Formation Agreement

EXHIBIT 10-C


FORMATION AGREEMENT


AMONG


INDIANA ENERGY, INC.,
INDIANA GAS COMPANY, INC.,
IGC ENERGY, INC.,
INDIANA ENERGY SERVICES, INC.,
CITIZENS GAS & COKE UTILITY,
CITIZENS BY-PRODUCTS COAL COMPANY,
CITIZENS ENERGY SERVICES CORPORATION,
AND
PROLIANCE ENERGY, LLC


Dated as of
March 15, 1996
INDEX


RECITALS 1


AGREEMENT 2


ARTICLE 1


CAPITAL CONTRIBUTION 2


ARTICLE 2


GAS SALES AND PORTFOLIO ADMINISTRATION AGREEMENTS 2
2.1 Execution of Agreements 2
2.2 Contracts to be Assigned or Released 2
2.3 Assumed Liabilities 3
2.4 Satisfaction of Assumed Liabilities by the Company 4


ARTICLE 3


PRORATIONS AND ADJUSTMENTS 4


ARTICLE 4


REPRESENTATIONS AND WARRANTIES OF IEI 5
4.1 Organization 5
4.2 Authority; Enforceability 5
4.3 Consents 5
4.4 No Conflicts 5
4.5 Subsidiaries 6
4.6 Financial Statements 6
4.7 Claims 6
4.8 No Misrepresentations 7


ARTICLE 5


REPRESENTATIONS AND WARRANTIES OF CITIZENS 7
5.1 Organization 7
5.2 Authority; Enforceability 7
5.3 Consents 8
5.4 No Conflicts 8
5.5 Subsidiaries 8
5.6 Financial Statements 8
5.7 Claims 9
5.8 No Misrepresentations 9


ARTICLE 6


CLOSING 9


ARTICLE 7


COVENANTS 9
7.1 Miscellaneous Covenants 9
7.2 Covenants of the IEI Companies 10
7.2A Covenants of the Citizens Companies 11


ARTICLE 8


SURVIVAL 12
8.1Survival of Representations, Warranties and Covenants 12
8.2 Hold Harmless by IEI 12
8.3 Hold Harmless by Citizens 13
8.4 Hold Harmless by the Company 14
8.5 Administration of Claims 14
8.6 The Company's Right of Setoff 15


ARTICLE 9


CONSTRUCTION; MISCELLANEOUS 16
9.1 Definitions 16
9.2 Notices 18
9.3 Binding Effect 20
9.4 Headings 20
9.5 Exhibits and Schedules 20
9.6 Counterparts 20
9.7 Governing Law 20
9.8 Waivers 20
9.9 Pronouns 20
9.10 Time Periods 20
9.11 No Strict Construction 20
9.12 Modification 20
9.13 Entire Agreement 21


FORMATION AGREEMENT


THIS FORMATION AGREEMENT (the "Agreement"), dated as of March 15, 1996 is made and entered into by and among Indiana Energy, Inc., an Indiana corporation ("IEI"), Indiana Gas Company, Inc., an Indiana gas utility corporation and wholly- owned subsidiary of IEI ("IGC"), IGC Energy, Inc., an Indiana corporation and indirect wholly-owned subsidiary of IEI ("Energy"), Indiana Energy Services, Inc., an Indiana corporation and wholly owned subsidiary of Energy ("IES"), City of Indianapolis by and through its Board of Directors for Utilities of the Department of Public Utilities, as successor trustee of a public charitable trust, d/b/a Citizens Gas & Coke Utility ("Citizens"), Citizens By-Products Coal Company, a West Virginia corporation and wholly-owned subsidiary of Citizens ("By- Products"), Citizens Energy Services Corporation, an Indiana corporation and wholly owned subsidiary of By-Products ("CESCO"), and Proliance Energy, LLC, an Indiana limited liability company (the "Company"), the sole members of which are Energy and By- Products.


RECITALS


A. Each of IGC and Citizens is a local gas distribution company which purchases gas transportation and related services from affiliated and non-affiliated third parties.


B. Energy and By-Products have caused the formation of the Company for the purpose of providing administration and sales service related to natural gas supply, storage, transportation, acquisition, planning and marketing, for the benefit of IGC, Citizens and other potential customers. Energy and By-Products entered into a Fundamental Operating Agreement dated March 15, 1996, with respect to the Company (the "Operating Agreement").


C. As part of the formation of the Company, (i) each of IGC and Citizens will enter into assignment, release or agency contracts with the Company for all of the pipeline services and gas supply contracts to which it is a party, (ii) each of IES and CESCO will enter into assignment, release or agency contracts with the Company for all of the gas marketing, management, and pipeline services contracts to which it is a party and (iii) Energy and By-Products will contribute capital to the Company in the amount of $500,000 each.


D. The parties acknowledge that in measuring the success of the Company they will employ multiple criteria, including, but not limited to, the Company's earnings performance, the quality of the services the Company provides to the parties, and the quality of the services the Company provides to other customers.


