3, 1998, Modesto Irrigation District ("MID") filed a lawsuit against
PG&E and Destec in federal court for the Northern District of California, San
Francisco division. The lawsuit alleges violation of federal and state antitrust
laws and breach of contract against Destec. The allegations are related to a
power sale and purchase arrangement in the city of Pittsburg, CA. MID seeks
actual damages from PG&E and Destec in amounts not less than $25 million. MID
also seeks a trebling of any portion of damages related to its antitrust claims.
By order dated February 2, 1999, the federal District Court dismissed MID's
state and federal antitrust claims against PG&E and Destec; however, the Court
granted MID leave of thirty days to amend its complaint to state an antitrust
cause of action. On March 3, 1999, MID filed an amended complaint recasting its
federal and state antitrust claims against PG&E and Destec and restating its
breach of contract claim against Destec. PG&E and Destec have filed motions to
dismiss MID's revised federal and state antitrust claims. The hearing on the
motions to dismiss was held in July, 1999. The District Court took the matter
under advisement and has yet to rule. Dynegy believes the allegations made by
MID are meritless and will continue to vigorously defend MID's claims. In the
opinion of management, the amount of ultimate liability with respect to these
actions will not have a material adverse effect on the financial position or
results of operations of the Company.
On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in the United
States District Court for the District of Delaware against Dynegy Power
Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow seeks
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' June 1997 purchase of stock of Destec
Engineering, a subsidiary of DPC (at that time Destec Power Corp). Specifically,
AES alleges that Destec Power made certain misrepresentations about the expected
profits that Destec Engineering would earn in connection with the construction
of the Elsta power plant in The Netherlands, and the anticipated completion date
of the Elsta plant. AES alleges that Dow is liable because it "controlled" or
had the power to control the management of Destec Power. AES does not assert any
claims against Destec Power or any other Dynegy entity. Dow is vigorously
defending against AES' claims. In the suit filed by Dow, Dow seeks to recover
from DPC any amounts it must pay AES. DPS' answer to Dow's claims is due in
September. In the opinion of management, the ultimate resolution of this lawsuit
will not have a material adverse effect on the Company's financial position.
The Company assumed liability for various claims and litigation in connection
with the Chevron Combination, the Trident Combination, the Destec acquisition
and in connection with the acquisition of certain gas processing and gathering
facilities from Mesa Operating Limited Partnership. The Company believes, based
on its review of these matters and consultation with outside legal counsel, that
the ultimate resolution of such items will not have a material adverse effect 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 have a material adverse effect
on the financial position or results of operations of the Company.
Note 8 -- Capital Stock
At June 30, 1999, employee stock options aggregating 6.1 million shares were
exercisable at prices ranging from $2.03 to $21.63 per share. Employee stock
option grants made from 1994 to 1998 will become exercisable during 1999 and
2000, respectively, resulting in the potential exercise of approximately 5.9
million options during that two-year period, at exercise
Page 12 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
prices ranging from $2.03 to $21.63. Other options currently granted under the
Company's option plans will fully vest periodically and become exercisable
through the year 2004 at prices ranging from $2.03 to $17.88. Grants made under
the Company's option plans may be canceled under certain circumstances as
provided in the plans. While the Company cannot predict the timing or the number
of shares which may be issued upon the exercise of option grants by individual
employees, the Company has established two alternatives to help assure an
orderly distribution of shares which may become available to the market.
In May 1997, the Board of Directors approved a stock repurchase program that
allows the Company to repurchase, from time to time, up to 1.6 million shares of
common stock in open market transactions. The timing and number of shares
ultimately repurchased will depend upon market conditions and consideration of
alternative investments. Pursuant to this program, the Company has acquired
1,200,700 shares at a total cost of $17.6 million, or $14.65 per share on a
weighted average cost basis, through June 30, 1999.
In order to supplement its stock repurchase program and to facilitate the
orderly distribution of shares arising from the exercise of stock options, the
Company may at times enter into forward purchase agreements on its common stock.
These forward purchase agreements would be settled on a net basis in shares of
Dynegy common stock, or in cash at Dynegy's election. To the extent that the
market price of Dynegy common stock on a settlement date is higher (lower) than
the forward purchase price, the net differential is received (paid) by Dynegy.
Dynegy has entered into an agreement with a financial institution to assist in
the execution of this plan. To date, the Company has not executed any forward
purchase agreements for its own common stock.
Note 9 -- Segment Information
Dynegy's operations are divided into two reportable segments: Wholesale Gas and
Power and Liquids. The Wholesale Gas and Power segment is actively engaged in
marketing and trading of natural gas, power and coal and the generation of
electricity principally under the name Dynegy Marketing and Trade. The Liquids
segment consists of the North American mid-stream liquids operations, as well as
the international liquefied petroleum gas transportation and natural gas liquids
marketing operations located in Houston and London, and certain other
businesses. The North American mid-stream liquids operations are actively
engaged in the gathering and processing of natural gas and the transportation,
fractionation, storage and marketing of NGLs. This segment operates principally
under the name Dynegy Mid-Stream Services. Generally, Dynegy accounts for
intercompany transactions at prevailing market rates. Operating segment
information for the three- and six-month periods ended June 30, 1999 and 1998 is
presented below.
Page 13 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
========================================================================================================================
Dynegy's Segment Data for the Quarter Ended June 30, 1999
Wholesale Gas
and Power Liquids Elimination Total
------------------ ---------- ----------- -----------
($ in thousands)
<S> <C> <C> <C> <C>
Unaffiliated revenues:
Domestic $ 1,639,929 $ 961,876 $ --- $ 2,601,805
Canadian 337,045 66,382 --- 403,427
United Kingdom 155,525 --- --- 155,525
------------------ ---------- ----------- -----------
2,132,499 1,028,258 --- 3,160,757
------------------ ---------- ----------- -----------
Intersegment revenues:
Domestic 75,332 58,410 (133,742) ---
Canadian 9,990 --- (9,990) ---
United Kingdom --- --- --- ---
------------------ ---------- ----------- -----------
85,322 58,410 (143,732) ---
------------------ ---------- ----------- -----------
Total revenues 2,217,821 1,086,668 (143,732) 3,160,757
------------------ ---------- ----------- -----------
Operating margin 70,926 54,821 --- 125,747
Depreciation and amortization (8,823) (22,929) --- (31,752)
Interest expense (9,004) (9,180) --- (18,184)
Interest and other income 6,483 966 --- 7,449
Equity earnings of unconsolidated affiliate 9,872 3,352 --- 13,224
Income tax (provision) benefit (14,145) 611 --- (13,534)
Net income 21,633 6,343 --- 27,976
Identifiable assets:
Domestic $3,450,401 $1,989,945 $ --- $ 5,440,346
Canadian 383,912 26,744 --- 410,656
United Kingdom 76,004 --- --- 76,004
Investment in unconsolidated affiliates 372,743 162,736 --- 535,479
Capital expenditures 98,757 14,537 --- 113,294
========================================================================================================================
</TABLE>
Page 14 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
=========================================================================================================================
Dynegy's Segment Data for the Quarter Ended June 30, 1998
Wholesale Gas
and Power Liquids Elimination Total
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
($ in thousands)
Unaffiliated revenues:
Domestic $ 2,067,332 $ 785,093 $ --- $ 2,852,425
Canadian 241,340 80,264 --- 321,604
United Kingdom 104,185 --- --- 104,185
------------- ----------- ----------- ------------
2,412,857 865,357 --- 3,278,214
------------- ----------- ----------- ------------
Intersegment revenues:
Domestic 15,172 76,860 (92,032) ---
Canadian 5,027 --- (5,027) ---
United Kingdom --- --- --- ---
------------- ----------- ---------- ----------
20,199 76,860 (97,059) ---
------------- ----------- ---------- -----------
Total revenues 2,433,056 942,217 (97,059) 3,278,214
------------- ----------- ---------- -----------
Operating margin 68,979 38,936 --- 107,915
Depreciation and amortization (7,048) (19,936) --- (26,984)
Interest expense (5,880) (12,211) --- (18,091)
Interest and other income 1,380 5,496 --- 6,876
Equity earnings of unconsolidated affiliates 10,893 4,208 --- 15,101
Income tax (provision) benefit (15,953) 4,351 --- (11,602)
Net income 25,865 (2,424) --- 23,441
Identifiable assets:
Domestic $ 2,766,125 $ 1,935,422 $ --- $ 4,701,547
Canadian 243,762 26,196 --- 269,958
United Kingdom 54,254 --- --- 54,254
Investment in unconsolidated affiliates 345,636 157,556 --- 503,192
Capital expenditures 60,837 42,735 --- 103,572
==========================================================================================================================
</TABLE>
Page 15 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
======================================================================================================================
Dynegy's Segment Data for the Six Months Ended June 30, 1999
Wholesale Gas
and Power Liquids Elimination Total
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
($ in thousands)
Unaffiliated revenues:
Domestic $ 3,270,724 $ 1,660,455 $ --- $ 4,931,179
Canadian 658,058 109,942 --- 768,000
United Kingdom 506,551 --- --- 506,551
------------- ----------- ----------- -----------
4,435,333 1,770,397 --- 6,205,730
------------- ----------- ----------- -----------
Intersegment revenues:
Domestic 127,084 100,663 (227,747) ---
Canadian 21,283 --- (21,283) ---
United Kingdom --- --- --- ---
------------- ----------- ----------- -----------
148,367 100,663 (249,030) ---
------------- ----------- ----------- -----------
Total revenues 4,583,700 1,871,060 (249,030) 6,205,730
------------- ----------- ----------- -----------
Operating margin 140,914 104,910 --- 245,824
Depreciation and amortization (17,384) (45,654) --- (63,038)
Interest expense (18,573) (18,847) --- (37,420)
Interest and other income 18,956 2,411 --- 21,367
Equity earnings of unconsolidated affiliates 22,509 5,778 --- 28,287
Income tax (provision) benefit (29,669) 3,523 --- (26,146)
Net income 48,131 7,916 --- 56,047
Identifiable assets:
Domestic $ 3,450,401 $ 1,989,945 $ --- $ 5,440,346
Canadian 383,912 26,744 --- 410,656
United Kingdom 76,004 --- --- 76,004
Investment in unconsolidated affiliates 372,743 162,736 --- 535,479
Capital expenditures 179,188 35,442 --- 214,630
======================================================================================================================
</TABLE>
Page 16 of 38
<PAGE>
DYNEGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
======================================================================================================================
Dynegy's Segment Data for the Six Months Ended June 30, 1998
Wholesale Gas
and Power Liquids Elimination Total
------------- ----------- ----------- -----------
($ in thousands)
<S> <C> <C> <C> <C>
Unaffiliated revenues:
Domestic $ 4,050,384 $ 1,632,399 $ --- $ 5,682,783
Canadian 472,883 160,528 --- 633,411
United Kingdom 277,589 --- --- 277,589
------------- ----------- ----------- -----------
4,800,856 1,792,927 --- 6,593,783
------------- ----------- ----------- -----------
Intersegment revenues:
Domestic 42,831 177,229 (220,060) ---
Canadian 5,027 --- (5,027) ---
United Kingdom --- --- --- ---
------------- ----------- ----------- -----------
47,858 177,229 (225,087) ---
------------- ----------- ----------- -----------
Total revenues 4,848,714 1,970,156 (225,087) 6,593,783
------------- ----------- ----------- -----------
Operating margin 108,204 96,700 --- 204,904
Depreciation and amortization (12,776) (39,740) --- (52,516)
Interest expense (11,082) (23,014) --- (34,096)
Interest and other income 3,411 6,433 --- 9,844
Equity earnings of unconsolidated affiliates 21,493 9,363 --- 30,856
Income tax (provision) benefit (20,435) 4,761 --- (15,674)
Net income 33,497 2,283 --- 35,780
Identifiable assets:
Domestic $ 2,766,125 $ 1,935,422 $ --- $ 4,701,547
Canadian 243,762 26,196 --- 269,958
United Kingdom 54,254 --- --- 54,254
Investment in unconsolidated affiliates 345,636 157,556 --- 503,192
Capital expenditures 82,567 79,701 --- 162,268
======================================================================================================================
</TABLE>
Page 17 of 38
<PAGE>
DYNEGY INC.
MANAGING'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of Dynegy Inc. included
elsewhere herein and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
General
Company Profile. Dynegy is a leading provider of energy products and services in
North America and the United Kingdom. Products marketed by the Company's
wholesale operations include natural gas, electricity, coal, natural gas
liquids, crude oil, liquid petroleum gas and related services. The Company's
wholesale marketing operations are supported by ownership or control of an
extensive asset base and transportation network that includes unregulated power
generation, gas and liquids storage capacity, gas, power and liquids
transportation capacity and gas gathering, processing and fractionation assets.
The critical mass achieved through the combination of a large scale energy
marketing operation with strategically located assets, which augment the
marketing efforts, affords the Company the ability to offer innovative, value-
creating energy solutions to its customers.
From inception of operations in 1984 until 1990, Natural Gas Clearinghouse
limited its activities primarily to natural gas marketing. Starting in 1990,
Clearinghouse began expanding its core business operations through acquisitions
and strategic alliances resulting in the formation of a mid-stream energy asset
business and establishing energy marketing operations in both Canada and the
United Kingdom. The Company initiated electric power marketing operations in
February 1994 in order to exploit opportunities created by deregulation of the
domestic electric power industry. 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. On August 31, 1996,
NGC completed a strategic combination with Chevron whereby substantially all of
Chevron's mid-stream assets were merged with NGC. Effective July 1, 1997, NGC
acquired Destec Energy, Inc., a leading independent power producer. During 1998,
the Company changed its name to Dynegy Inc. in order to reflect its evolution
from a natural gas marketing company to an energy services company capable of
meeting the growing demands and diverse challenges of the dynamic energy market
of the 21st Century.
Business Segments. Dynegy's operations are divided into two segments: the
Wholesale Gas and Power and Liquids segments. The Wholesale Gas and Power
segment is actively engaged in marketing and trading of natural gas, power and
coal and the generation of electricity principally under the name Dynegy
Marketing and Trade. The Liquids segment consists of the North American mid-
stream liquids operations, as well as the international liquefied petroleum gas
transportation and natural gas liquids marketing operations located in Houston
and London, and certain other businesses. The North American mid-stream liquids
operations are actively engaged in the gathering and processing of natural gas
and the transportation, fractionation, storage and marketing of NGLs. The
Liquids segment operates principally under the name Dynegy Mid-Stream Services.
Uncertainty of Forward-Looking Statements and Information. This Form 10-Q
contains various forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, 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", "forecast"
and "expect" reflect 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 risk factors that may have a direct bearing on Dynegy's results of
operations and financial condition are:
. Competitive practices in the industries in which Dynegy competes;
. Fluctuations in commodity prices for natural gas, electricity, natural gas
liquids, crude oil or coal;
Page 18 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
. Fluctuations in energy commodity prices which could not or have not been
properly hedged or which are inconsistent with Dynegy's open position in its
energy marketing activities;
. Operational and systems risks;
. Environmental liabilities which are not covered by indemnity or insurance;
. Software, hardware or third-party failures resulting from Year 2000 issues;
. General economic and capital market conditions, including fluctuations in
interest rates; and
. The impact of current and future laws and governmental regulations
(particularly environmental regulations) affecting the energy industry in
general, and Dynegy's operations in particular.
In addition, as it relates to the proposed Illinova combination, there can be
no assurance that:
. The combination will be ultimately consummated or that the terms and
conditions of the merger, as currently contemplated, will ultimately be
executed;
. We have correctly identified and assessed all of the factors affecting
Illinova's or Dynegy's businesses;
. The publicly available and other information with respect to these factors
on which we have based our analysis is complete or correct;
. Our analysis is correct; or
. Our strategies, which are based in part on this analysis, will be
successful.
Impact of Price Fluctuations. Dynegy's operating results are impacted by
commodity price, interest rate and foreign exchange rate fluctuations. The
Company routinely enters into financial instrument contracts to hedge purchase
and sale commitments, fuel requirements and inventories in its natural gas,
natural gas liquids, crude oil, electricity and coal businesses in order to
minimize the risk of market fluctuations. As a result of marketplace liquidity
and other factors, the Company may, at times, be unable to fully hedge its
portfolio for certain market risks. Dynegy 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.
Operating margins in the Wholesale Gas and Power segment include the integrated
component businesses: wholesale gas marketing, wholesale power marketing and
power generation. Operating margins earned by wholesale gas and power marketing,
exclusive of risk-management activities, are relatively insensitive to commodity
price fluctuations since most of the purchase and sales contracts do not contain
fixed-price provisions. Generally, prices contained in these contracts are tied
to a current spot or index price and, therefore, adjust directionally with
changes in overall market conditions. However, market price fluctuations for
natural gas and electricity can have a significant impact on the operating
margin derived from risk-management activities in these businesses. Dynegy
generally attempts to balance its fixed-price physical and financial purchase
and sales commitments in terms of contract volumes, and the timing of
performance and delivery obligations. However, the Company may, at times, have a
bias in the market, within established guidelines, resulting from management of
its portfolio. To the extent a net open position exists, fluctuating commodity
market prices can impact Dynegy's financial position or results of operations,
either favorably or unfavorably. The net open positions are actively managed,
and the impact of changing prices on the Company's financial condition at a
point in time is not necessarily indicative of the impact of price movements
throughout the year. Fuel costs, principally natural gas, represent the primary
variable cost impacting margins at the Company's power generating facilities.
Historically, operating margins have been relatively insensitive to commodity
price fluctuations since most of this business's purchase and sales contracts
contain variable power sales contract features tied to a current spot or index
natural gas price, allowing revenues to adjust directionally with changes in
natural gas prices. However, as the Company's investment in merchant generation
capacity expands, changes in and the relationship between natural gas and
electricity prices could impact the financial performance and cash flow related
to its portfolio of merchant power generation assets.
Operating margins associated with the Liquids segment's natural gas gathering,
processing and fractionation activities are very sensitive to changes in natural
gas liquids prices and the availability of inlet volumes. The impact from
changes in natural gas liquids prices results principally from the nature of
contractual terms under which natural gas is processed and
Page 19 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
products are sold. In addition, certain of the Liquids businesses' processing
plant assets are impacted by changes in, and the relationship between, natural
gas and natural gas liquids prices which, in turn influences the volumes of gas
processed. Commodity price fluctuations may also affect the operating margins
derived from the Company's natural gas liquid and crude oil marketing
businesses. Based upon current levels of natural gas processing activities and
industry fundamentals, the estimated impact on annual operating margins of each
one-cent movement in the annual average price of natural gas liquids
approximates $8 to $10 million. The availability of inlet volumes directly
affects the utilization and profitability of the segment's businesses throughout
the Liquids Value Chain. The acquisition of inlet volumes is highly competitive
and the availability of such volumes to industry-wide participants is also
impacted by price variability. Unilateral decisions made by producers to shut-in
production or otherwise curtail workovers, reduce well maintenance activities
and/or delay or cancel drilling activities, as a result of depressed commodity
prices or other factors, negatively affects production available to the entire
mid-stream industry. Because such decisions are based upon the pricing
environment at any particular time, management cannot predict with precision the
impact that such decisions may have on its business.
Seasonality. Dynegy'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, electricity and natural gas
liquids. Natural gas 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.
Conversely, power marketing operations are typically impacted by higher demand
and commodity price volatility during the summer cooling season. Consistent with
power marketing, the Company's electricity generating facilities generally
experience peak demand during the summer cooling season, particularly for
merchant plant generating facilities. The Liquids businesses are also subject to
seasonal factors; however, such factors typically have a greater impact on sales
prices than on sales volumes. Natural gas liquids prices typically increase
during the winter season due to greater heating requirements. The Company's
wholesale propane business is seasonally weighted in terms of volume and price,
consistent with the trend in the Company's natural gas operations, as a result
of greater demand for crop-drying and space-heating requirements in the fall and
winter months.
Effect of Inflation. Although Dynegy'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.
Liquidity and Capital Resources
The Company's business strategy has historically focused on acquisitions or
construction of core operating facilities in order to capture significant
synergies existing among these types of assets and Dynegy's natural gas, power
and natural gas liquids marketing businesses. The Company's energy convergence
strategies are focused on marketing, trading and arbitrage opportunities
involving natural gas and power, centered around the control and optimization of
Btu conversion capacity within the wholesale gas and power businesses (a.k.a.,
"Merchant Leverage Effect"). For the foreseeable future, the Company's primary
focus will be the acquisition and/or construction of power generating assets
that will enable the Company to fully realize the Merchant Leverage Effect of
commercialization of these generating assets.
Dynegy has historically relied upon operating cash flow and borrowings from a
combination of commercial paper issuances, money market lines of credit,
corporate credit agreements and various public debt issuances for its liquidity
and capital resource requirements. The following briefly describes the terms of
these arrangements.
New Public Debt. On July 22, 1999, Dynegy issued $200,000,000 of 6.875% Senior
Notes due July 15, 2002 and $200,000,000 of 7.45% Senior Notes due July 15,
2006. The senior notes, which have been rated BBB+ by Standard & Poor's and Baa2
by Moody's Investor Service, represent senior unsecured obligations of Dynegy
and rank pari passu with Dynegy's existing senior debt. Dynegy used the proceeds
from the sale of the notes to reduce commercial paper borrowings.
Page 20 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
Commercial Paper and Money Market Lines of Credit. The Company uses commercial
paper proceeds and borrowings under uncommitted money market lines of credit for
general corporate purposes, including short-term working capital requirements.
The Company maintains a commercial paper program for amounts up to $1 billion,
as supported by its corporate credit agreements. At June 30, 1999, approximately
$646 million of commercial paper was outstanding and $20 million was outstanding
under existing money market lines of credit.
Corporate Credit Agreements. Dynegy's corporate credit agreements are comprised
of a $400 million, five-year revolving credit agreement maturing in May 2003 and
a $400 million, 364-day revolving credit agreement maturing in May 2000. Both
agreements provide funding for working capital, letters of credit and other
general corporate expenditures. The Company maintains an additional $240
million, 364-day revolving credit agreement having a current maturity date of
December 17, 1999. This facility also provides funding for general corporate
purposes. At June 30, 1999, letters of credit and borrowings under the corporate
credit agreements aggregated $4.9 million and, after consideration of the
outstanding money market and commercial paper, aggregate unused borrowing
capacity under the corporate credit agreements approximated $369 million.
Other Agreements. The terms, interest rates and principal balances outstanding
under certain other credit agreements and sources of capital consisting of:
three separate series of outstanding public notes; the Canadian Credit Facility;
certain non-recourse debt; and the Company Obligated Preferred Securities of a
Subsidiary Trust, have not changed materially from the disclosures contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Other Matters
On June 14, 1999, Dynegy and Illinova Corporation ("Illinova") announced the
execution of definitive agreements for the merger of Illinova and Dynegy.
Conditions precedent to closing include:
. Filings with and/or receipt of approvals or compliance exemptions from the
Illinois Commerce Commission under Illinois law, the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, the Federal
Energy Regulatory Commission under the Federal Power Act, and the Federal
Trade Commission and the Antitrust Division of the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
. The sale of the Clinton nuclear facility by Illinova and the receipt of
approval by the Nuclear Regulatory Commission and other regulatory agencies.
The merger will be accounted for under the purchase method of accounting and
Dynegy will be the acquiror for accounting purposes. The merger is expected to
close during the first quarter of 2000.
Illinova is the holding company for: Illinois Power Company, an electric and
natural gas utility that serves approximately 650,000 customers over a 15,000
square-mile area of Illinois; Illinova Generating, Inc., which invests in,
develops and operates independent power projects worldwide; and Illinova Energy
Partners, Inc., which markets energy and energy-related services in the United
States and Canada. At December 31, 19998, Illinova had approximately $6.8
billion in assets and 1998 revenues of $2.4 billion.
Management believes the combination of Illinova and Dynegy presents an
opportunity to create a leading provider of energy services and products. The
combination will bring together a strong, innovative utility company owning
strategically located generation assets and operations, electric transmission
and retail distribution capabilities with one of the leading North American
energy marketers and independent power producers. These two companies have
diverse but complementary operations, providing qualitative and quantitative
expansion of Dynegy's electric generation capacity, while enhancing Dynegy's
access to dependable cash flow and an improved platform for further expansion.
Therefore, it is expected that the combined company will be well positioned to
be successful in the increasingly competitive energy marketplace. Dynegy expects
the merger to enhance shareholder value more than either company could do on its
own.
Page 21 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
Factors considered in evaluating the benefits of the merger included:
. The merger will provide the liquidity needed to allow certain Dynegy
shareholders to reduce the size of their investment in Dynegy.
. The merger will improve public float thereby enhancing the Company's access
to equity capital at attractive cost.
. The merger is expected to provide continuing shareholders, who desire to
invest in a full-service provider of energy products and services, an
investment vehicle having the flexibility and resources required to respond
to the numerous opportunities in the energy industry.
. The merger will add an additional 6,498 gross megawatts of electricity
generating capacity to Dynegy's current capacity of 7,832 gross megawatts
per year (both figures include current capacity as well as capacity under
construction). This additional capacity is in the Midwestern United States
and is expected to allow Dynegy to sell more electricity for its own account
on better terms throughout the North American market.
. The merger is expected to provide Dynegy with a larger platform in the
electricity trading market from which it can expand its marketing
operations. This larger platform is expected to provide the linchpin for
Dynegy's strategy to be at the forefront of the restructuring of the power
industry and the convergence of the gas and electricity industries.
. The addition of Illinova's traditional utility business is expected to
provide a stable base of cash flow from which the combined company will be
able to leverage its business strategy.
. The merger is expected to be accretive to the earnings per share of the
Dynegy shareholders.
Energy Convergence plans initially to finance the cash component of the merger
with borrowings under a debt facility, the potential issuance of public debt and
the issuance of between $200 million and $240 million of Class B common stock to
Chevron. The resulting increase in total indebtedness of the combined companies
after the merger could have a negative impact on the credit ratings of Energy
Convergence, Dynegy and Illinois Power until such time as financial leverage is
reduced. However, after the closing of the merger, Energy Convergence
anticipates repaying or refinancing a significant portion of the debt facility
with proceeds from an offering of equity securities, additional public debt
issuances, proceeds from potential asset sales and cash flow from operations.
Management of Dynegy, Illinova and Energy Convergence believe the combined
companies will have investment grade credit ratings, ready access to debt and
equity capital at reasonable rates and sufficient trade credit to operate their
businesses efficiently. However, management is unable to predict with certainty
when or whether the capital structure of Energy Convergence will become less
leveraged.
Quantitative and Qualitative Market Risk Disclosures. The Company is exposed to
certain market risks inherent in the Company's financial instruments, which
arise from transactions entered into in the normal course of business. The
Company routinely enters into financial instrument contracts to hedge purchase
and sale commitments, fuel requirements and inventories in its natural gas,
natural gas liquids, crude oil, electricity and coal businesses in order to
minimize the risk of market fluctuations. Dynegy 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
hedge and manage these exposures. The absolute notional contract amounts
associated with commodity risk-management, interest rate and forward exchange
contracts, respectively, were as follows:
Page 22 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
====================================================================================================
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Natural Gas (Trillion Cubic Feet) 5.712 4.179
Electricity (Million Megawatt Hours) 17.600 1.835
Natural Gas Liquids (Million Barrels) 9.904 6.397
Crude Oil (Million Barrels) 87.277 18.800
Interest Rate Swaps (in thousands of US Dollars) $ 66,345 $ 69,332
Weighted Average Fixed Interest Rate Paid on Swaps 8.079 8.067
U.K. Pound Sterling (in thousands of US Dollars) $ 53,438 $ 69,254
Average U.K. Pound Sterling Contract Rate (in US $ 1.6000 $ 1.6143
Dollars)
Canadian Dollar (in thousands of US Dollars) $225,718 $268,307
Average Canadian Dollar Contract Rate (in US Dollars) $ 0.6768 $ 0.6710
====================================================================================================
</TABLE>
Stock Options. Employee stock option grants made from 1994 to 1998 will become
exercisable during 1999 and 2000, respectively, resulting in the potential
exercise of approximately 5.9 million options during that two-year period, at
exercise prices ranging from $2.03 to $21.63. Other options currently granted
under the Company's option plans will fully vest periodically and become
exercisable through the year 2004 at prices ranging from $2.03 to $17.88. Grants
made under the Company's option plans may be canceled under certain
circumstances as provided in the plans.
In order to supplement its stock repurchase program and to facilitate the
orderly distribution of shares arising from the exercise of stock options, the
Company may at times enter into forward purchase agreements on its common stock.
These forward purchase agreements would be settled on a net basis in shares of
Dynegy common stock, or in cash at Dynegy's election. Dynegy has entered into an
agreement with a financial institution to assist in the execution of this plan.
To date, the Company has not executed any forward purchase agreements for its
own common stock.
Management believes that an orderly distribution of shares, which may become
available to the market, will be achieved through execution of alternatives
available from a combination of its stock repurchase plan and forward purchase
agreement program.
Year 2000 Issues. The Company is continuing its analysis of the "Year 2000"
issue, which arises from the use by certain computer hardware and software
applications of two digits rather than four to define an applicable year. Such
hardware and software may be incapable of appropriately recognizing the year
2000, the result of which could be system failures or miscalculations leading to
disruptions in the Company's activities and operations. If the Company and/or
its significant customers or suppliers fail to timely make necessary
modifications and conversions, the Year 2000 issue could have a material adverse
effect on Company operations and its financial position. The Company believes
that its competitors face similar risks.
Dynegy has established a corporate-wide project team to identify and rectify
non-compliant hardware and software within its infrastructure. The Company has
completed its inventory of corporate-wide imbedded systems issues as well as its
inventory of hardware and software applications. A final risk assessment,
testing and remediation activity is ongoing on all of the Company's core systems
and business applications at both corporate and field locations. It is expected
that all core systems and business applications will be Year 2000 ready by
September 1999. In addition, the Company is focusing assessment efforts to
determine that major customers and suppliers are also Year 2000 ready. The
project team is also formulating contingency plans to address alternatives for
the Company should Year 2000 issues disrupt operations. As part
Page 23 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
of the plan, the Company is developing contingency plans that address essential
aspects of the Year 2000 problem. The contingencies identified include:
. Satisfactory remediation of all core systems and business applications is
not executed by December 31, 1999;
. System modifications and conversions instituted by significant customers or
suppliers fail to satisfactorily remediate Year 2000 issues by December 31,
1999; and
. Year 2000 issues remain unidentified by Dynegy, its industry partners or
ancillary service providers, which disrupt operations of the Company.
Dynegy's contingency plans are being designed to minimize any disruptions or
other adverse effects resulting from Year 2000 incompatibilities regarding core
systems and business applications and to facilitate the early identification and
remediation of system problems that manifest themselves after December 31, 1999.
In addition to software and hardware issues directly affecting commercial
operations of the Company, the contingency plan addresses, for example, loss of
electricity, telecommunications, building access, security and other factors.
Nevertheless, there can be no absolute assurance that there will not be a
material adverse effect on the Company if its efforts are delayed or are
ineffective, if material issues remain unidentified or if third party entities
do not convert or replace hardware and software applications in a timely manner
and in a way that is compatible with the Company's hardware and software
infrastructure.
The SEC requires that public companies forecast the most reasonable likely
worst-case Year 2000 scenario. In doing so, the Company assumed that its Year
2000 plan is ineffective. In reviewing a worst-case scenario, the Company
contemplated issues that, although considered highly unlikely, must be
contemplated in such a review. Issues contemplated in this review included total
failure of financial and operational systems, total loss of supplies from third
parties, total loss of transportation, storage and similar operational
capabilities and widespread extended loss of utilities, building access and
other similar items. Under this scenario, the Company would face substantial
claims by third parties and loss of revenue and cash flow resulting from, among
other things, service interruptions, the inability to meet contractual
obligations and the inability to invoice or pay third parties timely and
accurately. Further, such a disruption could affect the operational integrity of
certain commercial assets, the result of which could have operational, safety
and environmental implications. The Company is not able to quantify the
financial effect of the worst case scenario described above and will continue to
monitor business conditions with the aim of assessing and quantifying material
adverse effects, if any, that result or may result from the Year 2000 issue.
Results of the review conducted to date indicate that the Company is unlikely to
be burdened by a material event resulting from the Company's untimely resolution
of Year 2000 issues. The potential costs and uncertainties associated with this
review are dependent upon a number of factors, including legacy software and
hardware configurations, planned information technology infrastructure
enhancements and the availability of trained personnel. Aggregate current cost
estimates for the entire Year 2000 project are projected to range between $8 and
$10.5 million. Approximately $2 million of this amount was expended during 1998
related to this project and an additional $1 million was expended during both
the first and second quarters of 1999. These cost estimates include costs for
identification and remediation of Year 2000 issues. Such cost estimates are
based on current available information and are subject to revision, either
upward or downward, as the project matures and additional information becomes
available.
Conclusion
The Company continues to believe that it will be able to meet all foreseeable
cash requirements, including working capital, capital expenditures and debt
service, from operating cash flow, supplemented by borrowings under its various
credit facilities and equity sales, if required. Further, the Company believes
that it maintains the financial flexibility to consummate the Illinova merger in
accordance with the merger terms and financing plan currently contemplated.
Page 24 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
Results of Operations
Provided below is a tabular presentation of certain domestic and international
operating and financial statistics for the Company's segments and subsegments
for the three- and six-month periods ended June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
====================================================================================================================================
Wholesale Gas and Power Liquids
--------------------------------- ----------------------------
Three Months Ended June 30, Three Months Ended June 30,
--------------------------------- ----------------------------
1999 1998 1999 1998
--------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Margin:
Power Marketing and Generation $ 48,979 $ 37,278 $ --- $ ---
Natural Gas Marketing 21,829 31,701 --- ---
Upstream Operations --- --- 31,264 19,649
Downstream Operations --- --- 20,703 16,521
Crude Oil Operations --- --- 2,972 2,766
Equity Investments 9,872 10,901 3,352 4,200
-------------- ------------- ------------ -------------
Subtotal - Financial Contribution 80,680 79,880 58,291 43,136
Depreciation (8,823) (7,048) (22,927) (19,936)
General and Administrative Expenses (30,386) (25,126) (16,705) (19,251)
Other Items 4,897 1,351 (1,173) 4,286
-------------- ------------- ------------ -------------
Earnings Before Interest and Taxes $ 46,368 $ 49,057 $ 17,486 $ 8,235
============== ============= ============ =============
Operating Statistics:
Natural Gas Marketing (Bcf/d) -
U.S. Sales Volumes 6.1 5.3 --- ---
Canadian Sales Volumes 2.2 2.3 --- ---
U.K. Sales Volumes 0.9 0.6 --- ---
-------------- ------------- ------------ -------------
9.2 8.2 --- ---
============== ============= ============ =============
Electric Power Marketing - Million Megawatt Hours Sold 14.7 26.6 --- ---
Power Generation (Million Megawatt Hours Generated) -
Gross 4.2 3.5 --- ---
Net 2.7 2.3 --- ---
Natural Gas Liquids Processed (MBbls/d - Gross) -
Field Plants --- --- 86.6 85.2
Straddle Plants --- --- 33.5 31.9
-------------- ------------- ------------ -------------
--- --- 120.1 117.1
============== ============= ============ =============
Natural Gas Gathering and Transmission (MMcf/d) --- --- 0.2 0.4
Barrels Received for Fractionation (MBbls/d) --- --- 225.7 182.6
NGL Marketing - Sales Volumes (MBbls/d) --- --- 418.5 378.6
LPG Sales Volumes (MBbls/d) --- --- 74.9 48.7
Crude Oil Marketing - Sales Volumes (MBbls/d) --- --- 228.0 297.4
====================================================================================================================================
</TABLE>
Page 25 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
================================================================================================================================
Wholesale Gas and Power Liquids
----------------------------- ---------------------------
Six Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Margin:
Power Marketing and Generation $ 86,411 $ 44,358 $ --- $ ---
Natural Gas Marketing 54,503 63,846 --- ---
Upstream Operations --- --- 49,604 51,501
Downstream Operations --- --- 47,690 39,724
Crude Oil Operations --- --- 7,616 5,475
Equity Investments 22,510 21,501 5,777 9,355
-------- -------- -------- --------
Subtotal - Financial Contribution 163,424 129,705 110,687 106,055
Depreciation (17,384) (12,776) (45,654) (39,740)
General and Administrative Expenses /(1)/ (61,925) (52,432) (34,708) (44,195)
Other Items /(2)/ 18,176 3,227 (4,687) 4,022
-------- -------- -------- --------
Earnings Before Interest and Taxes $102,291 $ 67,724 $ 25,638 $ 26,142
======== ======== ======== ========
Operating Statistics:
Natural Gas Marketing (Bcf/d) -
U.S. Sales Volumes 6.5 5.9 --- ---
Canadian Sales Volumes 2.3 2.2 --- ---
U.K. Sales Volumes 1.3 0.6 --- ---
-------- -------- -------- --------
10.1 8.7 --- ---
======== ======== ======== ========
Electric Power Marketing - Million Megawatt Hours Sold 27.8 51.5 --- ---
Power Generation (Million Megawatt Hours Generated) -
Gross 7.8 6.8 --- ---
Net 5.1 4.4 --- ---
Natural Gas Liquids Processed (MBbls/d - Gross) -
Field Plants --- --- 87.6 86.0
Straddle Plants --- --- 31.1 36.3
-------- -------- -------- --------
--- --- 118.7 122.3
======== ======== ======== ========
Natural Gas Gathering and Transmission (MMcf/d) --- --- 0.2 0.4
Barrels Received for Fractionation (MBbls/d) --- --- 193.5 192.5
NGL Marketing - Sales Volumes (MBbls/d) --- --- 440.3 405.0
LPG Sales Volumes (MBbls/d) --- --- 76.2 54.1
Crude Oil Marketing - Sales Volumes (MBbls/d) --- --- 197.0 254.1
================================================================================================================================
</TABLE>
(1) Includes each segment's share of the $9.6 million pre-tax severance charge
recognized in the first quarter of 1998.
(2) The Wholesale Gas and Power segment includes the $8.9 million pre-tax gain
on sale of an investment, which was effective January 1, 1999, for
accounting purposes.
Three-Month Periods Ended June 30, 1999 and 1998
For the quarter ended June 30, 1999, Dynegy realized net income of $28.0
million, or $0.17 per share, compared with second quarter 1998 net income of
$23.4 million, or $0.14 per share. In general, improved earnings period-to-
period reflect the continued execution and expansion of the Merchant Leverage
Effect by the Wholesale Gas and Power segment as well as improved results in the
Liquids segment reflecting a general strengthening in market conditions and
continued achievement of previously disclosed cost-reduction and revenue-
enhancement targets.
Page 26 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
Consolidated operating margin for the second quarter of 1999 totaled $125.7
million compared to $107.9 million for the same 1998 period, reflecting improved
margins in both business segments. In general, mild weather in North America
throughout the 1999 quarter and during the majority of the 1998 quarter reduced
price volatility and limited trading opportunities by the Wholesale Gas and
Power segment. However, consolidated operating margins during the 1998 period
were positively impacted by the extreme price volatility in the electricity
markets during the last two weeks in June 1998. There was no corresponding
volatility in the electricity markets during the 1999 period. Adverse commodity
price movements in the United Kingdom during June 1999 contributed to the
narrowing of quarter over quarter operating margins of the Wholesale Gas and
Power segment. Natural gas liquids and crude oil commodity prices began
strengthening near the end of the first quarter and continued to improve in the
second quarter of 1999. However, the Liquids segment was unable to fully
leverage the improved pricing environment during the 1999 quarter as increases
in wellhead production lagged improvements in natural gas liquids prices.
Producers were reluctant or slow to increase wellhead production of natural gas
as they evaluated available sources of capital, re-evaluated previously planned
capital expenditure programs, analyzed reservoir production capabilities and
validated the sustainability of commodity price levels. A delay in increased
wellhead production, as influenced by this producer behavior, offset the
expected improved margins of the Liquids segment period over period.
Operating income increased $10.4 million, or 28 percent, period-to-period
reflecting the aforementioned increase in consolidated operating margin offset
by increases in depreciation and amortization and general and administrative
expenses. The increase in depreciation and amortization expense period-to-period
resulted principally from investment in depreciable assets associated with the
expansion of the power generation business as well as information technology
infrastructure improvements. The increased level of general and administrative
expenses period-to-period principally reflects the incremental costs associated
with a larger, more diverse base of operations, non-capitalizable consulting and
other costs required to support technology infrastructure improvements and, to a
lesser degree, expenses related to identifying and resolving Year 2000 issues.
Incremental to Dynegy's consolidated operating income was the Company's equity
share in the earnings of its unconsolidated affiliates, which contributed in
excess of $13 million and $15 million to pre-tax quarterly earnings in the 1999
and 1998 periods, respectively. As with operating margin, the Company's
investments in power generation benefited from the execution of the Merchant
Leverage Effect. Losses in the retail gas alliance investments during the 1999
period principally reflect an aggressive advertising campaign occurring in the
southeast as deregulation of electricity markets in that region have accelerated
and competition for customers has increased. Pursuant to the timing of the
deregulation plan in this region, advertising costs are not expected to be as
significant a component of alliance operating results beginning in the fourth
quarter of 1999. The Company's investments in ventures involved in businesses
related to the natural gas liquids industry continued to be negatively impacted
by the general lag in turnaround of demand, production and throughput volumes,
as previously discussed. The following table provides a summary of equity
earnings by investment for the comparable periods.
Page 27 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
For the Three-Months Ended June 30,
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
Wholesale Gas and Power:
Accord $ 4,500 $ 4,500
Power Generation Equity Investments (in aggregate) 7,545 6,973
Retail Gas Alliances (in aggregate) (2,439) (572)
Other, net 266 ---
-------------- --------------
Total Wholesale Gas and Power 9,872 10,901
-------------- --------------
Liquids Businesses:
Gulf Coast Fractionators 254 891
West Texas LPG Pipeline Limited Partnership 1,269 1,859
Venice Energy Services Company, L.L.C. 1,275 1,163
Other, net 554 287
-------------- --------------
Total Liquids Businesses 3,352 4,200
-------------- --------------
$ 13,224 $ 15,101
============== ==============
</TABLE>
Interest expense totaled $18.2 million for the quarter ended June 30, 1999,
compared to $18.1 million for the equivalent 1998 period. An increase in
principal outstanding period-to-period was offset by lower average interest
costs and increased capitalization of interest on construction projects.
Accumulated distributions associated with the Company Obligated Preferred
Securities of a Subsidiary Trust totaled $4.2 million for each quarter ended
June 30, 1999 and 1998, respectively.
Other income and expenses, net totaled $3.7 million in the quarter ended June
30, 1999 compared to $5.6 million in the 1998 period. These amounts consisted of
interest income, minority interests in consolidated subsidiaries and certain
other non-recurring income and expense items in both periods.
The Company reported an income tax provision of $13.5 million for the three-
month period ended June 30, 1999, compared to an income tax provision of $11.6
million for the 1998 period. The effective rates in both periods approximated 33
percent. The differences between the aforementioned effective rates and the
statutory rate of 35 percent for both periods results principally from permanent
differences arising from the amortization of certain intangibles and debt
premiums, permanent differences from the effect of certain foreign equity
investments and state income taxes.
Wholesale Gas and Power Segment
The Wholesale Gas and Power segment had earnings before interest and taxes
("EBIT") of $46.4 million for the three-month period ended June 30, 1999,
compared with $49.1 million in the 1998 quarter. Results period-to-period were
influenced by numerous factors, the most significant of which include:
. Improved contribution derived from the Company's owned generation capacity
and related ancillary services;
. Significant price volatility in the electricity markets during June 1998
which did not recur in the 1999 period;
. A lack of significant market price volatility in the North American natural
gas markets during either period;
. Adverse natural gas price movements in the United Kingdom during June 1999;
. The initiation of power marketing activities in the United Kingdom during
1999;
. Increased advertising costs by our retail alliances; and
Page 28 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
. Increased depreciation and general and administrative expenses reflecting the
capital and overhead costs required to support the larger, more diverse base
of operations.
Total natural gas volumes sold increased to 9.2 billion cubic feet per day from
8.2 billion cubic feet per day during last year's second quarter, principally as
a result of increased volumes sold to the retail alliances and to fuel gas-fired
generation in the U.S. Total megawatt hours produced and sold during the 1999
quarter aggregated 17.4 million megawatt hours compared to 28.9 million megawatt
hours during the 1998 period. The 11.5 million megawatt reduction period over
period is principally a reflection of the trading volume which occurred as a
result of the volatility in electricity markets during June 1998.
Liquids Segment
The Liquids segment had normalized EBIT of $17.5 million for the three-month
period ended June 30, 1999, compared to $8.2 million for the 1998 quarter. This
segment experienced the beginning of a recovery in the second quarter 1999
resulting from improved natural gas liquids and crude oil prices, supplemented
by targeted cost reductions and revenue enhancements. NGL prices averaged $0.05
per gallon higher during the 1999 quarter as compared to the same period last
year. However, wellhead production, particularly at the Company's field
processing plants, was significantly lower on a normalized basis period over
period. Management believes that sustained market price improvements should
begin to translate into increased drilling and workover activity in the mid-
continent and Gulf Coast production areas during the fourth quarter of 1999 and
into 2000. In addition, world markets for natural gas liquids are continuing to
strengthen, particularly in Europe and Asia, which should benefit Dynegy's
domestic mid-stream operations. However, forward sales of equity natural gas
liquids production entered into during the first quarter of 1999 combined with
the timing and extent of a continuing lag in wellhead production arising from
the aforementioned producer behavior factors will continue to impede this
segment's ability to fully leverage opportunities presented by the improved
commodity pricing environment during the latter half of 1999.
Aggregate domestic natural gas liquids processing volumes totaled 120.1 thousand
gross barrels per day in 1999 compared to an average 117.1 thousand gross
barrels per day during 1998. Fractionation volumes increased as a result of the
rise in commodity prices, which increased available throughput during the
period. Natural gas liquids marketing volumes were substantially higher period
over period reflecting the improving world-wide markets. Crude oil volumes
decreased due to market economics.
Six-Month Periods Ended June 30, 1999 and 1998
For the six-months ended June 30, 1999, Dynegy realized net income of $56.0
million, or $0.34 per share, on revenues of approximately $6.2 billion. This
compared with net income of $35.8 million, or $0.21 per share, on total revenue
of $6.6 billion reported in the same 1998 period. Normalized earnings before
interest and taxes for 1999 totaled $119.1 million compared to $103.5 million in
the same period last year, an improvement of $15.6 million or 15 percent.
Normalized EBIT excludes the $8.9 million pre-tax gain on the 1999 sale of an
investment by the Wholesale Gas and Power segment and a 1998 pre-tax severance
charge of $9.6 million related primarily to the Liquids segment. Cash flow
provided by operating activities totaled $118.5 million in 1999 compared to
$93.2 million during the 1998 period.
Consolidated operating margin for the first six months of 1999 totaled $245.8
million compared to $204.9 million in 1998, an increase of 20 percent. The
Wholesale Gas and Power segment's operating margin totaled $140.9 million, an
improvement of $32.7 million or 30 percent over 1998 operating margins,
reflecting significantly improved results from its power marketing and
generation operations offset by lower operating margins from its gas marketing
operations. The Liquids segment contributed an aggregate $104.9 million to the
consolidated operating margin, or $8.2 million more than the $96.7 million
reported in 1998. Natural gas liquids prices averaged $0.27 during both six-
month periods ended June 30, 1999 and 1998, respectively. However, the impact
that historically low market prices for natural gas liquids, seen during the
latter half of 1998 and into 1999, had on producer behavior negatively impacted
1999 results significantly. Operating income totaled $86.2 million for the six-
months ended June 30, 1999, compared to $55.8 million in the comparable 1998
period, an improvement of 54 percent. The increase of $30.4 million reflects
the aforementioned increase in consolidated operating margin, which was
Page 29 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
partially offset by the aggregate increase in depreciation and amortization and
general and administrative expenses. The increases in depreciation and
amortization expense and general and administrative expenses result principally
from the same reasons and circumstances that impacted these items during the
three-months ended June 30, 1999, described previously.
The Company's equity share in the earnings of its unconsolidated affiliates
contributed an aggregate $28.3 million to 1999 pretax year-to-date results,
compared to $30.9 million during the comparable 1998 period. The decrease in
equity earnings generally reflects lower earnings from the Company's investments
in businesses operating in the natural gas liquids industry as well as increased
losses in the retail gas alliances. These lower earnings principally result from
the same circumstances that impacted the three-month results previously
discussed herein. The following table provides a summary of equity earnings by
investment for the comparable periods.
<TABLE>
<CAPTION>
For the Six-Months Ended June 30,
---------------------------------
1999 1998
------------ ----------
<S> <C> <C>
Wholesale Gas and Power:
Accord $ 9,000 $ 9,000
Power Generation Equity Investments (in aggregate) 16,165 14,127
Retail Gas Alliances (in aggregate) (3,088) (1,626)
Other, net 433 ---
------------ ----------
Total Wholesale Gas and Power 22,510 21,501
------------ ----------
Liquids Businesses:
Gulf Coast Fractionators 1,124 2,080
West Texas LPG Pipeline Limited Partnership 2,141 3,576
Venice Energy Services Company, L.L.C. 1,569 2,926
Other, net 943 773
------------ ----------
Total Liquids Businesses 5,777 9,355
------------ ----------
$ 28,287 $ 30,856
============ ==========
</TABLE>
Interest expense totaled $37.4 million for the six-month period ended June 30,
1999, compared to $34.1 million for the same 1998 period. The increase of $3.3
million is principally attributed to higher outstanding principal balances
resulting from the acquisition of interests in certain power generating
facilities, construction costs associated with power generation projects,
construction costs associated with the Lake Charles fractionator and the
acquisition of a Canadian gas processing facility. Distributions associated with
the Trust Securities totaled $8.3 million in 1999 and 1998.
Other income and expenses, net totaled $13.5 million for the first six months of
1999 and was $7.2 million in the six-month period ended June 30, 1998. The 1999
amount is primarily a result of the gain on sale of an investment and the 1998
amount is primarily from the gain on sale of a gas processing facility.
