<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995 Commission file number: 1-7196
CASCADE NATURAL GAS CORPORATION
Washington 91-0599090
- ---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Fairview Avenue North (206) 624-3900
---------------
Seattle, WA 98109 (Registrant's telephone number,
- -----------------
(Address of principal including area code)
executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each Exchange on which Registered
- -------------------- -----------------------------------------
Common Stock, Par Value $1 per Share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of the close of business on February 29, 1996, was $141,782,141.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, Par Value $1 per Share 9,184,992 as of February 29, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 1996 Annual
Meeting of Shareholders are incorporated by reference into Part III, Items
10, 11, 12, and 13.
<PAGE>
CASCADE NATURAL GAS CORPORATION
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K
For the Year Ended December 31, 1995
Table of Contents
Page Number
-----------
Part I
Item 1 - Business 3
Item 2 - Properties 12
Item 3 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 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 17
Item 8 - Financial Statements and Supplementary Data 21
Item 9 - Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 43
Part III
Item 10 - Directors and Executive Officers of the Registrant 44
Item 11 - Executive Compensation 44
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 44
Item 13 - Certain Relationships and Related Transactions 44
Part IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K 45
Signatures 46
Index to Exhibits 47
2
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PART I
ITEM 1. BUSINESS.
GENERAL
Cascade Natural Gas Corporation (Cascade or the Company) was
incorporated under the laws of the state of Washington on January 2, 1953.
Its principal business is the distribution of natural gas to customers in the
states of Washington and Oregon. Approximately 19% of its gas distribution
revenues are from the state of Oregon.
At December 31, 1995, there were 126,886 residential customers, 23,641
commercial customers, 337 firm industrial customers and 25 traditional
interruptible customers, all of which are classified as core customers. In
addition, there were 116 non-core customers. In 1995, the core customers
provided 69% of the operating margin, the same ratio as in 1994, while
consuming 24% of the total gas deliveries, down from 25% in 1994. The
non-core customers (including transportation service) provided the remaining
operating margin and throughput.
Cascade's gas supply contracts provide for annual review of gas prices
for possible adjustment. To the extent that prices are changed, Cascade is
able to pass the effect of such changes subject to regulatory review to its
customers by means of a periodic purchased gas cost adjustment (PGA) in each
state. Gas price changes occurring between times when PGA rate changes
become effective are deferred for pass through in the next PGA.
The Company is also subject to state regulation with respect to
integrated resource planning and has filed its Integrated Resource Plan (IRP)
with both the Washington Utilities and Transportation Commission (WUTC) and
the Oregon Public Utility Commission (OPUC). The IRP shows the Company's
plan for the best set of supply and demand side resources that minimizes
costs and has acceptable levels of deliverability risk over the twenty-year
planning horizon. The IRP also sets forth the Company's forecast of growth
in customers and volume throughput for a twenty-year period. In addition,
the IRP sets forth the Company's demand side management goals of achieving
certain conservation levels in customer usage. The Company's investments in
cost-effective demand side resources are recoverable in rates in both
Washington and Oregon.
The IRP also sets forth the Company's supply side management plans
regarding transportation capacity and gas supply acquisition over a
twenty-year period. The Company developed the IRP over a two-year period and
took into account input solicited from the public and the WUTC and OPUC
staffs. While the filing of the IRP with both commissions gives the Company
no advance assurance that its acquisitions of pipeline transportation
capacity and gas supplies will be recognized in rates, management believes
that the integrated resource planning process benefits the Company by giving
it the opportunity to obtain input from regulators and the public
concurrently with making these important strategic decisions.
Until the Company receives final regulatory approval of these decisions
in the context of a rate case, the Company cannot predict with certainty the
extent to which the integrated resource planning process will affect its
rates.
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The principal industrial activities in Cascade's service area include
the production of pulp, paper and converted paper products, plywood, chemical
fertilizers, industrial chemicals, cement, clay and ceramic products,
textiles, refining of crude oil, smelting and forming of aluminum, the
processing and canning of many types of vegetable, fruit and fish products,
processing of milk products, meat processing and the drying and curing of
wood and agricultural products.
NATURAL GAS SUPPLY
The majority of Cascade's supply of natural gas is transported via
Northwest Pipeline Corporation (Northwest). Northwest owns and operates a
transmission system extending from points of interconnection with El Paso
Natural Gas Company and Transwestern Pipeline Company near Blanco, New Mexico
through the states of New Mexico, Colorado, Utah, Wyoming, Idaho, Oregon and
Washington to the Canadian border near Sumas, Washington. Natural Gas is
transported north from the Colorado and New Mexico area, and south from
British Columbia, Canada. The Company is also a shipper on the Pacific Gas
Transmission Company (PGT) system. PGT owns and operates a gas transmission
line that connects with the gas fields in Alberta, Canada at the
international border and extends through Washington and central Oregon into
California.
On November 1, 1993, Northwest completed the process, begun in 1988, of
converting its sales function to firm transportation service. Along with the
sales conversion of its remaining sales service from Northwest, the Company
accepted assignment of a pro-rata share of Northwest's remaining Canadian gas
supply arrangements, an equivalent share of PGT firm pipeline transportation
and a portion of Northwest's natural gas inventory at the Clay Basin Storage
Facility. (The Clay Basin inventory was completely withdrawn by March 31,
1995 according to a schedule dictated by the assignment agreement.)
Presently, baseload requirements for Cascade's core market group are
provided by seven major gas supply contracts with various expiration dates
from 1996 through 2008 and totaling 865,010 therms per day. Approximately
82% of the gas supplied pursuant to the contracts is from Canadian sources.
The remainder is domestic. These contracts are supplemented by various
service agreements to cover periods of peak demand including three storage
agreements with Northwest. One extends to October 31, 2014 and provides for
165,950 therms per day and a maximum, renewable inventory of 5,973,780
therms. The second, with The Washington Water Power Company (WWP), had a
primary term extending to April 30, 1995 and entitles Cascade to receive up
to 150,000 therms per day and a maximum, renewal inventory of 4,800,000
therms. Earlier in 1995 Cascade accepted an offer from WWP to extend the
primary term of the agreement by three years through April 1998. A third
contract for liquefied natural gas ("LNG") storage is available through
October 31, 2014. Under this LNG agreement, Cascade is entitled to receive
up to 600,000 therms per day to a maximum, renewable inventory of 5,622,000
therms. In addition to withdrawal and inventory capacity, Cascade also
maintains a corresponding amount of firm transportation from the storage
facility to the city gate for each of these agreements.
Cascade also owns a propane air peak shaving plant with revised daily
capacity of 30,000 therms.
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In addition to underground and LNG storage, Cascade has entered into
contracts with two of its major industrial customers whereby the customer
agrees to switch to alternate fuel allowing Cascade to reduce firm deliveries
to that customer. One such peak shaving agreement entitles Cascade to call
upon 150,000 therms per day up to a seasonal total of 3,000,000 therms. This
contract expires on September 30, 2015. The second peak shaving agreement,
which expires on September 30, 2014, entitles Cascade to call on a maximum of
up to 500,000 therms per day and up to a seasonal total of 3,000,000 therms.
Commencing December 1995 Cascade entered into two peaking service
agreements with Canadian gas suppliers. These agreements provide for a
maximum daily quantity of 250,000 therms on peak and renewable inventory of
5,500,000 therms. Cascade can call upon these two service agreements any day
during the peak winter months of December, January and February. These
service agreements, while less reliable than firm storage service, are more
flexible than baseload gas supply contracts: both agreements allow for same
day nomination, and city gate delivery at a competitive cost. Each agreement
has a primary term of three years.
Cascade maintains a diversified portfolio of natural gas supplies.
During 1995, Cascade purchased gas supplies approximately 69.9% from firm gas
supply contracts, 28.7% from 30-day spot market contracts and 1.4% from
customer assigned gas purchase contracts. In addition, 416,225,000 therms
of customer purchased supplies were transported across Cascade facilities.
CURRENT FEDERAL ENERGY REGULATORY COMMISSION (FERC) MATTERS
The FERC issued an order on December 20, 1994 confirming an earlier
order reallocating the direct billed gas supply take or pay contract
restructuring costs among Northwest Pipeline Corporation's (Northwest)
customers. The FERC order gave Cascade an obligation of $4.8 million,
approximately $1.8 million above the allocation method favored by the
Company. Cascade joined with others and appealed the order to the D. C.
Circuit Court. It does not appear that the Court will overturn the FERC order
and Cascade is no longer taking an active part in appealing the order. To the
extent Cascade's final allocation differs from the original, it will seek to
pass on the difference to its customers.
On May 3, 1994, Northwest filed a general Section 4 rate case (RP94-220)
seeking additional revenues of $22.5 million. The filing reflected a cost of
service of $240 million. Settlement discussions between the various shippers
and Northwest concluded in early October 1995, with a negotiated cost of
service of $222 million. The settlement was filed on November 14, 1995, with
rates effective on November 1, 1995. Northwest preceded the RP94-220
settlement with another general Section 4 rate case (RP95-409) on August 1,
1995, with interim rates subject to refund, and effective February 1, 1996.
The new filing asks for a cost of service of $270 million. Settlement
discussions are currently being scheduled.
On May 31, 1995 the FERC issued a Statement of Policy (PL94-4) for the
rate treatment of new and existing facilities constructed by interstate
natural gas pipelines. The policy concerns the
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question of whether to utilize a rolled in methodology or an incremental rate
design. According to the Statement of Policy, the FERC will apply a
presumption in favor of rolled in rates when the increase to existing
customers is 5% or less, and the pipeline makes a showing of system-wide
benefits. Pipelines not meeting the 5% test must show benefits proportionate
to the rate impact for the presumption of rolled in rates. Although not
final, this ruling will have a major influence in the rate methodology
utilized in the current and future Northwest Pipeline Corporation and Pacific
Gas Transmission Company rate cases
COST OF PURCHASED GAS
Following the implementation of Order 636, Cascade's cost of gas depends
primarily on the prices negotiated with producers and brokers, coupled with
the cost of interstate and Canadian pipeline transportation service.
CURTAILMENT PROCEDURES
In previous heating seasons, cold weather has required Cascade to
significantly curtail its interruptible customers. Cascade has not curtailed
any firm customers, except under force majeure provisions. Cascade's tariffs
effective in Washington and Oregon, allow for curtailment of interruptible
services, which are provided at rates lower than for firm services. In the
event of curtailment by Cascade of firm service due to force majeure,
Cascade's tariffs provide that it shall not be liable for damages or
otherwise to any customer for failure to deliver gas curtailed in accordance
with the provisions of the tariffs. The tariffs provide for appropriate
adjustment of the monthly bill of firm customers curtailed by reason of an
insufficient supply of gas.
TERRITORY SERVED AND FRANCHISES
The population of communities served by Cascade totaled approximately
744,000 at the end of 1995 compared to 724,000 at the end of 1994, a 2.8%
increase.
Cascade has all the franchises necessary for the distribution of natural
gas in the communities it serves in Washington and Oregon. Under the laws of
those states, incorporated municipalities and counties may grant
non-exclusive franchises for a fixed term of years conferring upon the
grantee certain rights with respect to public streets and highways in the
location, construction, operation, maintenance and removal of gas
distribution facilities.
In the opinion of Cascade's management, none of its franchises contain
any restrictions or requirements which are of a materially burdensome nature,
and such franchises are adequate for the conduct of Cascade's present
business. Franchises expire on various dates from 1996 to 2065. Management
has not incurred significant difficulties in renewing franchises when they
expire and does not expect any significant problems in the future.
6
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CUSTOMERS
Residential and commercial customers principally use natural gas for
space heating and water heating. This market is very weather-sensitive. See
"Seasonality," below.
Of its non-core customers, 15 accounted for approximately 18% of
Cascade's total 1995 gas and transportation revenues. Agreements with its
principal industrial customers are for fixed terms of not less than one year
and provide for automatic extension from year to year unless terminated by
either party on 30-days' notice. See Note 12 under Notes to Consolidated
Financial Statements, for information regarding revenues from a major
customer.
SEASONALITY
Weather is an important factor affecting gas revenues because of the
large number of customers using gas for space heating. In 1995, 66.5% of
operating revenues and 99.4% of earnings from operations were derived from
the first and last quarters. Because of the seasonality of space heating
revenues, Cascade believes financial results for interim periods are not
necessarily indicative of results to be expected for the year.
COMPETITIVE CONDITIONS
Cascade operates in a competitive market for natural gas service.
Cascade competes with residual fuel oil and other alternative energy sources
for industrial boiler uses, and oil and electricity for residential and
commercial space heating, and electricity for water heating.
Competition is primarily based on price. For residential and commercial
space heating use, Cascade continues to maintain a price advantage over oil
in its entire service territory and has an advantage over electricity in over
96% (by population) of its territory. In the remaining areas of its service
territory served by public electric utilities with their own substantial
hydro power supply, Cascade is near parity with respect to electricity
furnished by those utilities for space heating and water heating uses.
Through its wholly-owned subsidiary, Cascade Land Leasing Co., the Company
provides loans to customers to finance the purchase and installation of
energy efficient gas appliances.
Historically, the large volume industrial market was very sensitive to
price fluctuations between the comparable cost of natural gas and alternate
fuels, principally residual fuel oil used in boiler applications. However,
the advent of open access transportation and the restructuring of gas supply
and contractual provisions with these customers has improved the Company's
competitive position. From December 1991 through January 1992 and again from
December 1992 through May 1994, except for a brief period in June 1993,
residual fuel oil prices were lower than natural gas, but Cascade did not
experience any significant loss of sales to alternate fuels during those
periods.
In addition to multiple alternate fuels, the Company competes with other
sellers of natural gas because of the potential for bypass of the Company's
facilities. Bypass refers to actual or prospective customers which install
their own facilities and connect directly to an upstream pipeline and thereby
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"bypass" the distribution company's service. The Company has experienced
bypass but has also experienced success in offering competitive rates to
reduce economic incentives to bypass.
The Bonneville Power Administration ( BPA ) is a major supplier of
hydro-electric power in the Pacific Northwest including Cascade's service
area. BPA significantly influences the electric rates of all classes of
customers including those applications in direct competition with natural gas
marketed by Cascade.
ENVIRONMENTAL
The Company is subject to federal and state environmental regulation of
its operations and properties through the United States Environmental
Protection Agency, the Washington Department of Ecology and the Oregon
Department of Environmental Quality. Such regulation may, at times, result
in the imposition of liability or responsibility for the clean-up or
treatment of existing environmental problems or for the prevention of future
environmental problems.
In the early 1950's, the Company purchased several of the gas
distribution facilities that it operates today. Among the acquired
facilities, the Company has identified to date twelve small manufactured gas
plants which had used oil or coal as feedstock to produce manufactured gas.
Some of the waste byproducts of the manufacturing process contain hazardous
substances which, if found in sufficient concentrations, could pose
environmental problems.
Almost all of these plants were either dismantled or converted to
propane air prior to 1956. In 1956, when natural gas became available, the
remaining plants were dismantled. The plant sites were cleaned up when the
plants were dismantled and the sites are currently being used for other
purposes. Environmental agencies have monitored three of the plant sites and
have found no hazardous substances at levels requiring remediation.
The Company has been notified of a claim regarding contamination of a
former manufactured gas site in Oregon once operated by a predecessor
company. At this date it appears that contamination is present at the site,
but there is no estimate of the extent of clean-up costs. To the extent the
Company may be responsible for any portion of such costs, it will seek
contribution from other responsible parties, recovery from its insurers and
appropriate rate relief. See Note 11 under Notes to Consolidated Financial
Statements. Based on information received to date, it is not aware of
hazardous substances present at any of the other plant sites at levels that
would require remediation.
The Company is in the process of remediating an area that was
contaminated by underground diesel and gasoline storage tanks. See Note 11
under Notes to Consolidated Financial Statements.
CAPITAL EXPENDITURES
Capital expenditures for 1996 are budgeted at $35,147,000 including
$2,300,000 of projects originally budgeted for 1995 but not completed and
carried over to 1996. Including the 1996 budget, the Company will have spent
over $168,000,000 in new plant in the five years ending in 1996 compared to
$133,252,000 in the 12-year period from 1980 through 1991. Construction of
the line to serve the
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fifth cogeneration customer on Cascade's system was completed in February
1996. The contracts for service to the five cogeneration customers are
expected to yield relatively level payments over the 15 to 25 year contract
lives. The contracts provide for demand charges as well as distribution
charges which should recover the capital investment in the facilities and
provide a return to shareholders over their term. With level payments,
projected annual rates of return are low in the early years and increase
significantly over time as the Company's investment is depreciated.
The Company is currently forecasting that capital expenditures will
total approximately $150,000,000 over the next five years.
NON-UTILITY SUBSIDIARIES
Cascade has four non-utility subsidiaries. These subsidiaries are
engaged in the following businesses: financing Cascade customers' purchases
of energy-efficient appliances; exploring for natural gas (two subsidiaries);
and ownership of certain real property in Oregon. The subsidiaries, which in
the aggregate account for less than 5% of the consolidated assets of the
Company, do not currently have a significant impact on Cascade's financial
condition or the results of its operations.
PERSONNEL
At December 31, 1995, Cascade had 475 employees. Of the total
employees, 214 are represented by the International Chemical Workers Union.
The present contract with the union extends to April 1, 1996. As of March 22,
1996, a tentative agreement has been reached for a new contract extending to
April 1, 1999. The agreement is subject to ratification by members of Local
121 of the International Chemical Workers Union.
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<TABLE>
<CAPTION>
OPERATING STATISTICS
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Gas Distribution Revenue (thousands of dollars):
Firm:
Residential $ 56,609 $ 51,354 $ 46,456 $37,424 $37,260
Commercial 53,531 49,718 46,870 38,797 40,092
Industrial 13,320 11,959 10,931 8,715 8,343
Interruptible:
Commercial 3,589 3,705 2,954 2,927 3,068
Industrial 1,678 2,008 1,845 1,877 2,212
Non-Core 42,527 66,597 70,923 56,149 58,535
---------- ----------- ----------- ----------- ----------
Total gas sales revenue 171,254 185,341 179,979 145,889 149,510
Transportation revenue 11,300 6,871 7,087 6,423 4,658
---------- ----------- ----------- ----------- ----------
Total gas distribution revenue $182,554 $192,212 $187,066 $152,312 $154,168
---------- ----------- ----------- ----------- ----------
Gas Deliveries (thousands of therms):
Firm
Residential 91,719 88,342 87,812 71,211 71,661
Commercial 97,913 97,750 102,256 85,303 89,873
Industrial 27,726 27,214 28,208 22,585 21,984
Interruptible
Commercial 5,259 5,950 4,730 4,608 5,319
Industrial 4,000 5,459 5,925 5,944 7,350
Non-core 303,006 303,569 269,483 255,707 277,716
---------- ----------- ----------- ----------- ----------
Total Sales therms 529,623 528,284 498,414 445,358 473,903
Transportation Deliveries 424,270 377,435 240,448 159,779 84,918
---------- ----------- ----------- ----------- ----------
Total deliveries 953,893 905,719 738,862 605,137 558,821
---------- ----------- ----------- ----------- ----------
Number of Customers (average):
Firm
Residential 121,503 113,398 104,334 96,621 89,306
Commercial 22,989 22,035 21,166 20,266 19,316
Industrial 336 327 318 308 308
Interruptible
Commercial 16 18 17 17 18
Industrial 13 14 13 16 18
Non-core (including transportation) 104 91 86 80 77
---------- ----------- ----------- ----------- ----------
Total 144,961 135,883 125,934 117,308 109,043
---------- ----------- ----------- ----------- ----------
Year-end totals 151,005 142,839 132,668 123,356 114,734
---------- ----------- ----------- ----------- ----------
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<CAPTION>
OPERATING STATISTICS (CONTINUED)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Average Annual Use per Customer (therms):
Residential 755 779 842 737 802
Commercial-firm 4,259 4,436 4,831 4,209 4,653
Average Annual Revenue per Customer:
Residential $ 467 $ 453 $ 445 $ 387 $ 417
Commercial-firm $ 2,329 $ 2,256 $ 2,214 $ 1,914 $ 2,076
Average Rate per Therm:
Firm
Residential $0.6193 $0.5813 $0.5290 $0.5255 $0.5199
Commercial $0.5467 $0.5086 $0.4584 $0.4548 $0.4461
Industrial $0.4804 $0.4394 $0.3875 $0.3859 $0.3795
Interruptible
Commercial (excluding facilities charges) $0.4183 $0.3782 $0.3169 $0.3194 $0.3166
Industrial $0.4194 $0.3678 $0.3114 $0.3158 $0.3010
Non-core $0.1404 $0.2194 $0.2632 $0.2196 $0.2108
Transportation $0.0266 $0.0182 $0.0295 $0.0402 $0.0549
Average Cost per Therm of Gas Purchased $0.2246 $0.2526 $0.2434 $0.2055 $0.1958
Heating Degree Days
System average (30-year average - 5,675) 5,238 5,463 6,136 5,073 5,392
Maximum Day Send Out
(1,000 therms) including transportation 4,224 3,936 3,485 2,687 2,567
Average Daily Send Out
(1,000 therms) including transportation 2,613 2,481 2,024 1,653 1,531
Employees at End of Year 475 476 467 466 460
</TABLE>
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ITEM 2. PROPERTIES.
At December 31, 1995, Cascade's utility plant investments included
approximately 3,810 miles of distribution mains ranging in diameter from two
inches to sixteen inches, 240 miles of transmission mains ranging in diameter
from two inches to sixteen inches and 2,412 miles of service lines.
The lateral lines and distribution mains are located under public
property such as streets and highways or on private property with the
permission or consent of the individual owner.
Cascade owns sixteen buildings used for operations, office space and
warehousing in Washington and five such buildings in Oregon. It occupies an
additional five commercial offices and maintains 35 pay stations in
communities throughout its operating territory. Cascade considers its
properties well maintained and in good operating condition, and adequate for
Cascade's present and anticipated needs. All facilities are substantially
utilized. The Company also owns a propane air plant in Yakima, Washington,
with a capacity of 30,000 therms per day used for peak load shaving.
ITEM 3. LEGAL PROCEEDINGS.
