Exhibit 99.2
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GOVERNANCE AGREEMENT
by and among
XXXXXXXX PETROLEUM COMPANY,
DUKE ENERGY CORPORATION
and
DUKE ENERGY FIELD SERVICES L.L.C.
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Dated as of December 16, 1999
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TABLE OF CONTENTS
PAGE
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ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions..........................................1
ARTICLE II
BOARD OF DIRECTORS PRIOR TO THE IPO
Section 2.1 Management of the Company's Affairs..................6
Section 2.2 Removal and Replacement of Directors.................7
Section 2.3 Meetings of the Company Board........................7
Section 2.4 Notice of Board of Directors Meetings................8
Section 2.5 Actions by the Company Board.........................8
Section 2.6 Action by Unanimous Written Consent..................8
ARTICLE III
THE IPO
Section 3.1 Efforts..............................................8
Section 3.2 Formation of the Corporation.........................9
Section 3.3 Post-IPO Ownership...................................9
ARTICLE IV
BOARD OF DIRECTORS FOLLOWING THE IPO
Section 4.1 Composition of the Corporation Board................11
Section 4.2 Removal and Replacement of Directors................11
Section 4.3 Meetings of the Corporation Board...................12
Section 4.4 Notice of Board of Directors Meetings...............12
Section 4.5 Actions by the Corporation Board....................12
Section 4.6 Action by Unanimous Written Consent.................12
Section 4.7 Committees of the Corporation Board.................12
ARTICLE V
POST-IPO MANAGEMENT
Section 5.1 General.............................................13
ARTICLE VI
OTHER AGREEMENTS
Section 6.1 Employees...........................................13
Section 6.2 Constituent Documents of the Company and
the Corporation; Further Assurances...............13
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Section 6.3 Auditors; Corporate Reports; Annual Financial
Statements........................................13
Section 6.4 Confidentiality.....................................14
Section 6.5 Business Opportunity Understanding..................15
Section 6.6 Special Buy-out Right...............................15
ARTICLE VII
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND LOSS,
DISTRIBUTIONS AND TAX STATUS
ARTICLE VIII
LIQUIDITY AND TRANSFER RESTRICTIONS
Section 8.1 Structure; Transfers................................17
Section 8.2 Right of First Offer................................17
Section 8.3 Change of Control...................................18
Section 8.4 Open Market Purchases and Transfers Post-IPO........20
Section 8.5 Registration Rights.................................20
Section 8.6 Anti-Dilution.......................................21
Section 8.7 Void Transfers......................................22
ARTICLE IX
TERMINATION
Section 9.1 Survival of Agreement; Term.........................22
Section 9.2 Termination.........................................22
ARTICLE X
MISCELLANEOUS
Section 10.1 Counterparts........................................23
Section 10.2 Governing Law; Jurisdiction and Forum; Waiver
of Jury Trial.....................................23
Section 10.3 Entire Agreement....................................24
Section 10.4 Expenses............................................24
Section 10.5 Notices.............................................24
Section 10.6 Successors and Assigns..............................25
Section 10.7 Headings; Definitions...............................25
Section 10.8 Amendments and Waivers..............................26
Section 10.9 Severability........................................26
Section 10.10 Interpretation......................................26
Section 10.11 Specific Performance................................26
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ANNEXES
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Annex A Specific Pre-IPO Governance Issues
Annex B Examples of Determinations of Xxxxxxxx' Corporation Interest and Duke's
Corporation Interest at Various IPO Levels
Annex C Specific Post-IPO Governance Issues
Annex D Business Opportunities Agreement
Annex E [Intentionally Omitted]
Annex F Capital Accounts, Allocations of Profit and Loss, Distributions and Tax
Status
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GOVERNANCE AGREEMENT, dated as of December 16, 1999 (this
"AGREEMENT"), by and among XXXXXXXX PETROLEUM COMPANY, a Delaware corporation
("XXXXXXXX"), DUKE ENERGY CORPORATION, a North Carolina corporation ("DUKE") and
DUKE ENERGY FIELD SERVICES L.L.C., a Delaware limited liability company (the
"COMPANY").
RECITALS:
WHEREAS, the parties hereto have simultaneously herewith
entered into the Contribution Agreement, dated as of December 16, 1999 (the
"CONTRIBUTION AGREEMENT");
WHEREAS, the parties hereto desire to set forth certain terms
and conditions governing the Company and the Corporation (as defined below);
WHEREAS, Xxxxxxxx and Xxxx (each, a "PARTY") contemplate that
if market conditions permit, the Corporation will conduct an initial public
offering of certain of its equity securities as soon as practicable after
consummation of the transactions contemplated by this Agreement and the
Contribution Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
"AFFILIATE" shall mean, with respect to any Person, a Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"APPRAISER COMMITTEE" shall have the meaning set forth in Section
6.6(b).
"AVERAGE MARKET PRICE" shall mean, with respect to the Corporation
Common Stock to be sold by the Company to the public in the IPO, the average of
the closing prices, as reported on the NYSE Composite Tape, on each of the
first five days of trading on the NYSE (exclusive of the pricing day).
"BENEFICIAL OWNER" shall mean, with respect to any security, a
Person who Beneficially Owns such security, and "BENEFICIAL OWNERSHIP" has a
corresponding meaning.
"BENEFICIALLY OWN" shall mean, with respect to any security, having
or sharing the power to direct or control the voting or disposition of
such security.
"BUSINESS ACTIVITY" shall have the meaning set forth in Annex D.
"BUSINESS DAY" shall mean any day on which banks are generally open
to conduct business in the State of New York.
"BUY-OUT NOTICE" shall have the meaning set forth in Section 6.6(a).
"BUY-OUT RIGHT" shall have the meaning set forth in Section 6.6(a).
"CHANGE OF CONTROL" shall mean an event (such as a Transfer of
voting securities) that causes a Person that holds a Company Interest or a
Corporation Interest, as the case may be, to cease to be Controlled by such
Person's Parent; PROVIDED, HOWEVER, that an event that causes Duke or Xxxxxxxx
to be Controlled by another Person shall not constitute a Change of Control, and
a Transfer by either a Duke Shareholder or a Xxxxxxxx Shareholder of its
Corporation Interest, shall not constitute a Change of Control (it being the
intent of the parties that such Transfers shall be governed by and subject to
the right of first offer provisions set forth in Section 8.2 hereof).
"CHANGING PARTY" shall have the meaning set forth in Section
8.3(b).
"CHANGING PARTY APPRAISER" shall have the meaning set forth in
Section 8.3(c).
"CLOSING DATE" shall have the meaning set forth in Section 3.1
of the Contribution Agreement.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY BOARD" shall have the meaning set forth in Section 2.1(a).
"COMPANY INTEREST" shall mean, with respect to any Person, such
Person's equity interest in the Company at the time of measurement.
"CONTRIBUTION AGREEMENT" shall have the meaning set forth in the
Recitals.
"CONTRIBUTION CLOSING" shall have the meaning set forth in Section
2.1(a).
"CONTROL" shall mean the possession, directly or indirectly,
through one or more intermediaries, by any Person or group (within the meaning
of Section 13(d)(3) under the Securities Exchange Act of 1934, as amended) of
both of the following:
(a) (i) in the case of a corporation, Beneficial Ownership of
more than 25% of the outstanding equity securities thereof; (ii) in the
case of a limited liability company, partnership, limited partnership
or venture, the right to more than 25% of the distributions therefrom
(including liquidating distributions); (iii) in the case of a trust or
estate, including a business trust, more than 25% of the beneficial
interest therein; and (iv) in the
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case of any other entity, more than 25% of the economic or beneficial
interest therein; and
(b) in the case of any entity, the power or authority, through
ownership of voting securities, by contract or otherwise, to control or
direct the management and policies of the entity.
"CONTROL ACCEPTANCE" shall have the meaning set forth in
Section 8.3(b).
"CONTROL APPRAISER COMMITTEE" shall have the meaning set forth in
Section 8.3(c).
"CONTROL NOTICE" shall have the meaning set forth in Section 8.3(b).
"CONTROL OFFER PERIOD" shall have the meaning set forth in Section
8.3(b).
"CORPORATION" shall have the meaning set forth in Section 3.2.
"CORPORATION BOARD" shall have the meaning set forth in Section 4.1.
"CORPORATION COMMON STOCK" shall have the meaning set forth in
Section 3.2.
"CORPORATION INTEREST" shall mean, with respect to any Person,
such Person's percentage ownership (direct and indirect), exclusive of any
Market Shares owned (directly or indirectly) by such Person, of the outstanding
Corporation Common Stock at the time of measurement.
"DEMAND REGISTRATION" shall have the meaning set forth in Section
8.5(a).
"DEMAND REQUEST" shall have the meaning set forth in Section 8.5(a).
"DESIGNATED BUSINESS" shall have the meaning set forth in Annex D.
"DIRECTOR" shall mean (a) with respect to the Company, each
member of the Company Board, and (b) with respect to the Corporation, each
member of the Corporation Board.
"DUKE" shall have the meaning set forth in the Preamble.
"DUKE APPRAISER" shall have the meaning set forth in Section 6.6(a).
"DUKE MEMBER" shall mean DEFS Holding Corp., a Delaware
corporation and a wholly-owned indirect Subsidiary of Duke.
"DUKE POST-IPO DIRECTORS" shall have the meaning set forth in
Section 4.1.
"DUKE PRE-IPO DIRECTORS" shall have the meaning set forth in
Section 2.1(b).
"DUKE SHAREHOLDER" shall mean the holder of any Corporation
Common Stock (other than Market Shares) that is Duke or a Subsidiary of Duke.
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"ENTERPRISE VALUE" shall have the meaning set forth in Section
3.3(b)(1)(E).
"FAIR MARKET VALUE" shall mean, with respect to any Person's
Company Interest or Corporation Interest, a purchase price equal to the value
that would be obtained for such Company Interest or Corporation Interest, as the
case may be, in an arm's-length transaction between an informed and willing
buyer under no compulsion to buy and an informed and willing seller under no
compulsion to sell such Company Interest or Corporation Interest, as the case
may be.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"GOVERNMENTAL ENTITY" shall mean any federal, state, political
subdivision or other governmental agency or instrumentality, foreign or
domestic.
"INDEPENDENT DIRECTORS" shall mean directors meeting the
independence and experience requirements, as set forth by the New York Stock
Exchange as of the date of the IPO for membership on an audit committee of a
board of directors, with respect to each of Phillips, Duke, the Company and the
Corporation.
"IPO" shall mean the initial offering of shares of Corporation
Common Stock in a transaction registered under the Securities Act.
"LLC AGREEMENT" shall have the meaning set forth in Section
9.2(b)(i).
"MARKET SHARES" shall mean shares purchased by a Person
through open-market purchases, other than those shares purchased to prevent
dilution in accordance with Section 8.6.
"MEMBER" shall have the meaning set forth in Section 2.1(a).
"MERGER" shall have the meaning set forth in Section 3.2.
"NEUTRAL APPRAISER" shall have the meaning set forth in Section
6.6(b).
"NEUTRAL CONTROL APPRAISER" shall have the meaning set forth in
Section 8.3(c).
"NON-CHANGING PARTY" shall have the meaning set forth in Section
8.3(b).
"NON-CHANGING PARTY APPRAISER" shall have the meaning set forth
in Section 8.3(b).
"NON-TRANSFERRING ENTITY" shall have the meaning set forth in
Section 8.2.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OFFICERS" shall have the meaning set forth in Section 2.1(a).
"PARENT" shall mean, with respect to a particular Person, the
Person that Controls such particular Person and that is not itself Controlled by
any other Person.
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"PARTIES' CORPORATION INTEREST" shall have the meaning set forth
in Section 3.3(1)(B).
"PARTIES' EQUITY VALUE" shall have the meaning set forth in
Section 3.3(1)(D).
"PARTY" shall have the meaning set forth in the Recitals.
"PERSON" shall mean any individual, partnership, limited
liability company, firm, corporation, association, joint venture, trust or other
entity or any Governmental Entity.
"XXXXXXXX" shall have the meaning set forth in the Preamble.
"XXXXXXXX APPRAISER" shall have the meaning set forth in Section
6.6(b).
"XXXXXXXX ENTERPRISE VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(F).
"XXXXXXXX EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(G).
"XXXXXXXX MEMBER" shall mean Xxxxxxxx Gas Company, a Delaware
corporation and a wholly-owned Subsidiary of Xxxxxxxx.
"XXXXXXXX MEMBER PARENT" shall mean Xxxxxxxx Gas Company
Shareholder, Inc., a Delaware corporation and a wholly-owned Subsidiary of
Xxxxxxxx which owns all of the outstanding common stock of Xxxxxxxx Member.
"XXXXXXXX POST-IPO DIRECTORS" shall have the meaning set forth
in Section 4.1.
"XXXXXXXX PRE-IPO DIRECTORS" shall have the meaning set forth in
Section 2.1(b).
"XXXXXXXX SHAREHOLDER" shall mean the holder of any
Corporation Common Stock (other than Market Shares) that is Xxxxxxxx or a
Subsidiary of Xxxxxxxx.
"XXXXXXXX VETO" shall mean the failure of the requisite number
of directors of the Corporation Board to vote in favor of any of the actions
described in Sections 2, 4(a), 4(c), 5 and 6 of Annex C where none of the
Xxxxxxxx Post-IPO Directors voted in favor of such action; PROVIDED, HOWEVER,
that if any of the Duke Post-IPO Directors failed to vote in favor of such
action, such failure of the requisite number of directors of the Corporation
Board to vote in favor of such action shall not constitute a Xxxxxxxx Veto.
"POST-IPO PERIOD" shall have the meaning set forth in Section
4.1.
"PRE-IPO PERIOD" shall have the meaning set forth in Section
2.1(b).
"PUBLIC'S CORPORATION INTEREST" shall have the meaning set
forth in Section 3.3(b)(1)(A).
"PUBLIC'S EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(C).
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"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHAREHOLDER" shall have the meaning set forth in Section 8.2.
"SUBSIDIARY" shall mean, when used with respect to any Person,
any Affiliate of such Person that is Controlled by such Person.
"TOTAL CORPORATION INTEREST" shall mean, with respect to any
Person, the sum of (i) such Person's Corporation Interest and (ii) any Market
Shares owned (directly or indirectly) by such Person (expressed as a percentage
of the outstanding Corporation Common Stock at the time of measurement).
"TOTAL EQUITY VALUE" shall have the meaning set forth in
Section 3.3(b)(1)(H).
"TRANSFER" shall mean any sale, assignment or other transfer,
whether by operation of law or otherwise (but not any deemed transfer pursuant
to Section 338 of the Code, as defined in Annex F, of the assets of a
corporation or its Subsidiary in connection with the purchase of the stock of
such corporation). "TRANSFERRED" and "TRANSFERRING" shall have correlative
meanings.
