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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-14365
EL PASO ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 76-0568816
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 420-2131
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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Common Stock, par value $3 per New York Stock Exchange
share...............................
Preferred Stock Purchase Rights....... New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant
was required to file such reports), and (2) has been subject to 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
Aggregate market value of the voting stock (which consists solely of shares
of common stock) held by non-affiliates of the registrant as of March 5, 1999,
computed by reference to the closing sale price of the registrant's common stock
on the New York Stock Exchange on such date: $4,340,497,918
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, par value $3 per share. Shares outstanding on March 5, 1999:
120,989,489
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: Portions of El Paso Energy Corporation's definitive Proxy
Statement for the 1999 Annual Meeting of Stockholders, to be filed not later
than 120 days after the end of the fiscal year covered by this report, are
incorporated by reference into Part III.
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EL PASO ENERGY CORPORATION
TABLE OF CONTENTS
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CAPTION PAGE
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Glossary.............................................................. ii
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Risk Factors -- Cautionary Statement for Purposes of the
"Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995... 36
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 39
Item 8. Financial Statements and Supplementary Data................. 42
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 78
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 78
Item 11. Executive Compensation...................................... 78
Item 12. Security Ownership of a Certain Beneficial Owner and
Management................................................ 78
Item 13. Certain Relationships and Related Transactions.............. 78
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 78
Signatures.................................................. 82
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GLOSSARY
The following abbreviations, acronyms, or defined terms used in this Form
10-K are defined below:
<TABLE>
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ALJ............................... Administrative Law Judge
BBtu(/d).......................... Billion British thermal units (per day)
Bcf(/d)........................... Billion cubic feet (per day)
Board............................. Board of directors of El Paso Energy Corporation
CAPSA............................. Companias Asociadas Petroleras SA, a privately held integrated
energy company in Argentina
Company........................... El Paso Energy Corporation and its subsidiaries which, on August 1,
1998, became the successor company to El Paso Natural Gas Company
Court of Appeals.................. United States Court of Appeals for the District of Columbia Circuit
DeepTech.......................... DeepTech International Inc., a wholly owned subsidiary of El Paso
Energy Corporation
Distributions..................... Various intercompany transfers and distributions which
restructured, divided and separated the business, assets and
liabilities of Old Tenneco and its subsidiaries so that all the
assets, liabilities and operations related to the automotive parts,
packaging and administrative services businesses and the
shipbuilding business were spun-off to Old Tenneco's then existing
common stockholders
Dynegy............................ Dynegy Inc., formerly known as NGC Corporation
EBIT.............................. Earnings before interest expense and income taxes, excluding
affiliated interest income
East Tennessee.................... East Tennessee Natural Gas Company, a wholly owned subsidiary of El
Paso Tennessee Pipeline Co.
Edison............................ Southern California Edison Company
EPA............................... United States Environmental Protection Agency
EPEC.............................. El Paso Energy Corporation, unless the context otherwise requires
EPEI.............................. El Paso Energy International Company, a wholly owned subsidiary of
El Paso Tennessee Pipeline Co.
EPEM.............................. El Paso Energy Marketing Company, a wholly owned indirect
subsidiary of El Paso Tennessee Pipeline Co.
EPFS.............................. El Paso Field Services Company, a wholly owned subsidiary of El
Paso Tennessee Pipeline Co.
EPNG.............................. El Paso Natural Gas Company, a wholly owned subsidiary of El Paso
Energy Corporation subsequent to August 1, 1998
EPTPC............................. El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), a direct
subsidiary of El Paso Energy Corporation
FERC.............................. Federal Energy Regulatory Commission
GSR............................... Gas supply realignment
IRS............................... Internal Revenue Service
Leviathan......................... Leviathan Gas Pipeline Partners, L.P., a publicly held Delaware
limited partnership
MBbls............................. Thousand barrels
Merger............................ The acquisition of El Paso Tennessee Pipeline Co. by
El Paso Natural Gas Company in December 1996
Mgal/d............................ Thousand gallons per day
Midwestern........................ Midwestern Gas Transmission Company, a wholly owned subsidiary of
El Paso Tennessee Pipeline Co.
</TABLE>
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MMcf/d............................ Million cubic feet per day
Mdth/d............................ Thousand decatherms per day
MPC............................... Mojave Pipeline Company, a wholly owned indirect partnership of El
Paso Natural Gas Company
MW(s)............................. Megawatt(s)
New Tenneco....................... Tenneco Inc., subsequent to the Merger and Distributions,
consisting of the automotive parts, packaging and administrative
services businesses
Old Tenneco....................... Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.), prior to its
acquisition by the Company
PCB(s)............................ Polychlorinated biphenyl(s)
PG&E.............................. Pacific Gas & Electric Company
PLN............................... Perusahaan Listrik Negara, the Indonesian government owned electric
utility
Program........................... Continuous Odd-Lot Stock Sales Program
PRP(s)............................ Potentially Responsible Party(ies)
SFAS.............................. Statement of Financial Accounting Standards
SoCal............................. Southern California Gas Company
TGP............................... Tennessee Gas Pipeline Company, a wholly owned subsidiary of El
Paso Tennessee Pipeline Co.
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
On August 1, 1998, EPEC succeeded EPNG as the publicly traded parent
corporation in a holding company reorganization. In the reorganization, EPNG, a
Delaware corporation formed in 1928, and its subsidiaries became direct and
indirect subsidiaries of the Company. EPEC, also a Delaware corporation, was
incorporated in 1998. The New York Stock Exchange ticker symbol used by EPEC
following the reorganization remains unchanged as "EPG."
The Company's principal operations include the interstate and intrastate
transportation, gathering and processing of natural gas; the marketing of
natural gas, power, and other commodities; and the development and operation of
energy infrastructure facilities worldwide. The Company owns or has interests in
over 28,000 miles of interstate and intrastate pipeline connecting the nation's
principal natural gas supply regions to the four largest consuming regions in
the United States, namely the Gulf Coast, California, the Northeast and the
Midwest. The Company's natural gas transmission operations include one of the
nation's largest mainline natural gas transmission systems which is comprised of
five interstate pipeline systems: the El Paso Natural Gas pipeline, the
Tennessee Gas pipeline, the Midwestern Gas Transmission pipeline, the East
Tennessee Natural Gas pipeline, and the Mojave Pipeline.
In addition to its interstate transmission services, the Company provides
related services, including natural gas gathering, products extraction,
dehydration, purification, compression, and intrastate transmission. These
services include gathering of natural gas from more than 10,000 natural gas
wells with approximately 11,000 miles of gathering lines, and 23 natural gas
processing and treating facilities located in some of the most prolific and
active production areas of the United States, including the San Juan and Permian
Basins and in east Texas, south Texas, Louisiana, and the Gulf of Mexico. The
Company conducts intrastate transmission operations through its interests in
four Texas intrastate systems, which include the Oasis Pipeline running from
west Texas to Katy, Texas, the Channel Pipeline extending from south Texas to
the Houston Ship Channel, and the Shoreline and Tomcat gathering systems which
gather gas from offshore Texas. The Company's marketing activities include the
marketing and trading of natural gas, power, and petroleum products, as well as
providing integrated price risk management services associated with these
commodities. The Company also participates in the development and ownership of
domestic power generation facilities, and other power-related assets and joint
ventures.
The Company's international activities focus on the development and
operation of international energy infrastructure projects and include ownership
interests in three major operating natural gas transmission systems in Australia
and natural gas transmission systems and power generation facilities currently
in operation or under construction in Argentina, Bolivia, Brazil, Chile, the
Czech Republic, Hungary, Indonesia, Mexico, Pakistan, Peru, the United Kingdom,
Bangladesh, the Philippines and China. The Company also has an interest in three
operating domestic power generation plants.
In August 1998, the Company completed the acquisition of DeepTech by
merging DeepTech with a subsidiary of the Company. As a result of the
acquisition, the Company owns 100 percent of the general partner of Leviathan,
and a 27.3 percent effective ownership interest in Leviathan, with the remaining
interest held publicly. The acquisition was accounted for as a purchase with a
total purchase price of approximately $422 million, net of cash acquired.
Leviathan is the largest independent gatherer of natural gas in the Gulf of
Mexico and owns interests in pipeline systems which transported an average of
approximately 3.1 Bcf/d in 1998. These pipeline systems serve a large portion of
the outer continental shelf and provide access to the prolific deepwater trend
of the Gulf of Mexico. Leviathan has ownership interests in the High Island
Offshore system, the U-T Offshore system, the Stingray Pipeline system, the
Nautilus/Manta Ray Offshore system, the Viosca Knoll Gathering system and the
Poseidon Oil Pipeline system.
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In December 1996, the Company completed its $4 billion acquisition of EPTPC
in a transaction accounted for as a purchase. In the Merger, Old Tenneco changed
its name to EPTPC. Prior to the Merger, Old Tenneco and its subsidiaries
effected various intercompany transfers and restructurings so that in the
Distributions all the assets, liabilities and operations related to their
automotive parts, packaging, and administrative services businesses
(collectively, the "Industrial Business") and their shipbuilding business (the
"Shipbuilding Business") were spun-off to Old Tenneco's then existing common
stockholders. Following the Distributions, EPTPC's business consisted
principally of the regulated energy operations, including the interstate
transportation of natural gas, as well as non-regulated energy operations such
as gas marketing, intrastate pipelines, international pipelines and power
generation, and domestic power generation. This acquisition created the nation's
first coast-to-coast natural gas pipeline system and furthered the Company's
efforts to expand its presence in non-regulated portions of the energy industry.
EPEC owns 100 percent of the common equity and greater than 80 percent of the
combined equity value of EPTPC. The remaining combined equity of EPTPC consists
of $300 million of preferred stock issued in a public offering by Old Tenneco in
November 1996, which remains outstanding. For a further discussion of these
acquisitions, see Item 8, Financial Statements and Supplementary Data, Note 2.
SEGMENTS
Beginning in 1998, the Company segregated its business activities into five
segments: Tennessee Gas Pipeline segment, El Paso Natural Gas segment, El Paso
Field Services segment, El Paso Energy Marketing segment, and El Paso Energy
International segment. These segments are strategic business units that offer a
variety of different energy products and services. They are managed separately,
as each business unit requires different technology and marketing strategies.
For information relating to operating revenues, operating income, EBIT, and
identifiable assets attributable to each segment, see Item 8, Financial
Statements and Supplementary Data, Note 13.
Set forth below is a description of the principal business activities
conducted by each of the Company's segments:
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Tennessee Gas Pipeline Provides interstate natural gas pipeline
transportation to the northeast, midwest and
mid-Atlantic sections of the U.S., including the
states of Tennessee and Virginia as well as the New
York City, Chicago and Boston metropolitan areas.
Such transportation is conducted through the
interstate pipeline systems of TGP, Midwestern and
East Tennessee.
El Paso Natural Gas Provides interstate natural gas pipeline
transportation primarily to the California market.
Such transportation is conducted by the EPNG and
MPC interstate pipeline systems.
El Paso Field Services Provides natural gas gathering, products
extraction, dehydration, purification, compression
and intrastate natural gas transmission services.
El Paso Energy Marketing Markets and trades natural gas, power and petroleum
products and provides integrated risk management
services.
El Paso Energy International Develops and operates energy infrastructure
facilities worldwide.
</TABLE>
In addition, the Company participates in the development and ownership of
domestic power generation projects.
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TENNESSEE GAS PIPELINE
The TGP system. The TGP system consists of approximately 14,700 miles of
pipeline with a design capacity of 5,512 MMcf/d. During 1998, TGP transported
natural gas volumes averaging approximately 80 percent of its capacity. The TGP
system serves the northeast section of the U.S., including the New York City and
Boston metropolitan areas. The multiple-line system begins in the gas-producing
regions of south Texas and Louisiana, including the Gulf of Mexico.
The Midwestern system. The Midwestern system consists of approximately 400
miles of pipeline with a design capacity of 785 MMcf/d. During 1998, Midwestern
transported natural gas volumes averaging approximately 35 percent of its
capacity. The Midwestern system extends from a connection with the TGP system at
Portland, Tennessee, to Chicago and principally serves the Chicago metropolitan
area.
The East Tennessee system. The East Tennessee system consists of
approximately 1,100 miles of pipeline with a design capacity of 675 MMcf/d.
During 1998, East Tennessee transported natural gas volumes averaging
approximately 45 percent of its capacity. The East Tennessee system serves the
states of Tennessee, Virginia and Georgia and connects with the TGP system in
Springfield and Lobelville, Tennessee.
Other. The Company increased its ownership interest in the Portland Natural
Gas Transmission ("Portland") system from 17.8 percent to approximately 19
percent in April 1998. Portland is a 292-mile interstate natural gas pipeline
with initial capacity of 178 MMcf/d extending from the Canadian border near
Pittsburg, New Hampshire to Dracut, Massachusetts. In April 1998, Portland
secured $256 million in non-recourse project financing. Construction started in
June 1998, with an estimated total cost of $423 million. Portland commenced
commercial operations in March of 1999.
From time to time, the Company holds open seasons in an effort to
capitalize on pipeline expansion opportunities. Currently, TGP has completed an
open season for the Eastern Express Project 2000 to provide gas transportation
for the growing markets in the northeast. As a result, TGP will be filing an
application before FERC for the expansion in the first quarter of 1999 to begin
service in 2000. TGP has also filed an application with FERC to construct an
international border crossing at Reynosa, Tamaulipas, Mexico, and interconnect
with Pemex Gas y Petroquimica Basica, a Mexican state-owned company ("Pemex") to
provide the import of gas from Mexico. The border crossing service is expected
to begin in 1999.
EL PASO NATURAL GAS
The EPNG system. The EPNG system consists of approximately 9,800 miles of
pipeline with a design capacity of 4,744 MMcf/d. During 1998, EPNG transported
natural gas volumes averaging approximately 77 percent of its capacity. The EPNG
system serves California, which is its single largest market, and also serves
markets in Nevada, Arizona, New Mexico, Texas, Oklahoma, and northern Mexico.
The EPNG system delivers natural gas from the San Juan Basin of northern New
Mexico and southern Colorado, and also accesses natural gas supplies in the
Permian and Anadarko Basins of West Texas.
The MPC system. The MPC system consists of approximately 400 miles of
pipeline with a design capacity of approximately 400 MMcf/d. During 1998, MPC
transported natural gas volumes averaging approximately 81 percent of its
capacity. The MPC system is connected with the EPNG transmission system at
Topock, Arizona and Kern River Gas Transmission Company in California and
extends to customers in the vicinity of Bakersfield, California.
REGULATORY ENVIRONMENT
The interstate systems are subject to the jurisdiction of FERC in
accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of
1978.
Industry Restructuring. In the mid-1980s, FERC initiated a series of
actions which ultimately had the effect of substantially removing interstate
pipelines from the gas purchase and resale business and confining their role to
transportation of gas owned by others. In Order No. 436, issued in 1985, FERC
began this transition by requiring interstate pipelines to provide
non-discriminatory access to their facilities for all
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transporters of natural gas. This requirement enabled consumers to purchase
their own gas and have it transported on the interstate pipeline system, rather
than purchase gas from the pipelines. The transition was completed with Order
No. 636, issued in 1992, in which FERC required all interstate pipelines to
"unbundle" their sales and transportation services so that the transportation
services they provided to third parties would be "comparable" to the
transportation services provided to gas owned by the pipeline. FERC's stated
purpose was to ensure that the pipelines' monopoly over the transportation of
natural gas did not distort the competition in the gas producer sales market,
which had, by then, been essentially deregulated.
One of the obstacles to this transition was the existence of long-term gas
purchase contracts between pipelines and producers which required the pipelines
to take or pay for a significant percentage of the gas the producer was capable
of delivering. While FERC did not deal with this issue initially, it eventually
adopted rate recovery procedures which facilitated negotiations between
pipelines and producers to address take-or-pay issues. Such procedures were
established in Order Nos. 500, 528 and 636, in the last of which FERC provided
that pipelines could recover 100 percent of the costs prudently incurred to
terminate their gas purchase obligations. In July 1996, the Court of Appeals
issued its decision upholding, in large part, Order No. 636.
TGP. In December 1994, TGP filed for a general rate increase with FERC and
in October 1996, FERC approved the settlement resolving that proceeding. The
settlement included a structural rate design change that resulted in a larger
portion of TGP's transportation revenues being dependent upon throughput. One
party, a competitor of TGP, filed a petition for review of the FERC orders with
the Court of Appeals. The Court of Appeals remanded the case to FERC to respond
to the competitor's argument that TGP's cost allocation methodology deterred the
development of market centers (centralized locations where buyers and sellers
can physically exchange gas) and, at FERC's request, comments were filed in
January 1999.
EPNG. In June 1995, EPNG filed with FERC for approval of new system rates
for mainline transportation to be effective January 1, 1996. In March 1996, EPNG
filed a comprehensive offer of settlement to resolve that proceeding as well as
issues surrounding certain contract reductions and expirations that were to
occur from January 1, 1996 through December 31, 1997. In April 1997, FERC
approved EPNG's settlement as filed and determined that only the contesting
party, Edison, should be severed for separate determination of the rates it
directly pays EPNG. In July 1997, FERC issued an order denying requests for
rehearing of the April 1997 order, and the settlement was implemented effective
July 1, 1997. Hearings to determine Edison's rates were completed in May 1998,
and an initial decision was issued by the presiding ALJ in July 1998. EPNG and
Edison have filed exceptions to the decision with FERC. If the ALJ's decision is
affirmed by FERC, EPNG believes that the resulting rates to Edison would be such
that no significant, if any, refunds in excess of the amounts reserved would be
required. Pending the final outcome, Edison continues to pay the filed rates,
subject to refund, and EPNG continues to provide a reserve for such potential
refunds.
Edison filed with the Court of Appeals a petition for review of FERC's
April 1997 and July 1997 orders, in which it challenged the propriety of FERC's
approving the settlement over Edison's objections to the settlement in its
capacity as a customer of SoCal. In December 1998, the Court of Appeals issued
its decision vacating and remanding FERC's order. EPNG will file a motion with
FERC proposing procedures for FERC to address deficiencies which the Court of
Appeals found in FERC's earlier orders. EPNG cannot predict the outcome with
certainty but it believes that FERC will ultimately approve the settlement.
For a further discussion of regulatory matters related to TGP and EPNG, see
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations.
MARKETS AND COMPETITION
The Interstate Systems face varying degrees of competition from alternative
energy sources, such as electricity, hydroelectric power, coal, and fuel oil.
The potential consequences of proposed and ongoing restructuring and
deregulation of the electric power industry are currently unclear. It may
benefit the natural gas industry by creating more demand for natural gas turbine
generated electric power, or it may hamper demand by allowing more effective use
of surplus electric capacity through increased wheeling as a result of open
access. At this time, the Company is not projecting a significant change in
natural gas demand as a result of such restructuring.
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The TGP System. Customers of TGP include natural gas producers, marketers
and end-users, as well as other gas transmission and distribution companies,
none of which individually represents more than 10 percent of the revenues on
TGP's system. Substantially all of the revenues of TGP are generated under
long-term natural gas transmission contracts. Contracts representing
approximately 70 percent of TGP's firm transportation capacity will be expiring
over the next two years, principally in November 2000. Although TGP cannot
predict how much capacity will be resubscribed, a majority of the expiring
contracts cover service to northeastern markets, where there is currently little
excess capacity. Several projects, however, have been proposed to deliver
incremental volumes to these markets. Although TGP is actively pursuing the
renegotiation, extension and/or replacement of these contracts, TGP cannot give
any assurance that it will be able to extend or replace these contracts (or a
substantial portion thereof) or that the terms of any renegotiated contracts
will be as favorable to TGP as the existing contracts.
In a number of key markets, TGP faces competitive pressure from other major
pipeline systems, enabling local distribution companies and end-users to choose
a supplier or switch suppliers based on the short-term price of natural gas and
the cost of transportation. Competition among pipelines is particularly intense
in TGP's supply areas, Louisiana and Texas. In some instances, TGP has had to
discount its transportation rates in order to maintain market share. The
renegotiation of TGP's expiring contracts may be adversely affected by the
foregoing competitive factors.
The EPNG System. EPNG faces significant competition from three other
companies -- Transwestern Pipeline Company, Kern River Gas Transmission Company,
and PG&E -- all of which transport natural gas to the California market. The
combined capacity of these three companies and EPNG to the California market is
approximately 6.9 Bcf/d. In 1998, the demand for interstate pipeline capacity to
California averaged 5.1 Bcf/d. Competition generally occurs on the basis of the
delivered cost of natural gas, including transportation costs, into the SoCal
and PG&E distribution systems. In addition to being the principal transporter to
certain markets east of California, EPNG maintains a significant competitive
position in the California market because its pipeline is currently the
lowest-cost transporter of, and the principal means of moving, natural gas from
the San Juan Basin to the California border. EPNG's current capacity to deliver
natural gas to California is approximately 3.3 Bcf/d, equivalent to
approximately 48 percent of the total interstate pipeline capacity serving that
state. Natural gas shipped to California across the EPNG System represented
approximately 33 percent of the natural gas consumed in the state in 1998. The
significant customers served by EPNG in California during 1998 include SoCal,
with capacity of 1,150 MMcf/d under contract until August 2006, and Dynegy, with
capacity of 1,311 MMcf/d under contract until December 1999.
Interstate pipeline capacity utilization to California is currently
approximately 74 percent and is not expected to reach 100 percent until sometime
in the next decade, assuming no new interstate pipeline construction. Currently,
EPNG has firm transportation contracts covering all of its available capacity to
California. As a part of its effort to remarket capacity relinquished by PG&E at
the end of 1997, EPNG entered into three contracts with Dynegy for the sale of
all of its then available firm capacity for a two-year period beginning January
1, 1998 at rates negotiated pursuant to EPNG's tariff provisions and FERC
policies. For a further discussion of capacity relinquishments, see Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EL PASO FIELD SERVICES
EPFS was formed for the purpose of owning, operating, acquiring and
constructing natural gas gathering, processing and other related facilities.
Effective January 1, 1996, EPNG transferred its non-regulated assets to EPFS.
These assets included major natural gas gathering systems in the San Juan and
Permian Basins. From this initial asset base, EPFS began to implement plans to
increase natural gas gathering and processing volumes through a strategy of
project development, acquisitions, and joint ventures.
EPFS provides its customers with wellhead-to-mainline field services,
including natural gas gathering and transportation, products extraction,
dehydration, purification and compression. EPFS also provides intrastate natural
gas transmission services. EPFS, together with EPEM, provides fully bundled
natural gas services with a broad range of pricing options as well as financial
risk management products. EPFS also provides well-ties
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and offers real-time information services, including electronic wellhead gas
flow measurement. EPFS services are provided under a variety of fee structures
including fixed fee per decatherm, floating fee per decatherm indexed to the
applicable local area price of gas, or percentage of products sold.
In August 1998, the Company completed the acquisition of DeepTech by
merging it with a subsidiary of EPEC. DeepTech's assets included a combined 27.3
percent ownership interest in Leviathan, a publicly traded master limited
partnership. The acquisition, valued at approximately $422 million, net of cash
acquired, was accounted for as a purchase. The Leviathan assets include
interests in eight natural gas pipeline systems with 1,167 miles of pipeline
capable of moving 6.5 Bcf/d, 316 miles of crude oil pipelines, five
multi-purpose platforms with processing capabilities, and four producing oil and
gas properties.
Additionally, in August 1998, the Company completed the expansion of the
Coyote Gulch Treating Plant which increased capacity from 120 MMcf/d to 240
MMcf/d, providing an additional outlet for coal seam gas production in
southwestern Colorado.
In September 1998, the Company completed the Global Compression project, a
$45 million capital investment that consists of 40,000 horsepower of
compression, gas dehydration facilities, and 54 miles of pipeline looping. The
project lowered wellhead pressures and increased production rates for 70 percent
of the wells from which EPFS gathers in the San Juan Basin.
In September 1998, EPFS sold its natural gas gathering, treating, and
processing assets in the Anadarko Basin to Midcoast Energy Resources, Inc. for
$35 million.
The following table provides information as of December 31, 1998,
concerning the natural gas gathering and transportation facilities, as well as
natural gas gathered/transported for the three years ended December 31:
<TABLE>
<CAPTION>
AVERAGE THROUGHPUT
MILES THROUGHPUT (BBTU/D)
OF CAPACITY ---------------------
GATHERING & TREATING PIPELINE(1) (MMCF/D)(2) 1998 1997 1996
-------------------- ----------- ----------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Western Division...................... 5,555 1,200 1,191 1,167 1,139
Eastern Division...................... 955 910 282 252 149
Central Division...................... 1,266 933 427 408 373
Offshore Division..................... 410 2,040 780 314 --
Joint Owned Division.................. 750 900 564 6 --
</TABLE>
The following table provides information concerning the processing
facilities for the three years ended December 31:
<TABLE>
<CAPTION>
AVG INLET VOLUME AVERAGE NGLS SALES
(BBTU/D) (MGAL/D)
INLET ------------------ ------------------
PROCESSING PLANTS CAPACITY(2) 1998 1997 1996 1998 1997 1996
----------------- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Western Division..................... 600 586 551 557 370 505 352
Eastern Division..................... 207 109 126 75 275 229 115
Central Division..................... 278 269 58 19 208 94 39
Joint Owned Division................. 199 51 102 -- 74 167 --
</TABLE>
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<PAGE> 11
The following table provides information concerning natural gas gathering
and transportation facilities in which EPFS owns a minority interest and
accounts for under the equity method:
<TABLE>
<CAPTION>
AVERAGE
AVERAGE THROUGHPUT THROUGHPUT THROUGHPUT
PERCENT OF MILES THROUGHPUT (BBTU/D) CAPACITY MBBLS
OWNERSHIP OF CAPACITY ------------------- MBBLS OIL OIL/D
INTEREST PIPELINE(1) (MMCF/D)(2) 1998(3) 1997(4) PER DAY(2) 1998(3)
---------- ----------- ----------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Leviathan............ 27.3 1,358 1,198 593 -- 58 17
Oasis................ 35.0 608 350 289 338 -- --
Coyote Gulch......... 50.0 -- 120 69 42 -- --
Viosca Knoll......... 50.0 125 500 287 205 -- --
</TABLE>
- ------------
(1) Mileage amounts are approximate for the total systems and have not been
reduced to reflect EPFS's net ownership.
(2) All capacity information reflects EPFS's net interest and is subject to
increases or decreases depending on operating pressures and point of
delivery into or out of the system.
(3) Throughput for Leviathan is averaged since its acquisition on August 14,
1998.
(4) Throughput for Oasis was in El Paso Energy Marketing segment in 1997.
In January 1999, the Company and Leviathan entered into an agreement where
the Company will sell, for approximately $85 million, all of its interest in
Viosca Knoll Gathering Company to Leviathan except for a 1 percent interest in
profits and capital. The transaction was approved by Leviathan's board of
directors in January 1999, and at a special meeting held March 5, 1999, the
Leviathan unitholders approved an increase in the authorized number of common
units required to complete the acquisition. The transaction is expected to close
in the second quarter of 1999. As a result of this transaction, the Company's
combined ownership interest in Leviathan will increase to approximately 35
percent.
Competition
EPFS operates in a highly competitive environment that includes independent
natural gas gathering and processing companies, intrastate pipeline companies,
natural gas marketers, and oil and gas producers. EPFS competes for throughput
primarily based on price, efficiency of facilities, gathering system line
pressures, availability of facilities near drilling activity, service, and
access to favorable downstream markets.
EL PASO ENERGY MARKETING
EPEM, the Company's merchant services and trading business, utilizes its
extensive knowledge of the marketplace, natural gas pipeline and power
transmission infrastructure, supply aggregation, transportation management and
valuation, storage and integrated price risk management to provide customers
with flexible solutions to meet their energy supply and financial risk
management requirements. EPEM markets and trades natural gas, power, and
petroleum products in the United States, Canada and Mexico. EPEM has emerged as
one of North America's largest energy marketing and trading companies.
EPEM contracts to purchase specific natural gas volumes from suppliers at
various times and points of receipt, arranges for the aggregation and
transportation of such natural gas, and negotiates the sale of these volumes to
utilities (including local distribution companies and power plants),
municipalities, and a variety of industrial and commercial end users. EPEM seeks
to maintain a balanced portfolio of supply and demand contracts and a diverse
natural gas supplier and customer base. During 1998, it served over 400
producers/suppliers and approximately 2,000 sales customers in 26 states and
shipped natural gas supplies on 65 pipelines.
EPEM utilizes a broad range of risk management instruments to manage its
fixed-price purchase and sales commitments and reduce its exposure to market
price volatility. EPEM trades futures contracts and options on the New York
Mercantile Exchange and trades swaps and options in over-the-counter financial
markets with other major energy merchants. Market risks are managed on a
portfolio basis, subject to parameters established by a risk control committee
that operates independently from commercial operations
7
<PAGE> 12
and reports directly to the Board. Market risk in EPEM's commodity derivative
portfolio is measured on a daily basis utilizing a Value-at-Risk (VAR) model to
determine the maximum potential one-day unfavorable impact on its earnings. For
additional information regarding the use of financial instruments, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk and Item 8, Financial
Statements and Supplementary Data, Note 5.
Set forth below are the marketed gas, power and petroleum volumes for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996(1)
------ ------ -------
<S> <C> <C> <C>
Natural gas volumes marketed (Bbtu/d)(2)................... 11,540 6,969 4,568
Power volumes marketed (Thousand MW hours)................. 44,677 12,969 3,878
Petroleum volumes marketed (MBbls per year)(2)............. 21,717 80,641 54,913
</TABLE>
- ---------------
(1) Average daily volumes for the gas marketing activities of EPTPC, acquired in
December 1996, are reflected from the date of acquisition in 1996 and for
the full year of 1997 and 1998.
(2) Includes financial trades.
Competition
EPEM operates in a highly competitive environment. Its primary competitors
include: (i) marketing affiliates of major oil and gas producers; (ii) marketing
affiliates of large local distribution companies; (iii) marketing affiliates of
other interstate and intrastate pipelines; and (iv) independent energy marketers
with varying scopes of operations and financial resources. EPEM competes on the
basis of price, access to production, understanding of pipeline and transmission
networks, imbalance management, and experience in the marketplace.
EL PASO ENERGY INTERNATIONAL
EPEI was formed for the purpose of investing in integrated energy projects
with an emphasis on developing infrastructure to gather, transport and use
natural gas in northern Mexico and certain Latin American countries. With the
combination of EPTPC's international activities, the focus of international
project pursuit has expanded to include power generation and to include
investments located in Australia, Asia, Europe and other Latin American
countries. Set forth below are brief descriptions, by region, of the projects
that are either operational or in various stages of development.
Acquisitions and greenfield development projects are subject to a higher
level of commercial and financial risk in foreign countries. Accordingly, EPEI
has adopted a risk mitigation strategy to reduce risks to more acceptable and
manageable levels. EPEI's practice is to select experienced partners with a
history of success in commercial operations. Individual partners are generally
chosen based on the complementary competencies which they offer to the various
joint ventures formed or to be formed. EPEI designs and implements a formal due
diligence plan on every project it pursues, and contracts are negotiated to
secure fuel supply, manage operating and maintenance costs and, when possible,
index revenues and denominate transactions in U.S. dollars. EPEI also obtains
political risk insurance when deemed appropriate, through the Overseas Private
Investment Corporation, the Multilateral Investment Guarantee Agency, or a
private insurer.
Latin America and Mexico
Samalayuca Power Project -- The Company owns a 30 percent interest in a 700
MW combined cycle gas fired power plant in Samalayuca, Mexico. The first,
second, and third units commenced commercial operations in May, September, and
December 1998, respectively. Comision Federal de Electricidad, the Mexican
government-owned electric utility ("CFE") operates the plant under a 20-year
lease. Upon expiration of the lease term, ownership of the plant will be
transferred to CFE.
Samalayuca Pipeline -- This 45-mile 212 MMcf/d pipeline system commenced
gas deliveries in December 1997. The pipeline delivers natural gas to the
Samalayuca Power Project from EPNG's existing pipeline system in West Texas and
Pemex's pipeline system in northern Mexico. This system consists of
8
<PAGE> 13
22 miles of pipeline in the U.S. (currently owned by EPNG) and 23 miles of
pipeline in Mexico
(currently 50 percent owned by the Company).
Aguaytia Project -- The Company owns a 24 percent interest in an integrated
natural gas and power generation project near Pucallpa, located in central Peru.
The project consists of a 302 Bcf natural gas field, a natural gas processing
facility, a 71-mile natural gas liquids pipeline to a fractionation facility, a
126-mile natural gas pipeline to a 155 MW simple cycle power plant, and a
250-mile 220 KV power transmission line interconnecting with the Peruvian grid
at Paramonga. The project began operations in July 1998.
CAPSA -- The Company has an effective 45 percent interest in CAPSA, a
privately held integrated energy company in Argentina. CAPSA was incorporated in
1977 for the purpose of producing, selling and exploring for liquid
hydrocarbons. CAPSA's assets include a 100 percent ownership interest in the
Diadema Oil Field and a 55 percent ownership interest in CAPEX, a publicly
traded company on the Argentine and Luxembourg stock exchanges that owns the 382
MW (currently being expanded to 650 MW) Agua del Cajon gas fired power plant in
western Argentina. This plant has been fully operational since 1995 and buys
natural gas from CAPEX's Agua del Cajon gas field. CAPEX also owns a 24 percent
interest in the 76 MW Energia del Sur gas fired power plant in southern
Argentina.
Triunion Energy Company -- In January 1998, the Company, CAPEX and
InterEnergy formed a new development company named Triunion Energy Company
("Triunion Energy") to identify and develop new energy related projects in Latin
America. Triunion Energy currently owns a 20 percent interest in an exploration
and production project in Charagua, Bolivia, as well as a 22 percent interest in
an approved project to build a $380 million, 325 mile, natural gas pipeline that
will cross the Andes Mountains connecting natural gas production in Argentina's
Neuquen Basin to customers in Concepcion, Chile. Construction of the pipeline
commenced in early 1998 and is expected to be completed in late 1999.
Manaus Power Project -- The Company owns 100 percent of a 250 MW power
plant in Manaus, the capital city of the state of Amazonas in northern Brazil.
Power from the plant is currently sold under a four-year contract to
Electronorte, the local electric company. The first phase of the project
commenced operations in February 1998. The second phase commenced operations in
March 1998 and the third phase commenced operations in June 1998. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional discussion of the Manaus power project.
Bolivia to Brazil Pipeline -- The Company is part of a consortium that is
constructing a 2,000 mile pipeline from Santa Cruz, Bolivia to Sao Paulo,
Brazil, with a southern lateral to Porto Alegre, Brazil. The pipeline will
transport natural gas to the largest unserved market in the western hemisphere
(approximately 100 million people). The pipeline is expected to be in service in
early 1999. The Company's interest in the project is approximately 8 percent.
Parana Power Project -- The Company has an approximate 30 percent interest
in a consortium to build a 480 MW natural gas fired power plant in the state of
Parana, in southern Brazil. The power plant will be located in Araucaria,
Brazil. The electricity will be purchased by Companhia Paranaense de Energia, an
integrated electric utility providing generation, transmission, and distribution
of electricity to all regions of the state of Parana. The plant will be fueled
by natural gas provided from the Bolivia to Brazil pipeline. Final negotiation
and signing of a power purchase agreement will take place in early 1999 with
financial close expected in the fourth quarter of 1999. Commercial operations
are expected to commence in late 2000.
Costanera -- In July 1998, the Company acquired 100 percent of KLT Power,
Inc., the international business unit of Kansas City Power and Light Company.
KLT Power, was established in 1993, to develop, finance, own, and operate
independent power projects in selected markets worldwide. KLT Power owns a 12
percent interest in Central Costanera, the largest thermal-power plant in
Argentina consisting of 2,167 MW of power generation and a 7.8 percent interest
in Central Termoelectrica Buenos Aires, S.A., a 328 MW combined cycle power
plant in Buenos Aires.
9
<PAGE> 14
Europe
EMA Power -- The Company owns a 50 percent controlling interest in a 70 MW
power plant located in Dunaujvaros, Hungary. The electricity generated at the
plant is consumed by Dunaferr Kft., the largest steel mill in Hungary. Approval
has been given to expand the capacity of the electric generating plant to 140 MW
and construction is scheduled to commence in late 1999.
Kladno Power -- In May 1997, the Company acquired a 31 percent interest in
a 338 MW natural gas and coal fired expansion and upgrade of an existing 25 MW
cogeneration facility located approximately 19 miles northwest of Prague, in the
Czech Republic. The Company sold a 13 percent interest in the project to one of
the original partners under a buy back option granted by the Company in June
1997. The Company expects to purchase a similar amount in 1999 from another
partner under a similar option agreement. Non-recourse project financing was
finalized in June 1997, and commercial operations are expected to commence in
the fourth quarter of 1999.
Fife Power -- In September 1998, the Company acquired a 50 percent interest
in the first Scottish independent power project located in Fife. The existing
plant consists of a simple cycle natural gas fired turbine generating 75 MW,
which commenced operations in the fourth quarter of 1998. Under Phase II, a
steam turbine will be added to produce a total combined-cycle generating
capacity of 115 MW. Financial close for Phase II is expected to occur in early
1999, and commercial operation is expected to commence in early 2001.
Enfield -- In December 1998, the Company acquired a 25 percent interest in
Enfield Energy Center Limited. The 396 MW combined cycle natural gas turbine
power plant is under construction near London, England and is expected to be
operational by October 1999.
Asia Pacific
Australian Pipelines -- The Company owns a 30 percent interest in the
Moomba to Adelaide pipeline system, a 488-mile natural gas pipeline in southern
Australia and the Ballera to Wallumbilla pipeline system, a 470-mile natural gas
pipeline in southwestern Queensland.
In March 1998, the Company, through its 33.3 percent interest in Epic
Energy (WA) Pipeline Trust venture, purchased the 925-mile Dampier-to-Bunbury
natural gas pipeline in western Australia. This 550 MMcf/d pipeline system
serves a number of western Australian markets, including industrial end-users.
An expansion of the Dampier-to-Bunbury pipeline is currently underway to supply
additional natural gas to Alcoa, Worsley and Wesfarmers. The expansion,
scheduled for completion in fourth quarter of 1999, will expand the pipeline
capacity to 635 MMcf/d.
Sengkang Project -- The Company has a 50 percent interest in a producing
natural gas field with proven reserves of 533 Bcf and a 47.5 percent interest in
a 135 MW power plant in Sengkang, South Sulawesi, Indonesia. The electricity
produced by the power plant is sold to PLN, the national electric utility, under
a long-term power purchase agreement. The power plant began simple cycle
commercial operation in September 1997, making it one of the first independent
power plants to operate in Indonesia. Combined cycle completion was in September
1998. For a discussion related to the effects on the project of the devaluation
of the Indonesian rupiah, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Kabirwala Power -- The Company owns a 42 percent interest in a 151 MW
natural gas fired power plant currently under construction in Kabirwala,
Pakistan. Commercial operation is expected to commence in the second quarter of
1999. The power plant will sell electricity to the State Water and Power
Development Authority.
Haripur -- The Company owns a 50 percent interest in a consortium formed to
construct a 115 MW oil and gas-fired power generation facility in Haripur,
Bangladesh. The plant will sell power to the Bangladesh Power Development Board
under a 15-year power purchase agreement. The plant is expected to be in service
by the end of May 1999.
10
<PAGE> 15
East Asia Power -- In 1998, the Company executed agreements to acquire a 46
percent interest in East Asia Power Resources Corporation ("EAPRC"), a publicly
traded company in the Philippines. EAPRC owns and operates three power
generation facilities in the Philippines and owns an interest in one power
generation facility in China, with a total generating capacity of 289 MW. EAPRC
also has options to acquire two additional power generation facilities in the
Philippines with an aggregate generating capacity of 123 MW. Electric power
generated by the facilities is supplied to a diversified base of customers
including NPC, the state-owned utility, private distribution companies and
industrial users. This acquisition was completed in February 1999.
Other Projects
The Company owns interests in three operating domestic power generation
plants consisting of a 17.5 percent interest in a 240 MW power plant in
Springfield, Massachusetts and a 50 percent interest in two additional
cogeneration projects in Florida with a combined generating capacity of 220 MW.
CORPORATE AND OTHER OPERATIONS
In February 1998, El Paso Power Services ("EPPS") was formed to manage,
acquire, and develop power-related assets and joint ventures. EPPS participates
in the development, construction, and operation of domestic power generation
projects as well as provides restructuring services to electric utilities,
non-utility and merchant generators, fuel suppliers, and large industrial
concerns to achieve lower costs in the transition to a more competitive business
environment.
EPPS has a 56 percent interest in a 270 MW natural gas-fired combined cycle
power generation facility under construction in Agawam, Massachusetts
("Berkshire") which is expected to commence commercial operation in December
1999. Berkshire has entered into a fuel management agreement to purchase all
natural gas and fuel oil used to operate the facility at market rates from EPEM
through December 2019. In addition, Berkshire has entered into a power marketing
agreement to sell all power produced by the facility to EPPS at market rates
through December 2019.
In December 1998, EPPS purchased a 100 percent interest in a 150 MW natural
gas-fired combined cycle electric generation facility in Brush, Colorado ("Brush
I"). Brush I consists of two natural gas turbines, which currently operate
alternately, and a steam turbine. The gas and steam turbines together generate
electricity and provide radiant heating for a greenhouse complex.
During 1998, EPPS activities were included with Corporate operations. As
EPPS operations increase, they may be reported as a separate business segment or
combined with El Paso Energy Marketing segment.
As a result of the Merger, the Company holds certain limited assets and is
responsible for certain liabilities of EPTPC's existing and discontinued
operations and businesses. In addition, the Company, through its corporate and
other segment, performs management, legal, financial, tax, consultative,
administrative and other services for the operating business segments of the
Company.
ENVIRONMENTAL
A description of the Company's environmental activities is included in Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations, and is incorporated by reference herein.
EMPLOYEES
The Company had approximately 3,600 full-time employees on December 31,
1998. The Company has no collective bargaining arrangements and no significant
changes in the workforce have occurred since December 31, 1998. During 1997, the
Company reduced its workforce by approximately 800 employees as a result of a
program to streamline operations and reduce operating costs in connection with
the acquisition of EPTPC.
11
<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of EPEC as of March 10, 1999, are set forth below.
For dates prior to
August 1, 1998 (the date of the holding company reorganization), references to
positions held with EPEC refer instead to positions held with EPNG.
<TABLE>
<CAPTION>
OFFICER
NAME OFFICE SINCE AGE
---- ------ ------- ---
<S> <C> <C> <C>
William A. Wise.............. Chairman of the Board, President, and Chief 1983 53
Executive Officer of EPEC
H. Brent Austin.............. Executive Vice President and Chief Financial 1992 44
Officer of EPEC
Joel Richards III............ Executive Vice President of EPEC 1990 52
Britton White, Jr............ Executive Vice President and General Counsel 1991 55
of EPEC
Mark A. Searles.............. Senior Vice President of EPEC 1995 42
Richard Owen Baish........... President of EPNG 1987 52
John D. Hushon............... President of EPEI 1996 53
Greg G. Jenkins.............. President of EPEM 1996 41
Robert G. Phillips........... President of EPFS 1995 44
John W. Somerhalder II....... President of TGP 1990 43
</TABLE>
Mr. Wise has been Chairman of the Board since January 1994 and Chief
Executive Officer since January 1990. In July 1998, Mr. Wise also became the
President of the Company. He was President of EPEC from April 1989 to April
1996. From March 1987 until April 1989, Mr. Wise was an Executive Vice President
of EPEC. From January 1984 to February 1987, he was a Senior Vice President of
EPEC. Mr. Wise is a member of the Board of Directors of Battle Mountain Gold
Company and is the Chairman of the Board of EPNG, EPTPC, and Leviathan Gas
Pipeline Company, the general partner of Leviathan.
Mr. Austin has been Executive Vice President of EPEC since May 1995. He has
been Chief Financial Officer of EPEC since April 1992. He was Senior Vice
President of EPEC from April 1992 to April 1995. He was Vice President, Planning
and Treasurer of Burlington Resources Inc. ("BR") from November 1990 to March
1992 and Assistant Vice President, Planning of BR from January 1989 to October
1990.
Mr. Richards has been Executive Vice President of EPEC since December 1996.
From January 1991 until December 1996, he was Senior Vice President of EPEC. He
was Vice President from June 1990 to December 1990. He was Senior Vice
President, Finance and Human Resources of Meridian Minerals Company, a wholly
owned subsidiary of BR, from October 1988 to June 1990.
Mr. White has been Executive Vice President of EPEC since December 1996 and
General Counsel of EPEC since March 1991. He was Senior Vice President and
General Counsel of EPEC from March 1991 until December 1996. From March 1991 to
April 1992, he was also Corporate Secretary of EPEC. For more than five years
prior to that time, Mr. White was a partner in the law firm of Holland & Hart.
Mr. Searles has been Senior Vice President of EPEC since April 1998. He was
Executive Vice President of EPEM from June 1997 to June 1998. He was President
of EPFS from December 1996 to June 1997 and was President of EPEM from September
1995 to December 1996. From March 1994 to September 1995, Mr. Searles was
President and Chief Operating Officer of Eastex Energy, Inc. For more than five
years prior to that he held various management positions with Enron Corp.
Mr. Baish has been President of EPNG since April 1996. From September 1994
until April 1996, he was Executive Vice President of EPNG and was Senior Vice
President from November 1990 to August 1994. He was General Counsel and
Corporate Secretary from November 1990 to December 1990 and Vice President and
Associate General Counsel from March 1987 to October 1990.
12
<PAGE> 17
Mr. Hushon has been President of EPEI since April 1996. He was Senior Vice
President of EPEI from September 1995 to April 1996. For more than five years
prior to that time, Mr. Hushon was a senior partner in the law firm of Arent Fox
Kintner Plotkin & Kahn.
Mr. Jenkins has been President of EPEM since December 1996. He was Senior
Vice President and General Manager of Entergy Corp. from May 1996 to December
1996 and President and Chief Executive Officer of Hadson Gas Services Company
from December 1993 to January 1996. For more than five years prior to that time,
Mr. Jenkins was in various managerial positions with Santa Fe Energy Resources,
Inc.
Mr. Phillips has been President of EPFS since June 1997. He was President
of El Paso Energy Resources Company from December 1996 to June 1997, President
of EPFS from April 1996 to December 1996 and was a Senior Vice President of EPEC
from September 1995 to April 1996. For more than five years prior to that time,
Mr. Phillips was Chief Executive Officer of Eastex Energy, Inc.
Mr. Somerhalder has been President of TGP since December 1996. He was
President of El Paso Energy Resources Company from April 1996 to December 1996
and Senior Vice President of EPEC from August 1992 to April 1996. From January
1990 to July 1992, he was Vice President of EPEC.
Executive officers hold offices until their successors are elected and
qualified, subject to their earlier removal.
ITEM 2. PROPERTIES
A description of the Company's properties is included in Item 1, Business
and is incorporated by reference herein.
The Company is of the opinion that it has generally satisfactory title to
the properties owned and used in its businesses, subject to the liens for
current taxes, liens incident to minor encumbrances, and easements and
restrictions that do not materially detract from the value of such property or
the interests therein or the use of such properties in its businesses. The
Company believes that its physical properties are adequate and suitable for the
conduct of its business in the future.
ITEM 3. LEGAL PROCEEDINGS
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Commitments and Contingencies, Legal Proceedings which is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
EPEC's common stock is traded on the New York Stock Exchange. As of March
5, 1999, the number of holders of record of common stock was approximately
72,000. This does not include individual participants on whose behalf a clearing
agency, or its nominee, holds EPEC's common stock.
The following table reflects the high and low sales prices for EPEC's
common stock for the periods indicated based on the daily composite listing of
stock transactions for the New York Stock Exchange and cash dividends declared
during those periods.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
-------- -------- ---------
(PER SHARE)
<S> <C> <C> <C>
1998
First Quarter....................................... $35.6250 $31.1250 $0.19125
Second Quarter...................................... 38.9375 35.4375 0.19125
Third Quarter....................................... 38.6250 24.6875 0.19125
Fourth Quarter...................................... 36.8125 30.1250 0.19125
1997
First Quarter....................................... $28.5000 $24.4375 $0.18250
Second Quarter...................................... 30.3125 27.1250 0.18250
Third Quarter....................................... 30.3436 26.5000 0.18250
Fourth Quarter...................................... 33.7500 28.8750 0.18250
</TABLE>
In January 1999, the Board declared a quarterly dividend of $0.20 per share
on EPEC's common stock, payable on April 1, 1999, to stockholders of record on
March 5, 1999. The declaration of future dividends will be dependent upon
business conditions, earnings, the cash requirements of EPEC, and other relevant
factors.
In January 1998, the Board declared a two-for-one stock split in the form
of a 100 percent stock dividend (on a per share basis). In March 1998, the
stockholders approved an increase in the Company's authorized common stock,
which was necessary to effect the stock split. The stock dividend was paid on
April 1, 1998 to stockholders of record on March 13, 1998. All presentations
herein are made on a post-split basis. Separately, the Board also approved a new
10 million common stock repurchase authority that replaced the repurchase
authority approved by the Board in November 1994. The timing and amount of
additional share repurchases, if any, will depend upon the availability and
alternate uses of capital, market conditions and other factors.
EPEC has made available a continuous odd-lot stock sales program (the
"Program"), in which stockholders of EPEC owning beneficially fewer than 100
shares of EPEC's common stock ("Odd-Lot-Holders") are offered a convenient
method of disposing of all their shares without incurring any brokerage costs
associated with the sale of an odd-lot. Only Odd-Lot Holders are eligible to
participate in the Program. The Program is strictly voluntary, and no Odd-Lot
Holder is obligated to sell pursuant to the Program. A brochure and related
materials describing the Program were sent to Odd-Lot Holders in February 1994.
The Program currently does not have a termination date, but EPEC may suspend the
Program at any time. Inquiries regarding the Program should be directed to
Boston EquiServe.
EPEC has made available a dividend reinvestment and common stock purchase
plan (the "Plan"), which provides all stockholders of record a convenient and
economical means of increasing their holdings in EPEC's common stock. A
stockholder who owns shares of common stock in street name or broker name and
who wishes to participate in the Plan will need to have his or her broker or
nominee transfer the shares into the stockholder's name. The Plan is strictly
voluntary, and no stockholder of record is obligated to participate in the Plan.
The Plan currently does not have a termination date, but EPEC may suspend the
Plan at any time. Inquiries regarding the Plan should be directed to Boston
EquiServe.
14
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- -------- -------
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Results Data(a):
Operating revenues.................................. $5,782 $5,638 $3,012 $1,038 $ 870
Employee separation and asset impairment
charge(b)........................................ -- -- 99 -- --
Net income.......................................... 225 186 38 85 90
Basic earnings per common share(b).................. 1.94 1.64 .53 1.24 1.23
Diluted earnings per common share................... 1.85 1.59 .52 1.24 1.23
Cash dividends declared per common share............ .76 .73 .70 .66 .61
Basic average common shares outstanding............. 116 114 72 69 73
Diluted average common shares outstanding........... 126 117 73 69 73
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Financial Position Data(a):
Total assets....................................... $10,069 $9,532 $8,843 $2,535 $2,332
Long-term debt..................................... 2,552 2,119 2,215 772 779
Preferred stock of subsidiary...................... 300 300 296 -- --
Other minority interest............................ 65 65 39 -- --
Stockholders' equity............................... 2,108 1,959 1,638 712 710
</TABLE>
- ---------------
(a) Reflects the acquisition in September 1995 of Eastex Energy, Inc., in
December 1995 of Premier Gas Company, in June 1996 of Cornerstone Natural
Gas, Inc., in December 1996 of EPTPC, and in August 1998 of DeepTech. All
acquisitions were accounted for as purchases and therefore operating results
are included prospectively from the date of acquisition.
(b) Reflects a charge in 1996 of $99 million pre-tax ($60 million after tax) to
reflect costs associated with the implementation of a workforce reduction
plan and the impairment of certain long-lived assets. Basic earnings per
common share for the year ended December 31, 1996 before giving effect to
this charge and an $8 million pre-tax ($5 million after tax) charge taken in
the fourth quarter for relocating the corporate headquarters from El Paso,
Texas to Houston, Texas in connection with the acquisition of EPTPC, would
have been $1.43 (compared to $0.53).
15
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
For the past four years, the Company has engaged in numerous activities and
transactions designed to significantly improve its ability to compete
effectively in the rapidly evolving world energy industry. In late 1995, the
Company acquired two energy marketing businesses, Eastex Energy Inc. and Premier
Gas Company. During the first quarter of 1996, the Company completed its
organizational review and workforce reduction program, reducing the total
workforce from 2,400 to about 1,600. During May 1996, the Company completed and
placed in service the Chaco Plant, the largest facility of its kind in the
continental U.S. In June 1996, the Company acquired Cornerstone Natural Gas,
Inc., expanding its gathering and processing operations into Louisiana and East
Texas. The Company completed its $4 billion acquisition of EPTPC in December
1996, expanding its natural gas pipeline systems from coast to coast and
continuing the expansion of the non-regulated business operations. In connection
with the EPTPC acquisition, the Company completed a workforce reduction program
in the first quarter of 1997, reducing the workforce of the combined companies
by approximately 800 from about 4,300 following the acquisition of EPTPC to
about 3,500. In late 1997, the Company acquired additional natural gas gathering
and processing assets by completing the purchases of Gulf States Gas Pipeline
Company and certain Texas Gulf Coast subsidiaries of PacifiCorp ("TPC"). In
August 1998, the Company acquired DeepTech. Additionally, throughout 1996, 1997
and 1998, the Company's international operations were expanding into Latin and
South America, the Asia Pacific region, Australia, and Europe.
These changes in the make-up of the Company significantly increased the
Company's operating results, its ability to generate operating cash flows and
its needs for cash for investment opportunities. Consequently, the Company's
credit facilities were substantially expanded during this period to meet those
needs.
The Company adopted the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective January 1, 1998.
Accordingly, the Company has segregated its business activities into five
segments: Tennessee Gas Pipeline segment, El Paso Natural Gas segment, El Paso
Field Services segment, El Paso Energy Marketing segment, and El Paso Energy
International segment. These segments are strategic business units that offer a
variety of different energy products and services. They are managed separately
as each business segment requires different technology and marketing strategies.
Certain business segments' earnings are largely derived from the earnings of
equity investments. Accordingly, the Company evaluates segment performance based
on EBIT.
HOLDING COMPANY REORGANIZATION AND TAX-FREE INTERNAL REORGANIZATION
Effective August 1, 1998, the Company reorganized into a holding company
organizational structure, whereby EPEC, a Delaware corporation, became the
parent holding company. See Item 8, Financial Statements and Supplementary Data,
Note 1, for further discussion of the holding company reorganization. On
December 31, 1998, the Company completed a tax-free internal reorganization of
its assets and operations and those of its subsidiaries in accordance with a
private letter ruling received from the IRS. In the reorganization, a
substantial number of subsidiaries were transferred to or from the Company
and/or other entities owned by the Company. Neither the creation of the holding
company structure nor the tax-free internal reorganization had any impact on the
presentation herein.
RESULTS OF OPERATIONS
Consolidated EBIT for the year ended December 31, 1998, increased 11
percent to $644 million compared to $578 million in the year ago period.
Consolidated EBIT for the year ended December 31, 1997, was $403 million higher
than for the same period of 1996. Variances are discussed in the segment results
below.
16
<PAGE> 21
SEGMENT RESULTS
To the extent practicable, results of operations for 1997 and 1996 have
been reclassified to conform to the current business segment presentation,
although such results are not necessarily indicative of the results which would
have been achieved had the revised business segment structure been in effect
during those periods. Operating revenues and expenses by segment include
intersegment sales and expenses which are eliminated in consolidation. Because
of energy commodity price volatility, the Company believes that gross margin
(revenue less cost of sales), rather than operating revenue, provides a more
accurate indicator for the El Paso Field Services and the El Paso Energy
Marketing segments. For a further discussion of the individual segments, see
Item 8, Financial Statements and Supplementary Data, Note 13.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES
Tennessee Gas Pipeline...................................... $ 358 $ 318 $ 16
El Paso Natural Gas......................................... 217 260 223
----- ----- -----
Regulated segments........................................ 575 578 239
----- ----- -----
El Paso Field Services...................................... 75 74 35
El Paso Energy Marketing.................................... 9 (28) 24
El Paso Energy International................................ 25 2 (4)
----- ----- -----
Non-regulated segments.................................... 109 48 55
----- ----- -----
Corporate expenses, net..................................... (40) (48) (119)
----- ----- -----
Consolidated EBIT......................................... $ 644 $ 578 $ 175
===== ===== =====
</TABLE>
TENNESSEE GAS PIPELINE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating revenues.......................................... $ 766 $ 798 $ 48
Operating expenses.......................................... (434) (494) (34)
Other -- net................................................ 26 14 2
----- ----- -----
EBIT...................................................... $ 358 $ 318 $ 16
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenues for the year ended December 31, 1998, were $32 million
lower than for the same period of 1997 primarily because of lower throughput
resulting from warmer average temperatures in the northeastern and midwestern
markets and a downward revision in the amount of recoverable interest on GSR
costs.
Operating expenses for the year ended December 31, 1998, were $60 million
lower than for the same period of 1997 primarily due to lower system fuel usage
associated with operating efficiencies attained during the period of lower
throughput, reduced operation and maintenance expenses largely due to lower
payroll costs, and lower franchise taxes.
Other -- net for the year ended December 31, 1998, was $12 million higher
than for the same period of 1997 due to interest income on a favorable sales and
use tax settlement and gains on the sale of assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The results of operations for 1996 represents EPEC's ownership of this
segment for 20 days after the EPTPC Merger in December 1996.