AGREEMENT


NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows (certain capitalized terms are defined in Section 9.1):


ARTICLE 1


CAPITAL CONTRIBUTION


On the Closing Date, Energy and By-Products shall contribute capital to the Company in the amount of $500,000 each in cash and in exchange therefor shall receive a 50% Limited Liability Company Interest in the Company.


ARTICLE 2


GAS SALES AND PORTFOLIO ADMINISTRATION AGREEMENTS


2.1 Execution of Agreements. At the Closing, IGC and Citizens shall each enter into a Gas Sales and Portfolio Administration Agreement with the Company in a form mutually agreeable to the parties.


2.2 Contracts to be Assigned or Released.


(a) As of the Closing, IGC shall enter into assignment, release or agency contracts with the Company for, and the Company shall, subject to the terms and conditions of the applicable assignment, release or agency contracts delivered at Closing, accept all of the gas transportation, storage and supply Contracts to which IGC is a party (the "IGC Contracts"). The IGC Contracts are listed on Schedule 2.2(a), as hereafter supplemented by IGC from time to time.


(b) As of the Closing, IES shall enter into assignment, release or agency contracts with the Company for, and the Company shall, subject to the terms and conditions of the applicable assignment, release or agency contracts delivered at Closing, accept all gas marketing, management and transportation Contracts to which it is a party (the "IES Contracts"). The IES Contracts are listed on Schedule 2.2(b), as hereafter supplemented by IES from time to time.


(c) As of the Closing, Citizens shall assign or release to the Company, and the Company shall, subject to the terms and conditions of the applicable assignment, release or agency contracts delivered at Closing, accept, all of the gas transportation, storage and supply Contracts to which Citizens is a party (the "Citizens Contracts"). The Citizens Contracts are listed on Schedule 2.2(c), as hereafter supplemented by Citizens from time to time.


(d) As of the Closing, CESCO shall enter into assignment, release or agency contracts with the Company for, and the Company shall, subject to the terms and conditions of the applicable assignment, release or agency contracts delivered at Closing, accept, all gas marketing, management and transportation contracts to which it is a party (the "CESCO Contracts"). The CESCO Contracts are listed on Schedule 2.2(d), as hereafter supplemented by CESCO from time to time.


(e) Anything herein to the contrary notwithstanding, to the extent that the parties intend for a particular Contract to be assigned to the Company and a required third party consent to assignment has not been obtained prior to Closing, the assigning party shall execute and deliver as of the Closing a form of assignment with respect thereto and shall use commercially reasonable efforts to obtain the consent of the third party thereto on terms and conditions contained in such assignment or such other terms and conditions as are reasonably acceptable to the Citizens Companies and the IEI Companies. Further, in the event that as of the Closing the Company and the appropriate party cannot obtain a third party consent for the assignment or release of any Contract or an assignment or release would not be economically desirable or timely for the Company or such party, such party as of the Closing hereby appoints the Company as agent for all purposes to administer such contract until such time as an assignment or release is effected.


2.3 Assumed Liabilities. As of the Closing, the Company hereby assumes, subject to the terms and conditions of the applicable assignment, release or agency contract delivered at Closing, only the following liabilities with respect to the IGC Contracts, IES Contracts, Citizens Contracts and CESCO Contracts:


(a) Obligations with respect to each of the IGC Contracts which relate to supplies or service provided from and after April 1, 1996 under the IGC Contracts, but only to the extent such obligations are not attributable to any breach of or default under such Contracts by IGC (including, but not limited to, defaults arising from or related to the consummation of the transactions contemplated hereby, but excluding defaults attributable to any elections by the Company at or subsequent to Closing) (collectively, the "IGC Assumed Liabilities").


(b) Obligations with respect to each of the IES Contracts which relate to supplies or service provided from and after April 1, 1996 under the IES Contracts, but only to the extent such obligations are not attributable to any breach of or default under such Contracts by IES (including, but not limited to, defaults arising from or related to the consummation of the transactions contemplated hereby, but excluding defaults attributable to any elections by the Company at or subsequent to Closing) (collectively, the "IES Assumed Liabilities").


(c) Obligations with respect to each of the Citizens Contracts which relate to supplies or service provided from and after April 1, 1996 under the Citizens Contracts, but only to the extent such obligations are not attributable to any breach or default under any such Contracts by Citizens (including, but not limited to, defaults arising from or related to the consummation of the transactions contemplated hereby, but excluding defaults attributable to any elections by the Company at or subsequent to Closing) (collectively, the "Citizens Assumed Liabilities").


(d) Obligations with respect to each of the CESCO Contracts which relate to supplies or service provided from and after April 1, 1996 under the CESCO Contracts, but only to the extent such obligations are not attributable to any breach or default under any such Contracts by CESCO (including, but not limited to, defaults arising from or related to the consummation of the transactions contemplated hereby, but excluding defaults attributable to any elections by the Company at or subsequent to Closing) (collectively, the "CESCO Assumed Liabilities").


(e) Nothing in this Agreement shall be construed to impose upon the Company any Liabilities of IGC, IES, Citizens or CESCO (including, but not limited to, any liabilities which relate to supplies or service provided on or before March 31, 1996, including, but not limited to, refund obligations to customers for supplies or service provided on or before March 31, 1996) except as expressly set forth in this Section 2.1.