See Item 1, Business, under "Environmental".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company, as of March 1, 1996, are as follows:
<TABLE>
<CAPTION>
Year
Became
Name Office Age Officer
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
W. Brian Matsuyama Chairman of the Board and 49 1987
Chief Executive Officer
Ralph E. Boyd President and Chief 59 1988
Operating Officer
Jon T. Stoltz Senior Vice President - 49 1981
Planning and Rates
Larry E. Anderson Vice President - 47 1995
Operations
O. LeRoy Beaudry Vice President - 57 1981
Consumer and Public Affairs
King C. Oberg Vice President - 55 1993
Gas Supply
Calvin R. Steele Vice President - 56 1991
Information Technology
J. D. Wessling Vice President - Finance, and 52 1995
Chief Financial Officer
James E. Haug Treasurer and Chief 47 1981
Accounting Officer
Larry C. Rosok Corporate Secretary and 39 1995
Personnel Director
</TABLE>
None of the above officers is related by blood, marriage or adoption
to any other of the above named officers. Except as discussed below, each of
the above named officers has been employed by the Company in a management
capacity for at least the past five years. None of the above officers hold
directorships in other public corporations. All officers serve at the
pleasure of the Board of Directors.
J. D. Wessling was employed by the Company on January 6, 1994 as
Director-Finance. From 1989 through 1993, he was chief financial officer for
a retail drug chain based in Phoenix, Arizona. From 1986 to 1989, he was
chief financial officer of a computer distribution company. Prior to that,
Mr. Wessling spent 12 years in the oil and gas industry, seven of which were
with Atlantic Richfield Company where he held various financial positions.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the New York Stock Exchange under the
symbol CGC. The following table states the per share high and low sales
prices of the Common Stock.
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 14-7/8 13-1/4 18-1/8 15-7/8
Second 15 13-1/2 16-3/4 14
Third 15-1/2 13-1/2 15-13/16 13-1/4
Fourth 17-3/8 14-5/8 15-1/2 12-3/4
</TABLE>
At February 29, 1996, there were approximately 9,215 holders of the
Common Stock. The following table shows for the periods indicated the
dividends paid per share on the Common Stock.
<TABLE>
<CAPTION>
Quarter 1995 1994
<S> <C> <C>
First $.24 $.23-2/3
Second $.24 $.24
Third $.24 $.24
Fourth $.24 $.24
</TABLE>
The Company's practice has been to declare dividends on its common
shares quarterly, payable on the 15th day of February, May, August, and
November. The most recent quarterly dividend on the common shares was $.24
per share and was paid on February 15, 1996, to holders of record on January
15, 1996. Future dividend action will depend on the earnings and financial
condition of the Company and other relevant factors.
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ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Operating Revenues:
Gas Sales $171,254 $185,341 $179,979 $145,889 $149,510
Transportation Revenue 11,300 6,871 7,087 6,423 4,658
Other Operating Income 190 198 388 154 144
---------- ----------- ----------- ----------- ----------
182,744 192,410 187,454 152,466 154,312
Less: Gas Purchases 102,858 118,083 113,500 90,320 90,903
Revenue Taxes 11,480 11,500 11,095 8,997 9,362
---------- ----------- ----------- ----------- ----------
Operating Margin 68,406 62,827 62,859 53,149 54,047
---------- ----------- ----------- ----------- ----------
Cost of Operations:
Operating expenses 30,818 30,202 27,856 25,576 24,053
Depreciation and amortization 11,733 10,921 9,964 9,175 8,426
Property and payroll taxes 4,051 4,039 3,757 3,516 3,361
---------- ----------- ----------- ----------- ----------
46,602 45,162 41,577 38,267 35,840
---------- ----------- ----------- ----------- ----------
Overrun Penalty Income - - - - 1,305
---------- ----------- ----------- ----------- ----------
Earnings From Operations 21,804 17,665 21,282 14,882 19,512
---------- ----------- ----------- ----------- ----------
Nonoperating Expense (Income):
Interest 9,938 8,090 7,038 7,478 7,793
Interest charged to construction (394) (203) (323) (218) (156)
---------- ----------- ----------- ----------- ----------
9,544 7,887 6,715 7,260 7,637
Amortization of debt issuance expense 606 593 562 402 362
Other (586) (80) (113) (440) (344)
---------- ----------- ----------- ----------- ----------
9,564 8,400 7,164 7,222 7,655
---------- ----------- ----------- ----------- ----------
Earnings Before Income Taxes and Cumulative
Effect of change in accounting method 12,240 9,265 14,118 7,660 11,857
Income Taxes 4,508 3,505 5,224 2,817 4,206
---------- ----------- ----------- ----------- ----------
Earnings Before Cumulative Effect of Change
in Accounting Method 7,732 5,760 8,894 4,843 7,651
Cumulative effect of change in accounting method - - 209 - -
---------- ----------- ----------- ----------- ----------
Earnings Before Preferred Dividends 7,732 5,760 9,103 4,843 7,651
Preferred Dividends 539 558 580 595 148
---------- ----------- ----------- ----------- ----------
Net Earnings $ 7,193 $ 5,202 $ 8,523 $ 4,248 $ 7,503
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Common Stock Outstanding (thousands of shares):
End of year 9,144 8,912 8,566 7,614 6,631
Average 8,997 8,707 7,915 6,681 6,587
Earnings per Common Share
Before cumulative effect of change
in accounting method $ 0.80 $ 0.60 $ 1.05 $ 0.64 $1.14
Cumulative effect of change
in accounting method - - 0.03 - -
---------- ----------- ----------- ----------- ----------
Net Earnings per Common Share $ 0.80 $ 0.60 $ 1.08 $ 0.64 $1.14
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
(dollars in thousands except per share data)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS:
Beginning of the year $ 10,806 $ 14,076 $ 13,455 $ 15,655 $ 14,142
Net earnings after preferred dividends 7,193 5,202 8,523 4,248 7,503
Common dividends (8,702) (8,472) (7,902) (6,448) (5,990)
---------- ----------- ----------- ----------- ----------
End of the year $ 9,297 $ 10,806 $ 14,076 $ 13,455 $ 15,655
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
CAPITAL STRUCTURES:
Common shareholders' equity $ 89,539 $ 87,710 $ 85,702 $ 69,199 $ 57,225
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Redeemable preferred stocks $ 6,851 $ 7,217 $ 7,528 $ 7,951 $ 8,254
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Debt:
Long-term debt $102,100 $100,000 $ 87,000 $ 74,677 $ 57,060
Notes Payable 32,000 14,501 13,502 13,000 8,500
Current maturities of long-term debt - 5,000 - - 3,500
---------- ----------- ----------- ----------- ----------
$134,100 $119,501 $100,502 $ 87,677 $ 69,060
---------- ----------- ----------- ----------- ----------
Total capital $230,490 $214,428 $193,732 $164,827 $134,539
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
FINANCIAL RATIOS:
Return on common shareholders' equity 8.12% 6.00% 11.00% 6.72% 13.38%
Common stock dividend payout ratio 120% 161% 87% 146% 79%
Dividends paid in cash per common share $ 0.96 $ 0.96 $ 0.94 $ 0.93 $ 0.90
Fixed charge coverage (before income tax
deduction):
Times interest earned 2.16 2.07 2.86 1.97 2.45
Times interest and preferred dividends
earned 2.00 1.87 2.55 1.76 2.39
Book value per year-end share of common stock $ 9.79 $ 9.84 $ 10.00 $ 9.09 $ 8.63
UTILITY PLANT:
Utility plant - end of year $362,924 $333,863 $315,297 $283,871 $249,027
Accumulated depreciation 138,831 127,806 117,925 109,184 100,927
---------- ----------- ----------- ----------- ----------
Net plant $224,093 $206,057 $197,372 $174,687 $148,100
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Construction expenditures $ 37,637 $ 27,251 $ 32,990 $ 35,335 $ 19,669
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Total assets $296,898 $273,090 $252,690 $224,685 $191,471
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following is management's assessment of the Company's financial
condition and a discussion of the principal factors that affect consolidated
results of operations for the years 1995, 1994 and 1993.
EARNINGS AND DIVIDENDS
Per share results for 1995 were up 33% over 1994, despite the negative
impact of warm weather on residential and commercial consumption. Warm
weather during the heating season negatively impacted net earnings by an
estimated $0.21 per share.
<TABLE>
<CAPTION>
EARNINGS AND DIVIDENDS
(in thousands except per share data)
- ------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Net Income $7,193 $5,202 $8,523
Net Income per Share 0.80 $ 0.60 $ 1.08
Dividends per Share 0.96 $ 0.96 $ 0.94
Average Shares Outstanding 8,997 8,707 7,915
- ------------------------------------------------------------------
</TABLE>
Per share net earnings for 1994 were reduced by non-recurring costs of
$0.13 for interstate pipeline capacity to serve Oregon customers and $0.05
for revaluation of certain non-operating assets. Warmer than normal
temperatures also affected the comparison to 1993, when temperatures were
colder than normal. The warmer than normal temperatures impacted per share
net earnings by an estimated $0.15.
RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
<TABLE>
<CAPTION>
RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
(dollars in thousands)
- -------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Degree Days 5,238 5,463 6,136
Average Customers
Residential 121,503 113,398 104,334
Commercial 22,989 22,035 21,166
Consumption per Customer
Residential 755 779 842
Commercial 4,259 4,436 4,831
Margin
Residential $23,422 $21,730 $22,056
Commercial $18,162 $16,795 $18,437
- -------------------------------------------------------------------------
</TABLE>
The average number of residential and commercial customers increased
by 9,059 in 1995 which contributed approximately $2 million of additional
operating margin. The rate of customer growth is down from the 1994 increase
of 9,933, due primarily to a general slow down of economic activity in much
of the service area.
Consumption per customer for 1995 was down 3% for residential and 4%
for commercial from 1994. The reductions were directly attributable to
weather, 15% warmer than normal in November, and 4% warmer than normal in
December. The weather resulted in declines of 11% for residential consumption
and
17
<PAGE>
13% for commercial consumption in the key fourth quarter heating months.
Eliminating the effects of weather, estimated consumption per customer for
the year would have been approximately 810 therms for residential and 4,500
therms for commercial. Normalized residential consumption levels remain
consistent over the last three years because additional natural gas
equipment, such as water heaters converted from electricity are offsetting
the effects of more energy efficient buildings and appliances.
NON-CORE INDUSTRIAL
Non-core industrial operating margin was $21.5 million in 1995, an
increase of $2.0 million, or 10%. The 1995 increase is attributable to the
start up in June 1995 of a new cogeneration plant at an existing customer
site and increased throughput to a broad spectrum of industrial customers.
Operating margins in 1994 increased $2.4 million over 1993 primarily as a
result of service to a new cogeneration customer beginning in April 1994. A
fifth cogeneration plant is expected to begin receiving distribution service
from Cascade in the first quarter of 1996.
OPERATING EXPENSES
Operating expenses, almost 70% of which are payroll and benefits
costs, increased over 1994 by $616,000, or 2%. The increase is due primarily
to a December 31, 1994 enhancement in retirement plan benefits to bring
benefits up to industry norm. There was also an increase in lease expense
reflecting the use of operating leases beginning in 1995 for certain vehicles
formerly purchased. Mitigating the expense increase was the Company's ability
to maintain a stable number of employees in the face of strong, continuing
customer growth. Another moderating factor was the increase in payroll
capitalized due to increased capital expenditures.
Operating expenses in
1994 were up over 1993 by 8.4%. Payroll and benefits costs account for 65% of
this increase, with the largest factor being additional payroll cost of
$912,000. This upward movement is the result of general salary and wage
increases, the addition of 9 employees as of the end of the year, and a
reduction in payroll expense capitalized resulting from lower capital
expenditures in 1994. Employee medical benefits expense increased 26.1% over
1993 due to adverse claims experience.
DEPRECIATION AND AMORTIZATION, PROPERTY AND PAYROLL TAXES
Depreciation and amortization were up 7.4% in 1995 over 1994. The
increase is due to higher depreciable plant consistent with an 8.7% increase
in utility plant. Property and payroll taxes were essentially unchanged from
1994 due to a reduction in property tax rates stemming from a voter mandated
1990 reduction in Oregon. This reduction in property taxes is reflected in
Oregon rates. Depreciation and amortization expense in 1994, along with
property and payroll taxes, were up over 1993 a total of $1.2 million, or
9.0%, primarily because of increases in plant and equipment.
INTEREST EXPENSE AND OTHER
Interest expense in 1995 was $1.8 million, or 22.8% higher than 1994.
Of this increase, $1.1 million is due to $18 million of additional long-term
debt issued in October 1994. The remainder of the increase is due to interest
on credits for lower gas costs deferred for pass-back to customers,
discontinuance of interest rate swaps amortized over the term of the
underlying debt agreement, and interest on customer deposits.
Interest expense for 1994 increased $1.2 million over 1993 due to an
increase of $16.7 million in the amount of debt outstanding. Other expense
for 1994 includes charges of $700,000 for revaluation of certain non
operating assets.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business creates short-term cash
requirements to finance customer accounts receivable and construction
expenditures. To provide working capital for these requirements, the Company
entered into a new 5 year credit agreement on September 22, 1995, for a
commitment of $40 million from three banks which replaces two separate
commitments that totaled $25 million. The committed lines also support a
money market facility of a similar amount. A subsidiary has a $5 million
revolving credit facility used for non regulated business, which expires in
2000, and at December 31, 1995, $2.1 million was outstanding under the
facility. The Company also has $25 million of uncommitted lines from three
banks.
The Company has a Medium-Term Note program used for long-term financing
with $100 million outstanding at December 31, 1995, and $50 million
registered under the Securities Act of 1933 and available for issuance.
Because of the availability of short-term credit and the ability to issue
long-term debt and additional equity, management is of the opinion it has
adequate financial flexibility to meet its anticipated cash needs.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
Capital Expenditures
- ---------------------
(dollars in thousands)
- -----------------------------------------------------------
- -----------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Capital Expenditures $37,637 $27,251 $32,990
------- ------- -------
Operating Cash Flow $25,023 $12,851 $13,960
Dividends Paid (8,200) (8,154) (7,506)
Redemption of Preferred (362) (309) (455)
------- ------- -------
Available Cash Flow $16,461 $ 4,388 $ 5,999
------- ------- -------
Internally Funded Expenditures 43.74% 16.10% 18.18%
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
Available cash flow increased in 1995, primarily due to increased net
earnings, lower gas costs and a reduction in accounts receivable to a level
approximating 1993. These lower gas costs will be refunded to customers
beginning in 1996. Budgeted expenditures for 1996 will approximate $35.2
million and will be financed 30% to 40% from operating cash flow net of
common and preferred dividends. Over the next five years it is expected that
capital expenditures will be close to $150 million.
In addition to internally generated cash, the Company's cash flow is
enhanced from monthly sales of Common stock to participants of the Dividend
Reinvestment Plan and employees in the Company's 401(k) Plan. Cash in-flow
from these sources was $2.3 million in 1995, $4.4 million in 1994 and
$589,000 in 1993. The significant increase from 1993 to 1994 reflects opening
the Dividend Reinvestment Plan in 1994 to customers wishing to invest in
Cascade stock.
Financing plans for 1996 include the possible private placement of $7.5
million of preferred stock in the first half of the year and issuance of 1 to
1.5 million common shares later in the year. Proceeds from these financings
will be used to retire short-term debt and for other general corporate
purposes. The method, timing and amount of these and any future financings by
the Company will depend on a variety of factors, including capitalization
ratios, coverage ratios, interest costs, the state of the capital markets and
general economic conditions.
EFFECTS OF INFLATION
Changing prices have had minimal impact on the Company's operating
margins in the last three years. The effects of price changes in purchased
gas costs and the cost of transporting gas to the Company's system are, for
the most part, passed on to customers in accordance with regulatory policy.
Inflationary increases in wages and other operating expenses are generally
recognized by the regulatory agencies in their rate decisions in general rate
filings.
19
<PAGE>
REGULATORY MATTERS
Since June 1995, the Company has engaged in a negotiation process with
the staff of the WUTC and other interested parties, to establish new rates
for Washington customers. On December 11, 1995 Cascade filed a formal
request for a general rate increase, incorporating the results of agreements
reached to date with the staff. Negotiations continue regarding remaining
revenue level, rate spread and rate design issues. Under normal weather
conditions, the annual revenue increase from the requested rates, if granted
in full, would be $5.7 million, a 3.45% increase. Also included in the
filing proposal are changes to the design of residential and commercial
rates which would increase monthly service charges and per therm commodity
rates for the first fifty therms of gas used each month, and decrease
commodity rates for use in excess of fifty therms. The higher monthly service
charge would be applied to residential customers during winter months only.
Commercial customers would experience a higher service charge throughout the
year. This rate structure would, if approved by the WUTC, minimize the
impact of cyclical weather on bills, and would reduce financial hardship
experienced by residential and commercial customers as the result of
extremely cold weather.
On December 29, 1995 Cascade filed two additional applications with the
WUTC to lower rates to customers. The first request, which passes through to
customers reductions in the Company's costs of purchased gas, is estimated
to reduce annual revenues by $5.9 million or 3.8%. The second application
requests a pass through to customers, over a two year period, of $6.6 million
in gas cost savings and other deferred balances. It is estimated that this
application will reduce annual revenues by $3.4 million, or 2.2%. On January
26, 1996, the Company withdrew both applications in order to allow time to
work with the WUTC staff on its review of the filings. It is the Company's
intent to re-file the applications after any questions raised by the staff
are satisfied, with a desire to have these filings go into effect at the
same time as the general rate increase. It is not known when the rate changes
will be approved by the WUTC.
Effective December 1, 1995, the OPUC approved an order allowing Cascade
to decrease rates approximately $1.6 million or 5%. About $1.2 million of
this decrease is associated with current purchased gas costs applicable to
Oregon. The remainder of the decrease relates to the amortization of
conventional deferred revenue and gas cost amounts.
ENVIRONMENTAL
The Company has provided approximately $500,000 for cleanup costs
associated with contamination in the area of the Company's underground
storage tanks at its Sunnyside, Washington office. It is expected that any
additional costs will not be significant.
