Exhibit 10.3

 

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REPRESENTATION AND INDEMNIFICATION AGREEMENT

 

by and among

 

ENTEGRA POWER GROUP LLC, UNION POWER LLC, GILA RIVER POWER LLC

AND TRANS-UNION PIPELINE LLC

 

as “Transferees”

 

and

 

TECO ENERGY, INC.

 

Dated: June 1, 2005

 

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TABLE OF CONTENTS

 

          Page

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ARTICLE I. DEFINITIONS    2     

1.1      Defined Terms

   2     

1.2      Construction

   5

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF TECO

   5     

2.1      Organization

   6     

2.2      Authorization

   6     

2.3      No Conflict or Violation

   6     

2.4      Compliance with Law

   6     

2.5      Taxes

   6     

2.6      Employees and Employee Benefits

   7     

2.7      Intellectual Property

   8     

2.8      Full Disclosure

   8     

2.9      Sufficiency of Assets

   8     

2.10    Senior Executives’ Knowledge of Breach

   8 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREES    8     

3.1      Organization

   9     

3.2      Authorization

   9     

3.3      No Conflict or Violation

   9 ARTICLE IV. SURVIVAL; INDEMNIFICATION    9     

4.1      Survival Period

   9     

4.2      Indemnification

   9     

4.3      Indemnification Procedures

   10     

4.4      Limitation of Liability

   11     

4.5      Other Matters

   12 ARTICLE V. MISCELLANEOUS    13     

5.1      Assignment

   13     

5.2      Notices

   13     

5.3      Choice of Law; Service of Process; Venue

   14     

5.4      Effectiveness; Entire Agreement; Amendments and Waivers

   15     

5.5      Multiple Counterparts

   15     

5.6      Invalidity

   16     

5.7      Titles; Currency; Schedules

   16     

5.8      Representation of Counsel; Mutual Negotiation

   16     

5.9      No Third Party Beneficiaries

   16     

5.10    Time of Essence

   16

 

ii

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EXHIBITS

 

Exhibit A   

DISCLOSURE SCHEDULE (See Below)

 

DISCLOSURE SCHEDULE ITEMS

 

Schedule 1.1   EXCEPTIONS TO MATERIAL ADVERSE EFFECT Schedule 2.6(a)(i)   TECO
PROJECT EMPLOYEE INFORMATION Schedule 2.6(a)(ii)   SEVERANCE BENEFITS;
ACCELERATION OF PAYMENTS OR VESTING Schedule 2.10   SENIOR EXECUTIVES’ KNOWLEDGE
OF BREACH Schedule 4.2(a)   EXISTING TECO SHAREHOLDER CLASS ACTIONS

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REPRESENTATION AND INDEMNIFICATION AGREEMENT

 

This REPRESENTATION AND INDEMNIFICATION AGREEMENT (this “Agreement”), dated as
of June 1, 2005, is made by and among ENTEGRA POWER GROUP LLC, a Delaware
limited liability company (“Entegra Power Group”), UNION POWER LLC, a Delaware
limited liability company (“Union Power LLC”), GILA RIVER POWER LLC, a Delaware
limited liability company (“Gila River Power”), TRANS-UNION PIPELINE LLC, a
Delaware limited liability company (“Trans-Union Pipeline LLC” and together with
Entegra Power Group, Union Power LLC, and Gila River Power, the “Transferees”),
and TECO ENERGY, INC., a Florida corporation (“TECO”).

 

RECITALS

 

I. Ownership

 

WHEREAS, Union Power Partners, L.P., a Delaware limited partnership (“Union
Power”), owns and operates an approximately 2,205 megawatt combined cycle
natural gas fired generating facility located in Union County, Arkansas (the
“Union Power Facility”);

 

WHEREAS, Panda Gila River L.P., a Delaware limited partnership (“Gila River”),
owns and operates an approximately 2,145 megawatt combined cycle natural gas
fired generating facility located in Gila Bend, Arizona (the “Gila River
Facility”);

 

WHEREAS, Trans-Union Interstate Pipeline, L.P., a Delaware limited partnership
(“Trans-Union”, and, together with Union Power and Gila River, the “Companies”),
owns and operates an approximately 42 mile interstate natural gas pipeline
interconnecting the Union Power Facility to the Sharon, Louisiana Compressor
Station which is connected to the natural gas supply pipelines owned and
operated by Texas Gas Transmission Corporation (the “Trans-Union Pipeline”, and
together with the Union Power Facility and the Gila River Facility, the
“Facilities”);

 

WHEREAS, each of the Companies is a wholly-owned direct or indirect subsidiary
of TECO;