The Company reported an income tax provision of $26.1 million for the six-month
period ended June 30, 1999, representing an effective tax rate of 32 percent,
compared to an income tax provision of $15.7 million and an effective rate of 30
percent for the equivalent 1998 period. Differences between the aforementioned
effective rates and the statutory rate of 35 percent for each of the six-month
periods ended June 30, 1999 and 1998, respectively, result principally from the
same factors impacting the effective rates for the three-month periods ended
June 30, 1999 and 1998, previously discussed.
Page 30 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
Wholesale Gas and Power
Normalized EBIT for the six-month period ended June 30, 1999, totaled $93.4
million compared with $70.4 million in the same 1998 period, an increase of 33
percent period over period. Results realized in the two periods were influenced
by the following factors:
. Improved contribution derived from the Company's owned generation capacity
and related ancillary services.
. Increases in generation capacity period over period;
. Significant price volatility in the electricity markets during June 1998
which was not prevalent in the 1999 period;
. A lack of significant market price volatility in the North American natural
gas markets during either period;
. Adverse natural gas price movements in the United Kingdom during June 1999;
. The initiation of power marketing activities in the United Kingdom during
1999;
. Increased advertising costs by our retail alliances; and
. Increased depreciation and general and administrative expenses reflecting the
capital and overhead costs required to support the larger, more diverse base
of operations.
The increase in 1999 EBIT over 1998 EBIT was achieved without favorable
commodity price conditions in 1999. The material increase in financial
contribution by this segment period-to-period results from, among other things,
expansion of the Company's investment in power generation, the impetus placed by
this segment on quality of operating margins over the quantity of sales volumes
and the continuing integration of the segment's operations through execution of
the Merchant Leverage Effect.
Total natural gas volumes sold increased to 10.1 billion cubic feet per day from
8.7 billion cubic feet per day during the first six months of last year,
principally as a result of the aforementioned increase in sales volumes to the
retail alliances and to fuel gas-fired generation in the U.S. Total megawatt
hours produced and sold during the 1999 quarter aggregated 32.9 million megawatt
hours compared to 55.9 million megawatt hours during the 1998 period. The
decrease in megawatt hours sold and produced period over period is principally a
reflection of the impetus placed by this segment on quality of operating margins
over the quantity of sales volumes and the trading volume which occurred as a
result of the volatility in electricity markets during June 1998.
Liquids
The Liquids segment had normalized EBIT of $25.6 million for the six-month
period ended June 30, 1999, compared to $33.1 million for the same 1998 period.
As discussed previously, this segment was negatively impacted by unfavorable
market conditions during the 1999 period. These market conditions included
historically low commodity prices during the first quarter of 1999, averaging
approximately $0.05 per gallon lower in 1999 than in 1998, and a lack of volumes
throughout the period resulting from the producer behavior effects previously
described herein. NGL prices were virtually flat for the six months ended June
30, 1999 as compared to the same 1998 period, averaging approximately $0.27 per
gallon. Crude oil prices averaged $12.75 per barrel in the 1999 period as
compared to $13.00 in the 1998 period. The initiatives undertaken by this
segment beginning in the fourth quarter of 1997 and executed throughout 1998
allowed the businesses to improve operating efficiencies, reduce costs and
mitigate exposure to asset impairments resulting from the commodity price
variability. Benefits derived from these initiatives could not overcome the
significant negative impact resulting from the depressed commodity price
environment.
Aggregate domestic natural gas liquids processing volumes totaled 118.7 thousand
gross barrels per day in 1999 compared to an average 122.3 thousand gross
barrels per day during 1998. The lower volumes in 1999 reflect the economic
decisions made during the period to reduce production at its straddle processing
plants, principally as a result of the relationship of natural gas and NGL
commodity prices. In addition, commodity price induced production curtailments
in producing regions throughout the US reduced available throughput at the
Company's natural gas processing facilities. Fractionation volumes were
essentially flat period-to-period while crude marketing volumes were
significantly lower period-to-period principally as a result of the
Page 31 of 38
<PAGE>
DYNEGY INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended June 30, 1999 and 1998
impact lower commodity prices had on available throughput. Natural gas liquids
marketing volumes increased period-to-period as the Company aggressively
marketed inventoried volumes and world demand began to increase.
Operating Cash Flow
Cash flow from operating activities totaled $118.5 million for the six-month
period ended June 30, 1999, compared to $93.2 million reported in the same 1998
period. Changes in operating cash flow reflect the operating results previously
discussed herein and the continued focus on management of working capital,
particularly trade accounts receivables and payables and the reduction of
discretionary inventory volume purchases period-to-period. Changes in other
working capital accounts, which include prepayments, other current assets and
accrued liabilities, reflect expenditures or recognition of liabilities for
insurance costs, certain deposits, salaries, taxes other than on income, certain
deferred revenue accounts and other similar items. Fluctuations in these
accounts, period-to-period, reflect changes in the timing of payments or
recognition of liabilities and are not directly impacted by seasonal factors.
Capital Expenditures and Investing Activities
During the six-months ended June 30, 1999, the Company spent a net $237.0
million principally on power generation assets, including an interest in a power
generation partnership, and additional expenditures related to maintenance
capital improvements at existing facilities and capital investment associated
with technology infrastructure improvements. The Company received proceeds of
$16.7 million in the first quarter principally related to the sale of an
investment. During the six-months ended June 30, 1998, the Company spent a net
$156.1 million, principally on the acquisition of power generating assets,
construction costs associated with the previously disclosed Lake Charles
fractionation facility and on expenditures for capital improvements at existing
facilities. Additionally, during the period, the Company sold several discrete
non-strategic assets, including a gas processing facility.
Dividend Requirements and Stock Repurchases
Dynegy declares quarterly dividends on its outstanding common stock at the
discretion of its Board of Directors. The holders of the Series A Preferred
Stock 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. The Company paid approximately $4.0 million in cash dividends and
distributions during each six-month period ended June 30, 1999 and 1998,
respectively.
In May 1997, the Board of Directors approved a stock repurchase program that
allows the Company to repurchase, from time to time, up to 1.6 million shares of
common stock in open market transactions. The timing and number of shares
ultimately repurchased will depend upon market conditions and consideration of
alternative investments. No shares were acquired pursuant to this program during
1999. The Company acquired 262,200 shares of its stock through open-market
trades during the six-month period ended June 30, 1998, at a total cost of $3.9
million, or $14.73 per share on a weighted average cost basis.
Page 32 of 38
<PAGE>
DYNEGY INC.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
On April 17, 1997, Pacific Gas and Electric Company ("PG&E") filed a lawsuit in
the Superior Court of the State of California, City and County of San Francisco,
against Destec Energy, Inc., Destec Holdings, Inc. and Destec Operating Company
(wholly-owned subsidiaries of the Company now known respectively as Dynegy Power
Corp., Dynegy Power Holdings, Inc. and Dynegy Operating Company) as well as
against San Joaquin CoGen Limited ("San Joaquin" or the "Partnership") and its
general partners (collectively the "Dynegy Defendants"). Dynegy Power Corp. and
its affiliates now own all of the partnership interests in the Partnership as a
result of the purchase of the interests of the two outside partners in the
Partnership. In the lawsuit, PG&E asserts claims and alleges unspecified damages
for fraud, negligent misrepresentation, unfair business practices, breach of
contract and breach of the implied covenant of good faith and fair dealing.
PG&E alleges that due to the insufficient use of steam by San Joaquin's steam
host, the Partnership did not qualify as a cogenerator pursuant to the
California Public Utilities Code ("CPUC") Section 218.5, and thus was not
entitled under CPUC Section 454.4 to the discount the Partnership received under
gas transportation agreements entered into between PG&E and San Joaquin in 1989,
1991, 1993 and 1995. All of PG&E's claims in this suit arise out of the
Partnership's alleged failure to comply with CPUC Section 218.5. The defendants
filed a response to the suit on May 15, 1997. On October 20, 1997, PG&E named
Libbey-Owens-Ford ("LOF"), the Partnership's steam host, as an additional
defendant in the action. On March 30, 1998, the defendants filed their response
to PG&E's Second Amended Complaint, denying PG&E's allegations and alleging
certain counterclaims against PG&E. By Order dated July 20, 1998, the court
dismissed certain of defendants' counterclaims against PG&E, and abated certain
others, pending resolution by the CPUC. The trial date is currently December 13,
1999. The Partnership has previously advised the FERC of PG&E's claims, and
stated that it would submit any appropriate filings upon completion of its
investigation. If the facility was found not to have satisfied the California
cogeneration facility standards, there is a strong likelihood that it would also
fail to satisfy the more stringent federal standards. In accordance with the
terms of a Protective Order entered into by the parties at the commencement of
the litigation, PG&E has notified San Joaquin that it may make a FERC filing
seeking damages from San Joaquin and decertification of its status as a
qualifying facility under the federal standards. Under FERC precedent, if the
San Joaquin facility were found not to have been a qualifying facility, San
Joaquin could be required to refund to PG&E payments it received pursuant to the
Power Purchase Agreement in excess of PG&E's short-term energy costs during the
period of non-compliance, plus interest. In the event the court or FERC were to
determine that San Joaquin is liable to PG&E under the Gas Transportation
Agreement or Power Purchase Agreement due to LOF's failure to use sufficient
quantities of steam, San Joaquin notified LOF that it would seek to recover such
amounts from LOF under the terms of the Steam Purchase Agreement between San
Joaquin and LOF. The parties engaged in settlement discussions, which resulted
in the execution of a Termination and Settlement Agreement between PG&E and the
Dynegy Defendants on March 9, 1999 (the "Settlement Agreement"). The Settlement
Agreement provides for, upon the receipt of CPUC approval, a dismissal with
prejudice of PG&E's claims against the Dynegy Defendants, a release by PG&E of
all claims relative to FERC matters and a termination of the San Joaquin power
purchase agreement as of December 31, 1999, whereupon the San Joaquin facility
will continue to operate as a merchant plant. The Dynegy Defendants will seek to
recover from LOF any losses resulting from the settlement with PG&E. However, if
the settlement is not ultimately concluded, the Dynegy Defendants will seek to
recover from LOF any losses or amounts for which it may be found liable.
Further, the Company's subsidiaries intend to continue to vigorously defend this
action. In the opinion of management, the ultimate resolution of this lawsuit
will not have a material adverse effect on the Company's financial position or
results of operations. On April 15, 1999, the Dynegy Defendants filed suit
against LOF in the Superior Court of the State of California, County of San
Francisco seeking to recover damages the Dynegy Defendants have or will suffer
as a result of LOF's failure to purchase steam from the San Joaquin facility in
quantities required by the Steam Purchase Contract executed by San Joaquin and
LOF. The lawsuit states claims against LOF for breach of contract, breach of
implied covenant of good faith and fair dealing, fraud in the
inducement/intentional misrepresentation, negligent misrepresentation,
fraudulent concealment and non-disclosure, interference with contract and
indemnity. The suit has been removed to the United States District Court for the
Northern District of California. Following removal, LOF filed a motion to
dismiss/stay based on the contention that the issue of QF compliance is
essential to the disposition of the suit and that the FERC is vested with the
exclusive jurisdiction to address QF compliance. The motion is currently set for
hearing on August 30, 1999.
On March 24, 1995, Southern California Gas Company ("SOCAL") filed a lawsuit in
the Superior Court of the State of California for the County of Los Angeles,
against Destec Energy, Inc., Destec Holdings and Destec Gas Services, Inc. (now
known respectively as Dynegy Power Corp., Dynegy Holdings, Inc. and Dynegy Gas
Services, Inc.), wholly-owned direct and indirect subsidiaries of the Company
(collectively, the "Defendants"), as well as against Chalk Cliff Limited and
Page 33 of 38
<PAGE>
DYNEGY INC.
PART II. OTHER INFORMATION
McKittrick Limited (collectively, the "Partnerships"). The Company owns an
indirect 50 percent limited partnership interest in McKittrick Limited, and
Chalk Cliff Limited is now wholly-owned by subsidiaries of the Company through
the purchase of the interests of Dominion Energy, Inc. All general partners of
the Partnerships are also named defendants. The lawsuit alleged breach of
contract against the Partnerships and their respective general partners, and
interference and conspiracy to interfere with contracts against the Defendants.
The breach of contract claims arose out of the "transport-or-pay" provisions of
the gas transportation service agreements between the Partnerships and SOCAL.
SOCAL sought damages from the Partnerships for past damages and anticipatory
breach damages in an amount equal to approximately $31,000,000. On October 24,
1997, the Court granted SOCAL's Motion for Summary Judgment relating to the
breach of contract causes of action against the Partnerships and their
respective general partners, and requested that SOCAL submit a proposed order
consistent with that ruling for the Court's signature. On November 21, 1997, the
Partnerships filed for voluntary Chapter 11 bankruptcy protection in the Eastern
District of California. Normal business operations by the Partnerships continued
throughout the course of these reorganization proceedings. On January 12, 1998,
the Court entered a Final Order that (a) severed out the Partnerships due to
their Chapter 11 bankruptcy filings, (b) included a finding of contract
liability against the Defendants, (c) dismissed the tortious interference claims
against the Defendants, and (d) assessed damages in an aggregate amount of
approximately $31,000,000. On the same day, the Defendants filed their Notice of
Appeal, and posted a security bond with the Second Appellate District in Los
Angeles based on the lack of allegations made or proven by SOCAL which support
holding those entities liable in contract. On March 11, 1998, the Partnerships
and their respective general partners filed Notices of Appeal with respect to
certain findings of fact in the Court's January 12, 1998 Final Order that were
adverse to those defendants. On or about April 15, 1998, the Court entered a
final judgment against the Partnerships themselves in recognition of the lifting
of the automatic stay against those entities by the Bankruptcy Court. The
Partnerships filed their appeal of that final judgment on June 4, 1998. On
October 21, 1998, the Bankruptcy Court dismissed the voluntary bankruptcy
filings of the Partnerships and their respective lenders thereafter notified
each of the Partnerships of the occurrences of an Event of Default under the
Partnerships' respective credit agreements due to the existence of the SOCAL
judgment against them, and have instituted foreclosure proceedings as to the
projects. Additionally, receivers were named by the lenders and approved by the
Court for each of the projects. In early December 1998, the defendants filed
their opening appellate briefs in the appeal of the Court's final judgment. On
April 13, 1999, the Court granted a motion by SOCAL to amend the final judgment
to include a finding that Destec Energy, Inc. is the alter ego of the
Partnerships and their respective general partners. The Court's order named
Dynegy as the successor to Destec Energy, Inc. Dynegy has appealed the Court's
ruling and will vigorously defend against SOCAL's claims.
The PG&E and SOCAL litigations represent pre-acquisition contingencies acquired
by the Company in the Destec Acquisition. In a related matter, Chalk Cliff and
San Joaquin have each guaranteed the obligations of the other partnership,
represented by the project financing loans used to construct the power
generation facilities owned by the respective Partnerships. In the opinion of
management, the election by the lender of its option under the terms of such
arrangements would not have a material adverse effect on the Company's financial
position or results of operations.
On August 3, 1998, Modesto Irrigation District ("MID") filed a lawsuit against
PG&E and Destec in federal court for the Northern District of California, San
Francisco division. The lawsuit alleges violation of federal and state
antitrust laws and breach of contract against Destec. The allegations are
related to a power sale and purchase arrangement in the city of Pittsburg, CA.
MID seeks actual damages from PG&E and Destec in amounts not less than $25
million. MID also seeks a trebling of any portion of damages related to its
antitrust claims. By order dated February 2, 1999, the federal District Court
dismissed MID's state and federal antitrust claims against PG&E and Destec;
however, the Court granted MID leave of thirty days to amend its complaint to
state an antitrust cause of action. On March 3, 1999, MID filed an amended
complaint recasting its federal and state antitrust claims against PG&E and
Destec and restating its breach of contract claim against Destec. PG&E and
Destec have filed motions to dismiss MID's revised federal and state antitrust
claims. The hearing on the motions to dismiss was held in July, 1999. The
District Court took the matter under advisement and has yet to rule. Dynegy
believes the allegations made by MID are meritless and will continue to
vigorously defend MID's claims. In the opinion of management, the amount of
ultimate liability with respect to these actions will not have a material
adverse effect on the financial position or results of operations of the
Company.
On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in the United
States District Court for the District of Delaware against Dynegy Power
Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow seeks
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' June 1997 purchase
Page 34 of 38
<PAGE>
DYNEGY INC.
PART II. OTHER INFORMATION
of stock of Destec Engineering, a subsidiary of DPC (at that time Destec Power
Corp). Specifically, AES alleges that Destec Power made certain
misrepresentations about the expected profits that Destec Engineering would earn
in connection with the construction of the Elsta power plant in The Netherlands,
and the anticipated completion date of the Elsta plant. AES alleges that Dow is
liable because it "controlled" or had the power to control the management of
Destec Power. AES does not assert any claims against Destec Power or any other
Dynegy entity. Dow is vigorously defending against AES' claims. In the suit
filed by Dow, Dow seeks to recover from DPC any amounts it must pay AES. DPS'
answer to Dow's claims is due in September. In the opinion of management, the
ultimate resolution of this lawsuit will not have a material adverse effect on
the Company's financial position.
The Company assumed liability for various claims and litigation in connection
with the Chevron Combination, the Trident Combination, the Destec acquisition
and in connection with the acquisition of certain gas processing and gathering
facilities from Mesa Operating Limited Partnership. The Company believes, based
on its review of these matters and consultation with outside legal counsel, that
the ultimate resolution of such items will not have a material adverse effect 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 have a material adverse effect
on the financial position or results of operations of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
The 1999 annual meeting (the "Annual Meeting") of the stockholders of the
Company was held on May 21, 1999. The purpose of the Annual Meeting was to
consider and vote upon the following proposals:
1. to elect thirteen directors to serve until the 2000 Annual Meeting of
Stockholders;
2. to approve the adoption of the Dynegy Inc. 1999 Long Term Incentive Plan;
and
3. to ratify the selection of Arthur Andersen LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999.
The Company's Board of Directors is comprised of thirteen members. At the
Annual Meeting, each of the following individuals was re-elected to serve as a
director of the Company: C.L. Watson; Stephen W. Bergstrom; Stephen J. Brandon;
Stanley I. Rubenfeld; Paul Nicholas Woollacott; Jeffrey M. Lipton; Jack S.
Mustoe; A. Terence Poole; Darald W. Callahan; Peter J. Robertson; Patricia A.
Woertz; Daniel L. Dienstbier; and J. Otis Winters.
The votes cast for each nominee were as follows:
<TABLE>
<S> <C>
C.L. Watson 147,641,235
Stephen W. Bergstrom 147,613,168
Stephen J. Brandon 147,614,718
Stanley I. Rubenfeld 147,753,144
Paul Nicholas Woollacott 147,615,874
Jeffrey M. Lipton 147,621,325
Jack S. Mustoe 147,621,562
A. Terence Poole 147,616,962
Darald W. Callahan 147,618,962
Peter J. Robertson 147,618,425
Patricia A. Woertz 147,614,925
Daniel L. Dienstbier 147,786,774
J. Otis Winters 147,791,444
</TABLE>
Page 35 of 38
<PAGE>
DYNEGY INC.
PART II. OTHER INFORMATION
The following votes were cast with respect to the approval of the adoption of
the Dynegy Inc. 1999 Long Term Incentive Plan:
<TABLE>
<S> <C>
For: 145,303,709
Against/Withheld: 2,781,537
Abstentions: 227,043
Broker non-votes: -0-
</TABLE>
The following votes were cast with respect to the ratification of the selection
of Arthur Andersen LLP as independent auditors of the Company for the fiscal
year ending December 31, 1999:
<TABLE>
<S> <C>
For: 148,274,677
Against/Withheld: 24,489
Abstentions: 13,123
Broker non-votes: -0-
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) The following instruments and documents are included as exhibits to this
Form 10-Q.
Exhibit Number Description
-------------- -----------
2.1 Agreement and Plan of Merger among Dynegy Inc.,
Illinova Corporation and certain other parties named
therein dated as of June 14, 1999/(1)/
+4.1 First Amendment to 364-Day Revolving Credit Agreement
dated as of May 5, 1999 among Dynegy Inc. and The
First National Bank of Chicago, Individually and as
Administrative Agent, The Chase Manhattan Bank,
Individually and as Syndication Agent, and Citibank
N.A., Individually and as Documentation Agent and the
Lenders Named therein
4.2 Indenture dated as of September 26, 1996, Restated as
of March 23, 1998 (includes amendments in the First
through Fifth Supplemental Indentures) among Dynegy
Inc. (formerly known as NGC Corporation) and The First
National Bank of Chicago, as Trustee/(2)/
10.1 Subscription Agreement between Energy Convergence
Holding Company and Chevron U.S.A. Inc./(1)/
10.2 Stock Purchase Agreement between Energy Convergence
Holding Company and British Gas Atlantic Holdings BV
and related Guaranty by British Gas Overseas Holdings
Limited/(1)/
10.3 Voting Agreement between Illinova and BG Holdings,
Inc./(1)/
10.4 Voting Agreement between Illinova and NOVA Gas
Services (U.S.) Inc./(1)/
10.5 Voting Agreement between Illinova and Chevron U.S.A.
Inc./(1)/
10.6 Shareholder Agreement of Energy Convergence Holding
Company with Chevron U.S.A. Inc./(1)/
Page 36 of 38
<PAGE>
DYNEGY INC.
PART II. OTHER INFORMATION
10.7 Registration Rights Agreement (NOVA Gas Services
(U.S.) Inc. and British Gas Atlantic Holdings BV)/(1)/
10.8 Registration Rights Agreement (Chevron U.S.A. Inc.)
/(1)/
+10.9 First Supplemental Plan to the Dynegy Inc. Severance
Pay Plan
+10.10 Amendment No. 1 to the First Supplemental Plan to the
Dynegy Inc. Severance Pay Plan
+10.11 Second Supplemental Plan to the Dynegy Inc. Severance
Pay Plan
+10.12 Third Supplemental Plan to the Dynegy Inc. Severance
Pay Plan
+10.13 Fourth Supplemental Plan to the Dynegy Inc. Severance
Pay Plan
+10.14 Third Amendment to the Dynegy Inc. Profit
Sharing/401(k) Savings Plan
+10.15 First Amended and Restated Limited Partnership
Agreement of the West Texas LPG Pipeline Limited
Partnership
+10.16 Amended and Restated Operating Agreement between West
Texas LPG Pipeline Limited Partnership and Chevron
Pipeline Company
+10.17 Dynegy Midstream Services, Limited Partnership
Supplemental Severance Pay Plan
+27 Financial Data Schedule
(b) Current Report on Form 8-K, Commission File No. 1-11156, dated June 14,
1999, relating to the signing of the Agreement and Plan of Merger by Dynegy
Inc. ("Dynegy"), Illinova Corporation ("Illinova") and certain other
entities concerning the merger of Dynegy and Illinova.
_______________________________
+ Filed herewith.
(1) Incorporated by reference to exhibits to the Current Report on Form 8-K of
Dynegy Inc. dated June 14, 1999.
(2) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1997 of NGC Corporation, Commission File
No. 1-11156
Page 37 of 38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
DYNEGY INC.
Date: August 13, 1999 By: /s/ Bradley P. Farnsworth
---------------- ------------------------------------------
Bradley P. Farnsworth, Vice President and
Controller (Principal Accounting Officer)
Page 38 of 38
<PAGE>
EXHIBIT 4.1
FIRST AMENDMENT TO
364-DAY REVOLVING CREDIT AGREEMENT
Dated as of May 5, 1999
AMONG
DYNEGY INC.
(formerly known as
NGC CORPORATION)
and
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Administrative Agent
THE CHASE MANHATTAN BANK
Individually and as Syndication Agent
and
CITIBANK, N.A.,
Individually and as Documentation Agent
and
THE LENDERS NAMED HEREIN
<PAGE>
FIRST AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT, dated as of
May 5, 1999, is among Dynegy Inc. (formerly known as NGC Corporation), a
Delaware corporation, as Borrower (the "Borrower"), the Lenders parties hereto,
The First National Bank of Chicago, as administrative agent (the "Administrative
Agent"), The Chase Manhattan Bank, as syndication agent (the "Syndication
Agent") and Citibank, N.A., as documentation agent (the "Documentation Agent").
Capitalized terms used herein, unless otherwise defined, have the meanings
assigned to them in the Credit Agreement (as hereinafter defined). The parties
hereto agree as follows:
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Issuers, the Administrative Agent,
the Syndication Agent, and the Documentation Agent have heretofore entered into
a certain 364-Day Revolving Credit Agreement, dated as of May 27, 1998 (herein
called the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders, the Issuers, the Administrative Agent,
the Syndication Agent and the Documentation Agent now intend to amend the Credit
Agreement in certain respects as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Issuers, the Administrative
Agent, the Syndication Agent and the Documentation Agent hereby agree as
follows:
SECTION 1. Amendments to Credit Agreement.
A. The following definitions are added to Section 1.1 of the Credit
Agreement in alphabetical order:
"Commitment Increase Effective Date" is defined in Section 2.25.
"Increasing Lenders" is defined in Section 2.25.
"New Lender" is defined in Section 2.25.
"New Funds Amount" means the amount by which a New Lender's or an
Increasing Lender's outstanding Committed Loans increase as of a Commitment
Increase Effective Date (without regard to any such increase as a result of
Advances made on such Commitment Increase Effective Date).
<PAGE>
"Notice of Commitment Increase" is defined in Section 2.25.
"Partially Increasing Lender" is defined in Section 2.25.
"Reducing Lender" is defined in Section 2.25.
"Reduction Amount" means the amount by which a Reducing Lender's or a
Partially Increasing Lender's outstanding Loans decrease as of a Commitment
Increase Effective Date (without regard to any such increase as a result of
Advances made on such Commitment Increase Effective Date).
B. The definitions of "Aggregate Commitment", "Applicable Documentary
Margin", "Applicable Facility Fee", "Applicable Margin" and "Facility
Termination Date" appearing in Section 1.1 of the Credit Agreement are each
amended and restated to read as follows:
"Aggregate Commitment" means $400,000,000 as such amount may be reduced or
increased from time to time pursuant to the terms hereof, including without
limitation, Section 2.7 and Section 2.25.
"Applicable Documentary Margin" means on any date and with respect to each
Documentary Letter of Credit (subject to clause (iii) of the definition of
"Applicable Rating Level"), the applicable margin set forth below based on the
Applicable Rating Level on such date:
Applicable
Applicable Documentary
Rating Level Margin
- --------------- ------------
Level I 0.2000%
Level II 0.2500%
Level III 0.3000%
Level IV 0.3750%
Level V 0.5000%
- ------------------ -----------
The Applicable Documentary Margin for each Applicable Rating Level set forth in
the chart above shall be increased on any date by 0.1250% if, on such date, the
aggregate amount of all outstanding Advances plus Letter of Credit Liabilities
is greater than 25% of the Aggregate Commitment.
2
<PAGE>
"Applicable Facility Fee" means on any date (subject to clause (iii) of the
definition of "Applicable Rating Level") the rate per annum set forth below
opposite the Applicable Rating Level:
Applicable Rating Level Applicable Facility Fee
Level I 0.0900%
Level II 0.1000%
Level III 0.1500%
Level IV 0.2000%
Level V 0.2500%
- ----------------------------------------------------
"Applicable Margin" means on any date (subject to clause (iii) of the
definition of "Applicable Rating Level"), the applicable margin set forth below
based on the Applicable Rating Level on such date:
Applicable Applicable
Rating Level Margin
- --------------- -----------
Level I 0.3100%
Level II 0.4000%
Level III 0.4500%
Level IV 0.5500%
Level V 0.7500%
- ------------------ ----------
The Applicable Margin for each Applicable Rating Level set forth in the chart
above shall be increased on any date by 0.1250% if, on such date, the aggregate
amount of all outstanding Advances plus Letter of Credit Liabilities is greater
than 25% of the Aggregate Commitment.
"Facility Termination Date" means the earlier of (i) May 3, 2000 or such
other later date as may result from any extension requested by the Borrower and
consented to by the Accepting Lenders pursuant to Section 2.24 and (ii) the date
on which the Aggregate Commitment shall have been reduced to zero pursuant to
Section 2.7.
3
<PAGE>
C. The Credit Agreement is amended by adding the following Section 2.25
at the end of Article II.
"2.25 Procedures with respect to the Aggregate Commitment. So long
as no Default or Unmatured Default has occurred and is continuing, the
Borrower may request from time to time, and subject to the terms and
conditions hereinafter set forth, that the Aggregate Commitment be
increased by giving written notice thereof to the Administrative Agent;
provided, however, that any such notice must be given no later than 60 days
prior to the then Facility Termination Date. Each such notice (a "Notice
of Commitment Increase") shall be in the form of Exhibit C-2 and specify
therein:
(i) the effective date of such increase, which date (the
requested "Commitment Increase Effective Date") shall be no earlier
than five Business Days after receipt by the Administrative Agent of
such notice;
(ii) the amount of the requested increase; provided, however,
that after giving effect to such requested increase, the Aggregate
Commitment shall not exceed $500,000,000;
(iii) the identity of the then Lenders, if any, which have
agreed with the Borrower to increase their respective Commitments in
an amount such that their respective Percentage after giving effect to
such requested increase will be the same or greater than their
respective Percentages prior to giving effect to such requested
increase (each such then Lender being a then "Increasing Lender"),
each other Lender which has agreed to increase its Commitment in an
amount such that its Lender's Percentage after giving effect to such a
requested increase will be less than its Lender's Percentage prior to
giving effect to such requested increase (each such Lender being a
"Partially Increasing Lender") and the identity of each financial
institution not already a Lender, if any, which has agreed with the
Borrower to become a Lender to effect such requested increase in the
Aggregate Commitment (each such assignee shall be reasonably
acceptable to the Administrative Agent and each such assignee being a
then "New Lender" and each Lender which has not agreed to increase its
Commitment being a "Reducing Lender"); and
(iv) the amount of the respective Commitments of the then
existing Lenders and such New Lenders from and after the effective
date of such increase.
On or before each Commitment Increase Effective Date:
4
<PAGE>
(i) the Borrower, each Increasing Lender, each Partially
Increasing Lender and each then New Lender shall execute and deliver
to the Administrative Agent for its acceptance, as to form,
documentation embodying the provisions of the Notice of Commitment
Increase relating to the increase in the Aggregate Commitment to be
effected on such Commitment Increase Effective Date; and
(ii) upon acceptance of such documentation by the Administrative
Agent, which acceptance shall not be unreasonably withheld, and so
long as no Default or Unmatured Default has occurred and is
continuing, (A) the Administrative Agent shall give prompt notice of
such acceptance to each Lender, (B) it shall become effective, and the
Aggregate Commitment shall be increased to the amount specified
therein, on such Commitment Increase Effective Date, (C) the
Administrative Agent shall record each New Lender's information in the
Register, and the Borrower shall execute and deliver to each then New
Lender, upon written request by such New Lender, a Committed Note
payable to the order of such Lender in the face principal amount equal
to such Lender's Commitment and a Competitive Bid Note and (D) upon
written request by a Lender, the Borrower shall execute and deliver to
each such Increasing Lender and each such Partially Increasing Lender,
against receipt by the Borrower of such Lender's then existing
Committed Note, if any, a new Committed Note in the face principal
amount equal to such Lender's Commitment after giving effect to such
Commitment increase.
On each Commitment Increase Effective Date:
(i) each then New Lender and each then Increasing Lender shall,
by wire transfer of immediately available funds, deliver to the
Administrative Agent such Lenders' New Funds Amount for such
Commitment Increase Effective Date, which amount, for each such
Lender, shall constitute Committed Loans made by such Lender to the
Borrower pursuant to Section 2.1 on such Commitment Increase Effective
Date; and
(ii) the Administrative Agent shall, by wire transfer of
immediately available funds, pay to each then Reducing Lender and to
each Partially Increasing Lender its Reduction Amount for such
Commitment Increase Effective Date, which amount, for each such
Lender, shall constitute a prepayment by the Borrower pursuant to
Section 2.9, ratably in accordance with the respective principal
amounts thereof, of the principal amounts of all then outstanding
Committed Loans of such Lender.
5
<PAGE>
The Administrative Agent shall record each then New Lender's, each
then Increasing Lender's and each then Partially Increasing Lender's
information in the Register. Also effective as of each Commitment Increase
Effective Date, each then New Lender and each then Increasing Lender shall
be deemed to have purchased and had transferred to it, and each then
Reducing Lender and each Partially Increasing Lender shall be deemed to
have sold and transferred to such New Lenders and Increasing Lenders, such
undivided interest and participation in such Reducing Lender's and such
Partially Increasing Lender's interest and participation in all then
outstanding Letters of Credit, the obligations of the Borrower with respect
thereto and any security therefor and any guaranty pertaining thereto at
any time existing as is necessary so that such undivided interests and
participations of all Lenders (including each then New Lender) shall accord
with their respective Lender's Percentages after giving effect to the
increase in the Aggregate Commitment on such Commitment Increase Effective
Date."
D. The Credit Agreement is amended by adding Exhibit C-2 attached hereto
to the Credit Agreement as Exhibit C-2.
E. The Credit Agreement is amended by replacing Schedule 2 to the Credit
Agreement with Schedule 2 to this Amendment.
SECTION 2. To induce the Lenders, the Issuers, the Administrative Agent,
the Syndication Agent and the Documentation Agent to enter into this Amendment,
the Borrower hereby reaffirms, as of the date hereof, its representations and
warranties contained in Article V of the Credit Agreement (except to the extent
such representations and warranties relate solely to an earlier date).
SECTION 3. The effectiveness of this Amendment is conditioned upon receipt
by the Administrative Agent of counterparts hereof duly executed by Borrower,
each Lender, each Issuer, the Administrative Agent, the Syndication Agent and
the Documentation Agent.
SECTION 4. Upon the effectiveness hereof as provided in the foregoing
Section 3, this Amendment (or the portions thereof) shall be deemed to be an
amendment to the Credit Agreement, and the Credit Agreement, as amended hereby,
is hereby ratified, approved and con firmed in each and every respect. All
references to the Credit Agreement in any other document, instrument, agreement
or writing shall hereafter be deemed to refer to the Credit Agreement as amended
hereby.
SECTION 5. THIS AMENDMENT SHALL BE A CONTRACT GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS. All obligations of the Borrower and rights of the Lenders, the
Issuers, the Administrative Agent, the Syndication Agent
6
<PAGE>
and the Documentation Agent expressed herein shall be in addition to and not in
limitation of those provided by applicable law. Whenever possible each provision
of this Amendment shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Amendment shall be
prohibited by or invalid under applicable law, such pro vision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Amendment.
SECTION 6. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
any party hereto may execute this Amendment by signing one or more counterparts.
SECTION 7. This Amendment shall be binding upon the Borrower and the
Lenders, the Issuers, the Administrative Agent, the Syndication Agent and the
Documentation Agent and their respective successors and assigns, and shall inure
to the benefit of each of the Borrower, the Lenders, the Issuers, the
Administrative Agent, the Syndication Agent and the Documentation Agent and the
successors and assigns of any of the Lenders, the Issuers, the Administrative
Agent, the Syndication Agent and the Documentation Agent.
SECTION 8. EACH OF THE BORROWER, THE LENDERS, THE ISSUERS, THE
ADMINISTRATIVE AGENT, THE SYNDICATION AGENT AND THE DOCUMENTATION AGENT HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AMENDMENT OR ANY LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY OF THE BORROWER, THE LENDERS, THE ISSUERS, THE ADMINISTRATIVE AGENT, THE
SYNDICATION AGENT OR THE DOCUMENTATION AGENT. THE BORROWER ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO
THIS AMENDMENT.
SECTION 9. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT,
ANY ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION.
7
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders, the Administrative Agent,
the Syndication Agent and the Documentation Agent have executed this Agreement
as of the date first above written.
DYNEGY INC.
By:________________________________
Print Name:________________________
Title:_____________________________
1000 Louisiana, Suite 5800
Houston, TX 77002
Attn: Senior Vice President and
Chief Financial Officer
Telephone No.: (713) 507-6400
with a copy to:
Attn: Senior Vice President and General Counsel
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Administrative Agent
By:________________________________
Print Name:________________________
Title:_____________________________
One First National Plaza
Chicago, Illinois 60670
Attn: Diversified Energy Division
Telecopy No.: 312-732-3055
with a copy to:
The First National Bank of Chicago
910 Travis St., 6th Floor
Houston, Texas 77002
Attn: Helen Carr
Telephone No.: 713-654-7335
Telecopy No.: 713-654-7370
<PAGE>
THE CHASE MANHATTAN BANK,
Individually and as Syndication Agent
By:________________________________
Print Name:________________________
Title:_____________________________
600 Travis, 20th Floor
Houston, Texas 77002
Attn: _____________________________
Telecopy No.: (713) 216-4295
<PAGE>
CITIBANK, N.A.
Individually and as Documentation Agent
By:________________________________
Print Name:________________________
Title:_____________________________
Attn: _____________________________
Telecopy No.: _____________________
<PAGE>
ABN AMRO BANK, N.V.
By:________________________________
Print Name:________________________
Title:_____________________________
By:________________________________
Print Name:________________________
Title:_____________________________
Three Riverway, Suite 1700
Houston, Texas 77056
Attn:______________________________
Telecopy No.: 713-629-7533
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:________________________________
Print Name:________________________
Title:_____________________________
700 Louisiana, 8th Floor
Houston, Texas 77002-2725
Attn:______________________________
Telecopy No.: (713) 247-6432
<PAGE>
THE BANK OF NOVA SCOTIA
By:________________________________
Print Name:________________________
Title:_____________________________
600 Peachtree Street, N.E., Suite 2700
Atlanta, Georgia 30308
Attn:______________________________
Telecopy No.:______________________
<PAGE>
THE BANK OF TOKYO-MITSUBISHI,
LTD., HOUSTON AGENCY
By:________________________________
Print Name:________________________
Title:_____________________________
1100 Louisiana Street, Suite 2800
Houston, Texas 77002-5216
Attn: David L. Denbina, P.E.
Telecopy No.: 713/658-0116
<PAGE>
BANKBOSTON, N.A.
By:________________________________
Print Name:________________________
Title:_____________________________
100 Federal Street
Mail Stop 01-08-04
Boston, MA 02110
Attn: V. Ryan
Telecopy No.: (617) 434-3652
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By:________________________________
Print Name:________________________
Title:_____________________________
By:________________________________
Print Name:________________________
Title:_____________________________
600 Travis Street, Suite 2340
Houston, Texas 77002
Attn: Brian Knezeak
Telecopy No.: (713) 223-7029
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Print Name:________________________
Title:_____________________________
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attn: Darrell Stanley, Vice President
Telecopy No.: (713) 751-0307
<PAGE>
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By:________________________________
Print Name:________________________
Title:_____________________________
Two World Trade Center
79th Floor
New York, New York
Attn: Ms. Noshin Osman
Telecopy No.: (212) 321-9407
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By:________________________________
Print Name:________________________
Title:_____________________________
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attn: Lia Guerra
Telecopy No.: (214) 754-0171
<PAGE>
THE TORONTO-DOMINION BANK
By:________________________________
Print Name:________________________
Title:_____________________________
31 West 52nd Street
New York, NY 10019-6101
Attn:______________________________
Telecopy No.: (212) 262-1929
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:________________________________
Print Name:________________________
Title:_____________________________
By:________________________________
Print Name:________________________
Title:_____________________________
1211 Avenue of the Americas, 23rd Floor
New York, NY 10036
Attn:______________________________
Telecopy No.: (212) 852-6307
<PAGE>
EXHIBIT "C-2"
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Petroleum and Mining Division
Telecopier: (312) 732-7235
cc: The First National Bank of Chicago
1100 Louisiana, Suite 3200
Houston, Texas 77002
Attention: Helen A. Carr
Telecopier: (713) 654-7370
Date: ________________________
Notice of Commitment Increase
Reference is made to the 364 Day Revolving Credit Agreement, dated as of
May 27, 1998, among Dynegy Inc. formerly known as NGC Corporation, a Delaware
corporation, as Borrower (the "Borrower"), the Lenders (parties thereto), The
First National Bank of Chicago, as Administrative Agent, The Chase Manhattan
Bank, as Syndication Agent and Citibank, N.A., as Documentation Agent (as
amended, modified and supplemented to the date hereof, the "Agreement").
Capitalized terms used herein but not otherwise defined have the meanings
assigned to them in the Agreement. The undersigned hereby gives notice pursuant
to Section 2.25 of the Agreement of its intent to increase the Aggregate
Commitment by the amount of $ , effective
(the "Commitment Increase Effective Date"). The existing Lenders agreeing to
increase their commitments and the assignees agreeing to become New Lenders to
effect such requested increase are identified below.
From and after the Commitment Increase Effective Date, the respective
Commitments of the existing Lenders agreeing to increase their commitments and
the New Lenders will be as set forth below (and Schedule 2 shall be deemed to be
amended to reflect the same):
Existing Lenders: Commitment
___________________ $_____________
___________________ $_____________
___________________ $_____________
___________________ $_____________
<PAGE>
Existing Lenders: Commitment
___________________ $_____________
___________________ $_____________
New Lenders: Commitment
___________________ $_____________
___________________ $_____________
___________________ $_____________
___________________ $_____________
___________________ $_____________
___________________ $_____________
The undersigned Authorized Officer represents and warrants that (a) the
increase requested hereby complies with the requirements of Section 2.25 of the
Agreement and (b) no Default or Unmatured Default exists as of the date hereof
and no Default will exist on the Commitment Increase Effective Date.
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
SCHEDULE 2
COMMITMENTS
The First National Bank of Chicago $ 42,500,000
Bank of America National Trust and Savings Association 40,000,000
The Chase Manhattan Bank 40,000,000
Citibank, N.A. 40,000,000
ABN-AMRO Bank, N.V. 30,000,000
BankBoston, N.A. 30,000,000
Credit Lyonnais New York Branch 30,000,000
The Toronto-Dominion Bank 30,000,000
Westdeutsche Landesbank Girozentrale, New York Branch 30,000,000
Societe Generale, Southwest Agency 20,000,000
The Bank of Nova Scotia 17,500,000
The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency 17,500,000
The Fuji Bank, Limited, Houston Agency 17,500,000
Credit Agricole Indosuez 15,000,000
TOTAL $400,000,000
<PAGE>
EXHIBIT 10.9
FIRST SUPPLEMENTAL PLAN TO THE
DYNEGY INC. SEVERANCE PAY PLAN
I. INTRODUCTION
Dynegy Inc., a Delaware corporation ("Dynegy"), and its participating
subsidiaries and affiliated entities have heretofore established the Dynegy Inc.
Severance Pay Plan (the "Plan"). The Plan specifically contemplates that
certain plans may be designated as supplements to the Plan. This First
Supplemental Plan to the Dynegy Inc. Severance Pay Plan (the "First Supplemental
Plan") is hereby established as a supplement to the Plan on behalf of Dynegy and
all of its subsidiaries and affiliates that participate in the Plan. The First
Supplemental Plan is intended to provide severance benefits to certain employees
whose employment is terminated involuntarily by the Company following a Change
in Control. Such severance benefits shall be in lieu of the severance benefits,
if any, that would otherwise be provided under the Plan upon such involuntary
termination of employment.
II. DEFINITIONS
As used herein, the terms "Dynegy," "Plan," and "First Supplemental Plan"
shall have the meanings set forth in Section I hereof. Capitalized terms used
in the First Supplemental Plan but not defined herein are defined in the Plan
and are used herein with the meanings ascribed to them in the Plan. Where the
following words and phrases appear in the First Supplemental Plan, they shall
have the respective meanings set forth below, unless their context clearly
indicates to the contrary:
A. "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(a) any "person" or "group" (as defined in or contemplated by
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting stock of Dynegy;
(b) Dynegy is merged with or into or consolidated with another
person and, immediately after giving effect to the merger or
consolidation, (1) 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 13d-3 under the
Exchange Act) in the aggregate by (x) the stockholders of Dynegy
immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of Dynegy entitled to
vote with respect to such merger or consolidation, the stockholders of
Dynegy as of such record date and (2) any "person" or "group" (as
defined in or contemplated by Section 13(d)(3) or 14(d)(2) of the
Exchange Act) is or has become the direct or indirect "beneficial
owner" (as defined in Rule 13d-3
<PAGE>
under the Exchange Act) of more than 50% of the voting power of the
voting stock of the surviving or resulting person;
(c) Dynegy, 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 Dynegy and the subsidiaries, taken as a
whole (either in one transaction or a series of related transactions),
to any person (other than Dynegy or a wholly owned subsidiary); or
(d) the liquidation or dissolution of Dynegy;
provided, however, that a "Change in Control" shall be deemed to have not
occurred if Chevron Corporation or its subsidiaries and/or affiliates own,
directly or indirectly, more than 50% of the total voting stock of Dynegy
so long as (i) Chevron Corporation, its subsidiaries or affiliates reduce
their interest to less than a 50% interest either (x) within six months
after the date they acquire a greater than 50% interest, or (y) within an
extended period of up to two years after the date they acquire a greater
than 50% interest if such extension is approved by the affirmative vote of
at least 11 members of the Board of Directors of Dynegy (or such lesser or
greater number of directors as may be required by Section 3.10(b) of the
Bylaws of Dynegy as such may be amended from time to time) prior to the end
of the six-month period specified in clause (x) of this proviso, and (ii)
Chevron Corporation does not materially alter the operations or management
of Dynegy during such six-month or extended period. In addition to the
foregoing, a "Change in Control" shall be deemed to have occurred for all
purposes of the First Supplemental Plan upon the consummation of the
transactions contemplated in that certain Agreement and Plan of Merger
dated as of June 14, 1999, by and among Illinova Corporation, Energy
Convergence Holding Company, Energy Convergence Acquisition Corporation,
Dynegy Acquisition Corporation, and Dynegy, as the same may be amended from
time to time.
B. "CONTINUATION COVERAGE PERIOD" shall mean, with respect to each
Participant, a period of time equal to the number of full and partial Years
of Service upon which such Participant's lump sum cash payment provided
pursuant to Section III.A.(a) hereof was based, subject to a minimum of
four months and a maximum of 12 months.
C. "DISABILITY" shall mean a disability entitling a Participant to
benefits under a group long-term disability plan maintained by the Company.
D. "INVOLUNTARY TERMINATION" shall mean, with respect to each
Participant, any termination of such Participant's employment with the
Company; provided, however, that the term "Involuntary Termination" shall
not include a voluntary resignation by such Participant, a Termination for
Cause, or any termination as a result of such Participant's death or
Disability.
-2-
<PAGE>
E. "MONTH OF PAY" shall mean, with respect to each Participant, such
Participant's base monthly rate of pay, excluding overtime, bonuses,
commissions (except in the case of truck drivers whose base pay is
comprised solely of commissions), premium pay, shift differentials,
employee benefits, expense reimbursements, and similar amounts. If a
Participant is paid by the hour, then such Participant's base monthly rate
of pay is (a) his or her regular hourly rate, multiplied by (b) his or her
regularly scheduled hours per year, divided by (c) 12. A Participant's
base monthly rate of pay shall be determined based upon the highest rate in
effect (1) immediately prior to the Change in Control, (2) 60 days prior to
the date of such Participant's Involuntary Termination, or (3) the date of
such Participant's Involuntary Termination.
F. "PARTICIPANT" shall mean each Employee other than an Employee who
is a participant in any other supplement to the Plan or any other severance
benefit plan maintained by the Company or any of its affiliates (other than
the Plan).
G. "TERMINATION FOR CAUSE" shall mean any termination of a
Participant's employment with the Company by reason of such Participant's
(a) conviction of a misdemeanor involving moral turpitude or a felony, (b)
engagement in conduct which is materially injurious (monetarily or
otherwise) to the Company or any of its affiliates (including, without
limitation, misuse of the Company's or an affiliate's funds or other
property), (c) engagement in gross negligence or willful misconduct in the
performance of such individual's duties, (d) willful refusal without proper
legal reason to perform such individual's duties and responsibilities, (e)
material breach of any material provision of any agreement between the
Company and such individual, or (f) material breach of any material
corporate policy maintained and established by the Company that is of
general applicability to Participants.
III. SEVERANCE BENEFITS
A. SEVERANCE BENEFITS.
If the employment by the Company or a successor thereto of a
Participant shall be subject to an Involuntary Termination that occurs on the
date upon which a Change in Control occurs or within one year thereafter, then
such Participant shall be entitled to receive, subject to the provisions of
Section III.B. hereof, the following severance benefits:
(a) a lump sum cash payment in an amount equal to one Month of Pay for
each full, completed Year of Service and a pro-rated amount for less than
a Year of Service, subject to a minimum of four Months of Pay and a maximum
of 12 Months of Pay; and
(b) such Participant and those of his or her dependents (including
such Participant's spouse) who were covered under the medical and life
insurance benefit plans maintained by the Company on the day prior to such
Involuntary Termination shall continue to be covered under such plans
throughout the Continuation Coverage Period beginning on the date of such
Involuntary Termination at a cost to such Participant that is no greater
than
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the cost of such coverage paid by such Participant immediately prior to
such Involuntary Termination; provided, however, that coverage under a
particular medical or life insurance benefit plan shall immediately end
upon such Participant's obtainment of new employment and coverage under a
similar welfare benefit plan maintained by such Participant's new employer
(with such Participant being obligated hereunder to promptly report such
new coverage to the Company). Nothing herein shall be deemed to adversely
affect in any way the additional rights, after consideration of this
extension period, of such Participant and his or her eligible dependents to
health care continuation coverage as required pursuant to Part 6 of Title I
of ERISA.