The Company has been notified of a claim regarding contamination of a
former manufactured gas site in Oregon once operated by a predecessor
company. At this date it appears that contamination is present at the site,
but there is no estimate of the extent of clean-up costs. To the extent the
Company may be responsible for any portion of such costs, it will seek
contribution from other responsible parties, recovery from its insurers and
appropriate rate relief. See Note 11 under Notes to Consolidated Financial
Statements.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS REPORT
Board of Directors
Cascade Natural Gas Corporation
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Cascade
Natural Gas Corporation and subsidiaries (the Corporation) as of December 31,
1995 and 1994, and the related consolidated statements of net earnings,
common shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly in
all material respects, the financial position of Cascade Natural Gas
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Seattle, Washington
February 5, 1996
21
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES:
Gas sales $171,254 $185,341 $179,979
Transportation revenue 11,300 6,871 7,087
Other operating income 190 198 388
-------- -------- --------
182,744 192,410 187,454
Less:
Gas purchases 102,858 118,083 113,500
Revenue taxes 11,480 11,500 11,095
-------- -------- --------
OPERATING MARGIN 68,406 62,827 62,859
-------- -------- --------
COST OF OPERATIONS:
Operating expenses 30,818 30,202 27,856
Depreciation and amortization 11,733 10,921 9,964
Property and payroll taxes 4,051 4,039 3,757
-------- -------- --------
46,602 45,162 41,577
-------- -------- --------
Earnings from operations 21,804 17,665 21,282
-------- -------- --------
NONOPERATING EXPENSE (INCOME):
Interest 9,938 8,090 7,038
Interest charged to construction (394) (203) (323)
-------- -------- --------
9,544 7,887 6,715
Amortization of debt issuance expense 606 593 562
Other (586) (80) (113)
-------- -------- --------
9,564 8,400 7,164
-------- -------- --------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD 12,240 9,265 14,118
INCOME TAXES 4,508 3,505 5,224
-------- -------- --------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD 7,732 5,760 8,894
Cumulative effect of change in
accounting method (Note 8) - - 209
-------- -------- --------
EARNINGS BEFORE PREFERRED DIVIDENDS 7,732 5,760 9,103
PREFERRED DIVIDENDS 539 558 580
-------- -------- --------
NET EARNINGS $7,193 $5,202 $8,523
-------- -------- --------
-------- -------- --------
EARNINGS PER COMMON SHARE:
Before cumulative effect of change
in accounting method $0.80 $0.60 $1.05
Cumulative effect of change in
accounting method - - 0.03
-------- -------- --------
NET EARNINGS PER COMMON SHARE $0.80 $0.60 $1.08
-------- -------- --------
-------- -------- --------
AVERAGE SHARES OUTSTANDING (NOTE 5) 8,997 8,707 7,915
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31
1995 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C>
UTILITY PLANT (Note 3) $362,924 $333,863
Less Accumulated depreciation 138,831 127,806
--------- ---------
224,093 206,057
Construction work in progress 14,957 7,872
--------- ---------
239,050 213,929
--------- ---------
OTHER ASSETS:
Investments 919 919
Notes receivable, less current
maturities 2,426 2,915
--------- ---------
3,345 3,834
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents 2,197 3,949
Securities available for sale - 1,466
Accounts receivable, less allowance
of $425 and $461 for doubtful
accounts 26,483 28,885
Current maturities of notes receivable 809 988
Materials, supplies, and inventories 6,047 5,583
Prepaid expenses and other assets 2,353 1,653
--------- ---------
37,889 42,524
--------- ---------
DEFERRED CHARGES 16,614 12,803
--------- ---------
$296,898 $273,090
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS' EQUITY,
PREFERRED STOCKS AND LIABILITIES
DECEMBER 31
1995 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock, par value $1 per share (Note 5)
Authorized, 15,000,000 shares; issued
and outstanding, 9,144,448 and 8,911,661
shares $ 9,144 $ 8,912
Additional paid-in capital 71,098 67,992
Retained earnings (Note 7) 9,297 10,806
--------- ---------
89,539 87,710
--------- ---------
REDEEMABLE PREFERRED STOCKS, aggregate
redemption amount of $7,103 and
$7,499 (Note 4) 6,851 7,217
--------- ---------
LONG-TERM DEBT (Note 7) 102,100 100,000
--------- ---------
CURRENT LIABILITIES:
Notes Payable (Note 6) 32,000 14,501
Accounts payable 16,392 18,366
Property, payroll, and excise taxes 4,578 4,541
Dividends and interest payable 4,365 4,202
Other current liabilities 4,646 1,620
Current maturities of long-term debt (Note 7) - 5,000
--------- ---------
61,981 48,230
--------- ---------
DEFERRED CREDITS:
Gas cost changes 10,934 5,200
Income taxes (Note 8) 16,461 15,382
Investment tax credits 3,207 3,472
Other 5,825 5,879
--------- ---------
36,427 29,933
--------- ---------
COMMITMENTS & CONTINGENCIES (Note 10 and 11) - -
--------- ---------
$296,898 $273,090
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
PAR ADDITIONAL PAID RETAINED
SHARES VALUE IN CAPITAL EARNINGS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 5,075,726 $ 5,076 $50,668 $ 13,455
Common stock issued:
Public offering 575,000 575 13,773
Employee savings plan and
retirement trust (401(k)) 22,200 22 558
Director stock award plan 800 1 19
Dividend reinvestment plan 37,992 38 939
Three-for-two stock split 2,854,656 2,854 (2,865)
Redemption of preferred stock (32)
Cash dividends:
Common stock, $.94 per share (7,902)
Preferred stock, senior,
$.55 per share (109)
7.85% cumulative preferred
stock $7.85 per share (471)
Earnings before preferred
dividends 9,103
--------- ------- ------- --------
BALANCE, DECEMBER 31, 1993 8,566,374 8,566 63,060 14,076
Common stock issued:
Employee savings plan and
retirement trust (401(k)) 48,959 49 690
Director stock award plan 1,200 1 18
Dividend reinvestment plan 295,128 296 4,222
Redemption of preferred stock 2
Cash dividends:
Common stock, $.96 per share (8,472)
Preferred stock, senior, $.55
per share (87)
7.85% cumulative preferred
stock, $7.85 per share (471)
Earnings before preferred
dividends 5,760
--------- ------- ------- --------
BALANCE, DECEMBER 31, 1994 8,911,661 $ 8,912 $67,992 $ 10,806
Common stock issued:
Employee savings plan and
retirement trust (401(k)) 50,373 50 677
Director stock award plan 1,200 1 15
Dividend reinvestment plan 181,214 181 2,409
Redemption of preferred stock 5
Cash dividends:
Common stock, $.96 per share (8,702)
Preferred stock, senior,
$.55 per share (68)
7.85% cumulative preferred
stock, $7.85 per share (471)
Earnings before preferred
dividends 7,732
--------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 9,144,448 $ 9,144 $71,098 $ 9,297
--------- ------- ------- --------
--------- ------- ------- --------
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings before preferred dividends $ 7,732 $ 5,760 $ 9,103
Adjustments to reconcile earnings
before preferred dividends to net
cash provided by operating
activities:
Depreciation 12,131 11,239 10,268
Write-down of assets - 700 349
Amortization of gas cost changes 3,508 (3,361) (10,119)
Increase in deferred income taxes 1,079 1,674 758
Cumulative effect of change in
accounting method - (209)
Decrease in deferred investment tax
credits (265) (275) (266)
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable 2,400 (2,346) (2,099)
Income taxes 105 (476) 98
Inventories 201 34 (601)
Gas cost changes 2,226 4,993 (482)
Deferred items (4,144) (662) 490
Accounts payable and accrued
expenses 1,560 (3,661) 6,563
Prepaid expenses and other assets (1,111) (725) 138
Other (399) (43) (31)
------- -------- -------
Net cash provided by operating
activities 25,023 12,851 13,960
------- -------- -------
INVESTING ACTIVITIES:
Capital expenditures (37,637) (27,251) (32,990)
New consumer loans (1,243) (1,393) (2,352)
Receipts on consumer loans 2,277 2,580 3,533
Purchase of securities available
for sale (4,107) (1,502) (747)
Proceeds from securities available
for sale 5,605 752 -
------- -------- -------
Net cash used by investing activities (35,105) (26,814) (32,556)
------- -------- -------
FINANCING ACTIVITIES:
Issuance of common stock 2,293 4,400 14,937
Redemption of preferred stock (362) (309) (455)
Proceeds from long-term debt 2,100 17,838 33,686
Repayment of long-term debt (5,000) - (22,761)
Proceeds from notes payable, net 17,499 999 501
Dividends paid (8,200) (8,154) (7,506)
------- -------- -------
Net cash provided by financing
activities 8,330 14,774 18,402
------- -------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,752) 811 (194)
CASH AND CASH EQUIVALENTS:
Beginning of year 3,949 3,138 3,332
------- -------- -------
End of year $ 2,197 $ 3,949 $ 3,138
------- -------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts
capitalized) $ 8,597 $ 7,381 $ 6,744
Income taxes $ 2,786 $ 2,567 $ 2,598
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
In July, 1994 the Company sold all of the capital stock of Metrology One, Inc. and
Fibre Graphics, Inc. A note receivable valued at $825,000 was acquired in exchange for
the assets sold. As of December 31, 1995, the note is included in Notes Receivable at a
net value of $269,000.
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Cascade Natural Gas Corporation (the Company) is a local distribution
company (LDC) engaged in the distribution of natural gas. The Company's
service territory consists primarily of small towns in Washington and Oregon,
ranging from the Canadian border in northwestern Washington to the Idaho
border in eastern Oregon. The Company also has four immaterial subsidiaries.
As of December 31, 1995, the Company had approximately 151,000 core
customers and 116 non-core customers. Core customers are principally
residential and small commercial and industrial customers who take
traditional "bundled" natural gas service which includes supply, peaking
service, and upstream interstate pipeline transportation. Sales to core
customers account for approximately 24% of gas deliveries and 69% of
operating margin. The Company's sales to its core residential and commercial
customers are vulnerable to weather fluctuations. The results of operations
for any one year may be significantly affected by variations in the weather.
Over the longer term, these fluctuations tend to offset each other, as rates
charged to customers are developed based on the assumption of normal weather.
Non-core customers are generally large industrial and institutional
customers who have chosen "unbundled" service, meaning that they select from
among several supply and upstream pipeline transportation options,
independent of distribution service on the Company's system. The Company's
margin from non-core customers is derived only from this distribution
service. The principal industrial activities of its customers include the
processing of forest products, production of chemicals, refining of crude
oil, production of aluminum, generation of electricity, and processing of
food.
The Company is subject to regulation of most aspects of its operations
by the Washington Utilities and Transportation Commission (WUTC) and the
Oregon Public Utility Commission (OPUC). It is subject to regulatory risk
primarily with respect to recovery of costs incurred. Various deferred
charges and deferred credits reflect assumptions regarding recovery of
certain costs through amortization during future periods.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting records and practices conform to the requirements
and uniform system of accounts prescribed by the WUTC and the OPUC.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Cascade Natural Gas Corporation and its wholly owned
subsidiaries: Cascade Land Leasing Co.; CGC Properties, Inc.; CGC Energy, Inc.;
and CGC Resources, Inc. All intercompany transactions have been eliminated in
consolidation.
UTILITY PLANT: Utility plant is stated at the historical cost of
construction. These costs include payroll-related costs such as taxes and other
employee benefits, general and administrative costs, and the estimated cost of
funds used during construction. Maintenance and repairs of property, and
replacements and renewals of items deemed to be less than units of property, are
charged to operations. Units of utility plant retired or replaced are credited
to property accounts at cost. Such amounts plus removal expense, less salvage,
are charged to accumulated depreciation. In the case of a sale of land or major
operating units, the resulting gain or loss on the sale is included in other
income or expense.
Depreciation of utility plant is computed using the straight-line method.
The asset lives used for computing depreciation range from five to forty years,
and the weighted average annual depreciation rate is approximately 3.5%.
INVESTMENTS: Investments consist primarily of real estate, classified as
nonutility property carried at estimated net realizable value.
NOTES RECEIVABLE: Notes receivable include loans made to customers for the
purchase of energy efficient appliances, which are generally the security for
the loan. Loans are made for a term of five years at interest rates varying
from 6.5% to 12%.
<PAGE>
SECURITIES AVAILABLE FOR SALE: Securities available for sale consist of
municipal bonds, at market value, which approximates cost.
MATERIALS, SUPPLIES AND INVENTORIES: Materials and supplies for
construction and maintenance are recorded at cost. Inventories of gas are
stated at the lower of average cost or market.
DEFERRED CHARGES: Deferred charges consist primarily of debt issuance
costs, intangible assets related to minimum liability accruals on pension
obligations (Note 9), and deferrals of postretirement health care expenses (Note
9). Debt issuance costs are amortized over the lives of the related issues.
Redemption costs relating to refinanced debt are amortized over the life of the
new debt issuance.
REVENUE RECOGNITION: The Company accrues estimated revenues for gas
delivered but not billed to residential and commercial customers from the meter
reading dates to month end.
GAS COST CHANGES: Gas cost changes consist primarily of the effects of
net decreases in purchased gas costs which have not yet been reflected in rates
charged to customers. The effects of changes that are not tracked on a
concurrent basis are deferred and amortized over a future period through a
temporary rate change schedule. Amortization is subject to approval by the
regulatory agencies, and amortization periods are generally one to two years.
FEDERAL INCOME TAXES: The Company deducts depreciation computed on an
accelerated basis for federal income tax purposes, and as a result, deductions
exceed the amounts included in the financial statements.
In 1981, the Company elected to record depreciation on 1981 and subsequent
utility plant additions under the Accelerated Cost Recovery System. This
election required the Company to provide deferred income taxes on the difference
between depreciation computed for financial statement and tax reporting purposes
beginning in 1981 (Note 8). This procedure has been accepted by the WUTC and
the OPUC.
It is expected that any future increases in federal income taxes resulting
from the reversal of accelerated depreciation on additions to utility plant in
1980 and prior will be allowed in future rate determinations.
INVESTMENT TAX CREDITS: Investment tax credits were deferred and are
amortized over the life of the property giving rise to the credit.
STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows,
the Company considers all liquid investments with a purchased maturity of
approximately three months or less to be cash equivalents.
RECLASSIFICATIONS: Certain reclassifications have been made in the 1994
and 1993 financial statements to conform to the classifications used in 1995.
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 and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
The Company has used significant estimates in measuring certain deferred
charges and deferred credits related to items subject to approval of the WUTC
and the OPUC. Significant estimates are also used in the development of
discount rates and trend rates related to the measurement of retirement
benefit obligations and accrual amounts, and in the determination of
depreciable lives of utility plant.
<PAGE>
NOTE 3 - UTILITY PLANT
Utility plant consists of the following components at December 31:
<TABLE>
<CAPTION>
1995 1994
(dollars in thousands)
<S> <C> <C>
Distribution plant $ 311,624 $ 284,305
Transmission plant 14,086 14,086
Production plant 1,053 1,053
General plant 30,622 28,994
Intangible plant 212 212
Nondepreciable plant 5,327 5,213
----------- ----------
$ 362,924 $ 333,863
----------- ----------
----------- ----------
</TABLE>
Note 4 - Redeemable Preferred Stocks
<TABLE>
<CAPTION>
1995 1994 1993
Shares Amount Shares Amount Shares Amount
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
7.85% cumulative, $1.00 par value 60,000 $ 6,000 60,000 $ 6,000 60,000 $ 6,000
$.55 cumulative senior, series A,B,
and C, without par value:
Beginning of year 135,427 1,217 167,676 1,528 213,157 1,951
Retirements 38,867 366 32,249 311 45,481 423
------- ------ ------- ------- ------- -------
Authorized, issued, and outstanding
at end of year 156,560 $ 6,851 195,427 $ 7,217 227,676 $ 7,528
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
Senior preferred stock is subject to mandatory redemption as follows:
<TABLE>
<CAPTION>
Shares Amount
(dollars in thousands)
<S> <C> <C>
1996 24,810 $ 248
1997 25,000 $ 250
1998 25,000 $ 250
1999 14,500 $ 145
2000 7,250 $ 73
</TABLE>
The shares may be purchased on the open market, or redeemed at
$10 per share plus accrued dividends. Redemption in excess of the required
number of shares of preferred stock can be made only if all cumulative
dividends on preferred stock have been paid. The 7.85% cumulative preferred
stock may not be redeemed until maturity on November 1, 1999.
<PAGE>
Note 5 - Common Stock
At December 31, 1995, shares of common stock are reserved for issuance
as follows:
<TABLE>
<CAPTION>
Number Purchase or Contribution Price
of shares Per Share
<S> <C> <C>
Employee Savings Plan and
Retirement Trust (401(k) plan) 230,944 Market closing price of common
stock immediately prior to
purchase by the trustee.
Divident reinvestment plan 347,619 Average of high and low sales
prices on the closest
business day immediately
preceding the investment
date, which is the 15th day
of each month.
Director stock award plan 9,600 Market closing price of common
stock on the day of the
Company's annual meeteing.
-------
588,163
-------
-------
</TABLE>
Effective December 20, 1993, the Company issued 2,854,656 shares of
common stock in a three-for-two stock split. For the calculations of
earnings per share of common stock, the average number of shares outstanding
has been recalculated to reflect the effect of this split.
Note 6 - Notes Payable
The Company's short-term borrowing needs are met with a $40,000,000 five
year revolving credit agreement with three of its banks for an annual
commitment fee of 1/8 of 1%. The committed lines of credit also support a
commercial paper facility of a similar amount. The Company also has
$25,000,000 of uncommitted lines from three banks. A subsidiary company has
a $5,000,000 revolving credit facility used for non-regulated business, and
at December 31, 1995, $2,100,000 was outstanding for a fixed term of five
years. Of the $32,000,000 in short term borrowing outstanding at December
31, $27,000,000 was from committed lines, and $5,000,000 was from
uncommitted lines.
<TABLE>
<CAPTION>
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Amount outstanding at December 31 $32,000 $ 14,501 $ 13,502
Average daily balance outstanding 13,170 15,217 11,696
Average interest rate, excluding
commitment fee 6.29% 4.87% 3.66%
Maximum month end amount outstanding 32,000 23,941 22,752
</TABLE>
<PAGE>
Note 7 - Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
(dollars in thousands)
<S> <C> <C>
9.46% Promissory note due 1995 $ - $ 5,000
6.53% Five Year Term Note 2,100 -
due 2000
Medium-term notes:
5.77% due 1998 5,000 5,000
5.78% due 1998 5,000 5,000
7.18% due 2004 4,000 4,000
7.32% due 2004 22,000 22,000
8.38% due 2005 5,000 5,000
8.35% due 2005 5,000 5,000
8.50% due 2006 8,000 8,000
8.06% due 2012 14,000 14,000
8.10% due 2012 5,000 5,000
8.11% due 2012 3,000 3,000
7.95% due 2013 4,000 4,000
8.01% due 2013 10,000 10,000
7.95% due 2013 10,000 10,000
--------- ---------
102,100 105,000
Less current maturities - 5,000
--------- ---------
$ 102,100 $ 100,000
--------- ---------
--------- ---------
</TABLE>
None of the long-term debt includes sinking fund requirements. Various
debt and credit agreements restrict the Company and its subsidiaries as to
indebtedness, payment of cash dividends on common stock, and other matters.
Under these restrictions, approximately $18,385,000 is available for payment
of dividends as of December 31, 1995.
During 1992 and 1994, the Company entered into three interest rate swap
arrangements, with scheduled expiration dates in 1994, 1995 and 1996. These
arrangements effectively converted $25,000,000 of fixed rate debt instruments
into variable rate obligations. Under the terms of these arrangements, the
Company made payments at a LIBOR-based floating rate, and received payments
at a fixed rate. The net interest paid or received is included in interest
expense. During 1994, these arrangements were terminated. The settlement
amount, which was not material, was charged to prepaid expenses, and is being
amortized to interest expense over the original terms of the swap
arrangements.
<PAGE>
Note 8 - Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes", effective January 1, 1993. This
statement supersedes Accounting Principles Board (APB) Opinion No. 11 and
SFAS No. 96, the latter of which was never adopted by the Company. The
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements was to increase net earnings by $209,000 ($.03 per share) in the
first quarter of 1993.
Under the provisions of SFAS No. 109, the Company was required to record a
deferred tax liability for the cumulative tax effect of basis differences on
utility plant placed in service prior to 1981. Flow through accounting had
previously been recorded with respect to these temporary differences. In
addition, the Company was required to adjust previously recorded deferred tax
liabilities related to plant placed in service after 1980, due to reductions
in tax rates. Due to regulatory policies regarding recovery of deferred
taxes charged to customers through rates, a regulatory liability was recorded
which offsets the effect of these adjustments to the deferred tax balances.
Therefore these adjustments had no effect on net earnings. The provision for
income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Current tax expense $ 2,661 $ 2,120 $ 3,443
Alternative minimum tax
(credit carryforward) - - (665)
Deferred tax expense 2,112 1,660 2,668
Change in tax rates - - 44
Amortization of deferred
investment tax credits (265) (275) (266)
-------- --------- ---------
$ 4,508 $ 3,505 $ 5,224
-------- --------- ---------
-------- --------- ---------
</TABLE>
During the third quarter of 1993, the Revenue Reconciliation Act of 1993
was enacted. This act increased the maximum federal income tax rate
applicable to corporations from 34% to 35%. The provision for deferred
income taxes included a charge of $44,000 ($.01 per share) in 1993 as a
result of recalculating certain deferred tax balances at the new tax rate. A
reconciliation between income taxes calculated at the statutory federal tax
rate and income taxes reflected in the financial statements is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Income tax calculated at statutory federal rate $ 4,284 $ 3,243 $ 4,941
Increase (decrease) resulting from:
State income tax, net of federal tax benefit 86 80 106
Differences between book and tax depreciation 339 468 441
Amortization of investment tax credits (265) (275) (266)
Other 64 (11) 2
-------- --------- --------
$ 4,508 $ 3,505 $ 5,224
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
<TABLE>
<CAPTION>
1995 1994
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property $ 13,910 $ 13,082
Debt refinancing costs 2,315 2,505
Retirement benefit obligations 1,359 829
Other 1 77
--------- ---------
17,585 16,493
--------- ---------
--------- ---------
Deferred tax assets:
Valuation reserves 313 264
Retirement benefit obligations 434 477
Provision for doubtful accounts 173 172
Other 204 198
--------- ---------
1,124 1,111
--------- ---------
Net deferred tax liability $ 16,461 $ 15,382
--------- ---------
--------- ---------
</TABLE>
Note 9 - Retirement Plans
The Company's noncontributory defined benefit pension plan covers
substantially all employees over 21 years of age with one year of service.
The benefits are based on a formula which includes credited years of service
and the employee's annual compensation. The Company's policy is generally to
fund the plan to the extent allowable under Internal Revenue Service rules.
The Company provides executive officers with supplemental retirement,
death, and disability benefits. Under the plan, vesting occurs on the first
day of the year after the executive has reached age 55 and has completed five
years of participation under the plan, or upon death. The plan supplements
the benefit received through Social Security and the defined benefit pension
plan so that the total retirement benefits equal 70% of the executive's
highest salary during any of the five years preceding retirement. The plan
also provides a death benefit equivalent to ten years of vested benefits.
The Company funds the plan by making contributions to the Trust sufficient to
assure assets held by the Trust always exceed the accumulated benefit
obligation for benefits payable by the plan.
<PAGE>
The funded status of the defined benefit pension and supplemental
retirement plans and amounts recognized in the Company's financial
statements are shown below:
<TABLE>
<CAPTION>
Supplemental Retirement
Pension Plan Plan
1995 1994 1995 1994
(dollars in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested $ 21,863 $ 12,666 $ 3,141 $ 2,310
Nonvested 195 137 199 144
--------- --------- -------- --------
$ 22,058 $ 12,803 $ 3,340 $ 2,454
--------- --------- -------- --------
--------- --------- -------- --------
Projected benefit obligation for services
rendered to date $ (26,618) $ (15,590) $ (3,813) $ (3,327)
Plan assets, at fair value, primarily common stocks,
corporate bonds, and life insurance policies 19,376 13,842 3,430 2,387
--------- --------- -------- --------
Projected benefit obligation in excess of
plan assets (7,242) (1,748) (383) (940)
Unrecognized amounts:
Prior service cost 3,754 2,316 (284) -
Loss (gain) from past experience different
from that assumed 4,689 28 949 582
Net transition obligation 22 27 1,103 1,203
Adjustment to recognize minimum liability (3,777) - - (912)
--------- --------- -------- --------
Prepaid (accrued) pension cost $ (2,554) $ 623 $ 1,385 $ (67)
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
Net pension cost for both plans included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Service cost of benefits earned during the period $ 1,171 $ 1,271 $ 1,113
Interest cost on projected benefit obligation 1,936 2,044 1,900
Actual return on plan assets (4,057) (1,101) (1,485)
Deferral of unrecognized loss (gain) and amortization, net 2,916 (524) 82
Amount recognized due to settlement - 16 -
-------- ------- --------
$ 1,966 $ 1,706 $ 1,610
-------- ------- --------
-------- ------- --------
</TABLE>
<PAGE>
The following table sets forth the approximate effects on the projected
benefit obligations resulting from amendments to the pension plan and from
the change in the discount rate from 8.75% to 7.25%:
<TABLE>
<CAPTION>
Supplemental
Pension Retirement
Plan Plan
------- ------------
(dollars in thousands)
<S> <C> <C>
Effect of change in discount rate $ 4,500 $ 700
Effect of amendment to pension plan $ 1,800 $ (300)
</TABLE>
The following assumptions were used to determine the projected benefit
obligation and expected return on assets at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Pension plan:
Discount rate:
Nonretired lives 7.25% 8.75% 7.50%
Retired lives 7.25% 8.75% 6.00%
Long-term rate of return on plan assets 9.00% 8.50% 8.50%
Rate of increase in future compensation levels 5.00% 5.00% 5.00%
Supplemental retirement plan:
Discount rate 7.25% 8.75% 7.50%
Long-term rate of return on plan assets 8.50% 8.50% 8.50%
Rate of increase in future compensation levels 5.00% 5.00% 5.00%
</TABLE>
The Company has an Employee Savings Plan and Retirement Trust (401(k)
plan). All employees 21 years of age or older with one full year of service
are eligible to enroll in the 401(k) plan. Under the terms of the 401(k)
plan, the Company will match each employee's contribution to the 401(k) plan
at a rate of 50% of the employee's contribution up to 6% of the employee's
compensation, as defined. The Company recognized costs for contributions to
this plan of $458,000, $474,000, and $370,000 for 1995, 1994, and 1993,
respectively.
