<PAGE> 1
Commission File No. 1-1098
As filed with the Securities and Exchange Commission on March 11, 1994.
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
/X/ OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/ / For the Transition Period from ----- to -----
T H E C O L U M B I A G A S S Y S T E M, I N C.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-1594808
- ------------------------------------------------------------- ----------------------------------
(State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
20 Montchanin Road, Wilmington, Delaware 19807-0020
- ------------------------------------------------------------ ----------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (302) 429-5000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
Common Stock, $10 Par Value . . . . . . . . . . . . . . . . . . . . New York Stock Exchange
</TABLE>
<TABLE>
<CAPTION>
Debentures
----------
<S> <C> <C> <C> <C>
9% Series due August 1993 7-1/2% Series due March 1997
9% Series due October 1994 7-1/2% Series due June 1997
8-3/4% Series due April 1995 7-1/2% Series due October 1997
9-1/8% Series due October 1995 7-1/2% Series due May 1998
10-1/8% Series due November 1995 10-1/4% Series due May 1999 New York Stock Exchange
8-3/8% Series due March 1996 9-7/8% Series due June 1999
9-1/8% Series due May 1996 10-1/4% Series due August 2011
8-1/4% Series due September 1996 10-1/2% Series due June 2012
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
SINCE JULY 31, 1991, THE COLUMBIA GAS SYSTEM, INC. AND ITS WHOLLY-OWNED
SUBSIDIARY COLUMBIA GAS TRANSMISSION CORPORATION HAVE BEEN OPERATING UNDER
BANKRUPTCY COURT PROTECTION PURSUANT TO CHAPTER 11 OF THE FEDERAL
BANKRUPTCY CODE.
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 proceeding 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 or 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 outstanding common shares of the
Registrant held by nonaffiliates as of February 28, 1994, was
$1,431,989,094. For purposes of the foregoing calculation, all directors
and/or officers have been deemed to be affiliates, but the registrant
disclaims that any of such directors and/or officers is an affiliate.
The number of shares outstanding of each class of common stock as of
February 28, 1994, was : Common Stock $10 Par Value: 50,559,225 shares
outstanding.
Documents Incorporated by Reference
Part III of this report incorporates by reference the Registrant's Proxy
Statement relating to the 1994 Annual Meeting of Stockholders.
1
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
Page
Part I No.
----
<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 17
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 53
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 112
Part III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . 112
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 113
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . 113
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 113
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 113
Undertaking made in Connection with 1933 Act Compliance on Form S-8 . . . . . . . . . . 113
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
The Columbia Gas System, Inc. (the Corporation) organized under the laws of
the State of Delaware on September 30, 1926, is a registered holding
company under the Public Utility Holding Company Act of 1935, as amended,
(1935 Act) and derives substantially all its revenues and earnings from the
operating results of its 19 direct subsidiaries. On July 31, 1991, the
Corporation and its wholly-owned subsidiary, Columbia Gas Transmission
Corporation (Columbia Transmission), filed separate petitions for
protection under Chapter 11 of the Federal Bankruptcy Code. Both the
Corporation and Columbia Transmission are debtors-in-possession under the
Bankruptcy Code and continue to operate their businesses in the normal
course subject to the jurisdiction of the United States Bankruptcy Court
for the District of Delaware. The Corporation owns all of the securities
of its subsidiaries except for approximately 10 percent of the stock in
Columbia LNG Corporation. The Corporation's subsidiaries are engaged in
exploration for and production of oil and natural gas, natural gas
transmission, natural gas distribution and other energy operations. In
addition, Columbia Gas System Service Corporation provides data processing,
financial, accounting, legal and other services for the Corporation and
other affiliates. The Corporation and its subsidiaries are sometimes
referred to herein as the System.
Oil and Gas Operations
The Corporation's oil and gas subsidiaries, Columbia Gas Development
Corporation and Columbia Natural Resources, Inc., explore for, develop,
produce, and market oil and natural gas in the United States. These
companies hold interests in more than two million net acres of gas and oil
leases and have proved oil and gas reserves in excess of 750 billion cubic
feet of gas equivalent.
Operations are focused in the Appalachian, Arkoma, Michigan, Permian,
Powder River and Williston basins; both onshore and offshore in the Gulf
Coast areas of Texas and Louisiana, and in Utah and California. Offshore
holdings include interests in federal blocks, most of which are located in
the West Cameron, Vermilion, Eugene Island, and Ship Shoal areas of the
Gulf of Mexico.
Transmission Operations
The Corporation's two interstate pipeline transmission companies, Columbia
Transmission and Columbia Gulf Transmission Company (Columbia Gulf),
operate a 23,700-mile pipeline network that extends from offshore in the
Gulf of Mexico to New York State and the eastern seaboard. In addition,
Columbia Transmission operates one of the nation's largest underground
storage systems.
Historically, Columbia Transmission offered both a wholesale sales service
and a transportation service to local distribution companies. However,
when a new federally mandated business restructuring of the industry took
effect in late 1993, Columbia Transmission expanded its transportation and
storage services for local distribution companies and industrial and
commercial customers and now provides only a minimal sales service.
Columbia Gulf's pipeline system, which extends from offshore Louisiana to
West Virginia, carries a major portion of the gas delivered by Columbia
Transmission. It also transports gas for third parties within the
production areas of the Gulf Coast. Columbia Gulf owns interests in the
Overthrust, Ozark and Trailblazer pipelines, which extend into major
midcontinent and western gas-producing areas. Combined, Columbia
Transmission and Columbia Gulf serve customers in 15 northeastern, middle
Atlantic, midwestern, and southern states and the District of Columbia.
Columbia LNG Corporation has announced plans to initiate peaking services
from its Cove Point LNG facility by the end of 1995.
Distribution Operations
The Corporation's five distribution subsidiaries provide natural gas
service to more than 1.9 million residential, commercial and industrial
customers in Ohio, Pennsylvania, Virginia, Kentucky, and Maryland. These
subsidiaries purchase gas supplies to serve their high-priority customers
and transport gas for industrial and commercial customers who purchase gas
from other sources. More than 28,000 miles of distribution pipelines serve
such major
3
<PAGE> 4
ITEM 1. BUSINESS (Continued)
markets as Columbus, Lorain, Parma, Springfield, and Toledo in Ohio;
Gettysburg, York and a part of Pittsburgh in Pennsylvania; Lynchburg,
Staunton, Portsmouth and Richmond suburbs in Virginia; Ashland, Frankfort
and Lexington in Kentucky; and Cumberland and Hagerstown in Maryland.
Other Energy Operations
The Corporation's TriStar Ventures Corporation participates in natural
gas-fueled cogeneration projects that produce both electricity and useful
thermal energy.
Two subsidiaries, Columbia Propane Corporation and Commonwealth Propane,
Inc., sell propane at wholesale and retail to approximately 68,000
customers in six states.
In the Appalachian area, Columbia Coal Gasification Corporation another
subsidiary owns over 500 million tons of coal reserves, much of which
contains less than one percent sulfur. Approximately 50 percent of the
total reserves are leased to other companies for development.
Columbia Energy Services oversees the System's nonregulated natural gas
marketing efforts and provides an array of supply and fuel management
services to distribution companies, independent power producers and other
large end users both on and off the transmission and distribution
subsidiaries' pipeline systems.
Columbia Gas System Service Corporation provides centralized,
cost-efficient data processing, financial, accounting, legal, and other
services for the Corporation and other operating subsidiaries.
For additional discussion of the System's business segments, including
financial information for the last three fiscal years, see Item 7, page 19
through 52 and Note 16 on page 93 of Item 8.
Other Relevant Business Information
The System's customer base is broadly diversified, with no single customer
accounting for a significant portion of sales or transportation revenues.
The Corporation's operating subsidiaries are subject to competitive
pressures from other pipeline systems and producers that sell and/or
transport natural gas as well as from competition from alternative fuels,
primarily oil and electricity. The oil and gas subsidiaries compete in the
marketplace for sales of their oil and gas production through a combination
of long-term contracts and spot sales. The transportation subsidiaries
compete in the highly competitive northeast and midwest energy markets. The
distribution subsidiaries compete with alternative fuels and to a limited
extent with other gas companies.
Certain subsidiaries file reports with various federal agencies containing
estimates of company-owned oil and gas reserves. These estimates are
generally consistent but not always comparable to those reported in the
1993 Annual Report to Shareholders.
At January 31, 1994, the System had 10,114 full-time employees of which
2,089 are subject to collective bargaining agreements.
Information relating to environmental matters is detailed in Item 7 pages
33 through 34, page 41 and page 46 and in Item 8, Note 12H on pages 87
through 91.
For a listing of the subsidiaries of the Corporation and their lines of
business refer to Exhibit 22.
Public Utility Holding Company Act of 1935
The Corporation and its subsidiaries are subject, in certain matters, to
the jurisdiction of the Securities and Exchange Commission (SEC) under the
1935 Act. In 1944, the SEC held that the major portions of the System
complied with the requirements of Section 11 of the 1935 Act relating to a
"single integrated public-utility system" and businesses reasonably
incidental thereto, but the SEC reserved jurisdiction over the
retainability of certain subsidiaries.
4
<PAGE> 5
ITEM 1. BUSINESS (Continued)
Included were two companies owning pipelines in West Virginia and Northern
Virginia extending into Maryland and New York (the reserved pipelines are
now part of Columbia Transmission) and Virginia Gas Distribution
Corporation (now a part of Commonwealth Gas Services, Inc.). Since that
time, the reservation of jurisdiction has been expanded to include the
subsequently acquired properties of Blue Ridge Gas Company (a Virginia
retail company which is now part of Commonwealth Gas Services, Inc.),
Commonwealth Gas Pipeline Corporation (now a part of Columbia Transmission)
and a retail subsidiary (Commonwealth Gas Services, Inc.) acquired as a
result of the merger of the Corporation with Commonwealth Natural
Resources, Inc. and Lynchburg Gas Company, (now a part of Commonwealth Gas
Services, Inc.).
The Corporation filed a motion with the SEC in June 1955 requesting the
termination of such reserved jurisdiction. After hearings, no further
action has been taken and the Corporation is unable to predict whether or
when the SEC will finally dispose of the Corporation's 1955 motion and
resolve the retainability issue.
The Gas Related Activities Act (GRAA), enacted in 1990, provides that gas
transmission is deemed to be reasonably incidental or economically
necessary or appropriate to the operation of the gas utility system under
Section 11 of the 1935 Act. Since the basis for questioning the
retainability of the gas transmission pipelines was compliance with this
Section 11 criteria, the passage of the GRAA supports, and should resolve,
the retainability of the gas transmission pipelines.
If however, any of these properties were ultimately to be held not
retainable, management believes that the SEC would permit the Corporation
to adopt a plan for orderly disposition which would permit full realization
of their intrinsic values.
ITEM 2. PROPERTIES
Information relating to properties of subsidiary companies is detailed on
pages 6 through 7 herein and pages 96 through 99 of Item 8 under Note 18.
The System also owns coal interests in the Appalachian area. Assets under
lien and other guarantees are described on page 86 in Note 12E of Item 8.
Neither the Corporation nor any subsidiary knows of material defects in the
title to any real properties of the subsidiaries of the Corporation or of
any material adverse claim of any right, title, or interest therein,
pending or contemplated except the Official Committee of Unsecured
Creditors of Columbia Transmission has filed a complaint which challenges
the 1990 property transfer from Columbia Transmission to Columbia Natural
Resources, Inc. as an alleged fraudulent transfer. Substantially all of
Columbia Transmission's property has been pledged to the Corporation as
security for First Mortgage Bonds issued by Columbia Transmission to the
Corporation which has also been challenged by the Official Committee of
Unsecured Creditors of Columbia Transmission.
5
<PAGE> 6
ITEM 2. PROPERTIES (Continued)
OIL AND GAS DATA
Acreage - At December 31, 1993
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
--------------------------- ------------------------------
Gross Net Gross Net
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Appalachian . . . . . . . . . . . 1,621,593 1,559,920 731,413 561,361
Southwest - Onshore . . . . . . . 59,042 21,284 126,892 71,140
Southwest - Offshore . . . . . . 168,214 52,406 60,696 20,544
Rocky Mountain . . . . . . . . . 21,378 10,557 250,535 158,605
Other Areas . . . . . . . . . . . 1,034 168 2,914 353
----------- ---------- ----------- -----------
Total . . . . . . . . . . . 1,871,261 1,644,335 1,172,450 812,003
=========== ========== =========== ===========
</TABLE>
Net Wells Completed - 12 Months Ended December 31
<TABLE>
<CAPTION>
Exploratory Development Total
---------------------------- ----------------------------- ----------------------
Productive Dry Productive Dry Productive Dry
---------- --- ---------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1993 . . . . 2 10 91 18 93(a) 28
1992 . . . . 9 14 37 7 46(a) 21
1991 . . . . 3 21 93 8 96(a) 29
</TABLE>
Productive and Drilling Wells - At December 31, 1993
<TABLE>
<CAPTION>
Production Wells
----------------------------------------------
Gross b Net Wells Drilling
-------- --------------- ---------------
Gas Oil Gas Oil Gross Net
------ ----- --- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
6,462 639 5,831 360 35 18
</TABLE>
(a) Includes 17 net horizontal wells in 1993, 13 net horizontal wells in
1992 and 14 net horizontal wells in 1991.
(b) Includes 808 multiple completion gas wells and 8 multiple completion
oil wells, all of which are included as single wells in the table.
Also includes 46 gross productive horizontal wells.
6
<PAGE> 7
ITEM 2. PROPERTIES (Continued)
GAS PROPERTIES OF SUBSIDIARIES - AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
Underground
Storage
------------------
Subsidiaries State Acreage Wells
------------------------------------------- ----- ------- -----
<S> <C> <C> <C>
Columbia Gas of Kentucky, Inc. . . . . . . . . . . KY - -
Columbia Gas of Maryland, Inc. . . . . . . . . . . MD - -
Columbia Gas of Ohio, Inc. . . . . . . . . . . . . OH - -
Columbia Gas of Pennsylvania, Inc. . . . . . . . . PA 3,364 8
Commonwealth Gas Services, Inc. . . . . . . . . . . VA - -
Columbia Gas Transmission Corporation . . . . . . . DE - -
KY - -
MD 945 -
NJ - -
NY 25,838 143
NC - -
OH 482,058 2,459
PA 64,064 273
VA - -
WV 294,725 812
Columbia Gulf Transmission Company . . . . . . . . AR - -
KY - -
LA - -
MS - -
TN - -
TX - -
WY - -
Columbia Natural Resources, Inc. . . . . . . . . . KY - -
MI - -
NY - -
OH - -
PA - -
VA - -
WV - -
Columbia LNG Corporation . . . . . . . . . . . . . MD - -
VA - -
- -
Total . . . . . . . . . . . . . . . . . . . . . . . 870,994 3,695
======= =====
</TABLE>
<TABLE>
<CAPTION>
Miles of Pipeline Compressor Stations
---------------------------------------- -------------------
Gathering Installed
and Trans- Distri- Capacity
Subsidiaries Storage mission bution Number (hp)
------------------------------------------- --------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C>
Columbia Gas of Kentucky, Inc. . . . . . . . . . . - - 2,179 - -
Columbia Gas of Maryland, Inc. . . . . . . . . . . - - 570 - -
Columbia Gas of Ohio, Inc. . . . . . . . . . . . . - - 16,642 - -
Columbia Gas of Pennsylvania, Inc. . . . . . . . . 4 - 6,569 1 825
Commonwealth Gas Services, Inc. . . . . . . . . . . - - 3,369 - -
Columbia Gas Transmission Corporation . . . . . . . - 3 - - -
938 765 - 4 16,220
23 181 - - -
- 21 - - -
71 512 - 4 8,670
- 1 - 1 1,400
2,757 4,120 - 30 104,285
624 2,038 - 27 68,070
128 1,043 - 10 55,806
3,014 2,529 - 48 306,161
Columbia Gulf Transmission Company . . . . . . . . - 11 - - -
- 715 - 2 70,290
- 2,087 - 6 201,200
- 659 - 3 118,800
- 556 - 2 83,000
- 202 - - -
- 10 - - -
Columbia Natural Resources, Inc. . . . . . . . . . 432 - - - -
6 - - - -
2 - - - -
64 - - - -
6 - - - -
20 - - - -
122 - - - -
Columbia LNG Corporation . . . . . . . . . . . . . - 49 - - -
- 39 - - -
- -- - - -
Total . . . . . . . . . . . . . . . . . . . . . . . 8,211 15,541 29,329 138 1,034,727
===== ====== ====== === =========
</TABLE>
NOTE: This table excludes minor gas properties and all construction work
in progress. The titles to the real properties of the
subsidiaries of the Corporation have not been examined for the
purpose of this document. Neither the Corporation nor any subsidiary
knows of material defects in the title to any of the real properties
of the subsidiaries of the Corporation or of any material adverse
claim of any right, title, or interest therein, pending or
contemplated except the Official Committee of Unsecured Creditors of
Columbia Transmission has filed a complaint which challenges the 1990
property transfer from Columbia Transmission to Columbia Natural
Resources, Inc. as an alleged fraudulent transfer. Substantially all
of Columbia Transmission's property has been pledged to the
Corporation as security for First Mortgage Bonds issued by Columbia
Transmission to the Corporation which has also been challenged by the
Official Committee of Unsecured Creditors of Columbia Transmission
7
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
I. Shareholder Class Actions and Derivative Suits (Unless otherwise
noted, all matters are stayed pursuant to Section 362 of the Bankruptcy
Code)
Since the June 19, 1991 announcement by the Board of Directors
regarding the Corporation's proposed charge to second quarter earnings and
suspension of its dividend, seventeen complaints including suits purporting
to be class actions, or alleging claims common to the purported class
actions, have been filed in the U.S. District Court for the District of
Delaware. These actions have been consolidated under the style In re
Columbia Gas Securities Litigation, Consol. C.A. No. 91-357. Although an
amended and consolidated complaint has yet to be filed, the preconsolidated
complaints variously named the Corporation, then current members of its
Board of Directors, certain officers, the Corporation's independent public
accountants, and the Corporation's underwriters for its 1990 common stock
offering as defendants (the Defendants).
These complaints generally allege the Defendants publicly made
material misleading statements during the relevant class periods (from
February 28, 1990 to June 19, 1991) concerning the Corporation's financial
condition, and failed to disclose material facts which rendered other
statements misleading, thereby artificially inflating the market price of
the Corporation's common stock and publicly traded debt securities, causing
the various plaintiffs and other class members to purchase such publicly
traded securities at artificially inflated prices. The complaints allege
violations of Sections 11, 12(2) and 15 of the Securities Act of 1933,
Sections 10(b), 20(a) and Rule 10b-5 of the Securities Exchange Act of
1934, negligent misrepresentations, and common law fraud and deceit.
In addition to the above-referenced class actions, three derivative
stockholder actions have been filed in the Court of Chancery of the State
of Delaware. These cases have been consolidated under the style In Re
Columbia Gas Derivative Litigation. The complaints in these actions name
as defendants the Board of Directors and the Corporation (nominal). The
complaints generally allege that the members of the Board of Directors
breached their fiduciary duties to the Corporation by failing to make
required disclosures thereby causing the Corporation to be subjected to
federal securities law liabilities.
II. Bankruptcy Matters
A. Matters in the United States Bankruptcy Court for the District of
Delaware
1. Columbia Gas Transmission Corporation v. The Columbia Gas
System, Inc. and Columbia Natural Resources, Inc., C.A. No. 92-35. (U.S.
Bankruptcy Ct. Dist. of Delaware, filed March 18, 1992). The Official
Committee of Unsecured Creditors of Columbia Transmission filed a complaint
(the Intercompany Complaint) challenging the status of approximately $1.7
billion of debt owed by Columbia Transmission to the Corporation and the
transfer of natural resource properties representing 450 billion cubic feet
of natural gas reserves and one million barrels of oil reserves to Columbia
Natural Resources, Inc. (Columbia Natural Resources) as well as other
intercompany transactions.
On May 14, 1992, the Official Committee of Unsecured Creditors
of Columbia Transmission filed a motion to withdraw the jurisdictional
reference to the U.S. District Court for the District of Delaware and filed
a demand for a jury trial. On February 9, 1993, the motion was denied by
the U. S. District Court and on August 20, 1993, the Third Circuit denied
the appeal by the Official Committee of Unsecured Creditors of Columbia
Transmission of the District Court's order allowing resolution of the
Intercompany Complaint before the Bankruptcy Court.
On June 11, 1992 the Corporation filed a motion and supporting
brief for partial dismissal or, in the alternative partial summary judgment
with respect to certain counts of the complaint which was supported by
Columbia's Equity Security Holders Committee and Unsecured Creditors
Committee. The motion has been fully briefed and a pretrial schedule has
been established which, if followed, would result in a trial of the
Intercompany
8
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS (Continued)
Complaint in the spring of 1994. There has been no indication as to when
the Bankruptcy Court might act on Columbia's motion for summary judgment.
2. Motion to Fix Procedures to Establish Columbia Transmission's
Liability to Third Party Beneficiary Investor Complaints. On February 17,
1993, movants, who are investors in production companies and claim to be
third party beneficiaries of the contracts between Columbia Transmission
and the production companies, filed a motion seeking to have their status
as third party beneficiaries recognized and seeking to have their claims
against Columbia Transmission liquidated separate from the Estimation
Procedure established to deal with producer claims. By order dated April
5, 1993, the Bankruptcy Court lifted the stay in order to allow the New
Jersey State Court to determine whether plaintiffs enjoyed third party
beneficiary status in the pending State Court action. However, the
Bankruptcy Court with movants' acquiescence, held that movants' claim (to
the extent that they are established) would be governed by the estimation
procedure.
3. Bank of Boston, Trustee v. The Columbia Gas System, Inc. On
March 2, 1993, the Trustee for the Indenture under which debentures were
issued by the Employees Thrift Plan of Columbia Gas System (Plan) filed a
complaint against the Corporation alleging tortious interference with
contract and breach of duty. The Indenture Trustee alleges that the
Corporation is not acting in accordance with the Plan when it directs the
Plan Trustee to use sums paid by participating employers to match employee
contributions and not to pay debt service on the outstanding debentures.
The Corporation's Answer to the complaint alleging tortious interference
with contract for failure to pay installments due LESOP debenture holders
was filed April 2, 1993. On May 14, 1993, the Corporation filed a motion
for summary judgment challenging the Bank's standing to bring the action.
Bank of Boston filed its brief in opposition to the Corporation's motion
on June 14, 1993 and the Corporation's reply brief was filed on June 29,
1993. Bank of Boston filed an amended adversary complaint on June 30,
1993.
B. Appeals to the United States Court of Appeals for the Third Circuit
1. Enterprise Energy Corporation, et al., v. United States of
America, on behalf of its Internal Revenue Service On June 18, 1991, the
U.S. District Court for the Southern District of Ohio approved a settlement
of this class action suit by Appalachian oil and gas producers. The
settlement required Columbia Transmission to make two $15 million payments
into escrow, for distribution to class members as formal contract
amendments were finalized. The first $15 million was paid into escrow in
March 1991.
Columbia Transmission filed an application with the Bankruptcy
Court which would permit it to honor the settlement (including authority to
make the second $15 million payment into escrow in March 1992) but to
reject the amended contracts. On December 12, 1991, the Bankruptcy Court
ruled that distribution from escrow of the first $15 million payment could
be effected pursuant to the settlement; however, the Bankruptcy Court
denied Columbia Transmission's request for approval to make the second $15
million payment scheduled to be made in March 1992. Further, the
Bankruptcy Court granted the motion to reject the contracts, as amended,
pursuant to the Enterprise settlement.
On October 6, 1992, the District Court affirmed the Bankruptcy
Court's order denying Columbia Transmission's motion to assume the
executory settlement contract. Enterprise Energy Corp.'s request for
rehearing, reargument and reconsideration of the order denying Columbia
Transmission's motion to assume the executory settlement contract was
denied on April 27, 1993. On May 25, 1993, Enterprise Energy filed a
notice of appeal to the United States Court of Appeals for the Third
Circuit from the Bankruptcy Court order denying Columbia Transmission's
motion to require assumption or rejection of the executory settlement
contract. Briefing is complete. Oral argument was held January 18, 1993.
2. In re The Columbia Gas System, Inc. et al.; West Virginia
State Department of Taxation v. U.S., Nos. 93-7531 and 93-7532. This is
the appeal of the District Court's Memorandum Opinion and Order affirming
9
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS (Continued)
the Bankruptcy Court's ruling that the property taxes centrally assessed by
West Virginia as public service business taxes for the "1992 tax year" were
incurred by Columbia Transmission prepetition and denying Columbia
Transmission's motion for authorization to pay the taxes. Briefing has
been completed and oral argument was heard on March 2, 1994.
3. The Columbia Gas System, Inc. and Columbia Gas Transmission v.
U.S. Trustee, No. 93-7609. On August 30, 1993, the Corporation and
Columbia Transmission filed an Appeal of the District Court's order
adopting the Magistrate's Report and Recommendation and granting the U.S.
Trustee's appeal of the Bankruptcy Court's July 31, 1993 order approving
certain investment guidelines and the Bankruptcy Court's order denying the
U.S. Trustee's Motion for Reconsideration of the Bankruptcy Court's July
31, 1993 order. On February 10, 1994, the District Court granted a stay
pending appeal of the August 19, 1993 order which approved the Magistrate's
Report and Recommendation.
III. Purchase and Production Matters (Unless otherwise noted, all matters
are stayed pursuant to Section 362 of the Bankruptcy Code)
A. Appalachian Producer Litigation
1. Enterprise Energy Corp. et al. v. Columbia Gas Transmission
Corp., C. A. No. C2-85-1209, (U. S. Dist. Ct., S. D. Ohio, filed July 26,
1985). See II B. 1.
2. Phillips Production Co. v. Columbia Gas Transmission Corp.,
C.A. No. 89-0269, (U.S. Dist. Ct., W.D. Pa. filed February 7, 1989). The
complaint as filed contained six separate counts involving ten gas purchase
contracts with Columbia Transmission. Plaintiff's principal claims were
for additional take-or-pay payments, for retroactive tight sands gas
pricing, and a challenge to Columbia Transmission's invocation of cost
recovery clauses in the gas purchase contracts. All claims except those
relating to Columbia Transmission's invocation of the cost recovery clause
were settled and dismissed December 18, 1989, pursuant to agreement of the
parties. The cost recovery claim was stayed pending resolution of
Enterprise Energy suit (discussed above). Thereafter, Phillips cost
recovery claim was stayed by Columbia Transmission's filing.
3. Columbia Gas Transmission Corp. v. Alamco, Inc. et al., C.A.
No. 88-C-38-2 (Harrison (W.Va) Cir. Ct. filed January 15, 1988). Under a
1983 release agreement, Columbia Transmission filed suit against Alamco,
Inc. (Alamco) contending that Alamco was obligated to sell gas to Columbia
Transmission at prices and under terms and conditions being generally
offered by Columbia Transmission at the time purchases were resumed as
opposed to the conditions of the original contract. Trial of the state
court action was interrupted and stayed by Columbia Transmission's petition
in Bankruptcy filed July 31, 1991. A parallel suit was filed by Alamco,
naming the Corporation, Columbia Transmission, Columbia Gas System Service
Corporation and Commonwealth Gas Pipeline Corporation, alleging antitrust
violations. In the opinion of counsel, the antitrust claim was barred by
the statute of limitations; however on March 13, 1991, Columbia
Transmission's and Commonwealth Gas Pipeline's motions to dismiss were
denied without prejudice to Columbia Transmission's right to assert, by
summary judgment or otherwise, that Alamco's claims are time barred, or
that Alamco cannot prove the allegations in its complaint.
In late May 1992, a settlement agreement in principle was
reached which was approved by the Bankruptcy Court on July 28, 1992. As a
result, after the order becomes final, these actions will be dismissed upon
the earlier of confirmation of a Columbia Transmission plan of
reorganization or closing of the Columbia Transmission bankruptcy
proceeding.
B. Southwest Producer Litigation (Suits naming Columbia Transmission
are stayed as to Columbia Transmission; indemnification agreements will be
effective if the contract providing indemnification is not rejected)
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS (Continued)
1. Royalty Owners Litigation: The agreements between Columbia
Transmission and certain southwest producers effective in 1985 which
reformed gas purchase contracts have resulted in a number of lawsuits
against the producers. Under the agreements, Columbia Transmission has a
qualified obligation to indemnify the producers in certain instances
against claims by their royalty owners.
Certain suits were pending against Amoco Production Company for
which it was seeking indemnification from Columbia Transmission as of the
commencement of Columbia Transmission's proceeding in bankruptcy. In
November 1993, Columbia Transmission and Amoco entered an agreement,
subject to Bankruptcy Court approval, terminating the contracts and
providing that Amoco shall have an allowed unsecured claim for $4.1 million
for all royalty indemnification and excess royalty claims.
New Ulm and Fox v. Mobil Oil Corporation, Columbia Gas
Transmission Corp. and Columbia Gulf Transmission Co., C.A. No. 88-V-655
(155th Judicial Dist. Ct. of Austin County, TX). New Ulm alleged Columbia
Transmission incorrectly paid for gas on the basis of Columbia
Transmission's market-out price rather than the higher price New Ulm
claimed was available to it under the contracts.
After the Bankruptcy Court entered an order modifying the
automatic stay provisions of the Bankruptcy Code, jury trial began on June
22, 1992, and concluded with a verdict against Columbia Transmission on
July 2, 1992, in the amount of approximately $5.6 million, including
interest. On July 30, 1992, the Court denied Columbia Transmission's
motion for judgment notwithstanding the jury's verdict and entered judgment
against Columbia Transmission in such amount for actual damages,
prejudgment interest and attorneys' fees. Columbia Transmission's motion
for new trial was denied on October 12, 1992. Columbia Transmission has
perfected an appeal to the First Court of Appeals at Houston, Texas.
Briefing is complete and oral argument was held on December 7, 1993.
2. Wagner & Brown v. Columbia Gas Transmission Corp., C.A. No.
83-15091 (Orleans Parish (La.) Civ. Dist. Ct.). This suit involves
Columbia Transmission's alleged breach of a gas purchase and sales
agreement. The claims of Wagner & Brown have been settled, and the case
was dismissed as to Wagner & Brown on March 6, 1986. The claims of El Paso
Exploration Co. (now Meridian Oil Production, Inc. (Meridian)), which
intervened as a plaintiff and asserted all the claims and allegations made
by Wagner & Brown, including take-or-pay, price differential and specific
performance, have not been settled. In September 1990, Meridian served a
Second Amended Petition in which it alleges damages in excess of $60
million (and an additional $40 million of interest) as a result of Columbia
Transmission's failure to meet its take-or-pay and minimum take
obligations. The issue of price differential has been settled. A status
conference was held May 28, 1991, and a hearing on the plaintiff's motion
for partial summary judgment on Columbia Transmission's legal defenses was
held June 14, 1991.
A motion by Meridian for a Bankruptcy Court order lifting the
automatic stay so as to permit it to prosecute its claims against Columbia
Transmission was denied.
3. Koch Industries Inc. v. Columbia Gas Transmission Corp. C.A.
No. 89-2156 (U.S. Dist. Ct., E.D. La., filed May 12, 1989). On January 11,
1991, Columbia Transmission filed an action, Columbia Gas Transmission
Corp. v. Koch Industries. Inc., C.A. No. 91-0174, (U.S. Dist. Ct., E.D.
La). This lawsuit was related to the settlement of an earlier lawsuit
between the parties. Columbia Transmission sought an order declaring that
it is under no obligation to increase its purchase nominations under the
contracts because of Koch's unasserted right to correct imbalances between
it and other working interests owners in the acreage dedicated under the
contract. Koch filed a complaint seeking a contrary determination. Koch
Industries, Inc. v. Columbia Gas Transmission Corp., C.A. No. 91-0177
(U.S. Dist. Ct. E.D. La). The two cases were consolidated. Judgment in
favor of Koch Industries, Inc. and against Columbia Transmission was issued
on April 29, 1991. Columbia Transmission's motion to alter or amend the
judgment was denied on June 5, 1991. On June 19, 1991, Columbia
Transmission filed a Notice of Appeal to the Fifth Circuit. On August 20,
1991, the Clerk of the Court advised
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS (Continued)
Columbia Transmission that the case was stayed during the Chapter 11
Bankruptcy proceedings.
4. Energy Development Corp. v. Columbia Gas Transmission Corp.,
C.A. No. CV91-0960, (U.S. Dist. Ct., W. D., La., division
Lafayette/Opelousas, filed May 13, 1991). Energy Development Corporation
alleges that Columbia Transmission breached the take-or-pay, minimum daily
quantity and inequitable withdrawal provisions of the gas purchase contract
between Energy Development Corporation and Columbia Transmission.
IV. Corporate Matters
1. The East Lynn Condemnation - United States v. 16.286.08 Acres
et al., C.A. No. 77-3324H (U. S. Dist. Ct., S.D. W.Va. filed December 26,
1976). The United States Corps of Engineers condemned certain fee lands in
Wayne County, West Virginia. On December 7, 1990, a United States District
Judge issued an order which adjudicates the amount of just compensation
Columbia Natural Resources was entitled to receive for the minerals taken,
including interest on the award through October 31, 1990, at $44,830,148.
In October 1991, checks totalling $52,254,883 were issued to Columbia
Transmission (holder of letter to the property when the condemnation
proceeding commenced), Columbia Natural Resources (current owner) and the
attorneys in the condemnation proceeding. To allow immediate deposit, the
checks were endorsed to Columbia Transmission. Columbia Natural Resources
and Columbia Transmission believe that a constructive trust in favor of
Columbia Natural Resources, the real party in interest, was created;
however, this view may be subject to challenge in Columbia Transmission's
bankruptcy proceeding.
V. Regulatory Matters
A. Take-or-Pay and Contract Reformation Costs Billed by Pipeline
Suppliers
1. Columbia Gas Transmission Corp., FERC Dkt. No. RP91-41, appeals
pending sub nom., Baltimore Gas & Electric Co. v. FERC, C.A. No. 88-1779
U.S. Ct. of App., D.C. Cir.) On February 3, 1992, FERC denied requests for
rehearing of orders accepting Columbia Transmission's Order No. 528
flowthrough filings, except to the extent that customers may challenge
Columbia Transmission's prudence for actions after April 1, 1987, to the
extent that it contributed to these upstream pipeline charges. On March
19, 1993 the FERC issued an order denying requests for rehearing and
permitting Columbia Transmission to flow through upstream pipeline Order
No. 528 costs. On December 30, 1993, the FERC issued an order denying
Cincinnati Gas & Electric Company's request for rehearing of the March 19,
1993 order, reaffirmed the February 3, 1992 and March 19, 1993 orders in
all respects, and indicated that no further rehearing requests would be
entertained. The Court issued a procedural order in the joint appeals,
leading to oral argument on May 10, 1994.
2. AGD v. FERC, No. 88-1385 (U.S. Ct. of App., D.C. Cir.). On
December 28, 1989, the U.S. Court of Appeals for the District of Columbia
Circuit ruled that the deficiency-based direct billing of Order No. 500
costs approved by the FERC in Tennessee Gas Pipeline Co., No. RP86-119, is
unlawful retroactive ratemaking and violates the filed rate doctrine. On
October 9, 1990, the U.S. Supreme Court denied certiorari in AGD.
Accordingly, the FERC issued its order on remand on November 1, 1990 (Order
No. 528).
The FERC has approved Order No. 528 settlements for some of
Columbia Transmission's pipeline suppliers. However, there are remaining
unresolved direct upstream pipeline supplier Order No. 528 proceedings.
The Order No. 528 filings and settlements to date have reduced
Columbia Transmission's Order No. 528 liability to upstream pipelines
significantly. Columbia Transmission's customers continue to challenge its
right to recover any of these amounts.
B. Direct Billing of Past Period Production and Production-Related
Costs
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS (Continued)
1. Columbia Gas Transmission Corp. v. FERC., C.A. No. 88-1701
(U.S. Ct. of App., D.C. Circuit). On February 9, 1990, the Court issued
its opinion finding that the FERC's orders authorizing five of Columbia
Transmission's upstream pipeline suppliers to directly bill past period
production related costs (Order Nos. 94 and 473) to customers allocated
based upon past period purchases violates the filed rate doctrine and the
rule against retroactive ratemaking. Therefore, the Court struck the
orders authorizing direct billing and remanded the issue to the FERC for
further proceedings. On October 9, 1990, the U.S. Supreme Court denied
certiorari.
Columbia Transmission reached settlements with Panhandle,
Trunkline, Texas Eastern and Texas Gas, which provided for full
refunds of Order No. 94 direct billings with rebillings to Columbia
Transmission of lesser amounts. These settlements would reduce Columbia
Transmission's Order No. 94 direct billing liability to these pipelines
from $29 million to $17 million exclusive of interest. Columbia
Transmission's customers have objected to those settlements because they
contemplate Columbia Transmission's recovery of these rebilled amounts
from its customers. On February 10, 1993, the FERC approved Columbia
Transmission's Order 94 settlement with four pipeline suppliers, which
settlements authorized Columbia Transmission to recover the rebilled
payments to its' customers.
On October 28, 1993, Transco and Columbia Transmission filed a
letter with the FERC indicating that the remaining issues have been
resolved, and that they agreed on a refund to Columbia Transmission of $1.4
million. The FERC is treating this as a settlement offer.
On January 12, 1994, the FERC issued an order on rehearing in
which it reversed its earlier conclusions and rejected the Order No. 94
settlements with Panhandle, Trunkline, Texas Eastern and Texas Gas. FERC
now holds that Columbia Transmission's 1985 PGA settlement essentially bars
recovery of any of the rejected costs. The January 12, 1994, order
required Panhandle, Texas Eastern and Texas Gas to refund all Order No. 94
costs, but absolved them of responsibility for paying interest. On
February 14, 1994, Columbia Transmission and the upstream pipelines
requested rehearing of the January 12 orders. The pipelines have received
an extension of time to make refunds until after the FERC rules on
rehearing. Columbia Transmission has asked the FERC to hold the Transco
settlement in abeyance until after the FERC rules on rehearing. Transco
has opposed this request.
C. WACOG Recovery.
1. Columbia Gas Transmission Corp., FERC Dkt. No. RP91-206. On
August 1, 1991, Columbia Transmission filed for a 12- month, 20 cent
surcharge to its commodity rate to recover certain pre-April 1, 1985,
supplier costs which it is entitled to recover, in accordance with the
terms of its 1985 Purchased Gas Adjustment settlement, to the extent that
its annual weighted average cost of gas (WACOG) compares favorably with the
WACOGs of competing pipelines. On August 30, 1991, FERC rejected such
filing, without prejudice, finding that Columbia Transmission's calculation
of its WACOG was inconsistent with the 1985 settlement. On May 22, 1992,
the FERC denied Columbia Transmission's request for rehearing. Columbia
Transmission has filed a petition for review of these orders. The matter
has been briefed by the parties and oral argument was held on October 22,
1993. On January 3, 1994, Columbia Transmission filed an offer of
settlement in Docket Nos. RP93-161 and RP94-1 (see C.3. below) which
provides that, upon final approval of the settlement, Columbia Transmission
will dismiss its appeal.
2. Columbia Gas Transmission Corp., FERC Dkt. No. RP92-215. On
July 31, 1992, Columbia Transmission proposed an 8 cents per Dekatherm
surcharge for the 12 months commencing September 1, 1992. On August 31,
1992, the FERC accepted Columbia Transmission's filing subject to
suspension, refund and a technical conference. After such technical
conference and statements of position by the parties, the FERC rejected the
WACOG filing on January 21, 1993 and ordered Columbia Transmission to
refund all WACOG charges which it previously collected. On November 26,
1993, the FERC denied Columbia Transmission's request for rehearing of the
January 21, 1993, order. Columbia Transmission has filed a petition for
review of these orders with the
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS (Continued)
United States Court of Appeals for the D.C. Circuit. On January 3, 1994,
Columbia filed an offer of settlement in Docket Nos. RP93-161 and RP94-1
(see C.3. below) which provides that, upon final approval of the
settlement, Columbia Transmission will dismiss its appeal of the orders.
3. Columbia Gas Transmission Corp., Dkt. Nos. RP93-161 and RP94-1.
These filings proposed a WACOG surcharge for the 1993-94 period, the last
year Columbia Transmission is eligible to file such surcharge. The filing
in RP93-161 proposed to collect a 28 cents per Dth surcharge for sales
customers for the months of September and October 1993. The filing in
RP94-1 proposed to collect a surcharge of 7.22 cents per Dth for most firm
transportation customers from November 1, 1993 when Columbia Transmission
implemented Order 636, through October 31, 1994. On January 3, 1994,
Columbia Transmission filed a settlement which is unopposed to obtain all
WACOG surcharges collected during September-December, 1993 and collect a
WACOG surcharge of 3.8c. per Dth during January-October, 1994. If Columbia
Transmission's WACOG surcharge revenues exceed $42.8 million, it will
refund 90% of the excess to customers and retain the remaining 10%. FERC
approved the settlement on February 28, 1994.
VI. Other
A. Canada Southern Petroleum Ltd. v. Columbia Gas Development of
Canada Ltd. et al., (C.A. No. 9001-03466, Court of Queen's Bench, Alberta,
Canada, filed March 7, 1990). The plaintiff asserts, among other things,
that the defendant working interest owners, including Columbia Gas
Development of Canada Ltd. (Columbia Canada) and various Amoco affiliates,
breached an alleged fiduciary duty to ensure the earliest feasible
marketing of gas from the Kotaneelee field (Yukon Territory, Canada). The
plaintiff seeks, among other remedies, the return of the defendants'
interests in the Kotaneelee field to the plaintiff, a declaration that such
interests are held in trust for the plaintiff, and an order requiring the
defendants to promptly market Kotaneelee gas or assessing damages.
The judge granted the application of Allied Signal, Inc., Home
Oil Company and Kern County Land Company to relieve them of the requirement
to participate in the proceedings. An appeal of the order by Amoco is
pending.
Examination for discovery is still proceeding in the referenced
actions. Columbia Canada has had a second round of discovery of its
witnesses and has made undertakings to provide additional information which
it is in the process of preparing. Amoco has not yet fulfilled the
undertakings from its first round of discoveries. Upon it doing so, it is
reasonable to suppose that further discoveries of Amoco will be required by
Canada Southern.
None of the defendants has yet conducted any discovery of
Canada Southern nor of one another. On the present schedule, it is likely
that this discovery process will continue well into 1994.
In early 1993, Canada Southern filed a motion to amend their
statement of claim to seek an accounting of the amount of operation costs
properly recoverable by the working interest holders including Columbia
Canada. Columbia has not consented to the amendment and contends that any
amounts accrued since the initial statement of claim in 1988 should be
barred and more basically, that litigation is inappropriate prior to an
audit.
Note: Columbia Canada was sold to Anderson Exploration Ltd.
effective December 31, 1991, and the company name subsequently changed to
Anderson Oil & Gas, Inc. Pursuant to an Indemnification Agreement re
Kotaneelee Litigation, Columbia agreed to indemnify and hold Anderson
harmless from losses due to this litigation. An escrow account in the
amount of approximately $30,000,000 (Cdn) was established as partial
security for the indemnification obligation. Upon emerging from
bankruptcy, an additional deposit to the Escrow Account of $25,000,000
(Cdn) will be required in cash or by letter of credit.
14
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS (Continued)
B. Minerals Management Service (MMS) has demanded that Columbia
Gas Development Corporation (Columbia Development) pay additional royalties
for the period October 1, 1983 to December 31, 1985, claiming the prices
received by Columbia Development from its affiliate under non-arm's-length
contracts were less than the prices received for like-quality gas under
comparable arms-length contracts in the field. A complaint was filed by
Columbia Development in U.S. District Court in Dallas on October 23, 1992,
(Case No. 3:92-CV2199-T), claiming that the six-year statute of limitation
applicable to the claim has expired and a protective administrative appeal
was filed with the MMS on October 27, 1992. A decision was rendered August
27, 1993, by the Northern District of Texas District Court in favor of the
government on the statute of limitations issue, reasoning that the MMS
order to pay is not "an action for money damages" under the language of the
statute and further granted the government's motion to dismiss in part on
the basis of the doctrine of exhaustion of administrative remedies.
Columbia Development has appealed the District Court decision to the Fifth
Circuit Court of Appeals. Columbia Development's initial brief was filed
on January 10, 1994. In another case, the 10th Circuit Court of Appeals
ruled in favor of the government on the statue of limitations issue on the
grounds that the six-year statute of limitations is tolled until such time
as the government could reasonably have known about all facts material to
its right of action.
In addition, the MMS audited Columbia Development for the
period January 1, 1986, through December 31, 1990, and has made a similar
but unquantified claim. Columbia Development has appealed this claim to
the Interior Board of Land Appeals and has obtained the MMS's pricing data
and analyzed it using comparable pricing from surrounding OCS blocks to
determine probable liability. Meetings with the MMS to eliminate less
controversial claims (third party sales and sales at MLP) and to present
the comparable pricing analysis have been held. MMS is reviewing the
information presented.
VII. Environmental
A. Commonwealth of Kentucky Natural Resources and Environmental
Protection Cabinet, Department for Environmental Protection. On January
22, 1992, Columbia Transmission received Notices of Violation (NOV) from
the Commonwealth of Kentucky, Natural Resources and Environmental Cabinet,
Department of Environmental Protection (KyDEP) with respect to ten
compressor station sites in the Commonwealth of Kentucky. These notices
generally cite the release or disposal of waste materials or hazardous
substances, including but not limited to polychlorinated-biphenyls (PCBs).
It appears from a letter dated January 13, 1992, from the Natural Resources
Environmental Protection Cabinet, Department of Law, that the violations
have been asserted for the purposes of establishing the Cabinet's
prepetition claims against Columbia Transmission.
The alleged violations provide for fines and penalties that
apply separately for each violation and each day of noncompliance which, in
the aggregate, are significant. Columbia Transmission's prior experiences,
however, as well as those of other companies in the industry, have
demonstrated that such fines and penalties have not been assessed at the
maximum rate when the company is cooperating with governmental agencies and
authorities in remediation activities. Columbia Transmission intends to
continue to work with the KyDEP in negotiating a consent decree approving
prior remediation activity and a prospective remediation plan.
B. In the Matter of Columbia Gas Transmission Corp., (Region
III). Columbia Transmission was subpoenaed to supply information under the
authority of the Toxic Substance Control Act (TSCA), the Resource
Conservation Recovery Act and the Comprehensive Environmental Response
Compensation and Liability Act of 1980. Documents were accumulated and
delivered in June and July and conferences with personnel of the
Environmental Protection Agency Region III have been held. Columbia
Transmission is continuing to provide documents and information to
Environmental Protection Agency Region III and has begun negotiation of a
possible consent decree under the TSCA approving prior remediation activity
and prospective remediation plans developed by Columbia Transmission.
Fines or penalties may also be included.
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS (Continued)
C. Portsmouth Redevelopment and Housing Authority and
Commonwealth Gas Services, Inc. (Commonwealth) v. BMI Apartment Associates,
C.A. No. 2:93CV242, (U.S. Dist. Ct. E.D. Va., filed March 25, 1993.) A gas
manufacturing plant had been operated in Portsmouth, Virginia by Portsmouth
Gas Co on a site that was subsequently sold by Portsmouth Gas Co. to the
Portsmouth Redevelopment and Housing Authority, which removed equipment and
sold the property to developers of apartment complexes and single-family
homes. Portsmouth Gas Co. was later acquired by Commonwealth. On February
10, 1993, without admitting or conceding responsibility for the site,
Commonwealth provided notice of site contamination to the United States
Environmental Protection Agency. On March 25, 1993, Commonwealth and the
Portsmouth Housing and Redevelopment Authority filed a cost recovery action
in federal court under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 against the current and past owners
of a former manufactured gas plant site and sought a court order to obtain
access to the site for health risk testing. BMI Apartment Associates
(BMI), the owners of apartments on the site objected to the request for
access and filed a "citizens' suit" under the Resource Conservation and
Recovery Act as a counterclaim and cross-claim. On June 14, 1993, the
United States District Court granted Commonwealth and the Portsmouth
Redevelopment and Housing Authority access to the site to perform the
health risk testing and testing on-site was completed June 24, 1993. On
July 28, 1993, the Court dismissed the counterclaims of BMI that were drawn
on RCRA and loss of contribution protection under CERCLA. The remaining
liabilities, damages and allocations are similar for both defendants and
plaintiffs. The Health Risk Assessment Report was provided to all parties
on August 27, 1993. It finds "no imminent risk to public health." Further
investigation will be conducted without relocating residents. In
mid-September, 1993, the judge granted an eight month stay of all legal
proceedings to permit Commonwealth to conduct full site investigation and
provide the opportunity for the parties to discuss settlement. The
workplan was completed and work began on November 1, 1993. Emergency
permits for waste handling from the City of Portsmouth were obtained to
facilitate the investigation. Residents and nearby homeowners were
notified of the work. Commonwealth met with the voluntary Remediation
Group of VaDEQ. A draft consent agreement delineating the VaDEQ's
supervisory responsibility for site work is being developed. On February
14, 1994, a Magistrate was appointed to facilitate settlement discussions.
D. Commonwealth Gas Services/Virginia Department of
Environmental Quality. On February 9, 1993, Commonwealth reported to the
Virginia Department of Environmental Quality's (VaDEQ) State Water Control
Board that an oily substance was seeping through a retaining wall at a
former manufactured gas plant site at Petersburg, Virginia. On April 5,
1993 Commonwealth received a request from the State Water Control Board to
investigate the seep and submit a report to the Board. Commonwealth has
retained a consultant to investigate the seep and prepare the report. Site
assessment was submitted to the VaDEQ on July 20, 1993. That report
recommends removal of contents of a tank behind the retaining wall. The
report also disclosed an additional seep of materials from the creek
upstream of the retaining wall area. On July 27, 1993, VaDEQ accepted
Commonwealth's recommendations on the two seeps. Commonwealth is
proceeding to implement those recommendations over the next six months. On
November 1, 1993, a report on the creek bank seep was sent to VaDEQ. It
notes fairly widespread groundwater and soil contamination, as well as
identifying the source of the creek bank seep. On December 10, 1993,
Commonwealth met with the VaDEQ regarding the recently filed report.
Commonwealth consultants are developing a workplan to address the
contamination noted in the report. Commonwealth is now dealing with VaDEQ
remediation group and is in the process of developing a draft memorandum of
understanding delineating the course of action to be taken.
E. In Re Columbia Gas Transmission (Region V). On January 28,
1994, Columbia Transmission received from USEPA Region V an Information
Request pursuant to the Resource Conservation and Recovery Act (RCRA). The
Agency requests Columbia Transmission to submit information and knowledge
relating to its generation and management of natural gas pipeline
condensate, used engine oil and similar liquids in the state of Ohio.
Transmission is in the process of analyzing the information requested and
will be discussing this Information Request with Region V.
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Corporation is traded on the New York Stock
Exchange under the ticker symbol CG and abbreviated as either ColumGas or
ColGs in trading reports. The number of shareholders of record on February
28, 1994, was approximately 64,271 and the stock closed at $28.375. On
June 19, 1991, the Corporation suspended the dividend on its common stock.
Management cannot determine at this time when dividends will again be paid.
See Item 7 on page 51 for additional information regarding the
Corporation's common stock prices and dividends.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
($ in millions except per share amounts) 1993* 1992* 1991* 1990 1989
------------------------------------------------------------------- ------------ ------------- ----------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA ($)
Total operating revenues 3,391.2 2,922.0 2,576.8 2,357.9 3,204.4
Products purchased 1,574.5 1,236.9 1,056.5 846.8 1,669.0
Earnings (Loss) on common stock
before extraordinary item and
accounting changes 152.2 90.9 (794.8) 104.7 145.8
Earnings (Loss) on common stock 152.2 51.2 (694.4) 104.7 145.8
----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings (Loss) per common share ($):
Before extraordinary item and
accounting changes 3.01 1.79 (15.72) 2.21 3.21
Earnings (Loss) on common stock 3.01 1.01 (13.74) 2.21 3.21
Dividends:
Per share ($) - - 1.16 2.20 2.00
Payout ratio (%) N/M N/M N/M 99.5 62.3
Average common shares outstanding (000) 50,559 50,559 50,537 47,316 45,494
----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($)
Capitalization excluding liabilities
subject to Chapter 11:
Common stock equity 1,227.3 1,075.1 1,006.9 1,757.8 1,620.3
Long-term debt 4.8 5.4 6.1 1,428.7 1,196.0
Short-term debt and current maturities** 1.3 1.4 138.9 770.7 681.4
Total 1,233.4 1,081.9 1,151.9 3,957.2 3,497.7
Total assets 6,957.9 6,505.9 6,332.2 6,196.3 5,878.4
----------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Capitalization ratio (%) (including short-term
debt and current maturities**):
Common stock equity 99.5 99.4 87.4 44.4 46.3
Debt 0.5 0.6 12.6 55.6 53.7
Capital expenditures ($) 361.3 299.7 381.9 629.6 473.5
Net cash from operations ($) 850.4 765.4 531.6 420.1 400.5
Book value per common share ($) 24.27 21.26 19.92 34.83 35.50
Return on average common equity
before extraordinary item (%) 13.2 8.7 N/M 6.2 9.2
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M - Not meaningful
* Reference is made to Notes 1A and 2 of Notes to Consolidated
Financial Statements.
**Prior to its Chapter 11 filing, the Corporation made extensive
use of variable rate debt since the associated cost was normally
less than senior long-term debt. Inclusion of the short-term
debt in years prior to 1991 makes those historical ratios more
meaningful.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Index Page
<S> <C>
Bankruptcy Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Oil and Gas Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Transmission Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distribution Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Other Energy Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
BANKRUPTCY MATTERS
On July 31, 1991, The Columbia Gas System, Inc. (Corporation) and its
wholly-owned subsidiary, Columbia Gas Transmission Corporation (Columbia
Transmission), filed separate petitions seeking protection under Chapter 11
of the Federal Bankruptcy Code. Both the Corporation and Columbia
Transmission were granted debtor-in-possession status under the Bankruptcy
Code, allowing them to continue normal business operations subject to the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware (Bankruptcy Court).
Columbia Transmission's Plan of Reorganization
The Corporation's and Columbia Transmission's discussions with the
Official Committee of Unsecured Creditors of Columbia Transmission
(Columbia Transmission Creditors' Committee) to negotiate a reorganization
plan for Columbia Transmission and expedite emergence from Chapter 11
proceedings had been largely unsuccessful. Therefore, on January 18,
1994, Columbia Transmission filed, with the Corporation as cosponsor, a
reorganization plan (plan) and a disclosure statement, for consideration
by its creditors and other interested parties. The plan, which management
believes is fair and equitable, proposes to pay 100 percent for all
priority, administrative and secured claims and offers various classes of
general unsecured creditors, including producers whose gas contracts were
rejected by Columbia Transmission, between 80 and 100 percent of Columbia
Transmission's estimates of their allowable claims. The $3.3 billion
total distribution proposed in Columbia Transmission's plan is based on an
estimated value for Columbia Transmission of $3.1 billion and includes
significant financial contributions by the Corporation. The plan is
premised on a proposed omnibus settlement whereby the Corporation would
settle the Intercompany Complaint and facilitate Columbia Transmission's
reorganization by (i) accepting the value of the Corporation's secured
claims against Columbia Transmission in the form of secured debt and
equity securities of Columbia Transmission, and (ii) ensuring the cash (or
at the option of the Corporation cash and $100 million market value of the
Corporation's common stock) necessary to bring the aggregate distribution
to $3.3 billion. Creditors, other than the Corporation, would share in
distributions of over $1.2 billion in cash. In addition, the Corporation
would consent to the reorganized Columbia Transmission's assumption of
responsibility for public environmental enforcement agency claims so that
the recoveries of the other creditors would not, with minor exceptions, be
diminished by the environmental liabilities of Columbia Transmission's
estate.
The plan provides that Columbia Transmission will remain a wholly-owned
subsidiary of the Corporation, will continue to offer an array of
competitive transportation and storage services, and will retain ownership
of its 18,800-mile pipeline network and related facilities.
Columbia Transmission's proposed business solution will offer to producers,
whose gas supply contracts were rejected or who have prepetition claims
under those contracts, individual, specific settlements of the producers'
claims that are based upon uniform assumptions and principles and which, in
the view of Columbia Transmission's management, are fair and reasonable
settlement values. These specific settlement proposals are being developed
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
and will be filed as an adjunct to the plan. Columbia Transmission
estimates that aggregate distributions to producers under the plan would
come to approximately $900 million.