Operating revenues for the year ended December 31, 1997, were $750 million
higher than for the same period of 1996 due to the acquisition of EPTPC in
December 1996.
17
<PAGE> 22
Operating expenses for the year ended December 31, 1997, were $460 million
higher than for the same period of 1996 due to the acquisition of EPTPC in
December 1996.
Other -- net for the year ended December 31, 1997, was $12 million higher
than for the same period of 1996 due to the acquisition of EPTPC in December
1996.
EL PASO NATURAL GAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating revenues.......................................... $ 475 $ 520 $ 511
Operating expenses.......................................... (260) (265) (302)
Other -- net................................................ 2 5 14
----- ----- -----
EBIT...................................................... $ 217 $ 260 $ 223
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenues for the year ended December 31, 1998, were $45 million
lower than for the same period of 1997 primarily due to lower net revenues
resulting from the PG&E contract expiration which was effective December 31,
1997. The decrease in revenues from the loss of the PG&E contract was
significantly offset by risk sharing revenue, other non-traditional revenues
including revenue from the sale of capacity to Dynegy, and the favorable
resolution of a contested rate matter. (See Commitments and Contingencies, Rates
and Regulatory Matters, below for a discussion of the Dynegy contracts.)
Operating expenses for the year ended December 31, 1998, were $5 million
lower than for the same period of 1997 primarily due to lower fuel costs and
recovery of a receivable previously deemed uncollectible. Partially offsetting
the decrease were higher operating and depreciation expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenues for the year ended December 31, 1997, were $9 million
higher than for the same period of 1996 primarily due to higher accruals for
take-or-pay issues in 1996 and an increase in non-traditional revenues
associated with a system expansion. This increase was partially offset by lower
revenues resulting from contract expirations occurring in late 1996 and early
1997.
Operating expenses for the year ended December 31, 1997, were $37 million
lower than for the same period of 1996 primarily due to lower labor, benefits,
and payroll tax expenses in 1997 which resulted from a reduction in staffing
levels during 1996.
Other -- net for the year ended December 31, 1997, was $9 million lower
than for the same period of 1996 due to gains on the disposition of assets in
1996.
EL PASO FIELD SERVICES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Gathering and treating margin............................... $ 150 $ 119 $ 87
Processing margin........................................... 48 55 46
Other margin................................................ 3 6 1
----- ----- -----
Total gross margin................................ 201 180 134
Operating expenses.......................................... (141) (114) (99)
Other -- net................................................ 15 8 --
----- ----- -----
EBIT...................................................... $ 75 $ 74 $ 35
===== ===== =====
</TABLE>
18
<PAGE> 23
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total gross margin for the year ended December 31, 1998, was $21 million
higher than for the same period of 1997. The increase in the gathering and
treating margin primarily resulted from higher gathering rates compared to 1997,
an increase in gathering and treating volumes largely attributable to the
acquisition of TPC in December 1997, and the inclusion of the results of
operations of Channel Pipeline ("Channel"), in El Paso Field Services segment
beginning January 1998 versus El Paso Energy Marketing segment. The decrease in
the processing margin was largely attributable to lower liquids prices during
1998 compared to the same period of 1997. Liquids prices directly impact EPFS's
processing revenues. During 1998, liquids prices were at their lowest level
since 1990, and the Company expects this trend to continue through 1999. The
Company attempts to mitigate the impact of lower liquids prices by utilizing
hedging strategies where possible.
Operating expenses for the year ended December 31, 1998, were $27 million
higher than for the same period of 1997 primarily as a result of additional
expenses associated with the addition of TPC and Channel as well as higher
general and administrative expenses.
Other -- net for the year ended December 31, 1998, was $7 million higher
than for the same period of 1997 reflecting higher earnings from equity
investments and higher capitalized interest.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total gross margin for the year ended December 31, 1997, was $46 million
higher than for the same period of 1996. The increase in the gathering and
treating margin and the processing margin was primarily the result of higher
natural gas prices in the San Juan Basin and an increase in gathering and
treating volumes due to the acquisitions of EPTPC in December 1996 and
Cornerstone Natural Gas, Inc. in June 1996.
Operating expenses for the year ended December 31, 1997, were $15 million
higher than for the same period of 1996 primarily due to the acquisition of
EPTPC and Cornerstone Natural Gas, Inc.
Other -- net for the year ended December 31, 1997, was $8 million higher
than for the same period of 1996 primarily due to the acquisition of EPTPC.
EL PASO ENERGY MARKETING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Natural gas margin.......................................... $ 26 $ 25 $ 46
Power margin................................................ 16 -- (3)
Petroleum products margin................................... 1 (3) 3
---- ---- ----
Total gross margin................................ 43 22 46
Operating expenses.......................................... (38) (53) (23)
Other -- net................................................ 4 3 1
---- ---- ----
EBIT...................................................... $ 9 $(28) $ 24
==== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total gross margin for the year ended December 31, 1998, was $21 million
higher than for the same period of 1997. Increases in total gross margin in 1998
reflect a fundamental shift in focus initiated by the energy marketing business
segment from a short-term positional trading operation to a long-term,
asset-based origination, trading, and risk management operation. In 1998, such
energy activities emphasized long-term power and gas contract management and
related energy services for power and natural gas customers, including
independent power producers, utilities and end users. Trading activities, while
substantially increasing in volume in 1998, are primarily used to manage risk in
long-term contract positions. Partially offsetting the increase in gross margin
was the impact of reporting the operations of Channel in El Paso Field Services
segment versus El Paso Energy Marketing segment beginning in January 1998.
19
<PAGE> 24
Operating expenses for the year ended December 31, 1998, were $15 million
lower than for the same period of 1997. The decrease was attributable to the
1997 restructuring of the marketing organization following the EPTPC acquisition
and the transfer of Channel operations as mentioned above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total gross margin for the year ended December 31, 1997, was $24 million
lower than for the same period of 1996. The decrease resulted from generally
lower industry-wide gas marketing margins in the second quarter of 1997, as well
as extreme market volatility which negatively impacted the Company's natural gas
marketing activities and trading positions during the first quarter of 1997.
Operating expenses for the year ended December 31, 1997, were $30 million
higher than for the same period of 1996 primarily due to the costs associated
with the marketing activities of EPTPC which were acquired in December 1996.
EL PASO ENERGY INTERNATIONAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating revenues.......................................... $ 58 $ 13 $--
Operating expenses.......................................... (86) (37) (3)
Other -- net................................................ 53 26 (1)
---- ---- ---
EBIT...................................................... $ 25 $ 2 $(4)
==== ==== ===
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenues for the year ended December 31, 1998, were $45 million
higher than for the same period of 1997 due to the consolidation for financial
reporting purposes of the Manaus Power project in May 1998 after acquiring an
additional ownership interest and an increase in revenue attributable to the EMA
Power project which the Company began reporting on a consolidated basis in July
1997.
Operating expenses for the year ended December 31, 1998, were $49 million
higher than for the same period of 1997 primarily due to costs related to the
consolidation of the EMA Power and Manaus Power projects and increased general
and administrative expenses largely due to higher project development costs
reflecting an increase in project-related activities in 1998.
Other -- net for the year ended December 31, 1998, was $27 million higher
than for the same period of 1997 primarily due to increased equity earnings, a
gain on the sale of surplus power equipment, and the recognition of certain net
gains from project-related activities.
As EPEI's projects move from the development stage to the operational
stage, it is common to recognize one-time gains and fees, which may include
management fees, development fees, financing fees, and gains on the sell-down of
ownership interests. The Company anticipates additional one-time events may
result in the recognition of income or expense in the future.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
EBIT for the year ended December 31, 1997, was $6 million higher than for
the same period of 1996. During 1997, EPEI completed its first full year of
operations following the EPTPC acquisition, which represented a significant
increase in international project development activities. Because of this
increase in development activities, operating results likewise increased
substantially over 1996.
20
<PAGE> 25
CORPORATE EXPENSES, NET
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net corporate expenses for the year ended December 31, 1998, were $8
million lower than for the same period of 1997. The decrease results from lower
benefits costs and non-recurring gains, partially offset by administrative costs
associated with the formation and startup of EPPS, a power services group
established in the first quarter of 1998, and costs associated with the
Company's Year 2000 project.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net corporate expenses for the year ended December 31, 1997, were $71
million lower than for the same period of 1996 primarily as a result of a $99
million employee separation and asset impairment charge recorded in the first
quarter of 1996 and an $8 million charge in the fourth quarter of 1996 for
relocating the Company's headquarters from El Paso, Texas to Houston, Texas in
connection with the acquisition of EPTPC. The decrease was partially offset by
additional costs related to the discontinued operations assumed as part of the
EPTPC acquisition.
INTEREST AND DEBT EXPENSE
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Interest and debt expense for the year ended December 31, 1998, was $29
million higher than for the same period of 1997 primarily because of increased
borrowings to fund capital expenditures, acquisitions, and other investing
expenditures and a higher average effective interest rate during 1998 generally
resulting from the higher rates associated with the March 1997 issuance of TGP
long-term debt of approximately $883 million. These increases were partially
offset by higher interest expense in 1997 incurred on rate refunds paid to
EPNG's customers in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Interest and debt expense for the year ended December 31, 1997, was $128
million higher than for the same period of 1996 due primarily to the level of
debt assumed in connection with the acquisition of EPTPC and the Company's debt
and capital realignment efforts.
INCOME TAX EXPENSE
The effective tax rate for 1998 was 34 percent compared to 38 percent in
1997 and 1996. The lower rate in 1998 is due to an increase in the level of
foreign income in 1998, which is subject to foreign tax rates that differ from
U.S. tax rates, increases in permanently reinvested equity income from
unconsolidated foreign affiliates for which no provision for U.S. income tax is
required, and lower state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $61 million lower for the
year ended December 31, 1998, compared to the same period of 1997. The decrease
was primarily attributable to working capital changes, a take-or-pay refund paid
to EPNG's customers in February 1998, lower GSR collections in 1998, and
prepayments of risk sharing revenues in 1997. The decrease was partially offset
by higher net tax refunds in 1998 and rate refunds paid to TGP's customers in
March 1997 and EPNG's customers in August 1997.
CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was approximately $1 billion for the
year ended December 31, 1998. Investment activities included the August 1998
acquisition of DeepTech (see Item 8, Financial Statements and Supplementary
Data, Note 2), as well as expenditures for joint ventures, equity investments,
and
21
<PAGE> 26
expansion and construction projects. Expenditures related to joint ventures and
equity investments were primarily attributable to the EPEI segment. Internally
generated funds, supplemented by other financing activities, were used to fund
these expenditures.
The Company's planned capital and investment expenditures for 1999 of
approximately $900 million are primarily for expansion of international
operations and domestic unregulated operations, pipeline systems activities and
other facilities, and computer and communication system enhancements.
Funding for capital expenditures, acquisitions, and other investing
expenditures is expected to be provided by internally generated funds,
commercial paper issuances, available capacity under existing credit facilities,
and/or the issuance of other long-term debt, trust securities, or equity.
CASH FROM FINANCING ACTIVITIES
Net cash provided by financing activities was $463 million for the year
ended December 31, 1998. In March 1998, Trust Convertible Preferred Securities
were issued (see Item 8, Financial Statements and Supplementary Data, Note 3)
for net proceeds of $317 million. In October 1998, TGP issued debentures due
2028 for net proceeds of $391 million. These proceeds, supplemented by
internally generated funds, were used to retire long-term debt, pay dividends,
acquire treasury stock, fund capital and equity investments, and for other
corporate purposes.
Since November 1994, the Company has been authorized by the Board to
repurchase shares of its common stock. Shares repurchased are held in EPEC's
treasury and are expected to be used in conjunction with EPEC stock compensation
plans and for other corporate purposes. Pursuant to the November 1994
authorization, the Company had repurchased 9.4 million shares as of December 31,
1997. In January 1998, the Board approved a new 10 million common stock
repurchase authority that replaced the November 1994 repurchase authority. The
10 million share repurchase authority reflects the two-for-one stock split as
discussed in Item 5, Market for Registrant's Common Equity and Related
Stockholder Matters. In 1998, the Company repurchased 995,600 common shares at a
weighted average cost of $35.77 per share. The timing and amount of future share
repurchases, if any, will depend upon the availability and alternate uses of
capital, market conditions and other factors.
Future funding for long-term debt retirements, dividends, and other
financing expenditures is expected to be provided by internally generated funds,
commercial paper issuances, available capacity under existing credit facilities,
and/or the issuance of other long-term debt, trust securities, or equity.
LIQUIDITY
The Company relies on cash generated from internal operations as its
primary source of liquidity, supplemented by its available credit facilities and
commercial paper program. In October 1997, EPNG established a new $750 million
five-year revolving credit and competitive advance facility and a new $750
million 364-day renewable revolving credit and competitive advance facility
(collectively, the "Revolving Credit Facility"). In connection with the
establishment of the Revolving Credit Facility, EPTPC's revolving credit
facility was also terminated, and the outstanding balance of $417 million was
financed under the five-year portion of the new Revolving Credit Facility with
TGP designated as the borrower. The availability under the Revolving Credit
Facility is expected to be used for general corporate purposes including, but
not limited to, backstopping EPNG's and TGP's $1 billion commercial paper
programs.
In August 1998, EPEC became a guarantor of EPNG's Revolving Credit
Facility. In October 1998, the $750 million 364-day portion of the Revolving
Credit Facility was amended to extend the termination date to October 27, 1999.
In addition, in October 1998, the Revolving Credit Facility was amended to
permit TGP to issue commercial paper, provided that the total amount of
commercial paper outstanding at EPNG and TGP is equal to or less than the unused
capacity under the Revolving Credit Facility. In December 1998, EPEC became a
borrower under the Revolving Credit Facility. The interest rate on the Revolving
Credit Facility is 40 basis points above LIBOR, with the spread varying based on
EPEC's long-term debt credit rating.
The availability of borrowings under the Company's credit agreements is
subject to specified conditions, which management believes the Company currently
meets. These conditions include compliance with the
22
<PAGE> 27
financial covenants and ratios required by such agreements, absence of default
under such agreements, and continued accuracy of the representations and
warranties contained in such agreements (including the absence of any material
adverse changes since the specified dates).
All of the Company's senior debt issues have been given investment grade
ratings by Standard & Poors and Moody's. The Company must comply with various
restrictive covenants contained in its debt agreements which include, among
others, maintaining a consolidated debt and guarantees to capitalization ratio
no greater than 70 percent. In addition, the Company's subsidiaries on a
consolidated basis (as defined in the agreements) may not incur debt obligations
which would exceed $300 million in the aggregate, excluding acquisition debt,
project financing, and certain refinancings. As of December 31, 1998, EPEC's
consolidated debt and guarantees to capitalization ratio (as defined in the
agreements) was 55 percent and debt obligations of EPEC subsidiaries in excess
of permitted debt did not exceed $300 million on a consolidated basis.
In March 1997, TGP issued $300 million aggregate principal amount of 7 1/2%
debentures due 2017, $300 million aggregate principal amount of 7% debentures
due 2027, and $300 million aggregate principal amount of 7 5/8% debentures due
2037. Proceeds of approximately $883 million, net of issuance costs, were used
to repay a portion of EPTPC's credit facility and for general corporate
purposes.
In December 1997, EPEC filed a shelf registration statement pursuant to
which EPEC may offer up to $900 million (including $250 million transferred from
prior shelf registrations) of common or preferred equities, various forms of
debt securities (including convertible debt securities), and various types of
trust securities from time to time as determined by market conditions. In March
1998, the El Paso Energy Capital Trust I, a Delaware business trust sponsored by
the Company, issued 6.5 million 4 3/4% Trust Convertible Preferred Securities.
The sole assets of the trust are approximately $335 million principal amount of
4 3/4% convertible subordinated debentures due 2028 of the Company. As a result
of such offering, EPEC has approximately $565 million of capacity remaining
under its existing shelf registration to issue public securities registered
thereunder.
In September 1998, TGP filed a shelf registration permitting TGP to offer
up to $600 million (including $100 million carried forward from a prior shelf
registration) of debt securities. In October 1998, TGP issued $400 million
aggregate principal amount of 7% debentures due 2028. Proceeds to TGP were
approximately $391 million, net of issuance cost. Approximately $300 million of
the proceeds were used to repay TGP's short-term indebtedness under the
Revolving Credit Facility and the remainder were used by TGP for general
corporate purposes. After this issuance, TGP has $200 million of capacity
remaining under its shelf registration.
In March 1998, EPNG retired its outstanding 8 5/8% debentures in the amount
of $17 million and in August 1998, EPTPC retired its outstanding 10% debentures
in the amount of $38 million. In February 1999, DeepTech retired its 11% senior
subordinated promissory note due 2000 in the amount of $16 million.
COMMITMENTS AND CONTINGENCIES
Indonesia
The Company owns a 47.5 percent interest in a power generating plant in
Sengkang, South Sulawesi, Indonesia. Under the terms of the project's power
purchase agreement, PLN purchases power from the Company in Indonesian rupiah
indexed to the U.S. dollar at the date of payment. Due to the devaluation of the
rupiah, the cost of power to PLN has significantly increased. PLN is currently
unable to pass this increase in cost on to its customers without creating
further political instability. PLN has requested financial aid from the Minister
of Finance to help ease the effects of the devaluation. PLN has been paying the
Company in rupiah indexed to the U.S. dollar at the rate in effect prior to the
rupiah devaluation, with a commitment to pay the balance when financial aid is
received. The difference between the current and prior exchange rate has
resulted in an outstanding balance due from PLN of $9.4 million at December 31,
1998. The Company continues to meet with PLN on a regular basis to resolve the
payment in arrears issue but has been unsuccessful to date. Recently, the
Company has met and discussed its situation and concerns with the World
23
<PAGE> 28
Bank, the International Monetary Fund, the Overseas Private Investment
Corporation, and the U.S. Treasury Department in an attempt to achieve a
resolution through the Indonesian Minister of Finance. The Company will meet
with PLN in April 1999 to discuss payments in arrear and the terms of a contract
rationalization process proposed by PLN. The Company has informed PLN that all
payments in arrear must first be received as a prerequisite to any further
discussions on contract rationalization. The Company cannot predict with
certainty the outcome of such discussions. The Company's total investment in the
Sengkang project was approximately $25 million at December 31, 1998.
Additionally, the Company has provided specific recourse guarantees of up to $6
million for loans from the project lenders. All other project debt is
non-recourse. The Company has political risk insurance on the Sengkang project.
The Company believes the current economic difficulties in Indonesia will not
have a material adverse effect on the Company's financial position, results of
operations, or cash flows.
Brazil
The Company owns 100 percent of a 250 MW power plant in Manaus, Brazil.
Power from the plant is currently sold under a four-year contract to
Electronorte, denominated in Brazilian real. Due to the devaluation of the real
in January 1999, Manaus suffered an $831,000 exchange loss on the December
invoice. There is no provision in the contract to recover the effects of the
devaluation on this invoice. However, future invoices are covered under a
provision in the contract entitling the Company to recover a substantial portion
of any future devaluation. The Company believes the current economic
difficulties in Brazil will not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
The contract for the Manaus power project provides for delay damages to be
paid to Electronorte if the specified construction schedule was not met.
Completion of the project was delayed beyond the originally scheduled completion
dates provided in the contract and such delays have resulted in a claim by
Electronorte for delay damages. The Company is in discussions with Electronorte
regarding such claim. In any event, the Company has the right under its
construction contract to assert claims against the construction contractor for
such delay damages and believes that any such damages will not have a material
adverse effect on the Company's financial position, results of operations, or
cash flows.
Capital Commitments
At December 31, 1998, the Company had capital and investment commitments of
$245 million, which are expected to be funded through internally generated funds
and/or incremental borrowings. The Company's other planned capital and
investment projects are discretionary in nature, with no substantial capital
commitments made in advance of the actual expenditures.
Purchase Obligations
In connection with the financing commitments of certain joint ventures, TGP
has entered into unconditional purchase obligations for products and services
totaling $77 million at December 31, 1998. TGP's annual obligations under these
agreements are $21 million for the years 1999 and 2000, $11 million for the year
2001, $4 million for the years 2002 and 2003, and $16 million in total
thereafter. Excluded from these amounts is TGP's obligation to purchase 30
percent of the output of the Great Plains coal gasification project's original
design capacity through July 2009. In January 1997, TGP executed a settlement of
this contract as part of its GSR negotiations, recorded the related liability,
and, in the third quarter of 1997, purchased an annuity for $42 million to fund
the expected remaining monthly demand requirements of the contract which, under
the settlement, continue through January 2004.
Operating Leases
The Company leases certain property, facilities and equipment under various
operating leases. In addition, in 1995, El Paso New Chaco Company ("EPNC")
entered into an unconditional lease for the Chaco Plant. The lease term expires
in 2002, at which time EPNC has an option, and an obligation upon the occurrence
of certain events, to purchase the plant for a price sufficient to pay the
amount of the $77 million
24
<PAGE> 29
construction financing, plus interest and certain expenses. If EPNC does not
purchase the plant at the end of the lease term, it has an obligation to pay a
residual guaranty amount equal to approximately 87 percent of the amount
financed, plus interest. The Company unconditionally guaranteed all obligations
of EPNC under the lease.
Minimum annual rental commitments at December 31, 1998, were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, OPERATING LEASES
- ------------------------------------------------------------ ----------------
(IN MILLIONS)
<S> <C>
1999..................................................... $ 18
2000..................................................... 18
2001..................................................... 18
2002..................................................... 17
2003..................................................... 13
Thereafter............................................... 56
----
Total............................................. $140
====
</TABLE>
Aggregate minimum commitments have not been reduced by minimum sublease
rentals of approximately $15 million due in the future under noncancelable
subleases.
Rental expense for operating leases for the years ended December 31, 1998,
1997, and 1996 was $27 million, $23 million, and $14 million, respectively.
Guarantees
At December 31, 1998, the Company had parental guarantees of up to $486
million in connection with its international development activities, as well as
$181 million related to various other projects. The Company also had letters of
credit of approximately $80 million outstanding at December 31, 1998.
Rates and Regulatory Matters
In July 1998, FERC issued a Notice of Proposed Rulemaking ("NOPR") in which
it seeks comments on a wide range of initiatives to change the manner in which
short-term (less than one year) transportation markets are regulated. Among
other things, the NOPR proposes the following: (i) removing the price cap for
the short-term capacity market; (ii) establishing procedures to make pipeline
and shipper-owned capacity comparable; (iii) auctioning all available short-term
pipeline capacity on a daily basis with the pipeline unable to set a reserve
price above variable costs; (iv) changing policies or pipeline penalties,
nomination procedures and services; (v) increasing pipeline reporting
requirements; (vi) permitting the negotiation of terms and conditions of
service; and (vii) potentially modifying the procedures for certificating new
pipeline construction. Also in July 1998, FERC issued a Notice of Inquiry
("NOI") seeking comments on FERC's policy for pricing long-term capacity.
Comments on the NOPR and NOI are due in April 1999, and it is unclear when and
what action, if any, FERC will take in connection with the NOPR and NOI and the
comments received in response to them.
TGP -- In February 1997, TGP filed a settlement with FERC of all issues
related to the recovery of its GSR and other transition costs and related
proceedings (the "GSR Stipulation and Agreement"). In April 1997, FERC approved
the settlement. Under the terms of the GSR Stipulation and Agreement, TGP is
entitled to collect up to $770 million from its customers, $693 million through
a demand surcharge and $77 million through an interruptible transportation
surcharge. As of December 31, 1998, the demand portion had been fully collected
and $41 million of the interruptible transportation portion had been collected.
There is no time limit for collection of the interruptible transportation
surcharge portion. The terms of the GSR Stipulation and Agreement also provide
for a rate case moratorium through November 2000 (subject to certain limited
exceptions) and an escalating rate cap, indexed to inflation, through October
2005, for certain
25
<PAGE> 30
of TGP's customers. Under the terms of the GSR Stipulation and Agreement, TGP is
required to refund to customers amounts collected in excess of each customer's
share of transition costs.
In December 1994, TGP filed for a general rate increase with FERC and in
October 1996, FERC approved a settlement resolving that proceeding. The
settlement included a structural rate design change that results in a larger
portion of TGP's transportation revenues being dependent upon throughput. Under
the stipulation, TGP's refund obligation was approximately $185 million,
inclusive of interest, of which $161 million was refunded to customers in March
1997 and June 1997 with the remaining $24 million refund obligation offset
against GSR recoveries in accordance with particular customer elections. TGP
provided a reserve for these rate refunds as revenues were collected. One party,
a competitor of TGP, filed a Petition for Review of the FERC orders with the
Court of Appeals. The Court of Appeals remanded the case to FERC to respond to
the competitor's argument that TGP's cost allocation methodology deterred the
development of market centers (centralized locations where buyers and sellers
can physically exchange gas). At FERC's request, comments were filed in January
1999.
All cost of service issues related to TGP's 1991 general rate proceeding
were resolved pursuant to a settlement agreement approved by FERC in an order
which now has become final. However, cost allocation and rate design issues
remained unresolved. In July 1996, following an ALJ's decision on these cost and
design issues, FERC ruled on certain issues but remanded to the ALJ the issue of
the proper allocation of TGP's New England lateral costs. In July 1997, FERC
issued an order denying rehearing of its July 1996 order but clarifying that,
among other things, although the ultimate resolution as to the proper allocation
of costs would be applied retroactively to July 1, 1995, the cost of service
settlement does not allow TGP to recover from other customers any amounts that
TGP may ultimately be required to refund. In February 1999, petitions for review
of the July 1996 and July 1997 FERC orders were denied by the Court of Appeals.
In the remand proceeding, the ALJ issued his decision on the proper allocation
of the New England lateral costs in December 1997. That decision adopts a
methodology that, economically, approximates the one currently used by TGP. In
October 1998, FERC issued an order affirming the ALJ's decision. Certain parties
have requested rehearing of that order, and the matter is currently pending
before FERC.
TGP has filed cash out reports for the period September 1993 through August
1998. TGP's filings showed a cumulative loss through August of 1998 of $3
million. TGP has reached a settlement in principle with its customers to resolve
outstanding FERC proceedings related to these filed cash out reports. The
reports, as well as the accounting for customer imbalances, had been challenged
by TGP's customers. Upon FERC's approval, the settlement will provide for a new
mechanism for accounting for TGP's cash out program.
Substantially all of the revenues of TGP are generated under long-term gas
transmission contracts. Contracts representing approximately 70 percent of TGP's
firm transportation capacity will be expiring over the next two years,
principally in November 2000. Although TGP cannot predict how much capacity will
be resubscribed, a majority of the expiring contracts cover service to
northeastern markets, where there is currently little excess capacity. Several
projects, however, have been proposed to deliver incremental volumes to these
markets. Although TGP is actively pursuing the renegotiation, extension and/or
replacement of these contracts, there can be no assurance as to whether TGP will
be able to extend or replace these contracts (or a substantial portion thereof)
or that the terms of any renegotiated contracts will be as favorable to TGP as
the existing contracts.
EPNG -- In June 1995, EPNG filed with FERC for approval of new system rates
for mainline transportation to be effective January 1, 1996. In March 1996, EPNG
filed a comprehensive offer of settlement to resolve that proceeding as well as
issues surrounding certain contract reductions and expirations that were to
occur from January 1, 1996, through December 31, 1997. In April 1997, FERC
approved EPNG's settlement as filed and determined that only the contesting
party, Edison, should be severed for separate determination of the rates it
ultimately pays EPNG. In July 1997, FERC issued an order denying the requests
for rehearing of the April 1997 order and the settlement was implemented
effective July 1, 1997. Hearings to determine Edison's rates were completed in
May 1998, and an initial decision was issued by the presiding ALJ in July 1998.
EPNG and Edison have filed exceptions to the decision with FERC. If the ALJ's
decision is affirmed by FERC, EPNG believes that the resulting rates to Edison
would be such that no
26
<PAGE> 31
significant, if any, refunds in excess of the amounts reserved would be
required. Pending the final outcome, Edison continues to pay the originally
filed rates, subject to refund, and EPNG continues to provide a reserve for such
potential refunds.
Edison filed with the Court of Appeals a petition for review of FERC's
April 1997 and July 1997 orders, in which it challenged the propriety of FERC's
approving the settlement over Edison's objections to the settlement as a
customer of SoCal. In December 1998, the Court of Appeals issued its decision
vacating and remanding FERC's order. EPNG will file a motion with FERC proposing
procedures to address deficiencies which the Court of Appeals found in FERC's
earlier orders. EPNG cannot predict the outcome with certainty, but it believes
that FERC will ultimately approve the settlement.
The rate settlement establishes, among other things, base rates through
December 31, 2005. Such rates escalate annually beginning in 1998. In addition,
the settlement provides for settling customers to (i) pay $295 million
(including interest) as a risk sharing obligation, which approximates 35 percent
of anticipated revenue shortfalls over an 8 year period, resulting from the
contract reductions and expirations referred to above, (ii) receive 35 percent
of additional revenues received by EPNG, above a threshold, for the same
eight-year period, and (iii) have the base rates increase or decrease if certain
changes in laws or regulations result in increased or decreased costs in excess
of $10 million a year. In accordance with the terms of the rate settlement,
EPNG's refund obligation (including interest) was approximately $194 million.
EPNG refunded $61 million to customers in August 1997 and, in accordance with
certain customers' elections, the remaining $133 million of refund obligation
was applied towards their $295 million risk sharing obligation. Through December
31, 1998, an additional $94 million of the risk sharing obligation was paid and
the remaining $68 million balance, including interest, will be collected by the
end of 2003. From 1996 through December 31, 1998, $69 million of the risk
sharing obligation had been recognized as revenue. The remaining unearned risk
sharing amounts, totaling $226 million, excluding interest, will be recognized
ratably through the year 2003.
In addition to other arrangements to offset the effects of the reduction in
firm capacity commitments referred to above, EPNG entered into three contracts
with Dynegy for the sale of substantially all of its turned back firm capacity
available to California as of January 1, 1998, (approximately 1.3 Bcf) for a
two-year period beginning January 1, 1998, at rates negotiated pursuant to
EPNG's tariff provisions and FERC policies. EPNG realized $29 million in revenue
in 1998 and anticipates realizing at least $41 million in revenues in 1999
(which are and will be subject to the revenue sharing provisions of the rate
settlement) for this capacity. The contracts have a transport-or-pay provision
requiring Dynegy to pay a minimum charge equal to the reservation component of
the contractual charge on at least 50 percent of the contracted volumes in each
month in 1998 and on at least 72 percent of the contracted volumes each month in
1999. In the third quarter of 1999, EPNG intends to remarket this capacity
pursuant to EPNG's tariff provisions and FERC regulations, subject to Dynegy's
right of first refusal.
In December 1997, EPNG filed to implement several negotiated rate
contracts, including those with Dynegy. In a protest to this filing, three
shippers (producers/marketers) requested that FERC require EPNG to eliminate
certain provisions from the Dynegy contracts, to publicly disclose and repost
the contracts for competitive bidding, and to suspend their effectiveness. In an
order issued in January 1998, FERC rejected several of the arguments made in the
protest and allowed the contracts to become effective as of January 1, 1998,
subject to refund, and to the outcome of a technical conference, which was held
in March 1998. In June 1998, FERC issued an order rejecting the protests to the
Dynegy contracts, but required EPNG to file modifications with FERC to the
contracts clarifying the credits under the reservation reduction mechanism and
the recall rights of certain capacity. In addition, EPNG agreed to separately
post capacity covered by the Dynegy contracts which becomes available in the
future. Several parties have protested EPNG's compliance filing and/or requested
rehearing of FERC's June 1998 order. In June 1998, EPNG filed a letter agreement
in compliance with the June 1998 FERC order. In September 1998, FERC issued an
order accepting the letter agreement subject to EPNG making additional
modifications. The additional modifications to the letter agreement required
further clarification of credits available to Dynegy under the reservation
reduction mechanism and the recall rights of certain capacity. In October 1998,
EPNG filed a revised letter agreement with FERC and requested rehearing of the
September 1998 order.
27
<PAGE> 32
Under the revenue sharing provisions of its rate case settlement, EPNG is
obligated to return approximately $12 million of non-traditional revenues to
certain customers. Approximately $5 million had been credited to such customers'
transportation invoices at December 31, 1998, and the balance of the $7 million
has been or will be credited ratably over January, February, and March 1999. At
December 31, 1998, EPNG had a reserve for the $7 million.
Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. Certain parties
sought review in the Court of Appeals of FERC's determination in an October 1992
order that certain buy-down/buy-out costs were eligible for recovery. In January
1996, the Court of Appeals remanded the order to FERC with direction to clarify
the basis for its decision that the take-or-pay buy-down/buy-out costs were
eligible for recovery. In March 1997, following a technical conference and the
submission of statements of position and replies, FERC issued an order
determining that the costs related to all but one of EPNG's disputed contracts
were eligible for recovery. The costs ruled ineligible for recovery totaled
approximately $3 million, including interest, and were refunded to customers in
the second quarter of 1997. In October 1997, FERC issued an order denying the
challenging parties' request for rehearing of the March 1997 order in most
respects, but determined that the costs incurred pursuant to two additional EPNG
contracts were ineligible for recovery. These costs, including interest, totaled
approximately $9 million and were refunded to customers in February 1998. The
challenging parties, which claim that EPNG should be required to refund up to an
additional $31 million filed a petition for review of the FERC order in the
Court of Appeals. In February 1999, the Court of Appeals affirmed FERC's October
1997 order.
In November 1996, GPM Corporation filed a complaint, as amended, with FERC
alleging that EPNG's South Carlsbad compression facilities were gathering
facilities and were improperly functionalized by EPNG as transmission
facilities. In accordance with the FERC orders, the South Carlsbad compressor
facilities were transferred to EPFS in April 1998.
In a November 1997 order, FERC reversed its previous decision and found
that EPNG's Chaco Station should be functionalized as gathering, not
transmission, facility and should be transferred to EPFS. FERC has denied all
requests for rehearing. EPNG and two other parties filed petitions for review
with the Court of Appeals. The matter has been briefed and will be argued in
September 1999. In accordance with the FERC orders, the Chaco Station was
transferred to EPFS in April 1998.
FERC Compliance Audits
TGP and EPNG, as interstate pipelines, are subject to FERC audits of their
books and records. EPNG currently has an open audit covering the years 1990
through 1995. FERC is expected to issue its audit report in 1999. Both EPNG's
and TGP's property retirements are currently under review by the FERC audit
staff.
Management believes the ultimate resolution of the aforementioned rate and
regulatory matters, which are in various stages of finalization, will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
Legal Proceedings
In November 1993, TransAmerican filed a complaint in a Texas state court,
TransAmerican Natural Gas Corporation v. El Paso Natural Gas Company, et al.,
alleging fraud, tortious interference with contractual relationships, negligent
misrepresentation, economic duress, civil conspiracy, and violation of state
antitrust laws arising from a settlement agreement entered into by EPNG,
TransAmerican Natural Gas Corporation ("TransAmerican"), and others in 1990 to
settle litigation then pending and other potential claims. The complaint, as
amended, seeks actual damages of $1.5 billion and exemplary damages of $6
billion. EPNG is defending the matter in the State District Court of Dallas
County, Texas. In April 1996, a former employee of TransAmerican filed a related
case in Harris County, Texas, Vickroy E. Stone v. Godwin & Carlton, P.C., et al.
(including EPNG), seeking indemnification and other damages in unspecified
amounts relating to litigation consulting work allegedly performed for various
entities, including EPNG, in cases involving TransAmerican. EPNG filed a motion
for summary judgment in the TransAmerican case arguing that
28
<PAGE> 33
plaintiff's claims are barred by a prior release executed by TransAmerican, by
statutes of limitations, and by the final court judgment ending the original
litigation in 1990. Following a hearing in January 1998, the court granted
summary judgment in EPNG's favor on TransAmerican's claims based on economic
duress and negligent misrepresentation, but denied the motion as to the
remaining claims. In February 1998, EPNG filed a motion for summary judgment in
the Stone litigation arguing that all claims are baseless, barred by statutes of
limitations, subject to executed releases, or have been assigned to
TransAmerican. In June 1998, the court granted EPNG's motion in its entirety and
dismissed all the remaining claims in the Stone litigation. In August 1998, the
court denied Stone's motion for a new trial seeking reconsideration of that
ruling. Stone has appealed the court's ruling to the Texas Court of Appeals in
Houston, Texas. The TransAmerican trial is set to commence in September 1999.
Based on information available at this time, management believes that the claims
asserted against it in both cases have no factual or legal basis and that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position, results of operations, or cash flows.
In February 1998, the United States and the State of Texas filed in a
United States District Court a Comprehensive Environmental Response,
Compensation and Liability Act cost recovery action, United States v. Atlantic
Richfield Co., et al., against fourteen companies including the following
affiliates of EPEC: TGP, EPTPC, EPEC Corporation, EPEC Polymers, Inc. and the
dissolved Petro-Tex Chemical Corporation, relating to the Sikes Disposal Pits
Superfund Site ("Sikes") located in Harris County, Texas. Sikes was an
unpermitted waste disposal site during the 1960s that accepted waste hauled from
numerous Houston Ship Channel industries. The suit alleges that the former
Tenneco Chemicals, Inc. and Petro-Tex Chemical Corporation arranged for disposal
of hazardous substances at Sikes. TGP, EPTPC, EPEC Corporation and EPEC
Polymers, Inc. are alleged to be derivatively liable as successors or as parent
corporations. The suit claims that the United States and the State of Texas have
expended over $125 million in remediating the site, and seeks to recover that
amount plus interest. Other companies named as defendants include Atlantic
Richfield Company, Crown Central Petroleum Corporation, Occidental Chemical
Corporation, Exxon Corporation, Goodyear Tire & Rubber Company, Rohm & Haas
Company, Shell Oil Company and Vacuum Tanks, Inc. These defendants have filed
their answers and third-party complaints seeking contribution from twelve other
entities believed to be PRPs at Sikes. Although factual investigation relating
to Sikes is in very preliminary stages, the Company believes that the amount of
material, if any, disposed at Sikes from the Tenneco Chemicals, Inc. or
Petro-Tex Chemical Corporation facilities was small, possibly de minimis.
However, the government plaintiffs have alleged that the defendants are each
jointly and severally liable for the entire remediation costs and have also
sought a declaration of liability for future response costs such as groundwater
monitoring. While the outcome of this matter cannot be predicted with certainty,
management does not expect this matter to have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
TGP is a party in proceedings involving federal and state authorities
regarding the past use by TGP of a lubricant containing PCBs in its starting air
systems. TGP has executed a consent order with the EPA governing the remediation
of certain of its compressor stations and is working with the relevant states
regarding those remediation activities. TGP is also working with the
Pennsylvania and New York environmental agencies to specify the remediation
requirements at the Pennsylvania and New York stations. Remediation activities
in Pennsylvania are complete with the exception of some long-term groundwater
monitoring requirements. Remediation and characterization work at the compressor
stations under its consent order with the EPA and the jurisdiction of the New
York Department of Environmental Conservation is ongoing. Management believes
that the ultimate resolution of these matters will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
In November 1988, the Kentucky environmental agency filed a complaint in a
Kentucky state court, Commonwealth of Kentucky, Natural Resources and
Environmental Protection Cabinet v. Tennessee Gas Pipeline Company, alleging
that TGP discharged pollutants into the waters of the state without a permit and
disposed of PCBs without a permit. The agency sought an injunction against
future discharges, sought an order to remediate or remove PCBs, and sought a
civil penalty. TGP has entered into agreed orders with the agency to resolve
many of the issues raised in the original allegations, has received water
discharge permits for
29
<PAGE> 34
its Kentucky compressor stations from the agency, and continues to work to
resolve the remaining issues. The relevant Kentucky compressor stations are
scheduled to be characterized and remediated under the consent order with the
EPA. Management believes that the resolution of this issue will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
A number of subsidiaries of EPEC, both wholly owned and partially owned, as
well as Leviathan, have been named defendants in United States ex rel Grynberg
v. El Paso Natural Gas Company, et al. Generally, the complaint in this motion
alleges an industry-wide conspiracy to underreport the heating value as well as
the volumes of the natural gas produced from federal and Indian lands, thereby
depriving the U.S. government of royalties. The complaint remains sealed. The
Company believes the complaint to be without merit.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
ENVIRONMENTAL
The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at current and
former operating sites. As of December 31, 1998, the Company had a reserve of
approximately $255 million for expected remediation costs and associated onsite,
offsite and groundwater technical studies of approximately $239 million; and
other costs of approximately $16 million which the Company anticipates incurring
through 2027.
In addition, the Company estimates that its subsidiaries will make capital
expenditures for environmental matters of approximately $6 million in 1999.
Capital expenditures will range from approximately $60 million to $85 million in
the aggregate for the years 2000 through 2007. These expenditures primarily
relate to compliance with air regulations and, to a lesser extent, control of
water discharges.
Since 1988, TGP has been engaged in an internal project to identify and
deal with the presence of PCBs and other substances of concern, including
substances on the EPA List of Hazardous Substances, at compressor stations and
other facilities operated by both its interstate and intrastate natural gas
pipeline systems. While conducting this project, TGP has been in frequent
contact with federal and state regulatory agencies, both through informal
negotiation and formal entry of consent orders, to assure that its efforts meet
regulatory requirements.
In May 1995, following negotiations with its customers, TGP filed with FERC
a separate Stipulation and Agreement (the "Environmental Stipulation") that
establishes a mechanism for recovering a substantial portion of the
environmental costs identified in the internal project. In November 1995, FERC
issued an order approving the Environmental Stipulation. Although one shipper
filed for rehearing, FERC denied rehearing of its order in February 1996. The
Environmental Stipulation was effective July 1, 1995. As of December 31, 1998, a
balance of $2 million remains to be collected under the stipulation.
The Company and certain of its subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a PRP with respect
to 30 sites under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund) or state equivalents. The Company has sought
to resolve its liability as a PRP with respect to these Superfund sites through
indemnification by third parties and/or settlements which provide for payment of
the Company's allocable share of remediation costs. As of December 31, 1998, the
Company has estimated its share of the remediation costs at these sites to be
between $62 million and $75 million and has provided reserves that it believes
are adequate for such costs. Since the clean-up costs are estimates and are
subject to revision as more information becomes available about the extent of
remediation required, and because in some cases the Company has asserted a
defense to any liability, the Company's estimate of its
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<PAGE> 35
share of remediation costs could change. Moreover, liability under the federal
Superfund statute is joint and several, meaning that the Company could be
required to pay in excess of its pro rata share of remediation costs. The
Company's understanding of the financial strength of other PRPs has been
considered, where appropriate, in its determination of its estimated liability
as described herein. The Company presently believes that the costs associated
with the current status of such entities as PRPs at the Superfund sites
referenced above will not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
The Company has initiated proceedings against its historic liability
insurers seeking payment or reimbursement of costs and liabilities associated
with environmental matters. In these proceedings, the Company contends that
certain environmental costs and liabilities associated with various entities or
sites, including costs associated with former operating sites, must be paid or
reimbursed by certain of its historic insurers. The proceedings are in the
discovery stage, and it is not yet possible to predict the outcome.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
The Company may incur significant costs and liabilities in order to comply with
existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future. As
such information becomes available, or developments occur, related accrual
amounts will be adjusted accordingly. While there are still uncertainties
relating to the ultimate costs which may be incurred, based upon the Company's
evaluation and experience to date, the Company believes the recorded reserve is
adequate.
For a further discussion of specific environmental matters, see Legal
Proceedings above.
OTHER
Acquisition of CE Generation LLC
In March 1999, EPPS purchased a 50 percent ownership interest in CE
Generation LLC. The equity investment in CE Generation LLC of approximately $260
million, subject to certain adjustments, will be accounted for under the equity
method. CE Generation LLC owns 12 power generation projects, which are
qualifying facilities under the Public Utility Regulatory Policy Act, and two
additional generating facilities currently under construction in southern
California. Collectively, the 14 power projects have a combined electric
generating capacity of approximately 896 MW and include ten geothermal projects
near the Imperial Valley in southern California and four natural gas-fired
cogeneration projects in New York, Pennsylvania, Texas and Arizona.
PPN Power Project
In March 1999, the Company signed a sale and purchase agreement to acquire
a 26 percent interest in a $295 million power plant in Tamil Nadu, India. The
project consists of a 346 MW combined cycle power plant which will serve as a
base load facility and sell power to the state-owned Tamil Nadu Electricity
Board under a thirty-year power purchase agreement. Construction began in
January 1999, and operations are expected to commence in early 2001. Transfer of
the funds to complete the acquisition is expected to be finalized by the end of
March 1999.
Acquisition of DeepTech
In August 1998, the Company completed its acquisition of DeepTech by
merging DeepTech with a subsidiary of EPEC. DeepTech's assets included a
combined 27.3 percent ownership interest in Leviathan. The acquisition was
accounted for as a purchase with a total purchase price, net of cash received,
of approximately $422 million. The Company recorded $214 million of goodwill in
connection with the acquisition which will be amortized using the straight-line
method over a period of 40 years. The amount allocated to goodwill is based on
the excess of the total purchase price over the estimated fair value of assets
31
<PAGE> 36
and liabilities at the acquisition date. The amounts may be adjusted in the
final purchase price allocation. Management does not expect the ultimate
resolution of the purchase price allocation to materially impact the Company's
financial position, results of operations, or cash flows. The operating results
of DeepTech are included in the Company's Consolidated Statements of Income
beginning on August 15, 1998.
Year 2000
The Company has established an executive steering committee and a project
team to coordinate the phases of its Year 2000 project to assure that the
Company's key automated systems and related processes will remain functional
through the year 2000. Those phases are: (i) awareness; (ii) assessment; (iii)
remediation; (iv) testing; (v) implementation of the necessary modifications and
(vi) contingency planning (which was previously included as a component of the
Company's implementation phase).
In recognition of the importance of Year 2000 issues and their potential
impact to the Company, the initial phase of the Year 2000 project involved the
establishment of a company-wide awareness program. The awareness program is
directed by the executive steering committee and project team and includes
participation of senior management in each core business area. The awareness
phase is substantially completed, although the Company will continually update
awareness efforts for the duration of the Year 2000 project.
The Company's assessment phase consists of conducting a company-wide
inventory of its key automated systems and related processes, analyzing and
assigning levels of criticality to those systems and processes, identifying and
prioritizing resource requirements, developing validation strategies and testing
plans, and evaluating business partner relationships. The portion of the
assessment phase related to internally developed computer applications, hardware
and equipment, and embedded chips is substantially complete. The Company
estimates that it has finished more than three-fourths of the portion of the
assessment to determine the nature and impact of the Year 2000 date change for
third-party-developed software. The assessment phase of the project, among other
things, involves efforts to obtain representations and assurances from third
parties, including third party vendors, that their hardware and equipment
products, embedded chip systems, and software products being used by or
impacting the Company are or will be modified to be Year 2000 compliant. To
date, the responses from such third parties, although generally encouraging, are
inconclusive. As a result, the Company cannot predict the potential consequences
if these or other third parties or their products are not Year 2000 compliant.
The Company is currently evaluating the exposure associated with such business
partner relationships.
The remediation phase involves converting, modifying, replacing or
eliminating key automated systems identified in the assessment phase. The
testing phase involves the validation of the identified key automated systems.
The Company is utilizing test tools and written test procedures to document and
validate, as necessary, its unit, system, integration, and acceptance testing.
The Company estimates that approximately one-half of the work of these phases
remains, and expects each to be substantially completed by mid-1999.
The implementation phase involves placing the converted or replaced key
automated systems into operation. In some cases, this phase will also involve
the implementation of contingency plans needed to support business functions and
processes that may be interrupted by Year 2000 failures that are outside of the
Company's control. The Company has completed more than one-fourth of the
implementation phase, which is expected to be substantially completed by
mid-1999.
The contingency planning phase consists of developing a risk profile of the
Company's critical business processes and then providing for actions the Company
will pursue to keep such processes operational in the event of Year 2000
disruptions. The focus of such contingency planning is on prompt response to any
Year 2000 events, and a plan for subsequent resumption of normal operations. The
plan is expected to assess the risk of a significant failure to critical
processes performed by the Company, and to address the mitigation of those
risks. The plan will also consider any significant failures related to the most
reasonably likely worst case scenario, discussed below, as they may occur. In
addition, the plan is expected to factor in the severity and duration of the
impact of a significant failure. The Company plans to have its contingency plan
completed by
32
<PAGE> 37
mid-1999. The Year 2000 contingency plan will continue to be modified and
adjusted throughout the year as additional information becomes available.
The goal of the Year 2000 project is to ensure that all of the critical
systems and processes which are under the Company's direct control remain
functional. Certain systems and processes may be interrelated with or dependent
upon systems outside the Company's control, however, and systems within the
Company's control may have unpredicted problems. Accordingly, there can be no
assurance that significant disruptions will be avoided. The Company's present
analysis of its most reasonably likely worst case scenario for Year 2000
disruptions includes Year 2000 failures in the telecommunications and
electricity industries, as well as interruptions from suppliers that might cause
disruptions in the Company's operations, thus causing temporary financial losses
and an inability to deliver products and services to customers. Virtually all of
the natural gas transported through the Company's interstate pipelines is owned
by third parties. Accordingly, failures of natural gas producers to be ready for
the Year 2000 could significantly disrupt the flow of product to the Company's
customers. In many cases, the producers have no direct contractual relationship
with the Company, and the Company relies on its customers to verify the Year
2000 readiness of the producers from whom they purchase natural gas. Since most
of the Company's revenues from the delivery of natural gas are based upon fees
paid by its customers for the reservation of capacity, and not based upon the
volume of actual deliveries, short term disruptions in deliveries caused by
factors beyond the Company's control should not have a significant financial
impact on the Company, although it could cause operational problems for the
Company's customers. Longer-term disruptions, however, could materially impact
the Company's results of operations, financial condition, and cash flows.
While the Company owns or controls most of its domestic facilities and
projects, nearly all of the Company's international investments have been made
in conjunction with unrelated third parties. In many cases, the operators of
such international facilities are not under the sole or direct control of the
Company. As a consequence, the Year 2000 programs instituted at some of the
international facilities may be different from the Year 2000 program implemented
by the Company domestically, and the party responsible for the results of such
program may not be under the direct or indirect control of the Company. In
addition, the "non-controlled" programs may not provide the same degree of
communication, documentation and coordination as the Company achieves in its
domestic Year 2000 program. Moreover, the regulatory and legal environment in
which such international facilities operate makes analysis of possible
disruption and associated financial impact difficult. Many foreign countries
appear to be substantially behind the United States in addressing potential Year
2000 disruption of critical infrastructure and in developing a framework
governing the reporting requirements and relative liabilities of business
entities. Accordingly, the Year 2000 risks posed by international operations as
a whole are different than those presented domestically. As part of its Year
2000 effort, the Company is assessing the differences between the non-controlled
programs and its domestic Year 2000 project, and has formulated and instituted a
program for identifying such risks and preparing a response to such risks. While
the Company believes that most of the international facilities in which it has
significant investments are addressing Year 2000 issues in an adequate manner,
it is possible that some of them may experience significant Year 2000
disruption, and that the aggregate effect of problems experienced at multiple
international locations may be material and adverse. The Company intends to
incorporate this possibility into the relevant contingency plans.
While the total cost of the Company's Year 2000 project is still being
evaluated, the Company estimates that the costs to be incurred in 1999 and 2000
associated with assessing, remediating and testing internally developed computer
applications, hardware and equipment, embedded chip systems, and
third-party-developed software will be between $14 million and $26 million. Of
these estimated costs, the Company expects between $6 million and $14 million to
be capitalized and the remainder to be expensed. As of December 31, 1998, the
Company has incurred expenses of approximately $6 million. The Company has
previously only traced incremental expenses related to its Year 2000 project.
This means that the costs of the Year 2000 project related to salaried employees
of the Company, including their direct salaries and benefits, are not available,
and have not been included in the estimated costs of the project. Since the
earlier phases of the project mostly involved work performed by such salaried
employees, the costs expended to date do not reflect the percentage completion
of the project. The Company anticipates that it will expend most of the costs
33
<PAGE> 38
reported above in the remediation, implementation and contingency planning
phases of the project. It is possible the Company may need to reassess its
estimate of Year 2000 costs in the event the Company completes an acquisition
of, or makes a material investment in, substantial facilities or another
business entity.
Although the Company does not expect the costs of its Year 2000 project to
have a material adverse effect on its financial position, results of operations,
or cash flows, based on information available at this time the Company cannot
conclude that disruption caused by internal or external Year 2000 related
failures will not have such an effect. Specific factors which might affect the
success of the Company's Year 2000 efforts and the occurrence of Year 2000
disruption or expense include the failure of the Company of its outside
consultants to properly identify deficient systems, the failure of the selected
remedial action to adequately address the deficiencies, the failure of the
Company's outside consultants to complete the remediation in a timely manner
(due to shortages of qualified labor or other factors), unforeseen expenses
related to the remediation of existing systems or the transition to replacement
systems, the failure of third parties to become Year 2000 compliant or to
adequately notify the Company of potential noncompliance and the effects of any
significant disruption at international facilities in which the Company has
significant investments.
The above disclosure is a "YEAR 2000 READINESS DISCLOSURE" made with the
intention to comply fully with the Year 2000 Information and Readiness
Disclosure Act of 1998, Pub. L. No. 105-271, 112 Stat, 2386, signed into law
October 19, 1998. All statements made herein shall be construed within the
confines of that Act. To the extent that any reader of the above Year 2000
Readiness Disclosure is other than an investor or potential investor in the
Company's -- or an affiliate's -- equity or debt securities, this disclosure is
made for the SOLE PURPOSE of communicating or disclosing information aimed at
correcting, helping to correct and/or avoid Year 2000 failures.
Employee Separation and Asset Impairment Charge
During the first quarter of 1996, the Company adopted a program to reduce
operating costs through work force reductions and improved work processes and
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. As a result of the workforce reduction
program and the adoption of SFAS No. 121, the Company recorded a special charge
of $99 million ($47 million for employee separation costs and $52 million for
asset impairments) in the first quarter of 1996. For a further discussion, see
Item 8, Financial Statements and Supplementary Data, Note 11.
Management is not aware of other commitments or contingent liabilities
which would have a materially adverse effect on the Company's financial
condition, results of operations, or cash flows.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance on
accounting for such costs, and also defines internal-use computer software. The
statement is effective for fiscal years beginning after December 15, 1998. The
application of this pronouncement will not have a material impact on the
Company's financial position, results of operations, or cash flows.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. The statement defines start-up activities and requires start-up and
organization costs to be expensed as incurred. In addition, it requires that any
such cost that exists on the balance sheet be expensed upon adoption of this
pronouncement. The statement is effective for fiscal years beginning after
December 15, 1998. The Company will adopt this pronouncement effective January
1, 1999, and expects to report a charge in the range of $7 million to $12
million, net of income taxes, in the first quarter of 1999 as a cumulative
effect of a change in accounting principle.
34
<PAGE> 39
Accounting for Derivative Instruments and Hedging Activities
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued by the Financial Accounting Standards Board to
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity classify all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (iii) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. The accounting for the changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The standard is effective for all quarters in fiscal years
beginning after June 15, 1999. The Company is currently evaluating the effects
of this pronouncement.
Disclosure relating to Euro Conversion
In July 1998, the Securities and Exchange Commission issued Staff Legal
Bulletin No. 6 to provide guidance for disclosure related to the Euro
Conversion. The guidance primarily focuses on disclosure in the Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as Description of Business. The Company currently has no investments in the
countries affected by the Euro Conversion.
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities
In November 1998, the Emerging Issues Task Force reached a consensus on
EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. EITF 98-10 requires energy trading contracts to be
recorded at fair value on the balance sheet, with the changes in fair value
included in earnings. EITF 98-10 is effective for fiscal years beginning after
December 15, 1998. The Company adopted the provisions of EITF 98-10 in January
1999. The application of this pronouncement did not have a material impact on
the Company's financial position, results of operations, or cash flows.
35
<PAGE> 40
RISK FACTORS -- CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, we caution that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions may
identify forward-looking statements.
With this in mind, you should consider the following important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by us or on our behalf:
OUR INDUSTRY IS HIGHLY COMPETITIVE
The hydrocarbons that we transport, gather, process and store are owned by
third parties. As a result, the volume of hydrocarbons involved in such
activities is dependent upon the actions of those third parties, and are beyond
our control. Further, our ability to maintain or increase current transmission,
gathering, processing, and sales volumes or to remarket unsubscribed capacity,
is subject to the impact of the following:
- future weather conditions, including those that favor hydroelectric
generation or other alternative energy sources;
- price competition;
- drilling activity and supply availability;
- expiration of the Dynegy contracts at the end of 1999; and
- service competition, especially due to current excess pipeline capacity
into California.
Our future profitability may be affected by our ability to compete with the
services offered by other energy enterprises which may be larger, offer more
services, and possess greater resources.
Seventy percent of TGP's contracts are expiring over the next two years,
principally in November 2000. Our ability to negotiate new contracts and to
renegotiate existing contracts could be adversely affected by factors we cannot
control, including:
- the proposed construction by other companies of additional pipeline
capacity in the markets served by TGP;
- reduced demand due to higher gas prices;
- the availability of alternative energy sources; and
- the viability of our expansion projects.
For a further discussion see Item 1, Business, Natural Gas Transmission,
Markets and Competition.