The Company's health care plan provides Postretirement Benefits Other
than Pensions (PBOP), consisting of medical and prescription drug benefits,
to its retired employees hired prior to June 1, 1992, and their eligible
dependents. The Company has been recording PBOP expense, as provided in SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", since January 1, 1993. The Company defers the portion of the
annual PBOP accrual attributable to Washington regulated operations in excess
of the cash basis of recording these expenses. This approach is consistent
with WUTC policy. The amounts so deferred have been $1,028,000, $1,892,000,
and $1,938,000 in 1995, 1994, and 1993 respectively. The Company has filed
a general rate case in the State of Washington, requesting recovery of these
deferred amounts. Management believes that the rates to be granted in this
rate case will include recognition of these amounts, as well as recognition
of on going PBOP expenses, as measured under SFAS No. 106. An adverse
decision by the WUTC could result in a material difference in the reported
amounts.
<PAGE>
Amounts accrued for PBOP, not including the above mentioned deferrals,
consist of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Service cost $ 366 $ 523 $ 510
Net interest cost 1,114 1,151 1,105
Actual return on plan assets (627) 12 --
Net amortization and deferral 934 551 657
------- ------- -------
$ 1,787 $ 2,237 $ 2,272
------- ------- -------
------- ------- -------
</TABLE>
The Company's policy is generally to fund the plan to the extent
allowable under Internal Revenue Service rules. The following table sets
forth the health care plan's funded status.
<TABLE>
<CAPTION>
1995 1994
(dollars in thousands)
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 4,058 $ 3,814
Fully eligible active plan
participants 5,948 4,797
Other active plan participants 7,168 5,571
-------- ---------
17,174 14,182
Plan assets, at fair value, primarily
common stocks and corporate bonds 4,194 2,498
-------- ---------
Funded status (12,980) (11,684)
Unrecognized transition obligation 11,169 11,826
Unrecognized (gain) loss 349 (1,462)
-------- ---------
Accrued postretirement benefit cost $ (1,462) $ (1,320)
-------- ---------
-------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the APBO is
10% for 1996, trending down to 5.5% at 2005. At January 1, 1995, the census
and per capita claims cost assumptions were updated, resulting in a reduction
in the APBO of approximately $1.2 million. The assumed discount rate used in
determining the APBO was 7.25% at December 31, 1995, and 8.75% at December
31, 1994. The effect of the decrease in the discount rate was an increase of
approximately $2.6 million in the APBO at December 31, 1995. A one
percentage point increase in the assumed health care cost trend rate for each
year would increase the APBO by approximately 16.6% and the service and
interest cost components of net postretirement health care cost by
approximately 16.9%.
NOTE 10 - GAS SERVICE CONTRACTS
The Company has entered into various transportation, supply, storage,
and peaking service contracts to assure that adequate supplies of gas will be
available to provide firm service to its core customers and to meet its
obligations under long-term non-core customer agreements. These contracts,
which have maturities ranging from one to 30 years, provide that the Company
must pay a fixed demand charge each month.
One gas supply contract requires the Company to take 10,037,500 therms
annually or the seller can reduce its commitment to provide that minimum
amount. Two other gas supply contracts require that the Company take 100% of
all tendered gas volumes up to the maximum daily limit each day during the
remaining life of the agreements. The total
36
<PAGE>
contract quantity for these two agreements is 76,000,000 therms. All three
of these contracts have primary terms that end on November 1, 1996. Another
contract has a 42% take requirement, equaling an obligation of 41,475,315
therms per year through 2004. Among the Company's multi-year agreements, a
15-year contract for winter-only ( October through March) supply has a 70%
minimum take requirement, which equates to a purchase requirement of
9,841,650 therms per year. Finally, the Company has entered into various
agreements for the winter of 1995-96 whose minimum take requirements total
49,370,000 therms.
The remaining gas supply contracts do not require the Company to take
any gas, but the various suppliers are obligated to provide up to a maximum
of 80,300,000 therms annually. The Company's minimum obligations under these
contracts are set forth in the following table. The amounts are based on
current contract prices, which are subject to change.
<TABLE>
<CAPTION>
STORAGE AND
FIRM GAS PEAKING
SUPPLY TRANSPORTATION SERVICE TOTAL
(dollars in thousands)
<S> <C> <C> <C> <C>
1996 $ 38,280 $ 27,310 $6,210 $ 71,800
1997 19,597 26,998 5,190 51,785
1998 18,511 26,998 5,059 50,568
1999 13,096 26,816 4,241 44,153
2000 12,693 26,780 4,052 43,525
Thereafter 51,892 363,979 56,107 $471,978
-------- -------- ------ --------
$154,069 $498,881 $80,859 $733,809
-------- -------- ------ --------
-------- -------- ------ --------
</TABLE>
Purchases under these contracts for 1993, 1994, and 1995, including
commodity purchases, as well as demand charges have been as follows:
<TABLE>
<CAPTION>
STORAGE AND
FIRM GAS PEAKING
SUPPLY TRANSPORTATION SERVICE TOTAL
(dollars in thousands)
<S> <C> <C> <C> <C>
1993 $50,036 $18,691 $4,179 $72,906
1994 $54,695 $22,751 $4,639 $82,085
1995 $45,223 $28,548 $4,722 $78,493
</TABLE>
37
<PAGE>
NOTE 11- CONTINGENCIES
The Company was notified by the Department of Ecology of the State of
Washington that it is a "potentially liable person" as a result of
contamination in the area of the Company's underground storage tanks at its
Sunnyside, Washington office. The Company has provided $455,000 to date for
the estimated costs of the cleanup. The Company believes that the remaining
reserves of $89,000 are adequate to complete the remediation.
During the first quarter of 1995, a claim related to environmental
contamination from a manufactured gas plant previously owned by a predecessor
corporation of the Company was filed by the present property owner. The
claim requested that the Company assume responsibility for investigation and
possible cleanup of alleged contamination on the property. A consultant has
been retained by the property owner to evaluate the nature and extent of any
contamination. To date the consultant has reported that contamination
consistent with manufactured gas operations is present, but there is no
estimate of the cost of remediation. To the extent the Company may be
responsible for all or part of such cost, it expects to seek contribution
from other site owners and its insurers, and would seek appropriate rate
relief to the extent of any remaining expense incurred.
Various lawsuits, claims, and contingent liabilities may arise from time
to time from the conduct of the Company's business. None of those now
pending, in the opinion of management, is expected to have a material effect
on the Company's financial position, results of operations, or liquidity.
NOTE 12 - REVENUES FROM MAJOR CUSTOMER
In 1995, no one customer accounted for more than 10% of gas revenues.
In 1994, one customer accounted for approximately $20,215,000 in gas
revenues. This represents 10.5% of total 1994 revenues; however, margins
derived from this customer were less than 3% of total margin. Outstanding
accounts receivable from this customer at December 31, 1994, totaled
$2,144,000, which represents December 1994 consumption. In 1993 no one
customer accounted for more than 10% of gas revenues.
38
<PAGE>
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the
Company, using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. Thus, the use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The estimated fair value amounts of financial instruments at December 31
are shown as follows:
<TABLE>
<CAPTION>
1995 1994
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,197 $ 2,197 $ 3,949 $ 3,949
Notes receivable, including
current maturities 3,235 3,234 3,903 3,955
Accounts receivable 26,483 26,483 28,885 28,885
Securities available for sale -- -- 1,466 1,466
Redeemable preferred stock 6,851 7,324 7,217 6,924
Liabilities:
Long-term debt 102,100 111,615 100,000 93,187
Notes payable 32,000 32,000 14,501 14,501
Current maturities of long-term debt -- -- 5,000 5,096
</TABLE>
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND NOTES PAYABLE: The
carrying amounts of these items are a reasonable estimate of their fair
value.
NOTES RECEIVABLE, REDEEMABLE PREFERRED STOCK, AND LONG-TERM DEBT:
Interest rates that are currently available to the Company for issuance of
instruments with similar terms and remaining maturities are used to estimate
fair value.
SECURITIES AVAILABLE FOR SALE: Fair values are based on quoted market
prices.
39
<PAGE>
NOTE 14 - INTERIM RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1995 1995 1995 1995
(thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues $ 56,907 $ 26,512 $ 34,715 $ 64,610
Gas costs and revenue taxes 34,892 16,028 21,833 41,585
-------- -------- -------- --------
Operating margin 22,015 10,484 12,882 23,025
Cost of operations 11,680 11,475 11,768 11,679
-------- -------- -------- --------
Earnings from operations 10,335 (991) 1,114 11,346
Interest and other, net 2,470 2,425 2,366 2,303
-------- -------- -------- --------
Earnings before income taxes 7,865 (3,416) (1,252) 9,043
Income taxes 2,666 (1,099) (369) 3,310
Preferred dividends 131 136 136 136
-------- -------- -------- --------
Net earnings (loss) $ 5,068 $ (2,453) $ (1,019) $ 5,597
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share $ 0.56 $ (0.27) $ (0.11) $ 0.63
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1994 1994 1994 1994
(thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues $ 62,533 $ 28,867 $ 36,264 $ 64,746
Gas costs and revenue taxes 40,836 19,705 24,863 44,179
-------- -------- -------- --------
Operating margin 21,697 9,162 11,401 20,567
Cost of operations 11,551 10,950 11,431 11,230
-------- -------- -------- --------
Earnings from operations 10,146 (1,788) (30) 9,337
Interest and other, net 2,844 1,939 1,835 1,782
-------- -------- -------- --------
Earnings before income taxes 7,302 (3,727) (1,865) 7,555
Income taxes 2,748 (1,397) (590) 2,744
Preferred dividends 136 141 140 141
-------- -------- -------- --------
Net earnings (loss) $ 4,418 $ (2,471) $ (1,415) $ 4,670
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share $ 0.50 $ (0.28) $ (0.16) $ 0.54
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
40
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
Cascade Natural Gas Corporation
and Subsidiaries
We have audited the consolidated financial statements of Cascade Natural Gas
Corporation and subsidiaries as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, and have issued our
report thereon dated February 5, 1996; such consolidated financial statements
and report are included in Part II of this Annual Report on Form 10-K. Our
audits also included the financial statement schedule of Cascade Natural Gas
Corporation, listed in Item 14(a)2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information shown
therein.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 5, 1996
41
<PAGE>
SCHEDULE II
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- ---------------------- ----------- ----------
Additions
----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Description of Period Expenses Accounts (Note) Period
- -------------------------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended:
December 31, 1993 $ 399 279 188 $490
December 31, 1994 $ 490 340 369 $461
December 31, 1995 $ 461 330 366 $425
Note: Accounts receivable written off, net of recoveries
Valuation Reserve - Notes Receivable
December 31, 1994 $ 0 550 577 $1,127
December 31, 1995 $1,127 122 $1,249
Valuation Reserve -
Investments
December 31, 1994 $ 0 150 $150
December 31, 1995 $ 150 0 $150
</TABLE>
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Refer to the information regarding directors under the caption "Election
of Directors" on pages 1 through 3 of the Proxy Statement issued to
Shareholders for the 1996 Annual Meeting (the 1996 Proxy Statement), which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Refer to the information regarding executive compensation set forth in
the 1996 Proxy Statement, under "Executive Compensation" on pages 7, 8, and
9, and under "Compensation Committee Interlocks and Insider Participation" on
page 9, which information is incorporated herein by reference. Certain
information concerning the executive officers of the Company is set forth in
Part I, under the caption "Executive Officers of the Registrant."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Refer to the information regarding security ownership of certain
beneficial owners and management under the caption "Security Ownership of
Certain Beneficial Owners and Management" on page 4 of the 1996 Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Refer to the information regarding certain relationships and
transactions under the caption "Compensation Committee Interlocks and Insider
Participation" on page 9 of the 1996 Proxy Statement, which information is
incorporated herein by reference.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements (Included in Part II of this report):
Independent Auditors' Report
Consolidated Statements of Net Earnings for the Years Ended December 31,
1995, 1994, and 1993
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Common Shareholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994, and 1993
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules (Included in Part II of this report):
Independent Auditors' Report on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits:
Refer to the index to exhibits following the signature page of this
report. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report is identified in
the list.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended December 31, 1995.
On February 21, 1996, the Registrant filed a report on Form 8-K, dated
February 7, 1996, to report the change in its fiscal year to a fiscal year
ending September 30. The Registrant will file a transition report on Form
10-K covering the period commencing on January 1, 1996, and ending on
September 30, 1996.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CASCADE NATURAL GAS CORPORATION
March 27, 1996 By /s/ J. D. Wessling
- -------------------- --------------------
Date J. D. Wessling
Vice President - Finance, Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Chairman of the Board,
Chief Executive Officer
/s/ W. Brian Matsuyama and Director March 27, 1996
- ------------------------- (Principal Executive Officer) ---------------
W. Brian Matsuyama Date
President and
/s/ Ralph E. Boyd Chief Operating Officer March 27, 1996
- ------------------------- ---------------
Ralph E. Boyd Date
/s/ J. D. Wessling Vice President - Finance, March 27, 1996
- ------------------------ Chief Financial Officer ---------------
J. D. Wessling (Principal Financial Officer) Date
/s/ James E. Haug Treasurer and Chief March 27, 1996
- ------------------------- Accounting Officer ---------------
James E. Haug (Principal Accounting Officer) Date
/s/ Carl Burnham, Jr. Director March 27, 1996
- ------------------------- ---------------
Carl Burnham, Jr. Date
/s/ Melvin C. Clapp Director March 27, 1996
- ------------------------- ---------------
Melvin C. Clapp Date
/s/ David A. Ederer Director March 27, 1996
- ------------------------- ---------------
David A. Ederer Date
/s/ Howard L. Hubbard Director March 27, 1996
- ------------------------- ---------------
Howard L. Hubbard Date
/s/ Larry L. Pinnt Director March 27, 1996
- ------------------------- ---------------
Larry L. Pinnt Date
/s/ Brooks G. Ragen Director March 27, 1996
- ------------------------- ---------------
Brooks G. Ragen Date
/s/ Andrew V. Smith Director March 27, 1996
- ------------------------- ---------------
Andrew V. Smith Date
/s/ Mary A. Williams Director March 27, 1996
- ------------------------- ---------------
Mary A. Williams Date
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Registrant as amended through
March 25, 1996.
3.2 Restated Bylaws of the Registrant. Incorporated by reference to
Exhibit 3-(2) to the Registrant's annual report on Form 10-K for the
year ended December 31, 1990.
4.1 Indenture dated as of August 1, 1992, between the Registrant and The
Bank of New York relating to Medium-Term Notes. Incorporated by
reference to Exhibit 4 to the Registrant's current report on Form 8-K
dated August 12, 1992.
4.2 First Supplemental Indenture dated as of October 25, 1993, between the
Registrant and The Bank of New York relating to Medium-Term Notes.
Incorporated by reference to Exhibit 4 to the Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 1993.
4.3 Rights Agreement dated as of March 19, 1993, between the Registrant and
Harris Trust and Savings Bank. Incorporated by reference to Exhibit 2
to the Registrant's registration statement on Form 8-A dated April 21,
1993.
4.4 Amendment to Rights Agreement dated June 15, 1993, between the
Registrant and The Bank of New York. Incorporated by reference to
Exhibit 4 to the Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1993.
10.1 Letter Agreement dated April 28, 1995 between CanWest Gas Supply U.S.A.,
Inc. and the Registrant for Winter Peaking Supply - 1995 through 1998. A
PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
10.2 Service Agreement (Storage Gas Service under Rate Schedule SGS-1) dated
January 12, 1994, between Northwest Pipeline Corporation and the
Registrant. Incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (1993 Form 10-K).
10.3 Service agreement (assigned Storage Gas Service under Rate Schedule
SGS-1) dated January 12, 1994, between Northwest Pipeline Corporation
and the Registrant. Incorporated by reference to Exhibit 10.3 to the
Registrant's 1993 Form 10-K.
10.4 Service Agreement (Liquefaction -- Storage Gas Service under Rate
Schedule SGS-1) dated January 12,1994, between Northwest Pipeline
Corporation and the Registrant. Incorporated by reference to
Exhibit 10.4 to the Registrant's 1993 Form 10-K.
10.5 Gas Purchase Agreement dated November 1, 1990, between Mobil Oil Canada
and the Registrant. Incorporated by reference to Exhibit 10-6 to the
1991 Form 10-K.
10.6 Amendment to Gas Purchase Agreement dated August 30, 1991, between Mobil
Oil Canada and the Registrant. Incorporated by reference to Exhibit
10(h)(2) to the Registrant's registration statement on Form S-2, No.
33-52672 (the 1992 Form S-2).
10.7 Amendment to Natural Gas Purchase Agreement dated September 1, 1993,
between Canadian Hydrocarbons Marketing, Inc., and the Registrant.
Incorporated by reference to Exhibit 10.1 to amendment no. 1 to the
Registrant's quarterly report on Form 10-Q/A for the quarter ended
September 30, 1993.
47
<PAGE>
<S> <C>
10.9 Long Term Gas Sales Agreement dated August 26, 1993, between Canadian
Hydrocarbons Marketing Inc., and the Registrant. Incorporated by
reference to Exhibit 10.2 to amendment no. 1 to the Registrant's
quarterly report on Form 10-Q/A for the quarter ended September 30,
1993.
10.10 Gas Sale Agreement dated November 1, 1993, between Mobil Natural Gas
Inc. and the Registrant. Incorporated by reference to Exhibit 10.10
to the Registrant's 1993 Form 10-K.
10.11 Agreement for Sale and Purchase of Gas dated November 1, 1993, as
amended by Letter Amendment dated December 8, 1993, between Mobil
Natural Gas, Inc., and the Registrant. Incorporated by reference to
Exhibit 10.11 to the Registrant's 1993 Form 10-K.
10.12 Replacement Firm Transportation Agreement dated July 31, 1991, between
Northwest Pipeline Corporation and the Registrant. Incorporated by
reference to Exhibit 10(1) to the 1992 Form S-2.
10.12.1 Amendments dated August 20, 1992, November 1, 1992, October 20, 1993,
and December 17, 1993, to Replacement Firm Transportation Agreement
dated July 31, 1991, between Northwest Pipeline Corporation and the
Registrant. Incorporated by reference to Exhibit 10.12.1 to the
Registrant's 1993 Form 10-K.
10.13 Firm Transportation Service Agreement dated April 25, 1991, between
Pacific Gas Transmission Company and the Registrant (1993 expansion).
Incorporated by reference to Exhibit 10(m) to the 1992 Form S-2.
10.14 Firm Transportation Service Agreement dated October 27, 1993, between
Pacific Gas Transmission Company and the Registrant. Incorporated by
reference to Exhibit 10.14 to the Registrant's 1993 Form 10-K.
10.17 Storage Agreement dated July 23, 1990, between Washington Water Power
Company and the Registrant. Incorporated by reference to Exhibit 10(v)
to the 1992 Form S-2.
10.17.1 Letter agreement dated May 26, 1995, amending the Storage Agreement
dated July 23, 1990, between Washington Water Power Company and the
Registrant.
10.18 Service Agreement (Firm Redelivery Transportation Agreement under Rate
Schedule TF-2 for Cascade's SGS-1) dated January 12, 1994, between
Northwest Pipeline Corporation and the Registrant. Incorporated by
reference to Exhibit 10.18 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.19 Service Agreement (Firm Redelivery Transportation Agreement under Rate
Schedule TF-2 for Cascade's assignment of SGS-1 from WWP) dated
January 12, 1994, between Northwest Pipeline Corporation and the
Registrant. Incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.20 Service Agreement (Firm Redelivery Transportation Agreement under rate
Schedule TF-2 for Cascade's LS-1) dated January 12, 1994, between
Northwest Pipeline Corporation and the Registrant. Incorporated by
reference to Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.21 Gas Purchase Contract dated October 1, 1994, between IGI Resources,
Inc. and the Registrant. Incorporated by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.22 Amended and restated Natural Gas Sales Agreement dated August 17,
1994, between Westcoast Gas Services, Inc. and Registrant which
replaces and substitutes for the Kingsgate Gas Sales Agreement dated
September 23, 1960. Incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
48
<PAGE>
<S> <C>
10.23 Firm Transportation Service Agreement dated November 4, 1994, between
Pacific Gas Transmission and the Registrant, effective November 1,
1995. Incorporated by reference to Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.24 Firm Transportation Agreement dated August 1, 1994, between Northwest
Pipeline Corporation and Registrant. Incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.25 Prearranged Permanent Capacity Release of Firm Natural Gas
Transportation Agreements dated November 30, 1993 between Tenaska
Gas Co., Tenaska Washington Partners, L.P. and Registrant.
Incorporated by reference to Exhibit 10.25 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.26 Agreement for Peak Gas Supply Service dated August 1, 1992, between
Tenaska Gas Co., Tenaska Washington Partners, L.P., and Registrant.
Incorporated by reference to Exhibit 10.26 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.27 Agreement for Peaking Gas Supply Service dated November 22, 1991,
between Longview Fibre Company and Registrant. Incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.28 Letter Agreement dated October 24, 1995 between Westcoast Gas
Services, Inc. and the Registrant for Winter Peaking Supply - 1995
through 1998. A PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
10.29 1991 Director Stock Award Plan of the Registrant.* Incorporated by
reference to Exhibit 10(n) to the 1992 Form S-2.
10.30 Executive Supplemental Income Retirement Plan of the Registrant and
Supplemental Benefit Trust as amended and restated as of May 1, 1989,
as amended by Amendment No. 1 dated July 1, 1991.* Incorporated by
reference to Exhibit 10(o) to the 1992 Form S-2.
10.31 Employment agreement between the Registrant and W. Brian Matsuyama.*
Incorporated by reference to Exhibit 10(p) to the 1992 Form S-2.
10.32 Employment agreement between the Registrant and Jon T. Stoltz.*
Incorporated by reference to Exhibit 10(q) to the 1992 Form S-2.
12. Statement regarding computation of ratio of earnings to fixed charges
and preferred dividend requirements.
21. A list of the Registrant's subsidiaries is omitted because the
subsidiaries considered in the aggregate as a single subsidiary do not
constitute a significant subsidiary.