2.4 Satisfaction of Assumed Liabilities by the Company. The Company agrees to pay or otherwise satisfy and discharge in accordance with their terms all of the IGC Assumed Liabilities, IES Assumed Liabilities, Citizens Assumed Liabilities and CESCO Assumed Liabilities.


ARTICLE 3


PRORATIONS AND ADJUSTMENTS


Except as otherwise provided in the applicable Gas Sales and Portfolio Administration Agreement, each of IGC, IES, Citizens and CESCO shall be entitled to receive the proceeds of billings and related adjustments with respect to supplies or service provided by it on or before March 31, 1996 and the Company shall be entitled to receive the proceeds of billings and related adjustments with respect to supplies or service provided by it from and after April 1, 1996. Each of IGC, IES, Citizens, CESCO and the Company agrees to make any adjusting payment to the other as shall be necessary to reflect this proration.


ARTICLE 4


REPRESENTATIONS AND WARRANTIES OF IEI


IEI, represents and warrants to Citizens, By-Products and CESCO (sometimes herein referred to individually as a "Citizens Company" or collectively as the "Citizens Companies") as follows:


4.1 Organization. Each of IEI, IGC, Energy and IES (sometimes herein referred to individually as an "IEI Company" or collectively as the "IEI Companies") is a corporation, or in the case of IGC, a public utility corporation, duly organized and validly existing under the laws of the State of Indiana, with full corporate and other power and authority to carry on its business as it is now being conducted, to own or hold under lease the properties which it owns or holds under lease and perform all of its obligations under the agreements and instruments to which it is a party or by which it is bound. Each of the IEI Companies is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which the ownership or leasing of the properties owned by it or the nature of the activities conducted by it requires such qualification. Schedule 4.1 lists each such jurisdiction.


4.2 Authority; Enforceability. Each of the IEI Companies has full corporate power and authority to execute, deliver and perform this Agreement and all other agreements and documents to be executed and delivered by it in connection herewith. All requisite corporate action to approve, execute, deliver and perform this Agreement and each other agreement and document delivered or to be delivered by the IEI Companies in connection herewith has been or will be taken by each of the IEI Companies and copies of all requisite corporate records and approvals, certified by the Secretary or Assistant Secretary of each of IEI, IGC, Energy or IES, have been or will be delivered to the Citizens Companies. This Agreement and each other agreement and document delivered by the IEI Companies in connection herewith have been or will be duly executed and delivered by the IEI Company which is a party thereto and constitute or will constitute the legal, valid and binding obligations of the IEI Company which is a party thereto enforceable in accordance with their respective terms.


4.3 Consents. Except to the extent not having a material adverse effect on the business, properties, financial condition or results of the Company or the IEI Companies taken as a whole, and except as set forth in Schedule 4.3 and for any approvals from, or filings with, the Indiana Utility Regulatory Commission ("IURC") or any taxing authorities, no approval or consent of, or filing with, any Person or Governmental Authority is required to be made by the IEI Companies in connection with the transactions contemplated hereby or the execution, delivery or performance by any of the IEI Companies of this Agreement or any other agreement or document delivered by or on behalf of the IEI Companies in connection herewith.


4.4 No Conflicts. Except to the extent not having a material adverse effect on the business, properties, financial condition or results of the Company or the IEI Companies taken as a whole, and except as set forth in Schedule 4.4, no action taken by or on behalf of any of the IEI Companies in connection herewith, including, but not limited to, the execution, delivery and performance of this Agreement, and each other agreement and document delivered by any of them in connection herewith:


(a) contravenes, conflicts with or results in a violation or breach of any of the provisions of, or gives any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or cancel, terminate or modify, any IGC Contract or IES Contract;


(b) contravenes, conflicts with or violates: (i) any Law; (ii) the Articles of Incorporation or Bylaws of any IEI Company; (iii) any Contract by which any of the IEI Companies or their assets is bound; or (iv) any order, arbitration award, judgment, decree or other similar restriction to which any of the IEI Companies or their assets is subject, if such contravention, conflict or violation has or can reasonably be expected to have a material adverse effect on the business, properties, financial position or results of operations of the Company or the IEI Companies taken as a whole;


(c) constitutes an event which, after notice or lapse of time or both, would result in any of the foregoing.


4.5 Subsidiaries. IEI owns of record and beneficially all of the outstanding shares of capital stock of each of IGC and IEI Investments, Inc. free and clear of all Liens. IEI Investments, Inc. owns of record and beneficially all of the outstanding capital stock of Energy free and clear of all Liens. Energy owns of record and beneficially all of the outstanding shares of capital stock of IES free and clear of all Liens.


4.6 Financial Statements. IES has delivered to Citizens an unaudited balance sheet of IES as of September 30, 1995 and the related unaudited statement of income, common shareholders' equity and cash flow for the year ended September 30, 1995. Such financial statements fairly present the financial position and results of operations, changes in common shareholders' equity and cash flows of IES as of and for the periods indicated, in each case in conformity with generally accepted accounting principles consistently applied, except, in the case of the i ...