"TRANSFER NOTICE" shall have the meaning set forth in Section
8.2.
"TRANSFERRING ENTITY" shall have the meaning set forth in
Section 8.2.
ARTICLE II
BOARD OF DIRECTORS PRIOR TO THE IPO
Section 2.1 MANAGEMENT OF THE COMPANY'S AFFAIRS. (a) From and upon
the closing of the Contribution Agreement (the "CONTRIBUTION CLOSING"), all
management powers over the business and affairs of the Company shall be
exclusively vested in a board of directors ("COMPANY BOARD") and, subject to the
direction of the Company Board, the officers of the Company (the "OFFICERS").
The Officers and Directors shall collectively constitute "managers" of the
Company within the meaning of the Delaware Limited Liability Company Act.
Neither the Duke Member nor the Xxxxxxxx Member (each a "MEMBER") by virtue of
its status as a member of the Company, shall have any management power over the
business and affairs of the Company or actual or apparent authority to enter
into contracts on behalf of, or to otherwise bind, the Company. Except as
otherwise specifically provided in this Agreement, the authority and functions
of the Company Board on the one hand and of the Officers on the other shall be
identical to the authority and functions of the board of directors and officers,
respectively, of a corporation organized under the Delaware General Corporation
Law. Thus, except as otherwise specifically provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Company Board, which may delegate from time to time such authority and duties as
it deems appropriate to one or more of the Officers, who shall be agents of the
Company.
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(b) The Company Board shall consist of five persons, and from and upon
the Contribution Closing until the consummation of the IPO (such period, the
"PRE-IPO PERIOD") (i) Duke shall cause the Duke Member to appoint three
Directors who shall be individuals designated by Duke ("DUKE PRE-IPO DIRECTORS")
and (ii) Xxxxxxxx shall cause the Xxxxxxxx Member to appoint two Directors who
shall be individuals designated by Xxxxxxxx (the "XXXXXXXX PRE-IPO DIRECTORS").
Each Director elected to the Company Board shall serve until his or her
successor is duly appointed or until his or her earlier removal or resignation.
(c) Neither Member nor any Affiliate of, or any director appointed by,
either Member shall have any obligation or owe any duty, fiduciary or otherwise,
to the Company or to any other Member or its Affiliates, including any
obligation (i) to offer business opportunities to the Company, (ii) to refrain
from pursuing business opportunities that may have a competitive impact upon the
Company or (iii) to refrain from taking any other action that will or may be
detrimental to the Company, and neither Member nor any Affiliate of such Member
shall, by virtue of the relationship established pursuant to the Transaction
Documents, have any other obligations to take or refrain from taking any other
action that may impact the Company. The provisions of this Section 2.1(c)
constitute an agreement to modify or eliminate fiduciary duties pursuant to the
provisions of Section 18-1101 of the Delaware Limited Liability Company Act.
Section 2.2 REMOVAL AND REPLACEMENT OF DIRECTORS. Duke shall have the
right to cause the Duke Member, during the Pre-IPO Period, at any time and for
any reason (or for no reason), to remove any or all of the Duke Pre-IPO
Directors. Xxxxxxxx shall have the right to cause the Xxxxxxxx Member, during
the Pre-IPO Period, at any time and for any reason (or for no reason), to remove
any or all of the Xxxxxxxx Pre-IPO Directors. During the Pre-IPO Period, should
any director of the Company be unwilling or unable to continue to serve, or
otherwise cease to serve (including by reason of his or her involuntary removal
or the expiration of any applicable term of office), then (i) in the case of a
vacancy of a Duke Pre-IPO Director, Duke shall cause the Duke Member to fill the
resulting vacancy on the Company Board by a Person designated by Duke and (ii)
in the case of a vacancy of a Xxxxxxxx Pre-IPO Director, Xxxxxxxx shall cause
the Xxxxxxxx Member to fill the resulting vacancy in the Company Board by a
Person designated by Xxxxxxxx.
Section 2.3 MEETINGS OF THE COMPANY BOARD. (a) During the Pre-IPO
Period, regular meetings of the Company Board shall be held quarterly.
(b) During the Pre-IPO Period, either Member may request a special
meeting of the Company Board at any time on two Business Days' prior notice.
(c) During the Pre-IPO Period, a quorum for meetings of the Company
Board shall be at least three directors, present in person, by telephone or
represented by proxy.
(d) During the Pre-IPO Period, meetings of the Company Board may be
conducted via telephone or other similar means.
Section 2.4 NOTICE OF BOARD OF DIRECTORS MEETINGS. During the Pre-IPO
Period, written notice of all regular meetings of the Company Board must be
given to all
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directors at least 15 days prior to any regular meeting of the Company Board and
two Business Days prior to any special meeting of the Company Board.
Section 2.5 ACTIONS BY THE COMPANY BOARD. (a) Except as set forth in
Section 2.5(b), all decisions of the Company Board during the Pre-IPO Period
shall require the affirmative vote of a majority of the directors present at a
meeting at which a quorum is present.
(b) During the Pre-IPO Period, no action shall be taken by the Company
Board with respect to the matters set forth on Annex A without the prior
approval of at least four of the five directors of the Company Board.
Section 2.6 ACTION BY UNANIMOUS WRITTEN CONSENT. During the Pre-IPO
Period, to the extent permitted by applicable law, the Company Board may act
without a meeting so long as all members of the Company Board shall have
executed a written consent with respect to any such Company Board action taken
in lieu of a meeting.
ARTICLE III
THE IPO
Section 3.1 EFFORTS. The Company agrees to use its reasonable best
efforts to prepare for, effect and consummate the IPO (market conditions
permitting) as soon as practicable following the Contribution Closing, including
selecting underwriters, preparing and filing with the SEC a registration
statement and filings under applicable state securities or "blue sky" laws or
similar securities laws and determining the terms of the IPO; PROVIDED that,
notwithstanding anything to the contrary in this Agreement, the Company shall
not consummate any IPO on or before the date two years after the consummation of
the Contribution Closing without the prior written consent of Xxxxxxxx if the
consummation of the IPO (including the potential effect of any underwriters'
over-allotment) in accordance with the provisions of this Agreement would result
in (i) Xxxxxxxx' Corporation Interest being less than 20% upon consummation of
the IPO or (ii) an Enterprise Value immediately following the IPO of less than
$4,400,000,000; PROVIDED, FURTHER, that for purposes of the calculations
contemplated in (i) and (ii) in the preceding proviso, the "Average Market
Price" shall be the proposed public offering price of the Corporation Common
Stock in the IPO. Each of Duke and Xxxxxxxx agree to (i) provide reasonable
assistance to the Company in effecting the IPO and (ii) cause any Duke
Shareholder or Xxxxxxxx Shareholder, respectively, not to Transfer any or all of
their shares of Corporation Common Stock for a period of six months following
the consummation of the IPO and to agree to such other customary terms as are
reasonably requested by the underwriters in connection with the IPO.
Section 3.2 FORMATION OF THE CORPORATION. Each of Duke and Xxxxxxxx
agree to take such corporate action as is necessary and desirable to cause
Xxxxxxxx Member Parent to be merged with and into the Duke Member, with the Duke
Member surviving (such surviving corporation, the "CORPORATION," and such
merger, the "MERGER"), immediately prior to the consummation of the IPO.
Xxxxxxxx represents, warrants and agrees that at the time of such Merger, (i)
Xxxxxxxx Member Parent shall have no assets or liabilities, contingent or
otherwise, other than through its ownership of its interest in Xxxxxxxx Member
and (ii) Xxxxxxxx Member shall
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have no assets or liabilities, contingent or otherwise, other than through its
ownership of its interest in the Company. Duke represents, warrants and agrees
that at the time of the Merger, the Duke Member shall have no assets or
liabilities, contingent or otherwise, other than through its ownership of its
interest in the Company. Following the Merger and prior to the consummation of
the IPO, the percentage of the total number of issued and outstanding shares of
Corporation Common Stock owned by (i) Xxxxxxxx and its Affiliates (other than
the Corporation and its Subsidiaries) shall equal the quotient, expressed as a
percentage, of (x) Xxxxxxxx' Corporation Interest upon the consummation of the
IPO determined in accordance with Section 3.3(b)(2) divided by (y) the sum of
Xxxxxxxx' Corporation Interest and Duke's Corporation Interest upon the
consummation of the IPO determined in accordance with Section 3.3(b)(2) and
Section 3.3(b)(3), respectively, and (ii) Duke and its Affiliates (other than
the Corporation and its Subsidiaries) shall equal the quotient, expressed as a
percentage, of (x) Duke's Corporation Interest upon consummation of the IPO
determined in accordance with Section 3.3(b)(3) divided by (y) the sum of Duke's
Corporation Interest and Xxxxxxxx' Corporation Interest upon consummation of the
IPO determined in accordance with Section 3.3(b)(3) and Section 3.3(b)(2),
respectively. If necessary, for purposes of the above calculation only, Duke and
Xxxxxxxx shall estimate in good faith the Average Market Price and the number of
shares of Corporation Common Stock to be sold to the public. Duke agrees to
cause the Duke Shareholder and Xxxxxxxx agrees to cause the Xxxxxxxx
Shareholder, respectively, to vote its shares to cause the Corporation upon
consummation of the IPO to have a single class of common stock (the "CORPORATION
COMMON STOCK") outstanding and no other classes of capital stock or other
securities (except for options to purchase shares of the Corporation Common
Stock issued to officers, directors and employees of the Corporation or the
Company or its Subsidiaries).
Section 3.3 POST-IPO OWNERSHIP. (a) Each of Duke and Xxxxxxxx
presently intends that, if the IPO occurs, approximately 20% of the Corporation
Common Stock shall be sold to the public by the Corporation pursuant to the IPO;
PROVIDED, HOWEVER, that this percentage may vary depending on market conditions
and other factors.
(b) Each of Duke and Xxxxxxxx agrees to take, or cause to be taken,
such action (including the Merger and any adjustments by the Corporation to the
number of shares of Corporation Common Stock owned by Duke and Xxxxxxxx) as is
necessary and desirable to provide that upon the end of the fifth day of trading
on the NYSE (excluding the pricing day and without regard to the exercise of any
underwriters' over-allotment), each of Duke and Xxxxxxxx shall own, directly or
indirectly, excluding any Corporation Common Stock purchased directly or
indirectly by either Party in the IPO, a percentage of the outstanding
Corporation Common Stock determined as follows:
(1) For purposes of this Agreement, the following definitions
shall apply:
(A) "PUBLIC'S CORPORATION INTEREST" shall mean the quotient,
expressed as a percentage, of (x) the number of shares of the Corporation Common
Stock sold by the Company in the IPO (without giving effect to any underwriters'
over-allotment) divided by (y) the number of shares of Corporation Common Stock
outstanding immediately after the IPO (without giving effect to any
underwriters' over-allotment).
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(B) "PARTIES' CORPORATION INTEREST" shall mean the
difference between (x) 100% and (y) the Public's Corporation Interest.
(C) "PUBLIC'S EQUITY VALUE" shall mean the product of (i)
the Average Market Price multiplied by (ii) the number of shares sold by the
Company in the IPO.
(D) "PARTIES' EQUITY VALUE" shall mean the product of (i)
the quotient of (x) the Parties' Corporation Interest divided by (y) the
Public's Corporation Interest multiplied by (ii) the Public's Equity Value.
(E) "ENTERPRISE VALUE" shall mean the sum of (x) the
Parties' Equity Value and (y) $2,400,000,000; PROVIDED that, from and after the
date two years after the consummation of the Contribution Closing, "ENTERPRISE
VALUE" shall mean $5,500,000,000.
(F) "XXXXXXXX ENTERPRISE VALUE" shall mean the product of
(x) the Enterprise Value and (y) .389.
(G) "XXXXXXXX EQUITY VALUE" shall mean the difference
between (x) Xxxxxxxx Enterprise Value and (y) $1,200,000,000.
(H) "TOTAL EQUITY VALUE" shall mean the quotient of (x) the
Public's Equity Value divided by (y) the Public's Corporation Interest.
(2) Xxxxxxxx' Corporation Interest shall equal the quotient,
expressed as a percentage, of (x) Xxxxxxxx Equity Value divided by (y) Total
Equity Value.
(3) Duke's Corporation Interest shall equal the difference
between (x) the Parties' Corporation Interest and (y) Xxxxxxxx' Corporation
Interest.
Annex B sets forth examples of determinations of Xxxxxxxx'
Corporation Interest and Duke's Corporation Interest at various Public's Equity
Values. The percentages and calculations set forth in this Section 3.3 do not
give effect to any underwriters' over-allotment. In the event that there is an
underwriters' over-allotment and such over-allotment is exercised, each Party's
Corporation Interest and the interest of the public in the Corporation (prior to
such exercise) shall all be reduced pro rata.
ARTICLE IV
BOARD OF DIRECTORS FOLLOWING THE IPO
Section 4.1 COMPOSITION OF THE CORPORATION BOARD. Following the IPO
(the "POST-IPO PERIOD") until the termination of this Agreement, Duke agrees to,
and to cause its Subsidiaries to, make nominations and vote Duke's Total
Corporation Interest, and Xxxxxxxx agrees to, and to cause its Subsidiaries to,
make nominations and vote Xxxxxxxx' Total Corporation Interest, so that (a) the
Corporation shall be managed by a board of directors (the "CORPORATION BOARD")
that shall be comprised of 11 Persons, including: (i) so long as Duke's
Corporation Interest equals or exceeds 30%, (A) seven individuals designated by
Duke (the "DUKE POST-IPO
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DIRECTORS"), including at least two Independent Directors, and (B) so long as
Xxxxxxxx' Corporation Interest equals or exceeds 20%, four individuals
designated by Xxxxxxxx (the "XXXXXXXX POST-IPO DIRECTORS"), including at least
one Independent Director and (ii) if Duke's Corporation Interest equals or
exceeds 20% but is less than 30%, (A) the number of Duke Post-IPO Directors
shall equal the product, rounded to the nearest whole number, of (1) 11 and (2)
the quotient of (x) Duke's Corporation Interest divided by (y) the sum of (I)
Duke's Corporation Interest and (II) Xxxxxxxx' Corporation Interest; (B) the
number of Xxxxxxxx Post-IPO Directors shall equal the difference between (1) 11
and (2) the number of Duke IPO Directors, (C) if there are more Duke Post-IPO
Directors than Xxxxxxxx Post-IPO Directors, then at least two of the Duke IPO
Directors and at least one of the Xxxxxxxx Post-IPO Directors must be
Independent Directors and (D) if there are more Xxxxxxxx Post-IPO Directors than
Duke Post-IPO Directors, then at least two of the Xxxxxxxx Post-IPO Directors
and at least one of the Duke Post-IPO Directors must be Independent Directors,
and (b) the Chairman of the Board shall be one of the Directors designated by
whichever of the Parties has the right at such time to designate more Directors.
