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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended September 30, 1995
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to .
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<CAPTION>
I.R.S. Employer
Commission File Exact Name of Registrant as Specified State of Identification
Number in Its Charter Incorporation Number
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<S> <C> <C> <C>
001-11227 Washington Energy Company Washington 91-1005304
001-11271 Washington Natural Gas Company Washington 91-1005303
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Registrants' Telephone Number,
Address of Principal Executive Offices Zip Code Including Area Code
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<S> <C> <C>
815 Mercer Street, Seattle, Washington 98109 (206) 622-6767
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Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C>
Common Stock, $5 Par Value of Washington New York Stock Exchange
Energy Company
7.45% Series II, Cumulative Preferred New York Stock Exchange
Stock, $25 Par Value of Washington Natural
Gas Company
8.50% Series III, Cumulative Preferred New York Stock Exchange
Stock, $25 Par Value of Washington Natural
Gas Company
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
Aggregate market value of the voting stock held by non-affiliates of Washington
Energy Company, computed by reference to the average of the high and low prices
of such stock on December 15, 1995: $455,195,049.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
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<CAPTION>
Outstanding
Registrant Title of Stock December 15, 1995
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<S> <C> <C>
Washington Energy Company $5 par value 24,116,294
Washington Natural Gas Company $5 par value 10,982,107
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Documents Incorporated by Reference: None
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TABLE OF CONTENTS
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PART I Page
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) General Development of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Financial Information About Industry Segments . . . . . . . . . . . . . . . . . . . . . . 5
(c) Description of Business - Washington Natural Gas Company . . . . . . . . . . . . . . . . . 5
(1) Territory Served . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(2) Competitive Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(3) Customer Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(4) Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(5) Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(6) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(7) Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Natural Gas Pipeline Deregulation . . . . . . . . . . . . . . . . . . . . . . . . . 8
Gas Supply Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Gas Transportation Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Gas Storage Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
LNG and Propane Air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Capacity Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Western Market Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reallocation of Pipeline Transition Costs . . . . . . . . . . . . . . . . . . . . . 11
(8) Regulation and Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(9) Regulated Equipment Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(10) Merchandise Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(11) New Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(12) Utility Operating Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Description of Business - Oil and Gas Exploration
and Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Description of Business - Merchandise and Energy
Efficiency Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of Business - Coal and Railroad Properties . . . . . . . . . . . . . . . . . . 18
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TABLE OF CONTENTS (Continued)
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PART I (Continued) Page
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Description of Business - Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . 19
Description of Business - Discontinued Biowaste
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Financial Information About Foreign and
Domestic Operations and Export Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 20
Executive Officers of the Registrants . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 90
PART III
Item 10. Directors and Executive Officers of the Registrants . . . . . . . . . . . . . . . . . . . 90
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 99
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
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NOTE: All references to years and quarters in this filing are on the basis of
a fiscal year ended September 30 unless otherwise indicated.
PART I
Item 1. Business
(a) General Development of Business
Washington Energy Company ("Company" or "Washington Energy") is a holding
company whose principal subsidiary, Washington Natural Gas Company ("Washington
Natural") is engaged primarily in the retail distribution of natural gas. The
Company holds an equity position in a publicly traded oil and gas exploration
and production company, and through various subsidiaries, is also engaged in the
business of selling gas appliances, energy efficient and security products for
the home and holds certain coal-related investments. The Company is exempt from
the provisions of the Public Utility Holding Company Act of 1935 ("Act"), except
with respect to acquisition of securities of other public utility companies as
defined in such Act.
The Company was incorporated in 1977 and acquired the common stock of Washington
Natural and its wholly-owned subsidiaries through a merger in 1978. Washington
Natural and its predecessors have manufactured and distributed gas since prior
to the turn of the century and since 1956 have distributed natural gas in the
Puget Sound region of western Washington state. Washington Natural entered the
gas appliance sales business in the late 1950s when natural gas became available
in the region. In response to higher prices for and reduced availability of
natural gas in the early 1970s, Washington Natural, through its former
subsidiaries, entered the oil and gas exploration and production business, the
energy-efficiency products business and initiated its coal-related investments.
Washington Energy was formed in 1977 to serve as the holding company for the
diverse energy related businesses conducted by Washington Natural and the other
subsidiaries.
As part of a change in business strategy, the Company, in 1994, sold its
biowaste technology business started in 1984, and merged its oil and gas
subsidiary, Washington Energy Resources Company ("Resources"), with a subsidiary
of Cabot Oil & Gas Corporation ("Cabot"), Houston, Texas. Additionally, in
October 1993 the Company combined its appliance sales, energy efficiency
products and home security businesses in a new subsidiary, Washington Energy
Services Company ("Services").
On October 18, 1995, Washington Energy and Washington Natural entered into an
agreement to merge Washington Energy and Washington Natural with Puget Sound
Power & Light Company ("Puget") which, as the surviving corporation, will be
renamed at the effective time of the merger. Puget is an electric utility
servicing the Puget Sound area of western Washington. The merger would create
the largest combined electric and gas utility in the Sate of Washington. The
merger must be approved by the holders of the common stock of Washington Energy,
the holders of the preferred stock of Washington Natural, and the holders of the
common stock of Puget. In addition, the Washington Utilities and Transportation
Commission ("WUTC"), which regulates both utilities, must
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approve the merger and certain other conditions in the merger agreement must be
satisfied or waived. A joint proxy statement/prospectus will be sent to
shareholders of the three companies early in calendar 1996. Washington Energy
common shareholders and Washington Natural preferred shareholders will be asked
to vote on the merger at a combined shareholder meeting currently scheduled for
March 20, 1996, and Puget shareholders will vote at a special shareholder
meeting scheduled on the same date. Regulatory approval is expected prior to the
end of calendar 1996.
The merger requires approval by holders of two-thirds of the common shares of
Washington Energy and Puget as well as by two-thirds of the holders of the two
series of Washington Natural preferred stock voting separately. In the event the
merger is approved by the common shareholders of Washington Energy and Puget,
but not by the holders of either series of Washington Natural preferred stock,
the merger of Washington Energy or Puget would proceed with Washington Natural
remaining a wholly-owned subsidiary of the new company. If the merger is
approved, each share of Washington Energy common stock will be exchanged for
.860 of a share of Puget common stock and each share of (subject to the approval
of the merger by the holders of the Washington Natural preferred stock)
preferred stock of Washington Natural will be exchanged for one share of Puget
preferred stock with like rights and preferences (including par value,
dividends, redemption provisions and rights upon liquidation).
The Company's and Washington Natural's principal executive offices are located
at 815 Mercer Street, P.0. Box 1869, Seattle, Washington 98111, and their
telephone number is (206) 622-6767. This Form 10-K is filed on behalf of the
Company and Washington Natural, which companies are referred to herein as
Registrants.
(b) Financial Information About Industry Segments
See Note 17 of Notes to Consolidated Financial Statements.
(c) Description of Business
Washington Natural Gas Company
Washington Natural is engaged predominately in the distribution of natural gas
at the retail level. Washington Natural has two subsidiaries, WNG Cap I and WNG
Cap II, created to enhance Washington Natural's ability to lower its pipeline
transportation costs through capacity release and to provide other gas-related
services to be determined.
(1) Territory Served
Washington Natural distributes natural gas in a service area extending for
approximately 150 miles from north to south in the Puget Sound area of
Washington state which accounts for approximately 2,619 square miles, or 3.9% of
the state's land area. The five counties in which Washington Natural's service
area is located have a total estimated population of approximately 3,054,000
(56% of the state's population). During 1995, Washington Natural served an
average of 465,000 customers.
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Washington Natural's service area includes over 60 incorporated municipalities.
In addition to Seattle, this area includes four other major cities or
industrialized areas which combine to form the core of Washington Natural's
service territory. Seattle, with 24% of customers accounted for 25% of 1995
revenues. Tacoma with 11% of customers accounted for 13% of 1995 revenues.
Bellevue with 6% of customers accounted for 6% of 1995 revenues. Kent with 5% of
customers accounted for 5% of 1995 revenues. And Everett with 3% of customers
accounted for 5% of 1995 revenues.
(2) Competitive Conditions
The natural gas business competes with oil for industrial uses and space
heating, with electricity for drying, cooking, water heating and space heating,
and with wood for residential space heating. Although Washington Natural has no
direct competition from others distributing natural gas in the territory it now
serves, it does compete with gas marketers in the sale, but not the delivery
(transportation), of natural gas. Large industrial and commercial end-users also
have the option to bypass Washington Natural's distribution system by
constructing pipelines to interconnect directly with the interstate pipeline
which transports all the natural gas consumed in the region, although no
significant bypass by customers has occurred to date.
Washington Natural currently has a significant competitive price advantage over
both electricity and fuel oil in its service territory. In a recent Washington
Natural survey of residential energy costs, fuel oil for space heating was
approximately 26% more expensive than gas and electricity for residential space
heating was up to 169% more expensive than gas. Conversions of residential users
to gas from oil and electricity remain an important source of new customer
additions, with approximately 8,000 residential users converting to gas in 1995.
Washington Natural successfully competes with all the electric utilities in its
service area for new customers in the new housing construction market, with
approximately 11,000 new homes utilizing gas for space and water heating in
1995. Washington Natural's overall market share of the new single-family home
construction market in its service territory exceeded 75% for 1995. In
residential areas where gas mains have already been extended, Washington
Natural's market share for space and water heating in new construction is even
higher. Since the cost of natural gas remains substantially lower than the cost
of electricity for home space and water heating throughout its service area,
Washington Natural expects that its share of the new home market will continue
at approximately 75%, and that conversions of existing homes to gas will
continue to be a major source of new customers. In 1995, Washington Natural's
total customer base grew by approximately 21,000 new customers, or 5%.
Washington Natural began offering gas transportation service to its industrial
customers in 1986. Washington Natural's wholesale gas supplier at the time,
Northwest Pipeline Corporation ("Pipeline"), provided "open access" to its
system under interim federal regulations that enabled Washington Natural to
provide such service. The Federal Energy Regulatory Commission ("FERC") granted
Pipeline permanent authority to provide transportation service to local
distribution companies ("LDCs") and end users in 1988. The availability of both
firm and interruptible transportation service, which enables industrial end
users to purchase lower cost gas supplies directly from U.S. and Canadian
producers, is an important factor in maintaining gas usage by those end users
during periods of low residual oil prices. Continued evolution in the natural
gas industry, resulting primarily from FERC Order
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Nos. 436, 500 and 636, has served to increase the ability of large gas end users
to bypass Washington Natural in obtaining gas supply and transportation
services. Nevertheless, to date, Washington Natural has not lost any substantial
industrial load as a result of bypass. Further, most industrial users that have
a choice of alternate fuels have continued to use gas due to price and other
considerations.
In November 1993, Washington Natural began offering a new tariff for
transportation services on its distribution system. While in the past as many as
160 customers annually have taken advantage of the potential savings provided by
transportation service, in 1995, on average, approximately 55 commercial and
industrial customers chose to receive only transportation service. Most
customers have chosen to remain either firm or interruptible gas sales customers
of Washington Natural.
Natural gas should continue to play a prominent energy role in the Pacific
Northwest due to the abundant gas supplies available at competitive prices.
Competition with oil in the industrial market continues but is lessening due to
increasingly stringent air quality control measures in Washington Natural's
service area.
(3) Customer Usage
Washington Natural's operating revenues and earnings vary seasonally with
temperature and weather conditions, particularly in the winter and summer
months, because over 90% of its customers use natural gas for space heating.
(4) Employee Relations
As of September 30, 1995, Washington Energy had 1,340 employees of which 1,217
were employed by Washington Natural. Subsequent to September 30, 1995,
Washington Natural reduced the number of its salaried employees by 4%. In 1994,
Washington Natural reduced overall staffing by 12%, across all employee
classifications. Washington Natural has 820 employees organized within eight
local unions with which it has collective bargaining agreements. During 1995,
Washington Natural reached collective bargaining agreements with all five unions
which had contracts that expired in 1995. The new contracts generally reflected
an average annual increase in base wages and benefits of 3% for each of the next
three years, the effect of which is partially offset by decreases in the premium
time wage rate for certain work. There are no contracts currently under
negotiation and the earliest contract expiration is November 30, 1997.
(5) Franchises
Washington Natural holds nonexclusive franchises from all of the incorporated
communities it services except the City of Lacey, and excluding four communities
in which franchise renegotiations are in progress. The Seattle franchise is
perpetual and franchises covering other municipalities generally run for terms
of 25 years. Washington Natural also holds certain franchises and revocable
permits issued by the Washington State Department of Transportation covering
Washington Natural's facilities located beneath state highway rights-of-way. In
addition to the franchises mentioned, Washington Natural holds a Certificate of
Public Convenience and Necessity granted by the WUTC to serve the area in which
its distribution system is located.
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(6) Environmental Matters
For a description of environmental matters related to the Company and Washington
Natural, see Note 10 of Notes to Consolidated Financial Statements.
(7) Gas Supply
General
Washington Natural currently purchases a blended portfolio of long-term firm,
short-term firm, and spot gas supplies from a diverse group of major and
independent producers and gas marketers in the U.S. and Canada. Prior to
implementation of FERC Order No. 636 on November 1, 1993, Washington Natural
purchased a portion of its firm gas supply from Pipeline under a firm sales
agreement. All of Washington Natural's gas supply is ultimately transported
through Pipeline, the sole interstate pipeline directly supplying the western
Washington area.
For baseload and peak-shaving purposes, Washington Natural supplements its
portfolio of firm gas supply by purchasing natural gas at generally lower prices
in summer, injecting it into underground storage facilities and withdrawing it
during the winter heating season. The storage facilities at Jackson Prairie in
Washington and at Clay Basin in Utah are used for this purpose. Peaking needs
are also met by using Washington Natural's gas held in Pipeline's liquefied
natural gas ("LNG") facility at Plymouth, Washington, and by producing propane
air gas at a plant owned by Washington Natural and located on its distribution
system.
Washington Natural expects to meet its firm peak day requirements for
residential, commercial and industrial markets through its firm gas purchase
contracts, firm transportation capacity, firm storage capacity and other firm
peaking resources. Washington Natural believes that it will be able to acquire
incremental firm gas supply resources, which are reliable and reasonably priced,
to meet anticipated growth in the requirements of its firm customers for the
foreseeable future. Washington Natural is committed to securing least cost
sources of reliable gas supply, including demand side management resources, and
to optimizing resources to their highest and best use in order to best serve the
needs of its firm customers.
Natural Gas Pipeline Deregulation
The implementation of FERC Order No. 636 by Pipeline on November 1, 1993,
completed the deregulation of its activities as an interstate natural gas
pipeline and unbundled sales services formerly performed by Pipeline. The
complete unbundling of Pipeline's services at that date finalized Washington
Natural's transition from purchasing all of its gas supply from Pipeline prior
to 1986 to purchasing all gas supplies directly from producers and gas
marketers. As part of the transition, Washington Natural was assigned certain
long-term firm gas supply agreements of Pipeline effective November 1, 1992, and
November 1, 1993. In order to deliver gas supplies purchased directly from
suppliers to its distribution system, Washington Natural assumed long-term, firm
transportation capacity on the transmission systems of Pipeline and Pacific Gas
Transmission Company ("PGT"), together with associated demand charge
obligations. Washington Natural also acquired storage capacity with associated
demand charge obligations at Clay Basin in two increments effective April 1991
and April 1993.
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Gas Supply Portfolio
For the current winter heating season, Washington Natural has contracted for
approximately 25% of its expected peak day gas supply requirement from sources
originating in British Columbia under a combination of long-term and winter
peaking purchase agreements and firm gas exchange arrangements. Long-term gas
supplies from Alberta represent approximately 10% of the peak day requirement.
Long- term and winter peaking arrangements with U.S. suppliers and gas stored at
Clay Basin make up approximately 25% of the peak day portfolio. The balance of
the peak day requirement is expected to be met with gas stored at Jackson
Prairie, LNG held at Pipeline's Plymouth facility and propane air gas,
approximately 25%, 10% and 5%, respectively.
The current firm, long-term gas supply portfolio consists of arrangements with
12 producers and gas marketers with no single supplier representing more than
14% of the expected peak day requirement. The contracts have remaining terms
from less than one year to nine years with an average term of five years. All
but one of the supply contracts assigned to Washington Natural by Pipeline have
expired. The one remaining contract, with an Alberta supplier, has a remaining
term of nine years. All of the current gas supply contracts contain market
sensitive pricing provisions based on various published indices.
Washington Natural's firm gas supply portfolio is structured to take advantage
of regional price differentials and to market gas and services outside
Washington Natural's service territory ("off system sales") when market
opportunities arise and system supply requirements permit. The geographic mix of
suppliers and daily, monthly and annual take requirements permit a high degree
of flexibility in sourcing gas supplies in off-peak periods to minimize costs.
These activities lower the overall cost of gas for customers on Washington
Natural's distribution system. In 1995, Washington Natural's off system sales
totaled approximately 16 billion cubic feet ("BCF") of gas which generated $3.4
million of gross margin. Washington Natural is also an active participant in the
exchange of gas with other suppliers or marketers on different pipelines which
generated $1.2 million in gross margin. The savings or margin from these
activities do not affect Washington Natural's earnings, but are passed on to
Washington Natural's ratepayers through the purchased gas adjustment ("PGA")
mechanism.
Gas Transportation Capacity
Washington Natural currently holds firm transportation capacity on Pipeline and
PGT. Holders of such capacity pay fixed monthly demand charges for the right,
but not the obligation, to transport a specified quantity of gas from a receipt
point to a delivery point on the pipeline each day for the term of the
agreement.
Firm transportation capacity on Pipeline was initially made available to
utilities in 1988 under permanent authority of FERC Order No. 436. Washington
Natural holds firm capacity on Pipeline totaling 444,533 million British thermal
units ("MMBtu") per day acquired under five agreements at various times prior to
November 1, 1993, plus an additional 10,000 MMBtu per day acquired effective
November 1, 1995. The agreements provide for receipt of 196,705 MMBtu per day at
Sumas on the Washington border with British Columbia, 181,892 MMBtu per day at
various points in Wyoming, Colorado, and Utah and 75,936 MMBtu per day at
several interconnections with PGT. Washington Natural also holds seasonal firm
capacity on Pipeline for receipt of 188,372 MMBtu per
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day at the Jackson Prairie storage field and 70,500 MMBtu per day at the
Plymouth LNG facility. This capacity is available to deliver storage gas to
Washington Natural's distribution system during the heating season. The firm
capacity from Jackson Prairie will increase by 47,926 MMBtu per day effective
with the completion of an expansion project in the winter of 1996 to increase
the rate of daily deliverability from the field. Washington Natural's firm
transportation capacity contracts with Pipeline have remaining terms ranging
from 9 to 20 years. However, Washington Natural has either the unilateral right
to extend the contracts under their current terms or the right of first refusal
to extend such contracts under then current FERC orders.
Washington Natural holds firm transportation capacity on PGT totaling 90,392
MMBtu per day from Kingsgate on the Idaho border with British Columbia to
various interconnections with Pipeline. Gas originating in Alberta is
transported to Pipeline utilizing this capacity for subsequent delivery by
Pipeline to Washington Natural's distribution system. The contract for this
capacity has a remaining term of 28 years.
Gas Storage Capacity
Washington Natural holds storage capacity in the Jackson Prairie and Clay Basin
underground gas storage facilities. The Jackson Prairie facility, one-third
owned and operated by Washington Natural, is used primarily for intermediate
peaking purposes as it is designed to deliver a large volume of gas over a
relatively short time period. Washington Natural has peak, firm delivery
capacity of 188,372 MMBtu per day and total firm storage capacity of 6,341,660
MMBtu at the facility. A project will be completed in the winter of 1996 to
increase the daily deliverability, but not the total storage capacity, of the
Jackson Prairie facility. Washington Natural's share of the expansion will be
47,926 MMBtu per day. The location of the Jackson Prairie facility in Washington
Natural's service area provides significant cost savings by reducing the amount
of annual pipeline capacity required to meet peak day gas requirements. The Clay
Basin storage facility is intended as a baseload gas supply source, as well as a
peaking supply source. Washington Natural has a maximum firm withdrawal capacity
of 111,300 MMBtu per day from the facility with total storage capacity of
13,419,000 MMBtu. The capacity is held under two contracts with remaining terms
of 18 and 25 years.
LNG and Propane Air
LNG and propane air gas provide gas supply on short notice for short periods of
time. These sources are utilized as the supply of last resort in extreme peak
demand periods lasting a few hours or days due to their high cost. Washington
Natural has long-term contracts for storage of 241,700 MMBtu of its gas as LNG
at Pipeline's Plymouth facility which equates to approximately three and
one-half days supply at maximum daily deliverability of 70,500 MMBtu. Washington
Natural owns storage capacity for approximately 1.4 million gallons of propane.
The facilities are capable of delivering the equivalent of 30,000 MMBtu of gas
per day for up to four days directly into Washington Natural's distribution
system.
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Capacity Release
One of the most significant changes resulting from the deregulation of the
natural gas industry is the advent of capacity release to counter the impact on
pipeline customers of straight fixed variable rate design used by interstate
pipelines. Under this rate design, essentially all pipeline costs are recovered
from customers through fixed monthly demand charges, rather than volumetrically
as in the past. The FERC provided the capacity release mechanism as the means
for holders of firm capacity to relinquish temporarily unutilized pipeline
capacity to others in order to recoup all or a portion of the cost of such
capacity. Capacity may be released through several methods including open
bidding and by prearrangement. All capacity available for release is posted on
electronic bulletin boards of the pipelines. Washington Natural utilized
buy/sell and capacity release mechanisms in off-peak periods to recoup $2.8
million in demand charges in 1995. WNG CAP I and WNG CAP II, wholly-owned
subsidiaries of Washington Natural, were formed to provide additional
flexibility and benefits from capacity release. All savings from capacity
release are passed on to Washington Natural's ratepayers through the PGA
mechanism. In addition, off-system sales activities have often bundled gas sales
or other services with transportation which has increased capacity utilization.
In approving Washington Natural's PGA effective May 15, 1995, the WUTC has
allowed all capacity related demand charges incurred through that date to be
recovered in rates.
The Western Market Center
In 1995, Washington Natural elected to participate in The Western Market Center
("TWMC"), a newly-formed, regional gas supply and market hub in the Muddy Creek
area in southwest Wyoming. TWMC is essentially a computerized electronic gas
trading and management system associated with a hub located at the
interconnection of five major pipelines: Pipeline, Questar, Kern River, Colorado
Interstate Gas and Overland Trail. Participation in TWMC will enable Washington
Natural to provide gas management services including gas parking and lending to
a wider market of off-system customers. This is expected to increase off-peak
utilization of Washington Natural's storage and pipeline capacity as well as its
gas supply resources which should reduce the overall cost of gas supplies for
Washington Natural's ratepayers. Washington Natural will have a 10% ownership
interest in TWMC.
Reallocation of Pipeline Transition Costs
In May 1994, Pipeline was ordered by the FERC to modify the previous allocation
of transition costs, totaling $34 million plus interest, incurred in
"unbundling" interstate pipeline services. Under this order, Washington
Natural's share of these costs increased from $1.2 million, previously paid, to
$10.4 million, inclusive of interest. Washington Natural and six other customers
filed requests for rehearing. On December 20, 1994, the FERC issued an order
denying the rehearing requests and permitting Pipeline to bill customers under
the modified allocation methodology. Pending the outcome of an appeal to the
United States Court of Appeals, Washington Natural began making monthly payments
to Pipeline in May 1995 under a 12 month payment schedule. The WUTC has allowed
Washington Natural to recover the full amount of the liability as part of the
PGA which went into effect on May 15, 1995.
<PAGE> 12
Page 12
(8) Regulation and Rates
Washington Natural is subject to the jurisdiction of, and regulation by, the
WUTC, a three-member body appointed by the governor of Washington state. Such
regulation relates principally to rates; service; issuance of securities;
acquisition, extension and abandonment of facilities; affiliated party
transactions and safety regulations. Under Washington law, the WUTC is required
to act upon rate filings within 11 months of the date of filing.
Since 1971, the WUTC has permitted Washington Natural to pass-on to its
customers, through changes in its rates, all changes in the price of gas it
purchases from non-affiliated suppliers, using the PGA mechanism. This mechanism
allows Washington Natural to pass these cost increases or decreases on to its
customers on a timely basis, resulting in no material impact on net income.
Since disallowing a portion of the cost of gas purchased from a subsidiary of
Resources, a Washington Natural affiliate, in a 1992 order, the WUTC has
authorized three PGAs. The effects of the adjustments in 1992 and 1993
substantially increased rates and were allowed on a timely basis. On May 11,
1995, the most recent PGA was approved by the WUTC, effective May 15, 1995. This
PGA results in a pass-through to customers, of an annual reduction in the cost
of purchased gas of $46.5 million.
July 1992 Rate Case
In July 1992, Washington Natural filed with the WUTC for a general rate
increase, Docket No. UG-920840 (the "July 1992 Rate Case"), requesting an
additional 13%, or $41.4 million, in annual revenues and therefore margin. Of
the requested amount, $28.4 million, or 8.9%, was for general rate relief. The
remainder covered new programs such as environmental cleanup activities,
compliance with revisions to safety rules, the replacement of unprotected steel
and cast iron underground pipe, and the proposed development of public
compressed natural gas refueling stations for natural gas vehicles. At a
subsequent date, Washington Natural reduced its rate request to $14.8 million,
on an annual basis.
On September 27, 1993, the WUTC issued its decision in the rate case, ordering a
decrease in Washington Natural's rates and margin of $15.4 million on an annual
basis, effective October 9, 1993. The principal differences in the annual
revenue requirement between Washington Natural's rate request and the WUTC's
ordered rate reduction were:
(1) approximately $11 million of adjustments made by the WUTC to disallow
certain expenses related to advertising, marketing and merchandising;
(2) approximately $10 million due to an allowed overall rate-of-return of
9.15% on a rate base of $483.9 million compared to Washington Natural's
proposed overall rate-of-return of 9.98% on $504.0 million of rate base;
(3) $5.2 million related to disallowance of Washington Natural's proposed
attrition allowance; and
(4) $4.8 million associated with the weather normalization calculation.
<PAGE> 13
Page 13
November 1993 Rate Case
After reviewing the WUTC's decision in the July 1992 Rate Case and giving
consideration to filing of a motion for reconsideration with the WUTC,
Washington Natural determined that the most appropriate action would be to file
a limited-scope general rate case. This case, Docket No. UG-931405, was filed in
November 1993 (the "November 1993 Rate Case"), and requested a revenue and
margin increase of $24.6 million. The primary focus was to seek recovery of
additional operating costs and the inclusion in rate base of additional utility
plant for system improvements and expansions since calendar year 1991, which was
used as the base measurement year in the July 1992 Rate Case. On May 27, 1994,
the WUTC issued an order approving a settlement of the November 1993 Rate Case.
The terms of the settlement agreement provided for a $19.0 million increase in
annual revenue and margin and an agreement that Washington Natural would not
request an increase in total revenues other than PGA filings or in certain
limited circumstances prior to March 1, 1995.
March 1995 Rate Case
In March 1995, Washington Natural filed a general rate case (the "March 1995
Rate Case") seeking to raise rates by 8.5%, or $35.4 million on an annual basis.
The filing was requested in order to reflect the higher costs of capital and
increased operating costs as a result of customer growth. As part of the filing,
Washington Natural petitioned that $17.8 million of the $35.4 million request be
granted as interim rate relief.
On May 11, 1995, Washington Natural and the WUTC reached a negotiated settlement
of the March 1995 Rate Case. The settlement ordered a $17.7 million annual
increase in revenue and margin. The increase reflects an authorized
rate-of-return on common equity in the range of 11% - 11.25%, up from the
previous level of 10.5%. The WUTC also stipulated that Washington Natural will
be allowed to earn in excess of that range to the extent that it can do so by
managing its cost of service. The new rates became effective May 15, 1995. As
part of the settlement, Washington Natural has agreed not to make a general rate
case filing prior to May 15, 1997. The agreement, however, does not preclude
filing under the PGA mechanism or for interim emergency rate relief if
conditions warrant such rate relief.
Rate Redesign Filing
As a result of the WUTC's decision in the July 1992 Rate Case, Washington
Natural filed a Transportation Service, Cost of Service and Rate Redesign
Proposal in June 1994 (the "Rate Redesign Filing"). In its July 1992 Rate Case
decision, the WUTC did not accept any of the cost of service methodologies
proposed, explaining that the changing nature of the industry, including the
separate and distinct function of providing transportation service, required
additional consideration. The Rate Redesign Filing, Docket No. UG- 940814,
included proposed rates that would better reflect the actual cost of serving
various classes of customers. The filing applied a methodology that takes peak
demand costs into consideration in addition to average volumetric throughput.
This peak and average approach is, in Washington Natural's opinion, responsive
to the reality of the current natural gas environment and treats transportation
as a separate and distinct service.
On May 11, 1995, the WUTC ordered the implementation of a cost-based rate design
effective May 15, 1995. The order, while revenue neutral in total,
<PAGE> 14
Page 14
shifted rates and costs, and thus margin responsibility, among customer classes.
The average margins for transportation service decreased by 26% and margins for
larger volume industrial sales customers decreased by 27%. The order also raised
average residential margins 4.5%. Firm commercial and smaller industrial average
margins were not affected. The changes in transportation and industrial margins
make the utility economically indifferent to customer choices between
transportation and sales service. The order enhances Washington Natural's
ability to offer rates that support cost effective and responsible growth.
Line Extension and New Customer Addition Policy
In March 1995, the WUTC approved a new tariff for extending natural gas mains
and services to new customers. Under the new policy, main and service extensions
that meet the target rate-of-return, currently 9.15%, based on an analysis of
estimated costs and gas usage, are provided to customers without additional
contributions. This new policy helps ensure that new customer growth is
profitable. If a new main or service extension is estimated to have a
rate-of-return of less than 9.15%, the customer is required to make either a
one-time contribution or pay a new customer rate, at the customer's choice. A
contribution is a one-time advance payment to cover project costs. This advance
payment may be refundable at the end of five years based on additional new
customer load which has been added to the new main or service extension since it
was initially installed. The other choice is payment of a nonrefundable new
customer rate for five years. The new customer rate is essentially a surcharge
of 11.5 cents per therm for new residential developments or 17 cents per therm
for residential or small commercial conversions.
(9) Regulated Equipment Rentals
Washington Natural is also engaged in the business of leasing water heaters and
conversion burners for residential and commercial use. As of September 30, 1995,
Washington Natural had approximately 119,000 active equipment leases to
customers with an original cost and net book value of approximately $74 million
and $64 million, respectively. Lease revenues are included in the financial
statements as part of Regulated Utility Sales since the rates charged are
subject to the approval of WUTC. Lease revenues were $10,317,000, $9,405,000 and
$7,712,000 for 1995, 1994 and 1993 respectively.
(10) Merchandise Marketing
In order to address the concerns raised by the WUTC regarding allocations
between Washington Natural's regulated activities and non-regulated merchandise
activities, the merchandise sales business was transferred on October 1, 1993 to
Services, a newly-formed subsidiary of Washington Energy. At that time,
Washington Natural terminated all merchandise sales activity. See Merchandise
and Energy Efficiency Products on page 19.
(11) New Construction
Washington Natural is one of the fastest growing natural gas LDCs in the nation
due to economic growth in its service area and the high conversion rate of
existing homes to gas. In 1995 and 1994, Washington Natural made $87.2 and $84.5
million, respectively, in capital expenditures to add new customers and
<PAGE> 15
Page 15
to maintain the reliability and safety of its distribution system. Washington
Natural's capital spending in 1996 is projected to be $86 million.
See the Liquidity and Capital Resources section of Management's Discussion and
Analysis of Financial Condition and Results of Operations at page 36.
<PAGE> 16
Page 16
(12) Washington Natural Utility Operating Statistics
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Regulated utility sales:
Residential firm gas sales $231,202 $206,602 $195,936 $152,015 $160,265
Commercial firm gas sales 97,396 91,749 87,644 67,393 72,833
Industrial firm gas sales 25,860 28,827 23,967 17,226 20,472
Interruptible gas sales 44,541 51,425 44,160 29,593 43,563
Transportation services 10,732 8,399 8,434 11,231 6,783
Other 10,317 9,405 7,712 7,481 7,136
-------- -------- -------- -------- --------
Total regulated utility
sales $420,048 $396,407 $367,853 $284,939 $311,052
======== ======== ======== ======== ========
Customers, average number
served:
Residential firm 423,195 403,642 383,291 361,454 337,815
Commercial firm 38,378 37,112 35,951 34,503 33,011
Industrial firm 2,754 2,824 2,844 2,857 2,842
Interruptible 1,037 1,009 988 948 1,037
Transportation 55 36 68 130 56
------- ------- ------- ------- -------
Total average customers 465,419 444,623 423,142 399,892 374,761
======= ======= ======= ======= =======
Gas volumes (thousands of therms):
Residential firm sales 398,283 371,472 382,118 301,887 346,782
Commercial firm sales 179,725 174,668 177,724 142,402 162,915
Industrial firm sales 55,365 62,698 54,096 52,019 49,309
Interruptible sales 132,312 151,175 127,678 78,645 131,278
Transportation volumes 156,945 119,590 159,765 199,143 156,402
------- ------- ------- ------- -------
Total gas volumes 922,630 879,603 901,381 774,096 846,686
Company use 729 801 848 838 699
Unaccounted for 1,328 489 (2,318) 660 (2,348)
------- ------- ------- ------- -------
Total send out 924,687 880,893 899,911 775,594 845,037
======= ======= ======= ======= =======
</TABLE>
<PAGE> 17
Page 17
(12) Washington Natural Utility Operating Statistics (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average use per customer (therms):
Residential firm 941 921 998 835 1,027
Commercial firm 4,683 4,708 4,903 4,127 4,935
Industrial firm 20,103 22,035 24,618 18,208 17,350
Interruptible 127,591 147,315 129,231 82,959 126,594
Transportation 2,853,545 3,400,694 2,133,676 1,531,869 2,792,893
Average revenue per customer:
Residential firm $ 546 $ 512 $ 511 $ 421 $ 474
Commercial firm 2,538 2,472 2,438 1,953 2,206
Industrial firm 9,390 10,208 8,427 6,029 7,203
Interruptible 42,952 50,966 44,695 31,216 42,009
Transportation 195,127 233,306 124,029 86,392 121,125
Average revenue per therm (cents):
Residential firm 58.0 55.6 51.3 50.4 46.2
Commercial firm 54.2 52.5 49.3 47.3 44.7
Industrial firm 46.7 46.0 44.3 33.1 41.5
Interruptible 33.7 34.0 34.6 37.6 33.2
Total sales customers 52.1 49.8 47.4 46.3 43.0
Transportation 6.8 7.0 5.3 5.6 4.3
Average cost per therm
(cents) (1): 28.6 29.5 24.0 22.7 20.0
Weather - degree days 4,201 4,289 4,702 3,933 4,888
% of normal (30-yr avg) 88% 90% 98% 82% 101%
</TABLE>
(1) Average Cost Per Therm includes both fixed and variable elements, and it
is not a common gas industry practice to allocate these among classes of
customers. Washington Natural does not sell or transport gas to any of its
customers at a loss or on a break-even basis.
Oil and Gas Exploration and Production
The Company has participated in the oil and gas exploration and production
business since 1974 through Resources and its predecessor, Thermal Exploration,
Inc., and since 1994, through its investment in Cabot. On May 2, 1994, Resources
was merged in a tax-free exchange with a wholly-owned subsidiary of Cabot based
in Houston, Texas. Through the merger the Company currently owns 16.4% of
Cabot's outstanding voting securities consisting of 2,133,000 shares of common
stock, representing 9.4% of total common shares outstanding, and 1,134,000
shares of convertible voting preferred stock. William P. Vititoe, Chairman of
the Board of Directors, Chief Executive Officer and President of Washington
Energy, and Robert F. Bailey, a director of Washington Energy, also became
members of Cabot's Board of Directors. See Note 13 of Notes to Consolidated
Financial Statements for further discussion of the merger transaction.
The Company is accounting for its investment in Cabot's common stock using the
equity method, whereby the Company is recording its proportionate share of
<PAGE> 18
Page 18
Cabot's earnings and losses available to common shareholders as "Other income
(expense)". Only a brief summary of Cabot's business, taken from its 1994 Form
10-K filing, is presented here since Cabot's stock is publicly traded on the New
York Stock Exchange ("NYSE") and more detailed information is available in its
filings with the Securities and Exchange Commission ("SEC"). Cabot's fiscal year
corresponds to the calendar year.
Substantially all of Cabot's operations are in the Appalachian Region of West
Virginia, Pennsylvania and New York, and in the Western Region, including the
Anadarko Basin of southwestern Kansas, Oklahoma and the Texas Panhandle, in the
Green River Basin of Wyoming and in South Texas. Cabot has operated in the
Appalachian Region for over 100 years and in the Anadarko Basin for over 50
years. Cabot's proved reserves at December 31, 1994, totaled approximately 1,001
billion cubic feet equivalent ("Bcfe"), 95% of which was natural gas, primarily
in long-lived fields with extended production histories. Historically, Cabot has
maintained its reserve base through low-risk development drilling, although it
acquired its interests in the Green River Basin and South Texas through the
Resources merger, valued by Cabot at $176 million, and made two other
significant reserve acquisitions in 1993 at a total cost of $82.4 million.
In addition to drilling and production, Cabot also operates several gas
gathering and pipeline systems in the Appalachian Region made up of
approximately 3,600 miles of pipeline with interconnections to interstate
pipelines and local distribution companies. It also has two gas storage fields
in the same region. Cabot also purchases substantial quantities of gas from
other producers in the Appalachian Region and the Gulf Coast area for resale to
customers in the northeastern United States.
The oil and gas production business is highly competitive and Cabot's operating
results are largely determined by the natural gas prices prevailing in the
markets it serves. In response to the nation-wide decline in natural gas prices
during the past year, Cabot has instituted numerous cost reduction measures,
including employee lay-offs and consolidation of administrative functions.
During the quarter ended September 30, 1995, Cabot wrote down the carrying value
of its oil and gas producing assets by $113.9 million in connection with early
adoption of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." See Managements' Discussion and Analysis of Financial
Conditions and Results of Operations at page 28 and Note 13 of Notes to
Consolidated Financial Statements for further information regarding Cabot's
operating results and losses recognized by Washington Energy related to its
investment in Cabot.
Merchandise and Energy Efficiency Products
Since the late 1950s Washington Natural had marketed energy-efficient gas
appliances and conservation products which complemented its gas distribution
service. In order to address the concerns raised by the WUTC during the July
1992 Rate Case regarding allocations of common costs between Washington
Natural's regulated activities and its non-regulated merchandise sales
activities, the merchandise sales business was transferred on October 1, 1993,
to Services, a newly-formed, wholly-owned subsidiary of Washington Energy.
Effective the same date, the Company's HomeGuard(TM) security systems business,
which had been conducted by another of the Company's then wholly-owned
subsidiaries, Thermal Efficiency, Inc., was also transferred to Services.
<PAGE> 19
Page 19
Services sells three types of products, primarily to residential homeowners: gas
appliances, including furnaces; energy efficient window and siding products; and
security systems and monitoring. With the elimination of joint marketing through
Washington Natural and the sharing of certain common costs, Services has changed
the scope and the manner in which this business is conducted. The product lines
have been narrowed to focus on the more high-margin products. All product
installations and servicing are conducted by independent dealers and
contractors. Product purchases are consolidated with fewer distributors which
also perform inventory and delivery functions. Services does not provide its own
long-term installment financing for customer purchases.
The markets for Services products are highly competitive. Competitors range from
large widely-known national chains to small independent dealers with minimal
name recognition. Service's sales strategy is based on an extensive advertising
campaign, drawing on association with Washington Energy, the convenience of
in-home purchasing, comprehensive research of the marketplace, and a
knowledgeable, well-trained sales force.
Coal and Railroad Properties
Thermal Energy, Inc. holds the Company's coal investments through its 95%
ownership of the Montco Partnership ("Montco"), which holds leases and other
rights to mine coal in Montana with the ultimate objective of opening one or
more mines if market conditions become suitable. Montco's coal reserves are
concentrated in two areas suitable for surface mining which have been assigned
the project names Montco and Cook Mountain. The Montco project involves 12,664
acres in the Ashland-Birney area of southeastern Montana. In adjacent areas, the
partnership owns additional coal reserves and has surface rights over coal owned
by the U.S. Government. The Cook Mountain project, located northeast of Ashland,
Montana, involves over 20,000 acres of surface rights over coal held by lease
and in fee.
Proposals for short-term coal test burns, which may be conducted in 1996 or
1997, have been made to several electric utilities. The results of such tests
would better define the quality of the reserves and the economics of
establishing full scale mining operations. The partnership's coal reserves, with
their low-sulfur content, should be attractive to electric utilities and
industries that are required to reduce sulfur dioxide emissions by the year 2000
under amendments to the Clean Air Act passed in 1990.
The Company, through its wholly-owned subsidiary ThermRail, Inc., holds an 87.5%
partnership interest in the Tongue River Railroad Company ("TRR"), Billings,
Montana. TRR was formed to develop a transportation system for the substantial
reserves of low-sulfur coal in the northern Powder River Basin area of
southeastern Montana, which area includes the Montco holdings described above.
TRR has received a Certificate of Public Convenience and Necessity from the
Interstate Commerce Commission ("ICC") for a proposed 81- mile rail project.
Additionally, TRR has filed with the ICC for an extension of the proposed rail
project by an additional 42 miles into southeastern Montana. The proposed
extension would shorten by about 150 miles the railroad haul between the coal
producing areas further south in Montana and in northeast Wyoming, and
electricity generating stations in Minnesota, Michigan and Wisconsin. This would
benefit existing coal shippers by reducing haul distances and would increase the
value and development potential of Montco's coal reserves.
<PAGE> 20
Page 20
In 1995, the Company wrote down the carrying value of its coal reserves and
railroad assets to estimated fair market value in conjunction with the early
adoption of SFAS No. 121. The coal reserves were written down from $38.7 million
to $4.0, million and the railroad assets amounting to $6.0 million, consisting
of engineering and other intangible development costs, were written down to
zero. See Note 8 of Notes to Consolidated Financial Statements for further
information concerning the write-downs. While current coal prices and
projections of future coal prices do not support full development of these
assets over the next five to ten years, the Company intends to maintain its
investments and to periodically reassess the viability of further development.
Other Businesses
Certain gas transportation, storage and other contractual arrangements that were
excluded from the merger of Resources with Cabot were transferred to a
newly-formed, wholly-owned subsidiary of the Company, Washington Energy Gas
Marketing Company ("WEGM"). See Note 14 of Notes to Consolidated Financial
Statements for further information regarding these excluded contractual
arrangements.
The Company and its subsidiaries' primary liability insurance coverage is
provided by Mercer Insurance Company Limited ("Mercer Insurance"), a
Bermuda-domiciled insurance company. Mercer Insurance is wholly-owned by WECO
Finance Company, a wholly-owned subsidiary of Washington Energy. Mercer
Insurance does not provide insurance to any non-affiliated parties.
Discontinued Biowaste Business
The Company had been engaged in the development of biowaste technology since
1984 through Unisyn, a Hawaii general partnership and its predecessor. Unisyn
developed and patented pollution control technology which processes organic
wastes by anaerobic digestion and produces saleable by-products. A pilot plant
was in operation in Waimanalo, Hawaii, however, Unisyn had been unsuccessful in
licensing its technology to others. In August 1993, the Company decided to
divest the Unisyn operation which was reported as a discontinued operation in
the Company's financial statements in that year. In August 1994, the Company
sold the stock of its two wholly-owned subsidiaries, Thermal Efficiency, Inc.
and Holdings Northwest, Inc., which jointly owned Unisyn. The two subsidiaries
had no other significant operations or assets at the date of sale. See Note 15
of Notes to Consolidated Financial Statements.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Washington Energy and its subsidiaries do not export products to, or do
significant business in, foreign countries.
Item 2. Properties
Washington Natural's properties consist primarily of its underground natural gas
distribution system and associated facilities owned in fee in 65 cities and
towns (principally Seattle, Bellevue, Tacoma, Kent and Everett) and parts of
five counties in the Puget Sound region of Washington State. It owns a total of
268 acres of land, of which 20 acres are sites for peak-shaving
<PAGE> 21
Page 21
plants, 60 acres are sites for city gate stations for receipt of natural gas,
and the balance is for distribution service facilities and office buildings.
Washington Natural also owns a one-third undivided interest in the Jackson
Prairie underground storage field consisting of 147 acres of owned surface land
and storage, and 3,234 acres of leased storage. The site contains 77 wells for
injection and withdrawal of gas or water and compression facilities.
Approximately 18.8 billion cubic feet of non-inventory cushion gas is in place.
The principal structures owned are service and office buildings and warehouses
in Seattle, Tacoma, Bellevue and Auburn, and those housing propane gas
production facilities. Small local office and service buildings in various other
communities are owned or leased.
Substantially all of the property of Washington Natural is subject to the lien
of its first mortgage bonds.
The Company holds interests in coal properties as described on page 20.
The Company believes its properties to be generally in good condition and well
maintained and to be suitable and adequate to carry on the Company's business.
Item 3. Legal Proceedings
For a description of the legal matters related to the Company and Washington
Natural see Note 11 of Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended September
30, 1995.
<PAGE> 22
Page 22
Executive Officers of the Registrants
<TABLE>
<CAPTION>
Name Title Age
- -------------------- ------------------------------------------------------------------------- ---
<S> <C> <C>
William P. Vititoe Chairman of the Board of Directors, Chief Executive Officer and President 57
(Chairman and Chief Executive Officer since February 1994, President
since April 1994). (1)
Timothy J. Hogan Executive Vice President - Chief Operating Officer (since August 1995; 44
Senior Vice President - Supply, Administration and Corporate Secretary,
February 1995 - August 1995; Vice President - Supply, Administration and
Corporate Secretary, June 1994 - February 1995; Vice President - Legal
and Corporate Secretary, February 1990 - June 1994). (1)
James P. Torgerson Executive Vice President - Chief Administrative Officer and Chief 43
Financial Officer (since August 1995; Senior Vice President - Finance,
Planning and Development and Chief Financial Officer, February 1990 -
August 1995). (1)
Robert J. Tomlinson Senior Vice President - General Counsel and Corporate Secretary (since 59
August 1995; Senior Vice President - Legal and Administration, February
1990 - August 1995). (1)
James W. Gustafson Senior Vice President - Operations (since April 1990). (2) 62
William J. Wortley Senior Vice President - Government Affairs (since August 1995; Senior 58
Vice President - Public Affairs, February 1993 - August 1995; Vice
President - Public Affairs, April 1989 - February 1993). (2)
Donald H. Gessel President - Washington Energy Services Company (since October 1993 (3); 53
Senior Vice President - Marketing, Gas Supply and Rates, August 1990 -
October 1993). (2)
Allyn P. Hebner Vice President - Finance, Treasurer and Chief Accounting Officer (since 42
August 1995 (1); Vice President and Chief Accounting Officer, June 1994 -
August 1995 (1); Vice President and Treasurer of Washington Energy
Resources Company, February 1993 - June 1994 (3); Assistant Vice
President and Treasurer of Washington Energy Resources Company, April
1991 - February 1993. (3)
(1) of Washington Energy and of Washington Natural.
(2) of Washington Natural only.
(3) of Washington Energy subsidiary.
</TABLE>
There are no family relationships between any of the executive officers or any
executive officer and any director. Officers are elected by the Board of
Directors and serve until the next annual meeting or until their successors are
elected and qualified, provided, however, that any officer may be removed at any
time by majority vote of the Board of Directors.
<PAGE> 23
Page 23
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
The common stock of Washington Energy is traded on the NYSE (trading symbol is
WEG). The following table reflects the dividends paid and the range of high and
low selling prices of the Company's common stock on the NYSE by quarter for 1995
and 1994:
<TABLE>
<CAPTION>
Price Range
Dividends -------------------------
Period Per Share High Low
------------------- --------- ------- -------
<S> <C> <C> <C> <C>
1995 1st Quarter $.25 $14-3/4 $12-1/2
2nd Quarter .25 14-3/8 13
3rd Quarter .25 16-7/8 13
4th Quarter .25 17-3/8 15-3/4
1994 1st Quarter $.25 $20 $17-3/8
2nd Quarter .25 18-7/8 16
3rd Quarter .25 17-1/4 14-3/8
4th Quarter .25 15-5/8 14-1/4
</TABLE>
There were approximately 12,159,000 common shareholders of the Company as of
December 15, 1995. It is currently the policy of the Board of Directors to
declare cash dividends payable in December, March, June and September of each
year. The Company and its predecessor have paid cash dividends since 1960. The
dividend rate is reassessed regularly in light of existing conditions, the needs
of the Company and the interests of shareholders. (See Note 4 of Notes to
Consolidated Financial Statements for a description of certain limitations on
the Company's ability to pay dividends.)
<PAGE> 24
Page 24
Item 6. Selected Financial Data
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Regulated utility sales $420,048 $396,407 $367,853 $284,939 $311,052
Merchandise and other 23,563 35,618 71,185 72,533 65,414
Oil and natural gas
operations -- -- 31,354 17,616 19,098
-------- -------- -------- -------- --------
TOTAL OPERATING
REVENUES $443,611 $432,025 $470,392 $375,088 $395,564
======== ======== ======== ======== ========
OPERATING INCOME $ 51,796 $ 28,168 $ 55,569 $ 45,980 $ 59,394
OTHER INCOME (EXPENSE), net (52,330) (36,717) (1,895) (956) 1,178
-------- -------- -------- -------- --------
GROSS INCOME (LOSS) (534) (8,549) 53,674 45,024 60,572
-------- -------- -------- -------- --------
TOTAL INTEREST CHARGES 41,188 36,751 32,180 31,592 29,716
CAPITALIZED INTEREST (660) (453) (541) (549) (725)
-------- -------- -------- -------- --------
INTEREST CHARGES 40,528 36,298 31,639 31,043 28,991
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (41,062) (44,847) 22,035 13,981 31,581
DISCONTINUED OPERATIONS -- (799) (12,388) (2,542) (3,235)
-------- -------- -------- -------- --------
NET INCOME (LOSS) (41,062) (45,646) 9,647 11,439 28,346
DIVIDENDS ON PREFERRED
STOCK -- 9 101 105 112
EXCESS PREMIUM,
PREFERRED REDEMPTION -- 673 -- -- --
-------- -------- -------- -------- --------
EARNINGS (LOSS)
ON COMMON STOCK $(41,062) $(46,328) $ 9,546 $ 11,334 $ 28,234
======== ======== ======== ======== ========
EARNINGS (LOSS) PER
COMMON SHARE FROM:
Continuing operations $ (1.72) $ (1.94) $ .95 $ .71 $ 1.73
Discontinued operations -- (.03) (.53) (.13) (.18)
-------- -------- -------- -------- --------
EARNINGS (LOSS) PER
COMMON SHARE $ (1.72) $ (1.97) $ .42 $ .58 $ 1.55
======== ======== ======== ======== ========
</TABLE>
<PAGE> 25
Page 25
Item 6. Selected Financial Data (Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
DIVIDENDS PER COMMON SHARE $ 1.00 $ 1.00 $ 1.40 $ 1.40 $ 1.38
========== ========== ========== ========== ==========
TOTAL COMMON DIVIDENDS
DECLARED based on shares
outstanding on record
dates during each period $ 23,877 $ 23,468 $ 32,282 $ 27,499 $ 25,584
========== ========== ========== ========== ==========
TOTAL ASSETS $ 989,490 $1,036,790 $1,035,817 $ 899,874 $ 809,657
========== ========== ========== ========== ==========
LONG-TERM DEBT AND RE-
DEEMABLE PREFERRED STOCK $ 400,060 $ 380,200 $ 370,700 $ 304,228 $ 259,788
========== ========== ========== ========== ==========
COMMON SHAREHOLDERS'
INTEREST $ 196,686 $ 256,800 $ 322,931 $ 275,517 $ 284,260
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 26
Page 26
Item 6. Selected Financial Data (Continued)
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Regulated utility sales $420,048 $396,407 $367,853 $284,939 $311,052
Merchandise and conser-
vation products -- -- 63,210 66,083 60,393
-------- -------- -------- -------- --------
TOTAL OPERATING REVENUES $420,048 $396,407 $431,063 $351,022 $371,445
======== ======== ======== ======== ========
TOTAL GROSS MARGIN
(Regulated utility sales
less cost of gas sold) $201,026 $172,905 $186,696 $154,603 $173,020
======== ======== ======== ======== ========
OPERATING INCOME $ 50,513 $ 26,381 $ 49,889 $ 38,143 $ 51,761
OTHER INCOME (EXPENSE), net (443) (3,860) (1,036) 135 2,450
-------- -------- -------- -------- --------
GROSS INCOME 50,070 22,521 48,853 38,278 54,211
INTEREST CHARGES (32,216) (30,764) (27,082) (26,047) (24,802)
-------- -------- -------- -------- --------
NET INCOME (LOSS) 17,854 (8,243) 21,771 12,231 29,409
DIVIDENDS ON PREFERRED STOCK 7,126 3,979 2,720 2,740 2,755
EXCESS PREMIUM,
PREFERRED REDEMPTION -- 798 -- -- --
-------- -------- -------- -------- --------
EARNINGS (LOSS) ON
COMMON STOCK $ 10,728 $(13,020) $ 19,051 $ 9,491 $ 26,654
======== ======== ======== ======== ========
TOTAL COMMON DIVIDENDS
DECLARED based on shares
outstanding on record
dates during each period $ -- $ 16,937 $ 26,045 $ 21,691 $ 20,151
======== ======== ======== ======== ========
TOTAL ASSETS $890,598 $872,549 $834,516 $729,536 $657,727
======== ======== ======== ======== ========
LONG-TERM DEBT AND
REDEEMABLE PREFERRED
STOCK $400,060 $380,200 $370,700 $304,280 $259,940
======== ======== ======== ======== ========
COMMON SHAREHOLDER'S
INTEREST $251,528 $235,988 $262,334 $205,599 $210,889
======== ======== ======== ======== ========
</TABLE>
<PAGE> 27
Page 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Washington Energy Company incurred net losses available to common of $41.1
million, or $1.72 per share, and $46.3 million, or $1.97 per share, in 1995 and
1994, respectively, due to various non-recurring or unusual charges ("Special
Charges"). The following table summarizes earnings and losses on common and per
share by year (amounts in millions except per share).