 

II. Loan Documents

 

WHEREAS, Union Power is a party to that certain Union Power Project Credit
Agreement, dated as of May 31, 2001, among Union Power, the other Persons named
as lenders therein (the “Union Power Banks”), Citibank, N.A., as Administrative
Agent (in such capacity, the “Union Power Administrative Agent”), and Societe
Generale, as LC Bank, as amended from time to time (the “UPP Credit Agreement”),
under which principal in the amount of $685,371,540 is currently outstanding
(together with interest, fees and other outstanding obligations, the “Existing
Union Debt”);

 

WHEREAS, Gila River is a party to that certain Gila River Project Credit
Agreement, dated as of May 31, 2001, among Gila River, the other Persons named
as lenders therein (the “Gila River Banks” and together with the Union Power
Banks, the “Banks”),

 

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Citibank, N.A., as Administrative Agent (in such capacity, the “Gila River
Administrative Agent”), and Societe Generale, as LC Bank, as amended from time
to time (the “Gila River Credit Agreement”), under which principal in the amount
of $777,783,494 is currently outstanding (together with interest, fees and other
outstanding obligations, the “Existing Gila River Debt”);

 

WHEREAS, pursuant to the terms of that certain Master Settlement Agreement and
Restructuring Support Agreement dated as of January 24, 2005 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the
“Settlement Agreement”), TECO has agreed to enter into this Agreement with the
Transferees ;

 

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 are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed thereto in the Credit Documents (as
defined below). As used herein, the terms below shall have the following
meanings:

 

“Affiliate” shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the Person specified, or who holds
or beneficially owns 10% or more of the equity interest in the Person specified
or 10% or more of any class of voting securities of the Person specified. When
used with respect to any Company, “Affiliate” shall include each partner and any
affiliate of any partner (other than such Company).

 

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

 

“Companies” is defined in the introductory paragraph of this Agreement.

 

“Controlled Group” shall mean all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with any Company, are treated as a single employer under Section
414(b), (c), (m) or (o) of the Code.

 

“Credit Documents” shall mean the UPP Credit Documents and Gila River Credit
Documents.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the regulations issued thereunder.

 

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“ERISA Plan” shall mean (a) any employee benefit plan (as defined in Section
3(3) of ERISA) maintained by the Companies or any member of their respective
Controlled Groups, or to which any of them contributes or is obligated to
contribute, for its employees, and (b) each other bonus, deferred compensation,
severance or termination pay, supplemental unemployment, profit sharing or other
fringe benefit plan, program or arrangement applicable to TECO Project
Employees.

 

“GAAP” shall mean generally accepted accounting principles in the United States
consistently applied.

 

“Gila River Credit Documents” means the Credit Documents as defined in the Gila
River Credit Agreement.

 

“Governmental Authority” shall mean any federal, state, local or foreign
government, court of competent jurisdiction, or other regulatory, administrative
or governmental agency, authority or instrumentality.

 

“Intellectual Property” shall mean all patents, trademarks, tradenames, service
marks, copyrights, software, domain names, or registrations or pending
applications thereto, and any other such rights or adequate licenses therein
that are owned or licensed for use by the Companies, or in which the Companies
have any rights or obligations, or are bound in any way.

 

“Knowledge” shall mean, (i) with respect to a named individual, the actual
knowledge of such individual after reasonable inquiry of those individuals
likely to have knowledge of the relevant facts and those individuals likely to
have knowledge of the Disclosed Information (as defined in Section 2.8) or (ii)
with respect to an entity, the actual knowledge of an officer or director of
such entity after reasonable inquiry of those individuals likely to have
knowledge of the relevant facts and those individuals likely to have knowledge
of the Disclosed Information.

 

“Lien” shall mean any mortgage, deed of trust, lien, pledge, charge, security
interest, option, right of first refusal, or easement or encumbrance of any
kind, whether or not filed, recorded, or otherwise perfected or effective under
applicable law, as well as the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.

 

“Material Adverse Effect” shall mean a material adverse effect on the condition
(financial or otherwise), operations (financial or otherwise), earnings,
business or assets of any Company, whether or not occurring in the ordinary
course of business; provided, however, that Material Adverse Effect shall
exclude any change or effect due to (a) the negotiation, execution, announcement
of this Agreement and the transfer of the Interests to the Transferees
contemplated hereby, including the impact thereof on relationships, contractual
or otherwise, with customers, suppliers or distributors, (b) any action taken by
TECO or any of its representatives or Affiliates that is expressly required by
the terms of this Agreement or expressly permitted by the terms of this
Agreement, (c) the general state of the electric power generating industry,
except for such effects that disproportionately affect any Company, (d) general
economic conditions, except for such changes or effects which disproportionately
affect any Company, and (e) any matters as and to the extent described in
Schedule 1.1 of the Disclosure Schedule hereto.