Each Director of the Corporation Board will serve as a Director of the
Corporation Board until his or her successor is duly elected and qualified or
until his or her earlier resignation or removal.
Section 4.2 REMOVAL AND REPLACEMENT OF DIRECTORS. Duke agrees to, and
to cause its Subsidiaries to, and Xxxxxxxx agrees to, and to cause its
Subsidiaries to, vote its respective Total Corporation Interest during the
Post-IPO Period to remove (i) any or all of the Duke Post-IPO Directors at the
request of Duke at any time and for any reason (or for no reason) and (ii) any
or all of the Xxxxxxxx Post-IPO Directors at the request of Xxxxxxxx at any time
and for any reason (or for no reason). During the Post-IPO Period, should any
Director of the Corporation be unwilling or unable to continue to serve, or
otherwise cease to serve (including by reason of his or her involuntary removal
or at the expiration of any applicable term of office), then Duke shall, and
shall cause its Subsidiaries to, and Xxxxxxxx shall, and shall cause its
Subsidiaries to, make nominations and vote its shares to fill the resulting
vacancy on the Corporation Board by a Person designated by Duke, in the case of
a vacancy of a Duke Post-IPO Director, and by a Person designated by Xxxxxxxx,
in the case of a vacancy of a Xxxxxxxx Post-IPO Director, but in each case in
accordance with the Independent Director requirements of Section 4.1.
Section 4.3 MEETINGS OF THE CORPORATION BOARD. (a) The Corporation
Board shall meet at least quarterly.
(b) A special meeting of the Corporation Board may be called at any
time on two Business Days' prior notice at the request of (i) the Chairman of
the Corporation Board or (ii) any four directors of the Corporation Board.
(c) During the Post-IPO Period, a quorum for meetings of the
Corporation Board shall be at least six directors, present in person, by
telephone or represented by proxy.
(d) Meetings of the Corporation Board may be conducted via telephone
or other similar means.
Section 4.4 NOTICE OF BOARD OF DIRECTORS MEETINGS. Written notice of
all regular meetings of the Corporation Board must be given to all directors at
least 15 days prior to
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any regular meeting of the Corporation Board and two Business Days
prior to any special meeting of the Corporation Board.
Section 4.5 ACTIONS BY THE CORPORATION BOARD. (a) The business and
affairs of the Corporation shall be managed by the Corporation Board. Except as
set forth in Sections 4.5(b), all decisions of the Corporation Board shall
require the affirmative vote of a majority of the directors present at a meeting
at which a quorum is present.
(b) During the Post-IPO Period, no action shall be taken by the
Corporation Board with respect to the matters set forth on Annex C without the
prior approval of at least eight of the 11 directors of the Corporation Board.
Section 4.6 ACTION BY UNANIMOUS WRITTEN CONSENT. To the extent
permitted by applicable law, the Corporation Board may act without a meeting so
long as all members of the Corporation Board shall have executed a written
consent with respect to any the Corporation Board action taken in lieu of a
meeting.
Section 4.7 COMMITTEES OF THE CORPORATION BOARD. (a) To the extent
not inconsistent with the provisions of Section 4.5, the Corporation Board may
establish committees of the Corporation Board and may delegate certain of its
responsibilities to such committees, PROVIDED that so long as Xxxxxxxx and Xxxx
are entitled to designate directors of the Corporation pursuant to Section 4.1,
each committee of the Corporation Board, other than the audit committee, shall
include at least one Xxxxxxxx Post-IPO Director who is not an Independent
Director and one Duke Post-IPO Director who is not an Independent Director.
(b) The Corporation Board shall have an audit committee comprised of
three Independent Directors, which audit committee shall establish a written
audit committee charter in accordance with the rules of the NYSE, as amended
from time to time.
ARTICLE V
POST-IPO MANAGEMENT
Section 5.1 GENERAL. Following the IPO, the executive officers of the
Corporation shall be selected by, and serve at the pleasure of, the Corporation
Board. Such officers shall have the authority and duties delegated to each of
them, respectively, by the Corporation Board from time to time.
ARTICLE VI
OTHER AGREEMENTS
Section 6.1 EMPLOYEES. Prior to the Contribution Closing, Duke shall
cause the Duke Member, in consultation with the Xxxxxxxx Member, to select the
employees currently utilized in the business and operations of the Xxxxxxxx
Member and its Subsidiaries and the Duke Member and its Subsidiaries who will be
offered employment with the Company and its
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Subsidiaries. Duke intends for the Duke Member to make employment decisions
without regard to previous employer-affiliation and with the goal of retaining
the best talent from each of the Duke Member and its Subsidiaries and the
Xxxxxxxx Member and its Subsidiaries.
Section 6.2 CONSTITUENT DOCUMENTS OF THE COMPANY AND THE CORPORATION;
FURTHER ASSURANCES. (a) The parties hereto shall take all such action as is
appropriate to ensure that the constituent documents of the Company (as of the
time of the Contribution Closing) and the Corporation (as of the time of the
IPO) embody the governance and management principles set forth in this
Agreement, as appropriate.
(b) The parties hereto agree that, from time to time, whether before,
at or after the Contribution Closing or the IPO, each of them will execute and
deliver, or cause to be executed and delivered, such further agreements
(including a limited liability company agreement with respect to the Company and
a stockholders' agreement and a registration rights agreement with respect to
the Corporation and the Corporation Common Stock) and instruments and take such
other action as may be necessary to effectuate the provisions, purposes and
intents of this Agreement.
Section 6.3 AUDITORS; CORPORATE REPORTS; ANNUAL FINANCIAL STATEMENTS.
(a) AUDITORS. Immediately following the Contribution Closing, the auditors of
the Company shall be Deloitte & Touche L.L.P.
(b) CORPORATE REPORTS. (1) During the Pre-IPO Period, each Member and
its respective representatives shall be entitled to reasonable access, during
regular business hours and upon reasonable advance notice, to the corporate
books and records and properties, and the executive officers and
representatives, of the Company and its Subsidiaries, for any reasonable
purpose, including in order to conduct any investigation or audit of the
business, financial position and financial statements of any such entity;
PROVIDED that nothing herein shall authorize access to classified or controlled
unclassified information, except as authorized by applicable law.
(2) During the Pre-IPO Period, each Member shall be supplied not
later than 45 days after the end of each of the first three calendar quarters of
each year with unaudited financial statements of the Company and each of its
Subsidiaries on a consolidated basis, including a balance sheet, an income
statement and a statement of cash flows, as well as a comparison of actual
performance with any applicable business plan and such tax information as either
Member may reasonably request.
(3) During the Pre-IPO Period, the Company Board shall be
supplied not later than 45 days after the end of each calendar month with
unaudited financial statements of the Company and each of its Subsidiaries on a
consolidated basis, including a balance sheet, an income statement and a
statement of cash flows, as well as a comparison of actual performance with any
applicable business plan and, within 45 days of the end of each calendar
quarter, budget and cash flow forecasts showing the position of the Company and
its Subsidiaries on a consolidated basis for the next 12-month period together
with such additional information as the Company Board may reasonably request.
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(c) ANNUAL FINANCIAL STATEMENTS. (1) During the Pre-IPO Period,
annual financial statements for the Company and its Subsidiaries on a
consolidated basis shall be prepared in accordance with GAAP and subject to an
audit by Deloitte & Touche L.L.P.
(2) During the Pre-IPO Period, the Company shall make available
to each Member simultaneously the consolidated annual audited financial
statements for the Company and its Subsidiaries, taken as a whole, and the
reports of the auditors thereon as soon as practicable after the issuance by the
auditors of such reports.
(3) During the Pre-IPO Period, the Company and its Subsidiaries
shall prepare annual financial statements in respect of each fiscal year for
presentation to the auditors within one month from the end of that fiscal year
and shall use reasonable best efforts to ensure that the auditors will issue
their reports on such financial statements by March 15 of each year.
Section 6.4 CONFIDENTIALITY. (a) Each Member and its respective
Affiliates shall keep confidential all information which is obtained by them as
Members or otherwise pursuant to this Agreement or any other Transaction
Document, whether that information is (1) generated or commissioned by the
Company or any of its Subsidiaries or (2) related to the business affairs of any
of the Members or of their respective Affiliates.
(b) The restrictions in Section 6.4(a) shall not apply to:
(1) information which enters the public domain otherwise than by
breach of this Agreement;
(2) information already in the possession of a Member or any of
its Affiliates before disclosure to it under this Agreement and which was not
acquired directly or indirectly from the other Member or any of its Affiliates
and which is not the subject of a confidentiality agreement in favor of the
provider of such information;
(3) information lawfully obtained from a third party that is
free to disclose such information;
(4) information developed or created by a Member or any of its
Affiliates (other than the Company or its Subsidiaries) independent of this
Agreement;
(5) information required to be disclosed at any time after the
date one year after the Contribution Closing by a Member or any of its
Affiliates to a third party contemplating purchasing shares in that Member in
order to permit such third party to decide whether or not to proceed and what
price to offer; PROVIDED that such third party shall prior to any such
disclosure have entered into a confidentiality agreement with such Member and
its Affiliates on terms no less strict than the terms of this Section 6.4;
(6) information requested by any Governmental Entity entitled by
law to require the same; PROVIDED that prior to such disclosure if practicable,
the disclosing Member shall notify in writing the owner of such information
(where the identity of such owner can be reasonably determined) that such
request has been made; PROVIDED, FURTHER, that the Member seeking to rely on an
exemption contained in this Section 6.4(b) shall provide such evidence as
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the other Member may reasonably require to prove that the information sought to
be exempted falls within the relevant category; and
(7) information that a Member or its Affiliates must disclose
under applicable securities laws or stock exchange regulations.
(c) The restrictions contained in Section 6.4(a) shall last until the
earlier of the consummation of the IPO and the date two years from the relevant
disclosure.
Section 6.5 BUSINESS OPPORTUNITY UNDERSTANDING. Each of Duke and
Xxxxxxxx presently intends that the Corporation shall be the primary vehicle by
which it conducts the midstream gas gathering and processing business in the
United States and Canada. However, in order to clarify any duties that Duke, as
the owner of a controlling interest in the Corporation, may owe to the
Corporation, the certificate of incorporation or bylaws of the Corporation (or
an agreement binding on the Corporation) shall contain a business opportunity
agreement substantially in the form of Annex D.
Section 6.6 SPECIAL BUY-OUT RIGHT. (a) Following the one year
anniversary of the consummation of the IPO, if a Xxxxxxxx Veto occurs with
regard to different proposals proposed in good faith at three separate meetings
(with at least two months between the first and third meetings) of the
Corporation Board within any 18-month period, Duke shall have the right (the
"BUY-OUT RIGHT"), exercisable upon written notice (the "BUY-OUT NOTICE") at any
time after the third such Xxxxxxxx Veto, but not later than the thirtieth day
after the end of the eighteenth month after the occurrence of the first of the
three Xxxxxxxx Vetoes that are the basis for the exercise of the Buy-Out Right,
to purchase all (but not less than all) of Xxxxxxxx' Corporation Interest
pursuant to this Section 6.6. The Buy-Out Notice shall set forth the name of a
nationally recognized appraisal firm (which may be an investment banking,
accounting or other firm that performs appraisal and valuation services)
designated by Duke as its appraisal firm (the "DUKE APPRAISER").
(b) Within 15 days from the date of receipt of the Buy-Out Notice,
Xxxxxxxx shall notify Duke in writing of the name of an appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) designated as Xxxxxxxx' appraisal firm (the "XXXXXXXX
APPRAISER"); PROVIDED, HOWEVER, that if Xxxxxxxx fails to select an appraisal
firm, the Xxxxxxxx Appraiser shall be Ernst & Young L.L.P. (PROVIDED, FURTHER,
that if Ernst & Young L.L.P. fails to accept the appointment within 30 days from
the date of Xxxxxxxx' receipt of the Buy-Out Notice, the Appraiser Committee
shall consist solely of the Duke Appraiser). If applicable, the Duke Appraiser
and the Xxxxxxxx Appraiser shall jointly choose a third appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) within 15 days after the appointment of the Xxxxxxxx
Appraiser (PROVIDED, HOWEVER, that if they fail to select a third appraisal firm
within 15 days after the appointment of the Xxxxxxxx Appraiser, such third firm
(which shall be an investment banking, accounting or other firm that performs
appraisal and valuation services) will be selected by the American Arbitration
Association at the request of either party within 10 days after such request)
(the "NEUTRAL APPRAISER," and together with the Duke Appraiser and the Xxxxxxxx
Appraiser, the "APPRAISER COMMITTEE"). Once the Appraiser Committee has been
selected, each of Duke and Xxxxxxxx shall submit proposed Fair Market Values of
Xxxxxxxx' Corporation Interest to the
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Appraiser Committee, together with any supporting documentation such party deems
appropriate, as soon as practicable, but in no event earlier than 30 days after
the date of receipt of the Buy-Out Notice nor later than (i) 30 days after the
date of selection of the Neutral Appraiser, or (ii) in the event of the failure
of Ernst & Young L.L.P. to accept the appointment within the required time
period, 60 days from the date of Xxxxxxxx' receipt of the Buy-Out Notice. If
either Party fails to submit its proposed Fair Market Value within the required
time period, the Fair Market Value proposed by the other Party (assuming such
other Party has submitted its proposed value within the required time period)
shall be deemed to be the Fair Market Value of Xxxxxxxx' Corporation Interest
for purposes of this Section 6.6. If both Parties submit their respective
proposed values on a timely basis, the Appraiser Committee shall determine, by
majority vote, the Fair Market Value of Xxxxxxxx' Corporation Interest as of the
date of the Buy-Out Notice as promptly as possible (and in any event on or
before the 30th day after submittal of the competing proposals), which
determination shall be final and binding on the parties. The cost of such
appraisal shall be paid in equal portions by each of Duke and Xxxxxxxx. The
Company shall provide to each of Duke and Xxxxxxxx and, if applicable, the
Appraisal Committee, all information reasonably requested by them.
(c) The closing of Duke's acquisition of Xxxxxxxx' Corporation
Interest shall be consummated on or before the 60th day after the determination
of the Fair Market Value in accordance with Section 6.6(b). The acquisition
shall be consummated at a closing held at the principal offices of the
Corporation (unless otherwise mutually agreed by Duke and Xxxxxxxx) at which
time the purchase price, payable in the form of immediately available funds,
shall be delivered to Xxxxxxxx, and Xxxxxxxx shall deliver or cause to be
delivered to Duke such transfer documentation reasonably acceptable to Duke as
shall be required to evidence the transfer of Xxxxxxxx' Corporation Interest,
free and clear of all liens and encumbrances, except those created under this
Agreement.