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- ------------------
Per Per Per
Amount Share Amount Share Amount Share
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Before Special
Charges $ 8.1 $ .34 $ (3.8) $ (.16) $ 21.9 $ .95
Special Charges (49.2) (2.06) (41.7) (1.78) -- --
------ ------ ------ ------ ------ ------
Continuing
operations (41.1) (1.72) (45.5) (1.94) 21.9 .95
Discontinued
operations -- -- (.8) (.03) (12.4) (.53)
------ ------ ------ ------ ------ ------
Earnings (loss)
on common stock $(41.1) $(1.72) $(46.3) $(1.97) $ 9.5 $ .42
====== ====== ====== ====== ====== ======
</TABLE>
The 1995 Special Charges result from; 1) early adoption of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which resulted in write-downs of the Company's coal and rail
interests in Montana ($26.5 million after tax); 2) a reduction in the value of
Washington Energy's investment in Cabot associated with Cabot's implementation
of SFAS No. 121 as well as recognition of a permanent impairment of the carrying
value of its investment in Cabot ($16.1 million after tax); 3) increased losses
projected in the future from certain gas transportation and storage arrangements
assumed from the Company's former oil and gas exploration subsidiary ($3.3
million after tax); 4) gas utility employee severance costs ($2.0 million after
tax); and 5) deferred income taxes relating to tax contingencies ($1.3 million).
The 1994 Special Charges result from: 1) the merger of the Company's oil and gas
exploration and production subsidiary with Cabot and reserves established for
certain gas transportation and storage arrangements excluded from the merger
($30.0 million after tax); 2) restructuring and down sizing the gas utility
subsidiary ($4.6 million after tax); and 3) other write-offs and reserves
established in the gas utility ($7.1 million after tax).
The decision was made to dispose of the Company's biowaste business, Unisyn, in
1993, and it was first reported as a discontinued operation in that year. In
addition to the $2.6 million net operating loss incurred in 1993, a $9.8 million
after-tax charge was recorded to write down Unisyn's assets to estimated
realizable value and to establish a reserve for operating losses through
disposition. An additional after-tax loss of $799,000 was incurred in
<PAGE> 28
Page 28
1994 to complete the disposition through the sale of the two subsidiaries that
owned Unisyn.
Excluding the Special Charges, the Company's 1995 earnings of $8.1 million are
improved from the loss reported in 1994, but remain lower than 1993 earnings.
The following table shows the contribution to earnings from each of the
Company's continuing businesses (before interest, income taxes and preferred
dividend requirements of Washington Natural, in millions).
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Gas utility $61.4 $33.3 $50.8
Merchandise sales (1.6) .1 7.9
Oil and gas .7 1.9 9.3
Other 1.8 (4.1) (2.9)
----- ----- -----
Total $62.3 $31.2 $65.1
===== ===== =====
</TABLE>
The improvement in Washington Natural's 1995 earnings was due largely to an
increase in utility margin (revenues less cost of gas sold) resulting from
general rate increases granted in 1994 and 1995 and a reduction in ongoing
operations and maintenance ("O&M") expenses. Higher interest expense in 1995,
due primarily to increases in interest rates, and additional preferred stock
dividends, due to the issuance by Washington Natural of $30.0 million of
preferred stock late in 1994, partially offset the improvement in Washington
Natural's operating earnings.
Coal and Rail Related Charges
In the fourth quarter of 1995, the Company elected early adoption of SFAS No.
121 which resulted in $26.5 million in after-tax write-downs of the Company's
coal and railroad assets. Based on a mine feasibility study by a mining and
geological consulting firm, the Company has concluded that the economics of
developing its coal reserves are marginal or subeconomic over the next five to
ten years. Although prices for low sulfur coal are expected to increase in real
terms over the next five to ten years, prices are not expected to reach the
levels necessary to justify the additional capital expenditures necessary to
commence full scale mining operations within that time frame. Due to the
significance of the write-down indicated, the Company elected early adoption of
SFAS No. 121 and wrote down the carrying value of the coal properties from $38.7
million to $4.0 million (after-tax write-down of $22.6 million). As a
consequence of the determination that the coal reserves are uneconomical to
develop in the foreseeable future, the Company also wrote off its $6.0 million
($3.9 million after tax) railroad investment. The investment consisted of the
costs related to planning the railroad necessary to transport coal from the
proposed mine sites to the existing rail line for shipment on to markets in the
Midwest.
Oil and Gas Related Charges
The Company recorded two fourth quarter 1995 Special Charges related to its
investment in Cabot. Cabot also elected early adoption of SFAS No. 121 which
resulted in pre-tax write-downs of $113.9 million related to its oil and gas
properties. Under the equity method of accounting for its investment in Cabot
common stock, the Company recorded its 9.4% share of Cabot's write-down which
<PAGE> 29
Page 29
totaled $4.2 million after tax. In addition, the Company recorded an $11.9
million after-tax charge to write down the excess of its recorded investment in
Cabot over its proportional interest in Cabot's underlying shareholder's equity.
The Company believes a permanent impairment in the value of its investment in
Cabot has occurred based on fundamental changes in the natural gas market over
the past year, which have sharply reduced gas prices and Cabot's earnings
potential. After the write-downs, the carrying value of the Company's investment
in Cabot is $70.0 million which approximates the fair market value of the shares
of Cabot common and preferred stock held by the Company at September 30, 1995.
On May 2, 1994, the Company merged its oil and gas subsidiary, Resources, with
Cabot in a tax-free exchange. The Company received Cabot common and preferred
stock with a fair market value of $98.5 million, in addition to the repayment of
$63.7 million of intercompany debt. The Company recorded a net loss on the
transaction of $18.3 million after providing for deferred taxes of approximately
$32.0 million, and establishing a pre-tax reserve of $6.8 million for a
potential downward purchase price adjustment based on the performance of wells
in a certain field over one year. During 1995 this entire reserve was utilized
and the Company recorded an additional pre-tax loss of $503,000 ($327,000 after
tax) in resolving substantially all remaining merger-related matters with Cabot.
In the fourth quarter of 1995, the Company recorded a $3.3 million after-tax
charge to earnings to increase its reserve by $5.0 million for anticipated
future losses associated with certain gas transportation and storage contractual
arrangements excluded from the merger of Resources with Cabot. Upon completion
of the Resources merger in 1994, the Company had recorded an after-tax charge of
$11.7 million to establish reserves of $16.0 million for anticipated future
losses associated with these excluded contractual arrangements and $2.0 million
for other excluded items. The Company had only limited operating experience with
these arrangements prior to the merger, since they were placed in service
November 1, 1993. Due to the merger and associated elimination of Resources'
operating and marketing staffs and gas production to aid in managing and
utilizing these arrangements, management anticipated that these arrangements
would continue to generate losses for the foreseeable future. During 1995 and
1994, $5.8 and $3.0 million (pre-tax) of the reserves were utilized,
respectively. The losses in 1995 were higher than expected due to warmer weather
and lower utilization of the pipeline capacity. In addition, further delays are
expected in the resolution of the pipeline's rate case before the FERC, the
outcome of which is expected to reduce the Company's capacity payments to the
pipeline. (See Note 14 of Notes to Consolidated Financial Statements for
additional information regarding these projected losses.)
Restructuring and Other Special Charges
In the fourth quarter of 1995, the Company recorded after-tax charges totaling
$3.3 million for employee severance costs and income tax contingencies. The
severance charge of $2.0 million related to a 4% reduction in Washington
Natural's work force, which was initiated during that quarter and completed in
the first quarter of 1996. The work-force reduction, which affected only
salaried employees, was part of Washington Natural's ongoing organizational
transformation initiated in 1994. The restructuring efforts were initiated in
the third quarter of 1994 when Washington Natural recorded after-tax charges
totaling $4.6 million to consolidate operations and downsize its work force.
<PAGE> 30
Page 30
The charges included severance costs of $2.3 million (after tax) and expensing
$1.9 million of costs (after tax) previously capitalized for planning a new
headquarters building not currently needed. During 1994, Washington Natural's
work force was reduced 12% from the level at the beginning of the year. Although
the 1994 severance accrual was fully utilized in 1995 and the 1995 severance
accrual has been fully utilized in the first quarter of 1996, certain of the
severance benefits are to be paid over time as specified in certain severance
agreements, rather than in lump sum.
Washington Natural recorded additional charges in 1994 totaling $7.1 million
after tax to write off costs deemed to be unrecoverable and to establish certain
reserves. A total charge of $1.5 million after tax was included to provide for
estimated environmental investigation, legal and remediation costs associated
with certain former manufactured gas plant sites and to write off certain
environmental-related deferred costs. Also included was a $2.2 million after-tax
charge for supplemental executive retirement benefits.
Operating Revenues
The following table summarizes the Company's revenues by line of business (in
millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Regulated utility sales $420.0 $396.4 $367.8
Merchandise sales 23.6 35.6 71.2
Oil and gas -- -- 31.4
------ ------ ------
Total $443.6 $432.0 $470.4
====== ====== ======
</TABLE>
The $23.6 million, or 6%, increase in regulated utility sales in 1995 was
largely the result of two general rate increases and customer growth, partially
offset by a PGA which reduced revenues but did not impact earnings. Utility
margin increased by $28.1 million or 16% due primarily to the rate increases and
customer growth, and was not impacted by the PGA. The general rate orders, which
are discussed in detail in the General Rate Cases section below, increased
utility margin by approximately $18 million. The impact on utility margin in
1995 was less than the full, annualized impact of the two rate orders because of
warmer weather and the timing of the second increase which was ordered after the
heating season. Washington Natural's rate of growth in new customers remained at
5%, or 21,000 customers, during 1995, which increased gas sales volumes by 5%
and added an estimated $6 million in utility margin. Although weather in 1995
was 12% warmer than normal and 2% warmer than in 1994, the year-to-year impact
of weather on margin and gas volumes was negligible. Much of the winter of 1995
was colder than in 1994, while the rest of 1995, when heating load was lower,
was significantly warmer than 1994. Had weather been normal during 1995, utility
margin would have been higher by an estimated $9 million.
The 8% increase in regulated utility sales in 1994 was the net result of several
factors, including a 23% increase in the cost of purchased gas, which was passed
through to customers with no impact on earnings, and customer growth of 5%, or
21,000 customers. Largely offsetting the effects of these factors were lower
rates associated with the $15.4 million annual revenue decrease (see General
Rate Case section below) ordered in October 1993, and
<PAGE> 31
Page 31
weather that was 10% warmer than normal and 9% warmer than the prior year. A
general rate increase totaling $19.0 million annually, effective June 2, 1994,
did not have a material impact on revenues for the year since it occurred after
the end of the heating season.
The Company's merchandise sales revenues declined by $12.0 million or 34% in
1995, continuing the trend established when the bulk of this business,
consisting of gas appliance sales, was transferred from Washington Natural to
Services on October 1, 1993. The absence of joint marketing, installation and
service activities with Washington Natural continue to have a negative impact on
the ability of Services to attract new merchandise customers. Services completed
an extensive sales training program and restructuring of its sales force late in
1995, prior to its major fall marketing campaign; however, these actions were
taken too late in the year to significantly impact 1995 revenues. As a result,
Services incurred a loss, before interest and income tax, of $1.6 million in
1995, down from profits of $72,000 and $7.9 million in 1994 and 1993,
respectively.
The Company accounts for its investment in Cabot common stock using the equity
method of accounting. Under this accounting method, the Company records its
proportionate share of Cabot's earnings or losses available to common
shareholders, along with preferred dividends from Cabot, in "Other income
(expense)." Resources' 1994 earnings through the merger date have been
reclassified to "Other income (expense)," consistent with the equity accounting
presentation. The 1993 financial statements continue to reflect Resources on a
consolidated basis, as previously reported, in accordance with generally
accepted accounting principles.
Operating Expenses
The following table shows the Company's operating expenses by line of business,
before and after income taxes (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Utility
Cost of gas sold $219.0 $223.5 $181.2
Operations and maintenance 68.1 81.8 71.6
Depreciation and amortization 33.1 30.9 28.2
General taxes 40.8 37.8 35.0
------ ------ ------
Total utility operating
expenses 361.0 374.0 316.0
Merchandise sales 25.3 35.7 62.3
Oil and gas -- -- 23.9
Other -- 0.9 3.0
------ ------ ------
Total before income taxes 386.3 410.6 405.2
Income taxes 5.5 (6.7) 9.6
------ ------ ------
Per consolidated
statements of income $391.8 $403.9 $414.8
====== ====== ======
</TABLE>
The $12.1 million decrease in operating expenses reflected in the income
statement in 1995 is due primarily to lower total utility operating expenses
<PAGE> 32
Page 32
($13.0 million) and lower merchandise sales expenses ($10.4 million), partially
offset by the change in income taxes from a benefit to an expense ($12.2
million) due to higher pre-tax utility earnings.
The $13.0 million decrease in total 1995 utility operating expenses consists
primarily of a $13.7 million decrease in O&M expenses. The decrease in O&M
expenses resulted from inclusion of $3.2 million of employee severance costs in
1995 versus $11.7 million of Special Charges included in 1994, and from $7.7
million in ongoing cost savings due primarily to the 1994 work-force reduction,
partially offset by $4.1 million of consulting charges to support the
organizational transformation efforts during 1995. The cost of gas sold
decreased in 1995 due to the PGA implemented in May 1995. The increases in
depreciation and general taxes were the result of capital spending to add
customers and revenue growth, respectively.
The $10.9 million decrease in operating expenses from 1993 to 1994 was due to
deconsolidation of Resources ($23.9 million), reduced merchandise sales expenses
($26.6 million) and the change in income taxes from an expense to a benefit
($16.3 million), all of which were largely offset by increases in cost of gas
sold ($42.3 million) and utility O&M expenses ($10.2 million). The increase in
the cost of gas sold was due to higher gas prices, since gas sales volumes were
essentially the same in both years, which was recovered from customers through
PGAs. The O&M expense increase was due primarily to the $11.7 million in Special
Charges recorded in 1994.
Oil and Gas Business Operating Results
In 1995, the Company recorded losses related to its investment in Cabot totaling
$14.8 million after tax. Excluding the write-downs discussed above, the Cabot
investment produced a pre-tax profit of $721,000 consisting of preferred
dividend income of $3.4 million net of equity in losses of $2.7 million. The
Company's 1995 results reflect a full year of Cabot's results, while 1994
results reflect only the five months subsequent to the merger.
The 1994 earnings contribution from the oil and gas business before interest and
income taxes (consisting of Resources' earnings through the merger date and
earnings from the investment in Cabot thereafter) was $1.9 million, compared
with $9.3 million of Resources' earnings in 1993. Resources' 1994 earnings of
$1.0 million through the merger date were adversely impacted by lower oil prices
and losses from the gas transportation and storage arrangements described above.
Subsequent to the merger, Cabot reported losses, of which the Company's
proportionate share totaled $573,000, due primarily to seasonal factors and
generally lower gas prices. Dividend income from preferred stock was $1.4
million pre-tax.
<PAGE> 33
Page 33
General Rate Cases
Washington Natural filed and received rate orders for three general rate cases
in the period from July 1992 to May 1995. The following table shows the filing
dates of each case, the annual margin effect based on normal weather and the
effective date of each rate order:
<TABLE>
<CAPTION>
Annual Margin
Date of Increase Effective Date
Filing (Decrease) of Rate Order
------------- --------------- --------------
<S> <C> <C>
July 1992 ($15.4 million) October 9, 1993
November 1993 $19.0 million June 2, 1994
March 1995 $17.7 million May 15, 1995
</TABLE>
In the July 1992 filing, Washington Natural had initially sought a $41.4 million
rate increase which was subsequently reduced to $14.8 million. In September
1993, the WUTC issued an order decreasing rates by $15.4 million effective in
October 1993. The principal differences in the annual revenue requirement
between Washington Natural's rate request and the WUTC's ordered rate reduction
were:
(1) approximately $11 million of expenses related to advertising, marketing
and merchandising disallowed by the WUTC;
(2) approximately $10 million due to an allowed overall rate of return of
9.15% on a rate base of $483.9 million compared to Washington Natural's
proposed overall rate of return of 9.98% on $504.0 million of rate base;
(3) $5.2 million related to disallowance of Washington Natural's proposed
attrition allowance; and
(4) $4.8 million associated with the weather normalization calculation.
In November 1993, Washington Natural filed a limited-scope general rate case
seeking a $24.6 million increase in annual revenues. The primary focus was to
seek recovery of additional operating costs and the inclusion in rate base of
utility plant additions since calendar year 1991, which was the base measurement
year used in the prior rate case. On May 27, 1994, the WUTC issued an order
approving a settlement of the rate case. The settlement provided for a $19.0
million increase in annual revenue and an agreement that Washington Natural
would not request an increase in total revenues, other than PGA filings or in
other limited circumstances, prior to March 1, 1995.
In the March 1995 general rate case filing, Washington Natural requested a $35.4
million increase in annual revenues, with $17.8 million of the total to be
granted as interim rate relief in May 1995. The rate case was requested to cover
increased costs related to plant additions and upgrades and higher costs for
financing and general operations. On May 11, 1995, the WUTC issued an order
approving a settlement of the case. The order provided an additional $17.7
million in annual revenues and reflected an authorized rate of return on common
equity in the range of 11.0% - 11.25%, up from the previous level of 10.5%. The
WUTC also stipulated that Washington Natural will be allowed to earn in excess
of that range to the extent that it can do so by managing its cost of service.
As part of the rate case settlement, Washington Natural agreed not to make a
general rate case filing prior to May 15, 1997.
<PAGE> 34
Page 34
Washington Natural, however, is not precluded from PGA filings or filing for
interim or emergency rate relief if conditions warrant.
The May 11, 1995 order also implemented a rate redesign approved by the WUTC on
April 11, 1995. Generally, the rate redesign lowers the rates for transportation
customers and large commercial and industrial customers, while increasing the
rates for residential customers. In a separate decision on May 11, 1995, the
WUTC issued an order to implement a PGA to pass through a 46.5 million annual
reduction in the cost of purchased gas to customers on in the form of lower
rates. These actions by the WUTC resolved all outstanding 1995 rate issues.
Inflation and Changing Prices
The Company is directly and indirectly affected by inflation and changing prices
in several ways, most of which are also heavily influenced by the WUTC
regulatory process.
Natural gas prices have been highly volatile in recent years, which has impacted
Washington Natural's cost of purchased gas but has not affected Washington
Natural's earnings due to use of the PGA mechanism. As requested by Washington
Natural, the WUTC has authorized changes in customer rates to permit the "pass
through" of projected changes in the cost of purchased gas. Differences between
actual gas costs and those authorized in the prior PGA are accumulated in
balancing accounts for future recovery or refund. Except for costs disallowed in
a 1992 order relating primarily to purchases from an affiliate, the WUTC
historically has allowed changes in purchased gas costs to be passed through to
customers with no impact on earnings. Washington Natural no longer purchases gas
from affiliates. The most recent PGA went into effect in May 1995 as described
above.
Washington Natural's operating results are impacted by the effects of inflation
on O&M expenses, particularly wages, which historically comprise approximately
55% of O&M expenses. Washington Natural must request general rate increases to
offset the effects of increases in O&M expenses. Such requests normally receive
intense scrutiny, including extensive analysis of historical and current O&M
expenses, by the WUTC, which has up to eleven months from the filing date of the
request to issue an order. The delay in receiving rate relief, due to the time
required to prepare and file the rate request and the time required for WUTC
review, can result in significant earnings deterioration in the interim,
particularly in periods of higher inflation. Washington Natural filed for
general rate increases in July 1992, November 1993 and March 1995, as described
above.
Inflation also impacts Washington Natural directly through the cost of replacing
portions of its distribution system. Washington Natural's rates are set based on
the historical cost of construction of its distribution system and long
depreciable lives. Due to the long lives, the cost of replacing components of
the system is generally much higher than the original cost which impacts
Washington Natural's earnings through higher depreciation charges and higher
carrying costs of the new assets. Since replacing components of the system does
not generate additional revenues, Washington Natural must file general rate
cases in order to recover these higher costs. The estimated replacement cost of
Washington Natural's gas mains and service lines is $1.4 billion, which exceeds
historical cost by $800 million.
<PAGE> 35
Page 35
Inflation impacts the Company and Washington Natural indirectly through its
effect on interest rates. In recent years, approximately $225-$355 million of
the Company's capitalization has been long-term debt, and short-term debt levels
have averaged over $100 million on an annual basis. Prior to the interest rate
increases in 1994, interest rates generally had declined each year since the
mid-1980s. The Company benefited from the declining rates by refinancing
higher-rate notes with lower-rate notes and through reduced interest expense on
its short-term debt. Interest rates, in particular short-term rates, have
increased in 1994 and 1995, which has had a negative impact on earnings.
The current level of interest rates is also a major factor in determining
Washington Natural's authorized rate of return on equity associated with its
general rate filings. Prior to the October 1993 rate order in which Washington
Natural's rate of return on common equity was set at 10.5%, the rate of return
on common equity had been set at 16.25%. This rate was based on a 1985 rate
order that corresponded to a period of high interest rates in the early 1980's.
The May 1995 general rate order increased Washington Natural's authorized return
on common equity to 11% - 11.25%.
<PAGE> 36
Page 36
Liquidity and Capital Resources
Capital expenditures typically represent the largest cash flow item for the
Company due to the capital-intensive nature and growth rate of the utility and,
prior to 1994, the oil and gas business. Of the Company's $88.7 million of 1995
gross capital expenditures, $87.2 million were for utility plant. Washington
Natural makes capital expenditures to add new customers to its gas distribution
system and to replace and enhance components of the system to insure its
reliability and safety. Washington Natural's financing strategy is to fund
capital expenditures with a combination of cash flow from operations, after
dividend payments, and short-term borrowings on an interim basis. The short-term
borrowings are reduced periodically with the proceeds from issuing long-term
debt and equity securities, the choice and timing of which are dependent on
management's evaluation of need, financial market conditions and other factors.
The following table summarizes the major cash flow items for the Company for the
three years ended September 30 (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Operating cash flow $ 84.6 $ 14.6 $ 36.6
Common dividends (23.9) (23.5) (32.3)
Capital expenditures (88.7) (86.9) (129.5)
Short-term borrowing (repayment),
net 36.8 (20.3) 7.3
Net issuance (redemption)
of preferred stock -- 64.7 (10.2)
Cash from merger of subsidiary,
net -- 42.9 --
Issuance of common stock 4.8 6.3 70.5
Net issuance (retirement)
of long-term debt (10.1) (3.3) 67.7
Other, net .4 (2.2) (2.5)
------ ------ ------
Net change in cash $ 3.9 $ (7.7) $ 7.6
====== ====== ======
</TABLE>
Operating cash flow of $84.6 million in 1995 was sufficient to fund virtually
all of the Company's investments in utility plant and other property. Washington
Energy funded its common stock dividend payments during 1995 from short-term
borrowings due to a restriction on the payment of common stock dividends by
Washington Natural in its first mortgage bond indentures. Due to the Special
Charges recorded in June 1994, Washington Natural's retained earnings fell below
the minimum level at which dividend payments to Washington Energy are permitted.
At September 30, 1995, Washington Natural's retained earnings remained $12.5
million below the minimum requirement as cumulative earnings since June 1994
have been insufficient to raise retained earnings to the minimum level. A total
of $85.1 million of long-term debt was retired and refinanced through issuance
of $75.0 million of medium-term notes, with generally lower interest rates, and
short-term borrowings which will produce annual interest savings of
approximately $1.3 million.
Operating cash flow in 1995 increased by $70.0 million compared to 1994. This
was due primarily to the purchased gas adjustment mechanism and environmental-
related insurance recoveries in excess of environmental expenditures. The
<PAGE> 37
Page 37
purchased gas receivable of $21.3 million at September 30, 1994, shifted to a
liability of $15.6 million at September 30, 1995, as Washington Natural was able
to purchase gas for most of the year at an average cost below that being
recovered in rates based on the prior PGA. This created positive cash flow as
the receivable from rate payers was collected and an obligation was established.
As indicated in Note 10 of Notes to Consolidated Financial Statements,
Washington Natural, in 1995, reached an agreement with its insurers whereby
Washington Natural received $29.0 million in settlement of litigation regarding
environmental remediation of a former manufactured gas plant site in Tacoma,
Washington. Thus, the Company had net cash receipts of $24.2 million in 1995
related to environmental remediation activities compared to net cash payments of
$11.8 million and $9.3 million in 1994 and 1993, respectively.
Capital expenditures in 1996 are projected at $86 million for Washington Natural
and $2 million for the Company's other businesses. The Company has decided not
to develop its coal reserves and associated railroad in the foreseeable future.
The Company expects to fund its 1996 capital spending with cash flow from
operations and short-term borrowings. Washington Natural issued medium-term
notes at lower interest rates to refinance $30.0 million of first mortgage bonds
called early in December 1995. Washington Natural may issue additional notes
during 1996 in lieu of funding capital expenditures with short-term debt,
depending on market conditions.
Operating cash flow was inadequate to fund common dividends in 1994. The Company
effectively used the $42.9 million net cash proceeds from the Resources merger
($63.7 million proceeds net of cash advanced to Resources prior to the merger)
to fund the majority of its common dividend payments and to reduce short-term
debt. Preferred stock was issued to fund most of the Company's capital spending
rather than issuing common stock and long-term debt as in 1993. Washington
Natural issued preferred stock twice during 1994 to fund capital spending and
the early redemption of all outstanding preferred issues to take advantage of
lower dividend requirements and to eliminate future sinking-fund requirements.
In November 1993, the public offering of 2.4 million shares of 7.45% cumulative
preferred stock was completed, netting proceeds of $58.8 million. In September
1994, Washington Natural completed a public offering of 1.2 million shares of
8.50% cumulative preferred stock, which netted proceeds of $29.1 million. The
early redemption occurred in November 1993 at an aggregate cost of $23.2
million.
In addition to short-term borrowing requirements to fund its capital spending
program on an interim basis, Washington Natural has seasonal short-term
borrowing requirements. Operating revenues vary with weather conditions because
approximately 90% of Washington Natural's customers use natural gas for space
heating. This normally produces substantially increased earnings and operating
cash flow during the first eight or nine months of each year and a loss and
negative cash flow in the remaining three or four months, with the 12 months as
a whole being profitable and generating positive operating cash flow. Because of
this, Washington Natural must borrow on a short-term basis to meet its operating
needs for a portion of the year.
The Company has several short-term financing arrangements available currently:
an aggregate of $250 million of commercial paper and similar programs backed by
a committed revolving credit agreement, of which $88 million was unused at
September 30, 1995; an uncommitted bank credit arrangement of $25 million, all
of which was available at year end; and a committed agreement to sell up to
<PAGE> 38
Page 38
$90 million of merchandise and gas receivables, of which $62 million was unused
at year end. The borrowing capacity under the latter agreement is effectively
limited by the availability of receivables to sell. At September 30, 1995, a
time of the year when gas receivable balances are low due to seasonal factors,
all but $11 million of eligible receivables had been sold under the arrangement.
In management's opinion, the Company has sufficient capital resources, both
internal and external, to meet anticipated financing requirements.
Environmental Matters
In management's opinion, based on all known facts and analyses, it is not likely
that environmental liabilities identified to date will result in a material
adverse impact on the Company's or Washington Natural's financial position or
operating results and cash flow trends. (For a description of Environmental
Matters, see Note 10 of Notes to Consolidated Financial Statements.)
Litigation
The Company or Washington Natural is a defendant in several potentially material
lawsuits. Based on prior decisions and known facts in the cases, management does
not believe the cases will, individually or in the aggregate, have a material
impact on the Company or Washington Natural. (See Note 11 of Notes to
Consolidated Financial Statements.)
Significant Balance Sheet Changes
The tax benefits of the 1995 Special Charges were primarily deferred tax
benefits which reduced the noncurrent deferred tax liability by a net $18.5
million from September 30, 1994 to September 30, 1995. The other significant
changes in the Company's balance sheet during 1995 result directly from matters
previously discussed in the foregoing sections of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Future Outlook
(a) Proposed Merger
On October 18, 1995, a definitive agreement was approved by Washington Energy's
and Washington Natural's Boards of Directors to merge Washington Energy and
Washington Natural into Puget, which, as the surviving corporation will be
renamed at the effective time of the merger. The merged company would be the
largest combined electric and gas utility in the state of Washington.
The agreement must be approved by the holders of the common stock of Washington
Energy, the holders of the preferred stock of Washington Natural, and the
holders of the common stock of Puget. In addition, the WUTC, which regulates
both utilities, must approve the merger, and certain other conditions in the
merger agreement must be satisfied or waived. Shareholders of the three
companies will be asked to vote on the merger on March 20, 1996. Regulatory
approval is expected prior to the end of calendar 1996.
The synergies from the merger are expected to generate substantial cost savings
that would not be available absent the merger. Preliminary estimates
<PAGE> 39
Page 39
by the management of Washington Energy and Puget, with the assistance of
Deloitte & Touche LLP, indicate potential savings (after taking into account the
costs incurred to achieve such savings), which could not be achieved but for the
merger, of approximately $370 million over the ten-year period following the
merger.
(b) Expected Improvement in 1996 Earnings
Although the expected timing for completion of the merger precludes realizing
significant benefits from the synergies of the proposed merger with Puget in
1996, other decisions and actions taken over the past eighteen months will have
a favorable impact on the Company's performance in the coming year. First,
operating earnings will benefit from the $17.7 million rate increase approved in
May 1995, which will be in effect for the winter heating season. Operating
earnings could also benefit if weather in the region more closely approximates
long-term historical patterns.
Second, the Company's organizational transformation efforts are expected to
generate approximately $3 million in operating cost savings for the year. Much
of the savings will come from the management reorganization and work- force
reduction which occurred at the end of 1995. Additional savings will be achieved
later in the year as technology improvements are implemented to increase
operational efficiency as well as improve customer service. Certain of the
changes to be implemented involve joint operations with Puget based on
collaborative cost-saving efforts over the past year.
Third, the Company expects profitable utility customer growth of about 4%, or
16,000 to 19,000 new customers. Although the utility's growth rate is expected
to slow, the new customer addition and line extension policy approved in 1995
should facilitate profitable growth by requiring customer contributions or a
rate surcharge for line extensions which do not meet the 9.15% rate-of-return
threshold.
Fourth, the cost-based rate design implemented in May 1995, results in rates
more reflective of the true cost of serving the various classes of customers. In
general, the new rate design decreases rates for transportation and
larger-volume gas sales customers and increases rates for residential and firm
commercial and industrial customers. The new rate design makes Washington
Natural economically indifferent to customer choices between transportation and
sales service since the margin the utility realizes is now essentially the same.
The approval by the WUTC of a contract with The Boeing Company combined with the
new rate design significantly reduces the risk of Boeing and other large
industrial customers bypassing Washington Natural's distribution system by
interconnecting directly with the interstate pipeline. Bypass is now
economically feasible for very few customers.
(c) Common Dividend
In October 1993, the Company's quarterly dividend was lowered from 35 cents to
25 cents. Management does not currently intend to recommend to the Board of
Directors a further cut in the dividend. In management's opinion, the results of
the Company's collaborative approach to regulatory relations over the last two
years (as evidenced by two general rate increases, the cost based rate redesign
and the new customer addition and line extension policy) and the organizational
transformation currently underway (including the redesign of key business
processes and elimination of excess layers of management) have
<PAGE> 40
Page 40
set the stage for future earnings sufficient to support the dividend over the
long term.
<PAGE> 41
Page 41
Item 8. Financial Statements and Supplementary Data
1. Financial Statements:
Washington Energy Company and Subsidiaries
Consolidated balance sheets as of September 30, 1995 and 1994.
Consolidated statements of income for each of the three years in
the period ended September 30, 1995.
Consolidated statements of capitalization as of September 30, 1995
and 1994.
Consolidated statements of shareholders' earnings (deficit)
reinvested in the business and premium on common stock for
each of the three years in the period ended September 30,
1995.
Consolidated statements of cash flows for each of the three years
in the period ended September 30, 1995.
Notes to consolidated financial statements
Washington Natural Gas Company and Subsidiaries
Consolidated balance sheets as of September 30, 1995 and 1994.
Consolidated statements of income for each of the three years in
the period ended September 30, 1995.
Consolidated statements of capitalization as of September 30, 1995
and 1994.
Consolidated statements of shareholder's earnings reinvested in the
business and premium on common stock for each of the three
years in the period ended September 30, 1995.
Consolidated statements of cash flows for each of the three years
in the period ended September 30, 1995.
Notes to consolidated financial statements
2. Supplementary Data (Unaudited):
Consolidated selected quarterly financial data for each of the
three years in the period ended September 30, 1995.
<PAGE> 42
Page 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Washington Energy Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Washington Energy Company (a Washington corporation) and
subsidiaries as of September 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' earnings reinvested in the business, premium
on capital stock and cash flows for each of the three years in the period ended
September 30, 1995, and the accompanying consolidated balance sheets and
statements of capitalization of Washington Natural Gas Company and subsidiaries
as of September 30, 1995 and 1994, and the related consolidated statements of
income, shareholder's earnings reinvested in the business, premium on capital
stock and cash flows for each of the three years in the period ended September
30, 1995. These financial statements and the schedules referred to below are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Washington Energy Company and
subsidiaries and of Washington Natural Gas Company and subsidiaries as of
September 30, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" during
the current year.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in Item 14(a) are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington
October 27, 1995
<PAGE> 43
Page 43
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $1,055,322 $ 977,406
Coal and other 15,621 54,398
Accumulated depreciation, depletion and
amortization (273,735) (249,239)
---------- ----------
Net property, plant and equipment 797,208 782,565
---------- ----------
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 70,313 98,139
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 9,315 5,387
Receivables, net of allowance for
uncollectible accounts of $979 and
$1,295, respectively 10,830 6,533
Unbilled revenue 9,607 9,961
Federal income taxes receivable 10,942 12,134
Deferred income taxes 3,707 4,427
Purchased gas receivable -- 21,261
Materials and supplies, at average cost 31,968 28,069
---------- ----------
Total current assets 76,369 87,772
---------- ----------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental receivables 8,116 33,947
Regulatory tax asset 17,605 18,810
Deferred charges and other 19,879 15,557
---------- ----------
Total other assets and deferred charges 45,600 68,314
----------- ----------
Total assets $ 989,490 $1,036,790
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 44
Page 44
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
CAPITALIZATION (see Consolidated Statements of Capitalization):
Common shareholders' interest $ 196,686 $ 256,800
Redeemable preferred stock of subsidiary 90,000 90,000
Long-term debt 310,060 290,200
---------- ----------
Total capitalization 596,746 637,000
---------- ----------
CURRENT LIABILITIES:
Notes payable and commercial paper 161,994 125,182
Current sinking-fund requirements and debt
maturities 30,140 60,140
Accounts payable 28,177 28,127
Purchased gas liability 15,554 --
Accrued general taxes 12,556 12,044
Environmental remediation liabilities 4,578 6,199
Other current liabilities 33,517 33,105
---------- ----------
Total current liabilities 286,516 264,797
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Noncurrent deferred income taxes 59,450 77,970
Regulatory tax liability 11,017 12,560
Unamortized investment tax credits 9,352 10,132
Contributions in aid of construction 14,252 12,298
Contingency reserves and other 12,157 22,033
---------- ----------
Total deferred credits and other
liabilities 106,228 134,993
---------- ----------
Total capitalization and liabilities $ 989,490 $1,036,790
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 45
Page 45
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Regulated utility sales $420,048 $396,407 $367,853
Merchandise, conservation products
and other 23,563 35,618 71,185
Oil and natural gas operations -- -- 31,354
-------- -------- --------
Total operating revenues 443,611 432,025 470,392
-------- -------- --------
OPERATING EXPENSES:
Cost of gas sold 219,022 223,502 180,893
Operations and maintenance 93,184 118,065 147,116
Depreciation, depletion and
amortization 33,128 30,901 38,274
General taxes 40,974 38,086 38,895
Federal income taxes 5,507 (6,697) 9,645
-------- -------- --------
Total operating expenses 391,815 403,857 414,823
-------- -------- --------
OPERATING INCOME 51,796 28,168 55,569
-------- -------- --------
OTHER INCOME (EXPENSE):
Pre-tax loss on merger of subsidiary -- (6,304) --
Federal income taxes on merger of
subsidiary -- (23,711) --
Pre-tax write-down of coal and rail
investments (40,703) -- --
Pre-tax charges related to
unconsolidated affiliate (24,803) -- --
Deferred tax benefit of write-downs 22,927 -- --
Preferred dividend requirement -
Washington Natural Gas Company (7,126) (3,970) (2,612)
Other, net (2,625) (2,732) 717
-------- -------- --------
Total other income (expense) (52,330) (36,717) (1,895)
-------- -------- --------
GROSS INCOME (LOSS) (534) (8,549) 53,674
INTEREST CHARGES 40,528 36,298 31,639
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (41,062) (44,847) 22,035
DISCONTINUED OPERATIONS:
Loss from operations, net of income tax -- -- (2,570)
Loss on disposal, net of income tax -- (799) (9,818)
-------- -------- --------
NET INCOME (LOSS) (41,062) (45,646) 9,647
DIVIDENDS ON PREFERRED STOCK -- 9 101
EXCESS PREMIUM, PREFERRED REDEMPTION -- 673 --
-------- -------- --------
EARNINGS (LOSS) ON COMMON STOCK $(41,062) $(46,328) $ 9,546
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 46
Page 46
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1995 1994 1993
------- ------- --------
(in thousands,
except per share amounts)
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations $ (1.72) $ (1.94) $ .95
From discontinued operations -- (.03) (.53)
------- ------- -------
EARNINGS (LOSS) PER COMMON SHARE $ (1.72) $ (1.97) $ .42
======= ======= =======
AVERAGE COMMON SHARES OUTSTANDING 23,893 23,486 22,996
======= ======= =======
DIVIDENDS PAID PER COMMON SHARE $ 1.00 $ 1.00 $ 1.40
======= ======= =======
TOTAL COMMON DIVIDENDS DECLARED
based on shares outstanding on
record dates during each period $23,877 $23,468 $32,282
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 47
Page 47
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
Shares Outstanding
at September 30, September 30,
--------------------- ------------------------
1995 1994 1995 1994
------ ------ -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value,
authorized 50,000,000 shares 24,070 23,714 $120,348 $118,568
Premium on common stock 202,616 199,571
Shareholders' accumulated deficit (126,278) (61,339)
-------- --------
Total common shareholders'
interest 196,686 256,800
-------- --------
33%* 40%*
REDEEMABLE PREFERRED STOCK:
Washington Energy Company -
Cumulative; authorized 200,000 shares of $100 par value
and 800,000 shares of $25 par value. No shares
outstanding.
Washington Natural Gas Company -
Cumulative; authorized 1,000,000 shares of $100 par value
and 4,000,000 share of $25 par value
7.45%, Series II, $25 par value 2,400 2,400 60,000 60,000
8.50%, Series III, $25 par value 1,200 1,200 30,000 30,000
-------- --------
Total preferred stock 90,000 90,000
-------- --------
15%* 14%*
</TABLE>
*Percentage of total capitalization.
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 48
Page 48
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Continued)
<TABLE>
<CAPTION>
September 30,
--------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds
9.96% due 1995 $ -- $ 40,000
8.80% called in 1995 -- 25,000
8-1/8% due 1997 3,200 3,340
10-1/4% due 1997, called for early redemption 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured medium-term notes, series A
5.55% and 5.67% due 1995 -- 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% through 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% through 8.40% due 2022 35,000 35,000
Secured medium-term notes, series B
6.23% through 6.31% due 2003 28,000 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
Secured medium-term notes, series C
6.92% and 6.93% due 2005 31,000 --
7.02% and 7.04% due 2007 25,000 --
7.12% due 2010 7,000 --
7.35% and 7.36% due 2015 12,000 --
-------- --------
340,200 350,340
Less sinking-fund requirements and maturities
included in current liabilities (30,140) (60,140)
-------- --------
Total long-term debt 310,060 290,200
-------- --------
52%* 46%*
TOTAL CAPITALIZATION $596,746 $637,000
======== ========
100%* 100%*
</TABLE>
*Percentage of total capitalization.
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 49
Page 49
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EARNINGS (DEFICIT)
REINVESTED IN THE BUSINESS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1995 1994 1993
--------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, at beginning of year $ (61,339) $ 8,457 $ 31,193
Net income (loss) (41,062) (45,646) 9,647
Excess premium, preferred redemption -- (673) --
Dividends declared on capital stock:
Common stock, $1.00, $1.00 and
$1.40 per share, respectively (23,877) (23,468) (32,282)
Preferred stock:
5%, series A -- (3) (26)
6%, series B -- (1) (21)
8-7/8%, series C -- (5) (54)
--------- -------- --------
Balance, at end of year $(126,278) $(61,339) $ 8,457
========= ======== ========
</TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PREMIUM ON COMMON STOCK
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, at beginning of year $199,571 $197,917 $145,075
Excess of proceeds over par value of
common stock issued by public offer-
ing, less expense of sale -- -- 46,543
Excess of cost over par value of
preferred stock reacquired -- (492) --
Excess of purchase price over par
value of shares of common stock
issued under the Dividend Reinvest-
ment and Stock Purchase Plan 2,974 3,848 6,038
Excess of purchase price over par
value of shares of common stock
issued under the Employee Stock
Purchase and Option Plans 239 481 631
Excess of purchase price over par
value of shares of common stock
issued under the Directors' Stock
Bonus Plan 2 2 8
Common and preferred stock expense (170) (2,185) (378)
-------- -------- --------
Balance, at end of year $202,616 $199,571 $197,917
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 50
Page 50
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1995 1994 1993
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities:
Income (loss) from continuing
operations $(41,062) $(44,847) $ 22,035
-------- -------- ---------
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by operating activities:
Pre-tax loss on merger of subsidiary -- 6,304 --
Pre-tax write-down and equity in
undistributed (earnings) losses of
unconsolidated affiliate 27,826 (699) --
Pre-tax write-down of coal and rail
investments 40,703 -- --
Depreciation, depletion and
amortization 33,784 31,293 38,635
Provision for uncollectible
accounts receivable 1,220 2,457 1,613
Increase (decrease) in:
Federal income tax - current (2,515) 561 (8,844)
Federal income tax - deferred (14,873) (23,452) 17,551
Deferred tax on merger of subsidiary -- 24,784 --
Deferred charges (3,493) (13,943) (20,105)
Accounts receivable (5,163) 29,227 (11,304)
Purchased gas adjustment 36,815 2,608 (13,315)
Environmental recoveries
(expenditures), net 24,210 (11,808) (9,315)
Accounts payable 50 23,217 19,575
Materials and supplies (3,899) 11,824 (4,539)
Other assets and liabilities (8,540) (25,963) 8,251
Other (423) 3,071 (3,632)
-------- -------- ---------
Total adjustments 125,702 59,481 14,571
-------- -------- ---------
Net cash provided by operating
activities 84,640 14,634 36,606
-------- -------- ---------
Cash flow provided by (used in) investing activities:
Utility plant additions (87,240) (84,506) (91,275)
Coal, oil and gas and other property
expenditures (1,503) (2,347) (38,211)
Invested in subsidiary prior to merger -- (20,760) --
Proceeds from merger of subsidiary -- 63,661 --
Proceeds from asset dispositions 412 1,260 1,339
-------- -------- ---------
Net cash (used in) investing
activities (88,331) (42,692) (128,147)
-------- -------- ---------
</TABLE>
<PAGE> 51
Page 51
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) financing activities:
Proceeds from issuance of:
Common stock 4,824 6,342 70,528
Preferred stock -- 87,887 --
First mortgage bonds 75,000 -- 77,000
Proceeds from issuance of (reduction of):
Commercial paper, net 36,812 (20,316) 24,388
Bank loans, net -- -- (17,100)
Redemptions and repurchases
Preferred stock -- (23,221) (10,200)
Long-term debt (85,140) (3,340) (9,260)
Cash dividend payments
Common (23,877) (23,468) (32,282)
Preferred -- (9) (101)
-------- -------- --------
Net cash provided by financing
activities 7,619 23,875 102,973
-------- -------- --------
Net cash provided by (used in)
continuing operations 3,928 (4,183) 11,432
Net cash (used in) discontinued
operations, primarily operating
activities -- (3,479) (3,795)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 3,928 (7,662) 7,637
Beginning cash and cash equivalents 5,387 13,049 5,412
-------- -------- --------
Ending cash and cash equivalents $ 9,315 $ 5,387 $ 13,049
======== ======== ========
Supplemental disclosures of
cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 41,792 $ 35,468 $ 30,685
Income taxes $ 3,335 $ 5,180 $ 6,598
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 52
Page 52
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
-----------------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
UTILITY PLANT, at original cost $1,055,322 $ 977,406
Accumulated depreciation (263,664) (239,520)
---------- ----------
Net utility plant 791,658 737,886
---------- ----------
RECEIVABLES FROM AFFILIATED COMPANIES 102 2,020
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 3,571 427
Receivables, net of allowance for
uncollectible accounts of $919 and
$1,252, respectively 7,037 2,847
Unbilled revenue 9,607 9,961
Federal income taxes receivable 1,416 1,416
Deferred income taxes 3,707 4,409
Purchased gas receivable -- 21,261
Materials and supplies, at average cost 29,706 25,360
---------- ---------
Total current assets 55,044 65,681
---------- ---------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental receivables 8,116 33,947
Regulatory tax asset 17,605 18,810
Deferred charges and other 18,073 14,205
---------- ----------
Total other assets and deferred charges 43,794 66,962
---------- ----------
Total assets $ 890,598 $ 872,549
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 53
Page 53
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
CAPITALIZATION (see Consolidated Statements of Capitalization):
Common shareholder's interest $ 251,528 $ 235,988
Redeemable preferred stock 90,000 90,000
Long-term debt 310,060 290,200
---------- ----------
Total capitalization 651,588 616,188
---------- ----------
CURRENT LIABILITIES:
Current sinking-fund requirements
and debt maturities 30,140 60,140
Accounts payable 26,675 24,715
Purchased gas liability 15,554 --
Accrued general taxes 12,381 11,869
Environmental remediation liabilities 4,578 6,199
Other current liabilities 28,536 27,617
---------- ----------
Total current liabilities 117,864 130,540
---------- ----------
PAYABLES TO AFFILIATED COMPANIES 16,699 29,617
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Noncurrent deferred income taxes 69,826 61,214
Regulatory tax liability 11,017 12,560
Unamortized investment tax credits 9,352 10,132
Contributions in aid of construction 14,252 12,298
---------- ----------
Total deferred credits and other liabilities 104,447 96,204
---------- ----------
Total capitalization and liabilities $ 890,598 $ 872,549
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 54
Page 54
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Regulated utility sales $420,048 $396,407 $367,853
Merchandise and conservation
products -- -- 63,210
-------- -------- --------
Total operating revenues 420,048 396,407 431,063
-------- -------- --------
OPERATING EXPENSES:
Cost of gas sold 219,022 223,502 181,157
Utility operations and
maintenance 68,125 81,768 71,578
Merchandise and other operations -- -- 55,801
Depreciation 33,128 30,901 28,183
General taxes 40,729 37,768 35,045
Federal income taxes 8,531 (3,913) 9,410
-------- -------- --------
Total operating expenses 369,535 370,026 381,174
-------- -------- --------
OPERATING INCOME 50,513 26,381 49,889
OTHER INCOME (EXPENSE), net (443) (3,860) (1,036)
-------- -------- --------
GROSS INCOME 50,070 22,521 48,853
INTEREST CHARGES 32,216 30,764 27,082
-------- -------- --------
NET INCOME (LOSS) 17,854 (8,243) 21,771
DIVIDENDS ON PREFERRED STOCK 7,126 3,979 2,720
EXCESS PREMIUM, PREFERRED REDEMPTION -- 798 --
-------- -------- --------
EARNINGS (LOSS) ON COMMON STOCK $ 10,728 $(13,020) $ 19,051
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 55
Page 55
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
Shares Outstanding
at September 30, September 30,
-------------------- --------------------------
1995 1994 1995 1994
------ ------ -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value;
authorized 25,000,000 shares 10,982 10,775 $ 54,911 $ 53,873
Premium on common stock 167,752 163,978
Shareholder's earnings
reinvested in the business 28,865 18,137
-------- --------
Total common shareholder's
interest 251,528 235,988
-------- --------
39%* 38%*
REDEEMABLE PREFERRED STOCK:
Cumulative; authorized 1,000,000
shares of $100 par value and
4,000,000 shares of $25 par
value
7.45%, Series II, $25 par value 2,400 2,400 60,000 60,000
8.50%, Series III, $25 par value 1,200 1,200 30,000 30,000
-------- --------
Total preferred stock 90,000 90,000
-------- --------
14%* 15%*
</TABLE>
*Percentage of total capitalization.
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 56
Page 56
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Continued)
<TABLE>
<CAPTION>
September 30,
-------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds
9.96% due 1995 $ -- $ 40,000
8.80% called in 1995 -- 25,000
8-1/8% due 1997 3,200 3,340
10-1/4% due 1997, called for early redemption 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured medium-term notes, series A
5.55% and 5.67% due 1995 -- 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% through 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% through 8.40% due 2022 35,000 35,000
Secured medium-term notes, series B
6.23% through 6.31% due 2003 28,000 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
Secured medium-term notes, series C
6.92% and 6.93% due 2005 31,000 --
7.02% and 7.04% due 2007 25,000 --
7.12% due 2010 7,000 --
7.35% and 7.36% due 2015 12,000 --
-------- --------
340,200 350,340
Less sinking-fund requirements and maturities
included in current liabilities (30,140) (60,140)
-------- --------
Total long-term debt 310,060 290,200
-------- --------
47%* 47%*
TOTAL CAPITALIZATION $651,588 $616,188
======== ========
100%* 100%*
</TABLE>
*Percentage of total capitalization.
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 57
Page 57
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, at beginning of year $ 18,137 $ 48,094 $ 55,088
Net income (loss) 17,854 (8,243) 21,771
Excess premium, preferred redemption -- (798) --
Dividends declared on capital stock:
Common stock, $-0-, $1.60, and
$2.60 per share, respectively -- (16,937) (26,045)
Cumulative preferred stock:
5%, series A -- (9) (108)
6%, series B -- (13) (154)
8-7/8%, series C -- (23) (271)
8-3/4%, series F -- (22) (437)
8-3/4%, series I -- (88) (1,750)
7.45%, series II (4,470) (3,824) --
8.50%, series III (2,656) -- --
-------- -------- --------
Balance, at end of year $ 28,865 $ 18,137 $ 48,094
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 58
Page 58
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PREMIUM ON COMMON STOCK
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, at beginning of year $163,978 $161,618 $108,186
Excess of proceeds over par value of
common stock issued to parent company,
less expense of sale -- -- 46,714
Excess of cost over par value of
preferred stock reacquired -- (331) --
Excess of purchase price over par value
of shares of common stock issued under
the parent company's Dividend
Reinvestment and Stock Purchase Plan 3,659 4,507 6,651
Excess of purchase price over par value
of shares of common stock issued under
the parent company's Employee Stock
Purchase Plan 288 350 361
Common and preferred stock expense (173) (2,166) (294)
-------- -------- --------
Balance, at end of year $167,752 $163,978 $161,618
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 59
Page 59
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities:
Net income (loss) $ 17,854 $ (8,243) $ 21,771
-------- -------- --------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 33,432 31,293 28,544
Provision for uncollectible
accounts receivable 1,151 2,406 1,610
Increase (decrease) in:
Federal income tax - current -- 573 1,830
Federal income tax - deferred 8,534 (7,480) 12,724
Accounts receivable (4,987) 34,966 (8,290)
Environmental recoveries
(expenditures), net 24,210 (11,808) (9,315)
Purchased gas adjustment 36,815 2,608 (13,315)
Accounts payable 1,960 18,494 21,774
Materials and supplies (4,346) 14,246 (4,643)
Deferred charges (3,038) (12,168) (17,724)
Other assets and liabilities 1,204 (21,910) 1,413
Other -- 2,854 (2,514)
-------- -------- --------
Total adjustments 94,935 54,074 12,094
-------- -------- --------
Net cash provided by operating
activities 112,789 45,831 33,865
-------- -------- --------
Cash flow provided by (used in)
investing activities:
Utility plant additions (87,240) (84,506) (91,275)
Proceeds from disposition of fixed assets 412 1,260 1,339
-------- -------- --------
Net cash (used in) investing
activities (86,828) (83,246) (89,936)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 60
Page 60
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
September 30,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in)
financing activities:
Proceeds from issuance of:
Common stock $ 4,812 $ 6,108 $ 64,023
Preferred stock -- 87,887 --
First mortgage bonds 75,000 -- 77,000
Proceeds from issuance of
(reductions of):
Payables to affiliated companies,
net (11,000) (18,713) (11,250)
Bank loans, net -- -- (17,100)
Redemptions and repurchases:
Preferred stock -- (23,398) (10,300)
Long-term debt (85,140) (3,340) (9,260)
Cash dividend payments:
Common -- (16,937) (26,045)
Preferred (6,489) (3,538) (2,725)
-------- -------- --------
Net cash provided by (used in)
financing activities (22,817) 28,069 64,343
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 3,144 (9,346) 8,272
Beginning cash and cash equivalents 427 9,773 1,501
-------- -------- --------
Ending cash and cash equivalents $ 3,571 $ 427 $ 9,773
======== ======== ========
Supplemental disclosures of cash
flow information
Cash paid during the year for:
Interest (net of amounts
capitalized) $ 33,892 $ 29,836 $ 26,264
Income taxes $ -- $ 2,400 $ 601
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 61
Page 61
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain information, necessary to understand Washington Natural's financial
condition and results of operations, is substantially the same as disclosed by
the Company in this report.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
The consolidated financial statements include the accounts of Washington Energy
Company and its wholly-owned subsidiaries, after elimination of intercompany
items and transactions. The Company's subsidiaries are:
1. Washington Natural Gas Company and its wholly-owned subsidiaries;
2. Washington Energy Services Company;
3. Washington Energy Gas Marketing Company;
4. WECO Finance Company and its wholly-owned subsidiary;
5. Thermal Energy, Inc., and its wholly-owned subsidiary, and
6. ThermRail, Inc.
Due to the May 1994 merger of Resources, previously a wholly-owned subsidiary of
Washington Energy, with a subsidiary of Cabot, the 1994 financial statements
through the date of the merger show Resources' earnings in "Other income
(expense)" using the equity method of accounting. The 1993 financial statements
reflect Resources on a consolidated basis in accordance with generally accepted
accounting principles ("GAAP").