In general, the plan provides for immediate cash payment in full to all
priority claims, all secured claims held other than by the Corporation,
trust fund claims, administrative expenses and unsecured claims of $50,000
or less. The Corporation's secured claims will be satisfied in full with
new secured debt and equity securities to be issued by the reorganized
Columbia Transmission. Unsecured claims between $50,000 and $250,000 would
receive 95 percent of their allowed claims in cash. All other unsecured
claims, including the Corporation's unsecured debt and producer contract
rejection claims, would receive between 80 and 100 percent of their allowed
claims based on current projections. With respect to some of the classes
of creditors, the treatment described above depends on the acceptance of
the plan by the relevant class. At this time, no creditors have agreed to
any of the proposed plan's provisions, and the ultimate confirmed plan of
reorganization could be materially different from this initial filing.
Although Columbia Transmission's plan utilizes June 30, 1994, as an assumed
date of emergence from bankruptcy, the actual date of emergence will depend
on the time required to complete the bankruptcy process and obtain
necessary creditor, judicial and regulatory approvals. As part of its
filing with the Bankruptcy Court, Columbia Transmission requested that the
court defer scheduling required proceedings on the plan and related
disclosure statement in order to permit discussions of the plan, including
the settlements proposed therein, with Columbia Transmission's creditors,
official committees and other interested parties.
Under bankruptcy procedures, after Columbia Transmission's disclosure
statement has been approved by the Bankruptcy Court, the disclosure
statement and the reorganization plan will be sent to the company's
creditors for voting.
The Corporation intends to file a plan for its reorganization which will be
consistent with the financial aspects and structure of Columbia
Transmission's proposed plan of reorganization. Both plans will be subject
to a lengthy review and approval process, including SEC approval, and
obtaining adequate financing.
Implementation of Columbia Transmission's plan, and the levels and timing
of distributions to its creditors, are subject to a number of risk factors
which could materially impact their outcome. The plan sets forth numerous
conditions to its confirmation and consummation. The failure to satisfy
these conditions in accordance with the terms of the plan would have a
material adverse effect on the outcome of Columbia Transmission's
bankruptcy and on the Corporation. These conditions include, among others,
the confirmation of a reorganization plan for the Corporation, the receipt
of necessary approvals for the implementation of Columbia Transmission's
plan and the recovery of regulatory and tax benefits which are fundamental
to the plan's viability. Both companies anticipate emerging from
bankruptcy at the same time. The provisions of the reorganization plans of
either Columbia Transmission or the Corporation that are ultimately
implemented could be materially different from this initial filing for
Columbia Transmission and have a material adverse effect on the Corporation
and its subsidiaries and on the rights of shareholders and holders of debt
and other obligations.
Events Leading to Bankruptcy Filings
Columbia Transmission's Chapter 11 filing was precipitated by a combination
of events that adversely affected its physical operations and financial
viability. Most notable were federal legislative and regulatory actions,
instituted years after Columbia Transmission's gas purchase contracts were
signed, that significantly impacted Columbia Transmission's ability to sell
the gas it had contracted to buy and to recover its costs from its
customers. These problems were exacerbated by record-setting warm weather
in 1990 and 1991, which caused spot market prices for gas to plunge and
created excess transportation capacity, thus making an unexpected and
persistent oversupply of bargain-priced gas available to Columbia
Transmission's customers. As a result, Columbia Transmission's ability to
market its gas was severely undercut, substantially reducing both sales
volumes and revenues.
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
After completing studies, in early June 1991, that revealed the magnitude
of Columbia Transmission's gas supply problems, the Corporation announced
on June 19, 1991, that: (i) it anticipated that a substantial portion of
Columbia Transmission's exposure on above-market priced gas purchase
contracts would be charged to income in the second quarter; (ii) Columbia
Transmission was launching a comprehensive effort to renegotiate or
terminate all of its above-market gas purchase contracts under a program
which contemplated offering producers up to $600 million of Columbia
Transmission's obligations as compensation for restructuring their
contracts; (iii) the Corporation was suspending the dividend on its common
stock; and (iv) corporate officers were meeting with bank lenders that day
seeking to reestablish the Corporation's credit facilities on revised terms
in view of Columbia Transmission's financial difficulties. In addition,
Columbia Transmission's financial problems were exacerbated when the West
Virginia Supreme Court ordered the posting of a $10 million bond by July
29, 1991, in order to stay the execution of a $29.5 million judgment in a
lease dispute which was subsequently reversed.
As of July 31, 1991, the Corporation was in default on $83.5 million of
short-term obligations and the negotiations with banks and producers had
met with only limited success. As a result, on July 31, 1991, the
Corporation and Columbia Transmission filed for protection under Chapter 11
of the Federal Bankruptcy Code in the Bankruptcy Court. A discussion of
the proceedings under Chapter 11 protection is included in Note 2 of Notes
to Consolidated Financial Statements.
In contrast to the situation of many other Chapter 11 debtors,
reorganization of Columbia Transmission has not been hampered by
unprofitable or marginal business operations. Rather, in Columbia
Transmission's case the achievement of the Chapter 11 objective of
reorganization has been impacted by the enormity and complexity of the
disputed and contingent claims filed against it by unaffiliated creditors
and by attempts on behalf of those creditors to obtain recoveries on such
claims from the assets of the Corporation's estate. In addition, Columbia
Transmission's status as a regulated gas transmission company under the
Natural Gas Act (NGA) and its resulting obligations has brought into the
bankruptcy forum creditors' rights issues which are complicated by public
law issues arising under the NGA.
Bankruptcy Issues
On March 19, 1992, the Columbia Transmission Creditors' Committee filed a
complaint (Intercompany Complaint) with the Bankruptcy Court alleging that
the $1.7 billion of Columbia Transmission's secured and unsecured debt
securities held by the Corporation should be recharacterized as capital
contributions (rather than loans) and equitably subordinated to the claims
of Columbia Transmission's other creditors. The Intercompany Complaint
also challenges interest and dividend payments made by Columbia
Transmission to the Corporation of approximately $500 million for the
period from 1988 to the petition date and the 1990 property transfer from
Columbia Transmission to Columbia Natural Resources, Inc. (CNR) as an
alleged fraudulent transfer. Based on the SEC's standardized measurement
procedures, CNR's properties had a reserve value of approximately $387
million as of December 31, 1993, a significant portion of which is
attributable to the transfer from Columbia Transmission. In May 1992,
Columbia Transmission Creditors' Committee filed with the U.S. District
Court a motion for a jury trial and to move the Intercompany Complaint from
the Bankruptcy Court to the U.S. District Court. This motion was denied
and subsequently appealed to the Third Circuit Court of Appeals (Third
Circuit). In June 1992, the Corporation filed a motion with the Bankruptcy
Court seeking dismissal of, or summary judgment on, principal portions of
the Intercompany Complaint. On August 20, 1993, the Third Circuit denied
Columbia Transmission Creditors' Committee's appeal, allowing the
Bankruptcy Court to consider the merits of the Intercompany Complaint and
act upon the Corporation's June 1992 motion for summary judgment. The
Bankruptcy Court has not acted on the Corporation's motion for summary
judgment, but tentatively scheduled a trial on the Intercompany Complaint
to begin June 13, 1994. Management believes that the Intercompany
Complaint is without merit; however, the ultimate outcome of these issues
is uncertain at this stage of the proceedings.
Discussions with Columbia Transmission's creditors in an attempt to
establish the value of the estate and to resolve
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
the matters raised in the Intercompany Complaint are ongoing. Since the
standing and value of the Corporation's debt investment in Columbia
Transmission is crucial to the determination of the value of the
Corporation's estate, the Corporation's reorganization could be affected by
the ultimate outcome of the Intercompany Complaint.
At December 31, 1993, the Corporation's investment in Columbia Transmission
is as follows:
<TABLE>
<CAPTION>
$ millions
------------
<S> <C>
Secured Debt
First Mortgage Bonds 930.4
Gas Inventory Loan(s) 410.0
Accrued interest on secured debt 346.4
Unsecured Debt
Installment Notes 343.9
Accrued interest to petition date 7.1
Equity investment (517.2)
---------
Total Investment 1,520.6
=========
</TABLE>
The Corporation has claims against Columbia Transmission's estate for money
it borrowed which are secured by substantially all of Columbia
Transmission's assets, including cash. This indebtedness bears interest at
rates significantly higher than those earned by Columbia Transmission on
its excess cash because of bankruptcy imposed limitations on Columbia
Transmission's temporary investments and the current level of interest
rates. As a result, the growth in Columbia Transmission's secured interest
obligations has exceeded its interest earnings on its cash available for
debt service by an amount projected to exceed $300 million by the end of
June 1994.
The Internal Revenue Service (IRS) filed identical claims of $553.7 million
against both debtor companies and the consolidated Columbia Gas System for
tax deficiencies, interest and penalties for the years 1983-1990.
Negotiations with IRS representatives have resulted in a settlement on all
of the issues included in the IRS claims. This settlement has been
documented in a written closing agreement and filed with the Joint
Committee on Taxation of the U.S. Congress for formal approval. The IRS
settlement also requires Bankruptcy Court approval. Recording the IRS
settlement reduced 1993 net income by $44.3 million.
Columbia Transmission has recorded liabilities of approximately $1.2
billion to reflect the estimated effects of its above- market producer
contracts and estimated supplier obligations associated with pricing
disputes and take-or-pay obligations for historical periods. With
Bankruptcy Court approval, Columbia Transmission rejected more than 4,800
above-market gas purchase contracts with producers. The producers whose
gas purchase contracts were rejected filed claims for damages that, after
being adjusted for duplicative and other erroneous claims, are in excess of
$13 billion. The Bankruptcy Court approved the appointment of a claims
mediator in 1992 to implement a claims estimation procedure related to the
rejected above-market producer contracts and other producer claims. The
mediator held hearings on generic issues and various estimation
methodologies and discovery matters during 1993. Columbia Transmission
anticipates that the mediator may issue recommended determinations during
the second quarter of 1994 which, under the Bankruptcy Court-approved
estimation procedure, are expected to provide the basis for a recalculation
of producer contract rejection claims. In Columbia Transmission's
judgment, the positions taken by all producers before the claims mediator
and the evidence presented demonstrate that the total level of allowable
contract rejection claims, generically determined, will not exceed 1/10th
of the $13 billion asserted in the claims as filed and is likely to be
between $600 million and $950 million. The acceptance of certain positions
advanced by Columbia Transmission on the evidence of record, as well as
Columbia Transmission's as yet unheard defenses, could decrease
substantially this range of possible aggregate outcomes. Resolution of the
contract-specific issues
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
not yet presented could increase or decrease individual claims materially
but should not significantly alter the range of possible aggregate
outcomes.
The resolution of these issues can significantly influence future reported
financial results. Accounting standards require that as claim amounts are
allowed by the Bankruptcy Court, the full amount of the allowed claim must
be recorded. This could result in liabilities being recorded which bear
little relationship to the amounts ultimately required to be paid in
settlement of those claims and could conceivably exceed the Corporation's
total investment in Columbia Transmission. Any such distortion would not
be corrected until final plans of reorganization are approved for the
Corporation and Columbia Transmission.
At a hearing on February 23, 1994, the Bankruptcy Court granted the
Columbia Transmission Creditors' Committee's motion for the establishment
of a data room that will make business information on Columbia Transmission
available to third parties who may be interested in the company. In
granting the motion, the Bankruptcy Court instructed the parties to jointly
develop proposed data room procedures which should provide for a
substantial entrance fee, exclude Columbia Transmission's future business
plans and projections and establish strong confidentiality protections.
The Bankruptcy Court also instructed that such procedures should be filed
with the Bankruptcy Court by March 11, 1994, for a hearing on March 15,
1994. Columbia Transmission is working toward the expeditious development
and conclusion of the data room process in order to minimize any potential
delays to its reorganization efforts. The Corporation has stated that its
Columbia Transmission subsidiary is not for sale but that if a credible,
bona fide third party offer is made for that company, it would be given
appropriate consideration.
Other Related Issues
Corporation's Objection to Claims
In 1993, the Bankruptcy Court granted the Corporation's request to expunge
over 7,100 proofs of claim filed against the Corporation. As a result,
less than 500 filed claims against the Corporation currently remain to be
resolved.
Leveraged Employee Stock Ownership Plan
On May 31, 1992, the debt service payment on debentures issued under the
Leveraged Employee Stock Ownership Plan (LESOP) portion of the Columbia's
Employees' Thrift Plan (Thrift Plan) was not made and no further debt
service payments are likely to be made until the Corporation emerges from
bankruptcy. Under the terms of the Corporation's guarantee of the
debentures, the LESOP debenture holders will become creditors of the
Corporation, subordinated to holders of the debentures and medium-term
notes issued by the Corporation. Management has concluded that it is more
equitable and may be economically preferable to pay all creditors at the
same time in accordance with consummation of the Corporation's plan of
reorganization.
The Trustee for the Indenture under which the debentures were issued by the
Thrift Plan filed a complaint against the Corporation on March 2, 1993,
alleging tortious interference with contract for failure to pay
installments due LESOP debenture holders. On April 2, 1993, the
Corporation filed an answer to the complaint and, on May 14, 1993, filed a
motion in the Bankruptcy Court for summary judgment to dismiss this action
which is still pending.
Security Holder Litigation
After the announcement on June 19, 1991, regarding the Corporation's
probable charge to second quarter earnings and the suspension of its
dividend, 17 complaints including purported class actions were filed
against the Corporation and its directors and certain officers of the
debtor companies in the U.S. District Court of Delaware. The actions,
which generally allege violations of certain antifraud provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934, have been
consolidated. In addition, three derivative actions were filed in the
Court of Chancery in and for New Castle County (Delaware) alleging that
directors breached their fiduciary duties.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
These suits have been stayed by either the Bankruptcy Court filing or by
stipulation of the parties. While the Corporation believes that it has
meritorious defenses to these actions, the outcome is uncertain at this
time.
Customer Refunds
In July 1993, the U.S. Court of Appeals for the Third Circuit overturned
most of a U.S. District Court ruling and affirmed an earlier Bankruptcy
Court decision that refunds Columbia Transmission received from upstream
pipelines, as well as the Gas Research Institute (GRI) surcharge payments
it collected from customers, are held in trust, by Columbia Transmission,
for those customers and the GRI and are not part of Columbia Transmission's
estate. In August 1993, the Third Circuit denied the Columbia Transmission
Creditors' Committee's request for a rehearing. In February 1994, the
Supreme Court denied petitions for review of the Third Circuit decision.
Under the Third Circuit ruling, approximately $173 million in refunds that
Columbia Transmission has received, or expects to receive postpetition from
upstream pipelines and GRI surcharges collected should be passed through to
the customers and to the GRI. In addition, the Third Circuit determined
that $35 million in upstream pipeline refunds and GRI surcharges, which
Columbia Transmission collected prior to filing Chapter 11 while received
in trust, were subject to the "lowest intermediate cash balance test" (the
amount remaining in trust at the time of bankruptcy) and should be
distributed on a pro rata basis to the customers and to the GRI to the
extent of Columbia Transmission's $3.3 million cash balance on July 31,
1991. The Third Circuit affirmed another part of the U. S. District
Court's decision and held that approximately $16 million that Columbia
Transmission owes upstream suppliers, for gas purchased and transportation
services received prior to its bankruptcy filing, is ordinary unsecured
debt which must be discharged in the bankruptcy process.
On February 10, 1994, the District Court issued an order for the Bankruptcy
Court to pursue further proceedings in accordance with the Third Circuit's
refund decision directing the pass-through of these refunds. At a hearing
on December 29, 1993, the Bankruptcy Court observed that the Federal Energy
Regulatory Commission (FERC) should determine whether customers are
entitled to the actual interest earned on refunds being held by Columbia
Transmission or the higher FERC-prescribed interest rate. On February 18,
1994, Columbia Transmission filed a motion with the FERC for determination
of this interest issue. Columbia Transmission will ask the Bankruptcy
Court for implementation of the mandate. Columbia Transmission will also
have to file with the FERC to reimplement its flow-through of Order Nos.
500/528 refunds from its pipeline suppliers, which represent the majority
of the refunds at issue. It is anticipated that Columbia Transmission will
recommence the flow-through of the upstream pipeline refunds in 1994.
Total customer claims in Columbia Transmission's bankruptcy proceedings
relating to, or arising from, Columbia Transmission's contracts with its
customers for sales, transportation, gas storage and similar services and
other miscellaneous claims represent about 450 claims for a total of
approximately $550 million as filed, plus a potentially substantial sum
filed in undetermined amounts. Columbia Transmission successfully resolved
a significant portion of these customer claims. Not resolved are customer
claims that total approximately $113 million at December 31, 1993, that
seek to protect rights associated with any prepetition revenues collected
subject to refund in general rate filings and purchased gas adjustment
filings, including matters subject to court appeals. In addition, the
claims filed in undetermined amounts, which potentially could be
significant, still remain to be resolved. In October 1993, approximately
$160 million was refunded to customers by Columbia Transmission reflecting
the terms of a settlement of a 1991 rate case approved by the Bankruptcy
Court in July 1993. Bankruptcy Court approval for a 1990 rate case
settlement for rates in effect from November 1, 1990 through November 30,
1991 was deferred pending the decision by the Third Circuit regarding the
flow-through of certain refunds. Appropriate reserves for rate refund
liabilities have been recorded for these matters to reflect management's
judgment of the ultimate outcome of the proceedings.
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Customer Recoupment Rights
During the fourth quarter of 1993, various customers of Columbia
Transmission filed motions with the Bankruptcy Court seeking authority to
exercise alleged recoupment and setoff rights, whereby they would be
permitted to reduce amounts owed to Columbia Transmission against refunds
owed to the customers by Columbia Transmission, including amounts which
were not otherwise payable in full under the above-mentioned July 1993
Third Circuit decision, all customer refunds under the 1990 rate case
settlement and miscellaneous refunds not otherwise payable in full to them.
Customers are alleging that they have recoupment and setoff rights of
approximately $83 million at December 31, 1993.
On October 20, 1993, the Bankruptcy Court approved an interim settlement
under which customers continued to pay Columbia Transmission for
FERC-authorized services at authorized rates, and Columbia Transmission has
agreed to grant these customers a priority claim to the extent the
Bankruptcy Court finds them entitled to recoupment rights. In January
1994, the Bankruptcy Court issued a procedural order whereby other
customers would be permitted to file recoupment and setoff motions by
February 18, 1994, with a trial on all such motions scheduled for June
1994.
Interest Expense
Interest expense of the Corporation is not being accrued during bankruptcy
but a calculation of interest is included in a footnote on the Statements
of Consolidated Income and Consolidated Balance Sheets. Such interest has
been calculated based on management's interpretation of the contractual
arrangements which govern the various debt instruments the Corporation has
outstanding exclusive of any redemption premiums. The Official Committee
of Unsecured Creditors of the Corporation (Committee) has asserted claims
for interest which exceed disclosed amounts by approximately $40 million at
December 31, 1993. There are several factors to be considered in making
these calculations that are subject to uncertainty as to their ultimate
outcome in the bankruptcy proceeding, including the interest rates and
method of calculation to be applied to overdue payments of principal and
interest. In addition, the Committee has asserted that approximately $110
million of redemption premiums should be paid on high cost debt
instruments.
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
OIL AND GAS OPERATIONS
Market Conditions
Natural gas markets showed renewed strength in 1993, responding to seasonal
weather conditions and uncertainty regarding the availability of supplies
in the new operating environment brought about by FERC Order No. 636 (Order
636). Overall for 1993, natural gas prices averaged $2.28 per Mcf compared
to $2.02 in 1992. Oil prices continued their decline from a 1992 level of
$18.20 per barrel to $16.17 per barrel for 1993.
Capital Expenditures
The 1993 capital expenditure program increased to $95 million from the $71
million level in 1992. The 1993 program provided for increased development
drilling and a modest exploration program in the southwest.
In the southwest, Columbia Gas Development Corporation (Columbia
Development) experienced an increase in both gas and oil production in
1993, reflecting the continuing success of its drilling program, especially
its horizontal drilling program in the Austin Chalk Trend in Texas. During
the fourth quarter of 1993, Columbia Development drilled and completed its
100th horizontal well in that area. Major reconditioning work in early
1993 also contributed to the increase in production.
During 1993, 87 gross (46 net) wells were drilled with a 69 percent success
rate. Of these, 47 were drilled in the Austin Chalk, 94 percent of which
were successful. Productivity was enhanced by an increased emphasis on
dual lateral wells (multiple lateral wells drilled from a single vertical
well). The 44 successful wells drilled included 70 laterals. This
substantially increased production while reducing overall cost per well,
since the costs of the vertical portion of each well were shared by more
than one lateral and the combined laterals accessed a larger area. In
1992, 30 wells with 38 laterals were drilled.
Horizontal wells drilled in the Austin Chalk formation during 1993 tested
at average daily rates ranging from 250 to 1,040 barrels of oil and 550,000
to 3.1 million cubic feet of gas. Columbia Development holds varying
interests in these wells. Development drilling continues in the South
Harmony Church area in southern Louisiana. In 1993, three successful wells
in this area, 100 percent owned by Columbia Development, tested at combined
rates of seven million cubic feet of gas and 925 barrels of oil per day.
In the Appalachian area, CNR's 1993 development well program totaled 120
gross (75 net) wells, with a success rate of 89 percent. One of the most
promising areas under development is a formation underlying existing
production in Ohio, known as Rose Run. CNR has been producing in this
formation in recent years with excellent results. Favorable reservoir
characteristics allow Rose Run prospects to quickly generate a return on
invested capital. CNR's 1994 development program will continue to target
several prospects in this area.
The oil and gas segment's total 1994 exploration and development program of
$91 million will continue to focus primarily on development drilling while
maintaining the modest level of the 1993 exploration program. Because of
weak oil prices the Corporation has adopted more conservative guidelines
for economic evaluations to reduce risk.
Reserves
Net proved natural gas reserves at the end of 1993 totalled 697 Bcf,
compared to 779.5 Bcf at the end of 1992. Proved oil, condensate and
natural gas liquids decreased from 14.7 million barrels at the end of 1992
to 12.8 million barrels at the end of 1993. The year end drop in oil
prices accounted for approximately 0.6 million barrels of the decline by
rendering some properties uneconomical. Increased oil prices would result
in recovery of those reserves.
As a result of a year end decline from 1992 to 1993 in gas prices together
with an increase in lifting costs, the
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
recoverable gas reserves for CNR were revised downward 65.9 Bcf (11
percent). Without this reduction, newly discovered reserves and extensions
approximately equaled production. In addition, Columbia Development's
Huntington Beach oil recovery waterflood project has shown disappointing
production during 1993, resulting in revised reserve estimates of 1.1
million barrels, down 1.6 million barrels from 1992. Geological and
engineering analysis of the project is continuing.
Current pricing has enhanced the profitability of gas prospects, and these
prospects are the focus of the 1994 capital program.
Royalty Dispute
Columbia Development is involved in a $14 million royalty dispute with the
U.S. Minerals Management Service (MMS) regarding royalty valuation issues
in connection with prior sales to an affiliate. As a result of an
unfavorable lower-court decision regarding the statute of limitations, a
pre-tax reserve of $5.4 million has been established by Columbia
Development. Based on information currently available, management believes
this reserve to be adequate; however, the contested matters are under
review, and management is currently negotiating a settlement with the MMS.
Proposed Rulemaking for Offshore Drilling Financial Responsibility
The MMS has issued an advance notice of proposed rulemaking for oil spill
financial responsibility that would establish financial responsibility at
$150 million for all operators of offshore facilities and facilities in,
on, or under the navigable waters of the United States.
Regulations currently require operators to demonstrate financial
responsibility of up to $35 million in liability coverage. Both Columbia
Development and CNR operate in navigable waterways covered under the
proposed regulations. The insurance industry has indicated an
unwillingness to meet the proposed financial responsibility due to certain
proposed provisions contained in the rulemaking. Many comments have been
received by the MMS critical of this rulemaking and its new financial
responsibility requirement as well as other provisions. Since final rules
may be at least two years away, it is impossible to determine the
implications for the Corporation's oil and gas operations.
Volumes
Gas production totalled 71.5 Bcf in 1993, an increase of 3 percent over
1992. The increase includes new Southwest offshore production and new
onshore production in Texas, south Louisiana and New Mexico. This
improvement was tempered by a small decrease in production due to
construction and maintenance activities on pipelines and compressors
serving Columbia's Appalachian production area. After adjusting for the
1991 sale of the Canadian operations, gas production for 1992 was
essentially unchanged from the previous year.
Oil and liquids production in 1993 of 3,603,000 barrels reflected an
increase of nearly 18 percent compared to 1992 due largely to the success
of the Southwest program. Production for 1992, after adjusting for the
sale of the Canadian operations, increased 228,000 barrels over 1991.
Operating Revenues
Higher gas prices together with increases in oil and gas production led to
operating revenues of $222.2 million in 1993, an increase of 12 percent
over 1992. Dampening these improvements was the lower average price for
oil and liquids and the $5.4 million reserve for the royalty dispute
discussed above.
The sale of the Canadian subsidiary was the primary reason for 1992
operating revenues to decrease $16.1 million from 1991, or 7 percent. The
decline was somewhat offset as the average gas price in 1992 was $2.02 per
Mcf, 7 percent higher than 1991, after adjusting for the 1991 sale of the
Canadian operations. The average price for oil
27
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
and liquids in 1992 of $18.20 per barrel represented a decline of 18
percent from the price for domestic production the previous year.
Operating Income (Loss)
Operating income of $53.6 million in 1993 compares to an operating loss of
$101.2 million in the prior year which was due largely to recording a
writedown in the carrying value of oil and gas properties of $126.4 million
due to depressed energy prices. The current period improvement in
operating income also reflected higher operating revenues and lower
depletion expense. These improvements were partially offset by higher
operation and maintenance expense for costs related to new wells and
additional reconditioning work on older wells.
The $96.7 million additional operating loss in 1992 compared to 1991
resulted from the effect of the writedown mentioned above together with
higher operating expenses. These declines were mitigated by writedowns
incurred in 1991 for the Canadian properties.
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
STATEMENTS OF OPERATING INCOME FROM OIL AND GAS OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1993 1992 1991*
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Gas $163.8 $ 143.1 $142.6
Oil and liquids 58.4 55.6 72.2
---------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 222.2 198.7 214.8
---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 83.7 78.7 78.3
Depreciation and depletion 73.8 210.0 130.1
Other taxes 11.1 11.2 10.9
---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 168.6 299.9 219.3
---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $ 53.6 $(101.2) $ (4.5)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes results from Canadian operations that were sold effective
December 31, 1991.
OIL AND GAS OPERATING HIGHLIGHTS*
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES ($ in millions) 95.1 70.8 120.8 229.0 147.9
---------------------------------------------------------------------------------------------------------------------------
PROVED RESERVES
Gas (Bcf) 697.0 779.5 808.1 925.7 902.7
Oil and Liquids (000 barrels) 12,792 14,650 15,568 18,991 16,731
---------------------------------------------------------------------------------------------------------------------------
PRODUCTION
Gas (Bcf) 71.5 69.2 76.3 75.3 77.7
Oil and Liquids (000 barrels) 3,603 3,061 3,411 2,688 1,924
---------------------------------------------------------------------------------------------------------------------------
AVERAGE PRICES
Gas ($ per Mcf) 2.28 2.02 1.81 2.00 1.89
Oil and Liquids ($ per barrel) 16.17 18.20 21.10 22.86 16.71
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Years 1991 through 1989 include results from Canadian operations that
were sold effective December 31, 1991.
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
TRANSMISSION OPERATIONS
Operations
The transportation and storage rates of Columbia Transmission and the
transportation rates of Columbia Gulf Transmission Company (Columbia Gulf)
are currently among the most competitive serving the companies' general
market areas. The companies are committed to maintaining their competitive
position on an ongoing basis through a combination of efficient and
effective maintenance of existing facilities, economical new market
development and a commitment to the highest level of overall customer
satisfaction.
Columbia Transmission recently received an order from the FERC for the
construction of the Rutledge Compressor Station in Harford County,
Maryland. This station will allow Columbia Transmission to transport
53,400 Mcf per day to the Eagle Point Cogeneration Plant in New Jersey and
over 58,000 Mcf per day to New England Power. It is anticipated that the
Rutledge Compressor Station will be in service by December 1994.
Columbia Transmission will provide approximately 52,000 Mcf per day of
interruptible transportation service to Gordonsville Energy Limited
Partnership, an independent power producer in Louisa County, Virginia, in
late summer of 1994.
Rate Cases
Columbia Transmission's and Columbia Gulf's rates are subject to the
jurisdiction of the FERC. These transmission companies (Transmission) make
periodic filings for rate changes to recover costs associated with new
facilities, operating and capital costs, and to reflect changes in
throughput, cost allocation or rate design. Settlements of issues related
to these filings are subject to approval by the FERC, and with respect to
Columbia Transmission during its bankruptcy, the Bankruptcy Court.
During 1993, Columbia Transmission and Columbia Gulf sought approval of two
rate settlements. As previously reported, a 1990 rate filing by both
companies covering the period November 1, 1990 through November 30, 1991,
received FERC approval in 1992; however, Bankruptcy Court approval for
Columbia Transmission to make refunds has been delayed pending resolution
of certain motions filed by various creditors.
Columbia Transmission and Columbia Gulf received FERC and Bankruptcy Court
approvals for a settlement of a general rate case that went into effect on
December 1, 1991. Two parties continue to contest certain aspects of the
settlement. Columbia Transmission and Columbia Gulf have made refunds and
implemented rates prescribed to all parties consenting to this settlement.
The nonconsenting parties, for whom separate proceedings are expected to be
scheduled soon, have challenged the FERC's order and have filed a court
appeal. In management's opinion, the outcome of the legal proceedings with
the nonconsenting parties, including the above mentioned court appeal, will
not have a material adverse impact on the Corporation.
WACOG Surcharge
Under the terms of a 1985 settlement with its customers, Columbia
Transmission is entitled to impose a sales commodity surcharge when its
weighted average cost of gas (WACOG) met certain conditions. These
conditions were met in 1992, and Columbia Transmission was authorized to
include the surcharge in its rates for the period September 1, 1993 through
August 31, 1994. Under Order 636, which became effective November 1, 1993,
Columbia Transmission essentially eliminated its merchant function and
proposed an alternative method of recovering these costs which the FERC
conditionally accepted.
In January 1994, Columbia Transmission filed a settlement with the FERC
resolving all issues relating to this unrecovered surcharge. The
settlement permits Columbia Transmission to continue collecting a surcharge
on transportation volumes through October 1994, that would result in the
opportunity to collect approximately $42.8 million in additional revenues.
30
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Order No. 636
During 1993, Columbia Transmission and Columbia Gulf implemented the
restructured services mandated by the FERC's Order 636. Columbia
Transmission has virtually eliminated its merchant function and now offers
a variety of unbundled storage and transportation services. In order to
implement this restructuring, the companies made a series of filings with
the FERC reflecting changes in rates and the terms and conditions under
which services would be offered.
On October 22, 1993, Columbia Transmission and Columbia Gulf made their
final compliance filing before implementing restructured services, under
Order 636, on November 1, 1993. In this filing, the companies complied
with previous FERC orders and made various revisions to the terms and
conditions applicable to their restructured transportation and storage
services. In December 1993, the FERC issued an order on rehearing that
permitted Columbia Transmission to retain in its rates, costs which the
FERC had previously determined were associated with its merchant function,
and approved the level of costs that Columbia Transmission proposed to be
allocated to interruptible transportation service.
In the series of orders issued in Columbia Transmission's Order 636
proceeding, the FERC addressed issues related to Columbia Transmission's
ability to recover transition costs. The FERC determined that costs
incurred by Columbia Transmission as a result of rejecting producer gas
supply contracts, in its bankruptcy proceeding in 1991, were not eligible
for recovery as Gas Supply Realignment (GSR) costs under Order 636. In
addition, recovery of these costs pursuant to Orders 500 and 528 was
prohibited by the terms of a 1989 customer settlement. The FERC determined
that Columbia Transmission could recover certain contract rejection costs
through its existing Gas Inventory Charge (GIC), but only to the extent
such costs were not incurred during the 1991 contract year, a period in
which Columbia Transmission did not meet the qualifying competitive test
under the GIC. If upheld, the FERC rulings, which are subject to pending
court review, effectively preclude Columbia Transmission from recovering a
significant portion of the producer contract rejection costs from its
customers.
The FERC has generally acknowledged Columbia Transmission's right to seek
recovery of other types of transition costs. The FERC approved Columbia
Transmission's proposal to recover certain purchased gas costs that were
incurred prior to Order 636 restructuring. It also agreed to waive a
nine-month time limit on Columbia Transmission's ability to seek recovery
of unrecovered purchased gas costs to the extent the costs resulted from
contracts that are currently in litigation, including bankruptcy
litigation. Approximately $60 million in unrecovered purchased gas costs
were outstanding at December 31, 1993, in addition to approximately $140
million of prepetition unrecovered purchased gas costs that have not been
paid due to the bankruptcy filing.
The FERC also addressed Columbia Transmission's ability to recover costs
associated with upstream pipeline contracts. Columbia Transmission
currently holds firm transportation agreements with certain pipeline
companies that historically have been used to deliver gas to Columbia
Transmission. These contracts have remaining terms of various lengths and
require the payment of monthly reservation fees whether or not the capacity
is utilized. Under Order 636, downstream pipelines such as Columbia
Transmission are required to offer to assign most of their firm upstream
capacity to their customers. Columbia Transmission's annual demand charge
commitments on these upstream non-affiliated pipelines was approximately
$108 million; however, assignments of certain of these contracts by
Columbia Transmission to its customers in conjunction with service
restructuring under Order 636 have reduced this amount to less than $74
million. The total commitment for demand charges after November 1, 1993,
is approximately $421 million on an undiscounted basis, excluding any
mitigating effect of the pipelines marketing the capacity to others.
Subject to review in connection with periodic rate filings, the FERC
approved Columbia Transmission's proposal to continue to recover costs
associated with retained upstream pipeline contracts through its demand
rates. Recovery of such costs would be subject to review and approval in
semiannual limited rate filings. Columbia Transmission
31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
has reached settlements that will eliminate approximately half of the
annual cost of these contracts and is continuing its efforts to negotiate a
mutually agreeable termination of the remainder of the contracts.
Columbia Transmission's strategy has been to assume all upstream pipeline
contracts that can be directly assigned to its customers or need to be
retained by Columbia Transmission for operational reasons and negotiate
exit fees for other upstream contracts. The FERC ruling in the Order 636
proceedings permits recovery of these exit fees through rates, provided
that Columbia Transmission can show that they are prudently incurred.
Columbia Transmission retains the option of rejecting such contracts in its
bankruptcy proceedings, if appropriate exit fees cannot be negotiated.
The financial statements reflect a $130 million liability and offsetting
receivable for the exit fee issue; however, the ultimate cost could vary
depending on the outcome of ongoing discussions with the affected
pipelines.
Several settlements with upstream pipelines have been concluded. In 1993,
the Bankruptcy Court approved settlements between Columbia Transmission and
Texas Eastern Transmission Corporation, Panhandle Eastern Pipe Line Company
and Texas Gas Transmission Corporation which provide for assumption of
certain contracts and termination of others. None of these settlements
required Columbia Transmission to pay an exit fee to the upstream pipeline.
In November 1993, the Bankruptcy Court approved a settlement between
Columbia Transmission and Tennessee Gas Pipe Line Company (Tennessee).
This settlement provides for Columbia Transmission's assumption of certain
contracts, the termination of certain other contracts that are no longer
necessary for Columbia Transmission's operations and payment to Tennessee
of approximately $42 million in consideration for Tennessee's substantial
reduction of its major transportation contracts with Columbia Transmission.
On January 11, 1994, Columbia Transmission and Tennessee made a filing at
the FERC to approve the settlement. Columbia Transmission expects to
ultimately recover the costs and fees associated with the assumption and
termination of these contracts under Order 636. The Tennessee settlement
agreement is conditioned upon this recoverability.
The FERC affirmed that Columbia Transmission could continue its existing
rate structure to recover costs associated with its gathering facilities
through its gathering and other transportation rates until it files a
general rate case. Management continues to evaluate the long-term plans
for Columbia Transmission's gathering facilities which have a net book
value of approximately $63 million at December 31, 1993. The regulatory
treatment of gathering facilities is currently the subject of a generic
FERC proceeding. While the ultimate outcome of issues related to
realization of its investment in gathering facilities is uncertain at this
time and future charges to income may be required, management believes that
substantially all of these costs will be recovered through rates or sale of
the facilities.
As part of its September 29, 1993 order on Columbia Transmission's and
Columbia Gulf's Order 636 compliance filings, the FERC initiated a
proceeding concerning Columbia Gulf's transportation service to Columbia
Transmission. Columbia Gulf was directed to show cause as to why it has
not filed for FERC abandonment authorization to reduce capacity and service
to Columbia Transmission as required under the Natural Gas Act. Columbia
Gulf responded to the show cause order on December 22, 1993. Management
does not believe an abandonment filing was necessary and does not expect
the resolution of this issue to have a material adverse effect on the
Corporation's financial position.
One type of transition cost which the FERC acknowledged would be eligible
for recovery consideration is "stranded costs", which are the costs of a
pipeline's assets previously used to provide bundled sales service in the
pre-Order 636 era and are unsubscribed in the Order 636 environment.
Columbia Gulf has several pipelines and related facilities that are not
fully subscribed to under Order 636. Certain facilities south of Rayne,
Louisiana (primarily in the offshore Gulf of Mexico area), are being
evaluated; however, management has not identified any stranded facilities
at this time and the outcome of these evaluations is uncertain. Dependent
upon the results of such evaluation, charges to income could be required.
The net book value of the facilities under study was approximately $40
million at December 31, 1993. It is management's view that any costs
associated with these facilities will be fully recoverable through rates.
Order 94 Settlements
On January 12, 1994, the FERC granted requests for rehearing of prior
orders approving settlements between
32
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Columbia Transmission and four of its upstream pipeline suppliers relating
to those suppliers' direct billings to Columbia Transmission of the FERC's
Order 94 (Order 94) costs in the mid-1980s. The rehearing orders found
that the settlements must be rejected because they are expressly contingent
upon Columbia Transmission's recovery of the Order 94 settlement payments
from its customers and Columbia Transmission's 1985 PGA Settlement
essentially bars such recovery. The orders also hold that these pipelines
are not entitled to bill any Order 94 charges to Columbia Transmission.
The FERC ordered these upstream pipelines to refund the principal amounts
of all Order 94 collections from Columbia Transmission, but waived any
requirement that these pipelines pay interest on the refunds. Since
Columbia Transmission has been reflecting the interest income on these
refunds since 1990, these orders led to a $19.5 million reduction to
interest income in 1993. Columbia Transmission has sought rehearing and,
if necessary, will seek court review of these orders. It is expected that
pipeline suppliers will also request rehearing arguing their rights to
re-bill such charges to Columbia Transmission. The ultimate outcome of
this issue is uncertain at this time and could impact future operating
results depending upon the results of these additional regulatory and court
reviews.
Environmental Matters
Columbia Transmission and Columbia Gulf are subject to extensive federal,
state and local laws and regulations relating to environmental matters.
These laws and regulations, which are constantly changing, require
expenditures for corrective action at various operating facilities and
waste disposal sites for conditions resulting from past practices that
subsequently were determined to be environmentally unsound.
The transmission subsidiaries have received notice from the United States
Environmental Protection Agency (EPA) that they are among several parties
responsible under federal law for placing wastes at Superfund sites and may
be required to share in the cost of remediation of these sites. However,
considering known facts, existing laws and possible insurance and rate
recoveries, management does not believe the identified Superfund matters
will have a material adverse effect on future income or on the
Corporation's financial position.
The transmission subsidiaries are continuing their comprehensive review of
compliance with existing environmental standards, including review of past
operational activities and identification of potential site problems,
through site reviews and formulation of remediation programs where
necessary. The transmission subsidiaries have made progress in these
ongoing self- assessment programs. However, because of the thousands of
miles of pipeline which they operate, the exceptionally large number of
sites at which they conduct or have conducted operations, and the long
period over which operations have been conducted, completion of site
screenings, characterizations and site-specific remediations will require
approximately 10 to 12 years. All environmental agencies have been
declared exempt from the Bar Date established by the Bankruptcy Court for
claims by creditors.
A study for Columbia Transmission to quantify the scope of remediation
activities which will be undertaken in future years to address the issues
identified was recently concluded. This study, site investigations and
characterization efforts performed throughout 1993, resulted in total
accruals for the year of approximately $60 million for Columbia
Transmission. These and other minor adjustments bring Columbia
Transmission's recorded net liability to $143.6 million at December 31,
1993. This represents the lower end of the range of reasonable outcomes
with the upper end estimated to total approximately $280 million based on
information currently available.
As characterization and site-specific activities by Columbia Transmission
determine the nature and extent of contamination at its facilities and as
remediation plans are developed, additional charges to earnings could
occur. To the extent such plans require approval of federal and/or state
authorities, estimates are subject to revision. Based on the limited data
now available and various assumptions as to characterization and
remediation, management believes that annual future expenditures for
Columbia Transmission's site investigations, characterization and
remediation activities could be up to $20 million per year over a 10- to
12- year time frame. Since the transmission companies do not account for
their operations under SFAS No. 71, earnings will continue to be charged as
costs become probable and reasonably estimable, regardless of when
expenditures are made.
33
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
As a result of site characterization studies at various locations during
1993, Columbia Gulf recorded an additional accrual of $6.7 million for
environmental remediation. This accrual is for polychlorinated biphenyl
(PCB) cleanup and hydrocarbon spills at certain compressor station sites
and screenings for possible exposure at other locations. Columbia Gulf
anticipates completion of cleanup during 1994. At that time, costs of
remediation, if any, will be quantified, and an additional accrual may
become necessary.
In 1992, Columbia Transmission received a subpoena and information request
(Request) from the EPA Region III regarding three major environmental
statutes: The Toxic Substance Control Act (TSCA), the Resource
Conservation and Recovery Act (RCRA), and the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA). The Request relates to
Columbia Transmission's past and current environmental practices. Since
receipt of the Request, Columbia Transmission has provided the EPA with
substantial materials regarding the Request. Columbia Transmission
continues to meet with the EPA to attempt to resolve the subpoena issues,
including related fines and penalties, which it believes will be resolved
in the near future.
Columbia Transmission on January 28, 1994 received from EPA Region V an
Information Request pursuant to RCRA. The agency requested Columbia
Transmission to submit information and knowledge relating to its generation
and management of natural gas pipeline condensate, used engine oil and
similar liquids in the state of Ohio. Columbia Transmission is in the
process of analyzing the information requested and will be discussing this
Information Request with EPA Region V.
It is management's continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve
mutually acceptable compliance plans. However, there can be no assurance
that fines and penalties will not be incurred by Columbia Transmission and
Columbia Gulf.
The eventual total cost of full future environmental compliance for
Columbia Transmission and Columbia Gulf is difficult to estimate due to,
among other things: (1) the possibility of as yet unknown contamination;
(2) the possible effect of future legislation and new environmental agency
rules; (3) the possibility of future litigation; (4) the possibility of
future designations as a potentially responsible party by the EPA and the
difficulty of determining liability, if any, in proportion to other
responsible parties; (5) possible insurance and rate recoveries; and (6)
the effect of possible technological changes relating to future
remediation.
Management expects most environmental assessment and remediation costs to
be recoverable through rates or insurance. Although significant charges to
earnings could be required prior to rate recovery, management does not
believe that environmental expenditures will have a material adverse effect
on the Corporation's financial position based on known facts, existing laws
and regulations and the period over which expenditures are required.
Clean Air Act Amendments of 1990
Columbia Transmission and Columbia Gulf have completed preliminary studies
to determine the impact of the Clean Air Act Amendments of 1990 (CAA-90).
The studies focused on various compressor facilities for both companies.
The facilities are among those affected by the new nitrogen oxide emission
standards under CAA-90. It is estimated that capital expenditures
necessary to comply with these new standards could be in excess of $30
million over the next few years. However, due to the preliminary nature of
the studies, the uncertainty of individual state regulations and other
variables, the actual amount of future expenditures related to CAA-90 is
difficult to estimate. Management anticipates that all capital
expenditures made in compliance with CAA-90 will be recoverable through the
rate-making process. Operation and maintenance expenses, including
monitoring of emissions and permit fees, could approximate $5 million to
$10 million per year for the transmission companies.
Partnership Issues
Columbia Gulf is a general partner in the Trailblazer, Overthrust and Ozark
pipeline partnerships. Since these partnerships are nonrecourse
project-financed pipelines, the partnerships' firm shipper contracts were
assigned to various banks (or in the case of Ozark, to the Indenture
Trustee) as collateral for loans.
34
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Columbia Transmission and other shippers are attempting to negotiate exit
fees under Order 636 with the partnerships. As a result of these
negotiations and the current depressed demand for capacity in certain of
the partnerships, the realizability of these investments is uncertain, and
a valuation reserve of $5.4 million was established in 1993. It is not
expected that these issues will be resolved until late 1994. At December
31, 1993, Columbia Gulf's investment in the partnerships amounted to $35.4
million, net of the valuation reserve and before related deferred taxes.
Cove Point LNG Terminal
As previously reported, Columbia LNG Corporation (Columbia LNG) has
developed a new business plan to reactivate the Cove Point facility.
Originally this plan anticipated a new peaking and storage service by the
end of 1994, as well as a terminalling service for liquefied natural gas
(LNG) received by tanker. However, that plan has been modified to where
now only a peaking service will be offered initially. As a consequence,
Columbia LNG recorded a writedown in the carrying value of its investment
in the Cove Point facility in the second quarter 1993 that reduced the
Corporation's income by $37.9 million after-tax. This amount included
estimated dismantling costs for the offshore facilities of approximately
$12 million after-tax. Until transferred to the new partnership, as
discussed below, Columbia LNG plans to maintain the offshore facilities for
possible future imports and at the present time has no plans to abandon or
dismantle them.
A partnership between Columbia LNG and a wholly-owned subsidiary of Potomac
Electric Power Company was formed in October 1993. The partnership, which
is pursuing Columbia LNG's business plan filed an application with the FERC
on November 3, 1993, seeking authorization to acquire all of the existing
plant and pipeline facilities owned by Columbia LNG and for authorization
to recommission the plant and construct new facilities in order to provide
peaking services beginning in 1995. In addition to the FERC, this
transaction will require other governmental approvals. Bankruptcy Court
approval was received in January 1994.
The realization of the Corporation's remaining investment in Columbia LNG
of $10.1 million will be dependent upon successful implementation of the
partnership and the related business plan.
Volumes
Throughput for Transmission includes tariff sales and transportation
service to local distribution companies (LDCs) and other customers in
Columbia Transmission's market area, Columbia Gulf's main line
transportation service from Louisiana to West Virginia and Columbia Gulf's
short-haul transportation service primarily from the Gulf of Mexico to
Rayne, Louisiana. Transmission's throughput in 1993 was 1,355.9 Bcf, a
decrease of 18.4 Bcf from 1992. In 1992, throughput increased 144.8 Bcf
over 1991 to 1,374.3 Bcf.
A decrease of 13.1 Bcf in market area transportation between 1993 and 1992
was due primarily to the one-time arrangement in 1992 in which customers
used market area transportation to repay certain gas delivered to them
during the 1990 - 1991 winter season by Columbia Transmission. Throughput
losses not associated with prior period activity also occurred primarily
due to competition from other pipelines that began operating under Order
636 (or a modified version thereof) earlier this year. As expected, this
load loss began to reverse following Columbia Transmission's implementation
of Order 636 in November 1993, when its transportation rates became more
competitive. This effect was partially offset by a throughput improvement
resulting from customers using firm transportation services for delivering
gas withdrawn from storage during 1993. In 1992, customers' increased use
of Columbia Transmission's firm storage service (FSS) led to an increase of
59.1 Bcf in market area transportation from the year before.
Columbia Gulf's 1993 mainline transportation service increased 5.6 Bcf from
1992 and between 1992 and 1991 increased by 38.9 Bcf. These increases
primarily reflect additional transportation services for customers to move
gas to Columbia Transmission's storage under its FSS agreement and to meet
their supply requirements. Prior to the implementation of Order 636, a
portion of Columbia Gulf's mainline capacity was reserved for Columbia
Transmission's use for deliveries to LDCs and other markets. Beginning on
November 1, 1993, however, Columbia Gulf's capacity was assigned to LDCs
and end users.
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Short-haul transportation has been increasing in recent years, reflecting
additional arrangements made by marketers and customers for delivery of
lower-priced spot market gas. In 1993, short-haul transportation was
essentially unchanged from last year and reflected an increase of 60.3 Bcf
between 1992 and 1991.
Sales volumes for 1993 decreased 12.3 Bcf from 1992 due primarily to the
implementation of Order 636. This decrease was partially offset by colder
weather in the current period and the timing of prepaid gas sales.
Comparing 1992 to 1991, sales increased 83.4 Bcf reflecting 10 percent
colder weather, timing changes for prepaid gas sales and Columbia
Transmission's competitive market-sensitive commodity rate, that resulted
from the rejection in Bankruptcy Court of noncompetitive above-market gas
purchase contracts.
Net Revenues
Transmission's 1993 net revenues of $841.5 million increased $80.1 million
over 1992. Included in 1993's net revenues are $20.3 million associated
with the recovery through Columbia Transmission's WACOG surcharge, as
discussed previously, and GIC revenues of $20.8 million. 1992 GIC revenues
were $20.9 million. The GIC mechanism allowed Columbia Transmission to
charge a fee to customers whose purchases fell below a pre-determined level
provided Columbia Transmission's cost of gas meets a comparability test
with competing pipelines. Also improving 1993 net revenue was an
adjustment to rate refund reserves and the favorable effect of normal
weather. These effects combined with the benefit of the full year effect
of Columbia Transmission's new rate design where a greater portion of its
fixed costs are recovered through a monthly demand charge more than offset
the recording of a loss on the sale of storage inventory.
Net revenues for 1992 increased to $761.4 million, up $126.9 million over
1991 principally reflecting improved rate design together with higher
throughput and GIC revenues.
Operating Income (Loss)
Operating income for 1993 of $178.7 million, increased $48.8 million over
1992. Higher net revenues together with a 1992 provision for gas supply
costs combined to more than offset the effect of recording a second quarter
1993 writedown of $57.5 million for the investment in the Cove Point LNG
facility (See Note 12F in Notes to Consolidated Financial Statements for
more information). Additional reserves for environmental costs of $66.8
million and $65.3 million were recorded in 1993 and 1992, respectively.
After adjusting for these and other unusual items, operating income would
have increased $37.8 million. These improvements more than offset higher
operating expenses, including increased labor and benefits costs due in
part to employee severance costs. These costs resulted from reengineering
Transmission's operations to improve the segment's efficiency and
effectiveness in the increasingly competitive natural gas industry.
Transmission's 1992 operating income of $129.9 million compares to a loss
of $1,192.2 million for 1991. The principal reason for the increase was
the 1991 provision for gas supply charges of $1,319.2 million. After
adjusting for bankruptcy and other unusual items, Transmission's operating
income would have improved $62.1 million in 1992 over 1991, due to
increased throughput and rate design changes.
36
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
STATEMENTS OF OPERATING INCOME FROM TRANSMISSION OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1993 1992 1991
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES
Sales revenues $1,027.2 $924.8 $ 609.2
Less: Cost of gas sold 724.9 654.4 391.0
---------------------------------------------------------------------------------------------------------------------------
Net Sales Revenues 302.3 270.4 218.2
---------------------------------------------------------------------------------------------------------------------------
Transportation revenues 633.2 449.0 430.8
Less: Associated gas costs 219.3 71.7 104.0
---------------------------------------------------------------------------------------------------------------------------
Net Transportation Revenues 413.9 377.3 326.8
---------------------------------------------------------------------------------------------------------------------------
Storage Revenues 125.3 113.7 89.5
---------------------------------------------------------------------------------------------------------------------------
Net Revenues 841.5 761.4 634.5
---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Provision for gas supply charges - 38.6 1,319.2
Operation and maintenance 451.3 438.3 357.7
Depreciation 97.8 95.6 90.4
Other taxes 56.2 59.0 59.4
Writedown of investment in Columbia LNG Corporation 57.5 - -
---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 662.8 631.5 1,826.7
---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $ 178.7 $129.9 $(1,192.2)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
TRANSMISSION OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES ($ in millions) 137.2 114.2 152.9 279.5 189.5
--------------------------------------------------------------------------------------------------------------
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area 895.9 909.0 849.9 799.5 823.3
Columbia Gulf
Main-line 579.9 574.3 535.4 613.3 576.4
Short-haul 625.1 625.0 564.7 497.4 387.4
Intrasegment eliminations (928.7) (930.0) (833.1) (810.7) (647.4)
--------------------------------------------------------------------------------------------------------------
Total Transportation 1,172.2 1,178.3 1,116.9 1,099.5 1,139.7
Sales 183.7 196.0 112.6 89.2 408.2*
-------------------------------------------------------------------------------------------------------------
Total Throughput 1,355.9 1,374.3 1,229.5 1,188.7 1,547.9
--------------------------------------------------------------------------------------------------------------
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot market 148.5 66.3 1.9 20.1 1.1
Producers 65.3 106.7 152.3 227.7 232.0
Pipelines 1.9 - 0.5 4.7 16.0
Storage withdrawals (injections) 1.3 25.1 24.5 (175.6) 184.6
Exchange (2.2) 32.1 (37.8) 17.5 (14.5)
Other (31.1) (34.2) (28.8) (5.2) (11.0)
--------------------------------------------------------------------------------------------------------------
Total Sources of Gas Sold 183.7 196.0 112.6 89.2 408.2
Gas received for delivery
to customers 1,172.2 1,178.3 1,116.9 1,099.5 1,139.7
-------------------------------------------------------------------------------------------------------------
Total Sources 1,355.9 1,374.3 1,229.5 1,188.7 1,547.9
-------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes 116 billion cubic feet applicable to the sale of storage
inventory gas.
38
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
DISTRIBUTION OPERATIONS
Market Conditions
For the first time in four years, weather in the market area served by the
distribution companies (Distribution) was colder than normal. Weather was
only 1 percent colder than normal but 3 percent colder than last year, and
resulted in a 7.7 Bcf improvement in Distribution's weather sensitive
deliveries. In addition, relatively strong economic conditions throughout
Distribution's service territory, low interest rates, strong new housing
starts in several key market areas, and moderate unemployment, enabled
Distribution to add about 28,000 net residential and commercial customers
during the year, a 1.5 percent growth rate that tracks last year's growth
and compares favorably with the national average. Transportation
deliveries in 1993 increased 13.8 Bcf, 6.8 percent over 1992, reflecting
strong electric power generation demand and increasing industrial activity.
Distribution's electric competitors continue to pursue well-organized,
heavily funded strategic initiatives targeting markets such as space and
water heating. Electric companies in Distribution's markets are using a
variety of aggressive measures such as equipment leasing programs, rebates
and promotional incentives to make marketing inroads. These marketing
efforts have resulted in a reduction of approximately 0.6 percent in
Distribution's space heating load as a result of electric add-on heat pump
penetration and a 1.4 percent reduction in gas water heating saturation
since 1987. As a result, Distribution has been countering with its own
strategic programs such as equipment leasing, targeted advertising and
promotional activity that is designed to bolster Distribution's core
marketing and counter these negative competitive impacts.
Distribution's marketing strategy is to augment ongoing development of its
core residential, commercial, and industrial markets by pursuing
opportunities to develop new markets for natural gas in the areas of
natural gas vehicles (NGV), electric power generation and gas cooling.
Distribution is a leading participant in the gas industry's efforts to
promote NGVs as alternatives to conventionally fueled fleet and mass
transit vehicles. In March 1993, Columbia Gas of Ohio, Inc. (COH) opened
the nation's largest publicly accessible NGV fueling station in Columbus,
Ohio. Distribution operates five other publicly accessible stations and is
initiating a five-year program to establish approximately 100 additional
publicly accessible fueling sites throughout its service territory.
Distribution is also committed to maximizing the number of NGVs in its own
fleet over the next several years to approximately 2,500, and continues to
work with commercial and industrial prospects to assist them in evaluating
NGVs for fleet applications.
Distribution's concentration on public sector initiatives is also yielding
results. Recently, Virginia enacted laws to provide tax credits and
reduced fuel taxes for alternative fuel vehicles (AFV) as well as require
federal Clean Fuel Fleet programs in two areas beyond requirements of
federal law. Pennsylvania established a $3.5 million fund to provide up to
a 60 percent grant for purchases of AFVs and AFV filling equipment.