 

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“Organizational Documents” shall mean, with respect to any Company or the Union
Finance Subsidiary, the certificate of formation or limited partnership, and
partnership agreement or limited liability company agreement of such Company or
the Union Finance Subsidiary, as applicable, and all amendments thereto.

 

“Permits” shall mean all licenses, permits, franchises, approvals,
authorizations, or consents or orders of, any Governmental Authority, whether
foreign, federal, state or local, required for conduct of the business of the
Companies, or the operation of the Facilities or the ownership of the assets of
the Companies.

 

“Permitted Liens” shall mean any Liens granted pursuant to the Credit Documents.

 

“Person” shall mean any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or other entity.

 

“Senior Executives” shall mean the Senior Vice President and General Counsel,
the Executive Vice President and Chief Financial Officer, and the Vice President
and Treasurer of TECO, as of the date of this Agreement.

 

“Tax(es)” shall mean any and all taxes, charges, levies, impositions, tariffs,
duties, fees or other assessments of any kind (together with any and all
interest, penalties, additions to tax or additional amounts imposed with respect
thereto) imposed by any Tax authority or other Governmental Authority,
including, without limitation, income, service, license, net worth, payroll,
employment, unemployment, workers’ compensation, withholding, retirement, social
security, sales, use, value-added, excise, franchise, gross receipts, profits,
capital stock, compensation, occupation, real and personal property, ad valorem,
environmental, stamp, transfer and recording taxes, and shall include any
liability for Taxes of any other Person pursuant to Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law) or as a
transferee, successor, by contract or otherwise.

 

“TECO Project Employees” shall mean each employee of TECO or any affiliate
thereof who works for or whose primary duties involve performance of services
for the Companies or a Facility.

 

“Union Finance Subsidiary” shall mean UPP Finance Co., LLC, a Delaware limited
liability company.

 

“UPP Credit Documents” means the Credit Documents as defined in the UPP Credit
Agreement.

 

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1.2 Construction.

 

(a) Unless the context of this Agreement otherwise requires, (i) words of any
gender include each other gender; (ii) words using the singular or plural number
also include the plural or singular number, respectively; (iii) the terms
“hereof,” “herein,” “hereby” and derivative or similar words refer to this
entire Agreement; (iv) the terms “Article” or “Section” refer to the specified
Article or Section of this Agreement; (v) the word “including” shall mean
“including, without limitation;” and (vi) the word “or” shall be disjunctive but
not exclusive.

 

(b) References to agreements and other documents shall be deemed to include all
subsequent amendments and other modifications thereto.

 

(c) References to statutes shall include all regulations promulgated thereunder
and references to statutes or regulations shall be construed as including all
statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.

 

(d) The annexes, schedules and exhibits to this Agreement are a material part
hereof and shall be treated as if fully incorporated into the body of the
Agreement.

 

(e) Whenever this Agreement refers to a number of days, such number shall refer
to calendar days unless business days are specified, and shall be counted from
the day immediately following the date from which such number of days are to be
counted.

 

(f) All accounting terms used herein and not expressly defined herein shall have
the meanings given to them under GAAP.

 

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF TECO

 

In connection with the transactions contemplated by the Settlement Agreement
TECO hereby makes the following representations and warranties to the
Transferees, except as otherwise set forth in the disclosure schedule (the
“Disclosure Schedule”) attached hereto as Exhibit A, which contains schedules
numbered to correspond to various sections of this Article II (each a
“Schedule”) that set forth certain exceptions to the representations and
warranties contained in this Article II and certain other information called for
by this Agreement. The inclusion of any matter on any Schedule shall not be
deemed to be an admission (a) as to the materiality of such matter or (b) that
such disclosure is required.

 

2.1 Organization. TECO is duly organized, validly existing and in good standing
as a corporation under the laws of the jurisdiction of its formation. TECO has
full corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder.

 

2.2 Authorization. TECO has the requisite power, capacity and authority to, and
has taken all action necessary to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
contained herein. This Agreement has been duly executed and delivered by TECO
and is a valid and binding obligation of TECO, enforceable against TECO in
accordance with its terms, except as the enforceability thereof may be limited
by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws in effect that affect the enforcement of creditors rights generally or (b)
general principles of equity, whether considered in a proceeding at law or in
equity.