23. Consent of Deloitte & Touche LLP to the incorporation of their report
in the Registrant's registration statements.
27. Financial Data Schedule.
</TABLE>
- ---------------
* Management contract of compensatory plan or arrangement.
49
<PAGE>
Exhibit 3.1
March 25, 1996
Restated Articles of Incorporation
of Cascade Natural Gas Corporation
We, the undersigned, RALPH E. BOYD and LARRY C. ROSOK, President and
Secretary respectively, of Cascade Natural Gas Corporation do hereby on
behalf of said Corporation restate in a single document the entire text of
its Articles of Incorporation, as previously amended, supplemented or
restated to the date hereof:
ARTICLE I
The name of this Corporation shall be Cascade Natural Gas Corporation.
ARTICLE II
The objects and purposes for which this Corporation is formed are and shall
be as follows:
1. To manufacture, produce, buy, sell, transport and in all other respects
dispose of and deal in all forms and types of natural and/or manufactured
gas, oil, petroleum and all forms and types of residual products thereof; to
supply natural and/or manufactured gas and/or related petroleum products for
lights, heating, power and all other domestic and industrial uses, and to
furnish the same to public or private consumers both within and without the
State of Washington; to construct pipelines for the transportation of natural
and/or manufactured gas and other petroleum products and to buy, operate,
lease and sell the same; to acquire, construct, erect, lay down, maintain,
enlarge, alter, work and use all lands, buildings, easements, pipelines,
machinery, plants, stocks, motors, fittings, meters, other apparatus
materials and things and to supply all materials, products and things that
may be necessary, incident or convenient in connection with the production,
transportation, use, storage, regulation, measurement, supply and
distribution of any of the products of the Company; to engage in the
transportation of natural and/or manufactured gas, oil, petroleum and related
products, either produced by this Corporation or other persons or
corporations by means of pipelines, railroads, boats, barges, or other
conveyances and to lease or sublease all or any part thereof to or from other
persons or corporations for the like purpose; to acquire by purchase or
otherwise, or by the right of exercise of eminent domain, rights-of-way for
natural and/or manufactured gas or other petroleum products pipelines and to
construct and maintain such pipelines for the carriage and transportation of
such products on its own behalf and hire; to buy, acquire, sell, retain, deal
in or otherwise dispose of, natural gas and other petroleum properties and
interest and any right, title or interest therein; to carry on such other
business pertaining to natural and manufactured gas, oil, petroleum and
similar products as may be found necessary or desirable or such as is
generally engaged in by a corporation of this kind and to do all other acts
and things required to be done in connection therewith, either within or
without
<PAGE>
the State of Washington, U.S.A.
2. To manufacture, purchase or otherwise acquire, own, mortgage, pledge,
sell, assign and transfer, or otherwise dispose of, to invest, trade, deal in
and deal with, goods, wares and merchandise and real and personal property of
every class and description.
3. To acquire by purchase, assignment or otherwise, letters patent of the
United States and the Territorial and other rights and licenses which may be
of value or advantage in the carrying out of the above mentioned objects, and
to dispose of the same by sale, license, assignment or otherwise.
4. To acquire, and pay for in cash, stock or bonds of this Corporation, or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
5. To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge
or otherwise dispose of shares of the capital stock of, or any bonds,
securities or evidence of indebtedness created by any other corporation or
corporations organized under the laws of this State, or any other state,
country, nation or government, and while the owner thereof to exercise all
rights, powers and privileges of ownership.
6. To issue bonds, debentures, or obligations of this Corporation from time
to time, for any of the objects or purposes of the Corporation, and to secure
the same by mortgage, pledge, deed of trust, or otherwise.
7. To have one or more officers; to carry on all or any of its operations
and business and without restriction or limit as to amount, to purchase or
otherwise acquire, own, hold, mortgage, sell, convey or otherwise dispose of
real and personal property of every class and description, in any of the
states, districts, territories or colonies of the United States, and in any
and all foreign countries, subject to the laws of such states, district,
territory, colony or country.
8. To carry on in general any other business in connection with the
foregoing, whether manufacturing or otherwise, and to have and exercise all
the powers conferred by the laws of Washington upon corporations and to do
any or all of the things thereinbefore set forth to the same extent as
natural persons might or could do.
9. The foregoing clauses shall be construed both as objects and powers, and
it is specifically provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this
Corporation.
ARTICLE III
The time of the existence of this Corporation shall be perpetual.
<PAGE>
ARTICLE IV
The office and principal place of business of this Corporation shall be 222
Fairview Avenue North, Seattle, King County, Washington 98109.
ARTICLE V
The capital of this Corporation shall consist of a total of sixteen million
ninety-six thousand five hundred sixty, (16,096,560) shares, divided into
ninety six thousand five hundred sixty (96,560) shares of 55CENTS Cumulative
Preferred Stock, without nominal or par value (hereinafter referred to as
"Preferred Stock"), one million (1,000,000) shares of Preferred Stock, with a
par value of $1.00 per share (hereinafter referred to as the "$1.00 Preferred
Stock"), and fifteen million (15,000,000) shares of Common Voting Stock with
a par value of $1.00 per share (hereinafter referred to as "Common Stock").
The designations, preferences, privileges, voting power, restrictions, and
qualifications of shares of each class of stock are as follows:
1. The 55CENTS Preferred Stock consists of - 0 -shares of Series A,31,500
shares of Series B and 65,060 shares of Series C. All shares of all series of
55CENTS Preferred Stock are alike in every particular, except as to the dates
from which dividends commenced to accrue and the commencement of the period
for establishment of sinking funds for redemption of shares, and all shares
of 55CENTS Preferred Stock are of equal rank and have the same powers,
preferences and rights, and are subject to the same qualifications,
limitations, and restrictions, without distinction between the shares of
different series thereof.
2. The holders of the 55CENTS Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, dividends from the surplus or
net profits of the Corporation at the rate of 55CENTS per annum and no more,
payable quarterly on the first days of February, May, August, and November.
Such dividends shall be paid to or set apart for the holders of 55CENTS
Preferred Stock before any Common Stock of the Corporation or any other class
of securities of the Corporation junior to the 55CENTS Preferred Stock as to
dividends or assets ("Other Securities") shall be purchased, retired, or
otherwise acquired for valuable consideration by the Corporation or any
dividends shall be paid upon, or set apart for any of the Common Stock or
Other Securities of the Corporation, and shall be cumulative, so that if in
any quarterly dividend period, the dividend installment computed at the rate
of 55CENTS per share per annum shall not have been paid upon or set apart for
the 55CENTS Preferred Stock, the deficiency (without interest) shall be fully
paid or set apart for payment before any Common Stock or Other Securities of
the Corporation shall be purchased, retired, or otherwise acquired for
valuable consideration by the Corporation or any dividends shall be paid
upon, or set apart for the Common Stock or Other Securities.
3. In the event of voluntary liquidation, dissolution, or winding up of the
Corporation, the holders of the 55CENTS Preferred Stock shall be entitled,
after the debts of the
<PAGE>
Corporation shall have been paid, to receive out of the assets remaining, the
then current redemption or call price per share thereof, determined in
accordance with the provisions hereinbelow concerning optional redemption of
55CENTS Preferred Stock, together with all dividends thereon accrued or in
arrears, whether or not earned or declared, before any payment is made or
assets set apart for the payment to the holders of the Common Stock or Other
Securities, and shall be entitled to no further payments or distribution. In
the event of the involuntary liquidation, dissolution, or winding up of the
Corporation, the holders of the 55CENTS Preferred Stock shall be entitled,
after the debts of the Corporation shall have been paid, to receive out of
the assets remaining, $10.00 per share, together with all dividends thereon
accrued or in arrears, whether or not earned or declared, before any payment
is made or assets set apart for payment to the holders of the Common Stock or
Other Securities, and shall be entitled to no further payments or
distribution. If the assets remaining after payment of the corporate debts be
insufficient to pay the full amounts as hereinabove provided, such assets as
remain shall be divided among the holders of 55CENTS Preferred Stock in
proportion to the number of shares of 55CENTS Preferred Stock held.
4. The Corporation may, at any time and from time to time, at the option of
the Board of Directors, unless prevented from doing so by law or by
applicable restrictive provisions herein, or in any mortgage or deed of trust
or loan agreement of the Corporation, redeem the whole or any part of the
outstanding 55CENTS Preferred Stock on any dividend payment date after the
issuance thereof, upon not less than 30 days' previous notice to the holders
of record of the 55CENTS Preferred Stock to be redeemed, at a redemption or
call price for each share thereof equal to the sum of Ten Dollars ($10.00)
plus all dividends accrued or in arrears thereon, plus a premium of Ten Cents
(10CENTS) per share as to shares of Series C. No premium shall be payable on
redemption with respect to redemption of shares of Series A or shares of
Series B, at any time, or with respect to shares of Series C redeemed after
June 25, 1994; provided, however, that if such redemption is effected with
funds set apart for the 55CENTS Preferred Stock redemption sinking fund as
provided herein, then the same may be effected at a price per share equal to
the sum of Ten Dollars ($10.00) plus all dividends accrued or in arrears
thereon and without the payment of any premium. If less than all the shares
of 55CENTS Preferred Stock are to be redeemed, the shares to be redeemed
shall be selected in such manner as the Board of Directors may determine. No
shares of 55CENTS Preferred Stock shall be purchased, redeemed, or otherwise
acquired for a valuable consideration unless full cumulative dividends on the
55CENTS Preferred Stock for all past quarterly dividend periods shall have
been paid, or declared and a sum sufficient for the payment thereof set
apart. The holders of shares of 55CENTS Preferred Stock called for redemption
shall not, from and after the date fixed in such notice for the redemption of
such stock, possess or exercise any rights as stockholders of the Corporation
except the right to receive from the Corporation the redemption price of such
shares together with all unpaid accrued dividends thereon, without interest,
upon the surrender thereof, unless default shall be made by the Corporation
in providing funds at the time and place specified in such notice for payment
of the redemption price.
5. While any shares of 55CENTS Preferred Stock remain outstanding, within
each twelve
<PAGE>
(12) month period ending November 1, the Corporation, unless prevented from
doing so by law or by applicable restrictive provisions herein or in any
mortgage or deed of trust or loan agreement of the Corporation, shall
establish a sinking fund out of surplus or may establish a sinking fund out
of capital, and shall acquire therewith, either by the redemption thereof or
by the purchase thereof in such manner as the Board of Directors may
determine from time to time at not exceeding the sinking fund redemption
price thereof, and shall retire not less than the lesser of 17,948 shares of
Series A, 10,500 shares of Series B, and 14,500 shares of Series C or all
remaining shares of each series, respectively, of 55CENTS Preferred Stock.
Provided, however, that if the Corporation shall be prevented by law or by
applicable restrictive provisions herein, or in any mortgage or deed of trust
or loan agreement of the Corporation, or for any other reason, from acquiring
during any twelve (12) month period the number of shares of 55CENTS Preferred
Stock which, in the absence of such restriction it would be required to
acquire during such period, the aggregate deficit shall be made good in the
first succeeding twelve (12) month period in which the Corporation shall not
be prevented by such restrictions from retiring shares of 55CENTS Preferred
Stock. Any shares of 55CENTS Preferred Stock which in any such twelve (12)
month period are redeemed by the Corporation at the optional redemption price
hereinabove set forth, or are purchased by the Corporation but not applied to
meet the Corporation's sinking fund obligation for such twelve month periods
may be credited on the amount required to be acquired in any one or more of
the next following twelve (12) month periods which the Corporation may
designate. Shares of 55CENTS Preferred Stock of the Corporation redeemed or
purchased shall not be reissued. So long as any share of 55CENTS Preferred
Stock shall remain outstanding, no dividends, whether in cash, stock, or
otherwise, shall be paid or declared or any distribution be made with respect
to the Common Stock or Other Securities, nor shall any Common Stock or Other
Securities be purchased, retired or otherwise acquired for a valuable
consideration by the Corporation unless on or before the preceding November
1, the Corporation shall have acquired the number of shares of 55CENTS
Preferred Stock required to have been acquired by such date.
6. Except as otherwise provided herein or as otherwise made mandatory by
law, the holders of the 55CENTS Preferred Stock shall have no right to vote
for the election of directors or for any other purpose and shall not be
entitled receive notice of any meeting of stockholders and all voting rights
shall be vested exclusively in the holders of the Common Stock and, to the
extent applicable, holders of Other Securities. If and whenever six full
quarterly dividends on 55CENTS Preferred Stock shall be unpaid, then the
holders of the 55CENTS Preferred Stock shall be entitled, voting separately
as a class and to the exclusion of the holders of the Common Stock and Other
Securities, to vote for the election of three of the directors of the
Corporation until all arrears and dividends on the 55CENTS Preferred Stock
shall have been paid in full, and thereupon the voting right for the election
of three directors shall be divested from the holders of the 55CENTS
Preferred Stock and revested in the holders of the Common Stock and, to the
extent applicable, holders of Other Securities, subject to revesting in the
event of each and every other subsequent such default. While any 55CENTS
Preferred Stock is outstanding, the Corporation, without first obtaining the
<PAGE>
consent, by the affirmative vote at a meeting called for that purpose, of the
holders of at least two thirds of the total number of shares of 55CENTS
Preferred Stock then outstanding, shall not:
a. Increase the authorized number of shares of 55CENTS Preferred Stock
or authorize or issue any stock having priority or preference over, or
ranking on a parity with, the 55CENTS Preferred Stock as to dividends or
assets; or
b. Amend the provisions hereof so as to affect adversely any of the
preferences or other rights hereby given to the 55CENTS Preferred Stock; or
c. Merge or consolidate with or into any other corporation or
corporations or sell or transfer all or substantially all of its assets as an
entity.
7. After full cumulative dividends have been paid or declared and set apart
for payment upon issued and outstanding 55CENTS Preferred Stock, as
hereinabove provided, and after the provisions herein or as established by
the Board of Directors with respect to any sinking fund for redemption of
55CENTS Preferred Stock have been complied with, holders of the Common Stock
or Other Securities shall be entitled to receive such further dividends as
may from time to time be declared by the Board of Directors of the
Corporation out of any remaining surplus or net profits. The term "full
cumulative dividend" whenever used in this article with reference to the
55CENTS Preferred Stock of any series shall be deemed to mean (whether or not
in any dividend period or any part thereof in respect of which such term is
used there shall have been surplus or net profits of the Corporation legally
available for the payment of such dividends) that amount which shall be equal
to cumulative dividends at the prescribed rate to date from the date of
cumulation for such series (including an amount equal to a dividend at such
rate for the elapsed portion of the current dividend period) less, in each
case, the amount of all cumulative dividends paid or deemed paid, upon the
55CENTS Preferred Stock. The term "date of cumulation" as used in this
article with respect to 55CENTS Preferred Stock of any series means the date
on which the dividend period during which shares of 55CENTS Preferred Stock
of such series are first issued shall begin or the date on which such shares
are first issued when such issue is made on a date on which a dividend period
begins.
8. A consolidation, reorganization, or merger of the Corporation with any
other corporation or corporations shall not be considered a dissolution,
liquidation, or winding up of the Corporation within the meaning of such
terms as used herein.
9. The $1.00 Preferred Stock may be issued from time to time in one or more
series in any manner permitted by law and the provisions of these Restated
Articles of Incorporation of the Corporation, as determined from time to time
by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares
thereof. The Board of Directors shall have the authority to fix and
determine, subject to the provisions of this Article V, the rights and
preferences of the shares of any series so established. Unless otherwise
provided in the resolution or
<PAGE>
resolutions establishing a series of shares of $1.00 Preferred Stock, prior to
the issue of any shares of a series so established or to be established, the
Board of Directors may, by resolution, amend the relative rights and preferences
of the shares of such series, and, after the issue of shares of a series whose
number has been designated by the Board of Directors, the resolution or
resolutions establishing the series may be amended by the Board of Directors to
decrease (but not below the number of shares of such series then outstanding)
the number of shares of that series.
The 7.85% Preferred Stock, $1.00 par value was authorized by the Board of
Directors on December 20,1991. The rights and preferences of the 7.85%
Preferred Stock are attached as Exhibit A.
The Series Z Junior Participating Preferred Stock, $1.00 par value, was
authorized by the Board of Directors on March 19, 1993. The rights and
preferences of the Series Z Preferred Stock are attached as Exhibit B.
ARTICLE VI
The amount of paid-in capital with which this Corporation shall begin to do
business shall be Five Hundred Dollars ($500.00) payable in cash or other
property taken at a fair valuation.
ARTICLE VII
The directors shall be nine (9) in number, but the number of directors may be
increased to any number not exceeding eleven (11) or decreased to any number
not less than three (3) at any annual meeting of the shareholders, or at any
special meeting of the shareholders called for that purpose, or by a
two-thirds vote of the then directors of the Corporation at any regular
meeting of the directors, or at any special meeting of the directors called
for that purpose.
The names and post office addresses of the directors of the Corporation in
office at the time of the adoption of these Restated Articles and on the date
hereof, who shall serve until the 1992 Annual Meeting of Shareholders, and
until their successors are elected and qualify are as follows:
Donald E. Bennett 222 Fairview Avenue No.
Seattle, Washington 98109
Melvin C. Clapp 222 Fairview Avenue No.
Seattle, Washington 98109
Brooks G. Ragen Suite 4300
999 Third Avenue
Seattle, Washington 98104
<PAGE>
Howard L. Hubbard 5320 N.W. Edgebrook Place
Portland, Oregon 97229-1974
W. Brian Matsuyama 222 Fairview Avenue No.
Seattle, Washington 98109
Andrew V. Smith 1600 Bell Plaza, Room 1802
Seattle, Washington 98191
Mary A. Williams 1234 McGilvra Boulevard E.
Seattle, Washington 98112
David A. Ederer 4919 N.E. Laurel Crest Lane
Seattle, Washington 98105
Carl Burnham, Jr. P. O. Box S
Ontario, Oregon 97914
ARTICLE VIII
The Board of Directors of this Corporation shall have the authority to make
and alter By-Laws not inconsistent with the law or with the Articles of
Incorporation and subject to the power of the shareholders to change or
repeal such By-Laws.
ARTICLE IX
Except as may be otherwise provided by law, or by applicable restrictive
provisions of Article V hereof, as amended, or any mortgage, deed of trust or
loan agreement of the Corporation, the shares of stock of this Corporation,
whether Preferred or Common, may be issued by it from time to time without
the consent of any holder of any share thereof, in such manner, or amount of
shares of each said class of stock, and for such consideration in labor,
services, money or property, as from time to time may be fixed and determined
by the Board of Directors of this Corporation, and, except as so restricted,
the right, power and authority of said Board of Directors from time to time
so to authorize and order the issuance by this Corporation of the said shares
of each class of said stock and such number or amount of shares and for such
consideration in labor, services, money or property as from time to time said
Board of Directors may fix and determine, is hereby absolutely reserved to
said Board of Directors.
No holder of shares of the capital stock of any class of this Corporation
shall have any preemptive or preferential right of subscription to any shares
of any class of stock of this Corporation, whether now or hereafter
authorized, or to any obligations convertible into stock of this Corporation,
which may be issued or sold, nor any right of subscription other than such,
if any, as the Board of Directors in its discretion may from time to time
<PAGE>
determine and at such price as the Board of Directors from time to time may
fix.
Payment or delivery to, or receipt by this Corporation of such consideration
as may be fixed and determined by the Board of Directors for the issuance of
any share or shares of its capital stock, as hereinbefore provided, shall
operate and be construed, deemed and held: (a) to discharge, release and
satisfy fully and absolutely all liability to the Corporation and/or to its
creditors now or at any time hereafter existing, of any subscriber for and/or
holder of any such share or shares so authorized to be issued in any way on
account of, founded upon, or arising out of any subscription for and/or
purchase of, and/or issuance of such share or shares, and (b) to constitute
such share or shares fully paid stock of the Corporation.
ARTICLE X
LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by Washington law at the time this Article
becomes effective or as may thereafter be in effect, a director of this
Corporation shall not be liable to this Corporation or its shareholders for
the monetary damages for his or her conduct as a director. Any amendment to
or repeal of this Article X shall not adversely affect any right of a
director of this Corporation hereunder with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS
To the fullest extent permitted by Washington law at the time this
Article becomes effective or as may be thereafter in effect, this Corporation is
authorized to indemnify any director of this Corporation. The Board of Directors
shall be entitled to determine the terms of such indemnification, including
advance of expenses, and to give effect thereto through the adoption of By-Laws,
approval of agreements, or by any other manner approved by the Board of
Directors. Any amendment to or repeal of this Article XI shall not adversely
affect any right of a director of this Corporation hereunder with respect to any
right to indemnification that arises prior to such amendment or repeal.
ARTICLE XII
BUSINESS COMBINATIONS / FAIR PRICE PROVISIONS
A. The following definitions shall apply for purposes of this Article XII:
1. The terms "Affiliate"and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange
Act of 1934 and the rules and regulations thereunder (the"Act") (or any
subsequent provisions replacing such Act, rules, or regulations) as in effect
on March 24, 1992 (the term "registrant" in said
<PAGE>
Rule 12b-2 meaning in this case the Corporation).
2. The term "Beneficially Own," when used with respect to a person's
interest in shares of capital stock, shall mean that said person has or
shares (or has the right to acquire under any option, warrant, conversion
right or other right), directly or indirectly, the power to vote, the power
to dispose of, the power to direct the voting or disposition of, or the right
to enjoy the economic benefits of such shares.
3. The term "Business Combination" shall mean (a) any merger or
consolidation of the Corporation or a Subsidiary of the Corporation with or
into an Interested Shareholder (or an Affiliate or Associate of an Interested
Shareholder) or any merger of an Interested Shareholder (or an Affiliate or
Associate of an Interested Shareholder) into the Corporation or a Subsidiary
of the Corporation, (b) any sale, lease, exchange, transfer, encumbrance or
other disposition of Substantial Assets either of the Corporation (including
without limitation any securities of a Subsidiary) or of a Subsidiary of the
Corporation, to an Interested Shareholder (or an Affiliate or Associate of an
Interested Shareholder), (c) the issuance of any securities of the
Corporation or a Subsidiary of the Corporation to an Interested Shareholder
(or an Affiliate or Associate of an Interested Shareholder), (d) any
reclassification, exchange of shares or other recapitalization that would
have the effect of increasing the proportion of shares of Common Stock or
other capital stock of the Corporation or a Subsidiary of the Corporation
Beneficially Owned by an Interested Shareholder, or (e) any agreement,
contract, or other arrangement providing for any of the foregoing
transactions.
