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<SEC-DOCUMENT>0000899243-97-000568.txt : 19970401
<SEC-HEADER>0000899243-97-000568.hdr.sgml : 19970401
ACCESSION NUMBER: 0000899243-97-000568
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 19961231
FILED AS OF DATE: 19970331
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NGC CORP
CENTRAL INDEX KEY: 0000879215
STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311]
IRS NUMBER: 943248415
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 033-68842
FILM NUMBER: 97571480
BUSINESS ADDRESS:
STREET 1: 13430 NORTHWEST FREEWAY
STREET 2: SUITE 1200
CITY: HOUSTON
STATE: TX
ZIP: 77040
BUSINESS PHONE: 7133677600
MAIL ADDRESS:
STREET 1: 13430 NORTHWEST FREEWAY
STREET 2: SUITE 1200
CITY: HOUSTON
STATE: TX
ZIP: 77040-6095
FORMER COMPANY:
FORMER CONFORMED NAME: TRIDENT NGL HOLDING INC
DATE OF NAME CHANGE: 19930916
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
COMMISSION FILE NUMBER: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
AND EACH OF THE SUBSIDIARY GUARANTORS OF CERTAIN DEBT SECURITIES
Delaware 94-3248415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 507-6400
Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
Series A Participating Preferred Stock ----
6.75% Debt Securities due 2005 ----
7.625% Senior Notes due 2026 ----
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No
---- ----
The aggregate value of Common Stock held by non-affiliates of the registrant was
approximately $352,960,508 on March 27, 1997 (based on $15.375 per share, the
last sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape on such date). 150,358,638 shares of the registrant's Common
Stock were outstanding as of March 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE. PORTIONS OF PARTS I, II AND IV IN THE
ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. AS
TO PART III (ITEMS 10, 11, 12 AND 13), NOTICE AND PROXY STATEMENT FOR THE 1997
ANNUAL MEETING OF STOCKHOLDERS TO BE FILED NOT LATER THAN 120 DAYS AFTER
DECEMBER 31, 1996.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
================================================================================
<PAGE>
NGC CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1. Business........................................................................ 1
Item 1A Executive Officers.............................................................. 12
Item 2. Properties...................................................................... 14
Item 3. Legal Proceedings............................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............................. 20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....... 20
Item 6. Selected Financial Data......................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 22
Item 8. Financial Statements and Supplementary Data..................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 22
Item 11. Executive Compensation......................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 22
Item 13. Certain Relationships and Related Transactions................................. 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 23
Signatures................................................................................. 30
</TABLE>
For definitions of certain terms used herein, see "Item 1.
BUSINESS --DEFINITIONS."
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
NGC Corporation ("NGC" or the "Company") is a leading North American marketer
of natural gas, natural gas liquids, crude oil and power and is engaged in
natural gas gathering, processing and transportation through ownership and
operation of natural gas processing plants, fractionators, storage facilities
and pipelines. Acting in the role of a large-scale aggregator, processor,
marketer and reliable supplier of multiple energy products and services, NGC has
evolved into a reliable energy commodity and service provider. Through joint
ventures in both Canada and the United Kingdom, the Company has expanded
geographically its vision of providing customers with multiple energy commodity
needs combined with cost-effective products and value added services. For the
year ended December 31, 1996, the Company reported revenues of $7.3 billion and
net income of $113.3 million.
The Company is a holding company that conducts principally all of its business
through its subsidiaries. From inception of operations in 1984 until 1990,
Natural Gas Clearinghouse ("Clearinghouse") limited its activities primarily to
natural gas marketing. Starting in 1990, Clearinghouse began expanding its core
business operations through acquisitions and strategic alliances with certain of
its shareholders. In 1994, Clearinghouse initiated gas gathering, processing and
marketing operations in Canada through Novagas Clearinghouse Ltd. ("NCL"), a
joint venture with NOVA Corporation ("NOVA"), and energy marketing operations in
the United Kingdom through Accord Energy Limited ("Accord"), a joint venture
originally with British Gas plc ("British Gas") but now with Centrica plc
("Centrica") following that company's demerger from what is now called BG plc
("BG"). NOVA and BG are both major NGC shareholders. Effective March 1, 1995,
Clearinghouse and Trident NGL Holding, Inc. ("Holding"), a fully integrated
natural gas liquids company, merged and the combined entity was renamed NGC
Corporation ("Trident Combination"). On August 31, 1996, NGC completed a
strategic combination with Chevron U.S.A. Inc. and certain Chevron affiliates
(collectively "Chevron"), whereby substantially all of Chevron's midstream
assets were merged with NGC ("Chevron Combination"). By virtue of the growth of
NGC's core businesses combined with the synergies derived from the
aforementioned transactions, NGC has established itself as an industry leader
providing quality, competitively priced energy products and services to
customers throughout North America and in the United Kingdom.
The principal executive office of the Company is located at 1000 Louisiana,
Suite 5800, Houston, Texas 77002, and the telephone number of that office is
(713) 507-6400. NGC and its affiliates maintain marketing and/or regional
offices in Boston, Massachusetts; Phoenix, Arizona; Englewood, Colorado;
Rosemont, Illinois; Tulsa, Oklahoma; Oklahoma City, Oklahoma; Louisville,
Kentucky; Atlanta, Georgia; Tampa, Florida; Kansas City, Kansas; Dallas, Texas;
San Francisco, California; Pleasenton, California; Pittsburgh, Pennsylvania;
Mexico City, Mexico; London, England and Calgary, Canada.
________________________________________________________________________________
DEFINITIONS
As used in this Form 10-K, the abbreviations listed below are defined as
follows:
BBL. 42 U.S. gallons, the basic unit for measuring crude oil and
natural gas condensate.
MBBLS/D. Volume of one thousand barrels per day.
MMCF/D. Volume of one million cubic feet per day.
BCF. Volume of one billion cubic feet.
BPD. Barrels per day.
NGL. Natural Gas Liquids.
SPOT. The Henry Hub cash price posting for natural gas per the inside FERC
publication.
NYMEX New York Mercantile Exchange.
<PAGE>
BUSINESS
The Company reports operations under two business segments: (i) the natural
gas and power marketing segment and (ii) the natural gas liquids, crude oil and
gas transmission segment.
NATURAL GAS AND ELECTRIC POWER MARKETING
The Company's natural gas marketing activities consist of contracting to
purchase specific volumes of natural gas from suppliers at various points of
receipt to be supplied over a specific period of time; aggregating natural gas
supplies and arranging for the transportation of these gas supplies through
proprietary and third-party transmission systems; negotiating the sale of
specific volumes of natural gas over a specific period of time to local
distribution companies, utilities, power plants and other end-users; and
matching natural gas receipts and deliveries based on volumes required by
customers.
The Company is also a provider of power products and services in the United
States through its wholly owned subsidiary Electric Clearinghouse, Inc. ("ECI").
ECI provides its customers with a 24-hour-a-day, real-time resource for the sale
and purchase of power through access to wholesale markets throughout North
America. ECI helps customers remarket their fuel, optimize generation assets and
capacity utilization and maximize energy conversion and tolling opportunities.
In addition, ECI provides market aggregation and sales assistance and offers
risk-management services and strategies, which complement its marketing
activities.
NATURAL GAS PURCHASES. The Company purchases natural gas from a variety of
suppliers under contracts with varying terms and conditions intended to ensure a
stable supply of natural gas. When purchasing natural gas, the Company considers
price, location, liquids content and quantities available. In 1996, the Company
purchased natural gas in every major producing basin in the United States and
Canada from over 700 suppliers, ranging from major producers to small
independent companies. Pursuant to an ancillary agreement(s) entered into as
part of the Chevron Combination, NGC acquired the right to purchase and/or
market substantially all of the natural gas produced or controlled by Chevron in
the United States (except Alaska). The Chevron relationship provides the
Company with a significant stable supply of natural gas which, when combined
with gas supplies available from its network of other supply sources, allows it
to effectively manage gas supplies and reduces the risk of short-term supply
shortages during periods of peak demand.
TRANSPORTATION. The Company arranges for transportation of the natural gas it
markets from the supplier receipt point to the delivery point requested by the
purchaser by utilizing its proprietary management information system to schedule
and nominate pipeline transportation and monitor transportation availability.
The Company generally retains title to the natural gas from the receipt point to
the delivery point and obtains transportation on unaffiliated pipelines. The
Company believes that its understanding of the United States' pipeline network,
along with the scale and geographic reach of its gas marketing efforts, are
important to the Company's success as a gas marketer. These factors, as well as
its efficiency in utilizing the gas transportation network, allow the Company to
provide its suppliers with multiple outlets for their natural gas and, in times
of significant changes in demand or supply due to weather or other factors, to
route gas to areas of the United States where it is most needed. The Company
attempts to reduce transportation charges by taking advantage of its broad array
of transportation agreements and by negotiating competitive discounts. The
Company uses a variety of transportation arrangements to move its customers'
volumes, including short-term and long-term firm and interruptible agreements
with pipelines and brokered firm contracts with its customers.
NATURAL GAS SALES. The Company sells natural gas under sales agreements that
have varying terms and conditions intended to match seasonal and other changes
in demand. The Company's customer base consists primarily of gas and electric
utilities and industrial and commercial end-users. In 1996, sales were made to
over 1,050 customers located throughout the United States and parts of Canada.
For the year ended December 31, 1996, the Company's North American operations
sold an aggregate average of 7.4 Bcf per day of natural gas and during the
fourth quarter of 1996 sold an aggregate 9.4 Bcf of natural gas per day. As
part of the Chevron Combination's ancillary agreement(s), NGC acquired the right
to supply natural gas feedstocks to Chevron refineries and chemical plants in
the United States providing the Company with a significant stable purchaser of
monthly physical gas volumes.
2
<PAGE>
NATURAL GAS STORAGE, MARKETING HUBS AND MANAGEMENT INFORMATION SYSTEMS.
Natural gas storage capacity plays an important role in the Company's ability to
act as a full-service natural gas marketer by allowing it to manage relatively
constant gas supply volumes with uneven demand levels. Through the use of its
storage capabilities, the Company offers peak delivery services to satisfy
winter heating and summer electric-generating demands. Storage inventories also
provide performance security or "backup" service to the Company's customers. The
Company at various times leases short-term and long-term firm and interruptible
storage across the country.
The Company, together with three major gas utilities, maintains three natural
gas market area hubs to allow customers to manage short-term prices and help
solve imbalance and transportation problems. These strategic market hubs,
located where regional interstate pipelines converge, are designed to bring
buyers and sellers together over a broad geographic area. Services offered by
the hubs include wheeling, loaning, parking and title transfer, which complement
existing natural gas supply, transportation and storage services, and contribute
to a more efficient, reliable, cost-effective marketplace. Wheeling refers to
the simultaneous transfer of natural gas from one pipeline to another, while
loaning occurs when one party allows another party to borrow natural gas.
Parking services allow a customer to store natural gas in a hub for future
redelivery, while title transfer services allow a customer to assign title to
natural gas that is in storage.
The Company has developed an administrative, accounting and management
information system for its natural gas marketing and transportation businesses
and a complementary risk management information system. The Company believes
these proprietary systems provide it with a competitive advantage in its natural
gas marketing business.
FOREIGN MARKETS. In 1994, the Company formed joint ventures with two of its
principal stockholders, NOVA and British Gas for the purpose of providing energy
marketing services in Canada, the United Kingdom and Western Europe. At December
31, 1996, the Company owned an approximate 50 percent interest in NCL and a 49
percent interest in Accord and jointly controled each of these ventures. In
1997, the Company, along with NOVA and Centrica, have announced their intent to
restructure the ownership and operations of both NCL and Accord (see "STRATEGIC
BUSINESS COMBINATIONS AND RECENT DEVELOPMENTS").
NCL, formed by the Company and NOVA, is a full-service gas gathering,
processing, storage and marketing company operating in Canada. By combining the
Company's marketing and risk management capabilities with NOVA's established
operations and technical expertise, NCL strategically positioned itself to
provide Canadian producers and consumers with comprehensive, value-added
services. NCL supplies natural gas and provides related services to customers in
the utility, industrial, commercial and other core marketing segments across
Canada. During 1996, NCL marketed an average of 3.1 Bcf per day of natural gas.
Accord was formed by the Company and British Gas to develop energy marketing
and trading opportunities in the United Kingdom and, ultimately, Western Europe.
Accord is an active participant in the U.K. wholesale natural gas and crude oil
markets and purchases products from a wide assortment of producers, including
BG. During 1996, Accord sold an average 0.6 Bcf per day of natural gas.
ELECTRIC POWER MARKETING. The Company formed ECI in February 1994 to pursue
electric power marketing opportunities created as the domestic electric power
industry deregulates. On January 1, 1995, ECI's trading center began real-time
operations, trading and scheduling power 24 hours a day, 365 days a year. ECI
functions as an electricity risk management market maker, providing products and
services similar to those that are currently used in the natural gas industry to
manage customers' price risks and offers customers an individually tailored
package of services to manage fuel supply and power generation assets. The
Company sold 14.9 million megawatts of electricity during 1996 as compared with
3.5 million megawatts during 1995.
As power becomes deregulated and thus commoditized, its value relative to
natural gas will continue to become more closely intertwined. Complexity in the
marketplace will be ever-increasing and management of customer power
requirements will require a multi-commodity focus. NGC believes that
participation in the physical asset side of the power industry, achieved through
ownership of strategically located generating assets, will enable the Company to
expand services and to integrate the electric power marketing business more
fully into the Energy Store. As a result and as discussed further in STRATEGIC
BUSINESS COMBINATIONS AND RECENT
3
<PAGE>
DEVELOPMENTS, the Company has announced its intent to acquire Destec Energy ,
Inc. a leading independent power producer.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
The Company's natural gas liquids, crude oil and gas transmission segment
includes natural gas gathering and processing, fractionation, NGL marketing,
natural gas transmission and crude oil marketing and transportation operations.
The Company's natural gas liquids business complements its natural gas marketing
and power businesses by providing the Company's customers with a full range of
NGL products and related services.
NATURAL GAS GATHERING AND PROCESSING. The natural gas processing industry is
a major segment of the oil and gas industry, providing the necessary service of
refining raw natural gas into marketable pipeline quality natural gas and NGLs.
The Company currently owns interests in 57 gas processing plants, including 42
plants which it operates, and operates approximately 17,000 miles of natural gas
gathering pipeline systems. These assets are primarily located in the key
producing areas of Texas, Louisiana, Oklahoma and Kansas.
During the year ended December 31, 1996, the Company processed an average of
more than 2.5 Bcf per day of natural gas and produced an average of 94.3
thousand barrels per day of NGLs. As part of the Chevron Combination's ancillary
agreement(s), NGC acquired the right to process substantially all of Chevron's
processable natural gas in those geographic areas where it is economically
feasible for NGC to provide such service. Principally as a result of this
arrangement, the Company increased its volume activity during the fourth quarter
of 1996 to an average of more than 3.2 Bcf per day of natural gas processed
and an average of 140.9 thousand barrels per day of NGLs produced.
FRACTIONATION. The NGLs removed from the natural gas stream at gas processing
plants are generally in the form of a commingled stream of liquid hydrocarbons
(raw product). The commingled NGLs are separated at fractionation facilities
into the component products ethane, propane, normal butane, isobutane and
natural gasoline. At December 31, 1996, the Company had ownership interests in
three fractionation facilities, including the industry's largest, and received
169.1 thousand barrels per day of product for fractionation during the year. On
January 1, 1997, the Company divested itself of the Mont Belvieu I fractionator
in accordance with an agreement reached with the Federal Trade Commission
("FTC") related to the Chevron Combination. The Company realized a small after-
tax gain in 1997 relating to the sale. The Company is planning to construct a
fractionation facility in Louisiana that will have a production capacity of
55,000 barrels per day. The facility is expected to be operational in the fall
of 1998.
NGL MARKETING. The Company maintains a diversified NGL marketing program and
is the nation's leading service provider to propane retail marketers throughout
North America. The Company markets its own NGL production and also purchases
NGLs from third parties for resale. Through the Company's strategic combination
of pipeline connections, terminals, rail cars, trucks, barges and storage
facilities, the Company moves NGL products from producing regions in the Gulf
Coast and Midwest to most major domestic and international markets. The Company
operates large-scale marine terminals in Texas, Florida and Louisiana, which can
be used for both exporting and importing NGLs. These terminals offer importers a
variety of methods for transporting products to the marketplace. In addition,
Warren has access to over 60 million barrels of underground NGL storage
providing customers with the ability to store, trade, buy and sell specification
products. In 1996, the Company began utilizing Warren's storage, terminalling
and shipping assets and services to conduct international deepwater LPG
business. Management intends to expand these operations in 1997 through the
Company's wholly owned subsidiary NGC Global Energy, Inc. During 1996, the
Company sold approximately 245 thousand barrels per day of NGLs to over 1,000
customers and, during the fourth quarter of 1996, sold an approximate 431.5
thousand barrels per day of NGLs reflecting the material impact the Chevron
Combination had on this business.
TRANSMISSION OPERATIONS. The Company's transportation network is connected to
all of the nation's major gas liquids and natural gas pipeline systems. NGC
owns a 50 percent interest in a partnership which operates the West Texas
Pipeline, a pipeline capable of delivering 160,000 barrels per day of liquids to
fractionation facilities at Mont Belvieu, Texas. In addition, Warren's 12-inch
bi-directional Lake Charles, Louisiana, pipeline transports 50,000 barrels per
day of liquids and finished products between Lake Charles and Mont Belvieu.
Warren's extensive Houston-area gathering system provides market access to
refiners and chemical plants on the Houston
4
<PAGE>
Ship Channel. The Ozark Gas Transmission System ("Ozark"), acquired in mid-1995,
expanded the Company's natural gas transmission capabilities providing
throughput capacity of 170 million cubic feet of gas per day. Ozark gathers gas
from eastern Oklahoma and transports it to central Arkansas, where the system
interconnects with interstate pipelines that serve the Midwest and Northeast
markets. The Company also operates an intrastate natural gas pipeline system in
south-central Kansas, which serves markets in the Wichita area and throughout
the Midwest and Mid-Continent areas on interconnected intrastate and interstate
pipelines.
CRUDE OIL MARKETING. The Company provides a full range of crude oil marketing
services to producers, and serves the United States refining community as a
regionally diversified supplier of crude oil. Through its participation in major
trading centers in the Mid-Continent, Rocky Mountain and Gulf Coast areas, the
Company has established itself as a dependable source of competitively priced
crude oil. During 1996, the Company continued to utilize the 1,300-mile crude
oil gathering pipeline system acquired in 1995 to facilitate aggregation and
delivery of product to market, which further established NOTTI as a dependable
source of crude oil supply. Through acquisitions during 1996, the Company's
crude oil marketing business has positioned itself to expand operations in the
Gulf Coast area and in Canada. In May 1996, NGC Oil Trading and Transportation,
Inc. ("NOTTI") acquired the Grand Lakes Liquids System crude and condensate
operations in Cameron Parish, Louisiana, which included a 20-mile crude oil
gathering pipeline, a 100,000 barrel storage facility and truck-unloading and
barge loading capabilities. Also in 1996, NOTTI acquired Wilmar Energy
Marketing, a Calgary, Canada-based crude oil marketer and established NOTTI-
Canada. NOTTI-Canada's initial focus will be on expanding marketing and
gathering services within Canadian markets.
INTERNATIONAL OPPORTUNITIES
NGC's strategic investors, British Gas, NOVA and Chevron, provide excellent
international business opportunities. By combining NGC's multi-commodity energy
trading expertise with these business partners' international asset positions
and understanding of local governments, markets and customer needs, NGC Global,
Inc., a wholly owned subsidiary of NGC, will focus on bringing the Energy
Store's multi-commodity concept to new markets. As countries privatize or
deregulate their energy industries, NGC will work closely with its business
partners to explore opportunities that optimize value in selected overseas
markets.
RISK MANAGEMENT ACTIVITIES
The natural gas and power marketing segment's operations, exclusive of risk-
management activities, is relatively insensitive to commodity price fluctuations
since most of the segment's purchases and sales contracts do not contain fixed-
price provisions. Operating margins associated with the natural gas liquids,
crude oil and gas transmission segment are sensitive to changes in NGL prices
principally as a result of the contractual terms under which products are sold
by this segment. However, this segment's operating margin is relatively
insensitive to changes in natural gas prices as a result of the mitigating
impact of fuel costs and residue gas sales. The Company attempts to manage its
exposure to commodity price fluctuations through its risk-management activities.
NGC utilizes certain types of fixed-price contracts in connection with its
natural gas, NGL and crude oil marketing lines of business. These contracts
include contracts which commit the Company to purchase or sell energy
commodities at fixed prices in the future (i.e., fixed-price forward purchase
and sales contracts), futures and options contracts traded on the NYMEX and
swaps and options traded in the over-the-counter financial markets. The
availability and use of these types of contracts allow NGC to manage and hedge
its fixed-price purchase and sales commitments, to provide fixed-price
commitments as a service to its customers and suppliers, to reduce its exposure
relative to the volatility of cash market prices and to protect its investment
in storage inventories. The Company may, at times, have a bias in the market,
within established limits, resulting from the management of its portfolio. In
addition, by utilizing exchange for physical transactions allowed by the NYMEX,
which enable entities to take delivery of, or sell, a physical quantity of
natural gas in exchange for a futures position, NGC is able to secure additional
sources of physical natural gas supply, or create additional markets for
existing supply, through the use of natural gas futures contracts. These fixed-
price activities are referred to herein as risk management activities.
Although the Company generally attempts to balance its fixed-price physical
and financial purchase and sales contracts in terms of contract volumes and the
timing of performance and delivery obligations, net open positions
5
<PAGE>
often exist or are established due to the origination of new transactions and
the assessment of, and response to, changing market conditions. NGC will take
advantage of its bias in the market when it believes, based upon competitive
information gained from its energy marketing activities, that future price
movements will be consistent with its net open position. To the extent net open
positions exist, NGC is exposed to the risk that fluctuating market prices may
adversely impact its financial position or results of operations.
In addition to the risk associated with price movements, credit risk is also
inherent in the Company's risk management activities. Credit risk relates to the
risk of loss resulting from the nonperformance of contractual obligations by a
counterparty. NGC maintains credit policies with regard to its counterparties
which the Company believes significantly minimizes its overall credit risk.
NGC has established a risk management committee which oversees its risk
management activities. This committee meets regularly to establish the Company's
overall risk management strategy and to monitor and ensure compliance with risk
management limitations, policies and procedures.
STRATEGIC BUSINESS COMBINATIONS AND RECENT DEVELOPMENTS
STRATEGIC BUSINESS COMBINATIONS
CHEVRON COMBINATION. On August 31, 1996, NGC completed the Chevron
Combination with Chevron pursuant to which Chevron contributed substantially all
of its midstream assets (the "Contribution"), including substantially all of the
assets comprising Warren Petroleum Company and Chevron's Natural Gas Business
Unit and an undivided interest in those assets that constitute the West Texas
LPG Pipeline, into Midstream Combination Corp. ("Midstream"), a Delaware
corporation formed for purposes of the transaction. NGC which was formed
effective March 1, 1995, pursuant to the Trident Combination, was merged with
and into Midstream immediately following the Contribution and Midstream was
renamed NGC Corporation. In exchange for the Contribution, Chevron received
approximately 38.6 million shares of NGC common stock and approximately 7.8
million shares of NGC's Series A Participating Preferred Stock and NGC assumed
approximately $283 million of indebtedness. Immediately following closing of the
Chevron Combination, NGC paid approximately $128 million to Chevron and funded
such payment under the NGC Corporation Credit Agreement ("Credit Agreement").
In connection with the Chevron Combination, NGC and Chevron entered into
certain ancillary supply, sales and service agreements with respect to natural
gas, natural gas liquids and electricity. Pursuant to these ancillary
agreements, NGC has the right to, among other things, purchase and/or market
substantially all of the natural gas and natural gas liquids produced or
controlled by Chevron in the United States (except Alaska), to process
substantially all of Chevron's processable natural gas in those geographic areas
where it is economically feasible for NGC to provide such service, to supply
natural gas feedstocks to Chevron refineries and chemical plants in the United
States and to participate in existing and future opportunities to provide
electricity to Chevron's United States facilities as well as to purchase or
market excess electricity generated by those facilities.
TRIDENT COMBINATION. On March 14, 1995, NGC and Holding consummated the
Trident Combination. Pursuant to the terms of the Trident Combination, Holding,
the legally surviving corporation in the Combination, was renamed NGC
Corporation and (i) acquired through a tender offer (the "Tender Offer") 14.2
million shares of Holding common stock (representing approximately 50 percent of
the Holding common stock outstanding immediately prior to the consummation of
the Trident Combination) for $11.75 per share, net to the seller in cash; (ii)
acquired directly and indirectly, all of the outstanding general partnership
interests in Clearinghouse; (iii) the former owners of the partners of
Clearinghouse (the "Clearinghouse Owners") acquired 82 percent of the then
outstanding shares of NGC common stock (giving effect to the issuance, but not
allocation, of the "Contingent Shares" (as defined below)), and (iv) the
stockholders of Holding prior to consummation of the Combination retained shares
of common stock representing approximately 13 percent of the then outstanding
shares of NGC common stock (giving effect to the issuance, but not allocation,
of the Contingent Shares). The Contingent Shares totaled 5,461,538 shares of NGC
common stock and represented approximately 5 percent of the outstanding shares
of NGC common stock after giving effect to the issuance of such shares. Such
shares were allocated in March 1996 in a ratio of 17 percent to the former
stockholders of Holding and 83 percent to the Clearinghouse Owners.
6
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RECENT DEVELOPMENTS
On February 18, 1997, NGC announced that it had signed a merger agreement to
acquire Destec Energy, Inc. ("Destec"), a leading independent power producer
("IPP"), in a deal valued at $1.27 billion, or $21.65 per share of Destec common
stock. Simultaneous with this merger, NGC will sell Destec's international
facilities and operations to The AES Corporation for $407 million, inclusive of
cash and monetizable assets. Closing of this transaction is expected to occur by
the end of the second quarter of this year. NGC intends to finance the
transaction with interim financing provided by commercial banks from its
existing bank-credit group and existing cash. The balance of the interim
financing is expected to be retired from a combination of sales of non-strategic
domestic Destec assets within six to 12 months of closing of the merger, long-
term debt and a common and/or preferred stock issuance. Destec currently
operates 20 power generation facilities in key energy markets across the United
States as well as five international projects.
On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the FTC related to the
Chevron Combination. The Company realized a small after-tax gain in 1997
relating to the sale.
In early 1997, British Gas completed a restructuring with Centrica being
demerged from British Gas with the latter being renamed BG. Centrica became the
Company's joint venture partner in Accord while BG now holds the approximate 26
percent stake in NGC's common stock formerly held by British Gas.
Effective March 2, 1997, Centrica and the Company signed an agreement in which
they stated their intent to restructure Accord by converting certain common
stock interests in Accord to participating preferred stock interests. After
closing, which is expected to occur in the second quarter of 1997, Centrica and
the Company will own 75 percent and 25 percent, respectively, of the
participating preferred stock of Accord. The participating preferred stock will
have (a) the right to receive cumulative dividends on a priority basis to other
corporate distributions by Accord, and (b) limited voting rights. In addition,
Centrica will have the option to purchase the Company's participating preferred
stock interest at any time after July 1, 2000, and the Company will have the
right to acquire Centrica's participating preferred interest during the period
from January 1, 2001, through March 1, 2001, at formula based prices as defined
in the agreement. As part of the reorganization, NGC UK Limited ("NGC UK") will
assume control of Accord's existing crude oil marketing business. The
restructuring is contingent upon certain U.K. regulatory approvals. NGC intends
to expand its multi-commodity, energy-marketing concept in the UK through NGC UK
which will market natural gas, natural gas liquids and crude oil as well as
provide international LPG trading and transportation.
In October 1996, the Company and NOVA jointly announced their intent to
restructure the companies' Canadian natural gas operations. Under the
agreement, NGC will assume full control of NCL's gas and gas liquids marketing
business. NGC and NOVA will pursue separate midstream asset businesses in
Canada, with NOVA assuming full ownership of NCL's existing gathering and
processing business. The restructuring may also result in amendments to or
termination of various agreements between NCL and the Company or NOVA, including
their respective affiliates. NOVA will also own 100 percent of Pan-Alberta,
which is currently a subsidiary of NCL. NGC will operate its Canadian
businesses under the name NGC Canada, Inc. The transaction is expected to close
by April 30, 1997.
COMPETITION
All phases of the businesses in which NGC is engaged are highly competitive.
In connection with both domestic and foreign operations, the Company encounters
strong competition from companies of all sizes, having varying levels of
financial and personnel resources.
NGC competes in its gas marketing business with other natural gas merchants,
producers and pipelines for sales based on its ability to aggregate
competitively priced supplies from a variety of sources and locations and to
efficiently utilize transportation through third-party pipelines. In past years,
the spot marketing business had a low cost barrier to entry; therefore, a number
of the Company's competitors were privately owned and relatively small in size
and may have been comparatively undercapitalized to meet the increasing
financial requirements of the natural gas industry. However, with respect to its
marketing operations, NGC believes that market customers will increasingly
scrutinize the financial condition of their suppliers to assure that contract
obligations will be
7
<PAGE>
met; suppliers and transporters will demand more stringent credit terms to
secure the performance of natural gas merchants; the increased role of storage
and other risk management tools will add to the financial costs of doing
business; the increasing availability of pricing information to participants in
the natural gas industry will continue to exert downward pressure on per-unit
profit margins in the industry; suppliers will have to be multi-fuel marketers;
and large competitors, such as megamarketer alliances, will create competition
from entities having significant liquidity and other resources. As a result, NGC
believes its financial condition and its access to capital markets will play an
increasing role in distinguishing the Company from many of its competitors.
Operationally, NGC believes its ability to remain a low cost merchant and
effectively combine value-added services, competitively priced supplies and
price risk management will determine the level of success in its natural gas
marketing operations.
NGC's electric power business is similar to its gas marketing business in that
it provides natural gas contract services to electric utilities, markets and
supplies electricity and invests in power-related assets and joint ventures. As
a result, the competition issues incumbent upon the Company's gas marketing
operations similarly impact the Company's power marketing business. As with its
gas marketing operations, the Company believes it has the ability to establish
itself as a low cost and dependable merchant providing competitively priced
supplies and a variety of services which will differentiate NGC from the
competition.
The Company's natural gas liquids, NGL and crude oil marketing and gas
transmission businesses face significant competition from a variety of
competitors including major integrated oil companies, major pipeline companies
and their marketing affiliates and national and local gas gatherers, processors,
brokers, marketers and distributors of varying sizes and experience. The
principal areas of competition include obtaining gas supplies for gathering and
processing operations, obtaining supplies of raw product for fractionation, the
marketing of NGLs, crude oil, residue gas, helium, condensate and sulfur, and
the transportation of natural gas, NGLs and crude oil. Competition typically
arises as a result of the location and operating efficiency of facilities, the
reliability of services and price and delivery capabilities. The Company
believes it has the infrastructure, long-term marketing abilities, financial
resources and management experience to enable it to compete effectively.
REGULATION
GENERAL. The Company is subject to the laws, rules and regulations of the
countries in which it conducts its operations. Domestically, numerous
departments and agencies at federal, state and local levels have issued rules
and regulations affecting the energy industry, some of which carry substantial
penalties for non-compliance. Internationally, environmental and other
regulatory matters are evolving as detailed rules and procedures are established
and their application and interpretation defined. The regulatory burden on the
energy industry increases its cost of doing business and, consequently, affects
its profitability. Inasmuch as these rules and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations. These rules and regulations affect
the industry as a whole; therefore, the Company does not believe that it is
affected in a significantly different manner from its competitors.
REGULATORY MATTERS. The transportation and sale for resale of natural gas is
subject to regulation by the Federal Energy Regulatory Commission ("FERC") under
the Natural Gas Act of 1938, as amended ("NGA") and, to a lesser extent, the
Natural Gas Policy Act of 1978, as amended ("NGPA"). Interstate transportation
and storage services by natural gas companies, including interstate pipeline
companies, and the rates charged for such services, are regulated by the FERC.
Certain of the Company's pipeline activities and facilities are involved in
interstate transportation of natural gas, crude oil and NGLs, and are subject to
these or other federal regulations.
Legislative and regulatory changes began in 1978 with the passage of the NGPA,
which initiated the process of price deregulation of gas sold at the wellhead.
Since 1978, various federal laws have been enacted which have resulted in the
termination on January 1, 1993 of all price and non-price controls for natural
gas sold in "first sales."
Commencing in 1985, the FERC promulgated a series of orders and regulations
adopting changes that significantly altered the business of transporting and
marketing natural gas by fostering competition. The thrust of these regulations
was to induce interstate pipeline companies to provide nondiscriminatory
transportation services to producers, distributors and other shippers. The
effect of the foregoing regulations has been the creation of a more open access
market for natural gas purchases and sales and the creation of a business
environment which
8
<PAGE>
has fostered the evolution of various unregulated, privately negotiated natural
gas sales, purchase and transportation arrangements.
Order 636, issued in April 1992, as amended by Order 636-A (issued in August
1992) and Order 636-B (issued in November 1992), was a continuation of the
FERC's efforts to improve the competitive structure of the pipeline industry and
to maximize consumer benefits resulting from a competitive structure of the
pipeline industry and a competitive wellhead gas market. The FERC's goal, as
stated in Order 636, "is to recognize the current characteristics of the natural
gas industry -- and to create a regulatory framework that will accommodate the
meeting of as many gas sellers and gas buyers as possible."
In Order 636, the FERC required interstate pipelines that perform open access
transportation under blanket certificates to "unbundle" or separate their
traditional merchant sales services from their transportation and storage
services and to provide comparable transportation and storage services with
respect to all gas supplies whether purchased from the pipeline or from other
merchants such as marketers or producers. The pipelines must now separately
state the applicable rates for each unbundled service (i.e., for the gas
commodity, transportation and storage). The unbundling and separate pricing of
services has significantly affected the pipelines' merchant function and
required a major restructuring of the relationships between pipeline companies
and their customers.
Certain segments of the industry opposed aspects of Order 636, and many
parties sought judicial review of Order 636. Order 636 was substantially upheld
on appeal, with only a few issues being successfully challenged. While Supreme
Court review is certainly possible, it is not very likely that the Court will
hear an appeal from the D.C. Circuit. In addition, parties have sought judicial
review of most of the FERC orders approving individual pipeline restructuring
plans that were authorized pursuant to Order 636. While it appears that the
overall structure of Order 636 will remain intact, NGC cannot predict how
certain aspects of implementation by individual pipelines will fare.
On February 28, 1997, the FERC issued a Notice of Public Conference and
Opportunity to Comment relating to the natural gas industry. The FERC will take
public comment in both written and oral form on what its role should be in the
post Order 636 era. The FERC's Notice includes a broad array of subjects on
which it requests comment, portending a vibrant debate, but no particular
outcome.
GAS PROCESSING. The primary function of NGC's gas processing plants is the
extraction of NGLs and not natural gas transportation. The FERC has
traditionally maintained that a processing plant is not a facility for
transportation or sale for resale of natural gas in interstate commerce and
therefore is not subject to jurisdiction under the NGA. Even though the FERC has
made no specific declaration as to the jurisdictional status of the Company's
gas processing operations or facilities, NGC believes its gas processing plants
are primarily involved in removing NGLs and therefore exempt from FERC
jurisdiction. Nonetheless, certain facilities downstream of processing plants
are being considered for use in transporting gas between pipelines, which may
invoke FERC's jurisdiction. Such jurisdiction will apply to the downstream
facility as a pipeline, however, and not to the plants themselves.
GATHERING. The NGA exempts gas gathering facilities from the jurisdiction of
the FERC. Interstate transmission facilities, on the other hand, remain subject
to FERC jurisdiction. The FERC has historically distinguished between these two
types of facilities on a fact-specific basis. NGC believes its gathering
facilities and operations meet the current tests used by the FERC to determine a
nonjurisdictional gathering facility status. Some of the recent cases applying
these tests in a manner favorable to the determination of NGC's
nonjurisdictional status are still subject to rehearing and appeal. In addition,
the FERC's articulation and application of the tests used to distinguish between
jurisdictional pipelines and nonjurisdictional gathering facilities have varied
over time. While the Company believes current definitions create
nonjurisdictional status for NGC's gathering facilities, no assurance can be
given that such facilities will remain classified as gas gathering facilities
and the possibility exists that the rates, terms, and conditions of the services
rendered by those facilities, and the construction and operation of the
facilities will be subject to regulation by the FERC or by the various states in
the absence of FERC regulation.
PRORATION. The states of Texas and Oklahoma have adopted changes to oil and
gas production and proration regulations, as well as other regulatory changes,
that could affect volumes of gas available for purchase by NGC. To date, the
Company has not experienced any material reductions in available supplies due to
proration.