FLUCTUATIONS IN NATURAL GAS AND NATURAL GAS LIQUIDS PRICES COULD ADVERSELY
AFFECT OUR BUSINESS
Our ability to compete with other transporters is impacted by natural gas
prices in the supply basins connected to our pipeline systems as compared to
prices in other gas producing regions, especially Canada. Revenues generated by
our gathering and processing contracts are dependent upon volumes and rates,
both of which can be affected by the prices of natural gas and natural gas
liquids. The success of our expanding gathering and processing operations in the
offshore Gulf of Mexico is subject to continued development of
36
<PAGE> 41
additional oil and gas reserves in the vicinity of our facilities and our
ability to access such additional reserves to offset the natural decline from
existing wells connected to our systems. A decline in energy prices could
precipitate a decrease in such development activities and could cause a decrease
in the volume of reserves available for gathering and processing through our
offshore facilities. Fluctuations in energy prices, which may impact gathering
rates and investments by third parties in the development of new oil and gas
reserves connected to our gathering and processing facilities, are caused by a
number of factors, including:
- regional, domestic and international supply and demand;
- availability and adequacy of transportation facilities;
- energy legislation;
- federal or state taxes, if any, on the sale or transportation of natural
gas and natural gas liquids and the price; and
- abundance of supplies of alternative energy sources.
If there are reductions in the average volume of the natural gas we transport,
gather and process for a prolonged period, our results of operations and
financial position could be materially adversely affected.
THE USE OF DERIVATIVE FINANCIAL INSTRUMENTS COULD RESULT IN FINANCIAL LOSSES
Some of our non-regulated subsidiaries are engaged in the gathering,
processing and marketing of natural gas and other energy commodities and utilize
futures and option contracts traded on the New York Mercantile Exchange and
over-the-counter options and price and basis swaps with other gas merchants and
financial institutions. These instruments are intended to reduce our exposure to
short-term volatility in changes in commodities prices. We could, however, incur
financial losses in the future as a result of volatility in the market values of
the underlying commodities or if one of our counterparties fails to perform
under a contract. For additional information concerning our derivative financial
instruments, see item 7A, Quantitative and Qualitative Disclosures About Market
Risks and Item 8, Financial Statements and Supplementary Data, Note 5.
ATTRACTIVE ACQUISITION AND INVESTMENT OPPORTUNITIES MAY NOT BE AVAILABLE
Our ability to grow will depend, in part, upon our ability to identify and
complete attractive acquisition and investment opportunities. Opportunities for
growth through acquisitions and investments in joint ventures, and the future
operating results and success of such acquisitions and joint ventures within and
outside the U.S. may be subject to the effects of, and changes in the following:
- U.S. and foreign trade and monetary policies;
- laws and regulations;
- political and economic developments;
- inflation rates;
- taxes; and
- operating conditions.
OUR FOREIGN INVESTMENTS INVOLVE SPECIAL RISKS
Our activities in areas outside the U.S. are subject to the risks inherent
in foreign operations, including:
- loss of revenue, property and equipment as a result of hazards such as
expropriation, nationalization, wars, insurrection and other political
risks, and
- the effects of currency fluctuations and exchange controls (such as the
recent devaluation of the Indonesian and Brazilian currencies and other
economic problems).
37
<PAGE> 42
Such legal and regulatory events and other unforeseeable obstacles may be beyond
our control or ability to manage.
WE COULD INCUR SUBSTANTIAL ENVIRONMENTAL LIABILITIES
We may incur significant costs and liabilities in order to comply with
existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future. For
additional information concerning the Company's environmental matters, see the
section of this item entitled "Environmental."
OUR ACTIVITIES INVOLVE OPERATING HAZARDS AND UNINSURED RISKS
While we maintain insurance against certain of the risks normally
associated with the transportation, gathering and processing of natural gas,
including explosions, pollution and fires, the occurrence of a significant event
that is not fully insured against could have a material adverse effect on our
business.
THERE REMAIN POTENTIAL LIABILITIES RELATED TO THE ACQUISITION OF EPTPC
The amount of the actual and contingent liabilities of EPTPC, which
remained the liabilities of EPNG after it acquired EPTPC, could vary materially
from the amount we estimated, which was based upon assumptions which could prove
to be inaccurate. If New Tenneco or Newport News Shipbuilding Inc. were unable
or unwilling to pay their respective liabilities, a court could require us,
under certain legal theories which may or may not be applicable to the
situation, to assume responsibility for such obligations. If we were required to
assume these obligations, it could have a material adverse effect on our
financial condition, results of operations or cash flows.
THERE REMAIN POTENTIAL FEDERAL INCOME TAX LIABILITIES RELATED TO THE ACQUISITION
OF EPTPC
In connection with the acquisition of EPTPC and the Distributions made by
EPTPC prior to that acquisition, the IRS issued a private letter ruling to Old
Tenneco, in which it ruled that for U.S. federal income tax purposes the
Distributions would be tax-free to Old Tenneco and, except to the extent cash
was received in lieu of fractional shares, to its then existing stockholders;
the Merger would constitute a tax-free reorganization; and that certain other
transactions effected in connection with the Merger and Distribution would be
tax-free. If the Distributions were not to qualify as tax-free distributions,
then a corporate level federal income tax would be assessed to the consolidated
group of which Old Tenneco was the common parent. This corporate level federal
income tax would be payable by EPTPC. Under certain limited circumstances,
however, New Tenneco and Newport News Shipbuilding Inc. have agreed to indemnify
EPTPC for a defined portion of such tax liabilities.
WE ARE SUBJECT TO FINANCING AND INTEREST RATE EXPOSURE RISKS
Our business and operating results can be adversely affected by factors
such as the availability or cost of capital, changes in interest rates, changes
in the tax rates due to new tax laws, market perceptions of the natural gas
industry or EPEC, or credit ratings.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH YEAR 2000 ISSUES
We are taking steps to mitigate any adverse effects of the Year 2000 date
change on our customers and business operations including the assessment,
remediation, testing of our applications, hardware and software, and the
implementation of necessary change. Nevertheless, our failure, or the failure of
third-parties with whom we deal, to achieve Year 2000 compliance may adversely
affect our business. For additional information on our Year 2000 strategy and
specific factors that may affect our ability to achieve Year 2000 compliance,
see the section of this item entitled "Other -- Year 2000."
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<PAGE> 43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes derivative financial instruments to manage market
risks associated with certain energy commodities and interest and foreign
currency exchange rates. The Company's primary market risk exposure is to
changing commodity prices. Market risks are monitored by a corporate risk
management committee that operates independently from the business segments that
create or actively manage these risk exposures to ensure compliance with the
Company's stated risk management policies as approved by the Board. These
policies are set forth in Item 8, Financial Statements and Supplementary Data,
Note 1.
TRADING COMMODITY PRICE RISK
EPEM is exposed to certain market risks inherent in its financial
instruments entered into for trading purposes associated with natural gas, power
and petroleum products. EPEM marks to market all energy trading activities,
including transportation capacity and storage. EPEM's policy is to manage
commodity price risks through a variety of financial instruments, including
forward contracts involving cash settlements or physical delivery of an energy
commodity, swap contracts which require payment to (or receipts from)
counterparties based on the differential between a fixed and variable price for
the commodity, exchange-traded options, over-the-counter options and other
contractual arrangements. EPEM manages its markets risk on a portfolio basis,
subject to parameters established by the risk management committee.
Comprehensive risk management processes, policies, and procedures have been
established to monitor and control its market risk. The Company's risk
management committee also continually reviews these policies to ensure they are
responsive to changing business conditions.
EPEM measures the risk in its commodity and energy related contract
portfolio on a daily basis utilizing a Value-at-Risk ("VAR") model to determine
the maximum potential one-day unfavorable impact on its earnings from its
existing portfolio due to normal market movements and monitors its risk in
comparison to established thresholds. The VAR computations are based on
historical simulation, which utilizes price movements over a specified period to
simulate forward price curves in the energy markets, and several key
assumptions, including the selection of a confidence level for expected losses
and the holding period for liquidation. EPEM also utilizes other measures
outside the VAR methodology to monitor the risk in its commodity and energy
related contract portfolio on a monthly basis, including stress testing,
position limit control and credit, liquidity and event risk management. EPEM
previously utilized sensitivity analysis to report market risk based on a ten
percent change in commodity prices. The uncertainty of the market place,
increased trading of derivative instruments, and the complexity of these
instruments created the demand for a more comprehensive portfolio level
quantitative measure of market risk. Accordingly, EPEM converted from utilizing
sensitivity analysis to the VAR model during 1998.
Assuming a confidence level of 95 percent and a one-day holding period,
EPEM's estimated potential one-day unfavorable impact on income before income
taxes and minority interest, as measured by VAR, related to its commodity and
energy related contracts held for trading purposes was approximately $3 million
and $2 million at December 31, 1998, and 1997, respectively. VAR was implemented
on April 1, 1998, therefore volatilities and correlations applicable on April 1,
1998, were used to provide comparative data for December 31, 1997. Actual losses
could exceed those measured by VAR.
NON-TRADING COMMODITY PRICE RISK
The estimated potential one-day unfavorable impact on income before income
taxes and minority interest, as measured by VAR, related to EPEM's non-trading
commodity activities was immaterial at December 31, 1998, and 1997.
INTEREST RATE RISK
The Company's debt financial instruments are sensitive to market
fluctuations in interest rates. The table below presents principal cash flows
and related weighted average interest rates by expected maturity dates. As of
December 31, 1998, and 1997, the carrying amounts of short-term borrowings are
representative of fair
39
<PAGE> 44
values because of the short-term maturity of these instruments. The fair value
of the long-term debt has been estimated based on quoted market prices for the
same or similar issues.
The Company's non-trading derivative financial instruments, including
interest rate and equity swaps are also sensitive to market fluctuations in
interest rates. The interest rate swap agreements entered into by MPC
effectively convert $114 million of floating-rate debt to fixed-rate debt (see
Item 8, Financial Statements and Supplementary Data, Note 4). MPC makes payments
to counterparties at fixed rates and in return receives payments at floating
rates. The two swap agreements were entered into in March 1992 and have
remaining terms of approximately 1 year and 3 years, respectively. This
transaction is recorded using accrual accounting. In addition, in March 1997,
the Company purchased a 10.5 percent interest in CAPSA for approximately $57
million. In connection with this acquisition, the Company entered into an equity
swap transaction associated with an additional 18.5 percent of CAPSA's then
outstanding stock. Under the equity swap, the Company pays interest to the
counterparty, on a quarterly basis, on a notional amount of $100 million at a
rate of LIBOR plus 0.85 percent. In exchange, the Company receives dividends on
the CAPSA stock to the extent of the counterparty's equity interest of 18.5
percent. In February 1999, the Company extended the term of the swap for two and
a half years. For the interest rate and equity swaps, the table below presents
notional amounts and weighted average interest rates by expected or contractual
maturity dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contact. The fair value of the derivative financial
instruments is the estimated amount at which management believes they could be
liquidated over a reasonable period of time, based on quoted market prices,
current market conditions, or other estimates obtained from third-party dealers.
The tabular presentation related to activities other than commodity
trading, as of December 31, 1998, and 1997, is illustrated below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
EXPECTED FISCAL YEAR OF MATURITY
--------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
---- ----- ---- ---- ---- ---------- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Short-term debt -- variable
rate.............................. $750 $ 750 $ 750
- ------------------------------------
Average interest rate........ 5.8%
Long-term debt, including
-----------------------------
current portion -- fixed
rate......................... $ 62 $ 125 $ 52 $240 $215 $1,920 $2,614 $2,795
----------------------------------
Average interest rate........ 8.0% 10.5% 7.3% 7.8% 7.8% 7.8%
INTEREST RATE DERIVATIVES:
Interest rate swap
--------------------
Variable to fixed
rate -- notional amounts..... $ 29 $ 85 $ 114 $ (9)
Average interest rate........ 8.3% 8.4% 8.4% 8.4%
Average received rate(a)..... 4.9% 5.0% 5.1% 5.1%
Net cash flow effect......... $ (4) $ (3) $ (3) $ (3)
Equity swap
--------------
Interest to
dividend -- notional
amount....................... $100 $ 100 $ 3
Average interest rate(a)..... 6.5%
Received dollars(b).......... --
Net cash flow effect......... (7)
</TABLE>
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<PAGE> 45
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
TOTAL FAIR VALUE
------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LIABILITIES:
Short-term debt -- variable rate.......................... $ 813 $ 813
Average interest rate paid in 1998..................... 5.8%
Long-term debt, including current portion -- fixed rate... $2,191 $2,334
Average interest rate paid in 1998................... 7.8%
INTEREST RATE DERIVATIVES:
Interest rate swap
Variable to fixed rate -- notional amounts............. $ 114 $ (9)
Average interest rate paid in 1998................... 8.3%
Average received rate in 1998(a)..................... 5.8%
Net cash flow effect for 1998........................ $ (3)
Equity swap
Interest to dividend -- notional amount................ $ 100 $ 8
Average interest rate paid in 1998(a)................ 6.6%
Received dollars in 1998(b).......................... --
Net cash flow effect for 1998........................ $ (7)
</TABLE>
- ---------------
(a) The variable rates presented are the average forward rates for the remaining
term of each contract.
(b) The Company receives dividends, to the extent paid, on the CAPSA stock to
the extent of the counterparty's equity interest of 18.5 percent. No
dividends were received in 1998 and no dividends are expected for 1999.
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<PAGE> 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EL PASO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Operating revenues
Transportation............................................ $1,194 $1,200 $ 534
Natural gas, liquids and power............................ 4,370 4,110 2,359
Gathering and processing.................................. 141 204 85
Other..................................................... 77 124 34
------ ------ ------
5,782 5,638 3,012
------ ------ ------
Operating expenses
Cost of gas and other products............................ 4,212 4,125 2,277
Operation and maintenance................................. 707 664 322
Depreciation, depletion, and amortization................. 269 236 101
Employee separation and asset impairment charge........... -- -- 99
Taxes, other than income taxes............................ 88 92 43
------ ------ ------
5,276 5,117 2,842
------ ------ ------
Operating income............................................ 506 521 170
------ ------ ------
Other (income) and expense
Interest and debt expense................................. 267 238 110
Other, net................................................ (138) (57) (5)
------ ------ ------
129 181 105
------ ------ ------
Income before income taxes and minority interest............ 377 340 65
Income tax expense.......................................... 127 129 25
------ ------ ------
Income before minority interest............................. 250 211 40
Minority interest
Preferred stock dividend of subsidiary.................... 25 25 2
------ ------ ------
Net income.................................................. $ 225 $ 186 $ 38
====== ====== ======
Basic earnings per common share............................. $ 1.94 $ 1.64 $ 0.53
====== ====== ======
Diluted earnings per common share........................... $ 1.85 $ 1.59 $ 0.52
====== ====== ======
Basic average common shares outstanding..................... 116 114 72
====== ====== ======
Diluted average common shares outstanding................... 126 117 73
====== ====== ======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
42
<PAGE> 47
EL PASO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT COMMON SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash and temporary investments............................ $ 90 $ 116
Accounts and notes receivable, net
Customer................................................ 557 737
Other................................................... 176 252
Inventories............................................... 49 68
Deferred income taxes..................................... 81 168
Assets from price risk management activities.............. 181 96
Regulatory assets......................................... 9 116
Prepaid expenses.......................................... 40 28
Other..................................................... 26 48
------- ------
Total current assets............................... 1,209 1,629
------- ------
Property, plant, and equipment, net......................... 7,341 7,116
Investments in unconsolidated affiliates.................... 600 373
Intangibles, net............................................ 537 117
Other....................................................... 382 297
------- ------
Total assets....................................... $10,069 $9,532
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Trade................................................... $ 547 $ 787
Other................................................... 177 99
Short-term borrowings (including current maturities of
long-term debt)......................................... 812 885
Accrual for regulatory issues............................. 37 22
Liabilities from price risk management activities......... 127 73
Other..................................................... 462 598
------- ------
Total current liabilities.......................... 2,162 2,464
------- ------
Long-term debt, less current maturities..................... 2,552 2,119
------- ------
Deferred income taxes....................................... 1,564 1,550
------- ------
Postretirement benefits..................................... 248 285
------- ------
Other....................................................... 745 790
------- ------
Commitments and contingencies (See Note 6)
Company-obligated mandatorily redeemable convertible
preferred securities of El Paso Energy Capital Trust I.... 325 --
------- ------
Minority interest
Preferred stock of subsidiary............................. 300 300
------- ------
Other minority interest................................... 65 65
------- ------
Stockholders' equity
Common stock, par value $3 per share; authorized
275,000,000 shares; issued 124,434,110 and 122,581,816
shares, respectively.................................... 373 368
Additional paid-in capital................................ 1,436 1,389
Retained earnings......................................... 460 327
Accumulated comprehensive income.......................... (14) (7)
Treasury stock (at cost) 4,149,099 and 2,946,832 shares,
respectively............................................ (90) (47)
Deferred compensation..................................... (57) (71)
------- ------
Total stockholders' equity......................... 2,108 1,959
------- ------
Total liabilities and stockholders' equity......... $10,069 $9,532
======= ======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
43
<PAGE> 48
EL PASO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
----- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 225 $ 186 $ 38
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation, depletion, and amortization.............. 269 236 101
Deferred income taxes (benefit)........................ 128 195 (5)
Gain on disposition of property........................ (20) (2) --
Undistributed earnings in equity investees............. (28) (3) 16
Amortization of deferred compensation.................. 24 19 5
Risk-sharing revenue................................... (31) -- --
Net employee separation and asset impairment charge.... -- -- 76
Working capital changes, net of non-cash transactions
Accounts and notes receivable........................ 250 342 (168)
Inventories.......................................... 19 16 (5)
Net price risk management activities................. (32) 16 (39)
Regulatory asset..................................... 124 19 --
Other current assets................................. 11 47 77
Accrual for regulatory issues........................ 16 (266) 135
Accounts payable..................................... (178) (249) 65
Other current liabilities............................ (143) 11 (8)
Other..................................................... (124) 4 3
----- ------- -------
Net cash provided by operating activities......... 510 571 291
----- ------- -------
Cash flows from investing activities
Capital expenditures...................................... (406) (293) (119)
Investment in joint ventures and equity investees......... (447) (239) (24)
Net cash flow impact of acquisitions...................... (373) (213) (35)
Proceeds from disposal of property and investments........ 74 14 190
Proceeds from equity investment project financing......... 153 53 --
Other..................................................... -- (28) (17)
----- ------- -------
Net cash used in investing activities............. (999) (706) (5)
----- ------- -------
Cash flows from financing activities
Net commercial paper borrowings (repayments).............. 14 326 (203)
Revolving credit borrowings............................... 610 70 400
Revolving credit repayments............................... (687) (1,200) (1,022)
Long-term debt retirements................................ (72) (124) (24)
Long-term debt issuance, net.............................. 391 883 396
Proceeds from issuance of El Paso Energy Capital Trust I
preferred securities, net of issuance costs............ 317 -- --
Acquisition of treasury stock............................. (36) -- --
Dividends paid............................................ (91) (77) (53)
Proceeds from stock issuance, net of issuance costs....... -- 152 --
Proceeds from project financing........................... -- -- 310
Other..................................................... 17 21 71
----- ------- -------
Net cash provided by (used in) financing
activities...................................... 463 51 (125)
----- ------- -------
Increase (decrease) in cash and temporary investments....... (26) (84) 161
Cash and temporary investments
Beginning of period....................................... 116 200 39
----- ------- -------
End of period............................................. $ 90 $ 116 $ 200
===== ======= =======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
44
<PAGE> 49
EL PASO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED TREASURY STOCK
--------------- PAID-IN RETAINED COMPREHENSIVE --------------- DEFERRED
SHARES AMOUNT CAPITAL EARNINGS INCOME SHARES AMOUNT COMPENSATION
------ ------ ---------- -------- ------------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996............. 75 $224 $ 343 $240 $ -- (6) $(95) $ --
Net income................ 38
Common stock dividend
($0.695 per share)...... (50)
Issuance of common stock
for acquisition of
EPTPC................... 37 113 800
Restricted stock
issuances............... 23 2 41 (74)
Amortization of deferred
compensation............ 5
Options exercised......... 1 3 18 (1) 1 9
Other..................... 1
--- ---- ------ ---- ---- -- ---- ----
December 31, 1996........... 113 340 1,185 227 -- (3) (45) (69)
Net income................ 186
Common stock dividend
($0.730 per share)...... (86)
Issuance of common stock,
net of related costs.... 7 20 152
Restricted stock
issuances............... 1 4 20 -- 1 (23)
Restricted stock
forfeitures............. -- (3) 2
Amortization of deferred
compensation............ 19
Options exercised......... 2 4 21
Income tax benefit of
stock-based compensation
plans................... 11
Comprehensive income...... (7)
--- ---- ------ ---- ---- -- ---- ----
December 31, 1997........... 123 368 1,389 327 (7) (3) (47) (71)
Net income................ 225
Common stock dividend
($0.765 per share)...... (92)
Issuance of common stock
for acquisition of
DeepTech................ -- -- 2
Restricted stock
issuances............... -- 2 23 (14)
Restricted stock
forfeitures............. -- (4) 4
Restricted stock used for
tax withholdings........ -- (1)
Amortization of deferred
compensation............ 24
Options exercised......... 1 3 13 -- (2)
Income tax benefit of
stock-based compensation
plans................... 9
Open market stock
repurchases............. (1) (36)
Comprehensive income...... (7)
--- ---- ------ ---- ---- -- ---- ----
December 31, 1998........... 124 $373 $1,436 $460 $(14) (4) $(90) $(57)
=== ==== ====== ==== ==== == ==== ====
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
January 1, 1996............. $ 712
Net income................ 38
Common stock dividend
($0.695 per share)...... (50)
Issuance of common stock
for acquisition of
EPTPC................... 913
Restricted stock
issuances............... (10)
Amortization of deferred
compensation............ 5
Options exercised......... 29
Other..................... 1
------
December 31, 1996........... 1,638
Net income................ 186
Common stock dividend
($0.730 per share)...... (86)
Issuance of common stock,
net of related costs.... 172
Restricted stock
issuances............... 2
Restricted stock
forfeitures............. (1)
Amortization of deferred
compensation............ 19
Options exercised......... 25
Income tax benefit of
stock-based compensation
plans................... 11
Comprehensive income...... (7)
------
December 31, 1997........... 1,959
Net income................ 225
Common stock dividend
($0.765 per share)...... (92)
Issuance of common stock
for acquisition of
DeepTech................ 2
Restricted stock
issuances............... 11
Restricted stock
forfeitures............. --
Restricted stock used for
tax withholdings........ (1)
Amortization of deferred
compensation............ 24
Options exercised......... 14
Income tax benefit of
stock-based compensation
plans................... 9
Open market stock
repurchases............. (36)
Comprehensive income...... (7)
------
December 31, 1998........... $2,108
======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
45
<PAGE> 50
EL PASO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net income.................................................. $225 $186 $38
Foreign currency translation adjustments.................... (7) (7) --
---- ---- ---
Comprehensive income........................................ $218 $179 $38
==== ==== ===
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
46
<PAGE> 51
EL PASO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of all
majority-owned, controlled subsidiaries of the Company after the elimination of
all significant intercompany accounts and transactions. Investments in companies
where the Company has the ability to exert significant influence over, but not
control operating and financial policies are accounted for using the equity
method. The financial statements for previous periods include certain
reclassifications that were made to conform to the current year presentation.
Such reclassifications have no impact on reported net income or stockholders'
equity.
Holding Company Reorganization
Effective August 1, 1998, the Company reorganized into a holding company
organizational structure, whereby EPEC, a Delaware corporation, became the
holding company. The holding company organizational structure was effected by a
merger conducted pursuant to Section 251(g) of the Delaware General Corporation
Law, which provides for the formation of a holding company structure without a
vote of the stockholders of EPNG. In the merger, El Paso Energy Merger Company,
a Delaware corporation and wholly owned subsidiary of EPEC, merged with and into
EPNG, with EPNG as the surviving corporation. By virtue of the reorganization,
EPNG became a direct, wholly owned subsidiary of EPEC, and all of EPNG's
outstanding capital stock was converted, on a share for share basis, into
capital stock of EPEC. As a result of such restructuring, each outstanding share
of $3.00 par value common stock of EPNG was converted into one share of $3.00
par value common stock of EPEC, and each one-half outstanding preferred stock
purchase right of EPNG was converted into one preferred stock purchase right of
EPEC common stock, with such right representing the right to purchase one
two-hundredth (subject to adjustment) of a share of Series A Junior
Participating Preferred Stock of EPEC. Because the reorganization was with
companies under common control, the stockholders' equity and components thereof
of EPNG became the basis for EPEC stockholders' equity. In addition to the
holding company formation, EPEC assumed ownership of the Trust (as defined in
Note 3) as well as EPNG's obligations related to the Trust. See Note 3, Trust
Preferred Securities for a further discussion. Finally, EPEC became the
successor to EPNG's previous shelf registration in the amount of $565 million.
The New York Stock Exchange ticker symbol used by EPEC following the
reorganization remains unchanged as "EPG."
Tax-free Internal Reorganization
On December 31, 1998, the Company effected a tax-free internal
reorganization of its assets and operations and those of a majority of its
subsidiaries in accordance with a private letter ruling received from the IRS.
In the internal reorganization, a substantial number of subsidiaries were
transferred to or from the Company and/or other entities owned by the Company.
The tax-free internal reorganization had no impact on the presentation herein.
Stock Split
On January 21, 1998, the Board approved a two-for-one stock split of EPNG's
common stock (the "Stock Split"), subject to stockholder approval of an
amendment to EPNG's Restated Certificate of Incorporation to increase the number
of authorized shares of EPNG's common stock to 275,000,000 shares (the
"Amendment"). EPNG's stockholders approved the Amendment on March 2, 1998. In
connection with the Amendment, the Board increased the number of authorized
shares of EPNG's preferred stock designated as Series A Junior Participating
Preferred Stock to 1,375,000 shares. Prior to the holding company
reorganization, the designated number of Series A Junior Participating Preferred
Stock was increased to 2,750,000. The Stock Split was effected in the form of a
stock dividend of an aggregate of 60,944,417 shares of
47
<PAGE> 52
EPNG's common stock, which was paid on April 1,1998, to stockholders of record
on March 13, 1998. All common shares and per common share amounts have been
adjusted to give effect to the Stock Split.
After giving effect to the Stock Split in accordance with the adjustment
provisions of the Amended and Restated Shareholder Rights Agreement, dated as of
July 23, 1997, between the Company and BankBoston, N.A. as Rights Agent, the
number of rights to purchase one one-hundredth of a share of the Series A Junior
Participating Preferred Stock associated with each share of common stock was
adjusted to become one-half of such right (see Holding Company Reorganization
above, for the impact of the holding company reorganization).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities that exist at
the date of the financial statements. Actual results are likely to differ from
those estimates.
Accounting for Regulated Operations
The Company's businesses that are subject to the regulations and accounting
requirements of FERC have followed the accounting requirements of SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, which may differ from
the accounting requirements of the Company's non-regulated entities.
Transactions that have been recorded differently as a result of regulatory
accounting requirements include: GSR costs to be recovered under a demand and
interruptible surcharge, environmental costs to be recovered under a demand
surcharge, and certain benefits and other costs and taxes included in or
expected to be included in future rates, including costs to refinance debt. When
the accounting method followed is prescribed by or allowed by the regulatory
authority for rate-making purposes, such method conforms to the generally
accepted accounting principle of matching costs with the revenues to which they
apply.
Cash and Temporary Investments
Short-term investments purchased with an original maturity of three months
or less are considered cash equivalents.
Allowance for Doubtful Accounts and Notes Receivable
The Company has established a provision for losses on accounts and notes
receivable, as well as for gas imbalances due from shippers and operators, which
may become uncollectible. Collectibility is reviewed regularly, and the
allowance is adjusted as necessary primarily under the specific identification
method. The balances of this provision at December 31, 1998 and 1997, were $15
million and $17 million, respectively.
Gas Imbalances
The Company values gas imbalances due to or due from shippers and operators
at the appropriate index price. Natural gas imbalances are settled in cash or
made up in-kind.
Inventories
Inventories, consisting of materials and supplies and natural gas in
storage, are valued at the lower of cost or market with cost determined using
the average cost method.
Property, Plant, and Equipment
Included in the Company's property, plant, and equipment is construction
work in progress of approximately $392 million and $276 million at December 31,
1998, and 1997, respectively. An allowance for both debt and equity funds used
during construction of regulated projects is included in the cost of the
Company's property, plant, and equipment.
48
<PAGE> 53
Accounting for a substantial portion of property, plant, and equipment is
subject to regulation by the FERC. The objectives of this regulation are to
ensure the proper recovery of capital investments in rates. Such recovery is
generally accomplished by allowing a return of the investment through inclusion
of depreciation expense in the cost of service. Rates also allow for a return on
the net unrecovered rate base. Specific procedures are prescribed by FERC to
control capitalized costs, depreciation, and the disposal of assets. SFAS No. 71
specifically acknowledges the obligation of regulated companies to comply with
regulated accounting procedures, even when they conflict with other generally
accepted accounting principle pronouncements.
Regulated property, plant, and equipment is recorded at original cost of
construction or, on acquisition, the cost of first party committing the asset to
utility services. Construction cost includes direct labor and materials, as well
as indirect charges such as overheads and allowance for funds used during
construction. Replacements or betterments of major units of property are
capitalized. Replacements or additions of minor units of property are expensed.
Depreciation for regulated property, plant, and equipment is calculated
using the composite method. Assets with similar economic characteristics are
grouped. The depreciation rate prescribed in the rate settlement is applied to
the gross investment for the group until net book value of the group is equal to
the salvage value. Currently, depreciation rates vary from 1 percent to 33
percent. This results in remaining economic lives of groups ranging from 2 to 36
years. Depreciation rates are reevaluated in conjunction with the rate making
process.
When regulated property, plant, and equipment is retired, due to
abandonment or replacement, the original cost, plus the cost of retirement, less
salvage, is charged to accumulated depreciation and amortization. No gain or
loss is recognized unless an entire operating unit, as defined by FERC, has been
retired. Gains or losses on dispositions of operating units are included in
income.
Additional acquisition cost assigned to utility plant primarily represents
the excess of allocated purchase costs over historical costs that resulted from
the December 1996 acquisition of EPTPC. These costs are being amortized on a
straight-line basis using FERC approved rates.
Depreciation of the Company's non-regulated properties is provided using
the straight line or composite method which, in the opinion of management, is
adequate to allocate the cost of properties over their estimated useful lives.
Non-regulated properties have expected lives of 5 to 40 years.
The Company evaluates impairment of its property, plant, and equipment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of.
Intangible Assets
Intangible assets are amortized using the straight-line method over periods
ranging from 5 years to 40 years. Accumulated amortization of intangible assets
was $24 million and $21 million for 1998 and 1997, respectively.
The Company evaluates impairment of goodwill in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.
Environmental Costs
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other societal and economic factors, and
include estimates of associated legal costs. All available evidence is
considered including prior experience in remediation of contaminated sites,
other companies' clean-up experience and data released by the EPA or other
organizations. These estimated liabilities are subject to
49
<PAGE> 54
revision in future periods based on actual costs or new circumstances. These
liabilities are included in the balance sheets at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when recovery is
assured, are recorded and reported separately from the associated liability in
the consolidated financial statements as an asset.
Price Risk Management Activities
The Company utilizes derivative financial instruments to manage market
risks associated with certain energy commodities, and interest rates. In its
commodity price risk management activities, the Company engages in both trading
and non-trading activities.
Activities for trading purposes consist of services provided to the energy
sector, and all energy trading activities, including transportation capacity and
storage, are accounted for using the mark-to-market method of accounting. Such
trading activities are conducted through a variety of financial instruments,
including forward contracts involving cash settlement or physical delivery of an
energy commodity, swap contracts which require payments to (or receipts from)
counterparties based on the differential between a fixed and variable price for
the commodity, exchange-trade options, over-the-counter options, and other
contractual arrangements.
Under mark-to-market accounting, commodity and energy related contracts are
reflected at estimated market value with resulting gains and losses recorded in
operating income in the Consolidated Statements of Income. The net gains or
losses recognized in the current period result primarily from transactions
originating within the period and the impact of price movements on transactions
originating in previous periods. The assets and liabilities resulting from
mark-to-market accounting are presented as assets and liabilities from price
risk management activities in the Consolidated Balance Sheets. Terms regarding
cash settlement of the contracts vary with respect to the actual timing of cash
receipts and payments. Receivables and payables resulting from these timing
differences are presented in accounts receivable, and accounts payable in the
Consolidated Balance Sheets. Cash inflows and outflows associated with these
price risk management activities are recognized in operating cash flow as the
settlements of transactions occur.
The market value of these commodity and energy related contracts reflects
management's best estimate considering various factors including closing
exchange and over-the-counter quotations, time value and volatility factors
underlying the commitments. The values are adjusted to reflect the potential
impact of liquidating the Company's position in an orderly manner over a
reasonable period of time under present market conditions.
Derivative and other financial instruments are also utilized in connection
with non-trading activities. The Company enters into forwards, swaps, and other
contracts to hedge the impact of market fluctuations on assets, liabilities, or
other contractual commitments. Derivatives held for non-trading price risk
management activities are not recorded on the balance sheet. Net periodic
settlements are recorded as a gain or loss in operating income in the
consolidated statements of income, and cash inflows and outflows are recognized
in operating cash flow as the settlements of the transactions occur. See Note 5
for a further discussion of the Company's price risk management activities.
In late 1998, the Emerging Issues Task Force reached a consensus which
supported the Company's accounting policy as described above.
Income Taxes
Income taxes are based on income reported for tax return purposes along
with a provision for deferred income taxes. Deferred income taxes are provided
to reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year end.
Tax credits are accounted for under the flow-through method, which reduces the
provision for income taxes in the year the tax credits first become available.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized
50
<PAGE> 55
in a future period. The estimates utilized in the recognition of deferred tax
assets are subject to revision in future periods based on new facts or
circumstances.
In connection with the Merger, EPTPC entered into a tax sharing agreement
with Newport News Shipbuilding Inc., New Tenneco and the Company, as successor
to EPNG. This tax sharing agreement provides, among other things, for the
allocation among the parties of tax assets and liabilities arising prior to, as
a result of, and subsequent to the Distributions. Generally, EPTPC will be
liable for taxes imposed on itself. With respect to periods prior to the
consummation of the Distributions, in the case of federal income taxes imposed
on the combined activities of Old Tenneco and other members of its consolidated
group prior to giving effect to the Distributions, New Tenneco and Newport News
Shipbuilding Inc. will be liable to EPTPC for federal income taxes attributable
to their activities, and each will be allocated an agreed-upon share of
estimated tax payments made by EPTPC for Old Tenneco. Pursuant to the tax
sharing agreement, EPTPC paid New Tenneco in 1997 for the tax benefits realized
from the deduction of 1996 taxable losses generated by a debt realignment in
accordance with the Merger.
Treasury Stock
Treasury stock is accounted for using the cost method and is shown as a
reduction to stockholders' equity in the consolidated balance sheets. Treasury
stock sold or issued is valued on a first-in, first-out basis. Included in
treasury stock at December 31, 1998, and 1997, were 1,360,000 shares of common
stock that were reserved for use under certain of the Company's benefit plans.
Stock-Based Compensation
As allowed under SFAS No. 123, the Company has elected to continue to apply
the provisions of Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock compensation plans. The Company uses
fixed and variable plan accounting for fixed and variable
compensation plans, respectively. Accordingly, compensation expense is not
recognized for stock options unless the options were granted at an exercise
price lower than market on the grant date.
New Accounting Pronouncements Not Yet Adopted
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, New Accounting Pronouncements Not Yet Adopted, which is
incorporated herein by reference.
51
<PAGE> 56
2. ACQUISITIONS
DeepTech
In August 1998, the Company completed its acquisition of DeepTech by
merging DeepTech with a subsidiary of EPEC. DeepTech's assets include a 27.3
percent ownership interest in Leviathan. The acquisition was accounted for as a
purchase with a total purchase price of approximately $422 million, net of cash
acquired. The Company recorded $214 million of goodwill in connection with the
acquisition which will be amortized using the straight-line method over a period
of 40 years. The amount allocated to goodwill is based on an estimate of the
excess of the total purchase price over the fair value of assets and liabilities
at the acquisition date. The amounts may be adjusted in the final purchase price
allocation. Management does not expect the ultimate resolution of the purchase
price allocation to materially impact the Company's financial position, results
of operations, or cash flows. The operating results of DeepTech are included in
the Company's Consolidated Statements of Income beginning on August 15, 1998.
The components of the purchase price are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired............................... $ 338
Goodwill.................................................... 214
Fair value of liabilities assumed........................... (101)
Cash acquired............................................... (29)
-----
Purchase price, net of cash acquired.............. 422
Affiliated receivable extinguished.......................... (77)
Issuance of common stock.................................... (2)
-----
Net cash consideration paid....................... $ 343
=====
</TABLE>
In accordance with the DeepTech merger agreement, the Company has executed
a guarantee with regard to DeepTech's 12% senior notes due 2000. The following
table contains summarized financial information of DeepTech. Information as of
and for the twelve months ended June 30, 1998, 1997, and 1996 are for pre-merger
periods. The information for December 31, 1998, is for the post-merger period
and the information for the six months ended December 31, 1998, is part
post-merger and part pre-merger.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE TWELVE MONTHS
MONTHS ENDED ENDED JUNE 30,
DECEMBER 31, ---------------------
1998(a) 1998 1997 1996
------------ ------- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating results data:
Operating revenue......................................... $ 15 $ 69 $120 $ 55
Operating expenses........................................ $ 25 $ 74 $132 $ 50
Net income (loss)......................................... $ 11 $ (2) $(20) $ 4
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------------
1998(b) 1998 1997 1996
------------ ------- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial position data:
Total assets.............................................. $551 $181 $228 $156
Short term debt (including current maturities of long-term
debt).................................................. $ 17 $ 12 $ 25 $ 46
Long term debt............................................ $ 90 $ 96 $165 $ 98
Stockholder's equity...................................... $444 $ 47 $ 6 $ 12
</TABLE>
- ---------------
(a) Unaudited
(b) Reflects the allocation of the purchase price to the assets acquired and
liabilities assumed in connection with the Company's acquisition of DeepTech
in August 1998.
52
<PAGE> 57
TPC
In December 1997, the Company completed its purchase of gathering
facilities consisting of 360 miles of natural gas pipeline and a natural gas
cryogenic processing plant through the acquisition of 100 percent of the stock
of TPC at a cash price of approximately $195 million. This transaction was
accounted for as a purchase.
Gulf States
In October 1997, the Company completed the acquisition of Gulf States Gas
Pipeline Company. The assets purchased include a 175-mile natural gas gathering
and intrastate transmission system in Northwest Louisiana with a capacity of 250
MMcf/d. The purchase price was approximately $39 million, which included the
issuance of $21 million of common stock of the Company. This transaction was
accounted for as a purchase.
EPTPC
On December 12, 1996, the Company completed the acquisition of EPTPC in a
transaction accounted for as a purchase. The purchase price was assigned to the
assets and liabilities acquired based upon the estimated fair value of those
assets and liabilities as of the acquisition date. Substantially all of the
excess of the total purchase price over historical carrying amounts of the net
assets acquired was allocated to property, plant and equipment of EPTPC's
interstate pipeline systems. Such allocation was confirmed by an independent
appraisal of the property acquired.
In the Merger, Old Tenneco changed its name to EPTPC. Prior to the Merger,
Old Tenneco and its subsidiaries completed various intercompany transfers and
distributions which restructured, divided and separated their businesses, assets
and liabilities so that all the assets, liabilities and operations related to
the Industrial Business and the Shipbuilding Business were spun-off to Old
Tenneco's then existing common stockholders. The Distributions were effected on
December 11, 1996 pursuant to the Distribution Agreement dated as of November 1,
1996. Following the Distributions, the remaining operations of Old Tenneco
consisted primarily of activities related to the transmission and marketing of
natural gas. Results of operations of EPTPC were included in the Company's
Consolidated Statements of Income for the last 20 days of 1996.
On October 30, 1996, the IRS issued a private letter ruling to Old Tenneco,
in which it ruled that for U.S. federal income tax purposes the Distributions
would be tax-free to Old Tenneco and, except to the extent cash is received in
lieu of fractional shares, to its then existing stockholders; the Merger would
constitute a tax-free reorganization; and certain other transactions effected in
connection with the Merger and Distributions would be tax-free. If the
Distributions were not to qualify as tax-free distributions, then a corporate
level federal income tax would be assessed to the consolidated group of which
Old Tenneco was the common parent. This corporate level federal income tax would
be payable by EPTPC. Under certain limited circumstances, however, New Tenneco
and Newport News Shipbuilding Inc. have agreed to indemnify EPTPC for a defined
portion of such tax liabilities.
The consideration paid by the Company in the Merger consisted of:
- the retention after the Merger of approximately $2.6 billion of debt and
preferred stock obligations of Old Tenneco, subject to certain
adjustments (which consisted, in part, of (i) approximately $200 million
of public debt of Old Tenneco outstanding at the effective time of the
Merger, (ii) $2.1 billion of debt of Old Tenneco outstanding at the
effective time of the Merger
under a $3 billion Revolving Credit and Competitive Advance Facility
Agreement, dated as of
November 4, 1996 (the "Credit Facility"), among Old Tenneco, certain banks
and other financial institutions and The Chase Manhattan Bank, as agent),
and (iii) $300 million of Old Tenneco preferred stock);
- the issuance of 37.6 million shares of common stock of the Company valued
at approximately $913 million, based on a closing price per share of
common stock on the New York Stock Exchange of $24.3125 on December 9,
1996, to Old Tenneco's then existing common and preferred stockholders;
and
53
<PAGE> 58
- the retention of approximately $600 million of estimated liabilities
related to certain discontinued businesses of Old Tenneco.
The number of shares of the Company's common stock issued in the Merger to
stockholders of Old Tenneco was determined pursuant to formulas set forth in the
Merger Agreement. In the Merger, (i) a holder of Old Tenneco's common stock
received 0.186 of a share of the Company's common stock for each share of
Tenneco common stock, (ii) a holder of Old Tenneco's $7.40 Cumulative Preferred
Stock received 4.73 shares of the Company's common stock for each such share of
$7.40 Cumulative Preferred Stock, and (iii) a holder of Old Tenneco's $4.50
Cumulative Preferred Stock received 4.73 shares of the Company's common stock
for each such share of $4.50 Cumulative Preferred Stock.
At December 31, 1998, the Company owns 100 percent of the common equity and
more than 80 percent of the combined equity value of EPTPC. The remaining
combined equity of EPTPC consists of $300 million of preferred stock issued in a
public offering by Old Tenneco on November 18, 1996, which remains outstanding.
Assets acquired, liabilities assumed, and consideration received are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired............................... $ 6,649
Cash acquired............................................... (75)
Fair value of liabilities assumed........................... (5,724)
Issuance of common stock.................................... (913)
-------
Net cash consideration received................... $ (63)
=======
</TABLE>
The following unaudited pro forma information presents a summary of what
the consolidated results of operations would have been on a pro forma basis for
the year ended December 31, 1996, assuming the EPTPC acquisition had been in
effect throughout 1996:
<TABLE>
<CAPTION>
1996
--------------------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Operating revenue........................................... $5,281
Net income.................................................. $ 183
Basic earnings per common share............................. $ 1.61
</TABLE>
In December 1996, subsequent to the Merger, TGP sold 70 percent of its
interests in two natural gas pipeline systems in Australia to CNGI Australia
Pty. Limited, a wholly owned indirect subsidiary of Consolidated Natural Gas
Company, and four Australian investors for approximately $400 million, inclusive
of related debt financing, and completed the sale of its oil and gas
exploration, production and financing unit, formerly known as Tenneco Ventures,
for approximately $105 million. After consideration of the purchase price
allocation adjustments, there was no gain or loss recognized on these
transactions.
Effective June 1996, the Company acquired Cornerstone Natural Gas, Inc. in
a transaction accounted for as a purchase. The purchase price of approximately
$94 million, exclusive of acquisition costs, was financed through internally
generated funds and short-term borrowings. Acquisition costs of approximately $5
million were capitalized. The cost of the acquisition was allocated on the basis
of the estimated fair value of the assets acquired and the liabilities assumed,
resulting in goodwill of approximately $59 million which is being amortized over
40 years using the straight-line method. Results of operations of Cornerstone
Natural Gas, Inc. are included in the Company's Consolidated Statements of
Income beginning in June 1996.
3. TRUST PREFERRED SECURITIES
In March 1998, El Paso Energy Capital Trust I (the "Trust") issued 6.5
million of 4 3/4% trust convertible preferred securities (the "Trust Preferred
Securities") for $325 million ($317 million, net of issuance costs).
54
<PAGE> 59
In addition, the Trust issued trust convertible common securities of
approximately $10 million to EPNG. The net proceeds were used by EPNG to pay
down commercial paper. The Trust exists for the sole purpose of issuing Trust
Preferred Securities and investing the proceeds in 4 3/4% convertible
subordinated debentures due 2028 (the "Trust Debentures") of EPNG, the Trust's
sole asset. EPNG executed a guarantee with regard to the Trust Preferred
Securities. The guarantee, when taken together with EPNG's obligations under the
Trust Debentures, the indenture pursuant to which the Trust Debentures were
issued, and the applicable trust document, provides a full and unconditional
guarantee of the Trust's obligations under the Trust Preferred Securities.
As a result of the holding company reorganization discussed in Note 1, EPEC
assumed ownership of the Trust, as well as the obligations of the Trust
Debentures, and the guarantee of the Trust's obligations under the Trust
Preferred Securities. The results of the Trust are consolidated with those of
the Company and, therefore, the Trust Debentures are eliminated and the Trust
Preferred Securities are reflected as company-obligated mandatorily redeemable
convertible preferred securities of El Paso Energy Capital Trust I in the
Consolidated Balance Sheets. Distributions on the Trust Preferred Securities are
included in interest and debt expense in the Consolidated Statements of Income.
The Trust Preferred Securities are non-voting (except in limited
circumstances), pay quarterly distributions at an annual rate of 4 3/4%
commencing on June 30, 1998, carry a liquidation value of $50 per security plus
accrued and unpaid distributions and are convertible into the Company's common
shares at any time prior to the close of business on March 31, 2028, at the
option of the holder at a rate of 1.2022 common shares for each Trust Preferred
Security (equivalent to a conversion price of $41.59 per common share), subject
to adjustment in certain circumstances.
4. FINANCING TRANSACTIONS
The average interest rate of short-term borrowings was 5.8% and 5.9% at
December 31, 1998, and 1997, respectively. The Company had short-term
borrowings, including current maturities of long-term debt, at December 31, 1998
and December 31, 1997, as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
EPNG Revolving Credit Facility.............................. $ -- $ 45
EPNG Revolving Credit Facility with TGP designated as
borrower.................................................. -- 417
EPNG Revolving Credit Facility with EPEC designated as
borrower.................................................. 350 --
Commercial paper............................................ 340 326
Other credit facilities..................................... 60 25
Current maturities of other long-term debt.................. 62 72
------ ------
$ 812 $ 885
====== ======
</TABLE>
55
<PAGE> 60
Long-term debt outstanding at December 31, 1998 and 1997, consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Long-term debt
TGP
Debentures due 2011, average effective interest rates
of 7.5% in 1998 and 7.9% in 1997, net of unamortized
discount of $10.6 in 1998 ($11.1 in 1997)............. $ 75 $ 75
Debentures due 2017, average effective interest rates
of 7.7% in 1998 and 7.8% in 1997, net of unamortized
discount of $4.7 in 1998 ($5.0 in 1997)............... 295 295
Debentures due 2027, average effective interest rates
of 7.1% in 1998 and 7.2% in 1997, net of unamortized
discount of $3.6 in 1998 ($3.7 in 1997)............... 296 296
Debentures due 2028, average effective interest rate of
7.2% in 1998, net of unamortized discount of $8.9 in
1998.................................................. 391 --
Debentures due 2037, average effective interest rates
of 7.8% in 1998 and 7.9% in 1997, net of unamortized
discount of $6.3 in 1998 ($6.5 in 1997)............... 294 293
EPNG
Debentures due 2012 through 2026, average effective
interest rates of 8.4% in 1998 and 8.3% in 1997, net
of unamortized discount of $1.3 in 1998 ($1.4 in
1997)................................................. 459 475
Notes due 1999 through 2003, average effective interest
rates of 7.7% in 1998 and 7.6% in 1997, net of
unamortized discount of $0.5 in 1998 ($0.7 in 1997)... 462 462
EPTPC
Debentures due 2008 through 2025, average effective
interest rates of 7.3% in 1998 and 7.2% in 1997, net
of unamortized premium of $3.5 in 1998 ($4.0 in
1997)................................................. 54 55
Notes due 1998 through 2005, average effective interest
rates of 6.5% in 1998 and 6.4% in 1997, net of
unamortized premium of $2.3 in 1998 ($4.1 in 1997).... 48 87
EPEC Corporation, successor to El Paso Energy Credit
Corporation
Senior notes due 2001, average effective interest rates
of 6.6% in 1998 and 6.0% in 1997, net of unamortized
premium of $0.9 in 1998 ($1.2 in 1997)................ 14 15
Subordinated notes due 1998, average effective interest
rate of 6.5% in 1997, net of unamortized premium of
$0.2 in 1997.......................................... -- 7
MPC
Project financing loan, due 1998 through March 2007,
average effective interest rates of 9.7% in 1998 and
9.4% in 1997.......................................... 117 126
DeepTech
Senior notes due 2000, average effective interest rate
of 11% from merger date to December 31, 1998, net of
unamortized premium of $6.7........................... 89 --
Senior subordinated promissory note due 2000, average
effective interest rate of 10.3% from merger date to
December 31, 1998, net of unamortized premium of
$.8................................................... 16 --
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Other
Notes due 2000 through 2014, average effective interest
rates of 7.5% in 1998 and 8.7% in 1997................ 4 5
------ ------
2,614 2,191
Less current maturities................................... 62 72
------ ------
Long-term debt, less current maturities........... $2,552 $2,119
====== ======
</TABLE>
The following are aggregate maturities of long-term debt for the next 5
years and in total thereafter:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1999........................................................ $ 62
2000........................................................ 125
2001........................................................ 52
2002........................................................ 240
2003........................................................ 215
Thereafter.................................................. 1,920
------
Total long-term debt, including current
maturities....................................... $2,614
======
</TABLE>
Other Financing Arrangements
In October 1997, EPNG established a new $750 million five-year revolving
credit and competitive advance facility and a new $750 million 364-day renewable
revolving credit and competitive advance facility. In connection with the
establishment of the Revolving Credit Facility, EPTPC's revolving credit
facility was also terminated, and the outstanding balance of $417 million was
financed under the five-year portion of the new Revolving Credit Facility with
TGP designated as the borrower. The availability under the Revolving Credit
Facility is expected to be used for general corporate purposes including, but
not limited to, backstopping EPNG's and TGP's $1 billion commercial paper
programs.
In August 1998, EPEC became a guarantor of the Revolving Credit Facility.
In October 1998, the $750 million 364-day portion of the Revolving Credit
Facility was amended to extend the termination date to October 27, 1999. In
addition, in October 1998, the Revolving Credit Facility was amended to permit
TGP to issue commercial paper, provided that the total amount of commercial
paper outstanding at EPNG and TGP is equal to or less than the unused capacity
under the Revolving Credit Facility. In December 1998, EPEC became a borrower
under the Revolving Credit Facility. The interest rate is 40 basis points above
LIBOR, with the spread varying based on EPEC's long-term debt credit rating.
The availability of borrowings under the Company's credit agreements is
subject to specified conditions, which management believes the Company currently
meets. These conditions include compliance with the financial covenants and
ratios required by such agreements, absence of default under such agreements,
and continued accuracy of the representations and warranties contained in such
agreements (including the absence of any material adverse changes since the
specified dates).
All of the Company's senior debt issues have been given investment grade
ratings by Standard & Poors and Moody's. The Company must comply with various
restrictive covenants contained in its debt agreements which include, among
others, maintaining a consolidated debt and guarantees to capitalization ratio
no greater than 70 percent. In addition, the Company's subsidiaries on a
consolidated basis (as defined in the agreements) may not incur debt obligations
which would exceed $300 million in the aggregate, excluding acquisition debt,
project financing, and certain refinancings. As of December 31, 1998, EPEC's
consolidated debt and guarantees to capitalization ratio (as defined in the
agreements) was 55 percent and debt obligations of EPEC subsidiaries in excess
of permitted debt did not exceed $300 million on a consolidated basis.
57
<PAGE> 62
In March 1997, TGP issued $300 million aggregate principal amount of 7 1/2%
debentures due 2017, $300 million aggregate principal amount of 7% debentures
due 2027, and $300 million aggregate principal amount of 7 5/8% debentures due
2037. Proceeds of approximately $883 million, net of issuance costs, were used
to repay a portion of EPTPC's credit facility and for general corporate
purposes.
In December 1997, EPEC filed a shelf registration statement pursuant to
which EPEC may offer up to $900 million (including $250 million transferred from
prior shelf registrations) of common or preferred equities, various forms of
debt securities (including convertible debt securities), and various types of
trust securities from time to time as determined by market conditions. In March
1998, the El Paso Energy Capital Trust I, a Delaware business trust sponsored by
the Company, issued 6.5 million 4 3/4% Trust Convertible Preferred Securities.
The sole assets of the trust are approximately $335 million principal amount of
4 3/4% convertible subordinated debentures due 2028 of the Company. As a result
of such offering, EPEC has approximately $565 million of capacity remaining
under its existing shelf registration to issue public securities registered
thereunder.
In September 1998, TGP filed a shelf registration permitting TGP to offer
up to $600 million (including $100 million carried forward from a prior shelf
registration) of debt securities. In October 1998, TGP issued $400 million
aggregate principal amount of 7% debentures due 2028. Proceeds to TGP were
approximately $391 million, net of issuance cost. Approximately $300 million of
the proceeds were used to repay TGP's short-term indebtedness under the
Revolving Credit Facility and the remainder were used by TGP for general
corporate purposes. After this issuance, TGP has $200 million of capacity
remaining under its shelf registration.
In March 1998, EPNG retired its outstanding 8 5/8% debentures in the amount
of $17 million and in August 1998, EPTPC retired its outstanding 10% debentures
in the amount of $38 million. In February 1999, DeepTech retired its 11% senior
subordinated promissory note due 2000 in the amount of $16 million.
5. FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT ACTIVITIES
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.
As of December 31, 1998, and 1997, the carrying amounts of certain
financial instruments held by the Company, including cash, cash equivalents,
short-term borrowings and investments, and trade receivables and payables are
representative of fair value because of the short-term maturity of these
instruments. The fair value of long-term debt with variable interest rates is
the carrying value because of the variable nature of the respective debt's
interest rate, and the fair value of debt with fixed interest rates has been
estimated based on quoted market prices for the same or similar issues. The
project financing debt is at market interest rates and therefore, the fair value
of the project financing debt is representative of the carrying amount. The fair
value of all derivative financial instruments is the estimated amount at which
management believes the instruments could be liquidated over a reasonable period
of time, based on quoted market prices, current market conditions, or other
estimates obtained from third-party brokers or dealers.
58
<PAGE> 63
The following table reflects the carrying amount and estimated fair value
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance sheet financial instruments:
Long-term debt, excluding project financing.......... $2,497 $2,678 $2,065 $2,208
Project financing debt............................... 117 117 126 126
Other financial instruments:
Trading
Futures contracts................................. (4) (4) (3) (3)
Option contracts.................................. 77 77 3 3
Swap and forward contracts........................ (28) (28) 23 23
Non-Trading
Interest rate swap agreements..................... -- (9) -- (9)
Equity swap....................................... 3 3 6 8
Commodity option contracts........................ -- 1 -- 1
Commodity swap and forward contracts.............. -- (14) -- 4
</TABLE>
Trading Commodity Activities
The Company, through its merchant services business, offers integrated
price risk management services to the energy sector. These services primarily
relate to energy related commodities including natural gas, power, and petroleum
products. The Company provides these services through a variety of contracts
entered into for trading purposes including forward contracts involving cash
settlements or physical delivery of an energy commodity, swap contracts, which
require payments to (or receipt of payments from) counterparties based on the
differential between a fixed and variable price for the commodity, options and
other contractual arrangements. The Company recognized gross margin of $40
million and $17 million during 1998 and 1997, respectively, arising from its
trading activities.
The fair value of commodity and energy related contracts entered into for
trading purposes as of December 31, 1998, and 1997, and the average fair value
of those instruments held during the years ended December 31, 1998, and 1997 are
set forth below. At December 31, 1998, $92 million of assets from price risk
management activities are included in other assets and $42 million of
liabilities from price risk management activities are included in other
liabilities in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
AVERAGE FAIR
VALUE FOR THE
YEAR ENDED
ASSETS LIABILITIES DECEMBER 31,(A)
------ ----------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
1998
Futures contracts................................. $ 2 $ (6) $ (5)
Option contracts.................................. 153 (17) 30
Swap and forward contracts........................ 118 (146) (31)
1997
Futures contracts................................. $ 4 $ (7) $ --
Option contracts.................................. 15 (12) 2
Swap and forward contracts........................ 77 (54) 13
</TABLE>
- ---------------
(a) computed using the net asset balance at each month end.
59
<PAGE> 64
Notional Amounts and Terms
The notional amounts and terms of these financial instruments at December
31, 1998, and 1997 are set forth below (natural gas volumes in trillions of
British thermal units, power volumes in millions of megawatt hours, petroleum
products volumes in millions of British thermal units):
<TABLE>
<CAPTION>
FIXED PRICE FIXED PRICE MAXIMUM
PAYOR RECEIVER TERMS IN YEARS
----------- ----------- --------------
<S> <C> <C> <C>
1998
Energy Commodities:
Natural gas.................................. 9,605 8,866 20
Power........................................ 22 28 20
Petroleum products........................... 67 72 2
1997
Energy Commodities:
Natural gas.................................. 4,079 3,584 20
Power........................................ 12 13 1
Petroleum products........................... 197 195 2
</TABLE>
Notional amounts reflect the volume of transactions but do not represent
the amounts exchanged by the parties. Accordingly, notional amounts are an
incomplete measure of the Company's exposure to market or credit risks. The
maximum terms in years detailed above are not indicative of likely future cash
flows as these positions may be offset or cashed-out in the markets at any time
based on the Company's risk management needs and liquidity in the commodity
markets.