4. The term "Continuing Director" shall mean a director who was a
member of the Board of Directors of the Corporation immediately prior to the
time that the Interested Shareholder involved in a Business Combination
became an Interested Shareholder and who is not the Interested Shareholder or
an Affiliate or Associate of the Interested Shareholder.
5. "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
of such stock on the composite tape for New York Stock Exchange Listed Stocks,
or, if such stock is not quoted on the composite tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Act on which such stock
is listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any similar system then in use, or
if no quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Continuing Directors in
good faith; and (c) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
6. The term "Interested Shareholder" shall mean any person (other than
the
<PAGE>
Corporation or any Subsidiary and other than any profit-sharing, employee stock
ownership or other employee benefit plan of the Corporation or any Subsidiary or
any trustee of or fiduciary with respect to any such plan when acting in such
capacity) who is or has announced or publicly disclosed a plan or intention to
become the beneficial owner of Common Stock representing ten percent (10%) or
more of the votes entitled to be cast by the holders of all then outstanding
shares of Common Stock.
7. The term "person" shall mean any individual, firm, company, or other
entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement, or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting, or disposing of Common Stock.
8. The term "Subsidiary" means any company of which a majority of any
class of equity security is Beneficially Owned by the Corporation; provided,
however, that for the purposes of the definition of Interested Shareholder
set forth in paragraph 6 of this section A, the term "Subsidiary" shall mean
only a company of which a majority of each class of equity security is
Beneficially Owned by the Corporation.
9. The term "Substantial Assets" shall mean assets with a Fair Market
Value in excess of five percent (5%) of the total assets of the Corporation
as reported in the consolidated financial statements of the Corporation as of
the end of its most recent fiscal year ending prior to the time the
determination is made.
B. In addition to any vote or approval required by law, any Business
Combination shall require the affirmative vote of the holders of not less
than eighty percent (80%) of the outstanding shares of capital stock of the
Corporation which are not Beneficially Owned by the Interested Shareholder
and its Affiliates or Associates involved in the Business Combination;
provided, however, that such eighty percent (80%) voting requirement shall
not apply if:
1. The Business Combination is a merger, consolidation or exchange of
shares involving the Corporation which provides for the conversion of the
shares of Common Stock of the Corporation into cash, securities or other
property with a Fair Market Value per share of Common Stock not less than the
highest per share consideration (appropriately adjusted for stock splits,
stock dividends and other like charges) paid or given by the Interested
Shareholder and any of its Affiliates or Associates for any of their shares
of Common Stock; or
2. The Business Combination was approved by the Board of Directors of
the Corporation; provided that a majority of the Board of Directors consisted
of Continuing Directors and at least two-thirds of the Continuing Directors
voted to approve the Business Combination.
C. The provisions set forth in this Article XII may not be repealed or
amended in any
<PAGE>
respect unless such repeal or amendment is approved by the affirmative vote
of the holders of not less than eighty percent (80%) of the outstanding
shares of capital stock of the Corporation which are not Beneficially Owned
by an Interested Shareholder.
Restated Articles of Incorporation of Cascade Natural Gas Corporation, are
herein executed in duplicate by said Corporation, pursuant to the provisions
of RCW 23B.10.070, and correctly set forth without change the corresponding
provisions of the Articles of Incorporation as previously stated and amended
and supersede the original Articles of Incorporation and all amendments to
said Articles of Incorporation of Cascade Natural Gas Corporation.
IN WITNESS WHEREOF, the undersigned officers of Cascade Natural Gas
Corporation have hereby executed in duplicate these Restated Articles of
Incorporation, and have hereunto set their hands this 25th day of March, 1996.
CASCADE NATURAL GAS CORPORATION
By
Ralph E. Boyd, President
By
Larry C. Rosok, Secretary
<PAGE>
Exhibit A
CASCADE NATURAL GAS CORPORATION
STATEMENT OF RIGHTS AND PREFERENCES
OF THE 7.85% CUMULATIVE PREFERRED STOCK
1. Preference.
The preferences of each share of 7.85% Preferred with respect to dividend
payments and distributions of the Corporation's assets upon voluntary or
involuntary liquidation, dissolution or winding up of the Corporation shall
be equal to the preferences of every other share of 7.85% Preferred from time
to time outstanding in every respect and, except for Priority Stock and
Parity Stock, prior in right to such preferences of all other equity
Securities of the Corporation, whether now or hereafter authorized.
2. Voting Rights.
The Holders of 7.85% Preferred shall not, by virtue of their ownership
thereof, be entitled to vote upon any matter except as otherwise provided
herein or by law.
3. Liquidation Rights.
If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any time when any 7.85% Preferred shall be
outstanding, each then outstanding share of 7.85% Preferred shall entitle the
Holder thereof to a preference against the Property of the Corporation
available for distribution to the Holders of the Corporation's equity
Securities equal to the sum of $100 plus an amount equal to all unpaid
dividends accrued on such share to the date of payment of such preference,
whether or not earned, whether or not funds of the Corporation are legally
available for the payment of dividends and whether or not such dividends have
been declared by the Board (the "Liquidation Amount"); provided, however,
that if liquidation, dissolution or winding up occurs within 120 days
subsequent to an issuance of Excess Preferred, the Liquidation Amount, in
lieu of the amount set forth above, shall instead be the amount that would be
payable pursuant to Section 6.A(ii) hereof if the 7.85% Preferred were
redeemed pursuant to that Section.
All of the preferential amounts to be paid to the Holders of 7.85% Preferred
in connection with the liquidation, dissolution or winding up of the
Corporation as provided in this Section 3 shall be paid or set apart for
payment in cash (a) after the payment or setting apart for payment of all
preferential amounts to be paid or set apart for payment with respect to
Priority Stock, whether now or hereafter authorized, (b) simultaneously with
preferential amounts to be paid or set apart for payment with respect to
Parity Stock,
<PAGE>
whether now or hereafter authorized, and (c) before the payment or
setting apart for payment of any amount with respect to Junior Stock, whether
now or hereafter authorized, or the distribution of any Property of the
Corporation other than cash with respect to such Junior Stock. A consolidation,
reorganization or merger of the Corporation with any other corporation or
corporations shall not be considered a dissolution, liquidation or winding up of
the Corporation within the meaning of such terms as used herein.
4. Dividends.
Commencing on the date of issuance, so long as any 7.85% Preferred shall be
outstanding, each Holder of outstanding 7.85% Preferred shall be entitled to
receive dividends in cash at the rate of $7.85 per annum per share thereof,
out of any funds legally available therefor, payable on the first day of
February, May, August and November of each year as and when declared by the
Board. Such dividends shall be cumulative on each such share from the date of
issuance thereof, whether or not earned, whether or not funds of the
Corporation are legally available for the payment of dividends, and whether
or not declared by the Board, so that if the full dividends in respect of any
previous quarterly dividend period shall not have been paid on the 7.85%
Preferred at the time outstanding, whether or not earned, whether or not
funds of the Corporation are legally available for the payment of dividends,
and whether or not declared by the Board, the deficiency shall be fully paid
on or declared and set apart for such shares (without interest) before any
dividend or other distribution shall be paid on or declared or set apart for
any other equity Securities of the Corporation, whether now or hereafter
authorized, other than dividends on Parity Stock paid, declared or set apart
in the manner permitted by Section 12(E) hereof, or dividends on Priority
Stock, and before any redemption, retirement, purchase or other acquisition
of any other equity Securities of the Corporation, whether now or hereafter
authorized, other than a redemption, retirement, purchase or other
acquisition of Parity Stock made in the manner permitted by Section 12(E)
hereof or a redemption, retirement, purchase or other acquisition of Priority
Stock.
5. Mandatory Redemption.
The Corporation shall make a mandatory redemption in cash of all outstanding
shares of the 7.85% Preferred on November 1, 1999, in accordance with the
procedures set forth in this Section 5 and in Section 7 hereof, at a
redemption price equal to the Liquidation Amount.
The Corporation shall mail a notice ("Mandatory Redemption Notice") not later
than September 15, 1999 of a redemption pursuant to this Section 5 to each
Holder of 7.85% Preferred by registered or certified mail, postage prepaid,
to such Holder's address as shown on the books and records of the
Corporation. The Notice shall state (i) the Redemption Date, which is
November 1, 1999, and (ii) the redemption price, accompanied by the
calculation of such price set out in reasonable detail.
<PAGE>
6. Redemption at the Option of the Holder.
A. Optional Redemption. Notwithstanding any other provision contained
herein, after the occurrence of a Redemption Event, each Holder of
outstanding 7.85% Preferred shall have the right, in accordance with the
procedures set forth in this Section 6 and in Section 7 hereof, to require
the Corporation to redeem all shares of 7.85% Preferred held by such Holder
for the following price:
(i) if the Redemption Event is a Ratings Downgrade, Dividend or
Redemption Shortfall or Restrictive Arrangement, at a price per share equal
to the Liquidation Amount;
(ii) if the Redemption Event is Excess Preferred, at a price per share
as set forth below, together with an amount equal to dividends accrued and
unpaid thereon to the date of payment, whether or not earned, whether or not
funds of the Corporation are legally available for the payment of dividends, and
whether or not declared by the Board:
If the Redemption Event Occurs
Price
During the Twelve Months Ended
Per Share
December 31, 1992 $107.85
December 31, 1993 $106.73
December 31, 1994 $105.61
December 31, 1995 $104.49
December 31, 1996 $103.36
December 31, 1997 $102.24
December 31, 1998 $101.12
December 31, 1999 $100.00
B. Form of Optional Redemption Notice. Within 7 days after the occurrence
of a Redemption Event, the Corporation shall mail a notice ("Optional
Redemption Notice") to each Holder of 7.85% Preferred by registered or
certified mail, postage prepaid, to such Holder's address as shown on the
books and records of the Corporation. The Notice shall state that a
Redemption Event has occurred, describe the Redemption Event in reasonable
detail, and offer to redeem all shares of 7.85% Preferred owned by such
Holder at the appropriate price, as set forth in Section 6.A hereof. The
Notice shall also state (i) the Redemption Date, which shall be a date not
less than 30 nor more than 90 days after the date of the Optional Redemption
Notice, and (ii) the redemption price, accompanied by the calculation of such
price set out in reasonable detail. The Notice shall request that such Holder
notify the Corporation in writing not more than 20 days after such Holder
receives the Notice whether or not such Holder elects to have the Corporation
redeem all of the shares of 7.85% Preferred held by such Holder at the
redemption price. The Notice shall also inform such Holder that failure to
respond to the redemption offer within such 20 day
<PAGE>
period shall be deemed to be a rejection of the offer. Redemptions made
pursuant to Section 6 hereof shall be of all and not a part of the shares of
7.85% Preferred held by a Holder, and no Holder shall be entitled to cause
such Holder's shares of 7.85% Preferred to be redeemed unless all nominees
and Affiliates of such Holder, if any, which are Holders of shares of 7.85%
Preferred have elected to have the Corporation redeem all shares of 7.85%
Preferred held by them.
7. Provisions Applicable to All Redemptions.
A. Manner of Redemption. On the Redemption Date, the Corporation shall
pay in cash to each Holder of 7.85% Preferred with respect to each share of
7.85% Preferred held by such Holder an amount equal to the redemption price
in effect on the Redemption Date, such payment to be made by Fedwire transfer
of immediately available funds or by certified or official bank check
transmitted to such Holder by registered or certified mail, postage prepaid,
to such Holder's address as shown on the books and records of the Corporation.
B. Effect of Payment. If on the Redemption Date funds necessary for the
redemption of all the 7.85% Preferred then outstanding, if the redemption
occurs pursuant to Section 5 hereof, or funds necessary for the redemption of
the 7.85% Preferred then held by Holders electing to have such shares
redeemed, if the redemption occurs pursuant to Section 6 hereof, shall have
been paid as provided for in Section 7.A hereof, then from and after the
Redemption Date, the shares of 7.85% Preferred with respect to which such
payment has been made shall be deemed to be redeemed, and the Holders of such
shares of 7.85% Preferred shall cease to be Stockholders of the Corporation
with respect to such shares of 7.85% Preferred, and shall have no rights with
respect thereto from and after the Redemption Date. Surrender of the
certificate or certificates evidencing 7.85% Preferred shall not be required
in connection with the redemption thereof.
C. No Reissuance of 7.85% Preferred. All shares of 7.85% Preferred redeemed
as hereinabove required shall be retired and cancelled and shall not be
reissued; provided, however, that each such share, after being retired and
cancelled, shall be restored to the status of an authorized but unissued
share of Preferred Stock without designation as to series and may thereafter
be issued as a share of Preferred Stock not designated 7.85% Preferred.
8. Limitation on Additional Issuance of Preference Stock.
Subject to the terms and conditions of this Statement of Rights and
Preferences the Corporation may from time to time authorize and issue
additional shares of Preference Stock unless Earnings Available for Payment
of Interest Charges and Dividends for the twelve consecutive calendar months
immediately preceding the calendar month in which such Stock is issued is
less than 150% of the aggregate of (i) all interest paid or accrued on
Indebtedness of the Corporation during the twelve consecutive calendar months
immediately preceding the calendar month in which such Stock is issued, plus
(ii) the
<PAGE>
dividends paid or accrued on all shares of all classes and series of
Preference Stock during the twelve consecutive calendar months immediately
preceding the calendar month in which such Stock is issued, for such purpose
treating such Stock as having been outstanding throughout such twelve-month
period (the "Dividend Coverage Test"). Prior to authorizing or issuing any
additional shares of Preference Stock, the Chief Financial Officer or
Treasurer of the Corporation shall certify that the Dividend Coverage Test
has been met as of the date of issuance of the additional shares of
Preference Stock, and such certification shall be sent to each Holder of
7.85% Preferred, by registered or certified mail, postage prepaid, to such
Holder's address as shown on the books and records of the Corporation.
9. Contingent Voting Rights.
If at any time any Voting Right Event shall occur, each outstanding share of
7.85% Preferred shall entitle the Holder thereof to one vote and each
outstanding share, if any, of Parity Stock then entitled to vote for the
election of directors shall entitle the Holder thereof to that number of
votes per such share as is calculated by dividing the original issue price of
such share by 100, and the Holders of 7.85% Preferred and the Holders of such
Parity Stock shall as a class be entitled to elect three directors of the
Corporation, and the Holders of other equity Securities of the Corporation
then entitled to vote for the election of directors shall be entitled to
elect the remaining members of the Board. At such time as the Voting Right
Event which gave rise to the exercise of the voting rights provided for in
this Section 9 has been cured by waiver, payment or otherwise, and all other
events creating a Voting Right Event, if any, shall have been cured by
waiver, payment or otherwise, the right of the Holders of 7.85% Preferred and
such Parity Stock so to vote as provided in this Section 9 shall cease,
subject to renewal from time to time upon the same terms and conditions.
Notwithstanding anything herein to the contrary, the Holders of 7.85%
Preferred and Parity Stock shall not have the aforesaid voting rights at any
time that the Holders of Senior Preferred have elected three directors to the
Board pursuant to Article V, Section 6 of the Restated Articles of
Incorporation; provided, however, that at such time as either the right to
elect directors by the Holders of Senior Preferred ceases or the Holders of
Senior Preferred shall decline to elect three directors to the Board, if a
Voting Right Event is then in existence the Holders of 7.85% Preferred and
Parity Stock shall be entitled to exercise the rights contained in this
Section 9, and provided, further, that if at any time that a Voting Right
Event is in existence the Holders of Senior Preferred have elected one or two
directors to the Board pursuant to such Article V, Section 6, the Holders of
7.85% Preferred and Parity Stock shall be entitled to elect a number of
directors to the Board equal to the difference between three and the number
of directors elected by the Holders of Senior Preferred, subject to removal
if the Holders of Senior Preferred thereafter seek to fully exercise their
right to elect directors.
At any time after the voting power to elect members of the Board
shall have become vested in the Holders of 7.85% Preferred as provided in this
Section 9, either alone or as a class with the Holders of Parity Stock then
entitled to vote for the election of directors, if any, the Secretary of the
Corporation may, and, upon the written request of the record
<PAGE>
Holders of that number of outstanding shares of 7.85% Preferred which equal,
in the aggregate, to at least twenty percent of the number of shares of 7.85%
Preferred then outstanding, addressed to him at the principal office of the
Corporation shall, call a special meeting of the Holders of 7.85% Preferred
and the Holders of such Parity Stock, to be held at the principal office of
the Corporation and upon not more than fifteen days notice. If such meeting
shall not be so called within five days after personal service of the
request, or within ten days after mailing of the same by registered or
certified mail, postage prepaid, within the United States of America, then
the record Holders of that number of outstanding shares of 7.85% Preferred
which equal, in the aggregate, at least ten percent of the number of shares
of 7.85% Preferred then outstanding may designate in writing one of their
number to call such meeting, and the Person so designated may call such
meeting at the place above provided and upon not less than ten days notice
and for that purpose shall have access to the stock books of the Corporation.
The Persons elected as directors by the Holders of 7.85% Preferred and the
Holders of such Parity Stock at such meeting and the Persons so elected as
directors at each subsequent annual meeting of the Corporation's
stockholders, together with such individuals, if any, as may from time to
time be elected as directors by the Holders of the other equity Securities of
the Corporation then entitled to vote for the election of directors, shall
constitute the duly elected directors of the Corporation. Any vacancy which
shall arise for any reason with respect to a director elected by the Holders
of such Parity Stock and the Holders of 7.85% Preferred shall be filled by
action of the remaining directors so elected, or if there be none, by the
Holders of Parity Stock entitled to vote for the election of directors at the
time that such vacancy arises, if any, and the Holders of 7.85% Preferred at
a meeting called in the manner set forth hereinabove and voting in the manner
set forth hereinabove.
Whenever the voting power of the Holders of 7.85% Preferred has ceased as
hereinabove in this Section 9 is provided, the term of office of the Persons,
if any, who are at the time directors of the Corporation who were elected by
the Holders of 7.85% Preferred and the Holders of Parity Stock in accordance
with the preceding provisions of this Section 9 shall terminate.
10. Restricted Payment Limitation.
If at any time any Restricting Event shall occur, the Corporation shall not
declare or make any Restricted Payments. At the time such Restricting Event
has been cured by waiver, payment or otherwise, and all other events creating
a Restricting Event, if any, shall have been cured by waiver, payment or
otherwise, the prohibition provided for in this Section 10 shall cease,
subject to renewal from time to time upon the same terms and conditions.
11. Pre-emptive Rights.
The Holders of 7.85% Preferred shall not have any pre-emptive rights upon the
issuance or sale of shares of Stock of the Corporation of any class or
series, whether now or hereafter authorized, or any Securities exchangeable
for or convertible into such Stock.
<PAGE>
12. Protective Provisions.
As long as any shares of 7.85% Preferred are outstanding, the
Corporation shall not, without the approval by the vote or written consent of
the Holders of not less than 66-2/3% (or more if required by law or such other
amount as is stated herein) of the outstanding shares of 7.85% Preferred:
(A) Amend or repeal any provision of, or add any provision to, the
Restated Articles of Incorporation or By-Laws if such action would alter or
change the 7.85% Preferred or the powers, preferences, rights,
qualifications, limitations and/or restrictions of the 7.85% Preferred;
(B) Amend or repeal any provision of, or add any provision to, this
Statement of Rights and Preferences (except that the approval of the Holders
of not less than 100% of the outstanding shares of 7.85% Preferred shall be
required for amendments, repeals or additions affecting the dividend rate of
the 7.85% Preferred, cumulation of the dividend of the 7.85% Preferred, the
mandatory redemption of all then outstanding shares of 7.85% Preferred on
November 1, 1999 at the redemption price stated in Section 5 hereof, or the
redemption of 7.85% Preferred at the option of a Holder due to a Redemption
Event at the redemption prices set forth in Section 6.A hereof):
(C) Issue any shares of Senior Preferred or reclassify any shares of any
Security into shares of Senior Preferred;
(D) Issue any shares of Priority Stock other than Senior Preferred or
reclassify any shares of any Security into shares of Priority Stock other
than Senior Preferred if the effect of such issuance or reclassification
would be to increase the stated value, as reflected in the Corporation's
capital account, of all outstanding Priority Stock, or the aggregate
preference payable upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation with respect to all outstanding Priority
Stock, to an amount in excess of $2,400,000 (including issuances or
reclassifications of any shares of Priority Stock pursuant to a consolidation
or merger of the Corporation with any Person, calculated on a pro forma basis
combining the consolidated or merged entities (other than a merger with
another corporation in which the Corporation is the surviving corporation
which does not result in any reclassification or change -- other than a
change in par value, or from par value to no par value, or from no par value
to par value -- of outstanding shares of the Corporation's Stock of any class
or series, whether now or hereafter authorized)); provided, however, that if
the Corporation proposes to issue any shares of Stock that the Board deems to
be Preference Stock but that the Holders of not less than a majority of the
outstanding shares of 7.85% Preferred deem to be Priority Stock, then such
Holders shall notify the Corporation of their determination, specifying the
particular terms of such shares they believe cause such shares to be Priority
Stock, pursuant to the procedures set forth in Section 13 hereof, and if the
Corporation, by action of the Board, amends this Statement of Rights and
Preferences to incorporate such particular terms then, subject to the
approval of the Holders of not less than a majority of the outstanding
<PAGE>
shares of 7.85% Preferred of the text of such amendment to this Statement
of Rights and Preferences, which shall not be unreasonably withheld, the
proposed issue of Stock may be issued, except that, unless approved by the
Holders of not less than 100% of the outstanding shares of 7.85% Preferred,
no substitution shall be made with respect to the dividend rate of the
7.85% Preferred, cumulation of the dividend of the 7.85% Preferred,
the mandatory redemption of all then outstanding shares of 7.85% Preferred on
November 1, 1999 at the redemption price stated in Section 5 hereof, or the
redemption of 7.85% Preferred at the option of a Holder due to a Redemption
Event at the redemption prices set forth in Section 6.A hereof;
(E) Make any payments to the Holders of, or with respect to any, Parity
Stock, by means of dividends or mandatory redemption payments,
(1) unless all such payments and all payments in connection with optional
redemptions pursuant to Section 6 hereof then due on the 7.85% Preferred have
been made in full, or
(2) if any such payment or any payment in connection with optional
redemptions pursuant to Section 6 hereof is then due on the 7.85% Preferred
but has not been made in full, or if any such payment is then due on Parity
Stock but has not been made in full, unless partial payments are made on the
7.85% Preferred and on Parity Stock so that, with respect to each of the
7.85% Preferred and Parity Stock, such partial payments are identical
fractions of the amounts then due;
(F) Make any optional redemptions of any Parity Stock, unless, in each
such case,
(1) all redemptions of 7.85% Preferred required to be made pursuant to
Section 5 or 6 hereof to the date of such optional redemption of Parity Stock
have been made, and
(2) all dividends accrued on the 7.85% Preferred payable thereon to the
date of such optional redemption of Parity Stock, whether or not earned or
declared, whether or not funds are legally available for the payment of
dividends, and whether or not declared by the Board, have been paid in full;
or
(G) Consolidate or merge with any other Person unless immediately
following the consummation of such consolidation or merger the Corporation,
on a pro forma basis combining the consolidated or merged entities, would be
able to issue at least one share of Preference Stock in addition to all then
outstanding Preference Stock without violation of the Dividend Coverage Test.