9
<PAGE>
Nevertheless, these or future proration regulation revisions may materially
affect NGC's ability to purchase gas supplies.
MARKET HUBS. The market hubs for which Hub Services, Inc., a wholly owned
subsidiary of NGC, serves as hub administrator are combined gas storage,
transportation and interchange facilities. To the extent the market hubs provide
services in intrastate commerce, the rates, terms and conditions of service are
regulated by the applicable state public utility commissions. To the extent the
market hubs provide service in interstate commerce subject to the NGA or NGPA,
the FERC has overlapping regulatory authority with respect to rates, terms and
conditions of service.
STATE REGULATORY REFORMS. State versions of Order 636 are proceeding. To
date, most programs are limited in scope. As these programs mature, they may
impact NGC's traditional wholesale customers' ability to sell gas. These
customers could be replaced with other sellers of gas as a wholesale market for
NGC sales. In addition, some states are considering regulating retail
marketers. At this point, the regulation appears restricted to retail sellers
and is not price regulation, but instead oriented towards terms and conditions
of service. NGC presently makes only limited retail sales.
Other state regulatory reforms impacting the Company's processing and
gathering operations and other businesses are proceeding. While the ultimate
impact of such legislation on the Company's businesses cannot be predicted with
certainty, the Company does not believe that the outcome of these matters will
have a material adverse effect on the Company's operations or competitiveness.
ELECTRIC REGULATION. Federal law, specifically the Federal Power Act,
regulates the transmission of electric power in interstate commerce and sales
for resale of that power. Through ECI, NGC makes wholesale power sales to
utilities. The FERC has asserted jurisdiction over these sales, but allows ECI,
as well as others, to make sales at market-based rates.
In 1996, the FERC issued Order 888, which provides that utilities subject to
its jurisdiction must allow access to others to sell power at wholesale. ECI
utilizes this open-access transmission to make wholesale power sales. Order 888
was upheld by the FERC in March of 1997, and is now destined to be appealed in
the U.S. Courts of Appeal on numerous grounds. NGC cannot predict the outcome
of such appeals. Meanwhile, second generation implementation issues arising out
of Order 888 abound. These include issues relating to power pool structures and
transmission pricing. These too will likely find their way to the courts, and
their outcome cannot be predicted.
State regulation over the electric industry is also changing. Various state
regulatory authorities and legislatures are moving towards allowing retail
customers access to the transmission grid. Each state differs in its preferred
pace and scope of retail transmission access.
OTHER REGULATORY ISSUES. The Company's gas purchases and sales are generally
not regulated by the FERC; however, as a gas merchant, the Company depends on
the gas transportation and storage services offered by various interstate and
intrastate pipeline companies to enable the sale and delivery of its gas
supplies. Additionally, certain other pipeline activities and facilities of the
Company are involved in interstate and intrastate transportation and storage
services and are subject to various federal and state regulations which
generally regulate rates, terms and conditions of service.
ENVIRONMENTAL MATTERS
NGC's operations are subject to extensive federal, state and local statutes,
rules and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Compliance with these
statutes, rules and regulations requires capital and operating expenditures
including those related to monitoring and permitting at various operating
facilities and remediation obligations. The Company's environmental expenditures
have not been prohibitive in the past, but are anticipated to increase in the
future with the trend toward stricter standards, greater regulation, more
extensive permitting requirements and an increase in the number of assets
operated by the Company subject to environmental regulation.
The vast majority of federal environmental remediation provisions are
contained in the Superfund laws -- the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund
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Amendments and Reauthorization Act ("SARA") and in the corrective action
provisions of the Federal Resource Conservation and Recovery Act ("RCRA").
Typically, the Environmental Protection Agency ("EPA") acts pursuant to
Superfund legislation to remediate facilities that are abandoned or inactive or
whose owners are insolvent; however, the legislation may be applied to sites
still in operation. Superfund law imposes liability, regardless of fault or the
legality of the original conduct, on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. These persons
include the current or previous owner and operator of a site and companies that
disposed, or arranged for the disposal, of the hazardous substance found at a
site. CERCLA also authorizes the EPA and, in certain instances, private parties
to take actions in response to threats to public health or the environment and
to seek recovery from such responsible party. RCRA provisions apply to
facilities that have been used to manage or are currently managing hazardous
waste and which are either still in operation or have recently been closed. As
amended, RCRA requires facilities to remedy any releases of hazardous wastes or
hazardous waste constituents at waste treatment, storage or disposal facilities.
NGC is subject to the environmental risks normally incident to the operation
and construction of storage facilities, pipelines, plants and other facilities
for gathering, processing, treating, storing and transporting natural gas and
other products including, but not limited to, uncontrollable flows of natural
gas, fluids and other substances into the environment, fires, pollution and
other environmental and safety risks. These activities are subject to
environmental and safety regulation by federal authorities and state authorities
residing in those states in which the Company owns assets or conducts business.
In addition, the design, construction, operation and maintenance of the
Company's pipeline facilities are subject to the safety regulations established
by the Secretary of the Department of Transportation pursuant to the Natural Gas
Pipeline Safety Act ("NGPSA"), or by state regulations meeting the requirements
of the NGPSA.
In connection with the Chevron Combination, Chevron agreed to indemnify NGC
against certain environmental liabilities related to the gathering, processing
and transportation assets that comprised a part of the Contribution. In each
case, the indemnification was limited to the extent that such liabilities relate
to such assets' operations prior to August 31, 1996. This indemnity is limited
and, among other things, expires August 31, 2001, and only covers liabilities
under environmental laws and regulations in effect at August 31, 1996. The
Company believes that Chevron has sufficient financial resources to satisfy its
environmental indemnity obligations.
In connection with the acquisition of substantially all of the natural gas
liquids business of OXY USA, Inc. ("OXY USA") by Holding in 1991, OXY USA agreed
to indemnify Holding for any liability, claims, damages, costs, duties of
remediation or loss of use resulting from certain claims or assessments (as
defined in that Acquisition Agreement) associated with periods prior to the
acquisition date generally for a period of ten years from the acquisition date.
The Acquisition Agreement provided, however, that Holding would contribute 30
percent of the first $25 million (i.e., up to a maximum of $7.5 million) of any
such liabilities, claims, damages, costs, duties of remediation or loss of use
resulting from or relating to any such emissions of environmental contaminants.
Such indemnity inured to the Company at the date of the Trident Combination.
The Company believes that OXY USA has sufficient financial resources to satisfy
its environmental indemnity obligations.
In acquiring other operating assets from third parties, NGC has often been
required to indemnify the seller against losses arising from pre-closing
environmental liabilities, although in other instances it has been indemnified
against such losses by the seller. To minimize its exposure for such
liabilities, environmental audits of the assets NGC wishes to acquire are made,
either by NGC personnel, outside environmental consultants, or a combination of
the two.
The Company has not heretofore incurred any material environmental liabilities
arising from its acquisition activities. The incurrence of a material
environmental liability, and/or the failure of an indemnitor to meet its
indemnification obligations with respect thereto, could have a material adverse
effect on NGC's operations and financial condition.
To the Company's knowledge, it is in substantial compliance with, and is
expected to continue to comply in all material respects with, applicable
environmental laws, regulations, orders and rules. Further, to the best of the
Company's knowledge, there are no existing, pending or threatened actions,
suits, investigations, inquiries, proceedings or clean-up obligations by any
governmental authority or third party relating to any violations of any
environmental laws with respect to the Company's assets which would have a
material adverse effect on the
11
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Company's operations and financial condition. NGC's aggregate expenditures for
compliance with laws and regulations related to the discharge of materials into
the environment or otherwise related to the protection of the environment
totaled $3.7 million in 1996. Total environmental expenditures for both capital
and operating maintenance and administrative costs are not expected to exceed
$15.6 million in 1997.
The Company's operations are subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and other comparable state statutes.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of SARA and similar state statutes require that
information be organized and maintained about hazardous materials used or
produced in its operations. Certain of this information must be provided to
employees, state and local government authorities and citizens. The Company
believes it is in substantial compliance with these rules and regulations.
OPERATIONAL RISKS AND INSURANCE
NGC is subject to all risks inherent in the various businesses in which it
operates. These risks include, but are not limited to, explosions, fires and
product spillage, which could result in damage to or destruction of operating
assets and other property, or could result in personal injury, loss of life or
pollution of the environment, as well as curtailment or suspension of operations
at the affected facility.
NGC maintains general public liability, property and business interruption
insurance in amounts that it considers to be adequate for such risks. Such
insurance is subject to deductibles that the Company considers reasonable and
not excessive.
The occurrence of a significant event not fully insured or indemnified
against, and/or the failure of a party to meet its indemnification obligations,
could materially and adversely affect NGC's operations and financial condition.
Moreover, no assurance can be given that NGC will be able to maintain insurance
in the future at rates it considers reasonable.
In 1996, one of the Company's subsidiaries, NIPC, Inc., was designated to
assist the Company in the management of certain liabilities principally relating
to environmental, litigation and credit reserves. Together with the involvement
of a third party whose primary consideration will be based on the realization of
savings by the Company, the subsidiary will attempt to find new ways to handle
these costs in a more efficient manner.
EMPLOYEES
The Company employs approximately 722 employees at its administrative offices
and approximately 1,171 employees at its operating facilities. Approximately
131 employees at Company-operated facilities are subject to collective
bargaining agreements with the Oil, Chemical and Atomic Workers International
Union or the Lake Charles Metal Trades Council. Management considers relations
with both union and non-union employees to be satisfactory.
ITEM 1A. EXECUTIVE OFFICERS
Set forth below are the names and positions of the current executive officers
of the Company, together with their ages, position(s) and years of service with
the Company.
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SERVED WITH
THE COMPANY
NAME AGE* POSITION(S) SINCE
C. L. Watson 47 Chairman of the Board, 1985
Chief Executive Officer, and
a Director of the Company
Thomas M. Matthews 53 President of the Company 1996
Stephen W. Bergstrom 39 Senior Vice President and a 1986
Director of the Company;
President of Clearinghouse
Stephen A. Furbacher 49 Senior Vice President of the 1996
Company and President of Warren
Petroleum Limited Partnership
James H. Current, Sr. 52 Senior Vice President of the 1996
Company and President of NGC
Global Energy Inc.
Kenneth E. Randolph 40 Senior Vice President, 1984
General Counsel and
Secretary of the Company
___________________________________________
* As of April 1, 1997.
The executive officers named above will serve in such capacities until the
next annual meeting of the Company's Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office.
C. L. Watson serves as Chairman of the Board, Chief Executive Officer and a
Director of the Company. He also served as President of NGC from March 1995 to
December 1996. Mr. Watson served as Chairman and as a member of the
Clearinghouse Management Committee from May 1989 and through March 1995, and as
Chief Executive Officer and President of Clearinghouse from September 1985
through March 1995. Prior to his employment with Clearinghouse, Mr. Watson
served as Director of Gas Sales for the Western United States for Conoco Inc.
Thomas M. Matthews joined the Company in December 1996 as President of NGC.
Prior to joining the Company, Mr. Matthews served as President and Chief
Executive Officer of Texaco Natural Gas from January 1996 through November 1996
and Vice President of Texaco, Inc. from November 1993 through November 1996.
Mr. Matthews also served as President of Texaco Refining and Marketing, Inc.
from December 1993 through December 1995. He joined Texaco U.S.A. as Vice
President-Gas in 1989. Prior to joining Texaco, Mr. Matthews spent eight years
with Tenneco as President of Tennessee Gas pipeline Company and Executive Vice
President of Tenneco Gas and sixteen years with Exxon in various domestic and
international engineering, management and executive positions, having last
served as Vice President-Exxon Gas.
Stephen W. Bergstrom serves as Senior Vice President and a Director of the
Company and as President of Clearinghouse. He served as Executive Vice President
of Clearinghouse and as a member of the Clearinghouse Management Committee from
May 1989 through March 1995. In addition, Mr. Bergstrom served as Senior Vice
President Gas Marketing and Supply of Clearinghouse from May 1987 through May
1990 and as Vice President Gas Supply of Clearinghouse from July 1986 through
May 1987. Prior to his employment with the Clearinghouse, Mr. Bergstrom served
as Vice President Gas Supply of Enron Gas Marketing, a subsidiary of Enron
Corporation.
Stephen A. Furbacher serves as President of Warren Petroleum Limited
Partnership and Senior Vice President of NGC Corporation and is a member of the
Management Committee. Mr. Furbacher manages the operations of NGC's natural gas
liquids fractionation, storage, transportation, terminalling and marketing
services. Prior to joining the Company in September 1996, Mr. Furbacher served
as President of Warren Petroleum Company, a division of Chevron U.S.A. Inc.
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James H. Current, Sr. serves as President of NGC Global Energy Inc., NGC's
international subsidiary, and is a Senior Vice President of the Company. Mr.
Current is responsible for expanding NGC's Energy Store concept worldwide
through the direction of non-U.S. natural gas, natural gas liquids and power
marketing businesses. Mr. Current also manages the Company's crude oil
marketing business worldwide. Prior to joining NGC in April 1996, Mr. Current
retired from Shell Oil Company as General Manager, Shell Gas Products and
Services.
Kenneth E. Randolph serves as Senior Vice President, General Counsel and
Secretary of the Company. He has served as Senior Vice President and General
Counsel of NGC (or its predecessor, Clearinghouse) since July 1987. In addition,
he served as a member of the Clearinghouse Management Committee from May 1989
through February 1994 and managed Clearinghouse's marketing operations in the
Western and Northwestern United States from July 1984 through July 1987. Prior
to his employment with the Company, Mr. Randolph was associated with the
Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
ITEM 2. PROPERTIES
All of the Company's operating assets are held through wholly owned
subsidiaries. The Company's operations are principally located in Texas,
Oklahoma, Louisiana, Kansas, Arkansas, Utah, western Canada and the United
Kingdom. Current year activity conducted in these areas is discussed under "Item
1. BUSINESS -- General." Following is a description of such properties owned by
the Company at December 31, 1996.
GATHERING SYSTEMS AND PROCESSING FACILITIES
NGC's natural gas processing services are provided at two types of gas
processing plants, referred to as field plants and straddle plants. Field plants
aggregate volumes from multiple producing wells into quantities that can be
economically processed to extract NGLs and to remove water vapor, solids and
other contaminants. Straddle plants are situated on third-party mainline natural
gas pipelines and serve to provide flexibility to changing market conditions by
allowing operators to extract NGLs from a natural gas stream when the market
value of NGLs separated from the natural gas stream is higher than the market
value of the same unprocessed natural gas. NGC owns an interest in 40 field
plants which are each associated with a gas gathering system that collects and
transports natural gas from individual wells to the plant. The Company owns an
interest in 35 of the gas gathering systems associated with its field plants.
The gathering systems associated with the other 5 field plants are owned
entirely by third parties. The remaining 17 gas processing plants in which NGC
owns an interest are straddle plants. The Company owns an interest in the gas
gathering systems associated with 2 of these straddle plants, with the remainder
being owned entirely by third parties. The following table provides certain
information, including operational data for the year ended December 31, 1996,
concerning the gathering systems and gas processing plants in which NGC owns an
interest.
<TABLE>
<CAPTION>
Location Total Plant
---------------------- ------------------------------
COUNTY/ PRACTICAL 1996 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
<S> <C> <C> <C> <C> <C> <C>
COMPANY OPERATED:
*Ambrose(4)(10)(12)..................... 100.00 Kay OK 400 0.0 0.0
Arbuckle............................... 100.00 Murray OK 2 0.9 39.9
*Barracuda(8)........................... 100.00 Cameron LA 190 132.0 3,815.8
Binger(4).............................. 100.00 Caddo OK 10 7.1 714.4
Breckenridge(4)(12).................... 100.00 Stephens TX 15 8.2 1,343.5
Bridger Lake(9)........................ 100 - 33.33 Summit UT 25 18.1 543.5
Canadian/Tonkawa(4)(14)................ 100.00 Hemphill TX 25 20.8 666.9
*Cameron(4)(12)(13)..................... 50.00 Cameron LA 425 114.0 2,444.4
*Cheney(12)............................. 100.00 Kingman KS 85 69.3 3,896.4
Chico(4)(12)........................... 100.00 Wise TX 100 65.8 10,140.0
East Texas(4)(12)...................... 100.00 Gregg TX 34 26.2 4,641.0
Eunice(4)(14).......................... 100.00 Lea NM 68 52.3 2,096.4
Eustace(4)(12)......................... 100.00 Henderson TX 70 37.1 2,497.1
Fashing(4)(14)......................... 44.74 Atascosa TX 65 35.1 101.6
Haynesville I.......................... 96.00 Claiborne LA 35 29.0 1,019.8
Haynesville II......................... 100.00 Claiborne LA 50 46.0 2,546.9
*Jayhawk(12)............................ 100.00 Grant KS 480 407.8 11,955.0
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Location Total Plant
---------------------- -------------------------------
COUNTY/ PRACTICAL 1996 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
<S> <C> <C> <C> <C> <C> <C>
Kellerville(4)(12)..................... 100.00 Wheeler TX 10 6.8 1,417.5
Leedy(4)(12)........................... 100.00 Roger Mills OK 50 35.7 1,116.2
Lefors(4)(12).......................... 100.00 Gray TX 12 6.3 1,562.7
*Lowry(12)(4)........................... 100.00 Cameron LA 265 136.7 3,751.1
Madill(4)(12).......................... 100.00 Marshall OK 25 18.0 1,002.5
Moores Orchard(4)(14).................. 100.00 Fort Bend TX 7 4.4 45.8
Monahans/Worsham(4)(14)................ 100.00 Ward TX 31 26.0 857.5
Monument(4)(14)........................ 100.00 Lea NM 80 67.8 2,300.4
New Hope(16)........................... 100.00 Franklin TX 30 14.8 110.2
Ringwood(4)(11)........................ 100.00 Major OK 62 58.1 3,910.1
Roberts Ranch(4)(12)................... 56.25 Midland TX 82 24.1 2,477.9
Rodman(4)(12).......................... 100.00 Garfield OK 50 51.0 3,729.1
Sand Hills(4)(14)...................... 100.00 Crane TX 100 137.5 2,258.7
Saunders/Vada/Bluitt(4)(14)............ 100.00 Lea NM 47 37.0 1,762.1
Shackelford(4)(12)..................... 100.00 Shackelford TX 15 10.2 1,442.9
Sherman(4)(14)......................... 100.00 Grayson TX 33 5.0 237.9
Sligo.................................. 100.00 Bossier LA 40 35.9 706.2
Spivey(5)(6)(12)....................... 3.87 Harper KS 66 0.5 28.2
*Stingray(8)............................ 100.00 Cameron LA 300 259.2 2,991.8
Texarkana(4)........................... 100.00 Miller AR 22 12.8 440.0
Waskom................................. 50.00 Harrison TX 52 0.0 0.0
West Seminole(4)(12)................... 40.14 Gaines TX 15 5.3 443.9
*Yscloskey(6)(12)(15)................... 30.40 St. Bernard LA 1,750 170.6 3,006.6
OUTSIDE OPERATED:
*Bluewater (14)......................... 16.72 Acadia LA 725 60.0 396.2
*Calumet (6)(12)(15).................... 21.91 St. Mary's LA 1,400 33.9 1,141.7
Corney Bayou(12)....................... 10.05 Union LA 50 0.4 8.2
Diamond M (4).......................... 7.67 Scurry TX 25 0.4 109.0
Dover Hennessey (4).................... 7.36 Kingfisher OK 80 2.7 141.9
*Grand Chenier (6)(12)(15).............. 6.46 Cameron LA 450 11.3 176.1
Indian Basin (4)(14)................... 14.19 Eddy NM 210 33.7 433.8
*Iowa (14).............................. 9.92 Jefferson Davis LA 500 31.5 156.1
*Laverne (12)(15)....................... 13.75 Harper OK 190 7.4 480.5
Maysville (4)(12)(15).................. 44.00 Garvin OK 135 32.9 4,233.9
*North Terrebone Robin (14)............. 0.83 Terrebone LA 1,200 7.8 60.2
*Patterson (14)......................... 1.09 St. Mary LA 400 0.0 0.0
*Sea Robin (14)......................... 18.70 Vermillion LA 1,000 39.5 1,053.2
Snyder (7)(12)......................... 3.25 Scurry TX 60 1.5 128.7
*Toca (14).............................. 8.86 St. Bernard LA 1,050 69.9 1,755.7
</TABLE>
- ---------------
* Indicates a straddle plant, all other gas processing
facilities are field plants.
(1) Gross to the facility.
(2) Gross production, net to the Company's ownership interest.
(3) Capacity data is at practical recovery rates.
(4) NGC owns the indicated percentage of an associated gas gathering system.
(5) NGC owns 2.19 percent of the associated gas gathering system.
(6) NGC ownership is adjustable and subject to periodic (usually annual)
redetermination.
(7) NGC owns the indicated percentage of the Snyder gas gathering system and
3.98 percent of the Diamond M gas gathering system which also supplies the
Snyder plant.
(8) This facility has no gathering lines.
(9) This facility consists of a 100 percent interest in a processing plant and
an NGL pipeline, a 100 percent interest in a crude oil pipeline and a 33.33
percent interest in reserves connected and dedicated to the plant. The
gathering system behind the processing plant gathers production from Utah
and Wyoming.
(10) This facility was shut down in December 1995.
(11) Includes Enid facility.
(12) These assets, or a portion thereof, were acquired in the Trident
Combination.
(13) Effective March 1, 1996, NGC no longer acts as operator of this facility.
15
<PAGE>
(14) These assets were acquired in the Chevron Combination. Consequently, the
"1996 Inlet Gas Throughput" and "NGL Production" statistics are for the
four month period ended December 31, 1996.
(15) Additional interest in this facility was acquired as part of the Chevron
Combination. Consequently, a portion of the "1996 Inlet Gas Throughput" and
"NGL Production" statistics are for the twelve months ended December 31,
1996, and a portion are for the four month period ended December 31, 1996.
(16) These assets were acquired effective August 1, 1996. Consequently, the
"1996 Inlet Gas Throughput" and "NGL Production" statistics are for the
five month period ended December 31, 1996.
FRACTIONATION FACILITIES
NGLs removed from a natural gas stream at gas processing plants are in the
form of a commingled stream of liquid hydrocarbons. The commingled hydrocarbons
are separated at fractionation facilities into the component NGL products
ethane, propane, normal butane, isobutane and natural gasoline. The following
table provides certain information concerning the fractionation facilities in
which NGC owns an interest, including operational data for the year ended
December 31, 1996.
LOCATION TOTAL PLANT
-------------- ---------------------------
COUNTY/ PRACTICAL 1996 INLET GAS
FRACTIONATION FACILITIES: % OWNED PARISH STATE CAPACITY(1) THROUGHPUT
(MBbls/d)
Warren Mont Belvieu (2).. 100.00 Chambers TX 205 163.6
Mont Belvieu I (3)....... 80.00 Chambers TX 110 80.0
Mont Belvieu II.......... 38.75 Chambers TX 110 105.3
_________________
(1) Capacity data is at practical recovery rates.
(2) Interest in this facility was acquired as part of the Chevron Combination.
Consequently, the "1996 Inlet Gas Throughput"
statistics are for the four month period ended December 31, 1996.
(3) On January 1, 1997, the Company divested itself of the Mont Belvieu I
fractionator in accordance with an agreement reached with the FTC related
to the Chevron Combination. The Company realized a small after-tax gain in
1997 relating to the sale.
In August 1995, the Company shutdown operations of its Lake Charles
fractionation facility principally as a result of operational inefficiencies
resulting from the age of the facility. The Company diverted daily production in
part to a third-party fractionator and in part to its fractionation facilities
at Mont Belvieu. NGC owns the liquids gathering system associated with the Lake
Charles facility.
STORAGE AND TERMINAL FACILITIES
The following table provides information concerning terminal and storage
facilities owned by the Company:
<TABLE>
<CAPTION>
LOCATION
-------------------
COUNTY/
STORAGE AND TERMINAL FACILITIES: % OWNED PARISH STATE DESCRIPTION
<S> <C> <C> <C> <C>
Hackberry Storage............... 100.00 Cameron LA NGL storage facility
Mont Belvieu Storage............ 100.00 Chambers TX NGL storage facility
Hattiesburg Storage............. 100.00 Washington MS NGL storage facility
Hackberry Terminal.............. 100.00 Cameron LA Marine import/export terminal
Mont Belvieu Terminal........... 100.00 Chambers TX Product terminal facility
Warrengas Terminal.............. 100.00 Harris TX LPG import/export terminal
Calvert City Terminal........... 100.00 Marshall KY Product transport terminal
Greenville Terminal............. 100.00 Washington MS Propane terminal
Hattiesburg Terminal............ 50.00 Forrest MS Propane terminal
Lampton-Love Terminal........... 100.00 Forrest MS Product transport terminal
Pt. Everglades Terminal......... 100.00 Broward FL Marine propane terminal
Tampa Terminal.................. 100.00 Hillsborough FL Marine propane terminal
Mont Belvieu Transport.......... 100.00 Chambers TX Administrative offices and repair shop
Abilene Transport............... 100.00 Taylor TX Raw LPG transport terminal
Bridgeport Transport............ 100.00 Jack TX Raw LPG transport terminal
Gladewater Transport............ 65.00 Gregg TX Raw LPG transport terminal
Grand Lakes Tank Farm........... 100.00 Cameron LA Condensate Storage
</TABLE>
16
<PAGE>
MARKETING HUBS
Effective in June 1995, the Company, through its wholly owned subsidiary Hub
Services, Inc. ("HSI"), participated in the formation of Enerchange L.L.C.
("Enerchange") which owns and operates three natural gas market area hubs. These
marketing hubs are transportation and interchange facilities located in the
vicinity of an interconnection of two or more interstate pipelines. Each hub
takes deliveries from a large number of suppliers and provides these suppliers
with a wide variety of markets in which to sell their gas. By providing access
to a large number of gas buyers and sellers, a hub improves the gas market by
reducing transaction costs of matching buyers and sellers of gas, enhances the
reliability of gas supply and provides buyers and sellers a wide range of gas
marketing services. Each marketing hub provides customers with "wheeling",
"loaning", "parking" and "title transfer" services. "Wheeling" refers to the
simultaneous transfer of gas from one pipeline to another, while "loaning"
occurs when one party allows another party to borrow gas. "Parking" services
allow a customer to store gas in a hub for future redelivery and "title
transfer" services allow a customer to assign title to gas that is in storage. A
fee is charged by the hub for services provided to its customers.
The three gas marketing hubs are the Chicago Hub, the California Energy Hub
and the Ellisburg-Leidy Northeast Hub. These hubs are each operated by
Enerchange and HSI provides administrative services with respect to these hubs.
The hub operator generally provides asset management services, such as
determining the availability of hub services, confirming all nominations for hub
services and providing personnel to operate the hub. The hub administrator
typically provides marketing, accounting and administrative services. The
accounting and administrative services include performing credit checks on
prospective customers, negotiating and executing agreements with hub customers,
billing and making collections from customers, distributing revenues to hub
partner(s) and maintaining accounting records. Although HSI owns a revenue
interest in each hub, HSI provides administrative services independent of any
influence of NGC and the Company may only use a hub's services on a non-
discriminatory basis in accordance with the mandates of pertinent federal and
state regulations and contractual terms with its hub partners.
The following table provides information with respect to the marketing hubs in
which NGC indirectly owns an interest.
<TABLE>
<CAPTION>
HSI'S
REVENUE SERVICE NAMES OF
FACILITY NAME HSI'S PARTNERS INTEREST AREA CONNECTING PIPELINES
<S> <C> <C> <C> <C>
Chicago Hub............ NICOR Hub Services 51% Midwest ANR Pipeline Company, Midwestern Gas
Pacific Enerchange Transmission Company, Northern Natural
Leidy Hub Inc. Gas Company and Natural Gas Pipeline
Company of America
Ellisburg-Leidy
Northeast Hub........ NICOR Hub Services 51% Northeast Transcontinental Gas Pipeline Corporation,
Pacific Enerchange Tennessee Gas Pipeline, CNG
Leidy Hub Inc. Company, Columbia Gas Transmission
Company and National Fuel Gas Supply
Corporation
California Energy Hub.. NICOR Hub Services 51% California El Paso Natural Gas Company, Kern River
Pacific Enerchange Gas Transmission Company, Mojave
Leidy Hub Inc. Pipeline Operating Company, Pacific Gas
</TABLE>
NATURAL GAS AND CRUDE OIL PIPELINES
NGC owns interests in various interstate and intrastate pipelines and
gathering systems, the more significant of which include: (i) the Ozark Gas
Transmission System, a 266-mile interstate natural gas pipeline with design
capacity of 170 MMcf/d that transports gas from eastern Oklahoma to central
Arkansas, where the system interconnects with interstate pipelines that serve
Midwest and Northeast markets; (ii) a 1,300-mile crude oil system which gathers
crude oil in 25 central and southern Oklahoma counties, accessing more than half
of the state's production, and serves the U.S. crude oil trading hub in Cushing,
Oklahoma and the Wynnewood, Oklahoma refinery; (iii) the Kansas Gas Supply
Corporation that owns and operates an approximate 1,200 mile regulated
intrastate gas pipeline system in south-central Kansas maintaining current
capacity to transport approximately 100 MMcf/d of natural gas; and (iv) an
17
<PAGE>
extensive liquids gathering system at the Lake Charles fractionation facility
and a 12-inch liquids pipeline that connects the Lake Charles area facilities
with the Mont Belvieu fractionation facilities. The following table identifies
these and other pipeline and gathering system assets in which NGC owns an
interest:
<TABLE>
<CAPTION>
1996
PIPELINE SYSTEMS: % OWNED THROUGHPUT STATE DESCRIPTION
<S> <C> <C> <C> <C>
Ozark Gas Transmission System.. 100.00 132.7 MMcf/d OK/AR Interstate natural gas pipeline
Crude Oil Pipeline System...... 100.00 54.5 MBbls/d OK Intrastate crude oil pipeline
Kansas Gas Supply.............. 100.00 70.1 MMcf/d KS/OK Intrastate natural gas pipeline
Warren NGL Pipeline............ 100.00 99.0 MBbls/d TX/LA Liquids pipeline between Lake
Charles and Mont Belvieu
Bridger Lake/Phantex Pipeline.. 100.00 1.6 MBbls/d UT/WY Interstate liquids pipeline
Cominco Pipeline............... 100.00 5.9 MMcf/d TX Intrastate natural gas pipeline
Pelican Pipeline............... 100.00 40.4 MMcf/d LA Gas gathering pipeline
Vermillion Pipeline............ 100.00 46.0 MMcf/d Gulf of Mexico Gas gathering pipeline
Western Gas Gathering.......... 100.00 3.4 MMcf/d KS Gas gathering pipeline
Pawnee Rock (1)................ 100.00 4.5 MMcf/d KS Gas gathering pipeline
Bradshaw Gathering............. 50.00 27.4 MMcf/d KS Gas gathering pipeline
Lake Boudreaux................. 100.00 1.3 MMcf/d LA Gas gathering pipeline
Grand Lakes Liquids System..... 100.00 0.7 MBbls/d LA Intrastate liquids pipeline
</TABLE>
(1) Acquired in July of 1996 in exchange for the Company's interest in the Mesa
Pipeline. Throughput information reflects
statistics from the acquisition date through the end of 1996.
OTHER PROPERTY INVESTMENTS
Effective November 1, 1996, the Company and Chevron formed Venice Gas
Processing Company, a Texas Limited Partnership ("Partnership"), located in
Plaquemines Parish, Louisiana. The Partnership was formed for the purpose of
owning and operating the Venice Complex consisting of a 35,000 barrel per day
fractionator, gathering systems, a lean oil gas processing plant, NGL storage
facilities, a marine terminal and acreage. Expansion to the Venice Complex is
expected to include a 300 MMcf/d cryogenic gas processing plant and additional
gathering lines to access new Gulf of Mexico production. At December 31, 1996,
NGC owned an approximate 37 percent interest in the Partnership.
As part of the Contribution, NGC acquired an undivided 50 percent interest in
the West Texas Pipeline which is an interstate liquids pipeline capable of
transporting 160,000 Bpd from its origin in eastern New Mexico to fractionation
facilities in Mont Belvieu, Texas. The pipeline is owned and operated by the
West Texas Pipeline Limited Partnership and NGC owns a 50 percent interest in
that partnership.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to its properties in accordance
with standards generally accepted in the energy industry, subject to such
exceptions which, in the opinion of the Company, in the aggregate would not have
a material adverse effect on the use or value of said properties.
The operating agreements for certain of the Company's natural gas processing
plants and fractionation facilities grant a preferential purchase right to the
plant owners in the event any owner desires to sell its interest. Such
agreements may also require the consent of a certain percentage of owners before
rights under such agreements can be transferred. The Company is subject, as a
plant owner under such agreements, to all such restrictions on transfer of its
interest. In addition, Warren has granted OXY USA certain rights of first
refusal with respect to any future sale of certain assets.
Substantially all of NGC's gathering and transmission lines are constructed on
rights-of-way granted by the apparent record owners of such property. In some
instances, land over which rights-of-way have been obtained may be subject to
prior liens that have not been subordinated to the right-of-way grants. Permits
have been obtained from public authorities to cross over or under, or to lay
facilities in or along, water courses, county roads, municipal streets and state
highways, and in some instances, such permits are revocable at the election of
the grantor. Permits have also been obtained from railroad companies to cross
over or under lands or rights-of-way, many of which are
18
<PAGE>
also revocable at the grantor's election. Some such permits require annual or
other periodic payments. In a few minor cases, property was purchased in fee.
ACQUISITION AND CONSTRUCTION PROJECTS
A subsidiary of the Company is committed to contribute approximately $62
million to Venice during 1997. The funds will be used principally for the
construction of a cryogenic gas processing plant and an expansion of the
existing gas gathering system.
NGC, indirectly through subsidiaries, has formed a joint venture to develop
the Avoca storage project located in southeastern New York. The Company is
committed to contribute its respective share of construction costs of the
project. Current cost estimates commit the Company to approximately $10 million
of expenditures.
A subsidiary of the Company is committed to contribute a total of $10 million
to Indeck North American Power Fund, L.P. and Indeck North American Power
Partners, L.P. (collectively "Indeck"), two partnerships that are engaged in the
acquisition of electric power generating facilities. The contributions represent
the Company's pro rata share of funds to be used for selected acquisitions. At
December 31, 1996, the Company had paid $3.7 million of this commitment.
INDUSTRY SEGMENTS
Segment financial information is included in Note 13 of NGC's consolidated
financial statements and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
NGC is involved in certain legal proceedings that have arisen in the ordinary
course of business. Management believes the outcome of such proceedings, even
if adversely determined, will not have a material effect on NGC's business or
financial condition.
On February 26, 1996, Apache Corporation ("Apache") requested arbitration to
resolve issues arising under a gas marketing contract ("Contract") with
Clearinghouse pursuant to the arbitration provisions of such Contract. On
February 16, 1996, Clearinghouse responded by denying Apache's claims and by
alleging several counterclaims of its own with respect to Apache's performance
under the Contract. In connection with the arbitration proceedings, on April 9,
1996, Apache filed a lawsuit against Clearinghouse in the 55th Judicial District
Court of Harris County, Texas ("Court"). In that lawsuit, Apache alleges that
Clearinghouse is intentionally delaying the progress of the arbitration, and it
requests relief, pursuant to the Texas General Arbitration Act, in the form of
an order appointing a third arbitrator, compelling discovery and requiring
Clearinghouse to assign certain contracts allegedly belonging to Apache.
Clearinghouse filed a response to the lawsuit on May 6, 1996, asking that the
Court dismiss Apache's application for relief or abate the suit pending
resolution of all matters by the arbitration panel according to the terms of the
Contract. Clearinghouse also requested payment of all attorneys' fees and other
litigation expenses incurred in responding to and defending the lawsuit. On
September 18, 1996, the arbitration panel granted a revised discovery schedule
which moved the hearing previously scheduled for December 1996 to April 7, 1997.
On February 8, 1997, the arbitration was further postponed until
September 15, 1997. In the arbitration and again in the lawsuit, Apache claims
that it is entitled to actual damages in an undetermined amount in excess of $8
million and punitive damages.
Clearinghouse intends to vigorously defend the Apache suit and arbitration.
Based on review of the facts and through consultation with outside counsel, NGC
management believes the ultimate resolution of the Apache suit will not have an
adverse impact on the Company's financial position or results of operations, and
that any payments eventually made in connection with the arbitration and/or the
lawsuit will be substantially less than the amount claimed.