B. ADDITIONAL TERMS; MITIGATION.
The First Supplemental Plan and the severance benefits described in
Section III.A. hereof shall be subject to all of the terms and conditions of the
Plan, including, without limitation, the administrative provisions of the Plan
and the provisions of the Plan relating to the execution and delivery of a
Release as a condition to the receipt of severance benefits; provided, however,
that (a) the provisions of Section III of the Plan (relating to eligibility) and
Section IV.E. of the Plan (relating to rehired employees) shall not apply to the
First Supplemental Plan, (b) the amount of the cash severance payment to be
provided under the First Supplemental Plan shall be determined pursuant to
Section III.A.(a) hereof rather than Section IV.A. of the Plan, and (c) should
an inconsistency or conflict exist between the specific terms of the First
Supplemental Plan and those of the Plan, then the relevant terms of the First
Supplemental Plan shall govern and control. Except as provided in Section
III.A.(b) hereof, a Participant shall not be required to mitigate the amount of
any payment or benefit provided for in Section III.A. hereof by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in Section III.A. hereof be reduced by any compensation or benefit earned by
the Participant as the result of employment by another employer or by retirement
benefits. The benefits under the First Supplemental Plan are in addition to any
other benefits to which a Participant is otherwise entitled, except that a
Participant who is entitled to receive a benefit under the First Supplemental
Plan shall not receive a benefit under the Plan, any other supplement thereto,
or any other severance benefit plan maintained by the Company or any of its
affiliates.
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IV. AMENDMENT AND TERMINATION
The First Supplemental Plan may be amended from time to time, or terminated
and discontinued, at any time, in each case at the discretion of Dynegy.
Notwithstanding the foregoing, the First Supplemental Plan may not be amended or
terminated within one year following a Change in Control.
EXECUTED this ______ day of _____________________, 1999.
DYNEGY INC.
By:
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Michael B. Barton
Vice President of Human Resources
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EXHIBIT 10.10
AMENDMENT NO. 1 TO THE
FIRST SUPPLEMENTAL PLAN TO THE
DYNEGY INC. SEVERANCE PAY PLAN
WHEREAS, effective as of June 9, 1999, Dynegy Inc. ("Dynegy") amended and
restated the First Supplemental Plan to the Dynegy Inc. Severance Pay Plan (the
"First Supplemental Plan"); and
WHEREAS, Dynegy desires to further amend the First Supplemental Plan;
NOW THEREFORE, the First Supplemental Plan is hereby amended as follows,
effective as of June 9, 1999:
1. The following new section shall be added immediately following Section
II.C. of the First Supplemental Plan:
"C.1. "EXCLUDED TERMINATION" shall mean any termination of a
Participant's employment with the Company by reason of a merger,
acquisition, sale, transfer, outsourcing, reorganization or restructuring
of all or part of the Company or any affiliate or division thereof where
either (a) such Participant is offered another position within the Company
that provides such Participant with a base salary at least equal to or
greater than his or her base salary in effect on the last day of such
Participant's active service for the Company (including, without
limitation, a position that would require such Participant to transfer to a
different work location so long as he or she has been offered the Company's
standard relocation package in connection with such transfer) or (b) such
Participant accepts any position with a Successor Company, including an
outside contractor, whether affiliated or unaffiliated with the Company and
whether or not the Successor Company adopts the Plan or the First
Supplemental Plan."
2. Section II.D. of the First Supplemental Plan shall be deleted and the
following shall be substituted therefor:
"D. "INVOLUNTARY TERMINATION" shall mean, with respect to each
Participant, any termination of such Participant's employment with the
Company; provided, however, that the term "Involuntary Termination" shall
not include a voluntary resignation by such Participant, an Excluded
Termination, a Termination for Cause, or any termination as a result of
such Participant's death or Disability."
3. As amended hereby, the First Supplemental Plan is hereby ratified and
reaffirmed.
EXECUTED this ______ day of July, 1999.
DYNEGY INC.
By:
----------------------------------
MICHAEL B. BARTON
VICE PRESIDENT OF HUMAN RESOURCES
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EXHIBIT 10.11
SECOND SUPPLEMENTAL PLAN TO THE
DYNEGY INC. SEVERANCE PAY PLAN
I. INTRODUCTION
Dynegy Inc., a Delaware corporation (the "Company"), and its participating
subsidiaries and affiliated entities have heretofore established the Dynegy Inc.
Severance Pay Plan (the "Plan"). The Plan specifically contemplates that
certain plans may be designated as supplements to the Plan. This Second
Supplemental Plan to the Dynegy Inc. Severance Pay Plan (the "Second
Supplemental Plan") is hereby established as a supplement to the Plan on behalf
of the Company and all of its subsidiaries and affiliates that participate in
the Plan. The Second Supplemental Plan is intended to provide severance
benefits to certain selected officers and directors whose employment is
terminated on or after the date upon which a change in control of the Company
occurs. Such severance benefits shall be in lieu of the severance benefits, if
any, that would otherwise be provided under the Plan upon such termination of
employment.
II. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following words and phrases appear in the
Second Supplemental Plan, they shall have the respective meanings set forth
below, unless their context clearly indicates to the contrary.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(1) any "person" or "group" (as defined in or contemplated by
Section 13(d)(3) or 14(d)(2) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting stock of
the Company;
(2) the Company is merged with or into or consolidated with
another person and, immediately after giving effect to 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 13d-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 or contemplated by Section 13(d)(3)
or 14(d)(2) of the Exchange Act) is or has become the direct or
indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the voting power of the voting stock
of the surviving or resulting person;
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(3) 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
(4) the liquidation or dissolution of the Company;
provided, however, that a "Change in Control" shall be deemed to have not
occurred if Chevron Corporation or its subsidiaries and/or affiliates own,
directly or indirectly, more than 50% of the total voting stock of the
Company, so long as (i) Chevron Corporation, its subsidiaries or affiliates
reduce their interest to less than a 50% interest either (x) within six
months after the date they acquire a greater than 50% interest, or (y)
within an extended period of up to two years after the date they acquire a
greater than 50% interest if such extension is approved by the affirmative
vote of at least 11 members of the Board (or such lesser or greater number
of directors as may be required by Section 3.10(b) of the Company's Bylaws
as such may be amended from time to time) prior to the end of the six-month
period specified in clause (x) of this proviso, and (ii) Chevron
Corporation does not materially alter the operations or management of the
Company during such six-month or extended period. In addition to the
foregoing, a "Change in Control" shall be deemed to have occurred for all
purposes of the Second Supplemental Plan (other than Sections 3.2 and 5.3)
upon the occurrence of a Deemed Change in Control.
(c) "CHANGE IN TERMS OF SERVICE" shall mean, the occurrence, on the
date upon which a Change in Control occurs or within two years thereafter
(one year thereafter in the case of a Deemed Change in Control), of any one
or more of the following:
(1) a significant reduction in the nature or scope of a Covered
Individual's authorities or duties from those applicable to such
Covered Individual immediately prior to the date on which a Change in
Control occurs;
(2) a reduction in a Covered Individual's annual base salary or
target opportunity under any applicable bonus or incentive
compensation plan or arrangement from that provided to such Covered
Individual immediately prior to the date on which a Change in Control
occurs;
(3) a diminution in a Covered Individual's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans which provide opportunities to receive compensation
which are the greater of (A) the opportunities provided by the Employer
(including its subsidiaries) for officers or directors, as applicable,
with comparable duties or (B) the opportunities under any such plans
under which such Covered Individual was participating immediately prior
to the date on which a Change in Control occurs;
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(4) a diminution in benefits (including but not limited to
medical, dental, life insurance, and long-term disability plans) and
perquisites applicable to such Covered Individual from the greater of
(A) the benefits and perquisites provided by the Employer (including
its subsidiaries) to officers or directors, as applicable, with
comparable duties or (B) the benefits and perquisites to which such
Covered Individual was entitled immediately prior to the date on which
a Change in Control occurs; or
(5) a change in the location of a Covered Individual's principal
place of employment by the Employer by more than 50 miles from the
location where he was principally employed immediately prior to the
date on which a Change in Control occurs.
(d) "CHEVRON HOLDING PERIOD" shall mean any period during which a
Change in Control is deemed to have not occurred solely pursuant to the
provisions of Section 2.1(b) relating to the ownership, directly or
indirectly, of more than 50% of the total voting stock of the Company by
Chevron Corporation or its subsidiaries and/or affiliates.
(e) "CODE" shall have the meaning assigned to such term in the Plan.
(f) "COMMITTEE" shall mean the Compensation and Human Resources
Committee of the Board.
(g) "COMPANY" shall mean Dynegy Inc., a Delaware corporation.
(h) "COMPENSATION" shall mean, with respect to each Covered Individual,
the sum of (1) such Covered Individual's annual base salary and (2) such
Covered Individual's aggregate annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, in
each case under clauses (1) and (2) above determined separately based upon
the greater of the annual base salary or annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, as
applicable, paid at the rate in effect (A) immediately prior to the Change
in Control, (B) 60 days prior to the date of such Covered Individual's
Involuntary Termination, or (C) the date of such Covered Individual's
Involuntary Termination.
(i) "COVERED INDIVIDUAL" shall mean any individual who is participating
in the Second Supplemental Plan pursuant to Article III.
(j) "DEEMED CHANGE IN CONTROL" shall mean the consummation of the
transactions contemplated in that certain Agreement and Plan of Merger dated
as of June 14, 1999, by and among Illinova Corporation, Energy Convergence
Holding Company, Energy Convergence Acquisition Corporation, Dynegy
Acquisition Corporation, and the Company, as the same may be amended from
time to time.
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(k) "DISABILITY" shall mean a disability entitling a Covered Individual
to benefits under a group long-term disability plan maintained by the
Employer.
(l) "EFFECTIVE DATE" shall mean February 8, 1999.
(m) "EMPLOYER" shall mean the Company and each of its subsidiaries and
affiliates that is treated as an Employer in accordance with the provisions
of Section 5.2.
(n) "EMPLOYMENT AGREEMENT" shall mean an employment agreement, if any,
between the Employer and a Covered Individual.
(o) "ERISA" shall have the meaning assigned to such term in the Plan.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(q) "INVOLUNTARY TERMINATION" shall mean, with respect to each Covered
Individual, any termination of such Covered Individual's employment with the
Employer which:
(1) does not result from a voluntary resignation by such Covered
Individual (other than a resignation pursuant to clause (2) of this
Section 2.1(q)); or
(2) results from a resignation by such Covered Individual on or
before the date which is 60 days after the date the Covered Individual
receives notice of a Change in Terms of Service;
provided, however, that the term "Involuntary Termination" shall not
include a Termination for Cause or any termination as a result of such
Covered Individual's death or Disability.
(r) "PLAN" shall mean the Dynegy Inc. Severance Pay Plan, as amended
from time to time.
(s) "PLAN ADMINISTRATOR" shall have the meaning assigned to such term
in the Plan.
(t) "SECOND SUPPLEMENTAL PLAN" shall mean the Second Supplemental Plan
to the Dynegy Inc. Severance Pay Plan, as amended from time to time.
(u) "TERMINATION FOR CAUSE" shall mean (1) with respect to a Covered
Individual who has an Employment Agreement then in effect that defines the
term "cause," any termination of such Covered Individual's employment with
the Employer that the Committee determines constitutes "cause" under such
Employment Agreement, and (2) with respect to each other Covered Individual,
any termination of such Covered Individual's
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employment with the Employer based on a determination by the Committee that
such Covered Individual (A) has been convicted of a misdemeanor involving
moral turpitude or a felony, (B) has engaged in conduct which is materially
injurious (monetarily or otherwise) to the Employer or any of its affiliates
(including, without limitation, misuse of the Employer's or an affiliate's
funds or other property), (C) has engaged in gross negligence or willful
misconduct in the performance of such Covered Individual's duties, (D) has
willfully refused without proper legal reason to perform such Covered
Individual's duties and responsibilities, (E) has materially breached any
material provision of any agreement between the Employer and such Covered
Individual, or (F) has materially breached any material corporate policy
maintained and established by the Employer that is of general applicability
to Covered Individuals.
2.2 NUMBER AND GENDER. Wherever appropriate herein, a word used in the
singular shall be considered to include the plural and the plural to include the
singular. The masculine gender, where appearing in the Second Supplemental
Plan, shall be deemed to include the feminine gender.
2.3 HEADINGS. The headings of Articles and Sections herein are included
solely for convenience and if there is any conflict between such headings and
the text of the Second Supplemental Plan, the text shall control.
III. PARTICIPATION
3.1 PARTICIPATION. The Committee, in its sole discretion, may select any
management or highly compensated employee of the Employer for participation in
the Second Supplemental Plan as a Covered Individual. The Committee shall, at
the time determined by the Committee in its sole discretion, provide a written
notice to each individual who becomes a Covered Individual, which notice shall
specify the effective date upon which such individual became a Covered
Individual.
3.2 CESSATION OF PARTICIPATION. Within 60 days from and after the
expiration of the two-year period beginning on the date a Covered Individual
receives notice of his participation in the Second Supplemental Plan from the
Committee pursuant to Section 3.1, and within 60 days after each successive one-
year period of time thereafter that the Second Supplemental Plan is in effect,
the Committee shall have the right, in its sole discretion, to either continue
and extend such Covered Individual's participation in the Second Supplemental
Plan or terminate such Covered Individual's participation in the Second
Supplemental Plan. The Committee shall notify such Covered Individual of such
Committee action within the 60-day time period mentioned above. A Covered
Individual shall continue participation in the Second Supplemental Plan until
such participation is so terminated or the Second Supplemental Plan is
terminated pursuant to Section 5.3. Failure of the Committee to take any action
within said 60 days shall be considered as an extension of such Covered
Individual's right to participate in the Second Supplemental Plan for an
additional one-year period of time. Notwithstanding anything to the contrary
contained in this "sunset provision," if a Change in Control occurs while a
Covered Individual is a participant in the Second Supplemental Plan, then such
Covered Individual's participation in the Second Supplemental Plan shall not be
subject to termination under this "sunset provision," and such participation
shall continue for a period of two years after such Change in Control, and if
within said two years the contingency factors occur which
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would entitle such Covered Individual to the benefits as provided herein, then
the Second Supplemental Plan shall remain in effect with respect to such Covered
Individual in accordance with its terms. If, within such two years after a
Change in Control, the contingency factors that would entitle such Covered
Individual to said benefits do not occur, thereupon this "sunset provision"
shall again be applicable with the 60-day time period for action by the
Committee to thereafter commence at the expiration of said two years after such
Change in Control and on each anniversary date thereafter. Further, a Covered
Individual's participation in the Second Supplemental Plan may not be terminated
during any Chevron Holding Period, and to the extent that a 60-day period
referred to in this Section 3.2 occurs during any Chevron Holding Period and
such Chevron Holding Period ends under circumstances which do not result in a
Change in Control, such 60-day period shall be temporarily suspended and shall
recommence upon the expiration of such Chevron Holding Period.
IV. SEVERANCE BENEFITS
4.1 SEVERANCE BENEFITS. If the employment by the Employer or a successor
thereto of a Covered Individual shall be subject to an Involuntary Termination
that occurs on the date upon which a Change in Control occurs or within two
years thereafter (one year thereafter in the case of a Deemed Change in
Control), then such Covered Individual shall be entitled to receive, subject to
the provisions of Sections 4.2, 4.4, and 5.7, the following severance benefits:
(a) a lump sum cash payment in an amount equal to 100% of such Covered
Individual's Compensation, which amount shall be paid by the Employer to
such Covered Individual on or before the fifth day after such Involuntary
Termination;
(b) a lump sum cash payment (which shall be paid by the Employer at
the same time the payment described in Section 4.1(a) is paid) in an amount
equal to (1) the aggregate annual target opportunity under all applicable
cash bonus or incentive compensation plans or arrangements that could have
been earned by such Covered Individual for the fiscal year of the Company
during which such Involuntary Termination occurs (determined as if all
applicable goals and targets had been satisfied in full), multiplied by (2)
a fraction, the numerator of which is the number of days during the period
beginning on the first day of such fiscal year and ending on the date of
such Involuntary Termination, and the denominator of which is 365;
(c) all of the outstanding stock options and other equity based awards
granted by the Employer to such Covered Individual shall become fully
vested and immediately exercisable in full upon such Involuntary
Termination, and all of such stock options that do not constitute
incentive stock options within the meaning of Section 422 of the Code shall
remain exercisable for a period of three years thereafter or for such
greater period as may be provided in the plan(s) or option agreement(s)
pursuant to which such stock options were granted (but in no event shall
any such stock option be exercisable after the expiration of the original
term of such stock option);
(d) such Covered Individual and those of his dependents (including his
spouse) who were covered under the medical and life insurance benefit plans
maintained by the
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Employer on the day prior to such Involuntary Termination shall continue to
be covered under such plans throughout the 12-month period beginning on the
date of such Involuntary Termination at a cost to such Covered Individual
that is no greater than the lesser of (1) the cost of such coverage paid by
such Covered Individual immediately prior to such Involuntary Termination
or (2) the cost of such coverage paid by such Covered Individual
immediately prior to the Change in Control; provided, however, that
coverage under a particular medical or life insurance benefit plan shall
immediately end upon such Covered Individual's obtainment of new employment
and coverage under a similar welfare benefit plan maintained by such
Covered Individual's new employer (with such Covered Individual being
obligated hereunder to promptly report such new coverage to the Company).
Nothing herein shall be deemed to adversely affect in any way the
additional rights, after consideration of this extension period, of such
Covered Individual and his eligible dependents to health care continuation
coverage as required pursuant to Part 6 of Title I of ERISA; and
(e) out-placement services in connection with obtaining new employment
up to a maximum cost of $10,000 (which shall be paid directly by the
Employer to the provider of such services).
4.2 MITIGATION; BENEFITS UNDER EMPLOYMENT AGREEMENT. Except as provided
in Section 4.1(d), a Covered Individual shall not be required to mitigate the
amount of any payment or benefit provided for in this Article IV by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Article IV be reduced by any compensation or benefit earned
by the Covered Individual as the result of employment by another employer or by
retirement benefits. The benefits under the Second Supplemental Plan are in
addition to any other benefits to which a Covered Individual is otherwise
entitled; provided, however, that (a) the benefits under the Second Supplemental
Plan are not intended to duplicate the benefits to which a Covered Individual is
entitled under an Employment Agreement and (b) a Covered Individual who is
entitled to receive benefits under the Second Supplemental Plan shall not be
eligible to receive any benefits under the Plan, any other supplement thereto,
or any other severance benefit plan maintained by the Company or any of its
affiliates. Nothing herein is intended to reduce any provision of a Covered
Individual's Employment Agreement to the extent that greater severance benefits
are provided for in such Employment Agreement than under the Second Supplemental
Plan. In other words, a Covered Individual with an Employment Agreement in
effect as of the date of his termination of employment shall be entitled to
either the severance benefits specified in the Second Supplemental Plan or in
such Employment Agreement, whichever provides the greater benefit on a
provision-by-provision basis.
4.3 INTEREST ON LATE PAYMENTS. If any cash payment provided for in Section
4.1 is not made when due, the Employer shall pay to the Covered Individual
interest on the amount payable from the date that such payment should have been
made under such Section until such payment is made, which interest shall be
calculated at the rate of 1% per month (with a partial month counting as a full
month).
4.4 PARACHUTE PAYMENTS. Anything to the contrary herein notwithstanding,
if a Covered Individual is a "disqualified individual" (as defined in Section
280G(c) of the Code), and the
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severance benefits provided for in Section 4.1, together with any other payments
or benefits which the Covered Individual has the right to receive from the
Employer, would constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Code), then the severance benefits provided hereunder
(beginning with any benefit to be paid in cash hereunder) shall be either (a)
reduced (but not below zero) so that the present value of such total amounts
received by the Covered Individual from the Employer will be one dollar ($1.00)
less than three times the Covered Individual's "base amount" (as defined in
Section 280G of the Code) and so that no portion of such amounts received by the
Covered Individual shall be subject to the excise tax imposed by Section 4999 of
the Code or (b) paid in full, whichever produces the better net after-tax
position to the Covered Individual (taking into account any applicable excise
tax under Section 4999 of the Code and any applicable income tax). The
determination as to whether any such reduction in the amount of the severance
benefits is necessary shall be made by the Committee in good faith. If a reduced
cash payment is made and through error or otherwise that payment, when
aggregated with other payments from the Employer (or its affiliates) used in
determining if a "parachute payment" exists, exceeds one dollar ($1.00) less
than three times the Covered Individual's base amount, the Covered Individual
shall immediately repay such excess to the Employer upon notification that an
overpayment has been made. Nothing in this Section shall require the Employer to
be responsible for, or have any liability or obligation with respect to, any
Covered Individual's excise tax liabilities under Section 4999 of the Code.
V. GENERAL PROVISIONS
5.1 RELATIONSHIP OF THE SECOND SUPPLEMENTAL PLAN TO THE PLAN. The Second
Supplemental Plan and the severance benefits described herein shall be subject
to all of the terms and conditions of the Plan, including, without limitation,
the administrative provisions of the Plan; provided, however, that (a) the
provisions of Section III of the Plan (relating to eligibility), Section IV.E.
of the Plan (relating to rehired employees), and all provisions of the Plan
relating to the execution and delivery of a release as a condition to the
receipt of severance benefits shall not apply to the Second Supplemental Plan,
(b) the amount of the cash severance payment to be provided under the Second
Supplemental Plan shall be determined pursuant to Article IV hereof rather than
Section IV.A. of the Plan, (c) the Committee (rather than the Plan
Administrator) shall have the powers (including administrative powers) granted
to the Committee hereunder, and (d) should an inconsistency or conflict exist
between the specific terms of the Second Supplemental Plan and those of the
Plan, then the relevant terms of the Second Supplemental Plan shall govern and
control.
5.2 OTHER PARTICIPATING EMPLOYERS. Subject to the provisions of Section
5.3, each subsidiary and affiliate of the Company that participates in the Plan
shall participate in the Second Supplemental Plan as an Employer. The
provisions of the Second Supplemental Plan shall be applicable with respect to
each Employer separately, and amounts payable hereunder shall be paid by the
Employer which employs the particular Covered Individual; provided, however,
that the determination of whether a Change in Control has occurred shall be made
based solely on Dynegy Inc.
5.3 AMENDMENT AND TERMINATION. The Second Supplemental Plan may not be
amended, terminated, or discontinued except as provided in this Section 5.3 or
in Section 5.7. For
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purposes of this Section 5.3, the termination of an Employer's participation in
the Plan (and, accordingly, but for the provisions of this Section 5.3, the
termination of such Employer's participation in the Second Supplemental Plan
pursuant to Section 5.2) shall be deemed to be an amendment to the Second
Supplemental Plan, but the commencement of participation by an Employer in the
Plan (and, accordingly, participation by such Employer in the Second
Supplemental Plan pursuant to Section 5.2) shall not be considered an amendment
to the Second Supplemental Plan. Within 60 days from and after the expiration of
the two-year period beginning on the Effective Date and within 60 days after
each successive one-year period of time thereafter that the Second Supplemental
Plan is in effect, the Board shall have the right to review the Second
Supplemental Plan, and, in its sole discretion, to either continue and extend
the Second Supplemental Plan, terminate the Second Supplemental Plan, and/or
amend the Second Supplemental Plan in any manner determined by the Board. The
Second Supplemental Plan shall remain in effect until so terminated and/or
amended by the Board. Failure of the Board to take any action within said 60
days shall be considered as an extension of the Second Supplemental Plan for an
additional one-year period of time. Notwithstanding anything to the contrary
contained in this "sunset provision," if a Change in Control occurs while the
Second Supplemental Plan is in effect, then the Second Supplemental Plan shall
not be subject to termination or amendment under this "sunset provision," and
the Second Supplemental Plan shall remain in force for a period of two years
after such Change in Control, and if within said two years the contingency
factors occur which would entitle a Covered Individual to the benefits as
provided herein, then the Second Supplemental Plan shall remain in effect with
respect to such Covered Individual in accordance with its terms. If, within such
two years after a Change in Control, the contingency factors that would entitle
a Covered Individual to said benefits do not occur, thereupon this "sunset
provision" shall again be applicable with the 60-day time period for action by
the Board to thereafter commence at the expiration of said two years after such
Change in Control and on each anniversary date thereafter. Further, the Second
Supplemental Plan may not be terminated or amended during any Chevron Holding
Period, and to the extent that a 60-day period referred to in this Section 5.3
occurs during any Chevron Holding Period and such Chevron Holding Period ends
under circumstances which do not result in a Change in Control, such 60-day
period shall be temporarily suspended and shall recommence upon the expiration
of such Chevron Holding Period.
5.4 CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Second
Supplemental Plan shall not be deemed to be a contract of employment between the
Employer and any person or to be consideration for the employment of any person.
Nothing herein contained shall be deemed to (a) give any person the right to be
retained in the employ of the Employer, (b) restrict the right of the Employer
to discharge any person at any time, (c) give the Employer the right to require
any person to remain in the employ of the Employer, or (d) restrict any person's
right to terminate his employment at any time.
5.5 INDEMNIFICATION. If a Covered Individual shall obtain any money
judgment or otherwise prevail with respect to any litigation brought by such
Covered Individual or the Employer to enforce or interpret any provision
contained herein, the Employer, to the fullest extent permitted by applicable
law, hereby indemnifies such Covered Individual for his reasonable attorneys'
fees and disbursements incurred in such litigation and hereby agrees (a) to pay
in full all such fees and disbursements and (b) to pay prejudgment interest on
any money judgment obtained by such
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Covered Individual from the earliest date that payment to such Covered
Individual should have been made under the Second Supplemental Plan until such
judgment shall have been paid in full, which interest shall be calculated at the
rate of 1% per month (with a partial month counting as a full month).
5.6 PAYMENT OBLIGATIONS ABSOLUTE. Subject to the provisions of Section 5.7,
the Employer's obligation to pay a Covered Individual the amounts and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any set-
off, counterclaim, recoupment, defense or other right which the Employer or any
of its subsidiaries may have against such Covered Individual or anyone else. All
amounts payable by the Employer shall be paid without notice or demand.
5.7 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision of
the Second Supplemental Plan to the contrary, in the event the consummation of a
Change in Control is contingent on using the pooling of interests accounting
methodology, the Board may make any modifications to the Second Supplemental
Plan to the extent necessary to preserve the use of pooling of interests
accounting, including, without limitation, any modification resulting in a
reduction of the benefits to be paid or provided hereunder to any Covered
Individual.
5.8 WITHHOLDING. Any benefits paid or provided pursuant to the Second
Supplemental Plan shall be subject to any required tax withholding.
5.9 SEVERABILITY. Any provision in the Second Supplemental Plan that is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
5.10 EFFECT OF SECOND SUPPLEMENTAL PLAN. Except for benefits provided under
an Employment Agreement, the Second Supplemental Plan is intended to supersede
all prior oral or written policies of the Employer and all prior oral or written
communications to Covered Individuals with respect to the subject matter hereof,
and all such prior policies or communications are hereby null and void and of no
further force and effect. Further, the Second Supplemental Plan shall be binding
upon the Employer and any successor of the Employer, by merger or otherwise, and
shall inure to the benefit of and be enforceable by the Employer's Covered
Individuals. Any benefits paid or provided pursuant to the Second Supplemental
Plan shall be deemed to be a severance payment and not "compensation" for
purposes of determining benefits under the Employer's qualified plans (unless
and to the extent that any such qualified plan expressly provides otherwise).
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EXECUTED this ______ day of ___________________, 1999.
DYNEGY INC.
By:
--------------------------------
Michael B. Barton
Vice President of Human Resources
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EXHIBIT 10.12
THIRD SUPPLEMENTAL PLAN TO THE
DYNEGY INC. SEVERANCE PAY PLAN
I. INTRODUCTION
Dynegy Inc., a Delaware corporation (the "Company"), and its participating
subsidiaries and affiliated entities have heretofore established the Dynegy Inc.
Severance Pay Plan (the "Plan"). The Plan specifically contemplates that
certain plans may be designated as supplements to the Plan. This Third
Supplemental Plan to the Dynegy Inc. Severance Pay Plan (the "Third Supplemental
Plan") is hereby established as a supplement to the Plan on behalf of the
Company and all of its subsidiaries and affiliates that participate in the Plan.
The Third Supplemental Plan is intended to provide severance benefits to certain
selected officers and directors whose employment is terminated on or after the
date upon which a change in control of the Company occurs. Such severance
benefits shall be in lieu of the severance benefits, if any, that would
otherwise be provided under the Plan upon such termination of employment.
II. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following words and phrases appear in the Third
Supplemental Plan, they shall have the respective meanings set forth below,
unless their context clearly indicates to the contrary.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(1) any "person" or "group" (as defined in or contemplated by
Section 13(d)(3) or 14(d)(2) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting stock of
the Company;
(2) the Company is merged with or into or consolidated with
another person and, immediately after giving effect to 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 13d-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 or contemplated by Section 13(d)(3) or 14(d)(2) of the
Exchange Act) is or has become the direct or indirect "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than
50% of the voting power of the voting stock of the surviving or
resulting person;
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(3) 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
(4) the liquidation or dissolution of the Company;
provided, however, that a "Change in Control" shall be deemed to have not
occurred if Chevron Corporation or its subsidiaries and/or affiliates own,
directly or indirectly, more than 50% of the total voting stock of the
Company, so long as (i) Chevron Corporation, its subsidiaries or affiliates
reduce their interest to less than a 50% interest either (x) within six
months after the date they acquire a greater than 50% interest, or (y)
within an extended period of up to two years after the date they acquire a
greater than 50% interest if such extension is approved by the affirmative
vote of at least 11 members of the Board (or such lesser or greater number
of directors as may be required by Section 3.10(b) of the Company's Bylaws
as such may be amended from time to time) prior to the end of the six-month
period specified in clause (x) of this proviso, and (ii) Chevron
Corporation does not materially alter the operations or management of the
Company during such six-month or extended period. In addition to the
foregoing, a "Change in Control" shall be deemed to have occurred for all
purposes of the Third Supplemental Plan (other than Sections 3.2 and 5.3)
upon the occurrence of a Deemed Change in Control.
(c) "CHANGE IN TERMS OF SERVICE" shall mean, the occurrence, on the
date upon which a Change in Control occurs or within two years thereafter
(one year thereafter in the case of a Deemed Change in Control), of any one
or more of the following:
(1) a significant reduction in the nature or scope of a Covered
Individual's authorities or duties from those applicable to such
Covered Individual immediately prior to the date on which a Change in
Control occurs;
(2) a reduction in a Covered Individual's annual base salary or
target opportunity under any applicable bonus or incentive compensation
plan or arrangement from that provided to such Covered Individual
immediately prior to the date on which a Change in Control occurs;
(3) a diminution in a Covered Individual's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans which provide opportunities to receive compensation
which are the greater of (A) the opportunities provided by the Employer
(including its subsidiaries) for officers or directors, as applicable,
with comparable duties or (B) the opportunities under any such plans
under which such Covered Individual was participating immediately prior
to the date on which a Change in Control occurs;
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(4) a diminution in benefits (including but not limited to
medical, dental, life insurance, and long-term disability plans) and
perquisites applicable to such Covered Individual from the greater of
(A) the benefits and perquisites provided by the Employer (including
its subsidiaries) to officers or directors, as applicable, with
comparable duties or (B) the benefits and perquisites to which such
Covered Individual was entitled immediately prior to the date on which
a Change in Control occurs; or
(5) a change in the location of a Covered Individual's principal
place of employment by the Employer by more than 50 miles from the
location where he was principally employed immediately prior to the
date on which a Change in Control occurs.
(d) "CHEVRON HOLDING PERIOD" shall mean any period during which a
Change in Control is deemed to have not occurred solely pursuant to the
provisions of Section 2.1(b) relating to the ownership, directly or
indirectly, of more than 50% of the total voting stock of the Company by
Chevron Corporation or its subsidiaries and/or affiliates.
(e) "CODE" shall have the meaning assigned to such term in the Plan.
(f) "COMMITTEE" shall mean the Compensation and Human Resources
Committee of the Board.
(g) "COMPANY" shall mean Dynegy Inc., a Delaware corporation.
(h) "COMPENSATION" shall mean, with respect to each Covered Individual,
the sum of (1) such Covered Individual's annual base salary and (2) such
Covered Individual's aggregate annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, in
each case under clauses (1) and (2) above determined separately based upon
the greater of the annual base salary or annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, as
applicable, paid at the rate in effect (A) immediately prior to the Change
in Control, (B) 60 days prior to the date of such Covered Individual's
Involuntary Termination, or (C) the date of such Covered Individual's
Involuntary Termination.
(i) "COVERED INDIVIDUAL" shall mean any individual who is participating
in the Third Supplemental Plan pursuant to Article III.
(j) "DEEMED CHANGE IN CONTROL" shall mean the consummation of the
transactions contemplated in that certain Agreement and Plan of Merger dated
as of June 14, 1999, by and among Illinova Corporation, Energy Convergence
Holding Company, Energy Convergence Acquisition Corporation, Dynegy
Acquisition Corporation, and the Company, as the same may be amended from
time to time.
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(k) "DISABILITY" shall mean a disability entitling a Covered Individual
to benefits under a group long-term disability plan maintained by the
Employer.
(l) "EFFECTIVE DATE" shall mean February 8, 1999.
(m) "EMPLOYER" shall mean the Company and each of its subsidiaries and
affiliates that is treated as an Employer in accordance with the provisions
of Section 5.2.
(n) "EMPLOYMENT AGREEMENT" shall mean an employment agreement, if any,
between the Employer and a Covered Individual.
(o) "ERISA" shall have the meaning assigned to such term in the Plan.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(q) "INVOLUNTARY TERMINATION" shall mean, with respect to each Covered
Individual, any termination of such Covered Individual's employment with the
Employer which:
(1) does not result from a voluntary resignation by such Covered
Individual (other than a resignation pursuant to clause (2) of this
Section 2.1(q)); or
(2) results from a resignation by such Covered Individual on or
before the date which is 60 days after the date the Covered Individual
receives notice of a Change in Terms of Service;
provided, however, that the term "Involuntary Termination" shall not
include a Termination for Cause or any termination as a result of such
Covered Individual's death or Disability.
(r) "PLAN" shall mean the Dynegy Inc. Severance Pay Plan, as amended
from time to time.
(s) "PLAN ADMINISTRATOR" shall have the meaning assigned to such term
in the Plan.
(t) "TERMINATION FOR CAUSE" shall mean (1) with respect to a Covered
Individual who has an Employment Agreement then in effect that defines the
term "cause," any termination of such Covered Individual's employment with
the Employer that the Committee determines constitutes "cause" under such
Employment Agreement, and (2) with respect to each other Covered Individual,
any termination of such Covered Individual's employment with the Employer
based on a determination by the Committee that such Covered Individual (A)
has been convicted of a misdemeanor involving moral turpitude or a felony,
(B) has engaged in conduct which is materially injurious (monetarily or
otherwise) to the Employer or any of its affiliates (including, without
limitation, misuse of the
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Employer's or an affiliate's funds or other property), (C) has engaged in
gross negligence or willful misconduct in the performance of such Covered
Individual's duties, (D) has willfully refused without proper legal reason
to perform such Covered Individual's duties and responsibilities, (E) has
materially breached any material provision of any agreement between the
Employer and such Covered Individual, or (F) has materially breached any
material corporate policy maintained and established by the Employer that is
of general applicability to Covered Individuals.
(u) "THIRD SUPPLEMENTAL PLAN" shall mean the Third Supplemental Plan to
the Dynegy Inc. Severance Pay Plan, as amended from time to time.
2.2 NUMBER AND GENDER. Wherever appropriate herein, a word used in the
singular shall be considered to include the plural and the plural to include the
singular. The masculine gender, where appearing in the Third Supplemental Plan,
shall be deemed to include the feminine gender.
2.3 HEADINGS. The headings of Articles and Sections herein are included
solely for convenience and if there is any conflict between such headings and
the text of the Third Supplemental Plan, the text shall control.
III. PARTICIPATION
3.1 PARTICIPATION. The Committee, in its sole discretion, may select any
management or highly compensated employee of the Employer for participation in
the Third Supplemental Plan as a Covered Individual. The Committee shall, at
the time determined by the Committee in its sole discretion, provide a written
notice to each individual who becomes a Covered Individual, which notice shall
specify the effective date upon which such individual became a Covered
Individual.
3.2 CESSATION OF PARTICIPATION. Within 60 days from and after the
expiration of the two-year period beginning on the date a Covered Individual
receives notice of his participation in the Third Supplemental Plan from the
Committee pursuant to Section 3.1, and within 60 days after each successive one-
year period of time thereafter that the Third Supplemental Plan is in effect,
the Committee shall have the right, in its sole discretion, to either continue
and extend such Covered Individual's participation in the Third Supplemental
Plan or terminate such Covered Individual's participation in the Third
Supplemental Plan. The Committee shall notify such Covered Individual of such
Committee action within the 60-day time period mentioned above. A Covered
Individual shall continue participation in the Third Supplemental Plan until
such participation is so terminated or the Third Supplemental Plan is terminated
pursuant to Section 5.3. Failure of the Committee to take any action within
said 60 days shall be considered as an extension of such Covered Individual's
right to participate in the Third Supplemental Plan for an additional one-year
period of time. Notwithstanding anything to the contrary contained in this
"sunset provision," if a Change in Control occurs while a Covered Individual is
a participant in the Third Supplemental Plan, then such Covered Individual's
participation in the Third Supplemental Plan shall not be subject to termination
under this "sunset provision," and such participation shall continue for a
period of two years after such Change in Control, and if within said two years
the contingency factors occur which would entitle such Covered Individual to the
benefits as provided herein, then the Third Supplemental Plan
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shall remain in effect with respect to such Covered Individual in accordance
with its terms. If, within such two years after a Change in Control, the
contingency factors that would entitle such Covered Individual to said benefits
do not occur, thereupon this "sunset provision" shall again be applicable with
the 60-day time period for action by the Committee to thereafter commence at the
expiration of said two years after such Change in Control and on each
anniversary date thereafter. Further, a Covered Individual's participation in
the Third Supplemental Plan may not be terminated during any Chevron Holding
Period, and to the extent that a 60-day period referred to in this Section 3.2
occurs during any Chevron Holding Period and such Chevron Holding Period ends
under circumstances which do not result in a Change in Control, such 60-day
period shall be temporarily suspended and shall recommence upon the expiration
of such Chevron Holding Period.
IV. SEVERANCE BENEFITS
4.1 SEVERANCE BENEFITS. If the employment by the Employer or a successor
thereto of a Covered Individual shall be subject to an Involuntary Termination
that occurs on the date upon which a Change in Control occurs or within two
years thereafter (one year thereafter in the case of a Deemed Change in
Control), then such Covered Individual shall be entitled to receive, subject to
the provisions of Sections 4.2, 4.4, and 5.7, the following severance benefits:
(a) a lump sum cash payment in an amount equal to 150% of such Covered
Individual's Compensation, which amount shall be paid by the Employer to
such Covered Individual on or before the fifth day after such Involuntary
Termination;
(b) a lump sum cash payment (which shall be paid by the Employer at
the same time the payment described in Section 4.1(a) is paid) in an amount
equal to (1) the aggregate annual target opportunity under all applicable
cash bonus or incentive compensation plans or arrangements that could have
been earned by such Covered Individual for the fiscal year of the Company
during which such Involuntary Termination occurs (determined as if all
applicable goals and targets had been satisfied in full), multiplied by (2)
a fraction, the numerator of which is the number of days during the period
beginning on the first day of such fiscal year and ending on the date of
such Involuntary Termination, and the denominator of which is 365;
(c) all of the outstanding stock options and other equity based awards
granted by the Employer to such Covered Individual shall become fully
vested and immediately exercisable in full upon such Involuntary
Termination, and all of such stock options that do not constitute
incentive stock options within the meaning of Section 422 of the Code shall
remain exercisable for a period of three years thereafter or for such
greater period as may be provided in the plan(s) or option agreement(s)
pursuant to which such stock options were granted (but in no event shall
any such stock option be exercisable after the expiration of the original
term of such stock option);
(d) such Covered Individual and those of his dependents (including his
spouse) who were covered under the medical and life insurance benefit plans
maintained by the Employer on the day prior to such Involuntary Termination
shall continue to be covered
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under such plans throughout the 18-month period beginning on the date of
such Involuntary Termination at a cost to such Covered Individual that is
no greater than the lesser of (1) the cost of such coverage paid by such
Covered Individual immediately prior to such Involuntary Termination or (2)
the cost of such coverage paid by such Covered Individual immediately prior
to the Change in Control; provided, however, that coverage under a
particular medical or life insurance benefit plan shall immediately end
upon such Covered Individual's obtainment of new employment and coverage
under a similar welfare benefit plan maintained by such Covered
Individual's new employer (with such Covered Individual being obligated
hereunder to promptly report such new coverage to the Company). Nothing
herein shall be deemed to adversely affect in any way the additional
rights, after consideration of this extension period, of such Covered
Individual and his eligible dependents to health care continuation coverage
as required pursuant to Part 6 of Title I of ERISA; and
(e) out-placement services in connection with obtaining new employment
up to a maximum cost of $10,000 (which shall be paid directly by the
Employer to the provider of such services).
4.2 MITIGATION; BENEFITS UNDER EMPLOYMENT AGREEMENT. Except as provided
in Section 4.1(d), a Covered Individual shall not be required to mitigate the
amount of any payment or benefit provided for in this Article IV by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Article IV be reduced by any compensation or benefit earned
by the Covered Individual as the result of employment by another employer or by
retirement benefits. The benefits under the Third Supplemental Plan are in
addition to any other benefits to which a Covered Individual is otherwise
entitled; provided, however, that (a) the benefits under the Third Supplemental
Plan are not intended to duplicate the benefits to which a Covered Individual is
entitled under an Employment Agreement and (b) a Covered Individual who is
entitled to receive benefits under the Third Supplemental Plan shall not be
eligible to receive any benefits under the Plan, any other supplement thereto,
or any other severance benefit plan maintained by the Company or any of its
affiliates. Nothing herein is intended to reduce any provision of a Covered
Individual's Employment Agreement to the extent that greater severance benefits
are provided for in such Employment Agreement than under the Third Supplemental
Plan. In other words, a Covered Individual with an Employment Agreement in
effect as of the date of his termination of employment shall be entitled to
either the severance benefits specified in the Third Supplemental Plan or in
such Employment Agreement, whichever provides the greater benefit on a
provision-by-provision basis.
4.3 INTEREST ON LATE PAYMENTS. If any cash payment provided for in Section
4.1 is not made when due, the Employer shall pay to the Covered Individual
interest on the amount payable from the date that such payment should have been
made under such Section until such payment is made, which interest shall be
calculated at the rate of 1% per month (with a partial month counting as a full
month).
4.4 PARACHUTE PAYMENTS. Anything to the contrary herein notwithstanding,
if a Covered Individual is a "disqualified individual" (as defined in Section
280G(c) of the Code), and the severance benefits provided for in Section 4.1,
together with any other payments or benefits which the Covered Individual has
the right to receive from the Employer, would constitute a "parachute
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payment" (as defined in Section 280G(b)(2) of the Code), then the severance
benefits provided hereunder (beginning with any benefit to be paid in cash
hereunder) shall be either (a) reduced (but not below zero) so that the present
value of such total amounts received by the Covered Individual from the Employer
will be one dollar ($1.00) less than three times the Covered Individual's "base
amount" (as defined in Section 280G of the Code) and so that no portion of such
amounts received by the Covered Individual shall be subject to the excise tax
imposed by Section 4999 of the Code or (b) paid in full, whichever produces the
better net after-tax position to the Covered Individual (taking into account any
applicable excise tax under Section 4999 of the Code and any applicable income
tax). The determination as to whether any such reduction in the amount of the
severance benefits is necessary shall be made by the Committee in good faith. If
a reduced cash payment is made and through error or otherwise that payment, when
aggregated with other payments from the Employer (or its affiliates) used in
determining if a "parachute payment" exists, exceeds one dollar ($1.00) less
than three times the Covered Individual's base amount, the Covered Individual
shall immediately repay such excess to the Employer upon notification that an
overpayment has been made. Nothing in this Section shall require the Employer to
be responsible for, or have any liability or obligation with respect to, any
Covered Individual's excise tax liabilities under Section 4999 of the Code.
V. GENERAL PROVISIONS
5.1 RELATIONSHIP OF THE THIRD SUPPLEMENTAL PLAN TO THE PLAN. The Third
Supplemental Plan and the severance benefits described herein shall be subject
to all of the terms and conditions of the Plan, including, without limitation,
the administrative provisions of the Plan; provided, however, that (a) the
provisions of Section III of the Plan (relating to eligibility), Section IV.E.
of the Plan (relating to rehired employees), and all provisions of the Plan
relating to the execution and delivery of a release as a condition to the
receipt of severance benefits shall not apply to the Third Supplemental Plan,
(b) the amount of the cash severance payment to be provided under the Third
Supplemental Plan shall be determined pursuant to Article IV hereof rather than
Section IV.A. of the Plan, (c) the Committee (rather than the Plan
Administrator) shall have the powers (including administrative powers) granted
to the Committee hereunder, and (d) should an inconsistency or conflict exist
between the specific terms of the Third Supplemental Plan and those of the Plan,
then the relevant terms of the Third Supplemental Plan shall govern and control.
5.2 OTHER PARTICIPATING EMPLOYERS. Subject to the provisions of Section
5.3, each subsidiary and affiliate of the Company that participates in the Plan
shall participate in the Third Supplemental Plan as an Employer. The provisions
of the Third Supplemental Plan shall be applicable with respect to each Employer
separately, and amounts payable hereunder shall be paid by the Employer which
employs the particular Covered Individual; provided, however, that the
determination of whether a Change in Control has occurred shall be made based
solely on Dynegy Inc.
5.3 AMENDMENT AND TERMINATION. The Third Supplemental Plan may not be
amended, terminated, or discontinued except as provided in this Section 5.3 or
in Section 5.7. For purposes of this Section 5.3, the termination of an
Employer's participation in the Plan (and, accordingly, but for the provisions
of this Section 5.3, the termination of such Employer's participation in the
Third
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Supplemental Plan pursuant to Section 5.2) shall be deemed to be an amendment to
the Third Supplemental Plan, but the commencement of participation by an
Employer in the Plan (and, accordingly, participation by such Employer in the
Third Supplemental Plan pursuant to Section 5.2) shall not be considered an
amendment to the Third Supplemental Plan. Within 60 days from and after the
expiration of the two-year period beginning on the Effective Date and within 60
days after each successive one-year period of time thereafter that the Third
Supplemental Plan is in effect, the Board shall have the right to review the
Third Supplemental Plan, and, in its sole discretion, to either continue and
extend the Third Supplemental Plan, terminate the Third Supplemental Plan,
and/or amend the Third Supplemental Plan in any manner determined by the Board.
The Third Supplemental Plan shall remain in effect until so terminated and/or
amended by the Board. Failure of the Board to take any action within said 60
days shall be considered as an extension of the Third Supplemental Plan for an
additional one-year period of time. Notwithstanding anything to the contrary
contained in this "sunset provision," if a Change in Control occurs while the
Third Supplemental Plan is in effect, then the Third Supplemental Plan shall not
be subject to termination or amendment under this "sunset provision," and the
Third Supplemental Plan shall remain in force for a period of two years after
such Change in Control, and if within said two years the contingency factors
occur which would entitle a Covered Individual to the benefits as provided
herein, then the Third Supplemental Plan shall remain in effect with respect to
such Covered Individual in accordance with its terms. If, within such two years
after a Change in Control, the contingency factors that would entitle a Covered
Individual to said benefits do not occur, thereupon this "sunset provision"
shall again be applicable with the 60-day time period for action by the Board to
thereafter commence at the expiration of said two years after such Change in
Control and on each anniversary date thereafter. Further, the Third Supplemental
Plan may not be terminated or amended during any Chevron Holding Period, and to
the extent that a 60-day period referred to in this Section 5.3 occurs during
any Chevron Holding Period and such Chevron Holding Period ends under
circumstances which do not result in a Change in Control, such 60-day period
shall be temporarily suspended and shall recommence upon the expiration of such
Chevron Holding Period.
5.4 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Third
Supplemental Plan shall not be deemed to be a contract of employment between the
Employer and any person or to be consideration for the employment of any person.
Nothing herein contained shall be deemed to (a) give any person the right to be
retained in the employ of the Employer, (b) restrict the right of the Employer
to discharge any person at any time, (c) give the Employer the right to require
any person to remain in the employ of the Employer, or (d) restrict any person's
right to terminate his employment at any time.
5.5 INDEMNIFICATION. If a Covered Individual shall obtain any money
judgment or otherwise prevail with respect to any litigation brought by such
Covered Individual or the Employer to enforce or interpret any provision
contained herein, the Employer, to the fullest extent permitted by applicable
law, hereby indemnifies such Covered Individual for his reasonable attorneys'
fees and disbursements incurred in such litigation and hereby agrees (a) to pay
in full all such fees and disbursements and (b) to pay prejudgment interest on
any money judgment obtained by such Covered Individual from the earliest date
that payment to such Covered Individual should have been made under the Third
Supplemental Plan until such judgment shall have been paid in full, which
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interest shall be calculated at the rate of 1% per month (with a partial month
counting as a full month).
5.6 PAYMENT OBLIGATIONS ABSOLUTE. Subject to the provisions of Section 5.7,
the Employer's obligation to pay a Covered Individual the amounts and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any set-
off, counterclaim, recoupment, defense or other right which the Employer or any
of its subsidiaries may have against such Covered Individual or anyone else. All
amounts payable by the Employer shall be paid without notice or demand.
5.7 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision of
the Third Supplemental Plan to the contrary, in the event the consummation of a
Change in Control is contingent on using the pooling of interests accounting
methodology, the Board may make any modifications to the Third Supplemental Plan
to the extent necessary to preserve the use of pooling of interests accounting,
including, without limitation, any modification resulting in a reduction of the
benefits to be paid or provided hereunder to any Covered Individual.
5.8 WITHHOLDING. Any benefits paid or provided pursuant to the Third
Supplemental Plan shall be subject to any required tax withholding.
5.9 SEVERABILITY. Any provision in the Third Supplemental Plan that is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
5.10 EFFECT OF THIRD SUPPLEMENTAL PLAN. Except for benefits provided under
an Employment Agreement, the Third Supplemental Plan is intended to supersede
all prior oral or written policies of the Employer and all prior oral or written
communications to Covered Individuals with respect to the subject matter hereof,
and all such prior policies or communications are hereby null and void and of no
further force and effect. Further, the Third Supplemental Plan shall be binding
upon the Employer and any successor of the Employer, by merger or otherwise, and
shall inure to the benefit of and be enforceable by the Employer's Covered
Individuals. Any benefits paid or provided pursuant to the Third Supplemental
Plan shall be deemed to be a severance payment and not "compensation" for
purposes of determining benefits under the Employer's qualified plans (unless
and to the extent that any such qualified plan expressly provides otherwise).