13. Substitution Procedures Pursuant to Section 12.D hereof.
In the event the Corporation proposes to issue any additional shares of
Preference Stock, the Corporation shall send a written notice to each Holder
of 7.85% Preferred by certified or registered mail, postage prepaid, to such
Holder's address as shown on the books and records of the Corporation, at
least 30 days prior to the proposed issuance of the
<PAGE>
additional shares of Preference Stock. The notice shall set forth in
reasonable detail the powers, preferences, rights, qualifications,
limitations and/or restrictions of the Preference Stock proposed to be
issued. If the Holders of not less than a majority of the outstanding shares
of 7.85% Preferred deem such shares to be Priority Stock they shall so notify
the Corporation in written notices sent to the Corporation at its principal
office, or such other place as may be designated in the notice sent by the
Corporation pursuant to this Section 13, by certified or registered mail,
postage prepaid, within 20 days after transmittal by the Corporation of its
notice, such notices sent by such Holders to specify which particular terms
of such shares they believe cause such shares to be Priority Stock, and the
Corporation thereupon shall either (i) by action of the Board amend this
Statement of Rights and Preferences (subject to the provisions of Section
12.D hereof and to the approval of the Holders of not less than a majority of
the outstanding shares of 7.85% Preferred of the text of such amendment,
which shall not be unreasonably withheld) to incorporate such particular
terms and, within 10 days after notice of such approval is received at the
place specified above, to file an amendment to the Statement of Rights and
Preferences pertaining to the 7.85% Preferred setting forth such amendment of
this Statement of Rights and Preferences with the Secretary of State of
Washington, or (ii) not so amend this Statement of Rights and Preferences and
not issue the proposed additional shares of Stock. Within 45 days after
transmittal by the Corporation of its notice, the Corporation shall notify
all Holders of outstanding shares of 7.85% Preferred of the action taken by a
notice sent to each such Holder by certified or registered mail, postage
prepaid, to such Holder's address as shown on the books and records of the
Corporation, and if such action is as set forth in clause (i), such notice
shall be accompanied by a copy of the amendment to the Statement of Rights
and Preferences of the 7.85% Preferred certified by the Secretary of State of
Washington as having been filed.
14. Covenant Regarding Redemption.
Following the issuance of the first share of 7.85% Preferred pursuant to this
Statement of Rights and Preferences, the Corporation will not, and will not
permit any Subsidiary to, become a party to or bound by any indenture,
agreement, instrument, Indebtedness, charter provision or security, under the
terms of or pursuant to which the Corporation's obligation to redeem any of
the 7.85% Preferred pursuant to Sections 5 or 6 hereof will in any way be
restricted or eliminated, nor will the Corporation modify or amend or permit
any Subsidiary to modify or amend any such indenture, agreement, instrument,
Indebtedness, charter provision or security existing at the time of such
issuance to add any provision restricting or eliminating such obligation or
to make any such provision contained therein more restrictive.
15. Definitions.
The following definitions shall apply for the purposes of this
Statement of Rights and Preferences:
"Affiliate" shall mean as to any Person, any other Person directly or
indirectly controlling,
<PAGE>
controlled by, or under common control with such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of any
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Board" shall mean the Board of Directors of the Corporation.
"By-Laws" shall mean the By-Laws of the Corporation, as amended.
"Common" shall mean the Corporation's Common Stock, par value $1.00 per
share, and any Stock into which such Common Stock may hereafter be changed.
"Corporation" shall mean Cascade Natural Gas Corporation.
"Dividend Coverage Test" is defined in Section 7 hereof.
"Dividend or Redemption Shortfall" shall mean that the funds available to the
Corporation as of the close of business on each December 31 on which any
shares of 7.85% Preferred are outstanding for the payment of dividends on and
the redemption of all then outstanding shares of 7.85% Preferred, Priority
Stock and Parity Stock under the terms of any then outstanding indenture,
agreement, instrument, security or Indebtedness of or binding upon the
Corporation or any Subsidiary are less than the aggregate of (i) the amount
of all dividends that, by the respective terms of such Stock, will be payable
or will accrue on such Stock as dividends between such date and November 1,
1999, plus (ii) the greatest amount (whether due to premiums payable upon
redemption or otherwise) that, by the respective terms of such Stock, may be
payable to redeem such Stock on or prior to November 1, 1999 (other than
redemptions at the option of the Corporation). The computation of the amount
of funds so available shall be made by the Chief Financial Officer or
Treasurer of the Corporation, and a written statement setting forth such
computation in reasonable detail shall be sent by April 10 of the immediately
succeeding year to each Holder of 7.85% Preferred by certified or registered
mail, postage prepaid, at the Holder's address as shown on the books and
records of the Corporation.
"Earnings Available for Payment of Interest Charges and Dividends" for any
period shall mean the lesser of (i) the maximum amount available for the
payment of dividends on and the redemption of Preference Stock imposed by the
terms of any indenture, agreement, instrument, security or Indebtedness of or
binding upon the Corporation or any Subsidiary, or (ii) the income before
interest charges and income taxes of the Corporation, determined in
accordance with generally accepted accounting principles. In calculating the
amount described in clause (ii), no adjustment shall be made for (a) profits
or losses from sales of Property carried in plant or investment accounts of
the Corporation or any Subsidiary, or from the reacquisition of any
Securities, or taxes on, in respect of, or measured by such profits or
losses, (b) charges for the elimination, retirement or amortization of
utility plant adjustment or acquisition accounts or other intangibles, (c)
gains from non-utility operations, (d) the write-up of assets, (e)
extraordinary gains or (f)
<PAGE>
adjustments to earned surplus (including tax adjustments required by
generally accepted accounting principles) applicable to any prior period.
"Excess Preferred" means that the Corporation has issued shares of Priority
Stock or Parity Stock following the issuance of the first share of 7.85%
Preferred pursuant to this Statement of Rights and Preferences, and, by
virtue of any indenture, agreement, instrument, security or Indebtedness of
or binding upon the Corporation or any Subsidiary in existence or outstanding
as of the date of the issuance of such Priority Stock or Parity Stock, the
funds available to the Corporation as of the date of issuance of such shares
of Priority Stock or Parity Stock for the payment of dividends on and the
redemption of all then outstanding shares of Preference Stock, including,
without limitation, the 7.85% Preferred, are less than the aggregate of (i)
the amount of all dividends that, by the respective terms of such Preference
Stock, will be payable or will accrue on such Preference Stock as dividends
between such date of issuance and November 1, 1999, plus (ii) the greatest
amount (whether due to premiums payable upon redemption or otherwise) that,
by the respective terms of such Stock, may be payable to redeem such Stock on
or prior to November 1, 1999 (other than redemptions at the option of the
Corporation). The computation of the amount of funds so available shall be
made by the Chief Financial Officer or Treasurer of the Corporation as of the
date of each issuance of Priority Stock or Parity Stock following the
issuance of the first share of 7.85% Preferred pursuant to this Statement of
Rights and Preferences, and a written statement setting forth such
computation in reasonable detail shall be sent within ten days after the date
of each such issuance by certified or registered mail, postage prepaid, at
the Holder's address as shown on the books and records of the Corporation.
"Holders" shall mean the Persons who shall, from time to time, own, of record
or beneficially, any Security. The term "Holder" shall mean one of the
Holders.
"Indebtedness" of any corporation, shall mean the principal of (and premium,
if any) and unpaid interest on:
(i) indebtedness which is for money borrowed from others;
(ii) indebtedness guaranteed, directly or indirectly, in any manner by such
corporation, or in effect guaranteed, directly or indirectly, by such
corporation through an agreement, contingent or otherwise, to supply funds to
or in any other manner invest in the debtor or to purchase indebtedness, or
to purchase Property or services primarily for the purpose of enabling the
debtor to make payment of the indebtedness or of assuring the owner of the
indebtedness against loss;
(iii) all indebtedness secured by any mortgage, lien, pledge, charge or
other encumbrance upon Property owned by such corporation, even if such
corporation does not in any manner become liable for the payment of such
indebtedness;
(iv) all indebtedness of such corporation created or arising under any
conditional sale,
<PAGE>
lease or other title retention agreement with respect to Property acquired by
such corporation even though the rights and remedies of the seller, lessor or
lender under such agreement or lease in the event of default are limited to
repossession or sale of such Property; and
(v) renewals, extensions and refundings of any such indebtedness.
"Junior Stock" shall mean any shares of any class of Stock of the Corporation
having preference or priority as to dividends or Property junior to any such
preference or priority of the 7.85% Preferred, or any voting right with
respect to the election of directors which, if exercised, would not restrict
or eliminate any such voting right of the 7.85% Preferred, and any instrument
or Security convertible into or exchangeable for Junior Stock.
"Liquidation Amount" is defined in Section 3 hereof.
"Mandatory Redemption Notice" is defined in Section 5 hereof.
"Optional Redemption Notice" is defined in Section 6.B hereof.
"Parity Stock" shall mean any shares of any class of Stock of the Corporation
having any preference or priority as to dividends or Property on a parity
with any such preference or priority of the 7.85% Preferred, or any voting
right with respect to the election of directors which, if exercised, would be
on a parity with any such voting right of the 7.85% Preferred, and any
instrument or Security convertible into or exchangeable for Parity Stock.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization or governmental organization or any agency or
political subdivision thereof.
"Preference Stock" shall mean any class or series of Stock of the Corporation
having any preference or priority as to dividends or Property senior to any
such preference or priority of the Common and any instrument or Security
convertible into or exchangeable for Preference Stock.
"Preferred Stock" is defined in the recitals hereof.
"Priority Stock" shall mean any shares of any class of Stock of the
Corporation having any preference or priority as to dividends or Property
senior to any such preference or priority of the 7.85% Preferred, or any
voting right with respect to the election of directors which, if exercised,
would restrict or eliminate any such voting right of the 7.85% Preferred, and
any instrument or Security convertible into or exchangeable for Parity Stock.
Priority Stock includes but is not limited to Senior Preferred.
"Property" shall mean any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
<PAGE>
"Ratings Downgrade" shall mean that as a result of any exchange of Stock,
consolidation or merger of the Corporation (other than a merger with another
corporation in which the Corporation is the surviving corporation and which
does not result in any reclassification or change -- other than a change in
par value, or from par value to no par value, or from no par value to par
value -- of outstanding shares of the Corporation's Stock of any class or
series, whether now or hereafter authorized), the rating on any debenture,
note or bond of the Corporation outstanding immediately following the
consummation of such exchange of Stock, consolidation or merger is reduced to
below Baa3 by Moody's Investors Service Inc. or below BBB- by Standard and
Poor's Corporation. A Ratings Downgrade shall be deemed to occur on the day
either of the two rating agencies notifies the Corporation of the
aforementioned reduction.
"Redemption Date" shall mean November 1, 1999, in the case of mandatory
redemption pursuant to Section 5 hereof, or a date which is not less than 30
nor more than 90 days after the date of the Optional Redemption Notice, in
the case of redemption at the option of a Holder pursuant to Section 6 hereof.
"Redemption Event" means either a Ratings Downgrade, a Dividend or Redemption
Shortfall, Excess Preferred, or a Restrictive Arrangement.
"Redemption Notice" shall mean either the Mandatory Redemption Notice, the
Optional Redemption Notice, or both.
"Restated Articles of Incorporation" shall mean the restated articles of
incorporation of the Corporation, as amended.
"Restricted Payment" shall mean:
(i) any payment of cash dividends on any of the Corporation's Stock other
than the 7.85% Preferred, Priority Stock or Parity Stock;
(ii) any purchase, redemption or retirement of any of the Corporation's Stock
other than the 7.85% Preferred, Priority Stock or Parity Stock made directly
or indirectly by the Corporation or through any Subsidiary; and
(iii) any other cash distribution made directly or indirectly by the
Corporation or through any Subsidiary in respect of the Corporation's Stock
other than 7.85% Preferred, Priority Stock or Parity Stock.
"Restricting Event" shall mean the following:
(i) failure to set aside and pay in full, on any date specified in Section 4
hereof, the amount therein specified to the Holders of the 7.85% Preferred;
(ii) failure to set aside and pay in full, on any Redemption Date, the amount
required to be
<PAGE>
paid on that date, pursuant to Section 5 or Section 6 hereof, to redeem
shares of 7.85% Preferred in accordance with the provisions of such Sections;
or
(iii) violation by the Corporation of any provision of Sections 8, 12 or 14
hereof.
"Restrictive Arrangements" shall mean that the Corporation or any Subsidiary,
following the issuance of the first share of 7.85% Preferred pursuant to this
Statement of Rights and Preferences, becomes a party to, bound by or issues
any indenture, agreement, instrument, security or Indebtedness, or modifies
or amends any indenture, agreement, instrument, security or Indebtedness of
or binding upon the Corporation or any Subsidiary existing at the time of the
issuance of the first share of 7.85% Preferred pursuant to this Statement of
Rights and Preferences and, as of the date of any such action following such
issuance, by virtue of any such indenture, agreement, instrument, security
and Indebtedness then in existence or outstanding, the funds available to the
Corporation for the payment of dividends on and the redemption of all shares
of Preference Stock, including, without limitation, the 7.85% Preferred
outstanding on the date of any such action, are less than the aggregate of
(i) the amount of all dividends that, by the respective terms of such Stock,
will be payable or will accrue on such Stock as dividends between such date
and November 1, 1999, plus (ii) the greatest amount (whether due to premiums
payable upon redemption or otherwise) that, by the respective terms of such
Stock, may be payable to redeem such Stock on or prior to November 1, 1999
(other than redemptions at the option of the Corporation). The computation of
the amount of funds so available shall be made by the Chief Financial Officer
or Treasurer of the Corporation, and a written statement setting forth such
computation in reasonable detail shall be sent within ten days after such
effective date to each Holder of 7.85% Preferred by certified or registered
mail, postage prepaid, at the Holder's address as shown on the books and
records of the Corporation.
"Securities" shall mean any debt or equity securities of the Corporation,
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security.
"Security" shall mean one of the Securities.
"Senior Preferred" shall mean the Corporation's 55CENTS Cumulative Preferred
Stock, without nominal or par value, Series A, B and C.
"7.85% Preferred" shall mean 60,000 shares of $1.00 Preferred Stock
designated as 7.85% Cumulative Preferred Stock.
"Stock" shall include any and all shares, interests or other equivalents
(however designated) of, or participations in, corporate stock.
"Subsidiary" shall mean any corporation at least 50% of whose outstanding
voting stock shall at the time be owned by the Corporation or by one or more
Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
"Voting Right Event" shall mean failure to set aside and pay in full on six
or more of the
<PAGE>
dates specified in Section 4 hereof, consecutively, the amounts therein
specified to the Holders of the 7.85% Preferred, until such date as all
accrued unpaid dividends on the outstanding 7.85% Preferred have been paid in
full.
Exhibit B
CASCADE NATURAL GAS CORPORATION
STATEMENT OF RIGHTS AND PREFERENCES OF THE
SERIES Z JUNIOR PARTICIPATING PREFERRED STOCK, $1.00 PAR VALUE
Section 1. Designation and Amount. There shall be a series of Preferred
Stock of the Corporation which shall be designated as "Series Z Junior
Participating Preferred Stock, $1.00 par value" (the "Series Z Preferred
Stock"), and the number of shares constituting such series shall be 110,000.
Such number of shares may be increased or decreased by Articles of Amendment
adopted by the Board of Directors without shareholder action; provided,
however, that no decrease shall reduce the number of shares of Series Z
Preferred Stock to a number less than the shares outstanding plus the number
of shares issuable upon exercise of outstanding rights, options or warrants
or upon conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
Series Z Preferred Stock with respect to dividends, the holders of shares of
Series Z Preferred Stock, in preference to the holders of shares of Common
Stock, $1.00 par value ("Common Stock") of the Corporation and of any other
junior stock which may be outstanding, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for
the purpose, (i) quarterly dividends payable in cash on the last day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series Z Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 per share
($.01 per one one-hundredth of a share), or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series Z Preferred Stock, and (ii) subject to the
provision for adjustment hereinafter set forth, quarterly distributions
(payable in kind) on each Quarterly Dividend Payment Date in an amount per
share equal to 100 times the aggregate per share amount of all noncash
dividends or other distributions (other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock, by
reclassification or otherwise), declared on
<PAGE>
the Common Stock since the immediately preceding Quarterly Dividend Payment
Date, or with respect to the first Quarterly Dividend Payment Date since the
first issuance of any share or fraction of a share of Series Z Preferred
Stock. In the event the Corporation shall at any time after March 19, 1993
(the "Rights Declaration Date"), declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Series Z Preferred
Stock are entitled under clauses (i)(b) or (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series Z Preferred Stock as provided in Section 2(A) immediately after it
declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
($.01 per one one-hundredth of a share) on the Series Z Preferred Stock shall
nevertheless be payable, out of funds legally available for such purpose, on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series Z Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue and be cumulative from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series Z Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall cumulate but shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock
in an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of Series Z
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 30 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series Z
Preferred Stock shall have the following voting rights:
<PAGE>
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to
100 votes (and each one one-hundredth of a share of Series Z Preferred Stock
shall entitle the holder thereof to one vote) on all matters submitted to a
vote of the shareholders of the Corporation. In the event the Corporation
shall at any time after the Rights Declaration Date declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a greater or lesser
number of shares of Common Stock, then in each such case the number of votes
per share to which holders of shares of Series Z Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided in the Articles of Incorporation
or in this amendment thereof or by law, the holders of shares of Series Z
Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of the shareholders of the
Corporation.
(C) Except as otherwise provided in the Articles of Incorporation
or in this amendment thereof or by law, holders of Series Z Preferred Stock
shall have no special voting rights and their consent shall not be required
for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series Z Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series Z Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series Z Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z Preferred Stock,
except dividends paid ratably on the Series Z Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) with the Series Z Preferred Stock, provided that
the Corporation may at any time redeem,
<PAGE>
purchase or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series Z Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series
Z Preferred Stock, or any share of stock ranking on a parity with the Series
Z Preferred Stock, except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series
or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Section 4(A), purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series Z Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. The Corporation shall take all such action as is necessary so that
all such shares shall after their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series, and may be
reissued as part of a new series of Preferred Stock to be created by Articles
of Amendment adopted by the Board of Directors without shareholder action,
subject to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (A) to the holders of shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series Z
Preferred Stock, unless, prior thereto, the holders of shares of Series Z
Preferred Stock shall have received the higher of (i) $1.00 per share ($.01
per one one-hundredth of a share), plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate amount
to be distributed per share to holders of Common Stock; nor shall any
distribution be made (B) to the holders of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the
Series Z Preferred Stock, except distributions made ratably on the Series Z
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
<PAGE>
shares of Series Z Preferred Stock are entitled under clause (A)(ii) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, or otherwise changed,
then in any such case the shares of Series Z Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z
Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series Z Preferred Stock
shall not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series Z Preferred Stock in any other manner permitted by
law, the Articles of Incorporation or this amendment thereof.
Section 9. Rank. Unless otherwise provided in the Articles of
Incorporation or an amendment thereof relating to a subsequent series of
Preferred Stock of the Corporation, the Series Z Preferred Stock shall rank
junior to all other series of the Corporation's Preferred Stock, including,
without limitation, the Corporation's 55CENTS Preferred Stock and 7.85%
Preferred Stock referred to in Article V of the Articles of Incorporation, as
to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding up, and senior to the Common Stock of the Corporation.
Section 10. Amendment. The Articles of Incorporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series Z Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least a
majority of the outstanding shares of Series Z Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series Z Preferred Stock may be
issued in
<PAGE>
one-hundredths of a share or other fractions of a share which shall entitle
the holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series Z Preferred Stock.
<PAGE>
EXHIBIT 10.1
April 28, 1995
CASCADE NATURAL GAS CORPORATION
222 FAIRVIEW AVENUE NORTH
SEATTLE, WASHINGTON
98109
ATTENTION: MS. MELISSA WHITTEN
DIRECTOR, GAS SUPPLY
RE: WINTER PEAKING SUPPLY - 1995 THROUGH 1998
Dear Melissa:
Further to our telephone conversation of 24 April 1995, the following are the
terms which CanWest Gas Supply U.S.A. Inc. ("CanWest") would be prepared to
offer to Cascade Natural Gas Corporation ("Cascade") for peaking volumes
commencing December 1, 1995:
SELLER: CanWest Gas Supply U.S.A. Inc.
BUYER: Cascade Natural Gas Corporation
TERM: Sales and deliveries of natural gas may commence December 1,
1995, and shall terminate February 28, 1998.
PERIOD: The Period in which the deliveries may take place and Demand Charges
will be calculated over, will begin on the 1st day of December and end
on the last day of February, during each year of the contract Term.
POINT OF
DELIVERY: The Point of Delivery shall be the point at which the facilities
of Northwest Pipeline interconnect with the facilities of Cascade
Natural Gas at Cascade's citygate(s).