ARTICLE VII
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND LOSS, DISTRIBUTIONS AND
TAX STATUS
The provisions of Annex F are hereby incorporated herein.
ARTICLE VIII
LIQUIDITY AND TRANSFER RESTRICTIONS
Section 8.1 STRUCTURE; TRANSFERS. For the period from the Contribution
Closing until the consummation of the IPO ("BLACKOUT PERIOD"), (i) Duke shall
cause the Duke Member to own and hold all of Duke's Company Interest and no
other assets or liabilities, and (ii) Xxxxxxxx shall cause (A) the Xxxxxxxx
Member to own and hold all of Xxxxxxxx' Company Interest and no other assets or
liabilities and (B) Xxxxxxxx Member Parent to own and hold all of the capital
stock of Xxxxxxxx Member and no other assets or liabilities.
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Section 8.2 RIGHT OF FIRST OFFER. If either a Duke Shareholder or a
Xxxxxxxx Shareholder (each, a "SHAREHOLDER") desires to Transfer all or any
portion of its Corporation Interest (other than pursuant to a registered public
offering), to a Person other than an Affiliate then prior to effecting or making
such Transfer, the Person desiring to make such Transfer (a "TRANSFERRING
ENTITY") shall notify in writing the other Party (the "NON-TRANSFERRING
ENTITY"), of the terms and conditions upon which it proposes to effect such
Transfer (which notice shall be herein referred to as a "TRANSFER NOTICE" and
shall include all material price and non-price terms and conditions). The
Non-Transferring Entity shall have the right to acquire all (but not less than
all) of the Corporation Interest that is the subject of the Transfer Notice on
the same terms and conditions as are set forth in the Transfer Notice. The
Non-Transferring Entity shall have 30 days following delivery of the Transfer
Notice during which to notify the Transferring Entity whether or not it desires
to exercise its right of first offer. If the Non-Transferring Entity does not
respond during the applicable period set forth above for exercising its
purchasing right under this Section 8.2, such Non-Transferring Entity shall be
deemed to have waived such right. If the Non-Transferring Entity elects to
purchase all, but not less than all, of the Corporation Interest that is the
subject of the Transfer Notice, the closing of such purchase shall occur at the
principal place of business of the Corporation on the tenth day following the
first date on which all applicable conditions precedent have been satisfied or
waived (but in no event shall such closing take place later than the date that
is 60 days (subject to extension for regulatory approvals, but in no event more
than 180 days) following the date on which the Non-Transferring Entity agrees to
purchase all of the Corporation Interest that is the subject of the Transfer
Notice). The Transferring Entity and the purchasing Non-Transferring Entity
agree to use commercially reasonable efforts to cause any applicable conditions
precedent to be satisfied as expeditiously as possible. At the closing, (i) the
Transferring Entity shall execute and deliver to the purchasing Non-Transferring
Entity (A) an assignment of the Corporation Interest described in the Transfer
Notice, in form and substance reasonably acceptable to the purchasing
Non-Transferring Entity and (B) any other instruments reasonably requested by
the purchasing Non-Transferring Entity to give effect to the purchase; and (ii)
the purchasing Non-Transferring Entity shall deliver to the Transferring Entity
the purchase price specified in the Transfer Notice in immediately available
funds or other consideration as specified in the Transfer Notice. If the
Non-Transferring Entity does not elect to purchase the Corporation Interest
pursuant to this Section 8.2, or having elected to so purchase such Corporation
Interests fails to do so within the time period required by this Section 8.2,
the Transferring Entity shall be free for a period of 180 days after the
expiration of the offer period referred to above or the date of such failure, as
applicable, to enter into a definitive written agreement with an unaffiliated
third party regarding the Transfer of its Corporation Interest on terms and
conditions that satisfy the following criteria:
(1) the amount of consideration to be paid by the purchasing
party may not be less than the consideration set forth in the Transfer Notice;
(2) the form of consideration may not be materially different
from that set forth in the Transfer Notice, except to the extent any change in
the form of consideration makes the terms of the transaction less favorable from
the purchaser's standpoint; and
(3) the terms and conditions set forth in such definitive
written agreement, when considered together with the form and amount of
consideration to be paid by such purchasing party, may not render the terms of
such transaction, taken as a whole, materially
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inferior (to the Transferring Entity from an economic standpoint) to those set
forth in the Transfer Notice (it being agreed that the granting by the
Transferring Entity of representations, warranties and indemnities with respect
to the business or properties of the Corporation, as applicable, or any of its
subsidiaries that are different from or in addition to any such provisions
referenced in the Transfer Notice shall not be considered to be more favorable
to the purchaser for purposes of this clause (c)).
If such a definitive written agreement is entered into with an unaffiliated
third party within such time period, the Transferring Entity shall be free for a
period of 270 days following the execution of such definitive written agreement
to consummate the Transfer of its Corporation Interest in accordance with the
terms thereof. If such Transfer is not consummated within such time period in
accordance with the terms of such definitive written agreement, the requirements
of this Section 8.2 shall apply anew to any further efforts by the Transferring
Entity to Transfer its Corporation Interest.
Section 8.3 CHANGE OF CONTROL. (a) If (i) a Change of Control occurs
with respect to the Duke Member (prior to the IPO) or a Duke Shareholder,
Xxxxxxxx shall have the option to purchase such Duke Member's Company Interest
(prior to the IPO) or such Duke Shareholder's Corporation Interest (following
the IPO), as the case may be, for Fair Market Value pursuant to the provisions
of Section 8.3(b), (c) and (d), and (ii) a Change of Control occurs with respect
to the Xxxxxxxx Member (prior to the IPO) or a Xxxxxxxx Shareholder, Duke shall
have the option to purchase such Xxxxxxxx Member's Company Interest (prior to
the IPO) or such Xxxxxxxx Shareholder's Corporation Interest (following the
IPO), as the case may be, pursuant to the provisions of Section 8.3(b), (c) and
(d).
(b) In the event of a transaction giving rise to a Change of Control
with respect to the Duke Member (prior to the IPO), Duke Shareholder, Xxxxxxxx
Member (prior to the IPO) or Xxxxxxxx Shareholder, as applicable, the Party who
has (or whose Subsidiaries have) experienced such a Change of Control
transaction (the "CHANGING PARTY") shall promptly (and in any event within three
days of the consummation of such transaction) deliver notice (the "CONTROL
NOTICE") to the other Party (the "NON-CHANGING PARTY") of such Change of Control
transaction. The Non-Changing Party shall have the right, to be exercised by
notice (the "CONTROL ACCEPTANCE") on or before the 60th day following receipt of
the Control Notice (the "CONTROL OFFER PERIOD"), to elect to purchase the
Company Interest or Corporation Interest of the Changing Party for Fair Market
Value as of the date of the Change of Control. The Control Acceptance shall set
forth the name of a nationally recognized appraisal firm (which may be an
investment banking, accounting or other firm that performs appraisal and
valuation services) designated by the Non-Changing Party as its appraisal firm
(the "NON-CHANGING PARTY APPRAISER").
(c) If the Non-Changing Party timely delivers the Control Acceptance
during the Control Offer Period, within 15 days from the date of receipt of the
Control Acceptance, the Changing Party shall notify the Non-Changing Party in
writing of the name of an appraisal firm (which may be an investment banking,
accounting or other firm that performs appraisal and valuation services)
designated as the Changing Party's appraisal firm (the "CHANGING PARTY
APPRAISER"); PROVIDED, HOWEVER, that if the Changing Party fails to select an
appraisal firm, and the Non-Changing Party is Duke, the Non-Changing Party
Appraiser shall be Deloitte &
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Touche L.L.P., or, if the Non-Changing Party is Xxxxxxxx, the Non-Changing Party
Appraiser shall be Ernst & Young L.L.P.; PROVIDED, FURTHER, that if Deloitte &
Touche L.L.P. or Ernst & Young L.L.P., as the case may be, fails to accept the
appointment within 30 days from the date of receipt by the Non-Changing Party of
the Control Notice, the Control Appraiser Committee shall consist solely of the
Non-Changing Party Appraiser. If applicable, Non-Changing Party Appraiser and
the Changing Party Appraiser shall jointly choose a third appraisal firm (which
may be an investment banking, accounting or other firm that performs appraisal
and valuation services) within 15 days after the appointment of the Non-Changing
Party Appraiser (PROVIDED, HOWEVER, that if they fail to select a third
appraisal firm within 15 days after the appointment of the Non-Changing Party
Appraiser, such third firm (which shall be an investment banking, accounting or
other firm that performs appraisal and valuation services) will be selected by
the American Arbitration Association at the request of either party within 10
days after such request) (the "NEUTRAL CONTROL APPRAISER," and together with the
Changing Party Appraiser and the Non-Changing Party Appraiser, the "CONTROL
APPRAISER COMMITTEE"). Once the Control Appraiser Committee has been chosen,
each of the Changing Party and Non-Changing Party shall submit proposed Fair
Market Values of the Changing Party's Company Interest or Corporation Interest,
as the case may be, to the Control Appraiser Committee, together with any
supporting documentation such party deems appropriate, as soon as practicable,
but in no event earlier than 30 days after the date of receipt of the Control
Acceptance nor later than (i) 30 days after the date of selection of the Neutral
Appraiser or (ii) in the event of the failure of Deloitte & Touche L.L.P. or
Ernst & Young L.L.P., as the case may be, to accept the appointment within the
required time period, 60 days from the date of receipt by the Non-Changing Party
of the Control Notice. If either Party fails to submit its proposed Fair Market
Value within the required time period, the Fair Market Value proposed by the
other Party (assuming such other Party has submitted its proposed value within
the required time period) shall be deemed to be the Fair Market Value of the
Changing Party's Corporation Interest for purposes of this Section 8.3. If both
Parties submit their respective proposed values on a timely basis, the Control
Appraiser Committee shall determine, by majority vote, the Fair Market Value as
of the date of the Change of Control of the Changing Party's Company Interest or
Corporation Interest, as the case may be, as promptly as possible (and in any
event on or before the 30th day after submittal of the competing proposals),
which determination shall be final and binding on the parties. The cost of such
appraisal shall be paid in equal portions by Duke and Xxxxxxxx. Each of the
Changing Party and the Non-Changing Party shall provide to the other and, if
applicable, the Control Appraisal Committee, all information reasonably
requested by them.
(d) The closing of the Non-Changing Party's acquisition of the
Changing Party's Company Interest or Corporation Interest, as the case may be,
shall be consummated on or before the 60th day after the determination of the
Fair Market Value in accordance with Section 8.3(c). The acquisition shall be
consummated at a closing held at the principal offices of the Company or the
Corporation (unless otherwise mutually agreed by the Changing Party and the
Non-Changing Party) at which time the purchase price, payable in the form of
immediately available funds, shall be delivered to the Changing Party, and the
Changing Party shall deliver or cause to be delivered to the Non-Changing Party
such transfer documentation reasonably acceptable to the Non-Changing Party as
shall be required to evidence the transfer of the Changing Party's Company
Interest or Corporation Interest, as the case may be, free and clear of all
liens and encumbrances, except those created under this Agreement.
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(e) Each of Duke and Xxxxxxxx agrees that prior to consummation of the
IPO, as a condition to the consummation of any transaction that will result in a
Change of Control of the Duke Member or the Xxxxxxxx Member, respectively, it
will cause the new Parent of the Duke Member or the Xxxxxxxx Member,
respectively, to assume the obligations of Duke or Xxxxxxxx, as applicable,
under this Agreement.
Section 8.4 OPEN MARKET PURCHASES AND TRANSFERS POST-IPO. In and
following the IPO, subject to applicable federal and state securities laws, each
Shareholder and its Affiliates may make open-market purchases or sales of shares
of Corporation Common Stock.
Section 8.5 REGISTRATION RIGHTS. Each of Duke and Xxxxxxxx agrees to
take such corporate action as is necessary and desirable to cause the
Corporation to enter into a registration rights agreement which shall grant each
Party the registration rights set forth in this Section 8.5, and shall contain
other customary and reasonable terms and conditions.
(a) DEMAND REGISTRATIONS. At any time following the six-month
anniversary of the IPO, each of the Parties shall have the right on two
occasions to request the Corporation to file a registration statement under the
Securities Act in respect of all or a portion of the shares of Corporation
Common Stock owned by it or its Affiliates (excluding the Corporation and its
Subsidiaries) (so long as such request covers at least 3% of the shares of
Corporation Common Stock then-outstanding) (a "DEMAND REQUEST"). Subject to
customary exceptions, (including any period within 60 days prior to, and 180
days (or such shorter period as may be agreed to by the underwriters) after the
effective date of, a Corporation-initiated registration, and any period of up to
180 days if the Corporation Board determines that filing of the registration
statement would require disclosure of pending matters or information the
disclosure of which would likely be detrimental to the Corporation or materially
interfere with its business or pending transaction), as promptly as practicable,
but in no event later than 60 days after the Corporation receives a Demand
Request, the Corporation shall file with the SEC and thereafter use its
reasonable best efforts to cause to be promptly declared effective (and kept
effective for the lesser of 90 days or until all shares registered have been
sold) a registration statement (a "DEMAND REGISTRATION") providing for the
registration of at least such number of shares of Corporation Common Stock as
such Party shall have demanded be registered.
(b) PIGGYBACK REGISTRATION. If, at any time following the IPO, the
Corporation proposes to register any shares of Corporation Common Stock under
the Securities Act on a registration statement on Form S-1, Form S-2 or Form S-3
(or successor forms) (whether or not pursuant to a Demand Registration under
Section 8.5(a)), subject to customary limitation and proration provisions, the
Corporation shall give each Party (or its Subsidiaries, if applicable) the
opportunity to include such Party's shares of Corporation Common Stock in such
registration statement.
(c) OTHER REGISTRATION PROVISIONS. Other provisions will include:
customary indemnification by the Corporation for liabilities incurred under
Federal and state securities laws; the agreement by holders of shares of
Corporation Common Stock who own more than 5% of the shares of Corporation
Common Stock outstanding or whose shares are included in the registration
statement (in each case if requested by the underwriters) not to sell any shares
of the Corporation Common Stock for a period of up to 90 days following the
effective date of the
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registration statement; that all registration expenses, except the underwriting
discounts and fees of counsel for the Party, will be borne by the Corporation;
registration rights may only be transferred to transferees who after the
transfer hold at least 10% of the outstanding Corporation Common Stock; that the
Corporation may preempt any demand registration with a primary registration; and
that the underwriter in any demand registration shall be selected by the holders
of 2/3 of the shares being covered by the Demand Request but must be acceptable
to the Corporation. For purposes of exercise of Demand Requests, transferees
shall be included with Duke or Xxxxxxxx, as the case may be, based on who was
the original transferor of such shares.