EXECUTED this ______ day of ___________________, 1999.
DYNEGY INC.
By:
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Michael B. Barton
Vice President of Human Resources
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EXHIBIT 10.13
FOURTH SUPPLEMENTAL PLAN TO THE
DYNEGY INC. SEVERANCE PAY PLAN
I. INTRODUCTION
Dynegy Inc., a Delaware corporation (the "Company"), and its participating
subsidiaries and affiliated entities have heretofore established the Dynegy Inc.
Severance Pay Plan (the "Plan"). The Plan specifically contemplates that
certain plans may be designated as supplements to the Plan. This Fourth
Supplemental Plan to the Dynegy Inc. Severance Pay Plan (the "Fourth
Supplemental Plan") is hereby established as a supplement to the Plan on behalf
of the Company and all of its subsidiaries and affiliates that participate in
the Plan. The Fourth Supplemental Plan is intended to provide severance
benefits to certain selected officers whose employment is terminated in
connection with, in contemplation of, or on or after the date upon which occurs
a change in control of the Company. Such severance benefits shall be in lieu of
the severance benefits, if any, that would otherwise be provided under the Plan
upon such termination of employment.
II. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following words and phrases appear in the Fourth
Supplemental Plan, they shall have the respective meanings set forth below,
unless their context clearly indicates to the contrary.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(1) any "person" or "group" (as defined in or contemplated by
Section 13(d)(3) or 14(d)(2) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting stock of
the Company;
(2) the Company is merged with or into or consolidated with
another person and, immediately after giving effect to 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 13d-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 or contemplated by Section 13(d)(3) or 14(d)(2) of the
Exchange Act) is or has become the direct or indirect "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than
50% of the voting power of the voting stock of the surviving or
resulting person;
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(3) 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
(4) the liquidation or dissolution of the Company;
provided, however, that a "Change in Control" shall be deemed to have not
occurred if Chevron Corporation or its subsidiaries and/or affiliates own,
directly or indirectly, more than 50% of the total voting stock of the
Company, so long as (i) Chevron Corporation, its subsidiaries or affiliates
reduce their interest to less than a 50% interest either (x) within six
months after the date they acquire a greater than 50% interest, or (y)
within an extended period of up to two years after the date they acquire a
greater than 50% interest if such extension is approved by the affirmative
vote of at least 11 members of the Board (or such lesser or greater number
of directors as may be required by Section 3.10(b) of the Company's Bylaws
as such may be amended from time to time) prior to the end of the six-month
period specified in clause (x) of this proviso, and (ii) Chevron
Corporation does not materially alter the operations or management of the
Company during such six-month or extended period. In addition to the
foregoing, a "Change in Control" shall be deemed to have occurred for all
purposes of the Fourth Supplemental Plan (other than Sections 3.2 and 5.3)
upon the occurrence of a Deemed Change in Control.
(c) "CHANGE IN TERMS OF SERVICE" shall mean, the occurrence, on the
date upon which a Change in Control occurs or within two years thereafter
(one year thereafter in the case of a Deemed Change in Control), of any one
or more of the following:
(1) a significant reduction in the nature or scope of a Covered
Individual's authorities or duties from those applicable to such
Covered Individual immediately prior to the date on which a Change in
Control occurs;
(2) a reduction in a Covered Individual's annual base salary or
target opportunity under any applicable bonus or incentive compensation
plan or arrangement from that provided to such Covered Individual
immediately prior to the date on which a Change in Control occurs;
(3) a diminution in a Covered Individual's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans which provide opportunities to receive compensation
which are the greater of (A) the opportunities provided by the Employer
(including its subsidiaries) for officers with comparable duties or (B)
the opportunities under any such plans under which such Covered
Individual was participating immediately prior to the date on which a
Change in Control occurs;
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(4) a diminution in benefits (including but not limited to
medical, dental, life insurance, and long-term disability plans) and
perquisites applicable to such Covered Individual from the greater of
(A) the benefits and perquisites provided by the Employer (including
its subsidiaries) to officers with comparable duties or (B) the
benefits and perquisites to which such Covered Individual was entitled
immediately prior to the date on which a Change in Control occurs; or
(5) a change in the location of a Covered Individual's principal
place of employment by the Employer by more than 50 miles from the
location where he was principally employed immediately prior to the
date on which a Change in Control occurs.
(d) "CHEVRON HOLDING PERIOD" shall mean any period during which a
Change in Control is deemed to have not occurred solely pursuant to the
provisions of Section 2.1(b) relating to the ownership, directly or
indirectly, of more than 50% of the total voting stock of the Company by
Chevron Corporation or its subsidiaries and/or affiliates.
(e) "CODE" shall have the meaning assigned to such term in the Plan.
(f) "COMMITTEE" shall mean the Compensation and Human Resources
Committee of the Board.
(g) "COMPANY" shall mean Dynegy Inc., a Delaware corporation.
(h) "COMPENSATION" shall mean, with respect to each Covered Individual,
the sum of (1) such Covered Individual's annual base salary and (2) such
Covered Individual's aggregate annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, in
each case under clauses (1) and (2) above determined separately based upon
the greater of the annual base salary or annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements, as
applicable, paid at the rate in effect (A) immediately prior to the Change
in Control, (B) 60 days prior to the date of such Covered Individual's
Involuntary Termination, or (C) the date of such Covered Individual's
Involuntary Termination.
(i) "CONTINUATION COVERAGE PERIOD" shall mean, with respect to each
Covered Individual, the period of time equal to the severance period upon
which the lump sum cash payment provided pursuant to Section 4.1(a) was
based.
(j) "COVERED INDIVIDUAL" shall mean any individual who is participating
in the Fourth Supplemental Plan pursuant to Article III.
(k) "DEEMED CHANGE IN CONTROL" shall mean the consummation of the
transactions contemplated in that certain Agreement and Plan of Merger dated
as of June 14, 1999, by and among Illinova Corporation, Energy Convergence
Holding Company, Energy
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Convergence Acquisition Corporation, Dynegy Acquisition Corporation, and the
Company, as the same may be amended from time to time.
(l) "DISABILITY" shall mean a disability entitling a Covered Individual
to benefits under a group long-term disability plan maintained by the
Employer.
(m) "EFFECTIVE DATE" shall mean February 8, 1999.
(n) "EMPLOYER" shall mean the Company and each of its subsidiaries and
affiliates that is treated as an Employer in accordance with the provisions
of Section 5.2.
(o) "EMPLOYMENT AGREEMENT" shall mean an employment agreement, if any,
between the Employer and a Covered Individual.
(p) "ERISA" shall have the meaning assigned to such term in the Plan.
(q) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(r) "FOURTH SUPPLEMENTAL PLAN" shall mean the Fourth Supplemental Plan
to the Dynegy Inc. Severance Pay Plan, as amended from time to time.
(s) "INVOLUNTARY TERMINATION" shall mean, with respect to each Covered
Individual, any termination of such Covered Individual's employment with the
Employer which:
(1) does not result from a voluntary resignation by such Covered
Individual (other than a resignation pursuant to clause (2) of this
Section 2.1(s)); or
(2) results from a resignation by such Covered Individual on or
before the date which is 60 days after the date the Covered Individual
receives notice of a Change in Terms of Service;
provided, however, that the term "Involuntary Termination" shall not
include a Termination for Cause or any termination as a result of such
Covered Individual's death or Disability.
(t) "PLAN" shall mean the Dynegy Inc. Severance Pay Plan, as amended
from time to time.
(u) "PLAN ADMINISTRATOR" shall have the meaning assigned to such term
in the Plan.
(v) "POLICY COMMITTEE" shall mean the Company's Policy Committee.
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(w) "TERMINATION FOR CAUSE" shall mean (1) with respect to a Covered
Individual who has an Employment Agreement then in effect that defines the
term "cause," any termination of such Covered Individual's employment with
the Employer that the Committee determines constitutes "cause" under such
Employment Agreement, and (2) with respect to each other Covered Individual,
any termination of such Covered Individual's employment with the Employer
based on a determination by the Committee that such Covered Individual (A)
has been convicted of a misdemeanor involving moral turpitude or a felony,
(B) has engaged in conduct which is materially injurious (monetarily or
otherwise) to the Employer or any of its affiliates (including, without
limitation, misuse of the Employer's or an affiliate's funds or other
property), (C) has engaged in gross negligence or willful misconduct in the
performance of such Covered Individual's duties, (D) has willfully refused
without proper legal reason to perform such Covered Individual's duties and
responsibilities, (E) has materially breached any material provision of any
agreement between the Employer and such Covered Individual, or (F) has
materially breached any material corporate policy maintained and established
by the Employer that is of general applicability to Covered Individuals.
2.2 NUMBER AND GENDER. Wherever appropriate herein, a word used in the
singular shall be considered to include the plural and the plural to include the
singular. The masculine gender, where appearing in the Fourth Supplemental Plan,
shall be deemed to include the feminine gender.
2.3 HEADINGS. The headings of Articles and Sections herein are included
solely for convenience and if there is any conflict between such headings and
the text of the Fourth Supplemental Plan, the text shall control.
III. PARTICIPATION
3.1 PARTICIPATION. Each individual who is a member of the Policy
Committee as of the Effective Date shall become a Covered Individual effective
as of such date. The Committee, in its sole discretion, may select any
individual who becomes a member of the Policy Committee after the Effective Date
for participation in the Fourth Supplemental Plan as a Covered Individual. The
Committee shall, at the time determined by the Committee in its sole discretion,
provide a written notice to each individual who becomes a Covered Individual,
which notice shall specify the effective date upon which such individual became
a Covered Individual.
3.2 CESSATION OF PARTICIPATION. Within 60 days from and after the
expiration of the two-year period beginning on the date a Covered Individual
receives notice of his participation in the Fourth Supplemental Plan from the
Committee pursuant to Section 3.1, and within 60 days after each successive one-
year period of time thereafter that the Fourth Supplemental Plan is in effect,
the Committee shall have the right, in its sole discretion, to either continue
and extend such Covered Individual's participation in the Fourth Supplemental
Plan or terminate such Covered Individual's participation in the Fourth
Supplemental Plan. The Committee shall notify such Covered Individual of such
Committee action within the 60-day time period mentioned above. A Covered
Individual shall continue participation in the Fourth Supplemental Plan until
such participation is so terminated or the Fourth Supplemental Plan is
terminated pursuant to Section 5.3. Failure of the Committee to
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take any action within said 60 days shall be considered as an extension of such
Covered Individual's right to participate in the Fourth Supplemental Plan for an
additional one-year period of time. Notwithstanding anything to the contrary
contained in this "sunset provision," if a Change in Control occurs while a
Covered Individual is a participant in the Fourth Supplemental Plan, then such
Covered Individual's participation in the Fourth Supplemental Plan shall not be
subject to termination under this "sunset provision," and such participation
shall continue for a period of two years after such Change in Control, and if
within said two years the contingency factors occur which would entitle such
Covered Individual to the benefits as provided herein, then the Fourth
Supplemental Plan shall remain in effect with respect to such Covered Individual
in accordance with its terms. If, within such two years after a Change in
Control, the contingency factors that would entitle such Covered Individual to
said benefits do not occur, thereupon this "sunset provision" shall again be
applicable with the 60-day time period for action by the Committee to thereafter
commence at the expiration of said two years after such Change in Control and on
each anniversary date thereafter. Further, a Covered Individual's participation
in the Fourth Supplemental Plan may not be terminated during any Chevron Holding
Period, and to the extent that a 60-day period referred to in this Section 3.2
occurs during any Chevron Holding Period and such Chevron Holding Period ends
under circumstances which do not result in a Change in Control, such 60-day
period shall be temporarily suspended and shall recommence upon the expiration
of such Chevron Holding Period.
IV. SEVERANCE BENEFITS
4.1 SEVERANCE BENEFITS. For purposes of this Section 4.1, a termination
of employment at any time during a Chevron Holding Period that ends under
circumstances which result in a Change in Control or within three months prior
to the date upon which a Change in Control occurs shall be deemed to be (but
shall not be the only circumstances pursuant to which a termination shall be
considered to be) in connection with a Change in Control. If, in connection
with, in contemplation of, or on the date upon which a Change in Control occurs
or within two years thereafter (one year thereafter in the case of a Deemed
Change in Control), the employment of a Covered Individual shall be terminated
under circumstances entitling such Covered Individual to a cash severance
payment under his Employment Agreement then in effect, then such Covered
Individual shall be entitled to receive, subject to the provisions of Sections
4.2, 4.4, and 5.7, the severance benefits described in this Section 4.1. A
Covered Individual who does not have an Employment Agreement in effect as of the
date of his termination of employment shall also be entitled to receive, subject
to the provisions of Sections 4.2, 4.4, and 5.7, the severance benefits
described in this Section 4.1 if the employment by the Employer or a successor
thereto of such Covered Individual shall be subject to an Involuntary
Termination in connection with, in contemplation of, or on the date upon which a
Change in Control occurs or within two years thereafter (one year thereafter in
the case of a Deemed Change in Control). For purposes of the preceding sentence
and determining whether an Involuntary Termination has occurred prior to a
Change in Control, the term "Change in Terms of Service" shall be interpreted by
considering a Covered Individual's authorities, duties, base salary, target
bonus opportunity, principal place of employment, and participation in
compensation and benefit plans immediately prior to any change therein, rather
than immediately prior to the date on which a Change in Control occurs. The
severance benefits described in this Section 4.1 that shall be provided to a
Covered Individual who is entitled to such benefits as set forth above are as
follows:
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(a) a lump sum cash payment in an amount equal to the greater of (1)
300% of such Covered Individual's Compensation and (2) the amount provided
in such Covered Individual's Employment Agreement in effect as of the date
of such Covered Individual's termination of employment, which amount shall
be paid by the Employer to such Covered Individual at the time provided in
such Employment Agreement (provided, however, that if such Covered
Individual does not have an Employment Agreement in effect as of such date
but had an Employment Agreement in effect on or after the effective date of
such Covered Individual's commencement of participation in the Fourth
Supplemental Plan, then the lump sum cash payment shall be in an amount
equal to the greater of (A) 300% of such Covered Individual's Compensation
and (B) the amount that would have been paid under such Covered
Individual's most recent Employment Agreement had it been in effect on the
date of such Covered Individual's termination of employment (and such
amount shall be paid at the time provided in such Employment Agreement);
provided, further, that if such Covered Individual did not have an
Employment Agreement in effect at any time on or after the effective date
of his commencement of participation in the Fourth Supplemental Plan, then
the lump sum cash payment shall be (i) in an amount equal to 300% of such
Covered Individual's Compensation and (ii) paid by the Employer to such
Covered Individual on or before the fifth day after the date of such
Covered Individual's Involuntary Termination);
(b) a lump sum cash payment (which shall be paid by the Employer at
the same time the payment described in Section 4.1(a) is paid) in an amount
equal to the sum of (1) the aggregate annual target opportunity under all
applicable cash bonus or incentive compensation plans or arrangements that
could have been earned by such Covered Individual for the fiscal year of
the Company during which his termination of employment occurs (determined
as if all applicable goals and targets had been satisfied in full) and (2)
the aggregate amount of contributions the Employer would have made to the
Dynegy Inc. Profit Sharing/401(k) Savings Plan on behalf of such Covered
Individual had such Covered Individual continued his employment and
participation in such plan following such termination of employment for the
Continuation Coverage Period (determined based on such Covered Individual's
rate of compensation in effect immediately prior to such termination of
employment and as if such Covered Individual elected to contribute to such
plan the maximum amount allowable thereunder throughout the Continuation
Coverage Period);
(c) all of the outstanding stock options and other equity based awards
granted by the Employer to such Covered Individual shall become fully
vested and immediately exercisable in full upon such Covered Individual's
termination of employment, and all of such stock options that do not
constitute incentive stock options within the meaning of Section 422 of the
Code shall remain exercisable for a period of three years thereafter or for
such greater period as may be provided in the plan(s) or option
agreement(s) pursuant to which such stock options were granted (but in no
event shall any such stock option be exercisable after the expiration of
the original term of such stock option);
(d) such Covered Individual and those of his dependents (including his
spouse) who were covered under the employee welfare benefit plans (as
defined in Section 3(1) of ERISA) maintained by the Employer on the day
prior to such Covered Individual's
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termination of employment shall continue to be covered under such plans
throughout the Continuation Coverage Period beginning on the date of such
termination of employment at a cost to such Covered Individual that is no
greater than the lesser of (1) the cost of such coverage paid by such
Covered Individual immediately prior to such termination of employment or
(2) the cost of such coverage paid by such Covered Individual immediately
prior to the Change in Control; provided, however, that coverage under a
particular welfare benefit plan shall immediately end upon such Covered
Individual's obtainment of new employment and coverage under a similar
welfare benefit plan maintained by such Covered Individual's new employer
(with such Covered Individual being obligated hereunder to promptly report
such new coverage to the Company). Notwithstanding the foregoing, if such
Covered Individual's Employment Agreement in effect on the date of his
termination of employment provides for a lump sum cash payment with respect
to such welfare benefit plan coverage rather than continued coverage under
such plans, then the benefit provided for in this Section 4.1(d) shall be
paid in a lump sum in lieu of continued plan coverage (and such lump sum
amount shall be determined and paid in a manner similar to that provided in
such Employment Agreement). Nothing herein shall be deemed to adversely
affect in any way the additional rights, after consideration of this
extension period, of such Covered Individual and his eligible dependents to
health care continuation coverage as required pursuant to Part 6 of Title I
of ERISA;
(e) if such Covered Individual serves as the Chief Financial Officer
or General Counsel of the Company, then any agreement imposing post-
employment non-competition obligations or restrictions on such Covered
Individual for the benefit of the Company or any of its subsidiaries shall
terminate upon such Covered Individual's termination of employment; and
(f) out-placement services in connection with obtaining new employment
up to a maximum cost of $20,000 (which shall be paid directly by the
Employer to the provider of such services).
4.2 MITIGATION; BENEFITS UNDER EMPLOYMENT AGREEMENT. Except as provided
in Section 4.1(d), a Covered Individual shall not be required to mitigate the
amount of any payment or benefit provided for in this Article IV by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Article IV be reduced by any compensation or benefit earned
by the Covered Individual as the result of employment by another employer or by
retirement benefits. The benefits under the Fourth Supplemental Plan are in
addition to any other benefits to which a Covered Individual is otherwise
entitled; provided, however, that (a) the benefits under the Fourth Supplemental
Plan are not intended to duplicate the benefits to which a Covered Individual is
entitled under an Employment Agreement and (b) a Covered Individual who is
entitled to receive benefits under the Fourth Supplemental Plan shall not be
eligible to receive any benefits under the Plan, any other supplement thereto,
or any other severance benefit plan maintained by the Company or any of its
affiliates. Nothing herein is intended to reduce any provision of a Covered
Individual's Employment Agreement to the extent that greater severance benefits
are provided for in such Employment Agreement than under the Fourth Supplemental
Plan. In other words, a Covered Individual with an Employment Agreement in
effect as of the date of his termination of
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employment shall be entitled to either the severance benefits specified in the
Fourth Supplemental Plan or in such Employment Agreement, whichever provides the
greater benefit on a provision-by-provision basis.
4.3 INTEREST ON LATE PAYMENTS. If any cash payment provided for in Section
4.1 is not made when due, the Employer shall pay to the Covered Individual
interest on the amount payable from the date that such payment should have been
made under such Section until such payment is made, which interest shall be
calculated at the rate of 1% per month (with a partial month counting as a full
month).
4.4 PARACHUTE PAYMENTS. Anything to the contrary herein notwithstanding,
if a Covered Individual is a "disqualified individual" (as defined in Section
280G(c) of the Code), and the severance benefits provided for in Section 4.1,
together with any other payments or benefits which the Covered Individual has
the right to receive from the Employer, would constitute a "parachute payment"
(as defined in Section 280G(b)(2) of the Code), then the severance benefits
provided hereunder (beginning with any benefit to be paid in cash hereunder)
shall be either (a) reduced (but not below zero) so that the present value of
such total amounts received by the Covered Individual from the Employer will be
one dollar ($1.00) less than three times the Covered Individual's "base amount"
(as defined in Section 280G of the Code) and so that no portion of such amounts
received by the Covered Individual shall be subject to the excise tax imposed by
Section 4999 of the Code or (b) paid in full, whichever produces the better net
after-tax position to the Covered Individual (taking into account any applicable
excise tax under Section 4999 of the Code and any applicable income tax). The
determination as to whether any such reduction in the amount of the severance
benefits is necessary shall be made by the Committee in good faith. If a
reduced cash payment is made and through error or otherwise that payment, when
aggregated with other payments from the Employer (or its affiliates) used in
determining if a "parachute payment" exists, exceeds one dollar ($1.00) less
than three times the Covered Individual's base amount, the Covered Individual
shall immediately repay such excess to the Employer upon notification that an
overpayment has been made. Nothing in this Section shall require the Employer
to be responsible for, or have any liability or obligation with respect to, any
Covered Individual's excise tax liabilities under Section 4999 of the Code.
V. GENERAL PROVISIONS
5.1 RELATIONSHIP OF THE FOURTH SUPPLEMENTAL PLAN TO THE PLAN. The Fourth
Supplemental Plan and the severance benefits described herein shall be subject
to all of the terms and conditions of the Plan, including, without limitation,
the administrative provisions of the Plan; provided, however, that (a) the
provisions of Section III of the Plan (relating to eligibility), Section IV.E.
of the Plan (relating to rehired employees), and all provisions of the Plan
relating to the execution and delivery of a release as a condition to the
receipt of severance benefits shall not apply to the Fourth Supplemental Plan,
(b) the amount of the cash severance payment to be provided under the Fourth
Supplemental Plan shall be determined pursuant to Article IV hereof rather than
Section IV.A. of the Plan, (c) the Committee (rather than the Plan
Administrator) shall have the powers (including administrative powers) granted
to the Committee hereunder, and (d) should an
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inconsistency or conflict exist between the specific terms of the Fourth
Supplemental Plan and those of the Plan, then the relevant terms of the Fourth
Supplemental Plan shall govern and control.
5.2 OTHER PARTICIPATING EMPLOYERS. Subject to the provisions of Section
5.3, each subsidiary and affiliate of the Company that participates in the Plan
shall participate in the Fourth Supplemental Plan as an Employer. The
provisions of the Fourth Supplemental Plan shall be applicable with respect to
each Employer separately, and amounts payable hereunder shall be paid by the
Employer which employs the particular Covered Individual; provided, however,
that the determination of whether a Change in Control has occurred shall be made
based solely on Dynegy Inc.
5.3 AMENDMENT AND TERMINATION. The Fourth Supplemental Plan may not be
amended, terminated, or discontinued except as provided in this Section 5.3 or
in Section 5.7. For purposes of this Section 5.3, the termination of an
Employer's participation in the Plan (and, accordingly, but for the provisions
of this Section 5.3, the termination of such Employer's participation in the
Fourth Supplemental Plan pursuant to Section 5.2) shall be deemed to be an
amendment to the Fourth Supplemental Plan, but the commencement of participation
by an Employer in the Plan (and, accordingly, participation by such Employer in
the Fourth Supplemental Plan pursuant to Section 5.2) shall not be considered an
amendment to the Fourth Supplemental Plan. Within 60 days from and after the
expiration of the two-year period beginning on the Effective Date and within 60
days after each successive one-year period of time thereafter that the Fourth
Supplemental Plan is in effect, the Board shall have the right to review the
Fourth Supplemental Plan, and, in its sole discretion, to either continue and
extend the Fourth Supplemental Plan, terminate the Fourth Supplemental Plan,
and/or amend the Fourth Supplemental Plan in any manner determined by the Board.
The Fourth Supplemental Plan shall remain in effect until so terminated and/or
amended by the Board. Failure of the Board to take any action within said 60
days shall be considered as an extension of the Fourth Supplemental Plan for an
additional one-year period of time. Notwithstanding anything to the contrary
contained in this "sunset provision," if a Change in Control occurs while the
Fourth Supplemental Plan is in effect, then the Fourth Supplemental Plan shall
not be subject to termination or amendment under this "sunset provision," and
the Fourth Supplemental Plan shall remain in force for a period of two years
after such Change in Control, and if within said two years the contingency
factors occur which would entitle a Covered Individual to the benefits as
provided herein, then the Fourth Supplemental Plan shall remain in effect with
respect to such Covered Individual in accordance with its terms. If, within
such two years after a Change in Control, the contingency factors that would
entitle a Covered Individual to said benefits do not occur, thereupon this
"sunset provision" shall again be applicable with the 60-day time period for
action by the Board to thereafter commence at the expiration of said two years
after such Change in Control and on each anniversary date thereafter. Further,
the Fourth Supplemental Plan may not be terminated or amended during any Chevron
Holding Period, and to the extent that a 60-day period referred to in this
Section 5.3 occurs during any Chevron Holding Period and such Chevron Holding
Period ends under circumstances which do not result in a Change in Control, such
60-day period shall be temporarily suspended and shall recommence upon the
expiration of such Chevron Holding Period.
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5.4 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Fourth
Supplemental Plan shall not be deemed to be a contract of employment between the
Employer and any person or to be consideration for the employment of any person.
Nothing herein contained shall be deemed to (a) give any person the right to be
retained in the employ of the Employer, (b) restrict the right of the Employer
to discharge any person at any time, (c) give the Employer the right to require
any person to remain in the employ of the Employer, or (d) restrict any person's
right to terminate his employment at any time.
5.5 INDEMNIFICATION. If a Covered Individual shall obtain any money
judgment or otherwise prevail with respect to any litigation brought by such
Covered Individual or the Employer to enforce or interpret any provision
contained herein, the Employer, to the fullest extent permitted by applicable
law, hereby indemnifies such Covered Individual for his reasonable attorneys'
fees and disbursements incurred in such litigation and hereby agrees (a) to pay
in full all such fees and disbursements and (b) to pay prejudgment interest on
any money judgment obtained by such Covered Individual from the earliest date
that payment to such Covered Individual should have been made under the Fourth
Supplemental Plan until such judgment shall have been paid in full, which
interest shall be calculated at the rate of 1% per month (with a partial month
counting as a full month).
5.6 PAYMENT OBLIGATIONS ABSOLUTE. Subject to the provisions of Section 5.7,
the Employer's obligation to pay a Covered Individual the amounts and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any set-
off, counterclaim, recoupment, defense or other right which the Employer or any
of its subsidiaries may have against such Covered Individual or anyone else. All
amounts payable by the Employer shall be paid without notice or demand.
5.7 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision of
the Fourth Supplemental Plan to the contrary, in the event the consummation of a
Change in Control is contingent on using the pooling of interests accounting
methodology, the Board may make any modifications to the Fourth Supplemental
Plan to the extent necessary to preserve the use of pooling of interests
accounting, including, without limitation, any modification resulting in a
reduction of the benefits to be paid or provided hereunder to any Covered
Individual.
5.8 WITHHOLDING. Any benefits paid or provided pursuant to the Fourth
Supplemental Plan shall be subject to any required tax withholding.
5.9 SEVERABILITY. Any provision in the Fourth Supplemental Plan that is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
5.10 EFFECT OF FOURTH SUPPLEMENTAL PLAN. Except for benefits provided under
an Employment Agreement, the Fourth Supplemental Plan is intended to supersede
all prior oral or written policies of the Employer and all prior oral or written
communications to Covered Individuals
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with respect to the subject matter hereof, and all such prior policies or
communications are hereby null and void and of no further force and effect.
Further, the Fourth Supplemental Plan shall be binding upon the Employer and any
successor of the Employer, by merger or otherwise, and shall inure to the
benefit of and be enforceable by the Employer's Covered Individuals. Any
benefits paid or provided pursuant to the Fourth Supplemental Plan shall be
deemed to be a severance payment and not "compensation" for purposes of
determining benefits under the Employer's qualified plans (unless and to the
extent that any such qualified plan expressly provides otherwise).
EXECUTED this ______ day of ___________________, 1999.
DYNEGY INC.
By:
--------------------------------
Michael B. Barton
Vice President of Human Resources
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EXHIBIT 10.14
THIRD AMENDMENT TO
DYNEGY INC. PROFIT SHARING/401(k) SAVINGS PLAN
WHEREAS, Dynegy Inc. (the "Company") and other Employers have heretofore
adopted the Dynegy Inc. Profit Sharing/401(k) Savings Plan (the "Plan") for the
benefit of their eligible employees; and
WHEREAS, the Company amended and restated the Plan on behalf of itself
and the other Employers, effective as of January 1, 1998; and
WHEREAS, the Company desires to further amend the Plan on behalf of
itself and the other Employers;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
March 1, 1999:
1. The term "calendar month" shall be deleted in each place such
term appears in Sections 2.2, 3.1(b), and 3.1(c) of the Plan, and the
term "payroll period" shall be substituted therefor in each such place.
2. As amended hereby, the Plan is specifically ratified and
reaffirmed.
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed this ____________ day of _________________, 1999.
DYNEGY INC.
By:_______________________________
Name:__________________________
Title:_________________________
<PAGE>
EXHIBIT 10.15
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF THE
WEST TEXAS LPG PIPELINE
LIMITED PARTNERSHIP
A Texas Limited Partnership
<PAGE>
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
WEST TEXAS LPG PIPELINE LIMITED PARTNERSHIP
TABLE OF CONTENTS
1. Definitions
2. Ratification of formation; Creation of Partnership; Name
3. Principal Office
4. Duration of the Partnership
5. Purposes
6. Capital Contributions
6.1 Contribution of Existing Property
6.2 Expansions; Expansion Capital Contributions
6.3. Maintenance Capital Expenditures
6.4 Acceptance of Contributions
7. Partnership Property
8. Warranties of Partners
9. Management
9.1 Partnership Committee
9.2 Officials of the Partnership Committee and Terms of Service Thereon
9.3 General Provisions Regarding the Partnership Committee
9.4 Meetings of the Partnership Committee
9.5 Voting of the Partnership Committee - Supermajority
9.6 Voting of the Partnership Committee - Simple Majority
9.7 Minutes
9.8 No Management by Individual Partners
9.9 Change of Classification of Partnership Interest
10. Book Capital Accounts and Capital Contributions
10.1 Book Capital Accounts of the Partners
10.2 Capital Contributions
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11. Distributions
11.1 Allocation
11.2 Distributions
12. Accounting
13. Audit
14. Limitation on Partner's Liabilities Regarding Partnership Contracts
15. Cross Indemnification
15.1 Indemnity
15.2 Reimbursement
15.3 Sharing of Uncovered Losses
16. Tax Provisions
16.1 Status of Partnership
16.2 Tax Returns, Proceedings and Elections
16.3 Tax Definitions
16.4 Tax Allocations
17. Insurance
18. Disposition of Ownership Interests
18.1 Dispositions
18.2 General Conditions of Transfers
18.3 Limitation on Dispositions to Avoid Termination
18.4 Relative Liabilities of Old and New Partners
18.5 Withdrawal of Partner When Unprofitable
18.6 Disposition of Ownership to Another Party
19. Default by Partners
19.1 Failure to Make Contributions
19.2 Expulsion of Partners
19.3 Treatment of Book Capital Account of Expelled Partner
19.4 Other Obligations of Expelled Partner
20. Dissolution and Winding Up of the Partnership
20.1 Dissolution
20.2 Continuance of Business After Dissolution
20.3 Liquidation of the Partnership
20.4 Winding Up of the Partnership
20.5 No Liability for Return of Capital
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21. Alternative Dispute Resolution Procedures
21.1 Covered Disputes
21.2 Initiation of Procedures
21.3 Negotiation Between Executives
21.4 Mediation
21.5 Arbitration
21.6 Arbitration Procedure
21.7 Arbitration Hearing
21.8 Arbitration Decision and Costs
21.9 Enforcement of Award
21.10 Tolling and Performance
22. Further Assurance
23. Waiver
24. Independent Conduct
25. Applicable Law
26. Subject to Applicable Law
27. Validity
28. Headings
29. Binding Effect
30. Benefits of Agreement Restricted to Parties
31. Counterparts
32. Entire Agreement
33. Exhibits and Schedules
34. Reservation of Rights
35. Principles of Construction and Interpretation
36. Damages
37. Notices
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EXHIBIT A - Ownership Interests
EXHIBIT B - Description and Map of Original Limited Partnership Property
EXHIBIT C Description and Map of MAPL Gathering System and Other Contributions
EXHIBIT D - Financial Responsibility Requirements
EXHIBIT E - Tax Matters
iv
<PAGE>
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
WEST TEXAS LPG PIPELINE LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT,
effective as of May 1, 1999, is entered into by and among WTLPS, Inc., a
Delaware corporation (hereinafter "WTLPS"); DMS LP, Inc., a Delaware corporation
(hereinafter "DMSLP"); Chevron Raven Ridge Pipe Line Company, a Delaware
corporation (hereinafter "CRR"); Chevron Pipe Line Company, a Delaware
corporation (hereinafter "CPL"); Mid-America Pipeline Company, a Delaware
corporation (hereinafter "MAPL"); MAPL Investments, Inc., a Delaware corporation
(hereinafter "MAPLII") . WTLPS, DMSLP, CRR, CPL, MAPLII, and MAPL are
sometimes referred to herein collectively as the "Parties" and individually as a
"Party."
WHEREAS, effective September 1, 1996 (the "Original Limited Partnership
Effective Date"), WTLPS, DMSLP, CRR and CPL entered into that certain Agreement
(the "Original Partnership Agreement") of Partnership of the West Texas LPG
Pipeline Limited Partnership, a Texas limited partnership (the "Original Limited
Partnership"); and
WHEREAS, WTLPS, DMSLP, CRR, CPL, MAPLII, and MAPL now desire to amend the
Original Partnership Agreement to provide for receipt of the contribution of
additional assets and provide for the addition of MAPL as an additional Limited
Partner and General Partner in the Partnership, and other matters related
thereto; and
Whereas, simultaneously with its contribution of assets to the
Partnership, MAPL has assigned its limited partnership Ownership Interest to
MAPLII, its wholly owned subsidiary, who has joined in the execution of this
Agreement.
Whereas, the Partners desire to create a revised Limited Partnership
to own a common carrier pipeline system for the transportation of LPG from
various points in New Mexico and Texas to various points in Texas.
Therefore, the Partners hereby agree as follows:
1. Definitions.
As used in this Agreement the following words and terms
shall have the meanings set forth below.
1.1 "Act" means the Texas Revised Limited Partnership Act, as set
forth in R.C.S., Art. 6132a-1, as amended from time to time.
<PAGE>
1.2 "Affiliate" means, of any Person, a Person Controlling, Controlled by
or under common Control with, directly or indirectly, through one or more
intermediaries, such Person.
1.3 "Affirmative Voting Partner" shall have the meaning given to it in
Section 18.5 hereinafter.
1.4 "Agreement" means this First Amended and Restated Limited Partnership
Agreement for West Texas LPG Pipeline Limited Partnership.
1.5 "Amended and Restated Operating Agreement" means the agreement for the
operation of the System.
1.6 "Amended Partnership Effective Date" means the first day of May, 1999.
1.7 "Arbitration Notice" shall have the meaning given to it in Section 21.5
hereinafter.
1.8 "Book Capital Account" means the account described in Section 10.1.
1.9 "Business Day" means a day on which the Federal Reserve Bank in New
York City is open for business.
1.10 "Calendar Year" means a year beginning on the first day of January and
ending on the thirty-first day of December, except that for the first year of
operation, the Calendar Year shall begin on the first day of May, 1999 and end
on December 31, 1999.
1.11 "Construction Cost" means the cost of constructing any facility or
equipment used or useful in the Company's operations, or any expansion thereof;
including, without limitation, materials, labor, equipment, permits, consulting
fees, accounting and legal fees, insurance costs, contractors' fees, land and
easement costs, administrative overhead charges allowed pursuant to the terms of
this Agreement, and all other costs necessary or incidental thereto.
1.12 "Control" of a non-natural Person means (i) the power, directly or
indirectly, to (x) elect, appoint or cause the election or appointment of at
least a majority of the members of the board of directors of such Person (or if
such Person is a non-corporate Person, Persons having similar powers), or (y)
direct or cause the direction of the management and policies of such Person, in
either case through beneficial ownership of the capital stock (or similar
ownership interests) of such Member by contract, agreement or otherwise, (ii)
the acquisition, directly or indirectly, of (x) all or substantially all of the
properties and assets of such Person or (y) a majority (by percentage) of the
total voting power of all classes then outstanding of the voting stock (or other
voting interest) of such Person.
1.13 "CPL" means Chevron Pipe Line Company.
1.14 "CRR" means Chevron Raven Ridge Pipe Line Company.
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1.15 "Current Liabilities" means the current liabilities described in
Section 19.3.
1.16 "Disposition Notice" shall have the meaning given to it in Section
18.1 hereinafter.
1.17 "Dispose" or "Disposition" means a sale, assignment, transfer or
exchange (including, without limitation, by operation of law).
1.18 "Dissolving Partner" or "Dissolving Partners" means the Partner or
Partners who cause a dissolution of the Partnership as described in Section 20.
1.19 "Distributable Cash" means the gross cash proceeds from Partnership
operations (including sales and dispositions of property in the ordinary course
of business) less the portion thereof used to pay or establish reasonable
reserves approved by the Partnership Committee for all Partnership expenses,
Guaranteed Payments, debt payments, capital improvements, replacements and
contingencies, working capital requirements, all as determined by the
Partnership Committee. Distributable Cash shall not be reduced by depreciation,
amortization, cost recovery deductions or similar allowances, but shall be
increased by any reductions of cash reserves previously established.
1.20 "DMSLP" means DMS LP, Inc..
1.21 "Facilities" means the Original Limited Partnership Property and the
MAPL Gathering System.
1.22 "Fiscal Year" means the fiscal year of the Partnership as designated
in Article 12, except that for the first year of operation, the Fiscal Year
shall begin on the Amended Partnership Effective Date and end on December 31,
1999.
1.23 "GAAP" means generally accepted accounting principles.
1.24 "General Partner" means WTLPS, CPL, MAPL, or any Person who hereafter
becomes a General Partner by succession of interest hereunder, or by change of
classification under the provisions of Section 9.9.
1.25 "Indemnifying Partner" means each Partner undertaking the indemnity
obligations described in Sections 15.1 and 15.2.
1.26 "LPG" means a mixture of liquefied petroleum products produced from
gas processing facilities or refineries containing ethane, propane, butanes,
natural gasolines, and nominal amounts of contaminates, as allowed by
specifications set by the Company from time to time.
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1.27 "Limited Partner" means DMSLP, CRR, MAPLII, or any Person who
hereafter becomes a Limited Partner by succession of interest hereunder or by
change of classification under the provisions of Section 9.9.
1.28 "Maintenance Capital Expenditure" shall have the meaning given to it
in Section 6.3 hereinafter.
1.29 "MAPL" means Mid-America Pipeline Company.
1.30 "MAPL Gathering System and Other Contributions" means those assets to
be contributed to the Partnership by MAPL and more fully described in Exhibit C.
1.31 "MAPLII" means MAPL Investments, Inc..
1.32 "Member" means a Partner's designated representative on the
Partnership Committee.
1.33 "Non-Current Liabilities" means the non-current liabilities described
in Section 19.3.
1.34 "Operator" means the Person(s) designated as the physical and/or
commercial Operator of the System in the Amended and Restated Operating
Agreement.
1.35 "Original Limited Partnership" shall have the meaning given to it in
the first Whereas clause on page 1 of this Agreement.
1.36 "Original Limited Partnership Effective Date" shall have the meaning
given to it in the first Whereas clause on page 1 of this Agreement.
1.37 "Original Partnership Agreement" shall have the meaning given to it in
the first Whereas clause on page 1 of this Agreement.
1.38 "Original Limited Partnership Property" means the assets of the
Original Partnership as further identified in Exhibit B.
1.39 "Ownership Interest" means the respective ownership percentage of a
Partner in the Partnership as set forth in Exhibit A hereto, as amended from
time to time.
1.40 "Partner" means any party to this Agreement, including any Person who
may hereafter become a party to this Agreement.
1.41 "Partnership" means the West Texas LPG Pipeline Limited Partnership as
herein amended and restated.
1.42 "Partnership Committee" means the committee designated to manage the
affairs of the Partnership in Section 9.1(a) of this Agreement.
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1.43 "Person" means any individual, partnership, association, trust,
corporation or other entity.
1.44 "Partnership Property" means all property acquired by the Partnership
by contribution, purchase or otherwise.
1.45 "Proposed Transferee" means a Person to whom a Transferring Partner
intends to transfer all or a portion of its Ownership Interest in the
Partnership.
1.46 "Remaining Partners" means all Partners other than a Transferring
Partner.
1.47 "System" means the pipeline system described in Article 5 and depicted
on Exhibits B and C attached hereto, and any additions or modifications made
thereto after this Agreement becomes effective.
1.48 "Transferring Partner" means a Partner who transfers all or a portion
of its Ownership Interest in the Partnership pursuant to Article 18.
1.49 "WTLPS" means WTLPS, Inc..
2. Ratification of formation; Creation of Partnership; Name.
2.1 The Partners confirm that (i) by virtue of the Original
Partnership Agreement, WTLPS, DMSLP, CRR and CPL associated themselves in a
partnership in accordance with the Act, and (ii) the Partnership is continued as
a Texas limited partnership by this Agreement. This Agreement shall constitute
the Partnership Agreement and shall supersede and replace the Original
Partnership Agreement in its entirety. Each of the Partners agrees that, on the
request of any other Partner, it will, and it will cause the Partnership to,
make all necessary filings, execute and deliver any further documents and
perform any further acts on its part necessary or useful (1) to comply with the
Act regarding the formation and operation of a limited partnership; and (2) to
effectuate and evidence the vesting in the Partnership of ownership of all
assets contributed or required by this Agreement or the Original Partnership
Agreement to be contributed by it to the Partnership.
2.2 The Partners hereby amend and restate the Original Partnership
Agreement and continue the Partnership, as a limited partnership under the
provisions of the Act, with CPL, WTLPS, and MAPL being the General Partners, and
DMSLP, CRR and MAPLII being the Limited Partners, and with each Partner
initially owning that percentage of the total Ownership Interests in the
Partnership set forth in Exhibit A attached hereto. Said Ownership Interests
shall be amended from time to time to reflect assignments and transfers of a
Partner's Ownership Interest in the Partnership as provided for herein. At all
times, the sum of all Partners' Ownership Interests shall total 100 percent. The
name of the Partnership shall be West Texas LPG Pipeline Limited Partnership.
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<PAGE>
3. Principal Office. The principal office of the Partnership shall be
maintained at 2811 Hayes Road, Houston, Texas 77082 or at such other address as
agreed by the Partnership Committee.
4. Duration of the Partnership. The amended Partnership shall
commence as of the Amended Partnership Effective Date and shall terminate,
unless sooner terminated pursuant to this Agreement or extended by agreement of
the Partners, on December 31, 2049. This Agreement shall terminate when the
Partnership has been wound up and liquidated, all assets of the Partnership have
been distributed or disposed of, and all liabilities and obligations of the
Partnership (and of each Partner as they relate to the Partnership) have been
fully discharged, satisfied or as provided in Article 20.
5. Purposes. The Partnership is created for the purposes of: (a)
owning the System for the common carrier transportation of LPG from various
points in New Mexico and Texas to various points in Texas as depicted on the
attached Exhibits B and C, as it may be amended from time to time; (b) causing
the System to be operated, maintained, repaired and, if appropriate in the
judgment of and directed by the Partnership Committee, expanded, extended,
changed in direction or use, replaced, removed or abandoned in place; (c)
causing any facilities, property or property rights, equipment, or services
related to or required in connection with any of the above described activities
to be procured, constructed, operated, maintained, repaired, replaced, sold,
disposed of, removed, or abandoned in place; and (d) any other purposes related
to and necessary or appropriate in the judgment of the Partnership Committee to
implement any of the foregoing.
6. Capital Contributions.
6.1 Contribution of Existing Property.
(a) The initial capital contributions of each Partner to the
Partnership shall be as follows: (i) WTLPS, DMSLP, CPL and CRR previously
contributed their respective shares of undivided interests in and to the
property owned by the Original Limited Partnership described elsewhere in this
Agreement as the Original Limited Partnership Property which was contributed to
the Partnership at the time the Original Partnership Agreement was entered into;
and (ii) MAPL shall contribute its shares of undivided interests in and to the
property described elsewhere in this Agreement as the MAPL Gathering System and
Other Contributions.
(b) Each of the Partners acknowledges that the value of the assets and
monies, as applicable, contributed to the Partnership by CPL, CRR, WTLPS, DMSLP,
and MAPL represents 0.408%, 40.392%, 0.392%, 38.808%, 20.00%, respectively, of
the value of the Partnership assets.
6.2 Expansions; Expansion Capital Contributions.
(a) Proposals, Approval, and Participation
Any Member on behalf of any Partner may request that the Partnership construct
or otherwise acquire additions to the Facilities, modify existing Facilities, or
incur capital project costs related
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to (i) increasing the volumetric capability of, and/or (ii) physical extensions
to the Facilities (hereinafter referred to as an "Expansion") at any time by
giving notice to all of the other Members. Such notice shall specifically
describe the proposed Expansion, shall contain a reasonable justification for
same, and shall include an estimate of the total Construction Cost to be
incurred in connection therewith.
The Chairman of the Partnership Committee, upon request of the Member making the
proposal, shall call a special meeting of the Partnership Committee to discuss
the proposed Expansion. Within thirty (30) days of such notice by the Member,
the Members shall meet to discuss the proposed Expansion. The Partnership
Committee shall cause the Operator to assist the Partner in completing its
proposal and such Partner will reimburse the Operator, in immediately available
funds by wire transfer, for the Operator's actual, direct costs incurred in
connection therewith, such reimbursement to be paid on or before 10 days after
the date on which such Partner has received an invoice therefor from the
Operator. Within ninety (90) days after the date of the special meeting to
discuss the proposed Expansion, the Partnership Committee must vote on the
Expansion at a regular or special meeting of Members. If two or more of the
General Partners vote to have the Partnership undertake the proposed Expansion
and Partners having together aggregate Ownership Interests greater than 50% vote
to approve the Expansion, such proposed Expansion shall be undertaken by the
Partnership.
The approved Expansion proposal must contain a specific methodology for
calculating the revenue, cost, and income specifically attributable to the
Expansion. Following approval of the Expansion, the Partners must indicate
whether the Ownership Interest that they respectively represent will participate
in contributing to the cost of the Expansion. (the "Expansion Participating
Partners"). In the event that all Partners are not Expansion Participating
Partners, it shall take an affirmative vote of at least two General Partners and
90% of the aggregate Ownership Interest to approve the specific accounting
methodology that will be used to allocate Expansion Income related to such
Expansion. If 90% of the aggregate Ownership Interest does not approve, such
accounting methodology shall be submitted to alternative dispute resolution
procedures as set forth in Section 21. If less than all Partners elect to
participate in contributing to the cost of the Expansion, the costs of
construction thereof (the "Expansion Costs") are to be borne solely by the
Expansion Participating Partners. Unless agreed to otherwise by all of the
Expansion Participating Partners, such Expansion Costs shall be allocated to
each of the Expansion Participating Partners in an amount equal to the product
of (A) the total Expansion Costs multiplied by (B) a fraction (the "Expansion
Sharing Ratio"), the numerator of which is the Ownership Interest of such
Expansion Participating Partner and the denominator of which is the aggregate
Ownership Interest of all of the Expansion Participating Partners. No funds of
the Partnership, other than the Expansion Capital Contributions (as defined
hereinafter) made by the Expansion Participating Partners, shall be used in
connection with any Expansion unless all of the Members are Expansion
Participating Partners.
(b) Expansion Capital Contributions.
If an Expansion is approved in accordance with Section 6.2(a), each Expansion
Participating Partner shall make capital contributions to the Partnership
(Expansion Capital Contributions)
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<PAGE>
in one or more payments in an amount equal to such Expansion Participating
Partner's interest in the Expansion, calculated in accordance with Section
6.2(a). Expansion Capital Contributions shall be made by each Expansion
Participating Partner in accordance with such Expansion Participating Partner's
Expansion Sharing Ratio pursuant to a payment schedule approved by the Expansion
Participating Partners and the Operator prior to commencing work on the
Expansion.
(c) Expansion Income.
(i) If an Expansion has occurred and all of the Partners are Expansion
Participating Partners, all incremental revenue attributable to the Expansion,
less any incremental costs incurred in connection with such Expansion and the
operation of same ("Expansion Income"), shall be shared by the Partners
according to their respective Ownership Interest.
(ii) If an Expansion has occurred and not a11 of the Partners are
Expansion Participating Partners, the Partnership Committee shall cause the
Operator to determine, for each calendar month, the Expansion Income. Each
Expansion Participating Partner shall be allocated such Expansion Participating
Partner's Expansion Sharing Ratio of the Expansion Income for each such calendar
month until (and including) the calendar month (the "Expansion Allocation
Period") during which the Expansion Participating Partners have been allocated,
in the aggregate, an amount equal to the Expansion Recovery Percentage of the
aggregate Expansion Costs, as described in Section 6.2 (d) below.
(iii) If an Expansion has occurred and not a11 of the Partners are
Expansion Participating Partners, the Partnership Committee shall cause the
Operator to determine all items of depreciation and cost recovery related to
Expansion Costs and shall specially allocate to the Expansion Participating
Partners such items of depreciation and cost recovery for the duration of the
Expansion Allocation Period.
(d) Expansion Cost Recovery.