Washington Natural's accounting records are maintained in accordance with GAAP
and with the FERC uniform system of accounts, which has been adopted by the
WUTC.
(b) Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform with the 1995 presentation. The payroll taxes previously included in
"General taxes" are now reported in "Operations and maintenance" expense.
(c) Utility Plant and Depreciation
Utility plant is stated at the original cost of construction. When a depreciable
unit of property is retired, the cost is credited to utility plant and charged
to accumulated depreciation together with the cost of removal, less any salvage.
No gain or loss is recognized upon normal retirement. Substantially all of the
property of Washington Natural is subject to the lien of its first mortgage
bonds.
Provisions for depreciation of utility plant are determined by applying
straight-line rates to the original cost of the various classifications of
property, adjusted for estimated removal cost and salvage. These rates may be
<PAGE> 62
Page 62
adjusted prospectively from time to time based upon revised estimates of the
useful lives, removal costs and salvage of the various classes of assets, with
approval of the WUTC. The average depreciation rate used was approximately 3.5%
for 1995, 3.5% for 1994 and 3.6% for 1993.
(d) Regulatory Assets
Washington Natural defers certain costs that otherwise would be charged to
expense if it is probable that the WUTC will permit future recovery of such
costs. Differences between the actual cost of Washington Natural's gas supplies
and that currently allowed by the WUTC are deferred and recovered or repaid
through the PGA mechanism. Certain income tax deferrals are discussed in Note 2.
The remainder of these costs are included in "Deferred charges and other" in the
financial statements and are amortized and recovered in rates as prescribed by
the WUTC. At September 30, 1995 and 1994, such deferred charges totaled
$4,635,000 and $3,614,000, respectively. Of the year-end 1995 balance,
$2,956,000 was being amortized and recovered in rates, with the remainder
subject to future regulatory review and approval for recovery.
(e) Interest Capitalized
The Company capitalizes the interest costs incurred to finance assets under
construction or development. Interest capitalized relative to utility plant
construction in 1995, 1994, and 1993 was $660,000, $453,000, and $250,000,
respectively. The Company discontinued interest capitalization on its coal
projects in 1994 as the projects have not been actively under development since
1993. Total interest capitalized in 1993 related to the coal projects was
$541,000.
(f) Unbilled Gas Revenues
Washington Natural accrues revenues for gas delivered but not billed to
customers based on estimated usage from the meter reading dates to month end.
(g) Off-System Sales and Capacity Release
Washington Natural has been selling excess gas supplies and entering into gas
supply exchanges with third parties outside of its distribution area since 1992.
Washington Natural began releasing to third parties excess interstate gas
pipeline capacity and gas storage rights on a short-term basis in 1993 and 1994,
respectively. Washington Natural contracts for firm gas supplies and holds firm
transportation and storage capacity sufficient to meet the expected peak winter
demand for gas for space heating by its firm customers. Due to the variability
in weather and other factors, Washington Natural holds contractual rights to gas
supplies and transportation and storage capacity in excess of its immediate
requirements to serve firm customers on its distribution system for much of the
year. The net proceeds from these gas sales, exchanges and releases of capacity
are accounted for as reductions in the cost of purchased gas and passed on to
ratepayers through the PGA mechanism with no impact on net income. As a result,
Washington Natural does not reflect sales revenue or associated cost of sales
for these transactions in its income statement. The net proceeds from these
activities were $7,374,000, $3,997,000 and $838,000 for 1995, 1994 and 1993,
respectively.
<PAGE> 63
Page 63
(h) New Accounting Pronouncements
During 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." See Notes 8 and 13
regarding the charges recorded for the write-down of coal related investments
and Cabot's write-down of its oil and gas producing properties.
SFAS No. 123, "Accounting for Stock-Based Compensation," was recently issued and
is effective for fiscal years beginning after December 15, 1994. SFAS No. 123
encourages, but does not require, companies to account for stock compensation
awards based on their estimated fair value on the grant date. However, if
companies choose not to account for such compensation on a fair value basis,
they are required to disclose in a footnote to the financial statements any
effect on net income had the company recognized expense for such compensation.
The Company has not yet adopted SFAS No. 123, but as indicated in Note 3, due to
the limited number of options granted by the Company on an annual basis, the
amount of compensation expense which would be required to be expensed or
disclosed, is not material.
(2) INCOME TAXES
(a) General
The Company and all of its subsidiaries file a consolidated federal income tax
return. Current and deferred taxes are recorded by each member of the
consolidated group as if each were a stand-alone entity using the consolidated
rate. Under an informal tax sharing arrangement, each member of the group pays
or is paid for the current tax liability or benefit it generates when paid or
realized by the consolidated group.
The Company's consolidated income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Charged (credited) to operations:
Current $ 75 $ (7,291) $ (4,685)
Deferred 6,212 1,375 15,126
Investment tax credit (780) (781) (796)
-------- -------- --------
Total charged (credited) to operations 5,507 (6,697) 9,645
Charged (credited) to other income
and expense, net (24,686) 22,432 51
Charged (credited) to discontinued
operations -- (430) (6,610)
-------- -------- --------
Total income tax expense (benefit) $(19,179) $ 15,305 $ 3,086
======== ======== ========
</TABLE>
The amount credited to "Other income and expense" in 1995 consists primarily of
the deferred taxes associated with the write-downs of the Company's investments
in Cabot and coal-related assets (see Notes 13 and 8). The amount charged to
"Other income (expense)" in 1994 consists primarily of deferred income taxes
provided on the Cabot merger.
<PAGE> 64
Page 64
Washington Natural's consolidated income tax provision is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Charged (credited) to operations:
Current $ 336 $(4,344) $ 2,293
Deferred 8,975 1,212 7,913
Investment tax credit (780) (781) (796)
------- ------- -------
Total charged (credited) to
operations 8,531 (3,913) 9,410
Charged to other income and expense, net (336) (2,078) 137
------- ------- -------
Total income tax expense (benefit) $ 8,195 $(5,991) $ 9,547
======= ======= =======
</TABLE>
On October 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes," which superseded SFAS No. 96, the prior accounting standard for income
taxes the Company had followed since 1988. SFAS Nos. 109 and 96 both prescribe
use of the liability method, whereby deferred tax assets and liabilities are
recognized for temporary differences between the carrying amounts of assets and
liabilities in the financial statements and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates that will be in
effect when the temporary differences are expected to be settled. The effect of
a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period the change is enacted. Adoption of SFAS No. 109 had no
material impact on results of operations. The temporary differences and
associated tax assets and liabilities comprising the Company's consolidated net
deferred tax liability at September 30 are as follows (in thousands):
<PAGE> 65
Page 65
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Deferred tax liabilities:
Property basis and accelerated depreciation $78,521 $ 70,782
Investment in Cabot stock 14,826 19,358
Coal development activities -- 13,101
Environmental remediation 384 384
Regulatory tax asset net of regulatory tax
liability 2,306 2,187
Demand side management costs and other
deferred utility expenses 1,610 1,098
Other 885 4,943
------- --------
Total deferred tax liabilities 98,532 111,853
------- --------
Deferred tax assets:
Net operating loss carry-forwards 18,625 15,453
Alternative minimum tax credits 5,813 5,813
Reserves for future losses 4,255 4,981
Investment tax credit 3,752 3,553
Contributions in aid of construction 3,273 3,546
Coal development activities 956 --
Compensation related differences 2,892 2,030
Other 3,223 2,934
------- --------
Total deferred tax assets 42,789 38,310
------- --------
Net deferred tax liability 55,743 73,543
Less amount classified as current asset 3,707 4,427
------- --------
Net noncurrent deferred tax liability $59,450 $ 77,970
======= ========
</TABLE>
<PAGE> 66
Page 66
The temporary differences and associated tax assets and liabilities comprising
Washington Natural's net deferred tax liability at September 30 are as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Property basis and accelerated depreciation $78,521 $70,782
Environmental remediation 384 384
Regulatory tax asset net of regulatory
tax liability 2,306 2,187
Demand side management costs and other
deferred utility expenses 1,610 1,098
Other 586 1,453
------- -------
Total deferred tax liabilities 83,407 75,904
------- -------
Deferred tax assets:
Net operating loss carry-forwards 3,004 5,332
Alternative minimum tax credits 3,513 3,513
Investment tax credit 3,752 3,553
Contributions in aid of construction 3,273 3,546
Compensation related differences 2,892 2,030
Other deferred tax assets 854 1,125
------- -------
Total deferred tax asset 17,288 19,099
------- -------
Net deferred tax liability 66,119 56,805
Less amount classified as current asset 3,707 4,409
------- -------
Net noncurrent deferred tax liability $69,826 $61,214
======= =======
</TABLE>
The components of consolidated deferred income tax expense for the last year
under which the Company followed SFAS No. 96 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
September
30, 1993
----------
<S> <C>
Included in operating expense:
Tax depreciation $ 4,452
Oil and gas exploration and production activities 5,721
Environmental activities 3,461
Coal and railroad development activities 1,442
Interest capitalized 184
Other (134)
--------
15,126
Included in other income:
Other non-utility activities 51
--------
Total deferred tax provision $ 15,177
========
</TABLE>
<PAGE> 67
Page 67
At September 30, 1995 the following carry-forwards are available to reduce the
Company's future income tax liability (in thousands):
<TABLE>
<CAPTION>
Carry-
forwards Expiration
-------- ----------
<S> <C> <C>
1994 net operating losses $44,152 2009
1995 net operating losses 9,061 2010
-------
Total net operating losses $53,213
=======
Alternative minimum tax credits $ 5,813 Unlimited
=======
</TABLE>
The Company has determined it is more likely than not that the deferred tax
assets will be realized and, therefore, a valuation allowance is not required.
The alternative minimum tax credits can be used in the future to reduce the
Company's regular tax liability in excess of its minimum tax liability.
(b) Flow-Through Accounting
In accordance with a directive from the WUTC, Washington Natural uses
"flow-through accounting," wherein no charge is made currently in the income
statement for certain income tax payments deferred as allowed by the Internal
Revenue Service. However, as required by SFAS No. 109, a deferred tax liability
or asset has been recorded for the amount of income tax payments deferred. A
regulatory tax asset or liability has been recorded to reflect the expected
recovery or refund through adjustment of customers' rates when these taxes
become receivable or payable in future periods. Based on the WUTC's past
decisions and policies, it is management's opinion that the Commission will
allow Washington Natural full recovery in its rates of the increased future tax
expense resulting from the use of this accounting method.
<PAGE> 68
Page 68
(c) Reconciliation of Statutory Income Tax Rate to Effective Rate
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory income tax rate (35.0)% (35.0)% 34.8%
Excess of book over tax depreciation
not deferred 0.8 3.4 2.2
Accelerated benefit on early retirement
of depreciable assets (1.4) (2.8) (2.8)
Tax credit on gas produced from tight
sands formations -- 4.9 (5.1)
Amortization of investment tax credit (1.3) (2.7) (2.5)
Dividends-minority interest 4.1 4.8 2.8
Cabot merger and related reserves -- 83.3 --
Effect of tax rate change from 34% to 35% -- -- 2.8
Provision for tax contingencies 2.0 -- --
Dividends received deduction (1.5) (1.2) --
Other, net .5 (0.6) (1.6)
----- ---- ----
Effective income tax rate (31.8)% 54.1% 30.6%
===== ==== ====
</TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory income tax rate 35.0% (35.0)% 34.8%
Excess of book over tax depreciation
not deferred 1.9 7.0 2.2
Accelerated benefit on early retirement
of depreciable assets (3.2) (5.7) (2.9)
Amortization of investment tax credit (3.0) (5.5) (2.5)
Other, net 0.8 (2.9) (1.1)
---- ----- ----
Effective income tax rate 31.5% (42.1)% 30.5%
==== ===== ====
</TABLE>
The investment tax credit was repealed by Congress in 1986. Credits earned
previously are being credited to income over the lives of the property giving
rise to the credits.
<PAGE> 69
Page 69
(3) COMMON STOCK:
(a) Public Offering of $5 Par Value Common Stock
In October 1992, the Company sold 3,050,000 shares of its common stock to the
public for net proceeds of $61,793,000. Proceeds were used to repay a portion of
the short-term borrowings outstanding at the time of sale.
(b) Employee Stock Purchase Plan
The Company has an employee stock purchase plan, under which options are granted
to eligible employees who elect to participate in the plan. The option price
under the plan is 90% of the fair market value of the common stock at the grant
date, or 100% of the fair market value at the exercise date, whichever is less;
but in no event less than the par value of the common stock. In 1995, 1994 and
1993, 29,773, 27,055 and 21,549 shares, respectively, were issued under the plan
at average prices per share of $13.06, $16.27 and $20.08, respectively, with
average fair market values on the exercise date of $13.06, $16.44 and $22.09,
respectively. At September 30, 1995, 30,509 shares were authorized for future
issuance.
(c) Dividend Reinvestment and Stock Purchase Plan
This plan, available to all holders of record of the Company's common stock,
provides for reinvestment of dividends at 100% of the average of the high and
low prices of Washington Energy's common stock on each dividend payment date.
The plan also provides for the purchase of common stock with optional cash
payments not to exceed $5,000 per quarter at 100% of the average price on the
dividend payment date. During 1995, 1994 and 1993, 324,839, 363,879 and 367,421
shares, respectively, were issued under the plan. At September 30, 1995, there
were 783,669 shares of the Company's common stock authorized but unissued under
this plan.
(d) Performance Share Plan
A performance share plan was established October 1, 1981, which provides for the
annual award of performance units to designated officers and other key
executives, and for payment of the awards to be contingent upon attainment of
future performance objectives of the Company. Generally, under the Company's
current policy, at least 50% of any payments made pursuant to the plan are to be
paid in common stock of the Company and the balance of the payments are to be
paid in cash or shares of common stock. No performance units were awarded under
the plan in 1995 and no such awards are planned for 1996. Due to the losses
sustained in 1994 and 1995, the minimum performance objectives of the plan
relative to performance units outstanding at September 30, 1995, cannot be met.
In the event of a change in control, however, all participants would receive
payment for 100% of outstanding awards. (See Note 18 regarding the proposed
merger with Puget.) The aggregate number of performance units for which such
payments would be made as a result of a change in control prior to September 30,
1996 would be 41,768 units, and subsequent to September 30, 1996, would be
34,155 units.
(e) Stock Option Plans
The previous stock option plan approved by the shareholders in February 1984,
expired September 30, 1993. The Washington Energy Company 1993 Stock Option
<PAGE> 70
Page 70
Plan ("1993 Plan"), was approved by a vote of the Company's shareholders on
February 25, 1994. Under the 1993 Plan, as in the previous plan, options are
offered to executives and key employees to purchase shares of Washington
Energy's common stock at a price of not less than 100% of the market value of
such shares at the time of granting the option. At September 30, 1995 there were
165,763 and 798,860 shares of the Company's common stock authorized but unissued
under the previous plan and the 1993 Plan, respectively.
At the discretion of the Compensation and Benefits Committee of the Board of
Directors, any option granted may include a stock appreciation right ("SAR").
Any optionee exercising a stock option loses the corresponding SAR as to that
option and vice versa. SARs have been granted in tandem with all options
outstanding under the previous plan and the 1993 Plan.
<TABLE>
<CAPTION>
Option Grant Price
-------------------------------------------------------
$20.06 to
$15.06 $21.38 $18.38 $13.38 Total
-------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Options outstanding
at September 30, 1992 13,227 243,366 -- -- 256,593
Options granted at $21.19 -- 109,800 -- -- 109,800
Options exercised (11,127) (35,700) -- -- (46,827)
Options forfeited -- (1,000) -- -- (1,000)
------- -------- ------- ------- --------
Options outstanding
at September 30, 1993 2,100 316,466 -- -- 318,566
Options granted -- -- 110,600 -- 110,600
Options exercised (700) -- -- -- (700)
Options forfeited (1,400) (114,203) -- -- (115,603)
------- -------- ------- ------- --------
Options outstanding
at September 30, 1994 -- 202,263 110,600 -- 312,863
Options granted -- -- 6,300 199,950 206,250
Options exercised -- -- -- (11,500) (11,500)
Options forfeited -- (36,500) (13,000) -- (49,500)
------- -------- ------- ------- --------
Options outstanding
at September 30, 1995 -- 165,763 103,900 188,450 458,113
======= ======== ======= ======= ========
</TABLE>
Unexercised options at September 30, 1995, do not result in a material dilution
of earnings per common share.
(f) Puget Option
In connection with the execution of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 18, 1995, by and among Washington Energy,
Washington Natural and Puget, Washington Energy granted to Puget an option to
purchase up to 19.9% of Washington Energy's common stock at an exercise price of
$20.00 per share (the "Puget Option"). (See Note 18 regarding subsequent
events.) The Puget Option becomes exercisable under certain circumstances if the
Merger Agreement becomes terminable. The Puget
<PAGE> 71
Page 71
Option further provides that in the event the option becomes exercisable, Puget
may require Washington Energy to repurchase the option or any previously
purchased shares acquired under the option at a price based on or derived from
the market price or a subsequent third-party offer on the day of exercise. The
Puget Option terminates on the earlier of 1) the effective time of the merger
under the Merger Agreement, 2) the termination of the Merger Agreement pursuant
to its terms (other than a termination relating to or following certain
specified business combinations), or 3) 180 days following any termination of
the Merger Agreement relating to or following certain specified business
combinations.
(g) Directors' Stock Bonus Plan
The Directors' Stock Bonus Plan was approved by the shareholders in February
1991. The plan provides for annual awards of 200 shares of Washington Energy
common stock to each outside director. Shares are issued relative to these
awards after the director leaves the Board of Directors. The director receives
additional awards equivalent to the dividends reinvested on the awarded but
unissued shares. During 1995, 1994 and 1993, 1400, 1400, and 1800 shares,
respectively, were awarded under the plan. During 1995, 1994 and 1993, 204, 190,
and 382 shares, respectively, were issued under the plan. At September 30, 1995,
8,063 shares were awarded but not issued under the plan.
(h) General
The increase in common equity resulting from issuance of shares under the
various plans described above was $4,825,000 in 1995, $6,342,000 in 1994, and
$8,735,000 in 1993.
(4) DIVIDEND RESTRICTION
There are no restrictions on payment of dividends by the Company, but as a
practical matter, its long-term ability to pay dividends is limited by the
restrictions on dividend payments in the first mortgage bond indentures of
Washington Natural. Washington Natural has not paid dividends to Washington
Natural since April 1994, due to these restrictions. At September 30, 1995,
Washington Natural was restricted from paying dividends to Washington Energy
until its retained earnings increased by more than $12,500,000.
(5) PREFERRED STOCK
On September 15, 1994, Washington Natural sold 1,200,000 shares of 8.50%
cumulative preferred stock, $25 par value, to the public for net proceeds of
$29,105,000. The preferred stock is redeemable on or after September 1, 1999, at
par value and has no sinking-fund requirements.
In November 1993, Washington Natural sold 2,400,000 shares of 7.45% cumulative
preferred stock, $25 par value, to the public following the early redemption of
all its other preferred stock series. The sale netted proceeds to Washington
Natural of $58,782,000. The preferred stock is redeemable on or after November
1, 2003, at par value and has no sinking-fund requirements.
In November 1993, the Company and Washington Natural redeemed early all
previously outstanding preferred stock. A total of 585,480 shares, in five
series, with an aggregate par value of $22,648,000 was redeemed at an average
premium of 2.4%. Washington Natural had previously elected to redeem 170,000
<PAGE> 72
Page 72
shares with an aggregate par value of $5,000,000 through additional, optional,
sinking-fund payments at par value in September 1993.
(6) LONG-TERM DEBT
The total principal amount of Washington Natural's first mortgage bonds
authorized by the indenture dated April 1, 1957, as amended and supplemented is
not limited except as restricted by the provisions of the indenture and except
as may be limited by law.
The Company's sinking fund requirements and long-term debt maturities for the
next five years ending September 30 are: 1996, $30,140,000; 1997, $3,200,000;
1998, $11,000,000; 1999, $10,000,000; and 2000, $25,000,000. The $30,000,000 of
10-1/4% bonds due in 1997 were called early and redeemed without premium in
December 1995. The redemption was funded by the issuance of additional long-term
debt.
(7) OTHER FINANCING ARRANGEMENTS
On March 31, 1995, the Company entered into a new credit agreement with a
lending group composed of nine commercial banks and terminated its prior $150
million revolving credit agreement. The new agreement provides for a committed
revolving credit facility of up to $250 million for a three-year period.
Advances bear interest at one of several, optional, market-based rates. The
agreement requires payment of a commitment fee on the average unused balance of
the facility. The fee is based on the Company's commercial paper rating and is
currently 1/4 of 1% per annum. This credit agreement is utilized primarily to
provide credit support for various uncommitted, short-term financing
arrangements. No advances were outstanding under this facility at September 30,
1995.
The Company has commercial paper programs available through two sources totaling
$250 million. The Company can borrow up to $40 million at commercial paper rates
through a credit program, credit-enhanced by a commercial bank. Aggregate
borrowings under the commercial paper and enhanced credit facilities are limited
to $250 million. At September 30, 1995, $122 million in commercial paper was
outstanding and $40 million was borrowed under the enhanced credit facility.
The Company also has an uncommitted short-term credit arrangement with a
commercial bank whereby it may borrow up to $25 million at short-term market
rates. At September 30, 1995, no borrowings were outstanding under this
arrangement.
Washington Natural has an agreement with Cooperative Receivables Corporation
("CRC") whereby it may sell to CRC up to $90 million principal amount of
undivided interests in merchandise and gas accounts receivable at face value.
With the transfer of the merchandise business to Services in 1994, new
merchandise receivables are no longer being sold to CRC. At September 30, 1995,
$28 million of outstanding merchandise and gas receivables had been sold under
the agreement, which represented all but approximately $11 million of total
receivables eligible to be sold to CRC.
The composite interest rate at September 30, 1995, 1994 and 1993, on outstanding
short-term borrowings, including the impact of certain interest rate swaps
discussed below, was 7.1%, 6.3% and 5.0%, respectively. During the
<PAGE> 73
Page 73
past three years, short-term borrowing levels and average interest rates,
including the impact of certain interest rate swaps described below, were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Maximum outstanding (in millions) $242.4 $174.3 $161.4
Average outstanding (in millions) $130.0 $115.5 $116.5
Weighted average rate 7.7% 6.1% 5.8%
</TABLE>
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating-rate, short-term debt. The two
agreements outstanding at September 30, 1995, effectively change the Company's
interest rate on outstanding commercial paper to 8.59% on a notional principal
amount of $25 million expiring December 28, 1995, and to 9.64% on a notional
principal amount of $16.5 million expiring March 31, 2000.
The Company leases the majority of its motor vehicle fleet, certain computer and
telecommunications equipment and office space at four locations, which are
accounted for as operating leases. Annual rental expense for 1995, 1994 and 1993
was $4,098,000, $4,050,000 and $5,098,000, respectively. Minimum annual lease
payments for the next five years and thereafter are: 1996, $2,756,000; 1997,
$2,151,000; 1998, $1,924,000; 1999, $1,522,000; 2000, $1,465,000; and
thereafter, $18,807,000.
(8) COAL AND RAILROAD PROPERTIES
In the fourth quarter of 1995, the Company wrote down the carrying value of its
coal and railroad properties by $34,700,000 ($22,555,000 after tax) and
$6,000,000 ($3,900,000 after tax), respectively, in conjunction with early
adoption of SFAS No. 121. Based on a mine feasibility study by a mining and
geological consulting firm, the current and expected future coal prices do not
support further expenditures to develop the coal reserves over the next five to
ten years. As a consequence of the determination that the coal reserves are
uneconomical to develop in the foreseeable future, the Company also wrote off
the costs related to planning the railroad necessary to transport coal from the
proposed mine sites to the existing rail line for shipment on to markets in the
Midwest. The carrying value of the coal assets totaled $4,034,000 and
$37,882,000 at September 30, 1995 and 1994, respectively, and the carrying value
of the railroad assets was $0 and $5,584,000 at the respective dates. The
current $4,034,000 carrying value of the coal reserves is the estimated market
value of undeveloped coal reserves in the region based on recent sales. The
railroad assets were written off entirely as they consist of planning,
engineering and permitting costs, all of which are site specific.
The coal properties consist of surface control over and mineral rights to
approximately 270 million tons of recoverable coal reserves in southeastern
Montana and surface control over substantial additional reserves in the area,
owned by Thermal Resources, Inc., a wholly-owned subsidiary of Thermal Energy,
Inc., and subleased to Montco, a 95%-owned partnership formed to develop the
coal properties. The railroad investment consists of an 87.5% partnership
interest in the Tongue River Railroad Company ("TRR"), held by ThermRail, Inc.,
which was formed to develop the railroad to transport Montco's coal to market.
<PAGE> 74
Page 74
Although market conditions do not support current development of these assets,
the Company intends to maintain its investments and to periodically reassess the
viability of further development. Several test burns of the coal by electric
utilities which may be conducted in 1996 or 1997 would better define the quality
of the reserves and the economics of full scale mining operations. TRR is
currently awaiting approval by the Interstate Commerce Commission of a request
to extend the proposed rail line beyond the Montco properties. This would
benefit existing coal shippers by reducing haul distances and would increase the
value and development potential of Montco's coal reserves.
(9) PENSION AND RETIREMENT BENEFITS
The Company has a defined benefit pension plan (the "Plan") for the benefit of
all regular employees who have attained 21 years of age and have completed one
year of service. Benefits are based on annual compensation and length of
service. The Company's policy is to fund the Plan annually at the level
necessary to provide benefits attributable to service to date and for benefits
expected to be earned in the future.
As required by SFAS No. 87, the Company follows the projected unit credit method
for determining pension expense for financial reporting purposes. Application of
this accounting method on October 1, 1987, resulted in a transition gain (excess
of Plan assets over projected benefit obligations) of $14,584,000, which is
being amortized over 18 years. The entry-age normal actuarial cost method
continues to be used for funding purposes.
<PAGE> 75
Page 75
The following tables set forth the Plan's funded status and the pension
liability recognized in the consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations:
Vested $ 39,319 $ 36,828 $ 33,360
Non-vested 599 732 478
-------- -------- --------
Total $ 39,918 $ 37,560 $ 33,838
======== ======== ========
Projected benefit obligations for
service rendered to date $ 49,819 $ 48,279 $ 43,965
Plan assets at fair value, primarily
marketable stocks, bonds and short-
term investments 64,248 57,812 57,414
-------- -------- --------
Plan assets in excess of projected
benefit obligations 14,429 9,533 13,449
Unrecognized amounts:
Prior service cost 1,568 1,717 2,141
Net gains (10,770) (4,683) (7,745)
Net transition gain (8,103) (8,913) (9,723)
-------- -------- --------
Net pension liability included in
the balance sheet $ (2,876) $ (2,346) $ (1,878)
======== ======== ========
Net pension cost includes:
Service cost of benefits earned
during the period $ 2,163 $ 2,577 $ 2,249
Interest cost on projected benefit
obligations 3,568 3,238 2,941
Actual return on Plan assets (8,704) (1,870) (6,891)
Amortization of net transition gains (810) (810) (810)
Unrecognized prior service cost 149 165 165
Amortization of deferred gains (275) (456) (326)
Current asset gain (loss) deferred 4,440 (2,376) 3,054
-------- -------- --------
Net pension cost $ 531 $ 468 $ 382
======== ======== ========
Assumptions used in the calculations:
Weighted-average discount rate 7 1/2% 7 1/2% 7 1/2%
Long-term rate-of-return on assets 7 1/2% 7 1/2% 7 1/2%
Compensation increase 6% 6% 6%
</TABLE>
The Company also has entered into individual contracts with its officers and
those of its subsidiaries to provide pension benefits in addition to those
provided by the Plan. The contracts, collectively referred to as the
supplemental executive retirement contracts ("SERC") provide benefits based on
annual compensation which are payable from general corporate funds. As a
long-term funding mechanism, the Company purchases life insurance policies on
its officers sufficient to pay expected future benefits.
<PAGE> 76
Page 76
In 1994, the Company initially recorded the liability for future benefit
obligations of the SERC and the asset representing the cash surrender value of
life insurance policies purchased to fund the SERC. For accounting and
disclosure purposes, neither the total death benefit from the life insurance
policies of $24,100,000 nor the policies' net cash surrender value of $2,696,000
at September 30, 1995, qualify as plan assets since the proceeds of the policies
are not segregated or formally restricted to funding the SERC.
The following tables set forth the SERC's funded status and the liability
recognized in the consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested $ 4,552 $ 4,005
Non-vested 813 716
------- -------
Total $ 5,365 $ 4,721
======= =======
Projected benefit obligations for
service rendered to date $ 5,365 $ 4,721
Assets segregated for SERC -- --
------- -------
Assets less than projected
benefit obligations (5,365) (4,721)
Unrecognized amounts:
Prior service cost 4,570 4,451
Gains (745) (654)
------- -------
Net pension liability included
in the balance sheet $(1,540) $ (924)
======= =======
Net pension cost includes:
Service cost of benefits earned during
the period $ 254 $ 322
Interest cost on projected benefit
obligations 362 383
Unrecognized prior service cost 248 289
------- -------
Net pension cost $ 864 $ 994
======= =======
Assumptions used in the calculations:
Weighted-average discount rate 7 1/2% 7 1/2%
Compensation increase 4 1/2% 4 1/2%
</TABLE>
The Company does not offer any significant post-retirement benefits other than
pensions.
(10) LIABILITY FOR ENVIRONMENTAL MATTERS
(a) General
The distribution of natural gas by Washington Natural involves certain
controllable environmental risks. Washington Natural conducts its natural gas
<PAGE> 77
Page 77
distribution business using accepted industry practices and procedures.
Washington Natural is not aware of any material environmental exposures related
to its natural gas distribution activities. However, Washington Natural, as the
former operator of, or the successor to a former operator of, several
manufactured gas plants in western Washington prior to 1957, has several
existing environmental exposures and one recently resolved environmental
insurance action.
Former manufactured gas plant sites in the following areas are currently
undergoing investigation, remedial actions or monitoring actions relating to
environmental contamination: 1) the Tideflats area of Tacoma, Washington; 2)
Everett, Washington; 3) Chehalis, Washington and 4) "Gas Works Park" in Seattle.
There is another former manufactured gas plant site situated at 22nd and "A"
Streets in Tacoma, where Washington Natural has incurred costs, primarily for
legal defense, because Washington Natural does not believe that it has
responsibility for remediation costs as discussed in Note 11 regarding the
Washington State Department of Transportation lawsuits. This other site is not
expected to result in a significant liability to Washington Natural.
The financial statements reflect management's estimates of the costs to be
incurred, based on known and available information with regard to the extent of
contamination and the potential methods of cleanup or containment believed to be
feasible, at each site. Washington Natural is continually evaluating the
progress at each site and the cost estimates will be revised, if necessary, as
new information is available. The financial statements reflect receivables for
the expected recoveries from insurance carriers and other third parties of
substantially all of the cleanup costs as discussed in greater detail below.
The following table summarizes total expected costs, the costs incurred and
recorded through September 30, 1995, the expected recoveries from insurance
companies and other parties and the actual recoveries through September 30,
1995, for each of the four sites (in thousands):
<TABLE>
<CAPTION>
Gas Works
Tideflats Everett Chehalis Park
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Estimated total investigation,
legal, remediation, and
financing costs $43,196 $3,250 $2,000 $1,000
Actual costs to date 42,921 314 1,625 8
------- ------ ------ ------
Balance expected to be incurred $ 275 $2,936 $ 375 $ 992
======= ====== ====== ======
Expected recoveries from insurance
companies and other parties $42,666 $3,250 $2,000 $1,000
Actual recoveries to date 40,944 -- -- --
------- ------ ------ ------
Balance expected to be recovered $ 1,722 $3,250 $2,000 $1,000
======= ====== ====== ======
</TABLE>
<PAGE> 78
Page 78
(b) Tideflats
Washington Natural had principal responsibility for the cleanup of a former
manufactured gas plant site in the Tideflats area of Tacoma, Washington, which
the U.S. Environmental Protection Agency ("EPA") determined contained several
contaminants and therefore required cleanup under the Comprehensive
Environmental Response, Compensation and Liability Act.
The remediation activities at the Tideflats site were completed as of July 1995,
and confirmed by the EPA in a letter dated September 28, 1995. The remediation
was completed in accordance with the terms set forth in Washington Natural's
consent decree with the EPA. Monitoring equipment has been installed at the
site. In the future, ongoing monitoring and maintenance costs will be expensed
as incurred and are not estimated to be material.
In June 1991, Washington Natural filed a lawsuit in King County Superior Court,
State of Washington, against certain insurance companies that provided insurance
applicable to the Tideflats site at various times dating back to the 1940s. On
June 10, 1994, the Superior Court entered final judgment in favor of Washington
Natural. Under the terms of the final judgment, Washington Natural was entitled
to collect its present and future uncompensated reasonable and necessary costs
in remediating the site from the policies of certain insurer defendants in the
action. The liability of these defendant insurers was joint and several, up to
the annual limits of their policies, subject to relevant underlying limits. The
final judgment further awarded Washington Natural prejudgment interest and
declared that Washington Natural is entitled to collect its reasonable
attorneys' fees and costs incurred in obtaining coverage of its remediation
costs. The defendants appealed the judgment to the Washington State Court of
Appeals.
During 1995, Washington Natural settled its lawsuit with the insurance carriers
for coverage of the Tideflats remediation costs. In September 1995, Washington
Natural received approximately $29,000,000 in final settlement of all claims
against insurance carriers regarding this site. Washington Natural, as of
September 30, 1995, expects to receive approximately $1,722,000 in equipment
salvage value and reimbursement from another responsible party at the site. As a
result of this settlement, Washington Natural recovered all but $530,000 of the
costs incurred to remediate the Tideflats site. Washington Natural, under an
agreement with the WUTC, will seek recovery in future customer rates of the
remediation costs which are not reimbursed by third parties.
(c) Everett
A remedial investigation study of the Everett site was completed in August 1995.
A feasibility study to determine the appropriate method of remediation or
containment is scheduled for completion in December 1995. Washington Natural
cannot estimate the full extent of future remediation costs at the Everett site
until more information is available from the feasibility study. However, a
reserve for remediation costs of $2,000,000 has been established based on the
preliminary information obtained during the remedial investigation.
The Everett site was previously owned and operated by other companies who are
potentially liable parties ("PLPs") for the remediation of the site. The cost
<PAGE> 79
Page 79
estimate reflects the total cost expected to remediate the site before
contributions by other PLPs.
(d) Chehalis
The Chehalis site has been undergoing investigation and remediation activities
since September 1992. Due to additional contamination found at the site and
complications encountered in the remediation process in 1995, the estimated cost
of the cleanup increased from $200,000 to $2,000,000. As of the fall of 1995,
Washington Natural has completed source control and installed groundwater
monitoring wells. Washington Natural is currently compiling seasonal groundwater
data to determine if further remedial measures are required.
(e) Gas Works Park
Washington Natural sold the site of a former manufactured gas plant at Lake
Union, now known as "Gas Works Park," to the City of Seattle on September 4,
1962. The City of Seattle, in a letter from the Seattle City Attorney dated
February 24, 1995, requested that Washington Natural participate in a cleanup of
this site. The letter also indicated that if Washington Natural does not
participate, the City of Seattle will pursue legal remedies which the City of
Seattle believes are available. Washington Natural believes that the contract,
which sold the land to the City of Seattle, presents substantial defenses
against any claims the City of Seattle may make for environmental remediation
costs, which may be incurred at this site.
To date, the City of Seattle has not formally initiated any legal proceedings
and the course of events at this site cannot be predicted. However, Washington
Natural has met with and has exchanged correspondence with the City of Seattle
seeking a solution to Washington Natural's participation in the cleanup at the
Gas Works Park site. During the fourth quarter of 1995, a reserve for $1,000,000
for the potential resolution of this matter with the City of Seattle was
established. A receivable of $1,000,000 was also established to reflect the
probable recovery of the estimated costs from Washington Natural's insurance
carriers.
(f) Expected Recoveries
Washington Natural's financial statements as of September 30, 1995, include
environmental receivables in the amount of $8,116,000 for recoveries from
insurance carriers, based upon the successful litigation against its insurers
regarding the Tideflats site, and other PLPs. Although the factual situations at
the other sites differ in some respects from the factual situation at the
Tideflats site, Washington Natural believes, based on the precedents established
in the Tideflats case and discussion with legal counsel, that it is probable
that it has insurance coverage sufficient to recover costs not recovered from
other PLPs.
Based on all known facts and analyses, the Company and Washington Natural
believe it is not likely that the identified environmental liabilities will
result in a material adverse impact on the Company's or Washington Natural's
financial position, operating results or cash flow trends.
<PAGE> 80
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(11) LITIGATION
(a) Washington State Department of Transportation Lawsuits
On August 8, 1989, the Washington State Department of Transportation (the
"WDOT") commenced a lawsuit ("Federal Action") in the U.S. District Court,
Western District of Washington ("District Court"), against Washington Natural
and other defendants. The suit sought from Washington Natural and the other
defendants, the recovery of approximately $7 million in costs incurred by the
WDOT in cleaning up contamination at the site of a former manufactured gas plant
which discontinued operations in the early 1900s. The trial court ruled that
WDOT's claim was barred due to its failure to comply with federal law governing
the cleanup of hazardous waste sites, and ordered that judgment be entered in
favor of Washington Natural and the other defendants. The trial court's decision
was affirmed by the United States Court of Appeals for the Ninth Circuit ("Court
of Appeals") on July 13, 1995.
On May 10, 1994, the WDOT filed an action in the state Superior Court for Pierce
County, Washington ("State Action") against Washington Natural and other
defendants arising out of the same occurrence and seeking the same damages as
sought in the Federal Action described above. The State Action alleges a claim
under Washington's Model Toxics Control Act, which was recently amended to allow
a private right of action for cost recovery. The State Action was stayed by
Stipulation and Order dated June 10, 1994 pending the outcome of the Federal
Action. The WDOT has indicated that it would pursue the State Action if the
appeal was denied by the Court of Appeals. If the WDOT pursues the State Action,
Washington Natural intends to mount a vigorous defense on several grounds and
believes that the State Action will not be successful.
(b) Alleged Securities Violations
A class-action lawsuit was filed against Washington Energy and two of its
officers, one of whom has subsequently retired, (collectively, "the Defendants")
in District Court, in February 1994, alleging violations of state and federal
securities act provisions and associated violations of Washington state law. The
essence of the complaint concerned alleged disclosure violations regarding the
nature or the extent of the downside financial risk associated with the 1992
utility rate request filing of Washington Natural. In May 1994, the Defendants
filed a motion to dismiss the lawsuit. Discovery in the case was stayed pending
resolution of this motion and on July 25, 1994, the District Court issued its
Order Granting Defendants' Motion To Dismiss and entered a judgment dismissing
the action. The plaintiffs have appealed to the Court of Appeals; however, in
management's opinion, the District Court's decision should be upheld on appeal.
(c) Alleged Anti-Trust Violations
On September 6, 1994, Cost Management Services, Inc. ("Cost Management"), a
Mercer Island, Washington, company involved in the purchase and resale of
natural gas, filed an action against Washington Natural in District Court. Cost
Management alleged that Washington Natural has monopolized or attempted to
monopolize the market for natural gas in central western Washington. Cost
Management also alleged Washington Natural failed to charge its customers in
accordance with the prices, terms and conditions set forth in tariffs filed by
Washington Natural with the WUTC and that it wrongfully interfered with Cost
<PAGE> 81
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Management's relationships with its customers. Cost Management sought injunctive
relief and damages in an unspecified amount. Washington Natural filed a motion
to dismiss the lawsuit which was granted on May 5, 1995. In dismissing Cost
Management's action the court ruled that the state action doctrine provides
antitrust immunity for conduct done pursuant to a clearly articulated and
actively supervised state policy, where unfettered competition is replaced with
regulation. In dismissing the federal antitrust claims, the court declined to
retain jurisdiction over Cost Management's state law claims which were dismissed
without prejudice. Cost Management has filed an appeal in the Court of Appeals
and it has filed a new lawsuit in Superior Court in King County, which was
stayed pending the District Court appeal. In management's opinion, the District
Court decision should be upheld on appeal and the suit in the Superior Court is
unlikely to succeed.
(d) Appeal of FERC Transition Cost Order
As discussed in more detail at Note 14 regarding commitments and contingencies,
Washington Natural has appealed the order of the FERC which allocates to
Washington Natural an additional liability of $9,767,000 inclusive of interest
as of September 30, 1995 for deregulation transition costs of Pipeline. On
January 31, 1995, Washington Natural filed a suit in U.S. Circuit Court of
Appeals (D.C. Circuit) seeking a rehearing. Since Washington Natural has accrued
this liability and an off setting regulatory asset as part of the purchased gas
adjustment account, there is no financial exposure or potential gain to
Washington Natural. However, Washington Natural believes that the FERC's
transition cost allocation order is inequitable and the appeal seeks to reduce
the transition cost liability which is being passed through to Washington
Natural's customers. Management is not able to predict the outcome of the
appeal; however, if the appeal is successful, Washington Natural will not
directly benefit, as the reduction in cost will be passed on to customers in the
form of lower rates.
(e) Environmental Insurance Litigation
For litigation matters pertaining to Washington Natural's former manufactured
gas plant site in Tacoma, Washington, see Note 10.
(12) 1995 AND 1994 RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1995, Washington Natural recorded a $2.0 million
after-tax charge for severance costs related to a 4% reduction in its work
force, which was initiated during that quarter and completed in the first
quarter of 1996. The work-force reduction, which affected only salaried
employees, was part of Washington Natural's ongoing organizational
transformation initiated in 1994. The severance accrual has been fully utilized
in the first quarter of 1996, although certain severance benefits are being paid
over time based on terms of individual severance agreements. In addition, the
Company recorded a charge of $1,250,000 for federal tax contingencies.
In the third quarter of 1994, the Company recognized $18,308,000 ($11,900,000
after tax) of restructuring and other one-time charges predominantly related to
Washington Natural. Charges totaling $7,097,000 ($4,613,000 after tax) relate to
restructuring and downsizing utility operations and include employee severance
costs and expensing of costs previously capitalized in planning a new
headquarters building that is not currently needed. The employee
<PAGE> 82
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severance charge of $3,500,000 ($2,275,000 after tax) related to a staffing
reduction of 12% from the October 1993 level of 1,480 employees. As of September
30, 1995, $2,371,000 in termination benefits have been paid out with the balance
to be paid in installments subject to the terms of individual severance
agreements.
The 1994 third-quarter charges also included provisions by Washington Natural
for estimated environmental investigation, legal and remediation costs
associated with certain former manufactured gas plant sites and the write-off of
certain deferred costs. These charges totaled $2,231,000 ($1,450,000 after tax).
Washington Natural recorded an additional $3,351,000 ($2,178,000 after tax)
charge related to supplemental executive retirement contracts.
(13) UNCONSOLIDATED OIL AND GAS AFFILIATE
In the fourth quarter of 1995, the Company recorded charges totaling $24,803,000
($16,122,000 after tax) related to the adoption of SFAS No. 121 by Cabot and to
recognize a permanent impairment in the carrying value of the Company's
investment in Cabot. Cabot elected early adoption of SFAS No. 121 and recognized
$113,900,000 of pre-tax impairment losses related to oil and gas producing
properties in its fiscal quarter ended September 30, 1995. Under the equity
method of accounting, the Company recognized its 9.4% share of the impairment
write-down which totaled $6,503,000 after Cabot's income tax provision
($4,227,000 after the Company's tax provision). In addition, the Company
determined that the carrying value of its investment in Cabot was in excess of
the amount which could be realized through Cabot's future earnings. The Company
wrote down its investment in Cabot by an additional $18,300,000 ($11,895,000
after-tax) to a value which approximated the fair market value of the Cabot
securities held by the Company and which remains in excess of the Company's
proportionate interest in Cabot's underlying equity by $7,300,000. Both charges
result primarily from the decline in natural gas prices over the past year and
lower projections of future natural gas prices.
On May 2, 1994, the Company merged its oil and gas exploration and production
subsidiary, Resources, with a wholly-owned subsidiary of Cabot in a tax-free
exchange. The Company received 2,133,000 shares of Cabot Class A common stock,
1,134,000 shares of 6% convertible voting preferred stock of Cabot, stated value
$50, in exchange for all the outstanding capital stock of Resources, in addition
to the repayment of $63,661,000 of intercompany debt. The 1,134,000 shares of
Cabot preferred stock are convertible into 1,972,174 shares of Cabot Class A
common stock and are entitled to the same number of votes on shareholder
matters, making the Company the holder of 16.6% of Cabot's total voting
securities. As part of the transaction, Cabot increased its board of directors
from nine to eleven and appointed two directors nominated by the Company to fill
the new positions. The Company recorded a net loss on the merger of $18,310,000,
after providing for deferred taxes of approximately $32,000,000, and
establishing a reserve of $6,800,000 ($4,420,000 after tax) for a potential
downward purchase price adjustment based on the performance of wells in a
certain field over one year. During the fourth quarter of 1995, the Company
resolved substantially all remaining merger-related issues with Cabot, including
the analysis of well performance, which resulted in an additional charge to
earnings of $503,000 ($327,000 after tax).
<PAGE> 83
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See Note 14 regarding certain gas transportation, storage and other contractual
arrangements of Resources that were retained by a subsidiary of the Company.
The following table details the Company's investment in Cabot at September 30,
1995 and 1994, and earnings and dividends received from the investment during
each year (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Investment in Cabot $ 69,975 $ 97,801
Percentage of total Cabot common 9.4% 9.4%
Percentage of voting interest in Cabot 16.6% 16.6%
Pre-tax income
Preferred dividends accrued $ 3,402 $ 1,418
Equity in (loss) (9,185) (573)
Investment impairment write-down (18,300) --
Dividends received
Preferred 3,402 567
Common 341 171
</TABLE>
At September 30, 1995, the carrying value of the Company's investment in Cabot
exceeded the Company's proportionate interest in the underlying equity of Cabot
by $7,300,000. The Company is amortizing the excess carrying value on a
straight-line basis over a period of 22 years. Based on the closing price on the
NYSE on September 29, 1995, the aggregate fair value of the Company's investment
in Cabot common stock was $29,062,000. No fair value is readily available for
the Cabot preferred stock as it is not publicly traded; however, the fair value
of the Company's shares of Cabot preferred was estimated to be approximately
$40,000,000 at September 30, 1995.
The Company's interest in Cabot's common stock is being accounted for using the
equity method because the Company, through its representation on Cabot's Board,
has the ability to exercise significant influence over operating and financial
policies of Cabot.
(14) COMMITMENTS AND CONTINGENCIES
(a) WEGM Demand Charge and Gas Sales Obligations
WEGM holds firm rights to transport natural gas on the Nova Corporation of
Alberta ("Nova"), Alberta Natural Gas Company ("ANG") and Pacific Gas
Transmission Company ("PGT") pipelines from Alberta, Canada, to the northern
border of California, as well as certain gas storage rights at the Alberta
Energy Company ("AECO") field in Alberta and the Jackson Prairie field in
western Washington. These rights were formerly held by a wholly-owned subsidiary
of Resources but were excluded from the merger of Resources and Cabot completed
in May 1994. Following the merger, WEGM entered into a five-year contract with
IGI Resources ("IGI"), Boise, Idaho, to manage these rights.
The transportation rights on the PGT pipeline consist of approximately 25,000
MMBtu per day of annual capacity and 20,000 MMBtu per day of winter-only
capacity to Stanfield, Oregon, and approximately 20,000 MMBtu per day of annual
capacity to the California border. WEGM holds similar rights on Nova
<PAGE> 84
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and ANG. Effective November 1, 1995, WEGM permanently assigned to IGI all of its
Stanfield capacity. In addition, WEGM has segmented its capacity to California
at Stanfield and permanently assigned 10,000 MMBtu per day of the Alberta to
Stanfield segment to a third party effective November 1, 1995. WEGM's remaining
PGT rights expire in October 2023, and the ANG and Nova rights expire in October
2008, with annual renewal options. The annual obligations for future demand
charges through the primary term of WEGM's gas transportation and storage
contracts are as follows: 1996, $3,987,000; 1997, $3,395,000; 1998, $3,395,000;
1999, $3,395,000; 2000, $3,395,000; and thereafter, $64,966,000.
WEGM entered into a firm 20-year contract with Tenaska Washington Partners II,
L.P. ("Tenaska") to supply approximately 8,000 MMBtu per day of natural gas to
an electricity cogeneration plant being constructed in western Washington. The
plant was to have sold electricity to the Bonneville Power Administration
("BPA") under a firm, long-term contract; however the BPA has unilaterally
canceled the contract. Tenaska has ceased construction of the facility and
initiated a lawsuit to recover damages. WEGM is contractually obligated to
supply the gas for the plant if the plant is in commercial operation prior to
June 30, 1998. However, it appears highly unlikely that this condition will
occur, therefore, WEGM has not secured a supply of gas to meet the contractual
obligation.
IGI's management contract provides for incentive payments based on the
percentage of pipeline demand charges mitigated. Currently, as an expansion
capacity holder, WEGM cannot fully recover its demand charges, which are
approximately 70% higher than those paid by holders of vintage capacity. The
FERC is currently considering a request from PGT for the cost of the expansion
capacity to be "rolled in" with the cost of the vintage capacity to establish a
uniform rate for holders of both types of capacity. If approved, a rolled-in
rate would significantly reduce WEGM's future demand charge obligation.
Settlement discussions are currently underway among PGT and its firm shippers;
however, the outcome and timing of any settlement is uncertain.
In the fourth quarter of 1995, WEGM recorded a $5,000,000 ($3,250,000 after-
tax) charge to increase its reserve for estimated future losses associated with
the transportation and storage commitments to $12,158,000 based on an assessment
of the likelihood and timing of approval of rolled-in rates and actual
mitigation results in 1995. WEGM initially established the reserve with a
$16,000,000 ($10,400,000 after-tax) charge to earnings upon completion of the
merger of Resources and Cabot in May 1994. During 1995 and 1994, pre-tax losses
totaling $5,841,000 and $3,001,000, respectively, were charged against the
reserve. The reserve was increased in 1995 because, in management's opinion, the
current PGT rate settlement discussions have a higher probability of failing
than succeeding. If the settlement attempt fails, the rate request will most
likely be litigated and result in rolled-in rates being phased-in over a period
of five years or more, as recommended by the FERC staff, beginning in calendar
year 1997. If PGT's proposed settlement is approved, the current $12,158,000
reserve balance is likely excessive.
(b) Washington Natural Commitments
Washington Natural has entered into various firm supply, transportation and
storage service contracts in order to assure adequate availability of gas supply
for its firm customers. Many of these contracts, which have remaining terms of
from one to 28 years, provide that Washington Natural must pay a
<PAGE> 85
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fixed demand charge each month, regardless of actual usage. Certain of
Washington Natural's firm gas supply agreements also obligate Washington Natural
to purchase a minimum annual quantity at market-based contract prices.
Generally, if the minimum volumes are not purchased and taken during the year,
Washington Natural is obligated to pay either: 1) a monthly or annual gas
inventory charge calculated as a percentage of the then-current contract
commodity price times the minimum quantity not taken; or 2) pay for gas not
taken. Alternatively, under some of the contracts, the supplier may exercise a
right to reduce its subsequent obligation to provide firm gas to Washington
Natural.
The following tables summarize Washington Natural's obligations for future
demand charges through the primary terms of its existing contracts and the
minimum annual take requirements under the gas supply agreements. The quantified
obligations are based on current contract prices and FERC authorized rates,
which are subject to change.
Demand Charge Obligations (in thousands):
<TABLE>
<CAPTION>
2001 &
There-
1996 1997 1998 1999 2000 after Total
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Firm gas supply $32,960 $32,960 $32,828 $31,840 $28,882 $ 85,379 $244,849
Firm transpor-
tation service 52,594 52,594 52,594 52,594 52,594 264,546 527,516
Firm storage
and peaking
service 8,722 8,722 8,722 8,722 8,722 125,209 168,819
------- ------- ------- ------- ------- -------- --------
Total $94,276 $94,276 $94,144 $93,156 $90,198 $475,134 $941,184
======= ======= ======= ======= ======= ======== ========
</TABLE>
Minimum Annual Take Obligations (in thousands of therms):
<TABLE>
<CAPTION>
2001 &
There-
1996 1997 1998 1999 2000 after Total
------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Firm gas supply 475,394 406,062 296,562 258,237 258,237 762,680 2,457,172
======= ======= ======= ======= ======= ======= =========
</TABLE>
Washington Natural believes that all demand charges will be recoverable in rates
charged to its customers. Further, pursuant to implementation of FERC Order No.
636, Washington Natural has the right to resell or release to others any of its
unutilized gas supply or transportation and storage capacity.
Washington Natural does not anticipate any difficulty in achieving the minimum
annual take obligations shown, as such volumes represent less than 67% of
expected annual sales for 1996 and less than 48% of expected sales for
subsequent years.
Washington Natural's current firm gas supply contracts obligate the suppliers to
provide, in the aggregate, annual volumes up to those shown below:
<PAGE> 86
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Maximum Supply Available Under Current Firm Supply Contracts (in thousands of
therms):
<TABLE>
<CAPTION>
2001 &
There-
1996 1997 1998 1999 2000 after Total
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total 822,675 730,000 584,000 520,125 520,125 1,795,056 4,971,981
======= ======= ======= ======= ======= ========= =========
</TABLE>
(c) Reallocation of Pipeline Transition Costs
In May 1994, Pipeline was ordered by the FERC to modify the previous allocation
of transition costs, totaling $34 million plus interest, incurred in
"unbundling" interstate pipeline services. Under this order, Washington
Natural's share of these costs increased from $1,200,000 previously paid, to
$10,400,000 inclusive of interest as of September 30, 1994. Washington Natural
and six other customers filed requests for rehearing. In September 1994,
Washington Natural recorded a liability of $5,600,000 and an offsetting
regulatory receivable for the same amount to reflect management's opinion of the
outcome of the rehearing process. On December 20, 1994, the FERC issued an order
denying the rehearing requests and permitting Pipeline to bill customers under
the modified allocation methodology. Pending the outcome of the January 31, 1995
appeal to the United States Court of Appeals, Washington Natural made payments
of $4,300,000 in 1995 to Pipeline under a 12-month payment schedule. Washington
Natural increased the recorded liability and the offsetting regulatory
receivable from $5,600,000 to $9,767,000 inclusive of interest as of September
30, 1995. The WUTC has allowed Washington Natural to recover the full amount of
the liability in rates as part of the PGA approved in May 1995.