The Company assumed liability for various claims and litigation in connection
with the Chevron Combination, the Trident Combination and in connection with the
acquisition of certain gas processing and gathering facilities from Mesa
Operating Limited Partnership. NGC believes, based on its review of these
matters and consultation with outside legal counsel, that the ultimate
resolution of such items, individually or in the aggregate, will not have a
material adverse impact on the Company's financial position or results of
operations. Further, the Company is
19
<PAGE>
subject to various legal proceedings and claims which arise in the normal course
of business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's $0.01 par value common stock ("Common Stock") is listed and
traded on the New York Stock Exchange under the ticker symbol "NGL". The number
of stockholders of record of the Common Stock as of March 27, 1997, was 247.
The following table sets forth the high and low closing prices for
transactions involving the Company's Common Stock for each calendar quarter, as
reported on the New York Stock Exchange Composite Tape and related dividends
paid per common share during such periods.
High Low Dividend
------- ------- --------
1996
----
First Quarter.................. $12.750 $ 8.625 $0.0125
Second Quarter................. 16.125 12.250 0.0125
Third Quarter.................. 17.000 14.250 0.0125
Fourth Quarter................. 24.750 15.625 0.0125
1995 (a)
----
First Quarter.................. $11.500 $ 9.000 $0.0125
Second Quarter................. 10.375 8.750 0.0125
Third Quarter.................. 10.375 9.000 0.0125
Fourth Quarter................. 9.625 8.375 0.0125
------- ------- -------
_____________________
(a) Stock price and per share dividend rate information relates to
Holding for the period commencing on January 1, 1995
and continuing through and including March 13, 1995, and NGC
thereafter.
The holders of the Common Stock are entitled to receive dividends if, when and
as declared by the Board of Directors of the Company out of funds legally
available therefor. Consistent with the Board of Directors' intent to establish
a policy of declaring quarterly cash dividends, a cash dividend of $0.0125 per
share was declared and paid in each of the four quarters of 1996. Beginning in
the third quarter of 1996, the Company has paid quarterly cash dividends on its
Series A Preferred Stock of $0.0125 per share, or $0.05 per share on an annual
basis.
The NGC Corporation Credit Agreement and the Company's 7.625% and 6.75% Senior
Notes do not contain any specific restrictions on the ability of the Company or
any of its subsidiaries to declare and pay dividends in respect of its or their
capital stock, although certain financial covenants contained in such credit
agreement and in the indenture covering the 7.625% and 6.75% Senior Notes may
limit the ability of the Company to do so.
The indenture setting forth the terms and conditions of the 14% Senior
Subordinated Notes of Warren due 2001 and the 10.25% Subordinated Notes of
Warren due 2003 contain restrictions on Warren's ability to pay cash dividends
to NGC, which in turn may adversely affect NGC's ability to pay dividends to its
shareholders.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below was derived from, and is
qualified by reference to, the Consolidated Financial Statements of the Company,
including the Notes thereto, incorporated herein by reference. Please refer to
the Notes to Consolidated Financial Statements for information on transactions
and accounting classifications which have affected the comparability of the
periods presented below. The selected financial information should be read in
conjunction with the Consolidated Financial Statements and related Notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1996(1) 1995(2) 1994(3) 1993 1992
---------- --------- ---------- --------- -----------
(in thousands, except per share informaton)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $7,260,202 $3,665,946 $3,237,843 $2,790,977 $2,492,935
Operating margin 369,500 194,660 99,126 91,850 96,806
General and administrative expenses 100,032 68,057 47,817 36,585 41,103
Depreciation and amortization expense 71,676 44,913 8,378 7,594 7,221
Net income (4) $ 113,322 $ 92,705 $ 42,101 $ 45,997 $ 43,858
Net income per common share (5) $0.83 $0.82 n/a n/a n/a
Pro forma income per common share (6) n/a $0.40 $0.28 $0.30 $0.30
Weighted average common and common
equivalent shares outstanding 136,099 113,176 97,804 97,804 97,804
CASH FLOW DATA:
Cash flows from operating activities $ (30,954) $ 90,648 $ 17,170 $ 20,292 $ 66,869
Cash flows from investing activities (111,140) (310,623) (38,376) (7,911) (21,024)
Cash flows from financing activities 176,037 221,022 18,959 (46,418) (19,816)
OTHER FINANCIAL DATA:
EBITDA (7) $ 289,023 $ 142,538 $ 57,716 $ 57,553 $ 58,299
Dividends or distributions to partners, net 6,740 9,253 14,041 14,118 19,816
CAPEX, acquisitions and investments (8) 859,047 979,603 47,014 16,464 12,197
As of December 31,
-----------------------------------------------------------------
1996(1) 1995(2) 1994 1993 1992
---------- --------- ---------- --------- -----------
(in thousands)
BALANCE SHEET DATA:
Current assets $1,936,721 $ 762,939 $ 445,782 $ 402,602 $ 385,334
Current liabilities 1,548,987 705,674 404,144 375,662 357,946
Property and equipment, net (9) 1,691,379 948,511 114,062 84,539 90,037
Total assets 4,186,810 1,875,252 645,471 512,534 480,458
Long-term debt 988,597 522,764 33,000 --- 19,800
Total equity 1,116,733 552,380 152,213 120,689 88,745
</TABLE>
_________________
(1) The Chevron Combination was accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values as of
September 1, 1996, the effective date of the Chevron Combination for
accounting purposes, and the results of operations include Chevron's
operations from September 1, 1996, forward.
(2) The Trident Combination was accounted for under the purchase method of
accounting and, because the Clearinghouse Owners acquired approximately 82
percent of NGC, for accounting purposes Clearinghouse was considered the
acquiring company. Accordingly, the purchase price was allocated to the
Trident assets acquired and liabilities assumed based on their estimated
fair values as of March 1, 1995, the effective date of the Trident
Combination for accounting purposes, and the results of operations include
Trident's operations from March 1, 1995, forward.
(3) Results for the year ended December 31, 1994, include the effects of a
change to mark-to-market accounting for fixed-price natural gas
transactions.
(4) Net income does not include a provision for federal income taxes, other
than minimal amounts on the taxable income of Clearinghouse's corporate
subsidiaries, for the years ended December 31, 1994, 1993 and 1992,
respectively.
(5) Net income per common and common equivalent share is based on reported net
income for the period. The weighted average shares outstanding for the year
ended December 31, 1995, is based on the parameters discussed in
footnote (6).
(6) Pro forma net income per common and common equivalent share is based on
reported net income for the period adjusted for the incremental statutory
federal and state income taxes that would have been provided had
Clearinghouse been a taxpaying entity. The weighted average shares
outstanding for the year ended December 31, 1995, is based on the weighted
average number of common shares outstanding plus the common stock
equivalents that would arise from the exercise of outstanding options or
warrants, when dilutive. Pro forma weighted average shares outstanding of
97.8 million shares for the years ended December 31, 1994, 1993 and 1992,
respectively, give effect to the terms of the Trident Combination and the
common stock equivalent shares outstanding as of the effective date of the
Trident Combination assuming a common stock market price of $12 in all
periods.
(7) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its debt and
to make capital expenditures, not as a measure of operating results, and is
not presented in the Consolidated Financial Statements.
(8) Includes value assigned assets in the Chevron and Trident Combinations.
(9) The 1992 amount of $90.0 million includes $16.4 million of property, plant
and equipment classified as held for sale. These assets were sold in
March 1993.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appears on pages 26 through 38 of the
Annual Report to Shareholders and is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company appear on pages 39 through 62 of the
Annual Report to Shareholders and are incorporated herein by reference.
The financial statement schedule and supplementary data of the Company are set
forth at pages F-1 through F-5 inclusive, found at the end of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item 10 will be contained in the
definitive Proxy Statement of the Company for its 1997 Annual Meeting of
Stockholders (the "Proxy Statement") under the headings "Proposal 1 -- Election
of Directors" and "Executive Compensation -- Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after December 31, 1996. Reference is also made to the information
appearing in Part I of this Annual Report on Form 10-K under the caption "Item
1A. Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be contained in the
Proxy Statement under the heading "Executive Compensation" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of certain of the Company's outstanding
securities will be contained in the Proxy Statement under the heading "Principal
Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related party transactions will be contained in the
Proxy Statement under the headings "Principal Stockholders", "Proposal 1 --
Election of Directors" and "Executive Compensation -- Indebtedness of
Management" and "-- Certain Relationships and Related Transactions" and is
incorporated herein by reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
ANNUAL FORM
REPORT 10-K
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 39 F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995 40 --
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 41 --
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 42 --
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 43 --
Notes to Consolidated Financial Statements 44 --
FINANCIAL STATEMENT SCHEDULE
Condensed Financial Statements of the Registrant -- F-2
FINANCIAL STATEMENTS OF UNCONSOLIDATED AFFILIATE
Accord Energy Limited Annual Report for the year
ended December 31, 1996 and 1995 -- 1-20
23
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
2.1 - Combination Agreement and Plan of Merger, dated May, 22, 1996, by
and between NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(14)
2.2 - Amendment to Combination Agreement, dated as of August 29, 1996,
by and among NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(11)
+2.3 - Agreement and Plan of Merger by and among Destec Energy, Inc., The
Dow Chemical Company, NGC Corporation and NGC Acquisition
Corporation II dated as of February 17, 1997.
+2.4 - Asset Purchase Agreement by and between NGC Corporation and The
AES Corporation dated as of February 17, 1997.
+3.1 - Restated Certificate of Incorporation of NGC Corporation.
+3.2 - Amended and Restated By-Laws of NGC Corporation.
4.1 - Indenture, dated as of September 9, 1993, between Trident NGL,
Inc. and Ameritrust Texas National Association, as Trustee.(5)
4.2 - Form of Senior Subordinated Note (included in Exhibit 4.1).
4.3 - Indenture, dated as of August 30, 1991, between Trident NGL, Inc.
and Ameritrust Texas National Association, as Trustee.(1)
4.4 - Form of Senior Subordinated Note (included in Exhibit 4.3).
4.5 - Note Purchase Agreement, dated as of August 30, 1991, by and among
Trident NGL, Inc. and the Purchasers named therein.(2)
4.6 - Indenture, dated as of April 15, 1993, between Trident NGL, Inc.
and The First National Bank of Boston, as Trustee.(3)
4.7 - Form of Subordinated Note (included in Exhibit 4.6).
4.8 - First Supplemental Indenture, dated as of April 15, 1993, between
Trident NGL, Inc. and Ameritrust Texas National Association, as
Trustee.(3)
4.9 - Second Supplemental Indenture, dated as of September 9, 1993,
between Trident NGL, Inc. and Ameritrust Texas National
Association, as Trustee.(5)
4.10 - Warrant exercisable for 6,228 shares of Common Stock of NGC
Corporation registered in the name of J. Otis Winters.(4)
4.11 - Credit Agreement dated as of March 14, 1995, among NGC Corporation
and The First National Bank of Chicago, individually and as agent,
The Chase Manhattan Bank National Association and Nations Bank of
Texas N.A., individually and as co-agent, and certain other
lenders named therein.(9)
4.12 - Indenture, dated as of December 11, 1995, between NGC Corporation,
the Subsidiary Guarantors named therein and The First National
Bank of Chicago, as Trustee.(8)
4.13 - Form of Senior Notes (included in Exhibit 4.12).
4.14 - Consent and Second Amendment to Credit Agreement, dated as of July
26, 1996, among NGC Corporation and The First National Bank of
Chicago, individually and as agent, The Chase Manhattan
24
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
Bank National Association and NationsBank of Texas, N.A.,
individually as co-agent, and certain other lenders named
therein.(11)
4.15 - Letter of Credit Facility Agreement, dated as of September 1,
1996, by and among NGC Corporation and Canadian Imperial Bank of
Commerce, Individually and as Agent, and the Lenders named
therein. (11)
4.16 - Indenture, dated as of December 11, 1995, by and among NGC
Corporation, the Subsidiary Guarantors named therein and The First
National Bank of Chicago, as Trustee.(8)
4.17 - First Supplemental Indenture, dated as of August 31 1996, by and
among NGC Corporation, Midstream Combination Corp., the Subsidiary
Guarantors named therein and The First National Bank of Chicago,
as Trustee, supplementing and amending the Indenture dated as of
December 11, 1995.(11)
4.18 - Second Supplemental Indenture, dated as of October 11, 1996, by
and among NGC Corporation, Electric Clearinghouse, Inc. and The
First National Bank of Chicago, as Trustee, supplementing and
amending the Indenture dated as of December 11, 1995.(11)
4.19 - Indenture, dated September 26, 1996, among NGC, the Subsidiary
Guarantors named therein and The First National Bank of Chicago,
as Trustee.(12)
4.20 - Form of 7 5/8% Senior Debenture due October 15, 2026.(12)
10.1 - Agreement of Sale and Purchase of Assets, dated as of May 5, 1991,
as amended on June 6, 1991 and August 30, 1991, by and between OXY
USA Inc. and Trident Energy, Inc.(1)
10.2 - Master Agreement on Gas Processing, dated as of May 5, 1991, by
and between OXY USA Inc. and Trident NGL, Inc.(1)
10.3 - Product Sale and Delivery Agreement between Trident NGL, Inc., OXY
NGL Pipeline Company and OXY Petrochemicals, Inc. dated as of
August 30, 1991.(1)
10.4 - Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Lake Charles
facilities and Trident NGL Pipeline).(1)
10.5 - Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Hackberry storage
facilities and terminal).(1)
+10.6 - NGC Corporation Amended and Restated 1991 Stock Option Plan.
10.7 - Stock Purchase Agreement between Trident NGL Holding, Inc. and
J. Otis Winters.(5)
10.8 - Agreement for the Construction, Ownership and Operation of the
Mont Belvieu I Fractionation Facility between Trident NGL, Inc.
and Union Pacific Fuels, Inc. dated November 17, 1993.(6)
10.9 - Employment Agreement, dated as of May 19, 1992, between C. L.
Watson and Natural Gas Clearinghouse.(7)
10.10 - Employment Agreement, dated as of May 19, 1992, between Stephen W.
Bergstrom and Natural Gas Clearinghouse.(7)
10.11 - NGC Corporation Amended and Restated Employee Equity Option
Plan.(7) (See Appendix III to the Proxy Statement/Prospectus).
25
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.12 - The Amended and Restated Natural Gas Clearinghouse Deferred
Compensation Plan, dated February 28, 1992.(7)
10.13 - Natural Gas Clearinghouse Above Base Incentive Compensation Plan,
as amended and restated, effective as of January 1, 1994.(7)
10.14 - Unanimous Shareholder Agreement dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.15 - First Amendment to Unanimous Shareholders Agreement, dated May 20,
1994, among Novacorp International, Inc. (formerly NOVA Gas
Services Ltd.), NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.16 - Limited Partnership Agreement, dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(7)
10.17 - Amended Contract for Processing Gas, dated January 1, 1995, by and
between Amoco Production Company and Trident NGL, Inc.(10)
10.18 - Employment Agreement dated April 2, 1996 by and between NGC
Corporation and Stephen A. Furbacher.(13)
10.19 - Lease Agreement entered into on June 12, 1996 between Metropolitan
Life Insurance Company and Metropolitan Tower Realty Company,
Inc., as landlord, and NGC Corporation, as tenant.(13)
10.20 - First Amendment to Lease Agreement entered into on June 12, 1996
between Metropolitan Life Insurance Company and Metropolitan Tower
Realty Company, Inc., as landlord, and NGC Corporation, as
tenant.(13)
10.21 - Contribution and Assumption Agreement, dated as of August 31,
1996, among Chevron U.S.A. Inc., Chevron Pipe Line Company,
Chevron Chemical Company and Midstream Combination Corp.(11)
10.22 - Scope of Business Agreement, dated May 22, 1996 between Chevron
Corporation and NGC Corporation.(13)
10.23 - Stockholders Agreement dated, May 22, 1996, among BG Holdings,
Inc., NOVA Gas Services (U.S.) Inc. and Chevron U.S.A. Inc.(13)
10.24 - Registration Rights Agreement, dated as of August 31,1996, among
NGC Corporation, BG Holdings, Inc., NOVA Gas Services (U.S.) Inc.
and Chevron U.S.A. Inc.(11)
10.25 - Master Alliance Agreement, dated as of September 1, 1996, among
Chevron U.S.A. Inc., Chevron Chemical Company, Chevron Pipe Line
Company, and other Chevron U.S.A. Inc. affiliates, NGC
Corporation, Natural Gas Clearinghouse, Warren Petroleum Company,
Limited Partnership, Electric Clearinghouse, Inc. and other NGC
Corporation affiliates.(11)
*10.26 - Natural Gas Purchase and Sale Agreement, dated as of August 30,
1996, among Chevron U.S.A. Inc. and Natural Gas Clearinghouse.(11)
*10.27 - Master Natural Gas Processing Agreement, dated as of September 1,
1996, among Chevron U.S.A. Inc. and Warren Petroleum Company,
Limited Partnership.(11)
*10.28 - Master Natural Gas Liquids Purchase Agreement, dated as of
September 1, 1996, among Warren Petroleum Company, Limited
Partnership and Chevron U.S.A. Inc.(11)
26
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
*10.29 - Gas Supply and Service Agreement, dated as of September 1, 1996,
among Chevron Products Company and Natural Gas Clearinghouse.(11)
10.30 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron U.S.A. Production
Company.(13)
10.31 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Chemical Company.(13)
10.32 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Products Company.(13)
*10.33 - Feedstock Sale and Refinery Product Purchase Agreements, dated as
of September 1, 1996, among Chevron Products Company and Warren
Petroleum Company, Limited Partnership.(11)
*10.34 - Refinery Product Sale Agreement (Hawaii), dated as of
September 1, 1996, among Warren Petroleum Company, Limited
Partnership and Chevron Products Company.(11)
*10.35 - Feedstock Sale and Refinery Product Master Services Agreement,
dated as of September 1, 1996, among Chevron Products Company and
Warren Petroleum Company, Limited Partnership.(11)
*10.36 - CCC Product Sale and Purchase Agreement dated as of September 1,
1996, among Warren Petroleum Company, Limited Partnership and
Chevron Chemical Company.(11)
*10.37 - CCC/WPC Services Agreement, dated as of September 1, 1996, among
Chevron Chemical Company and Warren Petroleum Company, Limited
Partnership.(11)
*10.38 - Operating Agreement, dated as of September 1, 1996, among Warren
Petroleum Company, Limited Partnership and Chevron Pipe Line
Company.(11)
10.39 - Galena Park Services Agreement, dated as of September 1, 1996,
among Chevron Products Company and Midstream Combination Corp.(11)
*10.40 - Venice Complex Operating Agreement, dated as of September 1, 1996,
among Chevron U.S.A. Inc. and Warren Petroleum Company, Limited
Partnership.(13)
*10.41 - Product Storage Lease and Terminal Access Agreement, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and Warren Petroleum
Company, Limited Partnership.(13)
10.42 - Lone Star Swap Transaction Confirmation Term Sheet, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and NGC
Corporation.(11)
*10.43 - West Texas LPG Pipeline Limited Partnership Agreement, dated as of
September 1, 1996, by and between Chevron Pipe Line Company, or an
affiliate thereof, and an affiliate of NGC Corporation.(11)
*10.44 - West Texas LPG Pipeline Operating Agreement, dated as of September
1, 1996, by and between Chevron Pipe Line Company, or an affiliate
thereof, and the West Texas LPG Pipeline Partnership.(11)
*10.45 - Time Charter, dated as of August 31, 1996, by and between
Midstream Barge Company, L.L.C. and Warren Petroleum Company,
Limited Partnership.(11)
*10.46 - Limited Liability Company Agreement of Midstream Barge Company,
L.L.C., dated as of August 31, 1996, by and between Chevron U.S.A.
Inc. and Warren Petroleum Company, Limited Partnership.(11)
27
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
+10.47 - Employment Agreement, dated as of November 15, 1996, between
Thomas M. Matthews and NGC Corporation.
+13 - Annual Report (portions incorporated by reference in this
Form 10-K).
+22.1 - Subsidiaries of the Registrant.
+23.1 - Consent of Arthur Andersen LLP.
___________________
+ Filed herewith
* Exhibit omits certain information which the Company has filed separately with
the Commission pursuant to a confidential treatment request pursuant to Rule
406 promulgated under the Securities Act of 1933, as amended.
(1) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-43871.
(2) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-46416.
(3) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1993 of Trident NGL, Inc.,
Commission File No. 1-11156.
(4) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1993 of Trident NGL Holding,
Inc., Commission File No. 1-11156.
(5) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-1, Registration No. 33-68842.
(6) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1993 of Trident NGL Holding, Inc.,
Commission File No. 1-11156.
(7) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-4, Registration No. 33-88907.
(8) Incorporated by reference to the Registration Statement of NGC Corporation
on Form S-3, Registration No. 33-97368.
(9) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, Commission File 1-11156, dated March 14, 1995.
(10) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1994, of NGC Corporation, Commission
File No. 1-11156.
(11) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1996 of NGC Corporation,
Commission File No. 1-11156.
(12) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, dated October 16, 1996, Commission File No. 1-11156.
(13) Incorporated by reference to exhibits to the Registration Statement of
Midstream Combination Corp. on Form S-4, Registration No. 333-09419.
28
<PAGE>
(14) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, dated May 22, 1996, Commission File No. 1-11156.
(b) Reports on Form 8-K of NGC Corporation.
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated October 9, 1996 (Announcement that the Company planned
to record a third-quarter pretax charge to earnings to provide a
reserve of approximately $4 million relating to the difference between
the cost associated with the Company's then-current lease at its
headquarters and the anticipated revenue from subletting that space
after the Company's relocation to downtown Houston in the first quarter
of 1997).
Current Report on Form 8-K on NGC Corporation, Commission File No.
1-11156 dated October 11, 1996 (Announcement of a lawsuit filed on
October 11, 1996, in the Queen's Bench of Alberta, Judicial District of
Calgary, by a group of Canadian producers against Pan-Alberta Gas Ltd.,
a 49.9% indirect subsidiary of the Company).
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated October 16, 1996 (On December 16, 1996, the Company sold
$175 million of its 7 5/8% Senior Debentures due October 15, 2026
pursuant to an underwritten public offering).
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC CORPORATION
Date: March 28,1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
-------------------------------------
Stephen W. Bergstrom, Senior Vice
President and Director
Date: March 28, 1997 By: /s/ Stephen J. Brandon
-------------------------------------
Stephen J. Brandon, Director
Date: March 28, 1997 By: /s/ David R. Varney
-------------------------------------
David R. Varney, Director
Date: March 28, 1997 By: /s/ P. Nicholas Woollacott
-------------------------------------
P. Nicholas Woollacott, Director
Date: March 28, 1997 By:
-------------------------------------
C. Kent Jespersen, Director
Date: March 28, 1997 By:
-------------------------------------
Jeffrey M. Lipton, Director
Date: March 28, 1997 By:
-------------------------------------
Albert Terence Poole, Director
30
<PAGE>
Date: March 28, 1997 By: /s/ Darald W. Callahan
----------------------
Darald W. Callahan, Director
Date: March 28, 1997 By: /s/ Donald L. Paul
-------------------------------------
Donald L. Paul, Director
Date: March 28, 1997 By: /s/ Peter J. Robertson
-------------------------------------
Peter J. Robertson, Director
Date: March 28, 1997 By: /s/ Daniel L. Dienstbier
-------------------------------------
Daniel L. Dienstbier, Director
Date: March 28, 1997 By: /s/ J. Otis Winters
-------------------------------------
J. Otis Winters, Director
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATURAL GAS CLEARINGHOUSE
By: NGC Corporation, its general partner
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
of NGC Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller of NGC Corporation
(Principal Financial and Accounting
Officer)
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
-------------------------------------
Stephen W. Bergstrom, Senior Vice
President and Director of
NGC Corporation
Date: March 28, 1997 By: /s/ Stephen J. Brandon
-------------------------------------
Stephen J. Brandon, Director of NGC
Corporation
Date: March 28, 1997 By: /s/ David R. Varney
-------------------------------------
David R. Varney, Director of NGC
Corporation
Date: March 28, 1997 By: /s/ P. Nicholas Woollacott
-------------------------------------
P. Nicholas Woollacott, Director of
NGC Corporation
32
<PAGE>
Date: March 28, 1997 By:
-------------------------------------
C. Kent Jespersen, Director of
NGC Corporation
Date: March 28, 1997 By:
-------------------------------------
Jeffrey M. Lipton, Director of
NGC Corporation
Date: March 28, 1997 By:
-------------------------------------
Albert Terence Poole, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Daniel L. Dienstbier
-------------------------------------
Daniel L. Dienstbier, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ J. Otis Winters
-------------------------------------
J. Otis Winters, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Darald W. Callahan
-------------------------------------
Darald W. Callahan, Director
of NGC Corporation
Date: March 28, 1997 By: /s/ Donald L. Paul
-------------------------------------
Donald L. Paul, Director of
NGC Corporation
Date: March 28, 1997 By: /s/ Peter J. Robertson
-------------------------------------
Peter J. Robertson, Director
of NGC Corporation
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN NGL, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President
and Controller (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN ENERGY RESOURCES, LIMITED
PARTNERSHIP
By: Warren Energy, Inc., its general
partner
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-----------------------------------
Stephen A. Furbacher, President
and Director of Warren Energy, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President and
Director of Warren Energy, Inc.
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller of Warren Energy, Inc.
(Principal Financial and Accounting
Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and
Director of Warren Energy, Inc.
Date: March 28, 1997 By: /s/ Michael B. Barton
-------------------------------------
Michael B. Barton, Vice President
and Director of Warren Energy, Inc.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN PETROLEUM COMPANY,
LIMITED PARTNERSHIP
By: Warren Petroleum G.P., Inc., its
general partner
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President
and Director of Warren Petroleum
G.P., Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher, President and
Director of Warren Petroleum G.P., Inc.
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni, Vice President and
Controller of Warren Petroleum
G.P., Inc. (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph,
Senior Vice President and
Director of Warren Petroleum
G.P., Inc.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
Senior Vice President and Director of
Warren Petroleum G.P., Inc.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN GAS LIQUIDS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial
and Accounting Officer)
Date: March 28, 1997 By: /s/ William A. Zartler
-------------------------------------
William A. Zartler,
Vice President and Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC OIL TRADING AND TRANSPORTATION, INC.
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr.,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr.,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
Date: March 28, 1997 By: /s/ Mike Barton
--------------------------------------
Mike Barton,
Vice President and Director
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC UK LIMITED
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson,
Chairman of the Board and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ C. L. Watson
-------------------------------------
C. L. Watson, Chairman of the
Board and Director (Principal
Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Jacob S. Ulrich
-------------------------------------
Jacob S. Ulrich, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
-------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ James H. Current, Sr.
-------------------------------------
James H. Current, Sr., Director
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC CANADA, INC.
Date: March 28, 1997 By: /s/ Rodney D. Wimer
-------------------------------------
Rodney D. Wimer, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Rodney D. Wimer
---------------------------------------
Rodney D. Wimer, President
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ C. L. Watson
---------------------------------------
C. L. Watson, Director
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ James T. Bruvall
---------------------------------------
James T. Bruvall, Director
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WTLPS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
-------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph,
Senior Vice President and Director
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
Senior Vice President and Director
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WPC LP, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
-------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Charles H. Brownman
----------------------------------------
Charles H. Brownman, Director
Date: March 28, 1997 By: /s/ Mark J. Gentile
---------------------------------------
Mark J. Gentile, Director
Date: March 28, 1997 By: /s/ Jesse A. Finkelstein
---------------------------------------
Jesse A. Finkelstein, Director
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC FUTURES, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Joel M. Staib
---------------------------------------
Joel M. Staib, Director
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ELECTRIC CLEARINGHOUSE, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ C.L. Watson
---------------------------------------
C.L. Watson, Director
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Dan W. Ryser
---------------------------------------
Dan W. Ryser, Director
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUB SERVICES, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Vincent T. McConnell
---------------------------------------
Vincent T. McConnell, Director
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC STORAGE, INC.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
------------------------
Stephen W. Bergstrom,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
---------------------------------------
Stephen W. Bergstrom,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and (Principal
Financial and Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NGC ANADARKO GATHERING SYSTEMS, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni, Vice President and
Controller (Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Stephen W. Bergstrom
----------------------------------------
Stephen W. Bergstrom, Director
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN GAS MARKETING, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
--------------------0------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN NGL PIPELINE COMPANY
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KANSAS GAS SUPPLY CORPORATION
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
----------------=----------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARREN INSTRASTATE GAS SUPPLY, INC.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Stephen A. Furbacher
---------------------------------------
Stephen A. Furbacher,
President and Director
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Melinda Tosoni
---------------------------------------
Melinda Tosoni,
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 28, 1997 By: /s/ Kenneth E. Randolph
---------------------------------------
Kenneth E. Randolph, Director
Date: March 28, 1997 By: /s/ Michael B. Barton
---------------------------------------
Michael B. Barton, Director
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of NGC Corporation:
We have audited in accordance with generally accepted auditing standards the
financial statements included in NGC Corporation (a Delaware corporation) and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated March 14, 1997. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The financial statement schedule listed in Item 14 is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 14, 1997
F-1
<PAGE>
SCHEDULE I
NGC CORPORATION
CONDENSED BALANCE SHEETS OF REGISTRANT
(in thousands, except share data)
DECEMBER 31, DECEMBER 31,
1995 1996
----------- ----------
ASSETS
CURRENT ASSETS
Cash $ -- $ 6
Accounts receivable 108 --
Intercompany accounts receivable 337,876 450,631
Prepayments and other assets 2,793 5,053
----------- -----------
340,777 455,690
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 8,216 1,287
Less: accumulated depreciation (2,193) (196)
----------- -----------
6,023 1,091
----------- -----------
OTHER ASSETS
Investments in affiliates 1,219,027 547,866
Intercompany note receivable 237,000 237,000
Deferred taxes and other assets 13,262 36,393
----------- -----------
$ 1,816,089 $ 1,278,040
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Intercompany accounts payable $ 16,295 $ 390,233
Accrued liabilities 18,914 2,427
----------- -----------
35,209 392,660
Long-term debt 644,000 333,000
Deferred taxes 20,147 --
----------- -----------
699,356 725,660
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
50,000,000 shares authorized:
8,000,000 shares designated as
Series A Participating Preferred
Stock, 7,815,363 shares issued and
outstanding at December 31, 1996 75,418 --
Common stock, $0.01 par value,
400,000,000 shares
authorized: 149,846,503 shares issued
and outstanding at December 31, 1996,
and 110,493,411 shares issued and
105,031,874 shares outstanding at
December 31, 1995 1,498 1,105
Additional paid-in capital 896,432 515,785
Retained earnings 143,385 35,490
------------ -----------
1,116,733 552,380
------------ -----------
$ 1,816,089 $ 1,278,040
============ ============
See Note to Registrant's Financial Statements.
F - 2
<PAGE>
SCHEDULE I
NGC CORPORATION
STATEMENTS OF OPERATIONS OF THE REGISTRANT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995)
THROUGH DECEMBER 31, 1995
(in thousands)
1996 1995
------------- -------------
Depreciation and amortization $ (496) $ (196)
General and administrative expenses -- --
------------- -------------
Operating loss (496) (196)
Equity in earnings of affiliates 182,159 60,744
Intercompany interest and other income 17,968 13,570
Interest expense (28,071) (18,152)
Other expenses (1,915) (135)
------------- -------------
Income before income taxes 169,645 55,831
Income tax provision 56,323 16,056
------------- -------------
NET INCOME $ 113,322 $ 39,775
============= =============
See Note to Registrant's Financial Statements.
F - 3
<PAGE>
SCHEDULE I
NGC CORPORATION
STATEMENTS OF CASH FLOWS OF THE REGISTRANT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995) THROUGH
DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 113,322 $ 39,775
Items not affecting cash flows from operating activities:
Depreciation and amortization 1,996 196
Equity in earnings of affiliates, net of cash distributions (182,159) (60,744)
Deferred taxes 45,896 17,303
Other 7,466 1,475
Change in assets and liabilities resulting from operating activities:
Accounts receivable (108) --
Intercompany transactions (298,592) (60,398
Prepayments and other assets 2,260 (5,053)
Accrued liabilities 8,487 2,427
Other, net (1,193) 4,150
------------ ------------
Net cash used in operating activities (302,625) (60,869)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,055) --
Acquisition of Trident NGL, Inc. -- (166,900)
Other -- (1,333)
------------ ------------
Net cash used in investing activities (2,055) (168,233)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 1,542,000 1,224,039
Repayments of long-term borrowings (1,231,000) (891,039)
Intercompany advances -- (237,000)
Proceeds from sale of capital stock, options and warrants 858 725
Capital contributions -- 135,000
Dividends and other distributions (7,184) (2,617)
------------ ------------
Net cash provided by financing activities
304,674 229,108
------------ ------------
Net (decrease) increase in cash and cash equivalents (6) 6
Cash and cash equivalents, beginning of period 6 --
------------ ------------
Cash and cash equivalents, end of period $ -- $ 6
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid (net of amount capitalized)
$ 22,341 $ 16,339
============ ============
Taxes paid (net of refunds) $ 1,444 $ --
============ ============
Cash dividends paid to parent by consolidated or unconsolidated subsidiaries $ -- $ --
============ ============
</TABLE>
See Note to Registrant's Financial Statements.
F - 4
<PAGE>
SCHEDULE I
NGC CORPORATION
NOTE TO REGISTRANT'S FINANCIAL STATEMENTS
Note 1 -- BASIS OF PRESENTATION
NGC Corporation ("NGC" or the "Company") is a holding company that
principally conducts all of its business through its subsidiaries. The Company
is the result of a strategic business combination ("Trident Combination")
between Natural Gas Clearinghouse and Trident NGL Holding, Inc. ("Holding"),
under which Holding was renamed NGC Corporation. Pursuant to the terms of the
Trident Combination, Holding was the legally surviving corporation and
Clearinghouse was considered the acquiring company for accounting purposes
resulting in a new historical cost basis for Holding beginning March 1, 1995,
the effective date of the Trident Combination. The accompanying condensed
Registrant Financial Statements were prepared pursuant to rules promulgated by
the Securities and Exchange Commission. In accordance with these rules, the
accompanying statements reflect the financial position, results of operations
and cash flows of NGC, the holding company of NGC Corporation, at December 31,
1996, and for the year then ended, and at December 31, 1995, and for the ten
month period from the effective date of the Trident Combination through December
31, 1995. These statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto of NGC Corporation
incorporated by reference into this Form 10-K.
F - 5
<PAGE>
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1996
REGISTERED NO: 2877398
<PAGE>
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1996
Pages
-----
Director's Report...................................... 1-4
Statement of Directors' Responsibilities............... 5
Report of the Auditors................................. 6
Consolidated Profit and Loss Account................... 7
Balance Sheet.......................................... 8
Consolidated Cash Flow Statement....................... 9
Notes to the Financial Statements...................... 10-20
<PAGE>
ACCORD ENERGY LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 1996
The Directors present their report and audited financial statements for the year
ended 31 December 1996.
PRINCIPAL ACTIVITIES AND REVIEW OF BUSINESS
The principal trading activities of the group in the year were the wholesale
trading of natural gas and crude oil. There was no trading of electricity
carried out in the year but the group has continued to explore opportunities in
this area as it sees electricity trading as an integral part of its strategic
objective to be a major player in wholesale energy trading markets.
The 1996 results represent a significant improvement on last year's performance
in terms of growth of the business and financial results. Turnover from gas and
oil trading increased by 43% with a corresponding improvement in overall pre-tax
profits. The major contribution to these improvements came from the gas trading
business which recorded substantial growth in volumes traded during a period
which saw growing competition and the entry of more players to the market.
The year also saw the introduction of the Network Code and the commencement of
flexibility mechanism trading in which the group was actively involved. Volumes
traded by the company in this first period of operation were relatively small
but provided a marginal contribution to profits.
Maintaining the level of performance achieved in the year is likely to become
increasingly more difficult in view of the uncertainties in the gas trading
market and the several changes taking place in the UK gas market. However, the
directors are committed to maximising returns by ensuring that the company
remains a major player in the energy trading markets and that is pursues and
fully exploits all opportunities and products in both the UK and European
markets. In this context, the company sees its trading on the IPE gas futures
market as an additional tool for effective risk management and for providing
added value to its gas trading activities.
FINANCIAL RESULTS AND DIVIDENDS
The financial results are set out on pages 7 to 20. An interim dividend of
(Pounds) 7.2 million was approved by the Board and paid during the year. A
second interim dividend of (Pounds) 14.814 million has been proposed bringing
the total dividends for the year ended 31 December 1996 to (Pounds) 22.014
million. The Directors do not recommend the payment of a final dividend and
retained profits in the year have been transferred to reserves.
<PAGE>
DIRECTORS
The Directors who served during the period covered by this report are: -
NAME DATE APPOINTED DATE RESIGNED
- ---- -------------- ---------------
RA Gardner (Chairman) 30 January 1997
AW Burgess
30 January 1997
MS Clare
JH Current 23 September 1996 02 March 1997
CD Friedlander 12 February 1996
ML Hazelwood 08 July 1996 23 September 1996
P Jungels 12 February 1996 24 September 1996
HK Kaelber 02 March 1997
KE Randolph 02 March 1997
CL Watson 02 March 1997
Mr R A Gardner was appointed Director and Chairman on 1 December 1995.