(i) If an Expansion has occurred and not all of the Partners are
Expansion Participating Partners, the Partnership Committee shall cause the
Operator to calculate, using the procedure approved by the Partnership Committee
at the time of the Expansion approval, for each calendar month, the Expansion
Income. In consideration for its costs and risks relating to the Expansion,
within thirty days after the end of each such calendar month, each Expansion
Participating Partner shall receive, as a distribution (the "Expansion
Distribution") from the Partnership, an amount equal to (A) such Expansion
Participating Partner's Expansion Sharing Ratio multiplied by (B) the Expansion
Income for such calendar month, until the Expansion Participating Partners have
received, in the aggregate, an amount equal to two hundred-fifty percent (250%)
(the "Expansion Recovery Percentage") of the aggregate Expansion Costs
(ii) If the initial Expansion Recovery Percentage of the Expansion
Costs is not received by the Expansion Participating Partners within sixty (60)
full
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calendar months following the date of commencement of operations of the
Expansion, the initial Expansion Recovery Percentage shall be increased by ten
percent (10%) for each twelve (12) month period thereafter, such increased
Expansion Recovery Percentage not to exceed three hundred percent (300%). Upon
and after the earlier of (A) the Expansion Participating Partners receiving in
the aggregate Expansion Distributions equal to the applicable Expansion Recovery
Percentage of the Expansion Costs or (B) the expiration of 120 calendar months
following the date of commencement of operations of the Expansion, all Expansion
Income shall be shared by the Partners according to their respective Ownership
Interest.
6.3 Maintenance Capital Expenditures. Each Partner shall share and
pay according to their respective Ownership Interests any and all expenditures
incurred by the Partnership which may be categorized for tax or accounting
purposes to be capital expenditures but which are primarily for the purpose of:
(i) maintaining or restoring the System, or any portion thereof, (ii) complying
with regulatory requirements and/or any applicable law, rule, regulation or
order of any other governmental authority, local, state or federal, or (iii)
other non-Expansion purposes ("Maintenance Capital Expenditures"). Generally,
such Maintenance Capital Expenditures create no material incremental revenue as
a result of the work for which the expenditure is made. It is understood and
agreed by the Partners that all such matters shall be included, with adequate
detail, in the Partnership's annual budget prepared by and submitted to the
Partnership Committee by the Operator, if such matters are known at the time of
submission of such budget.
6.4 Acceptance of Contributions. As of the Original Limited Partnership
Effective Date, the Partnership has accepted the assets contributed by WTLPS,
DMSLP, CPL and CRR, and assumed all responsibilities and obligations associated
therewith accruing after such date. As of the Amended Partnership Effective
Date, the Partnership has accepted the MAPL Gathering System and Other
Contributions and assumed all responsibilities and obligations associated
therewith accruing after the Amended Partnership Effective Date.
Notwithstanding the foregoing, nothing herein shall limit, supercede or replace
the obligations by and among the Partners as set forth in contribution
agreements, indemnity agreements or any other written agreements, written
representations and/or warranties between or among the Partners and/or any of
their Affiliates pertaining to any liabilities and the allocation of same
respecting the assets contributed to the Partnership by the Partners hereunder.
7. Title to Partnership Property. The title to all Partnership Property
shall be held in the name of the Partnership unless otherwise approved by the
Partnership Committee; provided, however, licenses, permits, easements and
rights-of-way necessary for the operation of the System may be held in the name
of the Operator who will act as agent on behalf of the Partnership.
8. Warranties of Partners. Each Partner, upon becoming a party to this
Agreement, represents, warrants and agrees that:
(a) It is a corporation duly incorporated, validly existing, and in
good standing under the laws of its jurisdiction of incorporation;
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(b) It has all requisite power and authority to execute, deliver and
perform this Agreement and any other agreements required herein and to
consummate the transactions contemplated hereby or thereby.
(c) It will not voluntarily cause a dissolution or termination of the
Partnership, technical or otherwise by failure to maintain its corporate
existence or by any other act or omission to act;
(d) The execution, delivery and performance of this Agreement have been
duly authorized, and this Agreement, when executed and delivered, will be
valid and binding on it; and
(e) The execution and delivery of this Agreement does not contravene
any provision of, or constitute a default under, any relevant material
indenture, mortgage or other agreement binding on such Partner or any valid
order of any court, commission or governmental agency to which such Partner
is subject.
9. Management.
9.1 Partnership Committee.
9.1(a) Composition of the Committee. The Partnership shall be managed by
a Partnership Committee composed of one Member representing each Partner. Each
Partner shall designate its Member of the Partnership Committee, whose vote
shall be based on that Partner's Ownership Interest. The Members of the
Partnership Committee shall be designated by the Partners by notice to each
other immediately after the Amended Partnership Effective Date, and the Members
shall serve until their successors' designations shall become effective. A
person may be designated by more than one Partner as a Member to represent each
such Partner and such Member shall be regarded as representing more than one
Partner for purposes of a required quorum under Section 9.4.
9.1(b) Replacement of Committee Members. If any Member of the Partnership
Committee dies, resigns, or becomes incapacitated, the Partner which designated
such Member shall designate his or her successor, the term of such successor to
commence immediately, and any Partner may withdraw the designation of the Member
of the Partnership Committee which it designated and designate a replacement
(whose term shall commence immediately) at any time, with or without cause, by
giving written notice of the withdrawal and replacement to the other Members of
the Partnership Committee.
9.1(c) Changes in the Voting Interest of Committee Members Due to Changes in
Ownership. In the event of any changes in the relative Ownership Interests of
the Partners in the Partnership effective during the course of a Calendar Year,
the vote of each Member of the Partnership Committee shall reflect such change
effective upon the receipt of notice by the Partnership that a change in the
Ownership Interests of the Partners has occurred.
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9.1(d) Special Legal and Regulatory Obligations of Member. All Members of
the Partnership Committee are under a special legal obligation to protect
confidential information, including but not limited to shipper information,
against disclosure or against use by the Partner or any other party for any
purpose other than the direct business of the Partnership. Each Partner shall
be obligated to take such steps as are necessary to ensure that such
confidential information is not disclosed or used otherwise than as allowed by
law. No Member shall be allowed to participate in any business of the
Partnership in the event that such participation would compromise the
Partnership's obligation to safeguard such information.
9.2 Officials of the Partnership Committee and Terms of Service Thereon.
9.2(a) Election of-Partnership Officials. The Partnership Committee shall
elect a Chairman and one or more Vice-Chairmen from among those Members
designated by a General Partner and a Secretary and a Treasurer, who need not be
Members, immediately after being created and thereafter at its first meeting
during each Calendar Year. Each Chairman, Vice-Chairman, Secretary and Treasurer
shall serve until his or her successor is elected and qualified or until his or
her earlier resignation, removal by vote of the Partnership Committee, or, in
the case of the Chairman or Vice-Chairman, his or her earlier departure or
removal from membership in the Partnership Committee, or in the event that the
General Partner that designated such Member ceases to be a General Partner
hereunder. An individual may hold more than one office.
9.2(b) Duties of the Chairman. The Chairman shall preside over all meetings
of the Partnership Committee, shall call regular meetings of the Partnership
Committee, may call special meetings of the Partnership Committee and shall have
other duties as specified elsewhere in this Agreement.
9.2(c) Duties of the Vice-Chairman. The Vice-Chairman present with the
longest continuous service as such shall preside over meetings of the
Partnership Committee in the absence of the Chairman, and in the event the
Chairmanship becomes vacant, the Vice Chairman with the longest continuous
service as such shall serve as Chairman until a new Chairman is elected.
9.2(d) Duties of the Secretary. The Secretary shall record minutes of the
Partnership Committee meetings, shall give notice of regular and special
meetings of the Partnership Committee when directed to do so pursuant to Section
9.4 hereof, and shall accept and notify all Partnership Committee Members of any
resignations of Partnership Committee Members or Partnership officials (other
than his own resignation which shall be accepted by the Chairman). The
Secretary shall also cause the Partnership to comply with the requirements under
the Assumed Business or Professional Name Act of the Business and Commerce Code
of the State of Texas.
9.2(e) Duties of the Treasurer. The Treasurer shall have general supervision
of the funds, securities, notes, drafts, acceptances, and other commercial paper
and evidences of indebtedness of the Partnership and shall insure that funds
belonging to the Partnership are kept on deposit in such banking institutions or
invested in securities as the Partnership Committee may from time to time
direct. The Treasurer shall insure that accurate
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accounting records are kept, and shall render statements of income and of
financial position of the Partnership to the Partnership Committee and each
Partner at any time upon reasonable request. The Treasurer shall perform other
duties commonly incident to such office.
9.3 General Provisions Regarding the Partnership Committee.
9.3(a) Additional Authority. The Chairman, Vice-Chairmen, Secretary or
Treasurer and the incumbents of any other similar positions which the
Partnership Committee may elect to create, may be given other duties either of a
general or specific nature by the Partnership Committee, but, in the absence of
any such grant of authority, shall not be deemed to have any inherent authority
to act for the Partnership except as specifically set forth elsewhere in this
Agreement.
9.3(b) Compensation. The officials of the Partnership shall receive no
compensation from the Partnership. All costs of each Member of the Partnership
Committee arising out of his attendance at Partnership Committee meetings or
conduct of Partnership business shall be borne by the Partner he or she
represents. The Partnership shall indemnify and save harmless the Members of
the Partnership Committee and the officials of the Partnership against all
actions, claims, demands, costs and liabilities arising out of the acts (or
failure to act) of any such Members and officials in good faith within the scope
of their authority in the course of the Partnership's business, and such Persons
shall not be liable for any obligations, liabilities or commitments incurred by
or on behalf of the Partnership as a result of any such acts or failure to act.
9.3(c) Insurance. To the extent that such insurance is commercially
available, the Partnership Committee may authorize the Operator to purchase and
maintain insurance on behalf of any Person who is or was a Member of the
Partnership Committee, or an official of the Partnership, or who is or was
serving at the request of the Partnership as agent of the Partnership, against
any liability asserted against or incurred by him in any such capacity, or
arising out of his status as such, whether or not the Partnership would have the
power to indemnify him against such liability under the provisions of the
preceding Section 9.3(b).
9.4 Meetings of the Partnership Committee. The Partnership Committee may
hold meetings either within or without the State of Texas. Regular meetings of
the Partnership Committee shall be held not less frequently than once each
calendar quarter at such times and places as the Partnership Committee
determines. Special meetings of the Partnership Committee may be called by the
Chairman of the Partnership Committee on ten (10) Business Days notice to each
Member of the Partnership Committee and shall be called by the Chairman or
Secretary of the Partnership Committee on like notice upon request of any Member
of the Partnership Committee. Meetings of the Partnership Committee may be held
by conference telephone call on two (2) Business Days notice. Each notice of a
meeting or conference call shall state the time and place of the meeting or the
conference call and the purpose or purposes thereof. Unless otherwise waived in
writing by all Members of the Partnership Committee, only matters included in
the notice of the meeting or conference call can be considered for a vote by the
Partnership Committee. Any requirements of notice will be deemed waived by any
Member of the Partnership Committee who attends a Partnership Committee meeting
or participates in a
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conference call unless such Member attends or participates solely to protest the
lack of proper notice. Any requirement of notice may be waived by any Member in
writing, which waiver or waivers shall be attached by the Secretary of the
Partnership Committee to the minutes of the meeting of the Partnership Committee
for which such waiver is effective. Provided that proper notice is either given
or duly waived by all Members of the Partnership Committee, the presence of at
least two (2) Members of the Partnership Committee representing two of the
General Partners, and representing at least fifty-one percent (51%) of the
Ownership Interests shall be sufficient to constitute a quorum for the
transaction of business. The Partnership Committee may act by the unanimous
written consent of all Members of the Partnership Committee (which may be signed
in counterpart) in lieu of holding a meeting; such unanimous written consent
shall be effective when filed with the Secretary of the Partnership Committee.
Notice to Members of the Partnership Committee shall be as provided in Article
36 hereof.
9.5 Voting of the Partnership Committee - Supermajority
Unless Members representing a minimum of ninety percent (90%) of the Ownership
Interest and a minimum of two General Partners authorize such action, the
Partnership shall not:
(a) Approve single line items greater than $5,000,000 in the operating or
capital budget (except for Expansions);
(b) Enter into any agreement requiring financial commitment or expenditures of
the Partnership of $5,000,000 or more in any twelve-month period (except
for Expansions or any previously approved budget item);
(c) Enter into any agreement which obligates the Partnership to a term of three
years or longer (except for Expansions);
(d) Release, compromise or settlement of any Claim against the Partnership or
commencement of any lawsuit against another Person for amounts in dispute
of $5,000,000 or more;
(e) Acquire or dispose of any Partnership asset, in a single transaction, or a
series of related transactions, with a fair market value of $5,000,000 or
more (except for Expansions);
(f) Accept contributions of property to the Partnership, other than cash or
cash equivalents, having a fair market value of $5,000,000 or more;
(g) Assume environmental liabilities or obligations in connection with the
acquisition of an interest in real property;
(h) Establish, amend and cause the filing of tariffs, provided, however, for
the avoidance of doubt, non-discretionary filings required by regulation
shall not require a vote of the Partnership (Ownership interest
representing MAPL and MAPLII shall be non-voting until such time as MAPL
and MAPLII
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and/or any of their Affiliates own an aggregate interest of less than 50%
of Seminole Pipeline and no longer operate Seminole Pipeline. A 90% vote of
the remaining Ownership Interest shall be required to approve the
establishment of, or an amendment to, a tariff);
(i) Distribute cash in a manner other than as set forth in Section 11;
(j) Select name or names under which the Partnership may conduct business.
(k) Resolve audit disputes with Partners;
(l) Make any claim, disclaimer, surrender, election or consent of a material
nature for tax purposes;
(m) Commingle funds of the Company with the funds of any other Person;
(n) Factor or assign any of the Partnership's accounts;
(o) Borrow money or obtain any advance, or give any security interest in the
Facilities or any portion thereof, to secure any such borrowing, or obtain
credit in any form (other than trade credit) or make a loan or advance or
give credit, other than normal trade credit;
(p) Give any guarantee or indemnity or security in respect of any liabilities
or obligations of any person other than the Partnership and any of its
subsidiaries, if any;
(q) Create or dispose of any subsidiary of the Partnership or any interest
therein;
(r) Establish an investment policy for the Partnership that involves the use of
derivatives or any other futures type contracts;
(s) Remove the Operator as physical and/or commercial Operator for cause
(Ownership Interest representing Operator and its Affiliates shall be non-
voting in this instance, 90% vote of remaining Ownership Interest
required);
(t) Change of classification of a General Partner to a Limited Partner, or of a
Limited Partner to a General Partner or interest thereof;
(u) Posses, or in any manner deal with, any of the Partnership assets or
dispose of the rights of the Partnership in such assets for other than
Partnership purposes;
(v) Use the System for transportation of substances other than LPG; materially
alter the nature and scope of the business of the Partnership or the
ownership of the Facilities, or materially extend the Partnership into
activities that are
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not reasonably related to the purposes of the Partnership as set forth in
Section 5;
(w) Approve the acquisition of the Partnership by, the conversion of the
Partnership to, or the merger or consolidation of the Partnership with or
into, any other Person; or the investment or acquisition by the Partnership
in or of all or substantially all of the assets of any other Person;
(x) Except as otherwise provided herein, do or permit or suffer to be done any
act or thing whereby the Partnership may be wound up, liquidated or
dissolved (whether voluntarily or compulsorily);
(y) Appoint a liquidating trustee;
(z) Dissolve the Partnership; or
(aa) Amend or restate this agreement.
9.6 Voting of the Partnership Committee - Simple Majority
The operation and maintenance of the System shall be performed by the Operator
pursuant to the Operating Agreement to be approved by the Partnership Committee.
The Partnership Committee shall have authority to oversee the operations of
Operator as provided in the Operating Agreement and, except as such authority
may be limited under other terms of this Agreement, the Partnership Committee
shall have full power and authority to manage the entire business and affairs of
the System. Without limiting the generality of the foregoing, all matters not
specifically listed in Section 9.5, or otherwise provided in this Agreement,
shall be decided by a simple majority vote of the Member(s) representing greater
than fifty percent (50%) of the Ownership Interest and a minimum of two General
Partners. A limited list of specific examples of items requiring a simple
majority vote include:
(a) Consider, revise, approve, and reject operating and capital budgets and
AFE's recommended by the Operator as provided in the Amended and Restated
Operating Agreement (except as otherwise provided for in 9.5(a));
(b) Appoint a new physical and/or commercial Operator in the event the physical
and/or commercial Operator resigns or is removed;
(c) Authorize, or refuse to authorize, the Operator to settle claims brought
against the Partnership recommended by the Operator in amounts greater than
$100,000 but less than $5,000,000; or the filing of lawsuits the Operator
proposes the Partnership bring against third parties, other than routine
debt collection actions;
(d) Enter into any material contract or arrangement outside the ordinary course
of business in amounts greater than $100,000 or less than $5,000,000;
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(e) Authorize an independent audit of the Partnership, the cost of which shall
be paid for by the Partnership.
It is understood and agreed that the list of items requiring a simple majority
vote of the Partnership Committee as set forth above shall in no way be
construed as a complete or exclusive listing of all items requiring a simple
majority vote.
9.7 Minutes. The Secretary of the Partnership Committee or other
person designated by the Chairman shall be present at and record the minutes of
all meetings and promptly provide each Member with copies thereof following each
meeting. The original of the minutes as approved by each Member shall be
maintained at the principal office of the Partnership.
9.8 No Management by Individual Partners. All acts of management of
the Partnership shall be taken by the Partnership Committee, acting pursuant to
this Agreement, by agents duly authorized in writing by the Partnership
Committee or by the Operator acting pursuant to the Amended and Restated
Operating Agreement. No individual Partner or Member of the Partnership
Committee shall act or purport to act as an agent of or otherwise on behalf of
the Partnership unless, and then only to the extent, authorized in writing to do
so by the Partnership Committee. Limited Partners shall not participate in the
management or control of the business except as otherwise permitted by the Act.
9.9 Change of Classification of Partnership Interest. No change in
classification hereunder of any Ownership Interest of a General Partner to a
classification of a Limited Partner, nor any change in classification of any
Ownership Interest of a Limited Partner to a classification of a General Partner
shall be effective hereunder unless such change in classification or designation
shall have first been approved by a vote of the Members under Section 9.5 (t)
above and such change complies with the requirements of the Act.
10. Book Capital Accounts and Capital Contributions.
10.1 Book Capital Accounts of the Partners. The Partnership shall
maintain individual Book Capital Accounts for each Partner for financial
accounting purposes. Each Partner's Book Capital Account shall include its
initial capital contributions (a) increased by (i) any additional capital
contributions made by such Partner and (ii) its Ownership Interest in
Partnership income, and (b) decreased by (i) its Ownership Interest in
Partnership losses, (ii) any distributions of Distributable Cash to such Partner
and (iii) the agreed value of any distributions of property made to such Partner
net of any liabilities assumed by such Partner or to which such property is
subject.
10.2 Capital Contributions. Each Partner agrees to contribute any
amount of additional capital specified by the Partnership Committee to fulfill
the purposes, as they may be amended, for which the Partnership is created.
When, subject to the foregoing, the Partnership Committee shall determine
additional capital funds are required from the Partners, it shall specify the
amount to be contributed by each Partner, which amount shall be in proportion to
the Ownership Interest of that Partner in the Partnership, but which shall also
take into account
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relative amounts then in that Partner's Book Capital Account to the end that the
additional amount to be paid, plus the existing balance in that Partner's Book
Capital Account, shall result in a balance in exact proportion to that Partner's
Ownership Interest in the Partnership. Prior to any call for capital
contributions, the aggregate loss of any Partner's profits and losses shall be
deducted from that Partner's Book Capital Account and the aggregate gain of any
Partner's profits and losses shall be added to that Partner's Book Capital
Account before the calculation is made to determine the amount of additional
capital required from each Partner.
11. Distributions of Distributable Cash.
11.1 Allocation. Any costs, profits and/or losses of the Partnership
shall be shared among the Partners in accordance with their Ownership Interests
at the time such costs, profits and/or losses are accrued. Exceptions may be
necessary from time to time, such as for certain types of projects or events
addressed in Section 6.2 above, and for other circumstances approved by the
Partners.
11.2 Distributions. Unless otherwise approved by a vote of the
Partners under Section 9.5(i), the Operator shall distribute to the Partners
Distributable Cash as follows: within thirty days after the end of each calendar
month there shall be distributed in cash to the Partners allocated in accordance
with their Ownership Interest all cash available for distribution, taking into
account the cash account as of the end of the month and any cash activity from
the end of the month to the date of distribution less the reasonable working
capital needs to operate the System.
12. Accounting. The books and records of the Partnership shall be
maintained by the Operator and shall be open to inspection at all reasonable
times to any Partner. Such books shall be maintained in accordance with GAAP
utilizing the principles and practices generally employed in regulated oil
pipeline accounting unless any regulatory agency with jurisdiction over the
System or the Partnership shall rule otherwise. Unaudited financial statements
for the Partnership shall be prepared and distributed to each Partner and to the
Partnership Committee Members not less often than quarterly; however, income
statements shall be provided monthly. Complete financial statements shall be
prepared annually which may be audited and certified by independent certified
public accountants selected by the Partnership Committee or may be jointly
audited by the Partners. The Fiscal Year for the Partnership shall commence
January 1 and end December 31 of each year, except that for the first year of
operation, the Fiscal Year shall begin on the Amended Partnership Effective Date
and end on December 31, 1999.
13. Audit. Any Partner, at its sole expense, may audit the Partnership
books of account by giving thirty (30) Business Days notice to the Partnership
Committee, the Operator and all other Partners, but the Partnership Committee
may decline to permit more than one (1) such audit to be conducted in any six-
month period. Such audit shall be at the reasonable convenience of the Partner,
the Operator and the Partnership Committee, shall be open for participation by
all Partners and shall be restricted to books of account for the preceding two
(2) Fiscal Years. All audit exceptions shall be resolved in a timely manner. Any
audit exception not resolved within ninety (90) days after the release of the
audit report will become an agenda item at the next Partnership Committee
meeting and shall be resolved at that time. Amounts owed as determined by an
audit shall be paid with interest accruing from the date determined by the audit
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at the prime rate quoted in the Wall Street Journal plus two percent, such rate
adjusted as necessary for changes in the prime rate during the effective period.
Should the Partnership Committee fail or be unable to resolve any such audit
disputes, the matter shall be shall be resolved in accordance with the
alternative dispute resolution procedures set forth in Section 20 hereinafter.
14. Limitation on Partner's Liabilities Regarding Partnership Contracts.
Unless approved by the Partnership Committee, the Partnership or its authorized
agents or representatives shall not enter into any contract, lease, sublease,
note, deed of trust or other obligation unless there is contained therein an
appropriate provision limiting the claims of all parties to such instruments and
other beneficiaries thereunder to the assets of the Partnership and expressly
waiving any rights of such parties and other beneficiaries to proceed against
the Partners individually.
15. Cross Indemnification.
15.1 Indemnity. Each Partner (in each case the "Indemnifying Partner")
shall indemnify and hold all other Partners and, in the case of Sections 15.1
and 15.2 hereof, the Partnership, harmless from:
(a) Any losses or claims resulting from any act or omission of such
Indemnifying Partner in breach of this Agreement;
(b) Any claim by any third party arising out of the intentional,
willful, or grossly negligent act of such Indemnifying Partner related directly
or indirectly to the Partnership; and
(c) Any judgment against any other Partner arising solely because of
the Indemnifying Partner's liability for Partnership debts under the laws of the
State of Texas (and not because of any other act of the Partner seeking
indemnity), to the extent that the Partner claiming indemnity has borne greater
than its proportionate share of the judgment actually paid.
15.2 Reimbursement. Except as otherwise specifically provided in this
Agreement, all expense, loss, damage, liability or claims (together with all
costs incurred in connection therewith) shall be borne, shared and paid by the
Partners hereto on the basis of their respective Ownership Interests. In the
event any Partner is required for any reason, other than as specified in this
Agreement, to pay a disproportionate share of any obligations of the
Partnership, all other Partners who have not paid their proportionate share
agree to reimburse that Partner to the extent necessary to place the resulting
loss of each Partner into direct proportion to its Ownership Interest. The
provisions of this Article 15 shall survive termination of this Agreement and of
the Partnership.
15.3 Sharing of Uncovered Losses. Should the Partnership incur losses
which are either greater than the amount of, or not covered by any insurance
coverage carried by the Partnership, and which are the obligation of the
Partnership and not that of individual Partners, the Partners agree to share
such losses in proportion to their Ownership Interests; provided,
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however, nothing herein shall be construed as a waiver of the limitation of
liability to third parties afforded limited partners under the Act.
16. Tax Provisions.
16.1 Status of Partnership. The Partners intend that, pursuant to the
provisions of Subchapter K of Chapter 1 of Subtitle A of the Code, the
Partnership will be treated as a Partnership for federal, state, and local
income tax purposes, and each Partner agrees not to elect to be excluded from
the application of all or any part of Subchapter K of the Code or any
corresponding provisions of state or local law.
16.2 Tax Returns, Proceedings and Elections. Tax returns, proceedings
and elections shall be governed by the provisions of Exhibit E attached. The
provisions of Exhibit E may be amended from time to time by vote of the
Partnership Committee as provided in Section 9.7 (e).
16.3 Tax Definitions.
16.3(a) "Adjusted Federal Income Tax Capital Account Deficit"
(Adjusted FIT Capital Account Deficit) means, with respect to any Partner, the
deficit balance in such Partner's FIT Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) Credit to such FIT Capital Account any amounts which such Partner
is obligated to restore pursuant to any provision of this Agreement or pursuant
to Regulations Sections 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections 1.704-
2(g)(1) or 1.704-2(i)(5); and
(ii) Debit to such FIT Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted FIT Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
16.3(b) "Code" means the Internal Revenue Code of 1986, as amended.
16.3(c) "Depreciation" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes, as described in Treasury Regulations Section 1.704-
1(b)(2)(iv)(g), at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
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zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Partners.
16.3(d) "Federal Income Tax Capital Account" (FIT Capital Account)
means, with respect to any and each Partner, the FIT Capital Account maintained
for such Person in accordance with Regulation Section 1.704-l(b)(2)(iv) and the
following provisions:
(i) To each Partner's FIT Capital Account there shall be credited such
Partner's FIT Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 16.4(b) or Section 16.4(c) hereof, and the amount
of any Partnership liabilities assumed by such Partner or which are secured by
any Partnership Property distributed to such Partner; and
(ii) To each Partner's FIT Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership Property distributed
to such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Losses and any items in the nature of expenses or losses
that are specially allocated pursuant to Section 16.4(b) or Section 16.4(c)
hereof, and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by any property contributed by such Person to
the Partnership.
(iii) In determining the amount of any liability for purposes of
subparagraphs (i) and (ii) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and Regulations.
16.3(e) "Federal Income Tax Capital Contribution" (FIT Capital
Contribution) means, with respect to any Partner, the amount of money and the
initial Gross Asset Value of any property (other than money) contributed as
capital and not as a project loan to the Partnership by such Partner pursuant to
this Agreement. The principal amount of a promissory note which is not readily
traded on an established securities market and which is contributed to the
Partnership by the maker of the note shall not be included in the FIT Capital
Account of any Partner until the Partnership makes a taxable distribution of the
note or until (and to the extent) principal payments are made on the note, all
in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
16.3(f) "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset as
determined by the contributing Partner and the Partnership Committee;
(ii) The Gross Asset Value of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Partnership Committee, and in accordance with Regulations Section 1.704-
1(b)(2)(iv)(f) and 1.704-1(b)(2)(iv)(g), as of the following times: (a) the
acquisition of an additional Ownership Interest
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by any new or existing Partner in exchange for more than a de minimis FIT
Capital Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership Property as consideration for an
Ownership Interest; and (c) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iii) The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the date of
distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining FIT Capital Accounts
pursuant to Regulations Section 1.704l(b)(2)(iv)(m) and 16.4(b)(viii) hereof;
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent the Partnership Committee determines that
an adjustment to subparagraph (ii) hereof is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has
been determined or adjusted pursuant to subparagraph (i), (ii) or (iv) hereof,
such Gross Asset Value shall thereafter be adjusted by the Depreciation taken
into account with respect to such asset for purposes of computing Profits and
Losses.
16.3(g) "Guaranteed Payment" means a payment by the Partnership to a
Partner as provided under Regulations Section 1.707-1(c). Such payment is to be
determined without regard to the income of the Partnership and is considered as
made to a Partner who is not acting in its capacity as a Partner.
16.3(h) "Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b). The amount of Nonrecourse Deductions for a
Partnership Fiscal Year is determined in accordance with Regulations Section
1.704-2(c) and equals the net increase in Partnership Minimum Gain during the
year, reduced (but not below zero) by the aggregate distributions made during
the year of proceeds of a Nonrecourse Liability that are allocable to an
increase in Partnership Minimum Gain; provided that increases in Partnership
Minimum Gain resulting from conversions, refinancing, or other changes to a debt
instrument described in Regulations Section 1.704-2(g)(3) shall not generate
Nonrecourse Deductions.
16.3(i) "Nonrecourse Liabilities" has the meaning set forth in
Regulations Section 1.752-1(a)(2) or 1.704-2(b)(3).
16.3(j) "Partner Nonrecourse Debt" or "Partner Nonrecourse Liability"
as set forth in Regulations Section 1.704-2(b)(4), means any Partnership
liability to the extent that the liability is nonrecourse for purposes of
Regulations Section 1.1001-2, and a Partner (or related person within the
meaning of Regulations Section 1.752-4(b)) bears the economic risk of loss
within the meaning of Regulations Section 1.754-2.
16.3(k) "Partner Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Partner Nonrecourse Debt, determined in accordance with
Regulations Sections 1.704-2(i)(2) and 1.704-2(i)(3).
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16.3(l) "Partner Nonrecourse Deductions", as set forth in Regulations
Section 1.704-2(i)(2) and 1.704-2(i)(3), means for any Partnership taxable year,
the net increase during the year in Partner Nonrecourse Debt Minimum Gain,
reduced (but not below zero) by proceeds of the liability distributed during the
year to the Partner bearing the economic risk of loss for the liability that is
both attributable to the liability and allocable to an increase in the Partner
Nonrecourse Debt Minimum Gain.
16.3(m) "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2) and 1.704-2(d).
16.3(n) "Profits and Losses" means, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income described in Code Section 705(a)(1)(B) of the
Partnership that is exempt from federal income tax and not otherwise taken into
account in computing Profits and Losses pursuant to this definition shall be
added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition, shall be subtracted
from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership Property
is adjusted pursuant to subparagraph (ii) or subparagraph (iii) of the
definition of Gross Asset Value, the amount of such adjustments shall be taken
into account as gain or loss from the disposition of such asset for purposes of
computing Profits and Losses;
(iv) Gain or loss resulting from any disposition of Partnership
Property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property may
differ from its Gross Asset Value.
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period,
computed in accordance with the definition of Depreciation; and
(vi) Notwithstanding any other provisions of this definition, any
items which are specially allocated pursuant to Section 16.4(b) or Section
16.4(c) shall not be taken into account in computing Profits or Losses.
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16.3(o) "Regulations" means the Income Tax Regulations promulgated
under the Code as amended from time to time, including the corresponding
provisions of any succeeding regulations.
16.3(p) "Tax Matters Partner" means the Partner so designated pursuant
to Exhibit E hereof.
16.4 Tax Allocations.
16.4(a) Allocation of Profits and Losses.
(i) Allocation of Profits. After first giving effect to the Regulatory
Allocations set forth in Section 16.4(b), and the Special Allocations in Section
16.4(c), Profits for each Fiscal Year of the Partnership shall be allocated to
the Partners in proportion to their respective Ownership Interests as reflected
in Exhibit A.
(ii) Allocation of Losses. After first giving effect to the Regulatory
Allocations set forth in Section 16.4(b), and the Special Allocations in Section
16.4(c), Losses for each Fiscal Year of the Partnership shall be allocated to
the Partners in proportion to their respective Ownership Interests as reflected
in Exhibit A.
16.4(b) Regulatory Allocations. The following Regulatory allocations
shall be made for the purpose of complying with Code Section 704(b) and the
Regulations thereunder in the following order:
(i) Minimum Gain Charge Back. Except as otherwise provided in
Regulations Section 1.704-2(f), and notwithstanding any other provision of this
Article 16, if there is a net decrease in Partnership Minimum Gain during any
Partnership Fiscal Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary subsequent years)
equal to such Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g); provided that a
Partner shall not be subject to this Section 16.4(b)(i) to the extent that an
exception is provided by Regulations Sections 1.704-2(f)(2), (3) and (4), and
any Revenue Rulings issued pursuant to those Regulations. Any Partnership
Minimum Gain allocated pursuant to this Section 16.4(b)(i) shall consist of
first, gains recognized from the disposition of Partnership Property subject to
one or more Partnership Nonrecourse Liabilities, and second, if necessary, a pro
rata portion of the Partnership's other items of income or gain for that year.
This Section 16.4(b)(i) is intended to comply with the minimum gain charge back
requirement in Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith The FIT Capital Accounts of the Partners may be restated
pursuant to Regulation Section 1.704-1(b)(2)(iv)(f) in connection with a
termination of the Partnership under Code Section 708(b)(1)(B).
(ii) Partner Nonrecourse Debt Minimum Gain Charge Back. Except as
otherwise provided in Regulations Section 1.704-2(i)(4), and notwithstanding any
other provision of this Article 16 except Section 16.4(b)(i), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any
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Partnership Fiscal Year, each Partner who has a share of the Partner Nonrecourse
Debt Minimum Gain attributable to such Partner Nonrecourse Debt (determined in
accordance with Regulations Section 1.704-2(i)(5)) as of the beginning of the
year shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) equal to such Partner's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt determined in accordance with Regulations Section
1.704-2(i). A Partner's share of the net decrease in Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5); provided that a Partner shall not be subject to this Section
16.4(b)(ii) to the extent that an exception is provided by Regulations Section
1.704-2(i)(4) and any Revenue Rulings issued thereunder. Any Partner Nonrecourse
Debt Minimum Gain allocated pursuant to this Section 16.4(b)(ii) shall consist
of first, gains recognized from the disposition of Partnership Property subject
to the Partner Nonrecourse Debt, and second, if necessary, a pro rata portion of
the Partnership's other items of income or gain for that year. This Section
16.4(b)(ii) is intended to comply with the minimum gain charge back requirement
in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Adjusted FIT Capital Account
Deficit of such Partner created by such adjustments, allocations or
distributions as quickly as possible, provided that an allocation pursuant to
this Section 16.4(b)(iii) shall be made if and only to the extent that such
Partner would have an Adjusted FIT Capital Account Deficit after all other
allocations provided for in this Article 16 have been tentatively made as if
this Section 16.4(b)(iii) were not in the Agreement.
(iv) Gross Income Allocation. In the event any Partner has a deficit
FIT Capital Account at the end of any Partnership Fiscal Year that is in excess
of the sum of (A) the amount such Partner is obligated to restore pursuant to
the terms of this Agreement or otherwise, and (B) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 16.4(b)(iv) shall be made if, and only to the extent that, such Partner
would have a deficit FIT Capital Account in excess of such sum after all other
allocations provided for in this Article 16 have been tentatively made as if
Section 16.4(b)(iii) and this Section 16.4(b)(iv) were not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year or other period shall be allocated to the Partners in proportion to their
respective Ownership Interests.
(vi) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the Partner who
bears the economic
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risk of loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Regulations Section
1.704-2(h).
(vii) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership Property pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining FIT Capital Accounts,
the amount of such adjustment to the FIT Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
FIT Capital Accounts are required to be adjusted pursuant to such section of the
Regulations.
16.4(c) Special Allocations.
(i) Allocation of Inherent Gain. If during the term of the
Partnership, the FIT Capital Accounts of the Partners are not restated pursuant
to Regulations Section 1.704-1(b)(2)(iv)(f), then except as required by the
Regulatory Allocations, gain on disposition of the Partnership's assets as of
the date of this Agreement and their adjusted tax basis as of such date shall be
allocated to the Partners in proportion to their Ownership Interests.
(ii) Curative and Remedial Allocations. The allocations set forth in
Section 16.4(b)(i) to Section 16.4(b)(vi) hereof (the "Regulatory Allocations")
are intended to comply with certain requirements of Regulations Section 1.704-
1(b). It is the intent of the Partners that to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss,
and deduction pursuant to this Section 16.4(c)(ii). Therefore, notwithstanding
any other provision of this Article 16 (other than the Regulatory Allocations),
the Partners hereby authorize offsetting special allocations of income, gain,
loss, or deductions either through curative or remedial allocations, as
appropriate, so that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations had not
occurred.
(iii) Deduction or Loss Attributable to FIT Capital Contributions.
Except as required by the Regulatory Allocations, all items of deduction or loss
attributable to a Partner's FIT Capital Contribution to the Partnership shall be
allocated to the contributing Partner in accordance with the Partner's Ownership
Interest.
16.4(d) Other Allocation Rules.
(i) Upon liquidation of the Partnership (or any Partner's Ownership
Interest) liquidating distributions shall be made in all cases in accordance
with the positive FIT Capital Account balances of the Partners, as determined
after taking into account all capital account adjustments for the Partnership
taxable year during which the liquidation occurs, consistent with the rules set
forth in Regulations Section 1.704-l(b)(2).
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(ii) The provisions of this Article 16 are intended to comply with
Code Section 704 and the Regulations thereunder.
(iii) For purposes of determining the profits, losses, or any other
items allocable to any period, profits, losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the
Partnership Committee using any permissible methods under Code Section 706 and
the Regulations thereunder.
(iv) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss, deduction, and any other allocations not
otherwise provided for shall be divided among the Partners in the same
proportions as they share profits or losses, as the case may be, for the year.
(v) If any Ownership Interest is sold, assigned or transferred during
any accounting period, Profits, Losses, each item thereof and all other items
attributable to the transferred Ownership Interest for such period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during the period in accordance with Code
Section 706(d), using any conventions permitted by law and selected by the
Partnership Committee. All distributions on or before the date of such transfer
shall be made to the transferor and all distributions thereafter shall be made
to the transferee.
(vi) For purposes of Regulations Section 1.752-3(1)(3), the Partners
agree that nonrecourse liabilities of the Partnership in excess of the sum of
(A) the amount of Partnership Minimum Gain, and (B) the total amount of built-in
gain (as described in Regulations Section 1.752-3(a)(2)), shall be allocated
among the Partners in accordance with their respective ownership Interests.
(vii) Code Section 704(c). In accordance with Code Section 704(c) and
the Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take into account any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Gross Asset Value (computed in
accordance with the definition of Gross Asset Value) including, but not limited
to, special allocations to a contributing Partner that are required under Code
Section 704(c) to be made upon distribution of such property to any of the non-
contributing Partners. In the event the Gross Asset Value of any Partnership
Property is adjusted pursuant to subparagraph (ii) of the definition of Gross
Asset Value, subsequent allocations of income, gain, loss and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Regulations thereunder. Any
elections or other decisions relating to such allocations shall be made by the
Partnership Committee in any manner that reasonably reflects the purpose and
intention of the Agreement; provided, however, the Partnership shall select the
remedial method of allocation provided under Section 1.704-3(d) of the
Regulations. Allocations pursuant to this Section 16.4(d)(vii) are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing any Partner's Book Capital Account or share
of Profits, Losses, other items, or distributions pursuant to any provision of
this
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Agreement. It is also the intent of the Partners that the foregoing special
allocation provided in this Section 16.4(d)(vii) shall be prospective and shall
not affect allocations on assets contributed prior to the adoption of the
amendment to this Section 16.4(d)(vii). For purposes of applying the remedial
method under Regulations Section 1.704-3(d), the amount by which book basis
exceeds tax basis for the MAPL Gathering System will be recovered over 15 years
using a recovery method of 150% declining balance switching to straight line.
17. Insurance. Except as otherwise agreed by all of the Partners, each
Partner shall maintain its own insurance against its portion of the risks
attendant to its interest in the Partnership. Each Partner shall maintain, at
such Partner's expense, at all times during the term of this Agreement the
insurance coverage set forth below with companies satisfactory to the
Partnership Committee with full policy limits applying, but not less than, as
stated.
(a) Minimum Coverage. The minimum insurance coverage shall be as
follows:
(i) General Liability coverage with minimum limits of
$1,000,000 bodily injury and property damage each
occurrence and in the aggregate to include broad form
property damage coverage;
(ii) Umbrella or Excess Liability coverage with per occurrence
limits of at least $5,000,000; and
(iii) Property loss coverage in an amount equal to a percentage
of the replacement value of the Facilities equal to such
Partner's Membership Interest.
Each Partner may self-insure as to the risks that would otherwise be covered by
the above types of coverage, but shall be obligated in the event of a loss to
pay and contribute to the Partnership amounts that would have been payable under
industry standard form policies for such coverages up to the amounts set forth
above, with respect to each Partner's proportionate share of such loss;
provided, however, no Partner shall be obligated to pay insurance proceeds or
pay to the Partnership any amounts as to property losses within the scope of
this section unless and until the Partnership Committee approves the rebuilding
or repair of the effected portions of the Facilities.
18. Disposition of Ownership Interests.
18.1 Dispositions. Any Partner may Dispose of its Ownership Interest
without the consent of the other Partners. The Partner wishing to make a
Disposition (herein the "Transferring Partner"), shall give written notice (the
"Disposition Notice") to each other Partners hereto (the "Remaining Partners")
not less than forty-five (45) days prior to the effective date of such
Disposition, stating the interest to be sold and identifying the proposed
transferee (herein the "Proposed Transferee").
(a) At the time such written notice is given to each Remaining Partner
of a proposed Disposition, the Transferring Partner shall include with such
notice information
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sufficient to demonstrate to the Remaining Partners that the Proposed Transferee
has adequate financial capability to fulfill the obligations of a Partner
hereunder as set forth in Exhibit D, which such Proposed Transferee will assume
in the event of such transfer. The period of evaluation of the Proposed
Transferee shall run for thirty (30) days. Within thirty (30) days of the notice
of proposed sale, each Remaining Partner shall deliver to the Transferring
Partner its reasonable and good faith opinion as to whether the adequate
financial capability of the Proposed Transferee has been demonstrated. If any
Remaining Partner fails to deliver such an opinion within the required thirty
(30) day period, it shall be deemed that such Remaining Partner has determined
that the adequate financial capability of the Proposed Transferee has been
demonstrated. During such thirty (30) day consideration period, any Remaining
Partner may request of the Transferring Partner, and the Transferring Partner
shall provide, such supplemental information concerning the Proposed Transferee
as may be reasonably necessary for the requesting Remaining Partner to make such
evaluation.
(c) If the transfer of the offered Ownership Interest to the Proposed
Transferee is to be completed and if the Remaining Partners agree, or are deemed
to have agreed that the Proposed Transferee meets the required financial
capability requirement, the Transferring Partner shall have the right to
transfer to the Proposed Transferee the Ownership Interest in the Partnership
specified in the notice referred to above and upon such transfer shall, subject
to this Article 18, be relieved of all its obligations and liabilities under
this Agreement arising after (but not before) the effective date of such
transfer. If a Partner or Partners having an aggregate Ownership Interest in
excess of fifteen percent (15%) give notice under the terms of Section 18.1(a)
that the Proposed Transferee does not meet the requirements of Section 18.1(a),
the Transferring Partner may transfer its Ownership Interest to the Proposed
Transferee but such Transferring Partner shall be liable for all of the
obligations and liabilities of its Proposed Transferee under this Agreement, as
hereafter amended (including any liabilities for breach of this Agreement). Any
dispute regarding the creditworthiness of a Proposed Transferee which the
Transferring Partner and Remaining Partners are unable to resolve to the
satisfaction of all Partners within ten (10) days following expiration of the
thirty (30) day period referenced in Section 18.1(a), shall, at the written
request of any Partner, be submitted to the alternative dispute resolution
procedures set forth in Section 20 for final resolution. If resolved in favor
of the Transferring Partner, such transfer may be completed subject to
provisions of this Section 18. If resolved in favor of the Remaining Partners,
such transfer may be completed subject to provisions of this Section 18 and the
retention of financial responsibility by the Transferring Partner; provided,
however, the Transferring Partner shall be released from such liability at such
time as the Proposed Transferee demonstrates to the Partnership Committee that
it has adequate financial capability to fulfill the obligations of a Partner and
only to the extent that such obligations and liabilities:
(1) arise out of, or are connected with, the Ownership Interest transferred
to such transferee by the Transferring Partner, and
(2) arise under this Agreement as it exists on the date of any such
transfer and as it may thereafter be amended or supplemented, but such
amendments or supplements shall not in any material way increase or adversely
affect any of the obligations or liabilities hereunder of such Transferring
Partner as they exist on the date of such transfer or extend
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the term of this Agreement past December 31, 2049. Any Transferring Partner who
retains liability hereunder shall be given copies of all notices (simultaneously
with its Proposed Transferee) concerning any obligations due and owing hereunder
from its Proposed Transferee. As a condition precedent to any person becoming a
Partner, such Proposed Transferee shall expressly assume the obligations of this
Agreement by executing and delivering one (or, at the request of the
Partnership, more) counterpart of this Agreement to each Partner and shall
execute such other documents as the other Partnership Committee may reasonably
request relating to assumption of the Transferring Partner's obligations and
liabilities concerning the Partnership.
18.2 General Conditions of Transfers. Every transfer, assignment or other
disposition of all or any part of a Partner's Ownership Interest under any
provision of this Agreement shall be conditioned upon its being effective only
when (i) the party receiving that Ownership Interest agrees in writing to be
bound by this Agreement and to assume all obligations, liabilities and duties
with respect to that Ownership Interest to which the prior holder was bound,
mutatis mutandis, and that the transfer, assignment or other disposition shall
not cause or create any right on the part of any Person to cause a winding up or
dissolution of the Partnership that is inconsistent with the provisions of this
Agreement or cause the termination of the Partnership for federal income tax
purposes and (ii) a true copy of the document or instrument evidencing the
transfer of all or any part of such Partner's Ownership Interest, certified as
such by a duly authorized representative of the transferring Partner, is
furnished to the Operator (a copy of which will be furnished to each Partner
upon written request).
18.3 Limitation on Dispositions to Avoid Termination. Notwithstanding
anything in this Agreement to the contrary, a Partner shall not have the right
to effect a Disposition of its Ownership Interest, or any portion thereof, to
any Person or entity, if such Disposition when aggregated with the total of all
other Dispositions of Ownership Interests within the preceding twelve (12)
months results in the Partnership being considered to have terminated within the
meaning of Section 708(b)(1)(B) of the Code. Any Partner transferring all or any
portion of its Ownership Interest shall promptly notify the Tax Matters Partner
of such transfer.
18.4 Relative Liabilities of Old and New Partners. Partners shall be
liable as to other Partners for Partnership debts and obligations in proportion
to their relative Ownership Interests in the Partnership.
18.5 Withdrawal of Partner When Unprofitable. If at any time during the
term of the Partnership any Partner deems the Partnership to be unprofitable
such that the Partner no longer desires to continue its participation in the
Partnership, in addition to any other rights that such Partner may have as
provided herein, such Partner shall have the right to request in writing that
the Operator submit to a vote by the Partnership Committee as to whether the
Partnership should be continued or wound up in accordance with the provisions of
Section 20 hereinafter. Within sixty (60) days of its receipt of such a request
by a Partner, the Operator shall submit these issues to the Partnership for
consideration. If after submitting the matter to a vote of the Partners, any
Partner or Partners owning a combined Ownership Interest of at least eleven
percent (11%) elect to continue the Partnership, (i) the Partner requesting such
vote shall relinquish its Ownership Interest in the Partnership to the other
Partner or Partners that voted to
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continue the Partnership (the "Affirmative Voting Partners") and thereafter be
relieved of any future Partnership liabilities and (ii) the other Partner(s)
that voted not to continue the Partnership shall have the right, but not the
obligation, to relinquish its or their Ownership Interest in the Partnership to
the Affirmative Voting Partners and thereafter, upon relinquishing such
interest, shall be relieved of any future Partnership liabilities. The Ownership
Interest being relinquished by a Partner shall be proportionately allocated
among the Affirmative Voting Partners based on the percentage by which each such
Continuing Partner's Ownership Interest bears to the total Ownership Interest
owned by all Affirmative Voting Partners. Any such transfer of a Partner's
interest in the Partnership SHALL NOT relieve or release such assigning Partner
from any of the Partnership's obligations and/or liabilities arising out of
events that occurred prior to such assignment, including, but not limited to,
environmental and existing financial liabilities and/or obligations.
18.6 Disposition of Ownership Interest to Another Partner. In the
circumstance where the Ownership Interest of one General Partner and its
Affiliates is acquired all or in part by another General Partner and its
Affiliates, the requirements for an affirmative vote of two General Partners as
set forth in Section 6.2 (a), Section 9.5, and Section 9.6, has the effect that
such votes may require unanimous consent. Any Partner and/or its Affiliates
shall be limited to a single General Partner vote. To remedy this situation,
the Partners may agree to restate those sections of the Partnership Agreement on
voting matters, and such restatement shall require mutual consent of all
remaining partners.
19. Default by Partners.
19.1 Failure to Make Contributions. Capital contributions not made when
due shall bear interest at the lower of (i) two percent (2%) above the prime
rate of interest as quoted in The Wall Street Journal at the time the
contribution was due, or (ii) the maximum legal rate of interest. While any
Partner is in material default hereunder in any of its obligations to make
capital contributions, such Partner shall have:
(a) No right to vote as a Partner and its Member on the Partnership
Committee shall have no right to vote (and the requirements for passage or
approval of items and for quorums shall be modified as necessary),
(b) No right to receive any portion of any distributions made by the
Partnership, and
(c) A continuing duty to pay its share of all future capital contributions
called for by the Partnership pursuant to this Agreement.
19.2 Expulsion of Partners. In the event any Partner commits a material
default of its obligations under this Agreement and fails to commence reasonable
steps to remedy the default within sixty (60) days after its receipt of written
notice specifying in reasonable detail the default and the reasonable actions
that must be taken to cure such default, which notice shall be prepared and sent
at the direction of the Partnership Committee, (which, for all determinations
under this Article 18, shall exclude the Ownership Interest of the Partner in
default) or becomes
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bankrupt or otherwise enters into a proceeding for general relief from its
creditors, the Partners not in default may, in addition to any other remedy they
may have by law or in equity, by vote of the Partnership Committee as provided
in Section 9.5(h), expel the defaulting Partner effective as of any future date
they specify.