<PAGE>
Cascade Natural Gas
April 28, 1995
Page 2
VOLUME: The Daily Contracted Quantity (DCQ) over the term of the agreement
shall be 15,000 MMBtu/day. Volumes will be available up to 30 days
each year during the Term of the contract.
PRICE: CanWest is prepared to offer the either of the following pricing
alternatives. The Buyer will be responsible for the Demand Charges
described under each pricing option, on the full DCQ on a monthly
basis.
OPTION #1 FIXED COMMODITY PRICE
The Gas price for each Period under this alternative shall consist of two
components, a Commodity Charge Portion (CCP) for all gas volumes delivered and
a Demand Charge Portion (DCP) to apply to the DCQ volume specified at the
Point of Delivery.
Dec 1995 - Feb 1996 CCP = $[*]/MMBtu DCP = $[*]/MMBtu
Dec 1996 - Feb 1997 CCP = $[*]/MMBtu DCP = $[*]/MMBtu
Dec 1997 - Feb 1998 CCP = $[*]/MMBtu DCP = $[*]/MMBtu
OPTION #2 MARKET BASED COMMODITY PRICE
The Gas price for each Period over the
Term of the contract under this alternative shall consist of two components, a
Commodity Charge Portion (CCP) for all gas volumes delivered and a Demand Charge
Portion (DCP) to apply to the DCQ volume specified at the Point of Delivery.
CCP = either
(i) [*]% of the average first of the month "Inside FERC"
Index at the Cdn. Border and Rocky Mountain for
delivery into Northwest Pipeline at Sumas, WA "lnside
FERC" @ Sumas for the month in which gas is sold and
delivered.
or
(ii) Average of the posted daily price survey range as
reported by "Gas Daily" for delivery @ NW Sumas &
Northwest Rockies for the day in which gas is sold and
delivered, plus US $[*]/MMBtu.
DCP = $[*]/MMBtu
[*]= CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION<PAGE>
<PAGE>
Cascade Natural Gas
April 28, 1995
Page 3
GAS NOMINATIONS:
Buyer shall provide to Seller a nomination for any specific gas day by
0830 hours Pacific time, the day of the gas day. This notice shall be
sent via facsimile to CanWest's Operations Department at (604) 681-
6890.
TRANSPORTATION:
Seller will deliver all volumes under its firm transportation to the
Point(s) of Delivery. Buyer shall be responsible for all
transportation arrangements downstream of the Points of Delivery.
SUBSTITUTE
SUPPLIES: If for any reason on any day during the term of this Agreement, other
than a day wholly or partially covered by Force Majeure, Seller fails
or is unable to deliver to Buyer a volume of gas up to the MDQ which
is nominated by Buyer, Buyer shall be entitled to acquire the
deficient volumes from alternative sources of supply. Seller agrees to
reimburse Buyer for any additional cost incurred by Buyer to secure
the supply from an alternate source, provided the Buyer uses best
efforts to mitigate any costs in securing the alternate supply which
shall include utilizing Seller's transportation capacity in the event
Buyer is able to do so.
PAYMENT
TERMS: For all deliveries of natural gas payment must be made by wire
transfer on or before the 25th of the month following deliveries
CONDITIONS
PRECEDENT:
A. Buyer obtaining by (Date to be scheduled) the necessary
regulatory authorizations.
B. Seller obtaining by (Date to be scheduled) the necessary
regulatory authorizations, including CanWest Management and
Producer approval.
C. The executed gas sales agreement will be the only binding
commitment of the parties hereunder. Should the Buyer fail to
execute such a gas sales agreement, CanWest may terminate the
sale and delivery of gas contemplated herein.<PAGE>
<PAGE>
Cascade Natural Gas
April 28, 1995
Page 4
TERM
OPTION: In the event a Producer vote on the three year agreement outlined
above is unsuccessful, CanWest is prepared to offer the following:
ONE YEAR EVERGREEN AGREEMENT
CanWest is prepared to offer the all the conditions of the agreement
defined above for the same three year term provided a clause is
incorporated into the contract which allows either Buyer or Seller an
annual option to discontinue the contract. Such an option will
eliminate the need to obtain CanWest producer approval.
CanWest is prepared to complete these negotiations in order that we can initiate
the necessary producer mail ballot. If the foregoing reflects Buyer's intentions
concerning this proposal, please so indicate by signing and returning one copy
of this letter by MAY 15, 1995. This offer may be extended if mutually agreed
upon by both CanWest and Cascade.
If you have any further questions pertaining to this proposal please do not
hesitate to contact me at (604) 661-3305.
Yours very truly,
CANWEST GAS SUPPLY INC.
Rick J. Kunz
Pacific Northwest Term Marketing
The above is hereby understood and agreed to this ___________ day of
___________, 1995.
CASCADE NATURAL GAS CORPORATION
cc. C.Coe
<PAGE>
Exhibit 10.17.1
May 26, 1995
Mr. King Oberg
Vice President - Gas Supply
Cascade Natural Gas Corporation
PO Box 24464
Seattle, WA 98124
RE: Continuation of Water Power's Jackson Prairie
Storage Release to Cascade
Dear King:
In anticipation of FERC's approval of the certificated release of Jackson
Prairie storage capacity to Cascade later this fall, I would propose the
following procedures with respect to the ongoing payment of charges:
(1) As for the monthly payments identified in Section 3.1 of the Storage
Release Agreement, I propose that Cascade would continue to remit payment to
Water Power;
(2) If FERC does not grant certificate authority to continue the
release or does so upon terms which are unacceptable to the parties, or if
FERC does not otherwise finally act on the application by November 1, 1995,
then Water Power will take title to Cascade's working natural gas inventory
presently in storage at Jackson Prairie (480,000 Dth) and would provide
"peaking gas supplies" to Cascade of up to 15,000 Dth per day of firm
deliverability and 5,533 Dth per day of best-efforts deliverability for the
period May 1, 1995 through April 30, 1996, subject to the terms and
conditions of the Gas Storage Project Agreement dated September 25, 1989, and
such regulatory approvals as may be required. As additional compensation for
making these peaking gas supplies available, Water Power shall charge, and
Cascade shall pay, $54,120.50 per calendar month for the one year term of
this arrangement, and any payments previously received in accordance with
paragraph 1 above shall be credited against Cascade's monthly payment
obligation. It is also understood and agreed that Cascade will purchase
480,000 Dth of peaking gas supplies from Water Power prior to May 1, 1996,
under this agreement.
<PAGE>
Mr. King Oberg
Page - 2
If the foregoing terms and conditions are acceptable to you, please sign
where indicated and return a copy of this letter to me at your earliest
convenience.
Very truly yours,
/s/
Patricia A. Grable
Manager, Pipeline & Regulatory Affairs
The Washington Water Power Company
ACKNOWLEDGED AND AGREED
TO THIS 28 OF May , 1995
------ -------
/s/
- ----
King Oberg
Vice President - Gas Supply
Cascade Natural Gas Corporation
<PAGE>
FIRST AMENDMENT TO THE AGREEMENT FOR THE RELEASE
OF JACKSON PRAIRIE STORAGE CAPACITY
On this 28th day of April , 1995, The Washington Water Power Company
------ -------
("Water Power") and Cascade Natural Gas Corporation ("Cascade") (hereinafter
collectively referred to as the "Parties") have entered into this Agreement
("First Amendment") for the purpose of amending the Agreement for the Release of
Jackson Prairie Storage Capacity ("Release Agreement") previously executed by
the Parties on July 23, 1990.
WITNESSETH:
WHEREAS, Water Power and Cascade are parties to a Release Agreement,
whereby Water Power will release a portion of its capacity and deliverability in
the Jackson Prairie Storage Project to Cascade, for a primary term ending April
30, 1995; and
WHEREAS, Water Power and Cascade desire to extend the primary term of the
aforementioned Release Agreement to April 30, 1998, subject to the receipt of
necessary regulatory approvals;
NOW, THEREFORE, in consideration of their mutual covenants, the Parties
hereby agree to amend the Release Agreement in the following respects:
<PAGE>
1. Section 4.1 of the Release Agreement is hereby deleted and replaced
with a new Section 4.1 which reads, in its entirety, as follows:
4.1 Subject to the satisfaction of all conditions precedent,
including the receipt of necessary regulatory approvals, the primary
term of this Agreement shall continue until April 30, 1998, and
thereafter, on a year-to-year basis unless terminated by either Party
upon twelve (12) months' written notice of termination received prior
to April 30, 1998, or any anniversary thereafter.
2. Section 5.3 of the Release Agreement is hereby deleted and replaced
with a new Section 5.3 which reads, in its entirety, as follows:
5.3 If all conditions precedent are not satisfied in time to
allow for Cascade's use of the released Deliverability and Capacity by
November 1, 1995, either Party may, upon fifteen (15) day's written
notice, cancel this Agreement.
3. The Parties agree to substitute revised versions of the following
Exhibits, which were previously attached to the Release Agreement:
Exhibit A: Substitution of First Revised Appendix A to Jackson Prairie
Storage Project Agreement, as amended and currently in effect.
Exhibit B: consent of Northwest Pipeline and Washington Natural Gas
Company to the Release.
Exhibit C: Transportation Service Agreement entered into between
Cascade and Northwest Pipeline is deleted in its entirety.]
<PAGE>
IN WITNESS WHEREOF each Party has caused this First Amendment to be
executed under the hands of its duly authorized representative.
THE WASHINGTON WATER POWER CASCADE NATURAL GAS
COMPANY CORPORATION
By: /s/ Gary G. Ely By: /s/ King Oberg
------------------------ -----------------------
Gary G. Ely King Oberg
Vice President, Natural Gas Vice President, Gas
Supply
<PAGE>
Exhibit A
Revised Appendix to Gas Storage Project Agreement
<PAGE>
FIRST REVISED APPENDIX A
TO
GAS STORAGE PROJECT AGREEMENT
A. Characteristics and Capabilities of the Jackson Prairie Storage
Project for the 1989/1990 Storage Cycle and thereafter:
Cushion Gas:
Zone 2 Sot less than 16.8 Bcf
Zone 9 Not less than 2.0 Bcf
Working Gas
Capacity Not more than 15.1 Bcf
Zone 2 Storage Gas Not more than 34.4 Bcf
Deliverability:
Firm Not more than 450,000 Mcf Daily
Best Efforts Up to 71,800 Mcf daily
B. Unless the Management Committee approves an alternate method, the
Seasonal Working Gas Quantity available for withdrawal during any Storage Cycle
is determined by the lessor of;
(1) The quantity of Working Gas in storage at the beginning of the
Storage Cycle; or
(2) The least quantity of Working Gas in storage at any time between
August 31st and September 30th of the preceding Storage Cycle divided by
0.80; or
(3) The least quantity of Working Gas in storage at any time between
June 30th and September 30th of the preceding Storage Cycle divided by
0.35.
The maximum amount of Seasonal Working Gas Quantity is equivalent to the
Working Gas Capacity and shall not exceed 15.l Bcf, as stated above in Section
A.
C. During any Storage Cycle, the project Operator shall be required to
withdraw from the Storage Project, upon demand by Northwest Pipeline Corporation
pursuant to Section 6.3 of ARTICLE VI of the Gas Storage Project Agreement, a
daily quantity of natural gas determined as follows:
<PAGE>
(1) Subject to the limitations on the replacement of Working Gas as
stated in Paragraph D of this Appendix, when the Working Gas in the
Storage Reservoir exceeds 45 percent of the Working Gas Capacity, the
dally withdrawal quantity shall be 100 percent of the Firm
Deliverability (defined above as not more than: 450,000 Mcf). For
withdrawals below 45 percent of the working Gas Capacity, the daily
withdrawal quantity shall be reduced one percent of Firm Deliverability
for each additional one percent of the working Gas withdrawn below 45
percent of the Working Gas Capacity. For calculation purposes, this
percent of Working Gas withdrawn shall be based on the percent
withdrawn at the beginning of the given day; and
(2) The dally Best Efforts Deliverability quantity as that quantity
is stated in Section A above.
D. After the commencement of an annual Storage Cycle, withdrawals from
the Seasonal Working Gas Quantity may be replaced both to maintain the
Deliverability of the Storage Project and to restore the quantity available for
withdrawal; provided, however, that Working Gas injected above the level of the
Seasonal Working Gas Quantity established at the beginning of an annual Storage
Cycle shall be considered as applicable to the Seasonal Working Gas Quantity of
the next succeeding Storage Cycle and shall not increase the Seasonal Working
Gas Quantity of the current Storage Cycle.
The Project Operator shall transfer up to 500,000 Mcf of Cushion Gas from
Zone 9 to Zone 2 of the Storage Project during the period from October 1 through
April 30 of any Storage Cycle to maintain the Deliverability as stated above and
shall replace said Cushion Gas prior to the commencement of this next storage
Cycle by retransfer from Zone 2 to Zone 9.
This Appendix A shall become effective on the date designated by the
Federal Energy Regulatory Commission and on such date shall supersede any
previously effective Appendix A establishing the Characteristics and
Capabilities of the Jackson Prairie Storage project.
<PAGE>
Attest: THE WASHINGTON WATER POWER COMPANY
/s/ Merilee Fulton By: /s/ Gary E. Ely
Vice President
Attest: WASHINGTON NATURAL GAS COMPANY
In Its Individual Capacity and
as Project Operator
/s/ Paul A. Hoglund By /s/ Robert R. Golliver
President
Attest: NORTHWEST PIPELINE CORPORATION
/s/ Karen B. Martinez By /s/ Tim J. Hausler
Vice President
<PAGE>
Exhibit B
Consent to Release
<PAGE>
February 2, 1995
Mr. James Gustafson
Senior Vice President
Washington Natural Gas Corporation
815 Mercer Street
Seattle, WA 98111
Mr. Matt J. Gillis
Vice President of Operations
Northwest Pipeline Corporation
295 Chipeta Way
PO Box 58900
Salt Lake City, UT 84158-0900
RE: Waiver/Consent of Jackson Prairie Management Committee
Concerning Release of Capacity and Deliverability by Washington
Water Power to Cascade
Gentlemen:
The Washington Water Power Company (WWP) and Cascade Natural Gas
(Cascade) intend to amend their existing agreement (hereinafter "Release
Agreement"), whereby WWP would continue to release a share of its capacity
and deliverability in the Jackson Prairie Storage Project (Project) to
Cascade. In order to effectuate this continued release, the following waivers
and consents must be obtained from the Management Committee of the Project.
In accordance with Article 5.3 of the Gas Storage Project Agreement,
dated September 25, 1989, the Management Committee, comprised of the
undersigned, hereby consents to the release by WWP to Cascade of 150,000
therms of firm deliverability, 55,328 therms of best efforts deliverability,
and 4,800,000 therms of seasonal capacity in the Project, for an additional
period extending from May 1, 1995 to April 30, 1998. Moreover, to the extent
that this release is, or may be, construed as an assignment of a portion of
WWP's interest in the Project, the undersigned, as representative of each
owner of the Project, expressly waive any rights of first refusal arising
under Article 13.1 of the Gas Storage Project Agreement.
<PAGE>
If you are in agreement with the foregoing, please sign in the space
provided below and return the original to my office. An original signed by
all parties will be returned to you. Thank you for your attention to this
matter.
Very truly yours,
THE WASHINGTON WATER POWER COMPANY
/s/ Gary G. Ely
Gary G. Ely
ACKNOWLEDGED AND AGREED TO
THIS 27th DAY OF FEBRUARY, 1995.
------
/s/ James Gustafson
Mr. James Gustafson
ON BEHALF OF WASHINGTON NATURAL
GAS COMPANY
ACKNOWLEDGED AND AGREED TO
THIS 12th DAY OF MARCH, 1995.
------
/s/ Matt J. Gillis
By Mr. Matt J. Gillis
ON BEHALF OF NORTHWEST PIPELINE
CORPORATION
<PAGE>
EXHIBIT 10.28
October 24, 1995
Via Telecopy
Ms. Melissa Whitten
Director, Gas Supply
Cascade Natural Gas Corporation
222 Fairview Avenue North
Seattle, Washington, U.S.A. 98109
Re: Winter Peaking Supply - 1995 through 1998
- ---------------------------------------------
Dear Madam:
As per our conversation, enclosed are the terms which Westcoast Gas Services
(America) Inc. (Seller) would be prepared to offer to Cascade Natural Gas
Corporation (Buyer) for three years of peaking volumes commencing December 1,
1995. Should Cascade require a one-year term only, Westcoast would be
prepared to offer a similar package, based on the first year numbers quoted
below.
THREE MONTH PEAKING SUPPLY - SAME DAY NOMINATIONS
TERM: Deliveries and sales of natural gas may commence December 1, 1995, and
shall terminate February 28, 1998. The period in which deliveries may take
place and demand charges will be calculated over will be December 1st through
February 28th
VOLUME: The Daily Contracted Quantity (DCQ) over the term of the agreement
shall be 10,000 MMBtu day. Volumes will be available up to 10 days each year
during the heating season.
PRICE: The price to be paid by Buyer to Seller for gas sold and delivered at
the Point of Delivery shall one of the following:
Dec 1995 - Feb 1996 Demand = $[*]MMBtu; Commodity = highpoint of Sumas daily
price from "Gas Daily" plus $[*]/MMBtu
Dec 1996 - Feb 1997 Demand = $[*]/MMBtu; Commodity = highpoint of Sumas daily
price from "Gas Daily" plus $[*]/MMBtu
Dec 1997 - Feb 1998 Demand = $/[*]MMBtu; Commodity = highpoint of Sumas daily
price from "Gas Daily" plus $[*]/MMBtu
[*]=CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Cascade Natural Gas
October 24, 1995
Page 2
-----------------
GAS NOMINATIONS: Buyer shall provide to Westcoast a nomination for any
specific gas day by 0830 hours Pacific time the day of the gas day. This
notice shall be sent via facsimile to Westcoast's Operations Department at
(403) 221-8643.
POINT OF DELIVERY: The Point of Delivery shall be the point at which the
facilities of Northwest Pipeline interconnect with the facilities of Cascade
Natural Gas at Cascade's citygate(s).
TRANSPORTATION: Seller will deliver all volumes under its firm transportation
to the Points of Delivery. Buyer shall be responsible for all transportation
arrangements downstream of the Points of Delivery.
SUBSTITUTE SUPPLIES: If for any reason on any day during the term of this
Agreement, other than a day wholly or partially covered by Force Majeure,
Seller fails or is unable to deliver to Buyer a volume of gas up to the MDQ
which is nominated by Buyer, Buyer shall be entitled to acquire the deficient
volumes from alternative sources of supply. Seller agrees to reimburse Buyer
for any additional cost incurred by Buyer to secure the supply from an
alternate source, provided the Buyer uses reasonable commercial efforts to
mitigate any costs in securing the alternate supply which shall include
utilizing Sellers transportation capacity in the event Buyer is able to do so.
PAYMENT TERMS: For all deliveries of natural gas payment must be made by wire
transfer on or before the 25th of the month following deliveries.
It is hoped that the proposals contained herein meet with your approval.
Please respond to not later than October 25, 1995. Following, this date, the
contents of these proposals will be deemed to be expired.
Yours truly,
WESTCOAST GAS SERVICES (AMERICA) INC.
Fred M. Scott, P.Eng.
Manager, Market Development
FMS/
<PAGE>
EXHIBIT 12
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991
---------- ------- ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest expense $ 9,938 8,090 7,038 7,478 $ 7,793
Amortization of debt issuance expense 606 593 562 402 362
---------- ------- ------- ------ -------
Total fixed charges $ 10,544 8,683 7,600 7,880 $ 8,155
---------- ------- ------- ------ -------
Earnings, as defined:
Net earnings $ 7,732 5,760 9,103 4,843 $ 7,651
Add (deduct):
Income taxes 4,508 3,505 5,224 2,817 4,206
Cumulative effect of change
in accounting method - - (209) - -
Fixed charges 10,544 8,683 7,600 7,880 8,155
---------- ------- ------- ------ -------
Total earnings $ 22,784 17,948 21,718 15,540 $20,012
---------- ------- ------- ------ -------
Ratio of earnings to fixed charges 2.16 2.07 2.86 1.97 2.45
---------- ------- ------- ------ -------
---------- ------- ------- ------ -------
Fixed charges and preferred
dividend requirements:
Fixed charges $ 10,544 8,683 7,600 7,880 $ 8,155
Preferred dividend requirements 853 898 913 941 229
---------- ------- ------- ------ -------
Total $ 11,397 9,581 8,513 8,821 $ 8,384
---------- ------- ------- ------ -------
Ratio of earnings to fixed charges
and preferred dividend requirements 2.00 1.87 2.55 1.76 2.39
---------- ------- ------- ------ -------
---------- ------- ------- ------ -------
</TABLE>
50
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
71286, No. 33-51377, and No. 33-29801 on Forms S-3 and No. 33-39873 and No. 33-
61035 on Forms S-8 of Cascade Natural Gas Corporation, of our reports dated
February 5, 1996, appearing in this Annual Report on Form 10-K of Cascade
Natural Gas Corporation for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 26, 1996
51
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CASCADE NATURAL GAS CORPORATION, INCLUDED
IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 239,050
<OTHER-PROPERTY-AND-INVEST> 3,345
<TOTAL-CURRENT-ASSETS> 37,889
<TOTAL-DEFERRED-CHARGES> 16,614
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 296,898
<COMMON> 9,144
<CAPITAL-SURPLUS-PAID-IN> 71,098
<RETAINED-EARNINGS> 9,297
<TOTAL-COMMON-STOCKHOLDERS-EQ> 89,539
6,851
0
<LONG-TERM-DEBT-NET> 102,100
<SHORT-TERM-NOTES> 32,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 66,408
<TOT-CAPITALIZATION-AND-LIAB> 296,898
<GROSS-OPERATING-REVENUE> 182,744
<INCOME-TAX-EXPENSE> 4,508
<OTHER-OPERATING-EXPENSES> 160,940
<TOTAL-OPERATING-EXPENSES> 160,940
<OPERATING-INCOME-LOSS> 21,804
<OTHER-INCOME-NET> 586
<INCOME-BEFORE-INTEREST-EXPEN> 22,390
<TOTAL-INTEREST-EXPENSE> 10,150
<NET-INCOME> 7,732
539
<EARNINGS-AVAILABLE-FOR-COMM> 7,193
<COMMON-STOCK-DIVIDENDS> 8,702
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 25,023
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