Pending are initiatives in Kentucky to exempt NGVs from motor fuel testing
and a proposal in Ohio to provide partial sales and use tax exemptions for
the purchase of AFVs and filling equipment.
Distribution continues to actively pursue the developing power generating
market. Distribution currently serves 15 power generation and cogeneration
facilities which consume about 30 Bcf of natural gas each year. CAA-90
offers significant new opportunities to promote the use of natural gas for
electric power generation. Commonwealth Gas Services, Inc. (COS) reached
agreement with Gordonsville Energy Limited Partnership to transport gas for
a new combined cycle generating plant which will produce electric power for
a Virginia utility beginning in mid-1994 which is expected to use
approximately 3.0 Bcf of gas annually. Distribution is currently working
with five additional prospects, both existing and new electric power
generating plants, that may want to use natural gas in order to comply with
the CAA-90 by the year 2000.
39
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Distribution's customers operate commercial and industrial cooling and
refrigeration systems with a capacity of approximately four million refrigerant
tons. Less than one percent of this cooling and refrigeration load, roughly
0.2 Bcf, is currently served by gas cooling equipment. Distribution is
aggressively pursuing this market. With improved gas cooling equipment, rising
peak electric costs and concerns about the environmental effects of
chlorofluorocarbon refrigerants, Distribution has an opportunity to add
significant load in the summer months when demand for gas is relatively low.
The GRI estimates that 30-50 percent of this market could be served
economically with gas cooling systems. Sales of gas cooling equipment in
Distribution's service territory increased tenfold in 1993 to 3,096 refrigerant
tons, or about 1.5 percent of total new and replacement equipment sales and 6
percent of large tonnage chiller sales.
Rate Cases
During 1993, Distribution filed two rate cases. COS filed an expedited rate
case for a $3.5 million annual revenue increase, seeking recovery of increased
operating expenses and a return on additional plant investments since COS' 1992
general rate case. A final order in this expedited proceeding is expected by
June 1994.
The Virginia State Corporation Commission (VSCC) in October 1993, issued an
order resolving COS' 1992 general rate case. While the VSCC provided a
favorable increase in annual revenues of $5.6 million, a 4.5 percent increase,
it did not adopt an array of regulatory reform proposals advanced by COS that
included establishing rates based on a fully projected test year and a weather
normalization clause.
In October 1993, the Maryland Public Service Commission approved a rate
settlement for Columbia Gas of Maryland, Inc. (CMD) that provided for a
two-step increase in annual revenues of $2.2 million beginning October 1993,
implementation of a weather normalization adjustment effective with the winter
season which began November 1993, as well as full recovery of postretirement
medical benefit costs.
In contrast to 1993, Distribution's rate activity for 1994 is expected to
accelerate and may involve up to four general rate cases to recover increasing
costs. Columbia Gas of Pennsylvania, Inc. (CPA) filed a rate case in early
1994 and filings are tentatively scheduled in Ohio for the first quarter and in
Virginia and Kentucky on or about May 1. Distribution's total revenue request
could range between $90 and $100 million or roughly 5 percent of its total
revenue. Even though these filings are scheduled early in the year, new rates
will not be effective until the fourth quarter of 1994 or later. All filings
will incorporate the regulatory initiatives currently being pursued by
Distribution and addressed below.
Strategic Regulatory Issues
Distribution continues to actively pursue an array of regulatory reform
initiatives designed to overcome regulatory barriers in the increasingly
competitive Order 636 era. It is advocating a comprehensive package of new
services, increased revenue levels and incentive rate mechanisms. Specific
elements include the use of enhanced projected ratemaking and cost deferral
mechanisms to mitigate adverse timing lags, cost containment and enhanced
customer service and supply initiatives, and revenue stabilization mechanisms
to mitigate the effects of unusual weather conditions and take into account
typical increases in operation and maintenance expenses and capital
expenditures without resorting to time consuming and costly general rate case
proceedings.
While no state commission has yet adopted Distribution's comprehensive reform
package, Distribution has made notable strides in some of its jurisdictions,
including the innovative settlement in Maryland mentioned above reflecting many
elements of its comprehensive initiative. In Ohio, COH has been involved in
proposed legislation that provides utilities the option of filing rate cases on
a fully projected test year basis. In Pennsylvania, CPA is supporting a number
of the Public Utility Commission's (PUC) recently announced initiatives aimed
at providing more regulatory responsiveness and flexibility, specifically,
recognizing in rates construction work in progress for certain investments
placed in service after the ratemaking test year.
40
<PAGE> 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FERC Order 636
Distribution successfully began the transition into the new environment created
by Order 636. All of the requirements mandated by the Order have been
implemented by Distribution's interstate pipeline suppliers and thus far
operations have been running smoothly despite the much colder than normal
weather experienced in early 1994. Over the next several years, additional
pipeline filings and related FERC orders, addressing the recovery of pipeline
transition costs stemming from Order 636, are expected. However, based on
current estimates of these transition costs and indications from state
commissions, management does not expect the transition costs to have a
significant adverse impact on Distribution's earnings or customer rates.
Gas Supply
Distribution has developed supply arrangements and operating plans and has
aggregated gas supplies to meet market needs in a flexible, cost- effective
manner. Distribution entered the 1993-94 winter heating season with storage
inventory near maximum levels and with a short-term purchasing/operating plan
designed to fully satisfy firm retail and standby service obligations during
periods that are up to ten percent colder than normal. Early operating
experience during the extreme cold weather conditions of mid-January 1994, when
peak design conditions were met or exceeded over the course of two consecutive
days, thoroughly tested Distribution's capabilities. Throughout this
extraordinary period of record-setting peak demands, Distribution's facilities
maintained deliveries and adequate gas supplies were available. Beyond a few
isolated operating problems and certain brief limitations on customers who
elected to contract for interruptible service, reliable customer service was
maintained.
Environmental Matters
Distribution has initiated a comprehensive environmental program designed to
ensure complete and prompt compliance with all state and federal environmental
requirements. As part of this program, Distribution is continuing the process
of conducting an environmental assessment of its sites and evaluating
procedures. The assessment and evaluation process will continue over the next
three to five years.
Distribution's primary environmental issues relate to former manufactured gas
plant sites. Currently, Distribution has identified twelve former gas plant
sites that it either owned or acquired through facility purchases.
Environmental investigations are being conducted at five of these sites and
remedial action may be required. Investigations will be conducted at a number
of the other sites in the near future. Manufactured gas plant sites currently
being investigated include areas in York and Bellefonte, Pennsylvania, and
Portsmouth, Petersburg and Lynchburg, Virginia. (See Note 12H of Notes to
Consolidated Financial Statements for additional information regarding these
sites.)
To the extent site investigations have been completed, remediation plans
developed and any Distribution responsibility for remedial action established,
the appropriate liability has been recorded. As additional investigations are
completed and remediation costs become probable, the appropriate liability will
be recorded. As of December 31, 1993, the distribution subsidiaries recorded
net liabilities of $5.9 million for environmental matters. Management
anticipates recovery of remediation costs through normal rate proceedings.
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions (OPEB)
Management anticipates that full rate recovery of its accrued OPEB costs in all
states is likely, based on the state commissions' awareness of this issue and
favorable generic policy decisions in a number of jurisdictions coupled with
Distribution's cost management efforts and plans to fully fund all
postretirement benefits allowed in rates in irrevocable trust arrangements.
The present value of the postretirement benefit obligation to be paid to
current and retired employees for all the distribution subsidiaries amounts to
approximately $143.2 million as of December 31, 1993. Of this amount, $138.1
million has been deferred as a regulatory asset pending anticipated recovery
through rates in various jurisdictions.
41
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board issued guidelines establishing criteria for recording such a regulatory
asset, including a requirement for collection of accrual basis expense in rates
and recovery of the transition obligation within approximately 20 years. These
criteria are not necessarily being adopted by the public utility commissions
regulating the distribution subsidiaries. Differences in requirements between
the accounting rules and the ratemaking decisions ultimately adopted can result
in a writedown of some or all of this regulatory asset. The distribution
subsidiaries have implemented cost containment measures designed to reduce
their OPEB obligations. In addition to other measures, employees will be
required to share a portion of their postretirement health benefit costs and
guidelines have been established redefining years of service requirements
before an employee is eligible for retiree health benefits. Other cost-saving
plans are being reviewed for consideration in an ongoing effort to effectively
manage OPEB costs.
Integrated Resource Planning
Integrated Resource Planning (IRP) combines the concepts of supply side and
demand side management (DSM). The DSM component of IRP generally deals with
programs to reduce customer demand, particularly during peak demand periods,
and thereby reduce the need to construct or acquire additional supply capacity.
The supply side component of IRP generally involves the evaluation of supply
options, including the acquisition of supply from alternative sources or supply
arrangements.
IRP was first implemented for electric utilities by state utility commissions
because of the major investments required to add new electric generating
capacity and the resultant impact of these investments on customer rates.
However, state commissions in Distribution's market area are now actively
considering the adoption of natural gas IRP programs. Distribution generally
regards this as a positive development since it provides a more balanced
competitive situation between gas and electric utilities. Distribution has
significant concerns that electric DSM programs, if not properly controlled by
state regulators, could result in ratepayer-financed marketing programs and
incentives that would inappropriately influence long-term purchases committing
customers to electric use.
The proper development of gas IRP programs should enable Distribution to
continue to compete for new load and replacement appliances and equipment to
improve system load factors and operating economics. However, certain
significant competitive concerns remain because electric utilities can
generally support higher incentives for customers to purchase certain electric
appliances because it is far more expensive to expand electric generating
capacity than to expand gas distribution capacity to deliver the same quantity
of useful energy. Also, most commissions have been reluctant to deal with the
relative environmental impacts of using natural gas versus coal, oil or nuclear
generated electric power for residential and commercial end uses, which would
result in reduced overall emissions and provide higher incentives for gas
usage.
Distribution's IRP efforts are designed to encourage state regulators to deal
with utility IRP programs on a comprehensive basis. Distribution believes that
under such an approach, commissions are more likely to recognize the many
significant advantages of using natural gas rather than electricity for most
residential and commercial and many industrial end uses or at a minimum, work
to maintain more competitive parity between gas and electric rates.
Distribution is working aggressively to communicate the many advantages of a
comprehensive approach to IRP.
Volumes
Throughput for 1993 totaled 509.8 Bcf, a 23.1 Bcf increase over 1992. Higher
transportation deliveries of 13.8 Bcf were due mainly to increased usage by
power generating facilities in Virginia and Pennsylvania. The 9.3 Bcf increase
in tariff sales volumes reflects higher customer usage due primarily to 3
percent colder weather and the net addition of approximately 28,000 customers.
Distribution's throughput for 1992 increased 30.3 Bcf over 1991 after adjusting
for the 1991 sale of a New York subsidiary. Despite 1992 being 2 percent
warmer than normal, it was still 10 percent colder than the prior year.
42
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
This colder weather and the net addition of 28,000 new customers led to higher
sales volumes. Transportation volumes also increased in 1992 due largely to
increased deliveries to power-generating facilities as well as other customers
using this service to meet their supply requirements.
Net Revenues
For the year ended December 31, 1993, net revenues of $726 million reflected an
increase of $29.5 million over the same period last year. Increased throughput
generated $18.7 million of this improvement. Additionally, new rates in effect
during 1993 in Virginia and Maryland and the full year impact of rates placed
in effect in 1992 combined to generate $7.6 million with revenues for fixed
charges from new customers accounting for most of the remaining $3.2 million
increase.
Colder weather was the principal reason for 1992's net revenues increasing to
$696.5 million. After adjusting for the sale of the New York subsidiary in
1991, the net revenues in 1992 represented an increase of $62 million over
1991. The full year effect of favorable rate settlements in all of
Distribution's operating areas also contributed to the higher net revenues.
Operating Income
Operating income improved $8.7 million over the previous year. Higher net
revenues of $29.5 million were partially offset by increased operating expenses
of $20.8 million. An $8.8 million increase in operation and maintenance
expense reflecting wage increases, additional personnel requirements associated
with the implementation of Order 636, as well as the filling of certain
vacancies that had been deferred and higher lease costs for the Columbus, Ohio
headquarters building were the primary reasons for the increase. Additionally,
costs for the streamlining of corporate service functions and studies underway
to enhance customer service also contributed to the increase. These increases
were partially offset by a $4.2 million charge recorded in 1992 for COS OPEB
costs. Depreciation expense increased $4.7 million primarily reflecting plant
additions, while increased gross receipts taxes and property taxes of $7.3
million were attributable to higher taxable revenues and plant additions.
After adjusting for the sale of the New York subsidiary, operating income in
1992 of $137.7 million increased $27 million over 1991 as higher net revenues
were partially offset by increased operating expenses. Increased operating
expenses of $558.8 million resulted primarily from higher labor and benefit
costs and the effect of regulatory lag that resulted in only a portion of
increased costs being recovered through rates.
43
<PAGE> 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
STATEMENTS OF OPERATING INCOME FROM DISTRIBUTION OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1993 1992 1991*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES
Sales revenues $1,754.0 $1,574.2 $1,466.9
Less: Cost of gas sold 1,098.6 945.3 882.2
- ---------------------------------------------------------------------------------------------------------------
Net Sales Revenues 655.4 628.9 584.7
- ---------------------------------------------------------------------------------------------------------------
Transportation revenues 76.7 73.4 66.6
Less: Associated gas costs 6.1 5.8 5.8
- ---------------------------------------------------------------------------------------------------------------
Net Transportation Revenues 70.6 67.6 60.8
- ---------------------------------------------------------------------------------------------------------------
Net Revenues 726.0 696.5 645.5
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 391.5 382.7 353.9
Depreciation 62.3 57.6 60.5
Other taxes 125.8 118.5 116.2
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 579.6 558.8 530.6
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 146.4 $ 137.7 $ 114.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes Columbia Gas of New York, Inc. through March 31, 1991.
44
<PAGE> 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
DISTRIBUTION OPERATING HIGHLIGHTS*
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES 117.8 99.7 98.0 107.0 119.7
($ in millions)
- ---------------------------------------------------------------------------------------------------------------
THROUGHPUT (Bcf)
Sales
Residential 194.7 186.2 178.4 173.5 201.5
Commercial 83.4 81.8 78.3 76.8 85.0
Industrial 14.0 14.8 10.8 16.6 16.4
Other 0.2 0.2 0.2 0.2 1.1
- ---------------------------------------------------------------------------------------------------------------
Total 292.3 283.0 267.7 267.1 304.0
Transportation 217.5 203.7 194.7 198.6 184.4
- ---------------------------------------------------------------------------------------------------------------
Throughput 509.8 486.7 462.4 465.7 488.4
- ---------------------------------------------------------------------------------------------------------------
SOURCES OF GAS FOR THROUGHPUT
(Bcf)
Sources of Gas Sold
Spot market** 142.3 169.9 113.9 140.6 167.8
Producers 56.9 57.1 64.4 40.4 22.6
Pipelines 118.4 84.0 68.2 51.7 203.9
Storage withdrawals
(injections) (6.7) (10.7) 11.4 38.1 (75.5)
Other (18.6) (17.3) 9.8 (3.7) (14.8)
- ---------------------------------------------------------------------------------------------------------------
Total Sources of Gas Sold 292.3 283.0 267.7 267.1 304.0
Gas received for delivery
to customers 217.5 203.7 194.7 198.6 184.4
- ---------------------------------------------------------------------------------------------------------------
Total Sources 509.8 486.7 462.4 465.7 488.4
- ---------------------------------------------------------------------------------------------------------------
CUSTOMERS
Residential 1,737,609 1,711,946 1,686,918 1,724,281 1,693,914
Commercial 164,037 161,937 160,378 165,144 161,864
Industrial 2,280 2,358 2,342 2,400 2,334
Other 22 24 24 20 26
- ---------------------------------------------------------------------------------------------------------------
Total 1,903,948 1,876,265 1,849,662 1,891,845 1,858,138
- ---------------------------------------------------------------------------------------------------------------
DEGREE DAYS 5,677 5,507 4,998 4,783 5,971
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes Columbia Gas of New York, Inc. through March 31, 1991.
** Reflects volumes under purchase contracts of less than one year.
45
<PAGE> 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
OTHER ENERGY OPERATIONS
Cogeneration
Independent power production continues to be a growth area for natural gas.
The Corporation is involved in several cogeneration projects through TriStar
Ventures Corporation (TriStar), a wholly-owned subsidiary. Projects in
operation or under construction total nearly 300 megawatts in which TriStar
holds various interests. Three cogeneration facilities are now operating; a
117-megawatt facility in Pedricktown, New Jersey, a 50-megawatt plant in
Binghamton, New York and an 85-megawatt plant in Rumford, Maine. Natural gas
is delivered to the Binghamton and Pedricktown facilities by Columbia
Transmission. These three projects generated $5.8 million and $4.5 million of
income before interest and income taxes in 1993 and 1992, respectively. A
47-megawatt plant near Vineland, New Jersey is scheduled to begin operations in
mid-1994. TriStar and its partners also have other projects in various stages
of development. Value is also generated from the projects for the transmission
subsidiaries of the Corporation who benefit from increased throughput while the
oil and gas segment has increased sales opportunities.
TriStar was participating in the development of a 56-megawatt plant in
Washington, D.C. on which construction had been delayed pending regulatory
review and approval. On October 13, 1993, processing of the building permit
was suspended indefinitely by the District of Columbia. This action combined
with numerous regulatory delays, caused the project to become financially
nonviable. Accordingly, TriStar and its partner halted efforts to build the
project and TriStar wrote off its net investment in the project of $3.1 million
after-tax. On November 1, 1993, the partnership filed an $80 million lawsuit
in federal court against the District of Columbia and certain District
officials.
Propane
During 1993, propane sales by Columbia Propane Corporation and Commonwealth
Propane, Inc., totaled 58.1 million gallons, a decrease of 8 percent from the
previous year. The propane companies serve approximately 68,000 customers in
parts of Maryland, North Carolina, Ohio, Pennsylvania, Virginia and West
Virginia. The companies are focusing their sales efforts on the higher-margin
residential segment.
Coal Operations
The Corporation has in excess of 500 million tons of coal reserves.
Approximately 50 percent of the reserves, much of which contain less than one
percent sulfur, are leased to other parties for development.
Environmental Matters
The Columbia Gas System Service Corporation (Service Corporation) received a
"General Notice of Potential Liability and CERCLA Section 104(2) Request for
Information" concerning a process site to which the Service Corporation sent
certain solvents. This notice was sent to in excess of 100 parties requesting
information about any involvement with the owner of the site or the site
itself. Management has furnished the information requested and does not
believe this Superfund matter will have a material adverse effect on future
income or on the Corporation's financial position.
Net Revenues
Propane sales to wholesale and industrial customers have been decreasing over
the past few years due to unacceptable margins while, to a lesser extent, sales
to higher-margin residential customers have been increasing. As a result of
this strategy, total sales volumes have decreased, but net sales revenues have
been rising. This change led to net sales revenues of $29.8 million in 1993,
an increase of $2.5 million, and in 1992 an increase of $700,000 compared to
the year earlier. Increases in revenues resulting from gas marketing
activities were largely offset by increased products purchased expense.
Revenues in 1993 from services provided to affiliates and coal royalties
resulted in an increase in other revenues of $3.1 million, to $73.4 million,
from the prior year. Other revenues in 1992 of $70.3 million, were $5.2
million
46
<PAGE> 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
lower than the year earlier primarily because a decrease in revenues from
affiliate companies more than offset higher coal royalty revenues.
Operating Income
The net revenue increase of $5.6 million was more than offset by $10.7 million
higher operating expenses primarily reflecting increased labor and benefits
costs that included employee severance costs recorded in 1993. The 1992 net
revenue decline of $4.5 million compared to 1991 was more than offset by
reduced operating expenses of $6.4 million, resulting from lower labor and
benefits costs in 1992 due to a reduction in the number of employees and a
charge in 1991 for employee severance costs.
STATEMENTS OF OPERATING INCOME FROM OTHER ENERGY OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES
Sales revenues $233.0 $133.5 $121.0
Less: Products purchased 203.2 106.2 94.4
- ---------------------------------------------------------------------------------------------------------------
Net Sales Revenues 29.8 27.3 26.6
Other revenues 73.4 70.3 75.5
- ---------------------------------------------------------------------------------------------------------------
Net Revenues 103.2 97.6 102.1
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 90.8 80.8 87.6
Depreciation and depletion 5.9 4.9 4.0
Other taxes 4.8 5.1 5.6
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 101.5 90.8 97.2
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 1.7 $ 6.8 $ 4.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER ENERGY OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES ($ in millions) 11.2 15.0 10.2 14.1 16.4
- ---------------------------------------------------------------------------------------------------------------
PROPANE
Gallons sold (millions) 58.1 63.3 70.5 74.4 75.2
Customers 67,895 65,899 64,618 63,546 62,707
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
CONSOLIDATED REVIEW
Net Income
The Corporation reported net income for 1993 of $152.2 million, or $3.01 per
share, compared to $51.2 million, or $1.01 per share in 1992. After adjusting
for the unusual and bankruptcy related items detailed below, 1993 net income of
$155.1 million was up $56.4 million over the prior year. The oil and gas,
transmission and distribution segments all experienced improved results in
1993. These improvements resulted from increased throughput, the full year
effect of a new rate design implemented by the transmission companies as well
as lower depletion expense, higher prices for gas production and increased oil
and gas production for the oil and gas segment. The distribution segment's
results improved because the weather was 3 percent colder than 1992 and because
of higher transportation volumes.
Unusual and Bankruptcy Related Items
After-tax Effect on Net Income
<TABLE>
<CAPTION>
($ in millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. Estimated interest costs not recorded for prepetition debt 138.1 148.5
. Professional fees and related expenses (25.6) (29.2)
. Interest earned on prepetition obligations 25.9 17.7
. Oil and Gas writedown - (83.4)
. Writedown of the investment in Columbia LNG (37.9) -
. Extraordinary charge - (39.7)
. Proposed IRS settlement (44.3) -
. Environmental accruals (45.0) (40.9)
. Gas inventory charge and WACOG revenues* 26.7 13.1
. Provision for gas supply charges - (24.2)
. Adjustment for FERC order on pipeline direct billings (12.6) -
. Other unusual items (28.2) (9.4)
- ---------------------------------------------------------------------------------------------------------------
Total (2.9) (47.5)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects charges that are allowed to be collected by Columbia Transmission to
recover costs when it meets certain competitive tests for its commodity sales
rate or cost of gas.
Operating Income by Segment
The oil and gas segment had operating income of $53.6 million in 1993, compared
to an operating loss of $101.2 million in 1992. The prior period loss was
mainly due to a writedown of $126.4 million in the carrying value of oil and
gas assets due to low energy prices. Lower depletion expense, higher gas
prices and increased oil and gas production also contributed to the current
period increase and were only partially offset by lower oil and liquids prices
and the recording of a reserve for a royalty dispute with the MMS. The average
gas price in 1993 was $2.28 per Mcf, up $0.26 per Mcf over last year, whereas
the average price for oil and liquids decreased to $16.17 per barrel, down
$2.03 per barrel from 1992. Oil and gas production for 1993 of 3,603,000
barrels and 71.5 Bcf, increased 542,000 barrels and 2.3 Bcf, respectively, over
last year.
The transmission segment's 1993 operating income of $178.7 million, up $48.8
million, reflected a significant improvement over the 1992 level. After
adjusting for the pre-tax effect of the unusual items, operating income
increased $37.8 million over 1992. Included in these unusual items are
increased revenues from GIC and WACOG
48
<PAGE> 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
revenues Columbia Transmission is permitted to recover from its customers when
it met certain competitive tests with other pipelines. These sources of
revenue were unique to Columbia Transmission's merchant function which was
essentially eliminated under Order 636. After adjusting 1992 throughput for a
customer exchange arrangement, throughput improved resulting in higher
revenues. This effect together with the full year effect in 1993 of Columbia
Transmission's new rate design were the principal reasons for the $37.8 million
improvement. Under this new rate design, a greater portion of fixed costs are
collected through a monthly demand charge rather than the commodity charge
where they are susceptible to weather fluctuations. Gas costs continue to be
recovered through commodity charges. Also contributing to the 1993 improvement
over 1992 was approximately $15 million of additional expense recorded in the
prior period for settlements with a supplier.
Weather in the distribution segment's service areas was 3 percent colder than
1992. The colder weather helped raise 1993 operating income to $146.4 million,
an increase of $8.7 million over 1992. Improved recovery of costs through
higher rates in effect in Virginia and Maryland contributed to the increase.
Mitigating these improvements were higher operating expenses that included
increases in labor and benefits expense and costs associated with streamlining
corporate service functions and studies underway to enhance customer service.
Other energy operations had operating income of $1.7 million, a decrease of
$5.1 million compared to 1992. The reduction primarily reflects recording $6.3
million for costs associated with the Service Corporation's reengineering
program.
Revenues
Operating revenues for 1993 of $3,391.2 million, increased more than 16 percent
from the year earlier largely due to the full year effect of Columbia
Transmission's new rate design, pipeline exit fees of $130 million for Columbia
Transmission, higher retail sales resulting from colder weather during 1993 and
higher distribution rates. In addition, Columbia Transmission's WACOG
revenues, sale of storage to customers, higher gas prices and increased oil and
gas production also contributed to the improvement. Revenues associated with
pipeline exit fees were offset in products purchased expense and had no effect
on income.
Operating revenues for 1992 increased $345.2 million over 1991 to $2,922
million due to a combination of higher sales volumes as a result of colder
weather, the full year effect of higher distribution rates and Columbia
Transmission's new rate design and more competitive sales rate.
Expenses
Over the last three years, higher sales necessitated an increase in volumes of
gas purchased resulting in an increase in products purchased expense of $337.6
million in 1993, compared to 1992, and $180.4 million for 1992 over 1991. In
addition, higher average rates for gas purchased, particularly spot market
purchases, also contributed to the increase in 1993. Higher expense for
pipeline exit fees were offset in revenues as mentioned above.
In 1992, Columbia Transmission anticipated only a minimal merchant function
would be offered when Order 636 was implemented in November 1993; therefore, a
provision for gas supply charges of $38.6 million was recorded to reflect a
writedown of certain capitalized gas costs in excess of amounts to be amortized
in 1993.
Higher labor and benefits expense in 1993, which included $14.8 million for
severance costs associated with reengineering many of the System functions to
gain efficiencies and improve competitiveness, together with rising operating
costs led to higher operation and maintenance expense of $26.5 million.
Partially offsetting these increases was higher expense in 1992 for certain
supplier settlements by Columbia Transmission. Raising expense in both 1993
and 1992 were environmental costs of $66.8 million and $65.3 million,
respectively.
The higher environmental costs recorded in 1992 and increased labor and
benefits expense of Columbia Transmission
49
<PAGE> 50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
were the primary reasons for the $111.3 million increase in operation and
maintenance expense over 1991. Additional expenses in 1992 associated with
certain producer settlements also contributed to the increase.
Due to depressed energy prices in early 1992, a writedown was recorded of
$126.4 million in the carrying value of oil and gas properties. This was the
principal reason for the $128.3 million decrease in 1993 in depreciation and
depletion expense. The significant increase in depreciation and depletion
expense of $83.1 million in 1992 over 1991 was also the result of this
writedown, which was partially offset by writedowns for the Canadian oil and
gas properties in 1991.
Income Taxes
As detailed in Note 5 of Notes to Consolidated Financial Statements, income
taxes in 1993 increased $65.4 million over last year reflecting increased
income, adjustments due to the IRS settlement and the increased tax rate. In
1992, income taxes increased $481.5 million as the Corporation had pre-tax book
income in 1992 compared to a loss in 1991.
Other Income (Deductions)
Other Income (Deductions) reduced income in 1993 and 1992 by $85.3 million and
$1.5 million, respectively. In 1993, interest expense increased $87.8 million
due largely to recording interest on prior years' taxes of $74.5 million
primarily as a result of the IRS settlement. Interest income and other, net
decreased $13.2 million primarily reflecting $19.5 million for a FERC order
eliminating interest payments from certain upstream pipeline suppliers and a
reserve for pipeline partnership investments partially offset by increased
interest income on prior years' taxes and other issues. Income was improved in
1993 and 1992 by approximately $212.4 million and $224.9 million, respectively,
from not accruing interest expense for prepetition obligations. (Since the
July 31, 1991 bankruptcy filing, the estimated effect of not accruing interest
expense on these prepetition obligations totals approximately $523 million.
However, the actual interest that will ultimately be paid pursuant to the final
plans of reorganization could differ significantly and cannot be determined at
this time.) Reorganization items, net reflects bankruptcy issues that improved
income $8.9 million in 1993 compared to an income decrease of $8.3 million last
year. Included in these amounts is $39.9 million of interest earned on
accumulated cash, up $13 million over 1992, and $31 million for 1993
professional fees and related expenses together with other miscellaneous
reorganization items, a decrease of $4.2 million from last year.
In 1992 Other Income (Deductions), net reduced income $1.5 million versus
$119.4 million in 1991. Income was improved in both 1992 and 1991 by not
accruing interest expense on prepetition obligations by approximately $224.9
million and $85.6 million, respectively. The decrease of $11.9 million in
Interest Income and Other, net was due to several items including a $17.9
million gain in 1991 on the sale of the New York distribution subsidiary and a
$2.9 million gain on the 1991 sale of the Canadian oil and gas properties.
These items were partially offset by a $14.5 million writedown for certain
cogeneration projects. The change between 1992 and 1991 for bankruptcy issues
increased income $6.1 million. Professional fees and related expenses,
combined with other miscellaneous reorganization items, were $35.2 million and
$18.9 million in 1992 and 1991, respectively, while interest earned on
accumulated cash was $26.9 million in 1992 and $4.5 million in the prior year.
50
<PAGE> 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
STATEMENTS OF COMMON STOCK PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Market Price
----------------------------------------------------------- Quarterly
Quarter Ended High Low Close Dividends Paid
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $ $ c.
1993
December 31 27 3/8 22 1/4 22 3/8 -
September 30 27 1/2 20 26 1/8 -
June 30 25 3/4 20 24 3/4 -
March 31 24 1/4 18 1/8 22 1/4 -
- ---------------------------------------------------------------------------------------------------------------
1992
December 31 23 7/8 18 5/8 19 1/8 -
September 30 20 16 3/8 20 -
June 30 17 5/8 14 17 -
March 31 19 1/4 16 1/8 17 3/4 -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations
The full year effect of Transmission's new rate design, higher rates for
Distribution and colder weather during 1993 compared to last year, together
with certain refunds received from suppliers, resulted in net cash from
operations of $850.4 million, an increase of $85 million for 1993. Higher oil
and gas production and increased gas prices also contributed to this
improvement. Cash received from customers increased $412 million in 1993,
primarily reflecting increased volumes due to colder weather earlier in the
year together with higher rates. The receipt of rate refunds by certain
subsidiaries led to the $79.4 million rise in other operating cash receipts.
An increase in the spot market price for gas and additional gas volumes
purchased to meet customer requirements resulted in $302.2 million more cash
being paid to suppliers partially offsetting the above cash improvements. In
addition, a refund payment by Columbia Transmission led to a $102 million rise
in other operating cash payments in 1993.
Colder weather in 1992 compared to the prior year and the suspension of
interest payments on August 1, 1991, due to the bankruptcy filing raised net
cash from operations $233.8 million to $765.4 million in 1992 over 1991.
Higher 1992 throughput from colder weather, increased receipts due to
implementing a new rate design for Columbia Transmission and higher
distribution rates were the primary reasons for the $300.5 million increase in
cash received from customers. The suspension of interest payments on
prepetition debt obligations led to the $100.4 million decrease in interest
paid. Partially offsetting these improvements was the 1991 receipt of a
settlement payment on a property dispute which caused other operating cash
receipts to decline $48 million. Also, higher income taxes due to timing
differences between periods and increased property tax assessments caused
income taxes paid and other tax payments to increase $40.6 million and $31.5
million, respectively.
The Corporation maintains a debtor-in-possession facility (DIP Facility) for up
to $100 million, including the availability of letters of credit of up to $50
million. The DIP Facility is available for use in conjunction with internally
generated funds for general corporate purposes and to provide financing for
subsidiaries not involved in the bankruptcy proceedings. As of January 31,
1994, $12.7 million of letters of credit were outstanding under the
51
<PAGE> 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
ESULTS OF OPERATIONS (Continued)
DIP Facility. The DIP Facility expires December 31, 1994, although a request
to extend it will be made, if necessary. During 1993, there were no borrowings
under the DIP Facility. Absent unusual circumstances, the Corporation expects
to remain in a cash surplus position during all of 1994. As of January 31,
1994, the Corporation and its subsidiaries, excluding Columbia Transmission,
had excess cash of $148 million, which was invested in money market
instruments.
The liquidity needs of Columbia Transmission are being satisfied by internally
generated funds. As of January 31, 1994, Columbia Transmission had $1,250.9
million invested in money market instruments through a wholly-owned subsidiary,
Columbia Transmission Investment Corporation. Columbia Transmission also
maintains a DIP Facility solely for the issuance of letters of credit for up to
$25 million. As of January 31, 1994, the balance of outstanding letters of
credit under Columbia Transmission's DIP Facility was $1.8 million. In
December 1993, Columbia Transmission extended its DIP Facility through December
31, 1995.
The Corporation's subsidiaries (other than Columbia Transmission during
bankruptcy) must receive SEC approval under the Public Utility Holding Company
Act of 1935 for all financing. As part of the approval process, the
Corporation files the financing requirements of each of its subsidiaries with
the SEC along with other material supporting management's opinion that the
amounts requested are in the best interest of the Corporation's investors. In
connection with recent filings, the Corporation has been requested to provide
greater detail in support of the financing of subsidiaries which have, from
time to time, experienced losses. These companies include: Columbia LNG,
TriStar, TriStar Capital Corporation, Columbia Coal Gasification Corporation
and Columbia Development. The need to provide information requested by the SEC
to satisfy these concerns has made the receipt of timely approval more
difficult and future delays could be experienced. However, management
continues to believe it will receive approval of its financing requests.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Columbia Transmission $162 $121 $106
Other Transmission 39 16 8
Distribution 152 118 100
Oil and Gas 91 95 71
Other Energy 24 11 15
- ----------------------------------------------------------------------------------------
Total $468 $361 $300
- ----------------------------------------------------------------------------------------
</TABLE>
Capital expenditures for 1993 were $361 million, an increase of $61 million
over 1992. The increase reflects expenditures on some projects that had been
deferred in previous years. In 1992 and 1991, the Corporation's subsidiaries
reduced capital expenditures to the extent possible consistent with the need to
maintain safe and efficient operating facilities, the need to meet new service
and tariff obligations, drilling commitments and the need to preserve going
concern values.
Some of the Corporation's subsidiaries will be initiating projects that can no
longer be deferred which will increase the 1994 program $107 million, to $468
million.
In 1994, Distribution will make investments of approximately $18 million to
improve the efficiency of support services where expenditures had previously
been deferred. Also included in Distribution's 1994 capital expenditure
program are expenditures to provide deliveries to gas powered electric
generating plants in its market areas and third-party natural gas vehicle
public refueling stations. The majority of the transmission companies'
expenditures will be for maintaining their extensive pipeline and storage
system. In addition, $26 million is included for a project to provide gas to a
New England electric generating facility which has been deferred since 1990
pending regulatory approval. Expenditures in 1994 for the oil and gas segment
will remain essentially at 1993 levels. The current weakness in oil prices has
resulted in a reduction in planned 1994 expenditures for exploratory drilling.
The majority of the segment's expenditures will be for less risky development
drilling.
52
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Index Page
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Comparative Gas Operations Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Statements of Consolidated Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Statements of Consolidated Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Statements of Consolidated Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Schedule I - Marketable Securities - Other Investments . . . . . . . . . . . . . . . . . . . . . . 100
Schedule V - Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Schedule VI - Accumulated Depreciation and Depletion of Property,
Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Schedule VIII - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 108
Schedule IX - Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Schedule X - Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 111
- ----------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
COMPARATIVE GAS OPERATIONS DATA
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES AND TRANSPORTATION
REVENUES ($ in millions)*
Residential 1,217.5 1,089.1 1,019.3 943.9 1,140.6
Commercial 466.5 426.5 402.4 370.2 450.7
Industrial 153.8 97.6 78.0 94.1 99.2
Wholesale 683.1 617.6 407.1 341.5 846.7
Other 45.2 51.5 48.1 51.5 53.1
Transportation 601.9 438.6 425.0 373.2 512.3
- ---------------------------------------------------------------------------------------------------------------
Total Sales and Transportation Revenues 3,168.0 2,720.9 2,379.9 2,174.4 3,102.6
- ---------------------------------------------------------------------------------------------------------------
SALES (Bcf)*
Residential 194.8 186.3 178.5 173.5 201.5
Commercial 83.5 81.9 78.4 76.8 85.0
Industrial 53.8 29.4 24.9 31.2 25.7
Wholesale 167.3 171.3 111.5 92.1 252.9
Other 25.3 30.6 33.7 28.3 31.1
- ---------------------------------------------------------------------------------------------------------------
Total Sales 524.7 499.5 427.0 401.9 596.2
Transportation volumes 993.7 982.4 972.1 977.6 980.5
- ---------------------------------------------------------------------------------------------------------------
Total Throughput 1,518.4 1,481.9 1,399.1 1,379.5 1,576.7
- ---------------------------------------------------------------------------------------------------------------
SOURCES OF GAS SOLD (Bcf)
Total gas purchased 476.3 433.0 370.6 453.3 449.4
Total gas produced 71.5 69.2 76.3 75.3 77.9
Exchange gas - net (11.2) 17.5 (15.3) 21.1 (15.0)
Gas withdrawn from (delivered to) storage 17.9 14.5 24.7 (137.5) 109.0
Company use and other (29.8) (34.7) (29.3) (10.3) (25.1)
- ---------------------------------------------------------------------------------------------------------------
Total Sources of Gas Sold 524.7 499.5 427.0 401.9 596.2
- ---------------------------------------------------------------------------------------------------------------
CUSTOMERS AT YEAR END
Residential 1,737,609 1,711,946 1,687,631 1,724,281 1,693,914
Commercial 164,037 161,937 160,420 165,144 161,864
Industrial 2,280 2,358 2,345 2,400 2,334
Wholesale 5 78 80 81 78
Other 143 217 200 142 127
- ---------------------------------------------------------------------------------------------------------------
Total Customers at Year End 1,904,074 1,876,536 1,850,676 1,892,048 1,858,317
- ---------------------------------------------------------------------------------------------------------------
AVERAGE USAGE PER CUSTOMER (Mcf)
Residential 112.1 108.8 105.8 100.6 119.0
Commercial 509.0 505.8 488.7 465.0 525.1
- ---------------------------------------------------------------------------------------------------------------
DEGREE DAYS FOR RETAIL OPERATIONS 5,677 5,507 4,998 4,783 5,971
% Colder (warmer) than normal 1 (2) (11) (15) 7
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Certain amounts in prior periods have been reclassified to conform with the
current presentation.
54
<PAGE> 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The Columbia Gas System, Inc.:
We have audited the accompanying consolidated balance sheets of The Columbia
Gas System, Inc. (a Delaware corporation, the "Corporation") and subsidiaries
as of December 31, 1993 and 1992, and the related statements of consolidated
income, cash flows and common stock equity for each of the three years in the
period ended December 31, 1993. 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
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
On July 31, 1991, the Corporation and Columbia Gas Transmission Corporation
("Columbia Transmission"), a wholly-owned subsidiary, filed separate petitions
seeking protection under Chapter 11 of the Federal Bankruptcy Code. Note 2
discusses, among other matters, uncertainties associated with the Chapter 11
proceedings, including the status of the Corporation's loans to Columbia
Transmission, certain prepetition intercompany asset transfers and the
measurement of certain liabilities. This note also discusses purported class
action and other complaints which have been filed against the Corporation
generally alleging violations of certain securities laws. The accompanying
financial statements do not reflect any liability associated with these
complaints as the Corporation believes it has meritorious defenses to these
actions; however, the ultimate outcome is uncertain. As a result of these
matters, the Corporation may take, or be required to take, actions which may
cause assets to be realized or liabilities to be liquidated for amounts other
than those reflected in the financial statements. These factors create
substantial doubt about the Corporation's ability to continue as a going
concern. The accompanying financial statements have been prepared assuming
that the Corporation and Columbia Transmission will continue as going concerns
which contemplates the realization of assets and payment of liabilities in the
ordinary course of business. The appropriateness of the Corporation continuing
to present financial statements on a going concern basis is dependent upon,
among other items, the terms of the ultimate plan of reorganization and the
ability to generate sufficient cash from operations and financing sources to
meet obligations.
As discussed in Note 4, effective January 1, 1991, the Corporation changed its
method of accounting for income taxes and postretirement benefits other than
pensions pursuant to standards promulgated by the Financial Accounting
Standards Board.
The schedules listed in the Index to Item 8, Financial Statements and
Supplementary Data, are the responsibility of the Corporation's management and
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN & CO.
New York, New York
February 10, 1994
55
<PAGE> 56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
STATEMENTS OF CONSOLIDATED INCOME
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 (in millions except per share amounts) 1993* 1992* 1991*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Gas sales $2,566.1 $2,282.3 $1,954.9
Transportation 601.9 438.6 425.0
Other 223.2 201.1 196.9
- ---------------------------------------------------------------------------------------------------------------
Total Operating Revenues 3,391.2 2,922.0 2,576.8
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Products purchased 1,574.5 1,236.9 1,056.5
Provision for gas supply charges - 38.6 1,319.2
Operation 782.5 764.4 689.4
Maintenance 165.5 157.1 120.8
Depreciation and depletion 239.8 368.1 285.0
Other taxes 198.0 194.0 192.3
Writedown of investment in Columbia LNG Corporation 57.5 - -
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 3,017.8 2,759.1 3,663.2
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 373.4 162.9 (1,086.4)
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net (Note 13) 7.3 20.5 32.4
Interest expense and related charges** (Note 14) (101.5) (13.7) (137.4)
Reorganization items, net (Note 2) 8.9 (8.3) (14.4)
- ---------------------------------------------------------------------------------------------------------------
Total Other Income (Deductions) (85.3) (1.5) (119.4)
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 288.1 161.4 (1,205.8)
Income taxes (Note 5) 135.9 70.5 (411.0)
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 152.2 90.9 (794.8)
Extraordinary item (Note 12F) - (39.7) -
Cumulative effect of change in accounting
for income taxes (Note 4B) - - 170.0
Cumulative effect of change in accounting
for postretirement benefits (Note 4A) - - (69.6)
- ---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 152.2 $ 51.2 $ (694.4)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(based on average shares outstanding)
Before extraordinary item and accounting changes $ 3.01 $ 1.79 $ (15.72)
Extraordinary item - (0.78) -
Change in accounting for income taxes - - 3.36
Change in accounting for postretirement benefits - - (1.38)
- ---------------------------------------------------------------------------------------------------------------
Earnings (Loss) on Common Stock $ 3.01 $ 1.01 $ (13.74)
- ---------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE OF COMMON STOCK - - $ 1.16
- ---------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING (thousands) 50,559 50,559 50,537
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Reference is made to Notes 1A and 2 of Notes to Consolidated Financial
Statements.
**Due to the bankruptcy filings, interest expense of approximately $212
million, $225 million and $86 million has not been recorded for 1993, 1992
and 1991, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
56
<PAGE> 57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED BALANCE SHEETS
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASSETS as of December 31 (in millions) 1993* 1992*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $6,329.8 $6,115.7
Accumulated depreciation and depletion (3,048.4) (2,927.4)
- ---------------------------------------------------------------------------------------------------------------
3,281.4 3,188.3
- ---------------------------------------------------------------------------------------------------------------
Oil and gas producing properties, full cost method 1,208.7 1,190.4
Accumulated depletion (600.0) (602.1)
- ---------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 3,890.1 3,776.6
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Accounts receivable - noncurrent 218.9 218.0
Unconsolidated affiliates 67.7 66.7
Investment in Columbia LNG Corporation 10.1 51.9
Gas supply prepayments 0.6 20.0
Other 27.9 31.2
- ---------------------------------------------------------------------------------------------------------------
Total Investments and Other Assets 325.2 387.8
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments 1,340.4 820.6
Accounts receivable
Customers (less allowance for doubtful accounts
of $11.8 and $11.8, respectively) 588.7 490.1
Other 132.7 231.4
Gas inventory 197.8 330.7
Other inventories - at average cost 40.1 47.4
Prepayments 124.6 127.0
Other 63.0 56.8
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 2,487.3 2,104.0
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES 255.3 237.5
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,957.9 $6,505.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Reference is made to Notes 1A and 2 of Notes to Consolidated Financial
Statements.
**The Corporation has 10,000,000 shares of preferred stock, $50 par value,
authorized but unissued.
***Due to the bankruptcy filings, accrued interest of approximately
$523 million and $311 million has not been recorded as of December 31, 1993
and December 31, 1992, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
57
<PAGE> 58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES as of December 31 (in millions) 1993* 1992*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, par value $10 per share - outstanding
50,559,225 shares $505.6 $ 505.6
Additional paid in capital 601.8 601.8
Retained earnings 189.9 37.7
Unearned employee compensation (Note 9) (70.0) (70.0)
- ---------------------------------------------------------------------------------------------------------------
Total Common Stock Equity 1,227.3 1,075.1
LONG-TERM DEBT 4.8 5.4
- ---------------------------------------------------------------------------------------------------------------
Total Capitalization** 1,232.1 1,080.5
- ---------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Debt obligations 1.3 1.4
Accounts and drafts payable 184.4 231.7
Accrued taxes 129.5 144.1
Estimated rate refunds 277.8 182.3
Estimated supplier obligations 146.3 0.4
Transportation and exchange gas payable 66.8 54.8
Deferred income taxes - 19.7
Other*** 287.7 203.2
- ---------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,093.8 837.6
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS (Note 2) 3,927.8 3,967.2
- ---------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes - noncurrent 253.8 190.3
Investment tax credits 40.0 40.8
Postretirement benefits other than pensions 230.0 233.4
Other 180.4 156.1
- ---------------------------------------------------------------------------------------------------------------
Total Other Liabilities and Deferred Credits 704.2 620.6
- ---------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 9 and 12) - -
- ---------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $6,957.9 $6,505.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
STATEMENTS OF CONSOLIDATED CASH FLOWS
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1993* 1992* 1991*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Cash received from customers $3,292.1 $2,880.1 $2,579.6
Other operating cash receipts 205.0 125.6 173.6
Cash paid to suppliers (1,329.5) (1,027.3) (1,012.1)
Interest paid (0.5) (1.4) (101.8)
Income taxes paid (88.7) (120.4) (79.8)
Other tax payments (209.0) (196.0) (164.5)
Cash paid to employees and for
other employee benefits (515.0) (479.1) (464.2)
Other operating cash payments (509.0) (407.0) (396.0)
Reorganization items - net 5.0 (9.1) (3.2)
- ---------------------------------------------------------------------------------------------------------------
Net Cash From Operations 850.4 765.4 531.6
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Capital expenditures** (345.7) (294.5) (376.5)
Gas supply prepayments - net (0.4) 3.2 (36.3)
Other investments - net 4.3 72.2 89.3
- ---------------------------------------------------------------------------------------------------------------
Net Investment Activities (341.8) (219.1) (323.5)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid - - (55.7)
Issuance of revolving credit agreement - - 20.0
Retirement of long-term debt and preferred stock (0.8) (2.4) (20.3)
Issuance of common stock - - 3.4
Increase in short-term debt and other
financing activities 12.0 4.4 108.9
Net debtor-in-possession financing - (136.0) 136.0
- ---------------------------------------------------------------------------------------------------------------
Net Financing Activities 11.2 (134.0) 192.3
- ---------------------------------------------------------------------------------------------------------------
Increase in cash and temporary cash
investments 519.8 412.3 400.4
Cash and temporary cash investments
at beginning of year 820.6 408.3 7.9
- ---------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments
at end of year*** $ 1,340.4 $ 820.6 $ 408.3
- ---------------------------------------------------------------------------------------------------------------
NET INCOME RECONCILIATION:
Net income (loss) $ 152.2 $ 51.2 $ (694.4)
Items not requiring (providing) cash:
Depreciation and depletion 239.8 368.1 285.0
Deferred income taxes 19.1 (30.3) (525.7)
Amortization of prepayments for producer
contract modifications 19.3 23.9 54.5
Provision for gas supply charges - 38.6 1,319.2
Extraordinary item - 39.7 -
Change in accounting for income taxes - - (170.0)
Change in accounting for postretirement benefits - - 69.6
Gain on sale of interests in subsidiaries - - (21.4)
Other - net 191.9 182.7 39.6
Net change in working capital (Note 15) 228.1 91.5 175.2
- ---------------------------------------------------------------------------------------------------------------
NET CASH FROM OPERATIONS $ 850.4 $ 765.4 $ 531.6
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Reference is made to Notes 1A and 2 of Notes to Consolidated Financial
Statements.
**Includes amounts transferred from interest paid, cash paid to employees and
for other employee benefits and other operating cash payments.
***The Corporation considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
59
<PAGE> 60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
The Columbia Gas System, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Common Stock* Foreign
--------------------------- Additional Unearned Currency
(In millions except for Shares Par Paid In Retained Employee Translation
share amounts) Outstanding(000) Value Capital Earnings Compensation Adjustment
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 50,472 $ 504.7 $ 599.2 $ 738.3 $ (89.5) $ 5.1
Net Loss (694.4)
Common stock dividends
($1.16 per share) (Note 2) (58.6)
Common stock issued:
Dividend Reinvestment Plan 75 0.8 2.4
Long-Term Incentive Plan 12 0.1 0.4
Other (0.2) 1.2 2.5 (5.1) **
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 50,559 505.6 601.8 (13.5) (87.0) -
Net Income 51.2
Sale of LESOP shares 17.0
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 50,559 505.6 601.8 37.7 (70.0) -
Net Income 152.2
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 50,559 $505.6 $601.8 $ 189.9 $ (70.0) $ -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*100 million shares authorized at December 31, 1993, 1992 and 1991 - $10 par
value.
**The Corporation's only foreign subsidiary, Columbia Gas Development of
Canada Ltd., was sold during 1991.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
60
<PAGE> 61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements
include the accounts of the Corporation and all subsidiaries. All
intercompany accounts and transactions have been eliminated, except
for the Corporation's investment in Columbia LNG Corporation (see Note
12F).
On July 31, 1991, the Corporation and its wholly-owned subsidiary,
Columbia Gas Transmission Corporation (Columbia Transmission), filed
separate petitions seeking protection under Chapter 11 of the Federal
Bankruptcy Code. The debtor companies are operating their businesses
as debtors-in-possession (DIP) under the jurisdiction of the United
States Bankruptcy Court for the District of Delaware (Bankruptcy
Court). As such, the debtor companies cannot engage in transactions
considered to be outside the ordinary course of business without
obtaining Bankruptcy Court approval (see Note 2).
The accompanying financial statements reflect all adjustments
necessary in the opinion of management to present fairly the results
of operations in accordance with generally accepted accounting
principles applicable to a going concern. Such presentation
contemplates the realization of assets and payment of liabilities in
the ordinary course of business. As a result of the reorganization
proceedings under Chapter 11, the debtor companies may take, or be
required to take, actions which may cause assets to be realized, or
liabilities to be liquidated, for amounts other than those reflected
in the financial statements. The appropriateness of continuing to
present consolidated financial statements on a going concern basis is
dependent upon, among other things, the terms of the ultimate plan of
reorganization, future profitable operations, the ability to comply
with DIP and other financing agreements and the ability to generate
sufficient cash from operations and financing sources to meet
obligations. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts, or the amounts and classification of
liabilities that might be necessary as a result of the outcome of the
uncertainties discussed herein.
Certain reclassifications have been made to the 1992 and 1991
financial statements to conform to the 1993 presentation.
B. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation," provides that rate-regulated
public utilities account for and report assets and liabilities
consistent with the economic effect of the way in which regulators
establish rates, if the rates established are designed to recover the
costs of providing the regulated service and if the competitive
environment makes it reasonable to assume that such rates can be
charged and collected. The Corporation's interstate transmission
companies did not meet these criteria, and consequently are not
applying the provisions of SFAS No. 71. In 1992, management concluded
that it was no longer appropriate for Columbia LNG Corporation
(Columbia LNG) to continue application of SFAS No. 71 (see Note 12F).
The Corporation's gas distribution subsidiaries follow the accounting
and reporting requirements of SFAS No. 71.
C. GAS UTILITY AND OTHER PLANT AND RELATED DEPRECIATION. Property, plant
and equipment (principally utility plant) are stated at original cost.
The cost of gas utility and other plant of the distribution companies
includes an allowance for funds used during construction (AFUDC).
In addition, Columbia Gas of Ohio, Inc. is permitted to include in its
plant investment post-in-service carrying charges on those eligible
plant investments which are placed in service between December 31,
1990, and December 31, 1994. Subject to commission approval, the
carrying charges are also authorized
61
<PAGE> 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
to be included in base rates in subsequent rate filings. These
carrying charges are subject to a net income limitation, as
determined by the commission. Property, plant and equipment of other
subsidiaries includes interest during construction (IDC).
The 1993, 1992 and 1991 before-tax rates for AFUDC and IDC were 8.0
percent and 9.6 percent, respectively. They represent the rates in
effect prior to Chapter 11 filings. The portion of interest
capitalized by subsidiaries during the period the Corporation is in
bankruptcy is eliminated in the Consolidated Financial Statements.
Improvements and replacements of retirement units are capitalized at
cost. When units of property are retired, the accumulated provision
for depreciation is charged with the cost of the units and the cost of
removal, net of salvage. Maintenance, repairs and minor replacements
of property are charged to expense. The Corporation's subsidiaries
provide for annual depreciation on a composite straight-line basis.
The average annual depreciation rate for Transmission property was 2.6
percent in 1993, 1992 and 1991. The average annual depreciation rate
for Distribution property was 3.3 percent in 1993 and 1992, and 3.6
percent in 1991.
D. OIL AND GAS PRODUCING PROPERTIES. The Corporation's subsidiaries
engaged in exploring for and developing oil and gas reserves follow
the full cost method of accounting. Under this method of accounting,
all productive and nonproductive costs directly identified with
acquisition, exploration and development activities are capitalized in
a countrywide cost center. If costs exceed the sum of the estimated
present value of the cost center's net future oil and gas revenues and
the lower of cost or estimated value of unproved properties, an amount
equivalent to the excess is charged to current depletion expense.
Gains or losses on the sale or other disposition of oil and gas
properties are normally recorded as adjustments to capitalized costs.
Depletion for domestic subsidiaries is based upon the ratio of
current-year revenues to expected total revenues, utilizing current
prices, over the life of production. Depletion for the Canadian
subsidiary, which was sold as of December 31, 1991, was based upon
the ratio of volumes produced to total reserves.
E. COMMODITY HEDGING. Commodity futures, options on futures, and
commodity price swaps are used from time to time to hedge prices of
crude oil, natural gas production, propane inventories and commitments
for natural gas purchases and sales, in order to minimize the risk of
market fluctuations. Under internal guidelines, hedging positions
for oil and gas production can be taken for up to 80 percent of the
expected uncommitted monthly production. Gains and losses on the
hedging transactions are recognized when the hedged commodity is sold
or purchased.
F. GAS INVENTORY. Gas inventory is carried at cost on a last-in,
first-out (LIFO) basis. The estimated replacement cost of gas
inventory in excess of carrying amounts at December 31, 1993, was
approximately $85 million for the distribution companies.
Liquidation of LIFO layers related to gas delivered by the distribu-
tion companies does not affect income since the effect is passed
through to customers as part of purchased gas adjustment tariffs.
As a result of implementing Federal Energy Regulatory Commission
(FERC) Order No. 636 (Order 636), Columbia Transmission substantially
eliminated its merchant function and, therefore, no longer carries a
gas inventory. Amounts previously recorded as "Gas Inventory -
Noncurrent" have been reclassified to Property, Plant and Equipment
which represents the volume of gas required to maintain pressure
levels for storage service.
G. INCOME TAXES AND INVESTMENT TAX CREDITS. The Corporation and its
subsidiaries record income taxes to recognize full interperiod tax
allocations. Under the liability method, deferred income taxes are
62
<PAGE> 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities.
Previously recorded investment tax credits of the gas distribution
subsidiaries were deferred and are being amortized over the life of
the related properties to conform with regulatory policy.
H. ESTIMATED RATE REFUNDS. Certain rate-regulated subsidiaries collect
revenues subject to refund pending final determination in rate
proceedings. In connection with such revenues, estimated rate refund
liabilities are recorded which reflect management's current judgment
of the ultimate outcome of the proceedings. No provisions are made
when, in the opinion of management, the facts and circumstances
preclude a reasonable estimate of the outcome.