(15) DISCONTINUED OPERATIONS
In August 1993, the Company decided to seek a buyer for Unisyn, its biowaste
technology business. Accordingly, the consolidated financial statements of the
Company were restated for 1993 and prior years to report Unisyn as a
discontinued operation. In August 1994, the Company sold the stock of its
wholly-owned subsidiaries, Thermal Efficiency, Inc. and Holdings Northwest,
Inc., which jointly owned Unisyn. The 1993 results include a charge to write off
the investment in Unisyn, including estimated losses through the expected
disposal date, of $9,818,000, net of $5,286,000 of taxes. The 1994 results
include an additional loss of $799,000, net of $430,000 of taxes, realized upon
disposition of the two subsidiaries.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
(a) Cash and cash equivalents
Cash and cash equivalents include cash and investments with an original maturity
of less than 90 days. The carrying value approximates fair value because of the
short maturity of these instruments.
<PAGE> 87
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(b) Long-term debt
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
(c) Preferred stock
Prices currently available to the Company for preferred stock with similar terms
and remaining maturities are used to estimate fair value of existing preferred
stock.
(d) Interest rate swap agreements
The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that the Company would receive or pay to terminate each swap
agreement at the reporting date, taking into account current interest rates and
the current credit-worthiness of all the parties to each swap.
The estimated fair values of the Company's financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial liabilities:
Long-term debt $340,200 $ 353,634 $350,340 $ 345,043
Preferred stock $ 90,000 $ 87,900 $ 90,000 $ 79,956
Unrecognized financial
instruments:
Interest rate swaps $ -- $ (2,627) $ -- $ (2,639)
</TABLE>
<PAGE> 88
Page 88
(17) CONSOLIDATED INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1995 1994 1993
--------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Revenue
Natural gas distribution * $ 420,048 $ 396,407 $ 367,853
Merchandise sales * 23,563 35,618 70,265
Oil and natural gas -- -- 31,618
Less intersegment revenue -- -- (264)
Coal and other -- -- 920
--------- ----------- -----------
Total $ 443,611 $ 432,025 $ 470,392
========= =========== ===========
Operating income (loss) before
income taxes
Natural gas distribution $ 59,044 $ 22,467 $ 52,504
Merchandise sales (1,741) (106) 7,945
Oil and natural gas -- -- 7,700
Coal and other -- (890) (2,935)
--------- ----------- -----------
Total $ 57,303 $ 21,471 $ 65,214
========= =========== ===========
Identifiable assets
Natural gas distribution $ 890,496 $ 870,529 $ 829,319
Merchandise sales 4,717 4,094 3,442
Oil and natural gas 69,975 97,801 153,626
Coal and other 24,302 64,366 49,430
--------- ----------- -----------
Total $ 989,490 $ 1,036,790 $ 1,035,817
========= =========== ===========
Capital expenditures
Natural gas distribution $ 87,240 $ 84,506 $ 91,275
Merchandise sales 232 1,182 --
Oil and natural gas -- -- 36,445
Coal and other 1,271 1,165 1,766
--------- ----------- -----------
Total $ 88,743 $ 86,853 $ 129,486
========= =========== ===========
</TABLE>
Washington Energy is engaged principally in natural gas distribution; oil and
natural gas exploration and production through its equity investment in Cabot;
sales of natural gas appliances, security systems, conservation and other
products; and holds investments in coal properties.
* The Company's utility and merchandise sales customers all are located in the
Puget Sound area of Washington state.
<PAGE> 89
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(18) SUBSEQUENT EVENT
Proposed Merger With Puget Sound Power and Light Company
On October 18, 1995, Washington Energy and Washington Natural announced a
definitive agreement to merge with Puget Sound Power and Light Company. The
agreement provides for each common share of Washington Energy to be exchanged
for .860 shares of Puget stock and each share of preferred stock of Washington
Natural to be converted into one share of preferred stock of Puget with like
rights and preferences. The merger agreement is subject to approval by the
common shareholders of Washington Energy and Puget and by the preferred
shareholders of Washington Natural. The shareholder votes are scheduled for
March 20, 1996. In addition, among other conditions the merger must receive
regulatory approval from the WUTC. The approval process is expected to be
completed by the end of calendar 1996.
<PAGE> 90
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(19) SUPPLEMENTARY INCOME INFORMATION
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA
Years Ending September 30, (Unaudited)
Results vary significantly by quarter because operating revenues and earnings
are greatly affected by variations in weather conditions. The three months
ending September 30 have usually been a loss period.
<TABLE>
<CAPTION>
Operating Earnings
Operating Income Net Income (Loss) Per
Revenues (Loss) (Loss) Share++
--------- --------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1995 Quarter:
First $156,245 $ 24,311 $ 13,255 $ .56
Second 157,519 22,710 11,228 .47
Third 78,866 6,673 (5,624) (.26)
Fourth 50,981 (1,898) (59,921) (2.49)
-------- -------- -------- ------
For the year $443,611 $ 51,796 $(41,062) $(1.72)
======== ======== ======== ======
1994 Quarter:
First $146,743 $ 17,919 $ 8,310 $ .33
Second 151,461 16,930 7,446 .32
Third 79,034 (4,043) (48,916) (2.09)
Fourth 54,787 (2,638) (12,486) (.53)
-------- -------- -------- ------
For the year $432,025 $ 28,168 $(45,646) $(1.97)
======== ======== ======== ======
1993 Quarter:
First $136,124 $ 22,778 $ 13,581 $ .60
Second 160,896 24,186 15,563 .67
Third 90,906 7,640 (1,701) (.07)
Fourth 82,466 965 (17,796) (.77)
-------- -------- -------- ------
For the year $470,392 $ 55,569 $ 9,647 $ .42
======== ======== ======== ======
</TABLE>
Certain amounts in the 1994 and 1993 quarterly statements have been
reclassified to conform with the 1995 presentation.
++ Quarterly earnings per share are based upon the average number of common
shares outstanding during each quarter. Because the average number of shares
outstanding increased in each quarter, the sum of quarterly earnings may not
equal earnings per share for the year.
<PAGE> 91
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure: None
PART III
Item 10. Directors and Executive Officers of the Registrants
(a) Directors: (As to Washington Energy and Washington Natural)
<TABLE>
<CAPTION>
Year First
Name, Present Occupation and Elected as
Experience for Past Five Years Age Director
- ---------------------------------------------------------- --- ----------
<S> <C> <C>
Virginia Anderson (2) (3) 48 1991
Director of Seattle Center, a large civic
center owned by the City of Seattle since 1988.
Robert F. Bailey (2) (4) (5) 63 1988
President of Trans Republic Energy, L.P.,
Midland, Texas, an oil and gas investment company
since January 1992 and Mabelle, Inc., Midland,
Texas, an oil and gas production company.
Previously he was President of Alta Energy
Corporation, Midland, Texas, an oil and gas
drilling and production company operating
primarily in the southwestern United States.
Donald J. Covey (1) (2) 67 1982
Chairman of the Board of Directors of UNICO
Properties, Inc., Seattle, Washington, from 1992
until his retirement on December 31, 1994,
Chairman and Chief Executive Officer, 1990 to
1992. UNICO Properties, Inc., manages several
major office buildings in downtown Seattle.
John W. Creighton, Jr. (4) (5) 63 1989
President of Weyerhaeuser Company, Tacoma,
Washington, a forest products company, since
1988.
Robert L. Dryden (3) (4) 62 1991
Executive Vice President, Airplane Production,
Boeing Commercial Airplane Group, Seattle,
Washington, since 1990.
</TABLE>
<PAGE> 92
Page 92
<TABLE>
<S> <C> <C>
Tomio Moriguchi (1) (2) 59 1988
Chairman and Chief Executive Officer of
Uwajimaya, Inc., Seattle, Washington, a food and
merchandise distributor, retailer, and exporter
since December 1994. Previously he served as
President beginning in 1965. President, Town and
Country Travel, Inc., Seattle, Washington, and
President, North American Post Publishing
Company, Seattle, Washington.
Sally G. Narodick (3) (4) 50 1989
Chairman and Chief Executive Officer of Edmark
Corporation, Redmond, Washington, a developer and
publisher of print and software educational
materials, since October 1989.
William P. Vititoe (1) (3) (5) 57 1994
Chairman, Chief Executive Officer and President
of Washington Energy and Washington Natural since
1994. From November 1990 to November 1993, he
served as President and Chief Executive Officer
of American Natural Resources Pipeline Co., a
natural gas pipeline company. From July 1989 to
October 1990, he served as President of Ameritech
Enterprises Group, a diversified
communications company.
</TABLE>
(1) Member of Executive Committee (Chairman is William P. Vititoe)
(2) Member of Audit Committee (Chairman is Donald J. Covey)
(3) Member of Administrative Committee (Chairman is Sally G. Narodick)
(4) Member of Compensation and Benefits Committee (Chairman is John W.
Creighton, Jr.)
(5) Member of Nominating Committee (Chairman is Robert F. Bailey)
Washington Energy directors serve in three classes for staggered terms whereby
only directors in a particular class are elected at each annual meeting of
stockholders. The terms of Bailey, Creighton and Vititoe expire in 1996; those
of Anderson, Moriguchi and Narodick expire in 1997 and those of Covey and Dryden
expire in 1998. Each director has served continuously since the date of his or
her first election as a director of Washington Energy. The next annual meeting
of shareholders is scheduled to be held on March 20, 1996. In case of a vacancy
on the Board of Directors, the remaining directors, by majority vote, may elect
a successor to serve until the next annual meeting of shareholders. In 1994, the
Board of Directors reduced the number of board members from nine to eight upon
the retirement of the prior President of Washington Energy and Washington
Natural. Washington Natural directors are elected annually. There are no family
relationships between any of the directors, or any director and any executive
officer of the Company.
Certain of the directors are also directors of other companies that make
periodic filings with the SEC as follows: Virginia Anderson - Columbia Bank and
U.S. Bank of Washington, a subsidiary of U.S. Bancorp; Robert F. Bailey - Texas
Commerce Bank-Midland and Cabot Oil & Gas Corporation; John W. Creighton, Jr. -
Weyerhaeuser Company, Portland General Corporation, Quality Food Centers, Inc.
and Unocal Corporation; Robert L. Dryden - U.S. Bank of Washington, a subsidiary
of U.S. Bancorp; Tomio Moriguchi - Seafirst Corporation, a subsidiary of the
Bank of America N.T. & S.A.; Sally G. Narodick - Edmark
<PAGE> 93
Page 93
Corporation, Pacific Northwest Bank and Penwest; and William P. Vititoe - Cabot
Oil & Gas Corporation, Comerica Bank and Amerisure Michigan Mutual Insurance
Company.
The full Board met eight times during the year ended September 30, 1995. Each
incumbent director attended more than 75% of the aggregate number of meetings of
the Board and committees on which he or she served.
Board Committees
The Board has a standing Administrative Committee, Audit Committee, Compensation
and Benefits Committee, Executive Committee and Nominating Committee. The Audit
Committee and the Compensation and Benefits Committee consist exclusively of
non-employee directors.
The Administrative Committee is currently composed of Ms. Narodick, Chairman,
Ms. Anderson, Mr. Dryden, Mr. Vititoe and Washington Energy's Chief Financial
Officer, Mr. Torgerson, who serves as a non-director committee member. The
committee is responsible for the administration of the defined contribution and
the defined benefit retirement plans of the Company. The committee met two times
during 1995.
The Audit Committee is currently composed of Mr. Covey, Chairman, Ms. Anderson,
Mr. Bailey, and Mr. Moriguchi. The committee is responsible for oversight of
Washington Energy's and its subsidiaries' corporate accounting practices,
financial reporting process and internal accounting and other financial control
systems. The committee is also responsible for the review of management's
recommendation of independent public accountants. The committee met five times
during 1995.
The Compensation and Benefits Committee currently consists of Mr. Creighton,
Jr., Chairman, Mr. Bailey, Mr. Dryden, and Ms. Narodick. The committee is
responsible for determining appropriate compensation and other benefit measures
for officers of the Company. The committee met five times during 1995.
The Executive Committee currently consists of Mr. Vititoe, Chairman, Mr. Covey
and Mr. Moriguchi. It is authorized to act in lieu of the full Board of
Directors on various matters between board meetings. The committee met one time
during 1995.
The Nominating Committee currently consists of Mr. Bailey, Chairman, Mr.
Creighton, Jr., and Mr. Vititoe. The committee is responsible for the
identification and evaluation of candidates for election to the Board of
Directors. The committee did not meet during 1995.
Any shareholder recommendations for nominations to the Board of Directors for
consideration by the Nominating Committee for the 1997 Annual Meeting should be
sent to Mr. Bailey, Chairman, Nominating Committee, Washington Energy Company,
P.O. Box 1869, Seattle, WA 98111, so as to be received no later than September
15, 1996.
(b) Executive Officers: (As to Washington Energy and Washington Natural)
See data following Item 4 of Part I.
Section 16(a) of the Exchange Act requires the directors and executive officers
of Washington Energy to file reports of ownership and reports of changes in
<PAGE> 94
Page 94
ownership of Washington Energy common stock with the SEC and the NYSE. Directors
and executive officers are also required by SEC regulations to furnish
Washington Energy with copies of all such reports that they file. Based solely
on its review of the copies of such forms received by it, Washington Energy
believes that all filing requirements applicable to its directors and executive
officers were complied with during the year ended September 30, 1995, except for
a failure to timely report non-vested stock options awarded in December 1994 to
all executive officers, which were reported by amendments filed in December
1995.
Item 11. Executive Compensation
The following table shows the total annual and long-term compensation paid by
the Company and its subsidiaries to the persons who, for the year ended
September 30, 1995, were the Chief Executive Officer and the other five most
highly compensated executive officers of the Company or its subsidiaries ("Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- ------------------------------------
Other Securities All
Name Annual Underlying Other Other
and Compen- Options/ Incentive Compen-
Principal Salary Bonus sation SARs Payouts sation
Position Year ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- -------------------- ---- -------- ------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
William P. Vititoe 1995 332,596 45,100 34,386 25,800 -- 6,682
Chairman, Chief 1994 230,423 100,000 78,664 40,000 -- 2,437
Executive Officer 1993 -- -- -- -- -- --
and President
Timothy J. Hogan 1995 114,000 25,700 13,647 7,850 -- 3,420
Executive Vice 1994 99,024 22,500 -- 1,800 14,145 2,970
President, Chief 1993 94,032 4,600 -- 1,800 23,153 2,820
Operating Officer
James P. Torgerson 1995 150,000 15,000 13,647 11,700 -- 4,500
Executive Vice 1994 137,346 23,200 -- 2,600 -- 4,119
President, Chief 1993 133,128 8,000 -- 2,600 19,804 3,994
Administrative and
Financial Officer
Robert J. Tomlinson 1995 145,008 21,800 13,647 7,850 -- 4,350
Sr. Vice President, 1994 136,098 8,000 -- 2,600 -- 3,960
General Counsel and 1993 134,532 6,800 -- 2,600 19,804 3,992
Corporate Secretary
James W. Gustafson 1995 150,000 15,000 13,647 11,700 -- 3,718
Sr. Vice President 1994 137,346 7,200 -- 2,600 -- 4,119
- Operations, 1993 133,128 6,800 -- 2,600 19,804 3,350
Washington Natural
Donald H. Gessel 1995 147,000 12,000 13,647 7,850 -- 4,054
President, 1994 136,596 6,313 -- 2,600 -- 4,098
Washington Energy 1993 133,128 8,900 -- 2,600 19,804 3,817
Services Company
</TABLE>
(1) Mr. Vititoe's 1994 salary reflects service from January 15, 1994. His annual
base salary was $325,000 in 1994.
(2) Incentive compensation is based on performance in the year shown but
determined and paid the following year. For example, bonuses for 1995 are
based on performance in 1995 and are measured and paid in the fourth quarter
of calendar 1995.
<PAGE> 95
Page 95
(3) Mr. Vititoe's "Other Annual Compensation" includes moving expenses and
temporary housing expenses of $22,386 and $75,640 for 1995 and 1994,
respectively. The balance of amounts shown in this column for other
executive officers are car allowances paid.
(4) All options granted to executive officers were in tandem with SARs.
(5) Amounts in the "Other Incentive Payouts" column relate to payments under the
Company's Second Performance Share Plan further described in the Long-Term
Incentive Programs section.
(6) The amounts in this column are the Company contributions to individual
401(k) accounts.
1995 Stock Options/SARs
The following table sets forth the number of stock options/SARs which were
granted to each of the Named Executives during 1995. In addition, the table
provides the present value of the stock options/SARs as of the grant date.
<TABLE>
<CAPTION>
Securities
Underlying % of Grant
Options/ Total Exercise Date
SARS Options or Base Present
Granted Granted to Price Expiration Value
Name (#)(1) Employees ($/Sh) Date ($)(2)
- ------------------- ---------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
William P. Vititoe 25,800 13% 13.375 12/15/04 50,052
Timothy J. Hogan 7,850 4% 13.375 12/15/04 15,229
James P. Torgerson 11,700 6% 13.375 12/15/04 22,698
Robert J. Tomlinson 7,850 4% 13.375 12/15/04 15,229
James W. Gustafson 11,700 6% 13.375 12/15/04 22,698
Donald H. Gessel 7,850 4% 13.375 12/15/04 15,229
</TABLE>
(1) The exercise price of the options is the fair market value of the
Company's stock on the date of the grant. Each option was granted in
tandem with a SAR covering the same number of shares. Any optionee
exercising their stock options loses the corresponding SARs as to those
shares and vice versa. Two separate option grants were made during the
year. Options under one grant vested immediately. Options under the
other grant vest over an approximate four-year period and were awarded
as follows: Mr. Vititoe, 13,300 shares; Mr. Hogan, 5,250 shares; Mr.
Torgerson, 9,100 shares; Mr. Tomlinson, 5,250 shares; Mr. Gustafson,
9,100 shares; and Mr. Gessel, 5,250 shares.
(2) The values shown were calculated using the Black-Scholes option pricing
model. That model is based on arbitrary assumptions regarding variables
such as stock price volatility, future dividend yield, and interest
rates. The actual value that an executive may realize, if any, will
depend on the amount by which the stock price at the time of exercise
exceeds the exercise price, which is the fair market value of the stock
at the time of grant. There is no assurance that any executive will
receive the amounts estimated by the Black-Scholes model.
<PAGE> 96
Page 96
Aggregated Option/SAR Exercises in 1995 and Year-End Option/SAR Values
The following table sets forth information concerning each stock option/SAR
which was exercised during 1995 by each of the Named Executives and the year-end
value of the unexercised stock options/SARs, provided on an aggregated basis.
<TABLE>
<CAPTION>
Value of
Unexercised
Options/SARs at
Year End
Options/ ---------------------
SARs Value Exercis- Unexer- Exercis- Unexer-
Exercised Realized able cisable able cisable
Name (# of shares) ($)(1) (#) (#) ($)(2) ($)(2)
- ------------------- ------------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
William P. Vititoe -- -- 32,500 33,300 46,875 49,875
Timothy J. Hogan -- -- 11,000 5,250 9,750 19,688
James P. Torgerson -- -- 15,600 9,100 9,750 34,125
Robert J. Tomlinson -- -- 15,600 5,250 9,750 19,688
James W. Gustafson -- -- 13,000 9,100 9,750 34,125
Donald H. Gessel -- -- 15,600 5,250 9,750 19,688
</TABLE>
(1) Any amounts presented in this column represent the difference between
the price of the Company's common stock on the date of exercise and the
option/SAR exercise price multiplied by the number of shares.
(2) The value of the unexercised options/SARs is calculated as the excess
of the WECO common stock price of $17.125 over the exercise price
multiplied by the number of options for each grant under which
options/SARs are outstanding.
Long-Term Incentive Programs
The Company has provided long-term performance incentives to the Named
Executives since 1986 through the Second Washington Energy Company Performance
Share Plan ("Plan"). The determination was made in 1994 that the minimum
performance objectives of the Plan could not be met for the years 1994 through
1997 due to the losses sustained in 1994, thereby eliminating the incentive to
perform provided by the Plan. No performance units were granted under the Plan
in 1995.
In December 1994, the Board of Directors approved the Interim Performance Share
Plan ("Interim Plan") to provide a long-term performance incentive for the four
years 1995 through 1998 for all officers of the Company and its subsidiaries.
The Interim Plan provides for cash payments at the end of the performance period
based on the percentage of total units awarded which are earned in each of the
four years and the price of the Company's common stock at the end of the
four-year performance period. Units are earned in each year based on a
comparison of total shareholder return (appreciation in stock price plus
dividends paid) for Company shareholders with that of a peer group of gas LDCs.
The maximum payment a plan participant can receive is equal to the total number
of units awarded multiplied by the Company's stock price at the end of the
four-year performance period. The Compensation and Benefits Committee may
<PAGE> 97
Page 97
elect, at its discretion, to vest any unearned units at the end of the four-year
period based on the total shareholder return for the entire period. Participants
in the Interim Plan must be employed at September 30, 1998, to be eligible for
any payment under the plan, except in the case of retirement, death or
disability. The Interim Plan is not affected by a change in control of the
Company; however, upon change in control, any unexpired awards under the Plan
are payable at the Company's then current stock price.
LONG-TERM INCENTIVE PROGRAM AWARDS IN 1995
<TABLE>
<CAPTION>
Estimated Future
Payouts Under
Non-Stock
Price-Based Plans
---------------------
Units Awarded Units
Beginning of Earned
1995 Period Until to Date Minimum Maximum
Name (#) Payout (#) (#)(1) (#)(2)
- ------------------- ------------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
William P. Vititoe 11,400 4 yrs 1,710 1,710 11,400
Timothy J. Hogan 7,800 4 yrs 1,170 1,170 7,800
James P. Torgerson 7,800 4 yrs 1,170 1,170 7,800
Robert J. Tomlinson 7,800 4 yrs 1,170 1,170 7,800
James W. Gustafson 7,800 4 yrs 1,170 1,170 7,800
Donald H. Gessel 7,800 4 yrs 1,170 1,170 7,800
</TABLE>
(1) Corresponds to the number of units earned since the plan was initiated
for which a cash payment will be made subsequent to the end of the
four-year performance period on September 30, 1998.
(2) Represents the maximum number of units which can be earned over the
four-year performance period for which a payment will be made at the
end of the four-year period.
Supplemental Executive Retirement Contracts
The Company has entered into individual contracts which provide officers,
including the Named Executives, with retirement, death and disability benefits
supplementing the benefits from the Company's defined benefit plan reduced by
Social Security and benefits payable under plans of other, prior employers.
The supplemental contracts provide that each participant will receive retirement
plan payments, primary social security benefits and supplemental plan payments
equal, in the aggregate, to 70% of the participant's average salary during the
highest three years in the eight years preceding the participant's retirement.
It provides payments of annual benefits for life upon retirement from the
Company after reaching age 62 or at the election of the officer, with the
Company's consent, at or after age 59.
Based on a computation using data available at September 30, 1995, the average
annual pension benefit (payable in the form of a joint and 50% survivor annuity
with ten-year term certain) payable by the Company upon retirement at age 62, to
the named executives would be: Mr. Vititoe $223,717; Mr. Hogan, $75,141;
<PAGE> 98
Page 98
Mr. Torgerson, $101,063; Mr. Tomlinson, $98,733; Mr. Gustafson $101,063; and Mr.
Gessel $99,663.
Conditional Employment Agreements in the Event of a Change in Control
The Company has conditional employment agreements with four of its key executive
officers: Messrs. William P. Vititoe, Timothy J. Hogan, James P. Torgerson, and
Robert J. Tomlinson. The employment agreements offer additional security to
these key management personnel to better enable them to function effectively
without distraction in the event that uncertainties as to the future control of
the Company should arise. These agreements provide certain benefits should
employment be terminated other than for cause, or by death, disability or normal
retirement within three years subsequent to a change in control of the Company.
Change in control of the Company includes the acquisition by any person of: 1)
power to exercise a controlling influence over management or policies; 2)
ownership or power to vote 25% or more of the outstanding voting securities of
the Company; or 3) change in the majority of the Board of Directors during the
six-year period subsequent to the acquisition by any person of ownership or
power to vote 10% or more of the outstanding voting securities of the Company
without the approval of the majority of the Board of Directors in office prior
to such acquisition. The benefits to be provided by the Company include: 1) a
cash payment equal to three times the most recent year's annual compensation, or
a cash payment equal to annual compensation until normal retirement date if less
than three years; 2) lump sum payment for amounts calculated under dissolution
of the Performance Share Plan; 3) maintenance of participation in all current
employee benefit plans or provision for substantially similar benefits for a
three-year period or until normal retirement date if sooner; 4) a cash payment
at retirement date equal to the additional retirement compensation to which the
executive would have been entitled had the executive continued in the employ of
the Company for an additional three years or until normal retirement date if
sooner; 5) a cash payment equal to the difference between the exercise prices of
all stock options and the higher of: a) the average of the high and low sales
prices on the date of termination, or b) the highest price actually paid in
connection with the change in control of the Company; and 6) a cash payment
equal to the excise taxes imposed by the Internal Revenue Code Section 4999, if
any, on all payments enumerated in this sentence, plus the tax expense to the
executive resulting from this additional payment. If the executive voluntarily
terminates employment without good reason, as defined in the agreement, no
additional or special benefits accrue to the executive. Since the conditions
specified in the contracts have not occurred, no amounts proposed were charged
to expense by the Company under these agreements in 1995. The merger with Puget
would constitute a change in control.
Compensation of Directors
Each director who is not an officer of the Company and its subsidiaries is paid
a retainer of $8,000 per year, an additional $1,500 per year for serving on the
executive committee or as chairman of another committee of the Board and . each
such director is paid a fee of $600 for attending a regular, special or annual
meeting of the Board or for a committee meeting not held on the same day as a
Board meeting. None of such directors is eligible to participate in any of the
compensation plans described above. The Company also has a Directors' Stock
Bonus Plan which was approved by the shareholders in February 1991. Under this
plan, an outside director is awarded 200 shares of Company common
<PAGE> 99
Page 99
stock in January of each year for service on the Board of Directors for the
prior year. During 1995, 1,400 shares of common stock were awarded under the
plan. The Company pays no additional remuneration to employees of the Company
who are directors.
Independent Accountants and Auditors
The firm of Arthur Andersen LLP has audited the accounts of the Company, and its
subsidiary, Washington Natural, for a number of years and has been selected to
audit the accounts of the Company for the year ending September 30, 1996.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, with the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions submitted in writing to
the Secretary of the Company in advance of the meeting.
Date for Receipt of 1997 Shareholder Proposals
Shareholder proposals intended to be presented at the 1997 Annual Meeting must
be received by the Company no later than September 15, 1996 to be considered for
inclusion in the proxy statement and proxy for the 1997 meeting.
<PAGE> 100
Page 100
Item 12. Security Ownership of Certain Beneficial Owners and Management
Washington Energy Company
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
(stated as of December 8, 1995)
<TABLE>
<CAPTION>
Amount of Percent
Beneficial of Class
Name of Beneficial Owner Ownership (2)
---------------------------- ---------- --------
<S> <C> <C>
Directors:
Virginia Anderson 1,273 --
Robert F. Bailey 4,548 --
Donald J. Covey 6,375 --
John W. Creighton, Jr. 2,499 --
Robert L. Dryden 4,037 --
Tomio Moriguchi 2,190 --
Sally G. Narodick 1,499 --
Named Executive Officers
(*also serve as Directors):
William P. Vititoe* 69,176 (1) --
Timothy J. Hogan 21,892 (1) --
James P. Torgerson 28,684 (1) --
Robert J. Tomlinson 31,825 (1) --
James W. Gustafson 48,767 (1) --
Donald H. Gessel 32,000 (1) --
All directors and
executive officers as
a group (15 persons) 282,671 (1) 1.2%
</TABLE>
(1) Includes unexercised options to acquire shares of common stock pursuant
to the stock option plan as follows: Mr. Vititoe, 65,800 shares; Mr.
Hogan, 16,250 shares; Mr. Torgerson, 24,700 shares; Mr. Tomlinson,
20,850 shares; Mr. Gustafson, 22,100 shares; and Mr. Gessel, 20,850
shares; all directors and executive officers as a group, 194,750
shares.
(2) With respect to each person who has options to acquire common stock,
such options are assumed to be outstanding for the purpose of computing
percentage ownership of that person, but are assumed not to be
outstanding for purposes of computing percentage ownership for any
other person.
Washington Energy is unaware of any person beneficially owning more than 5% of
its common stock.
Washington Natural Gas Company
(a) Washington Energy owns of record 100% of Washington Natural's common stock,
$5 par value, which is the sole voting security.
(b) Holding of equity securities by directors and officers: None.
<PAGE> 101
Page 101
Item 13. Certain Relationships and Related Transactions: None.
<PAGE> 102
Page 102
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The financial statements filed as part of this report are listed on
the index in Item 8.
2. Financial Statement Schedules:
Schedule I -- Condensed Financial Information of Registrant for the
years ended September 30, 1995, 1994 and 1993.
Washington Energy Company
Schedule II -- Valuation and Qualifying accounts for the years ended
September 30, 1995, 1994 and 1993.
Washington Energy Company and Subsidiaries
Washington Natural Gas Company and Subsidiaries
The information required to be submitted in Schedule III has been included in
the financial statements or supporting schedules. Schedules IV and V have been
omitted as they are not applicable or not required.
<PAGE> 103
Page 103
(b) Reports on Form 8-K:
A report on Form 8-K was filed by Washington Energy and Washington Natural
dated August 1, 1995, regarding third-quarter results.
A report on Form 8-K was filed by Washington Energy and Washington Natural
dated August 25, 1995, regarding the appointment of two Executive Vice
Presidents of Washington Energy and Washington Natural and the announced
retirement of a Senior Vice President of Washington Natural.
(c) Exhibits: See Exhibit Index at page 97.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, Washington
Energy hereby undertakes as follows, which undertaking shall be incorporated by
reference into Washington Energy's Registration Statements on Form S-8 Nos.
33-1348, 2-91092, 33-24221, 2-63093 and 33-55381.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Washington Energy pursuant to the foregoing provisions, or otherwise, Washington
Energy has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Washington Energy of expenses incurred or paid by a director, officer or
controlling person of Washington Energy in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, Washington Energy will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-1348, 2-91092, 33-24221, 2-63093, 33-18684,
33-49599, 33-55381 and 33-61859.
ARTHUR ANDERSEN LLP
Seattle, Washington
December 27, 1995
<PAGE> 104
Page 104
Schedule I
WASHINGTON ENERGY COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
----------------------
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
INVESTMENTS IN CONSOLIDATED SUBSIDIARIES:
Washington Natural Gas Company $ 251,521 $ 235,982
Thermal Energy, Inc. (15,625) 8,219
ThermRail, Inc. (3,100) 1,069
WECO Finance Company 2,793 1,545
Washington Energy Gas Marketing (16,544) (13,121)
Washington Energy Services Company (84) 1,106
--------- ---------
Total investments in subsidiaries 218,961 234,800
--------- ---------
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 70,313 98,139
--------- ---------
NOTES AND ACCOUNTS RECEIVABLE FROM SUBSIDIARIES 73,202 62,830
--------- ---------
CURRENT ASSETS:
Other receivables 1,769 1,319
Federal income taxes receivable 3,957 5,409
--------- ---------
Total current assets 5,726 6,728
--------- ---------
DEFERRED CHARGES:
Deferred federal income taxes 2,595 --
Other 378 112
--------- ---------
Total deferred charges 2,973 112
--------- ---------
Total assets $ 371,175 $ 402,609
========= =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' interest $ 196,686 $ 256,800
--------- ---------
NOTES AND ACCOUNTS PAYABLE TO SUBSIDIARIES 11,255 1,854
--------- ---------
CURRENT LIABILITIES:
Checks issued in excess of cash in bank 10 453
Notes payable and commercial paper 161,994 125,182
Accounts payable and accrued interest 1,230 2,636
--------- ---------
Total current liabilities 163,234 128,271
--------- ---------
DEFERRED CREDITS:
Deferred federal income taxes -- 7,884
Contingency reserves -- 7,800
--------- ---------
Total deferred credits -- 15,684
--------- ---------
Total capitalization and liabilities $ 371,175 $ 402,609
========= =========
</TABLE>
<PAGE> 105
Page 105
Schedule I (Continued)
WASHINGTON ENERGY COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C>
EQUITY IN EARNINGS (LOSSES) OF SUBSIDIARIES:
Washington Natural Gas Company,
including cash dividends received
by Washington Energy Company of
$-0- $16,937 and $26,045,
respectively $ 17,854 $ (8,243) $ 21,771
Other subsidiaries (31,378) (13,670) (10,695)
-------- -------- --------
Total equity in earnings (losses)
of subsidiaries (13,524) (21,913) 11,076
OTHER INCOME AND DEDUCTIONS, NET (27,538) (23,733) (1,429)
-------- -------- --------
NET INCOME (LOSS) (41,062) (45,646) 9,647
DIVIDENDS ON PREFERRED STOCK -- 9 101
EXCESS PREMIUM, PREFERRED REDEMPTION -- 673 --
-------- -------- --------
EARNINGS (LOSS) ON COMMON STOCK $(41,062) $(46,328) $ 9,546
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE $ (1.72) $ (1.97) $ .42
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 23,893 23,486 22,996
======== ======== ========
DIVIDENDS PER COMMON SHARE $ 1.00 $ 1.00 $ 1.40
======== ======== ========
</TABLE>
<PAGE> 106
Page 106
Schedule I (Continued)
WASHINGTON ENERGY COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities:
Net income (loss) from continuing
operations $(41,062) $(44,847) $ 22,035
-------- -------- --------
Adjustments to reconcile net income (loss)
from continuing operations to net
cash provided by operating activities:
Pre-tax loss on merger of subsidiary -- 6,304 --
Equity in undistributed (earnings)
losses of unconsolidated affiliate 27,826 (699) --
Undistributed losses of consolidated
subsidiaries 20,649 22,612 14,968
Increase (decrease) in:
Contingency reserves (7,800) 6,262 --
Federal income tax - current 1,452 (4,590) (4,528)
Federal income tax - deferred (10,745) (16,900) --
Deferred tax on merger of
subsidiary -- 24,784 --
Other assets and liabilities (2,296) (611) 1,299
Other -- (2,679) (602)
-------- -------- --------
Total adjustments 29,086 34,483 11,137
-------- -------- --------
Net cash provided by (used in)
operating activities (11,976) (10,364) 33,172
-------- -------- --------
Cash flow provided by (used in) investing
activities:
Dividends received from affiliates -- 16,937 26,045
Investment in affiliates (4,812) (6,620) (95,398)
Loans from (advances to) affiliates (971) 4,823 (22,408)
Invested in subsidiary prior to merger -- (20,760) --
Proceeds from merger of subsidiary -- 63,661 --
-------- -------- --------
Net cash provided by (used
in) investing activities (5,783) 58,041 (91,761)
-------- -------- --------
</TABLE>
<PAGE> 107
Page 107
SCHEDULE I (Continued)
WASHINGTON ENERGY COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30,
--------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) financing activities:
Proceeds from issuance of
common stock $ 4,824 $ 6,342 $ 70,528
Proceeds from issuance (redemption) of
commercial paper, net 36,812 (20,316) 24,388
Redemptions and repurchases of
preferred stock -- (6,747) (149)
Cash dividend payments:
Common (23,877) (23,468) (32,282)
Preferred -- (9) (101)
-------- -------- --------
Net cash provided by (used in)
financing activities 17,759 (44,198) 62,384
-------- -------- --------
Net cash provided by
continuing operations -- 3,479 3,795
Net cash used in discontinued
operations (primarily operating
activities) -- (3,479) (3,795)
-------- -------- --------
Net change in cash -- -- --
Beginning cash and cash
equivalents -- -- --
-------- -------- --------
Ending cash and cash equivalents $ -- $ -- $ --
======== ======== ========
Supplemental disclosures of cash
flow information
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,901 $ 7,283 $ 5,704
Income taxes $ 3,335 $ -- $ 5,136
</TABLE>
<PAGE> 108
Page 108
Schedule II
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Recoveries Written Balance
Balance at Charged of Off as at End
Beginning to Previous Uncollect- of
of Period Income Write-Offs ible Period
---------- ------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
1995:
Allowances for
uncollectible
accounts $1,295 $1,220 $580 $(2,116) $ 979
====== ====== ==== ======= ======
1994:
Allowances for
uncollectible
accounts $ 277 $2,457 $475 $(1,914) $1,295
====== ====== ==== ======= ======
1993:
Allowances for
uncollectible
accounts $ 828 $1,613 $296 $(2,460) $ 277
====== ====== ==== ======= ======
</TABLE>
<PAGE> 109
Page 109
Schedule II
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Recoveries Written Balance
Balance at Charged of Off as at End
Beginning to Previous Uncollect- of
of Period Income Write-Offs ible Period
---------- ------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
1995:
Allowances for
uncollectible
accounts $ 1,252 $ 1,151 $ 578 $ (2,062) $ 919
======= ======= ======= ======== =======
1994:
Allowances for
uncollectible
accounts $ 277 $ 2,406 $ 473 $ (1,904) $ 1,252
======= ======= ======= ======== =======
1993:
Allowances for
uncollectible
accounts $ 303 $ 1,610 $ 296 $(1,932) $ 277
======= ======= ======= ======= =======
</TABLE>
<PAGE> 110
Page 110
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized.
WASHINGTON ENERGY COMPANY and
WASHINGTON NATURAL GAS COMPANY
December 11, 1995 /s/ William P. Vititoe
---------------------------------------------
(William P. Vititoe, Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
================== ============================== ============================
<S> <C> <C>
December 11, 1995 /s/ Virginia Anderson
(all signatures) ------------------------------
(Virginia Anderson) Director
/s/ R. F. Bailey
------------------------------
(R. F. Bailey) Director
/s/ Donald Covey
------------------------------
(Donald Covey) Director
/s/ John W. Creighton, Jr.
------------------------------
(John W. Creighton, Jr.) Director
/s/ Robert L. Dryden
------------------------------
(Robert L. Dryden) Director
/s/ Tomio Moriguchi
------------------------------
(Tomio Moriguchi) Director
/s/ Sally G. Narodick
------------------------------
(Sally G. Narodick) Director
/s/ William P. Vititoe
------------------------------
(William P. Vititoe) Director, Chairman of the
Board, President and Chief
Executive Officer
/s/ J. P. Torgerson
------------------------------
(J. P. Torgerson) Executive Vice President,
Chief Administrative
Officer; the Chief
Financial Officer
/s/ Allyn P. Hebner
------------------------------
(Allyn P. Hebner) Vice President - Finance
and Treasurer; the Chief
Accounting Officer
</TABLE>
<PAGE> 111
Page 111
EXHIBIT INDEX
Certain of the following exhibits are filed herewith. Certain
other of the following exhibits have heretofore been filed with
the Commission and are incorporated herein by reference.
(*Filed herewith)
<TABLE>
<S> <C>
2-A.1 Agreement and Plan of Merger by and among Puget Sound Power &
Light Company, Washington Energy Company and Washington Natural
Gas Company dated as of October 18, 1995 (incorporated herein
by reference to Exhibit 2.1 to Washington Energy
Company/Washington Natural Gas Company Form 8-K dated October
18, 1995, File Nos. 1-11227 and 1- 11271, respectively).
2-A.2 Stock Option Agreement dated as of October 18, 1995 by and
among Puget Sound Power & Light Company and Washington Energy
Company (incorporated herein by reference to Exhibit 2.3 to
Washington Energy Company/Washington Natural Gas Company Form
8-K dated October 18, 1995, File Nos. 1-11227 and 1-11271,
respectively).
4-A Restated Articles of Incorporation of Washington Energy Company
(incorporated herein by reference to Washington Energy Company
Exhibit 3-A, Form 10-Q for the quarter ended June 30, 1988,
File No. 0-8745).
4-A.1 Articles of Amendment to the Articles of Incorporation of
Washington Energy Company, dated March 6, 1990, increasing the
$5 par value common stock to 50,000,000 shares from 25,000,000
shares (incorporated herein by reference to Washington Energy
Company Exhibit 3-A.1, Form 10-K for the year ended September
30, 1990, File No. 0- 8745).
4-A.2 Articles of Amendment to the Articles of Incorporation of
Washington Energy Company dated June 14, 1991, changing the
length of the term of a Director elected to fill a vacancy
(incorporated herein by reference to Washington Energy Company
Exhibit 3-A.2, Form 10-K for the year ended September 30, 1991,
File 0-8745).
4-A.3 Amended and Restated Articles of Incorporation of Washington
Natural Gas Company, dated November 2, 1993 (incorporated
herein by reference to Washington Natural Gas Company Exhibit
4-A.2, Registration No. 33-50919).
4-A.4 Articles of Amendment to Amended and Restated Articles of
Incorporation of Washington Natural Gas Company, dated November
10, 1993 (incorporated herein by reference to Washington
Natural Gas Company Exhibit 4-A.3, Registration No. 33-50919).
4-A.5 Articles of Amendment to Amended and Restated Articles of
Incorporation of Washington Natural Gas Company establishing a
series of Preferred Stock, dated November 18, 1993
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 4-A.5, Form 10-K for the year ended September
30, 1993, File No. 001-1127).
4-A.6 Articles of Amendment to Amended and Restated Articles of
Incorporation of Washington Natural Gas Company establishing a
series of Preferred Stock, dated September 9, 1994
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 4-A.6, Form 10-K for the year ended September
30, 1994, File No. 1-11271).
</TABLE>
<PAGE> 112
Page 112
<TABLE>
<S> <C>
4-B.1 Amended and Restated Bylaws of Washington Energy Company
adopted October 10, 1990 (incorporated herein by reference to
Washington Energy Company Exhibit 3-B.1, Form 10-K for the year
ended September 30, 1990, File No. 0-8745).
4-B.2 Amendment to the Bylaws of Washington Energy Company, adopted
December 12, 1990 (incorporated herein by reference to
Washington Energy Company Exhibit 3-B.2, Form 10-K for the year
ended September 30, 1990, File No. 0-8745).
4-B.3 Amendment to the Bylaws of Washington Energy Company, adopted
April 20, 1994 (incorporated herein by reference to Washington
Natural Gas Company Exhibit 4-B.3, Form 10-K for the year ended
September 30, 1994, File No. 1-11271).
4-B.4 Amendment to the Bylaws of Washington Energy Company, adopted
October 19, 1994 (incorporated herein by reference to
Washington Natural Gas Company Exhibit 4-B.4, Form 10-K for the
year ended September 30, 1994, File No. 1-11271).
4-C.1 Amended and Restated Bylaws of Washington Natural Gas Company
adopted December 14, 1990 (incorporated herein by reference to
Washington Natural Gas Company Exhibit 3-D.1, Form 10-K for the
year ended September 30, 1990, File No. 0-951).
4-C.2 Amendment to the Bylaws of Washington Natural Gas Company
adopted October 19, 1994 (incorporated herein by reference to
Washington Natural Gas Company Exhibit 4-C.2, Form 10-K for the
year ended September 30, 1994, File No. 1-11271).
4-D.1 Indenture of First Mortgage dated as of April 1, 1957
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 4-B, Registration No. 2-14307).
4-D.2 Sixth Supplemental Indenture dated as of August 1, 1966
(incorporated herein by reference to Washington Natural Gas
Company Exhibit to Form 8-K for month of August, 1966, File No.
0-951).
4-D.4 Twelfth Supplemental Indenture dated as of November 1, 1972
(incorporated herein by reference to Washington Natural Gas
Company Exhibit to Form 8-K for November 1972, File No. 0-951).
4-D.5 Seventeenth Supplemental Indenture dated as of August 9, 1978
(incorporated herein by reference to Washington Energy Company
Exhibit 5-K.18, Registration No. 2-64428).
4-D.6 Twenty-third Supplemental Indenture dated as of July 15, 1986
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 4-B.21, Form 10-K for the year ended September
30, 1986, File No. 0-951).
4-D.7 Twenty-sixth Supplemental Indenture dated as of September 1,
1990 (incorporated herein by reference to Washington Natural
Gas Company Exhibit 4-B.19, Form 10-K for the year ended
September 30, 1990, File No. 0-951).
4-D.8 Twenty-seventh Supplemental Indenture dated as of September 1,
1990 (incorporated herein by reference to Washington Natural
Gas Company Exhibit 4-B.20, Form 10-K for the year ended
September 30, 1988, File No. 0-951).
4-D.9 Twenty-eighth Supplemental Indenture dated as of July 31, 1991
(incorporated herein by reference to Washington Natural Gas
Company
</TABLE>
<PAGE> 113
Page 113
<TABLE>
<S> <C>
exhibit 4-A, Form 10-Q for the quarter ended March 31, 1993,
File No. 0-951).
4-D.10 Twenty-ninth Supplemental Indenture dated as of June 1, 1993
(incorporated herein by reference to Exhibit 4-A of Washington
Natural Gas Company's S-3 Registration Statement, Registration
No. 33-49599).
4-D.11 Thirtieth Supplemental Indenture dated as of August 15, 1995
(incorporated herein by reference to Exhibit 4-A of Washington
Natural Gas Company's S-3 Registration Statement, Registration
No. 33-61859).
10-A Service Agreement dated September 1, 1987 between Northwest
Pipeline Corporation and Washington Natural Gas Company for
SGS-1 firm storage service at Jackson Prairie (incorporated
herein by reference to Washington Natural Gas Company Exhibit
10-A Form 10-K for the year ended September 30, 1994, File No.
11271).
10-B Service Agreement dated April 14, 1993 between Questar Pipeline
Corporation and Washington Natural Gas Company for FSS-1 firm
storage service at Clay Basin (incorporated herein by reference
to Washington Natural Gas Company Exhibit 10-B Form 10-K for
the year ended September 30, 1994, File No. 11271).
10-C Service Agreement dated November 1, 1989, with Northwest
Pipeline Corporation covering liquefaction storage gas service
filed under cover of Form SE dated December 27, 1989.
10-D Firm Transportation Service Agreement dated October 1, 1990
between Northwest Pipeline Corporation and Washington Natural
Gas Company (incorporated herein by reference to Washington
Natural Gas Company Exhibit 10-D Form 10-K for the year ended
September 30, 1994, File No. 11271).
10-E Gas Transportation Service Contract dated June 29, 1990,
between Washington Natural Gas Company and Northwest Pipeline
Corporation (incorporated herein by reference to Washington
Natural Gas Company exhibit 4-A Form 10-Q for the quarter ended
March 31, 1993, File No. 0-951).
10-E.1 Gas Transportation Service Contract dated July 31, 1991,
between Washington Natural Gas Company and Northwest Pipeline
Corporation (incorporated herein by reference to Washington
Natural Gas Company exhibit 4-A Form 10-Q for the quarter ended
March 31, 1993, File No. 0-951).
*10-E.2 Amendment to Gas Transportation Service Contract dated July 31,
1991, between Washington Natural Gas Company and Northwest
Pipeline Corporation.
*10-E.3 Gas Transportation Service Contract dated August 15, 1994,
between Washington Natural Gas Company and Northwest Pipeline
Corporation.
*10-E.4 Amendment to Gas Transportation Service Contract dated August
15, 1994, between Washington Natural Gas Company and Northwest
Pipeline Corporation.
*10-F $250,000,000 Credit Agreement dated March 31, 1995, by and
among Washington Energy Company, as Borrower, The First
National Bank of Chicago, Seattle-First National Bank, The
Industrial Bank of Japan, Limited, ABN Amro Bank N.V., Bank of
Montreal, First Interstate Bank of Washington, N.A.,
Nationsbank of Texas, N.A., U.S. Bank of
</TABLE>
<PAGE> 114
Page 114
<TABLE>
<S> <C>
Washington, N.A., and CIBC Inc., as Lenders, and The First
National Bank of Chicago, as Agent.
10-G Intentionally left blank.
*10-H Washington Natural Gas Company Deferred Compensation Plan
effective September 1, 1995.
*l0-I Form of Washington Natural Gas Company - Executive Retirement
Compensation Agreement reflecting all amendments through August
16, 1995.
10-J Second Washington Energy Company Performance Share Plan
(amended and restated effective October 1, 1991) (incorporated
herein by reference to Washington Energy Company Exhibit
10-L.1, Form 10-K, for the year ended September 30, 1991, File
No. 0-8745).
*10-J.2 Washington Energy Company Interim Performance Share Plan
effective December 7, 1994.
10-K.1 Washington Energy Company Stock Option Plan (incorporated
herein by reference to Exhibit 10-C Washington Energy Company
Form 10-Q for the quarter ended March 31, 1984, File No.
0-8745).
10-K.2 Amendment to Washington Energy Company Stock Option Plan
(incorporated herein by reference to Washington Energy Company
Exhibit 10-S, Form 10-K for the year ended September 30, 1986,
File No. 0-8745).
10-K.3 Amendment to Washington Energy Company Stock Option Plan dated
as of February 26, 1988 (incorporated herein by reference to
Washington Energy Company Form S-8, Registration No. 33-24221).
10-K.4 Washington Energy Company Stock Option Plan effective December
15, 1993, (incorporated herein by reference to Washington
Energy Company Exhibit 99, Registration No. 33-55381).
10-L Washington Energy Company Directors Stock Bonus Plan
(incorporated herein by reference to Washington Energy Company
Exhibit 10-O Form 10-K for the year ended September 30, 1990,
File No. 0-8745).
10-M.1 Employment Agreement between Washington Energy Company,
Washington Natural Gas Company and William P. Vititoe dated
January 15, 1994,. (incorporated herein by reference to
Washington Natural Gas Company Exhibit 10-M.1, Form 10-K for
the year ended September 30, 1994, File No. 1-11271).
10-M.2 Form of Conditional Executive Employment Contract, filed under
cover of Form SE dated December 27, 1988, (incorporated herein
by reference to Washington Natural Gas Company Exhibit 10-M.2,
Form 10-K for the year ended September 30, 1994, File No.
1-11271).
*10-M.3 Amended and restated Washington Energy Company and subsidiaries
Annual Incentive Plan for Vice Presidents and above, dated
October 1994.
10-M.4 Agreement dated January 1, 1994, between Washington Energy
Company, Washington Natural Gas Company and Robert R. Golliver
former President and Chief Operating Officer of Washington
Energy Company and Washington Natural Gas Company, providing
for termination benefits (incorporated herein by reference to
Washington Natural Gas Company Exhibit 10-M.4, Form 10-K for
the year ended September 30, 1994, File No. 1-11271).
</TABLE>
<PAGE> 115
Page 115
<TABLE>
<S> <C>
10-M.5 Agreement dated September 30, 1994, between Washington Energy
Company and Keith Anderson, former President of Washington
Energy Resources Company, providing for termination benefits
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 10-M.5, Form 10-K for the year ended September
30, 1994, File No. 1-11271).
10-N Interest Rate Swap Agreement dated September 27, 1989 between
Thermal Resources, Inc., and the First National Bank of
Chicago, filed under cover of Form SE dated December 27, 1989,
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 10-N, Form 10-K for the year ended September
30, 1994, File No. 1-11271).
10-O Firm Transportation Service Agreement dated March 1, 1992
between Northwest Pipeline Corporation and Washington Natural
Gas Company, (incorporated herein by reference to Washington
Natural Gas Company Exhibit 10-O, Form 10-K for the year ended
September 30, 1994, File No. 1-11271).
10-P Firm Transportation Service Agreement dated January 12, 1994
between Northwest Pipeline Corporation and Washington Natural
Gas Company for firm transportation service from Jackson
Prairie, (incorporated herein by reference to Washington
Natural Gas Company Exhibit 10-P, Form 10-K for the year ended
September 30, 1994, File No. 1-11271).
10-Q Firm Transportation Service Agreement dated January 12, 1994
between Northwest Pipeline Corporation and Washington Natural
Gas Company for firm transportation service from Jackson
Prairie, (incorporated herein by reference to Washington
Natural Gas Company Exhibit 10-Q, Form 10-K for the year ended
September 30, 1994, File No. 1-11271).
10-R Firm Transportation Service Agreement dated January 12, 1994
between Northwest Pipeline Corporation and Washington Natural
Gas Company for firm transportation service from Plymouth, LNG,
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 10-R, Form 10-K for the year ended September
30, 1994, File No. 1-11271).
10-S Service Agreement dated July 9, 1991 with Northwest Pipeline
Corporation for SGS-2F Storage Service filed under cover of
Form SE dated December 23, 1991, (incorporated herein by
reference to Washington Natural Gas Company Exhibit 10-S, Form
10-K for the year ended September 30, 1994, File No. 1-11271).
10-T Firm Transportation Agreement dated October 27, 1993 between
Pacific Gas Transmission Company and Washington Natural Gas
Company for firm transportation service from Kingsgate,
(incorporated herein by reference to Washington Natural Gas
Company Exhibit 10-T, Form 10-K for the year ended September
30, 1994, File No. 1-11271).
10-U Firm Storage Service Agreement and Amendment dated April 30,
1991 between Questar Pipeline Company and Washington Natural
Gas Company for firm storage service at Clay Basin filed under
cover of Form SE dated December 23, 1991.
10-V Interest Rate and Currency Exchange Agreement dated as of
December 26, 1990 applicable to the Interest Rate Swap between
Bank of America and Washington Energy Corporation filed under
cover of Form SE dated December 23, 1991.
10-X.1 Interest Rate Swap Agreement dated as of August 19, 1991
between Washington Natural Gas Company and the First National
Bank of Chicago filed under cover of Form SE dated December 23,
1991.
</TABLE>
<PAGE> 116
Page 116
<TABLE>
<S> <C>
*12 Computation of Ratios
*21 Subsidiaries of the Registrant
*23 Consent of Arthur Andersen LLP
(Set forth herein on page 103).
*27.1 Financial Data Schedule - Washington Energy Company
*27.2 Financial Data Schedule - Washington Natural Gas Company
</TABLE>
<PAGE> 1
Exhibit 10-E.2
AMENDMENT
THIS AMENDMENT is entered into as of the 1st day of November, 1995, by
and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as
"Transporter", and WASHINGTON NATURAL GAS COMPANY, hereinafter referred to as
"Shipper".
RECITALS:
A. Transporter and Shipper are parties to that certain firm
Transportation Agreement (#F-09) dated July 31, 1991 ("Agreement").
B. Transporter and Shipper have entered into various amendments which
were effective upon the inservice date of the upgrade to various meter stations
and/or the inservice date of new meter stations.