The weighted average maturity of the Company's entire portfolio of price
risk management activities was approximately two years as of December 31, 1998
and 1997, respectively.
Market and Credit Risks
The Company serves a diverse customer group that includes independent power
producers, industrial companies, gas and electric utilities, oil and gas
producers, financial institutions and other energy marketers. This broad
customer mix generates a need for a variety of financial structures, products
and terms. This diversity requires the Company to manage, on a portfolio basis,
the resulting market risks inherent in these transactions subject to parameters
established by the Company's risk management committee. Market risks are
monitored by a risk control committee operating independently from the units
that create or actively manage these risk exposures to ensure compliance with
the Company's stated risk management policies.
The Company measures and adjusts the risk in its portfolio in accordance
with mark-to-market and other risk management methodologies which utilize
forward price curves in the energy markets to estimate the size and probability
of future potential exposure.
60
<PAGE> 65
Credit risk relates to the risk of loss that the Company would incur as a
result of non-performance by counterparties pursuant to the terms of their
contractual obligations. The Company maintains credit policies with regard to
its counterparties to minimize overall credit risk. These policies require an
evaluation of potential counterparties' financial condition (including credit
rating), collateral requirements under certain circumstances (including cash in
advance, letters of credit, and parental guarantees), and the use of
standardized agreements which allow for the netting of positive and negative
exposures associated with a single counterparty. The counterparties associated
with the Company's assets from price risk management activities as of December
31, 1998, and 1997 are summarized as follows:
<TABLE>
<CAPTION>
ASSETS FROM PRICE RISK MANAGEMENT ACTIVITIES
AS OF DECEMBER 31, 1998
---------------------------------------------------
BELOW
INVESTMENT GRADE(a) INVESTMENT GRADE TOTAL(b)
------------------- ---------------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Energy marketers.......................... $ 71 $ 5 $ 76
Financial institutions.................... 21 -- 21
Oil and gas producers..................... 37 5 42
Gas and electric utilities................ 104 6 110
Industrials............................... 18 -- 18
Other..................................... 4 2 6
---- --- ----
Total assets from price risk
management activities......... $255 $18 $273
==== === ====
</TABLE>
<TABLE>
<CAPTION>
ASSETS FROM PRICE RISK MANAGEMENT ACTIVITIES
AS OF DECEMBER 31, 1997
---------------------------------------------------
BELOW
INVESTMENT GRADE(a) INVESTMENT GRADE TOTAL(b)
------------------- ---------------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Energy marketers.......................... $21 $ 3 $24
Financial institutions.................... 20 20
Oil and gas producers..................... 14 4 18
Gas and electric utilities................ 16 2 18
Industrials............................... 6 1 7
Other..................................... 8 1 9
--- --- ---
Total assets from price risk
management activities......... $85 $11 $96
=== === ===
</TABLE>
- ---------------
(a) "Investment Grade" is primarily determined using publicly available credit
ratings along with consideration of collateral, which encompass standby
letters of credit, parent company guarantees and property interest,
including oil and gas reserves. Included in Investment Grade are
counterparties with a minimum Standard & Poor's or Moody's rating of BBB-
or Baa3, respectively, or minimum implied (through internal credit
analysis) Standard & Poor's equivalent rating of BBB-.
(b) Two customers' exposure at December 31, 1998, and 1997 comprise greater
than 5 percent of assets from price risk management activities. These
customers have Investment Grade ratings.
This concentration of counterparties may impact the Company's overall
exposure to credit risk, either positively or negatively, in that the
counterparties may be similarly affected by changes in economic, regulatory or
other conditions. Based on the Company's policies, risk exposure, and reserves,
the Company does not anticipate a material adverse effect on its financial
position, or results of operations, or cash flows as a result of counterparty
nonperformance.
61
<PAGE> 66
Non-Trading Price Risk Management Activities
MPC has entered into interest rate swap agreements which effectively
convert $114 million of floating-rate debt to fixed-rate debt (see Note 4). MPC
makes payments to counterparties at fixed rates and in return receives payments
at floating rates. The two swap agreements were entered into in March 1992 and
have remaining terms of approximately 1 year and 3 years, respectively. This
transaction is recorded using accrual accounting. Interest expense and cash
requirements were $3 million higher in 1998, 1997, and 1996, respectively, as a
result of these swaps.
In March 1997, the Company purchased a 10.5 percent interest in CAPSA, a
privately held Argentine company engaged in power generation and oil and gas
production for approximately $57 million. In connection with this acquisition,
the Company entered into an equity swap transaction associated with an
additional 18.5 percent of CAPSA's then outstanding stock. Under the swap, the
Company pays interest to the counterparty, on a quarterly basis, on a notional
amount of $100 million at a rate of LIBOR plus 0.85 percent. In exchange, the
Company receives dividends on the CAPSA stock to the extent of the
counterparty's equity interest of 18.5 percent. The Company also fully
participates in the market appreciation or depreciation of the underlying
investment whereby the Company will realize appreciation or fund any
depreciation attributable to the actual sale of the stock upon termination or
expiration of the swap transaction. The initial term of the swap was two years,
and in February 1999, was extended for an additional two and one-half years.
Upon maturity or termination of the swap, the Company has a right of first
refusal to purchase the counterparty's 18.5 percent investment in CAPSA common
stock at the fair value of the stock at that date or at a later date at a price
offered by a good faith buyer. This transaction is recorded using mark-to-market
accounting.
6. COMMITMENTS AND CONTINGENCIES
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Commitments and Contingencies and Environmental, which
are incorporated herein by reference.
7. INCOME TAXES
The following table reflects the components of income tax expense for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................... $ 6 $(45) $23
State..................................................... (12) (21) 7
Foreign................................................... 5 -- --
---- ---- ---
(1) (66) 30
---- ---- ---
Deferred
Federal................................................... 116 164 (4)
State..................................................... 14 31 (1)
Foreign................................................... (2) -- --
---- ---- ---
128 195 (5)
---- ---- ---
Total tax expense................................. $127 $129 $25
==== ==== ===
</TABLE>
62
<PAGE> 67
Tax expense of the Company differs from the amount computed by applying the
statutory federal income tax rate (35 percent) to income before taxes. The
following table outlines the reasons for the differences for the periods ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Tax expense at the statutory federal rate of 35%............ $132 $119 $22
Increase (decrease)
State income tax, net of federal income tax benefit....... 1 7 4
Other..................................................... (6) 3 (1)
---- ---- ---
Income tax expense.......................................... $127 $129 $25
==== ==== ===
Effective tax rate.......................................... 34% 38% 38%
==== ==== ===
</TABLE>
The following table reflects the components of the net deferred tax
liability at December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities
Property, plant, and equipment............................ $2,012 $1,982
Regulatory and other assets............................... 474 393
------ ------
Total deferred tax liability...................... 2,486 2,375
------ ------
Deferred tax assets
U.S. net operating loss and tax credit carryovers......... 85 113
Accrual for regulatory issues............................. 266 226
Postretirement benefits................................... 116 123
Other liabilities......................................... 542 539
Valuation allowance....................................... (5) (8)
------ ------
Total deferred tax asset.......................... 1,004 993
------ ------
Net deferred tax liability(a)............................... $1,482 $1,382
====== ======
</TABLE>
- ---------------
(a) As of December 31, 1998, $1 million of non-current foreign deferred income
taxes are included in other assets in the Consolidated Balance Sheets.
The cumulative undistributed earnings of certain foreign subsidiaries and
foreign corporate joint ventures were approximately $35 million as of December
31, 1998. Since the earnings have been or are intended to be indefinitely
reinvested in foreign operations, no provision has been made for any U.S. taxes
or foreign withholding taxes that may be applicable upon actual or deemed
repatriation. If a distribution of such earnings were to be made, the Company
may be subject to both foreign withholding taxes and U.S. income taxes, net of
any allowable foreign tax credits or deductions. However, an estimate of such
taxes is not practicable. For the same reasons, the Company has not provided for
any U.S. taxes on the foreign currency translation adjustments recognized in
comprehensive income.
The tax benefit associated with the exercise of non-qualified stock options
and restricted stock as well as restricted stock dividends, reduced taxes
payable by $9 million in 1998 and $11 million in 1997. Such benefits are
included in additional paid-in capital in the Consolidated Balance Sheets.
As of December 31, 1998, approximately $45 million of alternative minimum
tax credits were available to offset future regular tax liabilities. These
alternative minimum tax credit carryovers have no expiration date. Additionally,
at December 31, 1998, approximately $1 million of general business credit, $102
million of net operating loss, and $9 million of capital loss carryovers were
available to offset future tax liabilities. The general business credit
carryovers expire in the years 1999 and 2000. Approximately $57 million of the
net operating loss carryovers expire in 2012 and the remaining $45 million
expire in the years 2004 through 2011. Usage of these carryovers is subject to
the limitations provided for under Sections 382 and 383 of the Internal Revenue
Code as well as the separate return limitation year rules of IRS regulations.
63
<PAGE> 68
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized due to the expiration of
net operating loss and tax credit carryovers. As of December 31, 1998, and 1997,
approximately $4 million and $8 million, respectively, of the valuation
allowance relates to the net operating loss carryovers of an acquired company.
The remainder of the valuation allowance relates to the general business credit
carryovers of an acquired company. Any tax benefits subsequently recognized from
reversal of this valuation allowance will be allocated to goodwill.
Prior to 1999, EPTPC and its subsidiaries filed a consolidated federal
income tax return and EPEC and its other subsidiaries filed a separate
consolidated federal income tax return. As a result of the tax-free
reorganization described in Note 1, starting in 1999, EPEC and its subsidiaries,
including EPTPC and its subsidiaries, will file one consolidated federal income
tax return.
Deferred taxes corresponding to the allocation of the purchase price to the
assets and liabilities acquired of EPTPC, have been reflected in the
Consolidated Balance Sheets as of December 31, 1998, and 1997.
8. CAPITAL STOCK
Common Stock
In October 1997, approximately .8 million shares of Company common stock
were issued in connection with the acquisition of Gulf States Gas Pipeline
Company. Such shares were valued at approximately $21 million.
In February 1997, approximately 6 million shares of Company common stock
were issued in a public offering registered under the Securities Act of 1933, as
amended. Proceeds of $152 million, net of issuance costs, were received and used
to repay borrowings under the Revolving Credit Facility.
In December 1996, 37.6 million shares of Company common stock were issued
in connection with the acquisition of EPTPC. Such shares were valued at
approximately $913 million.
Treasury Stock
From time to time, the Board has authorized the repurchase of EPEC's
outstanding shares of common stock to be used in connection with EPEC employee
stock-based compensation plans and for other corporate purposes. During 1998,
the Company repurchased 995,600 common shares at a weighted average cost of
$35.77 per share. As of December 31, 1998, and 1997, EPEC held 4,149,099 and
2,946,832 shares of treasury stock, respectively. Included in the balance at
December 31, 1998, were 1,360,000 shares of treasury stock used to secure
benefits under certain of the Company's benefit plans which are subject to
certain restrictions.
Stock Dividend
In January 1998, the Board declared a two-for-one stock split in the form
of a 100 percent stock dividend (on a per share basis). In March 1998, the
stockholders approved an increase in the Company's authorized common stock. The
stock dividend of an aggregate of 60,944,417 shares of common stock was paid on
April 1, 1998 to stockholders of record on March 13, 1998. All presentations
herein are made on a post-split basis.
Other
EPEC has 25,000,000 shares of authorized preferred stock, par value $0.01
per share, none of which have been issued, but of which 2,750,000 shares have
been designated as Series A Junior Participating Preferred Stock and reserved
for issuance pursuant to the Company's preferred stock purchase rights plan.
64
<PAGE> 69
9. STOCK-BASED COMPENSATION
During 1998, 1997, and 1996 the Company granted stock options under various
stock option plans (the "Plans"). The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for these Plans.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation which, if fully adopted, changes the
methods companies apply in determining expense related to their stock option
plans. Adoption of the expense recognition provisions of SFAS No. 123 was
optional and the Company elected not to apply provisions of SFAS No. 123.
However, pro forma disclosures as if the Company adopted the expense recognition
provisions of SFAS No. 123 are presented below.
Under the Company's existing stock option plans, the Company is authorized
to issue shares of Common Stock to employees and non-employee directors pursuant
to awards granted as incentive stock options (intended to qualify under Section
422 of the Internal Revenue Code, non-qualified stock options, restricted stock,
stock appreciation rights ("SARs"), and performance units.
Non-qualified Stock Options
The Company granted non-qualified stock options in 1998, 1997, and 1996
under its stock option plans. The stock options granted during these periods
have contractual terms of 10 years and generally vest after completion of one to
five years of continuous employment from the grant date. Options are also
granted to non-employee members of the Board at fair market value on the date of
grant and are exercisable immediately. Under the terms of certain plans, EPEC
may grant SARs to certain holders of stock options. SARs are subject to the same
terms and conditions as the related stock options. As of December 31, 1998,
50,538 SARs were outstanding which have been included in stock options as part
of tandem awards. The stock option holder who has been granted tandem SARs can
elect to exercise either an option or a SAR. SARs entitle an option holder to
receive a payment equal to the difference between the option price and the fair
market value of the common stock of EPEC at the date of exercise of the SAR. To
the extent a SAR is exercised, the related option is canceled, and to the extent
an option is exercised, the related SAR is canceled. Currently, the SARs are
being accounted for as compensation expense under Accounting Principles Board
Opinion No. 25 and are not considered for purposes of computing fair value of
outstanding options using the Black-Scholes option pricing model as described
below.
A summary of the status of the Company's stock options as of December 31,
1998, 1997, and 1996 is presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the
year.............................. 8,782,214 $17.90 8,847,190 $15.83 5,207,910 $14.41
Granted........................... 2,328,450 $33.40 1,775,200 $26.23 4,933,646 $16.55
Exercised......................... 1,072,351 $17.40 1,643,376 $15.28 1,240,596 $12.79
Forfeited......................... 187,070 $21.48 196,800 $21.77 53,770 $14.44
--------- --------- ---------
Outstanding at end of year.......... 9,851,243 $21.55 8,782,214 $17.90 8,847,190 $15.83
========= ========= =========
Exercisable at end of year.......... 5,042,572 $16.94 4,006,508 $15.43 3,960,190 $14.82
========= ========= =========
</TABLE>
65
<PAGE> 70
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
ASSUMPTION: 1998 1997 1996
----------- ----- ----- -----
<S> <C> <C> <C>
Expected Term in Years...................................... 5 3 3
Expected Volatility......................................... 20.3% 17.3% 20.3%
Expected Dividends.......................................... 3.0% 3.0% 3.0%
Risk-Free Interest Rate..................................... 4.6% 6.3% 5.5%
</TABLE>
The Black-Scholes weighted average fair value of options granted during
1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Weighted-average fair value of options granted at a
discount............................................... $ 9.71 $ 5.96 $10.26
Weighted-average fair value of options granted at
market................................................. $ 7.00 $ 3.86 $ 2.58
</TABLE>
Options outstanding as of December 31, 1998 are summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.50 to $15.37 1,361,776 4.3 $12.66 1,361,776 $12.66
$15.38 to $19.28 4,541,225 6.5 $16.43 2,957,865 $16.56
$19.29 to $31.99 2,169,092 8.3 $26.77 603,531 $25.15
$32.00 to $38.56 1,779,150 9.4 $35.07 119,400 $33.42
--------- ---------
$ 7.50 to $38.56 9,851,243 7.1 $21.55 5,042,572 $16.94
========= =========
</TABLE>
Restricted Stock
Under the Company's various stock-based compensation plans, a limited
number of shares of restricted Company common stock may be granted at no cost to
certain key officers and employees. These shares carry voting and dividend
rights; however, sale or transfer of the shares is restricted in accordance with
the vesting procedures. These restricted stock awards vest over a specific
period of time and/or if the Company achieves certain performance targets.
Restricted stock awards representing .5 million, .7 million, and 3.2 million
shares were granted during 1998, 1997, and 1996, respectively, with a weighted
average grant date fair value of $32.29, $28.53, and $18.82 per share,
respectively. At December 31, 1998, 4.5 million shares of restricted stock were
outstanding. The value of these shares is determined based on the fair market
value on the measurement dates and is charged to compensation expense ratably
over the restriction period based on the number of shares earned over the
vesting period. For 1998, 1997, and 1996, these charges totaled $27 million, $19
million, and $5 million, respectively. The unamortized balance is recorded as a
reduction of stockholders' equity in the Consolidated Balance Sheets.
Performance Units
Certain employees and officers of the Company are awarded performance units
that are payable in cash or stock at the end of the vesting period. The final
value of the performance units may vary according to the plan under which they
are granted, but is usually based on the Company's common stock price at the end
of the vesting period. The value of the performance units is charged ratably to
compensation expense over the vesting period with periodic adjustments to
account for the fluctuation in the market price of the Company's stock. Amounts
charged to compensation expense in 1998, 1997, and 1996 were $13 million, $5
million, and $5 million, respectively.
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<PAGE> 71
Pro Forma Net Income and Net Income Per Common Share
Had the compensation expense for the Company's stock-based compensation
plans been determined applying the provisions of SFAS No. 123, the Company's net
income and net income per common share for 1998, 1997, and 1996 would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SFAS No. 123 charge, pretax..... $ -- $ 61 $ -- $ 30 $ -- $ 17
APB No. 25 charge, pretax....... $ 49 $ -- $ 24 $ -- $ 13 $ --
Net income...................... $ 225 $ 217 $ 186 $ 183 $ 38 $ 36
Basic earnings per common
share......................... $1.94 $1.87 $1.64 $1.61 $0.53 $0.50
Diluted earnings per common
share......................... $1.85 $1.79 $1.59 $1.56 $0.52 $0.49
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards granted
prior to the 1995 fiscal year.
At December 31, 1998, 21.1 million shares of common stock were reserved for
issuance pursuant to existing and future stock awards, of which approximately
5.4 million shares remain reserved.
10. RETIREMENT BENEFITS
Pension Benefits
Prior to January 1, 1997, the Company maintained a defined benefit pension
plan covering substantially all employees of EPNG and EPFS. Pension benefits
were based on years of credited service and final 5-year average compensation,
subject to maximum limitations as defined in the pension plan. During 1996, the
Company recognized a $21 million charge to pension expense related to an early
retirement window and workforce reductions.
Effective January 1, 1997, the plan was amended to provide benefits
determined by a cash balance formula and to include employees added as a result
of the Merger and other acquisitions prior to 1997. Employees who were
participants on December 31, 1996, receive the greater of cash balance benefits
or prior plan benefits accrued through December 31, 2001.
During 1997, the Company offered special termination benefits to employees
added as a result of the Merger who were at least 55 years old and who were
eligible to retire under the Tenneco Inc. Retirement Plan on December 31, 1996.
Eligible employees accepting this offer and retiring by July 1, 1997, received a
cash balance credit based on an enhanced formula not to exceed one year's base
salary. The cost associated with the special termination benefits was accrued at
December 31, 1996, as part of the liabilities assumed in the Merger. In 1997,
the Company funded $11 million for these special termination benefits.
Other Postretirement Benefits
EPNG provides postretirement medical benefits for a closed group of
employees who retired on or before March 1, 1986, and limited postretirement
life insurance for employees who retired after January 1, 1985. As such, EPNG's
obligation to accrue for other postretirement employee benefits ("OPEB") is
primarily limited to the fixed population of retirees who retired on or before
March 1, 1986. The medical plan is pre-funded to the extent employer
contributions are recoverable through rates. To the extent actual OPEB costs
differ from the amounts recovered in rates, a regulatory asset or liability is
recorded.
As a result of the Merger, EPTPC retained responsibility for certain
postretirement medical and life insurance benefits for former employees of
operations previously disposed of by Old Tenneco, and for employees, including
TGP employees, added as a result of the Merger who were eligible to retire on
December 31, 1996, and did so on or before July 1, 1997. Medical benefits for
this closed group of retirees may be subject to deductibles, co-payment
provisions, and other limitations and dollar caps on the amount of
67
<PAGE> 72
employer costs. EPTPC has reserved the right to change these benefits. Employees
who retired on or after July 1, 1997 will continue to receive limited
postretirement life insurance benefits. TGP's postretirement benefit plan costs
are pre-funded to the extent such costs are recoverable through rates. Effective
February 1, 1992, TGP began recovering through its rates the OPEB costs included
in the June 2, 1993 rate case settlement agreement. To the extent actual OPEB
costs differ from the amounts funded, a regulatory asset or liability is
recorded.
Several plan amendments were made effective January 1, 1998, including
increases in deductibles, increases in out-of-pocket limits, and changes to the
prescription drug provisions. These changes resulted in a $25 million decrease
in the postretirement benefits obligation.
The following table sets forth the change in benefit obligation, change in
plan assets, funded status, and components of net periodic benefit cost for
pension benefits and other postretirement benefits. In 1998, the Company changed
the measurement date for measuring its pension and OPEB obligations from
December 31 to September 30. Traditionally, timing of the receipt of this
information has limited the Company's ability to maximize planning and budgeting
opportunities with respect to projected costs of its various plans. The Company
changed its benefit reporting date to facilitate the planning process and gather
necessary financial reporting information in a more timely manner. Management
believes the date change is preferable to the method previously employed. This
change in measurement date has been accounted for as a change in accounting
principle and had no material cumulative effect on retirement benefit expense
for the current or prior periods.
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
1998 1997 1998 1997
------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligation
Actuarial present value of benefit obligation at January
1,..................................................... $535 $505 $ 417 $ 427
Service cost.............................................. 11 13 -- --
Interest cost............................................. 36 37 27 30
Participant contributions................................. -- -- 4 5
Amendments................................................ -- -- (25) --
Special termination benefits.............................. -- 11 -- --
Actuarial (gain) or loss.................................. (8) 28 29 15
Benefits paid............................................. (38) (59) (45) (60)
---- ---- ----- -----
Actuarial present value of benefit obligation for 1998 at
September 30 and for 1997 at December 31............... $536 $535 $ 407 $ 417
==== ==== ===== =====
Change in plan assets
Fair value of plan assets at January 1,................... $547 $497 $ 55 $ 42
Actual return on plan assets.............................. 7 79 3 9
Employer contributions.................................... 4 30 46 59
Participant contributions................................. -- -- 4 5
Benefits paid............................................. (38) (59) (45) (60)
---- ---- ----- -----
Fair value of plan assets for 1998 at September 30 and for
1997 at December 31.................................... $520 $547 $ 63 $ 55
==== ==== ===== =====
Reconciliation of fund status
Funded status............................................. $(16) $ 12 $(344) $(362)
Fourth quarter contributions.............................. 5 -- 15 --
Unrecognized net actuarial (gain) or loss................. 29 (4) -- (26)
Unrecognized net transition obligation.................... 6 8 54 70
Unrecognized prior service cost........................... (34) (37) (12) --
---- ---- ----- -----
Net accrued benefit cost at December 31,.................. $(10) $(21) $(287) $(318)
==== ==== ===== =====
</TABLE>
68
<PAGE> 73
As of December 31, 1998, and 1997, the current liability portion of the
postretirement benefits was $39 million and $33 million, respectively. Benefit
obligations are based upon certain actuarial estimates as described below.
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------ ------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Benefit cost for the plans includes the following
components
Service cost........................................ $ 11 $ 13 $ 7 $-- $-- $--
Interest cost....................................... 36 37 41 27 30 6
Expected return on plan assets...................... (47) (43) (41) (3) (3) (2)
Amortization of net actuarial gain.................. -- -- -- -- (4) (2)
Amortization of transition obligation............... 2 2 2 7 9 9
Amortization of prior service cost.................. (3) (3) -- (1) -- --
Curtailment and special termination benefits
expense.......................................... -- -- 21 -- -- --
---- ---- ---- --- --- ---
Net benefit cost.................................... $ (1) $ 6 $ 30 $30 $32 $11
==== ==== ==== === === ===
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------------- ----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Weighted average assumptions
Discount rate........................... 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets.......... 9.50% 9.25% 7.50% 8.50%
Rate of compensation increase........... 4.50% 4.50% -- --
</TABLE>
Actuarial estimates for the Company's postretirement benefits plans assumed
a weighted average annual rate of increase in the per capita costs of covered
health care benefits of 10 percent through 2000, gradually decreasing to 6
percent by the year 2008. Assumed health care cost trends have a significant
effect on the amounts reported for other postretirement benefit plans. A
one-percentage point change in assumed health care cost trends would have the
following effects:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
One Percentage Point Increase
Aggregate of Service Cost and Interest Cost for 1998 at
September 30 and for 1997 at December 31............... $ 0.7 $ 0.6
Accumulated Postretirement Benefit Obligation for 1998 at
September 30 and for 1997 at December 31............... $ 9.9 $ 9.1
One Percentage Point Decrease
Aggregate of Service Cost and Interest Cost for 1998 at
September 30 and for 1997 at December 31............... $(0.6) $(0.6)
Accumulated Postretirement Benefit Obligation for 1998 at
September 30 and for 1997 at December 31............... $(9.1) $(8.2)
</TABLE>
Retirement Savings Plan
The Company maintains a defined contribution plan covering all employees of
the Company. During the first six months of 1996, the Company made matching
contributions equal to a participant's basic contributions of up to 6 percent
where the participant had fewer than 10 years of employment with the Company, or
up to 8 percent where the participant had 10 or more years of employment with
the Company. In February 1996, the Company changed its matching contribution to
75 percent of a participant's basic contributions of up to 6 percent, with the
matching contribution being made in Company stock. Amounts
69
<PAGE> 74
expensed under the plan were approximately $9 million, $9 million and $4 million
for the years ended December 31, 1998, 1997, and 1996, respectively.
11. EMPLOYEE SEPARATION AND ASSET IMPAIRMENT CHARGE
During the first quarter of 1996, the Company adopted a program to reduce
operating costs through work force reductions and improved work processes and
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. As a result of the workforce reduction
program and the adoption of SFAS No. 121, the Company recorded a special charge
of $99 million ($47 million for employee separation costs and $52 million for
asset impairments) in the first quarter of 1996.
The employee separation charge included approximately $26 million for
expected severance-related costs and $21 million for pension costs related to
special termination benefits and work force reductions. The special charge for
pension-related costs will have no cash impact outside of the normal funding of
the Company's pension plan.
In accordance with SFAS No. 121, the Company determined the fair value of
certain assets based on discounted future cash flows. The resultant non-cash
charge for asset impairments included approximately $44 million for the
impairment of certain natural gas gathering, processing, and production
facilities and $8 million for the write-off of a regulatory asset established
upon the adoption of SFAS No. 112, Employers' Accounting for Postemployment
Benefits, but not recoverable through the Company's rate settlement filed with
FERC in March 1996.
12. PREFERRED STOCK OF SUBSIDIARY
In November 1996, EPTPC issued 6 million shares of 8 1/4% cumulative
preferred stock with a par value of $50 per share for $296 million (net of
issuance costs). The preferred stock is redeemable, at the option of EPTPC,
after December 31, 2001, at a redemption price equal to $50 per share, plus
dividends accrued and unpaid up to the date of redemption.
During 1998, 1997, and 1996, dividends of approximately $25 million, $25
million, and $3 million, respectively, were paid on the cumulative preferred
stock. Approximately $2 million is reflected in 1996 as minority interest for
the 20 days EPTPC was included in the Consolidated Statements of Income.
13. SEGMENT INFORMATION
The Company adopted the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective January 1, 1998.
Accordingly, the Company has segregated its business activities into five
segments: Tennessee Gas Pipeline segment, El Paso Natural Gas segment, El Paso
Field Services segment, El Paso Energy Marketing segment, and El Paso Energy
International segment. These segments are strategic business units that offer a
variety of different energy products and services. They are managed separately
as each business requires different technology and marketing strategies.
The Tennessee Gas Pipeline segment, which includes the interstate pipeline
systems of TGP, Midwestern, and East Tennessee, transports natural gas to the
northeast, midwest, and mid-Atlantic sections of the U.S. including the states
of Tennessee, Virginia and Georgia as well as the New York City, Chicago, and
Boston metropolitan areas. The El Paso Natural Gas segment, which includes the
interstate pipeline systems of EPNG and MPC, transports natural gas primarily to
the California market. The El Paso Field Services segment provides natural gas
gathering, products extraction, dehydration, purification, compression and
intrastate transmission services. The El Paso Energy Marketing segment markets
and trades natural gas, power, and petroleum products and participates in the
development and ownership of domestic power generation projects. The El Paso
Energy International segment develops and operates energy infrastructure
facilities worldwide.
70
<PAGE> 75
The accounting policies of the individual segments are the same as those of
the Company, as a whole, as described in Note 1. Certain business segments'
earnings are largely derived from the earnings on equity investments which are
reported in Other, net in the Consolidated Statements of Income. Accordingly,
the Company evaluates segment performance, based on EBIT. To the extent
practicable, results of operations for the years ended December 31, 1997, and
1996 have been reclassified to conform to the current business segment
presentation, although such results are not necessarily indicative of the
results which would have been achieved had the revised business segment
structure been in effect during that period.
<TABLE>
<CAPTION>
SEGMENTS
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------
TENNESSEE EL PASO EL PASO EL PASO EL PASO
GAS NATURAL FIELD ENERGY ENERGY
PIPELINE GAS SERVICES MARKETING INTERNATIONAL TOTAL
--------- ------- -------- --------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers
Domestic......................... $ 728 $ 473 $ 194 $4,000 $ -- $5,395
Foreign.......................... -- -- -- 323 58 381
Intersegment revenue............... 38 2 59 17 -- 116
Depreciation and amortization...... 143 61 47 3 9 263
Operating income................... 332 215 60 5 (28) 584
Other, net......................... 26 2 15 4 53 100
Earnings before interest and
taxes............................ 358 217 75 9 25 684
Assets
Domestic......................... 4,995 1,742 1,426 762 281 9,206
Foreign.......................... -- -- -- 73 581 654
Capital expenditures............... 138 31 107 2 119 397
Equity investments................. 74 -- 87 -- 436 597
</TABLE>
<TABLE>
<CAPTION>
SEGMENTS
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
TENNESSEE EL PASO EL PASO EL PASO EL PASO
GAS NATURAL FIELD ENERGY ENERGY
PIPELINE GAS SERVICES MARKETING INTERNATIONAL TOTAL
--------- ------- -------- --------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers
Domestic......................... $ 765 $ 518 $360 $3,757 $ -- $5,400
Foreign.......................... -- -- -- 218 13 231
Intersegment revenue............... 33 2 20 20 -- 75
Depreciation and amortization...... 137 56 33 4 1 231
Operating income................... 304 255 66 (31) (24) 570
Other, net......................... 14 5 8 3 26 56
Earnings before interest and
taxes............................ 318 260 74 (28) 2 626
Assets
Domestic......................... 5,179 1,838 852 859 180 8,908
Foreign.......................... -- -- -- 16 238 254
Capital expenditures............... 111 84 62 8 21 286
Equity investments................. 64 -- 24 44 241 373
</TABLE>
71
<PAGE> 76
<TABLE>
<CAPTION>
SEGMENTS
FOR THE YEAR ENDED OF DECEMBER 31, 1996
-------------------------------------------------------------------
TENNESSEE EL PASO EL PASO EL PASO EL PASO
GAS NATURAL FIELD ENERGY ENERGY
PIPELINE GAS SERVICES MARKETING INTERNATIONAL TOTAL
--------- ------- -------- --------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers
Domestic......................... $47 $510 $276 $2,177 $-- $3,010
Intersegment revenue............... 1 1 15 6 -- 23
Depreciation and amortization...... 12 58 27 4 -- 101
Operating income................... 14 209 35 23 (3) 278
Other, net......................... 2 14 -- 1 (1) 16
Earnings before interest and
taxes............................ 16 223 35 24 (4) 294
</TABLE>
The reconciliations of revenues for reportable segments to total
consolidated revenues are presented below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Total revenues for segments................................. $5,892 $5,706 $3,033
Other revenues.............................................. 6 7 2
Elimination of intersegment revenue......................... (116) (75) (23)
------ ------ ------
Total consolidated revenues....................... $5,782 $5,638 $3,012
====== ====== ======
</TABLE>
The reconciliations of other, net for reportable segments to total
consolidated other, net are presented below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total other, net for segments............................... $100 $ 56 $ 16
Corporate other, net........................................ 38 1 (11)
---- ---- ----
Total consolidated other, net..................... $138 $ 57 5
==== ==== ====
</TABLE>
The reconciliations of EBIT to income before income taxes and minority
interest are presented below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997 1996
---- ----- ----
(IN MILLIONS)
<S> <C> <C> <C>
Total EBIT for segments..................................... $684 $ 626 $294
Corporate expenses, net..................................... 40 48 119
Interest and debt expense................................... 267 238 110
---- ----- ----
Income before income taxes and minority
interest........................................ $377 $ 340 $ 65
==== ===== ====
</TABLE>
The reconciliations of assets for reportable segments to total consolidated
assets are presented below.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
-------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets for segments................................... $ 9,860 $9,162
Corporate and other assets.................................. 209 370
------- ------
Total consolidated assets......................... $10,069 $9,532
======= ======
</TABLE>
72
<PAGE> 77
The Company did not have gross revenue from any customer equal to, or in
excess of, ten percent of consolidated operating revenue for the years ended
December 31, 1998, 1997, and 1996.
14. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Materials and supplies...................................... $45 $42
Gas in storage.............................................. 4 26
--- ---
Total............................................. $49 $68
=== ===
</TABLE>
15. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost
Tennessee Gas Pipeline.................................... $2,438 $2,289
El Paso Natural Gas....................................... 2,417 2,454
El Paso Field Services.................................... 1,118 1,022
El Paso Energy Marketing.................................. 47 78
El Paso Energy International.............................. 283 79
Corporate and Other....................................... 103 82
------ ------
6,406 6,004
Less accumulated depreciation and depletion................. 1,546 1,395
------ ------
4,860 4,609
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 2,481 2,507
------ ------
Total property, plant, and equipment, net................... $7,341 $7,116
====== ======
</TABLE>
16. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which establishes new guidelines for calculating
earnings per share. The pronouncement is effective for reporting periods ending
after December 15, 1997. SFAS No. 128 requires companies to present both a basic
and diluted earnings per share amount on the face of the statement of income and
to restate prior period earnings per share amounts to comply with this standard.
Basic and diluted earnings per share amounts calculated in accordance with SFAS
No. 128 are presented below for the years ended December 31.
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------
AVERAGE AVERAGE
SHARES EARNINGS SHARES
NET INCOME OUTSTANDING PER SHARE NET INCOME OUTSTANDING
---------- ----------- --------- ---------- -----------
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Basic.................. $225 115.8 $1.94 $186 114.0
=====
Effect of dilutive
securities
Stock options........ -- 2.5 -- 2.1
Trust preferred
securities......... 8 6.2 -- --
Restricted stock..... -- 1.4 -- 1.3
---- ----- ---- -----
Diluted................ $233 125.9 $1.85 $186 117.4
==== ===== ===== ==== =====
<CAPTION>
1997 1996
--------- ------------------------------------
AVERAGE
EARNINGS SHARES EARNINGS
PER SHARE NET INCOME OUTSTANDING PER SHARE
--------- ---------- ----------- ---------
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Basic.................. $1.63 $38 72.3 $0.53
===== =====
Effect of dilutive
securities
Stock options........ -- 1.0
Trust preferred
securities......... -- --
Restricted stock..... -- --
--- ----
Diluted................ $1.59 $38 73.3 $0.52
===== === ==== =====
</TABLE>
73
<PAGE> 78
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following table contains supplemental cash flow information for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest.................................................. $266 $249 $ 85
Income tax payments (refunds)............................. (93) (34) 49
</TABLE>
See Note 2, for a discussion of the non-cash investing transactions related
to certain acquisitions.
18. INVESTMENT IN AFFILIATED COMPANIES (UNAUDITED)
The Company holds investments in various affiliates which are accounted for
on the equity method of accounting. The principal equity method investments are
the Company's investments in international pipelines, interstate pipelines,
power generation plants, gathering systems and natural gas storage facilities.
Summarized financial information of the Company's proportionate share of 50
percent or less owned companies and majority owned unconsolidated subsidiaries
accounted for by the equity method of accounting is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
COMPANIES OWNED 50% OR LESS 1998 1997 1996
- --------------------------- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating results data:
Revenues and other income................................. $202 $130 $98
Costs and expenses........................................ 156 103 68
Net income................................................ 46 26 30
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ ------
<S> <C> <C>
Financial position data:
Current assets............................................ $ 182 $ 78
Non-current assets........................................ 1,941 1,033
Short-term debt........................................... 175 25
Other current liabilities................................. 75 50
Long-term debt............................................ 1,028 640
Other non-current liabilities............................. 171 67
Equity in net assets...................................... 674 329
</TABLE>
74
<PAGE> 79
19. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information by quarter is summarized below. In the opinion of
management, all adjustments necessary for a fair presentation have been made.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Operating revenues............................... $1,252 $1,615 $1,296 $1,619
Operating income................................. 140 112 113 141
Net income....................................... 60 52 55 58
Basic earnings per common share.................. 0.52 0.45 0.47 0.50
Diluted earnings per share....................... 0.49 0.43 0.45 0.48
1997
Operating revenues............................... $1,577 $1,251 $ 979 $1,831
Operating income................................. 137 120 125 139
Net income....................................... 52 44 43 47
Basic earnings per common share.................. 0.45 0.38 0.38 0.43
Diluted earnings per share....................... 0.44 0.37 0.37 0.42
</TABLE>
75
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
El Paso Energy Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14.(a) 1. present fairly, in all material respects, the
consolidated financial position of El Paso Energy Corporation as of December 31,
1998 and 1997, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14.(a) 2.
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinions expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 1999
76
<PAGE> 81
SCHEDULE II
EL PASO ENERGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------- ---------- ---------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts.......... $ 56 $ 7 $ 4 $(29)(a) $ 38
Valuation allowance on deferred tax
assets................................ 8 -- 4 (7) 5
1997
Allowance for doubtful accounts.......... $ 64 $ 53 $ -- $(61)(a) $ 56
Valuation allowance on deferred tax
assets................................ -- -- 8(b) -- 8
1996
Allowance for doubtful accounts.......... $ 11 $ 6 $ 51(c) $ (4)(a) $ 64
</TABLE>
- ---------------
(a) Primarily accounts written off.
(b) Due to acquisition of Gulf States Gas Pipeline Company.
(c) Primarily due to acquisition of EPTPC.
77
<PAGE> 82
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Proposal No. 1 -- Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
EPEC's proxy statement for the 1999 Annual Meeting of Stockholders is
incorporated herein by reference. Information regarding executive officers of
EPEC is presented in Item 1, Business, of this Form 10-K under the caption
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in EPEC's
proxy statement for the 1999 Annual Meeting of Stockholders is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Security Ownership of a Certain
Beneficial Owner and Management" in EPEC's proxy statement for the 1999 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. Financial statements.
The following consolidated financial statements of the Company are included
in Part II, Item 8 of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Income...................... 42
Consolidated Balance Sheets............................ 43
Consolidated Statements of Cash Flows.................. 44
Consolidated Statements of Stockholders' Equity........ 45
Consolidated Statements of Comprehensive Income........ 46
Notes to Consolidated Financial Statements............. 47
Report of independent accountants...................... 76
2. Financial statement schedules and supplementary information
required to be submitted.
Schedule II -- Valuation and qualifying accounts....... 77
Schedules other than that listed above are omitted
because they are not applicable
3. Exhibit list............................................. 79
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
78
<PAGE> 83
EL PASO ENERGY CORPORATION
EXHIBIT LIST
DECEMBER 31, 1998
Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an asterisk;
all exhibits not so designated are incorporated herein by reference to a prior
filing as indicated. Exhibits designated with a "+" constitute a management
contract or compensatory plan or arrangement required to be filed as an exhibit
to this report pursuant to Item 14(c) of Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 -- Agreement and Plan of Merger, dated July 16, 1998, by and
among EPEC, EPNG, and El Paso Energy Merger Company
(Exhibit 2.1 to EPEC's Form 8-K, filed August 3, 1998,
File No. 1-14365).
3.A -- Restated Certificate of Incorporation of EPEC, dated July
16, 1998; Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
of EPEC, dated July 16, 1998, as amended (Exhibit 3.1 to
EPEC's Form 8-K, filed August 3, 1998, File No. 1-14365).
3.B -- By-laws of EPEC, as amended dated October 21, 1998
(Exhibit 3.B to EPEC's Form 10-Q, filed November 12,
1998, File No. 1-14365 (the "EPEC 1998 Third Quarter
10-Q")).
4.A -- Amended and Restated Shareholder Rights Agreement,
between EPEC and BankBoston, N.A., dated January 20, 1999
(Exhibit 1 to EPEC's Registration Statement on Form 8-A/A
Amendment No. 1, filed January 29, 1999, File No.
1-14365).
4.B -- Amended and Restated Declaration of Trust of El Paso
Energy Capital Trust I dated March 16, 1998 (Exhibit 4.4
to EPNG's Form 8-K, filed March 17, 1998, File No.
1-2700); First Amendment to the Amended and Restated
Declaration of Trust of El Paso Energy Capital Trust I,
dated August 1, 1998 (Exhibit 4.3 of EPEC's Form 8-K,
filed August 3, 1998, File No. 1-14365).
4.C -- Subordinated Debt Securities Indenture dated March 1,
1998, between EPNG and The Chase Manhattan Bank as
Trustee (Exhibit 4.1 to EPNG's Form 8-K, filed March 17,
1998, File No. 1-2700); First Supplemental Indenture
dated March 17, 1998, between EPNG and The Chase
Manhattan Bank, as Trustee (Exhibit 4.2 to EPNG's Form
8-K, filed March 17, 1998, File No. 1-2700); Second
Supplemental Indenture, dated August 1, 1998 between EPEC
and The Chase Manhattan Bank, as Trustee (Exhibit 4.2 to
EPEC's Form 8-K, filed August 3, 1998, File No. 1-14365).
4.D -- 4 3/4% Convertible Subordinated Debenture due 2028
(Exhibit 4.6 to EPNG's Form 8-K, filed March 17, 1998,
File No. 1-2700).
4.E -- Certificate of Trust Preferred Security (Exhibit 4.5 to
EPNG's Form 8-K, filed March 17, 1998, File No. 1-2700).
4.F -- Trust Preferred Securities Guarantee Agreement issued by
EPNG dated March 17, 1998 (Exhibit 4.7 to EPNG's Form
8-K, filed March 17, 1998, File No. 1-2700); First
Amendment to Trust Preferred Securities Guarantee
Agreement issued by EPEC dated August 1, 1998, (Exhibit
4.4 to EPEC's Form 8-K, filed August 3, 1998, File No.
1-14365).
</TABLE>
79
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.A -- $750 million 364-Day Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New York
and certain other banks (Exhibit 10.A to the EPEC 1998
Third Quarter 10-Q); First Amendment to the $750 million
364-Day Revolving Credit and Competitive Advance Facility
dated as of October 9, 1998, among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York, and certain other banks (Exhibit
10.B to the EPEC 1998 Third Quarter 10-Q); Guarantee,
dated as of August 28, 1998, made by EPEC in favor of The
Chase Manhattan Bank, as Administrative Agent for several
banks and other financial institutions from time to time
parties to the $750 million 364-Day Revolving Credit and
Competitive Advance Facility dated as of October 29,
1997, by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.C to the EPEC
1998 Third Quarter 10-Q).
*10.A.1 -- Joinder Agreement dated December 7, 1998, made by EPEC to
the $750 million 364-Day Revolving Credit and CAF Advance
Facility Agreement, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York.
10.B -- $750 million 5-Year Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.D to the EPEC
1998 Third Quarter 10-Q); First Amendment to the $750
million 5-Year Revolving Credit and Competitive Advance
Facility dated as of October 9, 1998, among EPNG, TGP,
The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and certain other banks
(Exhibit 10.E to the EPEC 1998 Third Quarter 10-Q);
Guarantee, dated as of August 28, 1998, made by EPEC in
favor of The Chase Manhattan Bank, as Administrative
Agent for several banks and other financial institutions
from time to time parties to the $750 million 5-Year
Revolving Credit and Competitive Advance Facility dated
as of October 29, 1997, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York, and certain other banks (Exhibit
10.F to the EPEC 1998 Third Quarter 10-Q).
*10.B.1 -- Joinder Agreement dated December 7, 1998, made by EPEC to
the $750 million 5-Year Revolving Credit and CAF Advance
Facility Agreement, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York.
*+10.C -- Omnibus Compensation Plan dated January 1, 1992;
Amendment No. 1 effective as of April 1, 1998; Amendment
No. 2 effective as of August 1, 1998; Amendment No. 3
effective as of December 3, 1998; and Amendment No. 4
effective as of January 20, 1999.
*+10.D -- 1995 Incentive Compensation Plan, Amended and Restated
effective as of December 3, 1998.
+10.E -- 1995 Compensation Plan for Non-Employee Directors,
Amended and Restated effective as of August 1, 1998
(Exhibit 10.H to the EPEC 1998 Third Quarter 10-Q).
*+10.F -- Stock Option Plan for Non-Employee Directors, Amended and
Restated effective as of January 20, 1999.
</TABLE>
80
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.G -- 1995 Omnibus Compensation Plan, Amended and Restated
effective as of August 1, 1998 (Exhibit 10.J to the EPEC
1998 Third Quarter 10-Q).
*+10.G.1 -- Amendment No. 1 to the 1995 Omnibus Compensation Plan
effective as of December 3, 1998; Amendment No. 2 to the
1995 Omnibus Compensation Plan effective as of January
20, 1999.
*+10.H -- Supplemental Benefits Plan, Amended and Restated
effective as of December 3, 1998.
+10.I -- Senior Executive Survivor Benefit Plan, Amended and
Restated effective as of August 1, 1998 (Exhibit 10.M to
the EPEC 1998 Third Quarter 10-Q).
*+10.J -- Deferred Compensation Plan, Amended and Restated
effective as of December 3, 1998.
+10.K -- Key Executive Severance Protection Plan, Amended and
Restated effective as of August 1, 1998 (Exhibit 10.O to
the EPEC 1998 Third Quarter 10-Q).
+10.L -- Director Charitable Award Plan, Amended and Restated
effective as of August 1, 1998 (Exhibit 10.P to the EPEC
1998 Third Quarter 10-Q).
+10.M -- Strategic Stock Plan, Amended and Restated effective as
of August 1, 1998 (Exhibit 10.Q to the EPEC 1998 Third
Quarter 10-Q).
*+10.M.1 -- Amendment No. 1 to the Strategic Stock Plan, effective as
of December 3, 1998; Amendment No. 2 to the Strategic
Stock Plan, effective as of January 20, 1999.
+10.N -- Domestic Relocation Policy, effective November 1, 1996
(Exhibit 10.Q to EPNG's Form 10-K for 1997, File No.
1-2700).
+10.O -- Employment Agreement dated July 31, 1992 between EPNG and
William A. Wise (Exhibit 10.R to the EPEC 1998 Third
Quarter 10-Q); Amendment to Employment Agreement dated
January 29, 1996, between EPNG and William A. Wise
(Exhibit 10.U.1 to EPNG's Form 10-K for 1995, File No.
1-2700).
*+10.P -- Letter Agreement dated January 13, 1995 between EPNG and
William A. Wise.
+10.Q -- Promissory Note dated May 30, 1997, made by William A.
Wise to EPEC (Exhibit 10.R to EPNG's Form 10-Q, filed May
15, 1998, File No. 1-2700; Amendment to Promissory Note
dated November 20, 1997 (Exhibit 10.R to EPNG's Form
10-Q, filed May 15, 1998, File No. 1-2700).
+10.S -- Letter Agreement dated February 22, 1991, between EPNG
and Britton White Jr. (Exhibit 10.V to the EPEC 1998
Third Quarter 10-Q).
*18 -- Letter regarding Change in Accounting Principles.
*21 -- Subsidiaries of EPEC.
*23 -- Consent of Independent Accountants.
*27 -- Financial Data Schedule.
</TABLE>
81
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, El Paso Energy Corporation has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 9th day of March 1999.
EL PASO ENERGY CORPORATION
Registrant
By /s/ WILLIAM A. WISE
------------------------------------
William A. Wise
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
El Paso Energy Corporation and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM A. WISE Chairman of the Board, March 9, 1999
- ----------------------------------------------------- President, Chief Executive
(William A. Wise) Officer and Director
/s/ H. BRENT AUSTIN Executive Vice President and March 9, 1999
- ----------------------------------------------------- Chief Financial Officer
(H. Brent Austin)
/s/ JEFFREY I. BEASON Vice President and Controller March 9, 1999
- ----------------------------------------------------- (Chief Accounting Officer)
(Jeffrey I. Beason)
/s/ BYRON ALLUMBAUGH Director March 9, 1999
- -----------------------------------------------------
(Byron Allumbaugh)
/s/ JUAN CARLOS BRANIFF Director March 9, 1999
- -----------------------------------------------------
(Juan Carlos Braniff)
/s/ PETER T. FLAWN Director March 9, 1999
- -----------------------------------------------------
(Peter T. Flawn)
/s/ JAMES F. GIBBONS Director March 9, 1999
- -----------------------------------------------------
(James F. Gibbons)
/s/ BEN F. LOVE Director March 9, 1999
- -----------------------------------------------------
(Ben F. Love)
/s/ KENNETH L. SMALLEY Director March 9, 1999
- -----------------------------------------------------
(Kenneth L. Smalley)
/s/ MALCOLM WALLOP Director March 9, 1999
- -----------------------------------------------------
(Malcolm Wallop)
</TABLE>
82
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 -- Agreement and Plan of Merger, dated July 16, 1998, by and
among EPEC, EPNG, and El Paso Energy Merger Company
(Exhibit 2.1 to EPEC's Form 8-K, filed August 3, 1998,
File No. 1-14365).
3.A -- Restated Certificate of Incorporation of EPEC, dated July
16, 1998; Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
of EPEC, dated July 16, 1998, as amended (Exhibit 3.1 to
EPEC's Form 8-K, filed August 3, 1998, File No. 1-14365).
3.B -- By-laws of EPEC, as amended dated October 21, 1998
(Exhibit 3.B to EPEC's Form 10-Q, filed November 12,
1998, File No. 1-14365 (the "EPEC 1998 Third Quarter
10-Q")).
4.A -- Amended and Restated Shareholder Rights Agreement,
between EPEC and BankBoston, N.A., dated January 20, 1999
(Exhibit 1 to EPEC's Registration Statement on Form 8-A/A
Amendment No. 1, filed January 29, 1999, File No.
1-14365).
4.B -- Amended and Restated Declaration of Trust of El Paso
Energy Capital Trust I dated March 16, 1998 (Exhibit 4.4
to EPNG's Form 8-K, filed March 17, 1998, File No.
1-2700); First Amendment to the Amended and Restated
Declaration of Trust of El Paso Energy Capital Trust I,
dated August 1, 1998 (Exhibit 4.3 of EPEC's Form 8-K,
filed August 3, 1998, File No. 1-14365).
4.C -- Subordinated Debt Securities Indenture dated March 1,
1998, between EPNG and The Chase Manhattan Bank as
Trustee (Exhibit 4.1 to EPNG's Form 8-K, filed March 17,
1998, File No. 1-2700); First Supplemental Indenture
dated March 17, 1998, between EPNG and The Chase
Manhattan Bank, as Trustee (Exhibit 4.2 to EPNG's Form
8-K, filed March 17, 1998, File No. 1-2700); Second
Supplemental Indenture, dated August 1, 1998 between EPEC
and The Chase Manhattan Bank, as Trustee (Exhibit 4.2 to
EPEC's Form 8-K, filed August 3, 1998, File No. 1-14365).
4.D -- 4 3/4% Convertible Subordinated Debenture due 2028
(Exhibit 4.6 to EPNG's Form 8-K, filed March 17, 1998,
File No. 1-2700).
4.E -- Certificate of Trust Preferred Security (Exhibit 4.5 to
EPNG's Form 8-K, filed March 17, 1998, File No. 1-2700).
4.F -- Trust Preferred Securities Guarantee Agreement issued by
EPNG dated March 17, 1998 (Exhibit 4.7 to EPNG's Form
8-K, filed March 17, 1998, File No. 1-2700); First
Amendment to Trust Preferred Securities Guarantee
Agreement issued by EPEC dated August 1, 1998, (Exhibit
4.4 to EPEC's Form 8-K, filed August 3, 1998, File No.
1-14365).
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.A -- $750 million 364-Day Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New York
and certain other banks (Exhibit 10.A to the EPEC 1998
Third Quarter 10-Q); First Amendment to the $750 million
364-Day Revolving Credit and Competitive Advance Facility
dated as of October 9, 1998, among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York, and certain other banks (Exhibit
10.B to the EPEC 1998 Third Quarter 10-Q); Guarantee,
dated as of August 28, 1998, made by EPEC in favor of The
Chase Manhattan Bank, as Administrative Agent for several
banks and other financial institutions from time to time
parties to the $750 million 364-Day Revolving Credit and
Competitive Advance Facility dated as of October 29,
1997, by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.C to the EPEC
1998 Third Quarter 10-Q).
*10.A.1 -- Joinder Agreement dated December 7, 1998, made by EPEC to
the $750 million 364-Day Revolving Credit and CAF Advance
Facility Agreement, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York.
10.B -- $750 million 5-Year Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.D to the EPEC
1998 Third Quarter 10-Q); First Amendment to the $750
million 5-Year Revolving Credit and Competitive Advance
Facility dated as of October 9, 1998, among EPNG, TGP,
The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and certain other banks
(Exhibit 10.E to the EPEC 1998 Third Quarter 10-Q);
Guarantee, dated as of August 28, 1998, made by EPEC in
favor of The Chase Manhattan Bank, as Administrative
Agent for several banks and other financial institutions
from time to time parties to the $750 million 5-Year
Revolving Credit and Competitive Advance Facility dated
as of October 29, 1997, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York, and certain other banks (Exhibit
10.F to the EPEC 1998 Third Quarter 10-Q).
*10.B.1 -- Joinder Agreement dated December 7, 1998, made by EPEC to
the $750 million 5-Year Revolving Credit and CAF Advance
Facility Agreement, by and among EPNG, TGP, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York.
*+10.C -- Omnibus Compensation Plan dated January 1, 1992;
Amendment No. 1 effective as of April 1, 1998; Amendment
No. 2 effective as of August 1, 1998; Amendment No. 3
effective as of December 3, 1998; and Amendment No. 4
effective as of January 20, 1999.
*+10.D -- 1995 Incentive Compensation Plan, Amended and Restated
effective as of December 3, 1998.
+10.E -- 1995 Compensation Plan for Non-Employee Directors,
Amended and Restated effective as of August 1, 1998
(Exhibit 10.H to the EPEC 1998 Third Quarter 10-Q).
*+10.F -- Stock Option Plan for Non-Employee Directors, Amended and
Restated effective as of January 20, 1999.
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.G -- 1995 Omnibus Compensation Plan, Amended and Restated
effective as of August 1, 1998 (Exhibit 10.J to the EPEC
1998 Third Quarter 10-Q).
*+10.G.1 -- Amendment No. 1 to the 1995 Omnibus Compensation Plan
effective as of December 3, 1998; Amendment No. 2 to the
1995 Omnibus Compensation Plan effective as of January
20, 1999.
*+10.H -- Supplemental Benefits Plan, Amended and Restated
effective as of December 3, 1998.
+10.I -- Senior Executive Survivor Benefit Plan, Amended and
Restated effective as of August 1, 1998 (Exhibit 10.M to
the EPEC 1998 Third Quarter 10-Q).
*+10.J -- Deferred Compensation Plan, Amended and Restated
effective as of December 3, 1998.
+10.K -- Key Executive Severance Protection Plan, Amended and
Restated effective as of August 1, 1998 (Exhibit 10.O to
the EPEC 1998 Third Quarter 10-Q).
+10.L -- Director Charitable Award Plan, Amended and Restated
effective as of August 1, 1998 (Exhibit 10.P to the EPEC
1998 Third Quarter 10-Q).
+10.M -- Strategic Stock Plan, Amended and Restated effective as
of August 1, 1998 (Exhibit 10.Q to the EPEC 1998 Third
Quarter 10-Q).
*+10.M.1 -- Amendment No. 1 to the Strategic Stock Plan, effective as
of December 3, 1998; Amendment No. 2 to the Strategic
Stock Plan, effective as of January 20, 1999.
+10.N -- Domestic Relocation Policy, effective November 1, 1996
(Exhibit 10.Q to EPNG's Form 10-K for 1997, File No.
1-2700).
+10.O -- Employment Agreement dated July 31, 1992 between EPNG and
William A. Wise (Exhibit 10.R to the EPEC 1998 Third
Quarter 10-Q); Amendment to Employment Agreement dated
January 29, 1996, between EPNG and William A. Wise
(Exhibit 10.U.1 to EPNG's Form 10-K for 1995, File No.
1-2700).
*+10.P -- Letter Agreement dated January 13, 1995 between EPNG and
William A. Wise.
+10.Q -- Promissory Note dated May 30, 1997, made by William A.
Wise to EPEC (Exhibit 10.R to EPNG's Form 10-Q, filed May
15, 1998, File No. 1-2700; Amendment to Promissory Note
dated November 20, 1997 (Exhibit 10.R to EPNG's Form
10-Q, filed May 15, 1998, File No. 1-2700).
+10.S -- Letter Agreement dated February 22, 1991, between EPNG
and Britton White Jr. (Exhibit 10.V to the EPEC 1998
Third Quarter 10-Q).