DIRECTORS' INTERESTS
At no time during the year did any Director still holding office on
31 December 1996 have any beneficial interest in the shares of the Company or
any other company within the Group except for the interests in the shares of the
ultimate parent company, British Gas plc, as stated below: -
BENEFICIAL HOLDINGS
-------------------
1 JANUARY 1996 31 DECEMBER 1996
-------------- ----------------
AW Burgess 13,052 13,523
MS Clare - 471
Mr Gardner is also a Director of the ultimate parent company, British Gas plc.
His interests in the shares of British Gas plc and its subsidiary undertaking
are shown in the accounts of that company.
Details of options to purchase fully paid ordinary shares that were granted
under the parent company's Savings Related and Executive Share Option Schemes
and the awards of notional allocations of restricted shares under the parent
company's Long Term Incentive Scheme for Directors and other senior executives
are as follows:
SAVINGS RELATED OPTION SCHEME
-----------------------------
At 1 January 1996 Granted Exercised At 31 December 1996
----------------- ------- -------- -------------------
AW Burgess 8,075 - - 8,075
2
<PAGE>
EXECUTIVE OPTION SCHEME
-----------------------
At 1 January 1996 Granted Exercised At 31 December 1996
----------------- ------- --------- -------------------
AW Burgess 108,962 - - 108,962
MS Clare 49,063 - - 49,063
LONG TERM INCENTIVE SCHEME
--------------------------
Awards
in
At 1 January 1996 Year At 31 December 1996
----------------- ------ -------------------
AW Burgess 10,936 - 10,936
MS Clare 12,833 - 12,833
The awards represent the maximum award possible if performance criteria are met
at the end of the performance and retention period of five or six years.
All options and awards were granted under the terms of the parent company's
Savings Related Share Option Scheme, Executive Share Option Scheme or Long Term
Incentive Scheme, details of which are given in that company's report and
accounts for the year ended 31 December 1996.
DIRECTORS' INSURANCE
The Company has through its ultimate parent company, British Gas plc, maintained
insurance for the Directors in respect of their duties as Directors of the
Company.
DONATIONS
Provision has been made in the accounts for a net contribution of (Pounds)
126,000 for charitable purposes, which will be paid in 1997. No donations to
political organisations were provided for or made during the period.
EMPLOYEES
The Company depends on the skills and commitment of its employees in order to
achieve its long term objectives and is therefore committed to the development
of its staff. Employees at all levels are encouraged to actively participate and
make the fullest contribution to the growth and success of the Company. The
company's recruitment, training and promotion policies, which are based on
merit, have been developed to ensure equal opportunities for all employees
regardless of gender, race or disability.
3
<PAGE>
SHARE CAPITAL
The share capital is divided into 51 "A" shares and 49 "B" shares which at the
end of the year were held by GB Gas Holdings Limited and NGC Great Britain
Limited (formerly known as NGC UK Limited) respectively. The "A" shares held by
GB Gas Holdings were previously held by British Gas plc. In October 1996 British
Gas transferred legal and beneficial ownership of the "A" shares to GB Gas
Holdings Limited as a part of its corporate restructuring in advance of the
demerger. Following the demerger, approved in February 1997, the beneficial
ownership of the total issued capital of GB Gas Holdings Limited was transferred
to Centrica plc.
On 3rd March 1997 Centrica plc and NGC Corporation of Houston, Texas announced
that the two companies had reached agreement on the future ownership of Accord
Energy Limited. Under the terms of the agreement which is consistent with the
objectives set out at the time Centrica plc was demerged from British Gas,
Centrica plc will take operational control of Accord Energy Limited with NGC
Great Britain Limited's 49 shares being converted to participating preference
shares and 147 participating preference shares being issued to GB Gas Holdings.
The agreement is conditional upon regulatory clearances. The new share capital
of Accord Energy Limited will be approved at an Extraordinary General Meeting to
be convened once Centrica is satisfied regarding regulatory clearances.
Therefore the agreement does not yet have unconditional effect.
TAXATION STATUS
The close company provisions of the Income and Corporation Taxes Act 1988 do not
apply to the Company.
AUDITORS
Price Waterhouse have expressed their willingness to be re-appointed as Auditors
of the Company.
A resolution proposing the re-appointment of Price Waterhouse as Auditors to the
Company and to authorise the Directors to fix their remuneration will be put to
the Annual General Meeting.
BY ORDER OF THE BOARD Registered Office:
Charter Court
50 Windsor Road
Slough
Berkshire SL1 2HA
Registered in England
No 2877398
TERESA FURMSTON
COMPANY SECRETARY
DATE: 21 March 1997
4
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company and of the Group as at the end of the financial year
and of the profit or loss for that period.
The Directors consider that in preparing the financial statements, appropriate
accounting policies have been used and applied consistently. The Directors also
consider that reasonable and prudent judgements and estimates have been made and
applicable accounting standards have been followed.
The Directors are responsible for maintaining adequate accounting records, for
safeguarding the assets of the Group and for preventing and detecting fraud and
other irregularities.
The Directors, having prepared the financial statements, have requested the
Auditors to take whatever steps and undertake whatever inspections they consider
to be appropriate for the purposes of enabling them to give their audit report.
5
<PAGE>
REPORT OF THE AUDITORS TO THE MEMBERS OF ACCORD ENERGY LIMITED
We have audited the financial statements on pages 7 to 20 which have been
prepared under the historic cost principles and other accounting policies
described on pages 10 and 11.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 5, the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes assessment of the significant estimates and judgements made by the
Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary, in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 1996 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Act 1985.
Price Waterhouse
Chartered Accountants and Registered Auditors
Southwark Towers
32 London Bridge Street
London SE1 9SY
Date: 21 March 1997
6
<PAGE>
ACCORD ENERGY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
Year Year
to 31 Dec to 31 Dec
1996 1995
Notes (Pounds) 000 (Pounds) 000
TURNOVER 2 426,057 298,619
Cost of Sales (386,785) (270,710)
-------- --------
GROSS PROFIT 39,272 27,909
Administration expenses (7,217) (5,689)
-------- --------
OPERATING PROFIT 3 32,055 22,220
Net interest 5 1,321 1,063
-------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE 33,376 23,283
TAXATION
Tax on profit on ordinary activities 6 (11,139) (7,708)
-------- --------
PROFIT FOR THE FINANCIAL YEAR 22,237 15,575
Dividends 7 (22,014) (15,400)
-------- --------
RETAINED PROFIT 223 175
======== ========
All gains or losses for the year have been derived from continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 1996
There are no recognised gains or losses for the period other than those stated
in the profit and loss account.
The accompanying notes on pages 10 to 20 form part of these accounts.
7
<PAGE>
ACCORD ENERGY LIMITED
BALANCE SHEETS AS AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
GROUP COMPANY
---------------------------- ----------------------------
1996 1995 1996 1995
Notes (Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
FIXED ASSETS
<S> <C> <C> <C> <C> <C>
Tangible fixed assets 8 203 100 203 100
Investments 9 - - - -
---------- ---------- ---------- ----------
203 - 203 -
---------- ---------- ---------- ----------
CURRENT ASSETS
Stock 10 2,675 3,838 2,675 3,838
Debtors 11 53,700 38,453 53,700 38,453
(amounts falling due within one year
Cash at bank and in hand 22,416 10,184 22,416 10,184
---------- ---------- ---------- ----------
78,791 52,475 78,791 52,475
---------- ---------- ---------- ----------
CREDITORS 12 (78,137) (51,941) (78,137) (51,941)
(amounts falling due within one year)
NET CURRENT ASSETS 654 534 654 534
---------- ---------- ---------- ----------
Total assets less current liabilities 857 634 857 634
---------- ---------- ---------- ----------
CREDITORS 12 - - (414) (414)
(amounts falling due after more ---------- ---------- ---------- ----------
than one year)
NET ASSETS 857 634 443 220
---------- ---------- ---------- ----------
CAPITAL AND RESERVES
Called up share capital 13 - - - -
Profit and loss account 14 857 634 443 220
---------- ---------- ---------- ----------
SHAREHOLDERS' FUNDS 15 857 634 443 220
---------- ---------- ---------- ----------
</TABLE>
The financial statements on pages 7 to 20 were approved by the Board of
Directors on 21 March 1997 and were signed on its behalf by: -
MS Clare
Director
The accompanying notes on pages 10 to 20 form part of these accounts.
8
<PAGE>
ACCORD ENERGY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
Year Year
to 31 Dec to 31 Dec
1996 1995
Notes (Pounds) 000 (Pounds) 000
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 16 26,931 26,304
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 1,591 1,105
Interest paid (270) (42)
TAXATION (8,695) (2,932)
CAPITAL EXPENDITURE
Purchase of tangible fixed assets (125) (100)
ACQUISITIONS AND DISPOSALS - -
EQUITY DIVIDENDS PAID (7,200) (15,400)
MANAGEMENT OF LIQUID RESOURCES - -
FINANCING - -
--------- ---------
INCREASE IN CASH 12,232 8,935
</TABLE>
9
<PAGE>
ACCORD ENERGY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention and in accordance with applicable Accounting Standards in the
United Kingdom.
BASIS OF CONSOLIDATION
The consolidated profit and loss account, balance sheet and cash flow
statement include the financial statements of the Company and its
subsidiary undertakings made up to 31 December 1996.
GOODWILL
On the acquisition of a subsidiary or associated undertaking, fair values
are attributed to the net assets acquired. Goodwill which represents the
difference between the purchase consideration and the fair values, is
taken to reserves.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at purchase cost together with any
incidental costs of acquisition less depreciation.
Depreciation, which is charged in the year following the year of
acquisition, is calculated on a straight-line basis sufficient to write
off the cost of individual assets over their estimated useful lives. The
depreciation periods for the principal categories of assets are:
Fixtures and fittings : 5 years
Computer and office equipment : 5 years
INVESTMENTS
Investments are stated at cost less any permanent diminution in value.
STOCK
Stocks are valued at the lower of cost and net realisable value.
10
<PAGE>
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated
into pounds sterling at closing rates of exchange. Income and expenses in
foreign currencies are translated into pounds sterling at rates of
exchange prevailing at the time of the transactions.
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of
sales of energy products including gas, oil and electricity to customers
plus an estimate of sales not yet invoiced.
FORWARD COMMITMENTS
There is an exposure to price movements on open contracts and an accrual is
made for any potential losses on these contracts. Matched gains on open
contracts are recognised at time of delivery.
DEFERRED TAXATION
Provision is made for deferred taxation on all material timing differences
to the extent that it is probable that a liability or asset will
crystallise.
2. TURNOVER
Turnover of (Pounds)426.1 million (1995 - (Pounds) 298.6 million) comprises
sales of energy products.
3. Operating profit
The operating profit is stated after charging: -
1996 1995
(Pounds) 000 (Pounds) 000
Auditor's fees (statutory audit) 20 12
Auditor's fees (other non-audit services) - 11
-------- --------
20 23
-------- --------
11
<PAGE>
4. DIRECTORS AND EMPLOYEES
(A) DIRECTORS' REMUNERATION
None of the Directors, including the Chairman, received any remuneration
in respect of their services to the Company.
The total emoluments of the highest paid director for the period of his
directorship were (Pounds) nil (1995 - (Pounds) 482,588), which includes
salary, allowances and incentive payments relating to the Company's
performance.
The emoluments of Directors, excluding pension contributions, were in the
following bands:
Number
-----------
1996 1995
(Pounds) 480,001 to (Pounds) 485,000 - 1
(B) EMPLOYEE INFORMATION
The average number of personnel employed by the Group, including
executive directors and secondees from the shareholder companies, during
the period was 23 (1995 - 20) who were all based in the United Kingdom.
Staff costs for these persons were as follows: -
1996 1995
(Pounds) 000 (Pounds) 000
Salaries & wages 1,296 853
Social Security 92 69
Pensions 56 43
-------- --------
1,444 965
-------- --------
In addition, provisions amounting to (Pounds) 4.7 million which includes
social security costs of (Pounds) 0.5 million (1995 - (Pounds) 3.9 million
which includes social security costs of (Pounds) 0.3 million) were made in
the year for incentive payments relating to company performance.
12
<PAGE>
5. NET INTEREST
1996 1995
(Pounds) 000 (Pounds) 000
Interest receivable from Group undertakings 1,561 1,081
Interest receivable from third parties 30 24
Interest payable to Group undertakings (258) (31)
Interest payable to third parties (12) (11)
-------- --------
Net interest receivable 1,321 1,063
-------- --------
Interest payable is on loans and overdrafts wholly repayable within five
years.
6. TAXATION
1996 1995
(Pounds) 000 (Pounds) 000
UK - corporation tax @ 33% 9,208 8,846
- deferred corporation tax 1,899 (1,138)
- prior year adjustment 32 -
-------- --------
Taxation charge 11,139 7,708
There is no unprovided deferred taxation.
7. DIVIDENDS
1996 1995
(Pounds) 000 (Pounds) 000
Interim dividend 7,200 15,400
Second Interim dividend (proposed) 14,814 -
------- -------
22,014 15,400
------- -------
The interim dividend of (Pounds) 7.2 million (1995 - (Pounds) 15.4 million)
was paid in September 1996. No final dividend is proposed.
13
<PAGE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Group Company
------------------ -----------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
COST
Balance at 1 January 1996 100 - 100 -
Additions 125 100 125 100
Disposals - - - -
------------ ------------ ----------- -----------
Balance at 31 December 1996 225 100 225 100
------------ ------------ ----------- -----------
DEPRECIATION
Balance at 1 January 1996 - - - -
Provision in year 22 - 22 -
Disposals - - - -
------------ ------------ ----------- -----------
Balance at 31 December 1996 22 - 22 -
------------ ------------ ----------- -----------
NET BOOK VALUE
As at 31 December 1996 203 100 203 100
</TABLE>
The additions to tangible fixed assets in the year are computer and office
equipment type assets.
9. FIXED ASSET INVESTMENTS
Fixed asset investments represent shares in wholly owned subsidiaries and
are shown below at cost.
Company
------------
1996 1995
(Pounds) (Pounds)
Balance at 1 January 1996 5 5
Additions - -
Balance at 31 December 1996 5 5
-------- --------
14
<PAGE>
SUBSIDIARY UNDERTAKINGS
Country of
registration of Class of Company
incorporation shares held holding
(%)
Accord Electric Limited England Ordinary 100
Accord Gas Limited England Ordinary 100
Accord Oil Limited England Ordinary 100
Accord Power Limited England Ordinary 100
As at 31 December 1996 these subsidiaries were dormant.
10. STOCK
Group Company
------------------ ------------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
Gas in storage 2,675 3,838 2,675 3,838
----------- ----------- ------------ -----------
11. DEBTORS
<TABLE>
<CAPTION>
Group Company
----------------- -----------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
Trade debtors 88 56 88 56
Accrued income 40,529 36,240 40,529 36,240
Amounts owed by group undertakings 13,057 246 13,057 246
Other debtors 26 12 26 12
Deferred corporation tax - 1,899 - 1,899
------------ ------------ ------------ ------------
53,700 53,700 38,453 38,453
------------ ------------ ------------ ------------
</TABLE>
15
<PAGE>
12. CREDITORS
<TABLE>
<CAPTION>
Group Company
------------------ ------------------
1996 1995 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
AMOUNTS FALLING DUE WITHIN ONE YEAR:-
-Trade creditors - 247 - 247
-Amounts owed to group undertakings 33,401 16,843 33,401 16,843
-Taxation and social security 9,467 6,904 9,467 6,904
-Other creditors 13,007 1,826 13,007 1,826
-Accruals and deferred income 22,262 26,121 22,262 26,121
----------- ------------ ------------ ------------
78,137 51,941 78,137 51,941
AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR:-
-Amounts owed to subsidiary
undertakings - - 414 414
------------ ------------ ------------ ------------
- - 414 414
------------ ------------ ------------ ------------
</TABLE>
As part of its normal trading operations the company has entered into
forward purchase and sales contracts totalling (Pounds) 999 million at 31
December 1996 (1995 - (Pounds) 634 million). It is exposed to market risk
of price movements in relation to any unmatched element of the above
commitments and included in the accruals amounts shown above is an accrual
of (Pounds) nil (1995 - (Pounds) 5.6 million) against potential losses
arising out of these contracts.
13. CALLED UP SHARE CAPITAL
AUTHORISED 1996 1995
(Pounds)000 (Pounds)000
51 ordinary "A" shares of (Pounds)1 each 51 51
49 ordinary "B" shares of (Pounds)1 each 49 49
----------- -----------
100 100
----------- -----------
ALLOTTED AND FULLY PAID
51 ordinary "A" shares of (Pounds)1 each 51 51
49 ordinary "B" shares of (Pounds)1 each 49 49
----------- -----------
100 100
----------- -----------
16
<PAGE>
With the exception of voting rights which on aggregate are shared equally
by the two categories of shares, the amounts payable on a winding up and
the rights to dividends are on the basis of the percentage interests in
each category of shares.
14. RESERVES
Group Company
(Pounds) 000 (Pounds) 000
PROFIT AND LOSS ACCOUNT:
Balance at 1 January 1996 634 220
Transfer from profit and loss account
during the period 223 223
-------- --------
Balance at 31 December 1996 857 443
-------- --------
The Company's profit for the year after taxation was (Pounds) 22.237
million (1995 - (Pounds) 15.575 million).
As permitted by Section 230(3) of the Companies Act 1985, no profit and
loss account is presented for the Company.
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1996 1995 1996 1995
(Pounds) 000 (Pounds) 000 (Pounds) 000 (Pounds) 000
<S> <C> <C> <C> <C>
Profit for the period 22,237 15,575 22,237 15,575
Dividends (22,014) (15,400) (22,014) (15,400)
------------ ----------- ------------ -----------
Net addition to shareholders' funds 223 175 223 175
Shareholders' funds at 1 January 1996 634 459 220 45
------------ ----------- ------------ -----------
Shareholders' funds at 31 December 1996 857 634 443 220
------------ ----------- ------------ -----------
</TABLE>
17
<PAGE>
16. CASH FLOW STATEMENT
(a) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
1996 1995
(Pounds) 000 (Pounds) 000
Operating profit 32,055 22,220
Depreciation 22 -
(Increase)/decrease in stock 1,163 (2,951)
(Increase)/decrease in debtors (17,129) (12,254)
Increase/(decrease) in creditors 10,820 19,289
----------- -----------
26,931 26,304
----------- -----------
(b) ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD
1996 1995
(Pounds) (Pounds)
Balance at 1 January 1996 100 100
----------- -----------
Balance at 31 December 1996 100 100
----------- -----------
(c) ANALYSIS OF CASH
1996 1995
(Pounds)000 (Pounds)000
Balance at 1 January 1996 10,184 1,249
Net increase in cash flow 12,232 8,935
--------- ---------
22,416 10,184
--------- ---------
Cash at bank and in hand 22,416 10,184
========= =========
18
<PAGE>
17. RELATED PARTY TRANSACTIONS
As part of its normal trading activities during the year, the group
conducted business with the two shareholder companies and companies within
their group of companies. All transactions were of a trading nature under
arms length commercial arrangements and mainly relate to the purchase/sale
of energy products.
The net monetary value of related transactions during the year ended 31
December 1996 and the amount of the net outstanding balances at 31 December
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
CHARGED TO AMOUNTS OWED BY ACCORD ENERGY LTD.
ACCORD ENERGY ----------------------------------
LTD. IN AT AT
YEAR 31 DEC `96 31 DEC `95
(POUNDS) 000 (POUNDS) 000 (POUNDS) 000
<S> <C> <C> <C>
British Gas Group 192,054 12,789 16,589
Natural Gas Clearinghouse 465 465 187
</TABLE>
18. PENSIONS
The company's own defined contribution pension scheme commenced on 1
December 1995. Under the scheme, defined contributions are made by the
employer to an independently administered fund and in the case of certain
employees, who are not members of the company scheme, to their personal
pension arrangements. The assets of the scheme are held separately from
those of the company and managed by an external pension fund management
organisation appointed by the Trustees. The pensions cost charge for the
year includes contributions payable by the company under this scheme
amounting to (Pounds) 55,400 (1995 - (Pounds) 31,000), of which (Pounds)
6,600 was payable at year end and is included in creditors.
Prior to the commencement of the above scheme, the company made
contributions for those employees seconded from the parent company, British
Gas plc., in accordance with the pension scheme operated by that company.
The details of the scheme are given in that company's report and accounts
for the year ended 31 December 1996. The total contributions made by the
company for the year under these arrangements amounted to (Pounds) nil
(1995 - (Pounds) 12,000).
19
<PAGE>
19. ULTIMATE PARENT COMPANY
The Directors regard British Gas plc, a company registered in England, as
the ultimate parent company as at 31 December 1996 and British Gas plc is
in the only company to consolidate the accounts of this Company. Copies of
the parent company's consolidated financial statements may be obtained from
100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT.
Under the agreement reached between Centrica plc and NGC Corporation of
Houston, Texas in March 1997, Centrica plc, which was demerged from British
Gas plc, will take operational control of Accord Energy Limited subject to
regulatory clearances. As from this date the Directors will regard Centrica
plc, a company registered in England, as the ultimate parent company and
the only company to consolidate the accounts of the Company.
20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.3
<SEQUENCE>2
<DESCRIPTION>AGREEMENT AND PLAN OF MERGER
<TEXT>
<PAGE>
Exhibit 2.3
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
DESTEC ENERGY, INC.,
THE DOW CHEMICAL COMPANY,
NGC CORPORATION
and
NGC ACQUISITION CORPORATION II
dated as of
February 17, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................... 1
Section 1.2 Closing.................................................. 2
Section 1.3 Effective Time........................................... 2
Section 1.4 Certificate of Incorporation; By-Laws.................... 2
Section 1.5 Directors and Officers of the Surviving Corporation...... 3
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock.............................. 3
Section 2.2 Exchange of Certificates................................. 4
Section 2.3 Company Equity-Based Awards.............................. 7
Section 2.4 Dissenter's Rights....................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY - DESTEC
Section 3.1 Organization............................................. 9
Section 3.2 Capitalization...........................................10
Section 3.3 Authorization; Validity of Agreement.....................11
Section 3.4 No Violations; Consents and Approvals....................12
Section 3.5 SEC Reports and Financial Statements.....................13
Section 3.6 Absence of Certain Changes...............................14
Section 3.7 Absence of Undisclosed Liabilities.......................15
Section 3.8 Proxy Statement..........................................15
Section 3.9 Employee Benefit Plans; ERISA............................16
Section 3.10 Litigation; Compliance with Law..........................20
Section 3.11 Intellectual Property....................................21
Section 3.12 Significant Agreements...................................21
Section 3.13 Taxes....................................................22
Section 3.14 Environmental Matters....................................23
Section 3.15 Required Vote by Company Stockholders....................25
Section 3.16 Brokers..................................................25
Section 3.17 Public Utility Company; Public Utility
Regulatory Policies Act. .........................25
Section 3.18 Fairness Opinion.........................................27
Section 3.19 Excluded Subsidiaries....................................27
Section 3.20 No Other Representations or Warranties...................27
A-i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DOW
Section 4.1 Organization.............................................27
Section 4.2 Authorization; Validity of Agreement.....................27
Section 4.3 No Violations; Consents and Approvals....................28
Section 4.4 Title to Shares..........................................29
Section 4.5 Brokers..................................................29
Section 4.6 No Other Representations or Warranties...................29
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Section 5.1 Organization.............................................29
Section 5.2 Authorization; Validity of Agreement.....................30
Section 5.3 No Violations; Consents and Approvals....................30
Section 5.4 Proxy Statement..........................................32
Section 5.5 Interim Financial Condition..............................32
Section 5.6 Financing................................................32
Section 5.7 Surviving Corporation After the Merger...................32
Section 5.8 Beneficial Ownership of Shares; Interested
Stockholder........................................32
Section 5.9 Brokers..................................................33
Section 5.10 Public Utility Company; Public Utility
Regulatory Policies Act............................33
Section 5.11 Absence of Litigation....................................33
Section 5.12 No Prior Activities......................................34
Section 5.13 No Other Representations or Warranties...................34
ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company........................34
Section 6.2 Acquisition Proposals....................................36
Section 6.3 Audited Financial Statements.............................38
Section 6.4 Access to Information....................................38
Section 6.5 Further Action; Reasonable Best Efforts..................39
Section 6.6 Employee Benefits........................................40
Section 6.7 Stockholders' Meeting; Proxy Statement...................42
Section 6.8 Directors' and Officers' Insurance and
Indemnification....................................43
Section 6.9 Publicity................................................46
Section 6.10 No Solicitation..........................................46
Section 6.11 Certain Arrangements.....................................46
Section 6.12 Voting Agreement.........................................47
A-ii
<PAGE>
Section 6.13 Employee Benefits Indemnification........................47
Section 6.15 Acquisition Proposals....................................48
Section 6.16 Tax Matters..............................................48
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To
Effect the Merger..................................53
Section 7.2 Conditions to Parent and Purchaser's Obligations to
Effect the Merger..................................53
Section 7.3 Conditions to the Company's Obligation to
Effect the Merger..................................54
ARTICLE VIII
TERMINATION
Section 8.1 Termination..............................................55
Section 8.2 Effect of Termination....................................55
Section 8.3 Fee......................................................56
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses........................................56
Section 9.2 Specific Performance.....................................56
Section 9.3 Amendment; Waiver........................................56
Section 9.4 Survival.................................................57
Section 9.5 Notices..................................................57
Section 9.6 Interpretation...........................................59
Section 9.7 Headings; Schedules. ...................................59
Section 9.8 Counterparts.............................................59
Section 9.9 Entire Agreement.........................................59
Section 9.10 Severability.............................................60
Section 9.11 Governing Law............................................60
Section 9.12 Assignment...............................................60
Section 9.13 Consent to Jurisdiction..................................60
A-iii
<PAGE>
LIST OF SCHEDULED DISCLOSURES
Disclosure Schedule
- ---------- --------
List of Subsidiaries............................................... 3.1
Capital Stock Obligations....................................... 3.2(a)
Certain Subsidiaries............................................ 3.2(b)
Certain Violations or Terminations.............................. 3.4(a)
Certain Notices and Filings..................................... 3.4(b)
Certain Actions.................................................... 3.6
Certain Disclosed Liabilities...................................... 3.7
Employee Benefit Plans/ERISA Plans.............................. 3.9(a)
Employee Benefit Plans Compliance............................... 3.9(f)
Post-Retirement Plans........................................... 3.9(h)
Severance Benefits.............................................. 3.9(j)
Employee Information............................................ 3.9(k)
Pending Proceedings............................................... 3.10
Infringements on Intellectual Property............................ 3.11
Dow Agreements..................................................3.12(a)
Significant Agreements in Breach or Default.....................3.12(b)
Required Consents...............................................3.12(c)
Pending Tax Proceedings........................................... 3.13
Certain Environmental Matters...................................3.14(a)
Environmental Claims............................................3.14(b)
QF Projects.....................................................3.17(b)
EWG Projects....................................................3.17(c)
FUCO Projects...................................................3.17(d)
Certain Indebtedness............................................ 6.1(d)
Interim Benefits and Compensation Changes....................... 6.1(e)
Termination of Certain Agreements...............................6.11(a)
Release of Dow as Obligor.......................................6.11(b)
A-iv
<PAGE>
TABLE OF DEFINED TERMS
Term Section
- ---- -------
Acquisition Proposal.................................................. 6.2(d)
AES................................................................... 6.2(a)
affiliates.............................................................9.6
Allocation Schedule.................................................. 6.16(a)
Antitrust Division.....................................................6.5(c)
associates.............................................................9.6
Assertion..............................................................6.8(c)
Balance Sheet............................................................ 3.5
beneficial ownership...................................................9.6
Board..................................................................3.3(a)
Certificate of Merger..................................................1.3
Certificates...........................................................2.2(b)
Change in Control..................................................... 6.6(a)
Closing................................................................1.2
Closing Date............................................................. 1.2
Code.......................................................3.9(b)(v), 6.16(a)
Company............................................................. Recitals
Company Common Stock................................................ Recitals
Company Employees......................................................6.6(c)
Company SEC Documents..................................................3.5
Competition Laws.......................................................6.5(c)
Confidentiality Agreements.............................................6.4
Delaware Courts .......................................................9.13
DGCL.................................................................Recitals
Disclosure Schedule................................................... 3.1(b)
Dissenting Shares......................................................2.4
Dow..................................................................Recitals
Dow Agreements........................................................3.12(a)
Dow Shares...........................................................Recitals
Effective Time........................................................1.3
Environmental Claim................................................3.14(e)(i)
Environmental Laws................................................3.14(e)(ii)
ERISA.................................................................3.9(a)
ERISA Plans...........................................................3.9(a)
EWG Projects......................................................... 3.17(c)
Exchange Act..........................................................3.4(b)
Exchange Fund.........................................................2.2(a)
Excluded Subsidiaries.................................................3.1(a)
FERC .................................................................3.17(b)
Forms................................................................ 6.16(a)
FPA ..................................................................3.17(a)
FTC...................................................................6.5(c)
FUCO Projects........................................................ 3.17(d)
GAAP..................................................................3.5
Governmental Entity...................................................3.4(b)
Hazardous Substances............................................ 3.14(c)(iii)
HSR Act...............................................................6.5(c)
Immaterial Subsidiaries...............................................3.1(a)
A-v
<PAGE>
include[s]/[ing]......................................................9.6
Indemnified Liability.................................................6.8(b)
Indemnified Parties...................................................6.8(b)
Indemnified Party.....................................................6.8(b)
Indemnitors...........................................................6.8(c)
Intellectual Property.................................................3.11
made available....................................................... 9.6
Material Adverse Effect...............................................3.1(a)
Merger................................................................1.1
Merger Consideration..................................................2.1(a)
Parent.............................................................. Recitals
Parent Plans..........................................................6.6(b)
Paying Agent..........................................................2.2(a)
Person................................................................3.1(a)
Plans.................................................................3.9(a)
Preferred Stock.......................................................3.2(a)
Proceeding........................................................... 6.16(g)
Proxy Statement.......................................................6.7(b)
PUHCA ................................................................3.17(a)
Purchaser........................................................... Recitals
Purchaser Common Stock................................................2.1
QF Projects.......................................................... 3.17(b)
Section 338(h)(10) Elections......................................... 6.14(a)
Securities Act........................................................3.5
SEC...................................................................3.5
Secretary of State....................................................1.3
Shares.............................................................. Recitals
Significant Agreements ...............................................3.12(a)
Special Meeting.......................................................6.7(a)
Stock Plan............................................................2.3(a)
Stock Purchase Agreement ............................................Recitals
Stock Purchase Plan...................................................2.3(c)
Subscriber............................................................2.3(c)
Subsidiary............................................................3.1(a)
Surviving Corporation.................................................1.1
Taxes.................................................................3.13
Tax Claim............................................................ 6.16(f)
Tax Return............................................................3.13
Tax Sharing Agreement................................................ 6.16(b)
Transfer Taxes.................................................. 6.16(c)(iii)
Variable Pay Plan......................................................2.3(b)
A-vi
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 17, 1997,
by and among Destec Energy, Inc., a Delaware corporation (the "Company"),
The Dow Chemical Company, a Delaware corporation ("Dow"), NGC
Corporation, a Delaware corporation ("Parent"), and NGC Acquisition
Corporation II, a wholly owned subsidiary of Parent and a Delaware
corporation ("Purchaser").
WHEREAS, the Boards of Directors of Parent, Purchaser, Dow
and the Company have each approved, and the Boards of Directors of
Parent, Purchaser and the Company deem it advisable and in the best
interests of their respective stockholders to consummate, the acquisition
of the Company by Parent upon the terms and subject to the conditions set
forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of Parent, Purchaser and the Company have each approved this
Agreement and the merger of Purchaser with and into the Company in
accordance with the terms of this Agreement and the General Corporation
Law of the State of Delaware (the "DGCL"); and
WHEREAS, the number of shares of common stock, $.01 par value
of the Company (referred to herein as "Shares" or "Company Common Stock")
owned by Dow is set forth on Schedule A hereto (the "Dow Shares") and Dow
has agreed to vote all of the Dow Shares in favor of the approval of this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set
forth herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to
conditions of this Agreement and in accordance with the DGCL, at the
Effective Time (as defined in Section hereof), Purchaser shall be merged
(the "Merger") with and into the Company and the separate corporate
existence of Purchaser shall cease. After the Merger,
<PAGE>
the Company shall continue as the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and Purchaser shall vest in the
Surviving Corporation and all obligations, duties, debts and liabilities of the
Company and Purchaser shall be the obligations, duties, debts and liabilities of
the Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., New York time, on the second
business day after satisfaction or waiver of all of the conditions set
forth in Article hereof, at the offices of Skadden, Arps, Slate, Meagher
& Flom LLP, 919 Third Avenue, New York, New York 10022, unless an earlier
date or place is agreed to in writing by the parties hereto. The date on
which the Closing occurs is referred to herein as the "Closing Date."
Section 1.3 Effective Time. On or as promptly as practicable
following the Closing Date, Purchaser and the Company will cause an
appropriate Certificate of Merger (the "Certificate of Merger") to be
executed and filed with the Secretary of State of the State of Delaware
(the "Secretary of State") in such form and executed as provided in the
DGCL. The Merger shall become effective on the date and time on which the
Certificate of Merger has been duly filed with the Secretary of State, or
such later date and time as shall be agreed upon by Purchaser, Dow and
the Company and set forth therein, and such time is hereinafter referred
to as the "Effective Time."
Section 1.4 Certificate of Incorporation; By-Laws. Pursuant to
the Merger, (x) the Amended and Restated Certificate of Incorporation of
the Company shall be amended in the form of the Certificate of
Incorporation of Purchaser, as in effect immediately prior to the
Effective Time, and shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and
such Amended and Restated Certificate of Incorporation, and (y) the
By-laws of Purchaser, as in effect immediately prior to the Effective
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<PAGE>
Time, shall be the By-laws of the Surviving Corporation until thereafter
amended as provided by law, the Amended and Restated Certificate of
Incorporation and such By-laws.
Section 1.5 Directors and Officers of the Surviving
Corporation.
(a) The directors of Purchaser immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until their successors shall have been duly
elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
(b) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation
until their respective successors are duly elected and qualified, or
their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the
Company, Parent, Purchaser or the holders of any shares of Company Common
Stock or the common stock, par value $.01 per share, of Purchaser (the
"Purchaser Common Stock"):
(a) Each issued and outstanding share of Company Common Stock
(other than Shares to be cancelled in accordance with Section and other
than Dissenting Shares (as defined herein) covered by Section 2.4)
shall be converted into the right to receive $21.65 per share in cash,
payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such share of Company Common Stock in the manner provided in Section 2.2.
All such shares of Company Common Stock, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired
and shall cease to
3
<PAGE>
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2. Any payment made pursuant to this Section 2.1(a) shall be made net
of applicable withholding taxes to the extent such withholding is required by
law.
(b) Each issued and outstanding share of Purchaser Common
Stock shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation.
(c) Each share of Company Common Stock that is held by the
Company as treasury stock and each share of Company Common Stock owned by
Parent, Purchaser or any other Subsidiary of Parent shall be cancelled
and retired and shall cease to exist and no payment of any consideration
shall be made with respect thereto.
Section 2.2 Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate the
Company's registrar and transfer agent, or such other bank or trust
company as agreed in writing by the parties, to act as paying agent for
the holders of Shares in connection with the Merger, pursuant to an
agreement providing for the matters set forth in this Section 2.2 and
such other matters as may be appropriate and the terms of which shall be
reasonably satisfactory to the Company (the "Paying Agent"), to receive
the funds to which holders of Shares shall become entitled pursuant to
Sections 2.1(a) and 2.3. Prior to the Effective Time, Parent will deposit
or cause to be deposited in trust with the Paying Agent for the benefit
of holders of Company Common Stock the funds necessary to complete the
payments contemplated by Section 2.1(a) (the "Exchange Fund") on a timely
basis; provided, that no such deposit shall relieve Parent of its obligation
to pay the Merger Consideration pursuant to Section 2.1(a). Notwithstand-
ing anything to the contrary in this Section 2.2, Parent and the Company
will make arrangements with the Paying Agent to the reasonable
satisfaction of Dow such that Dow, and any other stockholder of the
Company that is present at the office of the Paying Agent in person or
through a personal representative (it being understood
4
<PAGE>
that Dow need not be present at the office of the Paying Agent because it will
be present at the Closing) and gives the Company at least two days prior written
notice that it will be present at that office, will receive, as soon as possible
after the Effective Time (but in any event on the same date as the Effective
Time) in same day funds by wire transfer to such accounts as Dow or such
stockholders shall specify with at least two days prior written notice, the
Merger Consideration (in the case of Dow without any deduction or offset
whatsoever for any purpose, including deductions for withholding taxes so long
as Dow has complied with applicable tax law in completing and delivering any
required forms) for each of its or their shares of Company Common Stock
(provided that Dow and any such stockholders have surrendered the Certificates
(as defined below) for their shares of Company Common Stock to the Paying Agent
and, with respect to stockholders other than Dow, complied with the terms and
conditions of Section 2.2(b) hereof).