C. Transporter and Shipper desire to enter into this Amendment to update
the Agreement to reflect receipt and delivery points and volumes on Exhibits
"A" and "B" effective and inservice as of November 1, 1995.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. Exhibits "A" and "B" of the Agreement shall be deleted in
their entirety and the attached Exhibits "A" and "B" to this Amendment shall be
added to and made a part of the Agreement, effective November 1, 1995, subject
to the Federal Energy Regulatory Commission's approval of any necessary tariff
waiver.
2. The attached Exhibit "A" shall remain in full force and
effect until superseded. Shipper will execute an amendment to Exhibit "A" to
reassign the 38,177 MDQ's reallocated from Receipt Points north of the Green
River Compressor Station by the attached Exhibit "A" back to an available
Receipt Point(s) effective October 1, 1996.
3. Except as amended herein, the Agreement shall remain in full
force and effect.
4. This Amendment shall be binding upon and inure to the benefit
of the parties hereto and any successors or assigns of such parties.
5. This Amendment may be executed in any number of counterparts.
IN WITNESS WHEREOF, the parties hereto have executed two duplicate
original copies of this Amendment as of the date and year first written above.
NORTHWEST PIPELINE CORPORATION
By Joe H. Fields
------------------------------
Joe H. Fields
Attorney-In-Fact
ATTEST: WASHINGTON NATURAL GAS COMPANY
By xxxxxxxxxx By John F. Stefani
----------------------------- ------------------------------
Title: General Manager Name: John F. Stefani
Gas Supply & Pipeline Svcs. Title: VP, Gas Supply & Ind. Svcs.
<PAGE> 2
EXHIBIT "A"
to the
TRANSPORTATION AGREEMENT ("F-09")
Dated July 31, 1991
(As Amended Effective November 1, 1995)
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
RECEIPT POINTS
<TABLE>
<CAPTION>
Maximum Daily
Receipt Points Quantity ("MDQ")(1)
- -------------- ----------------
<S> <C>
Sumas 77,875
Blanco Hub (56498) Transwestern 14,164
Blanco (INWPLBLA) 14,775
Clay Basin 49,115
Green River Gathering 12,000
Starr Road 75,936
Westgas Arkansas 44,438
-------
Total: 288,303
</TABLE>
(1) The total of the MDQ's must equal total transportation contract demand as
set forth in Section 1.1
- 2 -
<PAGE> 3
EXHIBIT "B"
to the
TRANSPORTATION AGREEMENT ("F-09")
DATED July 31, 1991
(As Amended November 1, 1995)
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
DELIVERY POINTS
<TABLE>
<CAPTION>
Maximum Daily
Delivery Obligation
("MDDO")
Primary for each Delivery
Delivery Point Delivery Point Pressure
- -------------- -------------- --------
(MMBtu) (psig)
<S> <C> <C>
Bartelheimer Dairy 233 150
Bethel School 9,990 150
Black Diamond 2,830 400
Centrailia/Chehalis 6,100 400
Chehalis Rural Tap 0 150
Covington/Lake Wilderness 4,100 300
Duvall-Cottage Lake 5,000 150
East Auburn/Cameron Village 50 150
Echo Lake Tap 700 150
Evergreen Shores 1,000 350
Fredrickson 1 300
Gold Bar * 1 0
Granite Falls 8,820 250
Issaquah 28,850 260
Lake Francis 4,755 150
Lake Stevens 1,666 150
Little Rock Farm Tap 1,140 150
Maple Heights 750 200
McMillan Farm Tap 0 150
Monroe WA 1,196 150
North Bend/Snolqualmie 10,250 400
North Seattle/Everett 83,600 400
North Tacoma 80,700 260
Olympia 13,400 400
Rainier/Puyallup 5,020 200
Rainier 150 400
Redmond 28,876 400
Snohomish 1,930 150
</TABLE>
- 3 -
<PAGE> 4
EXHIBIT "B"
to the
TRANSPORTATION AGREEMENT ("F-09")
DATED July 31, 1991
(As Amended November 1, 1995)
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
DELIVERY POINTS CONT.
<TABLE>
<CAPTION>
Maximum Daily
Delivery Obligation
("MDDO")
Primary for each Delivery
Delivery Point Delivery Point Pressure
- -------------- -------------- --------
(MMBtu) (psig)
<S> <C> <C>
South Seattle 48,000 260
South Tacoma 26,640 400
Startup* 1 0
Sultan* 1 0
Toledo 400 400
Winlock 400 400
Yelm WA 700 400
TOTAL 377,250
</TABLE>
* Measurement for these delivery points presently occurs at the Monroe delivery
point.
- 4 -
<PAGE> 1
Exhibit 10-E.3
TRANSPORTATION AGREEMENT
(Applicable to Rate Schedule TF-1)
THIS AGREEMENT is made and entered into this 15th day of August, 1994,
by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as
"Transporter", and WASHINGTON NATURAL GAS COMPANY, hereinafter referred to as
"Shipper".
RECITALS:
A. Shipper is a local distribution company for natural gas.
B. Shipper owns certain supplies of natural gas which it desires
Transporter to transport for Shipper's account.
C. Shipper and Transporter are parties to those certain Facilities
Agreements dated March 25, 1994 which provide for construction of the Machias,
May Valley and North Puyallup meter stations.
D. Transporter and Shipper are parties to an Amendment to Shipper's firm
replacement Transportation Agreement dated July 31, 1991 ("F-09") to reduce the
Transportation Contract Demand by 5,400 MMBtu's/day and reduce the Ignacio
Plant receipt point volume on Exhibit "A" by 5,400 MMBtu's/day.
E. The parties desire to enter into this firm Transportation Agreement
("Agreement") to provide for the transfer of the 5,400 MMBtu's/day of
Transportation Contract Demand and the Ignacio Plant receipt point volumes from
F-09 and provide new MDDO's under Exhibit "B" of the Agreement pursuant to the
construction of the Machias, May Valley and North Puyallup meter stations.
F. By signing and returning this document to Transporter, Shipper has
made a complete written request to Transporter for the transportation service
described herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
ARTICLE I - GAS DELIVERIES AND REDELIVERIES
1.1 Subject to the terms, conditions and limitations hereof,
Transporter agrees to receive from Shipper at the Receipt Point(s) specified in
Exhibit(s) "A" (and/or "T") herein, transport and deliver to Shipper at the
Delivery Point(s) specified in Exhibit(s) "B" (and/or "T") herein, the
following quantities of natural gas, known as Transportation Contract Demand:
<PAGE> 2
Up to "--"1/ MMBtu's/day, as Modified by Exhibit "T" hereto provided
that Transporter's receipt of gas at any receipt point for Shipper's account
hereunder on any day shall not exceed the Maximum Daily Quantity ("MDQ") set
forth for such receipt point on Exhibit "A" hereto as modified by Exhibit "T",
and provided that Transporter's daily obligation to deliver gas to Shipper at
any delivery point under this Agreement shall not exceed the Maximum Daily
Delivery Obligation ("MDDO") set forth on Exhibit "B" of this Agreement as
modified by Exhibit "T". These MDQ and MDDO limitations apply only to primary
point volumes and not to alternate point volumes.
1.2 Fuel gas shall be provided in-kind as specified in Rate
Schedule TF-1 and in the General Terms and Conditions of this Federal Energy
Regulatory Commission ("FERC") Gas Tariff.
1.3 Such transportation shall be on a firm basis.
ARTICLE II - TRANSPORTATION RATES AND CHARGES
2.1 (a) Shipper agrees to pay Transporter for all natural gas
transportation service rendered under the terms of this
Agreement in accordance with Transporter's Rate Schedule TF-1
Large Customer as filed with the FERC, and as such rate
schedule may be amended or superseded from time to time.
(b) (Reserved for rate adjustments made pursuant to
Section 3.4 or 3.5 of Rate Schedule TF-1.)
2.2 This Agreement shall be subject to the provisions of such Rate
Schedule and the General Terms and Conditions applicable thereto (and as they
may be amended by Article VIII of this Agreement) and effective from time to
time, which by this reference are incorporated herein and made a part hereof.
ARTICLE III - GOVERNMENTAL REQUIREMENTS
3.1 Shipper shall reimburse Transporter for any and all filing
fees to be incurred by Transporter in seeking governmental authorization for
the initiation, extension or termination of service under this Agreement.
3.2 The transportation service contemplated herein shall be
provided by Transporter pursuant to Section 284.223 of the FERC's regulations.
1/ The total Transportation Contract Demand ultimately shall be 5,400
MMBtu's/day; however, such Transportation Contract Demand shall be implemented
in increments of 817 MMBtu's/day (Machias), 1,250 MMBtu's/day (May Valley),
3,333 MMBtu's/day (North Puyallup), with each such increment effective upon the
respective inservice date of the corresponding meter station.
2
<PAGE> 3
3.3 Upon termination, this Agreement shall cease to have any
force or offset, save as to any unsatisfied obligations or liabilities of
either party arising hereunder prior to the date of such termination, or
arising thereafter as a result of such termination. Provided, however that
this provision shall not supersede any abandonment authorization which may
be required.
3.4 (Section 3.4 shall be applicable only for the transportation
of imported natural gas.) Shipper hereby acknowledges and agrees that either it
or its buyer or seller is the "importer of record" and it will comply with all
requirements for reporting and submitting payment of duties, fees, and taxes to
the United States or agencies thereof to be made on imported natural gas and
for making the declaration of entry pursuant to 19 CFR Section 141.19. Shipper
agrees to indemnify and hold Transporter harmless from any and all claims of
damage or violation of any applicable laws, ordinances and statutes which
pertain to the importation of the gas transported hereunder and which require
reporting and/or filing of fees in connection with said import.
ARTICLE IV - TERM
4.1 This Agreement becomes effective September 1, 1994 and shall
remain in full force and effect until October 31, 2004, and year to year
thereafter at Shipper's sole option. Shipper may terminate all or any portion
of service under this Agreement either at the expiration of the primary term,
or upon any anniversary thereafter, by giving written notice to Transporter so
stating at least twelve (12) months in advance. Shipper also shall have the
sole option to enter into a new Agreement containing the same provisions of
this Agreement, for all or any portion of the service under this Agreement at
or after the end of the primary term of this Agreement. It is Transporter's
and Shipper's intent that this term provision provide Shipper with a
"contractual right to continue such service" and to provide Transporter with
concurrent pregranted abandonment of any volume that Shipper terminates within
the meaning of 18 CFR S 284.221(d)(2)(i) as promulgated by order No. 636 on May
8, 1992.
ARTICLE V - WARRANTY OF ELIGIBILITY FOR TRANSPORTATION
5.1 Any shipper under this Rate Schedule warrants for itself, its
successors and assigns, that all gas delivered to Transporter for
transportation hereunder shall be eligible for transportation in interstate
commerce under applicable rules, regulations or orders of the FERC. Shipper
will indemnify Transporter and save it harmless from all suits, actions,
damages, costs, losses, expenses (including reasonable attorney fees) and
regulatory proceedings, arising from breach of this warranty.
ARTICLE VI - NOTICES
6.1 Unless herein provided to the contrary, any notice called for
in this Agreement shall be in writing and shall be considered as having been
given if delivered personally, or by mail or telegraph with all postage and
charges prepaid to either Shipper or Transporter at the place designated.
Routine communications shall be considered as duly delivered when mailed by
ordinary mail. Normal operating instructions can be made by telephone. Unless
changed, the addresses of the parties are as follows:
3
<PAGE> 4
NORTHWEST PIPELINE CORPORATION
P.O. Box 58900
Salt Lake City, Utah 84158-0900
Statements: Attention: Transmission Accounting
Payments: Attention: Treasury Services
Contractual Notices: Attention: Transportation and
Contract Administration
Other Notices: Attention: Nominations
WASHINGTON NATURAL GAS COMPANY
815 Mercer Street (98109)
P. O. Box 1869
Seattle, Washington 98111
ARTICLE VII - OTHER OPERATING PROVISIONS
7.1 Pursuant to Section 5.3 of the General Transportation Terms
and Conditions, Shipper shall make payments to Transporter hereunder by wire
transfer of immediately available funds by the due date set forth herein. Such
funds shall be wire transferred to the Citibank, N.A. located In New York City,
New York for Transporter's Account No. 3903-7564.
ARTICLE VIII - ADJUSTMENTS TO GENERAL TERMS AND CONDITIONS
8.1 Certain of the General Terms and Conditions are to be adjusted
for the purpose of this Agreement, as specified below:
None
ARTICLE IX - CANCELLATION OF PRIOR AGREEMENT(S)
9.1 When this Agreement takes effect, it supersedes, cancels and
terminates the following agreement(s):
None
ARTICLE X - SUCCESSORS AND ASSIGNS
10.1 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. No
assignment or transfer by either party hereunder shall be made without written
approval of the other party. Such approval shall not be unreasonably withheld.
As between the parties hereto, such assignment shall become effective on the
first day of the month following written notice that such assignment has been
effectuated.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above set forth.
WASHINGTON NATURAL GAS COMPANY NORTHWEST PIPELINE CORPORATION
(Shipper) (Transporter)
By: By:
---------------------------- ----------------------------
John F. Stefani Jeffery E. McNeil
VP, Gas Supply & Ind. Svcs. Manager, Transportation
and Contract Admin.
Attest:
------------------------
4
<PAGE> 5
Exhibit "A"
to the
TRANSPORTATION AGREEMENT
DATED August 15, 1994
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
RECEIPT POINTS
<TABLE>
<CAPTION>
Primary Maximum Daily
Receipt Point Quantity (MDQ)1/
- ------------- ----------------
<S> <C>
Ignacio Plant -- *
</TABLE>
*The total Ignacio Plant receipt point volume ultimately shall be 5,400
MMBtu's/day; however, such Ignacio receipt point volume shall be implemented in
increments of 817 MMBtu's/day (Machias), 1,250 MMBtu's/day (May Valley), 3,333
MMBtu's/day (North Puyallup), with each such increment effective upon the
respective inservice date of the corresponding meter station.
1/ The total of the MDQ's must equal total transportation contract demand as
set forth in Section 1.1.
5
<PAGE> 6
EXHIBIT "B"
to the
TRANSPORTATION AGREEMENT
DATED August 15, 1994
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
DELIVERY POINTS
<TABLE>
<CAPTION>
Maximum Daily
Delivery Obligation
("MDDO")
for each Delivery
Primary Delivery Point Pressure
Delivery Points (MMBtu) (psig)
- --------------- ------- ------
<S> <C> <C>
Machias 817* 250
May Valley 1,250* 250
North Puyallup 3,333* 250
-----
TOTAL 5,400
</TABLE>
*Effective upon the respective inservice dates of the Machias, May Valley and
North Puyallup meter stations.
6
<PAGE> 1
Exhibit 10-E.4
AMENDMENT
THIS AMENDMENT is entered into as of the 1st day of November, 1995, by
and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as
"Transporter", and WASHINGTON NATURAL GAS COMPANY, hereinafter referred to as
"Shipper".
RECITALS:
A. Transporter and Shipper are parties to that certain firm Transportation
Agreement (#F-120) dated August 15, 1994 ("Agreement").
B. Transporter and Shipper have entered into various amendments which were
effective upon the inservice date of the upgrade to various meter stations
and/or the inservice date of new meter stations.
C. Transporter and Shipper desire to enter into this Amendment to update
the Agreement to reflect receipt and delivery points and volumes on Exhibits
"A" and "B" effective and inservice as of November 1, 1995.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. Exhibits "A" and "B" of the Agreement shall be deleted in
their entirety and the attached Exhibits "A" and "B" to this Amendment
shall be added to and made a part of the Agreement, effective November
1, 1995.
2. Except as amended herein, the Agreement shall remain in full
force and effect.
3. This Amendment shall be binding upon and inure to the benefit
of the parties hereto and any successors or assigns of such parties.
4. This Amendment may be executed in any number of counterparts.
IN WITNESS WHEREOF, the parties hereto have executed two duplicate
original copies of this Amendment as of the date and year first written above.
NORTHWEST PIPELINE CORPORATION
By
---------------------------------
Joe H. Fields
Attorney-In-Fact
ATTEST: WASHINGTON NATURAL GAS COMPANY
By By
------------------------------ ------------------------------
Title: General Manager Name: John F. Stefani
Gas Supply & Pipeline Svcs. Title: VP, Gas Supply & Ind. Svcs.
<PAGE> 2
EXHIBIT "A"
to the
TRANSPORTATION AGREEMENT ("F-120")
Dated July 31, 1991
(As Amended Effective November 1, 1995)
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
RECEIPT POINTS
<TABLE>
<CAPTION>
Maximum Daily
Receipt Points Quantity ("MDQ")(1)
- -------------- ----------------
<S> <C>
Sumas 13,030
Blanco (INWPLBLA) 5,400
Total 18,430
</TABLE>
(1) The total of the MDQ's must equal total transportation contract demand as
set forth in Section 1.1
- 2 -
<PAGE> 3
EXHIBIT "B"
to the
TRANSPORTATION AGREEMENT ("F-120")
DATED August 15, 1994
(As Amended November 1, 1995)
between
NORTHWEST PIPELINE CORPORATION
and
WASHINGTON NATURAL GAS COMPANY
DELIVERY POINTS
<TABLE>
<CAPTION>
Maximum Daily
Delivery Obligation
("MDDO")
Primary for each Delivery
Delivery Point Delivery Point Pressure
- -------------- -------------- --------
(MMBtu) (psig)
<S> <C> <C>
Evergreen Shores-Black Lake 1,710 350
Machias 817 250
May Valley 1,250 250
North Puyallup 3,333 250
Olympia 11,320 400
------
Total 18,430
</TABLE>
- 3 -
<PAGE> 1
Exhibit 10-F
CREDIT AGREEMENT
------------------------------
By and among
WASHINGTON ENERGY COMPANY,
as Borrower,
THE FIRST NATIONAL BANK OF CHICAGO,
SEATTLE-FIRST NATIONAL BANK,
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ABN AMRO BANK N.V.,
BANK OF MONTREAL,
FIRST INTERSTATE BANK OF WASHINGTON, N.A.,
NATIONSBANK OF TEXAS, N.A.,
U.S. BANK OF WASHINGTON, N.A., and
CIBC INC.,
as Lenders, and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
------------------------------
$250,000,000
------------------------------
March 31, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . 1
Section 1.2 General Principles Applicable to
Definitions . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . 13
ARTICLE II THE FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.1 The Facility . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.2 Committed Advances . . . . . . . . . . . . . . . . . . . 14
Section 2.3 Competitive Bid Advances . . . . . . . . . . . . . . . . 16
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.5 General Facility Terms. . . . . . . . . . . . . . . . . . 20
Section 2.6 Lending Installations . . . . . . . . . . . . . . . . . . 25
Section 2.7 Withholding Tax Exemption . . . . . . . . . . . . . . . . 25
ARTICLE III CHANGE IN CIRCUMSTANCES. . . . . . . . . . . . . . . . . . . . . 26
Section 3.1 Yield Protection . . . . . . . . . . . . . . . . . . . . 26
Section 3.2 Changes in Capital Adequacy Regulations . . . . . . . . . 27
Section 3.3 Availability of Rate Options . . . . . . . . . . . . . . 27
Section 3.4 Funding Indemnification . . . . . . . . . . . . . . . . . 28
Section 3.5 Lender Statements; Survival of Indemnity . . . . . . . . 28
ARTICLE IV CONDITIONS TO EFFECTIVENESS AND TO LENDING . . . . . . . . . . . 28
Section 4.1 Conditions to Effectiveness of Agreement . . . . . . . . 28
Section 4.2 Conditions to Initial Advance . . . . . . . . . . . . . . 29
Section 4.3 Conditions to All Advances . . . . . . . . . . . . . . . 30
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 30
Section 5.1 Corporate Existence and Power . . . . . . . . . . . . . . 30
Section 5.2 Corporate Authorization . . . . . . . . . . . . . . . . . 30
Section 5.3 Government Approvals, Etc . . . . . . . . . . . . . . . . 31
Section 5.4 Binding Obligations, Etc . . . . . . . . . . . . . . . . 31
Section 5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.6 Financial Condition . . . . . . . . . . . . . . . . . . . 31
Section 5.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.8 Laws, Orders; Other Agreements . . . . . . . . . . . . . 32
Section 5.9 Federal Reserve Regulations . . . . . . . . . . . . . . . 32
Section 5.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.11 Subsidiaries .. . . . . . . . . . . . . . . . . . . . . . 33
Section 5.12 Investment Company; Public Utility
Holding Company . . . . . . . . . . . . . . . . . . . . . 34
Section 5.13 Environmental Compliance. . . . . . . . . . . . . . . . . 34
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 5.14 Representations as a Whole . . . . . . . . . . . . . . . 35
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 36
Section 6.2 Financial Statements . . . . . . . . . . . . . . . . . . 36
Section 6.3 Inspection of Property . . . . . . . . . . . . . . . . . 37
Section 6.4 Payment of Taxes . . . . . . . . . . . . . . . . . . . . 37
Section 6.5 Preservation of Corporate Existence . . . . . . . . . . . 38
Section 6.6 Maintenance of Property . . . . . . . . . . . . . . . . . 38
Section 6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.8 Records and Accounts . . . . . . . . . . . . . . . . . . 38
Section 6.9 Additional Payments . . . . . . . . . . . . . . . . . . . 38
Section 6.10 Compliance With Laws, Etc. . . . . . . . . . . . . . . . 39
Section 6.11 Notification . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.12 Limit on Outstanding Commercial Paper . . . . . . . . . . 39
Section 6.13 Total Debt to Total Capitalization Ratio . . . . . . . . 40
Section 6.14 Liquidation, Merger, Sale of Assets . . . . . . . . . . . 40
Section 6.15 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.16 Indemnification . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . 41
Section 7.2 Consequences of Default . . . . . . . . . . . . . . . . . 43
ARTICLE VIII THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.3 General Immunity . . . . . . . . . . . . . . . . . . . . 44
Section 8.4 No Responsibility for Advances, Recitals,
Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.5 Action on Instructions of Lenders . . . . . . . . . . . . 45
Section 8.6 Employment of Agents and Counsel . . . . . . . . . . . . 45
Section 8.7 Reliance on Documents; Counsel . . . . . . . . . . . . . 45
Section 8.8 Agent's Reimbursement and Indemnification . . . . . . . . 45
Section 8.9 Rights as a Lender . . . . . . . . . . . . . . . . . . . 46
Section 8.10 Lender Credit Decision . . . . . . . . . . . . . . . . . 46
Section 8.11 Successor Agent . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IX BENEFIT OF AGREEMENT; ASSIGNMENTS;
PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Successors and Assigns . . . . . . . . . . . . . . . . . 47
Section 9.2 Participations . . . . . . . . . . . . . . . . . . . . . 48
Section 9.3 Assignments . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.4 Dissemination of Information . . . . . . . . . . . . . . 49
Section 9.5 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.1 No Waiver; Remedies Cumulative . . . . . . . . . . . . . 50
Section 10.2 Governing Law . . . . . . . . . . . . . . . . . . . . . 50
Section 10.3 Consent to Jurisdiction; Waiver of
Immunities . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.5 Severability . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.6 Environmental Indemnification . . . . . . . . . . . . . 51
Section 10.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.8 Conditions Not Fulfilled . . . . . . . . . . . . . . . . 52
Section 10.9 Entire Agreement; Amendment . . . . . . . . . . . . . . 52
Section 10.10 Headings . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.12 Termination of Prior Agreement; Waiver of
Notice . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBITS
Exhibit A - Committed Note
Exhibit B - Competitive Bid Note
Exhibit C - Competitive Bid Quote Request
Exhibit D - Invitation for Competitive Bid Quotes
Exhibit E - Competitive Bid Quote
Exhibit F - Legal Opinion of Counsel for Borrower
Exhibit G - Notice of Assignment
SCHEDULES
Schedule 1 - List of Subsidiaries
Schedule 2 - Parties' Addresses for Notices
Schedule 3 - Litigation
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made as of March 31, 1995, by
and among the Lenders from time to time a party hereto, THE FIRST NATIONAL BANK
OF CHICAGO as agent for the Lenders (the "Agent"), and WASHINGTON ENERGY
COMPANY, a Washington corporation (the "Borrower").
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. As used in this Agreement,
the following terms have the following meanings:
"Absolute Rate" means, with respect to an Absolute Rate
Loan made by a given Lender for the relevant Absolute Rate Interest Period, the
rate of interest per annum (rounded to the nearest 1/100 of 1%) offered by such
Lender and accepted by the Borrower.
"Absolute Rate Advance" means a borrowing hereunder
consisting of the aggregate amount of the several Absolute Rate Loans made by
some or all of the Lenders to the Borrower at the same time and for the same
Interest Period.
"Absolute Rate Auction" means a solicitation of
Competitive Bid Quotes setting forth Absolute Rates pursuant to Section 2.3.
"Absolute Rate Interest Period" means, with respect to
an Absolute Rate Advance, a period of not less than seven and not more than 270
days commencing on a Business Day selected by the Borrower pursuant to this
Agreement. If such Absolute Rate Interest Period would end on a day which is not
a Business Day, such Absolute Rate Interest Period shall end on the next
succeeding Business Day.
"Absolute Rate Loan" means a Loan which bears interest
at the Absolute Rate.
"Advance" means a borrowing hereunder (which may be
either a Competitive Bid Advance or a Committed Advance) consisting of the
aggregate amount of the several Loans made by some or all of the Lenders to the
Borrower on the same date, at the same Rate Option (or on the same interest
basis in the case of Competitive Bid Advances) and, in the case of Competitive
Bid Advances or Eurodollar Committed Advances, for the same Interest Period.
1
<PAGE> 6
"Agent" means The First National Bank of Chicago in its
capacity as agent for the Lenders pursuant to Article VIII, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article VIII.
"Aggregate Commitment" means the aggregate of the
Commitments of all the Lenders hereunder, as reduced from time to time pursuant
to the terms hereof.
"Agreement" means this Credit Agreement, as it may be
amended or modified and in effect from time to time.
"Alternate Base Rate" means, on any date and with
respect to all Floating Rate Advances, a fluctuating rate of interest per annum
equal to the higher of (i) the Corporate Base Rate, and (ii) the Federal Funds
Rate most recently determined by the Agent plus 1/2% per annum. Changes in the
rate of interest on that portion of any Advance maintained as a Floating Rate
Advance will take effect simultaneously with each change in the Alternate Base
Rate.
"Article" means an article of this Agreement unless
another document is specifically referenced.
"Authorized Officer" means the Chairman, the President, any
Senior Vice President, any Vice President, Treasurer or Assistant Treasurer of
Borrower.
"Borrower" means Washington Energy Company, a Washington
corporation, and any permitted Successor or assign pursuant to Section 9.1.
"Borrowing Date" means a date on which an Advance is made
hereunder.
"Business Day" means (i) with respect to any borrowing, payment
or rate selection of Eurodollar Committed Advances or Eurodollar Bid Rate
Advances, a day other than Saturday or Sunday on which banks generally are open
for business in Chicago, New York, and Seattle for the conduct of substantially
all of their commercial lending activities and on which dealings in United
States dollars are carried on in the London interbank market and (ii) for all
other purposes, a day other than Saturday or Sunday on which banks are open for
business in Chicago and Seattle.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, for each Lender, the obligation of the
Lender to make Committed Loans not exceeding the amount set
2
<PAGE> 7
forth opposite its signature below, as such amount may be modified from time to
time pursuant to the terms of this Agreement.
"Commitment Fee Percentage" means (a) during any period
when the Borrower has a Tier 1 Commercial Paper Rating, 0.10% per annum, (b)
during any period when the Borrower has a Tier 2 Commercial Paper Rating, 0.125%
per annum, (c) during any period when the Borrower has a Tier 3 Commercial Paper
Rating, 0.15% per annum, (d) during any period when the Borrower has a Tier 4
Commercial Paper Rating, 0.175% per annum, (e) during any period when the
Borrower has a Tier 5 Commercial Paper Rating, 0.25% per annum, and (f) during
any period when the Borrower has a Tier 6 Commercial Paper Rating, 0.3125% per
annum. In each case, the Commitment Fee Percentage shall change immediately upon
any change in the Tier of Borrower's commercial paper rating. Borrower may, at
its option, designate either Fitch Investors Services or Duff & Phelps Credit
Rating Co., to replace either S&P or Moody's (but not both), provided that such
designated agency has not rated Borrower's commercial paper higher at the time
of designation than the rating agency that such designated agency replaces, and,
upon such designation, analogous ratings of such other agency shall be
substituted for the ratings of either S&P or Moody's (but not both) in
determining the Tier of Borrower's commercial paper.
"Committed Advance" means a borrowing hereunder
consisting of the aggregate amount of the several Committed Loans made by the
Lenders to the Borrower at the same time, at the same Rate Option and for the
same Interest Period.
"Committed Borrowing Notice" is defined in Section 2.2.3.
"Committed Conversion/Continuation Notice" is defined in
Section 2.2.4.
"Committed Loan" means a Loan made by a Lender pursuant to
Section 2.2 hereof.
"Committed Note" means a promissory note in substantially the
form of Exhibit A hereto, duly executed and delivered to the Agent by the
Borrower for the account of each Lender and payable to the order of a Lender in
the amount of its Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Competitive Bid Advance" means a borrowing hereunder
consisting of the aggregate amount of the several Competitive Bid Loans made by
some or all of the Lenders to the Borrower at the same time and for the same
Interest Period.
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"Competitive Bid Borrowing Notice" is defined in Section 2.3.6.
"Competitive Bid Loan" means a Eurodollar Bid Rate Loan
or an Absolute Rate Loan, or both, as the case may be.
"Competitive Bid Margin" means the margin above or
below the applicable Eurodollar Base Rate offered for a Eurodollar Bid Rate
Loan, expressed as a percentage (rounded to the nearest 1/100 of 1%) to be added
or subtracted from such Eurodollar Base Rate.
"Competitive Bid Note" means a promissory note in
substantially the form of Exhibit B hereto, with appropriate insertions,
duly executed and delivered to the Agent by the Borrower for the account of a
Lender and payable to the order of such Lender, including any amendment,
modification, renewal or replacement of such promissory note.
"Competitive Bid Quote" means a Competitive Bid Quote
substantially in the form of Exhibit E hereto completed and delivered by
a Lender to the Agent in accordance with Section 2.3.4.
"Competitive Bid Quote Request" means a Competitive Bid
Quote Request substantially in the form of Exhibit C hereto completed
and delivered by the Borrower to the Agent in accordance with Section 2.3.2.
"Controlled Group" means all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with Borrower, are treated as a single
employer under Sections 414(b) or 414(c) of the Code.
"Corporate Base Rate" means a rate per annum equal to
the corporate base rate of interest announced by First Chicago from time to
time, changing when and as said corporate base rate changes.
"Debt" of Borrower means at any date, without
duplication, (i) all obligations of Borrower and its Subsidiaries for borrowed
money, (ii) all obligations of Borrower and its Subsidiaries evidenced by bonds
(other than surety bonds), debentures, notes or other similar instruments, (iii)
all obligations of Borrower and its Subsidiaries to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business, (iv) any other obligation of Borrower and its
Subsidiaries under leases which shall have been recorded, in accordance with
generally accepted accounting principles, on Borrower's books as capital
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leases, (v) all non-contingent reimbursement, indemnity or similar obligations
of Borrower and its Subsidiaries in respect of amounts paid under a letter of
credit, surety bond or similar instrument, (vi) all Debt of others secured by a
Lien on any asset of Borrower and its Subsidiaries, whether or not such Debt is
assumed by Borrower and its Subsidiaries, and (vii) all Debt of others
Guaranteed by Borrower and its Subsidiaries, all determined on a consolidated
basis and including without limitation all Debt whether long-term or short-term.
"Default" means any event which but for the passage of time or
the giving of notice or both would be an Event of Default.
"Environmental Law" means and includes the Comprehensive
Environmental Response, Compensation, and liability Act of 1980 ("CERCLA" or the
Federal Superfund Act), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Sections 9601-9675; the Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq.;
The Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Section 136 et seq.; the Toxic Substances Control Act, 15 U.S.C.
Sections 2601-2671; all as the same may be from time to time amended and any
regulations now or hereafter promulgated thereunder; and any and all other
federal, state, county, municipal, local and other statutes, laws, ordinances,
rules, regulations, judgments, orders, decrees, permits, licenses, or other
governmental restrictions or requirements and the common law which may from time
to time relate to or deal with protection of human health, pollution or the
environment, including, without limitation, all regulations promulgated by a
regulatory body pursuant to an such statute, law or ordinance.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurodollar Auction" means a solicitation of Competitive Bid
Quotes setting forth Competitive Bid Margins pursuant to Section 2.3.
"Eurodollar Base Rate" means, with respect to a Eurodollar
Committed Advance or a Eurodollar Bid Rate Advance for the relevant Eurodollar
Interest Period, the rate determined by the Agent to be the arithmetic average
of the rates reported to the Agent by each Reference Lender as the rate at which
deposits in U.S. dollars are offered by such Reference Lender to first-class
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Eurodollar Interest Period, in
the approximate amount of such Reference Lender's relevant Eurodollar Committed
Loan, or,
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in the case of a Eurodollar Bid Rate Advance, the amount of the Eurodollar Bid
Rate Advance requested by the Borrower, and having a maturity approximately
equal to such Eurodollar Interest Period. If any Reference Lender fails to
provide such quotation to the Agent, then the Agent shall determine the
Eurodollar Base Rate on the basis of the quotations of the remaining Reference
Lender(s).
"Eurodollar Bid Rate" means, with respect to a
Eurodollar Bid Rate Loan made by a given Lender for the relevant Eurodollar
Interest Period, the sum of (i) the Eurodollar Base Rate and (ii) the
Competitive Bid Margin offered by such Lender and accepted by the Borrower.
"Eurodollar Bid Rate Advance" means a Competitive Bid
Advance which bears interest at a Eurodollar Bid Rate.
"Eurodollar Bid Rate Loan" means a Loan which bears
interest at the Eurodollar Bid Rate.
"Eurodollar Committed Advance" means an Advance which
bears interest at a Eurodollar Rate requested by the Borrower pursuant to
Section 2.2.
"Eurodollar Committed Loan" means a Loan which bears
interest at a Eurodollar Rate requested by the Borrower pursuant to Section 2.2.
"Eurodollar Interest Period" means, with respect to a
Eurodollar Committed Advance or a Eurodollar Bid Rate Advance, a period of one,
two, three or six months commencing on a Business Day selected by the Borrower
pursuant to this Agreement. Such Eurodollar Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, three or
six months thereafter, provided, however, that if there is no
such numerically corresponding day in such next, second, third or sixth
succeeding month, such Eurodollar Interest Period shall end on the last Business
Day of such next, second, third or sixth succeeding month. If a Eurodollar
Interest Period would otherwise end on a day which is not a Business Day, such
Eurodollar Interest Period shall end on the next succeeding Business Day,
provided, however, that if said next succeeding Business Day
falls in a new month, such Eurodollar Interest Period shall end on the
immediately preceding Business Day.
"Eurodollar Rate" means, with respect to a Eurodollar
Committed Advance for the relevant Eurodollar Interest Period, the sum of (i)
the quotient of (a) the Eurodollar Base Rate applicable to that Eurodollar
Interest Period, divided by (b) one minus the Reserve Requirement (expressed as
a decimal) applicable to that Eurodollar Interest Period, plus (ii) the
applicable
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Eurodollar Rate Margin. The Eurodollar Rate shall be rounded, if necessary, to
the next higher 1/16 of 1%.
"Eurodollar Rate Margin" means (a) during any period
when the Borrower has a Tier 1 Commercial Paper Rating, 0.30% per annum, (b)
during any period when the Borrower has a Tier 2 Commercial Paper Rating, 0.35%
per annum, (c) during any period when the Borrower has a Tier 3 Commercial Paper
Rating, 0.40% per annum, (d) during any period when the Borrower has a Tier 4
Commercial Paper Rating, 0.45% per annum, (e) during any period when the
Borrower has a Tier 5 Commercial Paper Rating, 0.65% per annum, and (f) during
any period when the Borrower has a Tier 6 Commercial Paper Rating, .85% per
annum. In each case, the Eurodollar Rate Margin shall change immediately upon
any change in the Tier of Borrower's commercial paper rating. Borrower may, at
its option, designate either Fitch Investors Services or Duff & Phelps Credit
Rating Co., to replace either S&P or Moody's (but not both), provided that such
designated agency has not rated Borrower's commercial paper higher at the time
of designation than the rating agency that such designated agency replaces, and,
upon such designation, analogous ratings of such other agency shall be
substituted for the ratings of either S&P or Moody's (but not both) in
determining the Tier of Borrower's commercial paper.
"Event of Default" has the meaning given in Section 7.1.
"Federal Funds Rate" means, for any day, an interest
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such day is
not a Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations at approximately 10 a.m.
(Chicago time) on such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by the Agent in its sole
discretion.
"First Chicago" means The First National Bank of
Chicago in its individual capacity, and its successors and assigns.
"Fixed Rate" means the Eurodollar Rate, the Eurodollar
Bid Rate or the Absolute Rate.
"Fixed Rate Advance" means an Advance which bears
interest at a Fixed Rate.
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"Fixed Rate Loan" means a Loan which bears interest at
a Fixed Rate.
"Floating Rate" means, for any day, a rate per annum
equal to the Alternate Base Rate, changing when and as the Alternate Base Rate
changes.
"Floating Rate Advance" means an Advance which bears
interest at the Floating Rate.
"Floating Rate Loan" means a Loan which bears interest
at the Floating Rate.
"Government Approval" means an approval, permit,
license, authorization, certificate, or consent of any Governmental Authority.
"Governmental Authority" means the government of the
United States or any State or any foreign country or any political subdivision
of any thereof or any branch, department, agency, instrumentality, court,
tribunal or regulatory authority which constitutes a part or exercises any
sovereign power of any of the foregoing.
"Guaranteed" means any agreement by which a Person
assumes, guarantees, endorses, contingently agrees to purchase or provide funds
for the payment of, or otherwise becomes liable upon, the obligation of any
other Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise to assure any creditor of
such other Person against loss, and shall include, without limitation, any
contingent liability under any letter of credit.
"Hazardous Material" means asbestos, urea formaldehyde,
PCBs, nuclear fuel or materials, chemical waste, radon, radioactive materials,
explosives, known carcinogens, petroleum products (including crude oil) and any
other dangerous, toxic, or hazardous pollutant, contaminant, chemical, material
or substance defined as hazardous or as a pollutant or contaminant in, or the
release or disposal of which is regulated by, any Environmental Law.
"Indebtedness" means for any Person any Debt of such
Person and all other items of indebtedness or liability (including, without
limitation, unsatisfied judgments) which would be included in determining total
liabilities as shown on the liability side of a balance sheet, prepared in
accordance with generally accepted accounting principles, as of the date as of
which indebtedness or liability is determined.
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"Interest Period" means a Eurodollar Interest Period or an
Absolute Rate Interest Period.
"Invitation for Competitive Bid Quotes" means an
Invitation for Competitive Bid Quotes substantially in the form of Exhibit
D hereto, completed and delivered by the Agent to the Lenders in accordance
with Section 2.3.3.
"Lenders" means the financial institutions listed on
the signature pages of this Agreement and their respective Successors and
permitted assigns.
"Lending Installation" means with respect to a Lender
or the Agent, any office, branch, subsidiary or affiliate of such Lender or the
Agent.
"Lien" means, for any Person, any security interest,
pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment,
garnishment, execution or other voluntary or involuntary lien upon or affecting
the revenues of such Person or any real or personal property in which such
Person has or hereafter acquires any interest, except (i) liens for
Taxes which are not delinquent or which remain payable without penalty or the
validity or amount of which is being contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof; (ii) liens
imposed by law (such as mechanics' liens) incurred in good faith in the ordinary
course of business which are not delinquent or which remain payable without
penalty or the validity or amount of which is being contested in good faith by
appropriate proceedings upon stay of execution of the enforcement thereof; (iii)
liens arising by law from customer deposits held by such Person; and (iv)
deposits or pledges under worker's compensation, unemployment insurance, social
security or other similar laws or made to secure the performance of bids,
tenders, contracts (except for repayment of borrowed money), or leases, or to
secure statutory obligations or surety or appeal bonds or to secure indemnity,
performance or other similar bonds given in the ordinary course of business.
"Loan" means, with respect to a Lender, such Lender's
portion, if any, of any Advance.
"Loan Documents" means this Agreement and the Notes.
"Material Adverse Effect" means a material adverse
effect on or material adverse change in (a)(i) the business, operations,
property, financial condition, liabilities (absolute, accrued, contingent or
otherwise) or assets of Borrower and Subsidiaries, taken as a whole, or (ii) the
ability of Borrower to perform its obligations under this Agreement or any of
the other Loan Documents, or (b) the rights or remedies of Agent or
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any Lenders or the holders of the Notes under this Agreement or any of the other
Loan Documents upon the occurrence of an Event of Default.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation.
"Notes" means, collectively, the Competitive Bid Notes and the
Committed Notes; and "Note" means any one of the Notes.
"Obligations" means all unpaid principal of and accrued and
unpaid interest on the Notes, all accrued and unpaid fees and all other
reimbursements, indemnities or other obligations of the Borrower to the Lenders
or to any Lender, the Agent or indemnified party hereunder arising under the
Loan Documents.
"Officer's Certificate" means a certificate signed in
the name of Borrower by its Chairman, its President, its Senior Vice President -
Finance, Planning and Development, its Vice President and Treasurer, or its Vice
President - Chief Accounting Officer.
"Payment Date" means the last day of each March, June,
September and December.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Pension Plan" means an "employee pension benefit plan"
(as such term is defined in ERISA) from time to time maintained by Borrower or a
member of the Controlled Group.
"Person" means any corporation, natural person, firm,
joint venture, joint-stock company, partnership, limited liability company,
trust, unincorporated association or organization, enterprise, government
(including political subdivisions), Governmental Authority, any department or
agency, or any other entity.
"Plan" shall mean, at any time, an employee pension
benefit plan which is covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and is either (a) maintained by
Borrower or any member of a Controlled Group for employees of Borrower or any
member of such Controlled Group or (b) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which Borrower or any member of a Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
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"Prior Loan Agreement" means the Amended and Restated
Revolving Credit Agreement dated as of March 18, 1994 among Borrower, the
respective lenders thereto and Seattle-First National Bank, as agent for such
lenders.
"Rate Option" means the Eurodollar Rate or the Floating Rate.
"Reference Lenders" means First Chicago, Seattle-First
National Bank, and ABN AMRO Bank N.V.
"Required Lenders" means Lenders in the aggregate
having at least 60% of the Aggregate Commitment or, if the Aggregate Commitment
has been terminated, Lenders in the aggregate holding at least 60% of the
aggregate unpaid principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to a
Eurodollar Interest Period, the maximum aggregate reserve requirement (including
all basic, supplemental, marginal and other reserves) which is imposed under
Regulation D of the Board of Governors of the Federal Reserve System on
Eurocurrency liabilities.
"S&P" means Standard & Poor's Rating Group, a division
of McGraw Hill.
"Section" means a numbered section of this Agreement,
unless another document is specifically referenced.
"Subsidiary" of a Person means (i) any corporation more
than 50% of the outstanding securities having ordinary voting power of which
shall at the time be owned or controlled, directly or indirectly, by such Person
or by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization more than 50% of the ownership
interests having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to a
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Successor" means, for any corporation or banking
association, any successor by merger or consolidation, or by acquisition of
substantially all of the assets of the predecessor.
"Tax" means for any Person any tax, assessment, duty,
levy, impost or other charge imposed by any Governmental Authority on such
Person or on any property, revenue, income, or
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franchise of such Person and any interest or penalty with respect to any of the
foregoing.
"Termination Date" means March 31, 1998, unless earlier
terminated pursuant to the terms of this Agreement.
"Tier" means any of the Tier 1 Commercial Paper Rating,
the Tier 2 Commercial Paper Rating, the Tier 3 Commercial Paper Rating, the Tier
4 Commercial Paper Rating, the Tier 5 Commercial Paper Rating, or the Tier 6
Commercial Paper Rating.
"Tier 1 Commercial Paper Rating" means a rating from
S&P of A-1 or better and from Moody's of P-1 or better on Borrower's commercial
paper.
"Tier 2 Commercial Paper Rating" means a rating from
S&P of A-1 or better and from Moody's of P-2 on Borrower's commercial paper or a
rating from S&P of A-2 and from Moody's of P-1 or better on Borrower's
commercial paper.
"Tier 3 Commercial Paper Rating" means a rating from S&P of A-2
and from Moody's of P-2 on Borrower's commercial paper.
"Tier 4 Commercial Paper Rating" means a rating from
S&P of A-2 or better and from Moody's of P-3 on Borrower's commercial paper or a
rating from S&P of A-3 and from Moody's of P-2 or better on Borrower's
commercial paper.
"Tier 5 Commercial Paper Rating" means a rating from S&P of A-3
and from Moody's of P-3 on Borrower's commercial paper.
"Tier 6 Commercial Paper Rating" means a rating from S&P of
worse than A-3 or from Moody's of worse than P-3 on Borrower's commercial paper,
or Borrower's commercial paper is unrated by either S&P or Moody's.
"Tongue River" means Tongue River Holdings, Inc., a
Montana corporation, Transportation Properties, a Montana general partnership,
and Tongue River Railroad Company, a Montana limited partnership.
"Total Capitalization" of Borrower and its Subsidiaries
at any date means the sum of (i) the Debt of Borrower and its Subsidiaries, plus
(ii) the preferred stock equity of Borrower and its Subsidiaries, plus (iii) the
common stock equity of Borrower and its Subsidiaries, all as determined on a
consolidated basis. For purposes of determining Total Capitalization, clause
(ii) of this definition shall include any preferred equity security issued by
any Subsidiary to any Person
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other than Borrower or another Subsidiary and which is reflected on Borrower's
consolidated balance sheet as "minority interest in subsidiary."
"Unfunded Vested Liabilities" means, with respect to
any Plan, at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Plan exceeds (b) the fair market value
of all Plan assets allocable to such benefits, all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of Borrower or any member of the
Controlled Group to the PBGC or such Plan under Title IV of ERISA.
Section 1.2 General Principles Applicable to Definitions.
Definitions given in Section 1.1 and Article II shall be equally applicable to
both singular and plural forms of the terms therein defined and references
herein to he or it shall be applicable to persons whether masculine, feminine or
neuter. References herein to any document including, but without limitation,
this Agreement shall be deemed a reference to such document as it now exists,
and as, from time to time hereafter, the same may be amended.
Section 1.3 Accounting Terms. Except as otherwise provided
herein, accounting terms not specifically defined shall be construed, and all
accounting procedures shall be performed, in accordance with generally accepted
United States accounting principles consistently applied.
ARTICLE II
THE FACILITY
Section 2.1 The Facility.
2.1.1 Description of Facility. The Lenders grant to the
Borrower a revolving credit facility pursuant to which, and upon the terms and
subject to the conditions herein set out:
(i) each Lender severally agrees to make Committed
Loans to the Borrower in accordance with Section 2.2; and
(ii) each Lender may, in its sole discretion, make
bids to make Competitive Bid Loans to the Borrower in accordance with Section
2.3.
2.1.2 Facility Amount. In no event may the aggregate
principal amount of all outstanding Advances (including both the Committed
Advances and the Competitive Bid Advances) exceed the Aggregate Commitment.
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2.1.3 Availability of Facility; Maturity. Subject to
the terms hereof, the facility is available from the date hereof to the
Termination Date. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow at any time prior to the Termination Date. Each
Competitive Bid Rate Advance shall be paid in full on the last day of its
applicable Interest Period and any and all Advances and other Obligations
outstanding on the Termination Date shall be paid in full by the Borrower on the
Termination Date.
Section 2.2 Committed Advances.
2.2.1 Committed Advances. Each Committed Advance
hereunder shall consist of borrowings made from the several Lenders ratably in
proportion to the amounts of their respective Commitments. Each Lender's
Commitment shall be reduced by an amount equal to the aggregate outstanding
amount of Competitive Bid Advances multiplied by a fraction whose numerator is
such Lender's Commitment and whose denominator is the Aggregate Commitment
regardless of which Lender or Lenders make such Competitive Bid Advances.
Committed Advances shall be evidenced by the Committed Notes.
2.2.2 Committed Advance Rate Options. The Committed
Advances may be Floating Rate Advances or Eurodollar Committed Advances, or a
combination thereof, selected by the Borrower in accordance with Section 2.2.3.
No Committed Advance may mature after the Termination Date.
2.2.3 Method of Selecting Rate Options and Interest Periods
for Committed Advances. The Borrower shall select the Rate Option and, in
the case of each Eurodollar Committed Advance, the Eurodollar Interest Period,
applicable to each Committed Advance from time to time. The Borrower shall give
the Agent irrevocable written notice of a request for a Committed Advance,
signed by an Authorized Officer (a "Committed Borrowing Notice"), not later than
11:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance
and on the date three Business Days before the Borrowing Date for each
Eurodollar Committed Advance. Notwithstanding the foregoing, a Committed
Borrowing Notice for a Floating Rate Advance may be given not later than 15
minutes after the time which the Borrower is required to reject one or more bids
offered in connection with an Absolute Rate Auction pursuant to Section 2.3.6
and a Committed Borrowing Notice for a Eurodollar Committed Advance may be given
not later than 15 minutes after the time the Borrower is required to reject one
or more bids offered in connection with a Eurodollar Auction pursuant to Section
2.3.6. Requests for Advances received after the designated time will be deemed
received on the next succeeding Business Day. A Committed Borrowing Notice shall
specify:
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(i) the Borrowing Date, which shall be a Business Day, of
such Committed Advance,
(ii) the aggregate amount of such Committed Advance,
(iii) the Rate Option selected for such Committed Advance,
and
(iv) in the case of each Eurodollar Committed Advance, the
Eurodollar Interest Period applicable thereto (which may not end after the
Termination Date).
A Committed Borrowing Notice that does not conform substantially to these
requirements shall be rejected, and the Agent shall promptly notify the Borrower
of such rejection by telex, telecopy or telephone.
2.2.4 Conversion and Continuation of Outstanding Committed
Advances. Floating Rate Advances shall continue as Floating Rate Advances
unless and until such Floating Rate Advances are repaid or converted into
Eurodollar Committed Advances pursuant to this Section. Each Eurodollar
Committed Advance shall continue as a Eurodollar Committed Advance until the end
of the applicable Eurodollar Interest Period, at which time such Eurodollar
Committed Advance shall be automatically converted into a Floating Rate Advance
unless the Borrower shall have given the Agent a Committed
Conversion/Continuation Notice requesting that, at the end of such Eurodollar
Interest Period, such Eurodollar Committed Advance continue as a Eurodollar
Committed Advance for a new Eurodollar Interest Period. Subject to the terms of
Section 2.5.2, the Borrower may elect from time to time to convert all or any
part of any Committed Advance into another Committed Advance with a different
Rate Option; provided that any conversion of any Eurodollar Committed Advance
shall be made on, and only on, the last day of the Eurodollar Interest Period
applicable thereto. The Borrower shall give the Agent irrevocable notice (a
"Committed Conversion/Continuation Notice") of each conversion of a Committed
Advance or continuation of a Eurodollar Committed Advance not later than 11:00
a.m. (Chicago time) on the date of the requested conversion or continuation, in
the case of a conversion into a Floating Rate Advance, or on the date three
Business Days prior to the requested conversion or continuation, in the case of
a conversion into or continuation of a Eurodollar Committed Advance, specifying:
(i) the requested date, which shall be a Business Day, of
such conversion or continuation;
(ii) the aggregate amount and Rate Option of the Committed
Advance which is to be converted or continued; and
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(iii) the amount and Rate Option(s) of the Committed
Advance(s) into which such Committed Advance is to be converted or continued
and, in the case of a conversion into or continuation of a Eurodollar Committed
Advance, the duration of the Eurodollar Interest Period applicable thereto.
A Committed Conversion/Continuation Notice that does not conform substantially
to these requirements shall be rejected, and the Agent shall promptly notify the
Borrower of such rejection by telex or telecopy.
Section 2.3 Competitive Bid Advances.
2.3.1 Competitive Bid Option. In addition to Committed
Advances pursuant to Section 2.2, but subject to the terms and conditions of
this Agreement (including, without limitation, the limitation set forth in
Section 2.1.2 as to the maximum aggregate principal amount of all outstanding
Advances hereunder), the Borrower may, as set forth in this Section 2.3, request
the Lenders, prior to the Termination Date, to make offers to make Competitive
Bid Advances to the Borrower. Each Lender may, but shall have no obligation to,
make such offers and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section 2.3. Competitive Bid
Advances shall be evidenced by the Competitive Bid Notes.
2.3.2 Competitive Bid Quote Request. When the Borrower
wishes to request offers to make Competitive Bid Loans under this Section 2.3,
it shall transmit to the Agent by a Competitive Bid Quote Request, signed by an
Authorized Officer, substantially in the form of Exhibit C hereto so as
to be received no later than (i) 1:00 p.m. (Chicago time) at least four Business
Days prior to the Borrowing Date proposed therein, in the case of a Eurodollar
Auction or (ii) 1:00 p.m. (Chicago time) at least one Business Day prior to the
Borrowing Date proposed therein, in the case of an Absolute Rate Auction
specifying:
(a) the proposed Borrowing Date, which shall be a
Business Day, for the proposed Competitive Bid Advance,
(b) the aggregate principal amount of such
Competitive Bid Advance,
(c) whether the Competitive Bid Quotes requested
are to set forth a Eurodollar Bid Rate or an Absolute Rate, or both, and
(d) the Interest Period applicable thereto (which
may not end after the Termination Date).
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Each Competitive Bid Quote Request shall be in a minimum amount of
$5,000,000 or in an integral multiple of $1,000,000 in excess thereof.
The Borrower may request offers to make Competitive Bid Loans for more
than one Interest Period in a single Competitive Bid Quote Request. No
Competitive Bid Quote Request shall be given within five Business Days (or such
other number of days as the Borrower and the Agent may agree) of any other
Competitive Bid Quote Request. Requests for Advances received after the
designated time will be deemed received on the next succeeding Business Day. A
Competitive Bid Quote Request that does not conform substantially to the format
of Exhibit C hereto shall be rejected, and the Agent shall promptly
notify the Borrower of such rejection by telex, telecopy or telephone.
2.3.3 Invitation for Competitive Bid Quotes. Promptly
and in any event before the close of business on the same Business Day of
receipt of a Competitive Bid Quote Request that is not rejected pursuant to
Section 2.3.2, the Agent shall send to each of the Lenders an Invitation for
Competitive Bid Quotes substantially in the form of Exhibit D hereto,
which shall constitute an invitation by the Borrower to each Lender to submit
Competitive Bid Quotes offering to make the Competitive Bid Loans to which such
Competitive Bid Quote Request relates in accordance with this Section 2.3.