*18 -- Letter regarding Change in Accounting Principles.
*21 -- Subsidiaries of EPEC.
*23 -- Consent of Independent Accountants.
*27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.A.1
JOINDER AGREEMENT
Reference is made to the $750,000,000 364-Day Revolving Credit and CAF
Advance Facility Agreement, dated as of October 29, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among El Paso Natural Gas Company, Tennessee Gas Pipeline Company, certain banks
and other financial institutions from time to time thereto, The Chase Manhattan
Bank, as Administrative Agent and CAF Advance Agent, Citibank, N.A., as
Documentation Agent, and Morgan Guaranty Trust Company of New York, as
Syndication Agent. Capitalizated terms used herein and not otherwise defined
have the meanings assigned such terms in the Credit Agreement.
The undersigned hereby acknowledges that it has received and reviewed
an executed copy of the Credit Agreement, and agrees to:
(a) join the Credit Agreement as a Borrower party thereto;
(b) be bound by all covenants, agreements and acknowledgments
attributable to a Borrower in the Credit Agreement and any
Note to which it is a party; and
(c) perform all obligations required of it by the Credit Agreement
and any Note to which it is a party.
The undersigned hereby represents and warrants that the representations
and warranties with respect to it contained in, or made deemed made by it in,
Article IV of the Credit Agreement are true and correct on the date hereof.
THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONTSTRUED AND
INTERPRETED IN ACCODANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement
to be duly executed and delivered in Houston, Texas by its proper and duly
authorized officer as of this 7th day of December, 1998.
EL PASO ENERGY CORPORATION
By: /s/ H. Brent Austin
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer
ACKNOWLEDGED AND AGREED TO:
EL PASO NATURAL GAS COMPANY
By: /s/ H. Brent Austin
-----------------------------------
Title: Executive Vice President and
CHIEF FINANCIAL OFFICER
<PAGE> 1
EXHIBIT 10.B.1
JOINDER AGREEMENT
Reference is made to the $750,000,000 5-Year Revolving Credit and CAF
Advance Facility Agreement, dated as of October 29, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among El Paso Natural Gas Company, Tennessee Gas Pipeline Company, certain banks
and other financial institutions from time to time thereto, The Chase Manhattan
Bank, as Administrative Agent and CAF Advance Agent, Citibank, N.A., as
Documentation Agent, and Morgan Guaranty Trust Company of New York, as
Syndication Agent. Capitalizated terms used herein and not otherwise defined
have the meanings assigned such terms in the Credit Agreement.
The undersigned hereby acknowledges that it has received and reviewed
an executed copy of the Credit Agreement, and agrees to:
(a) join the Credit Agreement as a Borrower party thereto;
(b) be bound by all covenants, agreements and acknowledgments
attributable to a Borrower in the Credit Agreement and any Note to
which it is a party; and
(c) perform all obligations required of it by the Credit Agreement and
any Note to which it is a party.
The undersigned hereby represents and warrants that the representations
and warranties with respect to it contained in, or made deemed made by it in,
Article IV of the Credit Agreement are true and correct on the date hereof.
THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONTSTRUED AND
INTERPRETED IN ACCODANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement
to be duly executed and delivered in Houston, Texas by its proper and duly
authorized officer as of this 7th day of December, 1998.
EL PASO ENERGY CORPORATION
By: /s/ H. Brent Austin
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer
ACKNOWLEDGED AND AGREED TO:
EL PASO NATURAL GAS COMPANY
By: /s/ H. Brent Austin
----------------------------------
Title: Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.C
EL PASO NATURAL GAS COMPANY
OMNIBUS COMPENSATION
PLAN
Dated as of January 1, 1992
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
SECTION 1 PURPOSES....................................................................................... 1
SECTION 2 DEFINITIONS.................................................................................... 1
2.1 Beneficiary.................................................................................... 1
2.2 Board of Directors............................................................................. 1
2.3 Cause.......................................................................................... 1
2.4 Change in Control.............................................................................. 2
2.5 Code........................................................................................... 3
2.6 Common Stock .................................................................................. 3
2.7 Exchange Act .................................................................................. 3
2.8 Fair Market Value.............................................................................. 3
2.9 Good Reason .................................................................................. 4
2.10 Incentive Stock Option......................................................................... 5
2.11 Management Committee........................................................................... 5
2.12 Nonqualified Option............................................................................ 5
2.13 Option Price .................................................................................. 5
2.14 Participant .................................................................................. 5
2.15 Performance Cycle.............................................................................. 5
2.16 Performance Share Unit or Units................................................................ 6
2.17 Permanent Disability or Permanent Disabled..................................................... 6
2.18 Plan Administrator............................................................................. 6
2.19 Predecessor Option............................................................................. 6
2.20 Restricted Stock............................................................................... 6
2.21 Subsidiary .................................................................................. 6
2.22 Valuation Date................................................................................. 7
SECTION 3 ADMINISTRATION................................................................................. 7
SECTION 4 ELIGIBILITY.................................................................................... 9
SECTION 5 SHARES AND UNITS AVAILABLE FOR THE PLAN........................................................ 9
SECTION 6 STOCK OPTION................................................................................... 10
SECTION 7 STOCK APPRECIATION RIGHTS...................................................................... 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 8 LIMITED STOCK APPRECITATION RIGHTS............................................................. 18
SECTION 9 PERFORMANCE SHARE UNITS........................................................................ 19
9.1 Grants of Units................................................................................ 19
9.2 Performance Objectives......................................................................... 19
9.3 Vesting ....................................................................................... 20
9.4 Adjustment by Plan Administrator............................................................... 21
9.5 Notice to Participants......................................................................... 21
9.6 Entitlement to Payment......................................................................... 21
9.7 Deferred Payment............................................................................... 22
9.8 Memorandum Account............................................................................. 22
9.9 Discretionary Investment by Company............................................................ 23
9.10 Payment of Deferred Compensation............................................................... 23
9.11 Acceleration of Payments of Deferred
Compensation............................................................................. 24
9.12 Acceleration of Payment Due to Change in
Control.................................................................................. 24
9.13 Payment of BR Deferred Compensation............................................................ 24
9.14 Unfunded Obligation............................................................................ 25
9.15 Designation of Beneficiary..................................................................... 25
SECTION 10 RESTRICTED STOCK............................................................................... 26
SECTION 11 REGULATORY APPROVALS AND LISTINGS.............................................................. 28
SECTION 12 EFFECTIVE DATE AND TERM OF PLAN................................................................ 28
SECTION 13 GENERAL PROVISIONS............................................................................. 29
SECTION 14 AMENDMENT, TERMINATION OR DISCONTINUANCE
OF THE PLAN.............................................................................. 30
</TABLE>
<PAGE> 4
EL PASO NATURAL GAS COMPANY
OMNIBUS COMPENSATION PLAN
SECTION 1 PURPOSES
The purposes of the El Paso Natural Gas Company Omnibus Compensation
Plan (the "Plan") are to promote the interests of El Paso Natural Gas Company
(the "Company") and its stockholders by strengthening its ability to attract and
retain officers and key employees in the employ of the Company and its
Subsidiaries (as defined below) by furnishing suitable recognition of their
ability and industry which contributed materially to the success of the Company.
The Plan provides for the assumption of stock options, limited stock
appreciation rights and stock appreciation rights granted under the 1988
Burlington Resources Inc. Stock Option Incentive Plan and for the grant of stock
options, limited stock appreciation rights, stock appreciation rights,
restricted stock and performance share units in accordance with the terms and
conditions set forth below.
SECTION 2 DEFINITIONS
Unless otherwise required by the context, the following terms when used
in the Plan shall have the meanings set forth in this Section 2:
2.1 BENEFICIARY
The person or persons designated by the Participant pursuant to Section
6.4(f) or Section 9.15 to whom payments are to be paid pursuant to the terms of
the Plan in the event of the Participant's death.
2.2 BOARD OF DIRECTORS
The Board of Directors of the Company.
2.3 CAUSE
The Company may terminate the Participant's employment for Cause. A
termination for Cause is a termination evidenced by a resolution adopted in good
faith by two-thirds (2/3) of the Board of Directors that the Participant (i)
willfully and continually failed to substantially perform the Participant's
<PAGE> 5
duties with the Company (other than a failure resulting from the Participant's
incapacity due to physical or mental illness) which failure continued for a
period of at least thirty (30) days after a written notice of demand for
substantial Performance has been delivered to the Participant specifying the
manner in which the Participant has failed to substantially perform or (ii)
willfully engaged in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise; provided, however, that no termination of
the Participant's employment shall be for Cause as set forth in clause (ii)
above until (A) there shall have been delivered to the Participant a copy of a
written notice setting forth that the Participant was guilty of the conduct set
forth in clause (ii) above and specifying the particulars thereof in detail and
(B) the Participant shall have been provided an opportunity to be heard by the
Board of Directors (with the assistance of the Participant's counsel if the
Participant so desires). No act, nor failure to act, on the Participant's part
shall be considered "willful" unless the Participant has acted, or failed to
act, with an absence of good faith and without a reasonable belief that the
Participant's action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in the Plan to the contrary, no failure to
perform by the Participant after notice of termination is given by the
Participant shall constitute Cause.
2.4 CHANGE IN CONTROL
As used in the Plan, a Change in Control shall be deemed to occur (i)
if any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act), except Burlington Resources Inc. ("BR"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding securities,
(ii) upon the first purchase of the Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company),
(iii) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all the Company's
assets or a plan of liquidation or dissolution of the Company, or (iv) if,
during any period of two (2) consecutive years, individuals who at the beginning
of such period constitute the Board of Directors Cease for any reason to
constitute at least a majority thereof, unless the election or nomination for
the election by the Company's stockholders of each new director
<PAGE> 6
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who were directors at the beginning of the period. Notwithstanding the
above, any
<PAGE> 7
distribution of Common Stock solely to BR stockholders, and any change in the
constitution of the Board of Directors occurring in connection therewith, shall
not be deemed a Change in Control. For purposes of this Section 2.4, the term
"the Company" shall include BR until such time as BR distributes all the
outstanding Common Stock owned by it to the stockholders of BR.
2.5 CODE
The Internal Revenue Code of 1986, as amended and in effect from time
to time, and the temporary or final regulations of the Secretary of the Treasury
adopted pursuant to the Code.
2.6 COMMON STOCK
The Common Stock of the Company, $3 par value per share, or such other
class of shares or other securities as may be applicable pursuant to the
provisions of Section 5.
2.7 EXCHANGE ACT
The Securities Exchange Act of 1934, as amended.
2.4 FAIR MARKET VALUE
As applied to a specific date, Fair Market Value shall be deemed to be
the mean between the highest and lowest quoted selling prices at which Common
Stock was sold on such date as reported in the NYSE-Composite Transactions by
The Wall Street Journal on such date, or if no Common Stock was traded on such
date, on the next preceding day on which Common Stock was so traded.
Notwithstanding the foregoing, upon the exercise,
(a) during the thirty (30) day period following a Change in
Control, of a limited stock appreciation right or stock appreciation
right granted in connection with a Nonqualified Option more than six
(6) months prior to a Change in Control, or
(b) during the seven (7) month period following a Change in
Control, of a limited stock appreciation right or of a stock
appreciation right granted in connection with a Nonqualified option
less than six (6) months prior to a Change in Control,
Fair Market Value on the date of exercise shall be deemed to be the greater of
(i) the highest price per share of Common Stock as reported in the
NYSE-Composite Transactions by The Wall Street Journal during the sixty (60) day
period ending on the day preceding the date of exercise of the stock
<PAGE> 8
appreciation right or limited stock appreciation right, as the case may be, and
(ii) if the Change in Control is one described in clause (ii) or (iii) of
Section 2.4, the highest price per share paid for Common Stock in connection
with such Change in Control.
2.9 GOOD REASON
Good Reason shall mean the occurrence of any of the following events or
conditions:
(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Participant's reasonable judgment, represents a substantial reduction
of the status, title, position or responsibilities as in effect
immediately prior thereto; the assignment to the Participant of any
duties or responsibilities which, in the Participant's reasonable
judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Participant from or failure to
reappoint or reelect the Participant to any of such positions, except
in connection with the termination of the Participant's employment for
Cause, for Permanent Disability or as a result of his or her death, or
by the Participant other than for Good Reason;
(b) a reduction in the Participant's annual base salary;
(c) the Company's requiring the Participant (without the
consent of the Participant) to be based at any place outside a
thirty-five (35) mile radius of his or her place of employment prior to
a Change in Control, except for reasonably required travel on the
Company's business which is not materially greater than such travel
requirements prior to the Change in Control;
(d) the failure by the Company to (i) continue in effect any
material compensation or benefit plan in which the Participant was
participating at the time of the Change in Control, including, but not
limited to, the Plan, the El Paso Natural Gas Company Pension Plan, the
El Paso Natural Gas Company Supplemental Benefits Plan, the El Paso
Natural Gas Company Incentive Compensation Plan, the El Paso Natural
Gas Company Deferred Compensation Plan and the El Paso Natural Gas
Company Retirement Savings Plan; or (ii) provide the Participant with
compensation and benefits at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for under each employee
benefit plan, program
<PAGE> 9
and practice as in effect immediately prior to the Change in Control
(or as in effect following the Change in control, if greater);
(e) any material breach by the Company of any provision of the
Plan; or
(f) any purported termination of the Participant's employment
for Cause by the Company which does not otherwise comply with the terms
of the Plan.
2.10 INCENTIVE STOCK OPTION
An option intended to meet the requirements of an Incentive Stock
Option as defined in Section 422 of the Code, as in effect at the time of grant
of such option, or any statutory provision that may hereafter replace such
Section.
2.11 MANAGEMENT COMMITTEE
A committee consisting of the Chief Executive Officer and such other
officers as the Chief Executive Officer shall designate.
2.12 NONQUALIFIED OPTION
An option which is not intended to meet the requirements of an
Incentive Stock Option as defined in Section 422 of the Code.
2.13 OPTION PRICE
The price per share of Common Stock at which each option is
exercisable.
2.14 PARTICIPANT
An eligible employee to whom an option, limited stock appreciation
right, stock appreciation right, Restricted Stock or Performance Share Unit is
granted under the Plan as set forth in Section 4.
2.15 PERFORMANCE CYCLE
That period commencing with January 1 of each year in which the grant
of a Performance Share Unit is made and ending on December 31 of the third
succeeding year. While a-new Performance Cycle will normally be initiated only
every four (4) years, the Plan Administrator, in its discretion, may initiate an
overlapping Performance Cycle that begins before an existing Performance Cycle
has ended.
<PAGE> 10
2.16 PERFORMANCE SHARE UNIT OR UNITS
The unit of award having an accounting value equal to the Fair Market
Value of one (1) share of Common Stock.
2.17 PERMANENT DISABILITY OR PERMANENTLY DISABLED
A Participant shall be deemed to have become Permanently Disabled for
purposes of the Plan if the Chief Executive Officer of the Company shall find
upon the basis of medical evidence satisfactory to the Chief Executive Officer
that the Participant is totally disabled, whether due to physical or mental
condition, so as to be prevented from engaging in further employment by the
Company or any of its subsidiaries, and that such disability will be permanent
and continuous during the remainder of the Participant's life; provided, that
for officers and directors of the Company who are subject to Section 16 of the
Exchange Act, such determination shall be made by the Plan Administrator.
2.18 PLAN ADMINISTRATOR
The Board of Directors or the committee appointed and/or authorized
pursuant to Section 3 to administer the Plan.
2.19 PREDECESSOR OPTION
An option to purchase BR common stock which has been surrendered in
exchange for and converted into an option issued pursuant to the Plan.
2.20 RESTRICTED STOCK
Common Stock granted under the Plan that is subject to the requirements
of Section 10 and such other restrictions as the Plan Administrator deems
appropriate.
2.21 SUBSIDIARY
An entity that is designated by the Plan Administrator as a subsidiary
for purposes of the Plan and that is a corporation (or other form of business
association that is treated as a corporation for tax purposes) of which shares
(or other ownership interests) having more than fifty percent (50%) of the
voting power are owned or controlled, directly or indirectly, by the Company so
as to qualify as a "subsidiary corporation" (within the meaning of Section
424(f) of-the Code).
<PAGE> 11
2.22 VALUATION DATE
The date at the end of the Performance Cycle (or at such other time as
the Plan may require or the Plan Administrator may select) that is designated by
the Plan Administrator for the purpose of determining the Fair Market Value of
vested Units that will be paid to the Participant or Beneficiary or credited to
the Participant's Memorandum Account (as defined in Section 9.8) in accordance
with Section 9.8.
SECTION 3 ADMINISTRATION
3.1 The Plan shall be administered by the Board of Directors or, in the
event the Board of Directors shall appoint and/or authorize a committee to
administer the Plan, by such committee. The administrator of the Plan shall
hereinafter be referred to as the "Plan Administrator."
In the event a member of the Board of Directors (or the committee) may
be eligible, subject to the restrictions set forth in Section 4, to participate
in or receive or hold options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Share Units under the
Plan, no member of the Board of Directors or the committee shall vote with
respect to the granting of options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Share Units hereunder to
himself or herself, as the case may be, and, if state corporate law does not
permit a committee to grant options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Share Units to directors,
then any option, limited stock appreciation right, stock appreciation right,
Restricted Stock or Performance Share Unit granted under the Plan to a director
for his or her services as such shall be approved by the full Board of
Directors.
The members of any committee serving as Plan Administrator shall be
appointed by the Board of Directors for such term as the Board of Directors may
determine. The Board of Directors may from time to time remove members from, or
add members to, the committee. Vacancies on the committee, however caused, may
be filled by the Board of Directors.
With respect to grants made under the Plan to officers and directors of
the Company who are subject to Section 16 of the Exchange Act, the Plan
Administrator shall be constituted at all times so as to meet the requirements
of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act so long as any
of the Company's equity securities are registered pursuant to Section 12(b) or
12(g) of the Exchange Act.
<PAGE> 12
3.2 Except for the terms and conditions explicitly set forth in the
Plan, the Plan Administrator shall have full authority to construe and interpret
the Plan, to establish, amend and rescind rules and regulations relating to the
Plan, to select persons eligible to participate in the Plan, to grant options,
limited stock appreciation rights, stock appreciation rights, Restricted Stock
and Performance Share Units thereunder, to administer the Plan, to make
recommendations to the Board of Directors, to take all such steps and make all
such determinations in connection with the Plan and the options, limited stock
appreciation rights, stock appreciation rights, Restricted Stock and Performance
Share Units granted thereunder as it may deem necessary or advisable, which
determination shall be final and binding upon all Participants, so long as such
interpretation and construction with respect to Incentive Stock Options
correspond to the requirements of Section 422 of the Code. The Plan
Administrator shall cause the Company at its expense to take any action related
to the Plan which may be required or necessary to comply with the provisions of
any federal or state law or any regulations issued thereunder.
3.3 Each member of any committee acting as Plan Administrator, while
serving as such, shall be considered to be acting in his or her capacity as a
director of the Company. Members of the Board of Directors and members of any
committee acting under the Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
3.4 The fact that a member of the Board of Directors is, or shall
theretofore have been or thereafter may be, a person who has received or is
eligible to receive an option, limited stock appreciation right, stock
appreciation right, Restricted Stock or Performance Share Unit shall not
disqualify him or her from taking part in and voting at any time as a member of
the Board of Directors in favor of or against any amendment or repeal of the
Plan.
3.5 It is the intention of the Company that, so long as any of the
Company's equity securities are registered pursuant to Section 12(b) or 12(g) of
the Exchange Act, the Plan shall comply in all respects with Rule 16b-3
promulgated under Section 16(b) of the Exchange Act and, if any Plan provision
is later found not to be in compliance with such Section, that provision shall
be deemed null and void, and in all events the Plan shall be construed in favor
of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the
Plan to the contrary, the Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or
<PAGE> 13
condition the use of any provision of the Plan to Participants who are officers
and directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
SECTION 4 ELIGIBILITY
To be eligible for selection by the Plan Administrator to participate
in the Plan, an individual must be an officer or key employee of the Company, or
of any Subsidiary, as of the date on which the Plan Administrator grants to such
individual an option, limited stock appreciation right, stock appreciation
right, Restricted Stock or Performance Share Unit and who in the judgment of the
Plan Administrator holds a position of responsibility and is able to contribute
substantially to the Company's continued success. Directors of the Company who
are full-time salaried officers shall be eligible to participate.
SECTION 5 SHARES AND UNITS AVAILABLE FOR THE PLAN
5.1 Subject to Section 5.3, the maximum number of shares for which
options, limited stock appreciation rights, stock appreciation rights and
Restricted Stock may at any time be granted under the Plan is four million
(4,000,000) shares of Common Stock, from shares held in the Company's treasury
or out of the authorized but unissued shares of the Company, or partly out of
each, as shall be determined by the Board of Directors. Upon (i) the expiration
or termination in whole or in part of unexercised options or the surrender of an
option, or portion thereof, upon exercise of a related limited stock
appreciation right or stock appreciation right for cash and (ii) to the extent
permissible under Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act, the forfeiture of Restricted Stock, shares of Common Stock which were
subject thereto shall again be available for grants of options, limited stock
appreciation rights, stock appreciation rights and Restricted Stock under the
Plan.
5.2 Subject to Section 5.3, the number of Performance Share Units which
may be granted under the Plan is set at one million (1,000,000) Units. Units
that have been granted and are fully vested or that still may become fully
vested under the terms of the Plan shall reduce the number of outstanding Units
that are available for use in making future grants under the Plan. Upon
expiration or termination, in whole or in part, of nonvested Units at the end of
a Performance Cycle or otherwise, such expired or terminated Units shall again
be available for awards under the Plan.
<PAGE> 14
5.3 In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors, upon the
recommendation of the Plan Administrator, may make appropriate adjustments in
the number of shares and Performance Share Units authorized for the Plan and,
with respect to outstanding options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Share Units, the Plan
Administrator may make appropriate adjustments in the number of shares and Units
and the Option Price.
SECTION 6 STOCK OPTIONS
6.1 Options may be granted to eligible employees in such number and at
such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective employees, their present and potential contributions to the success
of the Company, and such other factors as the Plan Administrator shall deem
relevant in accomplishing the purposes of the Plan. The granting of an option
shall take place when the Plan Administrator by resolution, written consent or
other appropriate action determines to grant such an option to a particular
Participant at a particular price. Each option shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan.
6.2 An option granted under the Plan may be either an Incentive Stock
Option or a Nonqualified Option.
6.3 Each provision of the Plan and each Incentive Stock Option granted
thereunder shall be construed so that each such option shall qualify as an
Incentive Stock option, and any provision thereof that cannot be so construed
shall be disregarded, unless the Participant agrees otherwise. The total number
of shares which may be purchased upon the exercise of Incentive Stock Options
granted under the Plan shall not exceed the total specified in Section 5.1.
Incentive Stock Options granted in exchange for Predecessor Options shall be
converted in accordance with the provisions of the Code necessary to maintain
their status as Incentive Stock Options. Incentive Stock Options, in addition to
complying with the other provisions of the Plan relating to options generally,
shall be subject to the following conditions:
<PAGE> 15
(a) TEN PERCENT (10%) STOCKHOLDERS
A Participant must not, immediately before an incentive Stock
option is granted, own stock representing more than ten percent (10%)
of the voting power or value of all classes of stock of the Company or
of a Subsidiary. This requirement is waived if (i) the Option Price of
the Incentive Stock Option to be granted is at least one hundred ten
percent (110%) of the Fair Market Value of the stock subject to the
option, determined at the time the option is granted, and (ii) the
option is not exercisable more than five (5) years from the date the
option is granted.
(b) ANNUAL LIMITATION
To the extent that the aggregate Fair Market Value (determined
at the time of the grant of the option) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year exceeds One Hundred Thousand
Dollars ($100,000), such options shall be treated as Nonqualified
Options.
(c) ADDITIONAL TERMS
Any other terms and conditions which the Plan Administrator
determines, upon advice of counsel, must be imposed for the option to
be an Incentive Stock Option.
6.4 Except as otherwise provided in Section 6.3, all Incentive Stock
Options and Nonqualified Options under the Plan shall be granted subject to the
following terms and conditions:
(a) OPTION PRICE
The Option Price shall be determined by the Plan
Administrator, but shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock on the date the option is
granted; provided, however, that the option Price of options granted
prior to or at the time of the Company's initial public offering of
Common Stock (the "IPO") shall be as follows: (i) with respect to
options granted upon conversion of Predecessor options, at such
proportionate per share conversion price as the Plan Administrator
determines; and (ii) with respect to all other options which are
Nonqualified options, at the per share offering price of Common Stock
in the IPO.
<PAGE> 16
(b) DURATION OF OPTIONS
Options shall be exercisable at such time and under such
conditions as set forth in the option grant, but in no event shall any
Incentive Stock Option be exercisable subsequent to the day before the
tenth anniversary of the date on which the option is granted, nor shall
any other option be exercisable later than the tenth anniversary of the
date of its grant.
(c) EXERCISE OF OPTIONS
Subject to Section 6.4(j), a Participant may not exercise an
option until the Participant has completed one (1) year of continuous
employment with the Company or any of its Subsidiaries immediately
following the date on which the option is granted, or, in the case of
options granted upon conversion of Predecessor Options, the date on
which the Predecessor Option was granted, or such longer period as the
Plan Administrator may determine in a particular case. This requirement
is waived in the event of death or Permanent Disability of a
Participant before such period of continuous employment is completed
and may be waived or modified in the agreement evidencing the option or
by resolution adopted at any time by the Plan Administrator.
Thereafter, shares of Common Stock covered by an option may be
purchased at one time or in such installments over the balance of the
option period as may be provided in the option grant. Any shares not
purchased on the applicable installment date may be purchased at one
time or in such installments over the balance of the option period as
may be provided in the option grant. Any shares not purchased on the
applicable installment date may be purchased thereafter at any time
prior to the final expiration of the option. To the extent that the
right to purchase shares has accrued thereunder, options may be
exercised from time to time by written notice to the Company setting
the number of shares with respect to which the option is being
exercised.
(d) PAYMENT
The purchase price of shares purchased under options shall be
paid in full to the Company upon the exercise of the option by delivery
of consideration equal to the product of the option Price and the
number of shares purchased (the "Purchase Price"). Such consideration
may be either (i) in cash or (ii) at the discretion of the Plan
Administrator, in Common Stock already owned by the Participant for at
least six (6) months, or any combination of cash and Common Stock. The
Fair Market Value of such Common Stock as delivered shall be valued
<PAGE> 17
as of the day prior to delivery. The Plan Administrator can determine
at the time the option is granted that additional forms of payment will
be permitted. To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, but not limited to, federal
tax and securities laws, regulations and state corporate law), an
option may also be exercised by delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to
pay the Purchase Price. A Participant shall have none of the rights of
a stockholder until the shares of Common Stock are issued to the
Participant.
(e) RESTRICTIONS
The Plan Administrator shall determine, with respect to each
option, the nature and extent of the restrictions, if any, to be
imposed on the shares of Common Stock which may be purchased
thereunder, including, but not limited to, restrictions on the
transferability of such shares acquired through the exercise of such
options for such periods as the Plan Administrator may determine and,
further, that in the event a Participant's employment by the Company,
or a Subsidiary, terminates during the period in which such shares are
nontransferable, the Participant shall be required to sell such shares
back to the Company at such prices as the Plan Administrator may
specify in the option.
(f) NONTRANSFERABILITY OF OPTIONS
During a Participant's lifetime, an option may be exercisable
only by the Participant. Options granted under the Plan and the rights
and privileges conferred thereby shall not be subject to execution,
attachment or similar process and may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution, except that to the extent permitted by applicable law and
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, the
Plan Administrator may permit a recipient of a Nonqualified Option to
designate in writing during the Participant's lifetime a Beneficiary to
receive and exercise Nonqualified options in the event of such
Participant's death (as provided in Section 6.4(i)). A designation by a
Participant under the 1988 Burlington Resources Inc. Stock Option
Incentive Plan shall remain in effect under the Plan for any Option
<PAGE> 18
assumed under the Plan unless such designation is revoked or changed
under the Plan. Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan, or
the sale or levy or any attachment or similar process upon the rights
and privileges conferred hereby, shall be null and void.
(g) PURCHASE FOR INVESTMENT
The Plan Administrator shall have the right to require that
each Participant or other person who shall exercise an option under the
Plan, and each person into whose name shares of Common Stock shall be
issued pursuant to the exercise of an option, represent and agree that
any and all shares of Common Stock purchased pursuant to such option
are being purchased for investment only and not with a view to the
distribution or resale thereof and that such shares will not be sold
except in accordance with such restrictions or limitations as may be
set forth in the option. This Section 6.4(g) shall be inoperative
during any period of time when the Company has obtained all necessary
or advisable approvals from governmental agencies and has completed all
necessary or advisable registrations or other qualifications of shares
of Common Stock as to which options may from time to time be granted as
contemplated in Section 9.
(h) TERMINATION OF EMPLOYMENT
Upon the termination of a Participant's employment for any
reason other than death or Permanent Disability, the Participant's
option shall be exercisable only to the extent that it was then
exercisable and, unless the term of the options expires sooner, such
options shall expire according to the following schedule; provided,
that the Plan Administrator may at any time determine in a particular
case that specific limitations and restrictions under the Plan shall
not apply:
(i) RETIREMENT
The option shall expire, unless exercised, thirty-six
(36) months after the Participant's retirement from the
Company or any Subsidiary.
<PAGE> 19
(ii) DISABILITY
The option shall expire, unless exercised, thirty-six
(36) months after the Participant's Permanent Disability.
(iii) TERMINATION WITH APPROVAL
The option shall expire, unless exercised, thirty-six
(36) months after a Participant resigns or is terminated as an
employee of the Company or any of its Subsidiaries, provided
that the Chief Executive officer of the Company shall have
determined in a specific case that the option should not
terminate when the Participant's employment status ceases, and
provided that, for officers and directors who are subject to
Section 16 under the Exchange Act, such determination shall be
made by the Plan Administrator.
(iv) TERMINATION FOLLOWING A CHANGE IN CONTROL
The option shall expire, unless exercised, within
thirty-six (36) months of a Participant's termination of
employment (other than a termination by the Company for Cause
or a voluntary termination by the Participant other than for
Good Reason) following a Change in control, provided that said
termination of employment occurs within two years following a
Change in Control.
(v) ALL OTHER TERMINATIONS
Except as provided in subparagraphs (iii) and (iv)
above, the option shall expire upon termination of employment.
(i) DEATH OF PARTICIPANT
Upon the death of a Participant, whether during the
Participant's period of employment or during the thirty six (36) month
period referred to in Sections 6.4(h)(i), (ii) and (iii), the option
shall expire, unless the term of the option expires sooner, twelve (12)
months after the date of the Participant's death, unless the option is
exercised within such twelve (12) month period by the Participant's
Beneficiary, legal representatives, estate or the person or persons to
whom the deceased's option rights shall have passed by will or the laws
of descent and distribution; provided, that the Plan Administrator
shall determine in a particular case that specific
<PAGE> 20
limitations and restrictions under the Plan shall not apply.
(j) CHANGE IN CONTROL
Notwithstanding other Plan provisions pertaining to the times
at which options may be exercised, all outstanding options, to the
extent not then currently exercisable, shall become exercisable in full
upon the occurrence of a Change in Control. In no event, however, shall
any intended Incentive Stock Option without the consent of the
Participant first become exercisable, pursuant to Section 6.4(c) or
this Section 6.4(j), if the result would be to cause such option, when
granted, not to be treated as an Incentive Stock Option (whether by
reason of the possible future violation of the annual limitation of
Section 6.3(b) or otherwise). In addition, no option (whether or not
intended to be an Incentive Stock Option) shall continue to be
exercisable, pursuant to Sections 6.4(h) and 6.4(i), at a time that
would violate the maximum duration of Section 6.4(b).
SECTION 7 STOCK APPRECIATION RIGHTS
7.1 The Plan Administrator may grant stock appreciation rights to Participants
in connection with any option granted under the Plan, either at the time of the
grant of such option or at any time thereafter during the term of the option.
Such stock appreciation rights shall cover the same shares covered by the
options (or such lesser number of shares of Common Stock as the Plan
Administrator may determine) and shall, except as provided in Section 7.3, be
subject to the same terms and conditions as the related options and such further
terms and conditions not inconsistent with the Plan as shall from time to time
be determined by the Plan Administrator.
7.2 Each stock appreciation right shall entitle the holder of the related option
to surrender to the Company unexercised the related option, or any portion
thereof, and to receive from the Company in exchange therefor an amount equal to
the excess of the Fair Market Value of one share of Common Stock on the date the
right is-exercised over the Option Price per share times the number of shares
covered by the option, or portion thereof, which is surrendered. Payment shall
be made in shares of Common Stock valued at Fair Market Value as of the date the
right is exercised, or in cash, or partly in shares and partly in cash, at the
discretion of the Plan Administrator; provided, however, that payment shall be
made solely in cash with respect to a stock appreciation right which is
exercised within seven (7) months following a Change
<PAGE> 21
in Control. Notwithstanding the foregoing and to the extent required by Rule
16b-3 promulgated under Section 16(b) of the Exchange Act, a payment, in whole
or in part, of cash upon exercise of a stock appreciation right by an officer or
director subject to Section 16 of the Exchange Act may be made only if the right
is exercised (i) during the period beginning on the third business day following
the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the twelfth
business day following such date or (ii) during the seven (7) month period
following the Company's obtaining actual knowledge of a Change in Control or
(iii) six (6) months prior to the date the stock appreciation right becomes
taxable. Stock appreciation rights may be exercised from time to time upon
actual receipt by the Company of written notice stating the number of shares of
Common Stock with respect to which the stock appreciation right is being
exercised. The value of any fractional shares shall be paid in cash.
7.3 Stock appreciation rights are subject to the following
restrictions:
(a) Each stock appreciation right shall be exercisable at such
time or times that the option to which they relate shall be exercisable
or at such other times as the Plan Administrator may determine;
provided, however, that such rights shall not be exercisable until the
Participant shall have completed a six (6) month period of continuous
employment with the Company or any of its Subsidiaries immediately
following the date on which the stock appreciation right is granted. In
the event of death or Permanent Disability of a Participant during
employment but before the Participant has completed such period of
continuous employment, such stock appreciation right shall be
exercisable only within the period specified in the related option. In
the event of a Change in Control, the requirement that a Participant
shall have completed a six (6) month period of continuous employment is
waived with respect to a Participant who is employed by the Company at
the time of the Change in Control but who, within the six (6) month
period, voluntarily terminates employment for Good Reason or is
terminated by the Company other than for Cause. Notwithstanding the
foregoing, a stock appreciation right may not be exercised for cash by
an officer or director subject to Section 16 of the Exchange Act under
any circumstances until the expiration of the six (6) month period
following the date of grant.
<PAGE> 22
(b) Except in the event of a Change in Control, the Plan
Administrator in its sole discretion may approve or deny in whole or in
part a request to exercise a stock appreciation right. Denial or
approval of such request shall not require a subsequent request to be
similarly treated by the Plan Administrator.
(c) The right of a Participant to exercise a stock
appreciation right shall be cancelled if and to the extent the related
option is exercised. To the extent that a stock appreciation right is
exercised, the related option shall be deemed to have been surrendered,
unexercised and cancelled.
(d) A holder of stock appreciation rights shall have none of
the rights of a stockholder until shares of Common Stock, if any, are
issued to such holder pursuant to such holder's exercise of such
rights.
(e) The acquisition of Common Stock pursuant to the exercise
of a stock appreciation right shall be subject to the same restrictions
as would apply to the acquisition of Common Stock acquired upon
acquisition of the related option, as set forth in Section 6.4.
SECTION 8 LIMITED STOCK APPRECIATION RIGHTS
8.1 The Plan Administrator may grant limited stock appreciation rights
to Participants in connection with any options granted under the Plan, either at
the time of the grant of such option or at any time thereafter during the term
of the option. Such limited stock appreciation rights shall cover the same
shares covered by the options (or such lesser number of shares of Common Stock
as the Plan Administrator may determine) and shall, except as provided in
Section 8.3, be subject to the same terms and conditions as the related options
and such further terms and conditions not inconsistent with the Plan as shall
from time to time be determined by the Plan Administrator.
8.2 Each limited stock appreciation right shall entitle the holder of
the related option to surrender to the Company the unexercised portion of the
related option and to receive from the Company in exchange therefor an amount in
cash equal to the excess of the Fair Market Value of one (1) share of Common
Stock on the date the right is exercised over the option Price per share times
the number of shares covered by the option, or portion thereof, which is
surrendered.
<PAGE> 23
8.3 Limited stock appreciation rights are subject to the following
restrictions:
(a) Each limited stock appreciation right shall be exercisable
in full for a period of seven (7) months following the date of a Change
in Control, provided, however, that limited stock appreciation rights
may not be exercised under any circumstances until the expiration of
the six (6) month period following the date of grant. Limited stock
appreciation rights shall be exercisable only to the same extent and
subject to the same conditions as the options related thereto are
exercisable, as provided in Section 6.4(j).
(b) The right of a Participant to exercise a limited stock
appreciation right shall be cancelled if and to the extent the related
option is exercised. To the extent that a limited stock appreciation
right is exercised, the related option shall be deemed to have been
surrendered, unexercised.
SECTION 9 PERFORMANCE SHARE UNITS
9.1 GRANTS OF UNITS
Units may be granted to Participants in such number and at such times
during the Performance Cycle as the Plan Administrator shall determine, taking
into account the duties of the respective executives, their present and
potential contributions to the success of the Company or its Subsidiaries, their
compensation provided by other incentive plans, their salaries, and such other
factors as the Plan Administrator shall deem appropriate. Normally, however,
Units will be granted only at the beginning of each Performance Cycle except in
cases where a prorated grant may be made in mid-cycle to a newly eligible
Participant or a Participant whose job responsibilities have significantly
changed during the cycle.
9.2 PERFORMANCE OBJECTIVES
The Plan Administrator shall have the sole authority for deciding what
measures of corporate performance ("Performance Targets") are appropriate for
(i) judging the success of the Company and its Subsidiaries in meeting their
strategic objectives during the Performance Cycle and (ii) measuring the
contribution of Participants toward such success. At the request of the Plan
Administrator, the Company's Chief Executive Officer shall submit his or her
recommendations to the Plan Administrator regarding applicable Performance
Targets to be adopted for the Units to be awarded for each Performance Cycle.
<PAGE> 24
9.3 VESTING
(a) VESTING SCHEDULE
The Plan Administrator shall adopt a vesting schedule for each
year of the Performance Cycle. Vesting for each year will depend upon
vesting guidelines established by the Plan Administrator which reflect
the Company's performance in relation to the Performance Targets for
the appropriate period of the Performance Cycle, provided that the Plan
Administrator may, in its discretion, alter the vesting guidelines in
the event of unusual circumstances. The Plan Administrator may, in its
discretion, carry over to the end of the fourth year of a Performance
Cycle any Units that did not vest during the first three (3) years of
the Performance Cycle because of the Company's performance in relation
to the Performance Targets. Vesting with respect to Participants who
begin participation or receive an additional grant of Units during the
Performance Cycle will be determined by the Plan Administrator at the
time of grant.
(b) DETERMINATION OF PERFORMANCE
The annual performance rating resulting in vesting under
Section 9.3(a) shall be determined by the Plan Administrator based on
criteria selected by it such as relationships between actual and
targeted results for Performance Targets, comparisons of relative
performance by the Company and other companies chosen by the Plan
Administrator, and such additional or alternative factors as the Plan
Administrator may deem appropriate.
(c) OTHER VESTING CONSIDERATIONS
Becoming vested in a Unit means acquiring a nonforfeitable
right to receive payment for that Unit. The time and manner of such
payment shall be determined under the provisions of the Plan other than
this Section 9.3. Participants (or their Beneficiaries in the case of
their deaths) who have retired, died, become Permanently Disabled, or
who have terminated their employment, prior to the end of a Performance
Cycle shall not be entitled to receive payment from the Company or its
Subsidiaries for any Units which were not vested as of the time such
Participants (or Beneficiaries in the case of their deaths) ceased
active employment with the Company or its subsidiaries.
<PAGE> 25
(d) CHANGE IN CONTROL
Notwithstanding the foregoing vesting provisions, one-fourth
(1/4) of all Units originally granted in the Performance Cycle shall
become fully vested in the event of a Change in Control. In the event
of termination of the Participant's employment within two (2) years
following a Change in Control but subsequent to the year in which the
Change in Control occurs, for any reason other than (i) the
Participant's death, (ii) the Participant's Permanent Disability, (iii)
Cause, or (iv) by the Participant without Good Reason, one-fourth (1/4)
of all Units originally granted in the Performance Cycle shall become
fully vested. With respect to Units granted during the second, third or
fourth years of a Performance Cycle, the preceding provisions of this
Section 9.3(d) shall be applied by substituting "one-fourth (1/4)" with
"one-third (1/3)", "one-half (1/2)" or "the entire amount",
respectively.
9.4 ADJUSTMENT BY PLAN ADMINISTRATOR
The Plan Administrator may, at its discretion, change from time to time
the Performance Targets and vesting schedules with respect to nonvested Units to
(i) include or exclude extraordinary or nonrecurring items, (ii) reflect changes
in prevailing competitive or general economic conditions, (iii) adjust for
changes in income tax laws and regulations or accounting rules, (iv) reflect
changes in the Company's financial or corporate structure, as a result of a
recapitalization, merger, reorganization, acquisition or divestiture, and (v) to
reflect other appropriate major events.
9.5 NOTICE TO PARTICIPANTS
The Plan Administrator shall notify each Participant in writing of the
grant of Units to the Participant and the Performance Targets and vesting
criteria applicable to such Units.
9.6 ENTITLEMENT TO PAYMENT
Each Unit which has vested shall entitle the Participant or the
Participant's Beneficiary to receive from the Participant's employer a lump-sum
cash payment as soon as practicable following the applicable Valuation Date. The
amount of such payment shall be determined by multiplying the
<PAGE> 26
number of vested Units by the Fair Market Value of a share of Common Stock on
the Valuation Date. For this purpose, the number of vested Units shall be the
sum of the Units in which the Participant became vested during the Performance
Cycle, pursuant to Section 9.3, determined (i) as of the end of the Performance
Cycle in the case of a Participant who is still then an employee of the Company
or a Subsidiary or (ii) as of the end of the year prior to the Participant's
death, Permanent Disability, retirement date or other termination of employment
(whichever is applicable) in the case of a Participant who is no longer an
employee of the Company or of a Subsidiary at the end of the Performance Cycle.
Moreover, the Valuation Date shall correspond to the end of the Performance
Cycle, except that the Valuation Date shall be the date of the Participant's
death or Permanent Disability if such event has occurred. Notwithstanding the
foregoing, however, a Participant may receive a deferral payment in lieu of all
or a portion of a lump-sum payment pursuant to an election described below in
this Section 9.
9.7 DEFERRED PAYMENT
Prior to the time that Units first vest pursuant to Section 9.3, the
Participant may, subject to the consent of the Plan Administrator and in
accordance with procedures that the Plan Administrator has approved, elect to
have all or a portion (subject to a $1,000 minimum) of the lump-sum payment
described in Section 9.6 with respect to such vested Units deferred until the
Participant's retirement, death, Permanent Disability, resignation or other
termination of employment with the Company and its Subsidiaries or until any
other specified time that is acceptable to the Plan Administrator. Such deferred
amount shall be paid in accordance with the remainder of this Section 9 rather
than as provided in Section 9.6, whereas amounts payable with respect to other
Units that vest at a different time in the Performance Cycle and are not subject
to a deferred payment election shall continue to be paid as a lump sum in
accordance with Section 9.6. The election shall be irrevocable and shall be made
on a form approved by the Plan Administrator.
9.8 MEMORANDUM ACCOUNT
The Company shall establish a ledger account (the "Memorandum Account")
for each Participant who has elected to defer a payment pursuant to Section 9.7.
Interest shall accrue on the deferred payment to the date of distribution and
shall be credited to the Memorandum Account at the end of each calendar quarter
or such other periods as may be determined by the Management Committee. The
Management Committee shall determine the rate of interest periodically and in so
doing
<PAGE> 27
may take into account the earnings, losses, appreciation or depreciation
attributable to any discretionary investments made pursuant to Section 9.9.
9.9 DISCRETIONARY INVESTMENT BY COMPANY
The deferred compensation to be paid to the Participants is an unfunded
obligation. The Management Committee may annually direct that an amount equal to
all or part of the outstanding liability for such compensation shall be invested
by the Company, as the Management Committee, in its sole discretion, shall
determine. The Management Committee may in its sole discretion determine that
all or some portion of an amount equal to such outstanding liability shall be
paid into one or more grantor or other trusts to be established by the Company
in a manner that does not create a funded plan for purposes of the Code or the
Employee Retirement Income Security Act of 1974. The Management Committee may
designate an investment advisor to direct investments and reinvestments of such
trust assets.
9.10 PAYMENT OF DEFERRED COMPENSATION
Upon retirement, death, Permanent Disability, resignation or
termination of employment of a Participant who has elected to defer the payment
in respect of any Units, the employer shall pay in cash to the Participant (or
the Participant's Beneficiary in the case of the Participant's death) an amount
equal to the balance of the Participant's Memorandum Account, together with an
investment adjustment (determined under Section 9.8) on the outstanding account
balance to the date of distribution and subject to approval of the Management
Committee (except that following the occurrence of a Change in Control, no such
consent shall be required), as follows:
(a) a lump-sum payment;
(b) in sixty (60) consecutive equal monthly installments; or
(c) in one hundred twenty (120) consecutive equal monthly
installments.
Payment of deferred Units shall commence or be made in the month following the
Participant's retirement, death, Permanent Disability, resignation or
termination of employment or any other specified time that is elected and is
acceptable to the Plan Administrator.
<PAGE> 28
9.11 ACCELERATION OF PAYMENTS OF DEFERRED COMPENSATION
The Management Committee, in its discretion, may accelerate the payment
of the unpaid balance of a Participant's Memorandum Account in the event of the
Participant's retirement, death, Permanent Disability, resignation or
termination of employment, or upon the Management Committee's determination that
the Participant (or the Participant's Beneficiary in the case of the
Participant's death) has incurred a severe financial hardship. The Management
Committee in making its determination may consider such factors and require such
information as it deems appropriate.
9.12 ACCELERATION OF PAYMENT DUE TO CHANGE IN CONTROL
Upon a Change in Control, the current Performance Cycle shall
immediately end, and all vested Units (including Units that vest pursuant to
Section 9.3(d)) shall be valued at their then Fair Market Value. Each
Participant's employer (or the Company in the event that another employer does
not promptly make payment) shall pay the Participant the Fair Market Value of
his or her vested Units and also or alternatively, as the case may be, the
remaining unpaid balance of his or her Memorandum Account. This payment shall be
made (i) in a lump sum that is in lieu of any otherwise applicable form and time
of payment under the Plan and (ii) within ten (10) days after the Change in
Control; provided, however, that any Participant may elect prior to the
occurrence of a Change in Control to have the payment in respect to all or a
portion of the Participant's Units deferred until the Participant's retirement,
death, Permanent Disability, resignation or termination of employment. A
deferral election shall be revocable until the date of such a Change in Control
and after the date of the Change in Control such election shall be irrevocable.
A deferred election shall be made on a form prescribed by the Management
Committee. All deferred payments with respect to Units shall be paid pursuant to
the payment options set forth in Section 9.10.
9.13 PAYMENT OF BR DEFERRED COMPENSATION
Vested units which were deferred by a Participant under the Burlington
Resources Inc. Performance Share Unit Plan, together with interest accrued
thereon, shall be paid-by the Company in accordance with the terms of the Plan
and in lieu of payment by BR.
<PAGE> 29
9.14 UNFUNDED OBLIGATION
Any deferred amounts to be paid to Participants as installment payments
pursuant to the Plan are unfunded obligations. Neither the Company nor any
Subsidiary is required to segregate and monies from its general funds, to create
any trusts or to make any special deposits with respect to this obligation.
Title to and beneficial ownership of any investments, including trust
investments which the Company may make to fulfill this obligation, shall at all
times remain in the Company. Any investments and the creation or maintenance of
any trust or Memorandum Accounts shall not create or constitute a trust or a
fiduciary relationship between the Plan Administrator, the Management Committee,
the Company or any Subsidiary and a Participant, or otherwise create any vested
or beneficial interest in any Participant or the Participant's Beneficiary or
the Participant's creditors in any assets of the Company or its Subsidiaries
whatsoever. The Participants shall have no claim against the Company for any
changes in the value of any assets which may be invested or reinvested by the
Company with respect to the Plan.
9.15 DESIGNATION OF BENEFICIARY
The designation of a Beneficiary shall be on a form provided by the
Plan Administrator, executed by the Participant (with the consent of the
Participant's spouse, if required by the Plan Administrator for reasons of
community property or otherwise), and delivered to the Plan Administrator. A
Participant may change his or her Beneficiary designation at any time. A
designation by a Participant under the Burlington Resources Inc. Performance
Share Unit Plan shall remain in effect under the Plan for any Performance Share
Unit assumed under the Plan unless such designation is revoked or changed under
the Plan. If no Beneficiary is designated, if the designation is ineffective, or
if the Beneficiary dies before the balance of a Memorandum Account is paid, the
balance shall be paid to the Participant's spouse, or if there is no surviving
spouse, to the Participant's lineal descendant, pro rata, or if there is no
surviving spouse or lineal descendants, to the Participant's estate.
Notwithstanding the foregoing, however, a Participant's Beneficiary shall be
determined under applicable state law if such state law does not recognize
Beneficiary designations under plans of this sort and is not preempted by laws
which recognize the provisions of this Section 9.15.
<PAGE> 30
SECTION 10 RESTRICTED STOCK
10.1 Restricted Stock may be granted to Participants in such number and
at such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective Participants, their present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator shall
deem relevant in accomplishing the purposes of the Plan. The granting of
Restricted Stock shall take place when the Plan Administrator by resolution,
written consent or other appropriate action determines to grant such Restricted
Stock to a particular Participant. Each grant shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan. The Participant receiving a grant of Restricted
Stock shall be recorded as a stockholder of the Company.
10.2 A grant of Restricted Stock shall entitle a Participant to
receive, on the date or dates designated by the Plan Administrator, upon payment
to the Company of the par value of the Common Stock in a manner determined by
the Plan Administrator, the number of shares of Common Stock selected by the
Plan Administrator. The Plan Administrator may require, under such terms and
conditions as it deems appropriate or desirable, that the certificates for
Restricted Stock delivered under the Plan may be held in custody by a bank or
other institution, or that the Company may itself hold such shares in custody
until the Restriction Period (as defined in Section 10.3) expires or until
restrictions thereon otherwise lapse, and may require, as a condition of any
receipt of Restricted Stock that the Participant shall have delivered a stock
power endorsed in blank relating to the shares of Restricted Stock.
10.3 During a period of years following the date of grant, as
determined by the Plan Administrator, which shall in no event be less than one
(1) year (the "Restriction Period"), the Restricted Stock may not be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of by the recipient, except in the event of death or Permanent Disability, the
transfer to the Company as provided under the Plan or the Plan Administrator's
waiver or modification of such restrictions in the agreement evidencing the
grant of Restricted Stock, or by resolution of the Plan Administrator adopted at
any time.
10.4 Except as provided in Section 10.5 or 10.6, if a Participant
terminates employment with the Company for any reason before the expiration of
the Restriction Period, all shares of Restricted Stock still subject to
restriction shall
<PAGE> 31
be forfeited by the Participant to the Company. In addition, in the event of any
attempt by the Participant to sell, exchange, transfer, pledge or otherwise
dispose of shares of Restricted Stock in violation of the terms of the Plan,
such shares shall be forfeited to the Company. Upon any such forfeiture, the
forfeited shares of Restricted Stock shall again become available for grant
under the Plan.
10.5 The Restriction Period for any Participant shall be deemed to end
and all restrictions on shares of Restricted Stock shall lapse upon the
Participant's death or Permanent Disability or any termination of employment
determined by the Plan Administrator to end the Restriction Period.
10.6 The Restriction Period for any Participant shall be deemed to end
and all restrictions on shares of Restricted Stock shall terminate immediately
upon a Change in Control.
10.7 When the restrictions imposed by Section 10.3 expire or otherwise
lapse with respect to one or more shares of Restricted Stock, the Company shall
deliver to the Participant (or the Participant's legal representative,
Beneficiary or heir) one (1) share of Common Stock for each share of Restricted
Stock. At that time, the agreement referred to in Section 10.1, as it relates to
such shares, shall be terminated.
10.8 Subject to Section 10.2, each Participant entitled to receive
Restricted Stock under the Plan shall be issued a certificate for such shares.
Such certificate shall be registered in the name of the Participant, and shall
bear an appropriate legend reciting the terms, conditions and restrictions, if
any, applicable to such shares and shall be subject to appropriate stop-transfer
orders.
10.9 All certificates for shares of Common Stock delivered under the
Plan shall also be subject to such stop-transfer orders and other restrictions
as the Plan Administrator may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange commission, any stock exchange
upon which Common Stock is then listed and any applicable federal or state
securities laws, and the Plan Administrator may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. The foregoing provisions of this Section 10.9 shall not be
effective if and to the extent that the shares of Common Stock delivered under
the Plan are covered by an effective and current registration statement under
the Securities Act of 1933, as amended, or if and so long as the Plan
Administrator determines that application of
<PAGE> 32
such provisions is no longer required or desirable. In making such
determination, the Plan Administrator may rely upon an opinion of counsel for
the Company.
10. 10 Each Participant who receives a grant of Restricted Stock shall
have all the rights of a stockholder with respect to such shares, including the
right to vote the shares and receive dividends and other distributions. No
Participant awarded Restricted Stock shall have any right as a stockholder with
respect to any shares subject to the Participant's Restricted Stock grant prior
to the date of issuance to the Participant of a certificate or certificates for
such shares.
SECTION 11 REGULATORY APPROVALS AND LISTING
11.1 The Company shall not be required to issue any certificate for
shares of Common Stock upon the exercise of an option or a stock appreciation
right granted under the Plan or with respect to a grant of Restricted Stock
prior to:
(a) the obtaining of any approval or ruling from the
Securities and Exchange Commission, the Internal Revenue Service or any
other governmental agency which the Company, in its sole discretion,
shall determine to be necessary or advisable;
(b) the listing of such shares on any stock exchange on which
the Common Stock may then be listed; or
(c) the completion of any registration or other qualification
of such shares under any federal or state laws, rulings or regulations
of any governmental body which the Company, in its sole discretion,
shall determine to be necessary or advisable.
SECTION 12 EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be dated as of January 1, 1992 and shall be effective
upon adoption by the Board, but the Plan shall be void unless it is approved by
the Company's sole stockholder within the earlier of the date of the Company's
next annual meeting of stockholders and twelve (12) months after the date the
Plan is adopted by the Board of Directors. Subject to the foregoing condition,
options, limited stock appreciation rights, stock appreciation rights,
Restricted Stock and Performance Share Units may be granted pursuant to the Plan
from time to time within the period commencing upon adoption of the Plan by the
Board of Directors and ending five (5) years after the earlier of such adoption
and the approval of
<PAGE> 33
the Plan by the stockholders. Options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Share Units theretofore
granted may extend beyond that date and the terms and conditions of the Plan
shall continue to apply thereto and to shares of Common Stock acquired
thereunder.
SECTION 13 GENERAL PROVISIONS
13.1 Nothing contained in the Plan, or in any option, limited stock
appreciation right, stock appreciation right, Restricted Stock or Performance
Share Unit granted pursuant to the Plan, shall confer upon any employee any
right with respect to continuance of employment by the Company or a Subsidiary,
nor interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of such employee at any time with or without assigning
any reason therefor.
13.2 Grants, vesting or payment of stock options, limited stock
appreciation rights, stock appreciation rights, Restricted Stock or Performance
Share Units shall not be considered as part of a Participant's salary or used
for the calculation of any other pay, allowance, pension or other benefit unless
otherwise permitted by other benefit plans provided by the Company or its
Subsidiaries, or required by law or by contractual obligations of the Company or
its Subsidiaries.
13.3 The right of a Participant or Beneficiary to the payment of any
compensation under the Plan may not be assigned, transferred, pledged or
encumbered, nor shall such right or other interests be subject to attachment,
garnishment, execution or other legal process.
13.4 Leaves of absence for such periods and purposes conforming to the
personnel policy of the Company, or of its Subsidiaries, as applicable, shall
not be deemed terminations or interruptions of employment. The foregoing
notwithstanding, with respect to Incentive Stock Options, employment shall not
be deemed to continue beyond the first ninety (90) days of such leave unless the
Participant's reemployment rights are guaranteed by statute or contract.
13.5 In the event a Participant is transferred from the Company to a
Subsidiary, or vice versa, or is promoted or given different responsibilities,
the stock options, limited stock appreciation rights, stock appreciation rights,
Restricted Stock and Performance Share Units granted to the Participant prior to
such date shall not be affected.
<PAGE> 34
13.6 The Plan shall be construed and governed in accordance with the
laws of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
13.7 Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event with
respect to options, limited stock appreciation rights, stock appreciation
rights, Restricted Stock and Performance Share Units under the applicable laws
or regulations of any governmental authority, whether federal, state or local
and whether domestic or foreign.
Tax advice should be obtained by the Participant prior to the
Participant's (i) entering into any transaction under or with respect to the
Plan, (ii) designating or choosing the time of distributions under the Plan, or
(iii) disposing of any shares of Common Stock issued under the Plan.