(b) At the Effective Time, Parent will instruct the Paying
Agent to promptly, and in any event not later than five business days
following the Effective Time, mail to each holder of record of a
certificate or certificates (other than holders who are paid on the
Closing Date pursuant to the last sentence of Section 2.2(a)), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates"), whose Shares were converted
pursuant to Section 2.1(a) into the right to receive the Merger Consideration
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by the
Company, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration for each share of Company Common Stock
formerly represented by such Certificate, to be mailed (or made available
for collection by hand if so elected by the surrendering holder) within
5
<PAGE>
three business days of receipt thereof, and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger
Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed
or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of the Paying Agent that such tax
either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate (other than Certificates
representing Company Common Stock held by Parent or Purchaser, or any
Subsidiary of Parent or Purchaser, or Dissenting Shares (as defined in
Section 2.4)) shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2. Any portion of the Exchange Fund which
remains unclaimed by the former holders of Shares for twelve months after
the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any former holders of Shares shall thereafter look only to
the Surviving Corporation for any cash to which they are entitled as a
result of the Merger. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any
former holder of Shares pursuant to this Agreement such amounts as the
Surviving Corporation is required to deduct and withhold with respect to
making such payment under the Code (as hereinafter defined), or any
provision of state, local or foreign tax law. To the extent that such
amounts are withheld by or on behalf of the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the former holder of Shares in respect of which such
deduction and withholding was made by the Surviving Corporation.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed, the Paying
Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliver-
6
<PAGE>
able in respect thereof as determined in accordance with this Article II;
provided that the Person to whom the Merger Consideration is paid shall, as a
condition precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the Certificate claimed to
have been lost, stolen or destroyed.
(d) After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger
Consideration as provided in this Article .
Section 2.3 Company Equity-Based Awards.
(a) Immediately prior to the Effective Time, each option
granted by the Company pursuant to the Destec Energy, Inc. 1990 Award and
Option Plan, as amended on February 14, 1997 (the "Stock Plan") to
purchase shares of Company Common Stock, whether or not exercisable,
which is outstanding and unexercised at such time, shall be cancelled to
the Company and each grantee thereof shall be entitled to receive
immediately prior to the Effective Time, in lieu of the shares of Company
Common Stock that would otherwise have been issuable upon exercise, an
amount in cash computed by multiplying (i) the excess, if any, of (x) the
Merger Consideration over (y) the per share exercise price applicable to
such option by (ii) the number of such shares of Company Common Stock
then subject to such option. Prior to the Closing, the Company will use
its reasonable best efforts to obtain a written acknowledgement by any
holder of an option whose per share exercise price is greater than the
Merger Consideration that the payment made pursuant to this section
2.3(a) is being made in consideration of the cancellation of such
recipient's award and other rights under the Stock Plan.
(b) Immediately prior to the Effective Time, each share of
Deferred Stock and Restricted Stock awarded
7
<PAGE>
under the Stock Plan or awarded or subject to award under the Destec Energy,
Inc. 1995 Variable Pay Plan, as amended through February 14, 1997 (the "Variable
Pay Plan"), shall become fully vested and nonforfeitable, and shall be cancelled
to the Company and each grantee thereof shall be entitled to receive immediately
prior to the Effective Time, in lieu of the shares of Company Common Stock that
would otherwise have been deliverable, an amount in cash computed by multiplying
(i) the Merger Consideration and (ii) the number of such shares of Deferred
Stock or Restricted Stock.
(c) In accordance with the terms of the Destec Energy, Inc.
Employees' Stock Purchase Plan, as amended on February 14, 1997 (the
"Stock Purchase Plan"), immediately prior to the Effective Time, (i) each
participant (a "Subscriber") in the Stock Purchase Plan shall be entitled
to receive a cash lump sum in an amount equal to the cash amounts
previously deducted from such Subscriber in respect of the current Plan
Year (as defined in the Stock Purchase Plan) and (ii) each Subscriber who
is a Subscriber as of the Change in Control Date (as defined in the Stock
Purchase Plan) shall be entitled to receive an amount in cash equal to
the product of (x) the number of shares subscribed for by such Subscriber
in respect of the Plan Year (as defined in the Stock Purchase Plan) and
(y) the excess, if any, of the Merger Consideration over the lower of the
Plan Price or the Market Price for such Plan Year (as such terms are
defined in the Stock Purchase Plan).
(d) All payments made pursuant to this Section 2.3 shall be
subject to applicable withholding taxes.
Section 2.4 Dissenter's Rights. Notwithstanding anything in
this Agreement to the contrary, Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the
Merger or consented thereto in writing and who has delivered a written
demand for appraisal of such shares in accordance with Section 262 of the
DGCL, if such Section 262 provides for appraisal rights for such Shares
in the Merger ("Dissenting Shares"), shall not be converted into the
right to receive the Merger Consideration, as provided in Section 2.1(a)
hereof, unless and until such holder fails to perfect or effectively withdraws
or otherwise loses his right to appraisal and payment under the DGCL. If,
8
<PAGE>
after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses his right to appraisal, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such
holder is entitled, without interest or dividends thereon. Dow hereby
waives any and all rights under the DGCL to make a demand for appraisal
in connection with the Merger and covenants and agrees with Parent and
Purchaser not to take any action under Section 262 of the DGCL or
otherwise that would be inconsistent with Section 6.12 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser
that:
Section 3.1 Organization. (a) The Company and each of its
Subsidiaries (as hereinafter defined) is a corporation or other entity
duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation or organization, has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and is
qualified or licensed to do business as a foreign corporation or Person
(as hereinafter defined) and is in good standing in each jurisdiction in
which the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so organized,
existing and in good standing or to have such power and authority, or to
be so qualified or licensed would not have a Material Adverse Effect. As
used in this Agreement, the term "Material Adverse Effect" shall mean a
material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole, but excluding any such
effect resulting from general economic conditions and any occurrence or
condition affecting generally the independent power industry. The Company
has previously delivered to Parent a complete and correct copy of each of
its Amended and Restated Certificate of Incorporation and By-Laws, as
currently in effect. "Subsidiary" shall mean with respect to any Person,
any
9
<PAGE>
corporation or other entity of which 50% or more of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions
with respect to such entity is directly or indirectly owned by such
Person, other than immaterial or inactive corporations or other entities
(together, the "Immaterial Subsidiaries") and, with respect to the
Company, other than Hartwell Energy Limited Partnership, Commonwealth
Atlantic Limited Partnership and Nevada Cogeneration Associates No. 2
(collectively, the "Excluded Subsidiaries"). "Person" shall mean an
individual, partnership, joint venture, trust, corporation, limited
liability company or other legal entity or Governmental Entity.
(b) Schedule 3.1 of the disclosure schedule delivered by the
Company to Parent prior to the date hereof (the "Disclosure Schedule")
lists each of the Company's Subsidiaries, together with the jurisdiction
of incorporation or organization of each such Subsidiary.
(c) None of the Immaterial Subsidiaries have liabilities or
obligations that would result in a Material Adverse Effect.
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
150,000,000 shares of Company Common Stock and 50,000,000 preferred
shares, par value $1.00 per share (the "Preferred Stock"). As of December
31, 1996, (i) 56,079,260 shares of Company Common Stock were issued and
outstanding, (ii) 6,170,740 shares of Company Common Stock were issued
and held in the treasury of the Company and (iii) there were no shares of
Preferred Stock issued and outstanding. Since December 31, 1996, the
Company has not issued any shares of capital stock of any class of the
Company other than issuances of shares of Company Common Stock pursuant
to awards under the Stock Plan, the Variable Pay Plan or the Stock
Purchase Plan outstanding as of such date. All the outstanding shares of
the Company's capital stock are duly authorized, validly issued, fully
paid and non-assessable. Except as set forth in Schedule 3.2(a) of the
Disclosure Schedule, as of the date hereof, there are no existing (i)
options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements or commitments of any
10
<PAGE>
character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in,
the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual
obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any capital stock of the Company or any
Subsidiary of the Company or (iii) voting trusts or voting or similar
agreements to which the Company is a party with respect to the voting of
the capital stock of the Company. As of the date hereof, there are no
existing awards of stock appreciation rights under the Stock Plan or the
Variable Pay Plan.
(b) Except as set forth in Schedule 3.2(b) of the Disclosure
Schedule and except for directors qualifying shares or shares issued
under similar arrangements, all of the outstanding shares of capital
stock (or equivalent equity interests of entities other than
corporations) of each of the Company's Subsidiaries are beneficially
owned, directly or indirectly, by the Company.
(c) Australian Power Partners B.V. owns a 20% partnership
interest in the Hazelwood Power Partnership and Destec Australia Energy
Finance Pty. Ltd. owns a 12.55% limited partnership interest in Hazelwood
Finance Limited Partnership.
Section 3.3 Authorization; Validity of Agreement.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval
of its stockholders as contemplated by Section 6.7 hereof, to consummate
the transactions contemplated hereby. The execution and delivery by the
Company of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors
of the Company (the "Board") and, other than approval and adoption of
this Agreement by the holders of at least 66 2/3% of the outstanding
shares of Company Common Stock, no other corporate proceedings on the
part of the Company are necessary to authorize the execution and delivery
of this Agreement by the Company and the consummation of the transactions
contemplated hereby. This Agreement has been duly exe-
11
<PAGE>
cuted and delivered by the Company and, assuming due authorization, execution
and delivery of this Agreement by Parent, Dow and Purchaser, is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
(b) The Board has duly approved the transactions contemplated
by this Agreement for the purposes of Section 203 of the DGCL such that
the provisions of Section 203 of the DGCL will not apply to the
transactions contemplated by this Agreement.
Section 3.4 No Violations; Consents and Approvals.
(a) Except as set forth in Schedule 3.4(a) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions
contemplated hereby will (i) assuming stockholder approval as
contemplated by Section 6.7 hereof has been obtained, violate any
provision of the Amended and Restated Certificate of Incorporation or
By-Laws of the Company or the equivalent organizational documents of its
Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration)
under, the provisions of any note, mortgage, indenture, guarantee, lease,
license, contract, agreement or other instrument to which the Company or
any of its Subsidiaries is a party or by which any of them or any of
their assets may be bound or (iii) assuming that all consents,
authorizations and approvals contemplated by Section 3.4(b) have been
obtained and all filings contemplated thereby have been made, violate any
order, writ, injunction, decree, statute, rule or regulation applicable
to the Company, any of its Subsidiaries or any of their assets; in each
case, except for such violations, breaches, defaults, terminations,
amendments, cancellations or accelerations which (x) would not prevent
the Merger, (y) would not result in a Material Adverse Effect or (z)
result from the regulatory status of Parent or Purchaser.
(b) Except as disclosed in Schedule 3.4(b) of the Disclosure
Schedule, no filing or registration with, notification to, or
authorization, consent or approval
12
<PAGE>
of, any U.S., state, local or foreign court, legislative, executive or
regulatory authority or agency (a "Governmental Entity") is required in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
(i) applicable requirements under Competition Laws (as defined in Section
6.5(b)), (ii) applicable requirements under the Securities Exchange Act of 1934,
as amended and the regulations thereunder (the "Exchange Act"), (iii) the filing
of the Certificate of Merger with the Secretary of State, (iv) applicable
requirements under state securities or "blue sky" laws of various states or non-
United States change-in-control or investment laws or regulations, and (v) such
other consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings (x) the failure of which to be obtained or made would
not prevent the Merger or result in a Material Adverse Effect or (y) required as
a result of the regulatory status of Parent or Purchaser.
Section 3.5 SEC Reports and Financial Statements. The Company
has filed with the Securities and Exchange Commission (the "SEC") all
reports, forms and documents required to be filed by it since January 1,
1994 under the Exchange Act and has heretofore made available to Parent
(i) its Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 and December 31, 1995, respectively, and its Amendment to its
Annual Report on Form 10-K/A for the year ended December 31, 1995, (ii)
its Quarterly Reports on Form 10-Q for the periods ended March 31, June
30 and September 30, 1996, respectively, (iii) all proxy statements
relating to meetings of stockholders of the Company since January 1, 1994
(in the form mailed to stockholders), (iv) all other forms, reports and
registration statements filed by the Company with the SEC since January
1, 1994 (other than registration statements on Form S-8 or Form 8-A,
filings on Form T-1 or preliminary materials and registration statements
in forms not declared effective) and (v) the unaudited consolidated
balance sheet as of December 31, 1996 (the "Balance Sheet"). The
documents described in clauses (i)-(iv) above are referred to in this
Agreement collectively as the "Company SEC Documents". As of their
respective dates, the Company SEC Documents (a) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or
13
<PAGE>
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act of 1933 (the "Securities Act"), as the case may be, and the applicable rules
and regulations of the SEC thereunder. The consolidated financial statements
included in the Company SEC Documents and the Balance Sheet have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except as
otherwise noted therein and except that the interim financial statements and the
Balance Sheet are subject to year end adjustment and do not contain all footnote
disclosures required by GAAP) and fairly present in all material respects the
consolidated financial position and the consolidated results of operations and
cash flows of the Company and its consolidated Subsidiaries as at the dates
thereof or for the periods presented therein. No variation in the balance sheet
included in the audited financial statements for the year ended December 31,
1996 delivered to Parent pursuant to Section 6.3 hereof from the Balance Sheet
will result in a Material Adverse Effect.
Section 3.6 Absence of Certain Changes. Except as disclosed
in the Company SEC Documents or as disclosed in Schedule 3.6 to the
Disclosure Schedule, from December 31, 1996 until the date of this
Agreement, (i) there has not been a Material Adverse Effect and (ii)(a)
the Company has not declared, set aside or paid any dividend or other
distribution with respect to its capital stock, (b) neither the Company
nor any of its Subsidiaries has issued or disposed of any additional
shares of, or securities convertible into or exchangeable for, or
options, warrants, or rights of any kind to acquire, any shares of its
capital stock of any class or any other ownership interest, other than
issuances of shares of the Company in respect of the exercise of options,
warrants or rights outstanding as of such date and other than the
issuance of shares or ownership interests in the Company or any wholly
owned Subsidiary, (c) the Company and its Subsidiaries have not incurred
any material indebtedness for borrowed money other than short term
indebtedness incurred in the ordinary course of business and indebtedness
of Subsidiaries incurred in connection with the acquisition, development,
construc-
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tion or operation of power generation or energy producing facilities, which
indebtedness is without recourse to the Company or its assets (other than the
assets or earnings of such Subsidiary or such facility), and (d) the Company has
not changed any of the accounting principles or practices used by the Company or
its Subsidiaries, except as required as a result of a change in law, SEC
guidelines or GAAP (or, if applicable with respect to Subsidiaries, applicable
foreign generally accepted accounting principles).
Section 3.7 Absence of Undisclosed Liabilities. Except as and
to the extent disclosed in the Company SEC Documents or as disclosed in
Schedule 3.7 to the Disclosure Schedule, since the date of the Balance
Sheet, the Company and its Subsidiaries have not incurred any liabilities
that would be required to be reflected or reserved against in a
consolidated balance sheet of the Company and its Subsidiaries prepared
in accordance with GAAP, except for such liabilities as would not result
in a Material Adverse Effect and except for liabilities and obligations
resulting from the execution and delivery of this Agreement or relating
to the transactions contemplated hereby.
Section 3.8 Proxy Statement. The Proxy Statement (as defined
in Section 6.7(b)) (and any amendment thereof or supplement thereto) at
the date mailed to Company stockholders and at the time of the Special
Meeting (as defined in Section 6.7(a)), (i) will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading and (ii) will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder; except that no representation is made by the Company with
respect to statements made in the Proxy Statement based on information
supplied by Parent or Purchaser for inclusion in the Proxy Statement.
Section 3.9 Employee Benefit Plans; ERISA.
(a) Schedule 3.9(a) of the Disclosure Schedule contains a
true and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase,
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stock option, restricted stock, deferred stock, stock appreciation right,
vacation policy, superannuation, severance or termination pay, hospitalization
or other medical, life or other insurance, flexible benefit, cafeteria plan,
supplemental unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to by
the Company or its Subsidiaries, for the benefit of any employee or former
employee of the Company or any of its Subsidiaries employed in the United States
(the "Plans"). Schedule identifies each of the Plans (collectively, the "ERISA
Plans") that is an "employee benefit plan," as defined in section 3(3) of the
Employee Retirement Security Income Plan of 1974, as amended ("ERISA").
(b) With respect to each Plan, the Company has heretofore
delivered or made available to Purchaser a true and complete copy of each
of the following documents:
(i) the Plan (including all amendments thereto);
(ii) the most recent annual report and actuarial report
with respect to each such Plan, if required under ERISA;
(iii) the most recent report on Form 5500 and Summary
Plan Description, together with each Summary of Material
Modifications required under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third
party funding vehicle, the trust or other funding agreement
(including all amendments thereto) and the latest financial
statements thereof; and
(v) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code").
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(c) Neither the Company nor any of its Subsidiaries sponsors,
maintains, contributes to or has any obligation with respect to a Plan
which is either a defined benefit plan or a money purchase plan or which
is subject to Title IV of ERISA.
(d) No direct or indirect liability under Title IV of ERISA
has been incurred by the Company or any of its Subsidiaries with respect
to any Plan and the Company does not reasonably expect that it or any of
its Subsidiaries will incur liabilities under such Title, other than
liabilities that would not have a Material Adverse Effect.
(e) No ERISA Plan is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any ERISA Plan a plan described
in section 4063(a) of ERISA.
(f) No ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each ERISA Plan ended prior to
the Closing Date. Each ERISA Plan intended to be "qualified" within the
meaning of section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified (or timely application has been made
therefor); to the knowledge of the Company, no event has occurred since
the date of such determination that would adversely affect such
qualification; and each trust maintained thereunder has been determined by the
Internal Revenue Service to be exempt from taxation under section 501(a) of the
Code. Except as disclosed in Schedule 3.9(f) of the Disclosure Schedule, each
Plan has been operated and administered in all material respects in accordance
with its terms and applicable law, including but not limited to ERISA and the
Code, the Company and its Subsidiaries have substantially performed all
obligations, whether arising by operation of law or by contract, required to be
performed by them in connection with the Plans, each employee benefit plan,
policy and arrangement applicable to employees of the Company and its
Subsidiaries who are employed outside of the United States has been operated and
administered in all material respects in accordance with its terms and
applicable law and the Company and its Subsidiaries have substantially performed
all obligations, whether arising by operation
17
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of law or by contract, required to be performed by them in connection with each
such plan, policy and arrangement, except where a failure to so operate or
administer or to perform such obligations would not result in a Material Adverse
Effect. There are no pending, or to the actual knowledge of the Company,
threatened, material claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits). Except as disclosed in Schedule 3.9(f)
of the Disclosure Schedule, as of the date hereof, there is no matter pending
(other than routine qualification determination filings) with respect to any of
the Plans before any Governmental Entity, other than matters that could not
reasonably be expected to have a Material Adverse Effect.
(g) Neither the Company nor any of its Subsidiaries, nor any
of the ERISA Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with
which the Company or any of its Subsidiaries, any of the ERISA Plans, any
such trust, or any trustee or administrator thereof, or any party dealing
with the ERISA Plans or any such trust could be subject to either (i)
breach of fiduciary duty liability damages under section 409 of ERISA,
(ii) a civil penalty assessed pursuant to section 502(c), (i) or (l) of
ERISA or (iii) a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code, except where such damages, penalty or tax would not reasonably be
expected to have a Material Adverse Effect.
(h) Except as set forth in Schedule 3.9(h) to the Disclosure
Schedule, no Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or
former employees of the Company or its Subsidiaries beyond their
retirement or other termination of service (other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension benefit plan," as that term is defined in
section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or (iv) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
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(i) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to section 501(c)(9) of the
Code, satisfies the requirements of such section and has received a
favorable determination letter from the Internal Revenue Service
regarding such exempt status.
(j) Except as disclosed in Schedule 3.9(j)(i) of the
Disclosure Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (1) require
the Company or any of its Subsidiaries to make a larger contribution to,
or pay greater benefits under, any Plan or (2) create or give rise to any
additional vested rights or service credits under any Plan. Except as
disclosed in Schedule 3.9(j)(ii) of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to any agreement, nor has
the Company or any of its Subsidiaries established any policy or
practice, requiring any such entity to make a payment or provide any
other form of compensation or benefit to any person performing services
for the Company or any of its Subsidiaries upon termination of such
services which would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement. In
connection with the consummation of the transactions contemplated by this
Agreement, no payments have or will be made hereunder, under the Plans,
or under any other agreement (including, without limitation, the
employment and severance agreements listed in Schedule 3.9(j)(iii) of
the Disclosure Schedule) which, in the aggregate, would result in impo-
sition of the sanctions imposed under sections 280G and 4999 of the Code.
(k) Schedule 3.9(k)(i) of the Disclosure Schedule contains a
true and complete list of each employment or severance agreement and, to
the actual knowledge of the Management Committee and the General Counsel,
each consulting agreement with an individual providing for payment
obligations in excess of $350,000, pertaining to any employee of the
Company or any of its Subsidiaries. The Company has heretofore delivered
or made available to Purchaser a true and complete copy of each such
employment and severance agreement. Schedule 3.9(k)(ii) of the Disclosure
Schedule sets forth by number and employment classification the
approximate numbers of employees employed by the Company and its
Subsidiaries as
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of the date of this Agreement. None of said employees are subject to union or
collective bargaining agreements with the Company or any of its Subsidiaries.
Section 3.10 Litigation; Compliance with Law.
(a) Except as set forth in Schedule 3.10 of the Disclosure
Schedule or as disclosed in the Company SEC Documents and except for
claims under Environmental Laws (which are the subject of Section 3.14),
there is no (i) suit, claim, action, proceeding or investigation (A)
pending or, to the actual knowledge of the Company, threatened, against
the Company or any of its Subsidiaries which if determined adversely to
the Company or such Subsidiaries would have a Material Adverse Effect or
(B) as of the date hereof, pending or, to the actual knowledge of the
Company, threatened, against the Company or any of its Subsidiaries which
if determined adversely to the Company or such Subsidiaries would prevent
the Merger or (ii) judgment, decree, injunction, rule or order of a
Governmental Entity or arbitrator outstanding against the Company or any
of its Subsidiaries (x) which would have a Material Adverse Effect or (y)
in effect as of the date hereof which would prevent the Merger.
(b) Except as disclosed in the Company SEC Documents and
except for Environmental Laws (which are the subject of Section 3.14), the
operations of the Company and its Subsidiaries are not being conducted in
violation of any law, statute, regulation, and judgment, decree, order or
injunction of any Governmental Entity, except where such violations would
not have a Material Adverse Effect.
(c) The Company and its Subsidiaries hold all licenses,
permits, variances and approvals of Governmental Entities necessary for
the lawful conduct of their respective businesses as currently conducted
except for licenses, permits, variances or approvals under Environmental
Laws (which are the subject of Section 3.14) and except where the failure to
hold such licenses, permits, variances or approvals would not have a
Material Adverse Effect.
Section 3.11 Intellectual Property. Except as set forth on
Schedule 3.11 of the Disclosure Schedule, the Company and its
Subsidiaries own, or possess licenses
20
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or other valid rights to use, all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, service marks, service mark
rights, trade secrets, applications to register, and registrations for, the
foregoing trademarks, service marks, know-how and other proprietary rights and
information (collectively, "Intellectual Property") necessary in connection with
the business of the Company and its Subsidiaries as currently conducted, except
where the failure to possess such rights or licenses or valid rights to use
would not have a Material Adverse Effect. To the actual knowledge of the
Company, except as disclosed in Schedule 3.11 of the Disclosure Schedule, (i)
the conduct of the business of the Company and its Subsidiaries as currently
conducted does not infringe upon any Intellectual Property of any third party
except where such infringement would not result in a Material Adverse Effect and
(ii) no Person is infringing upon any Intellectual Property of the Company or
its Subsidiaries except where such infringement would not result in a Material
Adverse Effect. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the loss
of, or any encumbrance on, the rights of the Company or any Subsidiary with
respect to the Intellectual Property owned or used by them, except where such
loss or encumbrance would not have a Material Adverse Effect.
Section 3.12 Significant Agreements.
(a) Schedule 3.12(a) of the Disclosure Schedule lists all
contracts, agreements and commitments between the Company or any of its
Subsidiaries, on the one hand, and on the other hand Dow or any of its
affiliates (other than the Company and its Subsidiaries) that will
survive the consummation of the Merger, excluding contracts, agreements
and commitments which collectively are immaterial to the Company and
except for this Agreement and the other agreements entered into in
connection with this Agreement (the "Dow Agreements"). The Company has
heretofore made available to Parent complete and correct copies of the
Dow Agreements and the contracts or agreements of the Company included as
exhibits to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended by the Company's Form 10-K/A (the Dow
Agreements and such other agreements and
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<PAGE>
contracts being referred to herein as the "Significant Agreements").
(b) Except as set forth in Schedule 3.12(b) of the Disclosure
Schedule, to the knowledge of the Company each of the Significant
Agreements is in full force and effect and enforceable in accordance with
its terms; neither the Company nor any of its Subsidiaries has received
written notice of cancellation or termination of any Significant
Agreement; and there exists no event of default or occurrence, condition
or act on the part of the Company or any of its Subsidiaries or, to the
knowledge of the Company, on the part of the other parties to the
Significant Agreements which constitutes or would constitute (with notice
or lapse of time or both) a breach of or default under any of the
Significant Agreements; except where the failure to be in full force and
effect would not have, and such breaches and defaults as would not result
in, a Material Adverse Effect.
(c) Except as disclosed on Schedules 3.4(a) and Schedule
3.12(c) of the Disclosure Schedule, no consents from any third parties
under any Significant Agreements are required in connection with the
consummation of the Merger, except for such consents, which if not
received, would not result in a Material Adverse Effect or prevent the
consummation of the Merger.
(d) Other than the Significant Agreements, and any contract,
agreement or commitment previously provided or made available to Parent
or Purchaser, there are no contracts or agreements, the performance of
which would result in a Material Adverse Effect.
Section 3.13 Taxes. (a) The Company and its Subsidiaries have
(i) filed (or there have been filed on their behalf) with the appropriate
governmental authorities all material Tax Returns (as hereinafter
defined) required to be filed by them and such Tax Returns are true,
correct and complete, and (ii) paid or withheld or made provision in
accordance with GAAP (or there has been paid or provision has been made
on their behalf) for the payment of all material Taxes (as hereinafter
defined) that are due and payable or required to be withheld for all
taxable periods and portions thereof through the date hereof; (b) except
as set forth on Schedule 3.13 of the Disclosure Schedule, no federal,
state, local or foreign
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<PAGE>
audits or other administrative proceedings or court proceedings are presently
pending with regard to any material Taxes of the Company or its Subsidiaries,
and no assessment, deficiency or adjustment has been asserted with regard to any
such Taxes that the Company and its Subsidiaries have not paid or have not made
provision for in accordance with GAAP or are contesting in good faith; (c) there
are no material liens for Taxes upon any property or assets of the Company or
any Subsidiary thereof, except for liens for Taxes not yet due and payable and
liens for Taxes that are being contested in good faith; and (d) except as set
forth on Schedule 3.13 of the Disclosure Schedule there is not in force any
extension of time for the assessment or payment of any Tax with respect to the
Company or any Subsidiary of the Company.
For purposes of this Agreement, "Taxes" shall mean any and
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, excise, stamp,
real or personal property, ad valorem, withholding, estimated, social
security, unemployment, occupation, use, service, service use, license,
net worth, payroll, franchise, severance, transfer, recording or other
taxes, assessments or charges imposed by any Governmental Entity and any
interest, penalties, or additions to tax attributable thereto. For
purposes of this Agreement, "Tax Return" shall mean any return, report or
similar statement required to be filed with respect to any Tax (including
any attached schedules), including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
Section 3.14 Environmental Matters.
(a) Except as disclosed in the Company SEC Documents or as
disclosed in Schedule 3.14(a) of the Disclosure Schedule, the Company and its
Subsidiaries are in compliance with all applicable Environmental Laws (as
hereinafter defined), which compliance includes the possession of permits
and governmental authorizations required under applicable Environmental
Laws and compliance with the terms and conditions thereof, except where
such non-compliance would not result in a Material Adverse Effect.
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(b) Except as disclosed in the Company SEC Documents or as
disclosed in Schedule 3.14(b) of the Disclosure Schedule, there are no
Environmental Claims (as hereinafter defined) pending or, to the actual
knowledge of the Company, threatened, against the Company or its
Subsidiaries that would result in a Material Adverse Effect.
(c) As of the date hereof, to the actual knowledge of the
Management Committee and the General Counsel of the Company, except as
previously disclosed or contained in materials previously provided or
made available to Parent or Purchaser, the Company and its Subsidiaries
are not subject to any remedial obligations required under Environmental
Laws that would result in a Material Adverse Effect.
(d) Parent and Purchaser acknowledge that the representations
and warranties contained in this Section 3.14 are the only representations and
warranties being made by the Company with respect to compliance with, or
liability or claims under, Environmental Laws or with respect to
permits issued or required under Environmental Laws, that no other
representation by the Company contained in this Agreement shall apply
to any such matters and that no other representation or warranty, express
or implied, is being made with respect thereto.
(e) As used in this Agreement:
(i) the term "Environmental Claim" means any claim,
action, investigation or written notice to the Company or its
Subsidiaries by any person or entity alleging potential liability
(including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, personal injuries, or penalties) arising
out of, based on, or resulting from (a) the presence, or release
into the environment, of any Hazardous Substance (as hereinafter
defined) at any location, whether or not owned or operated by the
Company or its Subsidiaries or (b) circumstances forming the basis
of any violation, or alleged violation of any applicable
Environmental Law;
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(ii) the term "Environmental Laws" means all federal,
state, local and foreign laws and regulations, decrees and legal
requirements including judicial and administrative decrees, as in
effect and as interpreted as of the date hereof, relating to
pollution or protection of the environment, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Hazardous Substances; and
(iii) the term "Hazardous Substance" means chemicals,
pollutants, contaminants, solid and hazardous wastes, hazardous and
toxic substances, and oil and petroleum products.
Section 3.15 Required Vote by Company Stockholders. The
affirmative vote of the holders of at least 66 2/3% of the outstanding
Shares entitled to vote hereon is the only vote of any class of capital
stock of the Company required by the DGCL, the Amended and Restated
Certificate of Incorporation or the By-Laws of the Company to adopt this
Agreement and approve the transactions contemplated hereby.
Section 3.16 Brokers. Except for Morgan Stanley & Co.
Incorporated, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made
by or on behalf of the Company. The Company is solely responsible for the
fees and expenses of Morgan Stanley & Co. Incorporated, the amount of
which has been previously disclosed to Parent.
Section 3.17 Public Utility Company; Public Utility
Regulatory Policies Act.
(a) Neither the Company nor any of its Subsidiaries is (i)
subject to regulation as a "holding company" or a "subsidiary company" of
a holding company or a "public utility company" under Section 2(a) of the
Public Utility Holding Company Act of 1935 ("PUHCA"), (ii) except with
respect to the Company's Subsidiaries that are "exempt wholesale
generators" (as such term is de-
25
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fined in Section 32 of PUHCA) or engaged in power marketing activities, subject
to regulation under the Federal Power Act, as amended ("FPA"), other than as
contemplated by 18 C.F.R. ss. 292.601(c) or 18 C.F.R. ss. 35.12 or (iii) except
with respect to the Company's Subsidiaries that are "exempt wholesale
generators" (as such term is defined in Section 32 of PUHCA) or engaged in power
marketing activities, subject to any state law or regulation with respect to
rates or the financial or organizational regulation of electric utilities, other
than as contemplated by 18 C.F.R. ss. 292.602(c).
(b) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to the
requirements under the Public Utility Regulatory Policies Act of 1978, as
amended (16 U.S.C. ss. 796, et seq.), and the regulations of the Federal
Energy Regulatory Commission ("FERC") promulgated thereunder, as amended
from time to time, necessary to be a "qualifying cogeneration facility"
and/or a "qualifying small power production facility" (the "QF Projects")
meets such requirements. Schedule 3.17(b) sets forth a complete list of
the QF Projects.
(c) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to
regulation as an "exempt wholesale generator" (as such term is defined in
Section 32 of PUHCA) ("EWG Projects") as of the date hereof meets the
requirements to maintain "exempt wholesale generator" status. A complete
list of the Company's EWG Projects is disclosed in Schedule 3.17(c) of
the Disclosure Schedule.
(d) Each of the power generation projects in which the
Company or its Subsidiaries has an interest which is subject to
regulation as a "foreign utility company" (as such term is defined in
Section 33 of PUHCA) ("FUCO Projects") as of the date hereof meets the
requirements to maintain "foreign utility company" status. A complete
list of the Company's FUCO Projects is disclosed in Schedule 3.17(d) of
the Disclosure Schedule.
Section 3.18 Fairness Opinion. The Company has received the
opinion of Morgan Stanley & Co. Incorporated to the effect that, as of
the date hereof, the consideration to be received by the stockholders of
the
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Company in the Merger is fair to such stockholders from a financial point of
view.
Section 3.19 Excluded Subsidiaries. To the actual knowledge
of the Management Committee and the General Counsel of the Company, there
is no event or condition with respect to any Excluded Subsidiary that, if
the Excluded Subsidiaries were included in the definition of
Subsidiaries, would result in a breach of any representation or warranty
set forth in this Article III.
Section 3.20 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article III,
neither the Company nor any other Person makes any other express or
implied representation or warranty on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DOW
Dow represents and warrants to Parent and Purchaser as
follows:
Section 4.1 Organization. Dow is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
Section 4.2 Authorization; Validity of Agreement. Dow has the
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby (which,
for purposes of this Agreement shall include all of Dow's obligations
under Section 6.12 hereof). The execution and delivery by Dow of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by the board of directors of Dow and no other
corporate proceedings on the part of Dow are necessary to authorize the
execution and delivery of this Agreement by Dow and the consummation of
the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Dow and, assuming due authorization, execution
and delivery of this Agreement by the Company, Parent and Purchaser, is a
valid and binding obligation of Dow enforceable against Dow in accordance
with its terms.
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Section 4.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by
Dow nor the consummation by Dow of the transactions contemplated hereby
will (i) violate any provision of the Certificate of Incorporation or
By-Laws of Dow; (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation, or
acceleration) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebt-
edness, lease, license, contract, agreement or other instrument or
obligation to which Dow is a party or by which its assets may be bound;
or (iii) assuming that all consents, authorizations and approvals
contemplated by Section 4.3(b) below have been obtained and all filings
contemplated thereby have been made, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Dow or any of its
properties or assets; in each case, except for any such violations,
breaches, defaults, terminations, amendments, cancellations or
accelerations which would not individually or in the aggregate be
reasonably expected to prevent the consummation by Dow of the
transactions contemplated by this Agreement.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is
required in connection with the execution and delivery of this Agreement
by Dow or the consummation by Dow of the transactions contemplated
hereby, except (i) applicable requirements under Competition Laws; (ii)
applicable requirements under the Exchange Act; (iii) applicable
requirements under state securities and Blue Sky laws; (iv) applicable
requirements pursuant to (s) 203 of the FPA; and (v) such other consents,
approvals, orders, authorizations, notifications, registrations,
declarations and filings, the failure of which to be obtained or made
would not prevent the consummation by Dow of the transactions
contemplated by this Agreement.
(c) As of the date hereof, neither Dow, nor any of its
properties or assets is subject to any order, writ, judgment, injunction,
decree, determination or
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award which would prevent the consummation by Dow of the transactions
contemplated hereby.
Section 4.4 Title to Shares.
(a) The Dow Shares described in Schedule A represent all of
the Shares beneficially owned by Dow. Dow is the sole record and
beneficial owner of the Dow Shares.
(b) There are no options or rights to acquire, or any
agreements to which Dow is a party relating to, the Dow Shares, other
than this Agreement.
Section 4.5 Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Dow (it being understood that
Morgan Stanley & Co. Incorporated is acting as investment banker for the
Company and is entitled to a fee from the Company in connection with the
transactions contemplated by this Agreement).