I. DEFERRED GAS PURCHASE COSTS. The Corporation's gas distribution
subsidiaries defer differences between gas purchase costs and the
recovery of such costs in revenues, and adjust future billings for
such deferrals on a basis consistent with applicable tariff
provisions.
J. REVENUE RECOGNITION. The Corporation's rate-regulated subsidiaries
bill customers on a monthly cycle billing basis. Revenues are
recorded on the accrual basis including an estimate for gas delivered
but unbilled at the end of each accounting period. Columbia
Transmission also records the impact on revenues of the future
recovery or refund of differences between current gas and
transportation costs and amounts currently included in the billed
rates. In addition, Columbia Transmission and Columbia Gulf record
the effect on revenues to reflect the recovery or refund of
differences between current fuel usage and amounts retained.
2. REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
A. GENERAL. Under the Bankruptcy Code, actions by creditors to collect
prepetition indebtedness are stayed and other contractual obligations
may not be enforced against either the Corporation or Columbia
Transmission. As debtors-in-possession, both the Corporation and
Columbia Transmission have the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject executory
contracts and unexpired leases. In this context, "rejection" means
that the debtor companies are relieved from their obligations to
perform further under the contract or lease but are subject to a claim
for damages for the breach thereof. Any claims for damages resulting
from rejection are treated as general unsecured claims in the
reorganization. The parties affected by these rejections may file
claims with the Bankruptcy Court in accordance with bankruptcy
procedures. Prepetition claims which were contingent or unliquidated
at the commencement of the Chapter 11 proceeding are generally
allowable against the debtor-in-possession in amounts fixed by the
Bankruptcy Court. Substantially all liabilities as of the petition
date are subject to resolution under plans of reorganization to be
approved by the Bankruptcy Court after submission to any required
vote by affected parties. The Corporation's reorganization plan also
requires approval by the Securities and Exchange Commission (SEC)
under the Public Utility Holding Company Act of 1935.
B. COLUMBIA TRANSMISSION'S PLAN OF REORGANIZATION. The Corporation's and
Columbia Transmission's discussions with the Official Committee of
Unsecured Creditors of Columbia Transmission (Columbia Transmission
Creditors' Committee) to negotiate a reorganization plan for Columbia
Transmission and expedite emergence from Chapter 11 proceedings had
been largely unsuccessful. Therefore, on January 18, 1994, Columbia
Transmission filed, with the Corporation as cosponsor, a
reorganization plan (plan) and a disclosure statement, for
consideration by its creditors and other interested parties. The
plan, which management believes is fair and equitable, proposes to pay
100 percent for all priority, administrative and secured claims and
offers various classes of general unsecured creditors, including
producers whose gas
63
<PAGE> 64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
contracts were rejected by Columbia Transmission, between 80 and 100
percent of Columbia Transmission's estimates of their allowable
claims. The $3.3 billion total distribution proposed in Columbia
Transmission's plan is based on an estimated value for Columbia
Transmission of $3.1 billion and includes significant financial
contributions by the Corporation. The plan is premised on a proposed
omnibus settlement whereby the Corporation would settle the
Intercompany Complaint (see page 65, C. Prepetition Obligations) and
facilitate Columbia Transmission's reorganization by (i) accepting the
value of the Corporation's secured claims against Columbia
Transmission in the form of secured debt and equity securities of
Columbia Transmission, and (ii) ensuring the cash (or at the option of
the Corporation cash and $100 million market value of the
Corporation's common stock) necessary to bring the aggregate
distribution to $3.3 billion. Creditors, other than the Corporation,
would share in distributions of over $1.2 billion in cash. In
addition, the Corporation would consent to the reorganized Columbia
Transmission's assumption of responsibility for public environmental
enforcement agency claims so that the recoveries of the other
creditors would not, with minor exceptions, be diminished by the
environmental liabilities of Columbia Transmission's estate.
The plan provides that Columbia Transmission will remain a
wholly-owned subsidiary of the Corporation, will continue to offer an
array of competitive transportation and storage services, and will
retain ownership of its 18,800-mile pipeline network and related
facilities.
Columbia Transmission's proposed business solution will offer to
producers, whose gas supply contracts were rejected or who have
prepetition claims under those contracts, individual, specific
settlements of the producers' claims that are based upon uniform
assumptions and principles and which, in the view of Columbia
Transmission's management, are fair and reasonable settlement values.
These specific settlement proposals are being developed and will be
filed as an adjunct to the plan. Columbia Transmission estimates that
aggregate distributions to producers under the plan would come to
approximately $900 million.
In general, the plan provides for immediate cash payment in full to
all priority claims, all secured claims held other than by the
Corporation, trust fund claims, administrative expenses and unsecured
claims of $50,000 or less. The Corporation's secured claims will be
satisfied in full with new secured debt and equity securities to be
issued by the reorganized Columbia Transmission. Unsecured claims
between $50,000 and $250,000 would receive 95 percent of their allowed
claims in cash. All other unsecured claims, including the
Corporation's unsecured debt and producer contract rejection claims,
would receive between 80 and 100 percent of their allowed claims based
on current projections. With respect to some of the classes of
creditors, the treatment described above depends on the acceptance of
the plan by the relevant class. At this time, no creditors have
agreed to any of the proposed plan's provisions, and the ultimate
confirmed plan of reorganization could be materially different from
this initial filing.
Although Columbia Transmission's plan utilizes June 30, 1994, as an
assumed date of emergence from bankruptcy, the actual date of
emergence will depend on the time required to complete the bankruptcy
process and obtain necessary creditor, judicial and regulatory
approvals. As part of its filing with the Bankruptcy Court, Columbia
Transmission requested that the court defer scheduling required
proceedings on the plan and related disclosure statement in order to
permit discussions of the plan, including the settlements proposed
therein, with Columbia Transmission's creditors, official committees
and other interested parties.
Under bankruptcy procedures, after Columbia Transmission's disclosure
statement has been approved by the Bankruptcy Court, the disclosure
statement and the reorganization plan will be sent to the company's
creditors for voting.
The Corporation intends to file a plan for its reorganization which
will be consistent with the financial aspects and structure of
Columbia Transmission's proposed plan of reorganization. Both plans
will be
64
<PAGE> 65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
subject to a lengthy review and approval process, including SEC
approval, and obtaining adequate financing.
Implementation of Columbia Transmission's plan, and the levels and
timing of distributions to its creditors, are subject to a number of
risk factors which could materially impact their outcome. The plan
sets forth numerous conditions to its confirmation and consummation.
The failure to satisfy these conditions in accordance with the terms
of the plan would have a material adverse effect on the outcome of
Columbia Transmission's bankruptcy and on the Corporation. These
conditions include, among others, the confirmation of a reorganization
plan for the Corporation, the receipt of necessary approvals for the
implementation of Columbia Transmission's plan and the recovery of
regulatory and tax benefits which are fundamental to the plan's
viability. Both companies anticipate emerging from bankruptcy at the
same time. The provisions of the reorganization plans of either
Columbia Transmission or the Corporation that are ultimately
implemented could be materially different from this initial filing for
Columbia Transmission and have a material adverse effect on the
Corporation and its subsidiaries and on the rights of shareholders and
holders of debt and other obligations.
C. PREPETITION OBLIGATIONS. Columbia Transmission's prepetition
obligations include secured and unsecured debt payable to the
Corporation, estimated supplier obligations, estimated rate refunds,
accrued taxes and other trade payables and liabilities. Prepetition
obligations of the Corporation primarily represent debentures, bank
loans and commercial paper outstanding on the filing date together
with accrued interest to that date. A substantial amount of Columbia
Transmission's liabilities subject to Chapter 11 proceedings relate to
amounts owed to the Corporation. Columbia Transmission's borrowings
have been funded by the Corporation on a secured basis since June 1985
and are secured by mortgages and a cash collateral order approved by
the Bankruptcy Court. On the petition date, the principal amount of
the First Mortgage Bonds outstanding was $930.4 million. Prepetition
and postpetition interest on secured debt owed by Columbia
Transmission to the Corporation is $346.4 million at December 31,
1993. In addition to these secured claims, the Corporation has an
unsecured claim against Columbia Transmission of $351 million in
installment notes issued prior to 1985 and accrued interest to the
petition date.
On March 19, 1992, the Columbia Transmission Creditors' Committee
filed a complaint (Intercompany Complaint) with the Bankruptcy Court
alleging that the $1.7 billion of Columbia Transmission's secured and
unsecured debt securities held by the Corporation should be
recharacterized as capital contributions (rather than loans) and
equitably subordinated to the claims of Columbia Transmission's other
creditors. The Intercompany Complaint also challenges interest and
dividend payments made by Columbia Transmission to the Corporation of
approximately $500 million for the period from 1988 to the petition
date and the 1990 property transfer from Columbia Transmission to
Columbia Natural Resources, Inc. (CNR) as an alleged fraudulent
transfer. Based on the SEC standardized measurement procedures, CNR's
properties had a reserve value of approximately $387 million as of
December 31, 1993, a significant portion of which is attributable to
the transfer from Columbia Transmission. In May 1992, Columbia
Transmission Creditors' Committee filed with the U.S. District Court
a motion for a jury trial and to move the Intercompany Complaint from
the Bankruptcy Court to the U. S. District Court. This motion was
denied and subsequently appealed to the Third Circuit Court of Appeals
(Third Circuit). In June 1992, the Corporation filed a motion with
the Bankruptcy Court seeking dismissal of, or summary judgment on,
principal portions of the Intercompany Complaint. On August 20, 1993,
the Third Circuit denied Columbia Transmission Creditors' Committee's
appeal, allowing the Bankruptcy Court to consider the merits of the
Intercompany Complaint and act upon the Corporation's June 1992 motion
for summary judgment. The Bankruptcy Court has not acted on the
Corporation's motion for summary judgment, but tentatively scheduled a
trial on the Intercompany Complaint to begin June 13, 1994.
Management believes that the Intercompany Complaint is without merit;
however, the ultimate outcome of these issues is uncertain at this
stage of the proceedings.
65
<PAGE> 66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Discussions with Columbia Transmission's creditors in an attempt to
establish the value of the estate and to resolve the matters raised in
the Intercompany Complaint are ongoing. Since the standing and value
of the Corporation's debt investment in Columbia Transmission is
crucial to the determination of the value of the Corporation's estate,
the Corporation's reorganization could be affected by the ultimate
outcome of the Intercompany Complaint.
The Internal Revenue Service (IRS) filed identical claims of $553.7
million against both debtor companies and the consolidated Columbia
Gas System for tax deficiencies, interest and penalties for the years
1983-1990. Negotiations with IRS representatives have resulted in a
settlement on all of the issues included in the IRS claims. This
settlement has been documented in a written closing agreement and
filed with the Joint Committee on Taxation of the U.S. Congress for
formal approval. The IRS settlement also requires Bankruptcy Court
approval. Recording the IRS settlement reduced 1993 net income by
$44.3 million.
Columbia Transmission has recorded liabilities of approximately $1.2
billion to reflect the estimated effects of its above-market producer
contracts and estimated supplier obligations associated with pricing
disputes and take-or-pay obligations for historical periods. With
Bankruptcy Court approval, Columbia Transmission rejected more than
4,800 above-market gas purchase contracts with producers. The
producers whose gas purchase contracts were rejected filed claims for
damages that, after being adjusted for duplicative and other erroneous
claims, are in excess of $13 billion. The Bankruptcy Court approved
the appointment of a claims mediator in 1992 to implement a claims
estimation procedure related to the rejected above-market producer
contracts and other producer claims. The mediator held hearings on
generic issues and various estimation methodologies and discovery
matters during 1993. Columbia Transmission anticipates that the
mediator may issue recommended determinations during the second
quarter of 1994 which, under the Bankruptcy Court-approved estimation
procedure, are expected to provide the basis for a recalculation of
producer contract rejection claims. In Columbia Transmission's
judgment, the positions taken by all producers before the claims
mediator and the evidence presented demonstrate that the total level
of allowable contract rejection claims, generically determined, will
not exceed 1/10th of the $13 billion asserted in the claims as filed
and is likely to be between $600 million and $950 million. The
acceptance of certain positions advanced by Columbia Transmission on
the evidence of record, as well as Columbia Transmission's as yet
unheard defenses, could decrease substantially this range of possible
aggregate outcomes. Resolution of the contract-specific issues not
yet presented could increase or decrease individual claims materially
but should not significantly alter the range of possible aggregate
outcomes.
The resolution of these issues can significantly influence future
reported financial results. Accounting standards require that as
claim amounts are allowed by the Bankruptcy Court, the full amount of
the allowed claim must be recorded. This could result in liabilities
being recorded which bear little relationship to the amounts
ultimately required to be paid in settlement of those claims and could
conceivably exceed the Corporation's total investment in Columbia
Transmission. Any such distortion would not be corrected until final
plans of reorganization are approved for the Corporation and Columbia
Transmission.
Regarding claims made by pipeline suppliers, on September 13, 1993,
the Bankruptcy Court approved an agreement between Columbia
Transmission and Texas Eastern Corporation (Texas Eastern) and the
settlement of related claims. Under the terms of this agreement,
Columbia Transmission will collect $30 million in refunds from Texas
Eastern and all claims filed by Texas Eastern against Columbia
Transmission, totalling $672 million, will be withdrawn. In November
1993, the Bankruptcy Court approved a settlement between Columbia
Transmission and Tennessee Gas Pipe Line Company (Tennessee). This
agreement provides for Columbia Transmission's assumption of certain
contracts, the termination of certain other contracts that are no
longer necessary for Columbia Transmission's operations, and payment
to Tennessee of approximately $42 million in consideration for
Tennessee's substantial reduction of its major transportation
contracts with Columbia Transmission. On January 11, 1994, Columbia
Transmission and Tennessee made a filing with the FERC to approve the
settlement. Columbia Transmission expects to ultimately recover the
costs and fees associated with the assumption and termination of these
contracts under
66
<PAGE> 67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Order 636. The Tennessee settlement agreement is conditioned upon
this recoverability. These settlements resolve a significant portion
of the pipeline supplier claims against Columbia Transmission.
The Pension Benefit Guaranty Corporation (PBGC) filed claims of $150
million against both the Corporation and Columbia Transmission
alleging that if the retirement plan had been terminated by March 31,
1992, it would have been underfunded. Management believes that the
claims made by the PBGC are inappropriate and in error since the
Bankruptcy Court has approved continued operation of the retirement
plan, required annual contributions are being made, there is no
intention to terminate the plan and the plan is not underfunded.
Management further believes that the PBGC's claim can be resolved
without any financial consequences to the Corporation or Columbia
Transmission. On January 29, 1993, the PBGC confirmed that while it
remains confident that issues regarding its claims can be resolved by
mutual agreement, the PBGC has decided not to proceed further with
settlement negotiations regarding withdrawal of its claims at the
present time due to the uncertainties associated with the bankruptcy
proceedings. At December 31, 1993, the date of the latest actuarial
valuation, plan assets exceeded the accumulated benefit obligations by
$166.5 million.
67
<PAGE> 68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The accompanying Consolidated Balance Sheets include approximately $4
billion of liabilities subject to the Chapter 11 proceedings of the
Corporation and Columbia Transmission as follows:
<TABLE>
<CAPTION>
($ in millions) 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATION
Debentures:
6 1/4% Series due October 1991 12.0 12.0
6 5/8% Series due October 1992 7.4 7.4
7 1/4% Series due May 1993 15.0 15.0
9% Series due August 1993 150.0 150.0
7% Series due October 1993 12.0 12.0
9% Series due October 1994 20.2 20.2
8 3/4% Series due April 1995 16.2 16.2
9 1/8% Series due October 1995 22.0 22.0
10 1/8% Series due November 1995 18.6 18.6
8 3/8% Series due March 1996 32.9 32.9
9 1/8% Series due May 1996 18.6 18.6
8 1/4% Series due September 1996 26.4 26.4
7 1/2% Series due March 1997 23.3 23.3
7 1/2% Series due June 1997 26.3 26.3
7 1/2% Series due October 1997 28.4 28.4
7 1/2% Series due May 1998 23.7 23.7
10 1/4% Series due May 1999 25.0 25.0
9 7/8% Series due June 1999 21.8 21.8
10 1/4% Series due August 2011 100.0 100.0
10 1/2% Series due June 2012 200.0 200.0
10 3/20% Series due November 2013 100.0 100.0
9 1/5% to 9 1/2% Series A Medium-Term Notes due 1998 through 2019 200.0 200.0
8 19/20% to 9 49/50% Series B Medium-Term Notes due 1998 through 2020 200.0 200.0
9 11/20% to 9 37/50% Series C Medium-Term Notes due 2000 through 2020 50.0 50.0
----------------------------------------------------------------------------------------------------------
1,349.8 1,349.8
Unamortized debt discount, less premium (7.2) (7.2
----------------------------------------------------------------------------------------------------------
1,342.6 1,342.6
Subordinated Guarantee of Leveraged Employee Stock
Ownership Plan debt 87.0 87.0
Short-Term debt:
Commercial Paper 266.5 266.5
Bank Loans 621.0 621.0
----------------------------------------------------------------------------------------------------------
Prepetition debt obligations 2,317.1 2,317.1
Other 65.1 65.1
----------------------------------------------------------------------------------------------------------
Total 2,382.2 2,382.2
----------------------------------------------------------------------------------------------------------
Less amounts payable to affiliates 4.9 4.9
----------------------------------------------------------------------------------------------------------
TOTAL CORPORATION 2,377.3 2,377.3
----------------------------------------------------------------------------------------------------------
COLUMBIA TRANSMISSION
Debt obligations and other payables to the Corporation 2,028.9 1,890.8
Payables to other affiliates 70.0 67.1
Estimated supplier obligations 1,251.8 1,253.9
Estimated rate refunds 60.4 217.5
Taxes 98.4 44.5
Other 139.9 74.0
----------------------------------------------------------------------------------------------------------
Total 3,649.4 3,547.8
----------------------------------------------------------------------------------------------------------
Less amounts payable to affiliates 2,098.9 1,957.9
----------------------------------------------------------------------------------------------------------
TOTAL COLUMBIA TRANSMISSION 1,550.5 1,589.9
----------------------------------------------------------------------------------------------------------
TOTAL 3,927.8 3,967.2
----------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE> 69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
D. PAYMENT OF DIVIDENDS AND DEBT SERVICE. The Corporation's Board of
Directors suspended the payment of dividends on the Corporation's
common stock on June 19, 1991. The Corporation also discontinued
payments related to debt service. Columbia Transmission suspended
dividend, interest and debt payments to the Corporation. The
Corporation and Columbia Transmission have also suspended the payment
of most other prepetition obligations. Management cannot predict at
this time when or whether any financial restructuring plans will be
approved or what provisions, if any, such plans would contain as
related to the resumption of dividends, debt service and other
payments.
E. INTEREST EXPENSE. Interest expense of the Corporation is not being
accrued during bankruptcy, but a calculation of interest is included
in a footnote on the Statements of Consolidated Income and
Consolidated Balance Sheets. Such interest has been calculated based
on management's interpretation of the contractual arrangements which
govern the various debt instruments the Corporation has outstanding
exclusive of any redemption premiums. The Official Committee of
Unsecured Creditors of the Corporation has asserted claims for
interest which exceed disclosed amounts by approximately $40 million
at December 31, 1993. There are several factors to be considered in
making these calculations that are subject to uncertainty as to their
ultimate outcome in the bankruptcy proceeding, including the interest
rates and method of calculation to be applied to overdue payments of
principal and interest. In addition, the committee has asserted that
approximately $110 million of redemption premiums should be paid on
high cost debt instruments.
F. SECURITY HOLDER LITIGATION. After the announcement on June 19, 1991,
regarding the Corporation's probable charge to second quarter earnings
and the suspension of its dividend, 17 complaints including purported
class actions were filed against the Corporation and its directors and
certain officers of the debtor companies in the U.S. District Court of
Delaware. The actions, which generally allege violations of certain
anti-fraud provisions of the Securities Act of 1933 and the Securities
Exchange Act of 1934, have been consolidated. In addition, three
derivative actions were filed in the Court of Chancery in and for New
Castle County (Delaware) alleging that directors breached their
fiduciary duties. These suits have been stayed by either the
Bankruptcy Court filing or by stipulation of the parties. While the
Corporation believes that it has meritorious defenses to these
actions, the outcome is uncertain at this time.
G. CUSTOMER RECOUPMENT RIGHTS. During the fourth quarter of 1993,
various customers of Columbia Transmission filed motions with the
Bankruptcy Court seeking authority to exercise alleged recoupment and
setoff rights, whereby they would be permitted to reduce amounts owed
to Columbia Transmission against refunds owed to the customers by
Columbia Transmission, including amounts which were not otherwise
payable in full under the July 1993 Third Circuit decision discussed
below, all customer refunds under the 1990 rate case settlement and
miscellaneous refunds not otherwise payable in full to them.
Customers are alleging that they have recoupment and setoff rights of
approximately $83 million at December 31, 1993.
On October 20, 1993, the Bankruptcy Court approved an interim
settlement under which customers continued to pay Columbia
Transmission for FERC-authorized services at authorized rates, and
Columbia Transmission has agreed to grant these customers a priority
claim to the extent the Bankruptcy Court finds them entitled to
recoupment rights. In January 1994, the Bankruptcy Court issued a
procedural order whereby other customers would be permitted to file
recoupment and setoff motions by February 18, 1994, with a trial on
all such motions scheduled for June 1994.
H. CUSTOMER REFUNDS. In July 1993, the Third Circuit overturned most of
a U.S. District Court ruling and affirmed an earlier Bankruptcy Court
decision that refunds Columbia Transmission received from upstream
pipelines, as well as the Gas Research Institute (GRI) surcharge
payments it collected from customers, are held in trust, by Columbia
Transmission, for those customers and the GRI and are not part of
Columbia Transmission's estate. In August 1993, the Third Circuit
denied the Columbia Transmission Creditors' Committee's request for a
rehearing. In February 1994, the Supreme Court denied petitions for
review of the Third Circuit decision.
69
<PAGE> 70
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Under the Third Circuit ruling, approximately $173 million in refunds
that Columbia Transmission has received, or expects to receive
postpetition from upstream pipelines and GRI surcharges collected,
should be passed through to the customers and to the GRI. In
addition, the Third Circuit determined that $35 million in upstream
pipeline refunds and GRI surcharges, which Columbia Transmission
collected prior to filing Chapter 11 while received in trust, were
subject to the "lowest intermediate cash balance test" (the amount
remaining in trust at the time of bankruptcy) and should be
distributed on a pro rata basis to the customers and to the GRI to the
extent of Columbia Transmission's $3.3 million cash balance on July
31, 1991. The Third Circuit affirmed another part of the U.S.
District Court's decision and held that approximately $16 million that
Columbia Transmission owes upstream suppliers, for gas purchased and
transportation services received prior to its bankruptcy filing, is
ordinary unsecured debt which must be discharged in the bankruptcy
process.
On February 10, 1994, the U.S. District Court issued an order for the
Bankruptcy Court to pursue further proceedings in accordance with the
Third Circuit's refund decision directing the pass-through of these
refunds. At a hearing on December 29, 1993, the Bankruptcy Court
observed that the FERC should determine whether customers are entitled
to the actual interest earned on refunds being held by Columbia
Transmission or the higher FERC-prescribed interest rate. On February
18, 1994, Columbia Transmission filed a motion with the FERC for
determination of the interest issue. Columbia Transmission will ask
the Bankruptcy Court for implementation of the mandate. Columbia
Transmission will also have to file with the FERC to reimplement its
flow-through of Order Nos. 500/528 refunds from its pipeline
suppliers, which represent the majority of the refunds at issue. It
is anticipated that Columbia Transmission will recommence the
flow-through of the upstream pipeline refunds in 1994.
Total customer claims in Columbia Transmission's bankruptcy
proceedings relating to, or arising from, Columbia Transmission's
contracts with its customers for sales, transportation, gas storage
and similar services and other miscellaneous claims represent about
450 claims for a total of approximately $550 million as filed, plus a
potentially substantial sum filed in undetermined amounts. Columbia
Transmission successfully resolved a significant portion of these
customers claims. Not resolved are customer claims that total
approximately $113 million at December 31, 1993, that seek to protect
rights associated with any prepetition revenues collected subject to
refund in general rate filings and purchased gas adjustment filings,
including matters subject to court appeals. In addition, the claims
filed in undetermined amounts, which potentially could be significant,
still remain to be resolved. In October 1993, approximately $160
million was refunded to customers by Columbia Transmission reflecting
the terms of a settlement of a 1991 rate case approved by the
Bankruptcy Court in July 1993. Bankruptcy Court approval for a 1990
rate case settlement for rates in effect from November 1, 1990 through
November 30, 1991 was deferred pending the decision by the Third
Circuit regarding the flow- through of certain refunds. Appropriate
reserves for rate refund liabilities have been recorded for these
matters to reflect management's judgment of the ultimate outcome of
the proceedings.
I. REORGANIZATION ITEMS. During 1993, 1992 and 1991 the Corporation and
Columbia Transmission have earned interest income on cash accumulated
from the suspension of payments related to prepetition liabilities and
incurred expenses associated with professional fees and other related
services, as detailed below:
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income on accumulated cash 39.9 26.9 4.5
Professional fees and related expenses (29.9) (30.7) (18.8)
Other reorganization items, net (1.1) (4.5) (0.1)
------------------------------------------------------------------------------------------------------
NET REORGANIZATION ITEMS 8.9 (8.3) (14.4)
------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE> 71
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
J. FINANCIAL INFORMATION FOR THE DEBTOR COMPANIES. Condensed financial
information for the Corporation and Columbia Transmission as of, and
for, periods ended December 31, are as follows:
<TABLE>
<CAPTION>
Corporation Columbia Transmission
-------------------------- -----------------------
($ in millions) 1993 1992 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets
Cash and temporary
cash investments 128.7 8.0 1,209.2 804.6
Other 168.7 429.1 461.8 637.9
Total current assets 297.4 437.1 1,671.0 1,442.5
Current liabilities (19.2) (16.8) (629.6) (449.6)
------------------------------------------------------------------------------------------------------
Working capital 278.2 420.3 1,041.4 992.9
Noncurrent assets 3,476.4 3,119.7 2,269.4 2,225.1
Estimated liabilities subject
to Chapter 11 proceedings (2,382.2) (2,382.2) (3,649.4) (3,547.8)
Noncurrent liabilities (145.1) (82.7) (178.6) (169.2)
------------------------------------------------------------------------------------------------------
NET EQUITY 1,227.3 1,075.1 (517.2) (499.0)
------------------------------------------------------------------------------------------------------
Operating revenues - - 1,654.5 1,363.8
Operating expenses 7.1 10.3 (1,433.6) (1,256.9)
------------------------------------------------------------------------------------------------------
Operating income (loss) (7.1) (10.3) 220.9 106.9
Other income (deductions) 219.0 154.7 (216.3) (118.0)
Income taxes 59.7 53.5 22.8 6.5
Extraordinary item - (39.7) - -
------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 152.2 51.2 (18.2) (17.6)
------------------------------------------------------------------------------------------------------
NET CASH FROM OPERATIONS 64.8 59.4 502.0 510.3
------------------------------------------------------------------------------------------------------
</TABLE>
3. REGULATORY MATTERS
A. Columbia Transmission has collected revenues from its customers
associated with the pass-through of upstream pipeline supplier take-
or-pay and contract reformation costs under FERC Order Nos. 500 and
528. Certain customers have challenged recovery of such costs which
totals $160 million, (excluding interest) net of amounts to be
refunded, on the basis that a 1985 rate settlement precludes
collection. The FERC has consistently denied the customers'
assertions and appeals have been filed with the U.S. Court of Appeals,
D.C. Circuit. Management continues to believe these challenges are
without merit and the FERC orders, which support collection of these
costs, will ultimately be upheld.
B. In April 1992, the FERC issued Order 636, its final rule on Pipeline
Service Obligations and Equality of Transportation Services by
Pipelines. This order fundamentally changes the role of pipelines
from providing a merchant function to one in which they perform
principally as transporters of gas that distribution companies and end
users purchase directly from producers and other suppliers.
While Order 636 provided that pipelines may recover all prudently
incurred costs resulting from the transition to Order 636, the FERC
stated that filings to recover such costs should not be made until a
pipeline's service restructuring proposal, that identifies various
transition costs, has been approved. With respect to gas supply
realignment costs, costs associated with reforming or terminating
above-market price supply contracts, Columbia Transmission noted in
its filing that the majority of such costs on its system will be
determined in the context of the bankruptcy proceedings regarding the
treatment of producer
71
<PAGE> 72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
contract rejection costs. The company stated that the ultimate level
of such costs is uncertain and that recovery would be pursued in
future filings with the FERC.
In 1993, the FERC issued a series of orders on the restructuring
proposals and on September 29, 1993, the FERC issued an order which
allowed Columbia Transmission and Columbia Gulf to implement
restructured services on November 1, 1993. While confirming its
initial ruling regarding the ineligibility for recovery of producer
contract rejection costs as gas supply realignment or Order Nos.
500/528 costs, the FERC did rule that Columbia Transmission could
seek to recover a small portion of the contract rejection costs that
had earlier been ruled to be unrecoverable. The FERC also agreed to
waive a nine-month time limit on Columbia Transmission's ability to
seek recovery of unrecovered purchased gas costs to the extent the
costs resulted from contracts that are currently in litigation,
including bankruptcy litigation. Approximately $60 million in
unrecovered purchased gas costs were outstanding at December 31, 1993,
in addition to approximately $140 million of prepetition unrecovered
purchased gas costs that have not been paid due to the bankruptcy
filing.
The FERC affirmed that Columbia Transmission could maintain recovery
of gathering costs through its gathering and other transportation
rates at least until the filing of a general rate case and approved a
separate charge applicable to product extraction activities.
Management continues to evaluate long-term plans for these gathering
facilities ($63.3 million at December 31, 1993).
Subject to review in connection with periodic rate filings, the FERC
approved Columbia Transmission's proposal to continue to recover costs
associated with retained upstream pipeline contracts through its
demand rates. Recovery of such costs would be subject to review and
approval in semiannual limited rate filings. Columbia Transmission
has reached settlements that will eliminate approximately half of the
annual cost of these contracts and is continuing its efforts to
negotiate a mutually agreeable termination of the remainder of the
contracts.
The FERC also addressed Columbia Transmission's ability to recover
costs associated with upstream pipeline contracts. Columbia
Transmission currently holds firm transportation agreements with
certain pipeline companies that historically have been used to deliver
gas to Columbia Transmission. These contracts have remaining terms of
various lengths and require the payment of monthly reservation fees
whether or not the capacity is utilized. Under Order 636, downstream
pipelines such as Columbia Transmission are required to offer to
assign most of their firm upstream capacity to their customers.
Columbia Transmission's annual demand charge commitments on these
upstream nonaffiliated pipelines was approximately $108 million;
however, assignments of certain of these contracts by Columbia
Transmission to its customers in conjunction with service
restructuring under Order 636 have reduced this amount to less than
$74 million. The total commitment for demand charges after November
1, 1993, is approximately $421 million on an undiscounted basis,
excluding any mitigating effect of the pipelines marketing the
capacity to others.
Columbia Transmission's strategy has been to assume all upstream
pipeline contracts that can be directly assigned to its customers or
need to be retained by Columbia Transmission for operational reasons
and negotiate exit fees for other upstream contracts. The FERC ruling
in the Order 636 proceedings permits recovery of these exit fees
through rates, provided that Columbia Transmission can show that they
are prudently incurred. Columbia Transmission retains the option of
rejecting such contracts in its bankruptcy proceedings, if appropriate
exit fees cannot be negotiated. The financial statements reflect a
$130 million liability and offsetting receivable for the exit fee
issue; however, the ultimate cost could vary depending on the outcome
of ongoing discussions with the affected pipelines.
Several settlements with upstream pipelines have been concluded. In
1993, the Bankruptcy Court approved
72
<PAGE> 73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
settlements between Columbia Transmission and Texas Eastern
Transmission Corporation, Panhandle Eastern Pipe Line Company and
Texas Gas Transmission Corporation which provide for assumption of
certain contracts and termination of others. None of these
settlements required Columbia Transmission to pay an exit fee to the
upstream pipeline.
One type of transition cost which the FERC acknowledged would be
eligible for recovery consideration is "stranded costs", which are the
costs of a pipeline's assets previously used to provide bundled sales
service in the pre-Order 636 era, that are unsubscribed in the Order
636 environment. Columbia Gulf has several pipelines and related
facilities that are not fully subscribed to under Order 636. Certain
facilities south of Rayne, Louisiana, (primarily in the offshore Gulf
of Mexico area) are being evaluated; however, management has not
identified any stranded facilities at this time and the outcome of
these evaluations is uncertain. Dependent upon the results of such
evaluation, charges to income could be required. The net book value
of the facilities under study was approximately $40 million at
December 31, 1993. It is management's view that any costs associated
with these facilities will be fully recoverable through rates.
As part of its September 29, 1993 order on Columbia Transmission's and
Columbia Gulf's Order 636 compliance filings, the FERC initiated a
proceeding concerning Columbia Gulf's transportation service to
Columbia Transmission. Columbia Gulf was directed to show cause as to
why it has not filed for abandonment to reduce capacity and service to
Columbia Transmission under the required FERC authorization under
Section 7(b) of the Natural Gas Act. Columbia Gulf responded to the
show cause order on December 22, 1993. Management does not believe an
abandonment filing was necessary and does not expect the resolution of
this issue to have a material adverse effect on the Corporation's
financial position.
C. On January 12, 1994, the FERC granted requests for rehearing of prior
orders approving settlements between Columbia Transmission and four of
its upstream pipeline suppliers relating to those suppliers' direct
billings to Columbia Transmission in the mid-1980s of
production-related FERC Order No. 94 (Order 94) costs. The rehearing
orders find that the settlements must be rejected because they are
expressly contingent upon Columbia Transmission's recovery of the
Order 94 settlement payments from its customers, and that Columbia
Transmission's 1985 PGA Settlement essentially bars such recovery.
However, the orders also hold that these pipelines are not entitled to
bill any Order 94 charges to Columbia Transmission, and ordered these
upstream pipelines to refund the principal portion of all Order 94
collections from Columbia Transmission, but waived any requirements
that these pipelines pay interest on the refunds. Since Columbia
Transmission has been reflecting the interest income on these refunds
since 1990, the effect of these orders led to a $19.5 million
reduction in interest income in 1993. Columbia Transmission has
sought rehearing and, if necessary, will seek court review of these
orders. It is expected that pipeline suppliers will also request a
rehearing arguing their rights to re-bill such charges to Columbia
Transmission. The ultimate outcome of this issue is uncertain at this
time and could impact future operating results depending upon the
results of these regulatory and court reviews.
73
<PAGE> 74
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
4. ACCOUNTING CHANGES
A. In the fourth quarter of 1991, the Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (OPEB), retroactive to January 1, 1991. This method of
accounting for postretirement benefits accrues the actuarially
determined costs for life insurance and medical benefits ratably from
the date an employee becomes eligible for such benefits. The
Corporation's subsidiaries previously expensed these costs as cash
payments were made. As permitted under SFAS No. 106, the subsidiaries
elected to record the full amount of their estimated accumulated
postretirement benefits obligation other than pensions of $223.8
million. These obligations represent the actuarial present value of
the postretirement benefits to be paid to current employees and
retirees based on services rendered.
The present value of the postretirement benefit obligation to be paid
to current and retired employees for all the distribution subsidiaries
amounts to approximately $143 million as of December 31, 1993. Of
this amount, $138.1 million has been deferred as a regulatory asset
pending anticipated recovery through rates in various jurisdictions.
The Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board issued guidelines establishing criteria for recording
such a regulatory asset, including a requirement for collection of
accrual basis expense in rates and recovery of the transition
obligation within approximately 20 years. These criteria are not
necessarily being adopted by the public utility commissions regulating
the distribution subsidiaries. Differences in requirements between
the accounting rules and the rate making decisions ultimately adopted
can result in a writedown of some of this regulatory asset.
The distribution subsidiaries, as well as the Corporation's other
operating companies, have implemented cost-management measures
designed to reduce their OPEB obligations. In addition to other
measures, employees will be required to share a portion of their
postretirement health benefit costs and guidelines have been
established redefining years of service requirements before an
employee is eligible for retiree health benefits. Other cost-saving
plans are being reviewed for consideration in an ongoing effort to
effectively manage OPEB costs.
The regulatory commission in Ohio issued a final order in February,
1993 in a generic rate investigation regarding recovery of
postretirement benefit costs. The commission's order provides
utilities the opportunity to fully recover prudently incurred
postretirement costs on an accrual basis. Amounts in excess of
pay-as-you-go costs may continue to be deferred until rate recovery
begins. The amount of the Columbia Gas of Ohio regulatory asset in
the accompanying balance sheet was $85.6 million as of December 31,
1993.
In March 1993, the Pennsylvania PUC stated in a proposed policy
statement that any utility in its jurisdiction meeting certain
conditions may seek formal PUC approval to record a regulatory asset
equal to the difference between its current rate recognition of
postretirement benefit costs and its accrued liability for such
expenses. The amounts recorded will be subject to recovery in future
rate proceedings to the extent that such costs are prudently incurred
and certain conditions are met, such as dedicated funding of
postretirement costs in excess of the pay-as-you-go level. Columbia
Gas of Pennsylvania's (CPA) petition to maintain the postretirement
benefit deferred regulatory asset until rate recovery begins was
granted in December, 1993. This order gave CPA the permission to
recover transition costs over 20 years. At December 31, 1993, the
carrying value of CPA's regulatory asset was approximately $33.1
million.
The Kentucky state commission has indicated that the rate treatment of
accrued postretirement benefits will be addressed on a company-
by-company basis. Management believes Columbia Gas of Kentucky (CKY)
will ultimately obtain recovery authorization based on a recent
commission rate order for another utility, holding that recovery of
these costs on an accrual basis better reflects the true cost of
providing service to current customers. CKY will continue to defer
its postretirement benefit costs in excess of the pay-as-you-go
amount, pending the filing of its next general rate case which is
currently scheduled for mid-1994. At December 31, 1993, the carrying
value of CKY's regulatory asset was approximately $9.8 million.
74
<PAGE> 75
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Commonwealth Gas Services (COS) placed interim rates into effect June
1, 1993, subject to refund, which included recovery of accrued OPEB
costs. Indications from the Virginia State Corporation Commission
(VSCC) are that the costs will be deemed prudent and recoverable
according to the commission's 1992 generic order addressing
postretirement costs. As a result of the recovery of transition costs
over a period of 40 years, the EITF guidelines required COS to expense
$4.2 million in 1992.
Columbia Gas of Maryland's (CMD) general rate case settlement,
effective October 1993, allows CMD to include in rates the full amount
of accrued postretirement benefit costs as well as the recovery of the
transition obligation over 20 years.
Although proceedings in certain state jurisdictions have yet to be
finalized, based on currently available information, management
believes rate recovery mechanisms will be adopted that permit
continued regulatory asset treatment in accordance with recent EITF
guidelines.
B. In February 1992, the Financial Accounting Standards Board issued SFAS
No. 109, "Accounting for Income Taxes." The Corporation adopted SFAS
No. 109 in the fourth quarter of 1992, retroactive to January 1, 1992.
This Statement supersedes SFAS No. 96, "Accounting for Income Taxes,"
which was adopted by the Corporation in 1991 and improved earnings by
$170 million. SFAS No. 109 changes the criteria for recognition and
measurement of deferred tax assets and reduces complexity. The
adoption of SFAS No. 109 had no impact on the Corporation's financial
statements.
C. In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This
Statement requires employers to recognize any obligation which exists
to provide benefits to former or inactive employees after employment,
but before retirement. Such benefits include, but are not limited to,
salary continuation, supplemental unemployment, severance, disability
(including workers' compensation), job training, counseling, and
continuation of benefits such as health care and life insurance
coverage.
This Statement will be effective for fiscal years beginning after
December 15, 1993, and the Corporation plans to adopt the Statement on
January 1, 1994. Based on the facts and circumstances known today,
the total obligation to the Corporation and its subsidiaries will be
approximately $8.8 million. Of this amount, approximately $5.4
million will be expensed upon adoption. The remaining $3.4 million
will be deferred by certain of the distribution subsidiaries as a
regulatory asset pending rate recovery from the various state
commissions.
75
<PAGE> 76
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
5. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1993 1992 1991
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME TAXES
Currently payable
Federal 107.2 90.0 106.7
State 9.6 10.8 8.0
------------------------------------------------------------------------------------------------
Total Currently Payable 116.8 100.8 114.7
------------------------------------------------------------------------------------------------
Deferred
Federal 17.6 (32.2) (510.2)
State 2.3 3.3 (13.7)
------------------------------------------------------------------------------------------------
Total Deferred 19.9 (28.9) (523.9)
------------------------------------------------------------------------------------------------
Deferred Investment Credits (0.8) (1.4) (1.8)
------------------------------------------------------------------------------------------------
Income taxes included in income before extraordinary item and
cumulative effect of accounting changes 135.9 70.5 (411.0)
Deferred taxes related to extraordinary item and cumulative
effect of accounting changes - (20.4) (236.6)
------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES 135.9 50.1 (647.6)
------------------------------------------------------------------------------------------------
</TABLE>
Total income taxes are different than the amount which would be
computed by applying the statutory Federal income tax rate to book
income before income tax. The major reasons for this difference are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1993 1992 1991
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Book income (loss) before incomes taxes, extraordinary
item and cumulative effect of accounting changes* 288.1 161.4 (1,205.8)
Tax expense (benefit) at statutory Federal income tax
rate 100.8 35.0% 54.9 34.0% (410.0) (34.0)%
Increases (reductions) in taxes resulting from:
State income taxes, net of Federal income tax benefit 7.6 2.7 9.8 6.1 (4.7) (0.4)
Estimated non-deductible expenses 8.1 2.8 6.4 4.0 3.3 0.3
Effect of change in tax rates on deferred taxes
previously provided 8.7 3.0 - - - -
Adjustment to prior years' tax provision due to
pending settlement 9.2 3.2 - - - -
Other 1.5 0.5 (0.6) (0.4) 0.4 -
----------------------------------------------------------------------------------------------------------------
INCOME TAXES BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 135.9 47.2% 70.5 43.7% (411.0) (34.1)%
----------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes losses from foreign operations of $41.5 million for 1991.
76
<PAGE> 77
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Deferred tax balances are as follows:
<TABLE>
<CAPTION>
At December 31 ($ in millions) 1993 1992
---------------------------------------------------------------------------------------------
<S> <C> <C>
Net current liabilities (assets)
Federal (3.9) 20.5
State (0.7) (0.8)
---------------------------------------------------------------------------------------------
Total (4.6) 19.7
---------------------------------------------------------------------------------------------
Net noncurrent liabilities
Federal 190.7 128.7
State 63.1 61.6
---------------------------------------------------------------------------------------------
Total 253.8 190.3
---------------------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAXES 249.2 210.0
---------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from temporary differences between the
financial statement carrying amounts and the tax basis of existing
assets and liabilities. The source of these differences and tax
effect of each is as follows:
<TABLE>
<CAPTION>
At December 31 ($ in millions) 1993 1992
---------------------------------------------------------------------------------------------
<S> <C> <C>
Property basis differences 613.5 595.2
Accrued interest on debt 147.0 85.3
Gas purchase costs 63.0 51.5
Partnership deferrals 25.4 26.7
Deferred revenue 11.0 23.0
Estimated supplier obligations (343.8) (338.9)
Estimated rate refunds (85.4) (100.4)
Postretirement benefits (46.1) (44.7)
Environmental liabilities (57.1) (38.4)
Capitalized inventory overheads (26.2) (26.7)
Unbilled utility revenue (7.5) (15.1)
Interest on prior years' taxes (27.0) (2.2)
Other (17.6) (5.3)
---------------------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAXES 249.2 210.0
---------------------------------------------------------------------------------------------
</TABLE>
6. SALE OF SUBSIDIARIES
A. The sale of Columbia Gas of New York, Inc. to New York State Electric
& Gas Corporation was completed on April 5, 1991, and provided an
increase to net income of $9.2 million. The total price was $57.5
million including $39.2 million for the 328,000 outstanding shares of
common stock and $18.3 million for the outstanding debt.
B. The sale of Columbia Gas Development of Canada Ltd. (Columbia Canada),
a wholly-owned Canadian oil and gas exploration and production
subsidiary, to Anderson Exploration, Ltd. was effective as of December
31, 1991.
The sales price for Columbia Canada was $94.8 million. Of this
amount, $27.7 million was placed in escrow as security for certain
post-closing obligations of the Corporation including indemnification
for potential losses arising from litigation involving Columbia
Canada. The Corporation expects to receive all or substantially all
of the escrow account when the litigation is concluded. Upon
emergence from bankruptcy, the Corporation is obligated to deposit
into an escrow account an additional $25 million (Canadian). If after
emergence from bankruptcy, the Corporation maintains an investment
grade bond rating for a six-month period, the additional deposit would
be
77
<PAGE> 78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
returned. Also, the Corporation has the right to provide a letter of
credit in place of the cash deposit. As of December 31, 1993, $25.4
million, including accrued interest, remains in escrow for potential
losses arising from litigation.
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Corporation has a trusteed, noncontributory pension plan which
covers all regular employees, 21 years of age and older. The plan
provides defined benefits based on the highest three-year average
annual compensation in the final five years of service and years of
credited service. It is the Corporation's funding policy to
contribute to the plan based on a percentage of payroll, subject to
the statutory minimum and maximum limits.
The following table provides 1993-1991 pension cost components for the
plan, along with additional relevant data:
<TABLE>
<CAPTION>
PENSION COSTS ($ in millions) 1993 1992 1991
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost 31.7 30.5 21.7
Interest cost 68.8 66.1 63.2
Actual return on assets (126.9) (55.8) (171.7)
Net amortization (deferral) 56.5 (13.2) 115.0
------------------------------------------------------------------------------------------------
NET PENSION EXPENSE 30.1 27.6 28.2
------------------------------------------------------------------------------------------------
ANNUAL CONTRIBUTION 18.0 23.5 24.0
------------------------------------------------------------------------------------------------
ASSUMED ASSET EARNINGS RATE 9.0% 9.0% 9.0%
------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 79
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Pension plan assets consist principally of common stock equities and
fixed income securities. The following table reconciles plan assets
and liabilities to the funded status of the plan:
<TABLE>
<CAPTION>
PLAN ASSETS AND OBLIGATIONS at December 31 ($ in millions) 1993 1992
------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value 945.2 860.2
------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 729.4 668.2
Nonvested benefits 49.3 47.5
------------------------------------------------------------------------------------------------
Accumulated benefit obligation 778.7 715.7
Effect of projected future salary increases 201.5 199.9
------------------------------------------------------------------------------------------------
TOTAL PROJECTED BENEFIT OBLIGATION 980.2 915.6
------------------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (35.0) (55.4)
Unrecognized net gain (44.4) (18.1)
Unrecognized prior service cost 65.0 69.7
Unrecognized transition obligation 10.4 11.6
------------------------------------------------------------------------------------------------
PREPAID (ACCRUED) PENSION COST (4.0) 7.8
------------------------------------------------------------------------------------------------
DISCOUNT RATE ASSUMPTION 7.0% 7.5%
------------------------------------------------------------------------------------------------
AVERAGE COMPENSATION GROWTH RATE 5.5% 6.0%
------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1993 the assumptions for the discount rate and the
average compensation growth rate have been revised downward to 7.0%
and 5.5%, respectively. The net effect of these changes was to
increase the accumulated benefit obligation and the projected benefit
obligation by $42.2 and $38.2 million, respectively.
79
<PAGE> 80
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
In addition to providing pension benefits, the Corporation's
subsidiaries provide other postretirement benefits, including medical
care and life insurance, which cover substantially all active
employees upon their retirement. The following table provides the
total postretirement benefit cost components recognized during 1993
and 1992 along with additional relevant data:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT COSTS ($ in millions) 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C>
Service cost (benefits earned during period) 16.2 13.3
Interest cost on projected benefit obligation 25.9 22.5
Actual return on assets (12.6) (2.9)
Other, net 7.8 (0.4)
-----------------------------------------------------------------------------------------
OTHER POSTRETIREMENT COSTS 37.3 32.5
-----------------------------------------------------------------------------------------
ASSUMED ASSET EARNINGS RATE* 9.0% 9.0%
-----------------------------------------------------------------------------------------
</TABLE>
*One of the several established medical trusts is subject to taxation
which results in an after-tax asset earnings rate that is less than
9.0%.
<TABLE>
<CAPTION>
PLAN ASSETS AND OBLIGATIONS AT DECEMBER 31 ($ in millions)*
------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees 188.1 179.7
Fully eligible active plan participants 72.0 68.2
Other participants 89.7 86.7
------------------------------------------------------------------------------------------------
Total 349.8 334.6
Plan assets at fair value (79.9) (54.0)
Unrecognized actuarial loss (9.4) (30.8)
------------------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST 260.5 249.8
------------------------------------------------------------------------------------------------
DISCOUNT RATE ASSUMPTION 7.0% 7.5%
------------------------------------------------------------------------------------------------
AVERAGE COMPENSATION GROWTH RATE 5.5% 6.0%
------------------------------------------------------------------------------------------------
</TABLE>
* Includes $138.1 million and $127.2 million capitalized by the
distribution subsidiaries as a regulatory asset in 1993 and 1992,
respectively.
As of December 31, 1993, the assumptions for the discount rate and the
average compensation growth rate have been revised downward to 7.0
percent and 5.5 percent, respectively. The net effect of these
changes was an $11.0 million increase in the accumulated
postretirement benefit obligation.
The healthcare cost trend rate assumption significantly affects the
amounts reported. For example, a 1 percent increase in this rate
would increase the accumulated postretirement benefit obligation by
$19.0 million at December 31, 1993, and increase other postretirement
costs by $3.7 million for the year. The accumulated
80
<PAGE> 81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
postretirement benefit obligations for 1993 and 1992 were calculated
assuming healthcare cost trend rates starting at 12 percent and 16
percent and decreasing to 5.5 percent and 6.5 percent, respectively,
after approximately 25 years.
The postretirement medical plans of the majority of the Corporation's
subsidiaries are currently funded on a pay-as-you-go basis. However,
several subsidiaries have begun advanced funding as this benefit
obligation is granted rate recovery. A total of $16.9 million and
$13.0 million were contributed to the various medical trusts in 1993
and 1992, respectively.
All of the Corporation's subsidiaries participate in funding for
postretirement life insurance benefits utilizing a voluntary employee
beneficiary association trust. The Corporation's funding policy is to
make annual contributions to this trust, subject to the statutory
maximum tax-deductible limit. Employee contributions are not
required.
8. LONG-TERM INCENTIVE PLAN
The Corporation has a Long-Term Incentive Plan (Plan) which provides
for the granting of nonqualified stock options, stock appreciation
rights and contingent stock awards as determined by the Compensation
Committee of the Board of Directors. That committee also has the
right to modify any outstanding award. A total of 1,500,000 shares of
the Corporation's authorized common stock was initially reserved for
issuance under the Plan's provisions. There were 363,415 shares
remaining available for awards at December 31, 1993.
Stock appreciation rights, which are granted in connection with
certain nonqualified stock options, entitle the holders to receive
stock, cash or a combination thereof equal to the excess market value
over the grant price.
81
<PAGE> 82
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Transactions for the three years ended December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Options
--------------------------------------
Without Stock With Stock Option
Appreciation Appreciation Price
Rights Rights Range
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding 12/31/90 597,155 165,090 $34.30-$46.68
-------------------------------------------------------------------------------------------------------
1991
Granted - - -
Exercised (12,065) (1,440) $34.30-$42.99
Cancelled (21,330) - $34.30-$46.68
Converted - - -
Outstanding 12/31/91 563,760 163,650 $34.30-$46.68
-------------------------------------------------------------------------------------------------------
1992
Granted - - -
Exercised - - -
Cancelled (34,410) - $34.30-$46.68
Converted - - -
Outstanding 12/31/92 529,350 163,650 $34.30-$46.68
-------------------------------------------------------------------------------------------------------
1993
Granted - - -
Exercised - - -
Cancelled (23,730) (7,500) $34.30-$46.68
Converted - - -
Outstanding 12/31/93 505,620 156,150 $34.30-$46.68
-------------------------------------------------------------------------------------------------------
EXERCISABLE 12/31/93 432,070 133,650 $34.30-$46.68
-------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the options, a contingent stock award of 4,110 shares was
granted to a key executive in 1991 which remains outstanding at December
31, 1993.
9. DEFINED CONTRIBUTION (THRIFT) PLAN
Eligible employees may participate in the Thrift Plan by contributing up
to 16 percent of their monthly basic earnings to any one or more of
several funds. The Corporation's participating subsidiaries make
matching contributions of 50 percent to 100 percent of deposits made by
each of its participating employees up to 6 percent of basic earnings
based upon the months of participation in the plan by each employee. All
employer matching contributions for participants under age 55 are
invested in the fund holding common stock of the Corporation.
Participants age 55 and older may invest employer contributions in any
one or more of the several funds. Employees are eligible for
participation in the Thrift Plan after completing one year of service.
In 1990, the Corporation established a Leveraged Employee Stock Ownership
Plan (LESOP). The LESOP was designed to pre-fund a portion of the
matching obligation under the terms of the Thrift Plan and to utilize tax
82
<PAGE> 83
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
advantages afforded by the Internal Revenue Code.
In October 1991, the Board of Directors of the Corporation authorized the
termination of the LESOP subject to the approval of the Bankruptcy Court.
It is anticipated that the termination will be part of the Corporation's
plan of reorganization. Upon termination, any shares of common stock of
the Corporation remaining in the LESOP Trust account would be sold and
the proceeds paid to the holders of debentures issued under the LESOP.
Any unpaid balance due would become subject to the subordinate guarantee
of the Corporation and become a claim to be resolved as part of the
reorganization plan. Based on recently issued guidance from the American
Institute of Certified Public Accountants, it is anticipated the ultimate
termination will not result in any charges to earnings, but will result
in a reduction to capital of approximately $34.1 million based on a
closing stock price of $25 3/8 on January 31, 1994. As of December 31,
1993, the LESOP suspense account held 1,416,155 shares.
The participating subsidiaries ceased making contributions to the LESOP
for debt service payments but continue to contribute to the Thrift Plan
those amounts necessary to fulfill the matching obligations to
participants. Matching contributions to the Thrift Plan were $11.0
million, $13.2 million and $8.6 million in 1993, 1992, and 1991,
respectively. Thrift Plan expenses were $11.0 million, $13.2 million and
$17.9 million for 1993, 1992 and 1991, respectively. The difference
between matching contributions and expense for 1991 was attributable to
the additional expenses required under the now suspended LESOP.
10. DEBT OBLIGATIONS
The Corporation's filing for protection under the Bankruptcy Code
constituted an event of default under substantially all of its debt
agreements. Because payment of debt which existed at the filing date is
suspended by the Bankruptcy Code, substantially all of the Corporation's
debt, including short-term debt, has been classified as Liabilities
Subject to Chapter 11 Proceedings. In addition, payment of interest on
prepetition debt is suspended, and no interest expense on such debt has
been recorded since commencement of the bankruptcy proceedings.
Following the Chapter 11 filing, the Corporation received approval from
the Bankruptcy Court and the SEC, under the Public Utility Holding
Company Act of 1935, for debtor-in-possession financing (the DIP
Facility). The DIP Facility is for up to $100 million and includes the
availability of letters of credit of up to $50 million. The DIP Facility
was reduced by the Corporation from $275 million to $200 million on July
10, 1992 and was reduced to the current level effective June 17, 1993.
The Corporation has extended the DIP Facility to December 31, 1994.
Two borrowing options are available to the Corporation under the DIP
Facility. The Corporation may borrow at the agent's alternative
reference rate plus 1 percent or the Eurodollar rate plus 2 1/4 percent
(for either 1, 2 or 3 months). In addition to a commitment fee of 1/2 of
1 percent per annum on the average daily unused amount of the facility,
other fees have been paid to the lenders under the DIP Facility.
Columbia Transmission also maintains a DIP Facility solely for the
issuance of letters of credit for up to $25 million. Columbia
Transmission has extended its DIP Facility to December 31, 1995, to allow
for letters of credit with terms for the full calendar year of 1995.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation, effective December 31, 1992, adopted SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The Statement
extends existing fair value disclosure practices by requiring all
entities to disclose the fair value of financial instruments, both assets
and liabilities, recognized and not recognized in
83
<PAGE> 84
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
the Consolidated Balance Sheets, for which it is practicable to estimate
fair value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in
a forced or liquidation sale. Fair value may be based on quoted market
prices for the same or similar financial instruments, or on valuation
techniques such as the present value of estimated future cash flows using
a discount rate commensurate with the risks involved.