 

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2.3 No Conflict or Violation. None of the execution, delivery and performance of
this Agreement, compliance with any of the provisions hereof or the consummation
of the transactions contemplated hereby by TECO will result in (a) a violation
of or a conflict with the articles of incorporation or by-laws of TECO (b) a
violation by TECO of any applicable Laws.

 

2.4 Compliance with Law. Except as otherwise would not reasonably be expected to
have a Material Adverse Effect, none of the Companies or the Union Finance
Subsidiary has violated, and each Company and the Union Finance Subsidiary is in
compliance with, (a) all applicable laws, statutes, ordinances, regulations,
decrees, rules and orders of every Governmental Authority and (b) any judgment,
decision, decree or order of, or Permit issued by, any Governmental Authority
((a) and (b), collectively, “Laws”). Except as otherwise would not reasonably be
expected to have a Material Adverse Effect, none of the Companies or the Union
Finance Subsidiary has received any written notice that remains unresolved to
the effect that, and TECO does not have any knowledge that, (i) such Company or
the Union Finance Subsidiary is not currently in compliance with, or is in
violation of, any applicable Laws or (ii) any Governmental Authority has any
intention to conduct any investigation or proceeding or any investigation or
proceeding by any Governmental Authority is pending or threatened.

 

2.5 Taxes. Each of the Companies and the Union Finance Subsidiary is, and has
been since its formation, disregarded as an entity separate from its owner for
federal and state income tax purposes. None of the Companies or the Union
Finance Subsidiary is (i) liable for any Taxes of any other Person pursuant to
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law) or as a transferee, successor, by contract or otherwise or (ii)
a party to any Tax sharing, indemnity, allocation or similar agreement. The
transactions contemplated herein are not subject to the Tax withholding
provisions of Section 3406 of the Code or of any other provision of Law.

 

2.6 Employees and Employee Benefits.

 

(a) Remuneration.

 

(i) Schedule 2.6(a)(i) sets forth a list of all TECO Project Employees, their
salaries, wage rates, commissions and bonuses, applicable ERISA Plans,
positions, status as full-time or part-time, location of employment, accrued
vacation or paid time off and length of service, as well as whether such TECO
Project Employee is currently on leave and the reason for such leave
(disability, workers’ compensation, parental leave or other approved leave) and
their expected date of return to work, if known.

 

(ii) Except as described on Schedule 2.6(a)(ii), the consummation of the
transactions contemplated by this Agreement will not (i) entitle any TECO
Project Employee to severance benefits or any other payment or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due any
TECO Project Employee.

 

(b) ERISA. Each ERISA Plan applicable to TECO Project Employees complies in all
material respects with the requirements of ERISA, the Code and all applicable
laws. The Companies have no liability with respect to any ERISA Plan, contingent
or otherwise, under ERISA, the Code, any other applicable law or pursuant to any
contractual agreement other than liability for normal intercompany payments to
reimburse TECO for advances made to ERISA Plans to cover expenses associated
with TECO Project Employees.

 

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(c) Labor Matters.

 

(i) The terms of the TECO Project Employees employment are not subject to any
collective bargaining agreement or other labor contract, nor are there any
activities or proceedings of any labor union to organize any of the TECO Project
Employees. The TECO Project Employees have not instituted a strike or other
organized work stoppage.

 

(ii) With respect to the TECO Project Employees the employers of the TECO
Project Employees have complied in all material respects with all terms and
conditions of employment and all applicable laws relating to employment
including, employee health and safety, fair employment practices, human rights,
pay equity and wages and hours, and the Companies have no potential liability as
a successor employer for any violations of applicable laws governing employment
of the TECO Project Employees, including with respect to any claims or
investigations alleging employment discrimination or unfair labor practices.

 

(d) Project Employees. None of the Companies or the Union Finance Subsidiary has
any employees.

 

2.7 Intellectual Property. No Company has received any notice of any material
infringement, impairment, dilution, misappropriation, or other unauthorized use
by any Company or the Union Finance Subsidiary of any other person’s
Intellectual Property.

 

2.8 Full Disclosure. To the Knowledge of TECO, no statement, representation or
warranty made by TECO in this Agreement or in any certificate, schedule or other
document furnished or to be furnished to the Administrative Agent, the Banks or
any Transferee hereunder or otherwise in connection with the transfer of the
Interests to the Transferees (collectively, the “Disclosed Information”)
contains, or when so furnished will contain, any untrue statement of a material
fact (a “Section 2.8 Untrue Statement”), or fails to state, or when so furnished
will fail to state, a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading (a “Section 2.8 Necessary Fact”). To the Knowledge of TECO, there is
no fact which TECO has failed to disclose to the Administrative Agents, the
Banks and the Transferees in writing which has had or would reasonably be
anticipated to have a Material Adverse Effect (a “Section 2.8 Fact”).