Section 4.6 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article IV,
neither Dow nor any other Person makes any other express or implied
representation or warranty on behalf of Dow.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as
follows:
Section 5.1 Organization. Parent is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Each of Parent and
Purchaser has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted and is qualified or licensed to do business as a foreign
corporation and is
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in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so organized, existing and in good standing or to have such
power and authority, or to be so qualified or licensed would not have a material
adverse effect on the business or financial condition of Parent and its
Subsidiaries, taken as a whole, or materially impair or delay the consummation
of the transactions contemplated by this Agreement. Parent has previously
delivered to the Company complete and correct copies of its certificate of
incorporation and by-laws and the certificate of incorporation and by-laws of
Purchaser, in each case as currently in effect.
Section 5.2 Authorization; Validity of Agreement. Each of
Parent and Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by Parent and Purchaser
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of
Parent and Purchaser and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize the execution and delivery
of this Agreement by Parent and Purchaser and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Parent and Purchaser and, assuming due authorization,
execution and delivery of this Agreement by the Company and Dow, is a
valid and binding obligation of each of Parent and Purchaser enforceable
against each of them in accordance with its terms.
Section 5.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by
Parent and Purchaser nor the consummation by Parent and Purchaser of the
transactions contemplated hereby will (i) violate any provision of the
respective certificate of incorporation or by-laws of Parent or
Purchaser, (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any material note, bond, mortgage,
indenture, guarantee, other evidence of
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indebtedness, license, lease, contract, agreement or other instrument or
obligation to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their assets may be bound or (iii) assuming that all consents,
authorizations and approvals contemplated by Section 5.3(b) have been obtained
and all filings contemplated thereby have been made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets; except for such violations,
breaches, defaults, terminations, amendments, cancellations or accelerations
which would not materially impair or delay the consummation of the transactions
contemplated by this Agreement.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is
required in connection with the execution and delivery of this Agreement
by Parent and Purchaser or the consummation by Parent and Purchaser of
the transactions contemplated hereby, except (i) applicable requirements
under Competition Laws, (ii) applicable requirements under the Exchange
Act, (iii) the filing of the Certificate of Merger with the Secretary of
State, (iv) applicable requirements under state securities or "blue sky"
laws of various states or non-United States change-in-control laws or
regulations, (v) applicable requirements pursuant to ss. 203 of the FPA
and (vi) such other consents, approvals, orders, authorizations,
notifications, registrations, declarations and filings the failure of
which to be obtained or made would not materially impair or delay the
consummation of the transactions contemplated by this Agreement.
Section 5.4 Proxy Statement. None of the information supplied
by Parent or Purchaser for inclusion in the Proxy Statement (including
any amendments or supplements thereto) will, at the date mailed to
stockholders and at the time of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
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Section 5.5 Interim Financial Condition. The unaudited
balance sheet of Parent for the interim period ending September 30, 1996
has been prepared in accordance with GAAP (except as otherwise noted
therein and except that the unaudited balance sheet is subject to
year-end adjustment and does not contain all footnote disclosures
required by GAAP) and fairly presents in all material respects the
financial position of Parent as of the date thereof. Since such date,
there has not been an adverse effect in Parent's financial condition that
would materially adversely affect the ability of Parent or Purchaser to
consummate the Merger.
Section 5.6 Financing. Parent and Purchaser will have
sufficient funds available (through existing credit arrangements or
otherwise) at the Closing to pay the Merger Consideration and to perform
their obligations hereunder and the obligations of the Surviving
Corporation and its Subsidiaries following the Effective Time.
Section 5.7 Surviving Corporation After the Merger. At and
immediately after the Effective Time, and after giving effect to the
Merger and the other transactions contemplated in connection therewith
(and any changes in the Surviving Corporation's assets and liabilities as
a result thereof), the Surviving Corporation will not (i) be insolvent
(either because its financial condition is such that the sum of its debts
is greater than the fair value of its assets or because the present fair
saleable value of its assets will be less than the amount required to pay
its probable liabilities on its debts as they mature), (ii) have
unreasonably small capital with which to engage in its business or (iii)
have incurred or plan to incur indebtedness beyond its ability to pay
such debts as they mature.
Section 5.8 Beneficial Ownership of Shares; Interested
Stockholder. None of Parent, Purchaser or any of their respective
affiliates or associates beneficially owns more than 5% of the
outstanding shares of Company Common Stock or any securities convertible
into or exchangeable for Company Common Stock.
Section 5.9 Brokers. Except for Chase Securities Inc., no
broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contem-
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plated by this Agreement based upon arrangements made by or on behalf of Parent
and Purchaser. Parent and Purchaser are solely responsible for the fees and
expenses of Chase Securities Inc.
Section 5.10 Public Utility Company; Public Utility
Regulatory Policies Act.
(a) Neither Parent, Purchaser nor any of their respective
Subsidiaries is (i) subject to regulation as a "holding company" or a
"subsidiary company" of a holding company or a "public utility company"
under Section 2(a) of the PUHCA, (ii) except with respect to their power
marketing activities, subject to regulation under the FPA, other than as
contemplated by 18 C.F.R. (s) 292.601(c) or (iii) subject to any state
law or regulation with respect to rates or the financial or
organizational regulation of electric utilities, other than as contem-
plated by 18 C.F.R. (s) 292.602(c).
(b) Neither Parent, Purchaser nor any of their respective
Subsidiaries is engaged in any activities that would require any filing
with, or receipt of regulatory approvals from, the Federal Energy
Regulatory Commission under (s)(s) 203 (except with respect to their
power marketing activities), 204 or 205 of the FPA in connection with
the consummation of the transactions contemplated by this Agreement.
Section 5.11 Absence of Litigation. As of the date hereof,
there is no suit, claim, action, proceeding or investigation pending
against, or to the actual knowledge of Parent and Purchaser, threatened
against, Parent or Purchaser or any of their respective properties before
any Governmental Entity or arbitrator which challenges or seeks to
prevent, enjoin, alter or delay the Merger or any of the other
transactions contemplated by this Agreement. As of the date hereof,
neither Parent nor Purchaser nor any of their respective properties is
subject to any judgment, decree, order or injunction of any Govern-
mental Entity or arbitrator which would prevent or delay the consummation
of the transactions contemplated hereby.
Section 5.12 No Prior Activities. Since the date of its
incorporation, Purchaser has not engaged in any activities other than
in connection with or as contemplated by this Agreement or in connection
with arrang-
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ing any financing required to consummate the transactions contemplated hereby.
Section 5.13 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article V,
neither Parent, Purchaser nor any other Person makes any other express or
implied representation or warranty on behalf of Parent or Purchaser.
ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company. The Company
covenants and agrees that after the date hereof and prior to the
Effective Time, except as (i) contemplated by this Agreement, (ii)
required by applicable law, by any Significant Agreement or by any Plan
disclosed on Schedule 3.9(a) of the Disclosure Schedule or (iii) agreed
to in writing by Parent:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course and, to the extent consistent
therewith, the Company shall use its reasonable best efforts to preserve
its business organization and the business organization of its
Subsidiaries intact and maintain existing relations with customers,
suppliers and employees;
(b) the Company shall not amend its Amended and Restated
Certificate of Incorporation or By-Laws and shall not authorize or vote
in favor of, directly or indirectly, any amendment by its Subsidiaries of
their respective organizational documents;
(c) the Company shall not declare, set aside or pay any
dividend or other distribution with respect to its capital stock; and
neither the Company nor its Subsidiaries shall (i) issue or dispose of
any additional shares of, or securities convertible into or exchangeable
for, or options, warrants, or rights to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries other than
issuances of shares of Company Common Stock pursuant to securities,
options, warrants, calls, commitments or rights existing at the date
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hereof and disclosed to Purchaser in writing (including as disclosed in
the Company SEC Documents); or (ii) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock;
(d) Neither the Company nor its Subsidiaries shall incur any
indebtedness for borrowed money other than (i) short term indebtedness
incurred in the ordinary course of business (ii) indebtedness of
Subsidiaries incurred in connection with the acquisition, development,
construction or operation of power generation or energy producing
facilities, which indebtedness is without recourse to the Company or its
assets (other than the assets or earnings of such Subsidiary or such
facility), and (iii) other indebtedness not in excess of $15 million in
the aggregate;
(e) except as set forth in Schedule 6.1(e) of the Disclosure
Schedule, neither the Company nor its Subsidiaries shall (i) except for
increases in the ordinary course of business consistent with past
practice or to reflect promotions, grant any material increase in the
compensation payable or to become payable by the Company or any of its
Subsidiaries to any employee; (ii) adopt or otherwise materially
increase, or accelerate the payment or vesting of the amounts payable
under any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock appreciation right,
restricted stock purchase, insurance, pension, retirement or other
employee benefit plan agreement or arrangement; or (iii) enter into or
amend in any material respect any existing employment or severance
agreement or consulting agreement with any individual consultant (which
consulting agreement provides for payments in excess of $350,000) or,
except in accordance with the existing written policies of the Company,
existing contracts or agreements or in the ordinary course of business
consistent with past practice, grant any severance or termination pay to
any officer, director, employee or individual consultant of the Company
or any of its Subsidiaries;
(f) neither the Company nor its Subsidiaries shall change the
accounting principles used by it unless required by law, SEC guidelines
or GAAP (or, if applicable with respect to Subsidiaries, applicable
foreign generally accepted accounting principles);
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(g) The Company shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire any material assets except
in the ordinary course of business or incur or commit to incur, or
consent to the incurrence by any of the Excluded Subsidiaries, of any
capital expenditures (as such term is defined under GAAP) not included in
the 1997 project financial models previously provided to Parent except
for such capital expenditures not in excess of $1 million per project or
more than $15 million in the aggregate; and
(h) The Company shall not permit any individual to subscribe
for any additional shares of Company Common Stock under the Stock
Purchase Plan.
(i) neither the Company nor its Subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the
foregoing.
Section 6.2 Acquisition Proposals.
(a) The Company and its Subsidiaries will not, directly or
indirectly through their respective officers, directors, employees,
representatives and agents, (i) initiate, facilitate, encourage or
solicit the making of any Acquisition Proposal (as hereinafter defined)
or (ii) except as permitted below, engage in negotiations or discussions
with, or furnish any non-public information to, any third party relating
to an Acquisition Proposal. Notwithstanding anything to the contrary
contained in this Agreement, at any time prior to the approval of the
Merger by the Company's stockholders the Company and the Board (i) may
participate in negotiations or discussions (including, as a part thereof,
making any counterproposal) with or furnish information to any third
party that delivers a written Acquisition Proposal to the Company which
was not solicited or encouraged after the date hereof if the Board
determines in good faith, after consultation with its outside counsel,
that the failure to participate in such discussions or negotiations or to
furnish such information could reasonably be expected to constitute a
breach of the Board's fiduciary duties under applicable law and (ii)
without qualifying the obligations of the Company pursuant to Section
6.7(a) hereof, shall be permitted to (x) take and disclose to the
Company's stockholders a position with respect to the Merger or another
Acquisition Proposal, or amend or with-
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draw such position, pursuant to Rules 14d-9 and 14e-2 under the Exchange Act or
(y) make disclosure to the Company's stockholders, in each case if the Board
determines in good faith, after consultation with its outside counsel, that the
failure to take such action could reasonably be expected to constitute a breach
of the Board's fiduciary duties under, or otherwise violate, applicable law. The
Company, Dow and their respective Subsidiaries, officers, directors, employees,
representatives and agents shall immediately cease all existing activities,
discussions and negotiations with any parties other than Parent and The AES
Corporation ("AES") conducted heretofore with respect to an Acquisition
Proposal.
(b) The Company shall promptly advise Parent in writing of
any inquiries or proposals relating to an Acquisition Proposal and any
actions taken pursuant to Section 6.2(a) (including the material terms
thereof and the identity of the other parties involved).
(c) Any action by the Board pursuant to the second sentence
of Section 6.2(a) shall not change the approval of the Board with respect
to this Agreement for purposes of Section 203 of the DGCL.
(d) For purposes of this Agreement, "Acquisition Proposal"
shall mean any proposal made by a third party relating to (i) a merger,
recapitalization, share exchange, consolidation, business combination,
sale of shares of capital stock or securities convertible into or
exercisable or exchangeable for capital stock, tender offer or exchange
offer or similar transaction involving the Company including, without
limitation, any single or multi-step transaction or series of related
transactions or, (ii) the acquisition of any material portion of the
business or assets of the Company and its Subsidiaries or (iii) any
public announcement of a proposal, plan or intention to do any of the
foregoing, in each case other than the transactions contemplated by this
Agreement and other than the transactions related to the Company's
disposition of its interest in the Tiger Bay project partnership to
Florida Power Corporation or its affiliates.
Section 6.3 Audited Financial Statements. The Company will
deliver to Parent a copy of audited finan-
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cial statements for the year ended December 31, 1996 (and any consolidating
financial statements used in the preparation thereof) promptly after such
audited financial statements have been made publicly available.
Section 6.4 Access to Information. From the date of this
Agreement until the Effective Time, the Company shall afford to Parent
and its authorized representatives and, solely with respect to the
international operations of the Company and its Subsidiaries, to AES and
its authorized representatives, reasonable access during normal business
hours upon reasonable prior notice to all of its books and records and,
during such period, the Company shall furnish promptly to Parent or AES,
as applicable, such financial data and other information concerning its
business, properties and personnel as Parent or AES may reasonably
request. Parent or AES and their respective authorized representatives
will conduct all such inspections in a manner which will minimize any
disruptions of the business and operations of the Company and its
Subsidiaries. Until the Effective Time, Parent and Purchaser and AES will
hold any such information in accordance with the provisions of the
confidentiality agreement between the Company and Parent, dated as of
November 6, 1996, or between the Company and AES, dated as of October 24,
1996, (as the case may be "Confidentiality Agreements"), and will cause
such information to be so held by their Representatives (as defined in
the Confidentiality Agreement). Upon a termination of this Agreement
pursuant to Section 8.1, Parent, Purchaser, AES and their respective
Representatives shall return (and hold confidential) all information
provided pursuant to this Section 6.4 and all other Information (as
defined in the Confidentiality Agreements) pursuant to the procedures set
forth in the Confidentiality Agreements. The foregoing shall not require
the Company to permit any inspection or to disclose any information which
in the reasonable judgment of the Company would result in the disclosure
of any trade secrets of third parties or violate any obligation of the
Company with respect to confidentiality if the Company shall have used
its reasonable best efforts to obtain the consent of such third party to
such inspection or disclosure.
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Section 6.5 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions herein
provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using reasonable best efforts
to obtain all necessary authorizations, consents and approvals, and to
effect all necessary registrations and filings. Each of the parties
hereto will furnish to the other parties such necessary information and
reasonable assistance as such other parties may reasonably request in
connection with the foregoing and will provide the other parties with
copies of all filings made by such party with any Governmental Entity or
any other information supplied by such party to a Governmental Entity in
connection with this Agreement, and the transactions contemplated hereby.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of the Surviving Corporation shall take
or cause to be taken all such necessary action. In addition, the Company
agrees to use its reasonable best efforts to assist AES in obtaining any
necessary authorization, consent and approval with respect to a sale
after the Effective Time by Parent or Purchaser to AES of any assets
relating to the international operations of the Company and its Subsid-
iaries.
(b) Parent, Purchaser, Dow and the Company shall use their
respective reasonable best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated hereby
under the laws, rules, guidelines or regulations of any Governmental
Entity. Without limiting the foregoing, each of the parties shall
cooperate in good faith and consult with each other with respect to
filings, communications, agreements, arrangements or consents, written or
oral, formal or informal, with the FERC and shall further use their
reasonable best effort to obtain any approvals required to be received
from the FERC in connection with the consummation of the transactions
contemplated by this Agreement.
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(c) Without limiting Section 6.5(b), Dow and Parent shall, as
soon as practicable, file Notification and Report Forms under the HSR Act
(as defined below) with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust
Division") and shall use reasonable best efforts to respond as promptly
as practicable to all inquiries received from the FTC or the Antitrust
Division for additional information or documentation; and Parent and
Purchaser shall use their reasonable best efforts to take or cause to be
taken all actions necessary, proper or advisable to obtain any consent,
waiver, approval or authorization relating to any Competition Law that is
required for the consummation of the transactions contemplated by this
Agreement, provided, however, that the foregoing shall not obligate
Parent or Purchaser to take any action which would have a material
adverse effect on the combined businesses of the Company and its
Subsidiaries, and Parent and its affiliates, taken as a whole.
"Competition Laws" means federal, state, local or foreign statutes,
rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of
monopolization, lessening of competition or restraint of trade and
includes the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
Section 6.6 Employee Benefits.
(a) Parent and Purchaser hereby agree to honor without
modification or contest, and agree to cause the Surviving Corporation to
honor without modification or contest, and to make required payments when
due under, all Plans and other agreements listed on Schedule 3.9(k) of
the Disclosure Schedule in existence as of the date hereof (or as
modified to the extent permitted by Section 6.1); provided, however, that
nothing herein shall be construed as preventing Parent from amending or
terminating any Plan, to the extent permitted under the terms of such
Plan. Purchaser and Parent hereby acknowledge that, notwithstanding the
terms of any Plan or award or agreement entered into thereunder, the
Merger constitutes a "Change in Control" for purposes of such Plans,
awards and agreements and agree to abide by the provisions of any Plan
which relate to a Change in Control, including the accelerated vesting
and/or payment of equity-based
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awards under the Stock Plan, Variable Pay Plan and the Stock Purchase Plan.
(b) Parent and Purchaser hereby agree that, for a period of
one year immediately following the Effective Time, they shall, or shall
cause the Surviving Corporation to either (i) continue to maintain the
employee benefit plans, policies and arrangements established,
maintained or contributed to by the Company or its Subsidiaries for the
benefit of the employees and former employees of the Company and its
Subsidiaries (whether employed in the U.S. or outside the U.S.) on terms
no less favorable in the aggregate than those provided on the date
hereof to such employees and former employees of the Company and its
Subsidiaries or (ii) provide that such employees and former employees
of the Company and its Subsidiaries may participate in analogous plans of
Parent which provide benefits which in the aggregate are substantially
similar to those provided to them under such plans on the date hereof
(such analogous plans being referred to herein as the "Parent Plans").
(c) Parent and Purchaser agree that for purposes of all plans
referred to in Section 6.6(b) and Parent Plans (including all policies
and employee fringe benefit programs, including vacations, of the
Surviving Corporation) under which an employee's benefit depends, in
whole or in part, on length of service, credit will be given to
individuals employed by the Company and its Subsidiaries as of the
Effective Time ("Company Employees") for service previously credited with
the Company or its Subsidiaries prior to the Effective Time, provided,
that such crediting of service does not result in duplication of
benefits, and provided that such crediting of service shall not be given
for benefit accrual purposes under any defined benefit plan. Company
Employees shall also be given credit for any deductible or co-payment
amounts paid in respect of the Plan year in which the Effective Time
occurs, to the extent that, following the Effective Time, they
participate in any Parent Plan for which deductibles or co-payments are
required. Parent and Purchaser shall also cause each Parent Plan to waive
(i) any preexisting condition restriction which was waived under the
terms of any analogous Plan immediately prior to the Effective Time or
(ii) waiting period limitation which would otherwise be applicable to a
Company Employee on or after the Effective Time to the extent
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such Company Employee had satisfied any similar waiting period limitation under
an analogous Plan prior to the Effective Time.
Section 6.7 Stockholders' Meeting; Proxy Statement.
(a) The Company shall, in accordance with applicable federal
securities laws, the DGCL, the Amended and Restated Certificate of
Incorporation and the By-laws of the Company, duly call, give notice of,
convene and hold a special meeting of its stockholders (the "Special
Meeting") as promptly as practicable after the date hereof for the
purpose of considering and taking action upon this Agreement and such
other matters as may be appropriate at the Special Meeting.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not take any action which interferes with the convening of the
Special Meeting or the taking of a stockholders' vote at that meeting.
(b) The Company shall prepare and file with the SEC, and
Parent, Dow and Purchaser shall cooperate with the Company in such
preparation and filing, a preliminary proxy statement or information
statement relating to this Agreement and the transactions contemplated
hereby and use its reasonable best efforts to furnish the information
required to be included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy statement
and, promptly after the completion of any SEC review or notification from
the SEC that the preliminary proxy materials will not be subject to
comment, cause a definitive proxy statement or information statement (the
"Proxy Statement") to be mailed to its stockholders. Subject to the
fiduciary obligations of the Board under applicable law, the Company
shall include in the Proxy Statement the recommendation of the Board that
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby.
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(c) Parent agrees that (i) it will provide the Company with
all information concerning Parent or Purchaser necessary or appropriate
to be included in the Proxy Statement and (ii) at the Special Meeting or
any postponement or adjournment thereof (or at any other meeting at which
the Merger or this Agreement are considered by stockholders), it will
vote, or cause to be voted, all of the Shares then owned by, or with
respect to which proxies are held by it, Purchaser or any of its other
Subsidiaries and affiliates, if any, in favor of the approval and
adoption of this Agreement.
(d) The Company, Parent and Purchaser shall cooperate with one
another in the preparation and filing of the Proxy Statement and shall use
their reasonable best efforts to promptly obtain and furnish the
information required to be included in the Proxy Statement and to respond
promptly to any comments or requests made by the SEC with respect to the
Proxy Statement. Each party hereto shall promptly notify the other parties
of the receipt of comments of, or any requests by, the SEC with respect to
the Proxy Statement, and shall promptly supply the other parties with
copies of all correspondence between such party (or its representatives)
and the SEC (or its staff) relating thereto. The Company, Parent and
Purchaser each agree to correct any information provided by it for use in
the Proxy Statement which shall have become, or is, false or misleading.
Section 6.8 Directors' and Officers' Insurance and
Indemnification.
(a) The Certificate of Incorporation and By-laws of the
Surviving Corporation shall contain provisions with respect to
indemnification set forth in Article VI of the Company's Amended and
Restated Certificate of Incorporation and Article VII of the Company's
By-laws on the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after
the Effective Time (or, in the case of matters occurring prior to the
Effective Time which have not been resolved prior to the sixth
anniversary of the Effective Time, until such matters are finally
resolved), in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Effective Time
were directors or officers of the Company in respect of actions or
omissions occurring at or prior
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to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement).
(b) Parent agrees that at all times after the Merger it shall
indemnify, or shall cause the Surviving Corporation and its Subsidiaries
to indemnify, each person who is now, or has been at any time prior to
the date hereof, an employee, director or officer of the Company or of
any of the Company's Subsidiaries (individually an "Indemnified Party"
and collectively the "Indemnified Parties"), to the full extent permitted
by applicable law, with respect to any claim, liability loss, damage,
cost or expense, whenever asserted or claimed ("Indemnified Liability"),
based in whole or in part on, or arising in whole or in part out of, any
matter existing or occurring at or prior to the Effective Time; provided,
however, that such indemnity for any such employee seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such employee shall be required only if such proceeding (or
part thereof) was authorized by Parent, the Surviving Corporation or a
Subsidiary thereof employing such employee; and provided, further, that
notwithstanding the immediately preceding clause if a written claim
received from or on behalf of an indemnified party is not paid in full
within ninety days after such receipt, the claimant may at any time
thereafter bring suit against the Surviving Corporation or Parent to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. Parent shall, and shall cause the Surviving
Corporation to, maintain in effect for not less than six years after the
Effective Time policies of directors' and officers' liability insurance
with a coverage amount of $75 million and equivalent in all other
material respects to those maintained by or on behalf of the Company and
its Subsidiaries on the date hereof (and containing terms and conditions
which are no less advantageous to the persons currently covered by such
policies as insured) with respect to matters existing or occurring at or
prior to the Effective Time.
(c) Without limiting the foregoing, in the event any
Indemnified Party becomes involved in any capacity in any action,
proceeding or investigation based in whole or in part on, or arising in
whole or in part out of, any matter, including the transactions
contem-
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plated hereby, existing or occurring at or prior to the Effective Time, then to
the extent permitted by law Parent shall, or shall cause the Surviving
Corporation to, periodically advance to such Indemnified Party its legal and
other expenses (including the cost of any investigation and preparation incurred
in connection therewith), subject to the provision by such Indemnified Party of
an undertaking to reimburse the amounts so advanced in the event of a final
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto. Promptly after receipt by an Indemnified Party of
notice of the assertion (an "Assertion") of any claim or the commencement of any
action against him in respect to which indemnity or reimbursement may be sought
against Parent, the Company, the Surviving Corporation or a Subsidiary of the
Company or the Surviving Corporation ("Indemnitors") hereunder, such Indemnified
Party shall notify any Indemnitor in writing of the Assertion, but the failure
to so notify any Indemnitor shall not relieve any Indemnitor of any liability it
may have to such Indemnified Party hereunder except to the extent that such
failure shall have materially and irreversibly prejudiced Indemnitor in
defending against such Assertion. Indemnitors shall be entitled to participate
in and, to the extent Indemnitors elect by written notice to such Indemnified
Party within 30 days after receipt by any Indemnitor of notice of such
Assertion, to assume the defense of such Assertion, at their own expense, with
counsel chosen by Indemnitors and reasonably satisfactory to such Indemnified
Party. Notwithstanding that Indemnitors shall have elected by such written
notice to assume the defense of any Assertion, such Indemnified Party shall have
the right to participate in the investigation and defense thereof, with separate
counsel chosen by such Indemnified Party, but in such event the fees and
expenses of such counsel shall be paid by such Indemnified Party unless such
separate counsel is required due to a conflict of interest, in which case the
Indemnitors shall be responsible for the fees and expenses of separate counsel.
No Indemnified Party shall settle any Assertion without the prior written
consent of Parent, which shall not be unreasonably withheld, nor shall any
Indemnitors settle any Assertion without either (i) the written consent of all
Indemnified Parties against whom such Assertion was made, or (ii) obtaining an
unconditional general release from the party making
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the Assertion for all Indemnified Parties as a condition of such settlement.
(d) The provisions of this Section 6.8 are intended for the
benefit of, and shall be enforceable by, the respective Indemnified
Parties.
Section 6.9 Publicity. None of the Company, Parent, Dow,
Purchaser nor any of their respective affiliates shall issue or cause the
publication of any press release or other announcement with respect to
this Agreement, the Merger or the other transactions contemplated hereby
or thereby without prior consultation with the other parties, except as
may be required by law or by any listing agreement with a national
securities exchange after prior notice has been given to, and all
reasonable efforts have been made to consult with the other parties.
Section 6.10 No Solicitation. Dow agrees that, for a period
commencing on the date hereof and ending on the first anniversary of the
Closing Date, it will not to the knowledge of the elected officers of
Dow, directly or indirectly, solicit for employment any employee of the
Company or any of its Subsidiaries.
Section 6.11 Certain Arrangements. (a) Upon the Effective
Time, the Company and Dow shall cause to be terminated the agreements set
forth in Schedule 6.11(a) of the Disclosure Schedule. Except as provided
in the immediately preceding sentence or if terminated pursuant to their
respective terms, the Dow Agreements in effect immediately prior to the
consummation of the Merger shall continue in full force and effect
following the Effective Time, in accordance with their terms.
(b) Upon the Effective Time, Parent and Purchaser shall cause
Dow to be released as an obligor under the arrangements set forth in
Schedule 6.11(b) of the Disclosure Schedule including agreeing that
Parent shall become liable for or cause another to become liable for such
obligation.
(c) Effective as of the purchase by Purchaser of the Dow
Shares, Dow and its Subsidiaries, on the one hand, and the Company and
its Subsidiaries, on the other hand, shall settle and repay all
outstanding intercompany
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obligations between them for borrowed money, in accordance with the terms of
such obligations.
Section 6.12 Voting Agreement.
(a) For so long as this Agreement is in effect, Dow shall
vote, or cause to be voted, all of the Dow Shares in favor of the
approval and adoption of this Agreement and the transactions contemplated
thereby.
(b) For so long as this Agreement is in effect, in any
meeting of the stockholders of the Company, however called, and in any
action by consent of the stockholders of the Company, Dow shall vote or
cause to be voted all of Dow's Shares against: (i) any Acquisition
Proposal; (ii) any other proposed corporate action of the Company
requiring stockholder approval that would prevent or materially delay the
consummation of the transactions contemplated by this Agreement; or (iii)
any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation of the
Company or Dow under this Agreement.
Section 6.13 Employee Benefits Indemnification. With respect
to claims made within three years after the Effective Time, from and
after the Effective Time, Dow shall be liable for, and shall indemnify
the Company and its Subsidiaries for and hold such entities harmless
against any obligations arising out of any employee benefit plans (within
the meaning of section 3(3) of ERISA) established, maintained or
contributed to by Dow or any corporation (other than the Company or any
of its Subsidiaries), trade, business, or entity under common control
with Dow, within the meaning of Section 414(b), (c), (m) or (o) of the
Code or section 4001 of ERISA.
Section 6.14 The Dow Shares. Dow agrees not to (either
directly or indirectly): (i) sell, transfer, pledge, assign, hypothecate
or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
assignment, hypothecation or other disposition of the Dow Shares
(including, without limitation, through the disposition or transfer of
control of another person); (ii) grant any proxies with respect to the
Dow Shares, deposit
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the Dow Shares into a voting trust or enter into a voting agreement with respect
to any of the Dow Shares; or (iii) take any action which would be reasonably
expected to make any representation or warranty of Dow herein untrue or
incorrect in any material respect.
Section 6.15 Acquisition Proposals.
(a) Dow will not, directly or indirectly through any officer,
director, employee, representative, or agent (i) initiate, facilitate,
encourage or solicit the making of any Acquisition Proposal, (ii) engage
in negotiations or discussions with, or furnish any non-public
information to, any third party relating to an Acquisition Proposal, or
(iii) agree to or approve any Acquisition Proposal; provided, that Dow
shall not be deemed to have breached its obligations contained in this
Section 6.15 by reason of any action taken by the Company or its Board
permitted by the second sentence of Section 6.2(a) of this Agreement.
(b) Dow shall immediately advise Parent in writing of the
receipt by Dow of any inquiries or proposals relating to an Acquisition
Proposal.
Section 6.16 Tax Matters.
(a) Dow and Parent shall make a joint election for the
Company (and all U.S. corporations that are Subsidiaries of the Company)
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended
(the "Code") and under any applicable similar provisions of state or
local law with respect to the purchase of the Dow Shares or any deemed
purchase of such Subsidiaries (collectively, the "Section 338(h)(10)
Elections"). On the Closing Date, Dow and Parent shall exchange completed
and executed copies of Internal Revenue Service Form 8023-A and any
similar state or local forms (collectively, the "Forms"). If any changes
are required in the Forms as a result of information which is first
available after such Forms are prepared, the parties will promptly agree
on such changes. After all required schedules to support the Forms are
completed, Dow and Parent shall file the Forms, which filing shall be
made within the time period specified under applicable law. Dow, Parent,
and the Company shall make all required filings relating to the Section
338(h)(10) Elections in connection with
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their federal and applicable state and local income tax returns, and shall
cooperate fully with each other with respect to such filings.
Within 180 days following the Closing Date, Parent shall (i)
draft a schedule (the "Allocation Schedule") allocating the Modified
Adjusted Deemed Sales Price (as defined in Section 1.338(h)(10)-1(f) of
the Treasury regulations) and the Adjusted Deemed Sales Price (as defined
in Section 1.338-3(d) of the Treasury regulations) for the Company and
each Subsidiary for which Section 338(h)(10) Elections or elections under
Section 338(g) of the Code will be made, among the assets of the Company
and each such Subsidiary and (ii) deliver such Allocation Schedule to
Dow. The Allocation Schedule shall be reasonable and shall be prepared in
accordance with Section 338(h)(10) of the Code and the Treasury
regulations thereunder. Each of Parent, on the one hand, and Dow (upon
its consent to the Allocation Schedule, which consent shall not be
unreasonably withheld) on the other hand, shall report the transactions
contemplated hereby, and file all Tax Returns, in each case, for federal,
state, local and foreign Tax purposes in accordance with the Allocation
Schedule.
(b) Nothing contained herein shall be construed as altering
the rights, obligations and duties of Dow, the Company and any
Subsidiaries of the Company to each other pursuant to the Tax Sharing
Agreement between Dow and the Company and its Subsidiaries dated May 15,
1996 (the "Tax Sharing Agreement") previously disclosed to Parent and
Purchaser. The Tax Sharing Agreement shall continue to govern the rights
and obligations of the Company and Dow with respect to the taxable
periods for which it is effective. The Tax Sharing Agreement shall be
amended effective as of the Closing Date in the form of the First
Amendment to the Tax Sharing Agreement which has been previously
distributed to Parent.
Parent shall pay or cause the Company to pay to Dow all
amounts required to be paid to Dow under the Tax Sharing Agreement. Dow
shall pay to the Company all amounts Dow is required to pay to the
Company under the Tax Sharing Agreement.
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(c) (i) Dow shall be liable for, and shall indemnify Parent
and Purchaser for and hold Parent and Purchaser harmless against (A) all
income Taxes imposed for any taxable year on Dow's "affiliated group" (as
defined in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or
unitary group for state, local or foreign tax purposes that includes Dow
and (B) any incremental amount of state and local income Taxes (not
including the use of any losses or other Tax attributes) imposed on the
Company and its Subsidiaries (other than any amount of state or local
Taxes imposed on a combined or unitary group that includes Dow) for the
taxable year that includes the Closing Date, to the extent that such
amount is incurred as a result of the Section 338(h)(10) Elections or any
election under Section 338(g) of the Code. Dow shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for
which Dow is liable to Purchaser pursuant to this paragraph (c)(i) of
this Section 6.16.
(ii) Parent and Purchaser shall be liable for, and shall
indemnify Dow for and hold Dow harmless against, all Taxes of or imposed
on the Company or any Subsidiary of the Company for any taxable period
other than those Taxes referred to in paragraph (c)(i) of this Section
6.16. Parent shall be entitled to any refund of (or credit for) Taxes
allocable or attributable to Taxes for which Parent is liable to Dow
pursuant to this paragraph (c)(ii) of Section 6.16.
(iii) Notwithstanding anything to the contrary contained
herein, Parent shall assume and pay all sales, use, privilege, transfer,
stock transfer, real property transfer, documentary, gains, stamp,
duties, recording and similar Taxes and fees (including any penalties,
interest or additions) imposed upon any party incurred in connection with
any of the transactions contemplated by this Agreement (collectively,
"Transfer Taxes") except for such Transfer Taxes imposed on Dow with
respect to the sale of the Dow Shares, and Parent shall, at its own
expense, accurately file all necessary Tax Returns and other
documentation with respect to any Transfer Tax other than Tax Returns
which Dow is responsible for filing under applicable law. Parent and Dow
agree to timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an
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exemption from (or otherwise reduce), or file Tax Returns with respect to, such
Transfer Taxes.
(d) (i) Dow shall file or cause to be filed when due all Tax
Returns Dow has elected to file pursuant to the Tax Sharing Agreement and
Dow shall remit or cause to be remitted any Taxes due in respect of such
Tax Returns, and Parent shall file or cause to be filed when due all Tax
Returns other than those Tax Returns Dow has elected to file pursuant to
the Tax Sharing Agreement that are required to be filed by or with
respect to the Company and each of its Subsidiaries and Parent shall
remit or cause to be remitted any Taxes due in respect of such Tax
Returns.
(ii) None of Parent or any affiliate of Parent shall (or
shall cause or permit the Company or any of its Subsidiaries to) amend,
refile or otherwise modify any Tax Return relating in whole or in part to
the Company or any of its Subsidiaries with respect to any taxable year
or period ending on or before the Closing Date without the prior written
consent of Dow.
(iii) Parent shall promptly cause the Company and each
Subsidiary to prepare and provide to Dow all Tax information materials,
including, without limitation, schedules and work papers which the
Company is required to provide Dow pursuant to the Tax Sharing Agreement.
Each of Dow and Parent shall (and shall cause their respective affiliates
to): (A) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
clause (i) of this Section 6.16(d), (B) cooperate fully in preparing for
any audits of, or disputes with taxing authorities regarding, any Tax
Returns of the Company and each Subsidiary of the Company, and (C) make
available to the other party and to any taxing authority as reasonably
requested all information, records, and documents relating to Taxes of
the Company and each Subsidiary of the Company, provided, Dow or Parent
(or respective affiliates) has access to information, records or
personnel concerning such Tax Returns that is not available to the other
party.
(e) Dow or Parent shall pay the other party for the Taxes for
which Dow or Parent, respectively, is liable pursuant to paragraph (c) of
Section 6.16 upon the
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written request of the party entitled to the payment, setting forth in detail
the nature and the amount of the Taxes to which the payment relates.