The uncertainties related to the outcome of the Corporation's Chapter 11
proceedings and the resulting effect upon the ultimate value of the
Corporation's financial assets and liabilities add significantly to the
uncertain nature of any estimate of fair value. The estimates of fair
value required under SFAS No. 107 require the application of broad
assumptions and estimates. Accordingly, any actual exchange of such
financial instruments could occur at values significantly different from
the amounts disclosed.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
As cash and temporary cash investments, current receivables, current
payables, and certain other short-term financial instruments are all
short-term in nature, their carrying amount approximates fair value. The
estimated fair values of the Corporation's other financial instruments
are reflected in the accompanying table.
Long-term investments
Long-term investments include escrowed proceeds from the sale of the
Canadian subsidiary (see Note 6B), which consist of hedged Canadian
Treasury bills ($25.4 million and $25.1 million for 1993 and 1992,
respectively). The Canadian Treasury bills are hedged with short-term
foreign currency contracts, so that the combined carrying amount of the
asset and related hedging instrument approximates fair value. Long-term
investments also include an income tax refund receivable with associated
interest at IRS rates ($31.2 million for 1993) whose carrying amount
approximates fair value. Also included are loans receivable ($12.8
million and $15.6 million for 1993 and 1992, respectively) whose
estimated fair values are based on the present value of estimated future
cash flows using an estimated rate for similar loans extended currently.
It is not practicable to estimate the fair value of long-term receivables
($144.4 million and $154.2 million for 1993 and 1992, respectively) for
the expected recovery by Columbia Transmission of certain gas purchase
liabilities for which the timing and amount of payments to be received
will be dependent on the outcome of the Chapter 11 proceedings. As
discussed in Note 2, the uncertainties related to these proceedings could
significantly influence the fair value of this financial instrument. The
financial instruments included in long-term investments are primarily
reflected in Investments and Other Assets in the Consolidated Balance
Sheets.
Liabilities subject to Chapter 11 proceedings
The estimated fair value of the Corporation's debentures and medium-term
notes is based on quoted market prices for those issues that are traded
on an exchange, and estimates provided by brokers for other issues.
However, quoted market prices and broker estimates inherently include
judgments concerning the outcome of the Corporation's and Columbia
Transmission's Chapter 11 proceedings.
Note 2 discusses the uncertainties related to these proceedings which
could significantly influence the fair value of these financial
instruments. It was not practicable to estimate the fair value of the
remaining long-term debt, which includes the Subordinated Guarantee of
the LESOP debt ($87.0 million) and miscellaneous debt of Columbia
Transmission ($1.4 million for 1993 and 1992), because no reliable
measurement methodology exists. Prior to filing its petition for
protection under Chapter 11 of the Bankruptcy Code, the Corporation
regularly issued commercial paper, bank notes and other short-term debt
instruments. The carrying amount of such securities ($892.6 million) is
included in Liabilities Subject to Chapter 11 Proceedings. Payment of
these obligations and any related interest is subject to approval by the
Bankruptcy Court. Although investors from time to time may buy and sell
these debt obligations, the terms of any such transactions are private
and not
84
<PAGE> 85
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
disclosed to the Corporation. Because there can be no assurance as to
the ultimate timing and amount of principal and interest repayments of
these obligations, it is not practicable to determine their fair values.
The carrying amount of other Liabilities Subject to Chapter 11
Proceedings ($1,556.0 million and $1,595.4 million for 1993 and 1992,
respectively) primarily represents accounts payable, accrued liabilities
and other liabilities. As discussed in Note 2, these liabilities are
subject to adjustment at the direction of the Bankruptcy Court. In
addition, the timing of the ultimate payment of these liabilities, as
well as interest, if any, is also subject to determination by the
Bankruptcy Court. Accordingly, it is not practicable to determine the
fair value of these liabilities.
<TABLE>
<CAPTION>
1993 1992
----------------------- -------------------
Carrying Fair Carrying Fair
At December 31 ($ in millions) Amount Value Amount Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments for which it is:
Practicable to estimate fair value 69.8 69.9 40.8 41.0
Not practicable to estimate fair value 144.4 - 154.2 -
Liabilities subject to Chapter 11 proceedings for which it is:
Practicable to estimate fair value
Long-term debt 1,390.8 1,557.5 1,390.8 1,373.6
Not practicable to estimate fair value
Long-term debt 88.4 - 88.4 -
Bank loans and commercial paper 892.6 - 892.6 -
Other 1,556.0 - 1,595.4 -
------------------------------------------------------------------------------------------------------------------
</TABLE>
12. OTHER COMMITMENTS AND CONTINGENCIES
A. CAPITAL EXPENDITURES. Capital expenditures for 1994 are currently
estimated at $468 million. Of this amount, $91 million is for oil and
gas operations, $201 million for transmission operations, $152 million
for distribution operations and $24 million for other energy operations.
B. PRODUCER CONTRACT MATTERS. Columbia Transmission has rejected more than
4,800 natural gas purchase contracts which collectively made the
company's gas sales rate noncompetitive. Under Order 636, Columbia
Transmission will have a minimal merchant function, i.e., less than one
percent of total throughput. Customers' requirements will be met with
gas purchased under remaining and new contracts including 30- day spot
contracts as may be required. Rejection of additional contracts could
result in liabilities that could require future charges against earnings.
C. PARTNERSHIP PROJECTS. Columbia Gulf is a general partner in the
Trailblazer, Overthrust and Ozark partnerships. Since these partnerships
are nonrecourse, project-financed pipelines, firm shipper contracts were
assigned to banks (or in the case of Ozark to the Indenture Trustee) as
collateral for loans. Columbia Transmission and other shippers are
attempting to negotiate exit fees under Order 636 with the partnerships.
As a result of these negotiations and the current depressed demand for
the capacity on several of these pipelines, the realizability of these
investments is uncertain. Accordingly, a reserve of $5.4 million was
established in 1993. At December 31, 1993, Columbia Gulf's investment in
the partnerships amounted to $35.4 million, net of the valuation reserve
and before related deferred taxes.
D. OTHER LEGAL PROCEEDINGS. The Corporation and its subsidiaries have been
named as defendants in various legal
85
<PAGE> 86
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
proceedings. In the opinion of management, the ultimate disposition of
these currently asserted claims will not have a material adverse impact
on the Corporation's consolidated financial position or results of
operations.
E. ASSETS UNDER LIEN. The loans under the debtor-in-possession financing
arrangement for the Corporation are given superpriority claim status
pursuant to Section 364(c) (1) of the Bankruptcy Code. Loans to the
Corporation are secured by either a first or second priority perfected
lien on, and security interest in, all property of the Corporation
including intercompany loans, other than the voting securities of the
Corporation's distribution subsidiaries and Columbia LNG. Columbia
Transmission's letter of credit facility is secured by either a first or
second priority perfected lien on, and security interest in, all property
of Columbia Transmission.
Substantially all of Columbia Transmission's properties have been pledged
to the Corporation as security for debt owed by Columbia Transmission to
the Corporation.
F. COVE POINT LNG TERMINAL. In 1991, the Corporation entered into a
conditional agreement for the sale of its remaining interest in Columbia
LNG to Shell LNG Company (Shell LNG), a subsidiary of Shell Oil Company.
On July 16, 1992, the Corporation was notified by Shell LNG that it would
not proceed with the interim purchase of 40.8 percent of the stock of
Columbia LNG. Shell LNG's notification terminated the agreements between
the Corporation and Shell LNG for the purchase of the remaining Columbia
LNG stock. Shell LNG currently owns 9.2 percent of Columbia LNG's
outstanding stock.
As previously reported, Columbia LNG has developed a new business plan to
reactivate the Cove Point facility. This plan anticipated a new peaking
and storage service by the end of 1994, as well as a terminalling service
for liquefied natural gas (LNG) received by tanker. An application with
the FERC to charge customers based upon individually negotiated market
rates was filed in February 1993. In accordance with the business plan
and in anticipation of the FERC filing, management concluded, in 1992,
that it was no longer appropriate for Columbia LNG to continue
application of SFAS No. 71 and regulatory assets were removed from
Columbia LNG's balance sheet resulting in an extraordinary charge of
$60.1 million pre-tax ($39.7 million after-tax) recorded in the third
quarter of 1992.
An open season, allowing potential customers to bid on the capacity of
all of the offered services, was held March 31, 1993 through April 14,
1993. Based on the results of the bids, which were not sufficient to
proceed with the project as it was originally proposed, Columbia LNG
restructured the offered services to more adequately address the service
needs of the potential customers. A second open season, offering
additional services, was held May 24, 1993 through June 2, 1993. This
open season resulted in sufficient bids to proceed with the peaking and
transportation services. The one bid received during the second open
season for baseload terminalling service was subsequently withdrawn. As
a result, Columbia LNG does not currently anticipate a baseload
terminalling service in the near future. As a consequence, Columbia LNG
recorded a writedown in the carrying value of its investment in the Cove
Point facility in the second quarter 1993 that reduced the Corporation's
income $37.9 million after-tax. This amount included estimated
dismantling costs for the offshore facilities of approximately $12
million after-tax. However, until such time as the offshore facilities
are transferred to the new partnership, as discussed below, Columbia LNG
plans to maintain the facilities for possible future imports and, at the
present time, has no plans to abandon or dismantle them. Besides the
writedown discussed above and the extraordinary charge discussed in the
preceding paragraph, Columbia LNG has incurred operating losses during
the prior three years which are not significant to the consolidated
financial results of the Corporation.
On October 28, 1993, as amended on January 27, 1994, PEPCO Enterprises,
Inc. (PEPCO), which is a wholly-owned subsidiary of Potomac Electric
Power Company, entered into an agreement to form a limited partnership.
The February 1993 filing with the FERC was withdrawn by Columbia LNG and
the Partnership, Cove Point LNG Limited Partnership (Cove Point LNG) that
will pursue the business plan discussed above, filed an
86
<PAGE> 87
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
application with the FERC on November 3, 1993, seeking authorization to
acquire all of the existing plant and pipeline facilities owned by
Columbia LNG and for authorization to recommission the plant and
construct new facilities in order to provide peaking services beginning
in 1995. On the same day, Columbia LNG filed with the FERC for
authorization to abandon its facilities by transfer to Cove Point LNG and
to withdraw its February 26, 1993 filing. In addition to the FERC, this
transaction will require other governmental approvals. Bankruptcy Court
approval was received in January 1994.
After the receipt of necessary regulatory approvals, the PEPCO affiliates
will contribute up to $25 million in equity and loans for their half
interest in the partnership. At the same time, Columbia LNG will
transfer title to its existing plant and pipeline facilities to the
partnership and assign to the partnership the precedent agreements for
the services to be offered. Any cash requirements of the partnership
prior to the in-service date of the project which are in excess of $25
million will be provided by Columbia LNG up to a maximum of $7 million.
The cost of recommissioning the Cove Point facility and installing the
necessary liquefaction equipment is estimated to be approximately $27
million. Columbia LNG or an affiliate will operate the plant and
pipeline facilities for the partnership.
A number of intervenors filed with the FERC in regard to Columbia LNG's
plan for the Cove Point facility. While generally supportive of the plan
to reopen the facility, some of the intervenors questioned the use of the
individually negotiated market rates and requested the pass-through of
certain benefits from prior collections from Columbia Transmission.
The realization of the Corporation's remaining investment in Columbia LNG
of $10.1 million will be dependent upon successful implementation of the
partnership and related business plan.
G. OPERATING LEASES. Payments made in connection with operating leases are
charged to operation and maintenance expense as incurred. Such amounts
were $55.5 million in 1993, $57.9 million in 1992 and $57.9 million in
1991. Future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of one
year are:
<TABLE>
<CAPTION>
($ in millions)
------------------------------------------------------------------------------------------------------------------
<S> <C>
1994 18.2
------------------------------------------------------------------------------------------------------------------
1995 18.4
------------------------------------------------------------------------------------------------------------------
1996 17.8
------------------------------------------------------------------------------------------------------------------
1997 14.1
------------------------------------------------------------------------------------------------------------------
1998 14.2
------------------------------------------------------------------------------------------------------------------
After 44.9
------------------------------------------------------------------------------------------------------------------
</TABLE>
H. ENVIRONMENTAL MATTERS. The Corporation's subsidiaries are subject to
extensive federal, state and local laws and regulations relating to
environmental matters. These laws and regulations, which are constantly
changing, require expenditures for corrective action at various operating
facilities, waste disposal sites and former gas manufacturing sites for
conditions resulting from past practices that subsequently were
determined to be environmentally unsound.
Certain subsidiaries have received notice from the United States
Environmental Protection Agency (EPA) that
87
<PAGE> 88
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
they are among several parties responsible under federal law for placing
wastes at Superfund sites and may be required to share in the cost of
remediation for these sites. However, considering known facts, existing
laws and possible insurance and rate recoveries, management does not
believe the identified Superfund matters will have a material adverse
effect on future annual income or on the Corporation's financial
position.
The transmission subsidiaries are continuing their comprehensive review
of compliance with existing environmental standards, including review of
past operational activities and identification of potential site
problems, through site reviews and formulation of remediation programs
where necessary. While the Corporation's transmission subsidiaries have
made progress in these ongoing self-assessment programs, because of the
thousands of miles of pipeline which they operate, the exceptionally
large number of sites at which they conduct or have conducted operations,
and the long period over which operations have been conducted, completion
of site screenings, characterizations and site-specific remediations will
cover a time frame of approximately 10 to 12 years.
A study for Columbia Transmission to quantify the scope of remediation
activities which will be undertaken in future years to address the issues
identified was recently concluded. The study, site investigations and
characterization efforts performed throughout 1993 resulted in total
accruals for the year of approximately $60 million for Columbia
Transmission. These and other minor adjustments bring Columbia
Transmission's recorded net liability to approximately $143.6 million at
December 31, 1993. This represents the lower end of the range of
reasonable outcomes with the upper end estimated to total approximately
$280 million based on information currently available.
As characterization and site-specific activities by Columbia Transmission
determine the nature and extent of contamination, if any, at its
operating facilities and as remediation plans are developed, additional
charges to earnings could occur. To the extent such plans require
approval of federal and/or state authorities, estimates are subject to
revision. Based on the limited data now available and various
assumptions as to characterization, management believes that annual
future expenditures for Columbia Transmission's site investigations,
characterization and remediation activities could be up to $20 million
per year over an approximate 10 to 12 year time frame. Earnings will
continue to be charged appropriately in advance of required expenditures.
As a result of site characterization studies at various locations, during
1993, Columbia Gulf recorded an additional accrual of $6.7 million for
environmental remediation. This accrual is for polychlorinated biphenyl
(PCB) and petroleum hydrocarbon cleanup at certain compressor station
sites and screenings for possible exposure at other locations. Columbia
Gulf anticipates completion of cleanup during 1994. At that time, costs
of remediation, if any, will be quantified and an additional accrual may
become necessary.
In 1992, Columbia Transmission received a subpoena and information
request (Request) from the EPA Region III regarding three major
environmental statutes: The Toxic Substances Control Act (TSCA), the
Resource Conservation and Recovery Act (RCRA) and the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA). The
Request relates to Columbia Transmission's past and current environmental
practices. Since receipt of the Request, Columbia Transmission has
provided the EPA with various materials pursuant to the Request.
Columbia Transmission has continued to meet with the EPA to attempt to
resolve the subpoena issues and continues to work cooperatively with
environmental officials in the various states in which it operates. All
environmental agencies have been declared exempt from the Bar Date
established by the Bankruptcy Court for claims by creditors.
Columbia Transmission on January 28, 1994, received from EPA Region V an
Information Request pursuant to the RCRA. The agency requested Columbia
Transmission to submit information and knowledge relating to its
generation and management of natural gas pipeline condensate, used engine
oil and similar liquids in the state of Ohio. Columbia Transmission is in
the process of analyzing the information requested and will be discussing
this Information Request with EPA Region V.
88
<PAGE> 89
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
At least one distribution subsidiary and some of the predecessor
companies of the distribution subsidiaries were, or may have been,
involved with the ownership and/or the operation of manufactured gas
plants. At the present time management is aware of twelve such sites.
The distribution subsidiaries are conducting investigations at five sites
that date back to the mid-1800s. These plants heated coal tar in a
low-oxygen atmosphere to manufacture low-cost gas for areas where natural
gas was not generally available. The process created residues such as
coal tar which were typically stored on site prior to being sold for
commercial use. However, when the plants stopped operation the remaining
residue material was in some cases simply buried on the plant sites. As
time passed, other uses were made of the plant sites and in some cases
their identity as a manufactured gas plant was lost. To the extent site
investigations have been completed, remediation plans developed, and any
responsibility for remedial action established, the appropriate liability
has been recorded. The environmental assessment and evaluation process
will continue over the next three to five years. Environmental
investigations indicate that remedial action may be required.
Investigations will be conducted at a number of the other sites in the
near future. The following discusses the status of certain sites:
In 1985, CPA was cited by the Pennsylvania Department of Environmental
Resources for coal tar residues on the bottom of a creek bed in York,
Pennsylvania. The area was adjacent to the site of a manufactured gas
plant operated from 1885 to the early 1950s by a predecessor company, the
York County Gas Company, which was purchased in 1968. The site has been
under investigation by CPA's consultants to determine the extent of any
underground contamination and to propose various remedial measures that
can be used to eliminate the release to the creek or remediate the
premises. The current costs of the investigation are being recovered in
rates. Site remediation costs have been estimated at $4.2 million, which
has been recorded as a liability and a corresponding regulatory asset.
CPA expects to continue to recover these costs in rates based upon orders
received in previous rate cases. However, the ability to recover these
costs is subject to (1) the results of each future rate case during the
expenditure period or (2) the outcome of a settlement proposal to treat
these expenditures as a cost of removal by charging them to the reserve
for depreciation and recover them over a five-year period. Remediation
work is expected to start in 1994.
Penn Fuel Gas, Inc. (Penn Fuel) advised CPA that a site in Bellefonte,
Pennsylvania, sold to Penn Fuel by Central Pennsylvania Gas Company in
1960 was the location of a manufactured gas plant until the mid-1950s.
The plant's equipment was disassembled at the time Penn Fuel acquired the
property. The old processing building is still used as a warehouse by
Penn Fuel. In 1966, CPA acquired substantially all of Central
Pennsylvania Gas Company's assets and liabilities.
CPA has agreed to share with Penn Fuel, the costs of investigating the
site for environmental contamination and up to $300,000 of the
investigation costs. A regulatory asset and offsetting liability was
recorded by CPA in March 1993. There is no agreement, nor is there any
admission by either CPA or Penn Fuel, regarding liability, if any, for
abatement and/or remediation of the site. It is expected that the
positions and potential responsibility of each party will become clearer
as the investigation proceeds.
In January 1993, the owners of the Patio Plaza Apartments, BMI Apartment
Associates (a partnership), contacted COS about possible soil
contamination of a site in Portsmouth, Virginia, on which the Portsmouth
Gas Company operated a manufactured gas plant from 1854 to 1951. The
Portsmouth Gas Company sold this site to the Portsmouth Redevelopment and
Housing Authority in 1960. The Portsmouth Gas Company was acquired by
Commonwealth Natural Resources, Inc. and subsequently merged into COS in
1981. The Redevelopment Authority subsequently razed the plant and sold
the vacant land. Apartments and houses were built on the property and
the current owners of some of the apartments reported possible soil
contamination to the Virginia Water Quality Control Board. COS notified
the EPA regarding the engineering reports provided to it by the owners.
On March 25, 1993, COS and the Portsmouth Redevelopment and Housing
Authority jointly filed suit in U.S. District Court, Eastern District of
Virginia at Norfolk, Virginia, against the current and former owners of
the apartments. The suit sought a declaration that those other parties
are liable for the site and requested access to the property for testing
which had been denied by the current owners. On June 14, 1993, the Court
ordered
89
<PAGE> 90
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
that COS be permitted access to perform necessary testing of soil and air
that resulted in a determination that there was no imminent danger to the
residents. Subsequently, the Court granted a stay of all legal
proceedings until May 16, 1994 to permit COS to conduct further site
testing to determine the extent of any contamination and to recommend
corrective measures. Most of that testing was completed in November and
December 1993, and the results are anticipated in early 1994. On
February 14, 1994, the judge appointed a magistrate to oversee settlement
of the suit.
COS incurred legal and engineering consultant expenses that reached
approximately $400,000 in 1993. Additional costs are currently
anticipated to reach $400,000 in 1994 and accordingly a regulatory asset
has been established for $800,000 and the appropriate liability recorded.
Other work at this site is anticipated but it is not possible at this
time to estimate the costs. Permission was granted by the VSCC to defer
the costs of this project as a regulatory asset, subject to recovery in
the next rate case.
In February 1993, COS reported to the Virginia Department of
Environmental Quality (VaDEQ) a potential soil contamination below a
retaining wall at the Petersburg, Virginia Service Center . The VaDEQ has
ordered COS to prepare a preliminary site assessment related to the
report. In early June 1993, COS contractors performed testing and
prepared the preliminary site assessment which was submitted to VaDEQ in
July 1993. Additional testing on another area of leakage was conducted
in September 1993 with results reported to the VaDEQ in late October
1993. COS is currently completing the removal of contaminated material
from an old underground tank on the property which was contributing to
the leakage problem. Additional corrective work may be performed in 1994
as a result of further testing that will be conducted.
COS has incurred legal and engineering consultant expenses that reached
approximately $170,000 by the end of 1993. At this time, it is not
possible to estimate the costs of corrective action or of further work
the VaDEQ might require. However, additional consultant costs are
estimated to be $280,000 in 1994. Accordingly, a regulatory asset of
$450,000 has been established and the liability recorded. Permission was
granted by the VSCC to defer the costs of this project as a regulatory
asset subject to recovery in the next rate case.
A former manufactured gas plant site in Lynchburg, Virginia was included
with the assets of the Lynchburg Gas Company when it was merged into COS
in 1989. A liability of $600,000 has been recorded for the removal of
certain remaining structures from the manufactured gas plant and clean up
of debris at the site. The VSCC has granted COS permission to defer the
costs associated with this work and any other remediation related to the
site for review and potential recovery in rates at a later time.
A former manufactured gas plant site in Hagerstown, Maryland was included
with other assets of the Hagerstown Gas Company acquired by CMD in 1969.
This plant operated between 1891 and 1949. The site, at the location of
the CMD service center in Hagerstown was reported to the EPA by the state
and has been assigned medium priority status by the EPA for future
investigation. No investigations have been conducted by the state of
Maryland or the EPA at this site and, therefore, it is not possible at
this time to estimate the cost of remediation activities, if any.
To the extent the above-mentioned site investigations have been
completed, remediation plans developed, and any Distribution
responsibility for remedial action established, the appropriate liability
has been recorded. As additional investigations are completed and
remediation costs become probable, the appropriate liability will be
recorded. As of December 31, 1993, the distribution subsidiaries
recorded net liabilities of $5.9 million. Management anticipates
recovery of remediation costs through normal rate proceedings.
The eventual total cost of full future environmental compliance for the
Columbia Gas System is difficult to estimate due to, among other things:
(1) the possibility of as yet unknown contamination, (2) the possible
effect of future legislation and new environmental agency rules, (3) the
possibility of future litigation, (4) the possibility of future
designations as a potential responsible party by the EPA and the
difficulty of determining liability, if any, in proportion to other
responsible parties, (5) possible insurance and rate recoveries, and (6)
the effect of possible technological changes relating to future
remediation. However, reserves have been
90
<PAGE> 91
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
established based on information currently available which resulted in a
total recorded net liability of $156.1 million for the Columbia Gas
System at December 31, 1993, which includes the low end of a range for
certain expenditures for the transmission segment previously discussed.
As new issues are identified, appropriate additional liabilities may have
to be recorded.
It is management's continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve
mutually acceptable compliance plans. However, there can be no assurance
that fines and penalties will not be incurred.
Management expects most environmental assessment and remediation costs to
be recoverable through rates. Although significant charges to earnings
could be required prior to rate recovery, management does not believe
that environmental expenditures will have a material adverse effect on
the Corporation's financial position, based on known facts, existing laws
and regulations and the period over which expenditures are required.
91
<PAGE> 92
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
13. INTEREST INCOME AND OTHER, NET
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income 9.8 13.2 17.0
Gains on sale of interests in subsidiaries - - 21.4
Impairment of other investments (10.1) (3.6) (14.5)
Income from equity investments 4.8 9.3 5.5
Miscellaneous 2.8 1.6 3.0
-------------------------------------------------------------------------------------------------------
TOTAL 7.3 20.5 32.4
-------------------------------------------------------------------------------------------------------
</TABLE>
14. INTEREST EXPENSE AND RELATED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on debt 0.2 0.3 108.3
Interest on DIP financing 2.9 4.5 4.1
Interest on rate refunds 8.4 3.5 8.4
Interest on prior years' taxes 74.5 - 7.7
Other interest charges 15.5 5.4 11.5
Allowance for borrowed funds used
and interest during construction - - (2.6)
-------------------------------------------------------------------------------------------------------
TOTAL 101.5 13.7 137.4
-------------------------------------------------------------------------------------------------------
</TABLE>
15. CHANGES IN COMPONENTS OF WORKING CAPITAL
(excludes cash and temporary cash investments, short-term debt and
current maturities of long-term debt)
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable, net 0.1 114.8 (60.8)
Gas inventory 140.2 41.7 63.1
Accounts and drafts payable (47.3) 43.3 (120.9)
Accrued taxes (14.6) 8.3 70.9
Estimated rate refunds 95.5 114.4 9.5
Estimated supplier obligations 145.9 (3.8) 67.6
Deferred income taxes (19.7) (1.8) (26.5)
Miscellaneous 92.7 (35.5) 75.7
-------------------------------------------------------------------------------------------------------
Change in working capital 392.8 281.4 78.6
Reclassifications (164.7) (189.9) 96.6
-------------------------------------------------------------------------------------------------------
NET CHANGE IN WORKING CAPITAL 228.1 91.5 175.2
-------------------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE> 93
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
16. BUSINESS SEGMENT INFORMATION
The following tables provide information concerning the Corporation's
major business segments. Revenues include intersegment sales to
affiliated subsidiaries, which are eliminated when consolidated.
Affiliated sales are recognized on the basis of prevailing market or
regulated prices. Operating income is derived from revenues and expenses
directly associated with each segment. Identifiable assets include only
those attributable to the operations of each segment.
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Oil and gas -Unaffiliated 181.2 184.9 201.2
-Intersegment 41.0 13.8 13.6
-------------------------------------------------------------------------------------------------------
TOTAL 222.2 198.7 214.8
-------------------------------------------------------------------------------------------------------
Transmission -Unaffiliated 1,142.8 954.6 727.3
-Intersegment 642.9 532.9 402.2
-------------------------------------------------------------------------------------------------------
TOTAL 1,785.7 1,487.5 1,129.5
-------------------------------------------------------------------------------------------------------
Distribution -Unaffiliated 1,830.7 1,647.6 1,533.5
-Intersegment - - -
-------------------------------------------------------------------------------------------------------
TOTAL 1,830.7 1,647.6 1,533.5
-------------------------------------------------------------------------------------------------------
Other energy -Unaffiliated 236.5 134.9 114.8
-Intersegment 69.9 68.9 81.7
-------------------------------------------------------------------------------------------------------
TOTAL 306.4 203.8 196.5
-------------------------------------------------------------------------------------------------------
Adjustments -Unaffiliated - - -
and eliminations -Intersegment (753.8) (615.6) (497.5)
-------------------------------------------------------------------------------------------------------
TOTAL (753.8) (615.6) (497.5)
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 3,391.2 2,922.0 2,576.8
-------------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE> 94
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME (LOSS)
Oil and gas 53.6 (101.2) (4.5)
Transmission 178.7 129.9 (1,192.2)
Distribution 146.4 137.7 114.9
Other energy 1.7 6.8 4.9
Corporate (7.0) (10.3) (9.5)
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 373.4 162.9 (1,086.4)
-------------------------------------------------------------------------------------------------------
DEPRECIATION & DEPLETION
Oil and gas 73.8 210.0 130.1
Transmission 97.8 95.6 90.4
Distribution 62.3 57.6 60.5
Other energy 5.9 4.9 4.0
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 239.8 368.1 285.0
-------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Oil and gas 732.0 734.9 871.8
Transmission 4,156.6 3,897.7 3,544.9
Distribution 2,065.5 1,967.3 1,868.2
Other energy 128.6 124.1 119.2
Adjustments and eliminations (376.3) (388.6) (344.5)
Corporate and unallocated 251.5 170.5 272.6
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 6,957.9 6,505.9 6,332.2
-------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Oil and gas 95.1 70.8 120.8
Transmission 137.2 114.2 152.9
Distribution 117.8 99.7 98.0
Other energy 11.2 15.0 10.2
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 361.3 299.7 381.9
-------------------------------------------------------------------------------------------------------
</TABLE>
94
<PAGE> 95
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data does not always reveal the trend of the System's
business operations due to bankruptcy matters, nonrecurring items and
seasonal weather patterns which affect earnings and related components of
operating revenues and expenses.
<TABLE>
<CAPTION>
First Second Third Fourth
($ in millions except per share data) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Operating Revenues 1,222.6 592.9 565.5 1,010.2
Operating Income 223.1 1.5 2.5 146.3
Net Income (Loss) 139.8 (a) (2.6) (b) (54.4) (c) 69.4 (d)
Per Share Amounts
Earnings (Loss) on Common Stock 2.77 (0.06) (1.07) 1.37
----------------------------------------------------------------------------------------------------
1992
Operating Revenues 1,032.2 522.1 432.2 935.5
Operating Income (Loss) 21.1 54.5 (63.0) 150.3
Income (Loss) before Extraordinary
Item 10.8 (e) 30.7 (f) (38.4) (g) 87.8 (h)
Extraordinary Item - - (39.7) -
Net Income (Loss) 10.8 30.7 (78.1) 87.8
Per Share Amounts
Earnings (Loss) before Extraordinary
Item 0.21 0.61 (0.76) 1.73
Extraordinary Item - - (0.78) -
Earnings (Loss) on Common Stock 0.21 0.61 (1.54) 1.73
----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes an increase in net income of $13.2 million for the reversal
of rate reserves to reflect the outcome of rate cases related to the
transmission segment. The effect of not recording interest expense
on prepetition debt improved net income $38.2 million.
(b) Includes a decrease in net income of $37.9 million to record a
writedown in the investment in the Cove Point LNG facility and a
decrease in net income of $7.4 million to record the estimated loss
on the sale of storage inventory. The effect of not recording
interest expense on prepetition debt improved net income $36.0
million.
(c) Includes a decrease in net income of $40.4 million to record the
effect of a preliminary settlement with the IRS, a decrease in net
income of $13.0 million to record a liability for future
environmental remediation costs, a decrease in net income of $9.8
million to reflect the effect of the higher federal corporate tax
rate and a decrease in net income of $9.8 million for several
smaller unusual items. The effect of not recording interest expense
on prepetition debt improved net income $33.8 million.
(d) Includes an increase in net income of $13.5 million for gas
inventory charges collected from customers and an increase in net
income of $12.8 million for the WACOG surcharge collected from
customers, partially offset by a decrease in net income of $12.6
million for an adjustment to interest income for pipeline direct
billings. The effect of not recording interest expense on
prepetition debt improved net income $30.1 million.
(e) Includes a decrease in net income of $83.4 million to record a
writedown in the carrying value of U.S. oil and gas properties. The
effect of not recording interest expense on prepetition debt
improved net income $36.8 million.
(f) The effect of not recording interest expense on prepetition debt
improved net income $36.0 million.
(g) Includes a decrease in net income of $39.2 million to record a
liability for future environmental remediation costs and a decrease
in net income of $24.2 million to record a provision for gas supply
charges. The effect of not recording interest expense on
prepetition debt improved net income $36.6 million.
(h) Includes an increase in net income of $13.1 million for gas
inventory charges collected from customers. The effect of not
recording interest expense on prepetition debt improved net income
$39.1 million.
95
<PAGE> 96
18. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
INTRODUCTION. Reserve information contained in the following tables for
the U.S. properties is management's estimate, which was reviewed by the
independent consulting firm of Ryder Scott Company Petroleum Engineers.
Reserves are reported as net working interest. Gross revenues are
reported after deduction of royalty interest payments.
The Corporation sold its Canadian subsidiary to Anderson Exploration Ltd.
of Calgary effective December 31, 1991. In 1991 the oil and gas operations
of the Canadian subsidiary resulted in a $24.4 million loss. Accordingly,
the reserve and other information for the Canadian properties are not
included in the tables for 1991, 1992 and 1993.
<TABLE>
<CAPTION>
CAPITALIZED COSTS
-----------------------------------------------------------------------------
($ in millions) 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITALIZED COSTS AT YEAR END
Proved properties 1,129.6 1,111.5 1,086.9
Unproved properties (a) 79.1 78.9 80.7
-----------------------------------------------------------------------------
Total capitalized costs 1,208.7 1,190.4 1,167.6
Accumulated depletion (600.0) (602.1) (441.3)
-----------------------------------------------------------------------------
NET CAPITALIZED COSTS 608.7 588.3 726.3
-----------------------------------------------------------------------------
COSTS CAPITALIZED DURING YEAR
Acquisition
Proved properties - 0.2 -
Unproved properties 7.1 4.6 6.4
Exploration 17.5 25.8 32.8
Development 70.1 39.7 62.9
-----------------------------------------------------------------------------
COSTS CAPITALIZED 94.7 70.3 102.1
-----------------------------------------------------------------------------
</TABLE>
(a) Represents expenditures associated with properties on which
evaluations have not been completed.
<TABLE>
<CAPTION>
HISTORICAL RESULTS
OF OPERATIONS
-----------------------------------------------------------------------------
($ in millions) 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues
Unaffiliated 181.7 183.9 181.8
Affiliated 40.9 13.2 14.1
Production costs 50.6 50.5 41.6
Depletion 73.5 209.4 (a) 82.1
Income tax expense 34.5 (25.0) 22.8
-----------------------------------------------------------------------------
RESULTS OF OPERATIONS 64.0 (37.8) 49.4
-----------------------------------------------------------------------------
</TABLE>
Results of operations for producing activities exclude administrative and
general costs, corporate overhead and interest expense.
Income tax expense is expressed at statutory rates less Section 29
credits.
(a) Includes writedown of the carrying value of $126.4 million for 1992.
96
<PAGE> 97
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
<TABLE>
<CAPTION>
OTHER OIL AND GAS PRODUCTION DATA
-----------------------------------------------------------------------------
1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Average sales price per Mcf of gas ($) 2.28 2.02 1.88
Average sales price per barrel of oil and
other liquids ($) 16.17 18.20 22.18
Production (lifting) cost per dollar of
gross revenue ($) 0.23 0.26 0.21
Depletion rate per dollar of
gross revenue ($) 0.33 0.42 0.42
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RESERVE QUANTITY INFORMATION
-----------------------------------------------------------------------------
Oil and Other
Gas Liquids
Proved Reserves (Bcf) (000 Bbls)
-----------------------------------------------------------------------------
<S> <C> <C>
Reserves as of December 31, 1990 812.5 14,741
Revisions of previous estimate 14.2 (854)
Extensions, discoveries and
other additions 62.7 4,514
Production (70.1) (2,833)
Sale of minerals-in-place (11.2) -
-----------------------------------------------------------------------------
Reserves as of December 31, 1991 808.1 15,568
Revisions of previous estimate (9.1) (946)
Extensions, discoveries and other
additions 51.3 3,089
Production (69.2) (3,061)
Sale of minerals-in-place (1.6) -
-----------------------------------------------------------------------------
Reserves as of December 31, 1992 779.5 14,650
Revisions of previous estimate (60.1) (589)
Extensions, discoveries and
other additions 52.4 2,334
Production (71.5) (3,603)
Sale of minerals-in-place (3.3) -
-----------------------------------------------------------------------------
RESERVES AS OF DECEMBER 31, 1993 697.0 12,792
-----------------------------------------------------------------------------
Proved developed reserves as of December 31,
1991 697.7 13,338
1992 664.4 13,143
1993 573.7 10,793
-----------------------------------------------------------------------------
</TABLE>
97
<PAGE> 98
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
($ in millions) 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows 2,206.4 2,568.9 2,152.3
Future production costs (508.0) (562.3) (511.9)
Future development costs (172.0) (162.9) (157.8)
Future income tax expense (463.0) (546.4) (411.6)
-----------------------------------------------------------------------------
Future net cash flows 1,063.4 1,297.3 1,071.0
Less 10% discount 512.0 636.2 504.0
-----------------------------------------------------------------------------
STANDARDIZED MEASURE OF
DISCOUNTED FUTURE
NET CASH FLOWS 551.4 661.1 567.0
-----------------------------------------------------------------------------
</TABLE>
Future cash inflows are computed by applying year-end prices to estimated
future production of proved oil and gas reserves. Future expenditures
(based on year-end costs) represent those costs to be incurred in
developing and producing the reserves. Discounted future net cash flows
are derived by applying a 10% discount rate, as required by the Financial
Accounting Standards Board, to the future net cash flows. This data is
not intended to reflect the actual economic value of the Corporation's
oil and gas producing properties or the true present value of estimated
future cash flows since many arbitrary assumptions are used. The data
does provide a means of comparison among companies through the use of
standardized measurement techniques.
98
<PAGE> 99
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
A reconciliation of the components resulting in changes in the
standardized measure of discounted cash flows attributable to proved oil
and gas reserves for the three years ending December 31, 1993, follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
($ in millions) 1993 1992 1991
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year 661.1 567.0 669.7
------------------------------------------------------------------------------------------------
Oil and gas sales,
net of production
costs (172.0) (146.6) (154.3)
Net changes in prices
and production costs (56.5) 210.4 (140.0)
Change in future
development costs (9.2) (5.1) 7.6
Extensions, discoveries
and other additions,
net of related costs 66.9 81.0 84.4
Revisions of previous
estimates, net of
related costs (71.1) (18.0) 8.9
Sale of reserves (4.4) (2.4) (15.8)
Accretion of discount 92.4 76.9 93.5
Net change in income
taxes 36.8 (61.3) 64.4
Timing of production
and other changes 7.4 (40.8) (51.4)
------------------------------------------------------------------------------------------------
END OF YEAR 551.4 661.1 567.0
------------------------------------------------------------------------------------------------
</TABLE>
The estimated discounted future net cash flows decreased during 1993
primarily due to net changes in prices and production costs and revisions
to the economic feasibility of producing certain wells. The standardized
measure of the Corporation's oil and gas properties can be influenced by
affiliated and unaffiliated pipeline transportation rate design (which
continues to be evaluated by the FERC).
99
<PAGE> 100
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Schedule I
----------
Page 1 of 2
MARKETABLE SECURITIES - OTHER INVESTMENTS
The Columbia Gas System, Inc. and Subsidiaries
December 31, 1993
($ in Millions)
<TABLE>
<CAPTION>
Amount at
Market which Carried
Description* Principal Amount Cost Value** in Balance Sheet**
- ------------ ---------------- ---- ------- ------------------
<S> <C> <C> <C> <C>
U. S. Government Securities 291.0 291.8 291.8 291.8
U. S. Government
Agency Securities 115.0 114.9 114.9 114.9
Foreign Banks 141.2 140.9 140.9 140.9
Other Foreign 152.0 151.1 151.1 151.1
Industrial 375.8 374.2 374.2 374.2
Insurance 15.0 14.9 14.9 14.9
Commercial Paper Supported
by Letters of Credit 136.0 135.4 135.4 135.4
Securities Dealers 65.0 64.7 64.7 64.7
U. S. Banks 48.0 47.8 47.8 47.8
--------
Sub-total of Marketable Securities 1,335.7
Cash 4.7
--------
Total Cash and Temporary Cash Investments in Consolidated Balance Sheet 1,340.4
========
</TABLE>
* The short-term investment portfolio consists of numerous securities with
similar market characteristics such as credit quality, maturity and
marketability. These include bills, notes and bonds issued by the U.S.
Government or its agencies (either purchased directly for the System or
through repurchase agreements) and money market instruments issued by
foreign and domestic corporations. Such instruments include commercial
paper and bank certificates of deposit.
** As these securities are short-term in nature, their carrying amount
approximates market value.
100
<PAGE> 101
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Schedule I
----------
Page 2 of 2
MARKETABLE SECURITIES - OTHER INVESTMENTS
The Columbia Gas System, Inc. and Subsidiaries
December 31, 1992
($ in Millions)
<TABLE>
<CAPTION>
Amount at
Market which Carried
Description* Principal Amount Cost Value** in Balance Sheet**
- ------------ ---------------- ---- ------- ------------------
<S> <C> <C> <C> <C>
U. S. Government Securities 99.7 99.7 99.7 99.7
U. S. Government
Agency Securities 97.5 96.8 96.8 96.8
Foreign Banks 120.0 119.0 119.0 119.0
Other Foreign 60.0 59.6 59.6 59.6
Industrial 105.0 104.2 104.2 104.2
Insurance 83.0 82.6 82.6 82.6
Commercial Paper Supported
by Letters of Credit 67.0 66.6 66.6 66.6
Securities Dealers 45.0 44.8 44.8 44.8
U. S. Banks 15.0 14.9 14.9 14.9
Other 120.0 119.4 119.4 119.4
------
Sub-total of Marketable Securities 807.6
Cash 13.0
------
Total Cash and Temporary Cash
Investments in Consolidated
Balance Sheet 820.6
======
</TABLE>
* The short-term investment portfolio consists of numerous securities with
similar market characteristics such as credit quality, maturity and
marketability. These include bills, notes and bonds issued by the U.S.
Government or its agencies (either purchased directly for the System or
through repurchase agreements) and money market instruments issued by
foreign and domestic corporations. Such instruments include commercial
paper and bank certificates of deposit.
** As these securities are short-term in nature, their carrying amount
approximates market value.
101
<PAGE> 102
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
PROPERTY, PLANT AND EQUIPMENT Schedule V
The Columbia Gas System, Inc. and Subsidiaries ----------
Year Ended December 31, 1993 Page 1 of 3
($ in Millions)
<TABLE>
<CAPTION>
Beginning Additions Other Ending
Balance At Cost Retirements Changes Balance
--------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 1,190.4 94.7 71.0 (5.4) (a) 1,208.7
Other General Plant 4.2 0.4 - (0.1) 4.5
--------- --------- --------- --------- ---------
Total 1,194.6 95.1 71.0 (5.5) 1,213.2
--------- --------- --------- --------- ---------
Transmission
Transmission 2,974.0 99.1 23.2 (0.1) 3,049.8
Storage 808.3 22.4 1.1 3.9 (b) 833.5
Other 390.6 15.7 13.6 - 392.7
--------- --------- --------- --------- ---------
Total 4,172.9 137.2 37.9 3.8 4,276.0
--------- --------- --------- --------- ---------
Distribution
Distribution 1,752.8 114.2 7.1 (0.2) 1,859.7
Other 93.8 3.6 3.3 (0.1) 94.0
--------- --------- --------- --------- ---------
Total 1,846.6 117.8 10.4 (0.3) 1,953.7
--------- --------- --------- --------- ---------
Other Energy
Propane 37.3 2.8 0.4 - 39.7
Other 54.7 1.6 (c) 0.2 (0.2) 55.9
--------- --------- --------- --------- ---------
Total 92.0 4.4 0.6 (0.2) 95.6
--------- --------- --------- --------- ---------
Total Property, Plant and
Equipment 7,306.1 354.5 119.9 (2.2) 7,538.5
========= ========= ========= ========= =========
</TABLE>
(a) Primarily reflects well sales by Columbia Natural Resources, Inc. ($5.5
million).
(b) Primarily reflects Columbia Transmission's transfer of 1.3 Bcf from
current gas inventory.
(c) Excludes capital expenditures related to "Investments and Other Assets"
($6.8 million).
NOTE:Construction work in progress for Gas Utility Plant was $56.7 million as
of December 31, 1993.
102
<PAGE> 103
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
PROPERTY, PLANT AND EQUIPMENT Schedule V
The Columbia Gas System, Inc. and Subsidiaries ----------
Year Ended December 31, 1992 Page 2 of 3
($ in Millions)
<TABLE>
<CAPTION>
Beginning Additions Other Ending
Balance At Cost Retirements Changes Balance
--------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 1,167.6 70.3 48.7 1.2 1,190.4
Other General Plant 17.7 0.5 0.7 (13.3) 4.2
--------- --------- --------- --------- ---------
Total 1,185.3 70.8 49.4 (12.1) (a) 1,194.6
--------- --------- --------- --------- ---------
Transmission
Transmission 2,898.2 86.8 10.7 (0.3) 2,974.0
Storage 813.8 25.3 1.2 (29.6) (c) 808.3
Other 393.7 2.1 2.8 (2.4) 390.6
--------- --------- --------- --------- ---------
Total 4,105.7 114.2 14.7 (32.3) 4,172.9
--------- --------- --------- --------- ---------
Distribution
Distribution 1,661.7 95.0 7.2 3.3 (a) 1,752.8
Other 91.0 4.7 2.7 0.8 93.8
--------- --------- --------- --------- ---------
Total 1,752.7 99.7 9.9 4.1 1,846.6
--------- --------- --------- --------- ---------
Other Energy
Propane 35.2 2.5 0.6 0.2 37.3
Other 50.4 6.4 (b) 0.1 (2.0) 54.7
--------- --------- --------- --------- ---------
Total 85.6 8.9 0.7 (1.8) 92.0
--------- --------- --------- --------- ---------
Total Property, Plant and
Equipment 7,129.3 293.6 74.7 (42.1) 7,306.1
========= ========= ========= ========= =========
</TABLE>
(a) Primarily reflects the net transfer of assets from Inland Gas Company (Oil
and Gas - $5.5 million) to Columbia Gas of Kentucky, Inc. (Distribution
$5.5 million), and sales of assets by Columbia Natural Resources, Inc.
(Oil and Gas - $4.9 million).
(b) Excludes capital expenditures related to "Investments and Other Assets"
($6.1 million).
(c) Primarily reflects Columbia Transmission's transfer of
9.7 Bcf of gas to current gas inventory.
NOTE:Construction work in progress for Gas Utility Plant was $55.9 million as
of December 31, 1992.
103
<PAGE> 104
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
PROPERTY, PLANT AND EQUIPMENT Schedule V
The Columbia Gas System, Inc. and Subsidiaries ----------
Year Ended December 31, 1991 Page 3 of 3
($ in Millions)
<TABLE>
<CAPTION>
Beginning Additions Other Ending
Balance At Cost Retirements Changes Balance
--------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 1,130.7 102.1 54.5 (10.7) (a) 1,167.6
Canadian Cost Center 260.2 16.7 - (276.9) (b,c) -
Other General Plant 5.2 2.0 2.5 13.0 (c,d) 17.7
--------- --------- --------- --------- -------
Total 1,396.1 120.8 57.0 (274.6) 1,185.3
--------- --------- --------- --------- -------
Transmission
Transmission 2,777.8 130.8 10.5 0.1 2,898.2
Storage 810.0 4.4 0.6 - 813.8
LNG - Cove Point 202.2 - - (202.2) (e) -
Other 392.9 17.7 14.9 (2.0) 393.7
--------- --------- --------- --------- --------
Total 4,182.9 152.9 26.0 (204.1) 4,105.7
--------- --------- --------- --------- --------
Distribution
Distribution 1,640.2 92.6 7.4 (63.7) (d,f) 1,661.7
Other 102.6 5.4 2.4 (14.6) (d,f) 91.0
--------- --------- --------- --------- -------
Total 1,742.8 98.0 9.8 (78.3) 1,752.7
--------- --------- --------- --------- -------
Other Energy
Propane 34.6 1.7 1.1 - 35.2
Other 48.6 3.5 (g) 1.7 - 50.4
--------- --------- --------- --------- -------
Total 83.2 5.2 2.8 - 85.6
--------- --------- --------- --------- -------
Total Property, Plant and
Equipment 7,405.0 376.9 95.6 (557.0) 7,129.3
========= ========= ========= ========= ========
</TABLE>
(a) Reflects sales of assets by Columbia Natural Resources, Inc.
(b) Includes foreign currency translation adjustment applicable to Canadian
property ($1.1 million).
(c) Includes the sale of Columbia Gas Development of Canada Ltd. in a
transaction completed in January 1992, effective December 31, 1991.
(Canadian Cost Center - $276.5 million and Other General Plant - $1.8
million).
(d) Includes reclassification of certain Inland Gas Company assets from
Distribution properties (Distribution - $7.7 million and Other - $7.0
million) to Oil and Gas properties (Other General Plant $14.7 million).
(e) Reflects the deconsolidation of Columbia LNG Corporation, now recorded as
"Investment in Columbia LNG Corporation".
(f) Includes the sale of Columbia Gas of New York, Inc. in a transaction
completed in April 1991 (Distribution - $55.4 million and Other - $5.6
million).
(g) Excludes capital expenditures related to "Investments and Other Assets"
($5.1 million).
NOTE:Construction work in progress for Gas Utility Plant was $52.1 million as
of December 31, 1991.
104
<PAGE> 105
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ACCUMULATED DEPRECIATION AND DEPLETION OF PROPERTY,
PLANT AND EQUIPMENT Schedule VI
The Columbia Gas System, Inc. and Subsidiaries -----------
Year Ended December 31, 1993 Page 1 of 3
($ in Millions)
<TABLE>
<CAPTION>
Charged to
------------------
Beginning Other Other Ending
Balance Income Accounts Retirements Changes Balance
--------- ------ -------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 602.1 73.5 - 71.0 (4.6) 600.0
Other General Plant 1.7 0.4 - - (0.2) 1.9
--------- --------- --------- --------- --------- ---------
Total 603.8 73.9 - 71.0 (4.8) 601.9
--------- --------- --------- --------- --------- ---------
Transmission
Transmission 1,734.6 66.2 - 23.2 4.6 1,782.2
Storage 266.3 11.6 - 1.1 (0.3) 276.5
Other 222.2 20.0 - 13.6 2.8 231.4
--------- --------- --------- --------- --------- ---------
Total 2,223.1 97.8 - 37.9 7.1 2,290.1
--------- --------- --------- --------- --------- ---------
Distribution
Distribution 638.6 54.9 - 7.1 (3.4) 683.0
Other 33.3 7.3 - 3.3 0.3 37.6
--------- --------- ---------- --------- --------- ---------
Total 671.9 62.2 - 10.4 (3.1) 720.6
--------- --------- --------- --------- --------- ---------
Other Energy
Propane 15.0 2.0 - 0.4 (0.1) 16.5
Other 15.7 3.9 - 0.2 (0.1) 19.3
--------- --------- --------- --------- --------- ---------
Total 30.7 5.9 - 0.6 (0.2) 35.8
--------- --------- ---------- --------- --------- ---------
Total Accumulated
Depreciation and Depletion 3,529.5 239.8 - 119.9 (1.0) 3,648.4
========= ========= ========= ========= ========= =========
</TABLE>
NOTE:"Other Changes" generally includes reductions for property sold and the
cost of retiring property, offset by salvage on property retired and
miscellaneous items.
105
<PAGE> 106
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ACCUMULATED DEPRECIATION AND DEPLETION OF PROPERTY,
PLANT AND EQUIPMENT Schedule VI
The Columbia Gas System, Inc. and Subsidiaries -----------
Year Ended December 31, 1992 Page 2 of 3
($ in Millions)
<TABLE>
<CAPTION>
Charged to
------------------
Beginning Other Other Ending
Balance Income Accounts Retirements Changes Balance
--------- ------ -------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 441.3 209.4 (a) - 48.7 0.1 602.1
Other General Plant 10.8 0.6 - 0.7 (9.0) 1.7
--------- --------- ------- --------- --------- ---------
Total 452.1 210.0 - 49.4 (8.9) (b) 603.8
--------- --------- ------- --------- --------- ---------
Transmission
Transmission 1,680.7 65.1 - 10.7 (0.5) 1,734.6
Storage 256.9 10.9 - 1.2 (0.3) 266.3
Other 206.9 19.6 - 2.8 (1.5) 222.2
--------- --------- ------- --------- --------- ---------
Total 2,144.5 95.6 - 14.7 (2.3) 2,223.1
--------- --------- ------- --------- --------- ---------
Distribution
Distribution 594.7 51.5 - 7.2 (0.4) 638.6
Other 29.3 6.1 - 2.7 0.6 33.3
--------- --------- ------- --------- --------- ---------
Total 624.0 57.6 - 9.9 0.2 671.9
--------- --------- ------- --------- --------- ---------
Other Energy
Propane 13.6 1.9 - 0.6 0.1 15.0
Other 12.7 3.0 - 0.1 0.1 15.7
--------- --------- ------- --------- --------- ---------
Total 26.3 4.9 - 0.7 0.2 30.7
--------- --------- ------- --------- --------- ---------
Total Accumulated
Depreciation and Depletion 3,246.9 368.1 - 74.7 (10.8) 3,529.5
========= ========= ======= ========= ========= =========
</TABLE>
NOTE:"Other Changes" generally includes reductions for property sold and the
cost of retiring property, offset by salvage on property retired, and
miscellaneous items. Significant items are noted below.
(a) Includes a writedown in the carrying value of the United States Cost
Center ($126.4 million).
(b) Primarily reflects the net transfer of assets from Inland Gas Company (Oil
and Gas - $3.4 million) to Columbia Gas of Kentucky, Inc. and sales of
assets by Columbia Natural Resources, Inc. (Oil and Gas - $5.5 million).
106
<PAGE> 107
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ACCUMULATED DEPRECIATION AND DEPLETION OF PROPERTY,
PLANT AND EQUIPMENT Schedule VI
The Columbia Gas System, Inc. and Subsidiaries -----------
Year Ended December 31, 1991 Page 3 of 3
($ in Millions)
<TABLE>
<CAPTION>
Charged to
------------------
Beginning Other Other Ending
Balance Income Accounts Retirements Changes Balance
--------- ------ -------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Oil and Gas
United States Cost Center 422.0 82.1 - 54.5 (8.3) 441.3
Canadian Cost Center 118.8 72.3 (a) - - (191.1) (b) -
Other General Plant 2.3 0.9 (0.1) 2.5 10.2 (b,c) 10.8
--------- --------- ------- --------- --------- ---------
Total 543.1 155.3 (0.1) 57.0 (189.2) 452.1
--------- --------- ------- --------- --------- ---------
Transmission
Transmission 1,625.3 63.2 - 10.5 2.7 1,680.7
Storage 246.8 10.6 - 0.6 0.1 256.9
LNG - Cove Point 110.5 (0.9) (0.9) - (108.7) (d) -
Other 200.0 17.5 - 14.9 4.3 206.9
--------- --------- ------- --------- --------- ---------
Total 2,182.6 90.4 (0.9) 26.0 (101.6) 2,144.5
--------- --------- ------- --------- --------- ---------
Distribution
Distribution 569.4 55.3 - 7.4 (22.6) (c,e) 594.7
Other 34.7 5.2 - 2.4 (8.2) (c,e) 29.3
--------- --------- ------- --------- --------- ---------
Total 604.1 60.5 - 9.8 (30.8) 624.0
--------- --------- ------- --------- --------- ---------
Other Energy
Propane 12.6 2.0 - 1.1 0.1 13.6
Other 12.0 2.0 - 1.7 0.4 12.7
--------- --------- ------- --------- --------- ---------
Total 24.6 4.0 - 2.8 0.5 26.3
--------- --------- ------- --------- --------- ---------
Total Accumulated
Depreciation and Depletion 3,354.4 310.2 (1.0) 95.6 (321.1) 3,246.9
========= ========= ======= ========= ========= =========
</TABLE>
Note:"Other Changes" generally includes reductions for property sold and the
cost of retiring property, offset by salvage on property retired, and
miscellaneous items. Significant items are noted below.
(a) Includes writedowns to reduce the carrying value of the Canadian Cost
Center ($61.6 million). A portion of the writedown was recorded in
"Cumulative Effect of Change in Accounting for Income Taxes" ($25.2
million) in connection with the adoption of SFAS No. 96.
(b) Includes the sale of Columbia Gas Development of Canada Ltd. in a
transaction completed in January 1992, effective December 31, 1991.
(Canadian Cost Center - $191.1 million and Other General Plant - $1.1
million).
(c) Includes reclassification of certain Inland Gas Company assets from
Distribution properties (Distribution - $5.1 million and Other - $5.4
million) to Oil and Gas properties (Other General Plant $11.3 million).