SECTION 14 AMENDMENT, TERMINATION OR DISCONTINUANCE
OF THE PLAN
14.1 Subject to the Board of Directors and Section 14.2, the Plan
Administrator may from time to time make such amendments to the Plan as it may
deem proper and in the best interest of the Company without further approval of
the stockholders of the Company, including, but not limited to, any amendment
necessary to ensure that the Company may obtain any regulatory approval referred
to in Section 11; provided, however, that no change in any option, limited stock
appreciation right, stock appreciation right, Restricted Stock or Performance
Share Unit theretofore granted may be made without the consent of the
Participant which would impair the right of the Participant to acquire or retain
Common Stock or cash that the Participant may have acquired as a result of the
Plan.
14.2 The Plan Administrator and the Board of Directors may not amend
the Plan without the approval of the stockholders of the Company to
(a) increase the number of shares, rights or Units that may be
issued under the Plan;
(b) with respect to Incentive Stock Options and any related
stock appreciation rights (whether limited or not), change the
description of the Participants or class of Participants eligible for
participation in the Plan, or, with respect to all other grants under
the Plan,
<PAGE> 35
materially modify the requirements as to eligibility for participation
in the Plan; or
(c) otherwise materially increase the benefits accruing to the
Participants under the Plan.
14.3 The Board of Directors may at any time suspend the operation of or
terminate the Plan with respect to any shares of Common Stock rights or
Performance Share Units not at the time subject to option, limited stock
appreciation right, stock appreciation right or grant of Restricted Stock, or
with respect to any Performance Share Units not yet granted under Section 9.
<PAGE> 36
IN WITNESS WHEREOF, the Company has caused the Plan to be executed
effective as of January 15, 1992.
EL PASO NATURAL GAS COMPANY
By /s/ Joel Richards III
--------------------------------------
Title: Senior Vice President
ATTEST:
By /s/ Stacy J. James
--------------------------------
Title: Corporate Secretary
<PAGE> 37
AMENDMENT NO. 1 TO THE
OMNIBUS COMPENSATION PLAN
Pursuant to Sections 5.3 and 14.1 of the El Paso Natural Gas Company
Omnibus Compensation Plan, dated as of January 1, 1992 (the "Plan"), the Plan
is hereby amended as follows, effective April 1, 1998:
Sections 5.1 is amended to read as follows:
"5.1 Subject to Section 5.3, the maximum number of shares
for which options, limited stock appreciation rights, stock
appreciation rights and Restricted Stock may at any time be granted
under the Plan is eight million (8,000,000) shares of Common Stock,
from shares held in the Company's treasury or out of the authorized
but unissued shares of the Company, or partly out of each, as shall be
determined by the Board of Directors, subject to, and reduced by (on a
post-split basis), the number of shares of Common Stock awarded prior
to the occurrence of a two-for-one stock split effected by the Company
in the form of a 100% stock dividend on April 1, 1998. Upon (i) the
expiration or termination in whole or in part of unexercised options
or the surrender of an option, or portion thereof, upon exercise of a
related limited stock appreciation right or stock appreciation right
for cash, and (ii) to the extent permissible under Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, the forfeiture of
Restricted Stock, shares of Common Stock which were subject thereto
shall again be available for grants of options, limited stock
appreciation rights, stock appreciation rights and Restricted Stock
under the Plan. Any options, limited stock appreciation rights, stock
appreciation rights and shares of Restricted Stock outstanding under
the Plan on April 1, 1998, shall be adjusted on a two-for-one basis to
reflect the stock dividend."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 1st day of April, 1998.
EL PASO NATURAL GAS COMPANY
By: /s/ Joel Richards III
------------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- ------------------------------------
Corporate Secretary
<PAGE> 38
AMENDMENT NO. 2 TO THE
OMNIBUS COMPENSATION PLAN
Pursuant to Sections 5.3 and 14.1 of the El Paso Natural Gas Company
Omnibus Compensation Plan, dated as of January 1, 1992 (the "Plan"), the Plan is
hereby amended as follows, effective August 1, 1998:
The name of the Plan is hereby be changed to "El Paso Energy
Corporation Omnibus Compensation Plan."
All references in the Plan to "El Paso Natural Gas Company" or the
"Company" shall mean "El Paso Energy Corporation."
Section 14.1 is hereby amended to add the following language at the end
of Section 14.1:
"The Board of Directors amended and restated the Plan effective as of
August 1, 1998, in connection with the reorganization of the Company
into a holding company structure whereby El Paso Energy Corporation
became the publicly held company and El Paso Natural Gas Company became
a wholly owned subsidiary. This Plan was assumed by El Paso Energy
Corporation pursuant to an Assignment and Assumption Agreement
effective as of August 1, 1998, by and between El Paso Energy
Corporation and El Paso Natural Gas Company."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 1st day of August, 1998.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
--------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- --------------------------------
Corporate Secretary
<PAGE> 39
AMENDMENT NO. 3 TO THE
OMNIBUS COMPENSATION PLAN
Pursuant to Section 14.1 of the El Paso Energy Corporation Omnibus
Compensation Plan, dated as of January 1, 1992, as amended (the "Plan"), the
Plan is hereby amended as follows, effective December 3, 1998:
The following subsection (k) shall be added to Section 6.4 to read as follows:
"(k) Deferral Election
A Participant may elect irrevocably (at a time and in a manner
determined by the Plan Administrator or the Company, as appropriate) at
any time prior to exercising an option and/or associated stock
appreciation right granted under the Plan that issuance of shares of
Common Stock upon exercise of such option shall be deferred until a
pre-specified date in the future or until the Participant ceases to be
employed by the Company or any of its Subsidiaries, as elected by the
Participant. After the exercise of any such option and prior to the
issuance of any deferred shares, the number of shares of Common Stock
issuable to the Participant shall be credited to the deferred stock
account (or such other account(s) as the Management Committee shall
deem necessary and appropriate) under a memorandum deferred account
established pursuant to the Company's then-existing Deferred
Compensation Plan (as it may be further amended) (the "Deferred
Compensation Plan"), and any dividends or other distributions paid on
the Common Stock (or its equivalent) shall be deemed reinvested in
additional shares of Common Stock (or its equivalent) until all
credited deferred shares shall become issuable pursuant to the
Participant's election, unless the Management Committee of the Deferred
Compensation Plan shall otherwise determine."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 3rd day of December, 1998.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
-------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- -----------------------------------
Corporate Secretary
<PAGE> 40
AMENDMENT NO. 4 TO THE
OMNIBUS COMPENSATION PLAN
Pursuant to Section 14.1 of the El Paso Energy Corporation Omnibus
Compensation Plan, dated as of January 1, 1992, as amended (the "Plan"), the
Plan is hereby amended as follows, effective January 20, 1999:
The following paragraph shall be added as the last paragraph to Section 6.4(d)
to read as follows:
"Notwithstanding any other provision in this Plan to the
contrary and unless the Plan Administrator shall otherwise determine,
in the event of a "cashless" exercise, and for that purpose only under
this Plan, a Participant's compensation shall be equal to the
difference between the actual sales price received for the underlying
Common Stock and the Option Price. For all other purposes under this
Plan, the Fair Market Value shall be the value against which
compensation is determined."
The following sentence shall be added as the last sentence to Section 6.4(e) to
read as follows:
"In addition, the Plan Administrator may require that a Participant who
wants to effectuate a "cashless" exercise of options be required to
sell the shares of Common Stock acquired in the associated exercise to
the Company, or in the open market through the use of a broker selected
by the Company, at such price and on such terms as the Plan
Administrator may determine at the time of grant, or otherwise."
Section 6.4(f) is hereby deleted in its entirety and replaced with the
following:
"(f) Nontransferability of Options
Options granted under the Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or
similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and
distribution. Notwithstanding the foregoing and only as provided by the
Plan Administrator or the Company, as applicable, Nonqualified Options
may be transferred to a Participant's immediate family members,
directly or indirectly or by means of a trust, corporate entity or
partnership (a person who thus acquires this option by such transfer, a
"Permitted Transferee"). A transfer of an option may only be effected
by the Company at the request of the Participant and shall become
effective upon the Permitted Transferee agreeing to such terms as the
Plan Administrator may require and only when recorded in the Company's
record of outstanding options. In the event an option is transferred as
contemplated hereby, the option may not be subsequently transferred by
the Permitted Transferee except a transfer back to the Participant or
by will or the laws of descent and distribution. A transferred option
may be exercised by a Permitted Transferee to the same extent as, and
subject to the same terms and conditions as, the Participant (except as
otherwise provided herein), as if no transfer had taken place. As used
herein, "immediate
<PAGE> 41
family" shall mean, with respect to any person, such person's child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, and shall include adoptive
relationships. In the event of exercise of a transferred option by a
Permitted Transferee, any amounts due to (or to be withheld by) the
Company upon exercise of the option shall be delivered by (or withheld
from amounts due to) the Participant, the Participant's estate or the
Permitted Transferee, in the reasonable discretion of the Company.
In addition, to the extent permitted by applicable law and
Rule 16b-3, the Plan Administrator may permit a recipient of a
Nonqualified Option to designate in writing during the Participant's
lifetime a Beneficiary to receive and exercise the Participant's
Nonqualified Options in the event of such Participant's death (as
provided in Section 6.4(i)). A designation by a Participant under the
Burlington Resources Inc. Stock Option Incentive Plan shall remain in
effect under the Plan for any options unless such designation is
revoked or changed under the Plan. Except as otherwise provided for
herein, if any Participant attempts to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under the Plan or of any
right or privilege conferred thereby, contrary to the provisions of the
Plan or such option, or suffers the sale or levy or any attachment or
similar process upon the rights and privileges conferred hereby, all
affected options held by such Participant shall be immediately
forfeited."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 20th day of January, 1999.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
---------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- ------------------------------------
Corporate Secretary
-2-
<PAGE> 1
EXHIBIT 10.D
EL PASO ENERGY CORPORATION
1995 INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1 PURPOSES..............................................................................1
1.1 Purposes..............................................................................1
SECTION 2 ADMINISTRATION........................................................................1
2.1 Administration........................................................................1
2.2 Compliance With Rule 16b-3 and Section 162(m).........................................2
SECTION 3 SHARES AVAILABLE FOR THE PLAN.........................................................2
3.1 Maximum Number of Shares..............................................................2
3.2 Adjustment to Number of Shares........................................................2
SECTION 4 PARTICIPANTS..........................................................................3
4.1 Participants..........................................................................3
SECTION 5 PERFORMANCE GOALS.....................................................................3
5.1 Performance Period....................................................................3
5.2 Performance Goals.....................................................................3
5.3 Procedures............................................................................4
SECTION 6 INDIVIDUAL AWARDS.....................................................................5
6.1 Performance Goal Certification........................................................5
6.2 Maximum Award Payable.................................................................5
6.3 Discretion to Reduce Awards; Participant's Performance................................5
6.4 Stockholder Approval of Performance Goals.............................................5
6.5 New Employee, Retirement, Death,
Disability, or Termination of Employment...........................................5
SECTION 7 PAYMENT OF INCENTIVE AWARDS...........................................................6
7.1 Required Payment......................................................................6
7.2 Restricted Stock Election.............................................................7
7.3 Deferred Payment......................................................................7
7.4 Payment Upon Change in Control........................................................8
SECTION 8 RESTRICTED STOCK......................................................................9
SECTION 9 GENERAL PROVISIONS...................................................................12
9.1 Issuance of Common Stock.............................................................12
9.2 No Right to Continued Employment.....................................................12
9.3 Other Benefits.......................................................................13
9.4 Nonassignment........................................................................13
9.5 Leaves of Absence....................................................................13
</TABLE>
- --------------------------------------------------------------------------------
El Paso Energy Corporation i Table of Contents
1995 Incentive Compensation Plan
<PAGE> 3
<TABLE>
<S> <C> <C>
9.6 Transfers and Promotions.............................................................13
9.7 Unfunded Obligation..................................................................13
9.8 Beneficiary..........................................................................14
9.9 Permanent Disability.................................................................14
9.10 Incapacity of Participant or Beneficiary.............................................14
9.11 Withholding Taxes....................................................................15
9.12 Termination and Amendment............................................................16
9.13 Stockholder Approval.................................................................16
9.14 Applicable Law.......................................................................16
9.15 Effective Date and Term of the Plan..................................................16
</TABLE>
- --------------------------------------------------------------------------------
El Paso Energy Corporation ii Table of Contents
1995 Incentive Compensation Plan
<PAGE> 4
EL PASO ENERGY CORPORATION
1995 INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
SECTION 1 PURPOSES
1.1 PURPOSES
The purposes of the El Paso Energy Corporation 1995 Incentive
Compensation Plan (the "Plan") are to encourage outstanding performances by the
executives of El Paso Energy Corporation (the "Company") and its subsidiaries,
to attract and retain exceptional executives, and to provide a direct incentive
to the Participants (as defined in Section 4.1) to achieve the Company's
strategic and financial goals.
SECTION 2 ADMINISTRATION
2.1 ADMINISTRATION
With respect to awards made under the Plan to certain officers and
directors of the Company and its subsidiaries ("Section 16 Insiders") who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Plan shall be administered by the Compensation Committee
(the "Plan Administrator") of the Company's Board of Directors (the "Board"),
which shall be constituted at all times so as to meet the disinterested
administration requirements of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act and the outside director requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), so long as any of the
Company's equity securities are registered pursuant to Section 12(b) or 12(g) of
the Exchange Act. The Plan Administrator shall prescribe, amend, and rescind
rules and procedures for establishing Performance Goals (as defined in Section
5.2) pursuant to Section 162(m) of the Code. Subject to the Plan Administrator,
and as may be required by Rule 16b-3 and Section 162(m) of the Code, the Plan
shall be administered by a management committee (the "Management Committee")
consisting of the Chief Executive Officer and such other senior officers as the
Chief Executive Officer shall designate. The Management Committee shall
interpret the Plan, prescribe, amend, and rescind rules relating to it, select
eligible Participants, grant incentive awards, and take all other actions
necessary for its administration, which actions shall be final and binding upon
all Participants.
- --------------------------------------------------------------------------------
El Paso Energy Corporation Page 1
1995 Incentive Compensation Plan
<PAGE> 5
2.2 COMPLIANCE WITH RULE 16B-3 AND SECTION 162(m)
The Company's intention is that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, with respect to awards granted to or held by Section 16 Insiders, the Plan
shall comply in all respects with Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act. The Plan shall also be administered so as to comply with
Section 162(m) of the Code and regulations promulgated thereunder. If any Plan
provision is later found not to be in compliance with Rule 16b-3 of the Exchange
Act or Section 162(m) of the Code, that provision shall be deemed modified as
necessary to meet the requirements of Rule 16b-3 and Section 162(m) of the Code.
Notwithstanding anything in the Plan to the contrary, the Board, in its absolute
discretion, may bifurcate the Plan so as to restrict, limit, or condition the
applicability of any provision of the Plan to Participants who are Section 16
Insiders without so restricting, limiting, or conditioning the Plan with respect
to other Participants.
SECTION 3 SHARES AVAILABLE FOR THE PLAN
3.1 MAXIMUM NUMBER OF SHARES
Subject to Section 3.2, the maximum number of shares of common stock of
the Company, $3 par value per share, (the "Common Stock") which may at any time
be awarded under the Plan is two million five hundred thousand (2,500,000)
shares of Common Stock, from shares held in the Company's treasury or out of
authorized but unissued shares of the Company, or partly out of each, as shall
be determined by the Management Committee, subject to, and reduced by (on a
post-split basis), the number of shares of Common Stock awarded prior to the
occurrence of a two-for-one stock split effected by the Company in the form of a
100% stock dividend on April 1, 1998. "Restricted Stock" is any share of Common
Stock which is subject to the requirements of Section 8 and such other
restrictions as the Plan Administrator may deem appropriate. Any shares of
Restricted Stock outstanding under the Plan on April 1, 1998, shall be adjusted
on a two-for-one basis to reflect the stock dividend.
3.2 ADJUSTMENT TO NUMBER OF SHARES
In the event of recapitalization, stock split, stock dividend, exchange
of shares, merger, reorganization, change in corporate structure or shares of
the Company or similar event, the Board, upon recommendation of the Plan
Administrator, may make appropriate adjustments to the number of shares
authorized for the Plan and, with respect to outstanding Restricted Stock, the
Plan Administrator may make appropriate adjustments to the number of shares.
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SECTION 4 PARTICIPANTS
4.1 PARTICIPANTS
The Plan Administrator shall determine and designate the Section 16
Insiders and the Management Committee shall designate all other executives of
the Company and its subsidiaries who are eligible to receive awards under the
Plan (the "Participants"). Participants, in general, will be limited to those
executives who hold any of the following positions within the Company and, in
the case of Participants employed by Company subsidiaries, those executives with
positions equivalent thereto, but not necessarily with the same titles: Chairman
of the Board, President, Chief Executive Officer, Vice Chairman of the Board (if
any), Chief Operating Officer, any Executive Vice President, any Senior Vice
President, and any Vice President. Members of the Board of Directors of the
Company who are full-time executives of the Company shall be eligible to
participate in the Plan. Any Participant in the El Paso Natural Gas Company
Incentive Compensation Plan dated as of January 1, 1992 (the "Predecessor Plan")
on the day immediately preceding the effective date of this Plan, who is an
employee of the Company or its subsidiaries, shall be come a Participant in this
Plan on the effective date.
SECTION 5 PERFORMANCE GOALS
5.1 PERFORMANCE PERIOD
The term "Performance Period" as used in this Plan shall mean the
period of twelve consecutive months beginning on January 1 and ending on
December 31, or such other period as the Plan Administrator may determine.
5.2 PERFORMANCE GOALS
The Plan Administrator shall establish the performance goal or goals
("Performance Goal or Goals") for each Performance Period in writing prior to
the commencement of the applicable Performance Period, or at such other time as
permitted by applicable provisions of the Code and regulations thereunder, and
shall state the amount of award to be paid to each Participant, subject to
Section 6.3 below, upon attainment of the stated Performance Goals.
Each Performance Goal selected for a particular Performance Period
shall be a relative or absolute measure of any one or more of the following:
Operating Income
Pre-tax Profit
Earnings Per Share
Cash Flow
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Return on Capital
Return on Equity
Return on Net Assets
Net Income
Debt Reduction
Safety
Return on Investment
Revenues
Total Stockholder Return
The foregoing terms shall have the same meaning as used in the
Company's financial statements, or if the terms are not used in the Company's
financial statements, they shall have the meaning generally applied pursuant to
general accepted accounting principles, or as used in the industry, as
applicable. The Plan Administrator shall set the target level of performance
required for each Performance Goal selected for a particular Performance Period
in order to determine whether a Performance Goal has been attained. The Plan
Administrator may specify that a percentage (less than 100%) of awards may be
payable if a designated level of performance of a Performance Goal is attained
that is less than the target level of performance for such Performance Goal.
The Plan Administrator may select one or more Performance Goals for a
particular Performance Period. If the Plan Administrator selects more than one
Performance Goal for a particular Performance Period, the Plan Administrator may
determine to make awards upon attainment of any one or more of such Performance
Goals, provided that such Performance Goals are established in accordance with
this Section 5.2 and are stated as alternatives to one another.
5.3 PROCEDURES
Prior to the beginning of a particular Performance Period, or such
other date as the Code may allow, the Plan Administrator shall specify in
writing:
(a) the Participants who shall be eligible to receive an award for
a Performance Period,
(b) the Performance Goals for such Performance Period, and
(c) the maximum award amount payable to each Participant if the
Performance Goals are met.
Any Participant chosen to participate in the Plan for a given
Performance Period shall receive the maximum award amount if the designated
Performance Goals are achieved, subject to the discretion of the Plan
Administrator to reduce such award, as described in Section 6.3.
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SECTION 6 INDIVIDUAL AWARDS
6.1 PERFORMANCE GOAL CERTIFICATION
An award shall become payable to the extent provided herein in the
event that the Plan Administrator, or the Management Committee in the case of
Participants other than Section 16 Insiders, certifies in writing prior to
payment of the award that the Performance Goal or Goals selected for a
particular Performance Period has or have been attained. In no event will an
award be payable under this Plan if the threshold level of performance set for
each Performance Goal for the applicable Performance Period is not attained.
6.2 MAXIMUM AWARD PAYABLE
The maximum award payable under this Plan to any Participant for any
Performance Period shall be two million dollars ($2,000,000) in cash, Restricted
Stock, or a combination of cash and Restricted Stock.
6.3 DISCRETION TO REDUCE AWARDS; PARTICIPANT'S PERFORMANCE
The Plan Administrator, or the Management Committee in the case of
Participants other than Section 16 Insiders, in its sole and absolute
discretion, may reduce the amount of any award otherwise payable to a
Participant upon attainment of any Performance Goal for the applicable
Performance Period. A Participant's individual performance must be satisfactory,
regardless of the Company's performance and the attainment of Performance Goals,
before he or she may be granted an incentive award. In evaluating a
Participant's performance, the Plan Administrator and the Management Committee,
as applicable, shall consider the Performance Goals of the Company and the
Participant's responsibilities and accomplishments, and such other factors as it
deems appropriate.
6.4 STOCKHOLDER APPROVAL OF PERFORMANCE GOALS
Awards shall not be payable under this Plan unless the Plan
Administrator determines that the material terms of the Performance Goal(s)
under which an award is to be paid have been disclosed and subsequently approved
by the Company's stockholders in accordance with Section 162(m) of the Code and
applicable regulations thereunder.
6.5 NEW EMPLOYEE, RETIREMENT, DEATH, DISABILITY, OR TERMINATION OF EMPLOYMENT
To the extent consistent with the deductibility of awards under Section
162(m) of the Code or regulations promulgated thereunder, the Plan Administrator
or the Management Committee, as applicable, may grant all or such portion of an
incentive award for the Performance Period as it deems advisable to a
Participant (or the Participant's Beneficiary (as defined in Section 9.8) in the
case of the Participant's death)
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who is first employed or who is promoted to a position eligible to become a
Participant under this Plan during the Performance Period, or whose employment
is terminated during the Performance Period because of the Participant's
retirement, death, permanent disability, resignation, or discharge, provided
that any of the Performance Goals are attained for the applicable Performance
Period.
SECTION 7 PAYMENT OF INCENTIVE AWARDS
7.1 REQUIRED PAYMENT
The Plan Administrator, or the Management Committee in the case of
Participants other than Section 16 Insiders, shall make a determination within
thirty (30) days after the Company's financial information is available for a
particular Performance Period (the "Award Date") whether the Performance Goals
for that Performance Period have been achieved and the amount of the award for
each Participant. In the absence of an election by the Participant pursuant to
Sections 7.2 or 7.3, the award shall be paid not later than the end of the month
following the month in which the Plan Administrator or Management Committee
determines the amount of the award and shall be paid as follows:
(a) Participants employed by the Company holding the position of
Chairman of the Board, President, Chief Executive Officer, Vice
Chairman of the Board, Chief Operating Officer, Executive Vice
President, or Senior Vice President and Participants employed by
Company subsidiaries with equivalent positions thereto, but not
necessarily the same titles, shall receive their incentive award as
follows:
(i) 50% (fifty percent) in cash and
(ii) 50% (fifty percent) in Restricted Stock.
(b) Participants employed by the Company holding the position of Vice
President and Participants employed by Company subsidiaries with an
equivalent position thereto, but not necessarily the same title, shall
receive their incentive award as follows:
(i) 75% (seventy-five percent) in cash and
(ii) 25% (twenty-five percent) in Restricted Stock.
(c) Because the Participant bears forfeiture, price fluctuation, and
other attendant risks during the Restriction Period (as defined in
Section 8.3) associated with the Restricted Stock awarded under this
Plan, Participants shall be awarded an additional amount of Restricted
Stock equal to the amount of Restricted Stock which a Participant is
awarded pursuant to Sections 7.1(a)(ii) or 7.1(b)(ii), as applicable.
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(d) Notwithstanding subsections (a) and (b) above, the Plan
Administrator or Management Committee, as appropriate, may determine
that a Participant must receive a greater amount of his or her award in
Restricted Stock, up to and including the entire award in Restricted
Stock. (For purposes of the Plan, such required shares shall be treated
as being awarded pursuant to Section 7.1(a)(ii) or Section 7.1(b)(ii),
as applicable.) In such event, a Participant shall be entitled to the
additional shares of Restricted Stock, awarded pursuant to Section 7(c)
above.
For purposes of this Plan, the value of awards payable in Restricted
Stock and the calculation of fair market value of Common Stock shall be the mean
between the highest and lowest quoted selling prices at which the Common Stock
is sold on the Award Date (or such other date in the case of calculating fair
market value for other purposes) as reported in the NYSE Composite Transactions
by The Wall Street Journal for such date or, if no Common Stock was traded on
such date, on the next preceding date on which the Common Stock was so traded.
The value of any fractional share shall be paid in cash.
7.2 RESTRICTED STOCK ELECTION
In lieu of receiving all or any portion of the cash in accordance with
Sections 7.1(a)(i) or 7.1(b)(i), a Participant may elect to receive additional
Restricted Stock with a value equal to the portion of the incentive award which
the Participant would otherwise have received in cash, but has elected to
receive in Restricted Stock ("Restricted Stock Election"). Participants must
make their Restricted Stock Election at such time and in such a manner as
prescribed by the Management Committee. If required by Rule 16b-3 promulgated
under Section 16(b) of the Exchange Act, any Restricted Stock Election made by a
Participant who is a Section 16 Insider shall be made at least six months prior
to the Award Date, or at such other time as is allowed by Section 16(b) of the
Exchange Act. Each Participant who makes the Restricted Stock Election shall be
entitled to the additional Restricted Stock granted pursuant to Section 7.1(c)
with respect to the amount of the Participant's Restricted Stock Election.
Except as provided in Section 8, all shares of Restricted Stock awarded pursuant
to the Restricted Stock Election are subject to the same terms and conditions as
the Restricted Stock a Participant receives pursuant to Sections 7.1(a)(ii) or
7.1(b)(ii), as applicable.
7.3 DEFERRED PAYMENT
Each Participant may elect to have the payment of all or a portion of
any incentive award made pursuant to Sections 7.1(a)(i) or 7.1(b)(i), as
applicable, for the year deferred according to the terms and conditions of the
Company's Deferred Compensation Plan. The election shall be irrevocable and
shall be made at such time and in such a manner as prescribed by the Management
Committee. The election shall apply only to that year. If a Participant has not
made an election under this Section, any incentive award granted to the
Participant for that year shall be paid pursuant to Sections 7.1 or 7.2, as
applicable.
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7.4 PAYMENT UPON CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, in the event of a
Change in Control of the Company, the award attributable to the Performance
Period in which the Change in Control occurs shall become fully vested and
distributable, in cash, within 30 days after the date of the Change in Control,
in an amount equal to the greater of the annual incentive percentage of Annual
Salary established by the Plan Administrator, or the following:
Participants employed by the Company
holding any of the following positions
and Participants employed by Company
subsidiaries with positions equivalent
Percentage of Annual Salary thereto, but not necessarily with the
same titles:
100% of Annual Salary Chairman of the Board, President, Chief
Executive Officer, Vice Chairman of the
Board, Chief Operating Officer, or
Executive Vice President
80% of Annual Salary Senior Vice President
60% of Annual Salary Vice President
The term "Annual Salary" as used in this Plan shall mean a
Participant's annual base salary in effect on the date of a Change in
Control.
In the event a Change in Control occurs after the end of a Performance
Period, but before the Award Date, each Participant shall be entitled to receive
in cash, within 30 days after the date of the Change in Control, those amounts
set forth above in this Section 7.4 for such Performance Period. Such amounts
are in addition to the amount to which Participants shall be entitled for the
Performance Period in which a Change in Control is deemed to occur.
For purposes of this Plan a "Change in Control" shall be
deemed to occur:
(a) if any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing twenty percent (20%) or more of
the combined voting power of the Company's then outstanding securities;
(b) upon the first purchase of the Common Stock pursuant to a
tender or exchange offer (other than a tender or exchange offer made by
the Company);
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(c) upon the approval by the Company's stockholders of a
merger or consolidation, a sale, or disposition of all or substantially
all the Company's assets or a plan of liquidation or dissolution of the
Company; or
(d) if, during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless
the election or nomination for the election by the Company's
stockholders of each new director was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
if the Company either merges or consolidates with or into another company or
sells or disposes of all or substantially all of its assets to another company,
if such merger, consolidation, sale or disposition is in connection with a
corporate restructuring wherein the stockholders of the Company immediately
before such merger, consolidation, sale or disposition own, directly or
indirectly, immediately following such merger, consolidation, sale or
disposition at least eighty percent (80%) of the combined voting power of all
outstanding classes of securities of the company resulting from such merger or
consolidation, or to which the Company sells or disposes of its assets, in
substantially the same proportion as their ownership in the Company immediately
before such merger, consolidation, sale or disposition.
SECTION 8 RESTRICTED STOCK
8.1 Any share of Restricted Stock awarded pursuant to this Plan shall
be subject to the provisions of this Section 8, and to any additional
restrictions imposed by the Plan Administrator. Restricted Stock may be awarded
to Participants under this Plan in lieu of cash as provided in Section 7. Each
award of Restricted Stock shall be evidenced by a written instrument delivered
by or on behalf of the Company containing provisions not inconsistent with the
Plan. The award of Restricted Stock shall entitle a Participant to receive, on
the date or dates designated by the Plan Administrator, the number of shares of
Common Stock awarded by the Plan Administrator. Each Participant who receives a
grant of Restricted Stock shall have all the rights of a stockholder with
respect to such shares (except as provided in the restrictions on
transferability), including the right to vote the shares and receive dividends
and other distributions. However, no Participant awarded Restricted Stock shall
have any right as a stockholder with respect to such shares prior to the date of
issuance to the Participant of a certificate or certificates for such shares.
8.2 Notwithstanding Section 8.1, the Plan Administrator may require,
under such terms and conditions as it deems appropriate or desirable, that the
certificates for
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Restricted Stock delivered under the Plan may be held in custody by a bank or
other institution, or that the Company may itself hold such shares in custody
until the Restriction Period expires or until restrictions thereon otherwise
lapse, and may require, as a condition of any issuance of Restricted Stock that
the Participant shall have delivered a stock power endorsed in blank relating to
the shares of Restricted Stock.
8.3 During a period of years following the award of Restricted Stock,
as determined by the Plan Administrator, which shall in no event be less than
one (1) year (the "Restriction Period"), the Restricted Stock may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered or
disposed of by the Participant, except as otherwise provided for in this Plan,
upon the Plan Administrator's waiver or modification of such restrictions in the
agreement evidencing the grant of Restricted Stock, or by resolution of the Plan
Administrator adopted at any time.
8.4 Except as provided in Sections 8.5 or 8.6, if a Participant
terminates employment with the Company for any reason before the expiration of
the Restriction Period, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant to the Company. In addition,
in the event of any attempt by the Participant to sell, exchange, transfer,
pledge, or otherwise dispose of shares of Restricted Stock in violation of the
terms of the Plan, such shares shall be forfeited to the Company.
8.5 The Restriction Period for any Participant shall be deemed to end
and all restrictions on shares of Restricted Stock awarded pursuant to Sections
7.1(a)(ii), 7.1(b)(ii), and 7.2 (except for Restricted Stock awarded pursuant to
Section 7.1(c)) shall lapse upon the Participant's death, retirement, Permanent
Disability, or any other involuntary termination without Cause. The Restriction
Period shall be deemed to end and all restrictions on a Participant's shares of
Restricted Stock awarded pursuant to Section 7.1(c) shall lapse on a pro rata
basis measured in years between (i) the amount of time which has elapsed between
the Award Date and the Participant's death, retirement, Permanent Disability, or
any other involuntary termination without Cause and (ii) the Restriction Period
for such shares. All shares of Restricted Stock for which the Restriction Period
has not lapsed as described above shall be forfeited to the Company.
Notwithstanding the foregoing, the Plan Administrator, or the Management
Committee in the case of Participants other than Section 16 Insiders, may
determine that such Restriction Period should not lapse or that the Restriction
Period on additional shares of Restricted Stock should lapse.
For the purposes of this Plan, a termination with "Cause" is a
termination evidenced by a resolution adopted in good faith by two-thirds (2/3)
of the Board of Directors that the Participant (i) willfully and continually
failed to substantially perform the Participant's duties with the Company (other
than a failure resulting from the Participant's incapacity due to physical or
mental illness) which failure continued for a period of at least thirty (30)
days after a written notice of demand for substantial performance has been
delivered to the Participant specifying the manner in which the
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Participant has failed to substantially perform or (ii) willfully engaged in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise; provided, however, that no termination of the
Participant's employment shall be for Cause as set forth in clause (ii) above
until (A) there shall have been delivered to the Participant a copy of a written
notice setting forth that the Participant was guilty of the conduct set forth in
clause (ii) above and specifying the particulars thereof in detail and (B) the
Participant shall have been provided an opportunity to be heard by the Board of
Directors (with the assistance of the Participant's counsel if the Participant
so desires). No act, nor failure to act, on the Participant's part shall be
considered "willful" unless the Participant has acted, or failed to act, with an
absence of good faith and without a reasonable belief that the Participant's
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in the Plan to the contrary, no failure to
perform by the Participant after notice of termination is given by the
Participant shall constitute Cause.
8.6 The Restriction Period for any Participant shall be deemed to end
and all restrictions on shares of Restricted Stock shall lapse immediately upon
a Change in Control.
8.7 Subject to Section 8.2, a Participant is entitled to receive
Restricted Stock under the Plan shall be issued a certificate for such shares.
Such certificate shall be registered in the name of the Participant, and shall
bear an appropriate legend reciting the terms, conditions, and restrictions, if
any, applicable to such shares and shall be subject to appropriate stop-transfer
orders. When the restrictions imposed by Section 8.3 expire or otherwise lapse
with respect to one (1) or more shares of Restricted Stock, the Company shall
deliver to the Participant (or the Participant's legal representative,
Beneficiary, or heir) one (1) share of unrestricted Common Stock for each share
of Restricted Stock. At that time, the agreement referred to in Section 8.1, as
it relates to such shares, shall be terminated.
8.8 A Participant may elect irrevocably (at a time and in the manner
determined by the Plan Administrator or the Company, as appropriate), prior to
vesting of Restricted Stock, that the Participant relinquishes any and all
rights in the shares of Restricted Stock in exchange for an interest in the
Company's then-existing Deferred Compensation Plan (as it may be further
amended) (the "Deferred Compensation Plan") and receipt of such shares shall be
deferred until a pre-specified date in the future or until the Participant
ceases to be employed by the Company or any of its Subsidiaries, as elected by
the Participant. At the time the restrictions lapse on the shares of Restricted
Stock (as specified at the time of grant, or otherwise if changed by the Plan
Administrator), the number of shares of Common Stock issuable to the Participant
shall be credited to the deferred stock account (or such other account(s) as the
Management Committee shall deem necessary and appropriate) under a memorandum
deferred account established pursuant to the Deferred Compensation Plan, and any
dividends or other distributions paid on the Common Stock (or its equivalent)
shall be deemed reinvested in
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<PAGE> 15
additional shares of Common Stock (or its equivalent) until all credited
deferred shares shall become issuable pursuant to the Participant's election,
unless the Management Committee of the Deferred Compensation Plan shall
otherwise determine.
SECTION 9 GENERAL PROVISIONS
9.1 ISSUANCE OF COMMON STOCK
The Company shall not be required to issue any certificate for shares
of Common Stock prior to:
(a) obtaining any approval or ruling from the Securities and
Exchange Commission, the Internal Revenue Service, or any other
governmental agency which the Company, in its sole discretion, deems
necessary or advisable;
(b) listing the shares on any stock exchange on which the
Common Stock may then be listed; or
(c) completing any registration or other qualification of such
shares under any federal or state laws, rulings, or regulations of any
governmental body which the Company, in its sole discretion, determines
to be necessary or advisable.
All certificates for shares of Common Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions as the
Plan Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which Common Stock is then listed, and any applicable federal or state
securities laws, and the Plan Administrator may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. The foregoing provisions of this paragraph shall not be effective
if and to the extent that the shares of Common Stock delivered under the Plan
are covered by an effective and current registration statement under the
Securities Act of 1933, as amended, or if and so long as the Plan Administrator
determines that application of such provisions is no longer required or
desirable. In making such determination, the Plan Administrator may rely upon an
opinion of counsel for the Company.
9.2 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan, or any awards of cash or Restricted Stock pursuant
to the Plan, shall be construed to confer upon any Participant any right to
continued employment with the Company or a subsidiary, nor interfere in any way
with the right of the Company or a subsidiary to terminate the employment of
such Participant at any time without assigning any reason therefor.
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9.3 OTHER BENEFITS
Incentive awards shall not be considered as part of a Participant's
salary or used for the calculation of any other pay, allowance, pension, or
other benefit unless otherwise permitted by other benefit plans provided by the
Company or its subsidiaries, or required by law or by contractual obligations of
the Company or its subsidiaries. Notwithstanding the preceding sentence, the
Restricted Stock awarded pursuant to Section 7.1(c) shall not be considered as
part of a Participant's salary or used for the calculation of any other pay,
allowance, pension, or other benefit unless required by contractual obligations
of the Company or its subsidiaries.
9.4 NONASSIGNMENT
The right of a Participant or Beneficiary to the payment of any
incentive awards under the Plan may not be assigned, transferred, pledged, or
encumbered, nor shall such right or other interests be subject to attachment,
garnishment, execution, or other legal process.
9.5 LEAVES OF ABSENCE
Leaves of absence for such periods and purposes conforming to the
personnel policy of the Company, or of its subsidiaries, as applicable, shall
not be deemed terminations or interruptions of employment, unless a Participant
commences a leave of absence from which he or she is not expected to return to
active employment with the Company or its subsidiaries.
9.6 TRANSFERS AND PROMOTIONS
In the event a Participant is transferred from the Company to a
subsidiary, or vice versa, or is promoted or given different responsibilities,
the Restricted Stock awarded to the Participant prior to such date shall not be
affected.
9.7 UNFUNDED OBLIGATION
The incentive awards to be paid to Participants pursuant to this Plan
are an unfunded obligation of the Company. The Management Committee, in its sole
discretion, may direct the Company to share with its subsidiaries the costs of a
portion of the incentive awards paid to Participants who are executives of those
companies. The Company is not required to segregate any monies from its general
funds, to create any trusts, or to make any special deposits with respect to
this obligation. Beneficial ownership of any investments which the Company may
make to fulfill this obligation shall at all times remain in the Company. Any
investments and the creation or maintenance of any Participant account under the
Company's Deferral Compensation
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Plan shall not create or constitute a trust or a fiduciary relationship between
the Plan Administrator, the Management Committee or the Company and a
Participant, or otherwise create any vested interest in any Participant or his
or her Beneficiary or his or her creditors in any assets of the Company
whatsoever. The Participants shall have no claim against the Company for any
changes in the value of any assets which may be invested or reinvested by the
Company with respect to this Plan.
9.8 BENEFICIARY
The term "Beneficiary" shall mean the person or persons to whom
payments are to be paid pursuant to the terms of the Plan in the event of the
Participant's death. The designation shall be on a form provided by the
Management Committee, executed by the Participant and delivered to the
Management Committee. A Participant may change his or her beneficiary
designation at any time. A designation by a Participant under the Predecessor
Plan shall remain in effect under this Plan unless it is revoked or changed
under this Plan. If no Beneficiary is designated, the designation is
ineffective, or in the event the Beneficiary dies before the balance of a
Participant's account is paid, the balance shall be paid to the Participant's
spouse or, if there is no surviving spouse, to his or her lineal descendants,
pro rata, or, if there is no surviving spouse or any lineal descendant, to the
Participant's estate.
9.9 PERMANENT DISABILITY
A Participant shall be deemed to have become "permanently disabled" for
purposes of this Plan if the Management Committee finds, upon the basis of
medical evidence satisfactory to it, that the Participant is totally disabled,
whether due to physical or mental condition, so as to be prevented from engaging
in further employment by the Company or any of its subsidiaries and that such
disability will be permanent and continuous during the remainder of his or her
life.
9.10 INCAPACITY OF PARTICIPANT OR BENEFICIARY
If the Management Committee finds that any Participant or Beneficiary
to whom a payment is payable under the Plan is unable to care for his or her
affairs because of illness or accident or is under a legal disability, any
payment due (unless a prior claim therefore shall have been made by a duly
appointed legal representative), at the discretion of the Management Committee,
may be paid to the spouse, child, parent, brother, or sister of such Participant
or Beneficiary or to any person whom the Management Committee has determined has
incurred expense for such Participant or Beneficiary. Any such payment shall be
a complete discharge of the obligations of the Company under the provisions of
the Plan.
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El Paso Energy Corporation Page 14
1995 Incentive Compensation Plan
<PAGE> 18
9.11 WITHHOLDING TAXES
Appropriate provision shall be made for all taxes required to be
withheld in connection with the award or other taxable event with respect to
cash awards or Restricted Stock awards under the applicable laws and regulations
of any governmental authority, whether federal, state or local and whether
domestic or foreign, including, but not limited to, the required withholding of
a sufficient number of shares of Common Stock otherwise issuable to a
Participant to satisfy the said required minimum tax withholding obligations.
Unless otherwise provided in the instrument awarding the cash and Restricted
Stock award, a Participant is permitted to deliver shares of unrestricted Common
Stock, to the extent permitted by applicable regulations, for payment of
withholding taxes on the payment of a cash award or the vesting of Restricted
Stock. At the election of the Plan Administrator or, subject to approval of the
Plan Administrator at its sole discretion, at the election of a Participant,
shares of Common Stock may be withheld from the shares issuable to the
Participant upon the vesting of the Restricted Stock to satisfy tax withholding
obligations. The fair market value of Common Stock as delivered pursuant to this
Section 9.11 shall be valued as of the day prior to delivery, and shall be
calculated in accordance with Section 7.1. The withholding of shares of Common
Stock to pay tax obligations in connection with the vesting of Restricted Stock
by a Section 16 Insider must be approved by the Plan Administrator and must
occur (i) pursuant to an irrevocable election made six (6) months in advance of
the transaction, (ii) during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the twelfth
business day following such date, or (iii) otherwise in accordance with the
provisions of Rule 16b-3 and interpretations thereunder. In the event Rule 16b-3
is amended or interpreted to permit shares of Common Stock to be withheld to pay
tax obligations outside the periods described in clause (i) or (ii) of the
preceding sentence, or without Plan Administrator approval, the Plan
Administrator may determine that such provisions shall no longer apply to
Section 16 Insiders. Notwithstanding the foregoing, the Management Committee
shall determine, for Participants other than Section 16 Insiders, the
appropriate means of providing for the withholding of taxes.
Any Participant that makes a Section 83(b) election under the Code
shall, within ten (10) days of making such election, notify the Company in
writing of such election and shall provide the Company with a copy of such
election form filed with the Internal Revenue Service.
Tax advice should be obtained by the Participant prior to the
Participant's (i) entering into a transaction under or with respect to the Plan,
(ii) designating or choosing the time of distributions under the Plan, or (iii)
disposing of any shares of Common Stock issued under the Plan.
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El Paso Energy Corporation Page 15
1995 Incentive Compensation Plan
<PAGE> 19
9.12 TERMINATION AND AMENDMENT
The Board and the Plan Administrator may from time to time amend,
suspend, or terminate the Plan, in whole or in part, including, but not limited
to, any amendment necessary to insure that the Company may obtain any required
regulatory approvals, and if the Plan is suspended or terminated, the Plan
Administrator may reinstate any or all of its provisions. The Management
Committee may amend the Plan provided that it may not suspend or terminate the
Plan, substantially increase the administrative cost of the Plan or increase the
obligations of the Company, or expand the classification of employees who are
eligible to participate in the Plan. No amendment, suspension, or termination
may impair the right of a Participant or his or her designated Beneficiary to
receive the deferred compensation benefit accrued prior to the effective date of
such amendment, suspension, or termination.
9.13 STOCKHOLDER APPROVAL
Notwithstanding any other provision in this Plan, the Board, the Plan
Administrator, and the Management Committee may not amend the Plan without the
approval of the stockholders of the Company to: (a) materially increase the
number of shares that may be issued under the Plan; (b) materially modify the
requirements as to eligibility for participation in the Plan; (c) change the
Performance Goals; or (d) otherwise materially increase the benefits accruing to
the Participants under the Plan.
9.14 APPLICABLE LAW
The Plan shall be construed and governed in accordance with the laws of
the State of Texas.
9.15 EFFECTIVE DATE AND TERM OF THE PLAN
The Plan was originally adopted by the Board effective as of January
13, 1995, and approved by the Company's stockholders on March 16, 1995. The
Board amended and restated the Plan effective as of December 3, 1998. The Board
had previously amended and restated the Plan effective as of August 1, 1998, in
connection with the reorganization of the Company into a holding company
structure whereby El Paso Energy Corporation became the publicly held company
and El Paso Natural Gas Company became a wholly owned subsidiary. This Plan was
assumed by El Paso Energy Corporation pursuant to an Assignment and Assumption
Agreement effective as of August 1, 1998, by and between El Paso Energy
Corporation and El Paso Natural Gas Company. Incentive awards of cash,
Restricted Stock, or both may be granted pursuant to the Plan from time to time
with the period commencing upon adoption of the Plan by the Board and ending ten
(10) years after approval of the Plan by the stockholders. Awards of Restricted
Stock granted under the Plan shall continue to be subject to the terms and
conditions of the Plan after the expiration date. To the extent required for
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El Paso Energy Corporation Page 16
1995 Incentive Compensation Plan
<PAGE> 20
compliance with Rule 16b-3, shares of Common Stock underlying shares of
Restricted Stock granted subject to subsequent stockholder approval of the Plan
to Section 16 Insiders may not be sold until a date at least six (6) months
after the date such stockholder approval is obtained.
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El Paso Energy Corporation Page 17
1995 Incentive Compensation Plan
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of December 3, 1998.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
---------------------------------
Title: Executive Vice President
ATTEST:
By: /s/ David L. Siddall
----------------------------------
Title: Corporate Secretary
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El Paso Energy Corporation Page 18
1995 Incentive Compensation Plan
<PAGE> 1
EXHIBIT 10.F
EL PASO ENERGY CORPORATION
STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 20, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 PURPOSE...................................................1
SECTION 2 SHARES SUBJECT TO THE PLAN................................1
SECTION 3 ADMINISTRATION OF THE PLAN................................1
SECTION 4 PARTICIPATION IN THE PLAN.................................2
SECTION 5 STOCK OPTION GRANTS AND TERMS.............................2
SECTION 6 GENERAL PROVISIONS........................................5
SECTION 7 EFFECTIVE DATE AND DURATION OF PLAN.......................6
SECTION 8 COMPLIANCE WITH SECTION 16................................6
SECTION 9 AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN......6
</TABLE>
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El Paso Energy Corporation Table of Contents
Stock Option Plan For Non-Employee Directors
<PAGE> 3
EL PASO ENERGY CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 20, 1999
SECTION 1 PURPOSE
The purpose of the E1 Paso Energy Corporation Stock Option Plan for
Non-Employee Directors, Amended and Restated effective as of January 20, 1999
(the "Plan") is to attract and retain the services of experienced and
knowledgeable non-employee Directors of E1 Paso Energy Corporation (the
"Company"), and to provide an incentive for such Directors to increase their
proprietary interests in the Company's long-term success and progress.
SECTION 2 SHARES SUBJECT TO THE PLAN
2.1 Subject to Section 2.2, the maximum number of shares of common
stock of the Company, par value $3.00 per share, (the "Common Stock") for which
stock options may be granted under the Plan is two hundred thousand (200,000)
(the "Shares"). The Shares shall be shares held in the Company's treasury or out
of authorized but unissued shares of the Company, or partly out of each, as
shall be determined by the Plan Administrator (defined below), subject to, and
reduced by (on a post-split basis), the number of shares of Common Stock awarded
prior to the occurrence of a two-for-one stock split effected by the Company in
the form of a 100% stock dividend on April 1, 1998.
2.2 In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors of the Company
(the "Board"), may make appropriate adjustments in the number of Shares
authorized for the Plan and, with respect to outstanding stock options, the Plan
Administrator may make appropriate adjustments in the number of shares and the
option price. In the event of any adjustment in the number of Shares covered by
any stock option, any fractional Shares resulting from such adjustment shall be
disregarded and each such stock option shall cover only the number of full
Shares resulting from such adjustment.
SECTION 3 ADMINISTRATION OF THE PLAN
Unless otherwise determined by the Board and subject to Section 9, the
Plan shall be administered by a management committee (the "Plan Administrator")
consisting of the
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El Paso Energy Corporation Page 1
Stock Option Plan For Non-Employee Directors
<PAGE> 4
Chairman of the Board of the Company and such other senior officers as the
Chairman of the Board shall designate. The Plan Administrator shall interpret
the Plan, shall prescribe, amend and rescind rules relating to the Plan from
time to time as it deems proper and in the best interests of the Company, and
shall take any other action necessary for the administration of the Plan.
SECTION 4 PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an
employee of the Company or any subsidiary corporation (a "Participant") shall be
eligible to receive stock option grants as provided in the Plan.
SECTION 5 STOCK OPTION GRANTS AND TERMS
Each stock option granted to a Participant under the Plan and the
issuance of Shares thereunder shall be subject to the following terms:
5.1 OPTION GRANTS
A Participant shall automatically receive (a) a grant of stock options
to purchase three thousand (3,000) Shares when the Participant is initially
elected or appointed as a Director of the Company and (b) a grant of stock
options to purchase two thousand (2,000) Shares on each date the Participant is
reelected as a Director of the Company at the annual meeting of stockholders of
the Company, beginning with such annual meeting in 1998.
Each stock option granted under the Plan shall be evidenced by a
written instrument delivered by or on behalf of the Plan Administrator
containing terms, provisions and conditions not inconsistent with the Plan.
5.2 VESTING OF OPTIONS
Each stock option granted to a Participant under the Plan shall be
fully vested and immediately exercisable upon grant.
5.3 OPTION PRICE
The option price for a stock option granted under the Plan shall be the
fair market value of the Shares covered by the stock option at the time the
stock option is granted to the Participant. For purposes of the Plan, "fair
market value" shall be the mean between the highest and lowest quoted selling
prices at which the Common Stock was sold on
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El Paso Energy Corporation Page 2
Stock Option Plan For Non-Employee Directors
<PAGE> 5
such date as reported in the NYSE Composite Transactions by The Wall Street
Journal for such date or, if no Common Stock was traded on such date, on the
next preceding date on which Common Stock was so traded.
5.4 TIME AND MANNER OF EXERCISE OF A STOCK OPTION
Each option may be exercised in whole or in part at any time and from
time to time; provided, however, that no fewer than one hundred (100) Shares (or
the remaining Shares then purchasable under the stock option, if less than one
hundred (100) Shares) may be purchased upon exercise of any stock option
hereunder and that only whole Shares will be issued pursuant to the exercise of
any stock option.
The purchase price of shares purchased under stock options shall be
paid in full to the Company incident to the exercise of the stock option by
delivery of consideration equal to the product of the option price and the
number of shares purchased (the "Purchase Price"). Such consideration may be
paid (i) in cash or by check; (ii) in shares of Common Stock already owned by
the Participant for a sufficient time (generally six (6) months) to not result
in an accounting charge to the Company, or any combination of cash and Common
Stock, with the fair market value of such Common Stock valued as of the day
prior to delivery; or (iii) by delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds to pay the Purchase Price. The Plan
Administrator can specify that stock options granted or to be granted shall
permit additional techniques to pay the Purchase Price. A Participant shall have
none of the rights of a stockholder until the Shares of Common Stock are issued
to the Participant.
5.5 TERM OF OPTIONS
Each stock option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as follows:
(a) In the event that a Participant ceases to be a Director of the
Company for any reason other than the death of the
Participant, the stock options granted to such Participant
shall expire unless exercised by him or her within thirty-six
(36) months after the date such Participant ceases to be a
Director of the Company.
(b) In the event of the death of a Participant, whether during the
Participant's service as a Director or during the thirty-six
(36) month period referred to in Section 5.5(a), the stock
options granted to such Participant shall be exercisable, and
such stock options shall expire unless exercised within twelve
(12) months after the date of the Participant's death, by the
legal representatives or the estate of such Participant, by
any person or persons
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El Paso Energy Corporation Page 3
Stock Option Plan For Non-Employee Directors
<PAGE> 6
whom the Participant shall have designated in writing on forms
prescribed by and filed with the Company or, if no such
designation has been made, by the person or persons to whom
the Participant's rights have passed by will or the laws of
descent and distribution.
5.6 TRANSFERABILITY
Stock options granted under the Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or similar
process and may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will or the
applicable laws of descent and distribution. Notwithstanding the foregoing and
only as provided by the Plan Administrator or the Company, as applicable, stock
options may be transferred to a Participant's immediate family members, directly
or indirectly or by means of a trust, corporate entity or partnership (a person
who thus acquires this option by such transfer, a "Permitted Transferee"). A
transfer of a stock option may only be effected by the Company at the request of
the Participant and shall become effective upon the Permitted Transferee
agreeing to such terms as the Plan Administrator may require and only when
recorded in the Company's record of outstanding stock options. In the event a
stock option is transferred as contemplated hereby, the stock option may not be
subsequently transferred by the Permitted Transferee except a transfer back to
the Participant or by will or the laws of descent and distribution. A
transferred stock option may be exercised by a Permitted Transferee to the same
extent as, and subject to the same terms and conditions as, the Participant
(except as otherwise provided herein), as if no transfer had taken place. As
used herein, "immediate family" shall mean, with respect to any person, such
person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, and shall include adoptive relationships.
In addition, to the extent permitted by applicable law and the Rules
promulgated under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator may permit a recipient of a
stock option to designate in writing during the Participant's lifetime a
beneficiary to receive and exercise stock options in the event of the
Participant's death (as provided in Section 5.5(b)). Except as otherwise
provided for herein, any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any stock option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan or such
stock option, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred thereby, shall be null and void.
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El Paso Energy Corporation Page 4
Stock Option Plan For Non-Employee Directors
<PAGE> 7
5.7 DEFERRAL ELECTION
A Participant may elect irrevocably at any time prior to exercising a
stock option granted under the Plan that issuance of Shares upon exercise of
such option shall be deferred until the Participant reaches a pre-specified age
or ceases to serve as a Director of the Company, as elected by the Participant.
After the exercise of any such stock option and prior to the issuance of any
deferred shares, the number of Shares issuable to the Participant shall be
credited to a memorandum deferred account and any dividends or other
distributions paid on the Common Stock shall be deemed reinvested in additional
shares of Common Stock until all credited Shares shall become issuable pursuant
to the Participant's election.
SECTION 6 GENERAL PROVISIONS
6.1 Neither the Plan, nor the granting of a stock option, nor any other
action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that a Participant has a right
to continue as a Director for any period of time or at any particular rate of
compensation.
6.2 The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of a stock option granted under the
Plan, or record as a holder of record of Shares the name of the individual
exercising an option under the Plan, (a) without obtaining to the complete
satisfaction of the Plan Administrator the approval of all regulatory bodies
deemed necessary by the Plan Administrator, and (b) without complying, to the
Plan Administrator's complete satisfaction, with all rules and regulations under
federal, state or local law deemed applicable by the Plan Administrator.
6.3 All costs and expenses of the adoption and administration of the
Plan shall be borne by the Company.
6.4 The Plan shall be construed and governed in accordance with the
laws of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
6.5 Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise or other taxable event with respect to
stock options under the applicable laws or regulations of any governmental
authority, whether federal, state or local and whether domestic or foreign.
By participating in the Plan, each Participant shall agree that he or
she is responsible for obtaining qualified tax advice prior to the Participant's
(i) entering into any transaction under or with respect to the Plan, (ii)
designating or choosing the times of distributions under the Plan, or (iii)
disposing of any shares of Common Stock issued under the Plan.
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El Paso Energy Corporation Page 5
Stock Option Plan For Non-Employee Directors
<PAGE> 8
SECTION 7 EFFECTIVE DATE AND DURATION OF THE PLAN
The original plan was dated as of January 1, 1992 and adopted by the
Company's Board and approved by the Company's sole stockholder on January 15,
1992. The Board amended and restated the Plan effective as of August 1, 1998, in
connection with the reorganization of the Company into a holding company
structure whereby El Paso Energy Corporation became the publicly held company
and El Paso Natural Gas Company became a wholly owned subsidiary. This Plan was
assumed by El Paso Energy Corporation pursuant to an Assignment and Assumption
Agreement effective as of August 1, 1998, by and between El Paso Energy
Corporation and El Paso Natural Gas Company. The Board amended and restated the
Plan effective as of January 20, 1999. The Plan shall continue in effect until
it is terminated by action of the Board or the Company's stockholders, but such
termination shall not affect the then-outstanding terms of any stock options or
the Company's obligation to issue Shares under any then-exercised stock options
as to which a deferral election has been made under Section 5.7.
SECTION 8 COMPLIANCE WITH SECTION 16
The Company's intention is that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, with respect to awards granted to or held by Section 16 Insiders, the Plan
shall comply in all respects with Rule 16b-3 or any successor rule or rule of
similar application under Section 16 of the Exchange Act or rules thereunder,
and, if any Plan provision is later found not to be in compliance with such
exemption under Section 16 of the Exchange Act, that provision shall be deemed
modified as necessary to meet the requirements of such applicable exemption.
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El Paso Energy Corporation Page 6
Stock Option Plan For Non-Employee Directors
<PAGE> 9
SECTION 9 AMENDMENT, TERMINATION OR DISCONTINUANCE
OF THE PLAN
9.1 Subject to the Board and Section 9.2, the Plan Administrator may
from time to time make such amendments to the Plan as it may deem proper and in
the best interest of the Company, including, but not limited to, any amendment
necessary to ensure that the Company may obtain any regulatory approval referred
to in Section 6.2; provided, however, that unless the Plan Administrator
determines that such change does not materially impair the value of the stock
options, no change in any stock option theretofore granted may be made which
would impair the right of the Participant to acquire Shares or retain Shares
that the Participant may have acquired as a result of the Plan without the
consent of the Participant.