19.3 Treatment of Book Capital Account of Expelled Partner. Any Partner
so expelled shall, within a reasonable period determined by the Partnership
which may include installment payments over five (5) years after the date the
expulsion becomes effective, be paid the positive balance, if any, in its Book
Capital Account after: (a) closing out its profits and losses (as determined
under GAAP) for Book Capital Account purposes; and (b) further subtracting from
its Book Capital Account the expelled Partner's or its Affiliate's share of any
then existing liabilities of the Partnership, whether or not then due and owing,
and any actual damages suffered by the Partnership and other Partners by reason
of the default. If the balance in the expelled Partner's Book Capital Account is
positive after the closing out of its profits and losses and the subtraction of
its (or its Affiliate's) share of then due and owing liabilities of the
Partnership, as well as the payment of any damages (which subtracted items are
herein referred to as "Current Liabilities"), but such balance is less than the
total of such former Partner's (or its Affiliate's) share of any other potential
existing Partnership liabilities which are not then due and owing (herein "Non-
Current Liabilities"), the Partnership shall retain such part of the expelled
Partner's Book Capital Account as is equal to the amount of the expelled
Partner's share of such Non-Current Liabilities, until all such liabilities are
paid in full. Such retained moneys may be invested and reinvested as the
Partnership deems appropriate and shall constitute a security interest in the
possession of the Partnership to secure the payment of such Non-Current
Liabilities of the expelled Partner, and such expelled Partner agrees that such
security interest in its Book Capital Account shall pass to the Partnership and
the Partnership shall take possession thereof for the purpose of obtaining
perfection of such security interest on the earlier of the date of its expulsion
or the date the expelled Partner enters voluntary bankruptcy proceedings of any
type or becomes bankrupt. The Partnership shall apply all amounts retained from
the expelled Partner's Book Capital Account (including any interest earned
thereon) to the payment of such Non-Current Liabilities to the extent that such
payments would have constituted a proper charge against the Book Capital Account
of such expelled Partner had it not been expelled. At the time that all Non-
Current Liabilities of the Partner shall have been paid in full, the Partnership
shall refund to the expelled Partner any funds remaining on deposit with the
Partnership from such Partner's Book Capital Account.
19.4 Other Obligations of Expelled Partner. From the date of its
expulsion, the expelled Partner shall have no Ownership Interest in the
Partnership and shall not share in its profits and losses. Such expelled Partner
shall, however, be and remain directly liable for payment of (in addition to and
after application of any moneys retained by the Partnership from its Book
Capital Account) its Partnership share of any Current Liabilities and Non-
Current Liabilities that existed as of the date of such Partner's expulsion
until such liabilities are paid in full, and shall remain fully responsible for
any obligations it may have incurred pursuant to Article 16.
20. Dissolution and Winding Up of the Partnership.
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20.1 Dissolution. The dissolution of the Partnership shall be caused only
by the following events:
(a) The written consent of all Partners to dissolve the Partnership or to
dissolve the Partnership under this First Amended and Restated Limited
Partnership Agreement for West Texas LPG Pipeline Limited Partnership and
reinstate the Partnership under the Original Partnership Agreement.
(b) The withdrawal (other than pursuant to a sale or other disposition by a
Partner of its Ownership Interest as authorized herein), expulsion, dissolution
or bankruptcy of any Partner or bankruptcy of the Partnership.
(c) The sale by the Partnership of all or substantially all of its assets.
(d) By any event which makes it unlawful for the business of the
Partnership to be carried on or for the Partners to carry it on in partnership.
(e) By expiration of the Partnership term as provided in Article 4.
(f) By court decree of dissolution as provided by the Act.
Each Partner covenants and agrees that it will not cause a dissolution of
the Partnership, directly or indirectly by (i) bankruptcy, (ii) being expelled
pursuant to Section 19.2 of this Agreement, (iii) withdrawal from the
Partnership, (iv) in the case of a partnership or a corporation, the taking of
any voluntary action or inaction to dissolve itself, or (v) breaching any other
material provision of this Agreement. It is understood that should any Partner
or Partners dissolve the Partnership in contravention of this provision, that
Partner or Partners shall be liable to the other Partners for damages for
wrongful dissolution.
For the purposes of this Section 20.1, a bankruptcy occurs whenever (a) an
entity makes an assignment for the benefit of all or substantially all of its
creditors or applies for the appointment of a trustee, liquidator or receiver of
any substantial part of its assets, or commences any proceeding relating to
itself under any bankruptcy, reorganization or similar laws (including the
Federal Bankruptcy Code of 1978, Title 11 of the United States Code and any
state insolvency act), or any such application is filed or proceeding is
commenced against such entity and such entity indicates its consent thereto; or
(b) an order, judgment or decree is entered by any court of competent
jurisdiction, appointing a trustee, liquidator or receiver for an entity or for
all or a substantial part of such entity's assets and such order, judgment or
decree shall continue unstayed and in effect for any period of one hundred
eighty (180) consecutive days.
20.2 Continuance of Business After Dissolution. In the event the
Partnership is ever dissolved as a result of the withdrawal, bankruptcy,
dissolution, legal incompetency, expulsion or a default or other act in
contravention of this Agreement by one or more (but less than all) of the
Partners (hereinafter referred to as the "Dissolving Partner" or "Dissolving
Partners"), then the remaining Partner or Partners agree to continue the
business of the Partnership and to form a new Partnership under the terms of
this Agreement for the purpose of
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continuing the business. The resulting new Partnership will be owned by all
Partners other than any Dissolving Partner in the same relative proportion as
their previous Ownership Interests. However, such Partners other than any
Dissolving Partner may, by unanimous agreement, accept a new Partner or Partners
to take the place of the Dissolving Partner or Dissolving Partners.
20.3 Liquidation of the Partnership. Upon the dissolution of the
Partnership under circumstances in which the business is not continued as
provided in Section 20.2, no further business shall be conducted by the
Partnership, except for the taking of such action as shall be necessary for the
winding up of its business and affairs, the liquidation of its assets and/or the
distribution of its assets to the Partners. Unless otherwise decided by the
Partnership Committee, the Operator shall be the liquidating trustee for the
Partnership. The winding up and liquidation of the Partnership shall consist of
the sale of the properties of the Partnership, at the conclusion of which the
Partnership shall terminate.
20.4 Winding Up of the Partnership. Upon the dissolution of the
Partnership, the proceeds from the liquidation of the assets of the Partnership
and collection of the receivables of the Partnership together with assets
distributed in kind, to the extent sufficient, shall be applied and distributed
in the following order of priority:
(a) To the payment and discharge of all of the Partnership's debts and
liabilities (other than any loans or advances that may have been made by any of
the Partners to the Partnership) and the expenses of liquidation ;
(b) To the creation of any reserves that the liquidating trustee deems
necessary for any contingent or unforeseen liabilities or obligations, debts or
liabilities of the Partnership not yet payable;
(c) To the payment and discharge of all of the Partnership's debts and
liabilities owing to Partners, but if the amount available for payment is
insufficient, then pro rata in accordance with the amounts of these debts and
liabilities; and
(d) To the Partners with positive F.I.T. Capital Accounts in accordance
with the ratio of their F.I.T. Capital Accounts.
20.5 No Liability for Return of Capital. No Partner shall be personally
liable for the return of all or any part of the contributions of any other
Partner to the Partnership. Any such return shall be made solely from the
property of the partnership.
21. Alternative Dispute Resolution Procedures
21.1 Covered Disputes. Any claims, actions, or disputes arising out of or
relating to this Agreement, including without limitation the meaning of its
provisions, or the proper performance of any of its terms, its breach,
termination or invalidity ("Dispute") will be resolved in accordance with the
procedures specified in this Section, which will be the sole and exclusive
procedure for the resolution of any such Dispute, except that any Party, without
prejudice to the following procedures, may file a complaint to seek preliminary
injunctive or
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other provisional judicial relief, if in its sole judgment, that action is
necessary to avoid irreparable damage or to preserve the status quo. Despite
that action, the Parties will continue to participate in good faith in the
procedures specified in this Article.
21.2 Initiation of Procedures. Any Party wishing to initiate the dispute
resolution procedures set forth in this Article with respect to a Dispute not
resolved in the ordinary course of business must give written notice of the
Dispute to the other Party ("Dispute Notice"). The Dispute Notice will include
(i) a statement of that Party's position and a summary of arguments supporting
that position, and (ii) the name and title of the executive who will represent
that Party and of any other Person who will accompany the executive in the
negotiations under the next Section.
21.3 Negotiation Between Executives. If any Party has given a Dispute
Notice under the preceding Section, the Parties will attempt in good faith to
resolve the Dispute within thirty (30) days of the notice by negotiations
between executives who have authority to settle the Dispute and who are at a
higher level of management than the Members. Within ten (10) days after delivery
of the Dispute Notice, the receiving Party will submit to the other a written
response. The response will include (i) a statement of that Party's position
and a summary of arguments supporting that position, and (ii) the name and title
of the executive who will represent that Party and of any other Person who will
accompany the executive. Within twenty (20) days after delivery of the Dispute
Notice, the executives of the Parties will meet at a mutually acceptable time
and place, and thereafter, as often as they reasonably deem necessary, to
attempt to resolve the Dispute.
21.4 Mediation. If the Dispute has not been resolved by negotiation under
the preceding Section within thirty (30) days of the Dispute Notice, and only in
such event, a Party may initiate the mediation procedure of this Section by
giving written notice to the other Party ("Mediation Notice"). The Parties will
endeavor to settle the Dispute by mediation within sixty (60) days of the
Mediation Notice under the then current Center for Public Resources ("CPR")
Model Mediation Procedure for Business Disputes. If the Parties have not agreed
upon a mediator within seven (7) days after the Mediation Notice, any Party may
request CPR assistance in the selection of a mediator under its guidelines. The
mediator will establish rules for an expedited discovery procedure and will
resolve all disputes with regard to discovery between the Parties. If the
mediator has not already done so during the mediation process, at least seven
(7) days before the end of the sixty (60) day mediation period, the mediator
will provide to each Party a written summary of the mediator's conclusions
regarding the outcome of the Dispute.
21.5 Arbitration. If the Dispute has not been resolved by mediation under
Section 21.4 above within the required sixty (60) Day period or if any Party to
a Dispute fails and/or refuses to participate in such mediation procedures, any
Party may initiate arbitration to resolve the matter by submitting a written
notice (the "Arbitration Notice") to the other Party or Parties. Any arbitration
hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. (S) 1 et
seq., as amended, to the exclusion of any other arbitration acts, statutes, or
rules of any other jurisdiction, state or federal.
21.6 Arbitration Procedure. Any arbitration hereunder shall be conducted in
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accordance with the then current CPR Rules for Non-Administered Arbitration,
except to the extent terms expressly set forth in this Article are in conflict
with or supplement such Rules, by three independent and impartial arbitrators,
of whom each Party to a Dispute shall appoint one, and the two so appointed by
the Parties shall appoint the third arbitrator. The Arbitration Notice shall
name the noticing Party's arbitrator, and shall contain a statement of the
issue(s) presented for arbitration. Within fifteen (15) Days of receipt of an
Arbitration Notice, the other Party shall name its arbitrator by written notice
to the other and may designate any additional issue(s) for arbitration. The two
named arbitrators shall select the third arbitrator within fifteen (15) Days
after the date on which the second arbitrator was named. Should the two
arbitrators fail to agree on the selection of the third arbitrator, either Party
shall be entitled to request CPR to select the third arbitrator. Should either
Party fail and/or refuse to name its arbitrator within the required fifteen (15)
Day period, the other Party shall be entitled to request CPR to select the
arbitrator for such Party. All arbitrators shall be qualified by education or
experience within the natural gas liquids portion of the energy industry to
decide the issues presented for arbitration. No arbitrator shall be: a current
or former director, officer, or employee of either Party or its Affiliates; an
attorney (or member of a law firm) who has rendered legal services to either
Party or its Affiliates within the preceding three Years; or an owner of any of
the common stock of either Party, or its Affiliates.
21.7 Arbitration Hearing. The three arbitrators shall commence the
arbitration proceedings within twenty-five (25) Days following the appointment
of the third arbitrator. The arbitration proceedings shall be held at a mutually
acceptable site and if the Parties are unable to agree on a site, the
arbitrators shall select the site. The arbitrators shall have the authority to
establish rules and procedures governing the arbitration proceedings, including,
without limitation, rules concerning discovery. Each Party shall have the
opportunity to present its evidence at the hearing. The arbitrators may call for
the submission of pre-hearing statements of position and legal authority, but no
post-hearing briefs shall be submitted. The arbitration panel shall only have
authority to award compensatory damages alone and shall not have the authority
to award incidental, consequential, special, punitive or exemplary damages. In
addition, if an issue under consideration is limited to a determination of an
amount of money owed by one Party to the other, each Party shall submit to the
arbitration panel a final offer of its proposed resolution of the Dispute. The
arbitration panel shall be charged to select from the two proposals the one
which the panel finds to be the most reasonable and consistent with the terms
and conditions of this Agreement, and the arbitration panel shall not average
the Parties' proposals or otherwise craft its own remedy. All evidence submitted
in an arbitration proceeding, transcripts of such proceedings, and all documents
submitted by the Parties in an arbitration proceeding shall be kept confidential
and shall not be disclosed to any third party by either Party hereto.
21.8 Arbitration Decision and Costs. The decision of the arbitrators
or a majority of them, shall be in writing and shall be final and binding upon
the Parties as to the issue(s) submitted. The cost of the hearing shall be
shared equally by the Parties, and each Party shall be responsible for its own
expenses and those of its counsel or other representatives. Each Party hereby
irrevocably waives, to the fullest extent permitted by law, any objection it may
have to the arbitrability of any such Disputes, controversies or claims and
further agrees that a final determination in any such arbitration proceeding
shall be conclusive and binding upon each Party.
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21.9 Enforcement of Award. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. The prevailing
Party shall be entitled to reasonable attorneys' fees in any contested court
proceeding brought to enforce or collect any award of judgment rendered by the
arbitrators.
21.10 Tolling and Performance. Except as otherwise provided in this
Article 20, all applicable statutes of limitation and defenses based upon the
passage of time and all contractual limitation periods specified in this
Agreement, if any, will be tolled while the procedures specified in this Article
20 are pending. The Parties will take all actions to effectuate the tolling of
any applicable statute of limitation or contractual limitation periods. All
deadlines specified herein may be extended by mutual written agreement of the
Parties or, if an Arbitration Notice has been sent regarding the Dispute, by
written order of a majority of the arbitrators. Each Party is required to
continue to perform its obligations under this Agreement pending final
resolution of any Dispute, unless to do so would be impossible or impracticable
under the circumstances. Notwithstanding the foregoing, the statute of
limitations of the State of Texas applicable to the commencement of a lawsuit
will apply to the commencement of an arbitration under this Agreement, except
that no defenses will be available based upon the passage of time during any
negotiation or mediation called for by the preceding Sections of this Article.
22. Further Assurance. Each of the Partners agrees to execute and deliver
all such other additional instruments and documents and to do such other acts
and things as may be necessary more fully to effectuate this Agreement and the
Partnership created hereby and to carry on the business of the Partnership in
accordance with this Agreement.
23. Waiver. No waiver by any Partner of the performance of any provision,
condition or requirement herein shall be deemed to be a waiver of, or in any
manner release the other Partners from, performance of any other provision,
condition or requirement herein; nor be deemed to be a waiver of, or in any
manner release the other Partners from future performance of the same provision,
condition, or requirement; nor shall any delay or omission of any Partner to
exercise any right hereunder in any manner impair the exercise of any such right
or any like right accruing to it thereafter.
24. Independent Conduct. Each of the Partners and their respective
Affiliates reserve and retain the right to engage in all businesses and
activities of any kind whatsoever (regardless of whether the same may be in
competition with the business and activities of the Partnership), and to acquire
and own all assets however acquired and wherever situated, and to receive
compensation or profit therefrom, for their own respective accounts and without
in any manner being obligated to disclose such business and activities or assets
or compensation or profit to the other Partners or to the Partnership.
25. Applicable Law. THIS AGREEMENT, OTHER DOCUMENTS EXECUTED AND
DELIVERED PURSUANT HERETO, AND THE LEGAL RELATIONS BETWEEN THE PARTIES WITH
RESPECT TO THIS AGREEMENT, SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
the LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO RULES CONCERNING CONFLICTS OF
LAW.
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26. Subject to Applicable Law. This Agreement and the obligations of the
Partners hereunder are subject to all applicable laws, rules, court decisions,
orders and regulations of governmental authorities having jurisdiction.
27. Validity. Should any portion of this Agreement be declared invalid
and unenforceable and such declaration of invalidity or unenforceability have a
material and substantial negative impact on the rights, duties or obligations of
any Partner, then the Partners shall meet to determine if such negative impact
can be eliminated or mitigated. If such negative impact can not be eliminated
or mitigated to the satisfaction of the Partner affected thereby, that Partner
shall have the right to terminate this Agreement; provided, however, if any
Partner disputes the terminating Partner's right to terminate this Agreement
pursuant to this Section 26, the issue of the terminating Partner's right to do
so shall be subject to the alternative dispute resolution procedures set forth
in Section 21.
28. Headings. The headings and titles contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
29. Binding Effect. This Agreement and the covenants, obligations,
undertakings, rights and benefits shall be binding on and inure to the benefit
of the respective successors and permitted assigns of the Partners, except to
the extent of any contrary provision in this Agreement.
30. Benefits of Agreement Restricted to Partners. Nothing in this
Agreement, expressed or implied, shall give or be construed to give any Person,
other than the parties hereto and their successors and assigns, any legal or
equitable right, remedy or claim under or in respect to this Agreement or under
any covenant, conditions or provisions contained herein; and all such covenants,
conditions and provisions shall be for the sole benefit of the parties hereto.
31. Counterparts. The Partners may execute this Agreement in two or more
counterparts, which shall, in the aggregate, be signed by all of the Partners;
each counterpart shall be deemed an original instrument as against any Partner
who has signed it.
32. Entire Agreement. This Agreement constitutes the entire agreement
between the Partners concerning the subject matter hereof and the same
supersedes any prior understanding or written or oral agreements relative to
said matter, including, but not limited to, the Original Partnership Agreement.
33. Exhibits and Schedules. All exhibits and schedules or descriptions
referred to in this Agreement are expressly incorporated herein by reference as
if set forth in full, whether or not attached hereto. In the event of any
conflict between the terms and conditions of this Agreement and the terms and
conditions of any exhibit, schedule or other documents referenced herein, the
terms and conditions of this Agreement shall govern and control.
34. Reservation of Rights. Except as otherwise provided herein, each
Partner reserves to itself all rights, set-offs, counterclaims, and other
remedies and/or defenses which such Partner
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is or may be entitled to arising from or out of this Agreement or as otherwise
provided by law.
35. Principles of Construction and Interpretation. In construing this
Agreement, the following principles shall be followed:
(a) no consideration shall be given to the fact or presumption that one
Partner had a greater or lesser hand in drafting this Agreement;
(b) examples shall not be construed to limit, expressly or by implication,
the matter they illustrate;
(c) the word "includes" and its syntactical variants mean "includes, but is
not limited to" and corresponding syntactical variant expressions; and
(d) the plural shall be deemed to include the singular and vice versa, as
applicable.
36. Damages. Notwithstanding anything to the contrary in this Agreement,
a Partner's damages resulting from a breach or violation of any representation,
warranty, covenant or condition contained herein shall be limited to actual
direct damages, and shall not include any other damages, including, without
limitation, indirect, special, consequential, incidental or punitive damages.
In addition, the Partners agree that in no event shall a Partner seek to or
recover from the Partnership indirect, special, consequential, incidental or
punitive damages or any other damages other than actual direct damages.
37. Notices. All notices required or permitted under this Agreement to be
given to any Partner or the Partnership shall be in writing and shall be deemed
given when personally delivered to the individual or individuals designated in
writing by that Partner or, for notices to the Partnership, to the Secretary of
the Partnership Committee; when sent by facsimile or by electronic mail (such as
via internet) with confirmation of receipt; or five (5) days after being mailed,
postage prepaid, certified or registered, return receipt requested and addressed
as specified in writing by that Partner or, for notices to the Partnership, to
the Secretary of the Partnership Committee; provided, that in the case of
notices which are mailed and which require the party or parties being given
notice to take action within a specified time period, the party giving notice
shall make a good faith effort to contact the party or parties being given
notice by telephone during the five (5) day period following mailing to advise
them of the mailing of the notice. The persons initially designated by each
Partner for receipt of notice and the address for such notice is shown on the
execution page of this Agreement next to each Partner's signature. Such
designated person or address may be changed by a Partner by proper notice to all
other Partners and the Secretary of the Partnership Committee.
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ACCEPTED and AGREED to on the date above written.
WTLPS, Inc. DMS LP, Inc.
By: By:
------------------------ -------------------------
Title: Title:
Chevron Pipe Line Company Chevron Raven Ridge Pipe Line Company
By: By:
------------------------ -------------------------
Title: Title:
Mid-America Pipeline Company MAPL Investments, Inc.
By: By:
------------------------ -------------------------
Title: Title:
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WTLPS, Inc.'s Address for Notices:
WTLPS, Inc. with a copy to:
Attention: President WTLPS, Inc.
1000 Louisiana Avenue Attention: VP & General Counsel
Suite 5800 1000 Louisiana Avenue
Houston, Texas 77002 Suite 5800
Phone: 713-507-6801 Houston, Texas 77002
Fax: 713-507-6588 Phone: 713-507-3725
Fax: 713-507-6987
DMS LP, Inc.'s Address for Notices:
WTLPS, Inc. with a copy to:
Attention: President WTLPS, Inc.
1000 Louisiana Avenue Attention: VP & General Counsel
Suite 5800 1000 Louisiana Avenue
Houston, Texas 77002 Suite 5800
Phone: 713-507-6801 Houston, Texas 77002
Fax: 713-507-6588 Phone: 713-507-3725
Fax: 713-507-6987
Chevron Pipe Line Company's Address for Notices:
Attention: VP & General Counsel
2811 Hayes Road
Houston, Texas 77082
Phone: 281-596-2828
Fax: 281-596-2907
Chevron Raven Ridge Pipe Line Company's Address for Notices:
Attention: VP & General Counsel
2811 Hayes Road
Houston, Texas
Phone: 281-596-2828
Fax: 281-596-2907
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Mid-America Pipeline Company Address for Notices:
Attention Roy Edwards, Vice President
1800 South Baltimore
Tulsa, OK 74119
Phone: 918-599-3798
Fax: 918-581-1495
MAPL Investments, Inc. Address for Notices:
Attention Roy Edwards, Vice President
1800 South Baltimore
Tulsa, OK 74119
Phone: 918-599-3798
Fax: 918-581-1495
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EXHIBIT A
OWNERSHIP INTERESTS
<TABLE>
<CAPTION>
Partner Type of Partnership Interest Ownership Interest
- -----------------------------------------------------------------------------------------
<S> <C> <C>
WTLPS, Inc. General Partner 00.392%
- -----------------------------------------------------------------------------------------
Chevron Pipe Line Company General Partner 00.408%
- -----------------------------------------------------------------------------------------
Mid-America Pipeline Company General Partner 00.200%
- -----------------------------------------------------------------------------------------
DMS LP, INC. Limited Partner 38.808%
- -----------------------------------------------------------------------------------------
Chevron Raven Ridge Pipe Line Company Limited Partner 40.392%
- -----------------------------------------------------------------------------------------
MAPL Investments, Inc. Limited Partner 19.800%
- -----------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT B
DESCRIPTION AND MAP OF ORIGINAL LIMITED PARTNERSHIP PROPERTY
I. PIPELINE FACILITIES
(A) PIPELINE: There is about 1,950 miles of various sizes of pipe ranging
from 2" to 14", 0.156 Gr B to 0.365 x 46 w.t., and 1957 - 1992
vintage. The lateral lines are up to 8" and the trunk portion is all
10" and 14".
(B) BOOSTER STATIONS: There are 18 pump stations, 24 pump and electric
motor units and associated electrical switchgear and control
equipment. Total horsepower is 28,200. Pumps are all horizontal
centrifugal type.
(C) COAHOMA FACILITY: There are 2 - 1,000 horsepower pump units with
centrifugal pumps and electric motors. It is an 80 acre site with
three storage wells(nominal 300,000 Bbls), two brine pits (nominal
350,000 Bbls capacity), and all associated piping and electrical
equipment.
** Of the 19 booster stations (including Coahoma), 13 are on separately
identifiable property.
(D) METER STATIONS: There are about 62 receipt, custody transfer meter
stations of which about 54 are at plant sites. There are another 18
check meter locations with a total of 34 meter runs. Each facility
generally includes turbine meter runs, instrumentation, and equipment
buildings.
(E) MISCELLANEOUS:
* Sending and receiving swab trap facilities (22 on the trunk line
alone).
* Portable meter provers
* Spare parts inventory
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EXHIBIT C
DESCRIPTION AND MAP OF MAPL GATHERING SYSTEM AND OTHER CONTRIBUTIONS
I. MAPL Gathering System:
A. Pipelines
. 6" Artesia Lateral MP 0.0 to MP 78.9
. 6" Seven Rivers Pipeline MP 0.0 to MP 26.9
. 6" Seven Rivers connection MP 0.0 to MP 1.7
. 3" pipeline to Pecos Diamond MP 0.0 to MP 0.3
. .49 miles of 2" pipeline from Plant 57 to Artesia lateral at MP 78.9
. 4" Phillips Artesia Connection MP 0.0- MP 1.9
. 6" Tatum Lateral MP 0.0 to MP 7.6
. 4" Tatum Lateral MP 7.6 to MP 13.9
. 8" Dollarhide Lateral MP 0.0 to MP 27.0
. 6" Dollarhide Lateral MP 27.0 to MP 31.7
. Roberts Ranch Pipeline 3.13 miles
. 6" Hobbs San Andres Jct. MP 0.0 to MP 52.1
. 4" Amoco North Cowden- San Andres Jct MP 0.0 to MP 12.7
. Chevron- San Andres (Bakke Jct.) MP 0.0 to MP 0.38
. 8" Lees to Hobbs lateral MP 0.0 to MP 110.5
. 4" Fullerton Lateral MP 7.4 to Lees to Hobbs MP 77.9
. Pipeline from Lees to Hobbs to Mobil Baden Storage .7 miles
. 6" Midkiff to Stanton Lateral MP 0.0 to MP 31.8
. 6" Phillips Sprayberry MP 0.0 to MP 2.16
. 8" Snyder lateral MP 88.8 to MP 159.4
. 6" Snyder Lateral MP 159.4 to MP 190
. 6" Snyder Lateral MP 190 to MP 220 (out of service)
. 6" Benedum lateral MP 0.0 to MP 21.4
. 4" Indian Wells Benedum Injection MP 0.0 to MP .33
. 3" Stiles Lateral MP 0.0 to MP 6.7
. Indian Wells Lateral .5 miles
. 8" Lees to Snyder Loop MP 0.0 to MP 60.7
. 4" Rockland SterlingPerkins Lateral MP 0.0 to MP 42.5
. 4" Jameson Lateral MP 0.0 to MP 5.8
. 6" Vealmoor Lateral MP 0.0 to MP 8.1
. 4" General Crude Lateral MP 0.0 to MP 36.4
. 6" North Snyder Lateral from General Crude MP 0.0 to MP 7.38
. Texaco East Vealmoor Storage MP 0.0 to MP 0.2
. Conoco Sterling MP 0.0 to MP 4.5
. 4" Northern Natural MP0.0 to MP 14.2
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B. Pump Stations
. Maljamar
. Eunice
. Midkiff
. Stanton
. Lees
. Snyder
C. Valve Stations
. Odessa Waddell
. Vincent
D. Meter Sites
. Marathon Indian Basin
. Yates Penasco
. Duke Dagger Draw
. Amoco Abo
. Duke Pecos Diamond
. Davis Denton
. Texaco Eunice
. LG&E Antelope Ridge
. Western Gas Benedum
. Western Gas Midkiff
. Davis Stiles
. Conoco Garden City
. Conoco Sterling
. Range Resources Sterling
. Texaco Vealmoor
. Mobil Salt Creek
. Mobil Baden
. WTP Bakke
. Koch Chaparral San Andres
E. Hobbs Terminal Equipment
. Metering Facilities
. Two 500 HP Pumps
. Associated Piping
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II. Other Contributions:
By wire transfer into the Partnership's account on or prior to May 1, 1999,
MAPL shall contribute to the Partnership the sum of $2.067 Million.
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EXHIBIT D
FINANCIAL RESPONSIBILITY REQUIREMENTS
Each potential new Partner in the West Texas LPG Pipeline Limited Partnership
must demonstrate adequate financial responsibility itself or through a Credit
Worthy Affiliate. Such credit worthiness may be demonstrated by satisfying one
of the two methods of meeting financial responsibility described below.
Method I
The Partner or its Affiliate has senior unsecured debt outstanding which is
rated by:
(a) Moody's Investors Services Baa3 or better, and
(b) Standard and Poors BBB or better
Method II
If a Partner or its Affiliate fails to meet the above test, then the
following criteria will be applied to the Partner's or its Affiliate's financial
statements:
1. Debt/Capital less than or equal to 55%; or
2. Debt/EBITDA less than or equal to 3.5; or
3. Net worth greater than or equal to $250 million; or
4. Current assets/current liabilities greater than or equal to 1.0.
If the Partner or Affiliate meets any one of the above criteria, then such
Partner or Affiliate shall be deemed to have adequate financial capability to
fulfill the obligations of a Partner.
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EXHIBIT E
TAX MATTERS
1. Tax Returns, Proceedings and Elections. Tax returns, proceedings, and
elections shall be governed by the provisions of this Exhibit E as it may be
amended from time to time by a vote of the Partnership Committee.
(a) Chevron Pipeline Company is designated the tax matters Partner
("TMP") as defined in Section 6231(a)(7) of the Code. The designation of TMP
shall be effective only for operations conducted by the Partners pursuant to
this Agreement.
(b) The TMP shall cause to be prepared all necessary federal, state,
and local Partnership income, excise, and property tax returns and, except for
excise taxes, furnish a copy of the proposed return to the Partners for their
review not later than one month prior to the due date, including extensions, for
filing such returns. The TMP shall timely file such returns and, upon the
written request of a Partner, shall provide the Partners with schedules which
are consistent with the treatment of all items on those returns. The TMP agrees
to use all reasonable efforts in the preparation and filing of such tax returns
but, in doing so, shall incur no liability to any Partner with respect to such
returns or any elections relating thereto. On or before the last day of May
after the end of the taxable year, the TMP will cause each Partner to be
provided with estimates of all information reasonably necessary or appropriate
to file its respective tax returns and reports.
(c) The Partners shall furnish the TMP with such information as it may
reasonably request to aid in the preparation of the Partnership returns and
which will permit it to provide the Internal Revenue Service with sufficient
information so that proper notice can be mailed-to such Partners as provided in
Section 6223 of the Code.
(d) To the extent and in the manner provided by applicable treasury
regulations, the TMP shall keep each Partner informed of all administrative and
judicial proceedings for the adjustment of Partnership items (as defined in
Section 6231(a)(3) of the Code) at the Partnership level.
(e) If an administrative proceeding contemplated under Section 6223 of
the Code has begun, the Partners shall notify the TMP of their treatment of any
Partnership Item on their federal income tax return in a manner which is or may
be inconsistent with the treatment of that item on the Partnership return.
(f) The TMP shall not enter into any extension of the period of
limitations as provided under Section 6229 of the Code without the prior written
consent of the Partners.
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(g) Any Partner who enters into a settlement agreement with the
Secretary of the Treasury with respect to Partnership Items shall promptly
notify the other Partners of such settlement agreement.
(h) The TMP shall not bind the other Partners to a settlement
agreement without obtaining the written concurrence of the Partners who will be
bound by such agreement.
(i) The TMP shall notify all Partners of any intention to file a
petition with a court for a readjustment of any Partnership Items. Such notice
shall be given within a reasonable time so that the Partners may participate in
choosing the forum for the filing of any petition. This provision shall not
apply to any Partner who does not have an interest in the outcome of such
matter. Whether a Partner has an interest in the outcome will be determined
using the standard in Section 6226(d) of the Code. Further, the TMP or other
Partner who had brought the action under Section 6226 of the Code, shall provide
the other Partners with notice of any intention to seek review of a
determination by any court under that Section.
(j) No Partner may file a request for an administrative adjustment of
Partnership Items for any Partnership taxable year pursuant to Section 6227 of
the Code without first notifying all other Partners. If the other Partners agree
with the requested adjustment, the TMP shall file the request for administrative
adjustment on behalf of the Partnership.
(k) If any part of an administrative adjustment request filed by a
Partner is not allowed by the Internal Revenue Service, the Partner filing such
request shall seek the concurrence of other Partners with regard to the filing
of a petition with a court and with regard to seeking review of the
determination by any court in the same manner as provided in Section l(i) of
this Exhibit.
(l) The TMP and other Partners shall use all reasonable efforts to
comply with the responsibilities as outlined herein and in Sections 6222 through
6233 of the Code, but shall incur no liability to any other Partner for failure
to fulfill such responsibilities.
(m) The provisions of this Exhibit E shall survive the termination of
the Partnership or the termination of any Partner's interest in the Partnership
and shall remain binding on the Partners for a period of time necessary to
resolve with the Internal Revenue Service or the Department of the Treasury any
and all matters regarding the federal income taxation of the Tax Partnership and
any applicable state income tax matters.
2. Elections. The Partners agree that the TMP is directed to make the
following elections on behalf of the Partnership in the appropriate returns of
the Partnership prepared pursuant to Section 1 above:
(a) To adopt the accrual method of accounting;
(b) To compute the allowance for depreciation or cost recovery using
the shortest permissible life and most rapid recovery method permitted
permissible life and most rapid recovery method permitted under the Code;
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(c) To elect the Calendar Year as the Fiscal Year of the Partnership;
(d) To elect in a timely manner pursuant to Section 266 of the Code
and the Treasury Regulations thereunder to charge to the capital account with
respect to the property acquired or constructed by the Partners under
this Agreement all taxes and carrying charges including interest on
indebtedness, which may be capitalized thereunder;
(e) To elect to amortize all organization costs of the Partnership
under Section 709 of the Code; and
(f) To make such other elections as the Partnership Committee may
direct.
3. Section 754 Election. Upon the transfer of an interest in the
Partnership, and upon the written request of the transferee, the Partnership
shall make an election at the written request of the transferee Partner pursuant
to Section 754 of the Code to adjust the basis of Partnership Property. Any
Partner or successor in interest, whose basis in Partnership property is
adjusted pursuant to Section 743(b) of the Code, shall assume sole compliance
responsibility to reflect the adjustment to basis of its Partnership property
under Section 743(b) of the Code, to prepare and attach a statement to its
income tax return showing the computation of the adjustment and the Partnership
properties to which the adjustment has been allocated.
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EXHIBIT 10.16
AMENDED AND RESTATED OPERATING AGREEMENT
BETWEEN
WEST TEXAS LPG PIPELINE LIMITED PARTNERSHIP
AND
CHEVRON PIPE LINE COMPANY
<PAGE>
AMENDED AND RESTATED OPERATING AGREEMENT
BETWEEN
WEST TEXAS LPG PIPELINE LIMITED PARTNERSHIP
AND
CHEVRON PIPE LINE COMPANY
Table Of Contents
1. ARTICLE I - DEFINITIONS
2. ARTICLE II - OPERATIONS AND RESPONSIBILITIES OF OPERATOR
2.1 Operation of the Facilities
2.2 Standard of Care
2.3 Chevron's Policy 530
2.4 Particular Duties of Physical Operator
2.5 Particular Duties of Commercial Operator
2.6 Y2K Compliance
2.7 Interim Operations
2.8 Hobbs Facilities Operations
3. ARTICLE III - ANNUAL BUDGET AND DELEGATION OF AUTHORITY
3.1 Annual Budget
3.2 Delegation of Authority
3.3 Capital Projects
4. ARTICLE IV - REPORTING BY OPERATOR
4.1 Reports
4.2 Notification and Settlement of Losses and Claims.
5. ARTICLE V - OPERATING ACCOUNT, RECORDS, AND AUDITS
5.1 Establishment of Operating Account
5.2 Operator Invoicing
5.3 Funding of the Account or of Operator's Account
5.4 Books and Records
5.5 Audits
5.6 Record Retention
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6. ARTICLE VI - TERM
6.1 Primary Term
6.2 Resignation
6.3 Required Resignation
6.4 Removal of Operator for Cause
6.5 Removal of Commercial Operator
6.6 Obligations on Termination
6.7 Rights Upon Removal or Resignation
6.8 Transition Upon Termination
7. ARTICLE VII - INSURANCE
7.1 Required Insurance
7.2 Claims Covered by Operator's Self Insurance
8. ARTICLE VIII - MUTUAL RELEASE AND INDEMNIFICATION
9. ARTICLE IX - CONFIDENTIALITY
10. ARTICLE X - FORCE MAJEURE
11. ARTICLE XI - ASSIGNMENT
12. ARTICLE XII - NOTICES
12.1 Addresses for Notices.
13. ARTICLE XIII - GOVERNING LAW
14. ARTICLE XIV - ALTERNATIVE DISPUTE RESOLUTION
14.1 Covered Disputes.
14.2 Initiation of Procedures.
14.3 Negotiation Between Executives.
14.4 Mediation.
14.5 Arbitration.
14.6 Arbitration Procedure.
14.7 Arbitration Hearing.
14.8 Arbitration Decision and Costs.
14.9 Enforcement of Award.
14.10 Tolling and Performance.
15. ARTICLE XV - MISCELLANEOUS
15.1 Waiver
15.2 Amendment
15.3 Agreement in Counterparts
15.4 Further Assurances
15.5 Validity
15.6 Attachments Exhibits and Schedules
15.7 Entire Agreement
15.8 Titles and Headings
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15.9 Binding Effect
15.10 Benefits of Agreement Restricted to Parties
15.11 Reservation of Rights
15.12 Principles of Construction and Interpretation
15.13 Disclaimer of Liability
15.14 Acknowledgment
15.15 Joint Efforts
15.16 Conflicts of Interest
15.17 Independent Contractor
15.18 Power of Attorney
15.19 Federal Compliance
ATTACHMENT I - ACCOUNTING PROCEDURE
ATTACHMENT II - DESCRIPTION OF THE FACILITIES
ATTACHMENT III - MAPS OF FACILITIES
ATTACHMENT IV - CHEVRON'S POLICY 530: PROTECTING PEOPLE AND THE ENVIRONMENT -
SUMMARY OF 20 ACTION AREAS
iii
<PAGE>
AMENDED AND RESTATED OPERATING AGREEMENT
BETWEEN
WEST TEXAS LPG PIPELINE LIMITED PARTNERSHIP
AND
CHEVRON PIPE LINE COMPANY
THIS AGREEMENT is made and entered into effective as of May 1, 1999 by and
between West Texas LPG Pipeline Limited Partnership, a Texas limited partnership
(hereinafter referred to as "Company"), and Chevron Pipe Line Company, a
Delaware Corporation (hereinafter referred to as "Operator").
WHEREAS, Company is the owner of certain LPG pipeline facilities ("Facilities")
more particularly identified in Attachment II and Attachment III; and
WHEREAS, effective September 1, 1996, the Company and Operator entered into that
certain Operating Agreement covering the operation of the Facilities; and
WHEREAS, the Company has or is in the process of acquiring additional gathering
assets and desires that such assets be included as part of the Facilities and
operated by Operator, and Operator desires to operate such additional assets as
part of the Facilities; and
WHEREAS, Company and Operator desire to amend and restate in its entirety the
Operating Agreement to provide for the operation by Operator of the additional
assets as part of the Facilities and to provide for other modifications as set
forth herein;
NOW, THEREFORE, in the consideration of the premises and mutual covenants
contained in this Agreement, Company and Operator agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following words and terms
shall have the meanings set forth:
"Account" has the meaning set forth is Section 5.1 hereinafter.
"Accounting Procedure" means the accounting procedure set forth in Attachment I,
hereof.
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"Action" means any and all claims (whether in contract, tort or indemnity),
demands, causes of action, liens, actions, suits, injunctions, alternative
dispute resolution proceedings and Governmental Authority proceedings.
"AFE" means an approval for expenditure in the form approved by Company.
"Affiliate" means with respect to any Person, (i) any other Person which
beneficially owns, directly or indirectly, 50% or more of such Person's stock or
50% or more of the ownership interest entitled to vote in such Person or (ii)
any other Person as to which 50% or more of the voting stock or 50% or more of
the ownership interest entitled to vote therein, is beneficially owned, directly
or indirectly, either by such Person or by an Affiliate of such Person as
defined in the preceding clause (i).
"Agreement" means this Operating Agreement together with all Attachments.
"Annual Budget" has the meaning set forth is Section 3.1(a) hereinafter.
"Applicable Laws" mean all applicable and valid laws, rules, regulations,
statutes, codes, ordinances or other requirements of the United States or any
regional, state or local Governmental Authority, whether such laws now exist or
hereafter come into effect.
"Cash Operating Costs" means amounts reimbursed or payable to Operator under
Article V of this Agreement, and which are described more fully in Section 3 of
Attachment I.
"Century Date Compliant" means, with respect to computer hardware and processes,
including any and all enhancements, upgrades, customizations, modifications,
maintenance and the like, delivered by Operator or used in providing services,
containing or calling on a calendar function including, without limitation, any
function providing specific dates or days, or calculating spans of dates or
days, will record, store, process, provide and, where appropriate, insert, true
and accurate dates and calculations for dates and spans of dates, including and
following January 1, 2000.
"Claims" mean collectively all Actions and Losses.
"Commercial Operator" means Chevron Pipe Line Company or its successor(s) that
fulfill the duties as set forth in Section 2.5.
"Confidential Information" means any information relating to the identity of
shippers using the Facilities, the nature, kind, quantity, destination or
consignee or routing of Products using the Facilities, any information
proprietary to either Party and maintained by it in confidence or as a trade
secret, including, without limitation, business plans and strategies,
proprietary software, financing statements, customer or client lists, personnel
records, analysis of general energy market conditions, sales, transportation and
service contracts and the commercial terms thereof, relationships with current
and potential business partners, suppliers, customers, service providers and
financial sources, data base contents and valuable information of a like nature
relating to the business of such Party. It is understood and agreed that
Confidential Information shall not include information of a Party that (i) was
generally available to the public at the time of
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disclosure to the other Party, (ii) after the time of disclosure to the other
Party, becomes generally available to the public, (iii) the Party receiving the
information can show that the information was in its possession at the time of
disclosure, or (iv) was rightfully acquired by the recipient from third Persons
who did not themselves obtain such information under a confidentiality or other
similar agreement with the disclosing Party.
"Environmental and Safety Laws" mean all Applicable Laws pertaining to human
health, safety and/or the environment, waste management, natural resources,
conservation, wildlife, any activity related to a Hazardous Material, or any
environmental matter, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
(S)(S)9601 et seq. ("CERCLA"); the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S)6901 et seq. ("RCRA"); the Clean Water Act, 33 U.S.C. (S)(S)1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. (S)(S)2601 et seq.; the Clean
Air Act, 42 U.S.C. (S)(S)7401 et seq.; the Hazardous Liquid Pipeline Safety Act,
49 U.S.C. (S)(S)60101 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
(S)(S)651 et seq.; and the Natural Gas Pipeline Safety Act, 49 U.S.C.
(S)(S)60101 et seq., as amended from time to time.
"Facilities" means the facilities identified in Attachment II and Attachment III
hereto, which include the Gathering Facilities.
"Force Majeure" means an occurrence not within the control of the party and
which by the exercise of reasonable efforts such party is unable to prevent or
overcome, and shall include, but not be limited to, acts of God, strikes,
lockouts, or other industrial disturbances, acts of the public enemy, wars,
blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, washouts, hurricanes, storm warnings requiring evacuation
of facilities, arrests or restraints of the government, either federal or state,
civil or military, civil disturbances, explosions, sabotage, breakage or
accident to equipment, machinery or lines of pipe, extreme heat or cold weather,
freezing of machinery, equipment or lines of pipe, electric power shortages,
inability of any Party to obtain necessary Materials, inability of any Party to
obtain necessary permits and/or permissions due to existing or future Applicable
Laws, temporary cleaning or testing of facilities, temporary failure of supply,
or any other causes, whether of the kind herein enumerated or otherwise, which
were not reasonably foreseeable on the effective date of this Agreement, and
which are not within the control of the Party claiming suspension and which such
Party is unable to overcome by the exercise of due diligence. The term "Force
Majeure" shall also include those instances in which either Party hereto is
required to furnish Materials for the purpose of constructing and maintaining
facilities or is required to secure permits or permission from any Governmental
Authority to enable such Party to acquire, or the delays on the part of such
Party in acquiring, at reasonable cost and after the exercise of due diligence,
such Materials, permits and permissions. It is understood and agreed that the
settlement of strikes or lockouts shall be entirely within the discretion of the
Party having the difficulty, and that the above requirement that any Force
Majeure shall be remedied with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands of opposing parties
when such course is inadvisable in the discretion of the Party having
difficulty. The term "Force Majeure" shall also include any such event
occurring with respect to the facilities or services of either Operator's or
Company's third-party suppliers or customers delivering or receiving any
product, fuel, feedstock, or other substance necessary to the continuous
operation of either
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Party's plants or facilities or performance of such Party's obligations, and
shall also include curtailment or interruption of deliveries or service by such
third-party suppliers or customers as a result of (i) another event of Force
Majeure or (ii) a breach by such third-party under the applicable agreement(s).
"GAAP" means generally accepted accounting principles.
"Gathering Facilities" mean the LPG gathering facilities contributed to the
Partnership by Mid-America Pipeline Company which are more particularly
described in Attachment II and III which are attached hereto and made a part
hereof and which are part of the Facilities.
"Governmental Authority" means any governmental or regulatory authority
(including courts and agencies) having jurisdiction over any part of this
Agreement, the Parties, the Facilities, or the operation of the Facilities or
any portion thereof.
"Hazardous Material" means any substance that is defined or listed as a
"hazardous substance", "hazardous waste", "hazardous material", "toxic
substance" or words of similar import under any present or future Environmental
and Safety Law or that is otherwise regulated under any present or future
Environmental and Safety Law, and, solely for the purpose of this agreement,
shall include, but not be limited to, natural gas, natural gas liquids, and
liquefied natural gas or mixtures of same.
"Insurance Manual Rates" means the published insurance industry recognized
computations of standard accepted insurance rates.
"Losses" mean the sum of all costs, expenses (including court costs and
reasonable attorneys fees), fines, penalties, interest, damages, liabilities,
judgments and settlements, including but not limited to the cost of
investigation thereof.
"LPG" means a mixture of liquefied petroleum products produced from gas
processing facilities or refineries containing ethane, propane, butanes, natural
gasoline and nominal amounts of contaminates, as allowed by specifications
established from time to time by the Company.
"Material" shall mean personal property, equipment or supplies acquired or held
by the Operator for use in the Operation of the Facilities.
"Operator" means Chevron Pipe Line Company acting in its capacity as physical
operator of the Facilities hereunder.
"Party" means either the Operator or Company and "Parties" means both Operator
and Company.
"Partnership Committee" means the managing unit of Company.
"Person" means any individual, partnership, association, trust, corporation or
other entity.
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<PAGE>
"Primary Term" has the meaning set forth is Section 6.1 hereinafter.
"Products" means, without restriction, natural gas liquids, LPG or products
derived from LPG.
"Year" means a calendar year.
ARTICLE II
OPERATIONS AND RESPONSIBILITIES OF OPERATOR
2.1 Operation of the Facilities. Operator, on behalf of Company,
agrees to commercially and physically operate, maintain and repair the
Facilities, and any modifications or improvements thereof, and to perform any
other duties as may be requested by Company. Except as otherwise provided in
this Agreement and subject to the limitations set forth hereinafter, Company
does hereby authorize and empower Operator, on behalf of Company, to do and
perform or cause to be done and performed by others any and all acts and things
which Operator shall, in the exercise of its discretion and best judgment, deem
necessary or advisable for the commercial and physical operation, maintenance,
and repair of such Facilities in accordance with Section 4.2, to the end that
the Facilities may be used in a safe, efficient and economical manner for
receipt, delivery, measurement and transportation of Products. Operator shall
consult freely with the Partnership Committee and inform each member of such
committee as soon as reasonably possible of all matters arising during the
operation of the Facilities which Operator, in the exercise of its sole and
reasonable judgment, considers important. In addition, Operator shall respond
as soon as reasonably possible to inquiries made by the Partnership Committee,
from time to time, with respect to any matter relating to the operation of the
Facilities. Operator shall seek the advice of the Partnership Committee if
Operator has a question as to whether a particular activity falls outside of the
scope of Operator's authority under this Agreement.
2.2 Standard of Care. Operator shall have the right and duty to
commercially and physically operate the Facilities in a good and workmanlike
manner and, in the absence of specific instructions from Company, shall have the
right and duty to act in accordance with its best judgment as a reasonable and
prudent operator would do under the same or similar circumstances. In addition,
Operator agrees to perform all services hereunder in a manner consistent with
the usual and customary practices, codes and standards in the pipeline industry
(including specifically the Federal Energy Regulatory Commission, the Texas
Railroad Commission and state Public Utilities Commissions as well as applicable
Department of Transportation and American National Standards Institute) and in
accordance with all Applicable Laws. Operator in its capacity as Operator
pursuant to this Agreement, shall assume no other liability to Company except in
the case of Operator's own gross negligence or willful misconduct.
Notwithstanding the foregoing, the gross negligence standard shall apply only to
the operations performed hereunder and shall not apply to any actions, inactions
or negligence of the Operator in connection with the operation of any pipeline
other than Facilities. Operator shall furnish or arrange for the necessary
personnel to efficiently perform such services. None of such personnel shall be
employees or agents of Company, statutory or otherwise.