(d) Reflects the deconsolidation of Columbia LNG Corporation, now recorded as
"Investment in Columbia LNG Corporation".
(e) Includes the sale of Columbia Gas of New York, Inc. in a transaction
completed in April 1991 (Distribution - $14.6 million and Other - $3.0
million).
107
<PAGE> 108
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Schedule VIII
-------------
VALUATION AND QUALIFYING ACCOUNTS
The Columbia Gas System, Inc. and Subsidiaries
Year Ended December 31,
($ in Millions)
<TABLE>
<CAPTION>
Additions - Charged to
------------------------
Beginning Other Deductions Ending
Description Balance Income Accounts (a) (b) Balance
- ----------- --------- ------ ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Reserves deducted in the balance sheet
from the assets to which they apply:
Allowance for doubtful accounts
1993 11.8 17.9 12.6 30.5 11.8
1992 9.7 17.9 9.4 25.2 11.8
1991 8.3 18.0 7.6 24.2 9.7
</TABLE>
(a) Reflects reclassification to a regulatory asset of the uncollectible
accounts related to the Percent of Income Plan (PIP) of Columbia Gas of
Ohio, Inc.
(b) Principally reflects amounts charged off as uncollectible less amounts
recovered.
108
<PAGE> 109
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
SHORT-TERM BORROWINGS (A) Schedule IX
The Columbia Gas System, Inc. and Subsidiaries -----------
($ in Millions) Page 1 of 2
<TABLE>
<CAPTION>
Weighted Maximum Average Weighted
Average Amount Amount Average
Category of Aggregate Balance Interest Outstanding Outstanding Interest Rate
Short-Term at End of Rate at End During the During the During the
Borrowings (a) Period of Period Period Period Period (b)
- ----------------------- ------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Commercial Paper (In Default) (a) (a) (a) (a) (a)
Bank Loans (In Default) (a) (a) (a) (a) (a)
Debtor-In-Possession
Financing (Corporation) (c) - - - - -
Debtor-In-Possession
Financing (Columbia
Transmission) (c) - - - - -
December 31, 1992
Commercial Paper (In Default) (a) (a) (a) (a) (a)
Bank Loans (In Default) (a) (a) (a) (a) (a)
Debtor-In-Possession
Financing (Corporation) (c) - - 136.0 6.6 7.3%
Debtor-In-Possession
Financing (Columbia
Transmission) (c) - - - - -
December 31, 1991
Commercial Paper (In Default) (d) (a) (a) 362.0 231.5 7.0%
Bank Loans (In Default) (d) (a) (a) 630.0 497.5 7.4%
Debtor-In-Possession
Financing (Corporation) (c) 136.0 7.2% 173.0 91.5 8.0%
Debtor-In-Possession
Financing (Columbia
Transmission) (c) - - 5.4 3.7 9.9%
</TABLE>
(a) Prior to June 19, 1991, certain working capital requirements of the
Corporation and its subsidiaries were met through the sale of commercial
paper, through notes sold directly to commercial banks and/or through
borrowings under bank lines of credit. The commercial paper was sold
through dealers with maturities ranging from one day to nine months. The
Corporation maintained a $500 million revolving short-term committed line
of credit, for which participating banks were paid fees of 1/8% per annum
on the total facility and 1/16% per annum on the unused portion of the
facility. In addition, a $750 million revolving
109
<PAGE> 110
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
SHORT-TERM BORROWINGS (A) Schedule IX
The Columbia Gas System, Inc. and Subsidiaries -----------
($ in Millions) Page 2 of 2
subordinated committed line of credit was maintained, for which
participating banks were paid 3/8% per annum on the unused portion of the
facility. Loans under the lines of credit bore interest according to
rate options based on prime, bank certificates of deposit or the London
InterBank Offered Rate. Since its Chapter 11 filing, the Corporation has
had $266.5 million of commercial paper and $621 million of bank loans in
default under these facilities.
For periods subsequent to the Chapter 11 filings, Debtor-In-Possession
(DIP) Financing facilities were established by the Corporation and
Columbia Transmission. The Corporation has available up to $100 million,
reduced from $200 million on June 18, 1993, under its DIP Financing
facility. Borrowings are at the agent's per annum alternate reference
rate plus 1% or the Eurodollar Rate plus 2-1/4% (for either 1, 2 or 3
months). Also, the Corporation is subject to a commitment fee of
one-half of 1% per annum on the average daily unused amount of the
facility. Additionally, Columbia Transmission's separate DIP facility
initially of up to $80 million was reduced to $25 million, on November
29, 1991, which is only available for the issuances of Letters of Credit.
Borrowings were at the agent's per annum alternate reference rate plus
1-1/2% or the Eurodollar Rate plus 2-3/4% (for either 1, 2 or 3 months).
Columbia Transmission is also subject to a commitment fee of one-half of
1% per annum on the average daily unused amount of the facility.
For additional information regarding these DIP facilities, reference is
made to pages 51 and 52 of Management's Discussion and Analysis in Item 7
and Note 10 in Item 8 on page 83. Reference is also made to the DIP
Financing Exhibits 10-BR, 10-CB, 10-CC, 10-CD, 10-CF, 10- CG, 10-CH,
10-CK and 10-CL included or incorporated by reference, in this filing.
(b) Based on actual interest expense divided by the average daily borrowings
outstanding during the period.
(c) The Corporation did not have any amounts outstanding under its DIP
facility during 1993. However, the Corporation's facility was used
during the periods January 1, 1992 through December 31, 1992 and August
20, 1991 through December 31, 1991. Columbia Transmission did not have
any amounts outstanding under its DIP facility during 1993 and 1992.
However, the facility was used during the period of August 6, 1991
through August 21, 1991. Both the Corporation's and Columbia
Transmission's DIP facilities include the availability of letters of
credit of up to $50 million and $25 million, respectively. As of
December 31, 1993, $12.8 million and $1.8 million of letters of credit
were outstanding under the Corporation's and Columbia Transmission's DIP
facilities, respectively.
(d) The period used in calculating the amounts for short-term financing was
from January 1, 1991 through June 18, 1991. This period represents the
time during which the Corporation was not in default of its loan
agreements.
110
<PAGE> 111
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Schedule X
----------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
The Columbia Gas System, Inc. and Subsidiaries
($ Millions)
<TABLE>
<CAPTION>
Charged to Costs and Expenses
----------------------------------------------------------
Item 1993 1992 1991
- ------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs 165.5 157.1 120.8
Taxes other than payroll and
income taxes:
Property taxes 76.0 80.5 82.2
Gross receipts taxes 81.3 73.9 72.5
</TABLE>
Depreciation and amortization of intangible assets, pre-operating costs and
similar deferrals, royalties and advertising costs have been omitted inasmuch
as the amounts are not in excess of one percent of total revenues as reported
in the Statements of Consolidated Income.
111
<PAGE> 112
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has not been a change of accountants nor any disagreements concerning
accounting and financial disclosure within the past two years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is contained in the Corporation's Proxy
Statement related to the 1993 Annual Meeting of Stockholders, filed pursuant
to Section 14 of the Securities Exchange Act of 1934 and is incorporated herein
by reference.
Information regarding the System's executive officers, who are elected annually
by the directors, is as follows:
The Columbia Gas System, Inc.
JOHN H. CROOM, 61, Chairman of the Board, President and Chief
Executive Officer of the Corporation since August 1984.
DANIEL L. BELL, JR., 64, Senior Vice President and Chief Legal
Officer of the Corporation since January 1989, Corporate Secretary
since January 1988. Senior Vice President of Columbia's Service
Corporation since September 1979.
LOGAN W. WALLINGFORD, 61, Senior Vice President of Columbia Gas
System Service Corporation since March 1989. Senior Vice
President of Planning and Storage for Columbia Transmission from
July 1988 to February 1989, Senior Vice President, Gas Acquisition
from July 1987 to June 1988, Vice President of Planning from March
1985 to June 1987.
RICHARD E. LOWE, 53, Vice President of the Corporation and
Columbia Gas System Service Corporation since September 1988.
Vice President and General Auditor of Columbia Gas System Service
Corporation from April 1987 to August 1988. Treasurer of Columbia
Gas Development Corporation from April 1979 to March 1987.
JAMES P. HOLLAND, 45, Chairman and Chief Executive Officer of
Columbia Transmission and Columbia Gulf Transmission Company since
September 1990. President of Columbia Transmission from May 1988
to August 1990. President of Columbia Gulf Transmission Company
from October 1989 to August 1990. Senior Vice President of
Marketing of Columbia Transmission from July 1987 to April 1988,
Senior Vice President of Gas Procurement from January 1986 to June
1987.
C. RONALD TILLEY, 56, Chairman and Chief Executive Officer of
Columbia Distribution Companies since January 1987.
MICHAEL W. O'DONNELL, 49, Senior Vice President and Chief
Financial Officer of the Corporation since October 1993. Senior
Vice President and Assistant Chief Financial Officer of the
Columbia Gas System Service Corporation since 1989.
112
<PAGE> 113
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is contained in the Corporation's Proxy
Statement related to the 1993 Annual Meeting of Stockholders, filed pursuant to
Section 14 of the Securities Exchange Act of 1934 and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Corporation's Proxy
Statement related to the 1993 Annual Meeting of Stockholders, filed pursuant to
Section 14 of the Securities Exchange Act of 1934 and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Corporation's Proxy
Statement related to the 1993 Annual Meeting of Stockholders, filed pursuant to
Section 14 of the Securities Exchange Act of 1934 and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Exhibits
Reference is made to pages 116 through 120 for the list of exhibits filed as a
part of this Annual Report on Form 10-K.
Pursuant to Item 601(b), paragraph (4)(iii)(A) of Regulation S-K, certain
instruments representing long-term debt of the Corporation or its subsidiaries
have not been included as Exhibits because such debt does not exceed 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis.
The Corporation agrees to furnish a copy of any such instrument to the SEC upon
request.
Financial Statement Schedules
All of the financial statements and financial statement schedules filed as a
part of the Annual Report on Form 10-K are included in Item 8.
Reports on Form 8-K
A report on Form 8-K was filed on November 18, 1993, discussing the retirement
of Mr. John D. Daly, executive vice president of The Columbia Gas System, Inc.
and Columbia Gas System Service Corporation effective December 1, 1993.
A report on Form 8-K was filed on January 3, 1994, discussing the Bankruptcy
Court's approval of the extension to March 22, 1994, that Columbia Transmission
and the Corporation have the exclusive right to file Chapter 11 plans of
reorganization.
A report on Form 8-K was filed on January 19, 1994, discussing Columbia
Transmission's filing of its Chapter 11 Reorganization Plan with the Bankruptcy
Court.
A report on Form 8-K was filed on February 14, 1994, containing a Press Release
published on February 10, 1994, regarding the financial and operating results
for the year ended December 31, 1993.
113
<PAGE> 114
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
Undertaking made in Connection with 1933 Act Compliance on Form S-8
For purposes of complying with the amendments to the rules governing Form S-8
under the Securities Act of 1933, the Corporation undertakes the following,
which is incorporated by reference into the registration statements on Form
S-8, Nos. 33-10004 (filed November 26, 1986) and 33- 42776 (filed September 13,
1991):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (Act) may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
114
<PAGE> 115
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.
THE COLUMBIA GAS SYSTEM, INC.
-----------------------------
(Registrant)
Dated: March 11, 1994
By: /s/ M. W. O'Donnell
----------------------------------------
(M. W. O'Donnell)
Senior Vice President and
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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Signature Title Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ M. W. O'Donnell (Principal March 11, 1994
------------------------- Financial Officer)
(M. W. O'Donnell)
JOHN H. CROOM Director (Principal March 11, 1994
Executive Officer) ]
R. E. LOWE Vice President (Principal
Accounting Officer) ] March 11, 1994
ROBERT H. BEEBY Director ]
THOMAS S. BLAIR Director ]
WILSON K. CADMAN Director ]
JOHN D. DALY Director ]
SHERWOOD L. FAWCETT Director ]
JAMES P. HEFFERNAN Director ]
ROBERT H. HILLENMEYER Director ]
MALCOLM T. HOPKINS Director ]
W. FREDERICK LAIRD Director ] By:/s/ M. W. O'Donnell
] -------------------
WILLIAM E. LAVERY Director ] (M. W. O'Donnell)
GEORGE P. MACNICHOL,III Director ] Attorney-in-Fact
GERALD E. MAYO Director ]
ERNESTA G. PROCOPE Director ]
JAMES R. THOMAS II Director ]
WILLIAM R. WILSON Director ]
</TABLE>
115
<PAGE> 116
EXHIBIT INDEX
-------------
Reference is made in the two right-hand columns below to those
exhibits which have heretofore been filed with the Commission. Exhibits so
referred to are incorporated herein by reference.
<TABLE>
<CAPTION>
Reference
------------------
File No. Exhibit
-------- -------
<S> <C> <C> <C>
3-A - Restated Composite Certificate of Incorporation, 1-1098 3-A
as amended to October 19, 1988; corrected
copy as of July 15, 1991.
3-B - By-Laws of the Corporation, as amended to 1-1098 3-B
November 18, 1987.
4-A - Indenture, dated as of June 1, 1961, between 1-1098 2-C
the Corporation and Morgan Guaranty Trust
Company of New York, Trustee, and thirteen
supplemental indentures thereto.
4-B - Fourteenth Supplemental Indenture, dated as 2-38139 2-P
of April 1, 1970, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-C - Fifteenth Supplemental Indenture, dated as of 2-393340 2-D
October 1, 1970, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-D - Sixteenth Supplemental Indenture, dated as of 2-41557 2-E
March 1, 1971, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-E - Indenture, dated as of June 1, 1961, between 1-1098 4-E
the Corporation and Morgan Guaranty Trust
Company of New York, Trustee, and the
Seventeenth through the Twenty-eighth
supplemental indentures thereto.
4-H - Twenty-ninth Supplemental Indenture, dated as 1-1098 4-H
of June 1, 1982, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-I - Thirtieth Supplemental Indenture, dated as of 1-1098 4-I
January 8, 1986, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-J - Thirty-first Supplemental Indenture, dated 1-1098 4-J
August 1, 1986, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-K - Thirty-second Supplemental Indenture, dated 1-1098 4-K
August 1, 1986, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
</TABLE>
116
<PAGE> 117
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
Reference
------------------
File No. Exhibit
-------- -------
<S> <C> <C> <C>
4-L - Thirty-third Supplemental Indenture, dated 1-1098 4-L
June 1, 1987, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-M - Thirty-fourth Supplemental Indenture, dated 1-1098 4-M
November 1, 1988, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
4-N - Thirty-fifth Supplement Indenture, dated 1-1098 4-N
August 18, 1989, between the Corporation
and Morgan Guaranty Trust Company of
New York, Trustee.
4-0 - Thirty-sixth Supplemental Indenture, dated 1-1098 4-0
November 30, 1989, between the Corporation
and Morgan Guaranty Trust Company of
New York, Trustee.
4-P - Thirty-seventh Supplemental Indenture, dated 1-1098 4-P
June 6, 1990, between the Corporation and
Morgan Guaranty Trust Company of New York,
Trustee.
10-P(a) - Pension Restoration Plan of The Columbia Gas 1-1098 10-P
System, Inc., amended October 9, 1991.
10-Q(a) - Thrift Restoration Plan of The Columbia Gas 1-1098 10-Q
System, Inc. dated January 1, 1989.
10-S - Gas Sales Contract, dated November 15, 1983, 1-1098 10-S
between Tennessee Gas Pipeline Company and
Columbia Gas Transmission Corporation.
10-T* - Agreement and Bridge Agreement dated
December 1, 1993, between Columbia Gas
Transmission Corporation and Consol
Pennsylvania Coal Company.
10-U* - Stipulation dated October 1, 1993, between
Columbia Gas Transmission Corporation and
Tennessee Gas Pipeline Company.
10-V* - Stipulation dated August 24, 1993 between
Columbia Gas Transmission Corporation and
Texas Eastern Transmission Corporation.
10-Z - Amendment, dated as of February 4, 1985, 1-1098 10-Z
to Gas Sales Contract, dated November 15,
1983, between Tennessee Gas Pipeline
Company and Columbia Gas Transmission
Corporation.
10-AN - Indenture of Mortgage and Deed of Trust by 1-1098 10-AN
Columbia Gas Transmission Corporation to
Wilmington Trust Company, as Trustee, dated
August 30, 1985.
</TABLE>
- ---------------
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
*Filed herewith
117
<PAGE> 118
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
Reference
------------------
File No. Exhibit
-------- -------
<S> <C> <C> <C>
10-AZ(a) - The Columbia Gas System, Inc. Long-Term 1-1098 10-AZ
Incentive Plan, amended through January 1,
1987.
10-BB(a) - Annual Incentive Compensation Plan of 1-1098 10-BB
The Columbia Gas System, Inc., dated
November 16, 1988.
10-BD - $500 million Credit Agreement, dated October 5, 1988 1-1098 10-BD
between the Corporation and Morgan Guaranty
Trust Company of New York, as Agent.
10-BG - Letter Agreement, dated February 15,1989, 1-1098 10-BG
between Texas Gas Transmission Corporation
and Columbia Gas Transmission Corporation,
amending the Letter Agreement of
September 12, 1988.
10-BH - Letter Agreement, dated June 15, 1989, between 1-1098 10-BH
Tennessee Gas Pipeline Company and
Columbia Gas Transmission Corporation.
10-BI - Amended and Restated Credit Agreement, dated 1-1098 10-BI
September 17, 1990, between the Corporation
Morgan Guaranty Trust Company of New York,
as Agent.
10-BJ - Gas Sales Contract, dated September 1, 1989, 1-1098 10-BJ
between Tennessee Gas Pipeline Company and
Columbia Gas Transmission Corporation.
10-BK - Gas Sales Contract, dated January 1,1989, 1-1098 10-BK
between Tennessee Gas Pipeline Company,
and Columbia Gas Transmission Corporation.
10-BL - Service Agreement, dated November 1, 1989, 1-1098 10-BL
between Transcontinental Gas Pipe Line
Corporation and Columbia Gas Transmission
Corporation.
10-BR - Secured Revolving Credit Agreement dated 1-1098 10-BR
September 23, 1991, between The Columbia
Gas System Inc. and Manufacturers Hanover Trust
Company, as Agent.
10-BU - Share Sale and Purchase Agreement between The 1-1098 10-BU
Columbia Gas System, Inc. and Anderson Exploration
Ltd. dated November 25, 1991.
10-BV - Security Agreement dated as of January 15, 1992, 1-1098 10-BV
between The Columbia Gas System, Inc. and
Anderson Exploration Ltd. and Montreal Trust
Company of Canada.
</TABLE>
- ---------------------------
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
118
<PAGE> 119
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
Reference
------------------
File No. Exhibit
-------- -------
<S> <C> <C> <C>
10-BW - Kotaneelee Litigation Indemnity Agreement made 1-1098 10-BW
as of December 31, 1991, among The Columbia
Gas System, Inc. and Columbia Gas Development
of Canada Ltd. and Anderson Exploration Ltd.
10-BX - Specified Litigation Indemnity Agreement made 1-1098 10-BX
as of December 31, 1991, among The Columbia
Gas System, Inc. and Columbia Gas Development
of Canada Ltd. and Anderson Exploration Ltd.
10-BY(a) - Columbia Gas Restoration Security Trust 1-1098 10-BY
Agreement dated June 1, 1991 with Dauphin
Deposit Bank and Trust Company.
10-BZ(a)* - Employment Agreements between The Columbia Gas
System, Inc. and seven senior executives, each
dated July 19, 1993.
10-CA(a) - The Columbia Gas System, Inc. Retirement Plan 1-1098 10-CA
for Outside Directors, as amended, August 21, 1991.
10-CB - First Amendment, dated as of October 21, 1991, to the 1-1098 10-CB
Secured Revolving Credit Agreement, dated as of
September 23, 1991, among The Columbia Gas System,
Inc., certain banks party thereto and Manufacturers
Hanover Trust Company as Agent for the banks.
10-CC - Second Amendment, dated as of December 11, 1991, to 1-1098 10-CC
the Secured Revolving Credit Agreement, dated as of
September 23, 1991, among The Columbia Gas System,
Inc., certain banks party thereto and Manufacturers
Hanover Trust Company as Agent for the banks.
10-CD - Amended and Restated Secured Revolving Credit Agreement, 1-1098 10-CD
dated April 2, 1992, between Columbia Gas Transmission
Corporation and Manufacturers Hanover Trust Company
as Agent for banks.
10-CE - Settlement Agreement, dated September 17, 1992, among 1-1098 10-CE
The Columbia Gas System, Inc., Columbia LNG Corporation,
Shell LNG Company, Shell Oil Company, R. J. Pusanik,
L. L. Smith, J. B. Edrington and D. E. Cannon, in
settlement of Columbia LNG., et al. v. Shell LNG Co.,
et. al., Civil Action No. 12663 in the Court of
Chancery of the State of Delaware.
10-CF - Amended and Restated Security Agreement, dated as of 1-1098 10-CF
April 2, 1992, between Columbia Gas Transmission
Corporation and Manufacturers Hanover Trust Company.
10-CG - Third Amendment, dated June 15, 1992, to the Secured 1-1098 10-CG
Revolving Credit Agreement, dated as of September 23, 1991
(as therefore amended), among The Columbia Gas System, Inc.,
certain banks party thereto and Manufacturers Hanover Trust
Company, as Agent for the banks.
</TABLE>
- ---------------------------
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
*Filed herewith.
119
<PAGE> 120
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
Reference
------------------
File No. Exhibit
-------- -------
<S> <C> <C> <C>
10-CH - First Amendment, dated as of January 8, 1993, to the 1-1098 10-CH
Amended and Restated Secured Revolving Credit Agreement,
dated as of April 2, 1992 between Columbia Gas Transmission
Corporation and Chemical Bank.
10-CI(a)* - Retention Agreement between The Columbia Gas System, Inc. and Logan
W. Wallingford dated July 19, 1991.
10-CJ* - Amended and Restated Agreement of Cove Point
LNG Limited Partnership between Columbia LNG and
PEPCO Energy Company, Inc. dated January 27, 1994.
10-CK* - Fourth Amendment, dated April 26, 1993, the Secured Revolving
Credit Agreement, dated as of September 23, 1991 (as therefore
amended), among The Columbia Gas System, Inc., certain bank parties
thereto and Chemical Bank successor by merger to Manufacturers
Hanover Trust Company as agent for the banks.
10-CL* - Second Amendment, dated December 9, 1993, to the Amended and
Restated Secured Revolving Credit Agreement, dated as of
April 2, 1992 between Columbia Gas Transmission Corporation
and Chemical Bank.
10-CM* - Plan of Reorganization for Columbia Gas Transmission Corporation
as filed with the United States Bankruptcy Court for the District
of Delaware on January 18, 1994.
11* - Statements Re Computation of Per Share Earnings.
12* - Statements of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.
21* - Subsidiaries of The Columbia Gas System, Inc.
23-A* - Letter report, dated January 24, 1994, and
the written consent to the filing and use of
information contained in such letter report,
Reports and Registration Statements filed
during 1994, of Ryder Scott Company Petroleum Engineers,
independent petroleum and natural gas consultants
23-B* - Written consent to the filing and use of information
contained in the letter report, dated January 5, 1994,
in Reports and Registration Statements filed during 1994,
of McDaniel & Associates Consultants Ltd., independent
petroleum and natural gas consultants.
23-C* - Written consent of Arthur Andersen & Co.,
independent public accountants, to the
incorporation by reference of their report
included in the 1993 Annual Report on Form
10-K of The Columbia Gas System, Inc. and
their report included in The Columbia Gas
System, Inc.'s 1993 Annual Report to Shareholders
in the registration statements on Form S-8
(File No. 33-10004), and Form S-8
(File No. 33-42776).
24* - Powers of attorney and certified copy of board resolution authorizing execution of Form 1O-K
by power of attorney.
</TABLE>
- --------------------------
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
*Filed herewith.
120
<PAGE> 1
AGREEMENT BETWEEN
COLUMBIA GAS TRANSMISSION CORPORATION
("TCO")
A
N
D
CONSOL PENNSYLVANIA COAL COMPANY,
NINEVEH COAL COMPANY,
AND
GREENON COAL COMPANY
("COMPANIES")
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Article Title Page
------- ----- ----
<S> <C> <C>
1 TEMPORARY DEACTIVATION OF THE STORAGE COMPLEX 1
1.01 Temporary Deactivation 1
2 EFFECTIVE DATE AND INITIAL PAYMENT DATE 2
2.01 Effective Date 2
2.02 Initial Payment Date 2
3 INDIVISIBLE CONDITIONS TO THE OBLIGATIONS OF
COMPANIES TO MAKE PAYMENTS TO TCO 2
3.01 Two (2) Indivisible Conditions 2
(a) Reorganization Contingency 2
(b) Regulatory Contingency 2
3.02 Cooperation by Companies 3
3.03 Copies of Filings 3
4 PAYMENTS 3
4.01 Five (5) Installment Payments 3
4.02 Interest on Late Payments 3
4.03 Payment Conditions 4
(a) Payments Made Prior to Plan Consummation 4
(b) Interruption or Curtailment of Mining Operations 4
(i) Before Final Installment Payment Made 4
(ii) After Final Installment Payment Made 4
(c) TCO Refund of Payments 4
(d) TCO Adjustment to Refunds 5
(e) Additional Remedies 5
(f) Irreparable Harm 5
(g) Non-applicability of Payment Conditions 5
5 OPERATIONS BY THE PARTIES 5
5.01 Accommodation of Mining Operations 6
(a) In General 6
(i) Cessation of Storage Injection 6
(ii) Pressure Limitations 6
(iii) Projected Withdrawals and Resulting Volumes
in Storage 7
(iv) Companies' Release of Acreage to Permit Storage
Reactivation 7
(v) TCO's Right to Use Majorsville Shallow for Gas
Storage 7
(b) Plugging of Wells 8
(c) Mine Maps 8
(d) Prohibition of New Wells; Exception 8
(e) Recompletion of Wells 9
(f) Cessation of Gas Withdrawal from a Well 9
(i) Six (6) Month Notice of Plugging for
Mine Through 9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Article Title Page
------- ----- -----
<S> <C> <C>
(ii) TCO's Delivery of an Assignment 9
(iii) Companies' Statutory Filings with the States 9
(iv) Cleaning Up Well Sites before Plugging 10
(v) Fourteen (14) Day Notice of Cessation
of Gas Withdrawal 10
(vi) Accelerated Notice 10
(g) Cleaning Up Well Sites and Assignments at Termination 10
5.02 Responsibility for Costs 11
(a) Storage Complex Operations in General 11
(b) Plugging Wells 12
(c) Subsidence Damage to the Compressor Station 12
(d) Subsidence Damage to Other Storage Complex Facilities 13
(e) Cleaning Up Well Sites 14
(f) Other Costs 14
6 TCO'S WARRANTIES TO COMPANIES 14
6.01 Ownership Rights 14
6.02 Rentals, Fees, Etc. 14
6.03 Free Gas 14
6.04 Abandoned Wells 14
6.05 Review of Data 14
6.06 Wells Already Plugged 14
6.07 Polychlorinated Biphenyls 14
6.08 Regulatory Approvals 15
7 INDEMNIFICATIONS 15
7.01 Definitions 15
7.02 TCO's Indemnification by Companies 15
7.03 Companies' Indemnification by TCO Respecting Environ-
mental Matters 16
7.04 Companies' Indemnification by TCO Respecting Article 6 17
7.05 Companies' Indemnification by TCO Respecting a Well
Operated after Assignment 17
7.06 Releases 17
7.07 Representation of the Indemnitee 17
7.08 Rule of Construction 18
7.09 Limitations 18
7.10 Notice of Claims 18
8 EXCHANGE OF INFORMATION 18
8.01 Purpose of Exchange 18
8.02 TCO's Operations 18
8.03 Companies' Operations 18
8.04 Governmental Filings and Meetings 18
8.05 Quarterly Reports 19
9 NOTICES 19
9.01 Given in Writing 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Article Title Page
------- ----- ----
<S> <C> <C>
10 TERMINATION 20
10.01 Termination for Failure of Two Indivisible Conditions 20
10.02 Termination Upon Completion of Mining Operations 20
10.03 Survival of Obligations 20
11 Miscellaneous Provisions 20
11.01 Governing Law 20
11.02 Limited Effect of Agreement 20
11.03 Severability 20
11.04 Successors 20
SIGNATURES 21
----------
EXHIBITS A Map
--------
B Graph of Projected Withdrawals of Gas
C Assignment and Bill of Sale
</TABLE>
iii
<PAGE> 5
AGREEMENT
THIS AGREEMENT, made this ---- day of ------------, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION, a Delaware
corporation hereinafter referred to as "TCO",
A
N
D
CONSOL PENNSYLVANIA COAL COMPANY, a Delaware corporation ("CPC"),
NINEVEH COAL COMPANY, a Delaware corporation ("NCC"), and GREENON
COAL COMPANY, a Delaware corporation ("GCC"), CPC and NCC and GCC
hereinafter referred to as "Companies", meaning each of them
individually and severally and/or all of them collectively and
jointly, as the context requires,
WITNESSETH
WHEREAS, TCO owns and operates three underground natural gas
storage fields (being Heard Storage Field, the Majorsville Shallow
Storage Field and the Majorsville Deep Storage Field), gas therein,
wells, related storage pipelines, a compressor station and other
facilities, as well as related 3000' reservoir protective areas
(hereinafter collectively referred to as the "Storage Complex"),
located in Greene and Washington Counties, Pennsylvania, as well as
Marshall County, West Virginia; and
WHEREAS, Companies currently own and/or operate coal mining
operations in Greene and Washington Counties, Pennsylvania, as well
as Marshall County, West Virginia; and,
WHEREAS, the Storage Complex and the mining operations
underlie some of the same surface land which, at present, requires
TCO and Companies each to operate their respective facilities with
due regard for the property, rights, and duties of the other; and,
WHEREAS, TCO and Companies desire to enter this Agreement
which, on the "Effective Date" as hereinafter defined, will state
their respective rights, duties, obligations and liabilities
relating to the temporary deactivation of the Storage Complex to
accommodate mining operations.
NOW, THEREFORE, for and in consideration of the premises,
which are incorporated and the mutual promises, covenants and
agreements hereinafter set forth, TCO and Companies, with intent to
be legally bound, agree as follows:
ARTICLE 1: TEMPORARY DEACTIVATION OF THE STORAGE COMPLEX
1.01 Temporary Deactivation. TCO has commenced and will
continue the temporary deactivation of the Heard Storage Field and
the Majorsville Deep Storage Field; and TCO will commence the
temporary deactivation of the Majorsville Shallow Storage Field
when required under Section 5.01(a)(v) hereof. The temporary
deactivation of the Storage Complex shall be effected in accordance
with the provisions of Section 5.01 hereof and shall include
storage fields, wells, pipelines, a compressor station and other
facilities, all of which are within the outer boundaries of the
Storage Complex as shown on TCO's revised map of the Storage
Complex bearing the same date as this Agreement and entitled
"Majorsville-Heard Map". The map presents a color- coded depiction
of and distinction between the Heard, Majorsville Deep, and
Majorsville Shallow reservoirs, and wells, and the pipelines, and
the compressor station and other
1
<PAGE> 6
storage facilities. Said Map labeled Exhibit "A" is attached
hereto and made a part hereof.
ARTICLE 2: EFFECTIVE DATE AND INITIAL PAYMENT DATE
2.01 Effective Date. The "Effective Date" of this Agreement
shall be the date on which it is executed by the parties. This
Agreement shall continue in effect from the Effective Date until
the completion of mining operations by Companies within the
boundaries of the Storage Complex unless terminated earlier in
accordance with the provisions of Article 10 hereof.
2.02 Initial Payment Date. The "Initial Payment Date" of
this Agreement shall be the later date of either: (a) January 3,
1994, or (b) the eleventh (11th) day following the date upon which
the later of the two (2) indivisible conditions specified in
Section 3.01 is satisfied.
ARTICLE 3: INDIVISIBLE CONDITIONS TO THE OBLIGATION OF COMPANIES
TO MAKE PAYMENTS TO TCO
3.01 Two (2) Indivisible Conditions. The obligation of
Companies to tender any of the five (5) installment payments to TCO
as specified in Section 4.01 of this Agreement is expressly made
subject to TCO having, prior to said tender, provided Companies
copies of instruments and/or other verifiable evidence that the
following two (2) indivisible conditions have been satisfied:
(a) Reorganization Contingency - TCO shall have
received the entry of a final, non-appealable Order approving
this Agreement in TCO's reorganization proceeding filed on or
about July 31, 1991 at Docket No. 91-804 pending in the
United States Bankruptcy Court in the District of Delaware in
form and substance acceptable both to TCO and to Companies,
which acceptance shall not be unreasonably withheld.
(b) Regulatory Contingency. TCO shall have received
all regulatory approvals required to perform its duties and
obligations under this Agreement, including Federal Energy
Regulatory Commission ("FERC") approval of TCO's temporary
deactivation of the Storage Complex in accordance with the
provisions of Article 5 hereof during the term of this
Agreement, such approvals to be final and no longer subject
to rehearing or appeal and in form and substance acceptable
both to TCO and to Companies, which acceptance shall not
unreasonably be withheld. It is currently anticipated by the
parties that TCO shall file for and receive from FERC a
Section 7(c) order pursuant to the Natural Gas Act [15 U.S.C.
717(f)] which shall amend or replace the current certificate
issued by FERC to TCO in FERC Docket No. CP88-866.
3.02 Cooperation by Companies. Companies shall cooperate
with TCO in obtaining the approval(s) to be sought by TCO in order
to implement this Agreement, including the furnishing of data (not
competitively sensitive or otherwise proprietary in nature as
determined in Companies' sole discretion) which may be required by
TCO to respond to any data request or regulatory requirement in the
proceedings to obtain the approvals contemplated by Section 3.01.
3.03 Copies of Filings. After the date of execution of this
Agreement, TCO shall promptly make Companies aware of, and provide
to them, copies of all filings or other communications relating to
any approvals concerning the contingencies set out in this Article
3 with federal, state or local government agencies or the
Bankruptcy Court, or any subsequent filings or other communications
relating to such approvals. Any objections by Companies shall be
considered by TCO.
2
<PAGE> 7
ARTICLE 4: PAYMENTS
4.01 Five (5) Installment Payments. In consideration for
the temporary deactivation of the Storage Complex and as
reimbursement for leasehold maintenance and other costs to be
incurred by TCO, Companies will pay to TCO, subject to the
conditions set forth in Section Section 3.01 and 4.03 hereof, a
total of twenty million dollars ($20,000,000) in five (5)
installments under the following schedule:
<TABLE>
<CAPTION>
Amount Due Date
------ --------
<S> <C> <C>
(1) $4,000,000 the Initial Payment Date;
(2) $5,000,000 twelve (12) months after the Initial Payment Date;
(3) $5,000,000 twenty-four (24) months after the Initial Payment
Date;
(4) $4,000,000 thirty-six (36) months after the Initial Payment Date;
(5) $2,000,000 forty-eight (48) months after the Initial Payment Date
</TABLE>
4.02 Interest on Late Payments. Any amount due under
Section 4.01 but not paid by the applicable due date shall accrue
interest at the higher rate of (i) the rate then provided for
interest on amounts due but not paid under TCO's FERC Gas Tariff or
(ii) the prime rate applicable for the calendar quarter under the
then current FERC refund regulation [now codified as 18 C.F.R.
Section 154.67(c)(2)(iii)(A)].
4.03 Payment Conditions. Installment payments which become
due pursuant to the provisions of Section 4.01 hereof shall be
made by Companies subject to both the conditions set forth in
Section 3.01 hereof and the following conditions:
(a) Payments Made Prior to Plan Consummation.
Installment payments which become due and are paid by Companies
during the period that TCO's reorganization proceeding, as
specified in Section 3.01(a) hereof, remains pending prior to Plan
Consummation as that term is defined in the Plan shall, by
agreement of the parties hereto and incorporated in the Order
approving this Agreement, be treated as administrative claims if
mining operations are interrupted or curtailed as specified in
Section 4.03(b) below; however, absent any such interruption or
curtailment, the right of Companies to file an administrative claim
shall automatically terminate upon the date of Plan Consummation.
(b) Interruption or Curtailment of Mining Operations.
In the event that Companies' mining operations within the outer
boundaries of the Storage Complex are interrupted or curtailed as a
result of (i) the operation of any order issued by the FERC or any
successor agency, or any other governmental entity or court having
jurisdiction in the matter, relating to the temporary deactivation
of the Storage Complex by TCO in accordance with the provisions of
Article 5 hereof, or (ii) an action or omission of TCO or any of
its affiliates, or of any employee, agent or contractor of TCO, in
the discharge of, or failure to discharge, TCO's obligations
relating to the temporary deactivation of the Storage Complex under
this Agreement, then, in such event:
(i) Before Final Installment Payment Made.
Companies may withhold any installment payments which become
due after such interruption or curtailment until the reason
for such interruption or curtailment is cured by TCO. Such
period of suspension shall not count as calendar time to be
measured beyond the Initial Payment Date pursuant
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<PAGE> 8
to the installment payment schedule of Section 4.01, so that
said schedule shall be extended for a period of equal
duration to said suspension.
(ii) After Final Installment Payment Made. The
Companies may transfer to TCO the duty and sole
responsibility for the cost of and the plugging of or
replugging of wells as specified in Section 5.01(b)(ii) at
the rate of two (2) well(s) for each full calendar day that
the mining operations of Companies are interrupted or
curtailed. The particular wells subject to such transfer
shall be determined at the sole discretion of Companies. As
to each and every occurrence which happens after all
installment payments are made and before twenty (20) years
after the Effective Date, two (2) well(s) shall be
transferred for the first full day of interruption or
curtailment and continue at that rate of two (2) well(s) per
day until the first full day following the day that the
impediment to full mining production has been removed. Any
amounts paid by TCO pursuant to Section 4.03(c) below shall
not be considered as an offset against the costs incurred by
TCO for plugging or replugging wells under this Section
4.03(b)(ii).
(c) TCO Refund of Payments. If Companies' mining
operations are interrupted or curtailed, for any reason stated in
Section 4.03(b) above, and if such interruption or curtailment
continues for a period of one (1) year, TCO shall, subject to
Section 4.03(d) hereof, refund to Companies all installment
payments previously made by Companies pursuant to Section 4.01
along with interest calculated at the rate provided in Section
4.02 hereof from the date of the beginning of such interruption or
curtailment until the date of refund by TCO. This remedy for
interruption or curtailment of mining operations shall be in
addition to the remedies provided in Section 4.03(a) and (b)
above. Any costs incurred by TCO for plugging or replugging wells
pursuant to Section 4.03(b)(ii) above shall not be considered as
an offset against amounts owed by TCO under this Section 4.03(c).
(d) TCO Adjustment to Refunds. Beginning sixty (60)
months after the Initial Payment Date, TCO shall be able to retain,
from the installment payment amounts which must be refunded to
Companies pursuant to Section 4.03(c) hereof, the sum of one
million dollars ($1,000,000) for each and every additional twelve
(12) month period during which temporary deactivation of the
Storage Complex continues to be effected in accordance with the
provisions of Section 5.01 hereof.
(e) Additional Remedies. It is expressly agreed that
the payments provided in Section 4.03(c) and any transfers of
responsibility for plugging or replugging wells which may be
effected pursuant to Section 4.03(b)(ii) may not cover all damages
that Companies may suffer as a result of interruption or
curtailment of mining operations for any reason stated in Section
4.03(b) above, and Companies reserve their rights to any additional
remedies available to them under this Agreement or at law or in
equity, subject to credit for such Section 4.03(c) payments made
and for the cost of plugging or replugging wells pursuant to
Section 4.03(b)(ii).
(f) Irreparable Harm. TCO acknowledges that Companies
will suffer irreparable harm, (which for purposes hereof shall mean
damage for which a remedy at law may not be adequate), if their
mining operations are interrupted or curtailed for any reason
stated in Section 4.03(b) above, and, TCO, therefore, agrees that
it shall use all reasonable efforts to: (1) avoid any such
interruption or curtailment, (2) correct any action or omission
which may have caused such interruption or curtailment, and (3)
assert and pursue diligently all remedies and defenses available to
TCO to contest any order contemplated in Section 4.03(b) above.
TCO further agrees that it shall not deny in court or otherwise
that Companies will suffer such irreparable harm.
(g) Non-applicability of Payment Conditions. In the
event that Companies' mining operations within the outer boundaries
of the Storage Complex are interrupted or curtailed directly or
indirectly as a result of:
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<PAGE> 9
(i) an action or omission of Companies, or any of their affiliates,
or any employee, agent or contractor of Companies, in the discharge
of, or failure to discharge, Companies' obligations under Article 5
of this Agreement; or (ii) as a result of the operation of any
order issued by the Mine Safety and Health Administration, or any
successor agency, which does not result in whole or in part from
TCO's action or omission; then as to that particular interruption
or curtailment of mining operations, the payment conditions set
forth above in this Section 4.03 shall not apply.
ARTICLE 5: OPERATIONS BY THE PARTIES
5.01 Accommodation of Mining Operations. As to this
Agreement, the rights of Companies to mine the coal shall be
considered "dominant" while the rights of TCO to operate the
Storage Complex shall be considered "servient".
(a) In General. After the date of the signing of
this Agreement, TCO will not oppose and will cooperate with mining
operations by Companies within the area of the Storage Complex as
follows:
(i) Cessation of Storage Injection. The parties
recognize that mining activity has occurred and will continue
to progress in areas overlying reservoirs within the Storage
Complex. To alleviate TCO's concern about the operation of
the Storage Complex while Companies are engaged in
underground mining within the boundaries of and overlying the
storage reservoirs, TCO will not, after the date of this
Agreement, further inject gas generally in the vicinity of
mining operations and specifically not in Heard (which
utilizes the 50 Foot Sand and 30 Foot Sand formations), nor
will TCO further inject gas in the Pennsylvania part of
Majorsville Deep (which utilizes the Big Injun formation);
and TCO shall not inject gas in the West Virginia part of
Majorsville Deep (which utilizes the Big Injun formation)
after October 31, 1993. Before November 1, 1993, TCO shall
have the right to inject gas into the West Virginia part of
Majorsville Deep (Big Injun formation), so as to preserve
deliverability from the West Virginia storage wells in the
1993-94 winter season.
(ii) Pressure Limitations. TCO shall utilize
its compressor and pipeline facilities (existing on the
Effective Date) and active storage wells [including any new
storage wells drilled pursuant to Section 5.01(d)] so as to
reduce reservoir pressures in each of the reservoirs included
in the Storage Complex as low as reasonably possible in the
vicinity of mining. In addition, unless Companies notify TCO
in writing of a change in their forecasted operations, TCO
shall use its best efforts to maintain its active storage
wells (for this purpose of this Section 5.01(a)(ii),
Injection-Withdrawal Wells and Special Wells) on
withdrawal-only status with minimal shut-ins limited to those
necessary on account of the physical limitations of the
Storage Complex facilities, and including, to the extent
reasonably possible, the reinjection of gas withdrawn
elsewhere in the Storage Complex into the Majorsville Shallow
reservoir, as well as maximizing the delivery of gas
withdrawn to TCO's low pressure markets, concentrating the
withdrawal by groups of wells which Companies and TCO agree
to prioritize as follows:
(A) The Heard Storage Reservoir;
(B) the portion of the Majorsville Deep Storage
Reservoir located within Pennsylvania;
(C) the portion of the Majorsville Deep Storage
Reservoir located within West Virginia; and
(D) the Majorsville Shallow Storage Reservoir,
starting two (2) years after receipt of the
Notice as provided for in Section
5.01(a)(v).
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<PAGE> 10
(iii) Projected Withdrawals and Resulting
Volumes in Storage. In connection with its undertakings in
Section Section 5.01(a)(i), (a)(ii), and (a)(v), TCO has
delivered to Companies a graph showing its projected volumes
in storage resulting from its anticipated withdrawals
[including 1993 injections in the West Virginia portion of
Majorsville Deep, as provided in Section 5.01(a)(i), and
injections in Majorsville Shallow subject to the provisions
of Section 5.01(a)(v)] in the Storage Complex. A copy of
the graph is attached hereto as Exhibit "B". TCO shall use
its best efforts to meet or exceed its anticipated
withdrawals so as to attain the projected volumes in storage,
and shall not change its operational plan except (A) to
handle the unforeseeable consequences of "force majeure" as
defined in TCO's Gas Tariff, in which event TCO shall use its
best efforts to minimize the impact of the force majeure on
the projected net withdrawals as now scheduled or (B) to
utilize the storage potential of acreage which may be
released by Companies to TCO under Section 5.01(a)(iv).
Further, TCO acknowledges that payments made or to be made by
Companies pursuant to Section 4.01 hereof, are based on a
reliance by Companies that TCO shall use its best efforts to
meet or exceed its projected volumes in storage as shown on
the aforementioned Exhibit "B".
(iv) Companies' Release of Acreage to Permit
Storage Reactivation. At any time during the term of the
Agreement, Companies reserve the right to offer to release to
TCO for storage reactivation parts of the Storage Complex
which Companies decide in their sole discretion not to mine,
or not to mine in other coal seams above or below a mine
abandoned or to be abandoned by a date certain. Companies
will prepare a map showing the area(s) to be released, which
shall include all wells then remaining unplugged within the
perimeter line(s) of the area(s) offered for release. TCO
shall have one (1) year to accept the offer of all of the
acreage included in the offer or to counteroffer to accept
part(s) of the acreage, or Companies' offer will
automatically terminate. If TCO, in its sole discretion,
accepts in writing all of the acreage offered for release, or
if Companies, in their sole discretion, accept TCO's
counteroffer within six (6) months after tender, then, as of
the date of either TCO's or Companies' acceptance: (A) the
released acreage and all wells therein shall be excluded from
this Agreement as fully as if same had never been included;
and (B) Companies shall promptly execute, acknowledge, and
deliver to TCO deeds or other recordable documents which
subordinate Companies' mining rights (then owned in fee
rather than leased) to TCO's storage rights, so that all
rights that Companies then own in fee to mine coal in the
released acreage shall thereafter be "servient" while the
rights to operate for underground gas storage shall
thereafter be "dominant"; and (C) as to the released acreage,
Companies shall assign to TCO the mining leases or relevant
portions thereof that are assignable without additional cost
to Companies, if any, which TCO selects at its sole
discretion to accept from Companies and upon acceptance, TCO
shall become liable for all duties and obligations of
Companies (Assignors) which accrue under said mining leases
after the date of such assignment.
(v) TCO's Right to Use Majorsville Shallow for
Gas Storage. TCO may continue to use Majorsville Shallow
reservoir for active storage operations until two (2) years
from the date on which it receives written Notice from
Companies of the approach of mining: Provided, that such
Notice may not be given earlier than January 1, 1995. From a
date two (2) years after receipt of the Notice, TCO shall not
further inject gas in Majorsville Shallow, and shall
otherwise proceed with deactivation so as to reduce reservoir
pressures to as low as reasonably possible in order that such
pressures comply with Section 5.01(a)(ii) above. If, during
the term of this Agreement, Companies do not give the written
Notice provided for herein, then TCO shall retain the duty to
plug all wells remaining within the area designated as
Majorsville Shallow on Exhibit "A".
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<PAGE> 11
(b) Plugging of Wells. In the Storage Complex, the
responsibility for the plugging of wells shall be as follows:
(i) Within the Storage Complex boundaries shown
on Exhibit "A", after the date of the signing of this
Agreement, Companies shall have the right, at their sole
expense, to plug or replug any wells for mine through that
Companies determine in their sole discretion must be plugged
or replugged to permit the orderly progression of mining
within the mines.
(ii) Except for: (A) wells which may be
released to TCO under Section 5.01(a)(iv); (B) wells which
may remain with TCO if Notice is not given pursuant to
Section 5.01(a)(v); (C) new wells drilled by TCO pursuant to
Section 5.01(d); and (D) well which may become the duty and
responsibility of TCO to plug pursuant to Section
4.03(b)(ii); as between Companies and TCO, Companies accept
the duty and sole responsibility under the applicable federal
and state statutes and regulations for the cost of and the
plugging of or replugging of wells (active storage wells as
well as abandoned wells) within the entire Storage Complex,
whether or not for mine through purposes.
(iii) If this Agreement is terminated under
Section 10.01, all obligations of Companies to plug wells
under this Section 5.01(b) shall terminate immediately:
Provided, that with respect to any well theretofore plugged
or replugged by Companies, Companies shall remain liable for
the cost of plugging or replugging such well and the well
site restoration thereof.
(c) Mine Maps. Companies shall deliver to TCO two
(2) copies of any mine map or plan or revision thereto respecting
coal operations of Companies inside the perimeter of the Storage
Complex within ten (10) days after filing the mine map or plan or
revision thereto pursuant to 58 Pa. Cons. Stat. Section
601.302(b), or under any analogous West Virginia statute.
(d) Prohibition of New Wells; Exception. After the
date of this Agreement, and to the extent TCO owns, leases,
subleases, or directly or indirectly controls the underground
storage rights or drilling rights, TCO shall maintain said rights
and shall not permit others to drill new wells within the Storage
Complex. However, on a limited basis that does not interfere with
near term mining, TCO reserves the right to drill new wells to be
owned and operated by TCO, subject to the right of Companies to
mine through any or all of the new wells pursuant to the applicable
sections of this Agreement: Provided, that TCO shall bear the
entire cost of plugging any new well.
(e) Recompletion of Wells. Subject to the rights and
obligations of the parties under this Article 5, TCO reserves the
right to recomplete non-plugged existing storage wells (being only
Injection-Withdrawal Wells, Observation Wells or Special Wells) to
maximize the recovery of gas or to evaluate or to operate the
Storage Fields: Provided, that all recompletion work shall be
limited to depths greater than two hundred (200) feet below the
bottom of the Pittsburgh seam of coal. All recompletion work shall
be performed by TCO without any increase in cost, expense, amount
paid or to be paid by Companies under this Agreement.
(f) Cessation of Gas Withdrawal from a Well. To
primarily avoid delay in the orderly progression of mining and to
secondarily maximize the withdrawal of stored gas:
(i) Six (6) Month Notice of Plugging for Mine
Through. Once Companies determine that mining or mining
impact will require any well [including new wells and
recompleted wells as described in Section 5.01(d) and (e)] to
be plugged for mine through in no less than six (6) months,
Companies shall deliver to TCO the following: (A) a
six-month
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<PAGE> 12
notice in writing of Companies' need to plug the well, and
(B), during the six (6) month notice period, for each well,
an "Assignment and Bill of Sale" for the well executed and
acknowledged by Companies in the form attached hereto and
made a part hereof as Exhibit "C" (hereafter "Assignment") .
The purpose of this extended notice period is to grant TCO,
without consideration, a longer period to produce the wells
while permits and bonds are being transferred. However, even
if mining is not within six (6) months of an Observation
Well, Companies shall have the right, at their sole
discretion, to an assignment from TCO to plug same to reduce
pressures within the vicinity of mining.
(ii) TCO's Delivery of an Assignment. TCO
shall promptly execute, acknowledge, and return to Companies
any Assignment tendered by Companies pursuant to Section
5.01(f)(i)(B) above. However, the warranties contained in
Section 6.01, Section 6.02, Section 6.03 and Section 6.07
as well as the indemnifications contained in Section 7.03
and Section 7.05 shall continue to apply to the well even
after same is assigned by TCO to Companies. Further,
Companies do not in any way warrant the producability or
viability of the well and will not maintain it in any manner.
It is understood and agreed by the parties hereto that
Companies do not in any way assume any responsibilities or
obligations to any of the royalty interest owners of the
assigned premises or to anyone to whom TCO is obliged by any
existing agreements or contracts during or after the period
of operations by TCO.
(iii) Companies' Statutory Filings with the
States. Upon TCO's return to Companies of a fully executed
and acknowledged Assignment, Companies shall notify the
proper state authority of transfer by promptly making the
statutory filing with the Commonwealth of Pennsylvania under
58 Pa. C.S.A. Section 601.213 or a successor statute, or
with the State of West Virginia under W. Va. Code Section
22B-1-26 (h) or a successor statute, as the case may be, so
that the well to be plugged will be released from TCO's bond
and secured under Companies' bond given under the law of the
state where the well is located.
(iv) Cleaning Up Well Sites before Plugging.
Immediately upon receipt of a six-month notice from Companies
as provided in Section 5.01 (f)(i), TCO shall do such work at
its own expense as may be necessary to render the affected
well site(s) environmentally clean and in compliance with all
applicable laws and regulations by the end of the six-month
notice period; and TCO shall thereafter keep the well site(s)
environmentally clean. The purpose of the foregoing is to
assure that after Companies occupy the well site for the
purpose of plugging the well, Companies shall have no
subsequent expenses in connection with any prior
environmental contamination caused by the use or spill of
hazardous wastes or hazardous substances or any other
environmental hazard on the land within two hundred (200)
feet of any affected well site or emanating from the well
site. The clean-up of a well site shall be to the extent
required, at the time the well bore is assigned and/or sold
to Companies, by the applicable Federal, State or Local
statutes, regulations and rules on account of oil and gas
(including gas storage) operations. If TCO in its sole
discretion completes the clean-up and is ready to cease the
withdrawal of gas prior to the expiration of the six- month
notice delivered under Section 5.01(f)(i), TCO shall
promptly notify Companies of its readiness.
(v) Fourteen (14) Day Cessation of Gas
Withdrawal. By a fourteen (14) day notice in writing
delivered to TCO, Companies may direct that TCO shall cease
the withdrawal of gas from the assigned well on a date
certain, which date certain may be any day after the
expiration of the six-month notice period provided in Section
5.01(f)(i), so that Companies will be enabled to commence to
plug the well on the following day: Provided, that TCO's
right to withdraw gas from the well may be extended
thereafter only if an extension is proposed by
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<PAGE> 13
Companies' field personnel and agreed to by TCO's field
personnel; and provided further, that a fourteen (14) day
notice shall not be necessary if TCO has notified Companies
of its readiness to cease the withdrawal of gas under Section
5.01(f)(iv).
(vi) Accelerated Notice. On a non-routine basis
and only when dictated by an unscheduled advancement of
mining operations, and when Companies and TCO have complied
with Section 5.01(f)(i), (ii) and (iii), then Companies may
give the fourteen (14) day notice even if six (6) months have
not expired to trigger the cessation of gas withdrawal and
the plugging specified in Section 5.01(f)(v). Because of
the non- routine nature of this Notice, TCO shall be granted
a reasonable time to complete its clean-up pursuant to
Section 5.01(f)(iv).
(g) Cleaning Up Well Sites and Assignments at
Termination. After the termination of Mining Operations pursuant
to Section 10.02, TCO shall continue to do such work at its own
expense as may be necessary to render all remaining well sites that
Companies are obligated to plug under Section 5.01 environmentally
clean so that they are in compliance with all then applicable
federal, state or local statutes, regulations and rules, so as to
assure that Companies shall have no subsequent expenses in
connection with any prior environmental contamination caused by the
use or spill of hazardous wastes or hazardous substances or any
other environmental hazard on the land within two hundred (200)
feet of a well site or emanating from a well bore and/or well site.
The clean-up of the well sites and assignments of the wells shall
be prioritized as follows:
(i) For five (5) years after the termination of
mining operations, TCO shall clean up well sites in the order
specified by Companies as if the mining operations had not
terminated, that is to say, under the provisions of Section
5.01(f), except that the six (6) month notice required by
Section 5.01(f)(i) can be given at any time by Companies
since, at that point in time, the location of mining
operations will be irrelevant; and
(ii) Five (5) years after such termination of
mining operations, if Companies have wells remaining to be
plugged, TCO shall clean up all of the remaining well sites
as soon as possible. As the well sites are cleaned up, TCO
shall cease the withdrawal of gas, shut in the well, notify
Companies in writing that the clean-up has been completed,
and execute, acknowledge, and deliver to Companies an
Assignment for the well bore in the same form as provided in
Exhibit "C". The Assignment shall thereafter be signed and
acknowledged by Companies, whereupon Companies shall
immediately make the statutory filing to comply with the
provisions of Section 5.01(f)(iii) for the well. Provided,
that five (5) years after such termination of Mining
Operations, Companies shall reimburse TCO's annual costs
incurred under Section 6.01 and Section 6.02 hereof
beginning with year six (6) after termination and continuing
until Companies, in their sole discretion, determine and
inform TCO in writing that such reimbursable costs incurred
by TCO are no longer necessary.
(iii) The clean up of any well site after the
termination of Mining Operations pursuant to Section 10.02
shall be to the extent then required by the applicable
federal, state or local statutes, regulations and rules on
account of oil and gas (including gas storage) operations.