Section 8.6 ANTI-DILUTION. If, at any time following the IPO, the
Corporation offers or issues additional shares of the Corporation Common Stock
or additional shares of any other previously issued and outstanding capital
stock in a public offering, each Party shall have the opportunity to subscribe
for and purchase such number of shares of the Corporation Common Stock or such
other capital stock, as the case may be, such that such Party's Corporation
Interest or ownership percentage of such capital stock, as the case may be,
following the offering or issuance remains equal to such Party's Corporation
Interest or ownership percentage of such capital stock, as the case may be,
immediately prior to the offering or issuance.
Section 8.7 VOID TRANSFERS. Any purported Transfer of all or any
portion of a Company Interest or Corporation Interest not permitted by this
Article VIII shall be void. The provisions of this Article VIII with respect to
Company Interests and Corporation Interests shall apply equally to any rights or
options to purchase, or securities convertible into or exchangeable for, the
Company Interests or Corporation Interests.
ARTICLE IX
TERMINATION
Section 9.1 SURVIVAL OF AGREEMENT; TERM. Except as set forth below,
this Agreement shall not be terminated or amended, nor any provision hereof
waived, except by an instrument in writing signed by each of the parties hereto.
Notwithstanding the foregoing, any provision of this Agreement which
specifically provides for termination of such provision on an earlier date shall
terminate on such other date.
Section 9.2 TERMINATION. (a) This Agreement shall be terminated
immediately upon the termination of the Contribution Agreement in accordance
with its terms.
(b) (i) On or prior to the Contribution Closing Date, the provisions
hereof applicable or relating to the Company shall be incorporated into the
amended limited liability company agreement of the Company (the "LLC AGREEMENT")
prepared pursuant to Section 2.1 of the Contribution Agreement, and upon
execution thereof at the Contribution Closing, such provisions hereof applicable
or relating to the Company and incorporated into the LLC Agreement shall
terminate and cease to be effective. Any provisions hereof applicable or
relating to both the Company and the Corporation shall be incorporated into the
LLC Agreement only as, and to the extent, they apply or relate to the Company
and shall terminate and cease to be effective only in that regard and to such
extent.
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(ii) On or prior to the consummation of the IPO, Duke and Xxxxxxxx
shall execute and deliver a shareholders agreement and a registration rights
agreement which incorporate all provisions hereof applicable or relating to the
Corporation, both of which shall become effective upon the consummation of the
IPO. The shareholders agreement shall survive until either Duke's Total
Corporation Interest or Xxxxxxxx' Total Corporation Interest is less than 20%,
and the registration rights under the registration rights agreement shall
survive as to Duke until Duke's Corporation Interest is less than 10% and as to
Xxxxxxxx until Xxxxxxxx' Corporation Interest is less than 10%. Upon compliance
with this Section 9.2(b) and the effectiveness of both such agreements, the
provisions of this Agreement incorporated into such agreements shall terminate.
(c) In the case of termination or partial termination in accordance
with this Section 9.2, upon such termination, this Agreement or the appropriate
provisions shall become void and have no effect; PROVIDED, HOWEVER, that such
termination shall not relieve any party hereto of any liability for any breach
of this Agreement or such provisions that occurred prior to such termination.
ARTICLE X
MISCELLANEOUS
Section 10.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered (including by facsimile) to the other
party.
Section 10.2 GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY
TRIAL. (a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to the choice of law
principles thereof.
(b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware in
any action arising out of or relating to this Agreement or the Contribution
Agreement, and hereby irrevocably agrees that all claims in respect of such
action may be heard and determined in such Delaware state or federal court. Each
party hereto hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties hereto further agree, to the extent permitted by law,
that final and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.
(c) To the extent that any party hereto has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
party hereto hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement and the Contribution Agreement.
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(d) Each party hereto waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement or the
Contribution Agreement. Each party hereto certifies that it has been induced to
enter into this Agreement and the Contribution Agreement by, among other things,
the mutual waivers and certifications set forth above in this Section 10.2.
Section 10.3 ENTIRE AGREEMENT. This Agreement (including agreements
incorporated herein and the Confidentiality Agreements dated August 11, 1999 and
August 26, 1999 between Duke and Xxxxxxxx), the Contribution Agreement, and the
schedules and exhibits hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the parties
other than those set forth or referred to herein. This Agreement is not intended
to confer upon any person not a party hereto (and their successors and assigns)
any rights or remedies hereunder.
Section 10.4 EXPENSES. Except as set forth in this Agreement, whether
or not the transactions contemplated by this Agreement or the Contribution
Agreement are consummated, all legal and other costs and expenses incurred in
connection with this Agreement and the Contribution Agreement and the
transactions contemplated by this Agreement and the Contribution Agreement shall
be paid by the party incurring such costs and expenses.
Section 10.5 NOTICES. All notices and other communications to be
given to any party hereunder (including notices to directors under Section 2.4
and Section 4.4) shall be sufficiently given for all purposes hereunder if in
writing and delivered by hand, courier or overnight delivery service or three
days after being mailed by certified or registered mail, return receipt
requested, with appropriate postage prepaid, or when received in the form of a
telegram or facsimile and shall be directed, if to a party hereunder, to the
address or facsimile number set forth below (or at such other address or
facsimile number as such party shall designate by like notice):
(a) If to Xxxxxxxx:
Xxxxxxxx Petroleum Company
0000 Xxxxx Xxxxxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxx
Fax No.: (000) 000-0000
With a copy to:
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
Fax No.: (000) 000-0000
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(b) If to Duke:
Duke Energy Corporation
0000 Xxxxxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxxxxx X. XxXxx
Fax No.: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxx, LLP
0000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxxx X. Xxxxxx
Fax No.: (000) 000-0000
(c) If to the Company:
Duke Energy Field Services L.L.C.
000 00xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Fax No.: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxx, LLP
0000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxxx X. Xxxxxx
Fax No.: (000) 000-0000
Section 10.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that no party hereto will
assign its rights or delegate any or all of its obligations under this Agreement
without the express prior written consent of each other party hereto.
Section 10.7 HEADINGS; DEFINITIONS. The section and article headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated and except in the Annexes hereto, wherein
references to Sections or Articles shall mean Articles or Sections of such Annex
unless otherwise stated. All capitalized terms defined herein are equally
applicable to both the singular and plural forms of such terms.
Section 10.8 AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
all parties hereto. Either
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party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision of this Agreement on the part of
such other party hereto to be performed or complied with. The waiver by any
party hereto of a breach of any term or provision of this Agreement shall not be
construed as a waiver of any subsequent breach. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between the parties, shall constitute a waiver of any such right, power
or remedy.
Section 10.9 SEVERABILITY. If any provision of this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality or
enforceability of the other provisions of this Agreement shall not be affected
thereby, and there shall be deemed substituted for the provision at issue a
valid, legal and enforceable provision as similar as possible to the provision
at issue.
Section 10.10 INTERPRETATION. The phrase "including" shall be deemed
to be followed by "without limitation." In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
Section 10.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy at law or in equity, including
temporary restraining orders or temporary or permanent injunctions.
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed and delivered on the date first set forth above.
XXXXXXXX PETROLEUM COMPANY
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name:
Title:
DUKE ENERGY CORPORATION
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Xxxx X. Xxxxxx
Group President, Energy Transmission
DUKE ENERGY FIELD SERVICES L.L.C.
By: /s/ X. X. Xxxx
-----------------------------------
Xxx X. Xxxx
Authorized Person
ANNEX A
SPECIFIC PRE-IPO GOVERNANCE ISSUES
1. Compensation policies for employees of the Company, including specific
compensation and benefit plans and programs, to the extent such
policies are of the type that would customarily be considered by a
compensation committee of the board of directors of a comparably sized,
publicly-traded corporation; PROVIDED, HOWEVER, that these policies
shall not include the hiring and firing and compensation of senior
officers and managers, evaluating their performance and planning for
their succession.
2. Entering a new line of business outside of the midstream gas gathering,
processing, marketing and transportation businesses (and directly
related activities) in the United States and Canada.
3. A change in auditors.
4. Distributions and dividends (other than tax distributions as set forth
in Section 3.6(a)(i) of Annex F and the distributions described in
Section 3.2(c) of the Contribution Agreement) prior to the IPO.
5. The following transactions:
a) Any merger, consolidation, recapitalization, acquisition,
divestiture, joint venture or alliance (or a related series of
such transactions) involving the acquisition or expenditure
(in the form of cash or otherwise) of in excess of
$100,000,000 in value to or from the Company;
b) Any shut-down of a facility having a fair market value in excess of
$100,000,000;
c) Entering into any sales contract or commitment that has a term
of 5 years or more and that involves annual revenues to the
Company in excess of 5% of the Company's total annual sales
revenues for the most recently completed fiscal year;
d) Admittance of any new member/equity holder in the Company
prior to the IPO (it being understood that the IPO is not
subject to Section 2.5(b));
e) Requirement of any additional capital contribution by either Member;
and
f) Liquidation or dissolution of the Company.
6. Any capital expenditure in excess of $100,000,000 (other than a capital
expenditure to effect any merger, consolidation, recapitalization,
acquisition, divesture, joint venture or alliance).
7. Any borrowing in excess of $200,000,000 (other than borrowings described
in clauses (i) through (iii) of Section 6.17 of the Contribution
Agreement).
8. The settlement of any action or claim against the Company involving
payment by the Company of in excess of $25,000,000, excluding amounts
covered or reimbursed by insurance.
9. Entering into transactions with either Party or Affiliates of either
Party on terms that are clearly less favorable than those terms that
are within the range of comparable transactions between unaffiliated
third parties.
If a particular action that the Company proposes to take is reflected in an
operating or capital budget of the Company that has been approved by four or
more directors, no further approval of such action is required before it may be
taken, notwithstanding the inclusion of such action in this Annex A.
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ANNEX B
EXAMPLES OF DETERMINATIONS OF XXXXXXXX' CORPORATION INTEREST
AND
DUKE'S CORPORATION INTEREST AT VARIOUS IPO RESULTS
(dollars in millions)
Enterprise Value
-----------------------------------------------------------------------------------------------------------
$4,500 $5,000 $5,500 $6,000
------------------------ ------------------------ ------------------------ -----------------------
Xxxxxxxx Xxxx Xxxxxxxx Xxxx Xxxxxxxx Xxxx Xxxxxxxx Xxxx
Petroleum Energy Petroleum Energy Petroleum Energy Petroleum Energy
Company Corporation Company Corporation Company Corporation Company Corporation
Pre-IPO % of
Enterprise Value 38.9% 61.1% 38.9% 61.1% 38.9% 61.1% 38.9% 61.1%
Pre-IPO
Enterprise Value $1,751 $2,750 $1,945 $3,055 $2,140 $3,361 $2,334 $3,666
Cash Value 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
------ ------ ------ ------ ------ ------ ------ ------
Pre-IPO
Equity Value $ 551 $1,550 $ 745 $1,855 $ 940 $2,161 $1,134 $2,466
====== ====== ====== ====== ====== ====== ====== ======
Pre-IPO
% Interest 26.2% 73.8% 28.7% 71.3% 30.3% 69.7% 31.5% 68.5%
Public's Equity
Value Assuming
20% IPO $525 $650 $775 $900
Post-IPO
Corporation
Interest 21.0% 59.0% 22.9% 57.1% 24.2% 55.8% 25.2% 54.8%
Post-IPO
Equity Value $ 551 $1,550 $ 745 $1,855 $ 940 $2,161 $1,134 $2,466
Cash Value 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
------ ------ ------ ------ ------ ------ ------ ------
Post-IPO
Enterprise
Value $1,751 $2,750 $1,945 $3,055 $2,140 $3,361 $2,334 $3,666
====== ====== ====== ====== ====== ====== ====== ======
Post-IPO %
of Enterprise
Value 38.9% 61.1% 38.9% 61.1% 38.9% 61.1% 38.9% 61.1%
ANNEX C
SPECIFIC POST-IPO GOVERNANCE ISSUES
1. Compensation policies for employees of the Corporation, including
specific compensation and benefit plans and programs, to the extent
such policies are of the type that would customarily be considered by a
compensation committee of the board of directors of a comparably sized,
publicly-traded corporation; PROVIDED, HOWEVER, that these policies
shall not include the hiring and firing and compensation of senior
officers and managers, evaluating their performance and planning for
their succession.
2. Entering a new line of business outside of the midstream gas gathering,
processing, marketing and transportation businesses (and directly
related activities) in the United States and Canada.
3. A change in auditors.
4. The following transactions:
a) Any merger, consolidation, recapitalization, acquisition,
divestiture, joint venture or alliance (or a related series of
such transactions) involving the acquisition or expenditure
(in the form of cash or otherwise) of in excess of
$200,000,000 in value to or from the Corporation;
b) Any shut-down of a facility having a fair market value in excess of
$100,000,000;
c) Entering into any sales contract or commitment that has a term
of 5 years or more and that involves annual revenues to the
Corporation in excess of 5% of the Corporation's total annual
sales revenues for the most recently completed fiscal year;
d) Liquidation or dissolution of the Corporation.
5. Any capital expenditure in excess of $200,000,000 (other than a capital
expenditure to effect any merger, consolidation, recapitalization,
acquisition, divestiture, joint venture or alliance).
6. Any borrowing in excess of $200,000,000.
7. The settlement of actions or claims against the Corporation involving
payment by the Corporation of in excess of $25,000,000, excluding
amounts covered or reimbursed by insurance.
8. Entering into transactions with either Party or Affiliates of either
Party on terms that are clearly less favorable than those terms that
are within the range of comparable transactions between unaffiliated
third parties.
If a particular action that the Corporation proposes to take is reflected in an
operating or capital budget of the Corporation that has been approved by eight
or more directors, no further approval of such action is required before it may
be taken, notwithstanding the inclusion of such action in this Annex C.
-2-
ANNEX D
BUSINESS OPPORTUNITIES AGREEMENT
1. SCOPE OF BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES. The
Corporation agrees that, except with the consent of Duke (which consent Duke may
withhold in its sole discretion and which it shall have no duty, fiduciary or
otherwise, to grant), the Corporation and its Subsidiaries will not engage in
any business other than the midstream gas gathering, processing, marketing and
transportation business in the United States and Canada (the "DESIGNATED
BUSINESS"). The Corporation hereby renounces any interest or expectancy in any
Business Activity that does not consist exclusively of the Designated Business.