 

2.9 Sufficiency of Assets. The Companies own good and marketable title, free and
clear of all Liens (other than Permitted Liens and Liens otherwise permitted by
the Credit Documents), or a valid leasehold interest to, all material property
and assets (tangible and intangible) used by the Companies in the operation of
their businesses. The Companies own or have the valid right to use all of those
assets (personal, tangible and intangible) used in connection with the ownership
and operation of their respective businesses during the twelve months prior to
the date hereof and will enable Transferees to own and operate the Companies’
respective businesses in a manner consistent, in all material respects, with the
manner in which they were operated by and conducted by the Companies prior to
and as of the date hereof.

 

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2.10 Senior Executives’ Knowledge of Breach. TECO hereby confirms that none of
the Senior Executives listed on Schedule 2.10 have any Knowledge of any fact or
circumstance that would give rise to a breach of any such representation or
warranty of TECO set forth in this Article II.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREES

 

Each Transferee hereby makes the following representations and warranties as of
the date hereof:

 

3.1 Organization. Such Transferee is duly organized, validly existing and in
good standing under the laws of the State of Delaware.

 

3.2 Authorization. Such Transferee has the requisite limited liability company
power, capacity and authority to, and has taken all limited liability company
action necessary on its part to, execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform all of its
obligations hereunder, and no other proceedings on the part of such Transferee
are necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by such Transferee and is a valid
and binding obligation of such Transferee, enforceable against such Transferee
in accordance with its terms, except as the enforceability thereof may be
limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors rights
generally or (b) general principles of equity, whether considered in a
proceeding at law or in equity.

 

3.3 No Conflict or Violation. None of the execution, delivery and performance of
this Agreement, the consummation of the transactions contemplated hereby, or
compliance with any of the provisions hereof or thereof by such Transferee will
result in (a) a violation of or a conflict with any provision of the Transferee
Organizational Documents or (b) a violation by such Transferee of any applicable
Law.

 

ARTICLE IV.

SURVIVAL; INDEMNIFICATION

 

4.1 Survival Period. All representations and warranties of the parties contained
in this Agreement shall survive the execution and delivery of this Agreement
until the date that is eighteen (18) months after the date of this Agreement
(the “Survival Period”). The parties agree that no claims or causes of action
may be brought against TECO, on the one hand, or the Transferees, on the other
hand, based upon, directly or indirectly, any of the representations or
warranties of the parties contained in this Agreement after the Survival Period
or any termination of this Agreement. The parties expressly acknowledge and
agree that the provisions of this Section 4.1 are intended to shorten the
statute of limitations with respect to the breach by either party of any of its
representations and warranties set forth in this Agreement.

 

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4.2 Indemnification.Subject to the terms, conditions and limitations set forth
in this Article IV, from and after the date of this Agreement:

 

(a) TECO shall defend, indemnify and hold harmless the Transferees from and
against any actual out-of-pocket costs or expenses (including, without
limitation, reasonable attorneys’ fees), judgments, fines, claims and damages
(collectively, “Losses”) that are imposed on the Transferees arising out of (i)
a breach of any representation or warranty set forth in Article II hereof, (ii)
any privileges tax or so-called “speculative builder tax” imposed on or
attempted to be imposed on the transfer of the Gila River partnership interests
or the Gila River Facility to the Transferees, and (iii) any shareholder class
action lawsuit filed against TECO that specifically relates to TECO’s public
disclosures with regard to its investments in the Projects, including, but not
limited to, the lawsuits listed on Schedule 4.2(a).

 

(b) The Transferees shall defend, indemnify and hold harmless TECO from and
against any actual Losses that are imposed on TECO arising out of a breach of
any representation or warranty set forth in Article III hereof.