Further, as to any wells assigned to Companies pursuant to
this Section 5.01(g), TCO agrees and further covenants that
the warranties contained in Section 6.01, Section 6.02,
Section 6.03 and Section 6.07 as well as the
indemnifications contained in Section 7.03 and Section 7.05
shall survive the termination of this Agreement: Provided,
however, that as to this Section 5.01(g), the warranties
contained in Section 6.01, Section 6.02, and Section 6.03
shall be effective only until the end of the year in which
that particular well is plugged by Companies, or if more than
five (5) years after such termination of
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mining operations, until Companies cease reimbursing TCO for
the costs of Section 6.01 and Section 6.02 as provided in
Section 5.01(g)(ii) above, whichever first occurs.
5.02 Responsibility for Costs. Subject to the exceptions
provided in this Section 5.02(b), (c), (d) and (e), TCO, as owner
and operator, will bear and timely pay all costs of temporary
deactivation and/or operation of the Storage Complex as follows:
(a) Storage Complex Operations in General. TCO shall
timely pay all costs incurred in its deactivation and/or operation
of the Storage Complex, including but not limited to: (i) all
costs associated with TCO's temporary deactivation and/or operation
and maintenance of the Storage Complex, including the costs of any
modifications or improvements (including new wells and
recompletions of existing wells), capital or otherwise, necessary
to operate the Storage Complex safely and to industry standards,
including costs necessary to comply with all applicable statutes,
regulations and rules of governmental entities having jurisdiction
in the premises; (ii) all land acquisition costs, and all payments
to lessors or sublessors or grantors of rights-of-way, including
but not limited to acreage rental, storage acreage rental, well
royalty, storage well royalty, oil royalty, as same are part of, or
associated with, the Storage Complex; (iii) all free gas
obligations to lessors, sublessors or landowners within the Storage
Complex, and (iv) landowners' damage claims due to the unavoidable
impact of TCO's construction or maintenance work, storage well and
pipeline encroachment negotiations and litigation, legal services,
operations planning, accounting services, and all reporting
requirements relating to state and local authorities applicable to
the temporary deactivation and/or operation of the Storage Complex.
(b) Plugging Wells. Except for: (i) wells which may
be released to TCO under Section 5.01(a)(iv) hereof, (ii) wells
which may remain with TCO if Notice is not given pursuant to
Section 5.01(a)(v) hereof; (iii) new wells drilled by TCO pursuant
to Section 5.01(d); and (iv) wells which may become the duty and
responsibility of TCO to plug pursuant to Section 4.03(b)(ii); as
between Companies and TCO, the work and associated costs of
plugging and replugging of wells performed or to be performed by
Companies under Section 5.01 and the well site restoration
(excluding environmental clean up by TCO pursuant to Section
4.01(f)(iv) or Section 4.01(g) prior to assignment of a well)
after such plugging or replugging shall be borne solely by
Companies, whether or not this Agreement has expired pursuant to
Section 10.02: Provided, that if this Agreement is terminated
under Section 10.01, all such obligations of Companies shall
terminate immediately except that, with respect to any well
theretofore plugged or replugged by Companies, Companies shall
remain liable for the cost of plugging or replugging such well and
the well site restoration.
(c) Subsidence Damage to the Compressor Station.
Prior to January 1, 2003, in any part of the area within a
perimeter located two hundred (200) feet outside the existing fence
surrounding the "Majorsville Compressor Station", Companies shall
limit their underground mining to "development mining", that is, to
underground entries driven at a width which should not cause damage
to the surface above such entries. Beyond the area within said
perimeter, Companies may conduct full extraction mining. The
compressor station is located entirely within the State of West
Virginia, and its general location is indicated on Exhibit "A", but
Companies shall do the survey work necessary to locate the existing
fence, the 200-foot perimeter, an inventory of the existing station
and multiple site elevations for said Compressor Station. Further,
prior to January 1, 2003, all costs and expenses for temporary
protection of or damage to the compressor station (that is, the
compressor station as such and all ancillary structures and
facilities involved in the suction of gas from the incoming
pipelines, compression of gas in the compressors, and discharge of
gas into outgoing pipelines, and the auxiliary office building all
located within the fenced area referenced above) which exist on the
date of the signing of this Agreement (specifically
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<PAGE> 15
excluding any future improvements) and which may be disturbed by
subsidence due to mining operations shall be handled as follows:
(i) The parties shall meet and discuss which of
the compressor station facilities may be disturbed and which
require mitigating action;
(ii) If within the compressor station facility
mitigating action such as uncovering and blocking facilities
is taken by mutual consent, such costs shall be shared
equally by TCO and Companies;
(iii) If, even with mitigating action, a
compressor station facility is materially damaged, such cost
of repair shall be shared equally by TCO and Companies;
(iv) If both parties agree that mitigation is
required but disagree on the specific action, either may
invoke arbitration (under the Commercial Arbitration Rules of
the American Arbitration Association at a hearing site in
Pittsburgh, Pennsylvania), after which TCO shall take the
more costly mitigating action so as to minimize the risk of
damage to the compressor station facilities; and the
arbitration issue shall be limited to the cost difference
between the less costly and more costly mitigating actions;
and the prevailing party in arbitration shall not be
obligated to accept any of the burden of the cost difference
or the costs (except for filing fees) paid to the American
Arbitration Association.
(v) If either party hereto rejects mitigation
proposed by the other, and material damage occurs, the
rejecting party will bear the entire cost of repairing the
subsidence-damaged compressor station facilities; and
(vi) Any compressor station facilities which
break or rupture or are otherwise damaged by subsidence, but
which damage does not affect the economic injection and/or
withdrawal of the gas in the reservoirs of the Storage
Complex then being utilized shall be repaired, not repaired,
or otherwise dealt with at TCO's expense.
(vii) The provisions of this Section 5.02(c)
shall not be deemed or construed to obligate Companies to pay
for any loss of gas resulting from damage to the compressor
station facilities caused by subsidence.
(viii) Companies shall not be responsible for
any costs or expenses either for protection activities or for
damage to the compressor station which occur on or after
January 1, 2003 and which are caused by or related to
subsidence due to mining operations.
(d) Subsidence Damage to Other Storage Complex
Facilities. With the exception of responsibility for certain costs
and expenses at the Majorsville Compressor Station which occur
prior to January 1, 2003 and as further described in Section
5.02(c) above, Companies, after the date of this Agreement, shall
neither have nor be deemed or construed to have any responsibility
for any costs or expenses for either protection activities or for
damage to any other Storage Complex facilities [including but not
limited to pipelines, 248 wells used in the operation of the
Storage Complex (whether Injection-Withdrawal, Observation, Special
or other) and any other TCO appurtenances] or loss of gas therefrom
which is caused by or related to subsidence due to mining
operations. Companies shall not have any duty to leave or provide
subjacent or lateral support for the overlying strata or surface or
anything thereon, therein or thereunder including but not limited
to Storage Complex facilities now existing or hereafter erected.
11
<PAGE> 16
(e) Cleaning Up Well Sites. Subject to any exceptions
contained in Section 5.01(f)(iv) and (g), all costs and expenses
for cleaning up well sites shall be borne by TCO.
(f) Other Costs. If not specifically mentioned in
this Section 5.02, each party shall bear and timely pay the costs
(including, but not limited to, those costs related to the
Indemnifications provided in Article 7 as well as the costs for
various reports, filings and legal expenses as referred to in
Articles 3 and 8) as otherwise provided in this Agreement.
ARTICLE 6: TCO'S WARRANTIES TO COMPANIES
6.01 Ownership Rights. TCO has and, for the term of this
Agreement, will maintain at its expense the necessary rights in the
form of ownership, leases or licenses and all necessary permits to
operate the Storage Complex and to assure that any activities
necessary for performance of this Agreement by TCO (including but
not limited to the operations of TCO and Companies as contemplated
by Section 5.01) in the Storage Complex are controlled in the
manner and for the time contemplated by this Agreement.
6.02 Rentals, Fees, Etc. Payment of the annual rental shown
on all leases and all other rents and fees necessary for the
operation of the Storage Complex, is and, during the period of
performance contemplated by this Agreement, will be maintained by
TCO as current and complete.
6.03 Free Gas. The right of any lessor, sublessor,
landowner or other entity to free gas can be terminated at any
time, without cost to Companies upon the plugging of the well(s) on
the leasehold, and Companies shall have free and unrestricted
access to the leaseholds for that purpose. This warranty shall
continue to apply even after TCO assigns ownership of a well to
Companies.
6.04 Abandoned Wells. TCO has made a diligent search to
locate all abandoned wells within the Storage Complex and the
results of such search are and will remain open for review by
Companies.
6.05 Review of Data. If requested by Companies, TCO will
diligently work with Companies in any new review of available data
that Companies may deem necessary in advance of their underground
mining operations.
6.06 Wells Already Plugged. Except for wells plugged by
Companies, the plugging of all abandoned wells known to have
penetrated any of the storage reservoirs within the Storage Complex
is in compliance with Pennsylvania or West Virginia law, as the
case may be, and as applicable at the time of plugging.
6.07 Polychlorinated Biphenyls. As to wells plugged by
Companies, TCO shall accept and remain responsible for any casing
or tubing that is withdrawn from a well bore or surface wellhead
equipment that is removed in order to plug the well, as long as
such casing or tubing and surface wellhead equipment are subject to
special handling requirements on account of possible PCB
contamination. Further, if any fluids withdrawn from the well in
the plugging thereof are determined to be contaminated with PCBs,
the disposal of the contaminated fluid shall be at TCO's cost and
as TCO's responsibility.
6.08 Regulatory Approvals. TCO warrants to Companies that
the regulatory approvals required pursuant to Section 3.01(b)
hereof will be adequate to permit TCO to perform its duties and
obligations under this Agreement and that TCO will diligently
comply with the terms and conditions of such regulatory approvals
during the term of this Agreement.
ARTICLE 7: INDEMNIFICATIONS
12
<PAGE> 17
7.01 Definitions. For purposes of the indemnifications in
this Article 7, the term "TCO" as indemnitee includes TCO's
affiliated and subsidiary companies (past, present and future) and
the officers, directors, employees, agents, and servants of each;
and the term "Companies" as indemnitee includes CPC and NCC and GCC
and their affiliated and subsidiary companies (past, present, and
future), and the officers, directors, employees, agents, and
servants of each. However, the indemnitors shall be TCO as such
and Companies as such, and not the affiliated and subsidiary
companies, and the officers, directors, employees, agents and
servants of each.
7.02 TCO's Indemnification by Companies. Subject to the
limitations and exceptions provided in this Section 7.02,
Companies shall indemnify, defend and hold harmless TCO from and
against any claim, loss, or liability (including punitive damages
and civil and criminal penalties) for personal injury (including
bodily injury and death) and/or for property damage to third
parties relating directly or indirectly to the underground mining
operations of Companies inside the boundary of the Storage Complex.
This indemnification includes but is not limited to any claim, loss
or liability based on third parties' allegations of--
(a) Companies' negligent, willful, wanton, reckless or
deliberate act or omission; or
(b) TCO's negligent act or omission which is joint or
concurrent (in time or sequence) with Companies' negligent,
willful, wanton, reckless or deliberate act or omission; or
(c) TCO's sole negligent act or omission in failing
to locate abandoned wells within the perimeter of the Storage
Complex and/or in pressurizing additional gas sands not
currently part of the Storage Complex, but within the
perimeter of said Complex;
and founded on any theory of law or equity whether grounded in the
law of torts, contracts, property, or other substantive area of the
law, including but not limited to theories based on fault, strict
liability, absolute liability, statutory obligations, or otherwise.
This indemnification specifically excludes and does not protect TCO
against any claim, loss or liability for (i) loss of gas from
wells, or from a storage reservoir, or from a pipeline, or payments
of any type for the gas or the Storage Complex or any part of it;
(ii) except as provided in Section 5.02(c), destruction of, loss
of value of, or damage to the Storage Complex or any part of it;
(iii) consequential damages resulting from loss of gas or loss of
the Storage Complex or any part of it; and (iv) personal injury
(including bodily injury and death) and/or property damage to third
parties caused by gas escaping from damaged or broken pipelines
and/or related pipeline facilities. Companies waive any right of
contribution they may have against TCO or TCO's shareholders,
officers, directors and employees with respect to the matters set
forth in this Section 7.02.
7.03 Companies' Indemnification by TCO Respecting
Environmental Matters. TCO shall defend, indemnify, and hold
harmless Companies from and against any claim, loss, liability,
cost or expenses (including punitive damages and civil and criminal
penalties) relating to any environmental harm or damage within or
emanating from a well bore or land (during the period of temporary
use and occupancy by Companies) within two hundred (200) feet of
any well now or formerly operated by or plugged by TCO and which is
assigned and/or sold to Companies pursuant to Section 5.01 (f)(ii)
or Section 5.01 (g), except for and excluding any environmental
harm or damage resulting from plugging and replugging of said wells
by Companies, as well as site restoration of well sites associated
with well plugging by Companies under this Agreement. This
indemnification shall include any and all claims, losses,
liabilities, costs or expenses asserted or imposed against
Companies (whether known or unknown at
13
<PAGE> 18
the time of this Agreement) on account of oil and gas operations
(including underground gas storage) by TCO or its predecessors, and
pertaining to site restoration, air quality, water quality, or the
storage, treatment, disposal, clean-up, removal or other
disposition of hazardous wastes and hazardous substances within or
emanating from a well bore or land (during the period of temporary
use and occupancy by Companies) within two hundred (200) feet of
any well now or formerly operated by or plugged by TCO and which is
assigned and/or sold to Companies pursuant to Section 5.01 (f)(ii)
or Section 5.01 (g) of this Agreement, except for and excluding
any environmental harm or damage resulting from plugging and
replugging of wells by Companies under this Agreement, as well as
site restoration of well sites associated with well plugging by
Companies under this Agreement. This indemnification shall also
include any personal injury (including bodily injury or death) or
property damage arising directly or indirectly from the presence of
such hazardous wastes or substances or their clean-up or
disposition. This indemnification includes, but is not limited to,
any action, obligation or liability under the Federal Comprehensive
Environmental Response Compensation and Liability Act (commonly
known as the Superfund Law or CERCLA), the Federal Resource
Conservation and Recovery Act (commonly known as RCRA), the Toxic
Substances Control Act (commonly known as TSCA), the National
Environmental Policy Act (commonly known as NEPA), the Pennsylvania
Clean Streams Act, the Pennsylvania Solid Waste Management Act, the
Pennsylvania Hazardous Sites Clean-Up Act, the Pennsylvania Oil and
Gas Act, and any analogous West Virginia statutes, or any other
federal or state environmental statute, regulation or rule
(including but not limited to any enacted or amended after the date
of this Agreement); this indemnification shall not include any
action, obligation or liability imposed by reason of the Surface
Mine Reclamation Act, or any other federal or state statute
(including any enacted after the date of this Agreement) applying
to coal mine operations as distinguished from oil and gas
operations. This indemnification shall apply to all such actions,
allegations or liabilities, whether brought, claimed or imposed by
a federal, state or local governmental agency, by a private party,
or by any other person or entity or combination of persons or
entities and shall include without limitation actions based on
strict liability or common law. TCO waives any right of
contribution it may have against Companies or Companies'
shareholders, officers, directors and employees with respect to the
matters set forth in this Section 7.03. This indemnification
shall include all circumstances and events existing at the time of
this Agreement, and all releases to the environment by TCO before
the termination or expiration of this Agreement. However, the
provisions of this Section 7.03 shall survive the termination of
this Agreement.
7.04 Companies' Indemnification by TCO Respecting Article 6.
TCO shall defend, indemnify, and hold harmless Companies from and
against any claim, loss, liability, cost or expenses (including
punitive damages and civil and criminal penalties) arising from or
relating to any breach, inaccuracy, or other failure of any
warranty given by TCO to Companies in Article 6. This
indemnification shall apply to all such claims, losses,
liabilities, costs or expenses, whether asserted or imposed by a
federal, state or local governmental agency, by a private party, or
by any other person or entity or combination of persons or entities
regardless of their nature or their basis in law or fact. TCO
waives any right of contribution it may have against Companies or
Companies' shareholders, officers, directors and employees with
respect to the matters set forth in this Section 7.04.
7.05 Companies' Indemnification by TCO Respecting a Well
Operated after Assignment. TCO agrees to indemnify and save
harmless Companies against and from any and all claims made within
the period of TCO's continued operation of a well or resulting
thereafter from its operation of a well after an assignment of the
well to Companies under Section 4.01(f), when claim is made by and
on behalf of any person, firm, corporation, or governmental agency
arising from or growing out of or in connection with operations on,
in or with respect to the well, or arising out of property and
rights hereby transferred or
14
<PAGE> 19
assigned, and further, in case any action or proceeding is brought
against Companies by reason of any such claim, TCO will, at its
expense, resist and defend such action or proceeding and satisfy
any order of judgment against Companies resulting therefrom.
7.06 Releases. If either Companies or TCO obtain a release
from any person for damages resulting from any event covered by the
indemnifications in this Agreement, it shall not affect the
respective rights and obligations of the parties under this Article
7.
7.07 Representation of the Indemnitee. The indemnified
party hereunder shall be entitled at its option to representation
by any attorney it selects, provided the attorney is acceptable to
the other, which acceptance shall not be withheld except for good
cause. The indemnifying party shall pay all reasonable settlements
of such claims, all judgments recovered in such claims, and the
related costs of the defense, including consultants' and expert
witnesses' fees and expenses, preparation of demonstrative evidence
and other visual aids, plaintiff's attorney fees if awarded by
judgment, and defense attorney fees and expenses for both parties.
7.08 Rule of Construction. Subject to the limitations of
Section 7.02, the indemnifications in this Article 7 shall be
broadly construed to protect the indemnified party against any
claim, loss, or liability to the extent that the law or public
policy of the State or the United States does not expressly forbid
indemnification. In this connection, each waives its right to
assert that any such law or public policy expressly forbids
indemnification.
7.09 Limitations. Indemnifications under this Article 7
shall commence and be effective on the date of the signing of this
Agreement, irrespective of the need for Bankruptcy Court or
regulatory approval of the Agreement as a whole, unless both of the
indivisible conditions specified in Section 3.01 do not occur as
contemplated by this Agreement, so that the Agreement may be
terminated. In such event, and except as otherwise provided, the
indemnifications shall be null and void as to matters occurring and
claims made after the date that the Agreement is terminated.
7.10 Notice of Claims. The indemnified party shall notify
the other in writing, by certified mail, within fifteen (15) days
after the receipt of any claim as to which that party believes it
is indemnified. However, notwithstanding failure to give notice
under this Section 7.10, the indemnifications provided in this
Article 7 shall apply if the failure was due to the party's
inadvertence, provided such inadvertence does not prevent an
adequate defense.
ARTICLE 8: EXCHANGE OF INFORMATION.
8.01 Purpose of Exchange. The parties will exchange
information as provided in this Article 8 to facilitate the
simultaneous withdrawal of gas and temporary deactivation of the
Storage Complex by TCO and mining of coal by Companies.
8.02 TCO's Operations. TCO will make available to Companies
for review and evaluation any and all information in TCO's
possession relating to (a) the deactivation, operation and
maintenance of the Storage Complex and bearing on Companies' coal
mining operations, and (b) the location and condition of all wells
within the area encompassed by the Storage Complex. In addition,
TCO will permit Companies' designated consultants to inspect any
facilities in the Storage Complex.
8.03 Companies' Operations. Similarly, Companies will
promptly make available to TCO for its review and evaluation not
only its mine maps under Section 5.01(c), but also any and all
information in Companies' possession which both relates to the
operation and maintenance of its coal mines within the boundary of
the Storage Complex and which has bearing on TCO's gas withdrawal
15
<PAGE> 20
operations. In addition, Companies will permit TCO or designated
consultants to inspect Companies' facilities within the boundary of
the Storage Complex.
8.04 Governmental Filings and Meetings. In addition to the
requirements for filings made pursuant to Article 3, at least ten
(10) days prior to filing a major permit application or other major
proposal for federal, state, or local governmental approval
applicable to the operations of either party within the boundary of
the Storage Complex, and any other major report or relevant major
filing pursuant to any federal, state, or local laws, regulations
or rules, the filing party shall give the other party an
opportunity to review and propose revisions to the proposed filing.
Further, after such major filing, the filing party shall furnish
the other party with copies thereof. Companies specifically shall
have the right to participate in any conferences, and shall be kept
informed by TCO of any communications between TCO and FERC Staff
regarding TCO's temporary deactivation of the Storage Complex in
accordance with the provisions of Article 5 and as set forth in
further detail in Section 3.01(b) of this Agreement.
8.05 Quarterly Reports. By the tenth (10th) day following
the end of any quarter, the parties shall each provide the other
with a quarterly report of its operations which are relevant to the
operations of the other during the previous quarter, with the
quarters ending on March 31, June 30, September 30 and December 31
of each year.
ARTICLE 9: NOTICES
9.01 Given in Writing. All notices specified to be given
hereunder shall be in writing and shall be duly given if delivered
by hand or mailed by first-class, registered or certified mail,
postage fully prepaid, addressed to the parties as follows:
<TABLE>
<S> <C>
For Companies Consol Pennsylvania Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Attention: President
Nineveh Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Attention: President
Greenon Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Attention: President
For TCO Columbia Gas Transmission Corporation
Route 19, Manifold Road, P.O. Box 496
Washington, PA 15301
Attention: Vice President
Northeast Region
with copy to: Columbia Gas Transmission Corporation
P.O. Box 1273
Charleston, WV 25325
Attention: Vice President, Storage
ARTICLE 10: TERMINATION
------------------------
</TABLE>
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<PAGE> 21
10.01 Termination for Failure of Two Indivisible Conditions.
If either of the two (2) indivisible conditions set forth in
Section 3.01 hereof is not satisfied or waived by January 1, 2003,
unless extended by mutual written agreement of the parties, then
either party may thereafter, at its option terminate this Agreement
by giving sixty (60) days prior written notice to the other party
of its intention to terminate, and unless both such conditions are
satisfied during such sixty (60) day notice period or such notice
is withdrawn, this Agreement shall terminate effective upon the
expiration of such sixty (60) day notice period.
10.02 Termination Upon Completion of Mining Operations.
Unless earlier terminated pursuant to Section 10.01 hereof or
otherwise in accordance with the parties' rights under applicable
law, this Agreement shall terminate twenty (20) years after the
Effective Date, as defined in Section 2.01 hereof, unless
Companies shall have given ninety (90) days written notice to TCO,
prior to the expiration of such twenty (20) year period, that coal
reserves remain to be mined by active mining operations of
Companies within the boundaries of the Storage Complex, in which
event this Agreement shall continue in effect thereafter until
Companies shall have given TCO further written notice that such
mining operations have been completed.
10.03 Survival of Obligations. The obligations of the
parties set forth in: (a) Payment Conditions in Section 4.03
hereof; (b) Plugging of wells in Section 5.01(b); (c) TCO's
Warranties to Companies in Article 6 hereof, as limited by Section
5.01(g)(iii); and (d) all of the indemnifications in Article 7
hereof, which have arisen or become due prior to the date of
termination of this Agreement for any reason, including those
specified in this Article 10, shall survive such termination.
ARTICLE 11: MISCELLANEOUS PROVISIONS
11.01 Governing Law. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania.
11.02 Limited Effect of Agreement. Neither party to this
Agreement has indicated to the other party that the provisions of
this Agreement are or may be suitable to apply to any future
episodes, events, or situations involving other mines of Companies
outside the Storage Complex boundaries or another of TCO's storage
fields. Each party covenants with the other that it will not cite
any undertaking or other commitment by the other in this Agreement
as expressing or implying a duty to make the same or a similar
commitment in the future.
11.03 Severability. Except for Section 3.01, if any
article, section, paragraph, sentence or clause of this Agreement
is adjudged to be invalid or unenforceable, such adjudication shall
not affect the validity of the remaining portions of this
Agreement; and, to this end, the provisions of this Agreement are
hereby agreed to be severable.
11.04 Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and
assigns. An assignment shall not be deemed a novation, and the
assignor shall remain primarily liable.
IN WITNESS WHEREOF, the parties hereto have caused their
names to be signed hereto and their seals affixed all as of the day
and year first above written.
<TABLE>
<S> <C>
Attest: COLUMBIA GAS TRANSMISSION CORPORATION
/s/ J. A. JARRELL By /s/ M. W. CASDORPH
------------------------------ -----------------------------
J. A. Jarrell, Ass't Secretary M. W. Casdorph, Senior Vice
President
</TABLE>
17
<PAGE> 22
<TABLE>
<S> <C>
Attest: CONSOL PENNSYLVANIA COAL COMPANY
/s/ K. T. SKRYPAK By /s/ S. E. SHRADER
------------------------------ ------------------------------
K. T. Skrypak, Secretary S. E. Shrader, President
Attest: NINEVEH COAL COMPANY
/s/ R. H. BURNS By /s/ C. W. MCDONALD
------------------------------ ------------------------------
R. H. Burns, Jr., Secretary C. W. McDonald, President
Attest: GREENON COAL COMPANY
/s/ R. A. HARRINGTON By /s/ R. E. SMITH
----------------------------- -----------------------------
R. A. Harrington, Secretary R. E. Smith, President
</TABLE>
18
<PAGE> 23
BRIDGE AGREEMENT
BETWEEN
COLUMBIA GAS TRANSMISSION CORPORATION
("TCO")
A
N
D
CONSOL PENNSYLVANIA COAL COMPANY,
NINEVEH COAL COMPANY,
AND
GREENON COAL COMPANY
("COMPANIES")
19
<PAGE> 24
I N D E X
<TABLE>
<CAPTION>
Article Title Page
------- ----- ----
<S> <C> <C>
PREAMBLE 1
1 DEFINITIONS 2
1.01 Former Agreements 2
1.02 New Agreements 3
1.03 Effective Date 4
1.04 Initial Payment Date 4
2 ASSIGNMENT OF THE FORMER AGREEMENTS 4
2.01 BRC Assignment to the Companies 4
2.02 TCO Consent to the Assignment 4
2.03 Reinstatement of the Former Agreements 4
3 REORGANIZATION APPROVAL AND WITHDRAWAL OF CLAIMS 4
3.01 Application and Order 4
3.02 Withdrawal of Claims 4
4 SUSPENSION AND CONTINGENT RESCISSION OF THE 5
FORMER AGREEMENTS
4.01 Suspension 5
4.02 Contingent Rescission 5
4.03 Effect on Future Performance 5
5 INDIVISIBLE CONDITIONS PRECEDENT TO THE NEW 5
AGREEMENTS
5.01 Two (2) Indivisible Conditions Precedent 5
6 TERMINATION OF THE NEW AGREEMENTS 5
6.01 Termination 5
7 NOTICES 5
7.01 Given in Writing 5
8 MISCELLANEOUS PROVISIONS 6
8.01 Governing Law 6
8.02 Limited Effect of Agreement 6
8.03 Further Assignment 6
8.04 Successors 7
SIGNATURES 7
</TABLE>
i
<PAGE> 25
BRIDGE AGREEMENT
THIS BRIDGE AGREEMENT, made this ---- day of ---------------,
1993, by and among COLUMBIA GAS TRANSMISSION CORPORATION, a
Delaware corporation, hereinafter referred to as "TCO",
A
N
D
CONSOL PENNSYLVANIA COAL COMPANY, a Delaware corporation ("CPC"),
NINEVEH COAL COMPANY, a Delaware corporation ("NCC"), and GREENON
COAL COMPANY, a Delaware corporation ("GCC"), CPC and NCC and GCC
hereinafter referred to as "Companies", meaning each of them
individually and severally and/or all of them collectively and
jointly, as the context requires,
A
N
D
BRAUNSOL RESOURCES COMPANY, a Pennsylvania general partnership,
hereinafter referred to as "BRC", the partners of which are CPC and
GCC.
WHEREAS, TCO owns and operates three underground natural gas
storage fields (being Heard Storage Field, the Majorsville Shallow
Storage Field and the Majorsville Deep Storage Field), gas therein,
wells, related storage pipelines and compressor facilities, and
related 3000' reservoir protective areas, (hereinafter collectively
referred to as the "Storage Complex") located in Greene and
Washington Counties, Pennsylvania, as well as Marshall County, West
Virginia; and
WHEREAS, the Companies currently own and/or operate coal
mining operations in Greene and Washington Counties, Pennsylvania,
as well as Marshall County, West Virginia; and,
WHEREAS, the partners of BRC currently own and/or operate coal
mining operations in Greene and Washington Counties, Pennsylvania,
as well as Marshall County, West Virginia; and,
WHEREAS, the Storage Complex and the mining operations
underlie some of the same surface land which, at present, requires
TCO, the Companies and BRC each to operate its respective
facilities with due regard for the property, rights, and duties of
the other; and,
WHEREAS, TCO and BRC have heretofore entered into agreements
dated May 29, 1991 respecting their properties (the "Former
Agreements" as hereinafter further defined); and
WHEREAS, on or about July 31, 1991, TCO filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code (11
U.S.C. Section 101 et. seq.), which proceeding was filed on or
about July 31, 1991 at Docket No. 91-804 pending in the United
States Bankruptcy Court in the District of Delaware; and
WHEREAS, from the date of the execution of the Former
Agreements until the date hereof, TCO and BRC have essentially
complied with same, and TCO has neither assumed nor rejected the
Former Agreements in its reorganization proceeding; however, TCO
and BRC now believe that the Former Agreements may need to be
modified to accomplish their business objectives, in light of both
TCO's reorganization proceeding, and TCO's desire to comply with
the Federal Energy Regulatory Commission ("FERC") Order No. 636;
and
<PAGE> 26
WHEREAS, BRC, for good and valuable consideration, wishes to
assign to the Companies all of its rights, title, interest, claims,
duties and obligations under the Former Agreements; and
WHEREAS, TCO wishes to consent to this assignment by BRC to
the Companies of all its rights, title, interest, claims, duties
and obligations under the Former Agreements; and
WHEREAS, from the Effective Date (as hereinafter defined) of
this Agreement, all the parties intend to suspend performance under
the Former Agreements and simultaneously commence performance under
the New Agreements (as hereinafter defined) which for so long as
they remain effective, shall govern the respective rights, duties,
obligations and liabilities of TCO and the Companies with respect
to the temporary deactivation of the Storage Complex to accommodate
mining operations; provided, however, that if the New Agreements
are terminated based on failure of either of the two Indivisible
Conditions (as hereinafter defined), the Former Agreements shall be
reinstated as of the date of such termination.
NOW, THEREFORE, for and in consideration of the premises,
which are incorporated and the mutual promises, covenants and
agreements hereinafter set forth, TCO, the Companies and BRC, with
intent to be legally bound, agree as follows:
Article 1: Definitions
1.01 Former Agreements. The "Former Agreements" consist of
the following six (6) documents:
(i) The Agreement dated May 29, 1991 between TCO
and BRC, providing, inter alia, for the sale
by TCO to BRC of three underground natural gas
storage fields (Being the Heard Storage Field,
the Majorsville Shallow Storage Field and the
Majorsville Deep Storage Field), gas therein,
wells, related storage pipelines and
compressor facilities, and related reservoir
protective areas, (hereinafter collectively
referred to as the "Majorsville-Heard
Complex"), located in Greene and Washington
Counties, Pennsylvania and Marshall County,
West Virginia (the "Master Agreement);
(ii) The Gas Purchase Contract dated May 29, 1991
between TCO, as Buyer, and BRC, as Seller,
providing for the sale of certain quantities
of natural gas by BRC to TCO (the "Gas
Purchase Contract");
(iii) The Operating Agreement dated May 29, 1991
between BRC, as Owner, and TCO, as Operator,
providing for the operation of the
Majorsville-Heard Complex by TCO for the term
specified therein (the "Operating Agreement");
(iv) The Asset Purchase Agreement dated May 29,
1991 between TCO and BRC, providing for the
sale of the Majorsville- Heard Complex by TCO
to BRC (the "Asset Purchase Agreement");
(v) The Agreement dated May 29, 1991 between
Columbia Natural Resources, Inc. ("CNR") to
BRC (the "CNR Agreement"); and
(vi) The Letter Agreement dated May 29, 1991 among
TCO, NCC, Consolidation Coal Company, a
Delaware corporation (Consolidation), Enlow
Fork Mining Company, a Delaware corporation,
(Enlow) and Conrhein Coal Company, a
Pennsylvania general partnership (Conrhein),
providing for
2
<PAGE> 27
the relationship of the above-mentioned five (5) Agreements to
each other and for the relationship of NCC, Consolidation,
Enlow and Conrhein to those same agreements and the
signatories therein (the "Letter Agreement").
1.02 New Agreements. The New Agreements consist of the
following three (3) documents:
(i) The Agreement dated the date hereof between
TCO and CPC and NCC and GCC with CPC and NCC
and GCC hereinafter therein referred to as
"Companies", (meaning each of them
individually and severally and/or all of them
collectively and jointly, as the context
requires), providing, inter alia, for the
temporary deactivation by TCO (on an agreed
basis to accommodate the mining of coal) of
three underground natural gas storage fields
(being the Heard Storage Field, the
Majorsville Shallow Storage Field and the
Majorsville Deep Storage Field), gas therein,
wells, related storage pipelines and
compressor facilities, and related reservoir
protective areas, (hereinafter collectively
referred to as the "Storage Complex"), located
in Greene and Washington Counties,
Pennsylvania and Marshall County, West
Virginia (the "Second Master Agreement"); and
(ii) This Bridge Agreement providing for the
relationship of certain agreements dated May
29, 1991 to these New Agreements (the "Bridge
Agreement").
(iii) The Letter Agreement dated the date hereof
among TCO, Consolidation, Enlow and Conrhein,
providing for the relationship of the
abovementioned two (2) Agreements to each
other and for the relationship of
Consolidation, Enlow and Conrhein to those
same agreements and the signatories therein
(the "Second Letter Agreement")
1.03 Effective Date. The term "Effective Date" shall have
the same meaning as set forth in Section 2.01 of the Second Master
Agreement as that Agreement is referenced in Section 1.02(i)
hereof.
1.04 Initial Payment Date. The term "Initial Payment Date"
shall have the same meaning as set forth in Section 2.02 of the
Second Master Agreement as that Agreement is referenced in Section
1.02(i) hereof.
Article 2: Assignment of the Former Agreements
2.01 BRC Assignment to the Companies. BRC, for good and
valuable consideration, hereby assigns, transfers, sets over its
rights and duties under the Former Agreements to the Companies,
specifically including its rights under all Proof of Claims filed
in United States Bankruptcy Court, District of Delaware against TCO
in Case No. 91-804.
2.02 TCO Consent to the Assignment. TCO hereby agrees to the
assignment by BRC of its rights and duties under the Former
Agreements to the Companies, specifically including all Proof of
Claims mentioned above in Section 2.01. TCO further agrees that
this assignment shall be deemed to be a novation and that BRC as
Assignor is generally and specifically released and shall no longer
remain liable to any extent under the Former Agreements. The
parties agree to take all steps necessary to comply with Bankruptcy
Rule 3001 and comply with appropriate orders of the Bankruptcy
Court.
3
<PAGE> 28
2.03 Reinstatement of the Former Agreements. If for any
reason the Former Agreements are reinstated, then the Assignment of
BRC to the Companies shall survive the termination of the New
Agreements.
Article 3: Reorganization Approval and Withdrawal of Claims
3.01 Application and Order. TCO agrees that the form and
content of the "Application" and the "Court Order" for the approval
of the New Agreements by the United States Bankruptcy Court in the
District of Delaware at Docket No. 91-804 must be in form and
substance approved by the Companies, which approval shall not be
unreasonably withheld.
3.02 Withdrawal of Claims. Promptly after the Effective Date
of the Second Master Agreement, Companies shall withdraw the
duplicate claims assigned by BRC to the Companies being Claims Nos.
10908, 10910, and 10912 which, on or about March 16, 1992, BRC
filed in TCO's reorganization proceeding. Promptly upon Initial
Payment Date, Companies shall withdraw actual Claims Nos. 10907,
10909 and 10911.
4
<PAGE> 29
Article 4: Suspension and Contingent Rescission of the Former
Agreements
4.01 Suspension. From the Effective Date of the New
Agreements, each party shall accept performance under the New
Agreements in full compliance with the provisions of the Former
Agreements. To that end, the Former Agreements are hereby
suspended for so long as the New Agreements continue in effect and
shall be reinstated in the event of termination of the New
Agreements based on failure of either of the two Indivisible
Conditions Precedent, as defined in Section 5.02 hereof.
4.02 Contingent Rescission. Upon TCO's satisfying both the
Indivisible Conditions as stated in Section 5.01 hereof, the
Former Agreements shall be retroactively rescinded as of the
Effective Date of this Agreement; provided, that, to the extent
that TCO and BRC have performed pursuant to the Former Agreements,
each accepts the performance of the other, and the Companies, BRC
and TCO each accepts such performance to the same extent as if the
New Agreements had been entered into on May 29, 1991, and all
parties waive any claim of breach known or unknown, which may have
arisen under the Former Agreements prior to the Effective Date of
the New Agreements, subject to any rights and duties created by or
arising out of (a) a breach in performance under the New Agreements
or (b) TCO's filing on July 31, 1991 for reorganization under
Chapter 11 of the Bankruptcy Code.
4.03 Effect of Future Performance. In the event of any claim
of breach of any provision of one or more of the Former Agreements,
the faithful performance of the analogous duty under the New
Agreements shall be a complete defense to the claim of breach.
Article 5: Indivisible Conditions to the New Agreements.
5.01 Two (2) Indivisible Conditions. The two (2) indivisible
conditions under the New Agreements shall be the same as set forth
in Section 3.01 of the Second Master Agreement as that Agreement
is referenced in Section 1.02(i) hereof.
Article 6: Termination of the New Agreements
6.01 Termination. The New Agreements shall terminate on the
same basis set forth in Article 10 of the Second Master Agreement
as that Agreement is referenced in Section 1.02 (i) hereof.
Article 7: Notices
7.01 Given in Writing. All notices and other communications
hereunder shall be in writing and shall be duly given if delivered
by hand or mailed by first-class, registered or certified mail,
postage fully prepaid, addressed to the parties as follows:
<TABLE>
<S> <C>
For BRC Braunsol Resources Company
c/o Consol Pennsylvania Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Attention: President
Braunsol Resources Company
c/o Greenon Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Attention: President
For TCO Columbia Gas Transmission Company
Route 19, Manifold Road, P.O. 496
Washington, PA 15301
Attention: Vice President
</TABLE>
5
<PAGE> 30
<TABLE>
<CAPTION>
Northeast Region
<S> <C>
with copy to: Columbia Gas Transmission Corporation
P. O. Box 1273
Charleston, WV 25325
Attention: Vice President, Storage
For Companies Consol Pennsylvania Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Nineveh Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Greenon Coal Company
1800 Washington Road
Pittsburgh, PA 15241
Article 8: Miscellaneous Provisions
</TABLE>
8.01 Governing Law. This Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania.
8.02 Limited Effect of Agreement. Parties to this Agreement
have not indicated to any other party that the provisions of this
Agreement are or may be suitable to apply to any future episodes,
events, or situations involving other mines of BRC or the Companies
outside the Storage Complex boundaries or another of TCO's storage
fields. Each party covenants with the others that it will not cite
any undertaking or other commitment by the other in this Agreement
as expressing or implying a duty to make the same or a similar
commitment in the future.
8.03 Further Assignment. With the exception of the
Assignment referenced in Article 2 hereof, this Agreement may not
be assigned by one party without the express written consent of the
other parties hereto; which consent shall not be unreasonably
withheld.
6
<PAGE> 31
8.04 Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused their names
to be signed hereto and their seals affixed all as of the day and
year first above written.
<TABLE>
<S> <C>
Attest: COLUMBIA GAS TRANSMISSION CORPORATION
/s/ J. A. JARRELL By /s/ M. W. CASDORPH
------------------------------ -------------------------------------
J. A. Jarrell, Ass't Secretary M. W. Casdorph, Senior Vice President
Attest: CONSOL PENNSYLVANIA COAL COMPANY
/s/ K. T. SKRYPAK By /s/ S. E. SHRADER
------------------------------ -----------------------------------
K. T. Skrypak, Secretary S. E. Shrader, President
Attest: NINEVEH COAL COMPANY
/s/ R. H. BURNS, JR. By /s/ C. W. MCDONALD
------------------------------ -----------------------------------
R. H. Burns, Jr., Secretary C. W. McDonald, President
Attest: GREENON COAL COMPANY
/s/ R. A. HARRINGTON By /s/ R. E. SMITH
------------------------------ -----------------------------
R. A. Harrington, Secretary R. E. Smith, President
BRAUNSOL RESOURCES COMPANY
By its general partners:
Attest: CONSOL PENNSYLVANIA COAL COMPANY
/s/ K. T. SKRYPAK By /s/ S. E. SHRADER
------------------------------ ------------------------------
K. T. Skrypak, Secretary S. E. Shrader, President
Attest: GREENON COAL COMPANY
/s/ R. A. HARRINGTON By /s/ R. E. SMITH
------------------------------ -----------------------------
R. A. Harrington, Secretary R. E. Smith, President
</TABLE>
7
<PAGE> 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re THE COLUMBIA GAS SYSTEM, INC. and
COLUMBIA GAS TRANSMISSION CORPORATION,
<TABLE>
<S> <C>
Debtors. Case Nos. 91-803
91-804
Chapter 11
</TABLE>
STIPULATION
WHEREAS, Tennessee Gas Pipeline Company ("Tennessee") and
Columbia Gas Transmission Corporation ("TCO") are parties to certain contracts,
as amended, for the transportation, storage and exchange of natural gas, as
listed on Exhibit A (the Exhibit A contracts), a copy of which is attached
hereto and incorporated by reference; and
WHEREAS, Tennessee and TCO are also parties to certain other
contracts, as amended, as listed on Exhibit B (the Exhibit B contracts), a copy
of which is attached hereto and incorporated by reference; and
WHEREAS, on April 8, 1992 the Federal Energy Regulatory
Commission ("FERC") issued Order No. 636 ("Order No. 636") requiring, inter
alia, restructuring of interstate pipeline rates and services; and
WHEREAS, Tennessee required its customers to submit binding
nominations for restructured services by April 28, 1993; and
WHEREAS, TCO submitted such nominations to Tennessee, subject
to any required authorizations by the Bankruptcy Court; and
WHEREAS, TCO and Tennessee acknowledge that TCO's customers
have not yet made their final, binding elections with respect to the firm
capacity assignments on upstream pipelines, pursuant to Section 284.242 of
FERC's Regulations; and
<PAGE> 2
WHEREAS, TCO intends to assign Contracts Nos. 2030 (a 15,637
Dth per day firm storage contract), 4872 (a 10,425 Dth per day firm
transportation contract) and a portion of its capacity under Contract No. 3871
(a 263,998 Dth per day firm transportation contract) to its customers upon
assumption in bankruptcy, as part of its own implementation of Order No. 636,
scheduled for November 1, 1993; and
WHEREAS, upon implementation of restructured services under
Order No. 636, TCO does not require certain capacity under Contract No. 3871 or
for any capacity under Contract No. 4870 (6,928 Dth per day), and has been
unable to assign such capacity to its customers; and
WHEREAS, TCO and Tennessee agree that the term "Excess
Capacity" shall mean the total amount of unassigned or capacity not required
under contracts 3871 and 4870 as of the first day of the month following the
effective date of this Stipulation pursuant to Paragraph Ten (10) herein; and
WHEREAS, TCO intends to retain Tennessee services under the
remaining Exhibit A Contracts for operational reasons; and
WHEREAS, TCO and Tennessee have agreed to an exit fee to be
calculated as specified below (the "Exit Fee") in consideration of TCO's
abandonment of Excess Capacity which will result from TCO's implementation of
Order No. 636; and
WHEREAS, TCO will use its Transportation Cost Rate Adjustment
mechanism (TCRA) to fully recover the Exit Fee from its customers pursuant to
Order No. 636, which mechanism for such recovery was approved by the FERC by
order issued on July 14, 1993, in Docket Nos. RS92-5, et al.
WHEREAS, Tennessee filed its proof of claim on March 16, 1992
with the claims agent and the Court, and subsequently filed a supplemental
proof of
2
<PAGE> 3
claim with the claims agent and the Court, all of which, by order of the
Bankruptcy Court on July 14, 1993, were merged and/or expunged to result in one
supplemental proof of claim of $25,465,679.22, comprised of the following:
a) Transportation and Exchange Imbalances in the amount
of $5,959,406.00;
b) Damages for Breach of Contract in the amount of
$14,294,820.00, relating to rejection of the New
Bremen and the Service Drilling gas purchase
contracts wherein Tennessee claims that TCO's
rejection of these contracts increased Tennessee's
obligation to purchase high cost gas ("Breach of
Contract Claim");
c) Southwest Transportation Expenses ("Unpaid Invoices
Claim") in the amount of $4,782,854.80; and
d) Gas Purchase Expenses ("Unpaid Invoices Claim") in
the amount of $428,598.42.
WHEREAS, by Stipulation and Settlement dated June 25, 1991
filed with and approved by FERC by orders dated April 10, 1992 and June 25,
1992, Tennessee is obligated to pay TCO a refund, including interest, based on
the reallocation of costs arising out of FERC Order No. 528, in three
semi-annual installments beginning in January 1993, which refund represents
overpayments received by Tennessee from TCO between July 1988 and October 1990
("Order No. 528 Refunds"); and
WHEREAS, Tennessee has made two payments of the Order No. 528
Refunds totalling $45,432,519.00; and
WHEREAS, on November 25, 1992, Tennessee filed a Motion for
Relief from Stay (the "Lift Stay Motion") seeking authority to set-off the
Unpaid Invoices Claims against the Order No. 528 Refunds; and
WHEREAS, on December 17, 1992, TCO and Tennessee entered into
a stipulation, which was So Ordered by the Bankruptcy Court on the same date
(the "Claims Stipulation"), providing for, inter alia, (i) liquidation of the
Unpaid
3
<PAGE> 4
Invoices Claims in the amount of $3,930,046.05, (ii) allowance of the Unpaid
Invoices Claims as allowed administrative expense priority claims, subject only
to any objection which might be made by the Official Customers' and Creditors'
Committees of TCO (the "Committees"), the Pennsylvania Public Utility
Commission, Maryland Public Service Commission, Maryland People's Counsel,
Pennsylvania Office of Consumer Advocate, Ohio Consumer's Counsel, Columbia Gas
of Kentucky, Inc., Columbia Gas of Maryland, Inc., Columbia Gas of
Pennsylvania, Inc., Columbia Gas of Ohio, Inc., and Commonwealth Gas Services
(collectively, the "Parties-in- Interest") in the event that the Third Circuit
Court of Appeals (the "Third Circuit") or the United States Supreme Court
reverses, remands, or vacates, in whole or in part, the Order of July 6, 1992
by the Federal District Court for the District of Delaware (the "District
Court") overturning the Bankruptcy Court's ruling on TCO's Omnibus FERC Motion
which was filed on August 23, 1991, and (iii) payment of the Unpaid Invoices
Claims upon confirmation of a plan of reorganization, or sooner upon Motion by
TCO on at least twenty (20) days notice to the Committees and any
Parties-in-Interest specifically requesting such notice; (iv) remedying the
transportation and exchange imbalances in the ordinary course of business,
pursuant to the Bankruptcy Court's Order of October 3, 1991; and
WHEREAS, on July 6, 1993 the Third Circuit issued a Memorandum
Decision which in fact overturned part of the District Court's ruling, holding
that refunds relating to prepetition periods (including FERC Order No. 528
Refunds) are trust monies which are not property of TCO's estate; and
WHEREAS, as part of TCO's assumption of the Exhibit A
contracts, TCO and Tennessee have agreed to the payment by TCO of the Unpaid
Invoices Claims as
4
<PAGE> 5
liquidated in the Claims Stipulation in full satisfaction of the requirement
that defaults under the Contracts be cured under 11 U.S.C. Section 365(b);
IT IS THEREFORE STIPULATED AND AGREED by the parties hereto
as follows:
1. The Exhibit A contracts are hereby assumed by TCO.
2. Upon assumption, the Exhibit A contracts will be amended
and conformed to comply with Tennessee's Order No. 636 implementation program
and will be fully or partially assignable to TCO's customers and to other
parties in accordance with Order No. 636, as it may be amended, modified or
superseded, and Tennessee's and TCO's approved FERC Gas Tariff, and subject to
applicable laws, rules, regulations, and orders of applicable regulatory
authorities. Without limiting the foregoing, TCO shall have the right to
assign all or a portion of the transportation and/or storage capacity
underlying the Exhibit A contracts, on a permanent basis (assuming the
assignment is at the full contract rate for the remainder of the term of the
contract and that the assignee meets the creditworthiness standards contained
in the General Terms and Conditions of Tennessee's FERC Gas Tariff) to one or
more of TCO's customers or other parties in connection with TCO's and/or
Tennessee's restructuring under Order No. 636, and Tennessee agrees that any
permanent full or partial assignment(s) of capacity shall constitute an
assignment of the underlying Exhibit A contracts pursuant to 11 U.S.C. Section
365(f). Accordingly, upon permanent assignment of capacity by TCO to customers
or other parties, TCO shall not, consistent with the provisions of 11 U.S.C.
Section 365 (k), have any liability for "breach of such [contracts] occurring
after such assignment(s)" with respect to the assigned capacity; provided,
however, that nothing herein shall affect (1) the right of Tennessee to recover
from TCO costs (a) which have been authorized by the FERC for service
5
<PAGE> 6
periods predating the effective date of assignment of the underlying
contract(s), and (b) which are recoverable by Tennessee from TCO, consistent
with the terms of a FERC order, during that portion of the FERC-approved
recovery period predating the effective date of assignment of the underlying
contracts; and (2) the right of TCO to refunds from Tennessee for overpayments
made to Tennessee, as determined by the FERC, for services rendered to TCO by
Tennessee during periods which pre-date the effective date of assignment of the
underlying contract(s).
3. Without limiting in any respect the provisions of
paragraph 2, TCO shall be entitled to the same rights and subject to the same
obligations under Tennessee's tariff and FERC orders as all other Tennessee
customers, including the right to participate in Tennessee's capacity release
and assignment program.
4. Upon assumption, Contract No. 3871 shall be amended
to delete all of the Excess Capacity and Contract No. 4870 shall terminate,
subject to receipt of the Exit Fee. In consideration of such amendment and
termination, TCO shall pay Tennessee the Exit Fee. The Exit Fee shall be
calculated using the formula on Attachment A and using the Excess Capacity that
exists as of the first day of the month following the date the Stipulation
becomes effective pursuant to Paragraph Ten (10) herein. 1/
5. TCO shall continue to make payments billed by and due
to Tennessee (including demand charges and FERC approved demand charge
surcharges) relating to the contracts listed on Exhibits A and B up to the date
which shall
- ----------------------------------
1/ Assuming a January 1, 1994 effective date and 162,642 Dth per day of
Excess Capacity, the Exit Fee would be $42,147,209 in accordance
with the Schedule on Attachment A. Assuming a January 1, 1995
effective date and 162,642 Dth per day of Excess Capacity, the Exit
Fee would be $36,650,591.
6
<PAGE> 7
be used for the purpose of calculating the Exit Fee in accordance with
the formula on Attachment A.
6. TCO shall pay to Tennessee the amount of
$3,930,046.05 in full satisfaction of all arrearages owed by TCO to Tennessee
for pre-petition periods under the contracts and in satisfaction of the Unpaid
Invoice Claims.
7. The Exhibit B contracts are hereby terminated by
agreement of the parties (subject to any necessary regulatory approvals), and
each party shall be deemed to have waived any claim for damages thereunder,
except for claims with respect to imbalances or post-petition unpaid invoices
due for services rendered up to the termination date which shall be remedied in
the normal course of business. Tennessee's claim, with the exception of the
Breach of Contract Claim (in the amount of $14,294,820.00), is hereby amended
in accordance with this Stipulation.
8. Nothing in this Stipulation shall diminish
Tennessee's obligation to make its remaining Order No. 528 Refunds (including
interest) described above to TCO.
9. This Stipulation shall not be deemed an admission of
any fact or proposition of law, and shall not be used for any purpose other
than to the enforce the terms of this Stipulation.
10. This Stipulation shall not be effective until the
later of January 1, 1994 or until the Stipulation is approved, executed and
entered by the Bankruptcy Court and FERC issues final orders, no longer subject
to rehearing, acceptable to TCO and Tennessee approving this Stipulation
including specifically (1) authorization for TCO to fully recover the Exit Fee
from its customers and (2) approval of Tennessee's proposed disposition of the
Exit Fee paid by TCO to Tennessee; provided, however, that TCO or Tennessee may
terminate this Stipulation upon 10 days written notice if such final orders
have not been issued
7
<PAGE> 8
by June 30, 1994. If any Court should reverse in whole or in part the order of
the Bankruptcy Court or the final order of the FERC approving this Stipulation,
unless the parties agree in writing to the contrary, all monies paid by TCO to
Tennessee under Paragraphs 4 and 6, plus interest at the FERC's prescribed
rate, shall be returned to TCO, the status quo ante shall be restored and TCO
agrees to pay Tennessee all amounts due (including demand charges and FERC
approved demand surcharges) for any Excess Capacity to the extent not
remarketed at full contract rate between the date Excess Capacity is determined
pursuant to Paragraph 4 herein and the date Tennessee returns monies to TCO
pursuant to this paragraph, and TCO and Tennessee shall retain all rights to
assert claims, objections and other rights that are to be resolved by this
settlement, and no party can use this settlement as evidence against TCO or
Tennessee. TCO shall have ten (10) days from the date the Stipulation becomes
effective to make the payments to Tennessee required herein. Payments shall be
rendered in readily available funds at a bank designated by Tennessee.
11. Nothing in this Stipulation shall be construed to
affect in any manner whatsoever any prior stipulation between the parties, or
any claim, except as specifically provided herein.
<TABLE>
<S> <C>
Dated: Wilmington, Delaware
------------------------, 1993
</TABLE>
<TABLE>
<S> <C>
TENNESSEE GAS PIPELINE COMPANY COLUMBIA GAS TRANSMISSION CORPORATION
By:---------------------------- By:----------------------------
Its:--------------------------- Its:----------------------------
</TABLE>
8
<PAGE> 9
EXHIBIT A
Columbia Gas Transmission Corporation
and
Tennessee Gas Pipeline Company
Contract Summary
<TABLE>
<CAPTION>
Pre 636 Post 636 TCO
Type of Contract Contract Dth or Contract Contract
Service Number Date Mcf/Day Number Number
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
SS-E T-2030 Jan. 1, 1989 15,637 2331 PL-36240-GN/
as amended on MS-36825-GN
July 1, 1992
FT-A T-3871 Sept. 1, 1989 263,998 489 MS-36352-TX
FT-B T-3869/T-4870 Sept. 1, 1989 6,928 491 MS-36351-TX/
as amended on 37025
Feb. 10, 1993
FT-B T-4613/T-4872 Sept. 1, 1989 10,425 490 MS-35482-PA/
as amended on MS-36827-LA
July 1, 1992 37024
and Feb. 10, 1993
Letter Agreement Oct. 7, 1966 2-2269
Letter Agreement June 22, 1959 2-1385
*IT New Sept. 1, 1993 200,000 2585
*IT New Sept. 1, 1993 239,094 2586
*IT New Sept. 1, 1993 92,000 2587
</TABLE>
* These contracts were entered post-petition and are listed on Exhibit A
for information purposes rather than for authority to assume.