(f) Each of Dow and Parent shall (and shall cause their
respective affiliates to): (A) provide timely notice to the other in
writing of any notice of deficiency, proposed adjustment, adjustment,
assessment, audit, examination, suit, dispute or other claim ("Tax
Claim") delivered, sent, commenced or initiated to or against the Company
or any Subsidiary of the Company by any Taxing authority with respect to
taxable periods for which the other may have a liability under this
Section 6.16, and (B) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
(g) Dow shall have the sole right to represent the Company's
and each of its Subsidiaries' interests in any Tax Claim, Tax audit or
administrative or court proceeding ("Proceeding") relating to any Taxes
(A) imposed for any taxable year on Dow's "affiliated group" (as defined
in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or
unitary group of Dow, (B) imposed on the Company or any Subsidiary of the
Company as a result of the Section 338(h)(10) Elections or elections
under Section 338(g) of the Code (or similar provision under state, local
or foreign law) pursuant to paragraph (a) of Section 6.16. None of
Parent, any of its affiliates, the Company or any Subsidiaries of the
Company may settle any Proceeding for any taxable year which may be the
subject of indemnification by Dow under paragraph (c) of Section 6.16
without the prior written consent of Dow, which consent may not be
unreasonably withheld. Parent shall have the sole right to represent the
Company's and each of its Subsidiaries' interests in any Proceeding
relating to any Taxes for which Parent could be liable to Dow pursuant to
Section 6.16(c) of this Agreement. If the resolution of any Proceeding
could adversely affect a party other than the party with the sole right
to represent the Company's or any Subsidiary's interest in any Tax Claim
then such other party shall have the right to participate in such
Proceeding at its own cost and expense.
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(h) Any payment by Parent, Purchaser or Dow pursuant to this
Section 6.16 shall be an adjustment to the Merger Consideration.
(i) The obligations set forth in this Section 6.16 shall be
unconditional and absolute and shall remain in effect without limitation
as to time.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To Effect
the Merger. The respective obligation of each party to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions:
(a) Any approval required under the FPA to consummate the
Merger shall have been obtained;
(b) Any waiting period applicable to the Merger under the HSR
Act and under any other Competition Law that requires a filing prior to
the Effective Time shall have terminated or expired;
(c) This Agreement shall have been approved and adopted by
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of Company Common Stock; and
(d) No statute, rule, injunction, order, decree or regulation
shall have been enacted or promulgated by any Governmental Entity of
competent jurisdiction which prohibits the consummation of the Merger or
makes the Merger illegal.
Section 7.2 Conditions to Parent and Purchaser's Obligation
to Effect the Merger. The obligation of Parent and Purchaser to effect
the Merger shall be subject to the satisfaction or waiver at or prior to
the Closing Date of each of the following conditions:
(a) The Company and Dow shall have performed in all material
respects all of their respective covenants and agreements under this
Agreement required to be
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performed at or prior to the Closing provided, that with respect to such
covenants and agreements of the Company, the foregoing condition shall be deemed
satisfied so long as no failure to perform any such covenant or agreement shall
have had or would have a Material Adverse Effect.
(b) The representations and warranties of Dow set forth in
this Agreement shall be true and correct in all material respects (except
in the case of any representation and warranty made as of a specified
date, which need only be true as of such date) as of the date of the
Closing as if such representations and warranties were made on such date;
and
(c) The representations and warranties of the Company set
forth in this Agreement shall be true and correct (except in the case of
any representation and warranty made as of a specified date, which need
only be true as of such date) as of the date of the Closing as if such
representations and warranties were made on such date; provided, that the
foregoing condition shall be deemed satisfied so long as no failure to be
so true and correct shall have had or would have a Material Adverse
Effect.
Section 7.3 Conditions to the Company's Obligation to Effect
the Merger. The obligation of the Company to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Closing of each
of the following conditions:
(a) Parent and Purchaser shall have performed in all material
respects all of their covenants and agreements under this Agreement
required to be performed at or prior to the Closing; and
(b) The representations and warranties of Parent and
Purchaser set forth in this Agreement shall be true and correct in all
material respects (except in the case of any representation and warranty
made as of a specified date, which need only be true as of such date) as
of the date of the Closing as if such representations and warranties were
made on such date.
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ARTICLE VIII
TERMINATION
Section 8.1 Termination. Notwithstanding anything herein to
the contrary, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) By the mutual consent of Parent, Dow and the Company; or
(b) By the Company, Dow or Parent, if: (i) the Merger has not
been consummated on or prior to December 31, 1997, or such other date, if
any, as Parent, Dow and the Company shall agree upon; provided that the
right to terminate this Agreement under this Section 8.1(b)(i) shall not
be available to a party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Effective Time to occur on or before such date; (ii) if the stockholders
of the Company fail to approve and adopt this Agreement at the Special
Meeting (including any postponement or adjournment thereof) or (iii) any
Governmental Entity shall have issued a statute, order, decree or
regulation or taken any other action (which statute, order, decree,
regulation or other action the parties hereto shall use their reasonable
best efforts to lift) in each case permanently restraining, enjoining
or otherwise prohibiting the Merger or making the Merger illegal and such
statute, order, decree, regulation or other action shall have become
final and non-appealable.
Section 8.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 8.1, written notice
thereof shall forthwith be given to the other party or parties specifying
the provision hereof pursuant to which such termination is made, and this
Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Purchaser, Dow or the Company except as
set forth in Section 9.1 hereof and Section 8.3 hereof and except with
respect to the requirement to comply with the Confidentiality Agreements
and return and hold confidential Information pursuant to the procedures
set forth in Section 6.4. The termination of this Agreement shall not
relieve
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any party from liability for breach of this Agreement except as provided in the
second sentence of Section 8.3 hereof.
Section 8.3 Fee. The Company shall promptly pay to Parent a
fee of $65,000,000 in the event that this Agreement is terminated
pursuant to Section 8.1(b)(ii). If this Agreement is terminated pursuant
to Section 8.1(b)(ii) hereof, the payment of such fee shall be the sole
and exclusive remedy against the Company, Dow and their respective
Affiliates, officers, directors and representatives in connection with
this Agreement and the transactions contemplated hereby.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as contemplated by this
Agreement, all costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
Section 9.2 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or in equity.
Section 9.3 Amendment; Waiver.
(a) This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at
any time before or after approval by the stockholders of the Company of
the matters presented in connection with the Merger, but after any such
approval no amendment shall be made without the approval of such
stockholders if such amendment changes the Merger Consideration or alters
or changes any of the other terms or conditions of this Agreement if such
alteration or change would materially adversely affect the rights of such
stockholders. This Agreement
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may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
(b) At any time prior to the Effective Time, the parties may
(i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties of the other parties contained herein
or in any document, certificate or writing delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions of the
other parties hereto contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
Section 9.4 Survival. The respective representations and
warranties of Parent, Purchaser, Dow and the Company contained herein or
in any certificates or other documents delivered prior to or as of the
Effective Time shall not survive beyond the Effective Time, provided
however that the representations and warranties of Dow in Section 4.4 of
this Agreement shall survive indefinitely following the Effective Time.
The covenants and agreements of the parties hereto (including the
Surviving Corporation after the Merger) shall survive the Effective Time
without limitation (except for those which, by their terms, contemplate a
shorter survival period).
Section 9.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier or when delivered
by hand or (c) the expiration of five business days after the day when
mailed in the United States by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
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(a) if to the Company, to:
Destec Energy, Inc.
2500 CityWest Blvd.
Suite 150
Houston, Texas 77042
Telephone: (713) 735-4261
Facsimile: (713) 735-4267
Attention: Marian M. Davenport, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2001
Attention: Roger S. Aaron, Esq.
(b) If to Dow, to:
The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Telephone: (517) 636-1000
Facsimile: (517) 636-0861
Attention: Jane M. Gootee, Esq.
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telephone: (312) 782-0600
Facsimile: (312) 701-7711
Attention: Scott J. Davis, Esq.
and :
(c) if to Parent or Purchaser, to:
NGC Corporation
13430 Northwest Freeway, Suite 1200
Houston, Texas 77040-6095
Telephone: (713) 507-6816
Facsimile: (713) 507-6808
Attention: Kenneth E. Randolph, Esq.
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with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telephone: (713) 758-2222
Facsimile: (713) 758-2346
Attention: T. Mark Kelly and
Keith R. Fullenweider
Section 9.6 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom
such information is to be made available. The words "affiliates" and
"associates" when used in this Agreement shall have the respective
meanings ascribed to them in Rule 12b-2 under the Exchange Act. The
phrase "beneficial ownership" and words of similar import when used in
this Agreement shall have the meaning ascribed to it in Rule 13d-3 under
the Exchange Act.
Section 9.7 Headings; Schedules. The headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. Any matter
disclosed pursuant to any Schedule to the Disclosure Schedule shall be
deemed to be disclosed for all purposes under this Agreement but such
disclosure shall not be deemed to be an admission or representation as to
the materiality of the item so disclosed.
Section 9.8 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but
all of which shall be considered one and the same agreement.
Section 9.9 Entire Agreement. This Agreement and the
Confidentiality Agreement, and certain other agreements executed by the
parties hereto as of the date of this Agreement, constitute the entire
agreement, and supersedes all prior agreements and understandings
(written and oral), among the parties with respect to the subject matter
hereof.
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Section 9.10 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
Section 9.11 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
Section 9.12 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors and
assigns, and except to the extent necessary to enforce the provisions of
Sections 2.1, 2.3, and 6.8, the provisions of this Agreement are not
intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.13 Consent to Jurisdiction. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Delaware and of the
United States of America located in the State of Delaware (the "Dela-
ware Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such Delaware
Courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in
an inconvenient forum.
60
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser, Dow and the Company
have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
DESTEC ENERGY, INC.
By: /s/ Enrique M. Larroucau
--------------------------------
Name: Enrique M. Larroucau
Title: Senior Vice
President, Chief Financial
Officer and Treasurer
THE DOW CHEMICAL COMPANY
By: /s/ B.G. Taylorson
--------------------------------
Name: B.G. Taylorson
Title: Corporate Director, M&A
NGC CORPORATION
By: /s/ Kenneth E. Randolph
-------------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
and General Counsel
NGC ACQUISITION CORPORATION II
By: /s/ Kenneth E. Randolph
------------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
61
<PAGE>
SCHEDULE A
Number of Shares
----------------
The Dow Chemical Company 45,000,000
A-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.4
<SEQUENCE>3
<DESCRIPTION>ASSET PURCHASE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
by and between
NGC CORPORATION
and
THE AES CORPORATION
dated as of
February 17, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 17, 1997, by and between NGC
Corporation, a Delaware corporation ("NGC"), and The AES Corporation, a Delaware
corporation ("Parent").
WHEREAS, simultaneously with the execution and delivery hereof, Parent, NGC
or its affiliate, Destec Energy, Inc., a Delaware corporation (the "Company"),
and The Dow Chemical Company, a Delaware corporation ("Dow"), are entering into
an agreement and plan of merger (the "Merger Agreement") pursuant to which the
Company has agreed to merge with a subsidiary of NGC (the "Merger");
WHEREAS, the Company owns and operates certain international businesses and
assets;
WHEREAS, Parent desires to cause a wholly-owned subsidiary, a Delaware
corporation ("Purchaser"), to buy and immediately following the Merger, NGC
desires to cause the Company to sell the international businesses and assets of
the Company and its subsidiaries, and Purchaser is willing to assume certain
related liabilities and obligations of the Company and its subsidiaries, all
upon the terms and conditions hereinafter set forth; and
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent and NGC have each approved the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of the International Assets. Subject to the
terms and conditions of this Agreement, on the Closing Date (as hereinafter
defined), and immediately following the consummation of the Merger, NGC shall
cause the Company to sell, convey, assign, transfer and deliver (or cause to be
sold, conveyed, assigned, transferred and delivered) to Purchaser, and the
Purchaser shall purchase and acquire the international assets of the Company,
including, without limitation, all of the Company's or its Subsidiaries' (as
defined in the Merger Agreement) right, title and interest in and to the
following:
<PAGE>
(i) all of the issued and outstanding shares of capital stock (or
their equivalent under local law) (the "Purchased Shares") as set forth in Part
I of Schedule 1.1 of the disclosure schedule attached hereto (the "Disclosure
Schedule"), which when delivered to Purchaser at the Closing (as hereinafter
defined) will be free and clear of any liens, claims, security interests,
charges, leases, licenses or sublicenses created by, through or under NGC
("Liens");
(ii) all rights, options and other interests in projects or projects
in development outside of the United States, including those set forth in Part
II of Schedule 1.1 of the Disclosure Schedule;
(iii) all contracts and other agreements associated with or relating
to the projects known as Elsta, Los Mina, Indian Queens, Hazelwood and Kingston
Cogen (collectively, the "Projects"), including those listed on Part III of
Schedule 1.1 of the Disclosure Schedule;
(iv) all licenses, permits or franchises issued by any Governmental
Entity (as hereinafter defined) relating to the Projects; and
(v) those other assets and properties set forth in Part IV of
Schedule 1.1 of the Disclosure Schedule.
The assets being sold, conveyed, assigned, transferred and delivered to
Purchaser by the Company hereunder are hereinafter referred to as the
"International Assets" or the "International Businesses."
Section 1.2 Instruments of Conveyance and Transfer. At the Closing, NGC
shall cause the Company to (a) deliver or cause to be delivered to Purchaser
stock certificates, stock powers, assignments and other good and sufficient
instruments of transfer, conveyance and assignment as the Purchaser and its
counsel shall deem necessary or appropriate to vest in Purchaser all of the
Company's and the Subsidiaries' right, title and interest in and to the
International Assets, and (b) transfer to Purchaser all of the Company's and its
Subsidiaries' right, title and interest in and to the contracts, agreements,
commitments, books, records, files and other data relating to the International
Assets.
2
<PAGE>
Section 1.3 Assumed Liabilities. At the Closing, Purchaser shall deliver to
the Company an undertaking (the "Assumption Agreement") in the form to be agreed
upon whereby Purchaser, on and as of the Closing Date, assumes and agrees to
pay, perform and discharge when due, (i) the liabilities and obligations of the
Company and its Subsidiaries primarily attributable to the International Assets
including, without limitation, the liabilities and obligations listed on
Schedule 1.3 of the Disclosure Schedule, (ii) with respect to any corporate
liabilities of the Company unknown to NGC or Parent that are not primarily
attributable to the International Assets or to the Company's domestic assets, a
pro rata portion of such corporate liabilities calculated based on a fraction
the numerator of which is the Purchase Price and the denominator of which is the
Merger Consideration (as defined in the Merger Agreement), (iii) all liabilities
and obligations with respect to the International Employees described in Section
6.2, including, without limitation, all liabilities and obligations relating to
the International Employees under (a) the Destec Energy, Inc. 1996 Variable Pay
Plan, (b) the Destec Energy, Inc. 1995 Variable Pay Plan, (c) the Destec Special
Recognition Award (SRA) Program, (d) the Destec Energy, Inc. Amended and
Restated 1990 Award and Option Plan, (e) the Destec Foreign Service Policy, (iv)
all severance costs, obligations under employment agreements and consulting
agreements, and employee benefit liabilities arising as a result of (I) the
termination of employment of any International Employees from and after the
Closing Date or (II) the transactions consummated under this Agreement in
respect of the International Employees (the cost, obligations and liabilities
under this clause (iv) are collectively the "International Employee
Obligations"), and (v) each liability or obligation relating to any
International Employee (with respect to employee benefit plans, in excess of any
assets owned by the Company or the Subsidiaries and directly related to such
plan or held by any trust with respect thereto sponsored or maintained by the
Company or the Subsidiaries (other than the International Assets) which are
available to satisfy or otherwise offset such liability or obligation), relating
to any bonus, deferred compensation, incentive compensation, stock purchase,
stock option, restricted stock,
<PAGE>
deferred stock, stock appreciation right, vacation policy, superannuation,
severance or termination pay, hospitalization or other medical, life or other
insurance, flexible benefit, cafeteria plan, supplemental unemployment benefits,
profit sharing, pension, or retirement plan, program, agreement or arrangement,
employment agreements, consulting agreements and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or contributed to
by the Company or its Subsidiaries (the "International Employee Plans") and (vi)
all obligations and liabilities with respect to transfer stamp taxes or similar
taxes arising in connection with the purchase of the International Assets by
Purchaser. The liabilities and obligations assumed by Purchaser in accordance
with this Section 1.3 are hereinafter referred to as the "Assumed Liabilities."
Section 1.4 Excluded Liabilities. Any liability of the Company or any
affiliate thereof other than the Assumed Liabilities shall not be assumed by
Purchaser or its affiliates including, without limitation, all liabilities and
obligations relating to the Plans (as defined in the Merger Agreement), except
for any of the International Employee Obligations and the International Employee
Plans. The liabilities that are not to be assumed by Purchaser or its
affiliates in accordance with this Section 1.4 are hereinafter referred to as
the "Excluded Liabilities."
Section 1.5 Closing. Unless this Agreement shall have been terminated and
the transactions contemplated herein shall have been abandoned pursuant to
Section 8.1 hereof, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place after all of the conditions herein or
incorporated herein are satisfied or waived immediately following the Effective
Time (as defined in the Merger Agreement), at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, unless an
earlier date or place is agreed to in writing by the parties hereto. The date
on which the Closing occurs is referred to herein as the "Closing Date."
4
<PAGE>
Section 1.6 Purchase Price and Payment. (a) In consideration for the
International Assets and subject to the terms and conditions of this Agreement,
Purchaser shall on the Closing Date assume the Assumed Liabilities as provided
in Section 1.3 hereof pursuant to the Assumption Agreement and shall transfer to
or to the order of the Company in immediately available funds in New York City
an amount equal to U.S. $407,055,000 (the "Base Purchase Price"), as adjusted as
set forth in accordance with the provisions of this Section 1.6 (the "Purchase
Price"). NGC and Purchaser agree to negotiate in good faith to adjust the Base
Purchase Price to be paid at the Closing if allocations of net cash flow to be
made pursuant to Section 1.6(c) between the date hereof and the Closing Date are
expected to be at least $10,000,000.
(b) One business day prior to the proposed Effective Time, Parent or
Purchaser shall deposit the Base Purchase Price in trust with the Paying Agent
(as defined in the Merger Agreement) in a segregated account (the "AES Fund").
NGC shall instruct the Paying Agent that the AES Fund shall not be released
without the written consent of Parent and NGC. Parent shall give its written
consent upon satisfaction of the conditions set forth in Article VII of this
Agreement. The AES Fund shall be deposited in an interest bearing account. If
the conditions set forth in Article VII of this Agreement have not been
satisfied by 12:00 noon on the second business day after the AES Fund was
initially deposited, or such later date or time as Parent in its sole discretion
may agree, NGC shall instruct the Paying Agent to return the AES Fund to Parent
or Purchaser, as the case may be, including all interest earned thereon. Upon
release of the AES Fund other than to Parent or Purchaser, NGC shall instruct
the Paying Agent to promptly pay the interest earned on the AES Fund until the
Effective Time of the Merger to Parent or Purchaser, as the case may be.
(c) The Base Purchase Price shall be adjusted as set forth in this clause (c)
to reflect the following allocation of the net cash flow of the Company and its
Subsidiaries for the period from January 1, 1997 to the
<PAGE>
Closing Date: the net cash flow of the Company and its Subsidiaries for the
period from and including January 1, 1997 to and excluding the Closing will be
allocated in a fair and reasonable manner between the International Assets, on
the one hand, and the Company and its Subsidiaries (other than the International
Assets), on the other hand. Within three business days after such allocation
becomes final and binding upon Parent and NGC pursuant to clause (d) below, if
the net cash flow so allocated to the International Assets is greater than zero,
Parent shall cause Purchaser to pay the Company such difference, and if the net
cash flow so allocated to the International Assets is less than zero, NGC shall
cause the Company to pay Purchaser such difference. Any such adjusting payment
shall bear interest at 7.5% per annum for the period from and including the
Closing Date through and excluding the date of payment to the party to which it
is owed pursuant to this Section 1.6(c).
(d) Within 60 days after the Closing Date, NGC shall deliver to Parent a
proposed settlement statement (the "Proposed Settlement Statement") prepared in
good faith setting forth the allocation of such net cash flows between the
International Assets and the Company and its Subsidiaries (other than the
International Assets), together with supporting documentation in reasonable
detail. NGC shall provide Parent with full access to the same information
available to NGC for purposes of determining such allocation of net cash flow.
If Parent objects to the Proposed Settlement Statement, it shall so notify NGC
in writing within 30 days after receipt of the Proposed Settlement Statement,
which notice shall set forth in reasonable detail any such objections. If
Parent fails to deliver any such objection within such 30-day period, Parent
shall be deemed to have accepted the Proposed Settlement Statement (including
the calculation of the Purchase Price therein). NGC and Parent shall promptly
meet to attempt to resolve any such objections, and if they fail to resolve such
objections within 30 days after receipt by NGC of Parent's objections, such
objections shall be resolved by an independent accounting firm (the
"Accountants") selected by Deloitte & Touche and Arthur
6
<PAGE>
Andersen & Co., with Parent and NGC to bear the fees and expenses of the
Accountants pro rata in inverse proportion to the amounts of their respective
awards with respect to the disputed items. The Purchase Price as determined by
agreement by NGC and Parent, by failure of Parent to deliver an objection as
described above or by the Accountants pursuant to this Section 1.6(d) shall be
final and binding upon the parties.
Section 1.7 Allocation of Purchase Price. The Purchase Price shall be
allocated among the International Assets in writing, by the parties hereto prior
to the Closing. The parties hereto agree that the net book value of any
International Asset may not be indicative of its fair market value.
Section 1.8 Transfer of Purchased Assets, Assignment of Contractual Rights,
Governmental Consents, Etc. (a) Anything contained in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement or an
attempted agreement to transfer, sublease or assign any contract, license,
lease, commitment, purchase order, sales order or other agreement or any claim,
right, benefit, license, permit or authorization arising thereunder or resulting
therefrom if a transfer, sublease or assignment or an attempted transfer,
sublease or assignment thereof, without the consent of any other party thereto,
would be ineffective, would constitute a breach thereof or would in any way
affect the rights of the Purchaser thereunder. Additionally, this Agreement
shall not constitute an agreement or an attempt to transfer any of the
International Assets, the transfer of which may require the prior consent of any
United States or foreign governmental authority or agency until such consent is
obtained. NGC, Parent and Purchaser shall use their reasonable best efforts to
obtain the consent of any such governmental authority and to obtain the consent
of the other party to any of the agreements referred to above, to the transfer
of the International Assets to the Purchaser in all cases in which such consent
is required for such transfer. Except as otherwise agreed between NGC and
Parent pursuant to
<PAGE>
Section 1.8(b) hereof, if, upon the satisfaction of all conditions to the
Closing, any such consent (governmental or otherwise) is not obtained or if a
transfer, sublease, or assignment or an attempted transfer, sublease or
assignment of any of the International Assets would be ineffective, would
constitute a breach thereof or would in any way materially affect the rights
thereunder such that the Purchaser would not in fact receive all of the rights
or ownership to the International Assets as provided in this Agreement (any such
International Assets, the "Deferred Assets"), title to the Deferred Assets shall
be retained by the Company but there shall be no reduction or reimbursement of
the Purchase Price. After the Closing, NGC, the Company, Parent and Purchaser
shall continue to use their reasonable best efforts to (i) cooperate to attempt
to obtain any such consents and (ii) to transfer to Parent or Purchaser pursuant
to reasonable and lawful arrangements the benefits and liabilities with respect
to the Deferred Assets effective as of the Closing. After the Closing, such
efforts shall include, without limitation, the enforcement for the benefit of
the Purchaser (at Purchaser's cost) of any and all rights of NGC, the Company or
their subsidiaries against third parties to any contract or agreement and the
transfer or sale of such Deferred Asset to any person or entity designated by
the Purchaser (and the net proceeds from any such transfer or sale shall be for
Purchaser's account). NGC shall cooperate with Parent and the Company in all
reasonable requests Parent, Purchaser or the Company shall make in connection
with the obtaining of all such consents and approvals. Upon receipt of the
required consents or approvals with respect to any Deferred Assets, NGC shall
cause the Company to transfer such Deferred Asset (and the liabilities related
thereto) to Parent or Purchaser, without recourse except as to encumbrances in
each case created by, through or under NGC, the Company or their affiliates from
and after the Closing. Any such transfer shall to the extent possible be
effective as of the Closing, and arrangements will be made to transfer the net
cash flow between the Deferred Assets, on the one hand, and the Company and the
Subsidiaries (excluding the International Assets) on the other hand attributable
to projects so
8
<PAGE>
transferred for the period from the date of the Closing through the date of such
transfer, to the extent that they were not theretofore transferred.
(b) With respect to the project known as "Hazelwood," NGC and Parent
acknowledge that there is a question as to whether consents of the Government of
Victoria of Australia that are required pursuant to certain financing, project
and other documents relating to the Hazelwood project will be received at or
prior to the Closing. Therefore, NGC and Parent agree to fully cooperate to
determine whether such consents will be received prior to or at Closing by
acting together to seek such consents as expeditiously as possible. If after 15
days from the date of this Agreement it appears to either of the parties that
such consents are not reasonably likely to be received prior to or at the
Closing, NGC and the Parent agree to negotiate in good faith with respect to (i)
whether reasonable and lawful arrangements (which do not violate any law or
contractual obligations applicable to the Hazelwood project) can be designed to
achieve the transfer described above with respect to the Hazelwood project,
including to the extent feasible trust arrangements, put/call arrangements, or
obligations on the part of NGC to cause the timely sale of the Hazelwood project
(with proceeds thereof to be delivered to Parent or Purchaser with adjustments
to be agreed upon to reflect benefits and liabilities of the Hazelwood project
from the date of the Closing through the date of the sale of the Hazelwood
project), and (ii) whether the structure of the transactions contemplated in
this Agreement and the Merger Agreement could be "flipped" so that the Parent or
its affiliate merges with the Company and immediately thereafter the Parent
causes the Company to sell its assets (other than the International Assets) to
NGC. In addition, NGC agrees that, if after such 15 days it appears that the
consents will not be received prior to or at the Closing, it shall as
expeditiously as possible seek the third party consents necessary to consummate
such a flipped transaction. Notwithstanding anything herein to the contrary,
NGC shall not be under any obligation to consummate such a flipped transaction
if a necessary third party consent is not
<PAGE>
obtainable after a reasonable good faith effort on NGC's behalf to obtain such a
consent or NGC determines in good faith that such a transaction would be
significantly adverse to NGC.
(c) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE III
AND EXCEPT AS OTHERWISE PROVIDED IN SECTION 1.1(i), THE INTERNATIONAL ASSETS ARE
BEING SOLD TO PURCHASER AS IS, WHERE IS, WITH ALL FAULTS, DEFECTS, LIENS AND
OTHER ENCUMBRANCES; PROVIDED THAT THE FOREGOING SHALL NOT AFFECT PARENT'S RIGHTS
UNDER SECTION 7.1.
ARTICLE II
[Intentionally Omitted]
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NGC AND THE COMPANY
NGC represents and warrants to Parent and Purchaser as follows:
Section 3.1 Organization. NGC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. NGC has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and is or will be
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on the
business or financial condition of NGC and its subsidiaries, taken as a whole,
or materially impair or delay the consummation of the transactions contemplated
by this Agreement. NGC has previously delivered to the Parent and Purchaser
complete and correct copies of its certificate of incorporation and by-laws, as
currently in effect, and prior to the Closing NGC will have delivered to Parent
complete and correct copies of
10
<PAGE>
the certificate of incorporation and by-laws of the Company, as in effect at the
time of such delivery.
Section 3.2 Authorization; Validity of Agreement. NGC has the requisite
corporate power and authority to execute and deliver this Agreement. NGC has,
and as of the Closing the Company will have, the requisite corporate power and
authority to consummate the transactions contemplated hereby. The execution and
delivery by NGC of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by NGC's Board of Directors and no
other corporate proceedings on the part of NGC are necessary to authorize the
execution and delivery of this Agreement by NGC and the consummation of the
transactions contemplated hereby. The consummation of the transactions
contemplated hereby will be duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company will be
necessary to authorize the transactions contemplated hereby. This Agreement has
been duly executed and delivered by NGC and, assuming due authorization,
execution and delivery of this Agreement by Parent, is a valid and binding
obligation of NGC enforceable against it in accordance with its terms.
<PAGE>
Section 3.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by NGC nor the
consummation by NGC of the transactions contemplated hereby will (i) violate any
provision of the respective certificates of incorporation or by-laws of NGC or,
as of the Closing, the Company, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other instrument or obligation to which NGC or, with respect to agreements
entered into by or on behalf of NGC ("New Agreements"), the Company is a party,
or by which NGC or, pursuant to New Agreements, the Company or any of their
respective assets are bound or (iii) assuming that all consents, authorizations
and approvals contemplated by Section 3.3(b) or Section 1.8 have been obtained
and all filings contemplated thereby have been made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to NGC, any of its
subsidiaries (excluding for purposes of this clause (iii) the Company and its
subsidiaries) or any of their properties or assets; except for such violations,
breaches, defaults, terminations, amendments, cancellations or accelerations
which would not materially impair or delay the consummation of the transactions
contemplated by this Agreement.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by NGC or the consummation by NGC
of the transactions contemplated hereby, except (i) applicable requirements
under Competition Laws (as hereinafter defined), (ii) applicable requirements
under the Securities Exchange Act of 1934, as amended and the regulations
thereunder (the "Exchange Act") and (iii) such other consents, approvals,
orders, authorizations, notifications, registrations,
12
<PAGE>
declarations and filings the failure of which to be obtained or made would not
materially impair or delay the consummation of the transactions contemplated by
this Agreement.
Section 3.4 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither NGC nor
any other Person (as defined in the Merger Agreement) makes any other express or
implied representation or warranty on behalf of NGC.
ARTICLE IV
[Intentionally Omitted]
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent represents and warrants and Purchaser as of the Closing will represent
and warrant to NGC as follows:
Section 5.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
Purchaser as of the Closing will be a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Parent has and as of
the Closing Purchaser will have all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
or will be conducted and is or will be qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the business or financial condition of Parent
and its Subsidiaries, taken as a whole, or materially impair or delay the
consummation of the transactions contemplated by this Agreement. Parent has
previously delivered to NGC complete and correct copies of its certificate of
incorporation and by-laws, as currently in effect and prior to the Closing
Parent
<PAGE>
will have delivered to NGC complete and correct copies of the certificate of
incorporation and by-laws of Purchaser, as in effect at the time of such
delivery.
Section 5.2 Authorization; Validity of Agreement.
Parent has the requisite corporate power and authority to execute and deliver
this Agreement. Parent has, and as of the Closing Purchaser will have, the
requisite corporate power and authority to consummate the transactions
contemplated hereby. The execution and delivery by Parent of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Parent and no other corporate
proceedings on the part of Parent are necessary to authorize the execution and
delivery of this Agreement by Parent and the consummation of the transactions
contemplated hereby. The consummation of the transactions contemplated hereby
will be duly authorized by the Board of Directors of Purchaser and no other
corporate proceedings on the part of Purchaser will be necessary to authorize
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and, assuming due authorization, execution and delivery of
this Agreement by NGC, is a valid and binding obligation of Parent enforceable
against Parent in accordance with its terms.
Section 5.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by Parent nor the
consummation by Parent and Purchaser of the transactions contemplated hereby
will (i) violate any provision of the respective certificates of incorporation
or by-laws of Parent or Purchaser, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other
14
<PAGE>
instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which any of them or any of their assets may be bound or (iii) assuming
that all consents, authorizations and approvals contemplated by Section 5.3(b)
have been obtained and all filings contemplated thereby have been made, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets; except for
such violations, breaches, defaults, terminations, amendments, cancellations or
accelerations which would not materially impair or delay the consummation of the
transactions contemplated by this Agreement.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by Parent or the consummation by
Parent and Purchaser of the transactions contemplated hereby, except (i)
applicable requirements under Competition Laws, (ii) applicable requirements
under the Exchange Act and (iii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made would not materially impair or delay the
consummation of the transactions contemplated by this Agreement.
Section 5.4 Financing. One business day prior to the Effective Time, Parent
and Purchaser will have sufficient funds available (through existing credit
arrangements or otherwise) to pay the Purchase Price and to perform their
obligations hereunder.
Section 5.5 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent and Purchaser.
Section 5.6 Public Utility Company; Public Utility Regulatory Policies Act.
Neither Parent nor its Subsidiaries
<PAGE>
is subject to regulation as a "holding company" or a "subsidiary company" of a
holding company or a "public utility company" under Section 2(a) of the Public
Utility Holding Company Act of 1935.
Section 5.7 Absence of Litigation. As of the date hereof, there is no suit,
claim, action, proceeding or investigation pending against, or to the actual
knowledge of Parent, threatened against, Parent or any of its respective
properties before any Governmental Entity or arbitrator which challenges or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. As of the date hereof, neither Parent nor any of its respective
properties is subject to any judgment, decree, order or injunction of any
Governmental Entity or arbitrator which would prevent or delay the consummation
of the transactions contemplated hereby.
Section 5.8 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article V, neither Parent,
Purchaser nor any other Person makes any other express or implied representation
or warranty on behalf of Parent or Purchaser.
ARTICLE VI
COVENANTS
Section 6.1 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using
reasonable best efforts to effect all necessary registrations and filings. Each
of the parties hereto will furnish to the other parties such necessary
information and reasonable assistance as such other
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parties may reasonably request in connection with the foregoing and will provide
the other parties with copies of all filings made by such party with any
Governmental Entity or any other information supplied by such party to a
Governmental Entity in connection with this Agreement, and the transactions
contemplated hereby. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of the Company, including any successor, shall take or
cause to be taken all such necessary action.
(b) Parent and NGC shall use their respective reasonable best efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated hereby under the laws, rules, guidelines or
regulations of any Governmental Entity. Without limiting the foregoing, Parent
and NGC shall, as soon as practicable, file Notification and Report Forms under
the HSR Act (as defined below) with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and shall use reasonable best efforts to respond as promptly as practicable to
all inquiries received from the FTC or the Antitrust Division for additional
information or documentation; and Parent and NGC shall use their reasonable best
efforts to take or cause to be taken all actions necessary, proper or advisable
to obtain any consent, waiver, approval or authorization relating to any
Competition Law that is required for the consummation of the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
obligate Parent or NGC to take any action which would have a material adverse
effect on the International Assets. "Competition Laws" means statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization, lessening of competition or
restraint of trade and includes the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act").
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Section 6.2 Employee Benefits.
(a) For purposes of this Agreement, the term "International Employees" means
those employees of the Company and the Subsidiaries who devote a substantial
amount of time to the International Business and those consultants whose
services relate primarily to the International Businesses. Parent and Purchaser
hereby agree to honor without modification or contest, and to make required
payments when due under, all portions of the International Employee Plans in
existence on the date hereof (or as modified to the extent permitted by the
Merger Agreement); provided, however, that nothing in this Section 6.2 shall be
construed to limit the ability of Parent and Purchaser to amend or terminate
such Plans after the Closing to the extent permitted under the terms of the
International Employee Plans.
(b) Parent and Purchaser hereby agree that for a period of one year
immediately following the Effective Time, they shall, or shall cause the
International Entities (as hereinafter defined) to either (i) continue to
maintain the International Employee Plans on terms no less favorable in the
aggregate than those provided to the International Employees and former
international employees on the date hereof or (ii) provide that International
Employees and former international employees may participate in analogous plans
of Parent which provide benefits which in the aggregate are substantially
similar to those provided to them under the International Employee Plans on the
date hereof.
Section 6.3 Indemnification. (a) NGC shall, and NGC shall cause the Company
to, jointly and severally indemnify, defend and hold Parent, Purchaser and their
affiliates harmless against and in respect of (i) all claims asserted by third
parties with respect to Excluded Liabilities and (ii) all costs and expenses
(including expenses of investigation, settlement negotiation and attorneys'
fees) incurred by Parent or Purchaser in connection with any action, suit,
proceeding, demand, claim, investigation, assessment or
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judgment incident to any of the matters indemnified against in this Section
6.3(a).
(b) Parent shall, and Parent shall cause the Purchaser to, jointly and
severally indemnify, defend and hold NGC, the Company and their affiliates
harmless against and in respect of (i) claims asserted by third parties with
respect to the Assumed Liabilities, (ii) all credit support obligations,
guarantees and contribution obligations relating to the International Assets,
including but not limited to those listed on Schedule 1.3 of the Disclosure
Schedule with respect to which the Company and its Subsidiaries have not been
fully released by the Closing to the reasonable satisfaction of NGC and (iii)
all costs and expenses (including expenses of investigation settlement
negotiation and attorneys' fees) incurred by the Company, NGC and their
affiliates in connection with any action, suit, proceeding, demand, claim,
investigation assessment or judgment incident to any of the matters indemnified
against in this Section 6.3(b).