2.3.4 Submission and Contents of Competitive Bid
Quotes. (i) Each Lender may, in its sole discretion, submit a Competitive
Bid Quote containing an offer or offers to make Competitive Bid Loans in
response to any Invitation for Competitive Bid Quotes. Each Competitive Bid
Quote must comply with the requirements of this Section 2.3.4 and must be
submitted to the Agent at its offices specified in or pursuant to Section 10.4
not later than (a) 10:00 a.m. (Chicago time) at least three Business Days prior
to the proposed Borrowing Date, in the case of a Eurodollar Auction or (b) 10:00
a.m. (Chicago time) on the proposed Borrowing Date, in the case of an Absolute
Rate Auction (or, in either case upon reasonable prior notice to the Lenders,
such other time and date as the Borrower and the Agent may agree);
provided that Competitive Bid Quotes submitted by First Chicago may only
be submitted if the Agent or First Chicago notifies the Borrower of the terms of
the offer or offers contained therein not later than 15 minutes prior to the
latest time at which the relevant Competitive Bid Quotes must be submitted by
the other Lenders. Subject to Articles IV and VII, any Competitive Bid Quote so
made shall be irrevocable except with the written consent of the Agent given on
the instructions of the Borrower.
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(ii) Each Competitive Bid Quote shall be in substantially the form of
Exhibit E hereto and shall in any case specify:
(a) the proposed Borrowing Date, which shall be the
same as that set forth in the applicable Invitation for Competitive Bid Quotes,
(b) the principal amount of the Competitive Bid Loan
for which each such offer is being made, which principal amount (1) may be
greater than, less than or equal to the Commitment of the quoting Lender, (2)
must be at least $5,000,000 and an integral multiple of $1,000,000, and (3) may
not exceed the principal amount of Competitive Bid Loans for which offers were
requested,
(c) in the case of a Eurodollar Auction, the
Competitive Bid Margin offered for each such Competitive Bid Loan,
(d) the minimum amount, if any, of the Competitive
Bid Loan which may be accepted by the Borrower,
(e) in the case of an Absolute Rate Auction, the
Absolute Rate offered for each such Competitive Bid Loan, and
(f) the identity of the quoting Lender.
(iii) The Agent shall reject any Competitive Bid Quote that:
(a) is not substantially in the form of Exhibit E
hereto or does not specify all of the information required by Section 2.3.4(ii);
(b) contains qualifying, conditional or similar
language, other than any such language contained in Exhibit E hereto;
(c) proposes terms other than or in addition to those
set forth in the applicable Invitation for Competitive Bid Quotes; or
(d) arrives after the time set forth in Section
2.3.4(i).
If any Competitive Bid Quote shall be rejected pursuant to this Section
2.3.4(iii), then the Agent shall notify the relevant Lender of such rejection as
soon as practical.
2.3.5 Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (i) of any Competitive Bid Quote
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submitted by a Lender that is in accordance with Section 2.3.4 and (ii) of any
Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid Quote submitted by such Lender with respect to the same
Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall
be disregarded by the Agent unless such subsequent Competitive Bid Quote
specifically states that it is submitted solely to correct a manifest error in
such former Competitive Bid Quote. The Agent's notice to the Borrower shall
specify the aggregate principal amount of Competitive Bid Loans for which offers
have been received for each Interest Period specified in the related Competitive
Bid Quote Request and the respective principal amounts and Eurodollar Bid Rates
or Absolute Rates, as the case may be, so offered.
2.3.6 Acceptance and Notice by Borrower. Not later than (i)
11:00 a.m. (Chicago time) at least three Business Days prior to the proposed
Borrowing Date, in the case of a Eurodollar Auction or (ii) 11:00 a.m. (Chicago
time) on the proposed Borrowing Date, in the case of an Absolute Rate Auction
(or, in either case upon reasonable prior notice to the Lenders, such other time
and date as the Borrower and the Agent may agree), the Borrower shall notify the
Agent of its acceptance or rejection of the offers so notified to it pursuant to
Section 2.3.5; provided, however, that the failure by the Borrower to give such
notice to the Agent shall be deemed to be a rejection of all such offers. In the
case of acceptance, such notice (a "Competitive Bid Borrowing Notice") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Competitive Bid Quote in whole or in
part (subject to the terms of Section 2.3.4(ii)(d)); provided that:
(a) the aggregate principal amount of each
Competitive Bid Advance may not exceed the applicable amount set forth in the
related Competitive Bid Quote Request,
(b) acceptance of offers may only be made on the
basis of ascending Eurodollar Bid Rates or Absolute Rates, as the case may be,
and
(c) the Borrower may not accept any offer that is
described in Section 2.3.4(iii) or that otherwise fails to comply with the
requirements of this Agreement.
2.3.7 Allocation by Agent. If offers are made by two or
more Lenders with the same Eurodollar Bid Rates or Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which offers are accepted for the related Interest Period, the principal amount
of Competitive Bid Loans in respect of which such offers are accepted shall be
allocated by the Agent among such Lenders as
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nearly as possible (in such multiples, not greater than $1,000,000, as the Agent
may deem appropriate) in proportion to the aggregate principal amount of such
offers; provided, however, that no Lender shall be allocated a portion of any
Competitive Bid Advance which is less than the minimum amount which such Lender
has indicated that it is willing to accept. Allocations by the Agent of the
amounts of Competitive Bid Loans shall be conclusive in the absence of manifest
error. The Agent shall promptly, but in any event on the same Business Day,
notify each Lender of its receipt of a Competitive Bid Borrowing Notice and the
aggregate principal amount of such Competitive Bid Loan allocated to each
participating Lender.
2.3.8 Administration Fee. The Borrower hereby agrees to
pay to the Agent an administration fee of $200 per Lender per each Competitive
Bid Quote Request transmitted by the Borrower to the Agent pursuant to Section
2.3.2. Such administration fee shall be payable in arrears on each Payment Date
hereafter and on the Termination Date (or such earlier date on which the
Aggregate Commitment shall terminate or be cancelled) for any period then ending
for which such fee, if any, shall not have been theretofore paid.
Section 2.4 Fees.
2.4.1 Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Lender a commitment fee equal to the Commitment
Fee Percentage (calculated as a percentage rate per annum) on the average daily
unborrowed portion of such Lender's Commitment from the date hereof to and
including the Termination Date, payable in arrears on each Payment Date
hereafter and on the Termination Date. For the purposes of calculating the
commitment fee under this Section 2.4.1, outstanding Competitive Bid Advances
shall not be deemed usage of the Lenders' Commitments. All accrued
commitment fees shall be payable on the effective date of any termination of the
obligations of the Lenders to make Loans hereunder. Computations of Commitment
Fees shall be made on the basis of a year of 360 days for the actual number of
days (including the first day but excluding the last day) occurring in the
period for which such fees are payable.
2.4.2 Agent's Fees. The Borrower agrees to pay to the
Agent, for its own account, the fees agreed to by the Borrower and the Agent
pursuant to that certain letter agreement dated February 9, 1995, or as
otherwise agreed from time to time.
Section 2.5 General Facility Terms.
2.5.1 Method of Borrowing. Not later than 1:00 p.m. (Chicago
time) on each Borrowing Date, each Lender shall make
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available its Loan or Loans in funds immediately available in Chicago, to the
Agent at its address specified pursuant to Section 10.4. The Agent shall deposit
the funds so received from the Lenders in the Borrower's account at the Agent's
main office in Chicago or into such other account as the Borrower may reasonably
designate in writing to the Agent from time to time. Notwithstanding the
foregoing provisions of this Section 2.5.1, to the extent that a Loan made by a
Lender matures on the Borrowing Date of a requested Loan, such Lender shall
apply the proceeds of the Loan it is then making to the repayment of principal
of the maturing Loan.
2.5.2 Minimum Amount of Each Advance. Each Advance
shall be in the minimum amount of $5,000,000 (and in integral multiples of
$1,000,000 if in excess thereof); provided, however, that any
Floating Rate Advance may be in the aggregate amount of the unused Aggregate
Commitment.
2.5.3 Cancellation of Commitments. The Borrower may at
any time after the date hereof cancel the Aggregate Commitment in whole, or in a
minimum aggregate amount of $10,000,000 (and in integral multiples of $1,000,000
if in excess thereof) ratably among the Lenders in proportion to the amounts of
their respective Commitments upon at least ten Business Days' prior written
notice to the Agent, which notice shall specify the amount of such reduction;
provided, however, no such notice of cancellation shall be
effective to the extent that it would reduce the Aggregate Commitment to an
amount which would be less than the outstanding principal amount of Advances at
the time such cancellation is to take effect. Any notice of cancellation given
pursuant to this Section shall be irrevocable and shall specify the date upon
which such cancellation is to take effect.
2.5.4 Optional Principal Payments. The Borrower may
from time to time pay all outstanding Floating Rate Advances, or, in a minimum
aggregate amount of $5,000,000 (and in multiples of $1,000,000 if in excess
thereof), any portion of the outstanding Floating Rate Advances upon two
Business Days' prior notice to the Agent. A Fixed Rate Advance may not be paid
prior to the last day of the applicable Interest Period.
2.5.5 Interest Periods. Subject to the provisions of
Section 2.5.6, each Advance shall bear interest from and including the first day
of the Interest Period applicable thereto to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such
Advance. The Borrower shall not request a Fixed Rate Advance if, after giving
effect to the requested Fixed Rate Advance, more than eight separate Fixed Rate
Advances would be outstanding.
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2.5.6 Rate after Maturity. Except as provided in the
next sentence, any Advance not paid at maturity, whether by acceleration or
otherwise, shall bear interest until paid in full at a rate per annum equal to
the Corporate Base Rate plus 2% per annum. In the case of a Fixed Rate Advance
the maturity of which is accelerated, such Fixed Rate Advance shall bear
interest for the remainder of the applicable Interest Period, at the higher of
the rate otherwise applicable to such Interest Period plus 2% per annum or the
Corporate Base Rate plus 2% per annum.
2.5.7 Interest Payment Dates; Interest Basis. Interest
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof and at
maturity. Interest accrued on each Fixed Rate Advance shall be payable on the
last day of its applicable Interest Period and on any date on which such Advance
is prepaid, whether due to acceleration or otherwise. Interest accrued on each
Fixed Rate Advance having an Interest Period longer than three months shall also
be payable on the last day of each three-month interval during such Interest
Period. Interest on Fixed Rate Advances shall be calculated for the actual
number of days elapsed on the basis of a year consisting of 360 days. Interest
on Floating Rate Advances shall be calculated for the actual number of days
elapsed on the basis of a year consisting of 365, or, when appropriate, 366
days. Interest shall be payable for the day an Advance is made but not for the
day of any payment on the amount paid if payment is received prior to 1:00 p.m.
(local time) at the place of payment. If any payment of principal of or interest
on an Advance shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.5.8 Method and Application of Payments. Subject to
the last sentence of Section 2.5.1, all payments of principal, interest, and
fees hereunder shall be made in immediately available funds to the Agent at the
Agent's address specified pursuant to Section 10.4 or at any other Lending
Installation of the Agent within the United States specified in writing by the
Agent to the Borrower (at least one Business Day prior to the applicable due
date) by 1:00 p.m. (Chicago time) on the date when due. If Agent receives a
payment on the Obligations at a time when no Event of Default has occurred and
is continuing and when no payment on the Obligations is due (or the payment
received by the Agent is in excess of the amount then due), then such payment
(or the portion of such payment that exceeds the amount then due) shall be
applied to the Obligations outstanding in such manner as may be specified by the
Borrower. To the extent the application of any payment received by Agent in
respect of the Obligations is
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not governed by the immediately preceding sentence, such payment shall be
applied in the following manner:
(i) first, to any fees, expenses, indemnities and other
Obligations (other than the principal of and interest on the Advances) then due
and, if such payment is insufficient to pay all such Obligations, then such
payment shall be applied to such Obligations due to each Lender pro rata based
on the respective amounts thereof;
(ii) second, to any accrued and unpaid interest then due on
the Advances and, if such payment is insufficient to pay all such interest, then
such payment shall be applied to the interest due to each Lender pro rata based
on the respective amounts thereof;
(iii) third, to any unpaid principal amount of the Advances
then due and, if such payment is insufficient to pay all such principal, then
such payment shall be applied to the principal due to each Lender pro rata based
on the respective amounts thereof; and
(iv) fourth, to any other Obligations then due and, if such
payment is insufficient to pay all such Obligations, then such payment shall be
applied to such Obligations owing to each Lender pro rata based on the
respective amounts thereof.
Each payment delivered to the Agent for the account of any Lender shall
be delivered by the Agent to such Lender in the same type of funds which the
Agent received at such Lender's address specified pursuant to Article 10.4 or at
any Lending Installation specified in a notice received by the Agent from such
Lender. If such payment is received by the Agent by 1:00 p.m. (Chicago time)
such delivery to the Lenders shall be made on the same day and if received
thereafter shall be made on the next succeeding Business Day. Borrower hereby
authorizes the Agent and each Lender, if and to the extent any payment is not
promptly made to the Agent when due pursuant to this Agreement or any other Loan
Document, to set off or otherwise charge from time to time against any or all of
the accounts of Borrower with the Agent or such Lender or any affiliate of the
Agent or any Lender any amount due hereunder or under such other Loan Document.
If any Lender shall obtain any payment in respect of the Obligations (whether
voluntary or involuntary, through the exercise of any right of set-off or
otherwise) in excess of the amount such Lender would have been entitled to
receive under this Section 2.5.8 if such payment had been made to the Agent,
such Lender shall hold such excess payment in trust for the Agent and the
Lenders and shall forthwith remit the same to the Agent for the Agent's and
Lenders' accounts as herein provided. If any Lender is subsequently required to
refund to Borrower any sum shared with
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the other Lenders pursuant to this Section 2.5.8, such Lender shall be entitled
to recoup from the other Lenders the amount refunded in excess of the amount it
would have been entitled to receive under this Section 2.5.8 together with
interest thereon for each day from the date such amount was received by such
other Lenders to the date such amount is made available to the Borrower at the
same rate of interest that the refunding Lender is required to pay to the
Borrower on the refunded amount and, thereafter, until repaid to such refunding
Lender, at the Federal Funds Rate. For the purpose of calculating the amount
owing by Borrower to each Lender, any payments made by Borrower directly to any
Lender that are subject to the sharing provisions of this Section 2.5.8 shall be
deemed to have been made to the Agent and distributed to the Lenders in
accordance with this Section 2.5.8.
2.5.9 Notes; Telephonic Notices. Each Lender is hereby
authorized to record on the schedule attached to each of its Notes, or otherwise
record in accordance with its usual practice, the date and amount of each of its
Loans of the type evidenced by such Note; provided, however, that any failure to
so record shall not affect the Borrower's obligations under any Note. The
Borrower hereby authorizes the Lenders and the Agent to extend Advances, effect
Rate Option selections and submit Competitive Bid Quotes based on telephonic
notices made by any person or persons the Agent or any Lender in good faith
believes to be an Authorized Officer or an officer, employee or agent of the
Borrower designated by an Authorized Officer. The Borrower agrees to deliver
promptly to the Agent a written confirmation of each telephonic notice signed by
an Authorized Officer. If the written confirmation differs in any material
respect from the action taken by the Agent and the Lenders, the records of the
Agent and the Lenders shall govern absent manifest error.
2.5.10 Notification of Advances, Interest Rates and
Prepayments. Promptly after receipt thereof, the Agent will notify each
Lender of the contents of each Aggregate Commitment reduction notice, Committed
Borrowing Notice, Committed Conversion/Continuation Notice, and repayment notice
received by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each Eurodollar Committed Advance promptly upon determination of
such interest rate and will give Borrower and each Lender prompt notice of each
change in the Alternate Base Rate. Each Reference Lender agrees to furnish
timely information for the purpose of determining the Eurodollar Base Rate.
2.5.11 Non-Receipt of Funds by the Agent. Unless the
Borrower or a Lender, as the case may be, notifies the Agent prior to the date
on which it is scheduled to make payment to the Agent of (i) in the case of a
Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of
principal,
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interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (x) in the case of payment by a Lender, the
Federal Funds Rate for such day or (y) in the case of payment by the Borrower,
the interest rate applicable to the relevant Loan.
Section 2.6 Lending Installations. Each Lender may book its
Loans at any Lending Installation selected by such Lender and may change its
Lending Installation from time to time. Each Lender will notify the Agent and
the Borrower on or prior to the date of this Agreement of the Lending
Installation which it intends to utilize for each type of Loan hereunder. Each
Lender may, by written notice to the Agent and the Borrower, change the Lending
Installation through which Loans will be made by it and for whose account Loan
payments are to be made.
Section 2.7 Withholding Tax Exemption. At least five Business
Days prior to the first date on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will deliver
to each of the Borrower and the Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Lender is entitled to receive payments under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes. Each
Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to
each of the Borrower and the Agent two additional copies of such form (or a
successor form) on or before the date that such form expires (currently, three
successive calendar years for Form 1001 and one calendar year for Form 4224) or
becomes obsolete or after the occurrence of any event requiring a change in the
most recent forms so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by the Borrower or the Agent,
in each case certifying that such Lender is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
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inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the Borrower
and the Agent that it is not capable of receiving payments without any deduction
or withholding of United States federal income tax.
ARTICLE III
CHANGE IN CIRCUMSTANCES
Section 3.1 Yield Protection. If, after the date hereof, the
introduction of or change in any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, or compliance of any Lender with
such,
(i) subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or from payments due
from the Borrower, or changes the basis of taxation of payments to any Lender in
respect of its Loans or other amounts due it hereunder (in either case,
excluding taxation of the overall net income of any Lender or applicable Lending
Installation) or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, any
Lender or any applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest rate applicable to
Fixed Rate Advances), or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining loans or reduces any amount receivable by any
Lender or any applicable Lending Installation in connection with loans, or
requires any Lender or any applicable Lending Installation to make any payment
calculated by reference to the amount of loans held or interest received by it,
by an amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an amount
received which such Lender determines is attributable to making, funding and
maintaining its Loans and its Commitment; provided, however, if
any such Lender fails to provide the Borrower with notice of such increased
expense or reduction in amount received within 30 days after such Lender becomes
aware of the occurrence of the events giving rise to such increased expense or
reduction, then such Lender shall not be entitled to recover any payment from
the Borrower under this Section 3.1 for any such increase in expense incurred or
such
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reduction in amount occurring prior to the time such Lender delivers such notice
to the Borrower; provided, further, that nothing in this Section
3.1 precludes a Lender, after providing initial notice of an occurence of an
event described in this Section 3.1, from making successive demands for payment
for further compensation with respect to such event, nor does this Section 3.1
limit the ability of such Lender, with respect to subsequent demands, to recover
the full amount incurred since the immediately preceding demand for payment.
Section 3.2 Changes in Capital Adequacy Regulations. If a
Lender determines the amount of capital required or expected to be maintained by
such Lender, any Lending Installation of such Lender or any corporation
controlling such Lender is increased as a result of a Change, then, within 15
days of demand by such Lender, the Borrower shall pay such Lender the amount
necessary to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender determines is attributable to this
Agreement, its Loans or its obligation to make Loans hereunder (after taking
into account such Lender's policies as to capital adequacy); provided,
however, that nothing in this Section 3.2 precludes a Lender from making
successive demands for payment for further compensation with respect to such
event, nor does this Section 3.2 limit the ability of such Lender, with respect
to subsequent demands, to recover the full amount incurred since the immediately
preceding demand for payment. "Change" means (i) any change after the date of
this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or
change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending Installation
or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means
(i) the risk-based capital guidelines in effect in the United States on the date
of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
Section 3.3 Availability of Rate Options. If (i) any Lender
determines that maintenance of its Eurodollar Committed Loans or Eurodollar Bid
Rate Loans, as the case may be, at a suitable Lending Installation would violate
any applicable law, rule, regulation, or directive, whether or not having the
force of law, (ii) the Required Lenders determine that deposits of a
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type and maturity appropriate to match fund Eurodollar Committed Advances are
not available or (iii) the Required Lenders determine that a Rate Option does
not accurately reflect the cost of making or maintaining a Committed Advance at
such Rate Option, then the Agent shall suspend the availability of the affected
Rate Option and, in the case of clause (i) only, require any affected Loans to
be repaid.
Section 3.4 Funding Indemnification. If any payment of a Fixed
Rate Advance occurs on a date which is not the last day of the applicable
Interest Period, whether because of acceleration, prepayment or otherwise, or a
Fixed Rate Advance is not made on the date specified by the Borrower for any
reason other than default by the Lenders, the Borrower will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Fixed Rate Advance.
Section 3.5 Lender Statements; Survival of Indemnity. To the
extent reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Fixed Rate Loans to reduce any liability of the
Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the
unavailability of a Rate Option under Section 3.3, so long as such designation
is not disadvantageous to such Lender. Each Lender shall deliver a written
statement of such Lender as to the amount due, if any, under Sections 3.1, 3.2
or 3.4. Such written statement shall set forth in reasonable detail the
calculations upon which such Lender determined such amount and shall be final,
conclusive and binding on the Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a Fixed
Rate Loan shall be calculated as though each Lender funded its Fixed Rate Loan
through the purchase of a deposit of the type and maturity corresponding to the
deposit used as a reference in determining the Fixed Rate applicable to such
Loan, whether in fact that is the case or not. Unless otherwise provided herein,
the amount specified in the written statement shall be payable on demand after
receipt by the Borrower of the written statement. The obligations of the
Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the
Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS AND TO LENDING
Section 4.1 Conditions to Effectiveness of Agreement. This
Agreement and the other Loan Documents shall become effective upon, and only
upon, the execution and delivery thereof as
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required by Section 4.2(a) and the termination of, and payment of all amounts
owing in respect of, the Prior Loan Agreement.
Section 4.2 Conditions to Initial Advance. In addition to the
conditions set forth in Section 4.3 (to be fulfilled at the time any Advance is
made), the obligation of each Lender to make its initial Loan available is
subject to fulfillment of the following conditions.
(a) Loan Documents. Ten duplicate originals of this
Agreement shall have been duly executed and delivered to the Agent by each of
the parties hereto and one original of each of the Notes shall have been duly
executed and delivered to the Agent by the Borrower, in each case in form and
substance satisfactory to the Agent and each Lender.
(b) Corporate Certificates. The Agent shall have
received ten duplicate originals of each of the following, in each case in form
and substance satisfactory to the Agent and each Lender:
(i) Copies of the articles of incorporation of
Borrower certified by the Secretary of State of Washington not more than five
days prior to the date hereof;
(ii) Bylaws of Borrower certified by Borrower, as of
the date hereof;
(iii) Certificate of Existence/Authorization issued by
the Secretary of State of Washington with respect to Borrower, dated not more
than five days prior to the date hereof;
(iv) Certified copies of resolutions adopted by the
board of directors of Borrower authorizing the execution, delivery and
performance by Borrower of the Loan Documents, dated as of the date hereof; and
(v) Incumbency certificates describing the office and
identifying the specimen signatures of the individuals signing the Loan
Documents on behalf of Borrower, dated as of the date hereof.
(c) Legal Opinion. The Agent shall have received ten
duplicate originals of an opinion of the law firm of Riddell, Williams, Bullitt
& Walkinshaw, counsel to Borrower, in substantially the form of Exhibit
F hereto and dated as of the date hereof.
(d) Other Information. The Agent and each Lender shall have
received such other statements, opinions, certificates, documents and
information with respect to the
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matters contemplated by this agreement as it may reasonably request.
Section 4.3 Conditions to All Advances. The obligation of the
Lenders to fund any Advances hereunder, including the initial Advance, is
subject to the condition that, on the date of such Advance, no Default or Event
of Default shall have occurred and be continuing or will occur as a result of
the making of the Advances; and the representations of Borrower in Article V
shall be true on and as of such date with the same force and effect as if made
on and as of such date. Each Advance shall be deemed to constitute a
representation and warranty by Borrower that, as of the date of such Advance,
the statements set forth in Article V are true and correct and no Default or
Event of Default has occurred and is continuing or will occur as a result of
disbursement of the requested Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders as follows:
Section 5.1 Corporate Existence and Power. Borrower and each
Subsidiary are each corporations duly incorporated, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Borrower and each Subsidiary are each duly qualified to do business in each
other jurisdiction where the nature of their respective activities or the
ownership of their respective properties requires such qualification, except to
the extent that failure to be so qualified does not have a material adverse
effect on the business, operations or financial condition of the enterprise
comprised of Borrower and its Subsidiaries taken as a whole. Borrower and each
Subsidiary have full corporate power, authority and legal right to carry on
their business as presently conducted, and to own and operate their properties
and assets. Borrower has full corporate power to execute, deliver and perform
this Agreement and the other Loan Documents and to borrow hereunder. The term
"Subsidiary" as used in this Section 5.1 shall not include Tongue River.
Section 5.2 Corporate Authorization. The execution, delivery
and performance by Borrower of this Agreement and the other Loan Documents, and
any borrowing hereunder or thereunder, have been duly authorized by all
necessary corporate action of Borrower, do not require any shareholder approval
or the approval or consent of any trustee or the holders of any Indebtedness of
Borrower, except such as have been obtained (certified copies thereof having
been delivered to the Agent), do not contravene any law, regulation, rule,
judgment or order binding on it or its Articles of Incorporation or Bylaws, do
not contravene the
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provisions of or constitute a default under any indenture, mortgage, contract or
other agreement or instrument to which Borrower or any Subsidiary is a party or
by which Borrower or any of its properties may be bound or affected, and do not
result in the creation or imposition of any Lien on any assets of Borrower or
any Subsidiary.
Section 5.3 Government Approvals, Etc. No Government Approval
or filing or registration with any Governmental Authority is required for the
making and performance by Borrower of this Agreement or the other Loan Documents
or in connection with any of the transactions contemplated hereby or thereby,
except such as have been heretofore obtained and are in full force and effect
(certified copies thereof having been delivered to the Agent).
Section 5.4 Binding Obligations, Etc. This Agreement has been
duly executed and delivered by Borrower and constitutes, and the other Loan
Documents when duly executed and delivered will constitute, the legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws of general application affecting the enforcement
of creditors' rights, and (b) by general equitable principles, regardless of
whether enforcement is sought in equity or at law.
Section 5.5 Litigation. Except as disclosed in Schedule 3 there
are no actions, proceedings, investigations, or claims against or affecting
Borrower or any Subsidiary now pending before any court, arbitrator or
Governmental Authority (nor to the knowledge of Borrower has any thereof been
threatened) which if determined adversely to Borrower or any Subsidiary would be
likely to have a material adverse effect on the business, operations or
financial condition of the enterprise comprised of Borrower and its Subsidiaries
taken as a whole or on the ability of Borrower to perform its obligations under
this Agreement and the other Loan Documents except as disclosed in Borrower's
Form 10-K filed with the Securities and Exchange Commission for its fiscal year
ended September 30, 1994, or its Form 10-Q filed with the Securities and
Exchange Commission for the fiscal quarter ended December 31, 1994. The term
"Subsidiary" as used in this Section 5.5 shall not include Tongue River.
Section 5.6 Financial Condition. The consolidated balance sheet
of Borrower and its Subsidiaries as of September 30, 1994, and the related
statements of income and shareholders' earnings reinvested in the business for
the fiscal year then ended, and the consolidated balance sheet of Borrower and
its Subsidiaries as of December 31, 1994, and the related statements of income
and
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shareholders' earnings reinvested in the business for the fiscal quarter then
ended, copies of which have been furnished to the Agent and each Lender, fairly
present the consolidated financial condition of Borrower and its Subsidiaries as
at such dates and the results of operations of Borrower and its Subsidiaries for
the periods then ended, all in accordance with generally accepted accounting
principles consistently applied. Borrower and its Subsidiaries did not have on
such dates any material contingent liabilities for Taxes, material unusual
forward or long-term commitments or material unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in the balance sheets for such dates and in the notes to those financial
statements. Since December 31, 1994, there has been no material adverse change
in the financial conditions, operations, or business of the enterprise comprised
of Borrower or its Subsidiaries taken as a whole.
Section 5.7 Taxes. Borrower and its Subsidiaries have filed all
tax returns and reports required of them, have paid all Taxes which are due and
payable, and have provided adequate reserves for payment of any Tax whose
payment is being contested. The charges, accruals and reserves on the books of
Borrower and its Subsidiaries in respect of Taxes for all fiscal periods to date
are accurate. There are no questions or disputes between Borrower or any
Subsidiary and any Governmental Authority with respect to any Taxes except as
disclosed in the balance sheets referred to in Section 5.6 or otherwise
disclosed to the Agent and to each Lender in writing prior to the date of this
Agreement and except disputes which if resolved adversely to the positions being
asserted by Borrower or any Subsidiary would not have a material adverse effect
on the business, operations or financial condition of the enterprise comprised
of Borrower and its Subsidiaries taken as a whole.
Section 5.8 Laws, Orders; Other Agreements. Except as described
in the financial statements delivered to the Lenders pursuant to Section 5.6,
neither Borrower nor any Subsidiary is in material violation of or subject to
any material contingent liability on account of any material laws, statutes,
rules, regulations and orders of any Governmental Authority, except any thereof
whose validity is being contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof. Neither Borrower nor any
Subsidiary is in material breach of or default under any material agreement to
which it is a party or which is binding on it or any of its assets. The term
"Subsidiary" as used in this Section 5.8 shall not include Tongue River.
Section 5.9 Federal Reserve Regulations. Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or
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carrying any margin stock (within the meaning of Federal Reserve Regulation U),
and no part of the proceeds of any Advance will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock or for any other purpose that violates the
applicable provisions of any Federal Reserve Regulation. Borrower will furnish
to the Agent on request by the Agent or any Lender a statement conforming with
the requirements of said Regulation U.
Section 5.10 ERISA.
(a) The present value of all benefits vested under all Pension
Plans did not, as of the most recent valuation date of such Pension Plans,
exceed the value of the assets of such Pension Plans allocable to such vested
benefits by an amount which would represent a potential material liability of
Borrower and its Subsidiaries or affect materially the ability of Borrower to
perform its obligations under this Agreement.
(b) No Plan or trust created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 or Section 2003(a) of ERISA) which could subject such
Plan or any other Plan, any trust created thereunder, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust to
the tax or penalty on prohibited transactions imposed by Section 502 or Section
2003(a) of ERISA.
(c) No Pension Plan or trust has been terminated, except in
accordance with the Code, ERISA, and the regulations of the Internal Revenue
Service and the PBGC as applicable to solvent plans in which benefits of
participants are fully protected. No "reportable event" as defined in Section
4043 of ERISA has occurred for which notice has not been waived or for which
alternative notice procedures are permitted.
(d) No Pension Plan or trust created thereunder has incurred
any "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA.
(e) The required allocations and contributions to Pension
Plans will not violate Section 415 of the Code.
(f) Neither Borrower nor any number of the Controlled Group is
a party to any multi-employer plan as defined in Section 4001(a)(3) of ERISA.
Section 5.11 Subsidiaries. In respect of Subsidiaries, Schedule 1 to
this Agreement sets forth as of the date of this
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Agreement the authorized capitalization of each Subsidiary, the number of shares
of each class of capital stock issued and outstanding of each Subsidiary, and
the number and percentage of outstanding shares of each such class of capital
stock owned by Borrower or by any Subsidiary. The outstanding shares of each
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable. As of the date of this Agreement, Borrower and each Subsidiary
owns beneficially and of record and has good title to all the shares it is
listed as owning on Schedule 1, free and clear of any Lien. The term
"Subsidiary" as used in this Section 5.11 shall not include Tongue River.
Section 5.12 Investment Company; Public Utility Holding Company. (a)
Borrower is not an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of 1940, as
amended; (b) Borrower does not own any shares of capital stock of a "holding
company" as such term is defined in the Public Utility Holding Company Act of
1935, as amended, and is not a "subsidiary company" of a "registered holding
company" within the meaning of said Act. Borrower is a "holding company" as
defined in said Act by reason of its ownership of all of the outstanding shares
of common stock of Washington Natural Gas Company, but is exempt from said Act,
except the provisions of Section 9(a)(2) thereof, by virtue of Section 3(a)(1)
thereof and Rule 2 thereunder.
Section 5.13 Environmental Compliance. (a) (i) Borrower and each
Subsidiary is in compliance with the provisions of all Environmental Laws
relating to its business, operations, properties or assets, and the ownership,
use, control, management, operation or occupancy thereof, where the failure to
be in such compliance would have, singly or in the aggregate, a Material Adverse
Effect; (ii) neither Borrower nor any Subsidiary nor any of the business,
operations, properties or assets of any of them has violated or has been alleged
by any Governmental Authority to be in violation of or has been subject to any
administrative or judicial proceeding pursuant to, any applicable Environmental
Law, which would have, singly or in the aggregate, a Material Adverse Effect;
(iii) neither Borrower nor any Subsidiary is subject to any liability under any
Environmental Law, which liability could have, singly or in the aggregate, a
Material Adverse Effect; (iv) there are no facts or circumstances which could
form the basis for the assertion of any claim against Borrower or any Subsidiary
relating to any Environmental Law including, but not limited to, any claim
arising from past or present practices on, at or from Borrower's or any
Subsidiary's business, operations, property or assets and the ownership, use,
control, management, operation or occupancy thereof, asserted under any
Environmental Law, which would have, singly or in the aggregate, a Material
Adverse Effect; (v) there is no asbestos contained in or forming part of any
building component, structure
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or office space at any of the property or assets of Borrower or any Subsidiary,
where the presence of such asbestos would have, singly or in the aggregate, a
Material Adverse Effect; and (vi) no polychlorinated biphenyls ("PCBs") are
used, stored or released at any of the property or assets of Borrower or any
Subsidiary where the presence of such PCBs would have, singly or in the
aggregate, a Material Adverse Effect.
(b) There have been no discharges, emissions or releases of Hazardous
Material at, on, upon, under, into or from Borrower's or any Subsidiary's
business, operations, properties or assets or the ownership, use, control,
management, operation or occupancy thereof, which would have, singly or in the
aggregate, a Material Adverse Effect.
(c) If any storage tanks exist on or under any property of Borrower or
any Subsidiary, such storage tanks have been duly registered with all
appropriate regulatory and governmental bodies and otherwise are in compliance
with applicable Federal, state and local statutes, regulations, ordinances and
other regulatory requirements except any non-compliance which would not have,
singly or in the aggregate, a Material Adverse Effect.
(d) None of the property of Borrower or any Subsidiary is listed or
proposed for listing on the National Priorities List or the Comprehensive
Environmental Response, Compensation, and Liability Information System, both as
promulgated under CERCLA, or on any comparable state or local list which would
have, singly or in the aggregate, a Material Adverse Effect, and neither
Borrower nor any Subsidiary has received any notification of potential or actual
liability or any request for information pursuant to any Environmental Law,
including, without limitation, CERCLA or RCRA, or any comparable state or local
Environmental Law which would have, singly or in the aggregate, a Material
Adverse Effect.
Section 5.14 Representations as a Whole. This Agreement, the other
Loan Documents, the financial statements referred to in Section 5.6, and all
other instruments, documents, certificates and statements furnished to the Agent
or any Lender by Borrower, taken as a whole, do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements contained herein or therein not misleading.
ARTICLE VI
COVENANTS
So long as any Lender shall have any Commitment hereunder and until
payment in full of each Advance and the Notes and performance of all other
obligations of Borrower under this
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Agreement, Borrower agrees to abide by all of the following unless the Agent,
with the approval of the Required Lenders, shall otherwise consent in writing.
Section 6.1 Use of Proceeds. Borrower will use the proceeds of
the Advances exclusively for general corporate purposes.
Section 6.2 Financial Statements. Borrower covenants and agrees
that it will deliver to Agent and each Lender:
(i) as soon as practicable and in any event within 60 days
after the end of each quarterly period (other than the last quarterly period) in
each fiscal year, a consolidated statement of income and shareholders' earnings
reinvested in the business and consolidated statements of cash flows of Borrower
and its Subsidiaries for such quarterly period and for the period from the
beginning of the current fiscal year to the end of such quarterly period, and a
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such quarterly period, setting forth in each case in comparative form figures
for the corresponding period or date in the preceding fiscal year, all in
reasonable detail and accompanied by a certificate by an authorized financial
officer of Borrower stating that the financial statements were prepared in
accordance with generally accepted accounting principles and fairly reflect the
financial condition and results of operations of Borrower and its Subsidiaries,
subject to changes resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 105 days
after the end of each fiscal year, a consolidated statement of income and
shareholders' earnings reinvested in the business and consolidated statement of
cash flows of Borrower and its Subsidiaries for such year, and a consolidated
balance sheet of Borrower and its Subsidiaries as of the end of such year,
setting forth in each case in comparative form corresponding consolidated
figures from the preceding annual audit, all in reasonable detail and
accompanied by an audit report by independent public accountants of recognized
standing selected by Borrower;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as Borrower shall
send to its stockholders and copies of all registration statements (without
exhibits) and all reports (without exhibits), if any, which it files with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission); and
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(iv) such other financial data, including copies of exhibits
referred to in Section 6.2(iii), in the form and at the intervals as Agent or
any Lender may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, Borrower will deliver to Agent and each Lender an Officer's
Certificate setting out the Total Debt to Total Capitalization Ratio described
in Section 6.13 as of the end of the most recent applicable fiscal period and,
further, stating that there has not existed during such fiscal period, and there
does not then exist, any Event of Default or Default, or, if any such Event of
Default or Default has existed or does then exist, specifying the nature
thereof, the period of existence thereof and what action Borrower has taken or
proposes to take with respect thereto. Together with each delivery of financial
statements required by clause (ii) above, Borrower will deliver to Agent and
each Lender a certificate of said accountants stating that, in making the audit
necessary to the certification of such financial statements, they have obtained
no knowledge of any Event of Default or Default, or, if any such Event of
Default or Default exists, specifying the nature and period of existence thereof
and further certifying that any sale or disposition of assets during such fiscal
year did not exceed the limitation set out in the second sentence of Section
6.14.
Section 6.3 Inspection of Property. Borrower covenants and
agrees that it will permit any Lender, at such Lender's expense (unless a
Default or Event of Default shall have occurred, in which event the expense of
such visit and inspection shall be for Borrower's account), to visit and inspect
any of the properties of Borrower and its Subsidiaries, to examine the corporate
books and financial records of Borrower and its Subsidiaries, and to make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such persons with the principal officers of Borrower and its
independent public accountants, all at such reasonable times and as often as any
Lender may reasonably request.
Section 6.4 Payment of Taxes. Borrower shall cause to be paid
and discharged all Taxes imposed upon Borrower or any Subsidiary or upon the
income or profits of Borrower or any Subsidiary or upon property belonging to
Borrower or any Subsidiary before the same shall be in default, as well as all
lawful claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such property or any part thereof; provided,
however, that Borrower shall not be required to cause to be paid or
discharged any such Tax or claim so long as the validity thereof is being
contested in good faith by appropriate proceedings, and Borrower and its
Subsidiaries shall set aside on their books adequate reserves with respect
thereto.
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Section 6.5 Preservation of Corporate Existence. Borrower shall
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each of its
Subsidiaries (except where the failure to maintain such corporate existence is
permitted by Section 6.14).
Section 6.6 Maintenance of Property. Borrower shall, and shall
cause its Subsidiaries to, at all times keep, maintain, preserve and protect all
its and their property in good repair, working order and condition and from time
to time to make all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
Section 6.7 Insurance. Borrower shall, and shall cause its
Subsidiaries to, at all times, maintain adequate insurance with financially
sound and reputable insurers, on all property of Borrower and its Subsidiaries,
of the character usually insured by corporations engaged in the same or similar
business against loss or damage of the kinds customarily insured against by such
corporations, and carry such other insurance as is usually carried by
corporations engaged in the same or similar business.
Section 6.8 Records and Accounts. Borrower shall at all times
keep and cause each Subsidiary to keep true and complete books of record and
accounts in accordance with generally accepted accounting principles. The term
"Subsidiary" as used in this Section 6.8 does not include Tongue River.
Section 6.9 Additional Payments. From time to time, Borrower
will (a) pay or reimburse the Agent for all reasonable costs and expenses
(including reasonable attorneys' fees, which may include the internal charges of
in-house counsel to the Agent) actually incurred by the Agent in connection with
the preparation or amendment of this Agreement or the other Loan Documents, or
the making of any Advance or the administration of the transactions contemplated
hereby; (b) pay or reimburse the Agent and each Lender for all reasonable costs
and expenses, including reasonable legal fees (which may include the internal
charges of in-house counsel to the Agent and any Lender), actually incurred by
the Agent and Lenders in connection with the enforcement by judicial proceedings
or otherwise of any of the rights of the Agent and/or Lenders under this
Agreement and/or the other Loan Documents (including, without limitation,
enforcement or protection of any such rights in any bankruptcy or other
insolvency proceeding); (c) upon Agent's request, obtain and promptly furnish to
Agent evidence of all such Government Approvals as may be required to enable
Borrower to comply with its obligations under this Agreement and the other Loan
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Documents; and (d) execute and deliver all such instruments and perform all such
other acts as the Agent or any Lender may reasonably request to carry out the
transactions contemplated by this Agreement.
Section 6.10 Compliance With Laws, Etc. Borrower will, and will cause
its Subsidiaries to, comply in all material respects with all material laws,
regulations, rules, and orders of Governmental Authorities applicable to
Borrower or to its Subsidiaries or to their operations or property, except any
thereof whose validity is being contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof. The term
"Subsidiary" as used in this Section 6.10 does not include Tongue River.
Section 6.11 Notification. Promptly after learning thereof, Borrower
will notify the Agent of (a) the details of any action, proceeding,
investigation or claim against or affecting Borrower or any Subsidiary
instituted before any court, arbitrator or Governmental Authority or, to
Borrower's knowledge, threatened to be instituted, which, if determined
adversely to Borrower or a Subsidiary would be likely to have a material adverse
effect on the financial condition or operations of Borrower and its Subsidiaries
taken as a whole; (b) any labor controversy which has resulted in or, to
Borrower's knowledge, threatens to result in a strike which would materially
affect the business operations of Borrower and its Subsidiaries taken as a
whole; (c) if Borrower or any member of the Controlled Group gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
subsection (b)(1), (2), (5) or (6) of Section 4043 of ERISA) with respect to any
Plan (or the Internal Revenue Service gives notice to the PBGC of any
"reportable event" as defined in subsection (c)(2) of Section 4043 of ERISA and
Borrower obtains knowledge thereof) which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (d) if any Event of Default or Default exists,
the nature and period of existence thereof and any action Borrower has taken or
proposes to take with respect thereto and (e) any change in the rating on
Borrower's commercial paper from S&P or from Moody's or from any other rating
agency designated by Borrower pursuant to the definitions of "Commitment Fee
Percentage" and "Eurodollar Rate Margin."
Section 6.12 Limit on Outstanding Commercial Paper. Borrower shall
not permit the aggregate outstanding principal amount of all commercial paper
issued by it to at any time exceed the amount by which the Aggregate Commitment
exceeds the aggregate outstanding principal balance of the Advances.
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Section 6.13 Total Debt to Total Capitalization Ratio. Borrower and
its consolidated Subsidiaries shall have, at the end of each calendar quarter, a
ratio of Total Debt to Total Capitalization that does not exceed 0.65 to 1, as
determined on a consolidated basis.
Section 6.14 Liquidation, Merger, Sale of Assets. Borrower shall not,
and shall cause its Subsidiaries not to, liquidate, dissolve or enter into any
merger, consolidation, or other combination except that any Subsidiary may merge
or consolidate into any other Subsidiary (other than Tongue River) or into the
Borrower, and either Borrower or any Subsidiary may merge with a corporation
that is not a Subsidiary if the Borrower or such Subsidiary is the surviving
entity, provided however that such merger or consolidation shall not cause an
Event of Default under this Agreement and, after such merger or consolidation,
that the Borrower shall have a commercial paper rating equal to or better than a
Tier 5 Commercial Paper Rating. Borrower will not, and will cause its
Subsidiaries not to, sell, lease or otherwise dispose of any portion of their
business or assets (including the stock of any Subsidiary) if, after taking such
disposition into account, at the end of any fiscal quarter in a year, the
consolidated total assets of Borrower and its Subsidiaries are not equal to at
least 90% of the consolidated total assets of Borrower and its Subsidiaries at
the end of the preceding fiscal year, as determined from the financial
statements referred to in Section 5.6 or subsequently delivered pursuant to
Section 6.2.
Section 6.15 Liens. Borrower shall not, and shall cause its
Subsidiaries not to, create, assume or suffer to exist any Lien except liens
arising under the Indenture of First Mortgage dated April 1, 1957, between
Washington Natural Gas Company and Harris Trust and Savings Bank, as trustee, as
amended, and any Supplemental Indentures thereto issued, or which may be issued,
from time to time to secure first mortgage bonds, on all property of Washington
Natural Gas Company (other than "Excepted Property" as defined in said
Indenture).
Section 6.16 Indemnification. Borrower shall indemnify the Agent and
each Lender, and the directors, officers and employees of Agent and each Lender,
against all losses, claims, damages, penalties, judgments, liabilities and
expenses (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Agent or any Lender is a party thereto)
which any of them may pay or incur arising out of or relating to this Agreement,
the other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Advance
hereunder; provided, that Borrower shall have no obligation hereunder for any
amount arising from a claim or determination that any Lender's entry into this
Agreement was not
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a duly authorized and legal act of such Lender. The obligations of the Borrower
under this Section 6.16 shall survive the termination of this Agreement.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder.
(a) Payment Default. Borrower shall fail to pay (i) any
amount of principal on any Advance when due, or (ii) for a period of five days
after the date when due any amount of interest on any Advance or any other
amount payable by it hereunder; or
(b) Breach of Warranty. Any representation or warranty
made or deemed made by Borrower under or in connection with this Agreement or
the other Loan Documents shall prove to have been incorrect in any material
respect when made or deemed made; or
(c) Breach of Certain Covenants. Borrower shall fail to
perform or observe any of the covenants set forth in Section 6.5, clause (d) of
Section 6.11, Section 6.13, or Section 6.14; or
(d) Breach of Other Covenant. Borrower shall fail to
perform or observe the covenant set forth in Section 6.12 and such failure shall
remain unremedied for five days after the occurrence thereof, or Borrower shall
fail to perform or observe any other covenant, obligation or term of this
Agreement or any other Loan Document and such failure shall remain unremedied
for fifteen (15) days after written notice thereof shall have been given to
Borrower by the Agent (acting at the request of any Lender); or
(e) Cross-default. Borrower or any Subsidiary shall
fail (i) to pay when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) any Indebtedness having an outstanding
principal balance in the aggregate in excess of Five Million Dollars
($5,000,000) (except any Advance) or any interest or premium thereon and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness, or (ii) to perform
any term or covenant on its part to be performed under any agreement or
instrument relating to any such Indebtedness and required to be performed and
such failure shall continue after the applicable grace period, if any, specified
in
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such agreement or instrument, if the effect of such failure to perform is to
accelerate or to permit the acceleration of the maturity of such Indebtedness;
or
(f) Voluntary Bankruptcy, Etc. Borrower or any
Subsidiary shall: (1) file a petition seeking relief for itself under Title 11
of the United States Code, as now constituted or hereafter amended, or file an
answer consenting to, admitting the material allegations of or otherwise not
controverting, or fail timely to controvert, a petition filed against it seeking
relief under Title 11 of the United States Code, as now constituted or hereafter
amended; or (2) file such petition or answer with respect to relief under the
provisions of any other now existing or future applicable bankruptcy,
insolvency, or other similar law of the United States of America or any state
thereof or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with creditors; or
(g) Involuntary Bankruptcy, Etc. An order for relief
shall be entered against Borrower or any Subsidiary under Title 11 of the United
States Code, as now constituted or hereafter amended, which order is not stayed;
or upon the entry of an order, judgment or decree by operation of law or by a
court having jurisdiction in the premises which is not stayed adjudging it a
bankrupt or insolvent under, or ordering relief against it under, or approving
as properly filed, a petition seeking relief against it under the provisions of
any other now existing or future applicable bankruptcy, insolvency or other
similar law of the United States of America or any state thereof or of any other
country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or any arrangement, composition, extension or
adjustment with creditors, or appointing a receiver, liquidator, assignee,
sequestrator, trustee or custodian of Borrower or any Subsidiary or of any
substantial part of its property, or ordering the reorganization, winding-up or
liquidation of its affairs, or upon the expiration of 60 days after the filing
of any involuntary petition against it seeking any of the relief specified in
Section 7.1(f) or this Section 7.1(g) without the petition being dismissed prior
to that time; or
(h) Insolvency, Etc. Borrower or any Subsidiary shall
(i) make a general assignment for the benefit of its creditors or (ii) consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, or custodian of all or a substantial part of the property of Borrower
or any Subsidiary, or (iii) admit its insolvency or inability to pay its debts
generally as they become due, or (iv) fail generally to pay its debts as they
become due, or (v) take any action (or suffer any action to be taken by its
directors or shareholders) the purpose
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of which is to dissolve or liquidate Borrower or any Subsidiary (except as
permitted by Section 6.5 or 6.14) or to seek protection or relief under Title 11
of the United States Code or under any other federal or state bankruptcy,
insolvency or receivership law; or
(i) ERISA. Borrower or any member of the Controlled
Group shall fail to pay when due an amount or amounts aggregating in excess of
Five Million Dollars ($5,000,000) which it shall have become liable to pay to
the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice
of intent to terminate a Plan or Plans (other than a multiemployer plan, as
defined in Section 4001(3) of ERISA), having aggregate Unfunded Vested
Liabilities in excess of Five Million Dollars ($5,000,000) shall be filed under
Title IV of ERISA by Borrower, any member of the Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate any such Plan or Plans; or
(j) Ownership of Washington Natural Gas Company. Borrower
shall cease for any reason to own 100% of the then outstanding voting stock of
Washington Natural Gas Company free and clear of any Liens; or
(k) Governmental Approvals. Any Government Approval or
registration or filing with any Governmental Authority now or hereafter required
in connection with the performance by Borrower of its obligations set forth in
the Loan Documents shall be revoked, withdrawn or withheld or shall fail to
remain in full force and effect; or
(l) Other Government Action. Any act of any
Governmental Authority shall deprive Borrower or any Subsidiary of any right,
privilege or franchise that is material to the conduct of a material part of the
business of Borrower or such Subsidiary or shall substantially restrict the
exercise of such right, privilege or franchise, and such act shall not be
revoked or rescinded within 60 days after it shall have become effective or
within 30 days after notice from the Agent to Borrower requesting revocation or
rescission, whichever first occurs.
Section 7.2 Consequences of Default. If any of the Events of
Default described in Section 7.1(f), Section 7.1(g), Section 7.1(h) or Section
7.1(j) shall occur, the Aggregate Commitment and Commitments shall immediately
terminate, and the principal of and the interest on Advances and all other sums
payable by Borrower hereunder and under the Notes shall become immediately due
and payable, all without protest, presentment, notice or demand, all of which
Borrower expressly waives. If any other Event of Default shall occur and be
continuing, then in any such case and at any time thereafter so long as any such
Event of
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Default shall be continuing, the Agent shall at the request, or may with the
consent, of the Required Lenders immediately terminate the Aggregate Commitment
and the Commitments and, if Advances shall have been made, the Agent shall at
the request, or may with the consent, of the Required Lenders declare the
principal of and the interest on the Advances and the Notes and all other sums
payable by Borrower hereunder or thereunder to be immediately due and payable,
whereupon the same shall become immediately due and payable all without protest,
presentment, notice, or demand, all of which Borrower expressly waives.
ARTICLE VIII
THE AGENT
Section 8.1 Appointment. First Chicago is hereby appointed
Agent hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the agent of such Lender. The Agent
agrees to act as such upon the express conditions contained in this Article
VIII. The Agent shall not have a fiduciary relationship in respect of the
Borrower or any Lender by reason of this Agreement.
Section 8.2 Powers. The Agent shall have and may exercise such
powers under the Loan Documents as are specifically delegated to the Agent by
the terms of each thereof, together with such powers as are reasonably
incidental thereto. The Agent shall have no implied duties to the Lenders, or
any obligation to the Lenders to take any action thereunder except any action
specifically provided by the Loan Documents to be taken by the Agent.
Section 8.3 General Immunity. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Borrower, the
Lenders or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct.
Section 8.4 No Responsibility for Advances, Recitals, Etc.
Neither the Agent nor any of its directors, officers, agents or employees shall
be responsible for or have any duty to ascertain, inquire into, or verify (i)
any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document,
including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (iii) the satisfaction of any condition
specified in Article IV, except receipt of items required to be delivered to the
Agent; or (iv) the validity, effectiveness or genuineness of any Loan
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<PAGE> 49
Document or any other instrument or writing furnished in connection therewith.
The Agent shall have no duty to disclose to the Lenders information that is not
required to be furnished by the Borrower to the Agent at such time, but is
voluntarily furnished by the Borrower to the Agent (either in its capacity as
Agent or in its individual capacity).
Section 8.5 Action on Instructions of Lenders. The Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder and under any other Loan Document in accordance with written
instructions signed by the Required Lenders, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders and on all holders of Notes. The Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Loan
Document unless it shall first be indemnified to its satisfaction by the Lenders
pro rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
Section 8.6 Employment of Agents and Counsel. The Agent may
execute any of its duties as Agent hereunder and under any other Loan Document
by or through employees, agents, and attorneys-in-fact and shall not be
answerable to the Lenders, except as to money or securities received by it or
its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder and under any other Loan Document.
Section 8.7 Reliance on Documents; Counsel. The Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
Section 8.8 Agent's Reimbursement and Indemnification. The
Lenders agree to reimburse and indemnify the Agent ratably in proportion to
their respective Commitments (i) for any amounts not reimbursed by the Borrower
for which the Agent is entitled to reimbursement by the Borrower under the Loan
Documents, (ii) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Loan Documents and (iii) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way
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relating to or arising out of the Loan Documents or any other document delivered
in connection therewith or the transactions contemplated thereby, or the
enforcement of any of the terms thereof or of any such other documents, provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Agent. The obligations of
the Lenders under this Section 8.8 shall survive payment of the Obligations and
termination of this Agreement.
Section 8.9 Rights as a Lender. In the event the Agent is a
Lender, the Agent shall have the same rights and powers hereunder and under any
other Loan Document as any Lender and may exercise the same as though it were
not the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Agent, in its individual capacity, is not obligated to remain a Lender.
Section 8.10 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement and the other Loan
Documents.