2. CORPORATE OPPORTUNITIES. (a) In anticipation that Duke is
currently, and will remain, a substantial stockholder of the Corporation, and in
anticipation that the Corporation and Duke may engage in the same or similar
activities or lines of business and have an interest in the same or similar
areas of business, and in recognition of the benefits to be derived by the
Corporation through its continued contractual, corporate and business relations
with Duke (including services of employees, officers and directors of Duke as
officers and directors of the Corporation), the provisions of this Business
Opportunities Agreement are set forth to regulate and define the conduct of
certain affairs of the Corporation as they may involve Duke and its employees,
officers and directors, and the powers, rights, duties, liabilities, interests
and expectancies of the Corporation in connection therewith.
(b) Duke shall have the right to engage (and shall have no duty to
refrain from engaging) in the same or similar activities or lines of business as
the Corporation, and the Corporation shall not be deemed to have any interest or
expectancy, and hereby renounces any interest or expectancy, in any business
opportunity, transaction, or other matter (each a "BUSINESS ACTIVITY") in which
Duke engages or seeks to engage, PROVIDED that such Business Activity is
conducted by Duke in accordance with the standards in paragraph 3 below. Neither
Duke nor any employee, officer, director or agent thereof shall be liable to the
Corporation or its stockholders for breach of any fiduciary or other duty by
reason of any such Business Activity of Duke or of such person's participation
therein. In the event that Duke acquires knowledge of a potential Business
Activity, unless such Business Activity is pursued in violation of the standards
set forth in Section 3 hereof, Duke shall have no duty to communicate or offer
to the Corporation the opportunity to participate in such Business Activity and
shall not be liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder of the Corporation by reason of the fact that
Duke conducts, pursues or acquires such Business Activity for itself, directs
such Business Activity to another person, or does not communicate information
regarding such Business Activity to the Corporation, and no officer, director,
employee or other agent of Duke who serves as a director or officer of the
Corporation or of any subsidiary of the Corporation shall have any duty to
communicate or offer the opportunity to participate in such Business Activity to
the Corporation or any liability to the Corporation or its stockholders for
breach of any fiduciary duty as a director or officer of the Corporation by
reason of the fact that Duke conducts, pursues or acquires such Business
Activity for itself, directs such Business Activity to another person, or does
not communicate information regarding such Business Activity to the Corporation
3. STANDARDS FOR SEPARATE CONDUCT OF BUSINESS. In the event that
Duke or any director or officer of the Corporation who is also a director,
officer, employee or agent of Duke acquires knowledge of a potential Business
Activity, Duke, or any such person on behalf of Duke, may pursue such Business
Activity, and such pursuit shall be in accordance with the standards set forth
in this Section 3, if (i) such knowledge was acquired by Duke or any such person
other than through disclosure of information by or on behalf of a director,
officer, employee or agent of the Corporation in or during the course of such
person's relationship with the Corporation and other than solely in, and as a
direct result of, such person's service as a director or officer of the
Corporation (it being understood that if the opportunity to pursue such Business
Activity is separately identified by Duke or one of its officers, directors,
employees or agents or separately presented to Duke or one of its officers,
directors, employees or agents, Duke, or any such officer, director, employee or
agent on behalf of Duke, shall be free to pursue such opportunity even if it
also came to the attention of another officer, director, employee or agent of
Duke as a result of and in his or her capacity as a director or officer of the
Corporation), and (ii) such Business Activity is developed and pursued solely
through the use of personnel and assets of Duke (including such person in his or
her capacity as a director, officer, employee or agent of Duke). The Corporation
hereby renounces any interest or expectancy in any Business Activity that is
conducted by Duke or its officers, directors, employees or agents on behalf of
Duke in accordance with the foregoing standards. Nothing in these Business
Opportunities provisions shall allow any Duke Post-IPO Director to pursue a
Business Activity in the Designated Business solely for his or her personal
benefit (as opposed to for the benefit of Duke).
4. CONSENT. Any Person purchasing or otherwise acquiring any
interest in shares of the capital stock of the Corporation shall be deemed
to have consented to these provisions.
5. INTERPRETATION. For purposes of this Annex D, "Duke" shall
include all Subsidiaries and Affiliates of Duke (other than the Corporation and
its Subsidiaries).
6. AMENDMENT. Any proposed amendment to these provisions shall
require the approval of at least a majority of the members of the Corporation
Board who are not officers, directors or employees of Duke and who are otherwise
disinterested or of a committee of the Corporation Board consisting exclusively
of directors of the Corporation who are not officers, directors or employees of
Duke and who are otherwise disinterested.
7. TERM. The provisions of this Annex D shall terminate at such time
as Duke no longer owns, directly or indirectly, a majority of Corporation Common
Stock and no longer otherwise controls the Corporation, directly or indirectly.
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ANNEX E
[INTENTIONALLY OMITTED]
ANNEX F
CAPITAL ACCOUNTS, ALLOCATIONS OF PROFIT AND
LOSS, DISTRIBUTIONS AND TAX STATUS
ARTICLE I
DEFINITIONS
For purposes of this Annex F, terms used in this Annex F shall have
the meanings set forth below in this Article I (such meanings to be equally
applicable to both the singular and plural forms of the terms defined) and if
not otherwise defined in this Article I shall have the meanings given to such
terms in the Governance Agreement or the Contribution Agreement (including Annex
B thereof). Any Section reference in this Annex shall refer to such Section of
this Annex, except as otherwise indicated.
Section 1.1 ADJUSTED CAPITAL ACCOUNT DEFICIT.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts that such Member is obligated to restore to the Company (pursuant
to this Agreement or otherwise) or is deemed to be obligated to restore
pursuant to (a) the penultimate sentence of Regulation Section
1.704-2(g)(1), or (b) the penultimate sentence of Regulation Section
1.704-2(i)(5); and
(ii) such Capital Account shall be deemed to be decreased by the items
described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Section 1.2 BOOK VALUE.
"BOOK VALUE" means (a) with respect to the assets of the Company
contributed in accordance with Section 2.1 of this Annex F by DEFS Holding
$3,360,500,000 and by PGC $2,139,500,000; (b) with respect to any asset of the
Company contributed in accordance with Section 2.2 hereof, the asset's fair
market value at the time of such contribution; and (c) with respect to any other
asset of the Company, the adjusted tax basis of such asset as of the relevant
date for U.S. Federal income tax purposes, except as follows:
(i) the Book Values of all Company assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective fair
market values (taking Code Section 7701(g) into account) as of the
following times:
(1) the acquisition of an additional interest in the Company by
any new or existing Member in exchange for more than a DE
MINIMIS Capital Contribution if such adjustment is necessary
to reflect the relative economic interests of the interest
holders in the Company;
(2) the distribution by the Company to a Member of more than a
DE MINIMIS amount of money or Company property as
consideration for an interest in the Company if such
adjustment is necessary to reflect the relative economic
interests of the interest holders in the Company; and
(3) the liquidation of the Company within the meaning of
Regulation Section 1.704-1(b)(2)(iv)(f)(5)(ii);
(ii) the Book Value of any Company asset distributed in kind to
any Member shall be the gross fair market value of such asset (taking Code
Section 7701(g) into account) on the date of such distribution; and
(iii) the Book Value of Company assets shall be increased or
decreased, as appropriate, to reflect any adjustments to the adjusted tax
bases of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into account
in determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of "Profits"
and "Losses" in Section 1.22 hereof; PROVIDED, HOWEVER, that Book Values
shall not be adjusted pursuant to this subparagraph (iii) to the extent
that an adjustment pursuant to subparagraph (i) hereof is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iii).
The Book Value of an asset shall be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses and other items allocated pursuant to Article III hereof. The
foregoing definition of Book Value is intended to comply with the provisions of
Regulation Section 1.704-1(b)(2)(iv) and shall be interpreted and applied
consistently therewith.
Section 1.3 CAPITAL ACCOUNT.
"CAPITAL ACCOUNT" has the meaning given to such term in Section 2.3
hereof.
Section 1.4 CAPITAL CONTRIBUTION.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the
amount of any money and the initial Book Value of any property (other than
money) contributed to the Company with respect to the interest in the Company
held or purchased by such Member and credited to each such Member's Capital
Accounts pursuant to Article II hereof.
Section 1.5 CODE.
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
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Section 1.6 DEPRECIATION.
"DEPRECIATION" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for U.S. Federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted tax basis for U.S. Federal income tax purposes at the
beginning of such Fiscal Year, the depreciation, amortization or other cost
recovery deduction for such Fiscal Year or part thereof shall be an amount which
bears the same ratio to such Book Value as the U.S. Federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
or part thereof bears to such adjusted tax basis. If such asset has a zero
adjusted tax basis for U.S. Federal income tax purposes, the depreciation,
amortization or other cost recovery deduction for such asset for such Fiscal
Year shall be determined under a method reasonably selected by agreement among
the Members.
Section 1.7 DISGUISED SALE AMOUNT.
"DISGUISED SALE AMOUNT" shall mean the excess of (X) $1,200,000,000
over (Y) the product of the Percentage Interest of PGC in the Company as of the
Closing Date and $2,400,000,000.
Section 1.8 DISTRIBUTION.
"DISTRIBUTION" means, with respect to any Member, the amount of money
and the Book Value of any property (other than money) distributed to such Member
pursuant to Section 3.6 hereof with respect to such Member's interest in the
Company.
Section 1.9 FISCAL YEAR.
"FISCAL YEAR" means the taxable year of the Company, which shall be a
fiscal year ending on December 31st.
Section 1.10 FLOW THROUGH SUBSIDIARIES.
"FLOW THROUGH SUBSIDIARIES" shall have the meaning set forth in
Section 4.2.
Section 1.11 MEMBER.
"MEMBER" means a member in the Company.
Section 1.12 NONRECOURSE DEDUCTIONS.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for any
Fiscal Year equals the excess, if any, of (i) the net increase in the amount of
Partnership Minimum Gain during such Fiscal Year over (ii) the aggregate amount
of any distributions during such Fiscal Year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Partnership Minimum Gain,
determined in accordance with Regulation Section 1.704-2(c).
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Section 1.13 NONRECOURSE LIABILITY.
"NONRECOURSE LIABILITY" shall have the meaning set forth in Regulation
Section 1.704-2(b)(3).
Section 1.14 OTHER MEMBER.
"OTHER MEMBER" shall have the meaning set forth in Section 3.6(a)(i).
Section 1.15 PARTNER NONRECOURSE DEBT.
"PARTNER NONRECOURSE DEBT" has the meaning ascribed to such term in
Regulation Section 1.704-2(b)(4).
Section 1.16 PARTNER NONRECOURSE DEBT MINIMUM GAIN.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" means the aggregate amount of
gain (of whatever character), determined for each Partner Nonrecourse Debt, that
would be realized by the Company if it disposed of the Company property subject
to such Partner Nonrecourse Debt in a taxable transaction in full satisfaction
thereof (and for no other consideration), determined in accordance with
Regulation Sections 1.704-2(i)(3) and (k), and the determination of a Member's
share of minimum gain attributable to a Partner Nonrecourse Debt in accordance
with Regulation Section 1.704-2(i)(5).
Section 1.17 PARTNER NONRECOURSE DEDUCTIONS.
"PARTNER NONRECOURSE DEDUCTIONS" means the excess, if any, of
(i) the net increase, if any, in the amount of Partner Nonrecourse Debt Minimum
Gain during any Fiscal Year over (ii) the aggregate amount of any distributions
during such Fiscal Year of proceeds of a Partner Nonrecourse Debt that are
allocable to an increase in Partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulation Sections 1.704-2(i)(2).
Section 1.18 PARTNERSHIP MINIMUM GAIN.
"PARTNERSHIP MINIMUM GAIN" means the aggregate amount of gain
(of whatever character), determined for each Nonrecourse Liability of the
Company, that would be realized by the Company if it disposed of the Company
property subject to such Nonrecourse Liability in a taxable transaction in full
satisfaction thereof (and for no other consideration), determined in accordance
with Regulation Sections 1.704-2(d) and (k), and the determination of a Member's
share of Partnership Minimum Gain in accordance with Regulation Section
1.704-2(g).
Section 1.19 PERCENTAGE INTEREST.
"PERCENTAGE INTEREST" means, with respect to the Company interests
issued to DEFS Holding pursuant to Section 2.1(j)(i) of the Contribution
Agreement, 69.7 percent, and with respect to the Company interests issued to PGC
pursuant to Section 2.1(k)(i) of the Contribution Agreement, 30.3 percent.
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Section 1.20 PGC CONTRIBUTION.
"PGC CONTRIBUTION" shall have the meaning set forth in Section 4.2(E).
Section 1.21 PGC DISTRIBUTION.
"PGC DISTRIBUTION" shall have the meaning set forth in Section 4.2(E).
Section 1.22 PROFITS AND LOSSES.
"PROFITS" and "LOSSES" means, for each Fiscal Year or part thereof,
the taxable income or loss of the Company for such Fiscal Year determined,
solely for U.S. Federal income tax purposes, in accordance with Code Section
703(a) (for this purpose, all items of income, gain, loss, or deduction required
to be stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments (without duplication):
(i) any income of the Company that is exempt from U.S. Federal
income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this Section 1.22 shall be added to such taxable income
or loss;
(ii) any expenditure of the Company that is (a) not deductible in
computing U.S. taxable income and not properly chargeable to the Members'
Capital Accounts as described in Code Section 705(a)(2)(B) or treated as
such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and (b) not
otherwise taken into account in computing Profits and Losses pursuant to
this Section 1.22, shall be subtracted from such taxable income or loss;
(iii) any Depreciation for such Fiscal Year or part thereof shall be
taken into account in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss;
(iv) gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for U.S. Federal income
tax purposes shall be computed with reference to the Book Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property for U.S. Federal income tax purposes differs from its Book Value;
(v) in the event the Book Value of any Company asset is adjusted
pursuant to subparagraphs (i) and (ii) of the definition of Book Value, the
amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the Book Value of the asset) or an item of loss (if
the adjustment decreases the Book Value of the asset) from the disposition
of such asset and shall be taken into account for purposes of computing
Profits and Losses;
(vi) to the extent an adjustment to the adjusted tax basis of any
Company asset under Code Section 734(b) is required, pursuant to Regulation
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as a result of a distribution other than in liquidation of
a Member's interest in the Company, the
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amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the adjusted tax basis of the asset) or an item of
loss (if the adjustment decreases the adjusted tax basis of the asset) from
the disposition of such asset and shall be taken into account for purposes
of computing Profits and Losses; and
(vii) notwithstanding any other provision of this definition, such
taxable income or loss shall be deemed not to include any income, gain,
loss, deduction or other item thereof specially allocated pursuant to
Sections 3.2(b), (c), (d), (e), (f) or (h) or the proviso in Section 3.1(b)
of this Annex F.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.2(b), (c), (d), (e),
(f) and (h) of this Annex F shall be determined by applying rules analogous to
those set forth in subparagraphs (i) through (vi) above.