2.3 Chevron's Policy 530. In as much as Operator is a part of
Chevron Corporation, Operator is committed to and shall follow, at a minimum,
Chevron's Policy 530: Protecting
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People and the Environment in effect as of the date hereof. This policy commits
Operator to conduct business in a manner that protects the safety and health of
employees, others involved in its operations, its customers, and the public, and
to conduct business in a manner that is compatible with the balanced
environmental and economic needs of the communities in which it operates.
Attachment IV contains a summary of twenty (20) specific action areas being
addressed by Operator as of the date of this Agreement.
2.4 Particular Duties of Physical Operator. Without limiting the foregoing,
subject to the limits otherwise set forth in this Agreement, Operator shall
specifically perform the following acts, all in connection with the physical
Operation of the Facilities on behalf of Company:
(a) Perform such mechanical activities as may be required to receive,
deliver, transport and/or otherwise handle Products tendered to and accepted
into the Facilities.
(b) Submit to Company recommended budgets and other information as set
forth in Article III hereof.
(c) Purchase or cause to be purchased for and on behalf of Company all
Materials and services necessary for the operation of the Facilities in
accordance with the budgets approved by Company (or as otherwise approved under
this Agreement).
(d) Maintain surveillance of the Facilities, conduct assessment, and
periodically inspect the Facilities for damage or other conditions which could
affect the safe, efficient and economical operation of the Facilities, perform
such repairs to the Facilities as requested by Company or as may from time to
time be required and prepare appropriate reports that document such activities.
(e) Act as representative for Company in contacts with any Government
Authority relating to the physical operation, maintenance and repair of the
Facilities, where required by audits, Applicable Laws, permit conditions, or
right-of-way agreements.
(f) Obtain and maintain all governmental permits, approvals, and licenses
required by Applicable Laws.
(g) Prepare, maintain and implement operating manuals, monitoring programs,
contingency plans and training programs satisfying all Applicable Laws together
with such other operating procedures or manuals as Company may require.
(h) Prepare custody transfer tickets, and other appropriate accounting
materials to document custody transfer and receipt of Products, and sample and
measure Products received and delivered to verify quality and quantity as
operations may require.
(i) Provide Product shipments scheduling and 24-hour continuous monitoring
and control of pipeline flows for safe and efficient operations.
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(j) File, store and maintain in a manner such that they shall be available
for periodic inspection by Company all as-built drawings or descriptions of the
Facilities, construction and maintenance records, inspection and testing
records, operating procedures and manuals, custody transfer documents,
environmental and safety records and such other records (all collectively
"records") as may be necessary or appropriate to the operation, maintenance and
repair of Facilities, or as required by Applicable Laws or requested by Company.
All of such records shall remain the property of Company.
(k) Prepare and file all tariffs subject to approval of Company.
(l) Collect all tariffs (excluding any joint tariffs with other pipelines
collected by the other pipeline), fees or other revenues derived from the
operation of the Facilities, keep correct, complete, and accurate accounts of
all receipts and disbursements made on the Company's behalf, and deposit all
moneys or other valuable effects in the name and to the credit of Company in
such depository banks, trust companies, savings and loan associations or other
similar institutions as may be designated by Company, keep individual Book
Capital Accounts for each partner of Company, prepare partnership income tax
returns for approval and filing by Company, recommend for approval by the
Company amounts of cash distributions that should be made to the partners of
Company, and preparation of any other financial accounts or statements that may
be required by Company.
(m) Keep an accurate and itemized record of all tariff, fees or other
revenues received and expenditures made or incurred during each Month in
accordance with GAAP, utilizing the principles and practices generally employed
in regulated oil pipeline accounting unless any regulatory agency with
jurisdiction over the System or the Company shall rule otherwise, in which case
the rules of the regulatory agency shall control.
(n) Upon request, attend meetings of the Partnership Committee of Company,
or, whenever otherwise required by Company, prepare and distribute reports of
all financial transactions involving the Company hereunder and other reports
reasonably requested by Company or any partner of Company, but only to the
extent that Operator is legally authorized to do so.
(o) Make all statutory and regulatory filings required of the Company,
including without limitation, all permit applications, and filings with the
Federal Energy Regulatory Commission, Texas Railroad Commission and any other
state Public Utilities Commissions, Department of Transportation, or other
regulatory agencies having jurisdiction over Company.
(p) Sign all checks, drafts, or orders for the payment of Costs authorized
pursuant to this Agreement.
(q) Facilitate the financing and investments including the issuance of
commercial paper in accordance with the policies set forth by the Company.
(r) Administer the Facilities' regulatory, financial, contractual and legal
affairs to the extent such administration is authorized by Company.
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(s) Provide Materials and services as legally required or as Company may
from time to time request, for discharge prevention and response for Products
and/or hazardous substances. These services shall include, but not be limited
to, preparation, submission, and finalization of discharge prevention and/or
contingency plans for Products and/or hazardous substances, and preparation for,
prevention of, response to and/or cleaning up of any discharge or threatened
discharge of Products and/or hazardous substances. Without limiting the
foregoing, Operator shall serve as response action contractor for Company.
(t) Obtain rights-of-way, make renewal payments and do such other tasks as
may required to maintain rights-of-way in the name of or on behalf of the
Company.
(u) Provide process, project, design and construction engineering services
that may be necessary in operating, expanding or modifying the Facilities as
approved by Company. Prepare AFEs, specifications, solicit proposals, evaluate
proposals, make recommendations, and supervise construction relating to any
expansions, modifications, or extensions of the Facilities that are approved by
Company or any other Capital Project approved by Company.
(v) Provide environmental and safety services, including the development
and maintenance of reasonable safety, health and environmental management
systems, policies, procedures and practices.
(w) Keep the Facilities free and clear of all material liens and
encumbrances not otherwise authorized by Company.
(x) Pay and discharge promptly all costs and expenses reasonably incurred
in operating the Facilities.
(y) Transfer and/or dispose of Material from the Facilities. Operator shall
use reasonable efforts to give the Partners of the Company first opportunity to
purchase surplus Material.
(z) Sell or dispose of any of the assets of the Company.
(aa) Grant easements, leases and permits to third parties to use or cross
the surface of the Facilities or any part thereof.
(bb) Pay wages and salaries of Operator's personnel employed at the
Facilities at rates generally comparable to those being paid for similar work at
similar facilities in the same general geographic area.
(cc) Defend Claims arising out of the Operation of the Facilities and
initiate legal proceedings on behalf of the Company.
(dd) Contract for all services necessary for the Operation of the
Facilities.
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(ee) Attend to all other matters necessary for the Operation of the
Facilities.
2.5 Particular Duties of Commercial Operator. Without limiting the
foregoing, subject to the limits otherwise set forth in this Agreement,
Commercial Operator shall specifically perform the following acts, all in
connection with the commercial Operation of the Facilities on behalf of Company:
(a) Develop a business strategy for the pipeline to be submitted to
the Partnership Committee of the Company for approval;
(b) Use all reasonable efforts to maintain or increase the current
market share of volumes transported by the Facilities consistent
with the earnings projections in the approved business strategy.
(c) Manage the revenue side of the pipeline by maintaining contact
with shippers, developing new business opportunities, identifying
potential new shippers, and developing new connection projects;
(d) Recommend to the Partnership Committee of the Company new
commercial arrangements (such as incentive tariffs);
(e) Work with gas processing plant operators on new projects;
(f) Work closely with the Physical Operator, if different than the
commercial operator, on operating and Customer Service issues.
2.6 Y2K Compliance. Operator agrees to use all reasonable efforts to avoid
any interruptions or delays in the delivery of services or the performance of
its obligations under this Agreement which could be caused by or related to
Century Date Compliant problems with facilities, hardware, equipment, material,
systems or processes of Operator.
2.7 Interim Operations. Effective May 1, 1999, Company entered into a
Transition Services Agreement with Mid-America Pipeline Company for the interim
operation of the Gathering Facilities which now are included as part of the
Facilities. During the term of the Transition Services Agreement, day to day
operation of the Gathering Facilities will be conducted by Mid-America Pipeline
Company . Upon termination of the Transition Services Agreement, Operator shall
assume full responsibility for the day to day operation of the Gathering
Facilities as set forth in this Agreement.
2.8 Hobbs Facilities Operations. Effective May 1, 1999, Company entered
into a Hobbs Operational Services Agreement with Mid-America Pipeline Company
for the operation of certain pumps, meters, valves, and other equipment (the
"Hobbs Facilities") which are located at and within the Hobbs Facility operated
by Mid-America Pipeline Company, and which now are included as part of the
Facilities. During the term of the Hobbs Operational Services Agreement, day
to day operation of the Hobbs Facilities will be conducted by Mid-America
Pipeline Company.
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ARTICLE III
ANNUAL BUDGET AND DELEGATION OF AUTHORITY.
3.1 Annual Budget.
(a) On or before the first Business Day of each October, Operator shall
prepare and submit to the Partnership Committee for review, approval or
modification the following annual budgets and forecasts (collectively referred
to hereinafter as the "Annual Budget") each of which shall be forecasted for
each quarterly period:
(1) Capital Commitment Budget: The Capital Commitment Budget shall
consist of an itemization of commitments for each capital project
equal to or in excess of $100,000 (large projects) and a combined
total of all Items less than $100,000 (small projects) for the
following calendar year. The Capital Commitment Budget shall
address additional working capital needs for capital projects.
(2) Capital Expenditure Forecast: The Capital Expenditure Forecast
shall identify separately all expenditures for capital items from
prior budgets which are not yet complete and all capital items
anticipated to be approved in the pending budget. Large projects
shall be listed individually and small projects may be combined.
The forecast shall indicate expenditures by quarter for the
following calendar year and indicate any appropriate carryover in
subsequent years.
(3) Major Maintenance Budget: The Major Maintenance Budget shall
consist of an itemization of each maintenance project equal to or
in excess of $100,000 (large projects) and a combined total of
all items less than $100,000 each (small projects) for the
following calendar year.
(4) Operating Expense Budget: The Operating Expense Budget shall
identify for the following calendar year the expected Operating
Expenses including Direct Costs, Management Fee, and Major
Maintenance.
(5) Volume and Cash Flow Forecast: A forecast of throughput volumes
expected to be handled through the Facilities and expected cash
flow for the Facilities shall be identified.
(6) Three-year Financial Planning Forecast: A three-year financial
planning forecast consisting of the Operator's best forecast of
financial performance of the Facilities for each of the following
three years. The forecast should include known or anticipated
changes in volume, operating costs and capital requirements
during the next three years.
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(b) In the event Company fails to deliver an approved Annual Budget to the
Operator on or before December 31, such budgets and forecasts which have been
approved by the Company shall apply during the ensuing year and, with respect to
any particular budgets and forecasts which have not been approved, the previous
year's budget or forecast pertaining to such non-approved budgets and forecasts
shall remain in effect until specifically approved by the Company. With respect
to the Annual Budget for calendar year 2000, if the Annual Budget (or portions
thereof) is not approved by December 31, 1999, such budgets and forecasts which
have been approved by the Company shall apply during the ensuing year and, with
respect to any particular budgets and forecasts which have not been approved,
the annualized 1999 Budget (as defined in 3.1(d) below) pertaining to such non-
approved budgets and forecasts shall remain in effect until specifically
approved by the Company. Notwithstanding the foregoing, the Operator may take
such actions and make such expenditures as may be deemed necessary under
Applicable Laws or good industry practices in order to continue the orderly
conduct of the business of Company hereunder and to preserve and maintain the
Facilities. In the event that any such expenditure was not specifically
approved in an earlier budget or otherwise approved by the Company, Operator's
authority shall be limited to a maximum of $500,000 for any one expenditure and
a total maximum of $1,000,000 for all such expenditures in any one year. All
expenditures made pursuant to this Section 3.1(b) shall be treated as Cash
Operating Costs hereunder. Nothing in this Section 3.1(b) shall in any way
restrict the Operator's authority as set forth in Section 3.2(f).
(c) In the event that any of the budgets and forecasts in Section 3.1(a)(1)
through 3.1(a)(4) above for any calendar quarter are expected by the Operator to
exceed or actually do exceed 110% of such budget for that calendar quarter,
Operator shall revise the Annual Budget for the quarter in which the budget is
exceeded and for the remaining quarters of that calendar year and submit same to
the Partnership Committee for approval. It is understood and agreed that
Company may at any time supplement or amend the budgets and forecasts as
necessary to carry out the purposes of this Agreement.
(d) Within thirty (30) days following execution of this Agreement, Operator
shall prepare and submit to the Partnership Committee for review, approval or
modification budgets and forecast consistent with the provisions of Section
3.1(a) above but covering the remaining portion of calendar year 1999 (the "1999
Budget") and will work with the Partnership Committee of the Company so that the
1999 Budget is approved on or prior to July 1, 1999.
3.2 Delegation of Authority. Operator shall have the authority to take
the following actions and/or incur the following expenditures without the prior
approval of the Partnership Committee:
(a) Any individual capital project, major maintenance project or
operating expense not exceeding $100,000 to the extent that
Operator deems such expenditures necessary and appropriate for
the operation or maintenance of the Facilities. The sum of any
such expenditures may not, during any Year, exceed the amounts
indicated for all projects or expenses in the budget which have
been approved by Company for that Year.
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(b) Any individual capital project, major maintenance project or
operating expense in excess of $100,000 if such project or
expense was specifically identified in an approved Annual Budget
or Company has approved an AFE for the project. The amount of the
Operator's authority under this subsection may be overrun by the
greater of 10% or $100,000 without seeking prior approval by
Company; provided, however that such overrun does not cause any
of the Capital Expenditure Forecast, Major Maintenance Budget or
Operating Expense Budget approved by the Company to be exceeded.
(c) Operator shall have authority to initiate legal proceedings and
to make expenditures in settlement of Claims resulting from or
arising out of the operation of the Facilities up to $100,000 for
each such Claim. Operator shall notify Company and each partner
of Company immediately of any Claim if the amount required for
full settlement, including anticipated legal fees, is expected to
exceed the above specified amount, and the Company shall
determine how to further handle the Claim.
(d) Operator shall have authority to transfer and/or dispose of
Material from the facilities where the fair market value of any
one disposition is less than or equal to $100,000 and the total
of all dispositions in any one Year is less than or equal to
$500,000.
(e) Operator shall have authority to contract for all services
necessary for the Operation of the Facilities, subject to
Partnership Committee approval of any material contracts having a
term of two years or more or requiring payments in any one year
in excess of $500,000.
(f) Any expenditure which Operator deems reasonably necessary in the
case of an emergency to safeguard lives or property or to prevent
pollution or other environmental damage. Operator shall promptly
verbally notify the Partnership Committee of any such emergency
circumstance, but in any event, no later that twenty-four hours
after Operator first becomes aware of same, which notice shall
set forth the nature of the emergency and the corrective action
taken or being taken. Within twenty-four hours after receipt of
notice from Operator of any such emergency situation, the
Operator and the Partnership Committee shall convene a conference
call to discuss the actions taken or to be taken by Operator in
response to the emergency situation. All expenditures made
pursuant to this subpart (f) shall be treated as Cash Operating
Costs hereunder.
3.3 Capital Projects. Operator shall prepare and submit an AFE to the
Partnership Committee for approval for any unbudgeted Capital Project expected
to cost in excess of the limitations provided for in Sections 3.2 (a) and 3.2
(b) above. Any such AFE shall address additional working capital needs for
unbudgeted Capital Projects.
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ARTICLE IV
REPORTING BY OPERATOR
4.1 Reports. Operator shall provide to the Partnership Committee the
following reports, based on the best data available at the time of preparation
and subject to revision based on acquisition of more accurate data.
(a) Monthly operating income and expense report, including (insofar
as is reasonably practicable given Operator's current reporting
capabilities) a line-by-line comparison of actual expenses to the
approved Annual Budget expenses.
(b) Monthly operational report on major repairs, key operating
parameters and other operational details materially affecting the
Operation of the Facilities.
(c) Monthly report on Facilities throughput.
(d) Quarterly progress report comparing actual Capital Expenditures
to approved AFEs and the approved Annual Budget.
(e) Quarterly progress report on the current status of the Throughput
Commitment made by Mid America Pipeline Company ("MAPL") in favor
of the Partnership as set forth in that certain Call Agreement
dated of even date with the date of this Agreement.
(f) Annual reports on safety and environmental issues; Governmental
Authority inspections, citations, or Governmental Authority or
third party Actions; annual Material inventory and listing of all
Material transferred from the Facilities for all items exceeding
$ 10,000 in value; and within ninety (90) Days after the end of
each calendar year, a report covering the Operation of the
Facilities during the preceding calendar year, including
revenues, expenses, throughput and any other information deemed
material by the Partnership Committee.
4.2 Notification and Settlement of Losses and Claims. Operator shall
promptly notify the Partnership Committee in writing of all Actions arising out
of the Operation of the Facilities. Likewise, if the Partnership has knowledge
of any such Actions, it shall promptly notify the Operator in writing of such
fact.
ARTICLE V
OPERATING ACCOUNT, RECORDS, AND AUDITS.
5.1 Establishment of Operating Account. Operator shall establish and
maintain, and the Company shall fund, a separate interest-bearing bank account
("Account") in the name of Company. All revenues and funds received by Operator
in the course of the
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Operation of the Facilities and all interest earned on the Account shall be
deposited in the Account. Deductions from the Account shall only consist of
payments to the Operator for Cash Operating Costs (as described and authorized
in Attachment I, Accounting Procedure) and cash distributions to the Partners.
There shall be no commingling of funds of the Account with other accounts of the
Operator.
5.2 Operator Invoicing. Within the month immediately following the previous
month of service, Operator shall provide Company and each Partner in the Company
with a report setting forth in reasonable detail the Cash Operating Costs
incurred during the immediately preceding Month. Operator shall invoice Company,
and Company shall pay to Operator the amount of such invoice, which shall be
deducted from the Account.
5.3 Funding of the Account or of Operator's Account. The Company shall at
all times maintain in the Account sufficient money to allow Operator to pay all
Cash Operating Costs as they become due. Operator may pay all Cash Operating
Costs directly from its own account on behalf of Company.
5.4 Books and Records.
(a) Operator shall keep and maintain proper and complete books and
accounts, in the name of Company, in conformity and consistent with
GAAP utilizing the principles and practices generally employed in
regulated oil pipeline accounting unless any regulatory agency with
jurisdiction over the System or the Company shall rule otherwise; and
shall furnish monthly financial statements and such other reports,
statistics and statements as Company or any partner of Company may
reasonably from time to time request.
(b) Operator shall maintain accurate accounts of all expenditures and
liabilities incurred by it in operating, maintaining and repairing the
Facilities and shall render a monthly statement to Company and each
partner of the Company of all such expenditures and liabilities. The
failure to include any item in the current monthly financial statement
rendered for the month in which the same was incurred or expended shall
not preclude such item from being brought forward and included in any
subsequent monthly statement. All books, records and accounts shall be
open to inspection and audit by Company or Company's authorized
representatives at all reasonable times during business hours.
5.5 Audits. The Company, upon at least thirty (30) days prior written
notice to Operator, shall have the right to audit the Operator's records
pertaining to the Operation of the Facilities, including records pertaining to
safety, health and environmental management and compliance, for any calendar
year within the twenty-four (24) Month period following the end of such calendar
year. The Company shall make every reasonable effort to conduct an audit in a
manner which will result in a minimum of inconvenience to Operator. An audit
shall not be conducted more than once each year. Operator shall reply in
writing to an audit report within 180 days after receipt of such report.
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5.6 Record Retention. Operator shall retain all financial records for the
required period of time as set forth by any regulatory agency, or for forty-
eight (48) Months following the end of any calendar year, whichever is greater.
ARTICLE VI
TERM
6.1 Primary Term. Unless sooner terminated as provided for in Sections
6.2, 6.3 or 6.4, this Agreement shall be for a primary term commencing on the
Effective Date and ending on December 31, 2004 (the "Primary Term") and shall
continue year to year thereafter unless and until either Party terminates this
Agreement as of the end of the Primary Term or any successive annual term
thereafter by giving written notice to the other Party at least one hundred
eighty (180) Days prior to the end of the Primary Term or the expiration of any
annual period thereafter; provided, however, in the event that Company has not
selected a replacement operator who is ready and capable of assuming the
operation of Facilities at the end of such notice period, Operator shall
continue to operate the Facilities hereunder for such period until a replacement
operator is selected who is ready and capable of assuming the operation of
Facilities but such continuation by Operator shall not extend beyond 180 days
following the end of the notice period.
6.2 Resignation. Operator may resign at any time by sending written notice
to Company; provided, however, that Operator shall not be relieved of duties as
an Operator for a period of six (6) months after the date of such notice
(resignation effective date) or until such earlier time as a successor Operator
has been retained
6.3 Required Resignation. Operator must resign and this Agreement shall
terminate should Chevron Corporation or any of its Affiliates cease to own at
least twenty percent (20%) ownership interest in the Company. Such resignation
shall follow the time requirement set forth in Section 6.2.
6.4 Removal of Operator for Cause. The Physical Operator may be removed and
this Agreement terminated upon the occurrence of any of the following:
(a) The filing by Operator of a bankruptcy action or similar action for
the protection of creditors, or the involuntary filing of such an
action by a third party against the Operator which remains undismissed
for a period of one hundred eighty (180) days or which is not
dismissed or suspended pursuant to Section 305 of the Federal
Bankruptcy Code (or any corresponding provision of any future United
States bankruptcy law); or
(b) In the event any execution or attachment is issued against Operator
pursuant to which all or a substantial part of the assets of Operator
are seized or otherwise taken by a creditor or by any custodian,
receiver, or other legal authority; or
(c) Any assignment or any general arrangement by the Operator for the
benefit of its creditors;
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(d) The default of Operator in the performance of any material term,
condition or obligation contained in this Agreement (excluding a
breach of the standard of care as set forth in Section 2.2 which is
addressed in (e) below) and the Operator shall have failed to correct
or failed to diligently pursue correction of such default in a manner
reasonably acceptable to Company within thirty (30) days after receipt
of written notice from the Company of any such default.
(e) Failure of Operator to comply with the Standard of Care requirements
as set forth in Section 2.2, after being given written notice of same
by the Company (the "Default Notice"), and failure by Operator to (i)
diligently pursue correction of such default in a manner reasonably
acceptable to Company within one hundred eighty (180) days after
receipt of such Default Notice, and (ii) correct such default as soon
as practicable but in no event later than one year after receipt of
the Default Notice. If Operator disputes whether a default actually
occurred, at the election of Operator or the Company, such matter may
be submitted to the alternative dispute resolution procedures as set
forth in Article XIV. In the event Operator or any Affiliate of
Operator has an employee who is acting as Chairman of the Partnership
Committee of Company and who, upon the request of the other Members of
the Partnership Committee, has failed and/or refused to send a Default
Notice to Operator, any Member of the Partnership Committee shall have
the right to send such Default Notice to Operator.
In any such event, Company may give notice of removal to the Operator, in which
case the Operator shall nevertheless continue to perform all of the duties,
responsibilities and obligations of Operator until the Company designates a
successor Operator.
6.5 Removal of Commercial Operator. The Company shall have the right to
remove the Commercial Operator upon the default of Commercial Operator in the
performance of its duties as set forth in Section 2.5, after being given written
notice of same by the Company (the "Default Notice"), and failure by the
Commercial Operator to (i) diligently pursue correction of such default in a
manner reasonably acceptable to Company within thirty (30) days after receipt of
written notice from the Company of any such default, and (ii) correct such
default as soon as practicable but in no event later than ninety (90) days after
receipt of the Default Notice. If Commercial Operator disputes whether a
default actually occurred, at the election of the Commercial Operator or the
Company, such matter may be submitted to the alternative dispute resolution
procedures as set forth in Article XIV. In the event Commercial Operator or any
Affiliate of the Commercial Operator has an employee who is acting as Chairman
of the Partnership Committee of Company and who, upon the request of the other
Members of the Partnership Committee, has failed and/or refused to send a
Default Notice to Operator, any Member of the Partnership Committee shall have
the right to send such Default Notice to the Commercial Operator.
6.6 Obligations on Termination. Upon termination of this Agreement,
Company shall pay Operator the amounts chargeable to Company hereunder as of the
date of termination which have not already been paid by Company. The Company
shall also reimburse Operator for
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the full amount of any obligations or commitments Operator has made in the
interest of performing the services hereunder in accordance with the Annual
Budget and any approved projects which were paid by Operator but not reimbursed
by Company prior to the date of such termination or, if agreeable to such third
party to which Operator has made such obligations or commitments, and if
Operator is fully released therefrom, the Partnership may assume such
obligations or commitments.
6.7 Rights Upon Removal or Resignation. Termination of this Agreement
shall not affect the rights and privileges or duties, liabilities and
obligations of either Party which arose or accrued prior to the date of
termination.
6.8 Transition Upon Termination. Upon termination of this Agreement,
Operator shall turn over to Company all records, data, information, operating
manuals or other operating information in Operator's possession pertaining to
operations hereunder, as well as all Materials, and facilities which had been
purchased by Company or in its name. To the extent that provision of such
information causes Operator to incur additional costs, the Partnership shall
reimburse Operator for such reasonable costs incurred in connection therewith.
In addition, Operator shall provide to the new operator copies of all accounting
records pertaining to the Facilities during the term of this Agreement.
ARTICLE VII
INSURANCE
7.1 Required Insurance. At all times during the term of this Agreement,
Operator shall procure and maintain the following insurance at the Company's
expense:
(a) Worker's Compensation Insurance - which shall apply to all
employees, including borrowed servants, alternate and statutory
employees, in accordance with the benefits afforded by the
statutory Worker's Compensation Acts, United States Longshoremen
& Harborworker's Act and Maritime Act applicable to the state,
territory or district of hire, supervision or place of accident.
Policy limits for worker's compensation shall not be less than
statutory limits, and for employer's liability, Two Million
Dollars ($2,000,000) each accident, Two Million Dollars
($2,000,000) disease, each employee, and Two Million Dollars
($2,000,000) disease policy limit. Where permitted by law,
Operator may fulfill its Workers' Compensation obligations
through a program of self-assumption of risk, and shall charge
Company its actual costs of such self-assumption program which
shall not exceed Insurance Manual Rates applicable to such
operations in the place where the same are performed.
(b) Business Auto Liability Insurance - covering all owned, non-owned
and hired motor vehicles used in the performance of this
Agreement with limits of not less than $1 million combined single
limit per occurrence. Where permitted by law, Operator may
fulfill its Auto Liability Insurance obligation through a program
of self-assumption of risk and shall charge
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Company published rates, from a licensed insurer of its choice,
in the applicable State of operation for the vehicles used in
performance of this Agreement.
(c) Other Insurance - No insurance, other than that set forth above,
shall be carried by Operator for the account of Company without
prior approval from Company.
(d) Endorsements - The Workers Compensation/Employer's Liability
Insurance in (a) above, shall provide for a waiver of subrogation
in favor of Company and each Partner. The Auto Liability
Insurance in (b) above, shall name Company and each Partner as an
additional assured.
(e) Contractors - Operator shall at all times use all reasonable
efforts to require each of its contractors and subcontractors to
provide the insurance coverage set forth below, all to be
endorsed with waiver of rights of recovery and subrogation and
additional insured wording in favor of the Company and all
Partners:
(1) Worker's compensation insurance which shall apply to all
employees, including borrowed servants, alternate and
statutory employees, in accordance with the benefits
afforded by the statutory Worker's Compensation Acts, United
States Longshoremen & Harborworker's Act and Maritime Act
applicable to the state, territory or district of hire,
supervision or place of accident. Policy limits for
worker's compensation shall not be less than statutory
limits.
(2) Commercial general liability insurance including coverage
for blanket contractual liability, sudden and accidental
environmental pollution liability, broad form property
damage, independent contractors, products/completed
operations and explosion, collapse and underground.
Products and completed operations coverage may have a
minimum annual aggregate equal to the required per
occurrence limit.
(3) Business auto liability insurance for bodily injury and
property damage to include coverage for all owned, non-owned
and hired vehicles.
7.2 Claims Covered by Operator's Self Insurance. In the event Operator
utilizes self-assumption of risk with respect to the Company instead of
obtaining any such insurance, Operator shall assume all risks associated with
the matters covered by such self assumption of risk and, in connection
therewith, Operator does hereby waive subrogation rights in favor of Company and
each of the Partners in Company with respect to any Claims for which Operator
has elected to self-assume the risk.
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ARTICLE VIII
MUTUAL RELEASE AND INDEMNIFICATION
8.1 OPERATOR WILL NOT BE LIABLE FOR, AND THE COMPANY RELEASES OPERATOR, ITS
AFFILIATES, AND ITS AND THEIR AFFILIATES' OFFICERS, EMPLOYEES, AND BORROWED
SERVANTS/CONTRACT EMPLOYEES (THE "OPERATOR INDEMNITEES") FROM, AND WILL
INDEMNIFY OPERATOR INDEMNITEES AGAINST ALL CLAIMS ARISING OUT OF, ATTRIBUTABLE
TO, IN CONNECTION WITH OR AS AN INCIDENT TO ANY ACT OR OMISSION OF OPERATOR
INDEMNITEES IN THE ADMINISTRATION, OPERATION, CONSTRUCTION AND MAINTENANCE OF
THE FACILITIES OR ARISING FROM ACTIVITIES CARRIED ON OR WORK PERFORMED OR
REQUIRED BY THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, THE NEGLIGENCE OF
OPERATOR INDEMNITEES; PROVIDED, HOWEVER, THAT THE COMPANY WILL NOT BE REQUIRED
TO RELEASE OR INDEMNIFY OPERATOR INDEMNITEES FROM ANY CLAIMS TO THE EXTENT SUCH
CLAIMS ARISE OUT OF, ARE ATTRIBUTABLE TO, IN CONNECTION WITH OR INCIDENT TO ANY
GROSS NEGLIGENCE, FRAUD OR WILLFUL MISCONDUCT OF OPERATOR INDEMNITEES, OR FOR
ANY VIOLATION BY OPERATOR INDEMNITEES OF THE FAIR LABOR STANDARDS ACT. THE
COMPANY'S INDEMNITY TO OPERATOR WILL NOT APPLY TO THE EXTENT SUCH CLAIM IS
COVERED BY, AND PROCEEDS ARE PAID FROM (I) INSURANCE THAT THE OPERATOR IS
REQUIRED TO OBTAIN AND MAINTAIN AT THE COMPANY'S EXPENSE FOR THE BENEFIT OF THE
COMPANY PURSUANT TO THE TERMS OF THIS AGREEMENT OR (II) INSURANCE REQUIRED UNDER
AGREEMENTS BETWEEN OPERATOR AND ITS CONTRACTORS AND SUBCONTRACTORS PERFORMING
WORK REQUIRED UNDER THIS AGREEMENT.
8.2 COMPANY WILL NOT BE LIABLE FOR, AND OPERATOR RELEASES AND WILL INDEMNIFY
THE COMPANY, ITS PARTNERS, THEIR AFFILIATES, AND THEIR OFFICERS, EMPLOYEES AND
BORROWED SERVANTS/CONTRACT EMPLOYEES AGAINST ALL CLAIMS ARISING OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OR FRAUD OF THE OPERATOR INDEMNITEES WHILE
PERFORMING ITS DUTIES DURING THE TIME IT IS OPERATOR, OR FOR ANY VIOLATIONS BY
OPERATOR INDEMNITEES OF THE FAIR LABOR STANDARDS ACT; PROVIDED, HOWEVER, THAT
THE OPERATOR WILL NOT BE REQUIRED TO RELEASE OR INDEMNIFY COMPANY FROM ANY
CLAIMS TO THE EXTENT SUCH CLAIMS ARISE OUT OF, ARE ATTRIBUTABLE TO, IN
CONNECTION WITH, OR INCIDENT TO, ANY GROSS NEGLIGENCE, FRAUD OR WILLFUL
MISCONDUCT OF THE COMPANY, THE PARTNERS, OR THEIR AFFILIATES.
8.3 This indemnity provision will survive termination of this Agreement.
Notwithstanding the foregoing indemnifications, nothing herein shall:
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(a) release Operator, as a partner in Company, of any obligation set forth
in the Partnership Agreement; or
(b) prohibit the Operator, as a partner in Company and as the Operator
pursuant to this Agreement, from pursuing its rights under this
indemnification provision for those otherwise indemnifiable Claims for
which Operator incurs liability as Operator of the Facilities, and
which are in excess of Company's insurance coverage required in this
agreement.
ARTICLE IX
CONFIDENTIALITY
9.1 Each Party agrees that it will maintain this Agreement, all terms and
conditions of this Agreement and all other Confidential Information in strictest
confidence and that it will not cause or permit disclosure of Confidential
Information to any third Party without the express written consent of the other
Party hereto. Disclosures of Confidential Information otherwise prohibited by
this Article IX may be made by either Party; (i) to the extent necessary for
such Party to enforce its rights hereunder against the other Party; (ii) to the
extent a Party is contractually or legally bound to disclose financial
information to a third Party (such as a shareholder or commercial lender); (iii)
to the extent to which a Party hereto is required to disclose all or part of
this Agreement by a statute or by the order of Governmental Authority exercising
jurisdiction over the subject matter hereof, by order, by regulations, or by
other compulsory process (including, but not limited to, deposition, subpoena,
interrogatory, or request for production of documents); (iv) to the extent
required by the applicable regulations of a securities or commodities exchange;
or (v) to an Affiliate (but only if such Affiliate agrees to be bound by the
provisions of this Article IX and only in a manner consistent with the
Interstate Commerce Act).
9.2 If either Party is or becomes aware of a fact, obligation, or
circumstance that has resulted or may result in a disclosure of Confidential
Information authorized by this Article IX, it shall so notify the other Party
promptly and shall provide documentation or an explanation of such disclosure as
soon as it is available. Each Party further agrees to cooperate to the fullest
extent in seeking confidential status to protect any Confidential Information so
disclosed.
9.3 The Parties hereto acknowledge that independent legal counsel may,
from time to time, be provided with a copy of this Agreement and agree that such
disclosure does not require consent by the other Party, provided that such
counsel agrees to be bound by the provisions of this Article IX.
9.4 Each Party will be deemed solely responsible and liable for the
actions of its employees, independent contractors, officers, agents and
Affiliates for maintaining the confidentiality commitments of this Article IX,
but will be required in that regard only to exercise such care in maintaining
the confidentiality of the Confidential Information as such Party normally
exercises in preserving the confidentiality of its other commercially sensitive
information.
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ARTICLE X
FORCE MAJEURE
10.1 A delay in or failure of performance of either Party hereto shall not
constitute default, nor shall either Party be held liable for loss or damage
arising from such delay or failure to the extent such delay, failure, loss or
damage is caused by Force Majeure. The Party claiming Force Majeure as an
excuse for delay in or failure of performance shall immediately notify the other
Party of the event and any steps being taken to remove the impediment to
performance.
10.2 Force Majeure shall not prevent either Party from terminating this
Agreement under Article VI above.
ARTICLE XI
ASSIGNMENT
11.1 This Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the Parties hereto; provided, however, that such
Agreement and the obligations of the Parties hereunder shall not be assignable
by either Party hereto without the express prior written consent of the other
Party hereto, except that either Party may assign its rights hereunder to any
parent, subsidiary, or Affiliate of such Party without the approval of the other
Party, but such assignment shall in no way relieve or release the assigning
Party from any obligations hereunder, whether accrued or unaccrued, unless
agreed to in writing by the non-assigning Party.
ARTICLE XII
NOTICES
12.1 Addresses for Notices. Unless specifically provided otherwise in
this Agreement, any notice or other communication provided for in this Agreement
or any notice which either Party may desire to give to the other shall be in
writing and shall be deemed to have been properly given if and when sent by
facsimile transmission, electronic mail via internet with confirmation of
receipt, delivered by hand, or if sent by mail, upon deposit in the United
States mail, either U.S. Express Mail, registered mail or certified mail, with
all postage fully prepaid, or if sent by courier, by delivery to a bonded
courier with charges paid in accordance with the customary arrangements
established by such courier, in each case addressed to the Parties at the
following addresses:
If to Company:
West Texas LPG Pipeline Limited Partnership
Attention: Chairman of the Partnership Committee
c/o Chevron Pipe Line Company
2811 Hayes Road
Houston, Texas 77082
Fax: (281) 596-2907
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with a copy to:
WTLPS, Inc.
Attention: President
1000 Louisiana
Suite 5800
Houston, Texas 77002
and
Mid-America Pipeline Company
Attention: Director of NGL Pipelines
1800 S. Baltimore
Tulsa, Oklahoma 74119
If to Operator:
Chevron Pipe Line Company
2811 Hayes Road
Houston, Texas 77082
Attention: Eastern Region Profit Center Manager
or at such other address as either Party shall designate by written notice to
the other. A notice sent by facsimile shall be deemed to have been received by
the close of the first Business Day following the Day on which it was
transmitted and confirmed by transmission report or such earlier time as
confirmed orally or in writing by the receiving Party. Notice by U. S. Mail,
whether by U. S. Express Mail, registered mail or certified mail, or by
overnight courier shall be deemed to have been received by the close of the
second Business Day after the Day upon which it was sent, or such earlier time
as is confirmed orally or in writing by the receiving Party. Either Party may
change its address or facsimile number by giving notice of such change in
accordance with herewith.
ARTICLE XIII
GOVERNING LAW
13.1 The validity, nature, obligations, effect and construction of this
agreement shall be governed by the laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any other jurisdiction other than the State of Texas.
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ARTICLE XIV
ALTERNATIVE DISPUTE RESOLUTION
14.1 Covered Disputes. Any Claims arising out of or relating to this
Agreement, including without limitation the meaning of its provisions, or the
proper performance of any of its terms, its breach, termination or invalidity
("Dispute") will be resolved in accordance with the procedures specified in this
Section, which will be the sole and exclusive procedure for the resolution of
any such Dispute, except that any Party, without prejudice to the following
procedures, may file a complaint to seek preliminary injunctive or other
provisional judicial relief, if in its sole judgment, that action is necessary
to avoid irreparable damage or to preserve the status quo. Despite that action,
the Parties will continue to participate in good faith in the procedures
specified in this Article.
14.2 Initiation of Procedures. Any Party wishing to initiate the dispute
resolution procedures set forth in this Article with respect to a Dispute not
resolved in the ordinary course of business must give written notice of the
Dispute to the other Party ("Dispute Notice"). The Dispute Notice will include
(i) a statement of that Party's position and a summary of arguments supporting
that position, and (ii) the name and title of the executive who will represent
that Party and of any other Person who will accompany the executive in the
negotiations under the next Section.
14.3 Negotiation Between Executives. If any Party has given a Dispute
Notice under the preceding Section, the Parties will attempt in good faith to
resolve the Dispute within thirty (30) days of the notice by negotiations
between executives who have authority to settle the Dispute and who are at a
higher level of management than the Persons with direct responsibility for
administration of this Agreement or the matter in Dispute. Within ten (10) days
after delivery of the Dispute Notice, the receiving Party will submit to the
other a written response. The response will include (i) a statement of that
Party's position and a summary of arguments supporting that position, and (ii)
the name and title of the executive who will represent that Party and of any
other Person who will accompany the executive. Within twenty (20) days after
delivery of the Dispute Notice, the executives of the Parties will meet at a
mutually acceptable time and place, and thereafter, as often as they reasonably
deem necessary, to attempt to resolve the Dispute.
14.4 Mediation. If the Dispute has not been resolved by negotiation under
the preceding Section within thirty (30) days of the Dispute Notice, and only in
such event, a Party may initiate the mediation procedure of this Section by
giving written notice to the other Party ("Mediation Notice"). The Parties will
endeavor to settle the Dispute by mediation within sixty (60) days of the
Mediation Notice under the then current Center for Public Resources ("CPR")
Model Mediation Procedure for Business Disputes. If the Parties have not agreed
upon a mediator within seven (7) days after the Mediation Notice, any Party may
request CPR assistance in the selection of a mediator under its guidelines. The
mediator will establish rules for an expedited discovery procedure and will
resolve all disputes with regard to discovery between the Parties. If the
mediator has not already done so during the mediation process, at least seven
(7) days before the end of the sixty (60) day mediation period, the mediator
will provide to each Party a written summary of the mediator's conclusions
regarding the outcome of the Dispute.
14.5 Arbitration. If the Dispute has not been resolved by mediation under
Section 14.4 above within the required sixty (60) Day period or if any Party to
a Dispute fails and/or
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refuses to participate in such mediation procedures, any Party may initiate
arbitration to resolve the matter by submitting a written notice (the
"Arbitration Notice") to the other Party or Parties. Any arbitration hereunder
shall be governed by the Federal Arbitration Act, 9 U.S.C. (S) 1 et seq., as
amended, to the exclusion of any other arbitration acts, statutes, or rules of
any other jurisdiction, state or federal.
14.6 Arbitration Procedure. Any arbitration hereunder shall be conducted in
accordance with the then current CPR Rules for Non-Administered Arbitration,
except to the extent terms expressly set forth in this Article are in conflict
with or supplement such Rules, by three independent and impartial arbitrators,
of whom each Party to a Dispute shall appoint one, and the two so appointed by
the Parties shall appoint the third arbitrator. The Arbitration Notice shall
name the noticing Party's arbitrator, and shall contain a statement of the
issue(s) presented for arbitration. Within fifteen (15) Days of receipt of an
Arbitration Notice, the other Party shall name its arbitrator by written notice
to the other and may designate any additional issue(s) for arbitration. The two
named arbitrators shall select the third arbitrator within fifteen (15) Days
after the date on which the second arbitrator was named. Should the two
arbitrators fail to agree on the selection of the third arbitrator, either Party
shall be entitled to request CPR to select the third arbitrator. Should either
Party fail and/or refuse to name its arbitrator within the required fifteen (15)
Day period, the other Party shall be entitled to request CPR to select the
arbitrator for such Party. All arbitrators shall be qualified by education or
experience within the natural gas liquids portion of the energy industry to
decide the issues presented for arbitration. No arbitrator shall be: a current
or former director, officer, or employee of either Party or its Affiliates; an
attorney (or member of a law firm) who has rendered legal services to either
Party or its Affiliates within the preceding three Years; or an owner of any of
the common stock of either Party, or its Affiliates.
14.7 Arbitration Hearing. The three arbitrators shall commence the
arbitration proceedings within twenty-five (25) Days following the appointment
of the third arbitrator. The arbitration proceedings shall be held at a mutually
acceptable site and if the Parties are unable to agree on a site, the
arbitrators shall select the site. The arbitrators shall have the authority to
establish rules and procedures governing the arbitration proceedings, including,
without limitation, rules concerning discovery. Each Party shall have the
opportunity to present its evidence at the hearing. The arbitrators may call for
the submission of pre-hearing statements of position and legal authority, but no
post-hearing briefs shall be submitted. The arbitration panel shall only have
authority to award compensatory damages alone and shall not have the authority
to award incidental, consequential, special, punitive or exemplary damages. In
addition, if an issue under consideration is limited to a determination of an
amount of money owed by one Party to the other, each Party shall submit to the
arbitration panel a final offer of its proposed resolution of the Dispute. The
arbitration panel shall be charged to select from the two proposals the one
which the panel finds to be the most reasonable and consistent with the terms
and conditions of this Agreement, and the arbitration panel shall not average
the Parties' proposals or otherwise craft its own remedy. All evidence submitted
in an arbitration proceeding, transcripts of such proceedings, and all documents
submitted by the Parties in an arbitration proceeding shall be kept confidential
and shall not be disclosed to any third party by either Party hereto.
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14.8 Arbitration Decision and Costs. The decision of the arbitrators or a
majority of them, shall be in writing and shall be final and binding upon the
Parties as to the issue(s) submitted. The cost of the hearing shall be shared
equally by the Parties, and each Party shall be responsible for its own expenses
and those of its counsel or other representatives. Each Party hereby irrevocably
waives, to the fullest extent permitted by law, any objection it may have to the
arbitrability of any such Disputes, controversies or claims and further agrees
that a final determination in any such arbitration proceeding shall be
conclusive and binding upon each Party.
14.9 Enforcement of Award. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. The prevailing
Party shall be entitled to reasonable attorneys' fees in any contested court
proceeding brought to enforce or collect any award of judgment rendered by the
arbitrators.
14.10 Tolling and Performance. Except as otherwise provided in this Article
14, all applicable statutes of limitation and defenses based upon the passage of
time and all contractual limitation periods specified in this Agreement, if any,
will be tolled while the procedures specified in this Article 14 are pending.
The Parties will take all actions to effectuate the tolling of any applicable
statute of limitation or contractual limitation periods. All deadlines specified
herein may be extended by mutual written agreement of the Parties or, if an
Arbitration Notice has been sent regarding the Dispute, by written order of a
majority of the arbitrators. Each Party is required to continue to perform its
obligations under this Agreement pending final resolution of any Dispute, unless
to do so would be impossible or impracticable under the circumstances.
Notwithstanding the foregoing, the statute of limitations of the State of Texas
applicable to the commencement of a lawsuit will apply to the commencement of an
arbitration under this Agreement, except that no defenses will be available
based upon the passage of time during any negotiation or mediation called for by
the preceding Sections of this Article.
ARTICLE XV
MISCELLANEOUS
15.1 Waiver. No waiver by either Party of the performance of any
provision, condition or requirement herein shall be deemed to be a waiver of, or
in any manner release the other Party from performance of any other provision,
condition or requirement herein; nor shall it be deemed to be a waiver of, or in
any manner release the other Party from future performance of the same
provision, condition, or requirement; nor shall any delay or omission of a Party
in exercising any right hereunder in any manner impair the exercise of any such
right or any like right accruing to it thereafter. No waiver shall be effective
unless made in writing and signed by the Party to be charged with such waiver.
15.2 Amendment. This Agreement may be amended only by a written agreement
executed by both Parties that expressly amends this Agreement.
15.3 Agreement in Counterparts. This Agreement, or any amendments
thereto, may be executed in multiple counterparts, each of which shall be deemed
an original Agreement upon the signature by each of the Parties on at least one
counterpart.
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15.4 Further Assurances. Each Party, upon the request of the other Party
agrees to perform any further acts and execute and deliver any other documents,
which may be reasonably necessary to carry out the provisions of this Agreement.
15.5 Validity. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable and such invalidity or unenforceability has or would
have a material and substantial negative impact on the rights, duties or
obligations of either Party, then the Parties shall meet to determine if such
negative impact can be eliminated or mitigated. If such negative impact can not
be eliminated or mitigated to the satisfaction of the Party affected thereby,
that Party shall have the right to terminate this Agreement. If any provision
of this Agreement is held to be illegal, invalid, or unenforceable and such
invalidity or unenforceability does not have a material and substantial negative
impact on the rights, duties or obligations of either Party, (i) such provision
will be fully severable, (ii) this Agreement will be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a part
of this Agreement, and (iii) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, (1) in lieu of such illegal, invalid, or unenforceable provision,
there will be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and as may be legal, valid, and enforceable and (2) such illegality,
invalidity or unenforceability shall not affect the validity or enforceability
in that jurisdiction of any other provision of this Agreement nor the validity
or enforceability in other jurisdictions of that or any other provision of this
Agreement.
15.6 Attachments Exhibits and Schedules. All attachments, exhibits and
schedules or descriptions referred to in this Agreement or attached hereto are
expressly incorporated herein by reference as if set forth in full, whether or
not attached hereto. In the event of any conflict between the terms and
conditions of this Agreement and the terms and conditions of any exhibit,
schedule or other documents referenced herein, the terms and conditions of this
Agreement shall govern and control.
15.7 Entire Agreement. This Agreement, including all attachments,
exhibits, schedules and descriptions incorporated herein, constitutes and
contains the full and final agreement of the Parties hereto relating to the
matters described herein, and unless otherwise specified herein, this Agreement
supersedes and replaces any and all prior agreements or understandings (whether
written or oral) between or among the Parties regarding the subject matter
hereof, including but not limited to that certain Operating Agreement entered
into between Company and Operator dated effective September 1, 1996.
15.8 Titles and Headings. The titles and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
15.9 Binding Effect. This Agreement and the covenants, obligations,
undertakings, rights and benefits set forth herein shall be binding on and inure
to the benefit of the Parties and their respective authorized successors and
assigns.
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15.10 Benefits of Agreement Restricted to Parties. Except as otherwise
provided in this Agreement, nothing in this Agreement, expressed or implied,
shall give or be construed to give any person, other than the Parties hereto
(including their Partners and Affiliates) and their authorized successors and
assigns, any legal or equitable right, remedy or claim under or in respect to
this Agreement or under any covenant, condition or provision contained herein;
and all such covenants, conditions and provisions shall be for the sole benefit
of the Parties hereto.
15.11 Reservation of Rights. Except as otherwise provided herein, each
Party reserves to itself all rights, set-offs, counterclaims, and other remedies
and/or defenses which such Party is or may be entitled to arising from or out of
this Agreement or as otherwise provided by law.
15.12 Principles of Construction and Interpretation. In construing this
Agreement, the following principles shall be followed:
(a) examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(b) the word "includes" and its syntactical variants mean "includes,
but is not limited to" and corresponding syntactical variant expressions;
and
(c) the plural shall be deemed to include the singular and vice versa,
as applicable.
15.13 DISCLAIMER OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES RESULTING
FROM OR ARISING OUT OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, LOSS OF
USE, INCREASED COST OF OPERATIONS, LOSS OF PROFIT OR REVENUE, OR BUSINESS
INTERRUPTIONS, HOWEVER SAME MAY BE CAUSED AND REGARDLESS OF THE OTHER PARTY'S
NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE, JOINT,
CONCURRENT, ACTIVE, PASSIVE OR GROSS), FAULT, OR LIABILITY WITHOUT FAULT. THE
DISCLAIMER OF LIABILITY SET FORTH IN THE PRECEDING SENTENCE SHALL INCLUDE BOTH
AFFILIATED AND UNAFFILIATED THIRD PARTY CLAIMS FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.