9.2 The Board may at any time suspend the operation of or terminate the
Plan with respect to any Shares which are not at that time subject to any
outstanding stock options.
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El Paso Energy Corporation Page 7
Stock Option Plan For Non-Employee Directors
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 20, 1999.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
--------------------------------
Title: Executive Vice President
ATTEST:
By /s/ David L. Siddall
-----------------------------
Title: Corporate Secretary
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El Paso Energy Corporation Page 8
Stock Option Plan For Non-Employee Directors
<PAGE> 1
EXHIBIT 10.G.1
AMENDMENT NO. 1 TO THE
1995 OMNIBUS COMPENSATION PLAN
Pursuant to Section 15.1 of the El Paso Energy Corporation 1995 Omnibus
Compensation Plan, as amended and restated (the "Plan"), the Plan is hereby
amended as follows, effective December 3, 1998:
The following subsection (k) shall be added to Section 6.4 to read as follows:
"(k) Deferral Election
A Participant may elect irrevocably (at a time and in a manner
determined by the Plan Administrator or the Company, as appropriate) at
any time prior to exercising an option granted under the Plan that
issuance of shares of Common Stock upon exercise of such option and/or
associated stock appreciation right shall be deferred until a
pre-specified date in the future or until the Participant ceases to be
employed by the Company or any of its Subsidiaries, as elected by the
Participant. After the exercise of any such option and prior to the
issuance of any deferred shares, the number of shares of Common Stock
issuable to the Participant shall be credited to the deferred stock
account (or such other account(s) as the Management Committee shall
deem necessary and appropriate) under a memorandum deferred account
established pursuant the Company's then-existing Deferred Compensation
Plan (as it may be further amended) (the "Deferred Compensation Plan"),
and any dividends or other distributions paid on the Common Stock (or
its equivalent) shall be deemed reinvested in additional shares of
Common Stock (or its equivalent) until all credited deferred shares
shall become issuable pursuant to the Participant's election, unless
the Management Committee of the Deferred Compensation Plan shall
otherwise determine."
Section 9.5(c) is amended to read as follows:
"(c) Form of Payment
A Participant or a Participant's Beneficiary shall be entitled
to receive from the Company a benefit payment as provided pursuant to
Sections 9.5(b)(i) or 9.5(b)(ii), as applicable, equal to the product
of the Adjusted Value and the number of vested Units of a Participant.
Such payment shall be made as soon as practicable following the
applicable Valuation Date in accordance with this Section 9.5(c).
Except as provided in Sections 9.5(d) and 9.7 (or unless the
Plan Administrator otherwise determines at any time that the form of
payment should be changed), benefit payments made to a Participant
pursuant to this Section 9, shall be made as follows:
(i) Participants employed by the Company holding the position
of Chairman of the Board, President or Chief Executive Officer
and Participants employed by Company Subsidiaries holding
equivalent
<PAGE> 2
positions, but not necessarily the same title, shall receive
their Performance Unit payout as follows:
(A) 50% (fifty percent) in cash and
(B) 50% (fifty percent) in Common Stock.
(ii) Participants employed by the Company holding the position
of Vice Chairman of the Board, Chief Operating Officer, or
Executive Vice President and Participants employed by Company
Subsidiaries holding equivalent positions, but not necessarily
the same title, shall receive their Performance Unit payout as
follows:
(A) 60% (sixty percent) in cash and
(B) 40% (forty percent) in Common Stock.
(iii) Participants employed by the Company holding the
position of Senior Vice President and Participants employed by
Company Subsidiaries holding equivalent positions, but not
necessarily the same title, shall receive their Performance
Unit payout as follows:
(A) 75% (seventy-five percent) in cash and
(B) 25% (twenty-five percent) in Common Stock."
The following Section 10.10 shall be added to read as follows:
"10.10 A Participant may elect irrevocably (at a time and in
the manner determined by the Plan Administrator or the Company, as
appropriate), prior to vesting of Restricted Stock, that the
Participant relinquishes any and all rights in the shares of Restricted
Stock in exchange for an interest in the Deferred Compensation Plan and
receipt of such shares shall be deferred until a pre-specified date in
the future or until the Participant ceases to be employed by the
Company or any of its Subsidiaries, as elected by the Participant. At
the time the restrictions lapse on the shares of Restricted Stock (as
specified at the time of grant, or otherwise if changed by the Plan
Administrator), the number of shares of Common Stock issuable to the
Participant shall be credited to the deferred stock account (or such
other account(s) as the Management Committee shall deem necessary and
appropriate) under a memorandum deferred account established pursuant
to the Deferred Compensation Plan, and any dividends or other
distributions paid on the Common Stock (or its equivalent) shall be
deemed reinvested in additional shares of Common Stock (or its
equivalent) until all credited deferred shares shall become issuable
pursuant to the Participant's election, unless the Management Committee
of the Deferred Compensation Plan shall otherwise determine."
-2-
<PAGE> 3
The first sentence of Section 13.7 is hereby deleted in its entirety and
replaced with the following sentence:
"Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event
with respect to options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Units under the
applicable laws and regulations of any governmental authority, whether
federal, state or local and whether domestic or foreign, including, but
not limited to, the required withholding of a sufficient number of
shares of Common Stock otherwise issuable to a Participant to satisfy
the said required minimum tax withholding obligations."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 3rd day of December, 1998.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
---------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- -------------------------------
Corporate Secretary
<PAGE> 4
AMENDMENT NO. 2 TO THE
1995 OMNIBUS COMPENSATION PLAN
Pursuant to Section 15.1 of the El Paso Energy Corporation 1995
Omnibus Compensation Plan, as amended and restated (the "Plan"), the Plan is
hereby amended as follows, effective January 20, 1999:
The following paragraph shall be added as the last paragraph to Section 6.4(d)
to read as follows:
"Notwithstanding any other provision in this Plan to the
contrary and unless the Plan Administrator shall otherwise determine,
in the event of a "cashless" exercise, and for that purpose only under
this Plan, a Participant's compensation shall be equal to the
difference between the actual sales price received for the underlying
Common Stock and the Option Price. For all other purposes under this
Plan, the Fair Market Value shall be the value against which
compensation is determined."
The following sentence shall be added as the last sentence to Section 6.4(e) to
read as follows:
"In addition, the Plan Administrator may require that a Participant
who wants to effectuate a "cashless" exercise of options be required
to sell the shares of Common Stock acquired in the associated exercise
to the Company, or in the open market through the use of a broker
selected by the Company, at such price and on such terms as the Plan
Administrator may determine at the time of grant, or otherwise."
Section 6.4(f) is hereby deleted in its entirety and replaced with the
following:
"(f) Nontransferability of Options
Options granted under the Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or
similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and
distribution. Notwithstanding the foregoing and only as provided by
the Plan Administrator or the Company, as applicable, Nonqualified
Options may be transferred to a Participant's immediate family
members, directly or indirectly or by means of a trust, corporate
entity or partnership (a person who thus acquires this option by such
transfer, a "Permitted Transferee"). A transfer of an option may only
be effected by the Company at the request of the Participant and shall
become effective upon the Permitted Transferee agreeing to such terms
as the Plan Administrator may require and only when recorded in the
Company's record of outstanding options. In the event an option is
transferred as contemplated hereby, the option may not be subsequently
transferred by the Permitted Transferee except
<PAGE> 5
a transfer back to the Participant or by will or the laws of descent
and distribution. A transferred option may be exercised by a
Permitted Transferee to the same extent as, and subject to the same
terms and conditions as, the Participant (except as otherwise provided
herein), as if no transfer had taken place. As used herein,
"immediate family" shall mean, with respect to any person, such
person's child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, sister-in-law, and shall
include adoptive relationships. In the event of exercise of a
transferred option by a Permitted Transferee, any amounts due to (or
to be withheld by) the Company upon exercise of the option shall be
delivered by (or withheld from amounts due to) the Participant, the
Participant's estate or the Permitted Transferee, in the reasonable
discretion of the Company.
In addition, to the extent permitted by applicable law and
Rule 16b-3, the Plan Administrator may permit a recipient of a
Nonqualified Option to designate in writing during the Participant's
lifetime a Beneficiary to receive and exercise the Participant's
Nonqualified Options in the event of such Participant's death (as
provided in Section 6.4(i)). A designation by a Participant under the
Company's Omnibus Compensation Plan dated as of January 1, 1992 (the
"Predecessor Plan") shall remain in effect under the Plan for any
options unless such designation is revoked or changed under the Plan.
Except as otherwise provided for herein, if any Participant attempts
to transfer, assign, pledge, hypothecate or otherwise dispose of any
option under the Plan or of any right or privilege conferred thereby,
contrary to the provisions of the Plan or such option, or suffers the
sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby, all affected options held by such
Participant shall be immediately forfeited."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 20th day of January, 1999.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
------------------------------------
Joel Richards III
Executive Vice President
Attest:
/s/ David L. Siddall
- -------------------------------------
Corporate Secretary
-2-
<PAGE> 1
EXHIBIT 10.H
EL PASO ENERGY CORPORATION
SUPPLEMENTAL BENEFITS PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 PURPOSES............................................................................. 1
SECTION 2 DEFINITIONS.......................................................................... 1
2.1 Beneficiary.......................................................................... 1
2.2 Board................................................................................ 1
2.3 Change in Control.................................................................... 1
2.4 Code................................................................................. 2
2.5 Company.............................................................................. 2
2.6 Deferred Compensation Plans.......................................................... 2
2.7 Employer............................................................................. 3
2.8 Management Committee................................................................. 3
2.9 Participant.......................................................................... 3
2.10 Pension Plan......................................................................... 3
2.11 RSP.................................................................................. 3
2.12 Surviving Spouse..................................................................... 3
SECTION 3 ADMINISTRATION....................................................................... 3
3.1 Management Committee................................................................. 3
SECTION 4 PARTICIPANTS......................................................................... 4
4.1 Participants......................................................................... 4
SECTION 5 BENEFITS............................................................................. 4
5.1 Supplemental Pension Benefits........................................................ 4
5.2 Supplemental RSP Benefits............................................................ 5
5.3 Other Supplemental Benefits.......................................................... 6
5.4 Time and Manner of Payment........................................................... 6
5.5 Determination of Supplemental Pension Benefit Payments............................... 7
SECTION 6 GENERAL PROVISIONS................................................................... 8
6.1 Unfunded Obligation.................................................................. 8
6.2 Discretionary Investment by Company.................................................. 8
6.3 Incapacity of Participant, Surviving Spouse or Beneficiary........................... 8
6.4 Nonassignment........................................................................ 9
6.5 No Right to Continued Employment..................................................... 9
6.6 Withholding Taxes.................................................................... 9
6.7 Termination and Amendment............................................................ 9
6.8 ERISA Exemption......................................................................10
6.9 Applicable Law.......................................................................10
</TABLE>
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El Paso Energy Corporation - i - Table of Contents
Supplemental Benefits Plan
<PAGE> 3
EL PASO ENERGY CORPORATION
SUPPLEMENTAL BENEFITS PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
SECTION 1 PURPOSES
The purposes of the El Paso Energy Corporation Supplemental Benefits
Plan (the "Plan") are to attract and retain exceptional executives by providing
retirement or termination benefits to selected officers and key management
employees of outstanding competence. This Plan is effective January 15, 1992.
SECTION 2 DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 BENEFICIARY
"Beneficiary" means the individual(s) designated by a Participant to
receive benefits from this Plan in the event of his or her death. If no
designated Beneficiary survives the Participant, the Beneficiary shall be the
person or persons in the first of the following classes who survive the
Participant:
(a) spouse at date of death,
(b) descendants, per stirpes,
(c) parents,
(d) brothers and sisters,
(e) estate.
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CHANGE IN CONTROL
A "Change in Control" shall be deemed to occur:
(a) if any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") is or becomes the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act),
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El Paso Energy Corporation Page 1
Supplemental Benefits Plan
<PAGE> 4
directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities;
(b) upon the first purchase of the Company's Common Stock
pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Company);
(c) upon the approval by the Company's stockholders of a
merger or consolidation, a sale or disposition of all or substantially
all of the Company's assets or a plan of liquidation or dissolution of
the Company; or
(d) if, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election or nomination for the election by
the Company's stockholders of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur if the Company either merges or consolidates with or into another
company or sells or disposes of all or substantially all of its assets to
another company, if such merger, consolidation, sale or disposition is in
connection with a corporate restructuring wherein the stockholders of the
Company immediately before such merger, consolidation, sale or disposition own,
directly or indirectly, immediately following such merger, consolidation, sale
or disposition at least eighty percent (80%) of the combined voting power of all
outstanding classes of securities of the company resulting from such merger or
consolidation, or to which the Company sells or disposes of its assets, in
substantially the same proportion as their ownership in the Company immediately
before such merger, consolidation, sale or disposition.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended.
2.5 COMPANY
"Company" means El Paso Energy Corporation, a Delaware corporation.
2.6 DEFERRED COMPENSATION PLANS
"Deferred Compensation Plans" means the El Paso Energy Corporation
Deferred Compensation Plan, 1995 Incentive Compensation Plan, 1995 Omnibus
Compensation Plan, Strategic Stock Plan and other similar plans maintained by an
Employer and such additional deferred compensation plans as may be designated by
the Company from time to time.
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El Paso Energy Corporation Page 2
Supplemental Benefits Plan
<PAGE> 5
2.7 EMPLOYER
"Employer" means El Paso Energy Corporation, and its subsidiaries.
2.8 MANAGEMENT COMMITTEE
"Management Committee" means the committee appointed pursuant to
Section 3.1 to administer the Plan.
2.9 PARTICIPANT
"Participant" means each individual who participates in the Plan in
accordance with Section 4.
2.10 PENSION PLAN
"Pension Plan" means the El Paso Energy Corporation Pension Plan and
any pension plans maintained by an Employer.
2.11 RSP
"RSP" means the El Paso Energy Corporation Retirement Savings Plan.
2.12 SURVIVING SPOUSE
"Surviving Spouse" means the person to whom surviving spouse death
benefits are to be paid pursuant to the terms of the Pension Plan.
SECTION 3 ADMINISTRATION
3.1 MANAGEMENT COMMITTEE
This Plan shall be administered by the Management Committee consisting
of the Chief Executive Officer of the Company and such other senior officers of
the Company as he or she shall designate. Subject to approval by the Board, the
Management Committee shall interpret the Plan, prescribe, amend and rescind
rules relating to it, select eligible Participants, and take all other action
necessary for its administration, which actions shall be final and binding upon
all Participants.
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El Paso Energy Corporation Page 3
Supplemental Benefits Plan
<PAGE> 6
SECTION 4 PARTICIPANTS
4.1 PARTICIPANTS
The Management Committee shall determine and designate the officers and
key management employees of an Employer who are eligible to become Participants
and receive benefits under the Plan. Each Participant must be a selected
management or highly compensated employee, or entitled to qualified plan
benefits in excess of the Code Section 415 limitations on benefits. A
Participant who is not a selected management or highly compensated employee
shall be eligible only for the benefits described in Sections 5.1(a) and 5.2(a).
SECTION 5 BENEFITS
5.1 SUPPLEMENTAL PENSION BENEFITS
Upon termination of employment of a Participant, the Company shall pay
or cause to be paid to such Participant (or his or her Surviving Spouse in the
case of his or her death) supplemental pension benefits under this Plan which,
when combined with the amounts he or she is entitled to receive under the
Pension Plan shall be the actuarial equivalent of the retirement, or Surviving
Spouse death benefits, which would have been payable to the Participant or his
or her Surviving Spouse had the Pension Plan's benefit formula been applied:
(a) without regard to the limitations of Section 415 of the
Code (including, without limitation, the maximum benefit payable under
Section 415(b)(1), the actuarial reduction for early retirement of
Section 415(b)(2)(C), the reduction for limited service or
participation of Section 415(b)(5) and the combined limits of Section
415(e)),
(b) by including in the Participant's compensation during the
period for which the Pension Plan benefits are computed, to the extent
not already done so under the Pension Plan, any amount that has not
been taken into account due to the limitations of Section 401(a)(17) of
the Code or due to a reduction of compensation that has occurred
pursuant to an election of the Participant under Section 125 or Section
401(k) of the Code or under the Deferred Compensation Plans, and
(c) by taking into account any service granted to the
Participant and any benefit formula adjustments required by an
employment contract.
Supplemental pension benefits under this Section 5 shall be vested and
nonforfeitable to the same extent that the related benefits under the Pension
Plan are vested and nonforfeitable. Notwithstanding the preceding sentence, in
the event of a
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El Paso Energy Corporation Page 4
Supplemental Benefits Plan
<PAGE> 7
Change in Control, the supplemental pension benefits computed under this Section
5.1 shall be fully vested and nonforfeitable immediately.
5.2 SUPPLEMENTAL RSP BENEFITS
Upon termination of employment of a Participant, the Company shall pay
or cause to be paid to such Participant (or his or her Beneficiary in the case
of his or her death) supplemental RSP benefits calculated as described below.
The Company shall periodically determine the amount of any additional Employer
matching contributions that would have been credited to a Participant's account
under the RSP if his or her current election of Participant contributions had
been given effect and no adjustment of such contributions had occurred due to:
(a) The maximum dollar limit under Code Section 415(c)(1)(A)
on RSP annual additions,
(b) the maximum limit under Code Section 401(a)(17) on the
compensation taken into account under the RSP,
(c) any further reductions in the compensation taken into
account under the RSP as a result of any deferrals of compensation
elected by the Participant pursuant to Section 125 or Section 401(k) of
the Code or under the Deferred Compensation Plans.
From time to time, as determined by the Management Committee, the
Company shall allocate amounts equal to such additional Employer matching
contributions to a ledger account (the "Memorandum Account") to be established
in the El Paso Energy Corporation Deferred Compensation Plan, as it may be
amended (the "Deferred Compensation Plan") for the Participant as of the time or
times that such amounts would have been contributed to the RSP if permitted
thereunder. Interest or earnings/losses, as applicable, will be credited to the
balance in each Participant's Memorandum Account on a semi-monthly basis or at
such other intervals as may be determined by the Management Committee. The
Management Committee shall determine the rate of interest or earnings/losses
periodically and in so doing may take into account the earnings, losses,
appreciation or depreciation attributable to any discretionary investment made
pursuant to Section 6.2, and any other factors it deems appropriate.
Notwithstanding any other provision to the contrary, any and all supplemental
RSP benefits determined pursuant to this Plan shall be credited to the Deferred
Compensation Plan.
Supplemental RSP benefits under this Section 5.2 shall be vested and
nonforfeitable to the same extent that the related benefits under the RSP are
vested and nonforfeitable.
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El Paso Energy Corporation Page 5
Supplemental Benefits Plan
<PAGE> 8
5.3 OTHER SUPPLEMENTAL BENEFITS
Upon the termination of employment of a Participant, the Company shall
pay or cause to be paid to such Participant (or his or her Beneficiary in the
case of his or her death) other supplemental benefits as determined by the Board
and contained in the Participant's employment contract or other agreement with
the Company. Other supplemental benefits under this Section 5.3 shall be vested
and nonforfeitable to the extent provided in the applicable employment contract
or agreement.
5.4 TIME AND MANNER OF PAYMENT
The payment of any benefits shall be made as provided below. Such
payment or payments shall constitute a complete discharge of all obligations to
the Participant and his or her Surviving Spouse or Beneficiary under the Plan.
(a) Supplemental Pension Benefit Payments. The amount of the
payments under this subparagraph 5.4(a) shall be determined pursuant to
Section 5.5.
(i) The payment of any supplemental benefits pursuant
to Section 5.1 owed to a Participant (or his or her Surviving
Spouse) shall be made in a lump sum if such Participant (A)
terminates employment with the Employer prior to attaining age
55, or (B) dies while employed with the Employer. The payment
shall be made as soon as practicable after the Participant's
termination of employment with the Employer or death.
(ii) In the absence of a valid, irrevocable election
made by a Participant pursuant to the provisions described in
(iii) below, the payment of any supplemental pension benefits
pursuant to Section 5.1 owed to a Participant who terminates
employment with the Employer after attaining age 55 shall be
made in a lump sum as soon as practicable after the
Participant terminates employment with the Employer. The
amount of such payments shall be determined under Section 5.5
below.
(iii) In the case of a benefit payable under Section
5.1, the Participant may irrevocably elect one of the forms of
payment described in (iv) below. Such election must be made by
the Participant before the later of (A) the date the
Participant attains age 53, or (B) 30 days after becoming a
Participant. For such election to become effective, the
Participant must remain in continuous active employment with
the Employer for at least two years or, in the case of an
election made pursuant to clause (B), such Participant must
remain in continuous active employment for a minimum of six
months following such election. In no event will an election
become effective if the Participant terminates
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El Paso Energy Corporation Page 6
Supplemental Benefits Plan
<PAGE> 9
employment with the Employer prior to attaining age 55, or
dies in service.
(iv) A Participant may elect only one of the
following forms of payment:
(A) A lump sum;
(B) Monthly payments made over a five-year
period, notwithstanding the earlier death of
the Participant;
(C) Monthly payments made over a ten-year
period, notwithstanding the earlier death of
the Participant; or
(D) Monthly payments made over the remaining
life of the Participant.
In the case of option (A), payment will be made as soon as
practicable after the Participant's termination of employment with the
Employer. In the case of (B), (C) and (D), monthly payments will
commence as soon as practicable after the Participant's termination of
employment with the Employer.
(b) Supplemental RSP Benefit Payments. The payment of any
supplemental RSP benefits pursuant to Section 5.2 owed to a Participant
(or his or her Beneficiary) shall be made in a lump sum as soon as
practicable after the Participant's termination of employment with the
Employer and shall be in an amount equal to the Participant's
Memorandum Account balance at the time of such payment, subject to
other applicable terms and conditions of the Deferred Compensation Plan
(other than the time and manner of payment).
(c) Other Supplemental Benefit Payments. The payment of any
other supplemental benefits pursuant to an employment contract or other
agreement with the Company under Section 5.3 shall be made as provided
in such employment contract or other agreement.
5.5 DETERMINATION OF SUPPLEMENTAL PENSION BENEFIT PAYMENTS
The amount of a payment of supplemental pension benefits pursuant to
Section 5.1 to a Participant (or his or her Surviving Spouse in the event of the
Participant's termination of employment on account of death) shall be determined
by calculating the benefit according to the terms of the Pension Plan as a
single life annuity. If another form of payment is payable, the amount under
such form shall be actuarially equivalent to such single life benefit using the
interest rate and mortality assumptions for calculating lump sum distributions
under the Pension Plan.
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El Paso Energy Corporation Page 7
Supplemental Benefits Plan
<PAGE> 10
SECTION 6 GENERAL PROVISIONS
6.1 UNFUNDED OBLIGATION
The supplemental benefits to be paid to Participants and/or their
Surviving Spouses and Beneficiaries pursuant to this Plan are unfunded
obligations of the Company, and shall, until actual payment, continue to be part
of the general funds of the Company. The Company is not required to segregate
any monies from its general funds, or to create any trusts, or to make any
special deposits with respect to these obligations. Beneficial ownership of any
investments, including trust investments, which the Company may make to fulfill
these obligations shall at all times remain in the Company. Any investments and
the creation or maintenance of any trust or memorandum accounts shall not create
or constitute a trust or a fiduciary relationship between the Management
Committee or the Employer and a Participant, or otherwise create any vested or
beneficial interest in any Participant or his or her Surviving Spouse or
Beneficiary or his or her creditors in any assets of the Employer whatsoever.
The Participants and their Surviving Spouses and Beneficiaries shall have no
claim against the Employer for any changes in the value of any assets which may
be invested or reinvested by the Company with respect to this Plan.
6.2 DISCRETIONARY INVESTMENT BY COMPANY
The Management Committee, after consulting with the actuary employed by
the Company in conjunction with the Pension Plan, may from time to time direct
the investment by the Company of an amount sufficient to meet all or such
portion of the supplemental benefits to be paid under this Plan as the
Management Committee, in its sole discretion, shall determine. The Management
Committee may in its sole discretion determine that all or some portion of the
amount to be invested shall be paid into one or more grantor trusts to be
established by the Employer of which it shall be the Beneficiary, and to the
assets of which it shall become entitled as and to the extent that Participants
(or their Surviving Spouses or Beneficiaries in the case of their deaths)
receive benefits under this Plan. The Management Committee may designate an
investment advisor to direct investments and reinvestments of the funds,
including investments of any grantor trusts hereunder.
6.3 INCAPACITY OF PARTICIPANT, SURVIVING SPOUSE OR BENEFICIARY
If the Management Committee finds that any Participant, Surviving
Spouse or Beneficiary to whom a payment is payable under the Plan is unable to
care for his or her affairs because of illness or accident or is under a legal
disability, any payments due (unless a prior claim therefor shall have been made
by a duly appointed legal representative) at the discretion of the Management
Committee may be paid to the spouse, child, parent or brother or sister of such
Participant, Surviving Spouse or Beneficiary, or to any person whom the
Management Committee has determined has incurred expense for such Participant,
Surviving Spouse or
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El Paso Energy Corporation Page 8
Supplemental Benefits Plan
<PAGE> 11
Beneficiary. Any such payment shall be a complete discharge of the obligations
of the Company under the provisions of the Plan.
6.4 NONASSIGNMENT
The right of a Participant or his or her Surviving Spouse or
Beneficiary to the payment of any amounts under the Plan may not be assigned,
transferred, pledged or encumbered nor shall such right or other interests be
subject to attachment, garnishment, execution or other legal process.
6.5 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall be construed to confer upon any Participant
any right to continued employment with the Company or a subsidiary nor interfere
in any way with the right of the Company or a subsidiary to terminate the
employment of such Participant at any time without assigning any reason
therefor.
6.6 WITHHOLDING TAXES
Provision shall be made for the withholding of taxes under the Federal
Insurance Contributions Act as required by regulations and appropriate income
taxes shall be withheld from payments made to Participants pursuant to this
Plan.
6.7 TERMINATION AND AMENDMENT
The Board may from time to time amend, suspend, or terminate the Plan,
in whole or in part, and if the Plan is suspended or terminated, the Board may
reinstate any or all of its provisions. The Management Committee may amend the
Plan provided that it may not suspend or terminate the Plan, substantially
increase the administrative cost of the Plan or increase the obligations of the
Company, or expand the classification of employees who are eligible to
participate in the Plan. No amendment, suspension or termination may, however,
impair the right of a Participant or his or her Surviving Spouse or Beneficiary
to receive the supplemental benefits accrued prior to the effective date of such
amendment, suspension or termination. The Board of Directors amended and
restated the Plan effective as of August 1, 1998, in connection with the
reorganization of the Company into a holding company structure whereby El Paso
Energy Corporation became the publicly held company and El Paso Natural Gas
Company became a wholly owned subsidiary. This Plan was assumed by El Paso
Energy Corporation pursuant to an Assignment and Assumption Agreement effective
as of August 1, 1998, by and between El Paso Energy Corporation and El Paso
Natural Gas Company.
If the Plan is terminated, Participants, Surviving Spouses and
Beneficiaries who have accrued benefits under the Plan as of the date of
termination will receive payment of
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El Paso Energy Corporation Page 9
Supplemental Benefits Plan
<PAGE> 12
such benefits at the times specified in the Plan. Notwithstanding this or any
other provision of the Plan to the contrary, this Plan may not be terminated so
long as the Pension Plan and/or RSP remain in effect.
6.8 ERISA EXEMPTION
The portion of this Plan providing benefits in excess of the
limitations of Section 415 of the Code is intended to qualify for exemption from
the Employee Retirement Income Security Act of 1974 ("ERISA") as an unfunded
excess benefit plan under Sections 3(36) and 4(b)(5) of ERISA. The portion of
this Plan providing benefits in excess of the limitation of Section 401(a)(17)
of the Code and other supplemental benefits is intended to qualify for exemption
from Parts II, III and IV of ERISA as a plan maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of
ERISA.
6.9 APPLICABLE LAW
The Plan shall be construed and governed in accordance with the laws of
the State Texas.
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El Paso Energy Corporation Page 10
Supplemental Benefits Plan
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of December 3, 1998.
EL PASO ENERGY CORPORATION
By /s/ Joel Richards III
--------------------------------
Title: Executive Vice President
ATTEST:
By /s/ David L. Siddall
-----------------------------------------
Title: Corporate Secretary
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El Paso Energy Corporation Page 11
Supplemental Benefits Plan
<PAGE> 1
EXHIBIT 10.J
EL PASO ENERGY CORPORATION
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 PURPOSE........................................................................................ 1
1.1 Purpose........................................................................................ 1
SECTION 2 ADMINISTRATION................................................................................. 1
2.1 Management Committee........................................................................... 1
SECTION 3 PARTICIPANTS................................................................................... 1
3.1 Participants................................................................................... 1
SECTION 4 DEFERRALS...................................................................................... 2
4.1 Eligible Compensation.......................................................................... 2
4.2 Deferred Payment of Base Salary................................................................ 2
4.3 Deferred Payment of Cash Incentive Awards...................................................... 3
4.4 Deferred Payment for Performance Units......................................................... 3
4.5 Deferred Payment for Equity Awards............................................................. 3
4.6 Deferred Payment for Amounts Awarded Under Other Plans......................................... 3
4.7 Memorandum Account and Subaccounts............................................................. 4
4.8 Prior Deferrals................................................................................ 5
4.9 Payment of Deferred Eligible Compensation...................................................... 5
4.10 Acceleration of Payment of Deferred Eligible Compensation...................................... 5
SECTION 5 GENERAL PROVISIONS............................................................................. 6
5.1 Unfunded Obligation............................................................................ 6
5.2 Discretionary Investment by Company............................................................ 6
5.3 Beneficiary.................................................................................... 6
5.4 Permanent Disability........................................................................... 7
5.5 Incapacity of Participant or Beneficiary....................................................... 7
5.6 Nonassignment.................................................................................. 7
5.7 No Right to Continued Employment............................................................... 7
5.8 Withholding Taxes.............................................................................. 7
5.9 Termination and Amendment...................................................................... 8
5.10 Applicable Law................................................................................. 8
5.11 Compliance with Securities Laws................................................................ 8
5.12 Source of Common Stock and Adjustments......................................................... 8
5.13 Regulatory Approvals and Listing............................................................... 9
</TABLE>
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El Paso Energy Corporation -i- Table of Contents
Deferred Compensation Plan
<PAGE> 3
EL PASO ENERGY CORPORATION
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1998
SECTION 1 PURPOSE
1.1 PURPOSE
The purpose of the El Paso Energy Corporation Deferred Compensation
Plan (the "Plan") is to permit the executives and certain key management
employees of El Paso Energy Corporation (the "Company") and its subsidiaries to
defer all or some part of their Eligible Compensation (as defined below) in
order for the Company to attract and retain exceptional personnel.
SECTION 2 ADMINISTRATION
2.1 MANAGEMENT COMMITTEE
The Plan shall be administered by a management committee (the
"Management Committee") consisting of the Chief Executive Officer and such other
senior officers as he or she shall designate. Subject to the Compensation
Committee (the "Compensation Committee") of the Company's Board of Directors
(the "Board"), the Management Committee shall interpret the Plan, prescribe,
amend and rescind rules relating to it, select eligible Participants, and take
all other actions necessary for its administration, which actions shall be final
and binding upon all Participants. No member of the Management Committee shall
vote on any matter that pertains solely to himself or herself.
SECTION 3 PARTICIPANTS
3.1 PARTICIPANTS
The Management Committee shall determine and designate the executives
and key management employees of the Company and its subsidiaries who are
eligible to defer Eligible Compensation under the Plan (the "Participants").
Members of the Board who are full-time executives of the Company shall be
eligible to participate in the Plan.
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Deferred Compensation Plan
<PAGE> 4
SECTION 4 DEFERRALS
4.1 ELIGIBLE COMPENSATION
For purposes of this Plan the term "Eligible Compensation" means the
following:
a. "Base Salary" is the Participant's base salary being paid for
the year or partial year, exclusive of bonuses or other forms
of cash incentive compensation for the year;
b. "Cash Incentive Award" is an annual incentive award made under
the Company's Incentive Compensation Plan or an annual cash
incentive award under a similar annual incentive plan
maintained by the Company or a subsidiary of the Company, as
applicable;
c. Payment for "Performance Units" which are granted pursuant to
the Company's Omnibus Compensation Plan or other similar
performance unit plan maintained by the Company or a
subsidiary of the Company, as applicable;
d. "Equity Award" is a Participant's award of nonqualified stock
options, stock appreciation rights, restricted stock, or other
equity-based compensation granted pursuant to the terms and
conditions of the applicable Company plan from which such
awards were made; and
e. Compensation otherwise payable pursuant to the terms of other
plans which the Company or its subsidiaries may from time to
time maintain, including but not limited to, the supplemental
RSP benefits under the Company's Supplemental Benefit Plan, as
may be amended from time to time.
4.2 DEFERRED PAYMENT OF BASE SALARY
Prior to January 1 of any year (or, with respect to individuals who
first become Participants during a year, on or before the date on which they
become Participants) each Participant may elect to have the payment of all or a
portion of his or her Base Salary for the year beginning January 1 (or, if
later, so much of the year as commences on the day following the date on which
the individual becomes a Participant) deferred until his or her retirement,
death, Permanent Disability (as defined below), resignation or termination of
employment with the Company and its subsidiaries, or until any other specified
time that is determined by the Management Committee. The minimum amount that may
be so deferred is $1,000. The election shall be irrevocable and shall be made on
a form prescribed by the Management Committee. The election shall apply only to
that calendar year or partial year. If a Participant has not made an election,
the Base Salary paid to him or her for that year shall be paid in accordance
with the Company's normal payroll practices.
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El Paso Energy Corporation Page 2
Deferred Compensation Plan
<PAGE> 5
4.3 DEFERRED PAYMENT OF CASH INCENTIVE AWARDS
Each Participant may, at such time as the Management Committee may
determine, in its sole discretion, elect to have the payment of all or a portion
of his or her Cash Incentive Award, if any, for the year deferred until the
Participant's retirement, death, Permanent Disability, resignation or
termination of employment with the Company and its subsidiaries, or until any
other specified time that is determined by the Management Committee. The minimum
amount that may be so deferred is $1,000. The election shall be irrevocable and
shall be made on a form prescribed by the Management Committee. The election
shall apply only to that year. If a Participant has not made an election, any
Cash Incentive Award granted to the Participant for that year shall be paid
pursuant to the terms of the applicable annual incentive compensation plan under
which the award was made.
4.4 DEFERRED PAYMENT FOR PERFORMANCE UNITS
Each Participant may, prior to the vesting of Performance Units and in
a manner prescribed by the Management Committee, elect to have all or a portion
of the lump-sum cash payment payable pursuant to the terms of the applicable
omnibus compensation plan or other performance unit plan with respect to vested
Performance Units deferred until the Participant's retirement, death, Permanent
Disability, resignation or termination of employment with the Company and its
subsidiaries or until any other specified time that is determined by the
Management Committee. The minimum amount that may be so deferred is $1,000. The
election shall be irrevocable and shall be made on a form prescribed by the
Management Committee. The election shall apply only to the Performance Units
that may become vested with respect to that year. If a Participant has not made
an election, any cash payment for Performance Units shall be paid pursuant to
the applicable provisions of the plan under which the Performance Units were
granted.
4.5 DEFERRED PAYMENT FOR EQUITY AWARDS
Each Participant may elect, at a time and in a manner determined by the
Management Committee and the plan administrator of the plan from which Equity
Awards are granted, to have the payment of all or a portion of such Equity Award
deferred until his or her retirement, death, Permanent Disability, resignation
or termination of employment with the Company and its subsidiaries, or until any
other specified time that is determined by the Management Committee. The
election shall be irrevocable and shall be made on a form prescribed or accepted
by the Management Committee. If a Participant has not made an election, any
Equity Award granted to the Participant shall be paid pursuant to the terms of
the applicable Company plan under which the award was made. All Equity Awards
deferred shall be credited to the Deferred Stock Account, unless the Management
Committee shall, in its sole discretion, otherwise determine.
4.6 DEFERRED PAYMENT FOR AMOUNTS AWARDED UNDER OTHER PLANS
Participants may be allowed to irrevocably elect to defer, in the sole
discretion of the Management Committee, amounts that would otherwise be payable
under any other plan
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El Paso Energy Corporation Page 3
Deferred Compensation Plan
<PAGE> 6
maintained or which may be maintained by the Company or its subsidiaries. Any
such deferrals must be permitted pursuant to the terms of such other plans. If
an election is made under another Company plan to have amounts deferred pursuant
to the terms of this Plan, the amount initially to be credited as deferred under
this Plan shall be determined as provided in the applicable other plan of the
Company. Except as otherwise specifically provided in any such other plan, from
the date specified in the applicable election (or if no such date is specified
then from the date such election is effective) until the date any deferred
amount is paid (or otherwise credited back to the applicable plan as provided in
applicable provisions of such plan which are acceptable to the Management
Committee), the provisions of this Plan shall govern (i) the determination of
the value of amounts deferred, including the calculation (and, where applicable,
the disposition), of income, expenses, gains and losses to be credited to such
deferrals, and (ii) the terms and conditions of the distribution of such
deferred amounts.
4.7 MEMORANDUM ACCOUNT AND SUBACCOUNTS
The Company shall establish a ledger account (the "Memorandum Account")
for each Participant who has elected to defer the payment of any part of his or
her Eligible Compensation, for the purpose of reflecting the Company's
obligation to pay the deferred amount as provided in Section 4.9. Interest or
other income, expense, gain or loss, as applicable, shall accrue on the deferred
amount to the date of distribution, and shall be credited to the Memorandum
Account at the end of each calendar quarter or such other periods as may be
determined by the Management Committee. The Management Committee shall determine
the rate of interest or method for determining other income, expense, gain or
losses periodically and in so doing may take into account the earnings, losses,
appreciation or depreciation attributable to any discretionary investments made
pursuant to Section 5.2, including, but not limited to, any investment direction
from a Participant regarding amounts credited to his or her Memorandum Account.
A Memorandum Account can consist of the following types of subaccounts:
a. "Interest Account" means a subaccount that is credited with
interest periodically at such times and rates as may be
determined by the Management Committee in its sole discretion;
b. "Investment Account" means the subaccount that has
earnings/losses credited periodically based upon, at least in
part, the performance of certain investment funds (and can
include any other subaccount other than the Deferred Stock
Account) made available from time to time by the Management
Committee, in its sole discretion;
c. "Deferred Stock Account" means the subaccount that is credited
with hypothetical shares of Company common stock, par value
three dollars ($3.00) per share ("Common Stock"), and has
earnings/losses credited periodically based upon the
performance of the Common Stock, including, but not limited
to, the reinvestment of dividends and distributions, if any,
made on the Common Stock; and
d. Such other subaccounts as the Management Committee, in its
sole discretion, shall determine to create.
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El Paso Energy Corporation Page 4
Deferred Compensation Plan
<PAGE> 7
4.8 PRIOR DEFERRALS
Compensation which was deferred by a Participant under the Company's
Incentive Compensation Plan or Omnibus Compensation Plan or a similar plan
maintained by the Company's former parent company shall be paid by the Company
pursuant to the terms of this Plan.
4.9 PAYMENT OF DEFERRED ELIGIBLE COMPENSATION
Upon the retirement, death, Permanent Disability, resignation,
designated payment date, or termination of employment of a Participant who has
elected to defer any portion of his or her Eligible Compensation for any year,
the Company shall pay to such Participant (or his or her Beneficiary in the case
of his or her death) an amount equal to the balance of his or her Memorandum
Account, plus interest, income, expense, gain or loss, as applicable (at a rate
determined by the Management Committee pursuant to Section 4.7), on the
outstanding account balance to the date of distribution and subject to approval
of the Management Committee, as follows:
(a) a lump-sum cash payment;
(b) a lump-sum Common Stock distribution, to the extent the
Participant has shares of Common Stock credited to his or her
Deferred Stock Account (subject to applicable laws and
regulations concerning the issuance of such shares of Common
Stock);
(c) a combination of (a) and (b) above; or
(d) in periodic installments (consisting of cash and/or Common
Stock (to the extent of the Participant's Deferred Stock
Account)) over a period of years to be determined by the
Participant at the time the deferral election is made, or as
otherwise provided by the Management Committee in its sole
discretion.
Unless otherwise elected at the time of deferral, payment of deferred
amounts shall commence or be made in January of the year following the calendar
year in which the Participant retired, died, became Permanently Disabled,
resigned, or otherwise terminated employment.
4.10 ACCELERATION OF PAYMENT OF DEFERRED ELIGIBLE COMPENSATION
The Management Committee, in its sole discretion, may accelerate the
payment of the unpaid balance of a Participant's Memorandum Account in the event
of the Participant's retirement, death, Permanent Disability, resignation or
termination of employment, or upon its determination that the Participant (or
his or her Beneficiary in the case of his or her death) has incurred a severe
financial hardship. The Management Committee in making its determination may
consider such factors and require such information as it deems appropriate.
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El Paso Energy Corporation Page 5
Deferred Compensation Plan
<PAGE> 8
SECTION 5 GENERAL PROVISIONS
5.1 UNFUNDED OBLIGATION
The deferred amounts to be paid to Participants pursuant to this Plan
are unfunded obligations of the Company. The Company is not required to
segregate any monies from its general funds, to create any trusts, or to make
any special deposits with respect to this obligation. Beneficial ownership of
any investments, including trust investments, which the Company may make to
fulfill this obligation shall at all times remain in the Company. Any
investments and the creation or maintenance of any trust or memorandum accounts
shall not create or constitute a trust or a fiduciary relationship between the
Management Committee or the Company and a Participant, or otherwise create any
vested or beneficial interest in any Participant or his or her Beneficiary or
his or her creditors in any assets of the Company whatsoever. The Participants
shall have no claim against the Company for any changes in the value of any
assets which may be invested or reinvested by the Company with respect to this
Plan.
5.2 DISCRETIONARY INVESTMENT BY COMPANY
The Management Committee may direct that an amount equal to the
deferred amounts shall be invested by the Company as the Management Committee,
in its sole discretion, shall determine. The Management Committee may, in its
sole discretion, determine that all or some portion of an amount equal to the
deferred amounts shall be paid into one or more grantor trusts to be established
by the Company of which it shall be the beneficiary, and to the assets of which
it shall become entitled as and to the extent that Participants receive benefits
under this Plan. The Management Committee may designate an investment advisor(s)
to direct investments and reinvestments of funds, including investments of any
grantor trusts hereunder, and, subject to Section 4.5, may consider (but shall
not be bound by) investment direction from Participants regarding the amounts
credited to his or her Memorandum Account.
5.3 BENEFICIARY
The term "Beneficiary" shall mean the person or persons to whom
payments are to be made pursuant to the terms of the Plan in the event of the
Participant's death. The designation shall be on a form provided by the
Management Committee, executed by the Participant, and delivered to the
Committee. A Participant may change his Beneficiary designation at any time. A
designation by a Participant under the Burlington Resources Inc. Deferred
Compensation Plan shall remain in effect under this Plan unless it is revoked or
changed under this Plan. If no Beneficiary is designated, the designation is
ineffective, or in the event the Beneficiary dies before the balance of the
Memorandum Account is paid, the balance shall be paid to the Participant's
spouse or lineal descendants, to the Participant's estate (unless the Management
Committee for a given year has designated investment in an annuity, in which
case the payment options selected by the Participant with respect thereto shall
govern).
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El Paso Energy Corporation Page 6
Deferred Compensation Plan
<PAGE> 9
5.4 PERMANENT DISABILITY
A Participant shall be deemed to have become disabled for purposes of
this Plan if the Management Committee finds, upon the basis of medical evidence
satisfactory to it, that the Participant is totally disabled, whether due to
physical or mental condition, so as to be prevented from engaging in further
employment by the Company or any of its subsidiaries and that such disability
will be permanent and continuous during the remainder of his or her life.
5.5 INCAPACITY OF PARTICIPANT OR BENEFICIARY
If the Management Committee finds that any Participant or Beneficiary
to whom a payment is payable under the Plan is unable to care for his or her
affairs because of illness or accident or is under a legal disability, any
payment due (unless a prior claim therefore shall have been made by a duly
appointed legal representative) at the discretion of the Committee, may be paid
to the spouse, child, parent or brother or sister of such Participant or
Beneficiary or to any person whom the Committee has determined has incurred
expense for such Participant or Beneficiary. Any such payment shall be a
complete discharge of the obligations of the Company under the provisions of the
Plan.
5.6 NONASSIGNMENT
The right of a Participant or Beneficiary to the payment of any amounts
under the Plan may not be assigned, transferred, pledged or encumbered nor shall
such right or other interests be subject to attachment, garnishment, execution
or other legal process.
5.7 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall be construed to confer upon any Participant
any right to continued employment with the Company or a subsidiary, nor
interfere in any way with the right of the Company or a subsidiary to terminate
the employment of such Participant at any time without assigning any reason
therefor.
5.8 WITHHOLDING TAXES
Provision shall be made for the withholding of taxes under the Federal
Insurance Contributions Act at the time of vesting of benefits under the Plan
and appropriate income taxes shall be withheld from payments made to
Participants pursuant to this Plan, including if so determined by the Management
Committee, with respect to any payment otherwise to be made in the form of
Company Common Stock, but not limited to, withholding a sufficient number of
shares of Company Common Stock to satisfy the minimum required federal, state
and local income and employment tax withholding obligations associated with such
distribution; with the value of such shares withheld to be determined by using
the fair market value (average of high and low selling prices of the Company
Common Stock, as reported in the NYSE-Composite Transactions by The Wall Street
Journal) on the day prior to day the distribution is made, or if the New York
Stock Exchange is closed on said day, the next succeeding business day.
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El Paso Energy Corporation Page 7
Deferred Compensation Plan
<PAGE> 10
5.9 TERMINATION AND AMENDMENT
The Board or the Compensation Committee may from time to time amend,
suspend or terminate the Plan, in whole or in part, and if the Plan is suspended
or terminated, the Board or the Compensation Committee may reinstate any or all
of its provisions. The Management Committee may amend the Plan provided that it
may not suspend or terminate the Plan, substantially increase the administrative
cost of the Plan or the obligations of the Company, or expand the classification
of employees who are eligible to participate in the Plan. No amendment,
suspension or termination may impair the right of a Participant or his
designated beneficiary to receive the deferred compensation benefit accrued
prior to the effective date of such amendment, suspension or termination. The
Board amended and restated the Plan effective as of December 3, 1998. The Board
had previously amended and restated the Plan effective as of August 1, 1998, in
connection with the reorganization of the Company into a holding company
structure whereby El Paso Energy Corporation became the publicly held company
and El Paso Natural Gas Company became a wholly owned subsidiary. This Plan was
assumed by El Paso Energy Corporation pursuant to an Assignment and Assumption
Agreement effective as of August 1, 1998, by and between El Paso Energy
Corporation and El Paso Natural Gas Company.
5.10 APPLICABLE LAW
The Plan shall be construed and governed in accordance with the laws of
the State of Texas, except to the extent preempted by applicable federal law.
5.11 COMPLIANCE WITH SECURITIES LAWS
The Company's intention is that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, this Plan shall be operated in compliance with
Section 16(b) thereof, and the rules and regulations promulgated thereunder;
and, if any Plan provision or transaction is found not to comply with Section
16(b), that provision or transaction, as the case may be, shall be deemed null
and void. Notwithstanding anything in the Plan to the contrary, the Management
Committee, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
subject to Section 16(b) without so restricting, limiting or conditioning the
Plan with respect to other Participants.
5.12 SOURCE OF COMMON STOCK AND ADJUSTMENTS
Any shares of Common Stock delivered pursuant to this Plan shall
consist of Common Stock held in the Company's treasury or out of authorized but
unissued shares of the Company, or partly out of each, as shall be determined by
the Management Committee or the Company, as appropriate; provided such shares
are available pursuant to original plan from which they were deferred. Shares of
Common Stock deferred under this Plan as a result of an Equity Award are subject
to the terms and conditions of the plan from which Equity Award was originally
granted.
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El Paso Energy Corporation Page 8
Deferred Compensation Plan
<PAGE> 11
In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board, upon the recommendation of
the Management Committee, may make appropriate adjustments in the number of
shares credited to each Participant's Deferred Stock Account.
5.13 REGULATORY APPROVALS AND LISTING
The Company shall not be required to issue any certificate for shares
of Common Stock upon the distribution of Common Stock under the Plan prior to:
(a) obtaining any approval or ruling from the Securities and Exchange
Commission, the Internal Revenue Service or any other governmental agency which
the Company, in its sole discretion, shall determine to be necessary or
advisable; (b) listing of such shares on any stock exchange on which the Common
Stock may then be listed; or (c) completing any registration or other
qualification of such shares under any federal or state laws, rulings or
regulations of any governmental body which the Company, in its sole discretion,
shall determine to be necessary or advisable.
All certificates for shares of Common Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions as the
Management Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which Common Stock is then listed and any applicable federal or State securities
laws, and the Management Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such restrictions. The
foregoing provisions of this paragraph shall not be effective if and to the
extent that the shares of Common Stock delivered under the Plan are covered by
an effective and current registration statement under the Securities Act of
1933, as amended, or if and so long as the Management Committee determines that
application of such provisions as no longer required or desirable. In making
such determination, the Management Committee may rely upon an opinion of counsel
for the Company.
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El Paso Energy Corporation Page 9
Deferred Compensation Plan
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of December 3, 1998.
EL PASO ENERGY CORPORATION
By /s/ Joel Richards III
-----------------------------------
Title: Executive Vice President
ATTEST:
By /s/ David L. Siddall
-------------------------------------
Title: Corporate Secretary
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El Paso Energy Corporation Page 10
Deferred Compensation Plan
<PAGE> 1
EXHIBIT 10.M.1
AMENDMENT NO. 1 TO THE
STRATEGIC STOCK PLAN
Pursuant to Section 14.1 of the El Paso Energy Corporation Strategic
Stock Plan, as amended and restated (the "Plan"), the Plan is hereby amended as
follows, effective December 3, 1998:
The following subsection (k) shall be added to Section 6.2 to read as follows:
"(k) Deferral Election
A Participant may elect irrevocably (at a time and in the
manner determined by the Plan Administrator or the Company, as
appropriate) at any time prior to exercising an option granted under
the Plan that issuance of shares of Common Stock upon exercise of such
option and/or associated stock appreciation right shall be deferred
until a pre-specified date in the future or until the Participant
ceases to be employed by the Company or any of its Subsidiaries, as
elected by the Participant. After the exercise of any such option and
prior to the issuance of any deferred shares, the number of shares of
Common Stock issuable to the Participant shall be credited to the
deferred stock account (or such other account(s) as the Management
Committee shall deem necessary and appropriate) under a memorandum
deferred account established pursuant to the Company's then-existing
Deferred Compensation Plan (as it may be further amended) (the
"Deferred Compensation Plan"), and any dividends or other distributions
paid on the Common Stock (or its equivalent) shall be deemed reinvested
in additional shares of Common Stock (or its equivalent) until all
credited deferred shares shall become issuable pursuant to the
Participant's election, unless the Management Committee of the Deferred
Compensation Plan shall otherwise determine."
The following Section 9.9 shall be added to read as follows:
"9.9 A Participant may elect irrevocably (at a time and in the
manner determined by the Plan Administrator or the Company, as
appropriate), prior to vesting of Restricted Stock, that the
Participant relinquishes any and all rights in the shares of Restricted
Stock in exchange for an interest in the Deferred Compensation Plan and
receipt of such shares shall be deferred until a pre-specified date in
the future or until the Participant ceases to be employed by the
Company or any of its Subsidiaries, as elected by the Participant. At
the time the restrictions lapse on the shares of Restricted Stock (as
specified at the time of grant, or otherwise if changed by the Plan
Administrator), the number of shares of Common Stock issuable to the
Participant shall be credited to the deferred stock account (or such
other account(s) as the Management Committee shall deem necessary and
appropriate) under a memorandum deferred account established pursuant
to the Deferred Compensation Plan, and any dividends or other
distributions paid on the Common Stock (or its equivalent) shall be
deemed reinvested in additional shares of Common Stock (or its
equivalent) until all credited deferred shares shall become issuable
pursuant to
<PAGE> 2
the Participant's election, unless the Management Committee of the
Deferred Compensation Plan shall otherwise determine."
The first sentence of Section 12.7 is hereby deleted in its entirety and
replaced with the following sentence:
"Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event
with respect to options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock and Performance Units under the
applicable laws and regulations of any governmental authority, whether
federal, state or local and whether domestic or foreign, including, but
not limited to, the required withholding of a sufficient number of
shares of Common Stock otherwise issuable to a Participant to satisfy
the said required minimum tax withholding obligations."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 3rd day of December, 1998.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
----------------------------------
Attest: Joel Richards III
Executive Vice President
/s/ David L. Siddall
- ----------------------------------
Corporate Secretary
-2-
<PAGE> 3
AMENDMENT NO. 2 TO THE
STRATEGIC STOCK PLAN
Pursuant to Section 14.1 of the El Paso Energy Corporation Strategic
Stock Plan, as amended and restated (the "Plan"), the Plan is hereby amended as
follows, effective January 20, 1999:
The following paragraph shall be added as the last paragraph to Section 6.2(d)
to read as follows:
"Notwithstanding any other provision in this Plan to the
contrary and unless the Plan Administrator shall otherwise determine,
in the event of a "cashless" exercise, and for that purpose only under
this Plan, a Participant's compensation shall be equal to the
difference between the actual sales price received for the underlying
Common Stock and the Option Price. For all other purposes under this
Plan, the Fair Market Value shall be the value against which
compensation is determined."
The following sentence shall be added as the last sentence to Section 6.2(e) to
read as follows:
"In addition, the Plan Administrator may require that a Participant who
wants to effectuate a "cashless" exercise of options be required to
sell the shares of Common Stock acquired in the associated exercise to
the Company, or in the open market through the use of a broker selected
by the Company, at such price and on such terms as the Plan
Administrator may determine at the time of grant, or otherwise."
Section 6.2(f) is hereby deleted in its entirety and replaced with the
following:
"(f) Nontransferability of Options
Options granted under the Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or
similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and
distribution. Notwithstanding the foregoing and only as provided by the
Plan Administrator or the Company, as applicable, options may be
transferred to a Participant's immediate family members, directly or
indirectly or by means of a trust, corporate entity or partnership (a
person who thus acquires this option by such transfer, a "Permitted
Transferee"). A transfer of an option may only be effected by the
Company at the request of the Participant and shall become effective
upon the Permitted Transferee agreeing to such terms as the Plan
Administrator may require and only when recorded in the Company's
record of outstanding options. In the event an option is transferred as
contemplated hereby, the option may not be subsequently transferred by
the Permitted Transferee except
<PAGE> 4
a transfer back to the Participant or by will or the laws of descent
and distribution. A transferred option may be exercised by a Permitted
Transferee to the same extent as, and subject to the same terms and
conditions as, the Participant (except as otherwise provided herein),
as if no transfer had taken place. As used herein, "immediate family"
shall mean, with respect to any person, such person's child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, and shall include adoptive
relationships. In the event of exercise of a transferred option by a
Permitted Transferee, any amounts due to (or to be withheld by) the
Company upon exercise of the option shall be delivered by (or withheld
from amounts due to) the Participant, the Participant's estate or the
Permitted Transferee, in the reasonable discretion of the Company.
In addition, to the extent permitted by applicable law and
Rule 16b-3, the Plan Administrator may permit a recipient of a
Nonqualified Option to designate in writing during the Participant's
lifetime a Beneficiary to receive and exercise the Participant's
options in the event of such Participant's death (as provided in
Section 6.2(i)). Except as otherwise provided for herein, if any
Participant attempts to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan or
such option, or suffers the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby, all affected
options held by such Participant shall be immediately forfeited."
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed on this 20th day of January, 1999.
EL PASO ENERGY CORPORATION
By: /s/ Joel Richards III
----------------------------------
Attest: Joel Richards III
Executive Vice President
/s/ David L. Siddall
- --------------------------------
Corporate Secretary
-2-
<PAGE> 1
EXHIBIT 10.P
(EL PASO NATURAL GAS LETTERHEAD)
January 13, 1995
Mr. William A. Wise
Chairman, President and CEO
El Paso Natural Gas Company
100 North Stanton Street
El Paso, Texas 79901
Dear Bill:
This letter relates to shares of restricted stock held by you now or in
the future under either the El Paso Natural Gas Company Omnibus Compensation
Plan dated as of January 1, 1992, or the El Paso Natural Gas Company 1995
Omnibus Compensation Plan (the "Omnibus Plans"), and as to which restrictions
have not lapsed on any applicable date (the "Omnibus Restricted Shares"). This
letter also relates to stock options issued under either of the Omnibus Plans
and which have not become exercisable on any applicable date (the "Unexercisable
Options").
Finally, this letter also relates to additional shares of Restricted
Stock to be received by you under the El Paso Natural Gas Company 1995 Incentive
Compensation Plan (the "1995 Incentive Plan"). (Capitalized terms not separately
defined have the meaning given in the 1995 Incentive Plan.) You may receive such
Restricted Stock as an award under Section 7.1(a)(ii) of the 1995 Incentive
Plan. You will also have the right under Section 7.2 of the Incentive Plan to
elect to have an additional portion of your annual bonus paid in shares of
Restricted Stock. In both cases, the number of shares of Restricted Stock set
aside for your account will include additional shares of Restricted Stock as
described in Section 7.1(c) of the 1995 Incentive Plan. Hereafter, all such
shares of Restricted Stock acquired by you under the 1995 Incentive Plan shall
be referred to as your "Incentive Plan Restricted Shares." Section 8.5 of the
1995 Incentive Plan provides certain terms relating to the lapse of restrictions
on Restricted Stock in the event a participant's employment terminates. However,
Section 8.5 also provides that the Plan Administrator may accelerate or defer
the lapse of restrictions under that Section.