Section 1.23 REGULATION.
"REGULATION" means the income tax regulations promulgated under the
Code by the U.S. Department of the Treasury (whether final or temporary).
Section 1.24 REGULATORY ALLOCATIONS.
"REGULATORY ALLOCATIONS" has the meaning given to it in Section 3.2(g)
hereof.
Section 1.25 SUBSIDIARY.
"SUBSIDIARY" shall have the meaning ascribed to such term in the
Contribution Agreement.
Section 1.26 TAX MATTERS PARTNER.
"TAX MATTERS PARTNER" has the meaning given to it in Section 4.4(a)
hereof.
ARTICLE II
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
Section 2.1 CAPITAL CONTRIBUTIONS.
The initial Capital Contributions made to the Company by the Members
shall be the property contributed by the Members pursuant to Article II of the
Contribution Agreement.
Section 2.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
The Members shall make additional Capital Contributions or loans to
the Company in accordance with the Contribution Agreement and the Governance
Agreement.
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Section 2.3 CAPITAL ACCOUNTS.
A "CAPITAL ACCOUNT" shall be maintained for each Member on the books
of the Company in compliance with the requirements of Code Section 704(b) and
the Regulations thereunder. The initial Capital Accounts of the Members shall be
(prior to reduction for the amount of any cash distributed to DEFS Holding and
PGC on the Closing Date), in the case of DEFS Holding, $3,360,500,000 and, in
the case of PGC, $2,139,500,000. Each Member's Capital Account shall be
increased by (i) the Capital Contributions of such Member, (ii) Profits and
items of income or gain allocated to such Member as set forth in Article III
hereof, (iii) any positive adjustment to such Capital Account by reason of an
adjustment to the Book Value of Company assets, and (iv) the amount of Company
liabilities assumed by such Member or which are secured by any property
distributed to such Member. Each Member's Capital Account shall be decreased by
(i) the amount of any cash and the Book Value of any property distributed to
such Member, (ii) Losses, Nonrecourse Deductions, Partner Nonrecourse
Deductions, and items of loss or deduction allocated to such Member as set forth
in Article III hereof, (iii) any negative adjustment to such Capital Account by
reason of an adjustment to the Book Value of Company assets, and (iv) the amount
of any liabilities of such Member assumed by the Company or which are secured by
property contributed by such Member to the Company. In determining the amount of
any liability for purposes of the preceding two sentences, there shall be taken
into account Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
ARTICLE III
PROFITS AND LOSSES
Section 3.1 ALLOCATION OF PROFIT AND LOSSES.
(a) IN GENERAL. This Section 3.1 sets forth the general rules for
book allocations to the Members and shall apply to allocations with respect to
the operations and liquidation of the Company, maintaining the books and records
of the Company and computing the Members' Capital Accounts or share of Profit,
Losses, other items or distributions pursuant to this Annex F, in each case as
required for U.S. Federal income tax purposes under Code Section 704(b) and the
Regulations thereunder. These provisions do not apply to the requirement that
the Company maintain books and records for financial reporting purposes in
accordance with Section 6.3 of the Governance Agreement.
(b) PROFITS AND LOSSES. Commencing on the Closing Date, Profits and
Losses shall be allocated among the Members in accordance with their respective
Percentage Interests in the Company; PROVIDED, HOWEVER, that the Company shall
make special allocations to the extent required pursuant to Article V of Annex A
to the Contribution Agreement.
Section 3.2 LIMITATIONS ON ALLOCATIONS.
Notwithstanding the general allocation rules set forth in Section 3.1
hereof, the following special allocation rules and limitations shall apply with
respect to maintaining the Company's books and records and computing the
Members' Capital Accounts or share of
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Profits, Losses, other items or distributions pursuant to this Annex F, in each
case as required for U.S. Federal income tax purposes under Code Section 704(b)
and the Regulations thereunder.
(a) LIMITATIONS ON LOSS ALLOCATIONS. The losses allocated to any
Member pursuant to Section 3.1(b) hereof with respect to any Fiscal Year shall
not exceed the maximum amount of losses that can be so allocated without causing
such Member to have an Adjusted Capital Account Deficit at the end of such
Fiscal Year. In the event some but not all of the Members would have Adjusted
Capital Account Deficits as a consequence of an allocation of losses pursuant to
Section 3.1(b) hereof, the limitation set forth in this Section 3.2(a) shall be
applied on a Member-by-Member basis and any such losses not allocable to a
Member as a result of such limitation shall be allocated to the other Members in
accordance with their positive Capital Account balances so as to allocate the
maximum possible losses to each Member under Regulation Section
1.704-1(b)(2)(ii)(d).
(b) QUALIFIED INCOME OFFSET. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such adjustment,
allocation, or distribution causes or increases an Adjusted Capital Account
Deficit for such Member, then, before any other allocations are made under this
Annex F or otherwise, such Member shall be allocated items of income and gain
(consisting of a PRO RATA portion of each item of Company income, including
gross income and gain) in an amount and manner sufficient to eliminate such
Adjusted Capital Account Deficit as quickly as possible; PROVIDED that an
allocation pursuant to this Section 3.2(b) shall be made only if and to the
extent that the Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article III have been made as if this
Section 3.2(b) were not in this Annex F. This Section 3.2(b) is intended to
constitute a "qualified income offset" as provided in Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(c) PARTNERSHIP MINIMUM GAIN CHARGEBACK. If there is a net decrease
in Partnership Minimum Gain during any Fiscal Year, then, except as provided in
Regulation Section 1.704-2(f)(2), (3), or (5), each Member shall be allocated
items of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, such Member's share of the
net decrease in Partnership Minimum Gain during such Fiscal Year. Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto and the items
to be so allocated shall be determined in accordance with Regulation Sections
1.704-2(f)(6) and 1.704-2(j)(2). To the extent that this Section 3.2(c) is
inconsistent with Regulation Section 1.704-2(f) or incomplete with respect to
such Regulations, the Partnership Minimum Gain chargeback provided for herein
shall be applied and interpreted in accordance with such Regulation.
(d) PARTNER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. If there is a
net decrease in Partner Nonrecourse Debt Minimum Gain during any Fiscal Year,
then, except as provided in Regulation Section 1.704-2(i)(4), each Member with a
share of Partner Nonrecourse Debt Minimum Gain shall be allocated items of
income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal
Years) in proportion to, and to the extent of, such Member's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain during such Fiscal Year.
Allocations pursuant to the previous sentence shall be made in proportion to the
respective
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amounts required to be allocated to each Member pursuant thereto and the items
to be so allocated shall be determined in accordance with Regulation Sections
1.704-2(i)(4) and 1.704-2(j)(2). To the extent that this Section 3.2(d) is
inconsistent with Regulation Section 1.704-2(i) or incomplete with respect to
such Regulation, the Partner Nonrecourse Debt Minimum Gain chargeback provided
for herein shall be applied and interpreted in accordance with such Regulation.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Fiscal
Year shall be specially allocated to the Members in proportion to each of their
respective Percentage Interests in the Company. This provision is to be
interpreted in a manner consistent with Regulation Sections 1.704-2(b)(1) and
1.704-2(e).
(f) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in which the
Members share the economic risk of loss for the Partner Nonrecourse Debt that
gave rise to those deductions. This allocation is intended to comply with the
requirements of Regulation Section 1.704-2(i) and shall be interpreted and
applied consistently therewith.
(g) LIMITED EFFECT AND INTERPRETATION. The special rules set forth
in Sections 3.2(a), (b), (c), (d), (e), and (f) (the "REGULATORY ALLOCATIONS")
shall be applied only to the extent required by applicable Regulations for the
resulting allocations provided for in this Section 3.2, taking into account such
Regulatory Allocations, to be respected for U.S. Federal income tax purposes.
The Regulatory Allocations are intended to comply with the requirements of
Regulation Sections 1.704-1(b), 1.704-2, and 1.752-1 through 1.752-5, inclusive,
and shall be interpreted and applied consistently therewith.
(h) OFFSETTING ALLOCATIONS. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide Company
Profits, Losses, and other similar items. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 3.2(h).
Therefore, notwithstanding any other provision of this Article III (other than
the Regulatory Allocations), the Company shall make such offsetting special
allocations of Company income, gain, loss or deduction in a manner such that,
after the offsetting allocations are made, each Member's Capital Account Balance
is, to the extent possible, equal to the Capital Account balance such Member
would have had if the Regulatory Allocations were not part of this Annex F and
all Company items were allocated pursuant to Section 3.1 hereof.
Section 3.3 RESTORATION OF NEGATIVE CAPITAL ACCOUNTS.
At no time shall a Member with a negative balance in its Capital
Account have any obligation to the Company or to any other Member to restore
such negative balance.
Section 3.4 INTERIM ALLOCATIONS RELATING TO TRANSFERRED COMPANY
INTERESTS.
Notwithstanding any other provision of this Annex F or the
Governance Agreement or the Contribution Agreement, in the event of a change in
a Member's Percentage Interest in the Company as a result of a Transfer or
deemed Transfer of a Member's interest in
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the Company during a Fiscal Year, the allocations required under this Article
III shall be made with respect to the Members for the portion of the Fiscal Year
through the date of the Transfer and after the date of the Transfer based on an
interim closing of the Company's books. The effective date of any such Transfer
shall be the actual date of the Transfer as recorded on the books of the
Company. This Section 3.4 shall also apply for purposes of computing a Member's
Capital Account.
Section 3.5 CODE SECTION 704(C) ALLOCATIONS.
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company or any Subsidiary thereof that is
treated as a partnership or disregarded entity for U.S. Federal income tax
purposes shall, solely for U.S. Federal income tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted tax
basis of such property to the Company for U.S. Federal income tax purposes and
its Book Value (computed in accordance with the definition of Book Value) using
the "Traditional Method with Curative Allocations" as defined in Regulation
Section 1.704-3(c).
(b) In the event the Book Value of any asset of the Company (or any
Subsidiary thereof that is treated as a partnership or disregarded entity for
U.S. Federal income tax purposes) is adjusted pursuant to subparagraph (i) of
the definition of Book Value or otherwise pursuant to Code Section 704(b) and
the Regulations thereunder, subsequent allocations of income, gain, loss and
deduction with respect to any such asset so adjusted shall take account of any
variation between the adjusted tax basis of such asset for U.S. Federal income
tax purposes and the Book Value in the same manner as under Code Section 704(c),
the Regulations thereunder and Section 3.5(a).
(c) Allocations pursuant to this Section 3.5 are solely for purposes
of U.S. Federal income taxes and shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of Profits, Losses
or other items allocated under Section 3.1 or 3.2.
Section 3.6 DISTRIBUTIONS.
(a) DISTRIBUTIONS OTHER THAN IN LIQUIDATION OF THE COMPANY. Except
as provided in Section 3.6(b) below (and taking into account deemed
distributions, if any, under Section 4.1 which are not re-contributed pursuant
to Section 4.1), Distributions of cash of the Company shall be made at the end
of each quarterly accounting period of the Company, and one Business Day prior
to the date of the IPO, to each Member of the Company in the following amounts:
(i) the greater of (A) the excess of (x) the product of (I) the
sum of the maximum United States regular Federal income tax rate applicable
to C corporations under Section 11 of the Code and 4.5 percent and (II) the
excess, if any, of taxable income and gain over taxable loss or deduction
of the Company allocated to such Member with respect to such period over
(y) the amount of any credits allocated to such Member with respect to such
period for United States regular Federal income tax
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purposes and State income tax purposes and (B) (x) such Member's Percentage
Interest in the Company multiplied by the quotient of (y) the amount
calculated under clause (A) with respect to such period for the other
Member (or Members) (the "OTHER MEMBER") divided by (z) the Other Member's
Percentage Interest in the Company; and
(ii) such Distributions as the Company Board may determine in its
discretion as permitted by the Governance Agreement.
Such Distributions pursuant to clause (i) shall be made in a manner
consistent with the estimated annual tax items of the Company, and
Distributions pursuant to clause (i) for each quarterly accounting period
(or portion thereof) shall be adjusted to the extent Distributions for
prior quarterly accounting periods did not correctly estimate such items.
(b) DISTRIBUTIONS IN LIQUIDATION OF THE COMPANY. Upon the dissolution
or liquidation of the Company, the proceeds of sale of the properties and assets
of the Company that have been sold in liquidation, and all other properties and
assets of the Company not otherwise sold (and valued at their fair market
value), shall be applied and distributed as follows, and in the following order
of priority: (i) first, to the payment of all debts and liabilities of the
Company and the expenses of liquidation not otherwise adequately provided for;
(ii) second, to the setting up of any reserves that are reasonably necessary for
any contingent unforeseen liabilities or obligations of the Company or of the
Members arising out of or in connection with the Company; (iii) third, to the
Members in proportion to the positive balances of each of their respective
Capital Accounts after all allocations have been made to such Capital Accounts
pursuant to this Annex F, until the remaining balances of such Capital Accounts
are zero; and (iv) fourth, the remaining proceeds to the Members in proportion
to each of their Percentage Interests in the Company.
ARTICLE IV
WITHHOLDING TAX MATTERS; TAX STATUS AND TREATMENT
Section 4.1 WITHHOLDING.
The Company shall comply with all withholding requirements under
U.S. Federal, state, local and foreign tax laws and shall remit amounts
withheld to, and file required forms with, such applicable Taxing Authorities.
To the extent that the Company withholds and pays over any amounts to any Taxing
Authority with respect to the distributions or allocations to any Member, the
amount withheld (or credited against withholding tax otherwise due) shall be
treated as a distribution to such Member in the amount of the withholding (or
credit). In the event of any claimed overwithholding by the Company, if the
Company is required to take any action in order to secure a refund or credit for
the benefit of a Member in respect of any amount withheld by it, it will take
any such action including, without limitation, applying for such refund on
behalf of the Member and paying it over to such Member. If any amount required
to be withheld was not withheld from actual distributions made to a Member, the
Member to which the distribution was made shall reimburse the Company for such
withholding. In the event of any underwithholding by the Company to a Member,
each Member agrees to indemnify and hold
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harmless the Company and its subsidiaries from and against any liability,
including interest and penalties, with respect to such underwithholding to such
Member. Each Member agrees to furnish the Company with any representations and
forms as shall reasonably be requested by the Company to assist the Company in
determining the extent of, and in fulfilling, the Company's withholding
obligations, if any. The provisions of this Section 4.1 shall be applied in a
manner, taking into consideration any tiered partnership structure that the
Company may be part of, that reflects the relative economic interests of each
Member in the Company.
Section 4.2 TAX STATUS.
The Company is intended to be treated as a partnership for U.S.