(c) Promptly after receipt by an indemnified party under this Section 6.3 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6.3, notify the indemnifying party in writing of the
claim or the commencement of that action, provided that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to the indemnified party except to the extent that the indemnifying party is
prejudiced by such failure to notify. If any such claim shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein, and to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and to settle and compromise any such claim or action;
provided, however, such settlement or compromise shall be effected only with the
consent of the indemnified party, which consent shall not be unreasonably
withheld. After notice from the
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indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6.3 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation (including related
reasonable attorney's fees and expenses), provided, however, that the
indemnified party shall have the right to employ counsel to represent it if, in
the indemnified party's reasonable judgment, it is advisable for the indemnified
party to be represented by separate counsel), and in that event the fees and
expenses of such separate counsel shall be paid by the indemnified party unless
the named parties to any such claim or action (including any impleaded parties)
include both the indemnifying party and the indemnified party and in the opinion
of counsel to the indemnified party (which counsel is reasonably satisfactory to
the indemnifying party) representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them, in
which case the reasonable fees and expenses of separate counsel (which counsel
is reasonably satisfactory to the indemnifying party) shall be paid by the
indemnifying party. Purchaser and the Company shall each render to each other
such assistance (including by asserting reasonable counterclaims and bringing
suit against third parties) as may reasonably be requested in order to insure
the proper and adequate defense of any such claim or proceeding.
(d) The indemnities provided in this Agreement shall survive the Closing.
(e) The parties agree that the indemnification payments made pursuant to this
Agreement shall be treated for tax purposes as an adjustment to the Purchase
Price, unless otherwise required by applicable law.
Section 6.4 Publicity. None of NGC, Parent, Purchaser nor any of their
respective affiliates shall issue or cause the publication of any press release
or other
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announcement with respect to this Agreement, or the other transactions
contemplated hereby without prior consultation with the other parties, except as
may be required by law or by any listing agreement with a national securities
exchange after prior notice has been given to, and all reasonable efforts have
been made to consult with the other parties.
Section 6.5 Corporate Names; Termination of Trademark Licensing Agreements.
(a) Each of Parent and Purchaser shall change any of the names of the
corporations or other Persons included as part of the International Assets which
contain "Destec" to corporate names not containing "Destec" within 90 days after
the transfer of such Person to Purchaser and shall use their respective
reasonable best efforts to remove all corporate names, service marks, trademarks
and trade names containing "Destec" (the "Destec Names") from any of the
International Assets within one year after the Closing Date. After the Closing
Date, neither Parent nor Purchaser shall seek to obtain any rights to or use the
Destec Names except as specifically provided in this Section 6.5.
(b) All trademark licensing agreements by and between the Company and any of
the entities included as part of the International Assets shall be terminated as
of the Closing Date subject to the provisions of this Section 6.5.
Section 6.6 No Non-Compete Obligation.
The parties hereby acknowledge that the consummation of the transactions
contemplated hereby will not create an obligation of (i) NGC or its affiliates
not to compete in any business with Parent, Purchaser or their respective
affiliates; provided that none of NGC, the Company or their affiliates shall use
any confidential information obtained from the Company in connection with NGC
entering into the Merger Agreement or this Agreement to so compete or (ii)
Parent or its affiliates not to compete in any business with NGC, the Company or
their respective affiliates; provided
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that none of Parent, Purchaser or their affiliates shall use any confidential
information obtained from the Company in connection with Parent entering into
this Agreement.
Section 6.7 Obligations under Merger Agreement. If the conditions to NGC's
obligations under the Merger Agreement have been satisfied, NGC will consummate
the Merger; provided, that Parent shall be in compliance with Section 1.6(b) of
this Agreement.
Section 6.8 Transfer Taxes. Parent shall cause Purchaser to pay all transfer
taxes, stamp taxes or similar taxes arising in connection with the sale and
purchase of the International Assets hereunder.
Section 6.9 Merger Agreement Break-Up Fee. NGC shall promptly pay to Parent
its pro rata share of any proceeds received by NGC pursuant to Section 8.3 of
the Merger Agreement.
Section 6.10 Site Development Agreement. If the Company receives notice from
The Dow Chemical Company ("Dow") under Section 3.1 of the Site Development
Agreement between the Company and Dow dated February 17, 1997 with respect to
any project outside the United States of America, NGC shall cause the Company to
promptly send to Purchasers a copy of such notice.
Section 6.11 Certain Confidentiality Obligations. Parent hereby agrees to be
bound by the terms and conditions of Section 6.4 of the Merger Agreement.
Section 6.12 Tax Matters.
(a) NGC and Parent shall make a joint election for the International Entities
(as hereinafter defined) that are U.S. corporations under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code") and under any
applicable similar provisions of state or local law
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(collectively, the "Section 338(h)(10) Elections"). On the Closing Date, NGC and
Parent shall exchange completed and executed copies of Internal Revenue Service
Form 8023-A and any similar state or local forms (collectively, the "Forms"). If
any changes are required in the Forms as a result of information which is first
available after such Forms are prepared, the parties will promptly agree on such
changes. After all required schedules to support the Forms are completed, NGC
and Parent shall file the Forms, which filing shall be made within the time
period specified under applicable law. NGC, Parent, the International Entities
and the Company shall make all required filings relating to the Section
338(h)(10) Elections in connection with their federal and applicable state and
local income tax returns, and shall cooperate fully with each other with respect
to such filings. For purposes of this Agreement, "International Entities" means
those Persons which own, or have any rights to or interest in (direct or
indirect), the International Assets.
Within 180 days following the Closing Date, Parent shall (i) draft a schedule
(the "Allocation Schedule") allocating the Modified Adjusted Deemed Sales Price
(as defined in Section 1.338(h)(10)-1(f) of the Treasury regulations), and the
Adjusted Deemed Sales Price (as defined in Section 1.338-3(d) of the Treasury
Regulations for the International Entities for which Section 338(h)(10)
Elections or Section 338(g) elections will be among the International Assets and
(ii) deliver such Allocation Schedule to NGC. The Allocation Schedule shall be
reasonable and shall be prepared in accordance with Section 338 of the Code and
the Treasury regulations thereunder. Each of Parent, on the one hand, and NGC
(upon its consent to the Allocation Schedule, which consent shall not be
unreasonably withheld) on the other hand, shall report the transactions
contemplated hereby, and file all Tax Returns (as defined below), in each case,
for federal, state, local and foreign Tax purposes in accordance with the
Allocation Schedule.
NGC represents and warrants that it will make joint Section 338(h)(10)
Elections with Dow for the International
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Entities that are U.S. corporations and will file Section 338(g) elections only
for those International Entities designated by Parent. Parent represents and
covenants that it will not file, or permit to be filed by any affiliate, Section
338(g) Elections except for those International Entities designated for such
Elections pursuant to the preceding sentence.
(b) Nothing contained herein shall be construed as altering the rights,
obligations and duties of Dow, the Company and any Subsidiaries of the Company
to each other pursuant to the Tax Sharing Agreement between Dow, the Company and
its Subsidiaries dated May 15, 1996 (the "Tax Sharing Agreement") (attached
hereto as Exhibit 6.12). The Tax Sharing Agreement shall continue to govern the
rights and obligations of Dow, the Company and any Subsidiaries of the Company
with respect to the taxable periods for which it is effective. Parent
acknowledges that the Tax Sharing Agreement shall be amended effective as of the
Closing Date in the form of the First Amendment to the Tax Sharing Agreement,
which has been previously distributed to Parent.
Parent shall pay or cause the International Entities to pay to NGC all amount
required to be paid by the International Entities to Dow under the Tax Sharing
Agreement. NGC shall pay to the International Entities all amounts Dow is
required to pay to the International Entities under the Tax Sharing Agreement.
(c) (i) NGC shall be liable for, and shall indemnify Parent and Purchaser
for and hold Parent and Purchaser harmless against (A) all income Taxes (as
defined below) imposed for any taxable year on Dow's "affiliated group" (as
defined in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) or any other combined or unitary group
for state, local or foreign tax purposes that include Dow (not including the use
of any losses or other Tax attributes) (B) any incremental amount of state and
local income Taxes imposed on the International Entities (other than any amount
of state or
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local Taxes imposed on a combined or unitary group that includes Dow) for the
taxable year that includes the Closing Date, to the extent that such amount is
incurred as a result of the Section 338(h)(10) Elections or any election under
Section 338(g) of the Code and (C) all liability for income Taxes imposed on any
International Entities pursuant to Section 1.1502-6 of the Treasury Regulations
or any comparable provision of state or local law. NGC shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for which NGC
is liable to Parent or Purchaser pursuant to this paragraph (c)(i) of this
Section 6.12.
(ii) Parent and Purchaser shall be liable for, and shall indemnify NGC
for and hold Seller harmless against all Taxes of or imposed on any of the
International Entities for any taxable period other than those Taxes referred to
in paragraph (c)(i) of this Section 6.12. Parent shall be entitled to any
refund of (or credit for) Taxes allocable or attributable to Taxes for which
Parent is liable to NGC pursuant to this paragraph (c)(ii) of Section 6.12.
(iii) Notwithstanding anything to the contrary contained
herein, Parent shall assume and pay all sales, use, privilege, transfer, stock
transfer, real property transfer, documentary, gains, stamp, duties, recording
and similar Taxes and fees and all foreign Taxes (including any penalties,
interest or additions) imposed upon any party incurred in connection with any of
the transfers contemplated by this Agreement (collectively, "Transfer Taxes")
and Parent shall, at its own expense, accurately file all necessary Tax Returns
and other documentation with respect to any Transfer Tax other than Tax Returns
which Seller is responsible for filing under applicable law. Parent and Seller
agree to timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or file Tax
Returns with respect to, such Transfer Taxes.
(d) (i) Parent acknowledges that Dow shall file or cause to be filed when
due all Tax Returns Dow has elected to file pursuant to the Tax Sharing
Agreement and Dow shall remit or cause to be remitted any Taxes due in respect
of such Tax
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Returns, and Parent shall file or cause to be filed when due all Tax Returns
other than those Tax Returns Dow has elected to file pursuant to the Tax Sharing
Agreement that are required to be filed by or with respect to the International
Entities and Parent shall remit or cause to be remitted any Taxes due in respect
of such Tax Returns.
(ii) None of Parent or any affiliate of Parent shall (or shall cause
or permit the Company or any of its Subsidiaries to) amend, refile or otherwise
modify any Tax Return relating in whole or in part to the Company or any of its
Subsidiaries with respect to any Company or any of its Subsidiaries with respect
to any taxable year or period ending on or before the Closing Date without the
prior written consent of NGC.
(iii) Parent shall promptly cause the International Entities
to prepare and provide to, or at the direction of, NGC, all Tax information
materials, including, without limitation, schedules and work papers which the
Company is required to provide Dow pursuant to the Tax Sharing Agreement. Each
of NGC and Parent shall (and shall cause their respective affiliates to): (A)
assist the other party and/or Dow in preparing any Tax Returns which such other
party or Dow is responsible for preparing and filing in accordance with clause
(i) of this Section 6.12, (B) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of the Company and
each Subsidiary of the Company, and (C) make available to the other party and to
any taxing authority as reasonably requested all information, records, and
documents relating to Taxes of the Company and each Subsidiary of the Company,
provided, NGC or Parent (or respective affiliates) has access to information,
records or personnel concerning such Tax Returns that is not available to the
other party.
(e) NGC or Parent shall pay the other party for the Taxes for which NGC or
Parent, respectively, is liable pursuant to paragraph (c) of Section 6.12 upon
the written request of the party entitled to the payment, setting forth in
detail the nature and the amount of the Taxes to which the payment relates.
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(f) Each of NGC and Parent shall (and cause their respective affiliates to):
(A) provide timely notice to the other in writing of any notice of deficiency,
proposed adjustment, adjustment, assessment, audit, examination, suit, dispute
or other claim ("Tax Claim") delivered, sent, commenced or initiated to or
against the Company or any Subsidiary of the Company by any Taxing authority
with respect to taxable periods for which the other may have a liability under
this Section 6.12, and (B) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
(g) Parent acknowledges that Dow shall have the sole right to represent the
Company's and each of its Subsidiaries' interests in any Tax Claim, Tax audit or
administrative or court proceeding ("Proceeding") relating to any Taxes (A)
imposed for any taxable year on Dow's "affiliated group" (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(b) of the Code) or any other combined or unitary group of Dow, (B) imposed
on the Company or any Subsidiary of the Company as a result of the Section
338(h)(10) Elections (or similar provision under state, local or foreign law)
pursuant to paragraph (a) of Section 6.12. None of Parent, any of its
affiliates, or any International Entities may settle any Proceeding for any
taxable year which may be the subject of indemnification by NGC under paragraph
(c) of Section 6.12 without the prior written consent of NGC, which consent may
not be unreasonably withheld. Parent shall have the sole right to represent the
International Entities' interests in any Proceeding relating to any Taxes for
which Parent could be liable to NGC pursuant to Section 6.12(c) of this
Agreement. If the resolution of any Proceeding could adversely affect a party
other than the party with the sole right to represent the Company's or any
Subsidiary's interest in any Tax Claim then such other party shall have the
right to participate in such Proceeding at its own cost and expense.
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(h) Any payment by Parent, Purchaser or NGC pursuant to this Section 6.12
shall be an adjustment to the Purchase Price.
(i) For purposes of this Agreement, "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, estimated, social security, unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording or other taxes, assessments or charges imposed by
any Governmental Entity and any interest, penalties, or additions to tax
attributable thereto. For purposes of this Agreement, "Tax Return" shall mean
any return, report or similar statement required to be filed with respect to any
Tax (including any attached schedules), including, without limitation,, any
information return, claim for refund, amended return or declaration of estimated
Tax.
(j) The obligations set forth in this Section 6.12 shall be unconditional and
absolute and shall remain in effect without limitation as to time.
Section 6.13 Financing Commitment.
Parent agrees that:
(a) Within 10 days of the signing of this agreement, Parent will provide to
NGC a commitment letter substantially in the form of that original letter dated
February 17, 1997 from Morgan Guaranty Trust Company of New York and J.P. Morgan
Securities, Inc. (Morgan) except that (a) clauses (iii) and (iv) shall be
deleted in their entirety and (b) a termsheet evidencing the substantive terms
and conditions under which Morgan will finance AES's purchase of the
International Assets shall be referenced and attached.
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(b) No later than three weeks before the special meeting of Destec's
stockholders to approve the Agreement and Plan of Merger, Parent will provide to
NGC either (a) evidence that Parent has sufficient cash on hand to fund its
obligations under this Agreement or (b) a commitment letter substantially in the
form described in (a) above except the due diligence condition in clause (i)
therein shall be deleted in its entirety, or (c) such other evidence of a firm
financing commitment as may be reasonably satisfactory to NGC and Parent.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Purchaser's Obligation to Purchase the
International Assets. The obligation of Purchaser to purchase the International
Assets hereunder shall be subject to the satisfaction or waiver by Purchaser at
or prior to the Closing of the following: (a) the representations and
warranties of NGC and the Company set forth in this Agreement shall be true and
correct (except in the case of any representation and warranty made as of a
specified date, which need only be true as of such date) as of the date of the
Closing as if such representations and warranties were made on such date except
for such representations and warranties the failure of which to be true and
correct would not have a material adverse effect on the transactions
contemplated by this Agreement; (b) no representation, warranty, condition,
covenant or other term in the Merger Agreement relating to the International
Assets shall be amended, modified or waived, which amendment, modification or
waiver could reasonably be expected to have a material adverse effect on the
International Assets taken as a whole, without the prior written consent of
Parent or Purchaser; (c) the Merger Agreement shall have been consummated,
without waiver of any of the conditions contained in the Merger Agreement, which
waiver could reasonably be expected to have a material adverse effect on the
International Assets taken as a whole, without the written consent of Parent or
Purchaser.
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Section 7.2. Conditions to NGC's Obligation to Sell the International Assets.
The obligation of NGC to sell the International Assets hereunder shall be
subject to the satisfaction or waiver by NGC at or prior to the Closing of the
following: (a) the Merger shall have been consummated, (b) the representations
and warranties of the Parent and Purchaser set forth in this Agreement shall be
true and correct (except in the case of any representation and warranty made as
of a specified date, which need only be true as of such date) as of the date of
the Closing as if such representations and warranties were made on such date
except for such representations and warranties the failure of which to be true
and correct would not have a material adverse effect on the transactions
contemplated by this Agreement and (c) Purchaser shall have complied with
Section 1.6(b) hereof.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing:
(a) By the mutual written consent of Parent and NGC; or
(b) By Parent or NGC, if: (i) the Merger Agreement is terminated; (ii) the
transactions contemplated by this Agreement have not been consummated on or
prior to December 31, 1997, or such other date, if any, as Parent and NGC shall
agree upon; provided that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to a party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date; or (iii) any Governmental Entity
shall have issued a statute, order, decree or regulation or taken any other
action (which statute, order, decree, regulation or other action the parties
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hereto shall use their reasonable best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or making such transactions illegal and such
statute, order, decree, regulation or other action shall have become final and
non-appealable.
Section 8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall terminate, and there
shall be no liability on the part of Parent, Purchaser or NGC except as set
forth in Section 9.1 hereof; provided that the termination of this Agreement
shall not relieve any party from liability for breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as contemplated by this Agreement, all
costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such expenses.
Section 9.2 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 9.3 Amendment; Waiver.
(a) This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time. This Agreement
may not be
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amended except by an instrument in writing signed on behalf of each of the
parties hereto.
(b) At any time prior to the Closing, the parties may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance with any of the agreements
or conditions of the other parties hereto contained herein. Any agreement on
the part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
Section 9.4 Survival. The respective representations and warranties of
Parent, Purchaser and NGC contained herein or in any certificates or other
documents delivered prior to or as of the Closing shall not survive beyond the
Closing. The covenants and agreements of the parties hereto shall survive the
Closing without limitation (except for those which, by their terms, contemplate
a shorter survival period).
Section 9.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to NGC, to:
NGC Corporation
13430 Northwest Freeway
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2500 Citywest Blvd.
Suite 1200
Houston, Texas 77040-6095
Telephone: (713)
Facsimile: (713) 507-6505
Attention: Hugh Tarpley
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telephone: (713) 758-2222
Facsimile: (713) 758-2346
Attention: T. Mark Kelly, Esq.
Keith R. Fullenweider, Esq.
and
(b) if to Parent, to:
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Telephone: (703) 522-1315
Facsimile: (703) 528-4510
Attention: Katherine Oster
with a copy to: Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-5100
Facsimile: (212) 541-5369
Attention: John T. Baecher, Esq.
Section 9.6 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to
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a Section of this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information referred
to has been made available if requested by the party to whom such information is
to be made available. The words "affiliates" and "associates" when used in this
Agreement shall have the respective meanings ascribed to them in Rule 12b-2
under the Exchange Act. The phrase "beneficial ownership" and words of similar
import when used in this Agreement shall have the meaning ascribed to it in Rule
13d-3 under the Exchange Act.
Section 9.7 Headings; Schedules. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any matter disclosed pursuant to any Schedule
to the Disclosure Schedule shall be deemed to be disclosed for all purposes
under this Agreement but such disclosure shall not be deemed to be an admission
or representation as to the materiality of the item so disclosed.
Section 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
Section 9.9 Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings (written and
oral) among the parties with respect to the subject matter hereof, including,
without limitation, that certain Joint Bidding Agreement, dated February 10,
1997, by and between Parent and NGC.
Section 9.10 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions
34
<PAGE>
of this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 9.11 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
Section 9.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns. The provisions of this Agreement
are not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.13 Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such Delaware Courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
<PAGE>
IN WITNESS WHEREOF, Parent and NGC have caused this Agreement to be signed by
their respective officers thereunto duly authorized as of the date first written
above.
NGC CORPORATION
By: /s/ Kenneth E. Randolph
--------------------------
Name: Kenneth E. Randolph
Title: Senior Vice President
and General Counsel
THE AES CORPORATION
By: /s/ Kenneth R. Woodcock
--------------------------
Name: Kenneth R. Woodcock
Title: Senior Vice President
36
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>4
<DESCRIPTION>RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NGC CORPORATION
NGC Corporation hereby adopts a Restated Certificate of Incorporation and
states as follows:
1. The present name of the corporation is "NGC Corporation." The
corporation was originally incorporated under the name Midstream Combination
Corp. pursuant to its original Certificate of Incorporation, which was filed
with the Secretary of State of the State of Delaware on May 22, 1996;
2. The Restated Certificate of Incorporation (i) was duly adopted in
accordance with Section 245 of the Delaware General Corporation Law by the Board
of Directors without a vote of stockholders; (ii) only restates and integrates
and does not further amend the provisions of the Certificate of Incorporation of
the corporation as heretofore amended by that certain Certificate of Merger
merging NGC Corporation with and into Midstream Combination Corp., which filed
with the Secretary of State of the State of Delaware on August 30, 1996; and
(iii) there is no discrepancy between the provisions of the Certificate of
Incorporation as so amended and the provisions of the Restated Certificate of
Incorporation; and
3. The Restated Certificate of Incorporation restates and integrates the
Certificate of Incorporation as heretofore amended by the Certificate of Merger
as follows:
FIRST: The name of the corporation is NGC Corporation (the
"Corporation").
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 450,000,000 shares, divided into
two classes as follows: (i) 50,000,000 shares of Preferred Stock, par value
$0.01 per share ("Preferred Stock"); and (ii) 400,000,000 shares of Common
Stock, par value $0.01 per share ("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and the Common Stock of
the Corporation are as follows:
<PAGE>
B. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such designations and powers,
preferences, and rights, and qualifications, limitations, and restrictions
thereof as are stated and expressed herein and in the resolution or resolutions
providing for the issuance of such series adopted by the board of directors of
the Corporation as hereafter prescribed.
2. Authority is hereby expressly granted to and vested in the board
of directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more series, and with respect to each such series of
the Preferred Stock, to fix and state by the resolution or resolutions from time
to time adopted providing for the issuance thereof the following:
(i) whether or not such series is to have voting rights, full, special, or
limited, or is to be without voting rights, and whether or not such series is to
be entitled to vote as a separate class either alone or together with the
holders of one or more other series or class of stock;
(ii) the number of shares to constitute such series and the designations
thereof;
(iii) the preferences, and relative, participating, optional, or other
special rights, if any, and the qualifications, limitations, or restrictions
thereof, if any, with respect to any such series;
(iv) whether or not the shares of any such series shall be redeemable at
the option of the Corporation or the holders thereof or upon the happening of
any specified event, and, if redeemable, the redemption price or prices (which
may be payable in the form of cash, notes, securities, or other property), and
the time or times at which, and the terms and conditions upon which, such shares
shall be redeemable and the manner of redemption;
(v) whether or not the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the annual amount thereof, and the terms
and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock of
the Corporation, or other property, or a combination thereof, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or classes
or series of stock, whether such dividends shall be cumulative or noncumulative,
and if cumulative, the date or dates from which such dividends shall accumulate;
2
<PAGE>
(vii) the preferences, if any, and the amounts thereof which the holders
of any such series shall be entitled to receive upon the voluntary and
involuntary dissolution of, or upon any distribution of the assets of, the
Corporation;
(viii) whether or not the shares of any such series, at the option of the
Corporation or the holder thereof or upon the happening of any specified event,
shall be convertible into or exchangeable for the shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, securities, or other property of the Corporation and the conversion price
or prices or ratio or ratios or the rate or rates at which such exchange may be
made, with such adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and
(ix) such other special rights and provisions with respect to any such
series as may to the board of directors of the Corporation seem advisable.
3. The shares of each series of the Preferred Stock may vary from the
shares of any other class or series thereof in any or all of the foregoing
respects. The board of directors of the Corporation may increase the number of
shares of the Preferred Stock designated for any existing series by a resolution
adding to such series authorized and unissued shares of the Preferred Stock not
designated for any other series. The board of directors of the Corporation may
decrease the number of shares of the Preferred Stock designated for any existing
series by a resolution, subtracting from such series unissued shares of the
Preferred Stock designated for such series, and the shares so subtracted shall
become authorized, unissued and undesignated shares of the Preferred Stock.
C. Provisions Relating to the Series A Participating Preferred Stock.
1. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred"), $0.01 par value per share, and the number of shares of Preferred
Stock constituting such series shall be 8,000,000.
2. Dividends and Distribution. Subject to the provision for adjustment
hereinafter set forth, the holders of the Series A Preferred shall be entitled
to receive dividends or distributions equal per share in amount and kind to any
dividend or distribution payable on shares of Common Stock, when and as the same
are declared by the Board of Directors out of any funds legally available
therefor and paid to the holders of Common Stock, and no dividend may be
declared and paid on Common Stock unless an identical dividend or distribution
is declared and paid concurrently on Series A Preferred. If, however, at any
time after the date of original issuance of Series A Preferred, the Corporation
shall subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares of Common Stock or combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, and in each such case, the amount to which holders of the Series A
Preferred were entitled immediately
3
<PAGE>
prior to such event shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of the Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of the Common Stock outstanding immediately prior to such event. The
Corporation will have the right to issue shares of capital stock that are senior
or junior to or on a parity with the Series A Preferred with respect to
dividends without the approval or consent of the holders of Series A Preferred.
3. Voting Rights. Except as provided by law, the holders of the Series A
Preferred shall have no voting rights on any matter.
4. Redemption. The shares of the Series A Preferred shall not be
redeemable.
5. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, no
distribution shall be made to the holders of Common Stock or any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred unless, prior thereto, the holders of the Series A
Preferred shall have received $1.00 per share. All assets of the Corporation
available for distribution after the liquidation preferences are fully met of
the Series A Preferred and any shares senior to or on a parity with the Series A
Preferred with respect to liquidation preferences shall be distributed ratably
among the holders of the Series A Preferred and Common Stock in proportion to
the number of shares of Series A Preferred and Common Stock outstanding at the
time of such liquidation, dissolution or winding up of the Corporation. The
Corporation will have the right to issue shares of capital stock that are senior
or junior to or on a parity with the Series A Preferred with respect to the
liquidation, winding-up or dissolution of the Corporation without the approval
or consent of the holders of the Series A Preferred.
6. Conversion. The Series A Preferred may be converted at the option of
the holder thereof, or shall be converted automatically without any action on
the part of the holder thereof, into shares of Common Stock, on the terms and
conditions set forth in this Section 6. For purposes of this section 6, the
term "affiliate" shall mean any corporation, partnership or other entity that is
an "affiliate" within the meaning of the regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as such regulations
are in effect on the date hereof, and the term "Person" shall mean any
individual, firm, corporation, partnership, association, trust, joint venture,
legal entity, political subdivision or instrumentality or other organization.
(A) Right to Convert. Subject to the provisions for adjustment
hereinafter set forth, each share of the Series A Preferred shall be
convertible, at the option of the holder, at any time after the date of issuance
of such share, into one share of Common Stock as follows:
(i) To the extent necessary (a) to avoid dilution of the
holder's percentage ownership of the issued Common Stock, provided that, with
respect to dilution resulting from the issuance of additional compensatory
options as approved
4
<PAGE>
by not less than eighty-five percent (85%) of the entire Board of Directors, the
holder would have no such conversion right so long as its ownership of Common
Stock would still be greater than twenty percent (20%) of the issued Common
Stock, assuming for this purpose that all shares of Common Stock subject to
currently exercisable options and warrants were issued and outstanding, or (b)
to maintain a percentage ownership of the issued Common Stock at least equal to
that of the then largest other stockholder of the Corporation;
(ii) To the extent necessary, if any Person other than the holder of
Series A Preferred or an affiliate of such holder makes a tender offer for
Common Stock and such holder desires to tender the shares of the Series A
Preferred in the same proportion as it tenders Common Stock;
(iii) Upon approval by the stockholders of the Corporation of any
merger or recapitalization proposal in which the Series A Preferred would be
treated differently than Common Stock; and
(iv) Upon approval by the Corporation's stockholders of any (a) sale
of all or substantially all of the assets of the Corporation or (b) liquidation,
dissolution or winding up of the Corporation.
(B) Automatic Conversion. Subject to the provisions for adjustment
hereinafter set forth, each share of the Series A Preferred shall be
automatically converted into one share of Common Stock upon a sale or other
transfer (by operation of law, merger or otherwise) by the holder of such shares
to any Person other than an affiliate of the holder.
(C) Conversion Rate Adjustments. The Conversion Rate of the Series A
Preferred shall be subject to adjustment as hereinafter set forth. If at any
time the Corporation shall subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, and in each such case, the number of shares of
Common Stock into which each share of the Series A Preferred is convertible
shall be adjusted so that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock which
the holder of a share of the Series A Preferred would have been entitled to
receive after the happening of any and all of the events described above had
such share been converted into Common Stock immediately prior to the happening
of such event or the record date therefor, whichever is earlier.
(D) Mechanics of Conversion. The holder of any shares of the Series A
Preferred may exercise its option to convert such shares into shares of Common
Stock by surrendering for such purpose to the Corporation, at its principal
office or at such other office or agency maintained by the Corporation for that
purpose, a certificate or certificates representing the shares of the Series A
Preferred to be converted accompanied by a written notice stating that
5
<PAGE>
such holder elects to convert all or a specified whole number of such shares in
accordance with the provisions of this Section 6 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. In case such notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. As promptly as practicable, and in any event within five business
days after the surrender of such certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes, the
Corporation shall deliver or cause to be delivered (i) certificates representing
the number of validly issued, fully paid and nonassessable shares of Common
Stock of the Corporation to which the holder of the Series A Preferred so
converted shall be entitled (and/or any other consideration to which the holders
of such shares of Common Stock would then be entitled) and (ii) if less than the
full number of shares of the Series A Preferred evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, for the number of shares evidenced by such surrendered certificate
or certificates less the number of shares converted. Such conversions shall be
deemed to have been made upon receipt by the Corporation of such notice and such
surrendered certificate or certificates representing the shares of the Series A
Preferred to be converted, so that the rights of the holder thereof shall cease
except for the right to receive Common Stock of the Corporation in accordance
herewith (and/or any other consideration to which the holders of such shares of
Common Stock would then be entitled), and such holder shall be treated for all
purposes as having become the record holder of such Common Stock of the
Corporation at such time.
D. Provisions Relating to the Common Stock.
1. Except as otherwise required by law, and subject to any special
voting rights which may be granted any series of Preferred Stock in the board of
directors resolution which creates such series, each holder of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
other holder's name on the records of the Corporation on each matter submitted
to a vote of the stockholders.
2. Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as, and if
declared by the board of directors of the Corporation, out of funds legally
available therefor, dividends payable in cash, stock, or otherwise.
3. Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock and the holders of any bonds, debentures, or other obligations
of the Corporation shall have been paid in full the amounts to which they shall
be entitled (if any), or a sum sufficient for such payment in full shall have
been set aside, the remaining net assets of the Corporation shall be distributed
pro rata to the holders of the Common Stock and the holders of Series A
Preferred in accordance with their respective rights and interest, to the
exclusion of the holders of any other series of the Preferred Stock and any
bonds, debentures, or other obligations of the Corporation.
6
<PAGE>
4. Without the consent of the holders of eighty-five percent (85%)
of the outstanding Common Stock, the Corporation may (and may permit any
subsidiary of the Corporation over which it has control to) sell the following
products:
(i) crude oil;
(ii) other products usually and normally refined as petroleum products from
crude oils; and
(iii) natural gas liquids or liquefied petroleum gases;
irrespective of where such sales or products are made, only when the seller has
no actual knowledge that the sale is not for consumption or resale in one or
more of the following areas:
(i) the United States or any of its territories or possessions;
(ii) any country wholly located in the Western Hemisphere and/or Europe or
surrounded by the Mediterranean Sea;
(iii) any country all of the territory of which was formerly contained
within the Union of Soviet Socialist Republics;
(iv) any country whose territory is contained within the territories
constituting as of the date hereof the countries known as Algeria, Angola,
Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Cote
D'Ivoire, Equatorial Guinea, Gabon, Gambia, Ghana, Greenland, Guinea, Guinea
Bissau, Iceland, Liberia, Libya, Mali, Mauritania, Mongolia, Morocco, Niger,
Nigeria, Rio Muni, Senegal, Sierra Leone, Togo, Tunisia, Turkey, Western Sahara
and/or Zaire;
(v) Antarctica; and
(vi) international waters;
unless (a) otherwise permitted by the terms of that certain Scope of Business
Agreement, dated May 22, 1996, between the Corporation and Chevron Corporation,
as the same may from time to time be amended in accordance with the terms
thereof, or (b) such Scope of Business Agreement is terminated pursuant to its
terms, upon which termination the provisions of this paragraph 4 shall be of no
further force and effect. A copy of such Scope of Business Agreement, as the
same may be amended, shall be available for inspection by any stockholder of the
Corporation at the principal offices of the Corporation. Except as indicated
above or as may otherwise be provided in this Certificate of Incorporation or by
Delaware law, stockholders shall have no right to approve specific business
activities of the Corporation, and the above provisions shall not otherwise
affect corporate powers and purposes as stated in Article III.
7
<PAGE>
E. General.
1. Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (in any form, but not less
in value than the par value thereof) as may be fixed by the board of directors
of the Corporation, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing conditions.
Shares so issued for which the consideration shall have been paid or delivered
to the Corporation shall be deemed fully paid stock and shall not be liable to
any further call or assessment thereon, and the holders of such shares shall not
be liable for any further payments in respect of such shares.
2. The Corporation shall have authority to create and issue rights and
options entitling their holders to purchase or otherwise acquire shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the board of directors of the Corporation. The board of directors
of the Corporation shall be empowered to set the exercise price, duration, times
for exercise, and other terms of such options or rights; provided, however, that
the consideration to be received (which may be in any form) for any shares of
capital stock subject thereto shall have a value not less than the par value
thereof.
FIFTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means any other corporation, partnership,
association, firm, trust, joint venture, other legal entity, political
subdivision, or instrumentality or other organization) in which one or more of
its directors, officers, or stockholders are directors, officers, or
stockholders, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee which authorizes the
contract or transaction, or solely because his, her, or their votes are counted
for such purpose, if (i) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee thereof
(to the extent permitted by applicable law), or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the board of directors or of a committee which authorizes the
contract or transaction.
8
<PAGE>
SIXTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he (i) is or was a director or officer of the Corporation or
(ii) while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the General Corporation Law of Delaware, as the same exists or may
hereafter be amended. Such right shall be a contract right and shall include
the right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the General Corporation Law of Delaware, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within 60 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense are not permitted under the General Corporation Law of Delaware, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee or
directors thereof, independent legal counsel, or stockholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee or directors thereof, independent legal
counsel or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his heirs, executors, administrators,
and personal representatives. The rights conferred above shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, bylaw, resolution of stockholders or directors, agreement, or
otherwise. The Company shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if the initiation of such proceeding (or part thereof) by the indemnitee was
authorized by the board of directors of the Company.
The Corporation's obligation, if any, to indemnify or advance expenses to
any person who was or is serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise shall be reduced by any amount such person may collect as
indemnification or advancement from such other foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
9
<PAGE>
As used herein, the term "proceeding" means any threatened, pending, or
completed action suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
Any repeal or amendment of this Article SIXTH shall be prospective only and
shall not affect the rights of any such director or officer or the obligations
of the Corporation with respect to any claim arising from or related to the
services of such director or officer in any of the foregoing capacities prior to
any such repeal or amendment to this Article SIXTH.
SEVENTH: The board of directors shall have the power to make, adopt,
alter, amend, and repeal from time to time the Bylaws of the Corporation and to
make from time to time new Bylaws of the Corporation (subject to the right of
the stockholders entitled to vote thereon to adopt, alter, amend, and repeal
Bylaws made by the board of directors or to make new Bylaws) to the extent and
in the manner provided in the Bylaws; provided, however, that the stockholders
of the Corporation shall be entitled to adopt, alter, amend, or repeal Bylaws
made by the board of directors or to make new Bylaws solely upon the affirmative
vote of the holders of a majority of the outstanding shares of the Common Stock.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve
10
<PAGE>
intentional misconduct or knowing violation of law, (iii) under Section 174 of
the General Corporation Law of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or amendment of
this Article EIGHTH by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation arising from an act or omission occurring prior to
the time of such repeal or amendment. In addition to the circumstances in which
a director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article EIGHTH, a director shall not be liable to
the Corporation or its stockholders to such further extent as permitted by any
law hereafter enacted, including without limitation any subsequent amendment to
the General Corporation Law of Delaware.
NINTH: The number of directors constituting the board of directors shall
be fixed by, or in the manner provided in, the Bylaws of the Corporation. Each
director of the Corporation shall hold office until the next annual meeting of
stockholders or until his or her successor shall have been duly elected and
qualified. Directors need not be elected by written ballot.
EXECUTED this 21st day of November, 1996.
NGC CORPORATION
By: /s/ C. L. Watson
------------------------
C. L. Watson
Chairman of the Board and
Chief Executive Officer
11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>5
<DESCRIPTION>AMENDED AND RESTATED BYLAWS
<TEXT>
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NGC CORPORATION
A Delaware Corporation
As Amended by an Amendment
adopted by the Board of Directors
on February 7, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent ........................................ 1
1.2 Other Offices ...................................................... 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting ..................................................... 1
2.2 Special Meeting ....................................................