In order to reduce uncertainty to you in connection with the Omnibus
Plans or the 1995 Incentive Plan, as well as to encourage you to elect payment
of annual bonus in the form of shares of Restricted Stock under Section 7.2 of
the 1995 Incentive Plan. The Company hereby agrees that upon termination of your
employment due to (i) death, (ii) retirement, (iii) Permanent Disability, (iv)
any other involuntary termination without Cause, or (v) any voluntary
termination for "Good Reason" as that term is defined in the El Paso Natural Gas
Company Key Executive Severance Protection Plan, as Amended and Restated
Effective as of January 13, 1995, except that "Good Reason" shall also include
loss of your position as Chairman of the Board of Directors otherwise than as a
result of a termination of your employment for Cause, or voluntary termination
without Good Reason,
<PAGE> 2
Mr. William A. Wise
January 13, 1995
Page 2
(a) the "Restriction Period" as defined in each of the Omnibus
Plans shall lapse, and all restrictions on any Omnibus
Restricted Shares shall end,
(b) any Unexercisable Option shall become fully exercisable for a
period of thirty-six months from the applicable date, unless
such Option by its terms expires sooner, and no restrictions
shall be placed under either of the Omnibus Plans on the
shares acquired therewith, other than such restrictions as may
be reasonably determined by the Company to be necessary to
comply with applicable laws, and
(c) the Restriction Period on your Incentive Plan Restricted
Shares shall end and all restrictions shall lapse.
The special provisions set forth above have been specifically approved
by the Company's Compensation Committee of the Board of Directors, acting as the
Plan Administrator under the Omnibus Plans and the 1995 Incentive Plan.
Please indicate your understanding of and agreement to the terms set
forth above.
EL PASO NATURAL GAS COMPANY
By: /s/ BEN F. LOVE
Ben F. Love, Chairman,
Compensation Committee
Understood and Agreed:
/s/ WILLIAM A. WISE By: /s/ JOEL RICHARDS III
William A. Wise Joel Richards III
Senior Vice President
<PAGE> 1
EXHIBIT 18
Board of Directors
El Paso Energy Corporation
1001 Louisiana
Houston, Texas 77002
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in the measurement date
used in accounting for pensions and for other post-retirement benefits other
than pensions from December 31 to September 30 reflected in the Company's Form
10-K for the year ended December 31, 1998. Based on our reading of the data and
discussions with Company officials about the business judgment and business
planning factors relating to the change, we believe management's justification
to be reasonable. Accordingly, in reliance on management's determination as
regards elements of business judgment and business planning, we concur that the
newly adopted accounting principle described above is preferable in the
Company's circumstances to the method previously applied.
PricewaterhouseCoopers LLP
Houston, Texas
January 31, 1999
<PAGE> 1
EXHIBIT 21
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
<TABLE>
<S> <C>
EL PASO ENERGY CORPORATION (Delaware)
Cross Country Development L.L.C. (Delaware LLC)................................................................... 50.33%
(El Paso Energy Corporation owns 50.33%; unaffiliated parties own 49.67%.)
DEEPTECH INTERNATIONAL INC. (Delaware)............................................................................ 100
DeepTech Offshore (Cayman) Ltd. (Cayman)....................................................................... 100
Deepwater Production Systems, Inc. (Texas)..................................................................... 100
FPS I, Inc. (Delaware)..................................................................................... 100
Key Ocean Services, Inc. (Texas)............................................................................... 50
(DeepTech International Inc. owns 50%; unaffiliated parties own 50%.)
Leviathan Holdings Company (Delaware).......................................................................... 100
Leviathan Gas Pipeline Company (Delaware).................................................................. 100
Delos Offshore Company, L.L.C. (Delaware LLC).......................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Ewing Bank Gathering Company, L.L.C. (Delaware LLC).................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Flextrend Development Company, L.L.C. (Delaware LLC)................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Green Canyon Pipe Line Company, L.L.C. (Delaware LLC).................................................. 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
West Cameron Dehydration Company, L.L.C. (Delaware LLC)............................................. 50
(Green Canyon Pipe Line Company, L.L.C. owns 50%; an unaffiliated party owns 50%.)
Leviathan Gas Pipeline Partners, L.P. ................................................................. 26.6
(Leviathan Gas Pipeline Company owns 26.6%; unaffiliated parties own 73.4%)
Delos Offshore Company, L.L.C. (Delaware LLC)...................................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Ewing Bank Gathering Company, L.L.C. (Delaware LLC)................................................ 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Flextrend Development Company, L.L.C. (Delaware LLC)............................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Green Canyon Pipe Line Company, L.L.C. (Delaware LLC).............................................. 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
West Cameron Dehydration Company, L.L.C. (Delaware LLC)......................................... 50
(Green Canyon Pipe Line Company, L.L.C. owns 50%; an unaffiliated party owns 50%.)
Leviathan Oil Transport Systems, L.L.C. (Delaware LLC)............................................. 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 8.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Manta Ray Gathering Company, L.L.C. (Delaware LLC)................................................. 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Poseidon Pipeline Company, L.L.C. (Delaware LLC)................................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Poseidon Oil Pipeline Company, L.L.C. (Delaware LLC)............................................ 36
(Poseidon Pipeline Company, L.L.C. owns 36%; Unaffiliated parties own 64%)
Sailfish Pipeline Company, L.L.C. (Delaware LLC)................................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Neptune Pipeline Company, L.L.C. (Delaware LLC)................................................. 25.67
(Sailfish Pipeline Company, L.L.C. owns 25.67%; unaffiliated parties own 74.33%)
</TABLE>
1
<PAGE> 2
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
DEEPTECH INTERNATIONAL INC. (CONTINUED)
LEVIATHAN HOLDINGS COMPANY (CONTINUED)
LEVIATHAN GAS PIPELINE COMPANY (CONTINUED)
LEVIATHAN GAS PIPELINE PARTNERS, L.P. (CONTINUED)
SAILFISH PIPELINE COMPANY, L.L.C. (CONTINUED)
NEPTUNE PIPELINE COMPANY, L.L.C. (CONTINUED)
<TABLE>
<S> <C>
Manta Ray Offshore Gathering Company, L.L.C. (Delaware LLC)................................... 99 %
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Nautilus Pipeline Company, L.L.C. (Delaware LLC).............................................. 99
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Ocean Breeze Pipeline Company, L.L.C. (Delaware LLC)............................................. 25.67
(Sailfish Pipeline Company, L.L.C. owns 25.67%; unaffiliated parties own 74.33%)
Manta Ray Offshore Gathering Company, L.L.C. (Delaware LLC)................................... 1
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Nautilus Pipeline Company, L.L.C. (Delaware LLC).............................................. 1
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Stingray Holding, L.L.C. (Delaware LLC)................................................................. 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Stingray Pipeline Company (Louisiana Partnership)................................................ 50
(Stingray Holding, L.L.C. owns 50%; unaffiliated party owns 50%)
Tarpon Transmission Company (Texas)..................................................................... 100
Texam Offshore Gas Transmission L.L.C. (Delaware LLC) .................................................. 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
High Island Offshore System (Delaware GP)........................................................ 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline
Company owns 20%; Unaffiliated parties own 60%)
Western Gulf Holdings, L.L.C. (Delaware LLC)..................................................... 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline
Company owns 20%; Unaffiliated parties own 60%)
East Breaks Gathering Company, L.L.C. (Delaware LLC)........................................... 100
Transco Hydrocarbons Company, L.L.C. (Delaware LLC) .................................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
U-T Offshore System (Delaware GP)................................................................ 33.33
(Transco Hydrocarbons Company, L.L.C. owns 33 1/3%; Unaffiliated companies own 67 2/3%)
Transco Offshore Pipeline Company, L.L.C. (Delaware LLC)................................................ 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
High Island Offshore System (Delaware GP)........................................................ 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline
Company owns 20%; Unaffiliated parties own 60%)
Western Gulf Holdings, L.L.C. (Delaware LLC)..................................................... 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline
Company owns 20%; Unaffiliated parties own 60%)
East Breaks Gathering Company, L.L.C. (Delaware LLC)........................................... 100
VK Deepwater Gathering Company, L.L.C. (Delaware LLC)................................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
</TABLE>
2
<PAGE> 3
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
DEEPTECH INTERNATIONAL INC. (CONTINUED)
LEVIATHAN HOLDINGS COMPANY (CONTINUED)
LEVIATHAN GAS PIPELINE COMPANY (CONTINUED)
LEVIATHAN GAS PIPELINE PARTNERS, L.P. (CONTINUED)
VK DEEPWATER GATHERING COMPANY, L.L.C. (CONTINUED)
<TABLE>
<S> <C>
Viosca Knoll Gathering Company (Delaware JV)..................................................... 50%
(VK Deepwater Gathering Company, L.L.C. owns 50%; EPEC Deepwater Gathering Company
owns 50%)
VK-Main Pass Gathering Company, L.L.C. (Delaware LLC)............................................... 98.9899
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company
owns 1.0101%)
Leviathan Oil Transport Systems, L.L.C. (Delaware LLC).................................................. 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Manta Ray Gathering Company, L.L.C. (Delaware LLC)...................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Poseidon Pipeline Company, L.L.C. (Delaware LLC)........................................................ 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Poseidon Oil Pipeline Company, L.L.C. (Delaware LLC)................................................ 36
(Poseidon Pipeline Company, L.L.C. owns 36%; Unaffiliated parties own 64%)
Sailfish Pipeline Company, L.L.C. (Delaware LLC)........................................................ 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Neptune Pipeline Company, L.L.C. (Delaware LLC).................................................. 25.67
(Sailfish Pipeline Company, L.L.C. owns 25.67%; unaffiliated parties own 74.33%)
Manta Ray Offshore Gathering Company, L.L.C. (Delaware LLC)................................ 99
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Nautilus Pipeline Company, L.L.C. (Delaware LLC)........................................... 99
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline
Company owns 1%)
Ocean Breeze Pipeline Company, L.L.C. (Delaware LLC)............................................. 25.67
(Sailfish Pipeline Company, L.L.C. owns 25.67%; unaffiliated parties own 74.33%)
Manta Ray Offshore Gathering Company, L.L.C. (Delaware LLC)................................ 1
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline Company,
L.L.C. owns 1%)
Nautilus Pipeline Company, L.L.C. (Delaware LLC)........................................... 1
(Neptune Pipeline Company, L.L.C. owns 99%; Ocean Breeze Pipeline
Company owns 1%)
Stingray Holding, L.L.C. (Delaware LLC)................................................................. 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Stingray Pipeline Company (Louisiana Partnership)................................................... 50
(Stingray Holding, L.L.C. owns 50%; Unaffiliated party owns 50%)
Texam Offshore Gas Transmission L.L.C. (Delaware LLC) .................................................. 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
High Island Offshore System (Delaware GP)........................................................... 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline Company
owns 20%; Unaffiliated parties own 60%)
Transco Hydrocarbons Company, L.L.C. (Delaware LLC) .................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
U-T Offshore System (Delaware GP)................................................................... 33.33
(Transco Hydrocarbons Company, L.L.C. owns 33 1/3%; Unaffiliated companies own 67 2/3%)
</TABLE>
3
<PAGE> 4
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
DEEPTECH INTERNATIONAL INC. (CONTINUED)
LEVIATHAN HOLDINGS COMPANY (CONTINUED)
LEVIATHAN GAS PIPELINE COMPANY (CONTINUED)
<TABLE>
<S> <C>
Transco Offshore Pipeline Company, L.L.C. (Delaware LLC)................................................ 1.0101%
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
High Island Offshore System (Delaware GP)........................................................... 20
(Texam Offshore Gas Transmission L.L.C. owns 20%; Transco Offshore Pipeline Company
owns 20%; Unaffiliated parties own 60%)
VK Deepwater Gathering Company, L.L.C. (Delaware LLC)................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Viosca Knoll Gathering Company (Delaware JV)........................................................ 50
(VK Deepwater Gathering Company, L.L.C. owns 50%; EPEC Deepwater Gathering Company owns
50%)
VK-Main Pass Gathering Company, L.L.C. (Delaware LLC)................................................... 1.0101
(Leviathan Gas Pipeline Partners, L.P., owns 98.9899%; Leviathan Gas Pipeline Company owns
1.0101%)
Offshore Gas Marketing, Inc. (Texas)............................................................................. 100
Offshore Gas Processors (Texas).................................................................................. 100
Tatham Offshore Development, Inc. (Delaware)..................................................................... 100
El Paso Energy Capital Trust I (Delaware)............................................................................. 100
El Paso Energy Capital Trust II (Delaware)............................................................................ 100
El Paso Energy Capital Trust III (Delaware)........................................................................... 100
El Paso Energy E.S.T. Company (Delaware).............................................................................. 100
El Paso Energy Finance Company (Delaware)............................................................................. 100
El Paso Energy Foundation (Texas)..................................................................................... 100
El Paso Energy Management Company (Delaware).......................................................................... 100
El Paso Energy Resources Company (Delaware)........................................................................... 100
El Paso Energy Risk Management Company (Delaware)..................................................................... 100
El Paso Energy Service Company (Delaware)............................................................................. 100
El Paso Energy Sports Corporation (Delaware).......................................................................... 100
EL PASO NATURAL GAS COMPANY (Delaware)............................................................................... 100
Border Gas Inc. (Delaware) (a close corp.)....................................................................... 15
(El Paso Natural Gas Company owns 15%; Tennessee Gas Pipeline Company owns 37.5%; unaffiliated
parties own 47.50%.)
El Paso Development Company (Delaware)........................................................................... 100
El Paso Gas Transportation Company (Delaware).................................................................... 100
El Paso Middle East B.V. (Netherlands)........................................................................... 100
El Paso Mojave Pipeline Co. (Delaware)........................................................................... 100
Mojave Pipeline Company (Texas GP)........................................................................... 50
(El Paso Mojave Pipeline Co. owns 50%; EPNG Mojave, Inc. owns 50%.)
Mojave Pipeline Operating Company (Texas)............................................................... 100
El Paso Pipeline Services Company (Delaware) .................................................................... 100
El Paso TransColorado Company (Delaware) ........................................................................ 100
EPEC Energy Argentina S.A. (Argentina) .......................................................................... 7.7
(El Paso Energy International Company owns 92.3%; El Paso Natural Gas Company owns 7.7%)
EPNG Mojave, Inc. (Texas) .................................................................................. 100
Mojave Pipeline Company (Texas GP)........................................................................... 50
(EPNG Mojave, Inc. owns 50%; El Paso Mojave Pipeline Co. owns 50%.)
Mojave Pipeline Operating Company (Texas) .............................................................. 100
Gasoductos de Chihuahua, S. de R.L. de C.V. (Mexico) ............................................................ 10
(El Paso Natural Gas Company owns 10%; El Paso Energy International Company owns 40%; unaffiliated
parties own 50%.)
</TABLE>
4
<PAGE> 5
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
<TABLE>
<S> <C>
EL PASO TENNESSEE PIPELINE CO. (Delaware).............................................................................. 100 %
(El Paso Energy Corporation owns 100% of the issued and outstanding Company Common Stock.
Unaffiliated parties own 100% of the Series A Preferred Stock.)
East Tennessee Natural Gas Company (Tennessee)..................................................................... 100
EL PASO ENERGY INTERNATIONAL COMPANY (Delaware).................................................................... 100
El Paso Energia Mexico, S.A. de C.V. (Mexico).................................................................. 0.1
(El Paso Energy International Company owns 0.1%; EPEC Gas Latin America Inc. owns 99.9%.)
El Paso Energy Asia Corporation (Delaware)..................................................................... 100
El Paso Energy Europe Company (Delaware)....................................................................... 100
El Paso Energy Pittsfield Corporation (Delaware)............................................................... 100
Berkshire Feedline Acquisition L.P. (Massachusetts L.P.).................................................. 50
(El Paso Energy Pittsfield Corporation owns 50%; an unaffiliated party owns 50%.)
El Paso Energy Servicios S. de R.L. de C.V. (Mexico)........................................................... 1
(EPED Holding Company owns 99%; El Paso Energy International Company owns 1%.)
El Paso Mauritius Power Limited (Mauritius) ................................................................... 100
El Paso Pakistan Power (Private) Limited (Pakistan)....................................................... 99.9
(El Paso Mauritius Power Limited owns 99.9%; Individuals own 0.1%)
El Paso Kabirwala Power Ltd. (Cayman Islands)......................................................... 100
Fauji Kabirwala Power Company Limited (Pakistan).................................................. 42.17
(El Paso Kabirwala Power Ltd. owns 42.17%; unaffiliated parties own 57.83%.)
EPEC Argentina Corporation (Delaware).......................................................................... 100
EPEC Baja California Corporation (Delaware) ................................................................... 100
EPEC Canada Ltd. (Canada)...................................................................................... 100
EPEC China Inc. (Delaware)..................................................................................... 100
EPEC Energy Argentina S.A. (Argentina)......................................................................... 92.3
(El Paso Energy International Company owns 92.3%; El Paso Natural Gas Company owns 7.7%)
EPEC Cayman Islands Company (Cayman Islands).............................................................. 100
Companias Asociadas Petroleraoes S.A. (Argentina)..................................................... 45
(EPEC Cayman Islands Company owns 45%; unaffiliated own 55%.)
CAPEX S.A. (Argentina)............................................................................ 55
(Companias Asociadas Petroleraoes S.A. owns 55%; remaining is publicly traded.)
Triunion Energy Company (Cayman Islands)...................................................... 38.4
(EPED B Company owns 23.2%; An unaffiliated party owns 38.4% and CAPEX S.A.
owns 38.4%)
El Paso Energy Argentina Limitada S.A. (Argentina)....................................... 99
(Triunion Energy Company owns 99%; unaffiliated parties own 1%)
Triunion Energy Chile A Company (Cayman Islands)......................................... 100
Triunion Energy Inversiones (Chile) Limitada (Chile) ................................. 0.1
(Triunion Energy Pacifico Company owns 99.9%; Triunion Energy Chile A
Company owns 0.1%.)
Triunion Energy Inversiones Company (Cayman Islands)..................................... 100
Triunion Energy Finance Pacifico Company (Cayman Islands)............................. 100
Triunion Energy Pacifico Company (Cayman Islands)........................................ 100
Triunion Energy Inversiones Pacifico (Chile) Limitada (Chile)......................... 1
(Triunion Energy Pacifico Company owns 1%; Triunion Energy Inversiones
(Chile) Limitada owns 99%.)
Triunion Energy Inversiones (Chile) Limitada (Chile).................................. 99.9
(Triunion Energy Pacifico Company owns 99.9%; Triunion Energy Chile A
Company owns 0.1%.)
Triunion Energy Inversiones Pacifico (Chile) Limitada (Chile)................... 99
(Triunion Energy Pacifico Company owns 1%; Triunion Energy
Inversiones (Chile) Limitada owns 99%.)
EPEC Ethanol Company (Delaware) ............................................................................... 100
EPEC Ethanol Services Company (Delaware) ...................................................................... 100
</TABLE>
5
<PAGE> 6
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
<TABLE>
<S> <C>
EPEC Gas Brazil Corporation (Delaware)........................................................................ 100 %
EPIC Gas International Servicos do Brasil Ltda. (Brazil) .................................................. 99.9
(EPEC Gas Brazil Corporation owns 99.9%; El Paso Energy International Company, owns 0.1%.)
EPEC Gas Canada Ltd. (Ontario)................................................................................ 100
EPEC Gas Chile Corporation (Delaware)......................................................................... 100
Gas de Chile S.A. (Chile).................................................................................. 50
(EPEC Gas Chile Corporation owns 50%; unaffiliated parties own 50%.)
Inversiones EPEC Gas (Chile) Limitada (Chile).............................................................. 99.99
(EPEC Gas Chile Corporation owns 99.99%; EPEC Gas Latin America Inc. owns .01%.)
EPEC Gas Latin America Inc. (Delaware)........................................................................ 100
El Paso Energia Mexico, S.A. de C.V. (Mexico).............................................................. 99.9
(EPEC Gas Latin America Inc. owns 99.9%; El Paso Energy International Company owns 0.1%.)
Pasotronica, S.A. de C.V. (Mexico)..................................................................... 50
(El Paso Energia Mexico, S.A. de C.V. owns 50%; an unaffiliated party owns 50%.)
Inversiones EPEC Gas (Chile) Limitada (Chile).............................................................. 0.01
(EPEC Gas Chile Corporation owns 99.99%; EPEC Gas Latin America Inc. owns .01%.)
Gasoducto Transandino S.A. de Argentina (Argentina) ....................................................... 0.01
(EPEC Gas Latin America Inc. owns.01%; Gasoducto Transandino S.A. owns 99.99%)
EPEC Gas Services (Chile) Corporation (Delaware).............................................................. 100
EPIC Gas Transportes S.A. (Chile).......................................................................... 99.9
(EPEC Gas Services (Chile) Corporation owns 99.9%; unaffiliated parties own 0.1%.)
EPEC Hungary Inc. (Delaware).................................................................................. 100
EPEC Independent Power I Company (Delaware)................................................................... 100
MASSPOWER (Massachusetts G.P.)............................................................................. 17
(EPEC Independent Power I Company owns 17% as general partner; unaffiliated parties own 83%.)
EPEC Independent Power II Company (Delaware).................................................................. 100
EPEC International (East Asia/Pacific) Inc. (Delaware)........................................................ 100
EPEC MLP Inc. (Delaware)...................................................................................... 100
Polk Power Partners, L.P. (Delaware L.P.).................................................................. 45.75
(EPEC MLP Inc., as a Limited Partner, owns 45.75%; Polk Power GP, Inc., as General Partner,
owns 1%; unaffiliated parties, as Limited Partners, own 53.25%.)
EPEC Trinidad LNG, Inc. (Delaware) ........................................................................... 100
EPEC Ventures Bolivia Corporation (Delaware).................................................................. 100
EPEC Ventures Poland Corporation (Delaware)................................................................... 100
Weilkopolska Energia S.A. (Poland)......................................................................... 50
(EPEC Ventures Poland Corporation owns 50%; unaffiliated parties own 50%)
EPED Holding Company (Delaware)............................................................................... 100
DBNGP Finance Company L.L.C. (Delaware LLC)............................................................ 50
(EPED Holding Company owns 50%; unaffiliated parties own 50%)
El Paso Cayman DBNGP, Ltd. (Cayman Islands)...................................................... 100
El Paso DBNGP Limited (Labuan)............................................................... 100
Epic Energy Australia Trust (Australia)................................................... 33.33
(El Paso DGNGP Limited owns 33.33%; unaffiliated parties own 66.67%)
Epic Energy (Australia) Nominees Pty. Ltd. (Australia).................................... 33.33
(El Paso DBNGP Limited owns 33.33%; unaffiliated parties own 66.67%)
Epic Energy (WA) Nominees Pty. Ltd. (Australia)........................................ 100
Epic Energy (DBNGP Finance) Pty. Ltd. (Australia)................................. 100
Epic Energy Western Australia Pty. Limited (Australia) ........................... 100
Epic Energy (WA) Investments Pty. Ltd. (Australia)..................................... 100
Epic Energy (WA) Transmission Pty. Ltd. (Australia)............................... 100
Epic Energy (Pilbara Pipeline) Pty. Ltd. (Australia).............................. 100
</TABLE>
6
<PAGE> 7
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
EPED HOLDING COMPANY (CONTINUED)
DBNGP FINANCE COMPANY L.L.C. (CONTINUED)
EPIC ENERGY (AUSTRALIA) NOMINEES PTY. LTD. (CONTINUED)
EPIC ENERGY (WA) INVESTMENTS PTY. LTD. (CONTINUED)
<TABLE>
<S> <C>
Dampier to Bunbury Pipeline Employment Pty. Ltd. (Australia).................................. 100 %
Epic Energy WA Pipeline Trust (Australia)......................................................... 100
El Paso ECK Holding Company (Delaware).................................................................... 100
Energeticke Centrum Kladno s.r.o. (Czechoslovakia).................................................... 18.55
(El Paso ECK Holding Company owns 18.55%; unaffiliated parties own 81.45%.)
El Paso Energy Argentina Service Company (Delaware)....................................................... 100
Servicios El Paso S.R.L. (Argentina).................................................................. 99.9
(El Paso Energy Argentina Service Company owns 99.9%; unaffiliated parties own 0.1%)
El Paso Energy Portugal Company (Delaware)................................................................ 100
El Paso Energy Servicios, S. de R.L. de C.V. (Mexico)..................................................... 99
(EPED Holding Company owns 99%; El Paso Energy International owns 1%.)
El Paso Kladno B.V. (Netherlands)......................................................................... 100
Matra Powerplant Holding B.V. (Netherlands)........................................................... 35
(El Paso Kladno B.V. owns 35%; unaffiliated parties own 65%.)
ECK Generating s.r.o. (Czechoslovakia)............................................................ 89
(Matra Powerplant Holding B.V. owns 89%; unaffiliated parties own 11%.)
El Paso Rosarito Company, L.L.C. (Delaware)............................................................... 100
El Paso Sierra Chaco Holding AB (Sweden).................................................................. 100
Empresa Energetica Sierra Chaco S.A. (Bolivia)........................................................ 98
(El Paso Sierra Chaco Holding AB owns 98%; El Paso Sierra Chaco Sweden AB owns 1%; El
Paso Sierra Chaco Bolivia AB owns 1%)
El Paso Sierra Chaco Sweden AB (Sweden)............................................................... 100
Dynaf Bolivia S.R.L. (Bolivia).................................................................... 10
(El Paso Sierra Chaco Sweden AB owns 10%; El Paso Sierra Chaco Bolivia AB owns 90%)
Empresa Energetica Sierra Chaco SA (Bolivia)...................................................... 1
(El Paso Sierra Chaco Holding AB owns 98%; El Paso Sierra Chaco Sweden AB owns
1%; El Paso Sierra Chaco Bolivia AB owns 1%)
El Paso Sierra Chaco Bolivia AB (Sweden).............................................................. 100
Dynaf Bolivia S.R.L. (Bolivia).................................................................... 90
(El Paso Sierra Chaco Sweden AB owns 10%; El Paso Sierra Chaco Bolivia AB owns 90%)
Empresa Energetica Sierra Chaco SA (Bolivia)...................................................... 1
(El Paso Sierra Chaco Holding AB owns 98%; El Paso Sierra Chaco Sweden AB owns
1%; El Paso Sierra Chaco Bolivia AB owns 1%)
EPEC Nederland Holding B.V. (Netherlands)................................................................. 100
El Paso El Sauz B.V. (Netherlands).................................................................... 100
El Paso Energy Hydro Holding B.V. (Netherlands)....................................................... 100
El Paso Energy Ujung Pangdang B.V. (Netherlands)...................................................... 100
El Paso Hermosillo B.V. (Netherlands)................................................................. 100
El Paso Mexico I B.V. (Netherlands)................................................................... 100
El Paso Mexico II B.V. (Netherlands).................................................................. 100
El Paso Northwest Mexico B.V. (Netherlands)........................................................... 100
El Paso Rio Bravo B.V. (Netherlands).................................................................. 100
EPED A Company (Cayman Islands)........................................................................... 100
El Paso Development (Tanzania) Company Limited (Tanzania)............................................. 1
(EPED A Company owns 1%; EPED B Company owns 99%.)
</TABLE>
7
<PAGE> 8
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
EPED HOLDING COMPANY (CONTINUED)
EPED A COMPANY (CONTINUED)
<TABLE>
<S> <C>
EPED Aguaytia Company (Cayman Islands)............................................................ 99 %
(EPED A Company owns 99% and EPED B Company owns 1%.)
Aguaytia Energy L.L.C. (Delaware LLC)......................................................... 24.3
(EPED Aguaytia Company owns 24.3%; The Maple Gas Development Corporation owns
16.96%; unaffiliated parties own 58.74%.)
Aguaytia Energy del Peru S.R. Ltda. (Peru)................................................ 99
(Aguaytia Energy L.L.C. owns 99%; Peru Energy Holdings L.L.C. owns 1%.)
Peru Energy Holdings L.L.C. (Delaware LLC)................................................ 99
(Aguaytia Energy L.L.C. owns 99%; Peru Energy Holdings owns 1%.)
Peru Energy Holdings (Cayman Islands).................................................... 100
Peru Energy Holdings L.L.C. (Delaware LLC)........................................... 1
(Peru Energy Holdings owns 1%; Aguaytia Energy L.L.C. owns 99%.)
Aguaytia Energy del Peru S.R. Ltda. (Peru)..................................... 1
(Peru Energy Holdings L.L.C. owns 1%; Aguaytia Energy L.L.C. owns 99%.)
Latin America Capital L.L.C. (Cayman Islands)................................................ 27.5
(EPED Aguaytia Company owns 27.5%; The Maple Gas Development Corporation owns
16.96%; unaffiliated parties own 55.54%.)
EPIC Aguaytia Maple Company (Cayman Islands)...................................................... 100
The Maple Gas Development Corporation (Cayman Islands)........................................ 18.43
(EPIC Aguaytia Maple Company owns 18.43%; unaffiliated parties own 81.57%.)
Aguaytia Energy L.L.C. (Delaware) ........................................................ 16.96
(The Maple Gas Development Corporation owns 16.96%; EPED Aguaytia Company
owns 24.3%; unaffiliated parties own 58.74%.)
Latin America Capital L.L.C. (Cayman Islands) ............................................ 16.96
(The Maple Gas Development Corporation owns 16.96%; EPED Aguaytia Company
owns 27.5%; unaffiliated parties own 55.54%.)
EPIC Yucatan Pipeline Company (Cayman Islands).................................................... 99
(EPED A Company owns 99%; EPED B Company owns 1%.)
EPIC Yucatan S. de R.L. de C.V. (Mexico)...................................................... 99
(EPIC Yucatan Pipeline Company owns 99%; EPED B Company owns 1%.)
NEPC Consortium Power Ltd. (Bangladesh)........................................................... 50
(EPED A Company owns 50%; unaffiliated parties own 50%.)
EPED Central Chile Corporation (Delaware)............................................................. 100
EPIC Samalayuca A, L.L.C. (Delaware LLC)............................................................. 15
(EPED Holding Company owns 15% and EPED SAM Holdings Company owns 85%.)
EPIC Samalayuca B, L.L.C. (Delaware LLC).............................................................. 15
(EPED Holding Company owns 15% and EPED SAM Holdings Company owns 85%.)
EPED B Company (Cayman Islands)....................................................................... 100
Arklow Private Ltd. (Mauritius)................................................................... 100
CAYGER Finance Company (Cayman Islands)........................................................... 100
El Paso Development (Tanzania) Company Limited (Tanzania)......................................... 99
(EPED A Company owns 1%; EPED B Company owns 99%.)
El Paso Energy CAYGER I Company (Cayman Islands).................................................. 100
El Paso Rio Claro Ltda. (Brazil).............................................................. 99.95
(El Paso Energy CAYGER I Company owns 99.95%; an unaffiliated party owns 0.05%.)
El Paso Rio Grande Ltda. (Brazil)............................................................. 99.95
(El Paso Energy CAYGER I Company owns 99.95%; an unaffiliated party owns 0.05%.)
El Paso Energy CAYGER II Company (Cayman Islands)................................................. 100
El Paso Energy Brazil Corporation (Cayman Islands)................................................ 100
</TABLE>
8
<PAGE> 9
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
EPED HOLDING COMPANY (CONTINUED)
EPED B COMPANY (CONTINUED)
EL PASO ENERGY BRAZIL CORPORATION (CONTINUED)
<TABLE>
<S> <C>
El Paso Energy International do Brasil Ltda. (Brazil).......................................... 99.9%
(El Paso Energy Brazil Corporation owns 99.9%; unaffiliated parties own 0.1%)
El Paso Energy East Asia Company (Cayman Islands).................................................. 100
El Paso Energy Gasoducto Company (Cayman Islands).................................................. 100
El Paso Fife I Company (Cayman Islands)............................................................ 100
Fife Power (Scotland).......................................................................... 50
(El Paso Fife I Company owns 50%; unaffiliated parties own 50%.)
El Paso Sierra Chaco I Company (Cayman Islands).................................................... 100
EPED Aguaytia Company (Cayman Islands)............................................................. 1
(EPED B Company owns 1% and EPED A Company owns 99%.)
EPIC Energy Amazon Company (Cayman Islands)........................................................ 50
(EPED B Company owns 50%; unaffiliated parties own 50%.)
El Paso Amazonas Energia Ltda. (Brazil)........................................................ 99.9
(EPIC Energy Amazon Company owns 99.9%; unaffiliated parties own 0.1%)
EPIC Mato Grosso Company (Cayman Islands).......................................................... 100
El Paso Empreendimentos e Participacoes Ltda (Brazil) ......................................... 99.9
(EPIC Mato Grosso Company owns 99.9%; unaffiliated parties own 0.1%)
EPIC Mato Grosso do Sul Company (Cayman Islands)................................................... 100
EPIC Jordan Company (Cayman Islands)............................................................... 100
EPIC Yucatan Pipeline Company (Cayman Islands).................................................... 1
(EPED B Company owns 1% and EPED A Company owns 99%.)
EPIC Yucatan S. de R.L. de C.V. (Mexico)....................................................... 99
(EPIC Yucatan Pipeline Company owns 99%; EPED B Company owns 1%.)
EPIC Yucatan S. de R.L. de C.V. (Mexico)........................................................... 1
(EPED B Company owns 1%; EPIC Yucatan Pipeline Company owns 99%)
Interenergy Company (Cayman Islands)............................................................... 45
(EPED B Company owns 45%; unaffiliated parties own 55%)
Triunion Energy Company (Cayman Islands)........................................................... 23.2
(EPED B Company owns 23.2%; an unaffiliated party owns 38.4% and CAPEX S.A. owns 38.4%)
El Paso Energy Argentina Limitada S.A. (Argentina)............................................. 99
(Triunion Energy Company owns 99%; unaffiliated parties own 1%)
Triunion Energy Chile A Company (Cayman Islands)............................................... 100
Triunion Energy Inversiones (Chile) Limitada (Chile) ..................................... 0.1
(Triunion Energy Pacifico Company owns 99.9%; Triunion Energy Chile
A Company owns 0.1%.)
Triunion Energy Inversiones Company (Cayman Islands)........................................... 100
Triunion Energy Finance Pacifico Company (Cayman Islands) ................................ 100
Triunion Energy Pacifico Company (Cayman Islands).............................................. 100
Triunion Energy Inversiones Pacifico (Chile) Limitada (Chile)............................. 1
(Triunion Energy Pacifico Company owns 1%; Triunion Energy
Inversiones (Chile) Limitada owns 99%.)
Triunion Energy Inversiones (Chile) Limitada (Chile)...................................... 99.9
(Triunion Energy Pacifico Company owns 99.9%; Triunion Energy Chile
A Company owns 0.1%.)
Triunion Energy Inversiones Pacifico (Chile) Limitada (Chile) ........................ 99
(Triunion Energy Pacifico Company owns 1%; Triunion Energy
Inversiones (Chile) Limitada owns 99%.)
VEN Energy Holding Company (Cayman Islands)........................................................ 100
</TABLE>
9
<PAGE> 10
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
EPED HOLDING COMPANY (CONTINUED)
EPED B COMPANY (CONTINUED)
<TABLE>
<S> <C>
VEN Field Services Company (Cayman Islands)....................................................... 50 %
(EPED B Company owns 50%; unaffiliated parties own 50%.)
EPED SAM Holdings Company (Delaware).................................................................. 100
EPIC Samalayuca A, L.L.C. (Delaware LLC).......................................................... 85
(EPED SAM Holdings Company owns 85%; EPED Holding Company owns 15%)
Samalayuca Holding Partnership (Delaware G.P.)................................................ 25
(EPIC Samalayuca A, L.L.C. owns 25% and unaffiliated parties own 75%.)
Compania Samalayuca II, S.A. de C.V. (Mexico)............................................ 80
(Samalayuca Holding Partnership owns 80%; EPIC
Samalayuca B, L.L.C. owns 10%; an unaffiliated
party owns 10%.)
Samalayuca Trust (Mexico)............................................................ 100
EPIC Samalayuca B, L.L.C. (Delaware LLC).......................................................... 85
(EPED SAM Holdings Company owns 85%; EPED Holding Company owns 15%.)
Compania Samalayuca II, S.A. de C.V. (Mexico)................................................. 10
(EPIC Samalayuca B, L.L.C. owns 10%; Samalayuca Holding Partnership owns 80%;
an unaffiliated party owns 10%.)
Samalayuca Trust (Mexico)................................................................ 100
SAM II Equity Funding, L.L.C. (Delaware LLC)...................................................... 60
(EPED SAM Holdings Company owns 60%; unaffiliated parties own 40%.)
Samalayuca II Management L.L.C. (Delaware LLC).................................................... 50
(EPED Sam Holdings owns 50%; unaffiliated parties own 50%.)
Samalayuca II Management, S. de R.L. de C.V. (Mexico)......................................... 98
(Samalayuca II Management L.L.C. owns 98%; EPED Sam Holdings Company owns 1%;
and unaffiliated parties own 1%.)
Samalayuca II Management, S. de R.L. de C.V. (Mexico)............................................. 1
(EPED Sam Holdings Company owns 1%; Samalayuca II Management L.L.C. owns 98%;
unaffiliated parties own 1%.)
EPIC Samalayuca A, L.L.C. (Delaware LLC).............................................................. 15
(EPED Holding Company owns 15%; EPED SAM Holdings Company owns 85%)
Samalayuca Holding Partnership (Delaware GP)...................................................... 25
(EPIC Samalayuca A, L.L.C. owns 25% and unaffiliated parties own 75%.)
Compania Samalayuca II, S.A. de C.V. (Mexico)................................................. 80
(Samalayuca Holding Partnership owns 80%; EPIC Samalayuca B, L.L.C. owns 10%;
an unaffiliated party owns 10%.)
Samalayuca Trust (Mexico)................................................................ 100
EPIC Samalayuca B, L.L.C. (Delaware LLC).............................................................. 15
(EPED SAM Holdings Company owns 85%; EPED Holding Company owns a 15%.)
Compania Samalayuca II, S.A. de C.V. (Mexico)..................................................... 10
(EPIC Samalayuca B, L.L.C. owns 10%; Samalayuca Holding Partnership owns 80%; an
unaffiliated party owns 10%.)
Samalayuca Trust (Mexico)..................................................................... 100
KLT Power Inc. (Missouri)............................................................................. 100
Central Costanera, S.A. (Argentina)............................................................... 12
(KLT Power Inc. owns 12%; unaffiliated parties own 88%.)
Central Termoelectrica Buenos Aires, S.A. (Argentina)......................................... 51.3
(Central Costanera, S.A. owns 51.3%; KLT Power (Bermuda) Ltd. owns 7.8%;
unaffiliated parties own 40.9%.)
KLT Power (Asia) (Cayman Islands)................................................................. 100
El Paso Guna Power (Mauritius) Limited (Mauritius)............................................ 100
KEI Energy Private Ltd. (India).......................................................... 60
(El Paso Guna Power (Mauritius) Limited owns 60%; unaffiliated parties own 40%.)
</TABLE>
10
<PAGE> 11
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
EPED HOLDING COMPANY (CONTINUED)
KLT POWER INC. (CONTINUED)
<TABLE>
<S> <C>
KLT Power (Bermuda) Ltd. (Bermuda)................................................................. 100 %
Central Termoelectrica Buenos Aires, S.A. (Argentina).......................................... 7.8
(Central Costanera, S.A. owns 51.3%; KLT Power (Bermuda) Ltd. owns 7.8%;
unaffiliated parties own 40.9%.)
KLT Power Latin America (Cayman Islands)........................................................... 100
EPIC Energy Hungary B.V. (Netherlands)...................................................................... 100
Enfield Holdings B.V. (Netherlands).................................................................... 50
(EPIC Energy Hungary B.V. owns a 50% interest; unaffiliated parties own a 50% interest.)
Enfield Energy Centre Ltd. (United Kingdom)........................................................ 50
(Enfield Holdings B.V. owns a 50% interest; unaffiliated parties own a 50%
interest.)
NR Gibraltar (Gibraltar)........................................................................... 100
EMA Power Kft. (Hungary)............................................................................... 50
EPIC Energy Hungary B.V. owns a 50% interest; unaffiliated parties own a 50%
interest.)
EPIC Gas International Servicos do Brasil Ltda (Brazil)..................................................... 0.1
(El Paso Energy International Company owns 0.1%; EPEC Gas Brazil Corporation owns 99.9%.)
Galtee Limited (Cayman Islands)............................................................................. 100
El Paso (Labuan) Limited (Labuan)...................................................................... 100
Epic Energy Pty. Limited (Australia)............................................................... 30
(El Paso (Labuan) Limited owns 30%; unaffiliated parties own 70%.)
Epic Energy Australia Pty. Limited (Australia)................................................. 99.95
(Epic Energy Pty. Limited owns 99.95%; Epic Energy Corporate Shared Services
owns 0.05%.)
Epic Energy Queensland Pty. Limited (Australia)........................................... 100
Epic Energy South Australia Pty. Limited (Australia).................................. 0.02
(Epic Energy Queensland Pty. Limited owns 0.02%; Epic Energy Australia Pty.
Limited owns 99.98%.)
Epic Energy South Australia Pty. Limited (Australia)...................................... 99.98
(Epic Energy Australia Pty. Limited owns 99.98%; Epic Energy Queensland Pty. Limited
owns 0.02%.)
Epic Energy Northern Territory Pty. Limited (Australia)........................................ 100
Epic Energy Corporate Shared Services (Australia).............................................. 99.9
(Epic Energy Pty. Limited owns 99.9%; Epic Energy Australia Pty. Limited owns 0.1%.)
Epic Energy Australia Pty. Limited (Australia)............................................ 0.05
(Epic Energy Corporate Shared Services owns 0.05%; Epic Energy Pty.
Limited owns 99.95%.)
Epic Energy Corporate Shared Services (Australia)..................................... 0.1
(Epic Energy Australia Pty. Limited owns 0.1%; Epic Energy Pty. Ltd.
owns 99.9%.)
Ventures Holdings Pty. Limited (Australia)............................................................. 100
EPIC Sulawesi Gas Pty. Limited (Australia)......................................................... 100
Energy Equity EPIC (Sengkang) Pty. Limited (Australia)......................................... 50
(EPIC Sulawesi Gas Pty. Limited owns 50%; unaffiliated parties own 50%.)
Sulawesi Energy Pty Limited (Australia)............................................................ 50
(Ventures Holdings Pty. Limited owns 50%; unaffiliated parties own 50%.)
PT Energi Sengkang (Indonesia)................................................................. 95
(Sulawesi Energy Pty. Ltd. owns 95%; unaffiliated parties own 5%.)
Gasoductos de Chihuahua, S. de R.L. de C.V. (Mexico)........................................................ 40
(El Paso Energy International Company owns 40%; El Paso Natural
Gas Company owns 10%; unaffiliated parties own 50%.)
Orange Acquisition, Inc. (Delaware)......................................................................... 100
</TABLE>
11
<PAGE> 12
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO ENERGY INTERNATIONAL COMPANY (CONTINUED)
ORANGE ACQUISITION, INC. (CONTINUED)
<TABLE>
<S> <C>
Orange Cogeneration Limited Partnership (Delaware L.P.)............................................. 49.5%
(Orange Acquisition, Inc., as a Limited Partner, owns 49.5%; an unaffiliated party
owns 49.5%, as a Limited Partner; and Orange Cogeneration GP, Inc.,
as General Partner, owns 1%.)
Orange Cogeneration Funding Corp. (Delaware)........................................................ 100
Orange Cogeneration GP II, Inc. (Delaware)............................................................. 50
(El Paso Energy International Company owns 50%; an unaffiliated party owns 50%.)
Orange Cogeneration G.P., Inc. (Delaware)........................................................... 100
Orange Cogeneration Limited Partnership (Delaware L.P.)........................................ 1
(Orange Cogeneration GP, Inc. owns 1%, as General Partner; Orange Acquisition, Inc.,
owns 49.5%, as a Limited Partner; an unaffiliated party owns 49.5%, as a Limited Partner.)
Polk Power GP II, Inc. (Delaware)...................................................................... 50
(El Paso Energy International Company owns 50%; an unaffiliated party owns 50%.)
Polk Power GP, Inc. (Delaware)..................................................................... 100
Polk Power Partners, L.P. (Delaware L.P.)....................................................... 1
(Polk Power GP, Inc., as General Partner, owns 1%; EPEC
MLP Inc., as Limited Partner, owns 45.75%; unaffiliated
parties, as Limited Partners, own 53.25%.)
Sandbar Petroleum Company (Delaware)................................................................... 100
S.K. Petroleum Company (Delaware)...................................................................... 100
West Campus Cogeneration Company (Delaware)............................................................ 100
EL PASO FIELD SERVICES COMPANY (Delaware).................................................................. 100
Cornerstone Gas Gathering Company (Delaware)........................................................... 100
Coyote Gas Treating Limited Liability Company (Colorado LLC)........................................... 50
(El Paso Field Services Company owns 50%; unaffiliated parties own 50%.)
Dubach Gas Company (Texas)............................................................................. 100
El Paso Dubach Liquids Pipeline Company (Delaware)..................................................... 100
El Paso Energy Intrastate Company (Delaware)........................................................... 100
Mountain Creek Joint Venture (Texas J.V.).............................................................. 50
(El Paso Energy Intrastate Company owns 50%; unaffiliated parties own 50%.)
Oletha Pipeline I, Ltd. (Texas LP)..................................................................... 98
(El Paso Energy Intrastate Company, as Limited Partner, owns 98%; Oletha Pipeline
Corporation, as General Partner, owns 2%.)
Oletha Pipeline II, Ltd. (Texas LP).................................................................... 98
(El Paso Energy Intrastate Company, as Limited Partner owns 98%; Oletha Pipeline
Corporation, as General Partner, owns 2%.)
Oletha Pipeline Corporation (Texas).................................................................... 100
Oletha Pipeline I, Ltd. (Texas LP).................................................................. 2
(Oletha Pipeline Corporation, as General Partner, owns
2%; El Paso Energy Intrastate Company, as Limited
Partner, owns 98%.)
Oletha Pipeline II, Ltd. (Texas LP)................................................................. 2
(Oletha Pipeline Corporation, as General Partner, owns
2%; El Paso Energy Intrastate Company, as Limited
Partner, owns 98%.)
El Paso New Chaco Company (Delaware)........................................................................ 100
El Paso Offshore Gathering & Transmission Company (Delaware)................................................ 100
Seahawk Transmission Company (Texas).................................................................... 100
EPEC Deepwater Gathering Company (Delaware)................................................................. 100
Viosca Knoll Gathering Company (Delaware J.V.).......................................................... 50
(EPEC Deepwater Gathering Company owns 50%; VK Deepwater Gathering Company owns 50%.)
Garvin County Pipeline (Texas J.V.)......................................................................... 33.33
(El Paso Field Services Company, owns 33 1/3%; unaffiliated parties own 66.2/3%)
Gulf States Gas Pipeline Company (Delaware)................................................................. 100
Gulf States Pipeline Corporation (Louisiana)............................................................ 100
</TABLE>
12
<PAGE> 13
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
EL PASO FIELD SERVICES COMPANY (CONTINUED)
GULF STATES PIPELINE COMPANY (CONTINUED)
GULF STATES PIPELINE CORPORATION (CONTINUED)
<TABLE>
<S> <C>
Gulf States Transmission Corporation (Louisiana)................................................ 100%
Oasis Pipe Line Company (Delaware)...................................................................... 35
(El Paso Field Services Company owns 35%; unaffiliated parties own 65%.)
Pentex Pipeline Company (Texas)......................................................................... 100
Tembec Company (Texas J.V.)............................................................................. 50
(El Paso Field Services Company owns 50%; unaffiliated parties own 50%.)
El Paso Services Holding Company (Delaware)................................................................. 100
EPEC Corporation (Delaware)............................................................................. 100
El Paso Energy Marketing Company (Delaware) ......................................................... 100
Argentina Energy Marketing Company (Cayman Islands)............................................. 100
Eastex Gas Production Company (Delaware)........................................................ 100
(IN DISSOLUTION)
Eastex Gas Storage and Exchange, Inc. (Delaware)................................................ 100
Eastex Gas Transmission Company (Delaware)...................................................... 100
(IN DISSOLUTION)
El Paso Energy Marketing Canada Inc. (Canada) .................................................. 100
ECNG Inc. (Canada)............................................................................ 100
Inter-City Cogenerating Services Ltd. (Canada) .......................................... 100
El Paso Gas Marketing Company (Delaware)........................................................ 100
Heath Petra Exploration, Inc. (Delaware)........................................................ 100
(IN DISSOLUTION)
Heath Petra Resources, Inc. (Delaware).......................................................... 100
Island Sound Commercial Energy Sales, Inc. (Delaware)........................................... 100
Paragon Gas Marketing Company (Delaware) ....................................................... 100
Premier Gas Company (Delaware).................................................................. 100
EPEC Nederland B.V. (Netherlands)..................................................................... 100
Marlin Drilling Co., Inc. (Delaware).................................................................. 100
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil) ........................................... 99.84
(Marlin Drilling Co., Inc. owns 99.84%; Bluefin Supply Company owns 0.16%.)
Bluefin Supply Company (Delaware)............................................................... 100
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil) ....................................... 0.16
(Bluefin Supply Company owns 0.16%; and Marlin Drilling Co., Inc. owns 99.84%.)
MIDWESTERN GAS TRANSMISSION COMPANY (Delaware)............................................................. 100
EPEC Minerals Company - California (Delaware)............................................................ 100
EPEC Minerals Company - Nevada (Delaware)................................................................ 100
EPEC OCS Company, Inc. (Delaware)........................................................................ 100
EPEC Oil Company (Delaware).............................................................................. 100
(IN DISSOLUTION)
EPEC Polymers, Inc. (Delaware)........................................................................... 100
H.T. Gathering Company (Texas)........................................................................... 50
(IN DISSOLUTION)
SWL Security Corp. (Texas)............................................................................... 100
(IN DISSOLUTION)
Tennessee Overthrust Gas Company (Delaware).............................................................. 100
(IN DISSOLUTION)
TGP Corporation (Delaware) 100
(IN DISSOLUTION)
</TABLE>
13
<PAGE> 14
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
<TABLE>
<S> <C>
Oil Casualty Insurance Ltd. (Bermuda)....................................................................... 8.14%
(El Paso Tennessee Pipeline Co. owns 8.14%; unaffiliated parties own 91.86%.)
TENNESSEE GAS PIPELINE COMPANY (Delaware)................................................................... 100
Border Gas Inc. (Delaware) (a close corp.)............................................................... 37.5
(Tennessee Gas Pipeline Company owns 37.5%; El Paso Natural
Gas Company owns 15%; unaffiliated parties own 47.5%.)
El Paso Energy Holdings Inc. (Delaware).................................................................. 100
Eastern Insurance Company Limited (Bermuda).............................................................. 100
El Paso Energy Portland Corporation (Delaware)........................................................... 100
Portland Natural Gas Transmission System (Maine G.P.)................................................ 17.8
(El Paso Energy Portland Corporation, as General Partner, owns 17.8%;
unaffiliated parties own 82.2%.)
El Paso Gas Services Company (Delaware).................................................................. 100
El Paso Power Services Company (Delaware)................................................................ 100
Brush Generation Company, L.L.C. (Delaware).......................................................... 100
Colorado Power Partners (Colorado G.P.)........................................................... 1
Morgan Generation Company, L.L.C. owns 99%; Brush Generation Company, L.L.C. owns 1%.
El Paso Berkshire Power I Company (Delaware)......................................................... 100
Berkshire Power Company L.L.C. (Massachusetts LLC)............................................... 10
(El Paso Berkshire Power I Company owns 10%; El Paso Berkshire Power II Company
owns 80%; an unaffiliated party owns 10%.)
El Paso Berkshire Power II Company (Delaware)........................................................ 100
Berkshire Power Company L.L.C. (Massachusetts LLC)............................................... 80
(El Paso Berkshire Power I Company owns 10%; El Paso Berkshire Power II
Company owns 80%; an unaffiliated party owns 10%.)
El Paso Milford Power I Company (Delaware)........................................................... 100
Milford Power Company L.L.C. (Delaware).......................................................... 5
(El Paso Milford Power I Company owns 5%; El Paso
Milford Power II Company owns 90%; and an unaffiliated party owns 5%)
El Paso Milford Power II Company (Delaware).......................................................... 100
Milford Power Company L.L.C. (Delaware).......................................................... 90
(El Paso Milford Power I Company owns 5%; El Paso
Milford Power II Company owns 90%; and an unaffiliated
party owns 5%)
Morgan Generation Company, L.L.C. (Delaware)......................................................... 100
Colorado Power Partners (Colorado G.P.).......................................................... 99
Morgan Generation Company, L.L.C. owns 99%; Brush Generation Company, L.L.C. owns 1%.
EPEC - Altamont Corporation (Delaware).................................................................. 100
(IN DISSOLUTION)
EPEC Chase, Inc. (Texas)................................................................................ 100
(IN DISSOLUTION)
EPEC Communications Corporation (Delaware).............................................................. 100
EPEC Delta XII Gas Co., Inc. (Delaware)................................................................. 100
(IN DISSOLUTION)
EPEC East Corporation (Delaware)........................................................................ 100
(IN DISSOLUTION)
EPEC EIS Company (Delaware)............................................................................. 100
EPEC EIS Canada Ltd. (Alberta) ...................................................................... 100
EPEC Gas Louisiana Inc. (Delaware)...................................................................... 100
(IN DISSOLUTION)
Martin Exploration Company (Delaware)................................................................ 100
(IN DISSOLUTION)
EPEC Gas Properties Inc. (Delaware)..................................................................... 100
EPEC Gas Services, Inc. (Delaware)...................................................................... 100
</TABLE>
14
<PAGE> 15
EL PASO ENERGY CORPORATION
SUBSIDIARIES AND AFFILIATES
AS OF CLOSE OF BUSINESS DECEMBER 31, 1998
EL PASO ENERGY CORPORATION (CONTINUED)
EL PASO TENNESSEE PIPELINE CO. (CONTINUED)
TENNESSEE GAS PIPELINE COMPANY (CONTINUED)
<TABLE>
<S> <C>
EPEC Liquids Corporation (Delaware).................................................................. 100%
(IN DISSOLUTION)
EPEC Midwest Corporation (Delaware).................................................................. 100
(IN DISSOLUTION)
EPEC MTBE, Inc. (Delaware)........................................................................... 100
(IN DISSOLUTION)
EPEC OGS Inc. (Delaware)............................................................................. 100
EPEC Realty, Inc. (Delaware)......................................................................... 100
EPEC Services Company (Delaware)..................................................................... 100
(IN DISSOLUTION)
EPEC AIRCO Inc. (Delaware)....................................................................... 100
(IN DISSOLUTION)
EPEC OCSPET Inc. (Delaware)....................................................................... 100
(IN DISSOLUTION)
EPEC SNG Inc. (Delaware)............................................................................ 100
EPEC Texas Acquisition Inc. (Delaware)............................................................... 100
(IN DISSOLUTION)
EPEC West, Inc. (Delaware)........................................................................... 100
EPEC Technology Consulting Services Inc. (Delaware)............................................... 100
EPEC Western Market Center Corporation (Delaware).................................................... 100
The Western Market Center Joint Venture (Wyoming J.V.)............................................ 50
(EPEC Western Market Center Corporation owns 50%; unaffiliated parties own 50%.)
EPEC Western Market Center Service Corporation (Delaware)............................................ 100
Land Ventures, Inc. (Delaware)....................................................................... 100
Midwestern Gas Marketing Company (Delaware).......................................................... 100
Mont Belvieu Land Company (Delaware)................................................................. 100
New Midwestern Inc. (Delaware)....................................................................... 100
Tennessee Gas Transmission Company (Delaware)........................................................ 100
Tennessee Storage Company (Delaware)................................................................. 100
Bear Creek Storage Company (Louisiana Partnership)................................................ 50
(Tennessee Storage Company, as General Partner, owns 50%; unaffiliated parties own 50%.)
Bear Creek Capital Corporation (Delaware)..................................................... 100
Travis Place Parking Garage Inc. (Delaware).......................................................... 100
Mt. Franklin Insurance Ltd. (Bermuda)........................................................................ 100
</TABLE>
15
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of El Paso Energy Corporation (the "Company") on Form S-3 (File Nos. 333-42713
and 333-61039) and the registration statements of the Company on Form S-8 (File
Nos. 333-26813, 333-26823, 333-26831, 33-46519, 33-49956, 33-51851 and 33-57553)
of our report dated March 9, 1999, on our audits of the consolidated financial
statements and the financial statement schedule of the Company as of December
31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and 1996,
which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS.
</LEGEND>
<MULTIPLIER> 1,000,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 90
<SECURITIES> 0
<RECEIVABLES> 733
<ALLOWANCES> 0<F1>
<INVENTORY> 49
<CURRENT-ASSETS> 1,209
<PP&E> 7,341
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 10,069
<CURRENT-LIABILITIES> 2,162
<BONDS> 2,552
0
0
<COMMON> 373
<OTHER-SE> 1,735
<TOTAL-LIABILITY-AND-EQUITY> 10,069
<SALES> 0
<TOTAL-REVENUES> 5,782
<CGS> 0
<TOTAL-COSTS> 5,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267
<INCOME-PRETAX> 377
<INCOME-TAX> 127
<INCOME-CONTINUING> 225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225
<EPS-PRIMARY> 1.94<F2>
<EPS-DILUTED> 1.85
<FN>
<F1>Not separately identified in the consolidated financial statements or
accompanying notes thereto.
<F2>Represents basic earnings per share.
</FN>
</TABLE>