Section 8.11 Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower, such resignation
to be effective upon the appointment of a successor Agent or, if no successor
Agent has been appointed, forty-five days after the retiring Agent gives notice
of its intention to resign. The Agent may be removed at any time with or without
cause by written notice received by the Agent from the Required Lenders, such
removal to be effective on the date specified by the Required Lenders. Upon any
such resignation or removal, the Required Lenders shall have the right to
appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders within
thirty days after the
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resigning Agent's giving notice of its intention to resign, then the resigning
Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
If the Agent has resigned or been removed and no successor Agent has been
appointed, the Lenders may perform all the duties of the Agent hereunder and the
Borrower shall make all payments in respect of the Obligations to the applicable
Lender and for all other purposes shall deal directly with the Lenders. No
successor Agent shall be deemed to be appointed hereunder until such successor
Agent has accepted the appointment. Any such successor Agent shall be a
commercial bank having capital and retained earnings of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent, the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article VIII shall continue in effect for
the benefit of such Agent in respect of any actions taken or omitted to be taken
by it while it was acting as the Agent hereunder and under the other Loan
Documents.
ARTICLE IX
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
Section 9.1 Successors and Assigns. The terms and provisions of
the Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lenders and their respective successors and assigns, except
that (i) the Borrower shall not have the right to assign its rights or
obligations under the Loan Documents and (ii) any assignment by any Lender must
be made in compliance with Section 9.3. Notwithstanding clause (ii) of this
Section, any Lender may at any time, without the consent of the Borrower or the
Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; provided, however, that no such
assignment shall release the transferor Lender from its obligations hereunder.
The Agent may treat the payee of any Note as the owner thereof for all purposes
hereof unless and until such payee complies with Section 9.3 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of a Note
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. Any request, authority or consent of any Person, who at the time
of making such request or giving such authority or consent is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
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assignee of such Note or of any Note or Notes issued in exchange therefor.
Section 9.2 Participations.
9.2.1 Permitted Participants; Effect. Any Lender may,
in the ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment of such Lender or any other interest of such Lender under
the Loan Documents. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under the Loan Documents
shall remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the holder of any such Note for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be determined as if
such Lender had not sold such participating interests and, except as otherwise
provided in Section 9.2.3, such sale shall not entitle the Participant to any
direct rights against Borrower under the terms of this Agreement or any other
Loan Document. Borrower and the Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
the Loan Documents.
9.2.2 Voting Rights. Each Lender shall retain the sole
right to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than any
amendment, modification or waiver with respect to any Loan or Commitment in
which such Participant has an interest which requires the consent of all Lenders
pursuant to Section 10.9.
9.2.3 Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in Section
2.5.8 in respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under the Loan Documents, provided that each
Lender shall retain the right of setoff provided in Section 2.5.8 with respect
to the amount of participating interests sold to each Participant. The Lenders
agree to share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 2.5.8, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such amounts to
be shared in accordance with Section 2.5.8 as if each Participant were a Lender.
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Section 9.3 Assignments.
9.3.1 Permitted Assignments. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Loan Documents; provided, that each
such assignment shall be in a minimum amount of $10,000,000 or, if less, all of
such Lender's rights and obligations under the Loan Documents. Such assignment
shall be in a form acceptable to Agent and the other parties thereto. The
consent of the Borrower and the Agent shall be required prior to an assignment
becoming effective with respect to a Purchaser which is not a Lender or an
Affiliate thereof; provided, however, that if a Default has
occurred and is continuing, the consent of the Borrower shall not be required.
Such consent shall not be unreasonably withheld.
9.3.2 Effect; Effective Date. Upon (i) delivery to the
Agent of a notice of assignment in substantially the form of Exhibit G
hereto (a "Notice of Assignment"), together with any consents required by
Section 9.3.1, and (ii) payment of a $4,000 fee to the Agent by the assignor or
the assignee for processing such assignment, such assignment shall become
effective on the effective date specified in such Notice of Assignment. The
Notice of Assignment shall contain a representation by the Purchaser to the
effect that none of the consideration used to make the purchase of the
Commitment and Loans under the applicable assignment agreement are "plan assets"
as defined under ERISA and that the rights and interests of the Purchaser in and
under the Loan Documents will not be "plan assets" under ERISA. On and after the
effective date of such assignment, such Purchaser shall for all purposes be a
Lender party to this Agreement and any other Loan Document executed by the
Lenders and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation
of any assignment to a Purchaser pursuant to this Section 9.3.2, the transferor
Lender, the Agent and the Borrower shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to such Purchaser, in each case in
principal amounts reflecting their Commitment, as adjusted pursuant to such
assignment.
Section 9.4 Dissemination of Information. The Borrower
authorizes each Lender to disclose to any Participant or Purchaser or any other
Person acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any
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prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries;
provided, however, that such disclosing Lender shall cause each
such actual or potential Transferee to enter into or otherwise be bound by a
confidentiality agreement in form and substance similar to the agreement signed
by such disclosing Lender in connection with this Agreement.
Section 9.5 Tax Treatment. If any interest in any Loan Document
is transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.7.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Waiver; Remedies Cumulative. No failure by the Agent
or any Lender to exercise, and no delay in exercising, any right, power or
remedy under this Agreement or any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or remedy
under this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power, or remedy. The
exercise of any right, power, or remedy shall in no event constitute a cure or
waiver of any Event of Default under this Agreement or any other Loan Document
nor prejudice the rights of the Agent or any Lender in the exercise of any right
hereunder or thereunder. The rights and remedies provided herein and therein are
cumulative and not exclusive of any right or remedy provided by law.
Section 10.2 Governing Law. This Agreement and the other Loan
Documents shall be governed by and construed in accordance with the laws of the
State of Washington, U.S.A.
Section 10.3 Consent to Jurisdiction; Waiver of Immunities. Borrower
hereby irrevocably submits to the nonexclusive jurisdiction of any state or
federal court sitting in Seattle, King County, Washington, in any action or
proceeding brought to enforce or otherwise arising out of or relating to this
Agreement or any other Loan Document and irrevocably waives to the fullest
extent permitted by law any objection which it may now or hereafter have to the
laying of venue in any such action or proceeding in any such forum, and hereby
further irrevocably waives any claim that any such forum is an inconvenient
forum. Borrower agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other
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jurisdiction by suit on the judgment or in any other manner provided by law.
Section 10.4 Notices. Except as specified in Section 2.5.9 all
notices and other communications provided for in this Agreement shall be in
writing or (unless otherwise specified) by telex or facsimile transmission and
shall be mailed (with first class postage prepaid) or sent or delivered to each
party at the address set forth under its name on Schedule 2 hereto, or at such
other address as shall be designated by such party in a written notice to each
other party. Except as otherwise specified all notices sent by mail, if duly
given, shall be effective three Business Days after deposit into the mails, all
notices sent by a nationally recognized overnight courier service, if duly
given, shall be effective one Business Day after delivery to such courier
service, and all other notices and communications if duly given or made shall be
effective upon receipt.
Section 10.5 Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall as to such jurisdiction be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof or
thereof or affecting the validity or enforceability of such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties waive
any provision of law which renders any provision hereof or thereof prohibited or
unenforceable in any respect.
Section 10.6 Environmental Indemnification. The Borrower agrees to
indemnify and hold harmless the Agent and each Lender and each of their
respective directors, officers, employees and agents from and against any and
all claims, damages, liabilities and expenses (including, without limitation,
fees and disbursements of counsel) which may be incurred by or asserted against
the Agent or such Lender or any such director, officer, employee or agent which
would not have been incurred by or asserted against such person but for the
Agent or such Lender being a party to this Agreement, in connection with or
arising out of any investigation, litigation, or proceeding related to any claim
that Borrower's property or operations do not comply with, or require remedial
activity pursuant to, any applicable law, rule, regulation, ordinance or
directive issued by any Governmental Authority, including but not limited to
environmental laws and regulations.
Section 10.7 Survival. The representations, warranties and
indemnities of Borrower in favor of the Agent and the Lenders and the
representations, warranties and indemnities of the Lenders in favor of the Agent
shall survive indefinitely and, without limiting the foregoing, shall survive
the execution and delivery
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of this Agreement and the other Loan Documents, the making of any Advance, the
Termination Date, and the repayment of all Advances and other amounts due
hereunder.
Section 10.8 Conditions Not Fulfilled. If the Commitments are not
borrowed, owing to nonfulfillment of any condition precedent specified in
Article IV, no party hereto shall be responsible to any other party for any
damage or loss by reason thereof, except that Borrower shall in any event be
liable to pay the amounts for which it is obligated under Section 3.4. If for
any other reason the Commitment of any Lender is not borrowed or a Advance is
not made, neither the Agent nor any other Lender shall be responsible to
Borrower for any damage or loss by reason thereof, nor shall any other Lender or
Borrower be excused from its performance hereunder.
Section 10.9 Entire Agreement; Amendment. The Loan Documents comprise
the entire agreement of the parties and may not be amended or modified except by
written agreement of Borrower and the Agent. No provision of any of the Loan
Documents may be waived except in writing and then only in the specific instance
and for the specific purpose for which given. Without the consent of the
Required Lenders, the Agent shall not change or modify any of the Loan Documents
or waive any of the terms thereof and, without the consent of all Lenders, the
Agent shall not change, modify or waive (a) any of the conditions precedent to
all loans set out in Section 4.3, (b) the timing or rates of interest payments,
(c) the timing or amounts of commitment fees, (d) the timing or amounts of
principal payments due in respect of Advances, (e) the definition of Required
Lenders or the acts which must be approved by the Required Lenders or by all
Lenders, (f) the Termination Date, including any extension thereof, or (g) the
Aggregate Commitment or any Lender's Commitment. The terms of Articles II and
VIII shall not be amended without the prior written consent of the Agent (acting
for its own account).
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
Section 10.10 Headings. The headings of the various provisions
of this Agreement are for convenience of reference only, do not constitute a
part hereof, and shall not affect the meaning or construction of any provision
hereof.
Section 10.11 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be
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deemed to be an original, and all of which taken together shall constitute one
and the same Agreement.
Section 10.12 Termination of Prior Agreement; Waiver of Notice..
Borrower, each of the Lenders that is a party to the Prior Loan Agreement and
Seattle-First National Bank, in its capacity as Agent thereunder, agree that the
Prior Loan Agreement shall automatically terminate immediately upon the
execution and delivery of this Agreement by all parties hereto and the payment
in full of all amounts under the Prior Loan Agreement and the other Loan
Documents (as defined therein). The Lenders that are parties to the Prior Loan
Agreement and Seattle-First National Bank, in such agency capacity, hereby waive
any prior notice of such termination.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
BORROWER:
WASHINGTON ENERGY COMPANY
By
--------------------------------
Its
----------------------
LENDERS:
Amount: $50,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By
--------------------------------
Its
----------------------
Amount: $50,000,000 SEATTLE-FIRST NATIONAL BANK
By
--------------------------------
Its
----------------------
53
<PAGE> 58
Amount: $30,000,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED, acting through its
Los Angeles Agency
By
--------------------------------
Its
----------------------
Amount: $25,000,000 ABN AMRO BANK N.V.
By
--------------------------------
Its
----------------------
By
--------------------------------
Its
----------------------
Amount: $20,000,000 BANK OF MONTREAL
By
--------------------------------
Its
----------------------
Amount: $20,000,000 FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By
--------------------------------
Its
----------------------
Amount: $20,000,000 NATIONSBANK OF TEXAS, N.A.
By
--------------------------------
Its
----------------------
54
<PAGE> 59
Amount: $20,000,000 U.S. BANK OF WASHINGTON, N.A.
By
--------------------------------
Its
----------------------
Amount: $15,000,000 CIBC INC.
By
--------------------------------
Its
----------------------
AGENT:
THE FIRST NATIONAL BANK OF CHICAGO
By
--------------------------------
Its
----------------------
55
<PAGE> 60
SCHEDULE 1
List of Subsidiaries
56
<PAGE> 61
SCHEDULE 2
List of Parties' Addresses for Notices
LENDERS:
FIRST NATIONAL BANK OF CHICAGO
Attn: Mr. Richard Waldman
Managing Director
Mail Suite 0363 - 10th Fl.
One First National Plaza
Chicago, IL 60670
Tel: (312) 732-3520
Fax: (312) 732-3055
and to:
Attn: Ms. Lynn Pozsgay
Client Services Professional
Mail Suite 0364 - 10th Fl.
One First National Plaza
Chicago, IL 60670
Tel: (312) 732-8705
Fax: (312) 732-4840
SEATTLE-FIRST NATIONAL BANK
Attn: Mr. David A. Dehlendorf
Vice President
701 Fifth Avenue, 12th Floor
Seattle, WA 98104
Tel: (206) 358-3034
Fax: (206) 358-3113
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
acting through its Los Angeles Agency
attn: Washington Energy Relationship Manager
350 South Grand, Suite 1500
Los Angeles, CA 90071
Tel: (213) 893-6453
Fax: (213) 488-9840
ABN AMRO BANK N.V.
attn: Mr. David McGinnis
Vice President
One Union Square, #2323
600 University St.
Seattle, WA 98101
Tel: (206) 587-0342
Fax: (206) 682-5641
57
<PAGE> 62
FIRST INTERSTATE BANK OF WASHINGTON, N.A.
attn: Ms. Sue Hendrixson
Vice President
999 Third Avenue
Seattle, WA 98104
Tel: (206) 292-3483
Fax: (206) 292-3120
BANK OF MONTREAL
attn: Mr. James B. Whitmore
Director, Natural Resources
U.S. Corporate Banking
601 So. Figueroa St., #4900
Los Angeles, CA 90017
Tel: (213) 239-0635
Fax: (213) 239-0680
U.S. BANK OF WASHINGTON, N.A.
attn: Mr. Wade Black
Asst. Vice President
1420 Fifth Avenue
Seattle, WA 98101
Tel: (206) 587-5234
Fax: (206) 587-5259
CIBC INC.
attn: Mr. Peter R. Saggau
Vice President, Utilities Group
200 West Madison St., #2300
Chicago, IL 60606
Tel: (312) 855-3252
Fax: (312) 750-0927
NATIONSBANK OF TEXAS, N.A.
attn: Mr. Jeff A. Forbis
Senior Vice President,
Utility Finance Division
901 Main Street, 64th Fl.
Dallas, TX 75202-3714
Tel: (214) 508-1453
Fax: (214) 508-3943
58
<PAGE> 63
AGENT:
FIRST NATIONAL BANK OF CHICAGO
Attn: Mr. Richard Waldman
Managing Director
Mail Suite 0363 - 10th Fl.
One First National Plaza
Chicago, IL 60670
Tel: (312) 732-3520
Fax: (312) 732-3055
and to:
Attn: Ms. Lynn Pozsgay
Client Services Professional
Mail Suite 0364 - 10th Fl.
One First National Plaza
Chicago, IL 60670
Tel: (312) 732-8705
Fax: (312) 732-4840
BORROWER:
WASHINGTON ENERGY COMPANY
attn: Ms. Betsy Moseley
Vice President & Treasurer
815 Mercer Street
Seattle, WA 98109
Tel: (206) 224-2270
Fax: (206) 224-2183
59
<PAGE> 64
SCHEDULE 3
Litigation
1. Claim made by the City of Seattle in a letter dated February
24, 1995, a copy of which has been provided to the Agent.
60
<PAGE> 65
EXHIBIT A
NOTE
(Committed Loans)
$[Lender's Commitment] March 31, 1995
Washington Energy Company, a Washington corporation (the "Borrower"),
promises to pay, on or before the Termination Date (as defined in the Agreement
referred to below), to the order of ______________________ (the "Lender") the
lesser of the principal sum of _________________ Dollars or the aggregate unpaid
principal amount of all Committed Loans made by the Lender to the Borrower
pursuant to Sections 2.1 and 2.2 of the Credit Agreement (as the same may be
amended or modified, the "Agreement") hereinafter referred to, in lawful money
of the United States of America in immediately available funds at the main
office of The First National Bank of Chicago in Chicago, Illinois, as Agent,
together with interest in like money and funds on the unpaid principal amount
hereof at the rates and on the dates set forth in the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Committed Loan and the date and amount of each
principal payment hereunder; provided, however, that any failure
to so record shall not affect the Borrower's obligations hereunder.
This Note (Committed Loans) is one of the Notes issued pursuant to, and
is entitled to the benefits of, the Credit Agreement, dated as of March 31,
1995, among the Borrower, The First National Bank of Chicago, individually and
as Agent, and the banks named therein, including the Lender, to which Agreement,
as it may be amended from time to time, reference is hereby made for a statement
of the terms and conditions under which this Note may be prepaid or its maturity
date accelerated. Capitalized terms used herein and not otherwise defined herein
are used with the meanings attributed to them in the Agreement.
WASHINGTON ENERGY COMPANY
By:
--------------------------------
Title:
----------------------
61
<PAGE> 66
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE (COMMITTED LOANS) OF WASHINGTON ENERGY COMPANY,
DATED MARCH 31, 1995
<TABLE>
<CAPTION>
Principal Maturity of Principal
Amount of Rate Interest Amount Unpaid
Date Advance Option Period Paid Balance
- ---- --------- ------ ----------- --------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
62
<PAGE> 67
EXHIBIT B
NOTE
(Competitive Bid Loans)
__________, 19___
Washington Energy Company, a Washington corporation (the "Borrower"),
promises to pay to the order of ____________ (the "Lender"), on or before the
Termination Date (as defined in the Agreement referred to below) the aggregate
unpaid principal amount of all Competitive Bid Loans made by the Lender to the
Borrower pursuant to Sections 2.1 and 2.3 of the Credit Agreement hereinafter
referred to (as the same may be amended or modified, the "Agreement"), in lawful
money of the United States in immediately available funds at the main office of
The First National Bank of Chicago, as Agent, in Chicago, Illinois, together
with interest, in like money and funds, on the unpaid principal amount hereof at
the rates and on the dates determined in accordance with the Agreement. The
Borrower shall pay each Competitive Bid Loan in full on the last day of such
Competitive Bid Loan's applicable Interest Period.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or otherwise record in accordance with its usual practice, the
date and amount of each Competitive Bid Loan and the date and amount of each
principal payment hereunder; provided, however, that any failure to so record
shall not affect the Borrower's obligations hereunder.
This Note (Competitive Bid Loans) is one of the Notes issued pursuant
to, and is entitled to the benefits of, the Credit Agreement dated as of March
31, 1995, among the Borrower, The First National Bank of Chicago, individually
and as Agent, and the banks named therein, including the Lender, to which
Agreement, as it may be amended from time to time, reference is hereby made for
a statement of the terms and conditions under which this Note may be prepaid or
its maturity date accelerated. Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the Agreement.
WASHINGTON ENERGY COMPANY
By:
--------------------------
Title:
--------------
63
<PAGE> 68
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE (COMPETITIVE BID LOANS) OF WASHINGTON ENERGY COMPANY,
DATED MARCH 31, 1995
<TABLE>
<CAPTION>
Principal Maturity of Principal
Amount of Rate Interest Amount Unpaid
Date Advance Option Period Paid Balance
- ---- --------- ------ ----------- --------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
64
<PAGE> 69
EXHIBIT C
COMPETITIVE BID QUOTE REQUEST
(Section 2.3.2)
__________, 19___
To: The First National Bank of Chicago,
as agent (the "Agent")
From: Washington Energy Company ("Borrower")
Re: Credit Agreement (the "Agreement") dated as of March 31, 1995, among
the Borrower, The First National Bank of Chicago, individually and as
Agent, and the Lenders listed on the signature pages thereof.
We hereby give notice pursuant to Section 2.3.2 of the Agreement that
we request Competitive Bid Quotes for the following proposed Competitive Bid
Advance(s):
Borrowing Date: __________, 19___
Principal Amount(1) Interest Period(2)
$
Such Competitive Bid Quotes should offer a [Competitive Bid Margin]
[Absolute Rate].
Upon acceptance by the undersigned of any or all of the Competitive Bid
Advances offered by Lenders in response to this request, the undersigned shall
be deemed to affirm as of such date the representations and warranties made in
the Agreement to the extent specified in Article IV thereof. Capitalized terms
used herein have the meanings assigned to them in the Agreement.
WASHINGTON ENERGY COMPANY
By:
--------------------------
Title:
--------------
- --------------------
(1) Amount must be at least $5,000,000 and an integral multiple of
$1,000,000.
(2) One, two, three or six months (Eurodollar Auction) or at least
seven and up to 270 days (Absolute Rate Auction), subject to the provisions of
the definitions of Eurodollar Interest Period and Absolute Rate Interest
Period.
65
<PAGE> 70
EXHIBIT D
INVITATION FOR COMPETITIVE BID QUOTES
(Section 2.3.3)
__________, 19___
To: [Name of Lender]
Re: Invitation for Competitive Bid Quotes to
Washington Energy Company (the "Borrower")
Pursuant to Section 2.3.3 of the Credit Agreement dated as of March 31,
1995 (the "Agreement") among the Borrower, the Lenders parties thereto and the
undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to
submit Competitive Bid Quotes to the Borrower for the following proposed
Competitive Bid Advance(s):
Borrowing Date: __________, 19___
Principal Amount Interest Period
$
Such Competitive Bid Quotes should offer a [Competitive Bid Margin]
[Absolute Rate]. Your Competitive Bid Quote must comply with Section 2.3.4 of
the Agreement and the foregoing terms in which the Competitive Bid Quote Request
was made. Capitalized terms used herein have the meanings assigned to them in
the Agreement.
Please respond to this invitation by no later than 10:00 a.m. Chicago
time on __________ , 19___.
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent
By:
----------------------------------
Authorized Officer
66
<PAGE> 71
EXHIBIT E
COMPETITIVE BID QUOTE
(Section 2.3.4)
__________, 19___
To: The First National Bank of Chicago, as Agent
Attn:__________________
Re: Competitive Bid Quote to Washington Energy Company (the "Borrower")
In response to your invitation on behalf of the Borrower dated_________,
19___, we hereby make the following Competitive Bid Quote pursuant to Section
2.3.4 of the Credit Agreement hereinafter referred to and on the following
terms:
1. Quoting Lender:_______________________________________
2. Person to contact at Quoting Lender:__________________
3. Borrowing Date: ___________, 19___.(1)
4. We hereby offer to make Competitive Bid Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
- ---------------------
(1) As specified in the related Invitation.
67
<PAGE> 72
<TABLE>
<CAPTION>
Principal Interest [Competitive [Absolute Minimum
Amount(2) Period(3) Bid Margin(4)] Rate(5)] Amount(6)
- --------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C>
$
</TABLE>
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the Credit Agreement
dated as of March 31, 1995 among the Borrower, the Lenders listed on the
signature pages thereof and yourselves, as Agent, irrevocably obligates us to
make the Competitive Bid Loan(s) for which any offer(s) are accepted, in whole
or in part.
Very truly yours,
[NAME OF LENDER]
Dated: __________, 19___ By:_______________________________
Authorized Officer
- --------------------------
(2) Principal amount bid for each Interest Period may not exceed
principal amount requested. Bids must be made for at least $5,000,000 and an
integral multiple of $1,000,000.
(3) One, two, three or six months (Eurodollar Auction) or at
least seven and up to 270 days (Absolute Rate Auction), as specified in the
related Invitation.
(4) Competitive Bid Margin over or under the Eurodollar Base Rate
determined for the applicable Interest Period. Specify percentage (rounded to
the nearest 1/100 of 1%) and specify whether "PLUS" or "MINUS".
(5) Specify rate of interest per annum (rounded to the nearest
1/100 of 1%).
(6) Specify minimum amount which the Borrower may accept (see
Section 2.3.4(ii)(d)).
68
<PAGE> 73
EXHIBIT F
LEGAL OPINION OF COUNSEL FOR BORROWER
March __, 1995
The First National Bank of Chicago
Seattle-First National Bank
The Industrial Bank of Japan, Limited
ABN AMRO Bank N.V.
Bank of Montreal
First Interstate Bank of Washington, N.A.
NationsBank of Texas, N.A.
U.S. Bank of Washington, N.A.
CIBC Inc.
Re: Washington Energy Company 1995 Credit Agreement
Ladies and Gentlemen:
We have acted as counsel for Washington Energy Company, a Washington
corporation (the "Borrower"), in connection with the execution and delivery by
the Borrower of that certain Credit Agreement (the "Agreement"), dated as of
March 31, 1995, by and among the Borrower and The First National Bank of
Chicago, Seattle-First National Bank, The Industrial Bank of Japan, Limited, ABN
AMRO Bank N.V., Bank of Montreal, First Interstate Bank of Washington, N.A.,
NationsBank of Texas, N.A., U.S. Bank of Washington, N.A., and CIBC Inc. (the
"Lenders"), and The First National Bank of Chicago, as Agent for the Lenders.
Capitalized terms used herein and not otherwise defined are used as defined in
the Agreement. The term "First-Tier Subsidiary" as used herein shall mean those
Subsidiaries that are identified as First Tier Subsidiaries on Schedule 1 to the
Agreement.
In connection with this opinion we have examined only the following
documents, certificates and records (the "Documents").
(1) The Agreement, together with all exhibits and schedules
thereto.
(2) The Notes.
(3) The documents furnished by the Borrower pursuant to Section
4.2(b) of the Agreement.
(4) The Articles of Incorporation of each of the First-Tier
Subsidiaries and all amendments thereto.
<PAGE> 74
Page 2
(5) The Bylaws of each of the First-Tier Subsidiaries and all
amendments thereto.
(6) The stock records of each of the First-Tier Subsidiaries and
resolutions of the respective Boards of Directors of the
First-Tier Subsidiaries relating to issuance of their
respective shares.
(7) The Borrower's Annual Report on Form 10-K filed with the
Securities and Exchange Commission ("SEC") for the Borrower's
fiscal year ended September 30, 1994.
(8) The Borrower's Quarterly Report on Form 10-Q filed with the SEC
for the Borrower's fiscal quarter ended December 31, 1994.
(9) Certificates from the Secretary of State of Washington, dated
March __, 1995, certifying that each of the Borrower and the
First-Tier Subsidiaries is duly authorized to transact business
or conduct affairs as a corporation in the State of Washington.
(10) Certificates, dated as of the date of this opinion, of officers
of the Borrower and the First-Tier Subsidiaries with respect to
certain matters, copies of which are attached hereto.
(11) The Indenture of First Mortgage dated April 1, 1957, between
Washington Natural Gas Company and Harris Trust and Savings
Bank, as trustee, as amended.
(12) Such other documents and matters as we have deemed necessary as
a basis for our opinion.
We have based our opinion expressed in paragraph 1 below as to the good
standing of the Borrower and the First-Tier Subsidiaries under the laws of the
State of Washington solely upon the certificates identified in items (9) and
(10) above.
ASSUMPTIONS
In connection with this opinion, we have assumed:
(i) The authenticity of each Document submitted to us as an
original, the conformity to the original of each Document submitted to us as a
copy, the genuineness of all signatures that are on such originals or copies
(other than the signature of
<PAGE> 75
Page 3
Borrower on the Agreement and the Notes), the legal capacity of all natural
persons executing Documents, and the completeness and accuracy as of the date of
this opinion of the information contained in the Documents.
(ii) The Agreement constitutes the valid and binding obligation of
all parties thereto other than the Borrower and is enforceable against such
parties in accordance with its terms.
(iii) If the Lenders seek to enforce their rights under the Agreement
and the Notes, they will do so in a commercially reasonable manner and in
accordance with applicable procedural law and requirements.
As used in this opinion, the term "current actual knowledge" means (a)
such knowledge as we have obtained from our examination of the Documents and
from inquiries of officers of each of Borrower and the First-Tier Subsidiaries
(as to, among other matters, those indentures, mortgages, contracts or other
agreements or instruments to which the Borrower or any First-Tier Subsidiary is
a party), and (b) the actual knowledge of attorneys who are currently members of
this firm and who are currently involved in substantive legal representation of
the Borrower or the First-Tier Subsidiaries. We have not undertaken any
independent investigation to determine the accuracy of any statements qualified
by this term, and any limited inquiry undertaken by us during the preparation of
this opinion should not be regarded as such an investigation. In addition, no
inference as to our knowledge of any matters bearing on the accuracy of any
statements qualified by this term should be drawn from the fact of our
representation of the Borrower and the First-Tier Subsidiaries.
Based solely on the foregoing and on our examination of such questions
of law as we have deemed necessary or appropriate for the purpose of this
opinion, and subject to the assumptions, qualifications and limitations set
forth herein, it is our opinion that:
1. Each of the Borrower and the First-Tier Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Washington. The Borrower is not required to qualify to do
business as a foreign corporation in any jurisdiction. To our current actual
knowledge, each First-Tier Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its activities or the ownership of its
properties requires such qualification,
<PAGE> 76
Page 4
except to the extent that failure to be so qualified does not have a material
adverse effect on the business, operations or financial condition of the
Borrower and the First-Tier Subsidiaries taken as a whole. The Borrower and the
First-Tier Subsidiaries have full corporate power to carry on their respective
businesses as presently conducted and to own and operate the respective
properties and assets that each of them now owns and operates. The Borrower has
full corporate power to execute, deliver and perform the Agreement and the
Notes.
2. The execution, delivery and performance by the Borrower of the
Agreement and the Notes, and borrowing by the Borrower under and in accordance
with the terms and conditions of the Agreement, have been duly authorized by all
necessary corporate action of the Borrower; do not require any approval by the
shareholders of the Borrower; do not require the approval or consent of any
trustee or holder of any Indebtedness of the Borrower of which we have current
actual knowledge; do not contravene any law or regulation or the Borrower's
Articles of Incorporation or Bylaws; to our current actual knowledge, do not
contravene any order which is binding on the Borrower; and do not contravene the
provisions of or constitute a default under any indenture, mortgage, contract or
other agreement or instrument of which we have current actual knowledge and to
which the Borrower or any First-Tier Subsidiary is a party or by which the
Borrower or any First-Tier Subsidiary or any of the properties of the Borrower
or any First-Tier Subsidiary may be bound or affected; and do not result in the
creation or imposition of any Lien on any of the assets of the Borrower or any
First-Tier Subsidiary pursuant to any indenture, mortgage, contract or other
agreement or instrument of which we have current actual knowledge and to which
the Borrower or any First-Tier Subsidiary is a party.
3. Except for reports required to be filed by the Borrower with the
United States Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, no federal or state Government Approval or
filing or registration with any federal or state Governmental Authority is
required for the execution, delivery and performance by the Borrower of the
Agreement or the Notes or in connection with borrowings under the Agreement.
4. The Agreement and the Notes have been duly executed and delivered by
the Borrower and are valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization,
<PAGE> 77
Page 5
moratorium, fraudulent transfer and other similar laws of general application
affecting the enforcement of creditors' rights, (b) implied obligations of good
faith and fair dealing and considerations of commercial reasonableness, or (c)
other applicable laws and equitable principles which may affect certain of the
remedies provided therein which applicable laws and equitable principles do not
make the remedies provided in the Loan Documents in connection with a material
breach of a material covenant inadequate for the practical realization of the
principal benefits intended to be provided thereby.
5. Except as disclosed in the Borrower's Form 10-K filed with the SEC
for the Borrower's fiscal year ended September 30, 1994, in the Borrower's Form
10-Q filed with the SEC for the Borrower's fiscal quarter ended December 31,
1994, or on Schedule 3 to the Agreement, to our current actual knowledge, there
are no actions, proceedings, investigations or claims against the Borrower or
any of the First-Tier Subsidiaries now pending before any court, arbitrator or
Governmental Authority (nor, to our current actual knowledge, has any thereof
been threatened), which if determined adversely to the Borrower or any of the
First-Tier Subsidiaries would be likely to have a material adverse effect on the
business, operations or financial condition of the Borrower and the First-Tier
Subsidiaries taken as a whole or on the ability of the Borrower to perform its
obligations under the Agreement and the Notes.
6. To our current actual knowledge, except as described in the
financial statements furnished by the Borrower to the Lenders pursuant to
Section 5.6 of the Agreement (a) neither the Borrower nor any First-Tier
Subsidiary is in violation of or subject to any contingent liability on account
of any laws, rules, regulations and orders of any Governmental Authority, except
for violations which in the aggregate do not have a material adverse effect on
the business, operations or financial condition of the Borrower and the
First-Tier Subsidiaries taken as a whole, and (b) neither the Borrower nor any
First-Tier Subsidiary is in material breach of or material default under any
agreement to which it is a party or which is binding on it or any of its assets.
7. To our current actual knowledge, the Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Federal Reserve Regulation U).
<PAGE> 78
Page 6
8. Schedule 1 to the Agreement correctly sets forth, as of the date
hereof, the authorized capitalization of each First-Tier Subsidiary and, to our
current actual knowledge, the number of shares of each class of capital stock
issued and outstanding of each First-Tier Subsidiary. The outstanding shares of
each First-Tier Subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable. To our current actual knowledge, each of the
Borrower and the First-Tier Subsidiaries owns beneficially and of record the
respective shares it is listed as owning on Schedule 1.
9. The Borrower is not an "investment company" or a company
"controlled" by an investment company within the meaning of the Investment
Company Act of 1940, as amended. To our current actual knowledge, the Borrower
does not own any shares of capital stock of a "holding company" as such term is
defined in the Public Utility Holding Company Act of 1935, as amended, and is
not a "subsidiary company" of a "registered holding company" within the meaning
of said Act. Borrower is a "holding company" as defined in said Act by reason of
its ownership of all of the outstanding shares of common stock of Washington
Natural Gas Company, but is exempt from said Act, except the provisions of
Section 9(a)(2) thereof, by virtue of Section 3(a)(1) thereof and Rule 2
thereunder.
We do not purport to be experts on, or to express any opinion herein
concerning, any law other than the law of the State of Washington and the
federal laws of the United States.
This opinion is rendered to you in connection with the above
transaction and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose and may not be relied upon by any other person,
firm or corporation (other than your successors and permitted assigns) for any
purpose without our prior written consent except in connection with the
enforcement of the Agreement and the Notes or the inspection of your files by
governmental examiners or auditors or as required by law. We disclaim any
responsibility to advise you, your successors and permitted assigns, or the
Borrower of any changes in facts or applicable law that occur after the date
hereof and that might affect this opinion.
Very truly yours,
Enclosures
- -- Copies of Officer Certificates
<PAGE> 79
EXHIBIT G
NOTICE OF ASSIGNMENT
________________, 19__
To: WASHINGTON ENERGY COMPANY
=========================
THE FIRST NATIONAL BANK OF CHICAGO
==================================
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to the Credit Agreement dated as of March ___, 1995 among
Washington Energy Company (the "Borrower"), the Lenders party thereto and The
First National Bank of Chicago, as Agent for the Lenders (the "Credit
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered to
***[the Borrower and]***(1) the Agent pursuant to Section 9.3.2 of the Credit
Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of _______, 19__ (the "Assignment"), pursuant to which,
among other things, the Assignor has sold, assigned, delegated and transferred
to the Assignee, and the Assignee has purchased, accepted and assumed from the
Assignor an undivided ___% interest in all outstandings, rights and obligations
of the Assignor ***[other than Competitive Bid Loans made by the Assignor]***
under the Credit Agreement. The Effective Date of the Assignment shall be the
later of ____________, 19__ or two Business Days (or such shorter period as
agreed to by the Agent) after this Notice of Assignment and any consents and
fees required by Sections 9.3.1 and 9.3.2 of the Credit Agreement have been
delivered to the Agent, provided that the Effective Date shall not occur if any
condition precedent
- ----------------------
(1) To be included only if consent must be obtained from the Borrower
pursuant to Section 9.3.1 of the Credit Agreement.
<PAGE> 80
agreed to by the Assignor and the Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The Assignor
will confer with the Agent before __________, 19__ to determine if the
Assignment Agreement will become effective on such date pursuant to Section 3
hereof, and will confer with the Agent to determine the Effective Date pursuant
to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Agent
if the Assignment Agreement does not become effective on any proposed Effective
Date as a result of the failure to satisfy the conditions precedent agreed to by
the Assignor and the Assignee. At the request of the Agent, the Assignor will
give the Agent written confirmation of the satisfaction of the conditions
precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before the
Effective Date the processing fee of $4,000 required by Section 9.3.2 of the
Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Agent prepare and cause the Borrower to
execute and deliver new Notes or, as appropriate, replacement notes, to the
Assignor and the Assignee. The Assignor and, if applicable, the Assignee each
agree to deliver to the Agent the original Note received by it form the Borrower
upon its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment instructions
are set forth in the attachment of this Notice of Assignment.
8. The Assignee hereby represents and warrants that none of the funds,
monies, assets or other consideration being used to make the purchase pursuant
to the Assignment are "plan assets" as defined under ERISA and that its rights,
benefits, and interests in and under the Loan Documents will not be "plan
assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to the Borrower or the
Loan Documents to the Assignee until the Assignee becomes a party to the Credit
Agreement.***(2).
- ----------------------
(2) May be eliminated if Assignee is a party to the Credit Agreement
prior to the Effective Date.
2
<PAGE> 81
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: _____________________ By: __________________________
Title: __________________ Title: _______________________
ACKNOWLEDGED ACKNOWLEDGED
[AND CONSENTED TO] BY: [AND CONSENTED TO] BY:
THE FIRST NATIONAL BANK WASHINGTON ENERGY COMPANY
OF CHICAGO
By: _____________________ By: __________________________
Title: __________________ Title: _______________________
3
<PAGE> 82
WASHINGTON ENERGY COMPANY (WECO)
CREDIT AGREEMENT
SCHEDULE 1
LIST OF SUBSIDIARIES
A. FIRST-TIER SUBSIDIARIES
1. WASHINGTON NATURAL GAS COMPANY, a Washington corporation
Common Stock:
common stock has $5 par value
shares authorized total 25,000,000
shares outstanding total 10,842,131
shares owned by WECO total 10,842,131, representing 100%
ownership
Preferred Stock:
authorized: 1,000,000 shares of
$100 par value and 4,000,000 shares
of $25 par value -
<TABLE>
<CAPTION>
Shares Outstanding
<S> <C>
7.45%, Series II, $25 par value 2,400,000
8.50%, Series III, $25 par value 1,200,000
</TABLE>
2. THERMAL ENERGY, INC., a Washington corporation
common stock has $10 par value
shares authorized total 1,000,000
shares outstanding total 600,000
shares owned by WECO total 600,000, representing 100%
ownership
3. THERMRAIL, INC., a Washington corporation
common stock has $10 par value
shares authorized total 300,000
shares outstanding total 100,000
shares owned by WECO total 100,000, representing 100%
ownership
1
<PAGE> 83
4. WECO FINANCE COMPANY, a Washington corporation
common stock has no par value
shares authorized total 500,000
shares outstanding total 110,000
shares owned by WECO total 110,000, representing 100%
ownership
5. WASHINGTON ENERGY SERVICES COMPANY, a Washington corporation
common stock has $10 par value
shares authorized total 100,000
shares outstanding total 100,000
shares owned by WECO total 100,000, representing 100%
ownership
6. WASHINGTON ENERGY GAS MARKETING COMPANY, a Washington
corporation
common stock has $10 par value shares authorized total
1,000,000 shares outstanding total 1,000 shares owned by WECO
total 1,000, representing 100% ownership
B. OTHER SUBSIDIARIES
1. THERMAL RESOURCES, INC., a Montana corporation
common stock has no par value
shares authorized total 50,000
shares issued total 50,000
shares owned by Thermal Energy, Inc. total 50,000,
representing 100% ownership
2. MERCER INSURANCE COMPANY LIMITED, a Bermuda corporation
common stock has $10 par value
shares authorized total 40,000
shares outstanding total 40,000
shares owned by WECO Finance Company total 39,993,
representing 99.9% ownership
3. WNG CAP I, INC., a Washington corporation
common stock has $10 par value
shares authorized total 50,000
shares outstanding total 100
shares owned by WNG total 100, representing 100% ownership
2
<PAGE> 84
4. WNG CAP II, INC., a Washington corporation
common stock has $10 par value
shares authorized total 50,000
shares outstanding total 100
shares owned by WNG total 100, representing 100% ownership
5. TONGUE RIVER HOLDINGS, INC., a Montana corporation
common stock has $1 par value
shares authorized total 200
shares outstanding total 170
shares owned by Transportation Properties, a partnership,
total 170, representing 100% ownership
6. TRANSPORTATION PROPERTIES, a Montana General Partnership
owned 90% by ThermRail, Inc.
7. TONGUE RIVER RAILROAD COMPANY, a Montana Limited Partnership
owned 99.22% by Transportation Properties and .78% by
Tongue River Holdings, Inc.
3
<PAGE> 1
Exhibit 10-H
WASHINGTON NATURAL GAS COMPANY
DEFERRED COMPENSATION PLAN
(AMENDED AND RESTATED SEPTEMBER 1, 1995)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Selection, Enrollment, Eligibility . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Selection by Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Eligibility; Commencement of Participation . . . . . . . . . . . . . . . . . 7
ARTICLE 3 Deferral Commitments/Interest Crediting . . . . . . . . . . . . . . . . . . . . . 7
3.1 Minimum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Election to Defer: Effect of Election Form . . . . . . . . . . . . . . . . . 8
3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . . . . 8
3.6 Installment Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 FICA and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 Short-Term Payout: Unforeseeable Financial Emergencies; Withdrawal
Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Short Term Payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Death Prior to Completion of Retirement Benefits . . . . . . . . . . . . . . 11
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . . . . . . 12
6.3 Restriction in the Event of Suicide or Falsely Provided Information . . . . 12
ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . . . . . . . . 14
9.3 Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . 14
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11 Termination, Amendment or Modification . . . . . . . . . . . . . . . . . . . . 15
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.3 Interest Rate in the Event of a Change in Control and Interest . . . . . . 16
11.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 12 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . . . . . 17
12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 13 Other Benefits and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 14 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 15 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . . . . . 19
15.2 Interrelationship of the Plan and the Trust . . . . . . . . . . . . . . . 20
ARTICLE 16 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . . . 20
16.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16.4 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . 21
16.5 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
16.6 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.11 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . 22
16.12 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.13 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.14 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.15 Distribution in the Event of Taxation . . . . . . . . . . . . . . 22
16.16 Taxes and Withholding . . . . . . . . . . . . . . . . . . . . . . 23
16.17 Enforcement of Rights After Change in Control . . . . . . . . . . 23
</TABLE>
iii
<PAGE> 5
WASHINGTON NATURAL GAS COMPANY
DEFERRED COMPENSATION PLAN
Amended and Restated September 1, 1995
Purpose
This Plan, as amended and restated effective September 1, 1995, is a
continuation of an existing plan known as the Washington Energy Company Deferred
Compensation Plan for Non-Employee Directors. The purpose of this Plan is to
provide specified benefits to a select group of management, highly compensated
Employees and Directors who contribute materially to the continued growth,
development and future business success of Washington Natural Gas Company, a
Washington corporation, and its subsidiaries and affiliates, if any, that
sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes
of Title I of ERISA.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean the sum of (i) the Deferral
Amount, plus (ii) interest credited in accordance with all the
applicable interest crediting provisions of this Plan, less
(iii) all distributions. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a
Participant pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base
Annual Salary, paid annually to a Participant as an Employee
under any Employer's annual bonus and incentive plans.
1.3 "Annual Deferral Amount" shall mean that portion of a
Participant's Base Annual Salary, Annual Bonus and/or Directors
Fees that a Participant elects to have and is deferred, in
accordance with Article 3, for any one Plan Year. In the event
of a Participant's Retirement, Disability (if deferrals cease
in accordance with Section 8.1), death or a Termination of
Employment prior to the end of a Plan Year, such year's Annual
Deferral Amount shall be the actual amount withheld prior to
such event.
1.4 "Base Annual Salary" shall mean the annual compensation,
excluding bonuses, commissions, overtime, relocation expenses,
incentive payments, nonmonetary
1
<PAGE> 6
awards, directors fees and other fees, and including automobile
allowances, paid to a Participant for employment services
rendered to any Employer, before reduction for compensation
deferred pursuant to all qualified, nonqualified and Code
Section 125 plans of any Employer.
1.5 "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with Article 9,
that are entitled to receive benefits under this Plan upon the
death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established
from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate one
or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Bonus Rate" shall mean, for a Plan Year, an interest rate, if
any, determined by the Committee, in its sole discretion, which
rate shall be determined and announced before the commencement
of the Plan Year for the which the rate applies. This rate may
be zero for any Plan Year.
1.9 "Change in Control" shall mean the first to occur of any of the
following events:
(a) Any "person" (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of 1934
("Exchange Act")) becomes the beneficial owner (as
that term is used in Section 13(d) of the Exchange
Act), directly or indirectly, of 50% or more of the
Company's capital stock entitled to vote in the
election of directors;
(b) During any period of not more than two consecutive
years, not including any period prior to the adoption
of this Plan, individuals who at the beginning of such
period constitute the board of directors of the
Company, and any new director (other than a director
designated by a person who has entered into an
agreement with the Company to effect a transaction
described in clause (a), (c), (d) or (e) of this
Section 1.9) whose election by the board of directors
or nomination for election by the Company's
stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any
consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the
holders of the common stock of the Company immediately
2
<PAGE> 7
prior to the consolidation or merger hold more than
50% of the common stock of the surviving corporation
immediately after the consolidation or merger;
(d) The shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company, or a sale of substantially all of the assets
of the Company; or
(e) Substantially all of the assets of the Company are
sold or otherwise transferred to parties that are not
within a "controlled group of corporations" (as
defined in Code Section 1563) in which the Company is
a member.
1.10 "Claimant" shall have the meaning set forth in Section 14.1.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as may be
amended from time to time.
1.12 "Committee" shall mean the committee described in Article 12.
1.13 "Company" shall mean Washington Natural Gas Company, a
Washington corporation.
1.14 "Crediting Rate" shall mean, for each Plan Year, an interest
rate determined and announced by the Committee before the Plan
Year for which it is to be used that is equal to the Moody's
Rate. The Moody's Rate for a Plan Year shall be an interest
rate that (i) is published in Moody's Bond Record under the
heading of "Moody's Corporate Bond Yield Averages -- Av. Corp,"
and (ii) is equal to the average corporate bond yield most
recently published prior to the Plan Year for which the rate is
to be used.
1.15 "Deferral Amount" shall mean the sum of all of a Participant's
Annual Deferral Amounts.
1.16 "Deduction Limitation" shall mean the following described
limitation on the annual benefit that may be distributed
pursuant to the provisions of this Plan. Except as otherwise
provided, this limitation shall be applied to all distributions
under this Plan. If an Employer determines in good faith prior
to a Change in Control that there is a reasonable likelihood
that any compensation paid to a Participant for a taxable year
of the Employer would not be deductible by the Employer solely
by reason of the limitation under Code Section 162(m), then to
the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant
to this Plan prior to the Change in Control is deductible, the
Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred
3
<PAGE> 8
pursuant to this limitation shall continue to be credited with
interest in accordance with Section 3.5 below. The amounts so
deferred and interest thereon shall be distributed to the
Participant or his or her Beneficiary (in the event of the
Participant's death) at the earliest possible date, as
determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the
Participant for the taxable year of the Employer during which
the distribution is made will not be limited by Section 162(m),
or if earlier, the effective date of a Change in Control.
1.17 "Director" shall mean any member of the board of directors of
any Employer.
1.18 "Directors Fees" shall mean the annual fees paid by any
Employer, including retainer fees and meetings fees, as
compensation for serving on the board of directors.
1.19 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does
not participate in such a plan, a period of disability during
which the Participant would have qualified for benefits under
such a plan had the Participant been a participant in such a
plan, as determined in the sole discretion of the Committee. If
the Participant's Employer does not sponsor such a plan or
discontinues to sponsor such a plan, Disability shall be
determined by the Committee in its sole discretion.
1.20 "Disability Benefit" shall mean the benefit set forth in
Article 8.
1.21 "Election Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and
returns to the Committee to make an election under the Plan.
1.22 "Employee" shall mean a person who is an employee of any
Employer.
1.23 "Employer(s)" shall mean the Company and/or any of its
subsidiaries and affiliates that have been selected by the
Board to participate in the Plan.
1.24 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as may be amended from time to time.
1.25 "Participant" shall mean any Employee or Director (i) who is
selected to participate in the Plan, (ii) who elects to
participate in the Plan, (iii) who signs a Plan Agreement, an
Election Form and a Beneficiary Designation Form, (iv) whose
signed Plan Agreement, Election Form and Beneficiary
Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan
Agreement has not terminated.
4
<PAGE> 9
1.26 "Plan" shall mean the Company's Deferred Compensation Plan,
which shall be evidenced by this instrument and by each Plan
Agreement, as may be amended from time to time.
1.27 "Plan Agreement" shall mean a written agreement, as may be
amended from time to time, which is entered into by and between
an Employer and a Participant. Each Plan Agreement executed by
a Participant shall provide for the entire benefit to which
such Participant is entitled to under the Plan, and the Plan
Agreement bearing the latest date of acceptance by the
Committee shall govern such entitlement.
1.28 "Plan Year" shall, for the first Plan Year for Participants
other than Directors, begin on September 1, 1995, and end on
December 31, 1995. For each Plan Year thereafter, the Plan Year
shall begin on January 1 of each year and continue through
December 31.
1.29 "Preferred Rate" shall mean, for each Plan Year, an interest
rate that is the sum of the Crediting Rate and the Bonus Rate
for that Plan Year.
1.30 "Pre-Retirement Survivor Benefit" shall mean the benefit set
forth in Article 6.
1.31 "Retirement", "Retires" or "Retired" shall mean, with respect
to an Employee, severance from employment from all Employers
for any reason other than a leave of absence, death or
Disability on or after the earlier of the attainment of (a) age
sixty-five (65) or (b) age fifty-five with ten (10) Years of
Service; and shall mean, with respect to a Director who is not
an Employee, severance of his or her directorships with all
Employers. If a Participant is both an Employee and a Director,
Retirement shall not occur until he or she Retires as both an
Employee and a Director, which Retirement shall be deemed to be
a Retirement as a Director; provided, however, that such a
Participant may elect, prior to Retirement and in accordance
with the policies and procedures established by the Committee,
to Retire for purposes of this Plan at the time he or she
Retires as an Employee, which Retirement shall be deemed to be
a Retirement as an Employee.
1.32 "Retirement Benefit" shall mean the benefit set forth in
Article 5.
1.33 "Short-Term Payout" shall mean the payout set forth in Section
4.1.
1.34 "Termination Benefit" shall mean the benefit set forth in
Article 7.
1.35 "Termination of Employment" shall mean the ceasing of
employment with all Employers, or service as a Director of all
Employers, voluntarily or involuntarily, for any reason other
than Retirement, Disability, death or an authorized leave of
absence. If a Participant is both an Employee and a
5
<PAGE> 10
Director, a Termination of Employment shall occur only upon the
termination of the last position held; provided, however, that
such a Participant may elect, in accordance with the policies
and procedures established by the Committee, to be treated for
purposes of this Plan as having experienced a Termination of
Employment at the time he or she ceases employment with an
Employer as an Employee.
1.36 "Trust" shall mean the trust established pursuant to that
certain Master Trust Agreement, dated as of September 1, 1995,
between the Company and the trustee named therein, as amended
from time to time.
1.37 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to
the Participant resulting from (i) a sudden and unexpected
illness or accident of the Participant or a dependent of the
Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control
of the Participant, all as determined in the sole discretion of
the Committee.
1.38 "Years of Plan Participation" shall mean the total number of
full Plan Years a Participant has been a Participant in the
Plan prior to his or her Termination of Employment (determined
without regard to whether deferral elections are made under
this Plan). For purposes of a Participant's first Plan Year of
participation only, any partial Plan Year of participation
shall be treated as a full Plan Year.
1.39 "Years of Service" shall mean the total number of full years in
which a Participant has been employed by one or more Employers.
For purposes of this definition, a year of employment shall be
a 365 day period (or 366 day period in the case of a leap year)
that, for the first year of employment, commences on the
Employee's date of hiring and that, for any subsequent year,
commences on an anniversary of that hiring date. Any partial
year of employment shall not be counted.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Selection by Committee. Participation in the Plan shall be
limited to a select group of management, highly compensated
Employees and Directors of the Employers. From that group, the
Committee shall select, in its sole discretion, Employees and
Directors to participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each
selected Employee or Director shall complete, execute and
return to the Committee
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<PAGE> 11
within 30 days of selection a Plan Agreement, an Election Form
and a Beneficiary Designation Form. In addition, the Committee
shall establish from time to time such other enrollment
requirements as it determines in its sole discretion are
necessary.
2.3 Eligibility; Commencement of Participation. Provided an
Employee or Director selected to participate in the Plan has
met all enrollment requirements set forth in this Plan and
required by the Committee, including returning all required
documents to the Committee within 30 days of selection, that
Employee or Director shall commence participation in the Plan
on the first day of the month following the month in which the
employee or Director completes all enrollment requirements. If
an Employee or a Director fails to meet all such requirements
within the required 30 day period, that Employee or the
Director shall not be eligible to participate in the Plan until
the first day of the Plan Year following the delivery to and
acceptance by the Committee of the required documents.
ARTICLE 3
Deferral Commitments/Interest Crediting
3.1 Minimum Deferral.
(a) Minimum. For each Plan Year, a Participant may
elect to defer Base Annual Salary, Annual Bonus and/or
Directors Fees in the following minimum amounts for
each deferral elected:
<TABLE>
<CAPTION>
Minimum
Deferral Amount
-------- -------
<S> <C>
Base Annual Salary and Annual Bonus $2,000
Directors Fees $ 0
</TABLE>
For the first (short) Plan Year September 1, 1995 to
December 31, 1995, a minimum of $600 of Base Annual
Salary and Annual Bonus must be elected to be
deferred. If no election is made, the amount deferred
shall be zero.
(b) Short Plan Year. If a Participant first
becomes a Participant after the first day of a Plan
Year, the minimum Base Annual Salary deferral shall be
an amount equal to the minimum set forth above,
multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan
Year and the denominator of which is 12.
7
<PAGE> 12
3.2 Maximum Deferral. For each Plan Year, a Participant may elect
to defer Base Annual Salary, Annual Bonus and/or Directors Fees
up to the following maximum percentages for each deferral
elected:
<TABLE>
<CAPTION>
Maximum
Deferral Amount
-------- --------
<S> <C>
Base Annual Salary 100%
Annual Bonus 100%
Directors Fees 100%
</TABLE>
3.3 Election to Defer: Effect of Election Form. In
connection with a Participant's commencement of participation
in the Plan, the Participant shall make a deferral election by
timely delivering to the Committee (in accordance with Section
2.3 above) a completed and signed Election Form, which election
and form must be accepted by the Committee for a valid election
to exist. For each succeeding Plan Year, a new Election Form
must be delivered to the Committee, in accordance with its
rules and procedures, before the end of the Plan Year preceding
the Plan Year for which the election is made. If no Election
Form is timely delivered for a Plan Year, no Annual Deferral
Amount shall be withheld for that Plan Year.