 

4.3 Indemnification Procedures. All claims for indemnification by any party
entitled to indemnification under Article IV (an “Indemnified Party”) based on
or arising from a third party claim shall be asserted and resolved as set forth
in this Section 4.3. In the event that any claim or demand by a third party for
which a party (the “Indemnifying Party”) may be required to indemnify the
Indemnified Party hereunder (a “Claim”) is asserted against or sought to be
collected from any Indemnified Party by a third party, such Indemnified Party
shall as promptly as practicable notify the Indemnifying Party in writing of
such Claim and the amount or the estimated amount thereof to the extent then
feasible as well as the basis, in reasonable detail, of why the Indemnified
Party believes that it is entitled to indemnification hereunder (the “Claim
Notice”). The failure on the part of the Indemnified Party to give any such
Claim Notice in a reasonably prompt manner shall not relieve the Indemnifying
Party of any indemnification obligation hereunder except to the extent that the
Indemnifying Party is prejudiced thereby. The Indemnifying Party shall have 30
days from delivery of the Claim Notice (the “Notice Period”) to notify the
Indemnified Party whether or not the Indemnifying Party acknowledges its
obligations under this Article IV and elects to defend the Indemnified Party
against such Claim; and prior to such time as it has been notified by the
Indemnifying Party as to its intention, the Indemnified Party shall take all
reasonable actions to preserve its defenses. All costs and expenses incurred by
the Indemnifying Party in defending such Claim shall be a liability of, and
shall be paid by, the Indemnifying Party; provided, however, that the amount of
such costs and expenses shall be a liability of the Indemnifying Party hereunder
but shall not be subject to the limitations set forth in Section 4.4 hereof. In
the event that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such
Claim, the Indemnifying Party shall have the right to defend the Indemnified
Party by appropriate proceedings and shall have the sole power to direct and
control such defense. If any Indemnified Party desires to participate in any
such defense it may do so at its sole cost and expense. The Indemnified Party
shall not settle, admit or in any other way materially prejudice a Claim for
which it is indemnified by the Indemnifying Party without the written consent of
the Indemnifying Party. The Indemnifying Party may, with the consent of the
Indemnified Party (which consent shall not be unreasonably withheld), settle or
compromise any action or consent to the entry of any judgment. Notwithstanding
the foregoing, the Indemnified Party shall have

 

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the sole right to defend, settle or compromise any Claim with respect to which
it has agreed in writing to waive its right to indemnification pursuant to this
Agreement. If the Indemnifying Party elects not to defend the Indemnified Party
against such Claim, then the Indemnified Party shall defend such Claim by
appropriate proceedings and shall control the defense of such Claim, and in such
case may, without the consent of the Indemnifying Party (which consent shall not
be unreasonably withheld) settle or compromise such action or consent to the
entry of any judgment. The amount required to be paid in respect of any such
Claim, or, if the same be contested by the Indemnified Party, then that portion
thereof as to which such defense is unsuccessful (and the reasonable costs and
expenses pertaining to such defense) shall be the liability of the Indemnifying
Party hereunder, subject to the limitations set forth in Section 4.4. The
Indemnified Party will give the Indemnifying Party and its counsel reasonable
access to the personnel, business records and other documents within the
possession of the Indemnified Party or its Affiliates, and shall permit them to
consult with the counsel and other advisors of the Indemnified Party. The
Indemnified Party, if requested by the Indemnifying Party, shall cooperate and
assist in the defense of all such Claims at the expense of the Indemnifying
Party. Notwithstanding anything in this Section 4.3 to the contrary, any
indemnification claims made pursuant to Section 4.2(a)(ii) hereof shall be paid
within five (5) business days of the receipt by TECO of written documentation to
the reasonable satisfaction of TECO evidencing the payment by the Transferees or
the Banks of any privileges tax or so-called “speculative builder tax” relating
to the transfer of the Gila River Partnership Interests or the Gila River
Facility for a period prior to the date of this Agreement. Any such
indemnification payment made pursuant to Section 4.2(a)(ii) or the immediately
preceding sentence of this Section 4.3 shall not be subject to the limitations
of liability pursuant to Section 4.4(b) hereof.

 

4.4 Limitation of Liability.

 

(a) Anything in this Agreement to the contrary notwithstanding (other than the
last two sentences of Section 4.3), the liability of the Indemnifying Party to
indemnify the Indemnified Party against any Losses shall be limited to claims
for indemnification with respect to which the Indemnified Party has given to the
Indemnifying Party written notice thereof at or prior to the applicable survival
date as set forth in Section 4.1, except for indemnification claims made
pursuant to Section 4.2(a)(ii) and (iii) hereof which shall not be subject to
such limitation. The written notice referred to in the previous sentence must
state the basis of the claim for indemnification with reasonable specificity,
including the Section or Sections of this Agreement alleged to have been
breached.