Federal income tax purposes, and each of the Subsidiaries of the Company
(organized under the laws of the United States, a State of the United States or
any political subdivision thereof) (the "FLOW THROUGH SUBSIDIARIES") is intended
to be treated as a partnership or disregarded entity for U.S. Federal income tax
purposes. Each of Duke, Phillips, the Members and the Company shall take no
action or position inconsistent with (or that could reasonably be expected to be
viewed by the Internal Revenue Service as inconsistent with), and shall make or
cause to be made all applicable elections with respect to: (A) the treatment of
the Company (or any successor thereto) as a partnership for U.S. Federal income
tax purposes and the treatment of each of the Flow Through Subsidiaries (or any
successor thereto) as a partnership or disregarded entity for U.S. Federal
income tax purposes; (B) the treatment of the Company as not a publicly traded
partnership for United States Federal income tax purposes; (C) the allocation of
the Financing under Regulation Section 1.752-3(a)(3) among the Members in
proportion to their Percentage Interests as of the Closing Date; (D) the
treatment of the contribution to the Company by DEFS Holding pursuant to Section
2.2 of the Contribution Agreement as a contribution pursuant to Code Section
721, the treatment of the distribution to DEFS Holding pursuant to Section
3.2(c)(2) of the Contribution Agreement (as adjusted pursuant to Section 3.3) as
a distribution pursuant to Code Section 731 and the treatment that, for purposes
of the Code, neither such contribution nor such distribution is a transfer that
constitutes a sale or exchange (or portion thereof) of property in whole or in
part to the Company by a Member in the Company acting in a capacity other than
as a Member of the Company; (E) the treatment of the contribution to the Company
by PGC pursuant to Section 2.3 of the Contribution Agreement (the "PGC
CONTRIBUTION") as a contribution pursuant to Code Section 721, the treatment of
the distribution to PGC pursuant to Section 3.2(c)(1) of the Contribution
Agreement (as adjusted pursuant to Section 3.3) (the "PGC DISTRIBUTION") as a
distribution pursuant to Code Section 731 and the treatment that, for purposes
of the Code, neither the PGC Contribution nor the PGC Distribution is a transfer
that constitutes a sale or exchange (or portion thereof) of property in whole or
in part to the Company by a Member in the Company acting in a capacity other
than as a Member of the Company (except in the case of this clause (E) that,
Duke, Phillips, the Members and the Company shall treat (except to the extent
Duke, Phillips, the Members and the Company agree in writing or are required by
the Neutral Firm to treat otherwise) an amount of the PGC Distribution equal to
the Disguised Sale Amount as proceeds of a sale by PGC to the Company under Code
Section 707(a) and shall treat an amount of the PGC Contribution equal in fair
market value to the Disguised Sale Amount as property that is sold by PGC to the
Company under Code Section 707(a) (such property treated as having been sold
having regular federal income tax basis equal to the aggregate regular Federal
income tax basis of the property contributed in the PGC Contribution multiplied
by a fraction the numerator of which is the Disguised Sale Amount and the
denominator of which is
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the value of the property contributed in the PGC Contribution, such value being
for this purpose $2,139,500,000); and (F) the treatment of the merger of
Xxxxxxxx Member Parent into DEFS Holding pursuant to Section 3.2 of the
Governance Agreement as a "reorganization" within the meaning of Section 368(a)
in which no gain or loss is recognized to PGC, DEFS Holding, the Company, Duke,
Xxxxxxxx or any other Person.
Section 4.3 EXISTING STRUCTURE; INTERNAL RESTRUCTURINGS.
(a) Schedule 5.1(b) to the Duke Disclosure Schedule sets forth the
organizational structure of DEFS Holding and the DEFS Subsidiaries (showing the
respective owners among Duke and its Subsidiaries of DEFS Holding and the DEFS
Subsidiaries) as of the date hereof. From and after the date hereof and until
the Closing Date, except (i) for the mergers and conversions contemplated by
Section 2.1(b) of the Contribution Agreement and other transactions specifically
provided for in the Governance Agreement or the Contribution Agreement (so long
as such transactions do not result in a non-U.S. entity owning any DEFS
Subsidiary that is a United States person within the meaning of the Code or any
assets thereof), (ii) as consented to or approved by Xxxxxxxx in writing, and
(iii) to the extent pursuant to a divestiture required by Section 6.2 of the
Contribution Agreement, Duke shall not, and shall cause the DEFS Subsidiaries
not to, cause any change to or restructuring of the ownership interests in the
entities that are DEFS Subsidiaries as of the date hereof.
(b) Schedule F-2 hereto sets forth the organizational structure of
PGC and the PGC Subsidiaries (showing the respective owners among Xxxxxxxx and
its Subsidiaries of PGC and the PGC Subsidiaries) as of the date hereof. From
and after the date hereof and until the Closing Date, except (i) for the mergers
and conversions contemplated by Section 2.1(c) of the Contribution Agreement and
other transactions specifically provided for in the Governance Agreement or the
Contribution Agreement (so long as such transactions do not result in a non-U.S.
entity owning any PGC Subsidiary that is a United States person within the
meaning of the Code or any assets thereof), (ii) as consented to or approved by
Duke in writing, and (iii) to the extent pursuant to a divestiture required by
Section 6.2 of the Contribution Agreement, Xxxxxxxx shall not, and shall cause
the PGC Subsidiaries not to, cause any change to or restructuring of the
ownership interests in the entities that are PGC Subsidiaries as of the date
hereof.
(c) For the period, if any, beginning at the time of consummation of
the IPO and ending on the second anniversary of the Closing Date, without the
prior written consent of Duke and Xxxxxxxx: (i) the Company shall not make (or
enter into a plan or arrangement to make) any Distributions of cash or other
property to PGC in excess of the product of the aggregate Distribution to all
Members and PGC's Percentage Interest as of the Closing Date, (ii) the Company
shall not make (or enter into a plan or arrangement to make) any Distribution to
PGC of cash or other property other than Distributions to fund dividends by the
Corporation to its shareholders and Distributions pursuant to Section 3.6(a)(i)
hereof and (iii) PGC shall not be liquidated, shall not be merged into the
Corporation, shall not distribute to any shareholder of PGC the Company Interest
issued to PGC pursuant to Section 2.1(k) of the Contribution Agreement and shall
not be converted into, or merged into or otherwise caused to become, a
partnership or disregarded entity for federal income tax purposes (nor shall
there be any plan or arrangement to do so).
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Section 4.4 TAX MATTERS PARTNER; TAX ELECTIONS; TAX PROCEEDINGS AND
RETURNS.
(a) The Company hereby elects to have a "tax matters partner" as
provided under Code Section 6231(a)(7)(B) (the "TAX MATTERS PARTNER"). DEFS
Holding is hereby designated as such Tax Matters Partner.
(b) The Company shall make all elections required under United States
Income Tax Laws and regulations and any similar state statutes and shall make
the following elections:
(i) Adopt the calendar year as the annual accounting period;
(ii) Adopt the accrual method of accounting; and
(iii) Adopt the maximum allowable accelerated method and shortest
permissible life for determining depreciation deductions.
(c) At the request of any Member, the Company shall make the
election provided for in Section 754 of the Code.
(d) In the case of any Tax Proceeding relating to any Income Tax
Return or any Income Tax items of the Company or any Subsidiary of the Company
for any Post-Closing Period, the Company shall be entitled to control such Tax
Proceeding; PROVIDED, HOWEVER, that (i) the Company shall promptly notify Duke
and Xxxxxxxx (describing the jurisdiction and year(s) at issue and including a
copy of any materials received from the applicable Governmental Entity in
connection therewith) upon receipt of notice of any such Tax Proceeding and
shall thereafter promptly forward to Duke and Xxxxxxxx copies of any
communications received from or sent to any Governmental Entity by the Company
or any of its Subsidiaries in connection with any such Tax Proceeding; (ii) the
Company shall provide Duke and Xxxxxxxx with a timely and reasonably detailed
account of each stage of such Tax Proceeding and a copy of all documents
relating to such Tax Proceeding; (iii) the Company shall consult with Duke and
Xxxxxxxx before taking any significant action in connection with such Tax
Proceeding; (iv) the Company shall consult with Duke and Xxxxxxxx and offer Duke
and Xxxxxxxx an opportunity to comment before submitting any written materials
prepared or furnished in connection with such Tax Proceeding (including, to the
extent practicable, any documents furnished to the applicable Governmental
Entity in connection with any discovery request); (v) the Company shall defend
such Tax Proceeding diligently and in good faith as if the Company were the
taxpayer in interest in connection with such Tax Proceeding, and (vi) (A) in the
case of any proposed settlement of any such Tax Proceeding, which settlement
will result in aggregate Tax payments by Xxxxxxxx with respect to the period
beginning on the Closing Date and ending on the second anniversary of the
Closing Date (or, if the Tax Proceeding relates to a taxable period (or portion
thereof) after such second anniversary, then with respect to the two year period
beginning on the first day of the taxable period to which the Tax Proceeding
relates) of greater than $7,575,000, the Company shall not settle, compromise or
abandon any such Tax Proceeding without obtaining the prior written consent,
which consent shall not be unreasonably withheld, of Xxxxxxxx and (B) in the
case of any proposed settlement of any such Tax Proceeding, which settlement
will result in aggregate Tax payments by Duke with respect to the period
beginning on the Closing Date and ending on the
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second anniversary of the Closing Date (or, if the Tax Proceeding relates to a
taxable period (or portion thereof) after such second anniversary, then with
respect to the two year period beginning on the first day of the taxable period
to which the Tax Proceeding relates) of greater than $17,425,000, the Company
shall not settle, compromise or abandon any such Tax Proceeding without
obtaining the prior written consent, which consent shall not be unreasonably
withheld, of Duke. In the event that Duke or Xxxxxxxx reasonably withholds such
consent pursuant to the preceding clause (vi)(A) or (B), the parties shall
negotiate in good faith to resolve their differences and, failing that, the
Neutral Firm shall resolve such disagreement. The above provisions of this
Section 4.4(d) shall cease to apply with respect to taxable periods beginning
after the consummation of the IPO, except to the extent that failure of such
provisions to apply could reasonably be expected to affect any member of the
Xxxxxxxx Group or the Duke Group (other than in its capacity as a direct or
indirect shareholder, or affiliate of such a shareholder, of the Corporation).
(e) The Company shall present (such presentation to be made (i) in
the case of a Tax Return for a Company taxable year ending on December 31st, no
later than July 1st in the year following the end of such Company taxable year
and (ii) in the case of a Tax Return for a Company taxable year ending on a date
other than December 31st, no later than the date that is six months following
the end of such Company taxable year) any Federal Income Tax Returns of the
Company to Xxxxxxxx for Xxxxxxxx' review and shall revise such Tax Returns prior
to filing to reflect any reasonable comments requested in good faith by Xxxxxxxx
in writing within 15 Business Days after such presentation of such Tax Returns
to Xxxxxxxx; PROVIDED, HOWEVER, that in the event that the Company or Duke
disagrees with any such comments of Xxxxxxxx, then the Company, Duke and
Xxxxxxxx shall endeavor to resolve their disagreement over such comments and,
failing that, the Neutral Firm shall resolve such disagreement prior to the date
such Tax Returns are due (including extensions) and such Tax Returns shall be
filed in such manner as the Neutral Firm determines. The fees and expenses of
the Neutral Firm in connection with this Section 4.4(e) shall be allocated
between Xxxxxxxx and Duke by the Neutral Firm. At Duke's or Xxxxxxxx' request,
the Company shall make available to Duke and Xxxxxxxx, respectively, for their
review at least 15 Business Days prior to the due date (including extensions)
any state, local or foreign Income Tax Returns of the Company or its
Subsidiaries. The above provisions of this Section 4.4(e) shall cease to apply
with respect to taxable periods beginning after the consummation of the IPO,
except to the extent that failure of such provisions to apply could reasonably
be expected to affect any member of the Xxxxxxxx Group (other than in its
capacity as a direct or indirect shareholder, or affiliate of such a
shareholder, of the Corporation).
(f) COOPERATION AND EXCHANGE OF INFORMATION. Duke, Phillips, the
Company and the Corporation shall (and shall cause their respective Subsidiaries
to) cooperate with one another with respect to Tax matters. As soon as
practicable, but in any event within 30 days after the request of Duke or
Xxxxxxxx, from and after the Closing Date, the Company shall deliver to Duke or
Xxxxxxxx, respectively, such information and data concerning the Company and its
Subsidiaries and make available such employees of the Company and its
Subsidiaries as Duke or Xxxxxxxx may reasonably request (including providing the
information and data reasonably required by Duke's and Xxxxxxxx' customary Tax
and accounting questionnaires) in order to enable Duke and Xxxxxxxx to complete
and file all Tax Returns which they each may be required to file with respect to
the Company and its Subsidiaries or to respond to Tax audits or other inquiries
relating to Taxes by any Governmental Entities with respect to such operations
and to
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otherwise enable Duke and Xxxxxxxx each to satisfy their respective accounting,
Tax and other legitimate business requirements. Such cooperation and information
shall include provision of powers of attorney to Duke or Xxxxxxxx relating to
Tax matters (E.G., for the purpose of signing Returns and defending audits) and
promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Governmental Entity that relate to
the Company and its Subsidiaries, and providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Governmental Entities and
records concerning the ownership and tax basis of property, which the Company,
the Corporation and their Subsidiaries may possess. The Company and the
Corporation shall (and shall cause their respective Subsidiaries to) make their
respective employees and facilities available on a mutually convenient basis to
provide explanation of any documents or information provided hereunder. The
above provisions of this Section 4.4(f) shall cease to apply with respect to
taxable periods beginning after the consummation of the IPO, except to the
extent that failure of such provisions to apply could reasonably be expected to
affect any member of the Xxxxxxxx Group or the Duke Group (other than in its
capacity as a direct or indirect shareholder, or affiliate of such a
shareholder, of the Corporation). Notwithstanding any other provision, (i) Duke
shall not be required to provide any Person with any consolidated, combined,
affiliated or unitary Income Tax Return or copy thereof that includes Duke or
any other member of the Duke Group and (ii) Xxxxxxxx shall not be required to
provide any Person with any consolidated, combined, affiliated or unitary Income
Tax Return or copy thereof that includes Xxxxxxxx or any other member of the
Xxxxxxxx Group.
Section 4.5 DEBT REPAYMENT. From and after consummation of the IPO,
to the extent that proceeds from the IPO (or any other funds contributed to the
Company or any of its Subsidiaries) are used to repay debt owed by the Company
or any of its Subsidiaries (for so long as the Company or such Subsidiary is
treated as a partnership for federal income tax purposes), such funds shall be
contributed to the Company and its Subsidiaries by the limited liability company
interest holders or other equity interest holders in the Company or such
Subsidiaries in proportion to the allocation of debt to such holders provided in
Section 4.2(C) of this Annex F.