3.4 Withholding of Deferral Amounts. For each Plan Year,
the Base Annual Salary portion of the Annual Deferral Amount
shall be withheld each payroll period in equal amounts from the
Participant's Base Annual Salary. The Annual Bonus and/or
Directors Fees portion of the Annual Deferral Amount shall be
withheld at the time the Annual Bonus or Directors Fees are or
otherwise would be paid to the Participant.
3.5 Interest Crediting Prior to Distribution. Prior to any
distribution of benefits under Articles 4, 5, 6, 7 or 8,
interest shall be credited and compounded annually on a
Participant's Account Balance as though the Annual Deferral
Amount for that Plan Year was withheld at the beginning of the
Plan Year or, in the case of the first year of Plan
participation, was withheld on the date that the Participant
commenced participation in the Plan. The rate of interest for
crediting shall be the Preferred Rate, except as otherwise
provided in this Plan. In the event of Retirement, Disability,
death or Termination of Employment prior to the end of a Plan
Year, the basis for that year's interest crediting will be a
fraction of the full year's interest, based on the number of
full months that the Participant was employed with the Employer
during the Plan Year prior to the occurrence of such event. If
a distribution is made under this Plan, for purposes of
crediting interest, the Account Balance shall be reduced as of
the first day of the month in which the distribution is made.
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<PAGE> 13
3.6 Installment Distributions. In the event a benefit is paid in
installments under Articles 5, 6 or 8, installment payment
amounts shall be determined in the following manner:
(a) Interest Rate. The interest rate to be used to
calculate installment payment amounts shall be a fixed
interest rate that is determined by averaging the
Preferred Rates for the Plan Year in which installment
payments commence and the four (4) preceding Plan
Years. If a Participant has completed fewer than five
(5) Plan Years, this average shall be determined using
the Preferred Rates for the Plan Years during which
the Participant participated in the Plan.
(b) "Deemed" Installment Payments. For purposes of
calculating installment payment amounts only (and
notwithstanding the fact that installment payments
shall actually be paid monthly), installment payments
for each 12 month period, starting with the date that
the Participant became eligible to receive a benefit
under this Plan (the "Eligibility Date") and
continuing thereafter for each additional 12 month
period until the Participant's Account Balance is paid
in full, shall be deemed to have been paid in one sum
as of the first day of each such 12 month period. (The
result of this is that interest crediting shall be
made on an annual basis after taking into account the
"deemed" annual installment payment for the 12 month
period.)
(c) Amortization. Based on the interest rate
determined in accordance with Section 3.6(a) above and
the "deemed" form of installment payments determined
in accordance with Section 3.6(b) above, the
Participant's Account Balance shall be amortized in
equal annual installment payments over the term of the
specified payment period (starting as of the
Eligibility Date and stated in years rather than
months).
(d) Monthly Payments. The annual installment
payment determined in Section 3.6(c) above shall be
divided by 12, and the resulting number shall be the
monthly installment payment that is to be paid each
month during the specified monthly installment payment
period in accordance with the other terms and
conditions of this Plan.
3.7 FICA and Other Taxes. For each Plan Year in which an
Annual Deferral Amount is being withheld, the Participant's
Employer(s) shall ratably withhold from that portion of the
Participant's Base Annual Salary that is not being deferred,
the Participant's share of FICA and other employment taxes. If
necessary, the Committee shall reduce the Annual Deferral
Amount in order to comply with this Section 3.7.
ARTICLE 4
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<PAGE> 14
Short-Term Payout: Unforeseeable Financial Emergencies; Withdrawal Election
4.1 Short Term Payout. Subject to the Deduction Limitation,
in connection with each election to defer an Annual Deferral
Amount, a Participant may elect to receive a future "Short-Term
Payout" from the Plan with respect to that Annual Deferral
Amount. The Short-Term Payout shall be a lump sum payment in an
amount that is equal to the Annual Deferral Amount plus
interest credited in the manner provided in Section 3.5 above
on that amount, but using the applicable interest rate set
forth in Section 7.1 below. Subject to the other terms and
conditions of this Plan, each Short-Term payout elected shall
be paid within 60 days of the first day of the Plan Year that
is 5 years after the first day of the Plan Year in which the
Annual Deferral Amount is actually deferred.
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies. If the Participant experiences an
Unforeseeable Financial Emergency, the Participant may petition
the Committee to (i) suspend any deferrals required to be made
by a Participant and/or (ii) receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the amount
reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee,
the petition for a suspension and/or payout is approved,
suspension shall take effect upon the date of approval and any
payout shall be made within 60 days of the date of approval.
The payment of any amount under this Section 4.2 shall not be
subject to the Deduction Limitation.
4.3 Withdrawal Election. A Participant may elect, at any time, to
withdraw all of his or her Account Balance less a 10%
withdrawal penalty (the net amount shall be referred to as the
"Withdrawal Amount). No partial withdrawals of that balance
shall be allowed. The Participant shall make this election by
giving the Committee advance written notice of the election in
a form determined from time to time by the Committee. The
penalty shall be equal to 10% of the Participant's Account
Balance determined immediately prior to the withdrawal. The
Participant shall be paid the Withdrawal Amount within 60 days
of his or her election. Once the Withdrawal Amount is paid, the
Participant's participation in the Plan shall terminate and the
Participant shall not be eligible to participate in the Plan in
the future. The payment of this Withdrawal Amount shall not be
subject to the Deduction Limitation.
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement Benefit,
his or her Account Balance.
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<PAGE> 15
5.2 Payment of Retirement Benefits. A Participant, in
connection with his or her commencement of participation in the
Plan, shall elect on an Election Form to receive the Retirement
Benefit in a lump sum or in equal monthly payments (the latter
determined in accordance with Section 3.6 above) over a period
of 60, 120 or 180 months. The Participant may change his or her
election to an allowable alternative payout period by
submitting a new Election Form to the Committee, provided that
any such Election Form is submitted at least 3 years prior to
the Participant's Retirement and is accepted by the Committee
in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the
Retirement Benefit. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days
after the date the Participant Retires.
5.3 Death Prior to Completion of Retirement Benefits. If a
Participant dies after Retirement but before the Retirement
Benefit is paid in full, the Participant's unpaid Retirement
Benefit payments shall continue and shall be paid to the
Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in
a lump sum, if requested by the Beneficiary and allowed in the
sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
11
<PAGE> 16
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction
Limitation, and except as provided in Section 6.3 below, if a
Participant dies before he or she Retires, experiences a
Termination of Employment or suffers a Disability, the
Participant's Beneficiary shall receive a Pre-Retirement
Survivor Benefit equal to the Participant's Account Balance.
6.2 Payment of Pre-Retirement Survivor Benefits. A Participant, in
connection with his or her commencement of participation in the
Plan, shall elect on an Election Form whether the
Pre-Retirement Survivor Benefit shall be received by his or her
Beneficiary in a lump sum or in equal monthly payments (the
latter determined in accordance with Section 3.6 above) over a
period of 60, 120 or 180 months. The Participant may change
this election to an allowable alternative payout period by
submitting a new Election Form to the Committee, which form
must be accepted by the Committee in its sole discretion. The
Election Form most recently accepted by the Committee prior to
the Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. Despite the
foregoing, if the Participant's Account Balance at the time of
his or her death is less than $25,000, payment of the
Pre-Retirement Survivor Benefit may be made, in the sole
discretion of the Committee, in a lump sum or in installment
payments that do not exceed five years in duration. The lump
sum payment shall be made, or installment payments shall
commence, no later than 60 days after the date the Committee is
provided with proof that is satisfactory to the Committee of
the Participant's death.
6.3 Restriction in the Event of Suicide or Falsely Provided
Information. In the event of a Participant's suicide within 2
years after the Participant first becomes a Participant, or in
the event the Participant's death is determined to be from a
bodily or mental cause or causes, the information about which
was withheld, knowingly concealed, or falsely provided by the
Participant if requested to furnish evidence of good health,
the Pre-Retirement Survivor Benefit shall be equal to the sum
of the Participant's Annual Deferral Amounts, without interest,
all determined as of his or her date of death.
ARTICLE 7
Termination Benefit
7.1 Termination Benefits. Subject to the Deduction Limitation, if a
Participant experiences a Termination of Employment prior to
his or her Retirement, death or Disability, the Participant
shall receive a Termination Benefit, which shall be equal to
the Participant's Account Balance, with interest credited in
12
<PAGE> 17
the manner provided in Section 3.5 above, but using the
applicable interest rate set forth in the following schedule:
<TABLE>
<CAPTION>
COMPLETION OF YEARS OF PLAN PARTICIPATION APPLICABLE RATE
<S> <C>
Less than five years Crediting Rate
Five or more years Preferred Rate
</TABLE>
Notwithstanding the foregoing, if a Participant experiences a
Termination of Employment before completing five (5) Years of
Plan Participation as a result, in the judgment of the
Committee, of an reorganization of his or her Employer, the
applicable interest rate shall be the Preferred Rate.
7.2 Payment of Termination Benefit. The Termination Benefit shall
be paid in a lump sum within 60 days of the Termination of
Employment.
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Eligibility. By participating in the Plan, all
Participants are eligible for this waiver.
(b) Waiver of Deferral; Credit for Plan Year of
Disability. A Participant who is determined by the
Committee to be suffering from a Disability shall be
excused from fulfilling that portion of the Annual
Deferral Amount commitment that would otherwise have
been withheld from a Participant's Base Annual Salary,
Annual Bonus and/or Directors Fees for the Plan Year
during which the Participant first suffers a
Disability. During the period of Disability, the
Participant shall not be allowed to make any
additional deferral elections.
(c) Return to Work. If a Participant returns to employment
or service as a Director with an Employer after a
Disability ceases, the Participant may elect to defer
an Annual Deferral Amount for the Plan Year following
his or her return to employment or service and for
every Plan Year thereafter while a Participant in the
Plan; provided such deferral elections are otherwise
allowed and an Election Form is delivered to and
accepted by the Committee for each such election in
accordance with Section 3.3 above.
13
<PAGE> 18
8.2 Disability Benefit. A Participant suffering a Disability shall,
for benefit purposes under this Plan, continue to be considered
to be employed or in the service of an Employer as a Director
and shall be eligible for the benefits provided for in Articles
4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have
the right, in its sole and absolute discretion and for purposes
of this Plan only, to terminate a Participant's employment or
service as a Director at any time after such Participant is
determined to be permanently disabled (i) under the Participant
Employer's long-term disability plan (or would have been
determined to be permanently disabled had he or she
participated in that plan), or (ii) if such a plan does not
exit, by the Committee in its sole discretion.
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any
time, to designate his or her Beneficiary(ies) (both primary as
well as contingent) to receive any benefits payable under the
Plan to a beneficiary upon the death of a Participant. The
Beneficiary designated under this Plan may be the same as or
different from the Beneficiary designation under any other plan
of an Employer in which the Participant participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant
shall designate his or her Beneficiary by completing and
signing the Beneficiary Designation Form, and returning it to
the Committee or its designated agent. A Participant shall have
the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the Beneficiary
Designation Form and the Committee's rules and procedures, as
in effect from time to time. If the Participant names someone
other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be
signed by that Participant's spouse and returned to the
Committee. Upon the receipt by the Committee of a new
Beneficiary Designation Form, all Beneficiary designations
previously filed shall be cancelled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed
by the Participant prior to his or her death.
9.3 Receipt. No designation or change in designation of a
Beneficiary shall be effective until received by the Committee
or its designated agent.
9.4 No Beneficiary Designation. If a Participant fails to designate
a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above
or, if all designated Beneficiaries predecease the Participant
or die prior to complete distribution of the Participant's
benefits, then the Participant's designated Beneficiary shall
be deemed to be his or her surviving spouse. If the Participant
has no surviving spouse, the benefits remaining under the Plan
to be paid to a Beneficiary shall
14
<PAGE> 19
be payable to the executor or personal representative of the
Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to
the proper Beneficiary to receive payments pursuant to this
Plan, the Committee shall have the right, exercisable in its
discretion, to cause the Participant's Employer to withhold
such payments until this matter is resolved to the Committee's
satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the
Plan to a Beneficiary shall fully and completely discharge all
Employers and the Committee from all further obligations under
this Plan with respect to the Participant, and that
Participant's Plan Agreement shall terminate upon such full
payment of benefits.
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of
absence from the employment of the Employer, the Participant
shall continue to be considered employed by the Employer and
the Annual Deferral Amount shall continue to be withheld during
such paid leave of absence in accordance with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave
of absence from the employment of the Employer, the Participant
shall continue to be considered employed by the Employer and
the Participant shall be excused from making deferrals until
the earlier of the date the leave of absence expires or the
Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining
portion of the Plan Year in which the expiration or return
occurs, based on the deferral election, if any, made for that
Plan Year. If no election was made for that Plan Year, no
deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. Any Employer reserves the right to terminate the
Plan at any time with respect to its participating Employees
and Directors by the action of its board of directors. Upon the
termination of the Plan, all Plan Agreements of a Participant
shall terminate and his or her Account Balance, determined as
if he or she had experienced a Termination of Employment on the
date of Plan termination or, if Plan termination occurs after
the date upon which the Participant was eligible to Retire, the
Participant had Retired on the date of
15
<PAGE> 20
Plan termination, shall be paid to the Participant as follows.
Prior to a Change in Control, an Employer shall have the right,
in its sole discretion, and notwithstanding any elections made
by the Participant, to pay such benefits in a lump sum or in
monthly installments for up to 15 years, with interest credited
during the installment period as provided in Section 3.6. After
a Change in Control, the Employer shall be required to pay such
benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of
the date of termination; provided however, that the Employer
shall have the right to accelerate installment payments by
paying the present value equivalent of such payments, using the
Crediting Rate for the Plan Year in which the termination
occurs as the discount rate, in a lump sum or pursuant to a
different payment schedule.
11.2 Amendment. Any Employer may, at any time, amend or modify the
Plan in whole or in part with respect to that Employer by the
action of its board of directors; provided, however, that no
amendment or modification shall be effective to decrease or
restrict the value of a Participant's Account Balance in
existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination
of Employment as of the effective date of the amendment or
modification, or, if the amendment or modification occurs after
the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the
amendment or modification. The amendment or modification of the
Plan shall not affect any Participant or Beneficiary who has
become entitled to the payment of benefits under the Plan as of
the date of the amendment or modification; provided, however,
that the Employer shall have the right to accelerate
installment payments by paying the present value equivalent of
such payments, using the Crediting Rate for the Plan Year of
the amendment or modification as the discount rate, in a lump
sum or pursuant to a different payment schedule.
11.3 Interest Rate in the Event of a Change in Control and Interest.
If a Change in Control occurs, the applicable interest rate to
be used in determining a Participant's benefit in connection
with a Termination of Employment after the Change in Control,
or a Plan termination, amendment or modification under Sections
11.1 and 11.2, shall be the Preferred Rate. However, the
Crediting Rate for the applicable Plan Year, and not the
Preferred Rate, shall be used as the discount rate for
determining present value.
11.4 Effect of Payment. The full payment of the applicable benefit
under Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her
designated Beneficiaries under this Plan and the Participant's
Plan Agreement shall terminate.
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<PAGE> 21
ARTICLE 12
Administration
12.1 Committee Duties. This Plan shall be administered by a
Committee which shall consist of the Board, or such committee
as the Board shall appoint. Members of the Committee may be
Participants under this Plan. The Committee shall also have the
discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the
administration of this Plan and (ii) decide or resolve any and
all questions including interpretations of this Plan, as may
arise in connection with the Plan.
12.2 Agents. In the administration of this Plan, the Committee may,
from time to time, employ agents and delegate to them such
administrative duties as it sees fit (including acting through
a duly appointed representative) and may from time to time
consult with counsel who may be counsel to any Employer.
12.3 Binding Effect of Decisions. The decision or action of the
Committee with respect to any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and binding
upon all persons having any interest in the Plan.
12.4 Indemnity of Committee. All Employers shall indemnify and hold
harmless the members of the Committee against any and all
claims, losses, damages, expenses or liabilities arising from
any action or failure to act with respect to this Plan, except
in the case of willful misconduct by the Committee or any of
its members.
12.5 Employer Information. To enable the Committee to perform its
functions, each Employer shall supply full and timely
information to the Committee on all matters relating to the
compensation of its Participants, the date and circumstances of
the Retirement, Disability, death or Termination of Employment
of its Participants, and such other pertinent information as
the Committee may reasonably require.
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<PAGE> 22
ARTICLE 13
Other Benefits and Agreements
13.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant
under any other plan or program for employees of the
Participant's Employer. The Plan shall supplement and shall not
supersede, modify or amend any other such plan or program
except as may otherwise be expressly provided.
ARTICLE 14
Claims Procedures
14.1 Presentation of Claim. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being
referred to below as a "Claimant) may deliver to the Committee
a written claim for a determination with respect to the amounts
distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant,
the claim must be made within 60 days after such notice was
received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All
other claims must be made within 180 days of the date on which
the event that caused the claim to arise occurred. The claim
must state with particularity the determination desired by the
Claimant.
14.2 Notification of Decision. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary,
in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a
manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the
claim, or any part of it;
(ii) specific reference(s) to pertinent provisions
of the Plan upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to
perfect the claim, and an explanation of why
such material or information is necessary;
and
18
<PAGE> 23
(iv) an explanation of the claim review procedure
set forth in Section 14.3 below.
14.3 Review of a Denied Claim. Within 60 days after receiving a
notice from the Committee that a claim has been denied, in
whole or in part, a Claimant (or the Claimant's duly authorized
representative) may file with the Committee a written request
for a review of the denial of the claim. Thereafter, but not
later than 30 days after the review procedure began, the
Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its
sole discretion, may grant.
14.4 Decision on Review. The Committee shall render its decision on
review promptly, and not later than 60 days after the filing of
a written request for review of the denial, unless a hearing is
held or other special circumstances require additional time, in
which case the Committee's decision must be rendered within 120
days after such date. Such decision must be written in a manner
calculated to be understood by the Claimant, and it must
contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions
upon which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing
provisions of this Article 14 is a mandatory prerequisite to a
Claimant's right to commence any legal action with respect to
any claim for benefits under this Plan.
ARTICLE 15
Trust
15.1 Establishment of the Trust. The Company shall establish the
Trust, and the Employers shall at least annually transfer over
to the Trust such assets as the Employers determine, in their
sole discretion, are necessary to provide for their respective
future liabilities created with respect to the Annual Deferral
Amounts and interest credits for that year.
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<PAGE> 24
15.2 Interrelationship of the Plan and the Trust. The provisions of
the Plan and the Plan Agreement shall govern the rights of a
Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the
Employers, Participants and the creditors of the Employers to
the assets transferred to the Trust. Each Employer shall at all
times remain liable to carry out its obligations under the
Plan. Each Employer's obligations under the Plan may be
satisfied with Trust assets distributed pursuant to the terms
of the Trust, and any such distribution shall reduce the
Employer's obligations under this Agreement.
ARTICLE 16
Miscellaneous
16.1 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interests or claims in any property
or assets of an Employer. Any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted
assets of the Employer. An Employer's obligation under the Plan
shall be merely that of an unfunded and unsecured promise to
pay money in the future.
16.2 Employer's Liability. An Employer's liability for the payment
of benefits shall be defined only by the Plan and the Plan
Agreement as entered into between the Employer and a
Participant. An Employer shall have no obligation to a
Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
16.3 Nonassignability. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are expressly declared to be,
unassignable and non-transferable, except that the foregoing
shall not apply to any family support obligations set forth in
a court order. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
16.4 Not a Contract of Employment. The terms and conditions of this
Plan shall not be deemed to constitute a contract of employment
between any Employer and the Participant. Such employment is
hereby acknowledged to be an "at will" employment relationship
that can be terminated at any time for any reason, or no
reason, with or without cause, and with or without notice,
unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the
right to be retained in the service of
20
<PAGE> 25
any Employer, either as an Employee or a Director, or to
interfere with the right of any Employer to discipline or
discharge the Participant at any time.
16.5 Furnishing Information. A Participant or his or her Beneficiary
will cooperate with the Committee by furnishing any and all
information requested by the Committee and take such other
actions as may be requested in order to facilitate the
administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.6 Terms. Whenever any words are used herein in the singular or in
the plural, they shall be construed as though they were used in
the plural or the singular, as the case may be, in all cases
where they would so apply.
16.7 Captions. The captions of the articles, sections and paragraphs
of this Plan are for convenience only and shall not control or
affect the meaning or construction of any of its provisions.
16.8 Governing Law. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal
laws of the State of Washington without regard to its conflicts
of laws principles.
16.9 Notice. Any notice or filing required or permitted to be given
to the Committee under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or certified
mail, to the address below:
815 Mercer Street
P.O. Box 1869
Seattle, Washington 98111
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing
and hand-delivered, or sent by mail, to the last known address
of the Participant.
16.10 Successors. The provisions of this Plan shall bind and
inure to the benefit of the Participant's Employer and its
successors and assigns and the Participant and the
Participant's designated Beneficiaries.
21
<PAGE> 26
16.11 Spouse's Interest. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant
shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
16.12 Validity. In case any provision of this Plan shall be illegal
or invalid for any reason, said illegality or invalidly shall
not affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal or invalid provision
had never been inserted herein.
16.13 Incompetent. If the Committee determines in its discretion that
a benefit under this Plan is to be paid to a minor, a person
declared incompetent or to a person incapable of handling the
disposition of that person's property, the Committee may direct
payment of such benefit to the guardian, legal representative
or person having the care and custody of such minor,
incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as
it may deem appropriate prior to distribution of the benefit.
Any payment of a benefit shall be a payment for the account of
the Participant and the Participant's Beneficiary, as the case
may be, and shall be a complete discharge of any liability
under the Plan for such payment amount.
16.14 Court Order. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the
Committee has been named as a party.
16.15 Distribution in the Event of Taxation.
(a) General. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable
to the Participant prior to receipt, a Participant may
petition the Committee for a distribution of that
portion of his or her benefit that has become taxable.
Upon the grant of such a petition, which grant shall
not be unreasonably withheld, a Participant's Employer
shall distribute to the Participant immediately
available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not
exceed a Participant's unpaid Account Balance under
the Plan). If the petition is granted, the tax
liability distribution shall be made within 90 days of
the date when the Participant's petition is granted.
Such a distribution shall affect and reduce the
benefits to be paid under this Plan.
(b) Trust. If the Trust terminates in accordance with
Section 3.6(e) of the Trust and benefits are
distributed from the Trust to a Participant in
22
<PAGE> 27
accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the
extent of such distributions.
16.16 Taxes and Withholding. The Participant's Employer(s), or the
trustee of the Trust in accordance with the terms of the Trust,
may withhold from any distribution under this Plan any and all
employment and income taxes that are required to be withheld
under applicable law.
16.17 Enforcement of Rights After Change in Control. The
Company is aware that upon the occurrence of a Change in
Control, the Board (which might then be composed of new
members) or a shareholder of the Company or of any successor
corporation, might then cause or attempt to cause the Company
or such successor to refuse to comply with its obligations
under the Plan and might cause or attempt to cause the Company
to institute, or may institute, litigation seeking to deny
Participants the benefits intended under the Plan. In these
circumstances, the purpose of the Plan could be frustrated.
Accordingly, if, following a Change in Control, the Company
fails to comply with any of its obligations under the Plan or
any agreement thereunder or, if the Company or any other person
takes any action to declare the Plan void or unenforceable or
institutes any litigation or other legal action designed to
deny, diminish or to recover from any Participant the benefits
intended to be provided, then such Participant may retain
counsel of his or her choice to represent such Participant in
connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any
director, officer, shareholder or other person affiliated with
the Company or any successor thereto in any jurisdiction. In
any litigation or other legal action, the prevailing party
shall be entitled to recover reasonable attorney's fees and
costs.
IN WITNESS WHEREOF, the Company has signed this Plan document
as of September 1, 1995.
Washington Natural Gas Company
By:
----------------------
Title:
----------------------
23
<PAGE> 1
EXHIBIT 10-I
WASHINGTON NATURAL GAS COMPANY
AMENDED EXECUTIVE RETIREMENT COMPENSATION AGREEMENT
THIS AMENDED AGREEMENT made and entered into in the City of Seattle,
State of Washington, this 16th day of August, 1995, by and between WASHINGTON
NATURAL GAS COMPANY, a Washington company (hereinafter referred to as "the
Company") and ________________, (hereinafter referred to as the "Executive").
WHEREAS, the Executive has been employed by the Company in an executive
capacity for a number of years, upon the terms from time to time mutually
agreed upon by the Company and the Executive, and has rendered valuable
services to the Company; and
WHEREAS, the Company wishes to be reasonably assured that the Executive
will continue with the Company and desires to retain his or her services and to
provide an incentive for such Executive to continue to perform exceptional
services and to devote his or her full abilities and industry to the success of
the Company's business;
Now, Therefore, in consideration of the services performed in the past
and to be performed in the future by said Executive, the parties hereto agree
as follows:
1. Normal Retirement. The Executive's Normal Retirement Date under
this Agreement shall be the first day of the month coincident with or next
following his or her 65th birthday. Upon such date the Executive shall retire
from the active and daily service of the Company, unless the Company requests,
and the Executive agrees to, his or her continued employment. Notwithstanding
the Normal Retirement Date, the Executive may elect to retire from or after the
first day of the month coincident with or next following his or her 62nd
birthday. Upon retirement, pursuant to this section 1 of this Agreement the
Company shall pay to the Executive a monthly pension in an amount sufficient to
provide a Total Monthly Retirement Benefit (as defined below) equal to 70% of
the Executive's average basic monthly salary (excluding bonuses, fringe
benefits and other special pay, but including commissions) for his or her
highest three (3) years within the last eight (8) years of employment with the
Company or, if the Executive has not been employed by the Company for eight (8)
years, such lesser number of years of actual employment with the Company. For
purposes of this determination, each year of employment shall be a twelve (12)
month period ending on the last day of the month preceding the month of
retirement. In determining the monthly pension payable hereunder the
Executive's "Total Monthly Retirement
1
<PAGE> 2
Benefit" shall include the aggregate of the following benefits available each
month to the Executive at the time of his or her retirement: (i) the Primary
Insurance Amount available under Social Security; (ii) the maximum monthly
benefit amounts available to the Executive (regardless of the form of
distribution actually paid) under the Company's Retirement Plan or any other
retirement plan or plans (excluding cash/deferred or stock bonus or ownership
plans) maintained by the Company or any former employer of the Executive; and
(iii) benefits payable under this Agreement. If any of the benefits described
in clause (ii) preceding are distributed in lump-sum or any other form other
than monthly, such amount shall be actuarially converted to a monthly benefit
for purposes of calculating the retirement benefit payable under this
Agreement.
Such amount shall be payable to the Executive upon the first business
day of each calendar month beginning the month after his or her retirement.
The Company shall make such monthly payments as calculated above to the
Executive for his or her life. If the Executive should die prior to 120 months
after his or her retirement payments commence, the Company shall continue to
make the monthly payments as calculated to the beneficiary or beneficiaries
designated in the Executive's Beneficiary Designation Form for the balance of
the 120 months; provided, however, that the Company may elect payment of the
balance in annual, rather than monthly, payments; and provided further that if
the Executive's designated beneficiary is his or her spouse at the time of his
or her retirement and such spouse is still the designated beneficiary and
married to the Executive at the time of his or her death (whether during or
after the 120-month period following retirement), the monthly payments as
calculated above shall continue beyond such 120 months at a reduced level for
the life of such surviving spouse, in an amount equal to fifty percent (50%) of
such monthly payment. If there are no such surviving beneficiaries or if the
designation should be ineffective for any reason, the monthly (or annual)
payment shall be paid to the executor or administrator of the Executive for the
balance of the 120-month period.
2. Early Retirement. The Executive's early retirement date under
this Agreement shall be the first day of the month coincident with or next
following his or her 59th birthday. At any time on or after such date the
Executive may, with the consent of the Compensation and Benefits Committee of
the Company's Board of Directors, retire from the active and daily service of
the Company ("Early Retirement"). In the event of such Early Retirement,
pursuant to this Agreement the Company shall pay to the Executive a monthly
pension in an amount sufficient to provide a "Total Monthly Retirement Benefit"
(as defined and calculated under Paragraph 1 above) equal to the following
percentage of the Executive's average basic monthly salary (excluding bonuses,
fringe benefits and other special pay, but including commissions) for his
2
<PAGE> 3
or her highest three (3) years within the last eight (8) years of employment
with the Company or, if the Executive has not been employed by the Company for
eight (8) years, such lesser number of years of actual employment with the
Company. For purposes of this determination, each year of employment shall be
a twelve (12) month period ending on the last day of the month preceding the
month of retirement.
<TABLE>
<CAPTION>
Age at Early Retirement Applicable Percentage
- ----------------------- ---------------------
<S> <C>
59 60%
60 63%
61 67%
</TABLE>
Such amount shall be payable to the Executive (or his or her
beneficiaries in the event of death) in the same time and manner as provided in
Paragraph 1 with respect to payments upon Normal Retirement.
3. Disability. In the event that Executive shall, while still in the
active employ of the Company, but prior to his or her Normal Retirement Date,
become totally and permanently disabled (as determined in accordance with the
provisions of the Company's long-term disability plan), the Company shall pay
to him or her, beginning with the first day of the month after he or she ceases
to be considered an employee under the terms of the Company's long-term
disability plan, a monthly pension of ___________ per month. The Company shall
make such monthly payments to Executive for his or her life. If Executive
should die prior to 120 months after his or her payments hereunder commence,
the Company shall continue to make the monthly payments to the beneficiary or
beneficiaries designated in the attached Beneficiary Designation Form for the
balance of the 120 months; provided, however, that the Company may elect
payment of the balance in annual, rather than monthly, payments. If there are
no such surviving beneficiaries, or if the designation should be ineffective
for any reason, the monthly (or annual) payments shall be paid to the executor
or administrator of the Executive.
Provided, however, that notwithstanding any other provision of this
Agreement, in no event shall the combination of the monthly payments hereunder
and monthly payments under the Company's Long Term Disability Plan exceed 75%
of the Executive's monthly compensation at the time of his or her disability.
In the event this limitation would otherwise be exceeded, it is understood and
agreed that the Company shall reduce its payments hereunder accordingly, it
being the intention of this Agreement and the parties hereto that there shall
be no reduction in the payments
3
<PAGE> 4
otherwise available to the Executive under the terms of the Company's insured
Long Term Disability Income Plan.
4. Death. If Executive should die while still in the active employ
of the Company, but prior to his or her Normal Retirement Date, the Company
will pay to the beneficiary or beneficiaries designated in the attached
Beneficiary Designation Form 120 monthly installments of ___________ per month,
beginning the first day of the month following the month in which the Executive
dies; provided, however, that the Company may elect payment of the balance in
annual, rather than monthly, installments; and provided further that if the
Executive's designated beneficiary is his or her current spouse at the time of
his or her death, the monthly payment provided for in this section shall
continue beyond 120 months at a reduced level for the life of such surviving
spouse, in an amount equal to fifty percent (50%) of such monthly payment. If
there are no such surviving beneficiaries, or if the designation should be
ineffective for any reason, the monthly (or annual) payments shall be paid to
the executor or administrator of the Executive for the 120-month period.
5. Conditions of Payments - Vesting.
(a) Except as hereafter provided, in order to become entitled to
any payments under this Agreement the Executive must be an employee of the
Company at the time of his or her retirement, death or disability (as set forth
above). Except as hereafter provided, termination of the Executive's
employment with or without cause, or voluntarily or involuntarily, except by
retirement, death or disability (as set forth above), shall constitute a
failure to comply with the terms of this Paragraph:
(i) Vesting - Notwithstanding the foregoing, if the
Executive's employment is involuntarily terminated by the Company (with or
without cause), prior to his or her Normal Retirement Date, disability or
death, he or she shall be entitled to a monthly pension under this Agreement
calculated and payable in accordance with the provisions of Paragraphs 1 above,
except that the applicable percentage of the Executive's average basic monthly
salary shall be 60% and such benefit payments shall not commence until the
month after he or she has attained age 65, and except that for purposes of
calculating the monthly pension, each year of employment shall be a twelve (12)
month period ending on the last day of the month preceding the month of
involuntary termination. Provided, however, that such monthly pension will not
be payable unless as of the date of his or her termination of employment, the
Executive (x) is 50 years of age or older; and (y) has completed at least ten
(10) full fiscal years of service with the Company, and at least five (5) of
such years of service were performed while an "officer", as defined under state
corporation laws.
4
<PAGE> 5
(ii) Change in Control - Notwithstanding any other term or
provision of this Agreement, the Executive's rights to the benefits provided in
this Agreement shall be 100% vested (i.e. nonforfeitable) upon a change in
control of Washington Energy Company, a Washington corporation ("WECO"). In
such event, the benefits described in Paragraphs 1, 2, 3, 4 or 5(a)(i) shall be
payable to the Executive when he or she reaches his or her Normal Retirement
Date, elects Early Retirement (which shall not require employer consent after a
change in control of WECO), becomes disabled, dies, or is terminated
(regardless of his or her age or years of service upon termination), whichever
occurs first. For purposes of this Agreement, a "change in control of WECO"
shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e), or any successor section, of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"); provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d - 3 under the Exchange Act),
directly or indirectly, of securities of the WECO representing 10% or more of
the combined voting power of the WECO's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board cease for any reason to constitute at least a
majority thereof and the election, or the nomination for election by the WECO's
stockholders, of each new director was opposed by a vote of at least one-third
of the directors then still in office who were directors at the beginning of
the period.
(b) Notwithstanding any other provision of this Agreement, for
purposes of this Agreement employment and officer status with any related
corporations which are members of the affiliated group (as such term is defined
in Section 1504(a) of the Internal Revenue Code) of corporations of which the
Company is a member, shall be considered as employment and officer status with
the Company.
6. Nonassignability. Neither the Executive, nor any beneficiary
under this Agreement shall have any power to transfer, assign, anticipate,
hypothecate, or otherwise encumber in advance any of the benefits payable
hereunder, nor shall said benefits be subject to seizure for the benefit of any
debts or judgments, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise.
7. Other Benefits Not Affected. Nothing in this Agreement shall
diminish or impair the Executive's eligibility, participation or benefit
entitlement under any other benefit, insurance or
5
<PAGE> 6
compensation plan or agreement of this Company now or hereafter in effect.
8. Successors. This Agreement shall be binding upon the parties
hereto, their heirs, executors, administrators or successors.
9. Amendment. This Agreement may be amended or revoked at any time
by mutual written agreement of the parties.
10. Claim Procedure. The parties hereby adopt the following claim
procedure for the Company's unfunded and non-qualified deferred compensation
plan (the "Plan") provided under this Executive Retirement Compensation
Agreement; and, for purposes of implementing such claims procedure (but not for
any other purpose), the Administrative Committee which also administers the
Company's Retirement Plan is hereby designated as the "Named Fiduciary" and
"Plan Administrator" of this Plan:
(a) Filing of a Claim for Benefits. A participant or
beneficiary of the Plan shall make a claim for the benefits provided by
delivering a written request to the Administrative Committee.
(b) Notification to Claimant of Decision. If a claim is wholly
or partially denied, notice of the decision, meeting the requirements of
Paragraph (c) following, shall be furnished the claimant within a reasonable
period of time after receipt of the claim by the Administrative Committee.
(c) Content of Notice. The Administrative Committee shall
provide to every claimant who is denied a claim for benefits written notice
setting forth in a manner calculated to be understood by the claimant, the
following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(4) An explanation of the Plan's claim review procedure, as
set forth in Paragraph (d) and (e) following.
6
<PAGE> 7
(d) Review Procedure. The purpose of the review procedure set
forth in this paragraph and in paragraph (e) following is to provide a
procedure by which a claimant under the Plan may have a reasonable opportunity
to appeal a denial of a claim to the Administrative Committee for a full and
fair review. To accomplish that purpose, the claimant or his or her duly
authorized representative:
(1) May request a review upon written application to the
Administrative Committee;
(2) May review pertinent Plan documents; and
(3) May submit issues and comments in writing.
A claimant (or his or her duly authorized representative) shall request
a review by filing a written application for review with the Administrative
Committee at any time within sixty (60) days after receipt by the claimant of
written notice of the denial of his claim.
(e) Decision on Review. The decision on review of a denied claim
shall be made in the following manner:
(1) The decision on review shall be made by the
Administrative Committee, which may in its discretion hold a
hearing on the denied claim. The Administrative Committee shall
make its decision promptly, and not later than sixty (60) days
after receipt of the request for review, unless special
circumstances (such as the need to hold a hearing) require an
extension of time for processing, in which case a decision shall
be rendered as soon as practicable, but not later than one hundred
twenty (120) days after receipt of a request for review.
(2) The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, and specific
references to the pertinent Plan provisions on which the decision
is based.
11. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive or his
or her estate or beneficiaries shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the Company
may reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, the Company may accept other
provisions to the end that it has sufficient funds to pay all taxes
7
<PAGE> 8
required by law to be withheld in respect of any or all of such payments.
12. No Trust. Anything to the contrary notwithstanding, this
Agreement shall not be deemed to create a trust of any kind or to create a
fiduciary relationship. Any investments (including, without limitation, any
insurance contract on the life of the Executive) or earmarking of any funds by
the Company made with respect to this Agreement shall continue for all purposes
to be a part of the Company's general funds, and no person other than the
Company shall, by virtue of any provisions of this Agreement, have any interest
in any such investments or funds. To the extent that the Executive acquires a
right to receive payments under this Agreement, such right shall be no greater
than the right of any unsecured general creditor of the Company.
13. Prior Agreement(s) Superseded. This Agreement revokes, replaces
and supersedes any prior retirement compensation agreements between the
Executive and the Company, including the Agreement dated May 1, 1992 and any
amendments thereto, but any prior beneficiary designations by Executive shall
remain in effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its Chief Executive Officer and its corporate seal affixed, duly attested by
its Secretary, and the Executive has signed this Agreement, on the date first
above written.
WASHINGTON NATURAL GAS COMPANY
By:
-------------------------------
William P. Vititoe,
Chief Executive Officer
(SEAL)
ATTEST:
- --------------------------------
Robert J. Tomlinson, Secretary
EXECUTIVE:
-------------------------------
Name
8
<PAGE> 1
EXHIBIT 10-J.2
INTERIM PERFORMANCE AWARD PLAN
Washington Energy Company
December 7, 1994
<PAGE> 2
RATIONALE
In place of the current performance share plan, Washington Energy recommends
the implementation of an interim performance award plan to accomplish the
following purpose:
To develop an award structure for the new executive management team to motivate
and reward attainment of new financial and strategic goals reflecting the
successful reorganization of the company.
On the following pages are recommended specifications for a new plan.
1
<PAGE> 3
INTERIM PERFORMANCE AWARD PLAN SPECIFICATIONS
<TABLE>
<CAPTION>
Comments
<S> <C> <C>
Eligibility All current performance share plan Retirees would not be eligible and would
participants who are active employees on just continue under their existing
October 1, 1994. cycles.
Performance Four years Reflects restructuring plans.
Cycle October 1, 1994 -
September 30, 1998
Award Total Shareholder Return (TSR) TSR is an appealing measure to use where
Measures shareholder value creation is a primary
strategic objective. See discussion of
TSR and suggested award measures on page
4.
Award Recommended Typical
Opportunities Units* Range
----------------------------------------
CEO 11,400 9,500-15,000
CFO, SRVP - Operations 7,800 6,500-10,500
SRVP - Legal and HR 4,500 3,500-6,000
VP - Supply and Administration,
President WES
Other VPs and 2,000-3,500
SRVP - Public Affairs
*Unit equals cash value of one
share of WECO common stock.
Grant This is a one-time only special grant.
Frequency A new ongoing performance plan will be
initiated in the following year.
Vesting of Vesting of a percentage of total units If a cumulative award target is met at
Shares would be made annually based on the end of the cycle, the Compensation
achievement of Committee has discretion to vest
performance targets. remaining shares not previously vested
through achievement of annual targets.
1995 15%
1996 15%
1997 30%
1998 40%
Award Paid in cash at the end of the Cash plan would not be subject to
Payments performance cycle. shareholder approval.
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C> <C>
Dividends Dividend equivalents on total target Dividends are assumed to be reinvested
units would be accrued during the in stock equivalents.
performace period. Payment would be
made at the end of the cycle for the
percentage that was vested.
Termination Participants must be active employees at Death, retirement, or disability of the
the end of the performance cycle executive would be the only exceptions
(9/30/98) to be eligible for any award to this. In that case, payment would be
payments. made for vested units earned to date.
</TABLE>
3
<PAGE> 5
TOTAL SHAREHOLDER RETURN
Definition of TSR = Appreciation in stock Price + Dividends*
----------------------------------------
Beginning Stock Price
- - TSR can be measured annually or cumulatively over a period of time.
- - The beginning stock price will be equal to the average of the high and low
prices of stock for each day of the month of September 1994. The ending
stock price for the annual calculations will be the average of high and low
for each day of September in 1995, 1996, 1997, and 1998.
*The proxy TSR chart and the dividend equivalents in the plan assume
reinvestment of dividends in stock. However, for purposes of calculating TSR
in the award formula below, no reinvestment of dividends is assumed for
Washington Energy or the comparator group.
RECOMMENDED APPROACH
<TABLE>
<CAPTION>
Annual Earned
Vesting Percent
---------------
<S> <C> <C>
Cumulative 75th %ile 100%
Relative TSR
Compared to 50th %ile 50%
AGA Member
Distribution 30th %ile 30%
Companies with
Total Less than 0%
Capitalization 30th %ile
>$200 Million
</TABLE>
- - There is also a minimum 7.5% Absolute TSR that must be achieved annually for
any vesting to occur in that year. The Compensation Committee has the
discretion to adjust the minimum Absolute TSR as it deems appropriate to
reflect issues such as extraordinary items or dividends paid but not earned.
- - At the end of the performance cycle, if the cumulative Relative TSR is
greater than or equal to the 50th percentile, the Compensation Committee can
choose to vest any portion (or all) of the remaining shares.
4
<PAGE> 6
EXAMPLE: VP (2,700 INTERIM UNITS)
<TABLE>
<CAPTION>
Annual Cumulative
Annual Vesting Absolute Relative TSR Annual Earned Units
Opportunity TSR %ile Vesting % Earned
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 15% 405 4% 55%ile 0% 0
1996 15% 405 8% 65%ile 50% 203
1997 30% 810 12% 75%ile 100% 810
1998 40% 1,080 12% 70%ile 50% 540
--- ----- -----
100% 2,700 1,553
</TABLE>
Since the cumulative TSR was greater than the 50th percentile at the end of the
performance cycle, the Compensation Committee cold choose to vest additional
units up to the maximum (2,700) number of units.
5
<PAGE> 1
EXHIBIT 10-M.3
ANNUAL INCENTIVE PLAN
Washington Energy Company
October 1994
<TABLE>
<S> <C>
Plan Year: Fiscal year beginning October 1 and ending
September 30.
Eligibility: All Vice Presidents and above of Washington Energy
Company and its subsidiaries.
Purposes of Plan: - Provide incentive to meet Company, department,
and individual goals.
- Link a greater portion of executive pay to
achieving objectives.
Administration: The plan will be administered by the Chairman, CEO,
and President at the direction of the Compensation
Committee of the Board of Directors.
Award Levels: Award Levels (% of Base Salary)
-------------------------------------------------
Position Threshold Target Maximum
--------- ------ -------
Chairman, CEO, and President 20 40 60
SVP - Planning, Dev & CFO 15 30 45
SVP - Operations 15 30 45
SVP - Legal and HR and 15 25 35
President, WESCO 15 25 35
VP - Supply and Administration 15 25 35
SVP - Public Affairs 10 20 30
VP's 10 20 30
Weighting of Company and Department A portion of the participant s potential award will be
Performance Results: determined by "Corporate Performance" and the
remaining portion will be determined by "Department
Performance." These portions will be based on position
as follows:
Percentage of Target Award Based On:
-------------------------------------------------
Position Corporate Department
Performance Performance
----------- -----------
Chairman, CEO, and President 100% -
SVP - Planning, Development & CFO 100% -
SVP - Operations 100%
SVP s/VP - Supply & Administration 60% 40%
President, WESCO 25% 75%
Other VP s 50% 50%
</TABLE>
-1-
<PAGE> 2
<TABLE>
<S> <C>
Corporate and Department Corporate Performance. Corporate performance will be
Performance Measures: defined as Washington Energy Company Performance.
The Corporate performance measure(s) will be as shown
on the attached Exhibit 1. Other financial measures
may be used at the discretion of the Committee.
Department Performance. Through the planning process,
the President and/or CEO will discuss the Department s
goals for the plan year with each participant. Each of
these goals will be weighted based on their relative
importance. Overall Department performance will be
determined by applying these weights to the performance
of each specific goal.
Minimum Corporate Performance: The incentive cash payment for any specific Corporate
Performance Measure achieved will be paid for that
measure independent of attainment on other measures as
long as threshold attainment has been achieved for that
specific measure.
Award Adjustments: The Chairman, CEO and President can recommend
discretionary award adjustments of +30% of the award
amount.
If individual performance is significantly inferior,
the Chairman, CEO and President may significantly
reduce or eliminate the total incentive cash payment
award for that participant regardless of Corporate or
Department performance.
The Effect of Extraordinary and In comparing actual performance against the
Nonrecurring Items: performance goals, the Compensation Committee may exclude
from such comparison any extra-ordinary or nonrecurring
gains, losses, charges, or credits which appear on the
Company s books and records as it deems appropriate.
Less Than Full-Year Plan If an individual becomes a participant after the
Participation: beginning of the Plan Year, the Chairman, CEO, and
President will develop department performance measures
for the remainder of the plan year for that
participant.
The final award will be calculated by multiplying the
award by a proration factor. The proration factor will
be equal to the number of full weeks the individual
actually spent as a Plan participant, divided by
fifty-two.
If a participant s employment is terminated during a
plan year for reason of death, disability, or normal
retirement, an award will be determined based on the
performance as of the date of termination.
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
The final award (paid after the end of the plan year)
will be calculated by multiplying the award by a
proration factor. The proration factor will be equal
to the number of full weeks of employment during the
plan year divided by fifty-two.
If a participant s employment is terminated by
resignation or for cause, an incentive award will not
be paid.
Change-In-Control: Change-in-control will be defined as set forth in the
Performance Share Plan. Upon change-in-control, target
incentive cash payment for the year will be paid if a
participant is terminated without cause.
Form and Timing of Payment: All awards will be paid in cash, less applicable
withholding requirements. The final award will be paid
as soon as practicable following the end of the Plan
Year.
Modifications: The Compensation Committee will approve all elements
and goals of the Plan each year and reserves the right
to modify, amend or repeal the Plan. No modifications,
however, may adversely affect an award which has
previously been earned, either in whole or in part.
Final Award Payment Approval: The Compensation Committee of the Board of Directors
has final approval of all incentive cash payments.
</TABLE>
-3-
<PAGE> 4
Exhibit #1
Corporate Performance Measures
Fiscal Year 1995
<TABLE>
<CAPTION>
Measure* Threshold Target Maximum
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Productivity O&M cost per average O&M cost per average O&M cost per average
Customer less than or Customer less than or Customer less than or
equal to $137 equal to $134 equal to $130
Operating Income Target for 1995 greater Target for 1995 greater
than or equal to $59.5mm than or equal to $62.5mm
Capital Expenditures - Non-revenue gen- - Non-revenue gen-
erating capital erating capital
less than or less than or
equal to $34mm equal to $32mm
- Revenue - generat- - Revenue-generating
ing capital earns capital earns
rate/return rate/return
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance measures shall be weighted equally.
-4-
<PAGE> 1
Exhibit 12
WASHINGTON NATURAL GAS COMPANY
<TABLE>
<CAPTION>
Ratio of earnings to fixed charges: Fiscal Year Ended September 30
------------------------------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
1. Net Income (loss) 29,409 12,231 21,771 (8,243) 17,854
2. Add: Federal Income taxes 14,000 4,902 9,547 (5,991) 8,195
Extraordinary Non Recurring
Items of expense
------ ------ ------ ------- ------
3. Subtotal 43,409 17,133 31,318 (14,234) 26,049
4. Deduct interest capitalized (622) (656) (250) (453) (660)
5. Adjusted Net Income from
Continuing Operations 42,787 16,477 31,068 (14,687) 25,389
Add Fixed Charges:
Interest Expense on Funded and
Unfunded Debt 24,425 26,249 26,381 29,275 30,275
Amortization of Debt Discount 169 299 361 392 375
Other interest expense 208 (502) 340 1,097 1,566
Interest Capitalized 622 656 250 453 660
Rental for leased properties 1,406 1,517 1,633 1,337 1,338
------ ------ ------ ------- ------
8. Total fixed charges 26,830 28,219 28,965 32,554 34,214
9. Preferred dividend requirement (pre-tax
equivalent) 4,067 3,838 3,913 6,122 10,397
------ ------ ------ ------- ------
10. Total combined fixed charges and preferred
dividends 30,897 32,057 32,878 38,676 44,611
11. Net Earnings Available for Combined Fixed
Charges and Preferred dividends (5 plus 8) 69,617 44,696 60,033 17,867 59,603
12. Ratio of Earnings to combined fixed charges
and preferred dividends (11 divided by 10) 2.25 1.39 1.83 0.46 (1) 1.34
====== ====== ====== ======= ======
</TABLE>
(1) For the year ended September 30, 1994, earnings were inadequate to cover
fixed charges by $ 20,809,000.
Page 1
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANTS
Subsidiaries of Washington Energy Company:
Washington Natural Gas Company, a Washington corporation, distributes natural
gas at the retail level in the Puget Sound area of western Washington.
WNG CAP I, Inc., a Washington corporation, and WNG CAP II, Inc., a
Washington corporation, were formed to provide operational flexibility
with respect to firm transportation agreements of Washington Natural
Gas Company.
Thermal Energy, Inc., a Washington corporation, owns or leases undeveloped coal
reserves and surface rights to undeveloped coal in Montana.
Thermal Resources, Inc., a Montana corporation, is a wholly-owned
subsidiary of Thermal Energy, Inc. Thermal Resources, Inc., is a
single purpose company that leases undeveloped coal reserves in
Montana to Montco, a partnership controlled by Thermal Energy, Inc.
ThermRail, Inc., a Washington corporation, was formed to participate as a
partner in the Tongue River Railroad Company. The purpose of Tongue River
Railroad Company is to develop and operate a rail line to transport coal from
future mines in Montana's Tongue River area to existing east-west rail lines.
Tongue River Holdings, Inc., a Montana corporation, is a limited
partner in Tongue River Railroad Company, a Montana limited
partnership. ThermRail, Inc., owns 87.5% of the common stock of this
corporation.
WECO Finance Company, a Washington corporation, is holder of the common stock
of Mercer Insurance Company Limited.
Mercer Insurance Company Limited, a wholly-owned subsidiary of WECO
Finance Company, is a Bermuda domiciled corporation providing primary
liability insurance for Washington Energy Company and its affiliates.
Washington Energy Services Company, a Washington corporation, was formed
October 1, 1993 to consolidate the merchandise marketing activities that
previously were part of Washington Natural Gas Company and a former subsidiary
of Washington Energy.
Washington Energy Gas Marketing, a Washington corporation, was formed in 1994
to assume certain contractual arrangements excluded from the merger of
Washington Energy Resources Company, the former oil and gas exploration and
production subsidiary of Washington Energy, with a subsidiary of Cabot Oil &
Gas Corporation.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000225998
<NAME> WASHINGTON ENERGY CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 791,658
<OTHER-PROPERTY-AND-INVEST> 75,863
<TOTAL-CURRENT-ASSETS> 76,369
<TOTAL-DEFERRED-CHARGES> 19,879
<OTHER-ASSETS> 25,721
<TOTAL-ASSETS> 989,490
<COMMON> 120,348
<CAPITAL-SURPLUS-PAID-IN> 202,616
<RETAINED-EARNINGS> (126,278)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 196,686
0
90,000
<LONG-TERM-DEBT-NET> 310,060
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 161,994
<LONG-TERM-DEBT-CURRENT-PORT> 30,140
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 200,610
<TOT-CAPITALIZATION-AND-LIAB> 989,490
<GROSS-OPERATING-REVENUE> 443,611
<INCOME-TAX-EXPENSE> 5,507
<OTHER-OPERATING-EXPENSES> 386,308
<TOTAL-OPERATING-EXPENSES> 391,815
<OPERATING-INCOME-LOSS> 51,796
<OTHER-INCOME-NET> (52,330)
<INCOME-BEFORE-INTEREST-EXPEN> (534)
<TOTAL-INTEREST-EXPENSE> 40,528
<NET-INCOME> (41,062)
0
<EARNINGS-AVAILABLE-FOR-COMM> (41,062)
<COMMON-STOCK-DIVIDENDS> 23,877
<TOTAL-INTEREST-ON-BONDS> 27,677
<CASH-FLOW-OPERATIONS> 84,640
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000104880
<NAME> WASHINGTON NATURAL GAS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 791,658
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 55,044
<TOTAL-DEFERRED-CHARGES> 18,073
<OTHER-ASSETS> 25,823
<TOTAL-ASSETS> 890,598
<COMMON> 54,911
<CAPITAL-SURPLUS-PAID-IN> 167,752
<RETAINED-EARNINGS> 28,865
<TOTAL-COMMON-STOCKHOLDERS-EQ> 251,528
0
90,000
<LONG-TERM-DEBT-NET> 310,060
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,140
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 208,870
<TOT-CAPITALIZATION-AND-LIAB> 890,598
<GROSS-OPERATING-REVENUE> 420,048
<INCOME-TAX-EXPENSE> 8,531
<OTHER-OPERATING-EXPENSES> 361,004
<TOTAL-OPERATING-EXPENSES> 369,535
<OPERATING-INCOME-LOSS> 50,513
<OTHER-INCOME-NET> (443)
<INCOME-BEFORE-INTEREST-EXPEN> 50,070
<TOTAL-INTEREST-EXPENSE> 32,216
<NET-INCOME> 17,854
7,126
<EARNINGS-AVAILABLE-FOR-COMM> 10,728
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 27,677
<CASH-FLOW-OPERATIONS> 112,789
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