 

(b) In no event shall TECO, on the one hand, or the Transferees, on the other
hand, be liable for indemnification pursuant to Section 4.2(a)(i) unless and
until the aggregate of all Losses which are incurred or suffered by the party
seeking indemnification exceeds ONE MILLION DOLLARS ($1,000,000) (the “Threshold
Amount”), in which case such party shall only be entitled to indemnification for
such Losses in excess of the Threshold Amount; provided, however, that:

 

(i) Except as provided in Section 4.4(d), TECO shall not be required to make
payments for indemnification pursuant to Section 4.2(a)(i) in an aggregate
amount in excess of TEN MILLION DOLLARS ($10,000,000); and

 

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(ii) Transferees shall not be required to make payments for indemnification
pursuant to Section 4.2(b) in an aggregate amount in excess of TEN MILLION
DOLLARS ($10,000,000).

 

(c) Notwithstanding anything to the contrary in this Agreement, neither party
shall be liable for any Losses to the extent that the Losses suffered by an
Indemnified Party result from the gross negligence or willful misconduct of such
Indemnified Party or any of its officers, employees, agents or representatives,
or the failure to mitigate Losses as required by applicable law.

 

(d) Notwithstanding anything to the contrary in this Agreement, any payments
made by TECO for Losses actually incurred by the Transferees, resulting from (i)
a breach of the representations and warranties contained in Section 2.8 (Full
Disclosure), which claim of breach is based upon a Section 2.8 Untrue Statement,
a Section 2.8 Necessary Fact, or a Section 2.8 Fact of which (x) as to a Section
2.8 Necessary Fact, or a Section 2.8 Fact any of the Senior Executives had
Knowledge as of the date hereof or (y) as to a Section 2.8 Untrue Statement any
of the Senior Executives had Knowledge that such statement was untrue as of the
date hereof or (ii) breaches of representations and warranties contained in
Section 2.6 (Employees and Employee Benefits), shall not be subject to the
limitations of liability set forth in Section 4.4(b).

 

(e) In calculating amounts payable to an Indemnified Party, the amount of the
indemnified Losses shall be computed net of (i) payments that the Indemnified
Party is entitled to receive under any insurance policy with respect to such
Losses, or (ii) any prior or subsequent recovery by the Indemnified Party from
any Person with respect to such Losses; provided that an Indemnified Party shall
be entitled to apply all such amounts under clauses (i) and (ii) first to the
payment of Losses that are not paid to, or that are payable by, the Indemnified
Party under this Agreement.

 

4.5 Other Matters.

 

(a) Other than as expressly set forth herein, if the Closing shall occur, the
indemnification provisions of this Article IV shall be the sole and exclusive
remedy of TECO, on the one hand, and the Transferees, on the other hand, for any
breach of any representations or warranties made by the other party in this
Agreement and each party hereby waives all statutory, common law and other
claims with respect thereto, other than claims for indemnification pursuant to
this Article IV.

 

(b) There shall be no indemnification by TECO or Transferees for any special,
incidental, punitive or consequential damages (except to the extent incurred by
an Indemnified Party with respect to a third party Claim).

 

(c) Upon making any payment to an Indemnified Party for any indemnification
claim pursuant to this Article IV, and after the Indemnified Party has first
recovered any Losses not paid or payable by the Indemnifying Party under this
Agreement, the Indemnifying Party shall be subrogated, to the extent of such
payment, to any rights which the Indemnified Party or its Affiliates may have
against any other Persons with respect to the subject

 

11

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matter underlying such indemnification claim and the Indemnified Party shall
take such actions as the Indemnifying Party may reasonably require to perfect
such subrogation or to pursue such rights against such other Persons as the
Indemnified Party or its Affiliates may have.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Assignment. None of this Agreement or any of the rights or obligations
hereunder may be assigned by TECO without the prior written consent of the
Transferees. TECO agrees to the assignment by the Transferees of their
respective rights pursuant to this Agreement at any time to any Person, or to
any lender as collateral security, and TECO and TECO agrees to execute any and
all appropriate agreements or instruments that the Transferees or the Agent may
reasonably request in order to effect or evidence such assignment or consent,
provided that no such assignment or agreement imposes any additional material
obligations on TECO or its or their Affiliates (other than the Companies), or
results in any material changes to the transactions contemplated by this
Agreement.

 

5.2 Notices. All notices, consents, waivers, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; if transmitted by facsimile, upon receipt of telephonic or
electronic confirmation; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:

 

If to TECO,

 

TECO Energy, Inc.

702 North Tampa Street

Tampa, Florida 33602

Attention: General Counsel

Tel: (813) 228-4111

Fax:(813)228-4811

 

With a copy to:

 

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

Attention: Sheldon S. Adler, Esq.