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15.14 Acknowledgment. EACH OF THE PARTIES HERETO SPECIFICALLY
ACKNOWLEDGES AND AGREES (1) THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THAT
IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS HEREOF, AND (2) THAT IT HAS
IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT. EACH PARTY
HERETO FURTHER AGREES THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY SUCH PROVISIONS OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO NOTICE
OR KNOWLEDGE OF SUCH PROVISIONS OR THAT SUCH PROVISIONS ARE NOT "CONSPICUOUS".
15.15 Joint Efforts. This Agreement shall be considered for all purposes
as prepared through the joint efforts of the Parties, and shall not be construed
against one Party or the other as a result of the preparation, submittal or
other event of negotiation, drafting or execution thereof.
15.16 Conflicts of Interest. No director, employee, or agent of either
Party shall give or receive any commission, fee, rebate, gift, or entertainment
of significant cost or value in connection with this Agreement. Upon reasonable
advance written notice to the other Party, any mutually agreeable
representative(s) authorized by either Party may audit the applicable records of
the other Party solely for the purpose of determining whether there has been
compliance with this paragraph.
15.17 Independent Contractor. The parties intend that Operator shall be
an independent contractor in its activities hereunder. It is understood and
agreed that the relationship of the Parties hereto is purely contractual and
does not establish any agency, fiduciary or other type of relationship;
provided, however that the Partnership designates Operator as its agent for the
limited purposes set forth in Section 15.18 below.
15.18 Power of Attorney. Company hereby constitutes and appoints the
Operator as its true and lawful agent and attorney-in-fact, to make, execute,
and sign (i) any contracts or agreements for and on behalf of the Partnership
that the Operator is authorized to make and enter into under the terms of this
Agreement and (ii) any other documents, including those that may be necessary to
open and maintain a bank account for and in the name of the Partnership, that
may be necessary for Operator to Operate the Facilities under the terms of this
Agreement.
15.19 Federal Compliance.
(a) Insofar as applicable to the Parties hereto, each Party hereto shall
comply with Executive Order No. I1246, as amended by Executive Order No. I1375,
and the rules and regulations issued thereunder, to ensure that applicants are
employed, and that employees are treated during employment without regard to
their race, creed, color, sex or national origin. Also, if applicable, each
Party hereto shall comply with all provisions of the Vietnam Era Veterans'
Readjustment Assistance Act of 1974 and the rules and regulations issued
thereunder, including 41 C.F.R., Chapter 60, Part 60-250. Each Party hereto
shall also, if applicable, comply with all provisions of the Rehabilitation Act
of 1973, and the rules and regulations issued thereunder including 41 C.F.R.,
Chapter 60, Part 60-74. Operator agrees and covenants that none of its employees
or employees of its subcontractors who provide services to Company pursuant to
this
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Agreement are unauthorized aliens as defined in the Immigration Reform and
Control Act of 1986. All acts, orders, rules and regulations referenced above
are hereby incorporated by reference unless this Agreement is excepted by
appropriate federal Applicable Law.
(b) Company and Operator shall comply with all Applicable Laws applicable
to Company and Operator relating to the Facilities hereunder, including but not
limited to any regulations of the United States Department of Transportation
applicable to facilities operated by Company that are connected to or a part of
the Facilities hereunder.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first above written.
COMPANY, OPERATOR,
WEST TEXAS LPG PIPELINE CHEVRON PIPE LINE COMPANY
LIMITED PARTNERSHIP
By: By:
---------------------------- ----------------------------
Its: Its:
---------------------------- ----------------------------
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ATTACHMENT I
TO
AMENDED AND RESTATED OPERATING AGREEMENT BETWEEN WEST TEXAS
LPG PIPELINE LIMITED PARTNERSHIP AND CHEVRON PIPE LINE COMPANY
ACCOUNTING PROCEDURE
1. Definitions
Unless otherwise provided for herein, the terms in this Accounting
Procedure shall have the same meaning as defined in the Agreement to which
this Accounting Procedure is attached.
As used in this Accounting Procedure, the following terms have the meaning
set forth below:
"Management Fee" shall mean the management fee referenced in Section 3(b)
of this Attachment.
"Personal Expenses" shall mean Travel Expenses and other reasonable
reimbursable expenses.
"Travel Expenses" shall mean air fare, lodging, meals, laundry, business
related telephone calls, taxis, car rental, tolls, parking and any other
reasonable and necessary travel-related expenses.
2. Conflict with Agreement
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions of this Accounting Procedure shall
control.
3. Cash Operating Costs
(a) Direct Charges
Subject to the provisions of the Agreement, Operator shall charge the
Account with the following items to the extent such charges are
incurred in connection with the Operation of the Facilities or any
other activities or projects Operator is authorized to undertake
pursuant to this Agreement. Applicable costs, if any, chargeable under
this Section 3 shall be allocated to the portion of the Facilities
benefited on an equitable basis. To the extent economically justified,
Operator shall take advantage of, and credit to the Account, all cash,
trade discounts, freight allowances and
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equalizations, annual volume and other allowances, credits, salvages,
commissions, insurance discount dividends and retrospective premium
adjustments.
(1) Labor, Benefits and Personal Expenses
(i) Salaries and wages of Operator's employees (or employees of
Operator's Affiliate) directly assigned to the physical
operation, support and maintenance of the Facilities,
including that portion of such employees' time related to
ancillary activities such as training required by Applicable
Laws, and in any other activities required of the Operator
pursuant to this Agreement.
(ii) Overhead associated with field offices and field office
equipment, which will be calculated as 15% of the amount
provided for in (i) above.
(iii) Operator's cost of all payroll taxes, and benefits and
allowances and any other payment paid or contributed by the
Operator which is measured by Operator's employees'
compensation; the above to include without limitation
F.I.C.A., Operator's cost of holiday, vacation, sickness and
disability and other customary allowances, Operator's
current costs of established plans for employees' group life
insurance, hospitalization, retirement, stock purchase, and
other benefit plans of a like nature. Costs also include
Operators cost of Workers' Compensation Insurance, or if
Operator elects to self-insure, its actual costs of self-
insurance which shall not exceed Insurance Manual Rates per
Section 7.1(a) of this Agreement. Such costs will be
charged on a percentage assessment rate on the amount of
salaries and wages chargeable to the Company under Paragraph
(1)(i) of this Section. The percentage assessment rate shall
be based on the Operator's actual cost experience.
(iv) Reasonable Personal Expenses of those employees whose
salaries and wages are chargeable to the Company hereunder.
(2) Customer Service Center
The share of Operator's cost for its Customer Service Center
attributable to the Facilities, including but not limited to:
(i) Labor, benefits and Personal Expenses of Operator's
employees directly assigned to the physical operation and
support of the Facilities, including handling nominations,
customer service, and volumetric accounting, following the
methodology in Sections 3(a)(1)(i), (iii) and (iv) above.
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(ii) A share of the depreciation for Customer Service Center
capitalized costs of facility and equipment used in the
scheduling of shipments and 24-hour continuous monitoring
and control of pipeline flows for the Facilities.
(iii) An allocation of other Customer Service Center costs
required for support of the Facilities including, but not
limited to, laboratory analysis of LPG product samples,
communication costs, computer programming costs and SCADA
support costs.
(3) Materials and Supplies
Material purchased by Operator for use in the operation and
maintenance of Facilities shall be charged to the Company at the
price paid by Operator after deduction of all discounts received.
Material furnished by Operator from its stocks or inventory shall
be charged in accordance with the accounting guidelines
established by COPAS (Council of Petroleum Accountants Societies
of North America). The cost of transportation of material shall
be chargeable to the Company. Company agrees to use all
reasonable efforts to assure that any transportation costs which
are incurred are reasonable.
The accumulation of surplus stocks shall be avoided, and if
surplus stocks are accumulated, such stocks shall be timely
disposed of. Material disposed of by the Operator shall be priced
at its fair market value. Proceeds from such disposition shall be
credited to the Company at the time they are received by
Operator. Operator does not warrant the material furnished. In
the case of material found to be defective, or returned to a
vendor or the Operator for any other reason, Operator shall
credit the Company when adjustment is received by Operator,
unless such material is returned to Operator as the source of
such materials, in which event, such credit shall be made the
Company when the materials are returned to Operator.
(4) Contracts and Services
The cost of contracts and subcontracts, contract services
(including those for technical personnel), professional
consultants, equipment, and utilities employed in the operation
and maintenance of the Facilities under the general direction of
Operator, excluding contracts for any services to be performed by
Operator as provided for in the Management Fee provisions of
Section 3(b) below.
Notwithstanding the foregoing, unless otherwise provided for in
this Agreement or approved by the Company, the costs and expenses
of contract services provided by third parties in connection with
matters of taxation or accounting shall be considered as included
in the Management Fees.
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(5) Motor Vehicles and Mechanical Equipment Furnished by Operator
(i) Use of equipment owned by Operator at the lower of (1) rates
commensurate with Operator's actual costs of ownership and
operation, if reasonably available, or (2) commercial rates
prevailing in the geographic area of the Company Facilities
as published in Petroleum Motor Transport Association rate
schedules.
(ii) Whenever requested, Operator shall inform Company of the
rates it proposes to charge.
(iii) The costs of Auto Liability Insurance required by Company in
Section 7.1(b) of this Agreement, or if Operator elects to
fulfill its Auto Liability Insurance obligation through a
program of self-assumption of risk, then Operator shall have
the right to charge the Company rates equivalent to
published auto insurance rates, from a licensed insurer of
its choice, in the applicable State of operation for the
vehicles used in the performance of this Agreement.self-
assumption of risk and shall charge Company published rates,
from a licensed insurer of its choice, in the applicable
State of operation for the vehicles used in performance of
this Agreement.
(6) Damages and Losses to Facilities
All costs or expenses necessary for the repair or replacement of
all or any portion of the Facilities made necessary because of
damages or losses incurred by fire, flood, storm, theft,
accident, or other causes, except those resulting from Operator's
gross negligence, fraud and/or willful misconduct. Operator shall
furnish the Company with written notice of damages or losses
incurred as soon as practicable after a report thereof has been
received by Operator and will circulate an AFE for approval by
the Partnership Committee if the estimated costs of such repairs,
as reasonably determined by the Operator, exceed the Operator's
authority limits.
(7) Legal Expenses, Settlements and Judgments
Expenses of investigating litigation or claims incurred in or
resulting from the operation and maintenance of Facilities under
the Agreement; provided, however that no direct charge for
services of Operator's legal staff or fees or expense of
attorneys shall be made unless previously agreed to by Company.
All other legal expense incurred by Operator hereunder is
considered to be covered by the Management Fee provisions of
Section 3(b). below, unless otherwise agreed to by Company.
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(8) Taxes
All taxes of every kind and nature assessed or levied upon, or in
connection with the Company operations, property or Facilities
and which have been paid for the benefit of Company, excluding
any income or franchise taxes.
(9) Insurance
In accordance with the Agreement, net premiums paid for insurance
required by Applicable Law or by the Company to be carried in
connection with the operation, maintenance and repair of
Facilities and for the protection of the Company.
(10) Communications
Costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems utilized in connection with the
operation and maintenance of the Facilities. In the event
communication systems, or portions thereof, serving the
Facilities are Operator-owned, charges to the Company shall be
made at the lower of (1) rates commensurate with Operator's
actual costs of ownership and operation, if reasonably available,
or (2) commercial rates prevailing in the geographic area of the
Company Facilities.
(11) Utilities
Costs incurred for electricity and other utilities necessary for
the operation of the Facilities hereunder.
(12) Ecological and Environmental
Costs incurred for the benefit of the Company as a result of
statutory regulation for archeological and geophysical surveys
relative to the identification and protection of cultural
resources, or other ecological surveys as may be required by
regulatory authority. Also, costs to provide or have available
pollution containment and removal equipment, plus costs of actual
control, cleanup and resulting responsibilities of oil spills as
required by Applicable Laws.
(13) Permits and Rights-of-Way
Costs reasonably incurred in obtaining or maintaining permits,
licenses, leases, certificates, rights-of-way, easements, and
other similar items necessary for the operation or maintenance of
the Facilities.
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(14) Abandonment and Reclamation
Costs incurred in connection with the abandonment of the
Facilities or any portion thereof, including dismantling, removal
and restoration costs and costs required by Governmental
Authority.
(15) Compliance Costs
All direct costs and expenses related to compliance with
Applicable Laws, including Environmental and Safety Laws,
affecting the Facilities, including costs of pollution
prevention, consultants fees, environmental permitting,
environmental audits and surveys, and remediation programs or
projects.
(16) Approved Capital Project Costs
(17) Other Expenditures
Any other expenditures directly attributable to the operation and
maintenance of the Facilities not covered and dealt with in the
foregoing provisions of this Section 3(a), and which are incurred
by the Operator in the necessary and proper conduct of
Facilities' operation and maintenance and which are:
(i) within the scope of the Agreement; and
(ii) are included in the approved operating budget.
(b) Management Fee
As compensation for administrative services, supervision costs and
routine staff services including, but not limited to, legal,
financial, commercial, accounting (excluding volumetric accounting
which is addressed in Section 3(a)(2)(i)), environmental, engineering,
right-of-way and paying Cash Operating Costs from Operator's account
prior to invoicing Company as provided in Section 5.2 and 5.3.
Operator shall receive and shall charge the Account for the Management
Fee provided for in this Section 3(b) (the "Management Fee"). Unless
otherwise agreed to by the Parties or provided for in Section 3(a),
such Management Fee shall be in lieu of salaries or wages plus
applicable burdens and expenses of all personnel of Operator (except
those costs, expenses and salaries directly chargeable under Section
3(a) above) including, but not limited to, in-house legal support
(unless otherwise approved as provided for in Section 3(a) above),
administrative services, supervision, and office services.
(1) Management Fee
35
<PAGE>
Operator, in addition to the actual direct costs and expenses
provided in Section 3(a), shall receive, as compensation for its
administrative overhead expense in managing and operating the
Facilities, a sum equal to One Million Seven Hundred Sixty Six
Thousand Dollars ($1,766,000) per Year billed monthly, one-half
of which ($883,000) shall remain fixed and the other half of
which ($883,000) shall vary and be subject to adjustment on the
first day of January, 2000, and on each yearly anniversary
thereafter, by multiplying the variable half of the Management
Fee currently in use by the percentage increase or decrease in
the average weekly earnings of Crude Petroleum and Gas Production
Workers for the last calendar year compared to the preceding year
as shown by "The Index of Average Weekly Earnings of Crude
Petroleum and Gas Production Workers" as published by the United
Stated Department of Labor, Bureau of Labor Statistics.
(2) Adjustment to Management Fee. If the Operator is removed as
commercial Operator, the Management Fee shall be reduced by one
hundred fifty thousand dollars ($150,000) per Year.
36
<PAGE>
ATTACHMENT II
TO
AMENDED AND RESTATED OPERATING AGREEMENT BETWEEN WEST TEXAS
LPG PIPELINE LIMITED PARTNERSHIP AND CHEVRON PIPE LINE COMPANY
DESCRIPTION OF THE FACILITIES
I. PIPELINE FACILITIES
(A) PIPELINE: There is about 1,950 miles of various sizes of pipe ranging
from 2" to 14", 0.156 Gr B to 0.365 x 46 w.t., and 1957 - 1992
vintage. The lateral lines are up to 8" and the trunk portion is all
10" and 14".
(B) BOOSTER STATIONS: There are 18 pump stations, 24 pump and electric
motor units and associated electrical switchgear and control
equipment. Total horsepower is 28,200. Pumps are all horizontal
centrifugal type.
(C) COAHOMA FACILITY: There are 2 - 1,000 horsepower pump units with
centrifugal pumps and electric motors. It is an 80 acre site with
three storage wells(nominal 300,000 Bbls), two brine pits (nominal
350,000 Bbls capacity), and all associated piping and electrical
equipment.
** Of the 19 booster stations (including Coahoma), 13 are on
separately identifiable property.
(D) METER STATIONS: There are about 62 receipt, custody transfer meter
stations of which about 54 are at plant sites. There are another 18
check meter locations with a total of 34 meter runs. Each facility
generally includes turbine meter runs, instrumentation, and equipment
buildings.
(E) MISCELLANEOUS:
* Sending and receiving swab trap facilities (22 on the
trunk line alone).
* Portable meter provers
* Spare parts inventory
37
<PAGE>
II. GATHERING FACILITIES
A. Pipelines
. 6" Artesia Lateral MP 0.0 to MP 78.9
. 6" Seven Rivers Pipeline MP 0.0 to MP 26.9
. 6" Seven Rivers connection MP 0.0 to MP 1.7
. 3" pipeline to Pecos Diamond MP 0.0 to MP 0.3
. .49 miles of 2" pipeline from Plant 57 to Artesia lateral at
MP 78.9
. 4" Phillips Artesia Connection MP 0.0- MP 1.9
. 6" Tatum Lateral MP 0.0 to MP 7.6
. 4" Tatum Lateral MP 7.6 to MP 13.9
. 4" Northern Natural MP 0.0 to MP 14.2
. 8" Dollarhide Lateral MP 0.0 to MP 27.0
. 6" Dollarhide Lateral MP 27.0 to MP 31.7
. Roberts Ranch Pipeline 3.13 miles
. 6" Hobbs San Andres Jct. MP 0.0 to MP 52.1
. 4" Amoco North Cowden- San Andres Jct MP 0.0 to MP 12.7
. Chevron- San Andres (Bakke Jct.) MP 0.0 to MP 0.38
. 8" Lees to Hobbs lateral MP 0.0 to MP 110.5
. 4" Fullerton Lateral MP 7.4 to Lees to Hobbs MP 77.9
. Pipeline from Lees to Hobbs to Mobil Baden Storage .7 miles
. 6" Midkiff to Stanton Lateral MP 0.0 to MP 31.8
. 6" Phillips Sprayberry MP 0.0 to MP 2.16
. 8" Snyder lateral MP 88.8 to MP 159.4
. 6" Snyder Lateral MP 159.4 to MP 190
. 6" Snyder Lateral MP 190 to MP 220 (out of service)
. 6" Benedum lateral MP 0.0 to MP 21.4
. 4" Indian Wells Benedum Injection MP 0.0 to MP .33
. 3" Stiles Lateral MP 0.0 to MP 6.7
. Indian Wells Lateral .5 miles
. 8" Lees to Snyder Loop MP 0.0 to MP 60.7
. 4" Lees to Perkins Lateral MP 0.0 to MP 42.5
. 4" Jameson Lateral MP 0.0 to MP 5.8
. 6" Vealmoor Lateral MP 0.0 to MP 8.1
. Texaco East Vealmoor Storage MP 0.0 to MP 0.2
. 4" General Crude Lateral MP 0.0 to MP 36.4
. 6" North Snyder Lateral from General Crude MP 0.0 to MP 7.38
. Conoco Sterling MP 0.0 to MP 4.5
B. Pump Stations
. Maljamar
. Eunice
. Midkiff
38
<PAGE>
. Stanton
. Lees
. Snyder
C. Valve Stations
. Odessa Waddell
. Vincent
D. Meter Sites
. Marathon Indian Basin
. Yates Penasco
. Duke Dagger Draw
. Amoco Abo
. Duke Pecos Diamond
. Davis Denton
. Texaco Eunice
. LG&E Antelope Ridge
. Western Gas Benedum
. Western Gas Midkiff
. Davis Stiles
. Conoco Garden City
. Conoco Sterling
. Range Resources Sterling
. Texaco Vealmoor
. Mobil Salt Creek
. Mobil Baden
. WTP Bakke
. Koch Chaparral San Andres
39
<PAGE>
ATTACHMENT III
TO
AMENDED AND RESTATED OPERATING AGREEMENT BETWEEN WEST TEXAS
LPG PIPELINE LIMITED PARTNERSHIP AND CHEVRON PIPE LINE COMPANY
MAPS OF FACILITIES
40
<PAGE>
ATTACHMENT IV
TO
AMENDED AND RESTATED OPERATING AGREEMENT BETWEEN WEST TEXAS
LPG PIPELINE LIMITED PARTNERSHIP AND CHEVRON PIPE LINE COMPANY
CHEVRON'S POLICY 530: PROTECTING PEOPLE AND THE ENVIRONMENT
SUMMARY OF 20 ACTION AREAS
1. Management Implementation of Policy 530
Purpose: Clearly define management's role in fully implementing Policy 530
in Chevron Pipe Line Company. Management's Leadership, support and
involvement is the driver for the successful implementation of Policy 530.
Employee ownership of Policy 530 depends on management's support and
commitment.
Expected Outcomes:
. Assessment of the gap between "current" and "desired" state
. Estimate of the cost, manpower requirements and time to design and pilot
test process
. Schedule of the design, pilot testing, training and implementation steps
of the process
. Design details of the new process
. Documentation of the new process
. Documentation of how the process was developed
. Documentation of the implementation plan to get to Stage 5
. Plan to communicate/educate employees about this process
. Documentation of process to measure progress/performance
. Estimate of ongoing support requirements
. Process must satisfy the needs of: suppliers of the process, people who
work in the process and customer of the process
. Process must be designed so that it can be incorporated into the
business planning and day-to-day decision making processes
Requirements:
. Clear commitment and leadership demonstrated by management - through
policy, participation, communication and allocation of resources - in
achieving continuous improvements in compliance with all safety, health
and environmental laws and regulations. The following three elements
must be evident:
. Compliance process oversight by high level manager
. Written local safety, health and the environmental compliance
policies
. Policy and operating objective clearly communicated to all employees.
. Foster employee ownership in each of the Action Areas
41
<PAGE>
2. Risk Management
Purpose: Minimize CPL's current and future liabilities and improve our
long-term competitive position through better informed data driven
decisions.
Requirements:
. Develop an assessment process, periodically reviewed and updated, of
potential risks from an accidental release or other emergencies to
employees, contractors, local communities and adjacent neighbors.
. Conduct assessments of the potential impact of safety, fire, health and
environmental risks of wastes, releases and products to employees,
contractors and the community
. Establish a process to identify, document and implement risk management
actions to reduce safety, fire, health and environmental risks of
products and processes
3. Operations and Maintenance Procedures and Design Documentation
Purpose: Ensure that CPL's pipeline facilities are operated and maintained
in a safe and efficient manner which minimizes incidents and complies with
legal requirements
Requirements:
. Maintain current and complete documentation of process design, operating
parameters, operating and maintenance procedures. Also maintain
information relating to the hazards of employees, contractors and
visitors in existing facilities
. Provide written, up-to-date programs and procedures for occupational
health and safety practices, for each facility. Implement methods,
including exposure assessments and job safety analyses, to identify,
evaluate and resolve potential occupational health and safety hazards to
employees, contractors and visitors in existing facilities
4. Preventive Maintenance
Purpose: ensure that CPL's facilities continue to be capable of operating
in a safe and efficient manner which minimizes incidents and complies with
legal requirements
Requirements:
. Implement a preventive/predictive maintenance system which integrates
risk management concepts
5. Occupational Health Assurance
Purpose: Operate our business in a manner which minimizes the adverse
health effects from our operations on employees and the community
42
<PAGE>
Requirements:
. Establish and maintain information on potential safety, fire, health and
environmental hazards and on exposures from new and existing products
. Characterize potential risks of new and existing products using safety,
fire, health, and environmental hazard information and exposure
assessment information and periodically re-evaluate
. Provide education and training for Chevron employees and contractors
appropriate to their job function on the proper handling, use, recycling
and disposal of products and product wastes
. Require chemical and equipment suppliers to provide appropriate HES
information and guidance on their products. Factor sound HES principles
into procurement practices
. Provide written, up-to-date programs and procedures for occupational
health and safety practices for each facility. Implement and resolve
potential exposures to employees, contractors and visitors.
. Conduct periodic health assessments to determine employee's medical
fitness for specific job tasks and to track their exposures
6. Legislative and Regulatory Advocacy
Purpose: Promote timely, reasonable and cost-effective safety, fire,
health and environmental legislation and regulations through active
participation in their development process
Requirements:
. Develop and maintain a process, in connection with Public Affairs, to
identify, track and comment on proposed legislation that may impact the
operating company.
. Develop and maintain a process to work with other business units and
Health, Environment and Safety to identify and comment of proposed
regulations that may impact their operating company.
. Develop and maintain a process to measure and evaluate the operating
company's advocacy program and make improvements
7. Management of Change
Purpose: Ensure that the impacts of operations, maintenance and equipment
changes on safety, fire and health and environment and energy use are
analyzed and procedures and documentation are updated to reflect the change
in a timely manner
Requirements:
. A systematic management of change process is followed for all changes to
facilities and procedures from concept to start-up and beyond
. Conduct periodic safety reviews on all new and modified facilities during
design, construction and prior to start-up
43
<PAGE>
. Use sound engineering practices, consistent with recognized industry
standards, in facility design, construction and maintenance
8. Accident and Near Miss Investigation
Purpose: Learn from accidents and near misses to prevent future incidents
Requirements:
. Develop and maintain a process to properly investigate, handle and
report all Environmental, Health and Safety incidents and correct any
deficiencies found. This process would include, but not be limited to
the following:
. Written procedures and protocols
. Internal reporting of incidents in a timely manner to the appropriate
personnel
. External reporting of incidents to the appropriate agencies or
organizations in a timely manner
. Documentation of the investigation and reporting of incidents
. A properly scheduled corrective action plan with appropriate follow-up
for any deficiencies or violations uncovered in the investigation
. A review process on the effectiveness of corrective actions
. Appropriate management oversight to address any trends, compliance
problems or systematic errors
. Appropriate application of a disciplinary policy for employee actions
that result in incidents or violations
. Establish a system to report all incidents and near misses and a process
to identify root causes of errors and incidents. This involves
investigating, reporting and taking appropriate action following each
incident that results or could have resulted in an injury, illness,
fire, explosion or accidental release, and sharing relevant safety
knowledge and lessons learned from such incidents with industry,
government and the community. Implement solutions using systems to track
and analyze relevant data and measure improvements
. Implement a process to investigate and report on all product
distribution accidents and releases and to identify and implement
measures to prevent recurrence
9. Community Awareness
Purpose: Foster understanding and dialogue between Chevron Pipe Line
Company and the community
Requirements:
. Develop and maintain an ongoing process to acquire and assess employee,
contractor and community questions and concerns about the facility
. Put systems in place that ensure an ongoing dialogue with employees,
contractors and local citizens to address safety, fire, health and the
environmental concerns
44
<PAGE>
. Conduct periodic communication training for key facility and company
personnel who communicate with employees, contractors and the public
concerning safety, fire, health and environmental issues
. Develop and maintain a convenient process that helps familiarize
interested people with the facility, its operations and products; and
its efforts to protect safety, fire, health and the environment
. Conduct regular evaluations of the effectiveness of these ongoing
communication efforts
10. Compliance Assurance
Purpose: Ensure ongoing compliance with ESF&H laws, regulations and
Company Policies
Requirements:
. Develop and maintain a system which provides all employees with the
skills and knowledge necessary to ensure that they can do their jobs in
compliance with all laws, regulations and company policies relevant to
their jobs, and which holds them accountable for doing so. The following
two activities are required:
. Maintain a compendium of all relevant legal requirements in a useable
format
. A process for ensuring that employees clearly understand their job
responsibilities and are held accountable for their performance
. Develop and maintain a process to track, document and disseminate new
compliance requirements and reporting obligations to affected operations
. Implement a process to ensure adherence to compliance deadlines and
reporting requirements, including an up-to-date list of these
obligations
. Implement a self-audit procedure to ensure that facilities and practices
comply with all relevant government regulations, permit requirements and
with company policies and standards.
. Implement a process to support and document annual certification of
compliance which includes maintaining a backup file of documents
supporting the certifications
. Develop and maintain a process whereby employees at all levels are
encouraged to freely report existing or potential compliance problems
with management.
. Develop and maintain a process that audits Safe Operations processes for
compliance with company policies and government regulation and
implementation of corrective actions
11. Contracting
Purpose: Ensure that the contracting process complies with Policy 530
requirements
45
<PAGE>
Requirements:
. Implement a process for ensuring that contractors authorized to act on
behalf of the company ("agents") understand and comply with relevant
company policy and procedures. This process would include, but not be
limited to the following:
. Review of the agent's safety policy
. Contract forms contain language to carry out this process
. Audits of agent performance to check compliance with relevant company
policy and procedures
. Procedure exists for agent to freely report existing or potential
compliance problems to company
. Provide education and training for Chevron employees and contractors
appropriate to their job function, on the proper handling, use,
recycling and disposal of products and product wastes
. Select contract manufacturers who employ appropriate safety, fire,
health and environmental protection relevant to the operations under
contract
. Commensurate with product risk, provide information to product receivers
and, if appropriate, end-product users. Work with them to foster proper
handling, use, recycling and disposal. Take corrective measures with
product receivers who fail to handle product properly. If necessary,
cease doing business with product receivers who are unwilling to
implement such actions.
. Establish and maintain contractor safety programs to confirm that
contractors perform to safety performance standards consistent with
those required of Chevron employees
12. Emergency Preparedness and Response
Purpose: Minimize the environmental, community and economic impacts of
incidents and reduce adverse public relations
Requirements:
. Provide a current, written facility-specific emergency response plan
that addresses, among other things, communication to employees,
contractors and the public and where appropriate, the recovery needs of
the community after an emergency
. Develop and maintain a training program designed to improve the
proficiency of the emergency response team as well as all employees and
contractors covering operating procedures, emergency and safety
procedures, regulatory compliance requirements and communication
responsibilities
. Develop an assessment process, periodically reviewed and updated, of
potential risks from an accidental release or other emergencies to
employees, contractors, local communities and adjacent neighbors
. Communicate relevant emergency response planning information to
appropriate regulatory agencies and local emergency planning committees.
. Coordinate the facility's written emergency response plan, comprehensive
community emergency response plan and other facility plans. If no
community plan exists, initiate, where appropriate, community efforts to
create one.
46
<PAGE>
. Provide facility tours for emergency responders to promote emergency
preparedness and to provide current knowledge of facility operations
. Conduct emergency exercise sessions, at least annually, to test
workability of the written emergency response plan. Include, to the
extent practical, appropriate local emergency responders and others
. Participate in the process to develop and periodically test the local
emergency planning committee's comprehensive community emergency
response plan
. Share information and experience with other nearby facilities in the
community relating to emergency response planning, exercises and
incident handling
13. Employee Fitness
Purpose: Ensure that personnel in safety sensitive jobs are fit for duty
and comply with legal requirements and Company Policy.
Requirements:
. Develop and maintain a process to confirm that personnel in safety
sensitive jobs are fit for duty and are not compromised by external
influences, including alcohol and drug abuse
14. Employee Selection
Purpose: Select proper people with inherent capabilities that will allow
them to perform jobs according to Policy 530 requirements
Requirements:
. Develop and maintain a job selection process that is designed to ensure
that successful candidates for Environmental, Health and Safety
sensitive jobs have the knowledge, skills and performance history to
allow them to conduct their activities in compliance with applicable
federal, state and local Environmental, Health and Safety laws and
regulations and with company Environmental, Health and Safety policy and
procedures
15. Energy Conservation
Purpose: Increase energy efficiency and resource conservation which will
result in a competitive advantage for Chevron Pipe Line Company
Requirements:
. Implement employee awareness and training programs that address energy
usage and resource conservation
. Conduct periodic inventories of energy and fuel usage for each facility
and/or process
. Establish energy and fuel usage conservation goals and target dates
. Implement procedures to evaluate resource conservation and energy and
fuel efficiency for all new or modified facilities and processes
47
<PAGE>
16. Pollution Prevention
Purpose: Reduce the environmental and health impacts of Chevron Pipe Line
Company's (CPL) facilities, operations and products
Requirements:
. Develop and maintain a comprehensive inventory of all wastes generated
and all releases into the air, water and ground
. Conduct assessments of the potential impact of safety, fire, health and
environmental risks of wastes, releases and products to employees,
contractors and the community
. Prioritize wastes and releases for a reduction effort; if appropriate,
identify and prioritize products targeted for pollution prevention
efforts
. Establish goals and timing for reducing wastes and releases and, where
appropriate, for reformulating products.
. Plan implementation, giving preference first to source reduction, second
to recycling/reuse and third to treatment. These techniques may be used
separately or in combination with one another
. Measure progress in pollution prevention efforts, at least annually
. Set and accomplish pollution prevention objectives in operations and
maintenance procedures and in research and design of new or modified
facilities, processes and products
17. Property Transfer
Purpose: Ensure that the sale, lease, transfer or purchase of real
property is management to minimize ESF&H risks and liabilities to Chevron
Requirements:
. Assess potential safety, fire, health and environmental liabilities
prior to the sale, lease, transfer or purchase of real property
. Develop an ongoing process to identify issues or problems. Perform
appropriate cleanup or remediation, taking into consideration future use
and long-term liability, utilizing risk management processes
. Comply with all laws and regulations that apply to property transfers
. Assure that appropriate employees are trained and understand transfer
and cleanup requirements
. Develop and maintain an ongoing process to control present and future
liabilities related to transfer and cleanups
18. Purchasing
Purpose: Ensure that the purchasing process complies with Policy 530
requirements
48
<PAGE>
Requirements:
. Require chemical and equipment suppliers to provide appropriate safety,
fire, health and environmental information and guidance on their
products. Factor adherence to sound environmental, safety, fire, health
and environmental principles into procurement practices
19. Site Remediation
Purpose: Minimize present and future liabilities and reduce environmental
and health impacts of contaminated sites
Requirements:
. Establish and maintain a process to evaluate, minimize and/or remediate
environmental impacts caused by past operating practices
. Develop an ongoing process to identify issues or problems. Perform
appropriate cleanup or remediation, taking into consideration future use
and long term liability, utilizing risk management processes
. Develop and maintain an ongoing process to control present and future
liabilities related to transfer and cleanups
20. Training
Purpose: Ensure that all employees have skills and knowledge necessary to
fulfill Policy 530 requirements
Requirements:
. Develop and maintain a system which provides all employees with the
skills and knowledge necessary to ensure that they can do their jobs in
compliance with all laws, regulations and company policies relevant to
their jobs, and which holds them accountable for doing so
. Conduct periodic communication training for key facility and company
personnel who communicate with employees, contractors and the public
concerning safety, fire, health and environmental issues
. Conduct periodic training for all personnel so they have the skills and
knowledge necessary to perform their jobs and can reach and maintain
proficiency in safe work practices
49
<PAGE>
DYNEGY MIDSTREAM SERVICES, LIMITED PARTNERSHIP
SUPPLEMENTAL SEVERANCE PAY PLAN
APPLICABLE TO CERTAIN EMPLOYEES AFFECTED BY THE
1998 BUSINESS REORGANIZATION (EFFECTIVE AUGUST 1, 1998)
1. Purpose. The purpose of the Dynegy Midstream Services, Limited Partnership
Supplemental Severance Pay Plan (the "Supplemental Plan") is to grant additional
severance benefits to Eligible Employees of Dynegy Midstream Services, Limited
Partnership ("Dynegy Midstream") who are terminated as part of the 1998 Business
Reorganization under the circumstances specified below. This Supplemental Plan
is intended to supplement and become a part of the Dynegy Inc. Severance Pay
Plan (the "Severance Pay Plan") during the period from August 1, 1998 through
December 31, 1998.
2. Effective Date. The Supplemental Plan shall be effective for Eligible
Employees of Dynegy Midstream who are terminated between August 1, 1998 and
December 31, 1998. All prior existing severance pay plans, programs, or
practices for employees, whether formal or informal, other than the Severance
Pay Plan that are in existence for Dynegy Midstream employees are hereby revoked
and terminated.
3. Eligibility. To be eligible for severance payments under the Supplemental
Plan, you must be at least forty (40) years of age and have completed fifteen
(15) years Credited Length of Service with Dynegy Midstream on or before
December 31, 1998. In addition, to be entitled to benefits under this
Supplemental Plan, you must be terminated from employment with Dynegy Midstream
between August 1, 1998 and December 31, 1998 as part of the 1998 Business
Reorganization, as determined by the Plan Administrator, in its sole discretion.
(A). You will not be considered to have been laid off as part of the 1998
Business Reorganization if the Plan Administrator, in its sole discretion,
determines that:
(1) Your employment terminated by resignation (even if you felt
compelled to resign), retirement, death, disability, or discharge
for poor performance, misconduct, or any other reason; or
(2) You have been offered employment by a Successor Employer to
commence promptly following your termination by the Company,
whether you accept the position or not. A "Successor Employer" is
an entity that assumes operations or functions formerly carried out
by the Company (such as the buyer of a facility or an entity to
which a Company operation or function has been outsourced), any
affiliate of the Company, or any entity making the job offer at the
request of the Company. The "Company" means Dynegy Inc., its
successors
<PAGE>
and assigns, and all Employing Companies, including all of Dynegy
Inc.'s subsidiaries and affiliated entities currently participating
in the Plan.
(B). You are also not eligible if you meet one of the following conditions:
(1) All employees assigned to the Ozark Pipeline business unit;
(2) All employees assigned to the Spivey, Kansas and Bradshaw, Kansas
Gas Processing facilities;
(3) All employees assigned to the Field Transport business unit;
(4) All employees covered by a collective bargaining agreement; and
(5) All employees of Dynegy Midstream with less than fifteen (15) years
of credited service.
4. Benefits. If you are entitled to benefits under this Supplemental Plan, you
will be paid a lump sum as determined by the following chart:
SEVERANCE BENEFITS PROVIDED BY SUPPLEMENTAL PLAN
WEEKS OF ADDITIONAL SEVERANCE PAY
AGE UNDER THE SUPPLEMENTAL PLAN
40-44 Four (4) Weeks
45-49 Six (6) Weeks
50-54 Eight (8) Weeks
55-59 Ten (10) Weeks
60 and above Twelve (12) Weeks
In addition to the above amounts, you may also receive amounts payable to you
under the Severance Pay Plan. However, the total maximum amount of benefits
that are payable to you under a combination of the Severance Pay Plan and this
Supplemental Plan is an amount equal to fifty-two (52) Weeks of Pay. The number
of additional weeks of pay provided under this Supplemental Plan shall be based
on your age as of midnight on December 31, 1998.
5. Payment of Benefits. Severance benefits provided by this Supplemental Plan
shall be paid in a lump sum, less the applicable withholding, on the effective
Termination Date, or as soon as administratively practicable after the effective
Termination Date; provided, however, that no payments shall be made before such
date as the Release described in Section 6(A) has become effective and any
revocation has expired.
<PAGE>
6. Requirement of Effective Release; Integration with Other Benefits or Notice
Requirements.
(A) In addition to the eligibility requirements of Section 3 hereof, it is
a condition to the receipt of the severance payments provided hereunder
that the Eligible Employee shall have signed an Agreement and Release
("Release") in the form set forth in Attachment A and such Release
shall have become effective in accordance with its terms. The failure
or refusal of an employee to sign such a Release or the revocation of
such a Release, to the extent permitted by its terms, shall disqualify
the employee from receiving severance payments under this Supplemental
Plan. If an employee files a lawsuit, charge, complaint or other claim
asserting any claim or demand within the scope of the Release set forth
in Attachment A, Dynegy Midstream, whether or not such claim is valid,
shall retain all rights and benefits of the Release and in addition,
shall be entitled to cancel any and all future obligations of the
Release and recoup the value of all payments and benefits paid
hereunder, together with its cost and attorneys' fees.
(B) Severance payments (maximum of 52 Weeks of Pay) provided under this
Supplemental Plan and the Severance Pay Plan are the maximum benefits
that the Company (which includes Dynegy Midstream) will pay. To the
extent that any federal, state or local laws, including, without
limitation, so-called "plant closing" laws, requiring the Company to
give advanced notice or make a payment of any kind to an Eligible
Employee because of that Employee's involuntary termination due to a
lay off, reduction in force, plant or facility closing, sale of
business, change of control, or any other similar event or reason, the
benefits provided under this Supplemental Plan and the Severance Pay
Plan shall be reduced or eliminated. The benefits provided under these
Plans are intended to satisfy any and all statutory obligations that
may arise out of an Eligible Employee's involuntary termination for the
foregoing reasons, and the Plan Administrator shall so construe and
implement the terms of the Supplemental Plan and the Severance Pay
Plan.
7. Funding. Benefits payable under the Supplemental Plan shall be paid from
the general funds of Dynegy Midstream. No trust fund or other segregated fund
shall be established for this purpose.
8. Coordination with Severance Pay Plan. The Sections regarding Severance Pay
Benefits, Plan Administration, Claim Review Procedure, Plan Amendment or
Termination, ERISA Rights, General Provisions, Identifying Data and Definitions
set out in the Severance Pay Plan shall apply to this Supplemental Plan.
However, in the event any of the terms of the Severance Pay Plan are
inconsistent with the terms of this Supplemental Plan, the terms of this
Supplemental Plan shall control.
Effective August 1, 1998
_________________________________________
Michael B. Barton,
Vice President of Human Resources,
DYNEGY INC.
<PAGE>
ATTACHMENT A
TO DYNEGY MIDSTREAM SERVICES, LIMITED PARTNERSHIP
SUPPLEMENTAL SEVERANCE PAY PLAN
AGREEMENT AND RELEASE
---------------------
I, _______________________ ("Employee"), hereby agree to participate in the
Dynegy Inc. Severance Pay Plan ("Severance Plan") and Dynegy Midstream Services,
Limited Partnership Supplemental Severance Pay Plan ("Supplemental Plan") in
accordance with the terms of the Severance Pay Plan and Supplemental Plan. A
copy of the Severance Pay Plan and the Supplemental Plan (collectively the
"Plans") have been provided to me.
RELEASE
-------
I understand that in order to receive severance payments under the terms of
the Plans, I must sign this Agreement and Release ("Release") and return it to
the Vice President Human Resources, Dynegy Inc., 1000 Louisiana Street, Suite
5800, Houston, Texas 77002, no later than _____________________, 1998. I
understand that I have been given forty-five days to consider this Release. I
have been advised to consult an attorney before I signed this Release. I
understand that I will have seven (7) days after I sign and return this Release
to the Vice President of Human Resources to change my mind and revoke this
Release. I further understand that this Release will not become effective or
enforceable until after that date.
In consideration for the benefits provided under the Plans, and by signing
this Release, I understand that I am knowingly, irrevocably, and voluntarily
agreeing for myself and for my heirs, executors and assigns, to a full and
complete release of Dynegy Inc., its predecessors, successors, subsidiaries,
operating units, affiliates, divisions and the agents, representatives,
officers, directors, shareholders, employees and attorneys and each of the
foregoing (individually and collectively called the "Company" or "Employer"),
from all claims, debts, liabilities, demands, obligations, promises, acts,
agreements, costs, expenses, damages, actions and causes of action, whether in
law or in equity, whether known or unknown, suspected or unsuspected, arising
from my employment and termination of employment with Employer, including but
not limited to, any and all claims pursuant to Title VII of the Civil Rights Act
of 1964, 42 U.S.C. (S) 2000e, et seq., as amended by the Civil Rights Act of
1991, which prohibits discrimination in employment based on race, color,
national origin, religion or sex; the Civil Rights act of 1966, 42 U.S.C. (S)
1981, 1983 and 1985, which prohibits violations of civil rights; the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C. (S) 621, et seq.,
which protects certain employee benefits; the Americans with Disabilities Act of
1990, as amended, 42 U.S.C. (S) 12101, et seq., which prohibits discrimination
against the disabled; the Age Discrimination in Employment Act of 1967, 29
U.S.C. (S) 621, et seq., as amended by the Older Workers Benefit Protection Act
of 1990; the Family and Medical Leave Act of 1993, 29 U.S.C. (S) 2601, et seq.,
which provides medical and family leave; the Fair Labor Standards Act, 42 U.S.C.
(S) 201, et seq., including the Wage and Hour Law relating to payment of wages;
the Worker Adjustment and Retraining Notification Act, and all other federal,
state or local laws or regulations. This release
<PAGE>
also includes, but is not limited to, a release of any claims for breach of
contract, mental pain, suffering and anguish, emotional upset, impairment of
economic opportunities, unlawful interference with employment rights,
defamation, intentional or negligent infliction of emotional distress, fraud,
wrongful termination, wrongful discharge in violation of public policy, breach
of any express or implied covenant of good faith and fair dealing, that Employer
has dealt with me unfairly or in bad faith, and all other common law contract
and tort claims. I am not waiving any rights or claims that may arise after this
Release is signed by me.
THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE, YOU WILL HAVE
WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST
THE COMPANY BASED ON ANY ACTIONS TAKEN BY THE COMPANY UP TO THE DATE OF THE
SIGNING OF THIS RELEASE.
WAIVER OF REINSTATEMENT
-----------------------
I forever waive and relinquish any right or claim to reinstatement of
employment with Employer following my termination, and acknowledge that Employer
has no obligation to rehire and return me to active duty at any time in the
future.
ACKNOWLEDGEMENTS
----------------
1. I have been advised by the Employer to consult with an attorney before
executing this Release.
2. I have carefully read the contents of this Release, and I understand the
contents of the Release. I am executing this Release voluntarily, knowingly,
and without any duress or coercion.
3. I have been extended a period of 45 days within which to consider this
Release and this has afforded me ample opportunity to consult with personal,
financial, and legal advisors prior to executing this Release. In the event
that I decide to execute this Release prior to the end of the 45 day time
period, I certify that, in accordance with 29 CFR Part 1625.22(e)(6), my
decision to accept such shortening of time is knowing and voluntary and is
not induced by the Company through fraud, misrepresentation, a threat to
withdraw or alter to offer prior to the expiration of the 45 day time period,
or by providing different terms to other employees who sign the release prior
to the expiration of such time period. Should I sign this Release before the
expiration of the 45 day time period, the Company may expedite the processing
of the Supplemental Severance benefits plus basic severance benefits provided
in exchange for this Release.
4. I understand that for a period of seven (7) days following my execution of
this Release, I may revoke the Release by notifying the Plan Administrator in
care of the Vice President of Human Resources, Dynegy Inc., 1000 Louisiana,
Suite 5800, Houston, Texas 77002, in writing, of my desire to do so. I
understand that after the seven (7) day period has elapsed, this Release
shall become effective and enforceable. I understand that no payment will be
made under this Release until after the seven-day period has elapsed.
<PAGE>
5. I acknowledge that the benefits and payments provided to me under the Plans
are consideration to which I am not otherwise entitled under any Employer
plan, program, or prior agreement.
6. I agree that the benefits and payments paid under the Severance Pay Plan and
the Supplemental Plan shall constitute the entire amount of monetary
consideration provided to me under this Release, that I am not entitled to
this consideration if I do not sign this Release and that I will not seek any
further compensation for any other claimed damages, costs or attorneys' fees
in connection with my employment with the Company, the separation of my
employment, or any other matters encompassed by this Release.
7. Any payment received pursuant to the Plans is subject to applicable
employment and income taxes. Employee acknowledges and agrees that the
Company has made no representations regarding the tax consequences of any
amounts received by Employee, and agrees to indemnify the Company for any
amounts that may be deemed subject to withholding tax which were not withheld
from these amounts.
8. I have been provided statistical and other information attached hereto as
Exhibit A relating to the Severance Pay Plan and the Supplemental Plan.
Exhibit A contains a detailed list of the job titles and ages of all
employees eligible for the Supplemental Plan and the Severance Pay Plan and
the ages of all employees of the Company and Dynegy Midstream Services,
Limited Partnership in the same job classifications or organizational unit
who are not eligible or selected. This information has been considered by me
and my advisors in reaching the decision to sign this Release.
9. I understand and acknowledge that as an employee of the Company and its
predecessors, I have had access to valuable trade secrets and confidential
and proprietary information of the Company. I agree to maintain the
confidentiality of any trade secret or proprietary information acquired by me
during my employment. I further acknowledge that if I fail to maintain the
confidentiality of the information, the Company reserves the right to pursue
all legal and/or equitable remedies available to it.
GENERAL PROVISIONS
1. This Release sets forth the entire agreement between the parties hereto and
supersedes any and all prior agreements or understandings, written or oral,
between the parties hereto pertaining to the subject matter of this Release.
This Release expresses the full terms upon which Employer and the Employee
conclude the employment relationship. There are no other representations or
terms relating to the Employee employment relationship or the conclusion of
that relationship other than those set forth in writing in this Release. I
hereby represent and acknowledge that in executing this Release, I do not
rely and have not relied upon any representations or statements made by any
of the parties, agents, attorneys, employees, or representatives with regard
to the subject matter, basis or effect of this Release or otherwise, other
than as specifically stated in this written Release.
<PAGE>
2. In the event that any provision of this Release should be held to be void,
voidable, or unenforceable, the remaining portions shall remain in full force
and effect. Should the Release be held invalid, I understand that I shall
return the monies given to me under the Plans in consideration for the
execution of this Release.
3. This Release shall be construed and enforced according to ERISA and, to the
extent not preempted, by the laws of the State of Texas.
4. I have carefully read, fully understand, and agree to be bound by all of the
provisions of this Release, the Severance Pay Plan and the Supplemental Plan.
- ------------------------------------- ------------------------------------
Date Employee Signature
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 28,135 28,367
<SECURITIES> 0 0
<RECEIVABLES> 1,644,678 1,623,738
<ALLOWANCES> 0 0
<INVENTORY> 193,598 149,901
<CURRENT-ASSETS> 2,336,639 2,117,241
<PP&E> 2,626,587 2,446,878
<DEPRECIATION> (569,832) (514,771)
<TOTAL-ASSETS> 5,927,006 5,264,237
<CURRENT-LIABILITIES> (2,183,937) (2,026,323)
<BONDS> 0 0
0 0
(75,418) (75,418)
<COMMON> (1,555) (1,533)
<OTHER-SE> (1,120,314) (1,126,530)
<TOTAL-LIABILITY-AND-EQUITY> (5,927,006) (5,264,237)
<SALES> (3,160,757) (3,278,214)
<TOTAL-REVENUES> (3,160,757) (3,278,214)
<CGS> 3,035,010 3,170,299
<TOTAL-COSTS> 3,035,010 3,170,299
<OTHER-EXPENSES> 3,725 1,239
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,186 18,091
<INCOME-PRETAX> (41,510) 35,043
<INCOME-TAX> 13,534 11,602
<INCOME-CONTINUING> (27,976) (23,441)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (27,976) (23,441)
<EPS-BASIC> 0.18 0.15
<EPS-DILUTED> 0.17 0.14
</TABLE>