Tel: (212) 735-3000

Fax: (212) 735-2000

 

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If to a Transferee after the Closing, addressed to such Transferee c/o:

 

Entegra Power Group LLC

702 North Franklin Street

Tampa, Florida 33602

Attention: Jerry Coffey

Tel: (813) 228-4433

Fax: (813) 228-4300

 

With a copy to:

 

Citigroup Global Markets

Global Corporate & Investment Bank

388 Greenwich Street, 21st Floor

New York, New York 10013

Attention: Charles E. Tauber

Tel: (212) 816-7495

Fax: (212) 816-7738

 

and with copies to:

 

Dewey Ballantine LLP

1301 Avenue Americas

New York, New York 10019

Attention: Richard Shutran

Tel: (212) 259-8000

Fax: (212) 259-6333

 

Latham & Watkins LLP

Sears Tower, Suite 5800

233 South Wacker Drive

Chicago, Illinois 60606

Attention: Ronald W. Hanson

Tel: (312) 876-7700

Fax: (312) 993-9767

 

or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.

 

5.3 Choice of Law; Service of Process; Venue. This Agreement shall be construed
and interpreted and the rights of the parties determined in accordance with the
internal laws of the State of New York without giving effect to any choice or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York, other than Sections 5-1401 and 5-1402 of the
General Obligations law of the State of New York. TECO and each Transferee
irrevocably consents to the service of any and all process in any action or
proceeding arising out of or relating to this Agreement by the registered or
certified mailing of copies of such process to such party at the addresses
specified in Section 4.2. Each of the parties hereto consents and

 

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voluntarily submits to personal jurisdiction in the State of New York and in the
courts in such state located in New York County and the United States District
Court for the Southern District of New York in any proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby and agrees
that all claims in respect of any such proceeding may be heard and determined in
any such court. Each party agrees that any action instituted against another
party with respect to this Agreement will be instituted exclusively in the
United States District Court for the Southern District of New York or, if such
Court does not have jurisdiction to adjudicate such action, in the courts of New
York located in New York County. Each party hereto irrevocably and
unconditionally waives and agrees not to plead, to the fullest extent permitted
by law, any objection that they may now or hereafter have to the laying of venue
or the convenience of the forum of any action with respect to this Agreement in
the United States District Court for the Southern District of New York and the
courts of the State of New York located in New York County. Each party agrees
that a final judgment, subject to appeal rights, in any proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any other
manner provided by law or in equity. Each of the parties hereto irrevocably
waives, to the fullest extent permitted by law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

 

5.4 Effectiveness; Entire Agreement; Amendments and Waivers. This Agreement
shall become effective on the parties hereto when all parties hereto have
executed and delivered this Agreement. Except as set forth in the prior
sentence, no amendment, supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all of the parties hereto
indicating their intention to amend this Agreement. Neither the failure nor any
delay by any party in exercising any right, power or privilege under this
Agreement will operate as a waiver of any right, power or privilege under this
Agreement, and no waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided in such waiver in writing. In addition, no notice
to or demand on one party will be deemed a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.

 

5.5 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

5.6 Invalidity. In the event that any one or more of the provisions contained in
this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, then to
the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument.

 

5.7 Titles; Currency; Schedules. The titles, captions or headings of the
Articles and Sections herein are inserted for convenience of reference only and
are not intended to be a part of or to affect the meaning or interpretation of
this Agreement. Unless otherwise specified, all references contained in this
Agreement to dollars or “$” will mean United States Dollars.

 

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5.8 Representation of Counsel; Mutual Negotiation. Each party has been
represented by counsel of its choice in negotiating this Agreement. This
Agreement shall therefore be deemed to have been negotiated and prepared at the
joint request, direction and construction of the parties, at arm’s length, with
the advice and participation of counsel, and will be interpreted in accordance
with its terms without favor to any party.

 

5.9 No Third Party Beneficiaries. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and any of their respective assigns
pursuant to Section 5.1 hereto. Except for Administrative Agents, which are
expressly intended to be third party beneficiaries of this Agreement, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, including by way of
subrogation.

 

5.10 Time of Essence. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on their respective behalf, by their respective officers thereunto duly
authorized, all as of the day and year first above written.

 

ENTEGRA POWER GROUP LLC, as a Transferee By:  

 

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Name:     Title:     UNION POWER LLC, as a Transferee By:  

 

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Name:     Title:     GILA RIVER POWER LLC, as a Transferee By:  

 

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Name:     Title:     TRANS-UNION PIPELINE LLC, as a Transferee By:  

 

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Name:     Title:     TECO ENERGY, INC. By:  

 

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Name:     Title:    

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EXHIBIT A

 

DISCLOSURE SCHEDULE

 

[INCLUDED IN SEPARATE DOCUMENT]