<PAGE> 10
EXHIBIT B
Columbia Gas Transmission Corporation
and
Tennessee Gas Pipeline Company
Contract Summary
<TABLE>
<CAPTION>
TGPL
Pre 636 TCO
Type of Contract Rate Contract Dth or Contract
Service Number Schedule Date Mcf/Day Number
------- --------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
*FT 7(c) T-1338 T-20 Jan. 1, 1975 20,605 MS-28046-TX
FT 7(c) NA T-50 Sept. 10, 1976 MS-21470-LA
*IT T-2503 May 17, 1988 52,000 NA
IT T-2653 Sept. 18, 1987 1,000 NA
IT T-2781 Oct. 23, 1987 1,000 NA
*IT T-3214 May 17, 1988 40,000 NA
IT T-3836 July 10, 1989 36,750 MS-35486-LA
IT T-3956 Jan. 8, 1990 55,000 MS-35520-GN
*IT T-3963 Feb. 2, 1990 200,000 MS-35642-GN
IT 7(c) T-527 T-71 Jan. 25, 1978 11,531 MS-22402-LA
*IT 7(c) T-348 T-95 3,075 NA
IT 7(c) T-26 T-133 Jan. 19, 1981 5,125 MS-28292-TX
IT 7(c) T-29 T-140 Nov. 16, 1981 123,000 MS-26388-LA
IT 7(c) T-296 T-147 Nov. 16, 1981 4,613 MS-26389-LA
Exc 7(c) T-401 X-49 Dec. 24, 1975 MS-21067-LA
Exc 7(c) T-402 X-58 Jan. 24, 1978 PL-22598-GN
Exc 7(c) T-792 X-60 23038
Exc 7(c) T-297 X-66 Dec. 8, 1982 PL-31771-GN
Exc 7(c) T-416 X-69 Nov. 18, 1983 MS-29030-TX
Exc 7(c) NA X-155 Nov. 9, 1982
IT T-1530 Dec. 12, 1986 15,000
Oct. 18, 1948 50,000 5367
</TABLE>
<PAGE> 11
EXHIBIT B
(Continued)
<TABLE>
<CAPTION>
TGPL
Pre 636 TCO
Type of Contract Rate Contract Dth or Contract
Service Number Schedule Date Mcf/Day Number
------- --------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
*IT NA T-172 Oct. 1, 1982 16,000 MS-27979-LA
*IT NA T-161 Mar. 25, 1980 1,000 NA
*Letter 2-2268
Agreement NA Sept. 30, 1966
*Amendment
to a
Settlement NA June 4, 1990 NA
*Letter
Agreement NA Jan. 10, 1990 NA
</TABLE>
* Although these contracts are not believed to be executory because of
prior termination, they are still listed on Exhibit B to remove any
uncertainty concerning their status since they are on TCO's Schedule G
filed in the Bankruptcy Court as executory contracts.
<PAGE> 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re
THE COLUMBIA GAS SYSTEM, INC. ) Case Nos. 91-803
and COLUMBIA GAS TRANSMISSION ) 91-804
CORPORATION, )
) Chapter 11
Debtors. )
</TABLE>
STIPULATION
WHEREAS, Texas Eastern Transmission Corporation ("Texas Eastern") and
Columbia Gas Transmission Corporation ("TCO") are parties to certain agreements
as listed on "Exhibit A" (the "Exhibit A Contracts"); and
WHEREAS, Texas Eastern and TCO are also parties to certain other
agreements as listed on "Exhibit B" ("Exhibit B Contracts"); and
WHEREAS, on April 8, 1992, the Federal Energy Regulatory Commission
("FERC") issued Order 636 ("Order 636") requiring, inter alia, restructuring of
interstate pipeline rates and services; and
WHEREAS, Texas Eastern asked its customers to submit binding
nominations for restructured services by March 2, 1993; and
WHEREAS, TCO has submitted such nominations to Texas Eastern, subject
to any required authorization by the Bankruptcy Court; and
WHEREAS, on May 7, 1993, Texas Eastern filed a Motion with this Court
to compel TCO to assume 19 contracts with Texas Eastern pursuant to 11 U.S.C.
Section 365; and
WHEREAS, Texas Eastern commenced implementation of Order No. 636 on
its own system on June 1, 1993; and
WHEREAS, TCO intends to assign several of the listed Exhibit A
Contracts to its customers as part of its own implementation of Order No. 636,
scheduled
<PAGE> 2
for November 1, 1993; and
WHEREAS, TCO intends to retain Texas Eastern services under the
remaining Exhibit A Contracts for operational reasons; and
WHEREAS, TCO has no further need for the Exhibit B Contracts; and
WHEREAS, Texas Eastern has filed proofs of claim against TCO as
follows: (i) Claim No. 10373 filed on March 16, 1992 for $117,942.99 as a
secured claim for alleged costs of expanding and relocating M&R Station 1249,
(ii) Claim No. 10947 filed on March 17, 1992 for $127,983.65 as a general
unsecured claim for FERC Order 500 and 528 billings for the months of June and
July 1991, (iii) Claim No. 10371 filed on March 16, 1992 for $2,848.23 as a
general unsecured claim for alleged gas imbalances under Contract 9095, (iv)
Claim No. 10370 filed on March 16, 1992 for $319,812.57 as a secured claim for
alleged gas imbalances under Contract 200012, (v) Claim No. 10946 for
$3,812,691.42 filed on March 17, 1992 as a secured claim for alleged gas
imbalances and pre-petition transportation services, including interest, (vi)
Claim No. 11866 for $85,310,530 filed on March 18, 1992 as a secured claim for
anticipated rejection damages under CTS Rate Schedule for firm transportation,
(vii) Claim No. 12003 for $4,608,850 filed on March 18, 1992 as a secured claim
for anticipated rejection damages under SS-1 Rate Schedule for storage service,
(viii) Claim No. 11867 for $122,898,688 filed on March 18, 1992 as a secured
claim for anticipated rejection damages under FT-1 Rate Schedule for firm
transportation, (ix) Claim No. 10372 for $173,000 filed on March 16, 1992 as a
general unsecured claim for anticipated rejection damages under Texas Eastern's
Rate Schedule X-95, (x) Claim No. 11865 for $20,565,477.34 filed on March 18,
1992 as a contingent unsecured claim for potential liabilities due under FERC
Order 94, (xi) Claim No. 12004 for $35,000,000 filed on March 18, 1992 as a
general unsecured claim for anticipated restructuring costs under Order
2
<PAGE> 3
636, (xii) Claim No. 10944 for $85,179,897.96 filed on March 17, 1992 as a
secured claim for flowthrough costs under FERC Orders 500 and 528, and (xiii)
Claim No. 12002 for $23,000,000 filed on March 18, 1993 as a general unsecured
claim arising from a FERC- approved PCB settlement; and
WHEREAS, TCO's claims register lists six claims which are identical to
certain of the claims listed above, and which TCO believes to be duplicative of
such claims, as follows: (i) Claim No. 11522, which is identical to Claim No.
12003, (ii) Claim No. 11521, which is identical to Claim No. 12004, (iii)
Claim No. 11526, which is identical to Claim No. 12002, (iv) Claim No. 11523,
which is identical to Claim No. 11865, (v) Claim No. 11525, which is identical
to Claim No. 11866, and (vi) Claim No. 11524, which is identical to Claim No.
11867 (collectively, the "Duplicative Claims"); and
WHEREAS, by order issued July 13, 1993, the Bankruptcy Court
disallowed numerous claims, including the Duplicative Claims; and
WHEREAS, pursuant to the Bankruptcy Court's Order of October 3, 1991
Authorizing TCO to Remedy Gas Transportation Imbalances (the "Imbalance Remedy
Order"), TCO has remedied all gas imbalances or will do so in the ordinary
course of its business; and
WHEREAS, on October 30, 1992, Texas Eastern filed a Motion, as amended
on January 29, 1993 (the "Setoff Motion") seeking to setoff Claim Nos. 10373,
10947, 10371, 10370 and 10946 against refunds totalling approximately
$4,528,025.10 owed by Texas Eastern to TCO; and
WHEREAS, Texas Eastern currently owes TCO $30,117,102.79 in refunds,
including the refunds subject to the Setoff Motion (collectively, the
"Refunds"); and
WHEREAS, TCO wishes to assume the Exhibit A Contracts in the first
WHEREAS
3
<PAGE> 4
clause; and
WHEREAS, TCO and Texas Eastern wish to terminate the Exhibit B
Contracts; and
WHEREAS, TCO and Texas Eastern have agreed to compromise the amount of
arrearages which Texas Eastern claims are owed by TCO to Texas Eastern under
the Contracts for pre-petition periods for $3,432,776.34, plus any subsequent
interest at FERC-approved rates.
IT IS THEREFORE STIPULATED AND AGREED by the parties hereto as follows:
1. TCO shall assume the Exhibit A Contracts.
2. Upon assumption, the Contracts will be amended and conformed
to comply with Texas Eastern's Order No. 636 implementation program and will be
fully or partially assignable in accordance with Order No. 636, as it may be
amended, modified or superseded, and Texas Eastern's and TCO's approved FERC
Gas Tariff, and subject to applicable laws, rules, regulations, and orders of
applicable regulatory authorities. Without limiting the foregoing, TCO shall
have the right to assign all or a portion of the transportation and/or storage
capacity underlying the Contracts, on a temporary or permanent basis, to one or
more of TCO's customers or other parties in connection with TCO's and/or Texas
Eastern's restructuring under Order No. 636, and Texas Eastern agrees that any
permanent full or partial assignment(s) of capacity shall constitute an
assignment of the underlying Contracts pursuant to 11 U.S.C. Section 365(f).
Accordingly, upon permanent assignment of capacity by TCO to customers or other
parties, TCO shall not, consistent with the provisions of 11 U.S.C. Section
365(k), have any liability for "breach of such [contracts] occurring after such
assignment[s]" with respect to the assigned capacity; provided, however, that
TCO shall remain liable for claims billed or allocated to TCO under
FERC-approved rates for
4
<PAGE> 5
services prior to assignment of the underlying Contracts.
3. TCO shall be entitled to the same rights and subject to the
same obligations under Texas Eastern's tariff and FERC orders as all other
Texas Eastern customers.
4. On the tenth day following the date the order approving this
Stipulation becomes final and non-appealable, TCO shall pay to Texas Eastern
the amount of $3,432,776.34 in settlement and full satisfaction of all
arrearages claimed by Texas Eastern to be owed by TCO to Texas Eastern for
pre-petition periods under the Exhibit A Contracts. With respect to the Order
No. 94 settlement amounts, Texas Eastern shall refund TCO $18,747,217.11 and
TCO shall pay Texas Eastern $9,976,832 upon effectiveness of and in accordance
with the terms of the Order No. 94 settlement.
5. On the tenth day following the date that the order approving
this Stipulation becomes final and nonappealable, all of Texas Eastern's proofs
of claim against TCO shall be deemed withdrawn with prejudice.
6. On the tenth day following the date that the order approving
the settlement becomes final and nonappealable, the Setoff Motion and the
Motion to Compel shall be withdrawn as moot in light of TCO's assumption of the
Contracts and satisfaction of the claims asserted by Texas Eastern thereunder,
and except for the Order No. 94 refunds, Texas Eastern shall pay TCO the full
amount of the Refunds. Texas Eastern shall assert no setoff or recoupment
against the Refunds for any claim arising prior to June 1, 1993, whether or not
asserted in the Setoff Motion.
7. On the tenth day following the date that the order approving
this Stipulation becomes final and nonappealable, the Exhibit B Contracts shall
be deemed terminated by agreement of the parties (subject to any necessary
5
<PAGE> 6
regulatory approvals), and each party shall be deemed to have waived any claim
for damages thereunder. Any remaining imbalances under these Contracts shall
be remedied in the ordinary course.
8. This Stipulation shall not be deemed an admission of any fact
or proposition of law, and shall not be used for any purpose other than to
enforce the terms of this Stipulation and Order entered approving this
Stipulation. If the settlement as set forth in this Stipulation is not
approved in its entirety and without modification, unless the parties agree in
writing to the contrary, TCO and Texas Eastern retain all rights to assert
claims, objections and other rights that are to be resolved by this settlement,
and no party can use this settlement as evidence against TCO, Texas Eastern or
any other party in this proceeding.
<TABLE>
<S> <C>
Dated: Wilmington, Delaware
August 24, 1993
TEXAS EASTERN TRANSMISSION COLUMBIA GAS TRANSMISSION
CORPORATION CORPORATION
By: --------------------------- By: ------------------------------
Richard A. Perkins
Its: Senior Vice President, Marketing Its: Senior Vice President
-------------------------------- ------------------------------
& Regulatory Affairs
</TABLE>
6
<PAGE> 7
EXHIBIT A
<TABLE>
<CAPTION>
RATE CONTRACT
CATEGORY SCHEDULE NUMBER
-------- -------- --------
<S> <C> <C>
Exchange X-62
Transportation X-121 006507
Exchange X-128 008752
Transportation IT-1 200001
Transportation IT-1 200006
Transportation IT-1 200012
Transportation IT-1 200078
Transportation FT-1 311962
Transportation CTS 311971
Storage SS-1 400014
Operation & Maintenance
Operation & Maintenance
Operation & Maintenance
</TABLE>
7
<PAGE> 8
EXHIBIT B
<TABLE>
<CAPTION>
RATE CONTRACT
CATEGORY SCHEDULE NUMBER
-------- -------- --------
<S> <C> <C>
Exchange X-60 002322
Exchange X-68
Exchange X-78 002917
Transportation X-92 003273
Exchange X-95 004182
Transportation X-96 004221
Gas Sales SCQ 312044
Transportation IT-S
Transportation IT
Exchange
Gas Sales WS
</TABLE>
8
<PAGE> 1
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
John H. Croom
dated as of
July 19, 1993
<PAGE> 2
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and John H. Croom of Wilmington, Delaware (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993, and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
-2-
<PAGE> 3
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 re-organization plan of Columbia
Gas System, Inc., (Case No. 91-803), subject to extension by
agreement of the Company and the Employee (the "Period of
Employment"); provided, however, that the Period of Employment
shall cease on the Employee's normal retirement date ("Normal
Retirement Date") under the Company's Retirement Program [as
defined in paragraph 4(b)(i) below] unless the Company has
waived this condition by notice to the Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
(i) serving as an officer, director or member of a
committee of any company or organization
-3-
<PAGE> 4
involving no conflict of interest with the Company or
any of its subsidiaries or affiliates, and subject to
Company approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $652,000
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance with customary
procedures and practices of the Company or any of its
subsidiaries or affiliates
-4-
<PAGE> 5
regarding incentive compensation and bonus awards to
key employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas System
Companies, or such other qualified pension plan
maintained by the Company or any of its subsidiaries
or affiliates in which the Employee is currently
participating, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Retirement Program");
(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
-5-
<PAGE> 6
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan);
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which senior
management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc. (Case No. 91-803), the Employee shall receive
a payment equivalent to his annual base compensation at the
time of such confirmation. In the event the Employee's
employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited to) death or
disability, this payment (or any pro-rata portion thereof)
shall not be paid to the Employee or his beneficiary.
-6-
<PAGE> 7
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written above and all benefits, perquisites and
emoluments for which key employees are eligible under every such plan or
program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or perpetration of
a common law fraud which has resulted, or is likely
to result, in material economic damage to the Company
or any of its subsidiaries or affiliates;
-7-
<PAGE> 8
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
of its assets, other than a transaction in which a
successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
-8-
<PAGE> 9
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the happening of
any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company; or,
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
assets, or by merger, or otherwise; or,
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
-9-
<PAGE> 10
majority of the Board of Directors as constituted at
the beginning of the period.
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation, or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
-10-
<PAGE> 11
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that an appropriate refund is made of any reduction in the
amount paid pursuant to paragraph 8(a)(i) which had assumed
that such benefits would be primary.
-11-
<PAGE> 12
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
-12-
<PAGE> 13
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the 12-
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b) and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect of other employment or a consulting position with
another company during the period upon which the payments and
benefits provided for in paragraphs 8(a) through (f) are
based, the payments to be made pursuant to such paragraphs
shall be correspondingly reduced, and, if necessary, the
Employee shall make an appropriate refund to the Company
without interest.
-13-
<PAGE> 14
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or other entity (except the Company and its subsidiaries and
affiliates) under any circumstances, whether during or after the Period of
Employment, except as required by law, authorized in writing by order of the
Board of Directors of the Company or necessary in the ordinary course of the
Employee's duties under this Agreement, provided that, after the Period of
Employment, these restrictions shall not apply to such secrets or information
that are then in the public domain (provided that the Employee was not, in
breach in this paragraph 9, responsible, directly or indirectly, for such
secrets or information entering the public domain). In the event of a breach or
threatened breach by the Employee of this paragraph 9, the Company shall be
entitled to injunctive relief; provided, however, that nothing in this
paragraph 9 or in paragraph 8 shall abrogate or prohibit the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including, but not limited to, the recovery of actual or punitive
damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
-14-
<PAGE> 15
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
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<PAGE> 16
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
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<PAGE> 17
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
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<PAGE> 18
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
(b) to the Employee at:
Mr. John H. Croom
255 Pond View
Chadds Ford, PA 19317
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
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<PAGE> 19
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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<PAGE> 20
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
<TABLE>
<S> <C> <C>
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /s/ JOHN H. CROOM
------------------------
John H. Croom
</TABLE>
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<PAGE> 21
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
John D. Daly
dated as of
July 19, 1993
<PAGE> 22
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and John D. Daly of Wilmington, Delaware (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993, and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
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<PAGE> 23
Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc., (Case No. 91-803), subject to extension by
agreement of the Company and the Employee (the "Period of
Employment"); provided, however, that the Period of Employment
shall cease on the Employee's normal retirement date ("Normal
Retirement Date") under the Company's Retirement Program [as
defined in paragraph 4(b)(i) below] unless the Company has
waived this condition by notice to the Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
-3-
<PAGE> 24
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or affiliates, and subject to Company
approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $369,050
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance
-4-
<PAGE> 25
with customary procedures and practices of the
Company or any of its subsidiaries or affiliates
regarding incentive compensation and bonus awards to
key employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas System
Companies, or such other qualified pension plan
maintained by the Company or any of its subsidiaries
or affiliates in which the Employee is currently
participating, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Retirement Program");
(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
-5-
<PAGE> 26
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan");
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which senior
management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc. (Case No. 91-803), the Employee shall receive
a payment equivalent to his annual base compensation at the
time of such confirmation. In the event the Employee's
employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited to) death or
disability, this payment (or any pro-rata portion thereof)
shall not be paid to the Employee or his beneficiary.
-6-
<PAGE> 27
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written above and all benefits, perquisites and
emoluments for which key employees are eligible under every such plan or
program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or perpetration of
a common law fraud which has resulted, or is likely
to result, in material economic damage to the Company
or any of its subsidiaries or affiliates;
-7-
<PAGE> 28
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or,
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
of its assets, other than a transaction in which a
successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
-8-
<PAGE> 29
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or,
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
-9-
<PAGE> 30
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period, or
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation, or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
-10-
<PAGE> 31
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that
-11-
<PAGE> 32
an appropriate refund is made of any reduction in the amount
paid pursuant to paragraph 8(a)(i) which had assumed that such
benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
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<PAGE> 33
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the 12
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b) and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect of other employment or a consulting position with
another company during the period upon which the payments and
benefits provided for in paragraphs 8(a) through (f) are
based, the payments to be made pursuant to such paragraphs
shall be correspondingly reduced, and, if necessary, the
Employee shall make an appropriate refund to the Company
without interest.
-13-
<PAGE> 34
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or other entity (except the Company and its subsidiaries and
affiliates) under any circumstances, whether during or after the Period of
Employment, except as required by law, authorized in writing by order of the
Board of Directors of the Company or necessary in the ordinary course of the
Employee's duties under this Agreement, provided that, after the Period of
Employment, these restrictions shall not apply to such secrets or information
that are then in the public domain (provided that the Employee was not, in
breach in this paragraph 9, responsible, directly or indirectly, for such
secrets or information entering the public domain). In the event of a breach or
threatened breach by the Employee of this paragraph 9, the Company shall be
entitled to injunctive relief; provided, however, that nothing in this
paragraph 9 or in paragraph 8 shall abrogate or prohibit the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including, but not limited to, the recovery of actual or punitive
damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
-14-
<PAGE> 35
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
-15-
<PAGE> 36
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
-16-
<PAGE> 37
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
-17-
<PAGE> 38
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
(b) to the Employee at:
Mr. John D. Daly
3 Deer Pond Lane
Chadds Ford, PA 19317
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
-18-
<PAGE> 39
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
-19-
<PAGE> 40
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
<TABLE>
<S> <C> <C>
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
-------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /S/ JOHN D. DALY
-------------------------
John D. Daly
</TABLE>
-20-
<PAGE> 41
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
Daniel L. Bell, Jr.
dated as of
July 19, 1993
<PAGE> 42
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and Daniel L. Bell, Jr., of Wilmington, Delaware (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993, and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
-2-
<PAGE> 43
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 re-organization plan of The
Columbia Gas System, Inc. (Case No. 91-803), subject to
extension by agreement of the Company and the Employee (the
"Period of Employment").
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or affiliates, and subject to Company
approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the
-3-
<PAGE> 44
performance of the Employee's obligations to the
Company or any of its subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $292,600
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance with customary
procedures and practices of the Company or any of its
subsidiaries or affiliates regarding incentive
compensation and bonus awards to key employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
-4-
<PAGE> 45
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas System
Companies, or such other qualified pension plan
maintained by the Company or any of its subsidiaries
or affiliates in which the Employee is currently
participating, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Retirement Program");
(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan");
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
-5-
<PAGE> 46
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which senior
management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc. (Case No. 91-803), the Employee shall receive
a payment equivalent to his annual base compensation at the
time of such confirmation. In the event the Employee's
employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited to) death or
disability, this payment (or any pro-rata portion thereof)
shall not be paid to the Employee or his beneficiary.
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written
-6-
<PAGE> 47
above and all benefits, perquisites and emoluments for which key employees are
eligible under every such plan or program to the extent permissible under the
general terms and provisions of such plans or programs and in accordance with
the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or perpetration of
a common law fraud which has resulted, or is likely
to result, in material economic damage to the Company
or any of its subsidiaries or affiliates;
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
-7-
<PAGE> 48
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
of its assets, other than a transaction in which a
successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
(ii) reduction in the Employee's fixed salary or potential
incentive compensation or bonus under any plan or
program, calculated on the assumption that any
objectives for full payment are attained but not
exceeded, except a proportionate reduction as part of
a wage and salary reduction program affecting the
Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
-8-
<PAGE> 49
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period, or
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
-9-
<PAGE> 50
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation, or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
-10-
<PAGE> 51
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that an appropriate refund is made of any reduction in the
amount paid pursuant to paragraph 8(a)(i) which had assumed
that such benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
-11-
<PAGE> 52
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period ending with said 12-month
period.
(f) In the event that the termination shall occur during the 12-
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b) and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect of other employment or a consulting position with
another company during the period upon which the payments and
benefits
-12-
<PAGE> 53
provided for in paragraphs 8(a) through (f) are based, the
payments to be made pursuant to such paragraphs shall be
correspondingly reduced, and, if necessary, the Employee shall
make an appropriate refund to the Company without interest.
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or other entity (except the Company and its subsidiaries and
affiliates) under any circumstances, whether during or after the Period of
Employment, except as required by law, authorized in writing by order of the
Board of Directors of the Company or necessary in the ordinary course of the
Employee's duties under this Agreement, provided that, after the Period of
Employment, these restrictions shall not apply to such secrets or information
that are then in the public domain (provided that the Employee was not, in
breach in this paragraph 9, responsible, directly or indirectly, for such
secrets or information entering the public domain). In the event of a breach or
threatened breach by the Employee of this paragraph 9, the Company shall be
entitled to injunctive relief; provided, however, that nothing in this
paragraph 9 or in paragraph 8 shall abrogate or prohibit the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including, but not limited to, the recovery of actual or punitive
damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
-13-
<PAGE> 54
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
-14-
<PAGE> 55
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
-15-
<PAGE> 56
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
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<PAGE> 57
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
(b) to the Employee at:
Mr. Daniel L. Bell, Jr.
6500 Kennett Pike
Chadds Ford, PA 19317
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
-17-
<PAGE> 58
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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<PAGE> 59
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
<TABLE>
<S> <C> <C>
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
--------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /S/ DANIEL L. BELL, JR.
--------------------------
Daniel L. Bell, Jr.
</TABLE>
-19-
<PAGE> 60
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
C. Ronald Tilley
dated as of
July 19, 1993
<PAGE> 61
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and C. Ronald Tilley of Columbus, Ohio (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993, and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
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<PAGE> 62
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through July 18,
1995, subject to extension by agreement of the Company and the
Employee (the "Period of Employment"); provided, however, that
the Period of Employment shall cease on the Employee's normal
retirement date ("Normal Retirement Date") under the Company's
Retirement Program [as defined in paragraph 4(b)(i) below]
unless the Company has waived this condition by notice to the
Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or
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<PAGE> 63
affiliates, and subject to Company approval as is
normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $331,900
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance with customary
procedures and practices of the Company or any of its
subsidiaries or affiliates regarding incentive
compensation and bonus awards to key employees.
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Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas System
Companies, or such other qualified pension plan
maintained by the Company or any of its subsidiaries
or affiliates in which the Employee is currently
participating, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Retirement Program");
(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
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<PAGE> 65
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan");
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which senior
management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates on July 18, 1994, the
Employee shall receive a special recognition award equivalent
to his annual base compensation at that time; provided,
however, that if Employee's employment is terminated prior to
July 18, 1994 because of his death or disability, or a Change
of Control as defined in paragraph 7(c), or because the
Employee is terminated by the Company or any of its
subsidiaries or affiliates for a reason other than those
specified in paragraphs 7(a) or 7(b), then a pro-rata share of
this award shall be paid to the Employee or the Employee's
beneficiary. Said pro- rata share shall be based on the date
of the Employee's aforesaid termination of employment in
relation to the period of July 19, 1993 through July 18, 1994,
and shall be paid to the
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<PAGE> 66
Employee or the Employee's beneficiary as soon as practicable after
said termination. Such award shall not be considered as an offset
under paragraph 8(a)(ii).
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, eligibility to participate in a
modified Annual Incentive Plan for the calendar year 1993 and any severance,
separation or termination pay program, and the Employee shall be eligible to
receive during the Period of Employment all perquisites and emoluments the
Employee is receiving at the first date written above and all benefits,
perquisites and emoluments for which key employees are eligible under every
such plan or program to the extent permissible under the general terms and
provisions of such plans or programs and in accordance with the provisions
hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or
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perpetration of a common law fraud which has
resulted, or is likely to result, in material
economic damage to the Company or any of its
subsidiaries or affiliates;
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
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of its assets, other than a transaction in which a
successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
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<PAGE> 69
Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period.
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
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<PAGE> 70
still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation, or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the
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extent that such benefits shall not be payable or
provided under any such plan, the Company or any of its
subsidiaries or affiliates shall pay or provide such benefits
on an individual basis. The benefits provided for in
paragraph 4(b)(v) above in accordance with this paragraph 8(c)
shall be secondary to any comparable benefits provided by
another employer, provided that an appropriate refund is made
of any reduction in the amount paid pursuant to paragraph
8(a)(i) which had assumed that such benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
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and which would produce the highest benefit. Such payments
shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the 12-
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b), and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
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were disregarded) subject to Federal income taxation in
respect of other employment or a consulting position with
another company during the period upon which the payments and
benefits provided for in paragraphs 8(a) through (f) are
based, the payments to be made pursuant to such paragraphs
shall be correspondingly reduced, and, if necessary, the
Employee shall make an appropriate refund to the Company
without interest.
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or other entity (except the Company and its subsidiaries and
affiliates) under any circumstances, whether during or after the Period of
Employment, except as required by law, authorized in writing by order of the
Board of Directors of the Company or necessary in the ordinary course of the
Employee's duties under this Agreement, provided that, after the Period of
Employment, these restrictions shall not apply to such secrets or information
that are then in the public domain (provided that the Employee was not, in
breach in this paragraph 9, responsible, directly or indirectly, for such
secrets or information entering the public domain). In the event of a breach or
threatened breach by the Employee of this paragraph 9, the Company shall be
entitled to injunctive relief; provided, however, that nothing in this
paragraph 9 or in paragraph 8 shall abrogate or prohibit the Company from
pursuing any other remedies available to it for such
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breach or threatened breach, including, but not limited to, the recovery of
actual or punitive damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
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the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
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shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or
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substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
(b) to the Employee at:
Mr. C. Ronald Tilley
900 Gatehouse Lane
Columbus, OH 43235
or to such other address as either party shall have previously
specified in writing to the other.
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17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
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<PAGE> 79
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
<TABLE>
<S> <C> <C>
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
--------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /s/ C. RONALD TILLEY
--------------------------
C. Ronald Tilley
</TABLE>
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<PAGE> 81
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
Robert A. Oswald, Jr.
dated as of
July 19, 1993
<PAGE> 82
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and Robert A. Oswald, Jr., of Wilmington, Delaware (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993, and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
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Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc., (Case No. 91-803), subject to extension by
agreement of the Company and the Employee (the "Period of
Employment"); provided, however, that the Period of Employment
shall cease on the Employee's normal retirement date ("Normal
Retirement Date") under the Company's Retirement Program [as
defined in paragraph 4(b)(i) below] unless the Company has
waived this condition by notice to the Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
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<PAGE> 84
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or affiliates, and subject to Company
approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $334,750
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance
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with customary procedures and practices of the
Company or any of its subsidiaries or affiliates
regarding incentive compensation and bonus awards to
key employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas System
Companies, or such other qualified
pension plan maintained by the Company or any of its
subsidiaries or affiliates in which the Employee is
currently participating, and the related program
under any "excess benefit plan" (hereinafter referred
to collectively as the "Retirement Program");
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<PAGE> 86
(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan");
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any
of its subsidiaries or affiliates for which
senior management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of The Columbia
Gas System, Inc., (Case No. 91-803), the Employee shall
receive a payment equivalent to his annual base compensation
at the time of such confirmation. In the event the Employee's
employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited to) death or
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disability, this payment (or any pro-rata portion thereof)
shall not be paid to the Employee or his beneficiary.
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written above and all benefits, perquisites and
emoluments for which key employees are eligible under every such plan or
program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or perpetration of
a common law fraud which has
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resulted, or is likely to result, in material
economic damage to the Company or any of its
subsidiaries or affiliates;
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
of its assets, other than a transaction in which a
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successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
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assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period, or
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation or
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termination pay program or arrangement of the Company
or any of its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
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basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that an appropriate refund is made of any reduction in the
amount paid pursuant to paragraph 8(a)(i) which had assumed
that such benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
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shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the 12
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b) and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect of other employment or a consulting position with
another company during the period upon which the payments and
benefits
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provided for in paragraphs 8(a) through (f) are based, the
payments to be made pursuant to such paragraphs shall be
correspondingly reduced, and, if necessary, the Employee shall
make an appropriate refund to the Company without interest.
(h) In the event the Employee's employment is terminated prior to
the expiration of any extension of this Agreement because of a
disability, or because of or Change of Control as defined in
paragraph 7(c), or because the Employee is terminated by the
Company or any of its subsidiaries or affiliates for a reason
other than those specified in paragraphs 7(a) or 7(b), the
Employee shall be entitled to (a) continue to participate in
the Company's medical and dental benefits programs in
accordance with the terms and conditions applicable to the
Company's active and retired employees, and (b) receive a
special supplemental payment from the Company in the amount of
$2,500.00 a month, beginning on the first day of the month
following twelve full calendar months after such termination,
and ending on the last day of the month in which the
Employee's death occurs or the last day of the month in which
the Employee attains age 55, whichever is the earlier.
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or
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other entity (except the Company and its subsidiaries and affiliates) under any
circumstances, whether during or after the Period of Employment, except as
required by law, authorized in writing by order of the Board of Directors of
the Company or necessary in the ordinary course of the Employee's duties under
this Agreement, provided that, after the Period of Employment, these
restrictions shall not apply to such secrets or information that are then in
the public domain (provided that the Employee was not, in breach in this
paragraph 9, responsible, directly or indirectly, for such secrets or
information entering the public domain). In the event of a breach or threatened
breach by the Employee of this paragraph 9, the Company shall be entitled to
injunctive relief; provided, however, that nothing in this paragraph 9 or in
paragraph 8 shall abrogate or prohibit the Company from pursuing any other
remedies available to it for such breach or threatened breach, including, but
not limited to, the recovery of actual or punitive damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
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<PAGE> 96
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
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<PAGE> 97
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect
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any other provision or part of a provision of this Agreement not held so
invalid, illegal or unenforceable, and each other provision or part of a
provision shall to the full extent consistent with law continue in full force
and effect. If this Agreement is held invalid or cannot be enforced, then to
the full extent permitted by law any prior agreement between the Company or any
of its subsidiaries or affiliates and the Employee shall be deemed reinstated
as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
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(b) to the Employee at:
Mr. Robert A. Oswald, Jr.
4 Stone Tower Lane
Wilmington, DE 19803
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
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signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
-----------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By:/S/ ROBERT A. OSWALD, JR.
--------------------------
Robert A. Oswald, Jr.
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<PAGE> 102
EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
James P. Holland
dated as of
July 19, 1993
<PAGE> 103
THIS AGREEMENT, made effective as of July 19, 1993, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and James P. Holland of Charleston, West Virginia (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at meetings held on June 16, 1993,and October 20, 1993,
determined that it would be in the best interests of the Company and its
shareholders to assure continuity in the management of the Company's
administration and operations by entering into an employment agreement to
retain the services of the Employee containing such terms and conditions
necessary to maintain the Employee's total compensation, benefits and terms of
employment relative to the Company's business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company on a full-time basis for
said period, upon the other terms and conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by an between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
employ of the Company or any such subsidiary or affiliate, for the Period of
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Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of Columbia Gas
Transmission Corporation, (Case No. 91-804), subject to
extension by agreement of the Company and the Employee (the
"Period of Employment"); provided, however, that the Period of
Employment shall cease on the Employee's normal retirement
date ("Normal Retirement Date") under the Company's Retirement
Program [as defined in paragraph 4(b)(i) below] unless the
Company has waived this condition by notice to the Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
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<PAGE> 105
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or affiliates, and subject to Company
approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $273,180
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a committee
designated by said Board in accordance
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with customary procedures and practices of the
Company or any of its subsidiaries or affiliates
regarding incentive compensation and bonus awards to
key employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas
System Companies, or such other qualified
pension plan maintained by the Company or any of its
subsidiaries or affiliates in which the Employee is
currently participating, and the related program
under any "excess benefit plan" (hereinafter referred
to collectively as the "Retirement Program");
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(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan");
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the
Company, and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which senior
management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of Columbia Gas
Transmission Corporation (Case No. 91-804), the Employee shall
receive a payment equivalent to his annual base compensation
at the time of such confirmation. In the event the Employee's
employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited
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to) death or disability, this payment (or any pro-rata portion
thereof) shall not be paid to the Employee or his beneficiary.
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written above and all benefits, perquisites and
emoluments for which key employees are eligible under every such plan or
program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates, in
the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or perpetration of
a common law fraud which has
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resulted, or is likely to result, in material
economic damage to the Company or any of its
subsidiaries or affiliates;
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
of its assets, other than a transaction in which a
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successor corporation with a net worth at least
equal to that of the Company assumes this Agreement
and all obligations and undertakings of the Company
hereunder;
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
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Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period, or
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
still employed, over
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(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
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under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that an appropriate refund is made of any reduction in the
amount paid pursuant to paragraph 8(a)(i) which had assumed
that such benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
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shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the 12
month period commencing on the occurrence, if any, of a Change
in Control, the Employee shall be paid, no later than 15 days
after the termination, a lump sum cash amount equal to the
present value of all amounts otherwise payable to the Employee
pursuant to paragraphs 8(a), (b) and (d) above, determined by
using a discount factor equal to the interest rate that would
have been used by the Pension Benefit Guaranty Corporation for
purposes of valuing immediate annuities under a pension plan
that terminated two months prior to the date on which
termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect
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of other employment or a consulting position with another
company during the period upon which the payments and benefits
provided for in paragraphs 8(a) through (f) are based, the
payments to be made pursuant to such paragraphs shall be
correspondingly reduced, and, if necessary, the Employee shall
make an appropriate refund to the Company without interest.
(h) In the event the Employee's employment is terminated prior to
the expiration of any extension of this Agreement because of a
disability, or because of or Change of Control as defined in
paragraph 7(c), or because the Employee is terminated by the
Company or any of its subsidiaries or affiliates for a reason
other than those specified in paragraphs 7(a) or 7(b), the
Employee shall be entitled to (a) continue to participate in
the Company's medical and dental benefits programs in
accordance with the terms and conditions applicable to the
Company's active and retired employees, and (b) receive a
special supplemental payment from the Company in the amount of
$2,500.00 a month, beginning on the first day of the month
following twelve full calendar months after such termination,
and ending on the last day of the month in which the
Employee's death occurs or the last day of the month in which
the Employee attains age 55, whichever is the earlier.
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever,
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nor shall the Employee make use of any such secrets or information for his own
purposes or for the benefit of any person, firm, corporation, association or
other entity (except the Company and its subsidiaries and affiliates) under any
circumstances, whether during or after the Period of Employment, except as
required by law, authorized in writing by order of the Board of Directors of
the Company or necessary in the ordinary course of the Employee's duties under
this Agreement, provided that, after the Period of Employment, these
restrictions shall not apply to such secrets or information that are then in
the public domain (provided that the Employee was not, in breach in this
paragraph 9, responsible, directly or indirectly, for such secrets or
information entering the public domain). In the event of a breach or threatened
breach by the Employee of this paragraph 9, the Company shall be entitled to
injunctive relief; provided, however, that nothing in this paragraph 9 or in
paragraph 8 shall abrogate or prohibit the Company from pursuing any other
remedies available to it for such breach or threatened breach, including, but
not limited to, the recovery of actual or punitive damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys'
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fees and expenses, provided that such litigation or proceeding
results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
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Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
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14. Severability
If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
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(b) to the Employee at:
Mr. James P. Holland
509 Woodcliff Road
Charleston, WV 25314
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the
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enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
-------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /S/ JAMES P. HOLLAND
------------------------
James P. Holland
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EMPLOYMENT AGREEMENT
between
The Columbia Gas System, Inc.
and
R. L. Robinson
dated as of
July 19, 1993
<PAGE> 124
THIS REVISED AGREEMENT, made effective as of July 19, 1993, by
and between The Columbia Gas System, Inc. (the "Company"), a Delaware
corporation, and R. L. Robinson, of Charleston, West Virginia (the "Employee"),
supersedes and replaces all prior agreements by and between the Company and the
Employee.
W I T N E S S E T H T H A T
WHEREAS, the Employee is a valuable employee of a subsidiary
of the Company and an integral part of its management who participates in the
decision-making process relative to short and long term planning and policy for
the Company; and
WHEREAS, the Compensation Committee of the Board of Directors
of the Company, at a meeting held on June 16, 1993, determined that it would be
in the best interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations by entering
into an employment agreement to retain the services of the Employee containing
such terms and conditions necessary to maintain the Employee's total
compensation, benefits and terms of employment relative to the Company's
business and geographic area; and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the period hereinafter provided, and the Employee
is willing to continue in the employ of the Company or any of its subsidiaries
or affiliates on a full- time basis for said period, upon the other terms and
conditions provided in this Agreement;
NOW THEREFORE, it is hereby agreed by and between the parties
hereto as follows:
1. Employment
The Company agrees to continue the Employee in its employ, or in the employ of
any of its subsidiaries or affiliates, and the Employee agrees to remain in the
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employ of the Company or any such subsidiary or affiliate, for the Period of
Employment (as hereinafter defined) and upon the other terms and conditions
herein provided.
2. Position and Responsibilities
During the Period of Employment, the Employee agrees to serve the Company or
any of its subsidiaries or affiliates in such executive capacity or capacities
as the Board of Directors, the Chairman of the Board of Directors and Chief
Executive Officer, or any other executive officer of the Company to whom the
Employee reports may from time to time determine. During said period, the
Employee also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company.
3. Term and Duties
(a) The period of the Employee's employment under this Agreement
shall be from the first date written above through the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of Columbia Gas
Transmission Corporation (Case No. 91-804), subject to
extension by agreement of the Company and the Employee (the
"Period of Employment"); provided, however, that the Period of
Employment shall cease on the Employee's normal retirement
date ("Normal Retirement Date") under the Company's Retirement
Program [as defined in paragraph 4(b)(i) below] unless the
Company has waived this condition by notice to the Employee.
(b) During the Period of Employment and except for illness or
incapacity and reasonable vacation periods, the Employee's
business time, attention, skill and efforts shall be
exclusively devoted to the business and affairs of the Company
and its subsidiaries and affiliates; provided, however, that
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nothing in this Agreement shall preclude the Employee from
devoting time during reasonable periods required for:
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of its
subsidiaries or affiliates, and subject to Company
approval as is normal for such activities,
(ii) fulfilling speaking engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Employee's obligations to the Company or any of its
subsidiaries or affiliates.
4. Compensation
(a) For all services rendered by the Employee in any capacity
during the Period of Employment, including services as an
executive, officer, director, or member of any committee of
the Company or any of its subsidiaries or affiliates, the
Employee shall be paid as compensation:
(i) a fixed salary at the rate of not less than $222,645
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in
accordance with the customary procedures and
practices of the Company or any of its subsidiaries
or affiliates regarding the salaries of senior
management employees, and
(ii) such incentive compensation and bonus, if any, as may
be awarded to the Employee from time to time by the
Board of Directors of the Company or by a
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committee designated by said Board in accordance with
customary procedures and practices of the Company or
any of its subsidiaries or affiliates regarding
incentive compensation and bonus awards to key
employees.
Such salary shall be payable in accordance with the customary
payroll practices of the Company or any of its subsidiaries or
affiliates, but in no event less frequently than monthly, and
any such incentive compensation and bonuses shall be payable
in the manner specified by said Board or committee at the time
of award. Periodic increases in salary, once granted, shall
not be subject to revocation, except as part of a wage or
salary reduction program affecting the Company's employees
generally.
(b) In addition, the Employee shall have any rights or benefits
that may now or hereafter be provided for the Employee or for
which the Employee may be or become eligible under any medical
program, dental, life, disability or other insurance or death
or disability benefit plan, stock purchase, incentive pay,
thrift, savings, or retirement income plan or other form of
employee benefit plan now existing or that may hereafter be
adopted or awarded by the Company or any of its subsidiaries
or affiliates. Specifically, the Employee shall participate
in:
(i) the Retirement Income Plan for Columbia Gas
System Companies, or such other qualified
pension plan maintained by the Company or any of its
subsidiaries or affiliates in which the Employee is
currently participating, and the related program
under any "excess benefit plan" (hereinafter referred
to collectively as the "Retirement Program");
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(ii) the Company's Employees' Thrift Plan, or such other
qualified thrift or savings plan maintained by the
Company or any of its subsidiaries or affiliates in
which the Employee is currently eligible to
participate, and the related program under any
"excess benefit plan" (hereinafter referred to
collectively as the "Thrift Plan);
(iii) the Company's group life plan;
(iv) the Company's sick leave and long-term disability
benefit plans;
(v) the Company's medical, including any Health
Maintenance Organization plans offered by the Company,
and dental plans;
(vi) the Company's Contributory Family Life Insurance and
Voluntary Personal Accident Insurance Plans; and
(vii) equivalent successor plans of the Company or any of
its subsidiaries or affiliates for which
senior management employees are eligible;
provided, however, that nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates
from amending or terminating any such plan or program, on the
condition that such amendment or termination is applicable
generally to all employees of the Company or any of its
subsidiaries or affiliates.
(c) In the event the Employee remains employed by the Company or
any of its subsidiaries or affiliates at the date of
confirmation by the U.S. Bankruptcy Court for the District of
Delaware of the Chapter 11 reorganization plan of Columbia Gas
Transmission Corporation (Case No. 91-804), the Employee shall
receive a payment equivalent to his annual base compensation
at the time of such confirmation. In the event the Employee's
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employment is terminated prior to such confirmation for any
reason whatsoever, including (but not limited to) death or
disability, this payment (or any pro-rata portion thereof)
shall not be paid to the Employee or his beneficiary.
5. Business Expenses
The Employee shall be paid or reimbursed for all reasonable travel or other
expenses incurred in connection with the performance of the Employee's duties
under this Agreement in accordance with such procedures as the Company or any
of its subsidiaries or affiliates may from time to time establish.
6. Additional Benefits
The payments provided in paragraphs 4, 5, 8, and 11 hereof are in addition to
any benefits to which the Employee may be, or may become, entitled under any
present or future compensation plan or program of the Company or any of its
subsidiaries or affiliates for which key employees are or shall become
eligible, including, without limitation, any severance, separation or
termination pay program, and the Employee shall be eligible to receive during
the Period of Employment all perquisites and emoluments the Employee is
receiving at the first date written above and all benefits, perquisites and
emoluments for which key employees are eligible under every such plan or
program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions hereof.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Employee's
employment under this Agreement may be terminated:
(a) by the Company or any of its subsidiaries or affiliates,
in the event of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties under this Agreement,
including conviction for a felony or
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perpetration of a common law fraud which has
resulted, or is likely to result, in material
economic damage to the Company or any of its
subsidiaries or affiliates;
(ii) a disposition (not involving a liquidation, closing
or shut-down) of any subsidiary, affiliate, division
or district of the Company with which the Employee
was employed for a reasonable time prior to the
occurrence, if any, or a Change in Control (as
hereinafter defined), provided a successor
corporation with a net worth at least equal to that
of the Company assumes all obligations and
undertakings of the Company under this Agreement; or
(iii) at any time prior to the occurrence, if any, of a
Change in Control (as hereinafter defined), the
Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates;
by written notice to the Employee, specifying the event relied
upon for such termination and given within 180 days after such
event;
(b) by either the Company or any of its subsidiaries or
affiliates, if the Employee accepts employment or a consulting
position with another company; or
(c) by the Employee in the event of any:
(i) liquidation, dissolution, consolidation or merger of
the Company, or transfer of all or substantially all
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of its assets, other than a transaction in which a
successor corporation with a net worth at least equal
to that of the Company assumes this Agreement and all
obligations and undertakings of the Company
hereunder;
(ii) reduction in the Employee's fixed salary
or potential incentive compensation or bonus under
any plan or program, calculated on the assumption
that any objectives for full payment are attained but
not exceeded, except a proportionate reduction as
part of a wage and salary reduction program affecting
the Company's employees generally, or other material
breach of this Agreement by the Company or any of its
subsidiaries or affiliates; or
(iii) at any time on or after the occurrence, if any, of a
Change in Control (as hereinafter defined), material
change by the Company or any of its subsidiaries or
affiliates of the Employee's functions or duties
which change would reduce the ranking or level,
responsibility, importance or scope of the Employee's
position with the Company or any of its subsidiaries
or affiliates;
by written notice to the Company, specifying the event relied
upon for such termination and given within 180 days after such
event.
As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
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shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period.
8. Payments Upon Termination of Employment
In the event of any termination by the Employee pursuant to paragraph 7(c)
above, or in the event the Employee's employment under this Agreement is
terminated by the Company or any of its subsidiaries or affiliates for any
reason other than one of those specified in paragraphs 7(a) or 7(b) above,
then, subject to the Employee's compliance with the provisions of paragraph 9
herein, and subject to paragraphs 8(e), (f), and (g) below, the Employee shall
be paid, as liquidated damages or severance pay, or both, and the Employee and
the dependents, beneficiaries, and estate of the Employee shall be provided
with, the following:
(a) The Employee shall be paid the excess of:
(i) the fixed salary that would otherwise have been
provided in paragraph 4(a)(i) above, including the
increases therein provided, and any incentive
compensation and awards that would otherwise have
been payable under the provisions of any plan or
program in effect at such termination, calculated on
the assumption that any objectives for full payment
are obtained but not exceeded, less the amounts, if
any, the Employee would have paid in cash in respect
of employee benefits provided for in paragraphs
4(b)(iii) through (vii) above if the Employee were
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still employed, over
(ii) the amounts, if any, paid to the Employee pursuant to
any retirement, severance, separation or termination
pay program or arrangement of the Company or any of
its subsidiaries or affiliates.
Such payments shall commence with the month in which
termination shall have occurred, shall be made at the times
provided in paragraph 4(a) above, and shall continue for a
period of 12 months.
(b) The Employee shall also be paid the aggregate contributions or
payments, if any, that would have been made by the Company or
any of its subsidiaries or affiliates under the Thrift Plan
described in paragraph 4(b)(ii) above or any successor program
of the Company in effect on the date on which termination
shall have occurred, if the Employee had continued to be
employed, and to participate in the Thrift Plan or such
successor programs to the same extent as the Employee
participated for the last month during which the Employee was
permitted to participate, for a period of 12 months
thereafter, at an annual rate of compensation equal to that
used to calculate the payments provided by paragraph 8(a)
above. Such payments shall be made at the times such
contributions would ordinarily have been made to the Thrift
Plan.
(c) For a period of 12 months (commencing with the month in which
termination shall have occurred), the Employee shall continue
to be entitled to all employee benefits provided for in
paragraphs 4(b)(iii) through (vii) above as if the Employee
were still employed during such period under this Agreement,
with benefits based upon the compensation used to calculate
the payments provided by paragraph 8(a) above, and if and to
the extent that such benefits shall not be payable or provided
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under any such plan, the Company or any of its subsidiaries or
affiliates shall pay or provide such benefits on an individual
basis. The benefits provided for in paragraph 4(b)(v) above
in accordance with this paragraph 8(c) shall be secondary to
any comparable benefits provided by another employer, provided
that an appropriate refund is made of any reduction in the
amount paid pursuant to paragraph 8(a)(i) which had assumed
that such benefits would be primary.
(d) The Employee and his beneficiary, if any, under the Retirement
Program described in paragraph 4(b)(i) above shall also be
paid the excess of:
(i) the aggregate benefit that would have been paid under
the Retirement Program as in effect on the date first
above written, if the Employee had continued to be
employed and to be entitled to service credit for
eligibility and benefit purposes for a period of 12
months, at an annual rate of compensation equal to
that used to calculate the payments provided by
paragraph 8(a) above, calculated on the assumption
that the Employee is fully vested in such benefit,
over
(ii) the aggregate benefit actually payable under the
Retirement Program and any successor retirement
program of the Company consisting of a tax-qualified
pension plan and a related excess benefit plan.
In clarification of the immediately preceding sentence, the
aggregate benefit that would have been paid under the
Retirement Program shall be calculated as of the normal or
early retirement date for which the Employee would have
qualified, if the Employee were still employed on that date,
and which would produce the highest benefit. Such payments
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shall commence on the date the Employee or his beneficiary, if
any, begins receiving payments under the Retirement Program,
shall be paid in the same form as under the Retirement Program
and shall continue until payments to the Employee and his
beneficiary, if any, cease under the Retirement Program.
(e) In the event that the Employee's Normal Retirement Date is
scheduled to occur during the 12-month period commencing with
the month in which the termination shall have occurred, the
payments and benefits provided for in paragraphs 8(a) through
(d) shall be based on the period commencing with such month
and ending with the month in which the Employee's Normal
Retirement Date occurs instead of said 12-month period,
regardless of whether the Company shall have extended the
Period of Employment beyond the Employee's Normal Retirement
Date pursuant to paragraph 3(a).
(f) In the event that the termination shall occur during the
12-month period commencing on the occurrence, if any, of a
Change in Control, the Employee shall be paid, no later than
15 days after the termination, a lump sum cash amount equal to
the present value of all amounts otherwise payable to the
Employee pursuant to paragraphs 8(a), (b) and (d) above,
determined by using a discount factor equal to the interest
rate that would have been used by the Pension Benefit Guaranty
Corporation for purposes of valuing immediate annuities under
a pension plan that terminated two months prior to the date on
which termination shall have occurred.
(g) To the extent that the Employee is entitled to receive cash
compensation that is (or would be, if any elective deferral
were disregarded) subject to Federal income taxation in
respect
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of other employment or a consulting position with another
company during the period upon which the payments and benefits
provided for in paragraphs 8(a) through (f) are based, the
payments to be made pursuant to such paragraphs shall be
correspondingly reduced, and, if necessary, the Employee shall
make an appropriate refund to the Company without interest.
(h) In the event the Employee's employment is terminated prior to
the expiration of this Agreement because of a disability, or
because of a Change of Control as defined in paragraph 7(c),
or because the Employee is terminated by the Company or any of
its subsidiaries or affiliates for a reason other than those
specified in paragraphs 7(a) or 7(b), the Employee shall be
entitled to (a) continue to participate in the Company's
medical and dental benefits programs in accordance with the
terms and conditions applicable to the Company's active and
retired employees, and (b) receive a special supplemental
payment from the Company in the amount of $3,333.33 a month,
beginning on the first day of the month following twelve full
calendar months after any such termination, and ending on the
last day of the month in which the Employee's death occurs or
the last day of the month in which the Employee attains age
55, whichever is the earlier.
9. Disclosure of Information
The Employee recognizes and acknowledges that the trade secrets and other
confidential or proprietary information of the Company and its subsidiaries and
affiliates are valuable, special and unique assets of the business of the
Company and its subsidiaries and affiliates, access to and knowledge of which
are essential to the performance of the Employee's duties under this Agreement.
The Employee will not, during or after the Period of Employment, in whole or in
part, disclose such secrets or information to any person, firm, corporation,
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<PAGE> 137
association or other entity (except the authorized representatives of the
Company or any of its subsidiaries or affiliates) for any reason or purpose
whatsoever, nor shall the Employee make use of any such secrets or information
for his own purposes or for the benefit of any person, firm, corporation,
association or other entity (except the Company and its subsidiaries and
affiliates) under any circumstances, whether during or after the Period of
Employment, except as required by law, authorized in writing by order of the
Board of Directors of the Company or necessary in the ordinary course of the
Employee's duties under this Agreement, provided that, after the Period of
Employment, these restrictions shall not apply to such secrets or information
that are then in the public domain (provided that the Employee was not, in
breach in this paragraph 9, responsible, directly or indirectly, for such
secrets or information entering the public domain). In the event of a breach or
threatened breach by the Employee of this paragraph 9, the Company shall be
entitled to injunctive relief; provided, however, that nothing in this
paragraph 9 or in paragraph 8 shall abrogate or prohibit the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including, but not limited to, the recovery of actual or punitive
damages or both.
10. Source of Payments
All payments provided for in paragraphs 4, 5, 6, 8, and 11 herein shall be paid
in cash from the general funds of the Company, its subsidiaries or affiliates.
The Company, or its subsidiaries or affiliates, shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.
11. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
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<PAGE> 138
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 11 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, other than a dispute arising
under paragraph 9 above, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or
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<PAGE> 139
affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
12. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from any
payments made under this Agreement all Federal, State, City or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13. Entire Understanding
This Agreement contains the entire understanding between the Company or any of
its subsidiaries or affiliates and the Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Company
or any of its subsidiaries or affiliates and the Employee, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Employee of a kind elsewhere provided and not expressly provided
in this Agreement.
14. Severability
If, for any reason, any one or more of the provisions or part of a provision
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contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect. If this Agreement is held invalid or cannot be enforced,
then to the full extent permitted by law any prior agreement between the
Company or any of its subsidiaries or affiliates and the Employee shall be
deemed reinstated as if this Agreement had not been executed.
15. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its subsidiaries
or affiliates from consolidating or merging into or with, or transferring all
or substantially all of its assets to, another corporation which assumes this
Agreement and all obligations and undertakings of the Company or any of its
subsidiaries or affiliates hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company," as used herein
shall mean such other corporation and this Agreement shall continue in full
force and effect.
16. Notices
All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, DE 19807
Attention: Vice President, Human Resources
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<PAGE> 141
(b) to the Employee at:
Mr. R. L. Robinson
1853 Rolling Hills Road
Charleston, WV 25314-2271
or to such other address as either party shall have previously
specified in writing to the other.
17. No Attachment
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect.
18. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit of, the
Employee and the Company or any of its subsidiaries or affiliates and their
respective permitted successors and assigns.
19. Modification and Waiver
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against
the enforcement of any provision of this Agreement except by written instrument
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<PAGE> 142
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
20. Headings of No Effect
The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
21. Governing Law
This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware.
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22. Approval of U.S. Bankruptcy Court
It is understood and agreed by both parties hereto that this Agreement is
subject to the approval of the U.S. Bankruptcy Court for the District of
Delaware. This Agreement shall be null and void if such approval is not
obtained.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By:
-------------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By:
-------------------------
R. L. Robinson
This Agreement is hereby
ratified by Columbia Gas
Transmission Corporation.
By
---------------------------
(Title)
- -----------------------------
Date
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<PAGE> 1
RETENTION AGREEMENT
between
The Columbia Gas System, Inc.
and
Logan W. Wallingford
dated as of
July 19, 1991
<PAGE> 2
THIS AGREEMENT, made effective as of July 19, 1991, by and
between The Columbia Gas System, Inc. (the "Company"), a Delaware corporation,
and Logan W. Wallingford of Wilmington, Delaware (the "Employee"),
W I T N E S S E T H T H A T
WHEREAS, the Board of Directors of the Company, at a meeting
held on July 19, 1991, determined that it would be in the best interests of the
Company and its shareholders to retain the services of certain key employees in
order to assure the continuity in the management of the Company's
administration and operations by entering into retention agreements with such
key employees for a period of three (3) years; and
WHEREAS, the Employee is a valuable employee of the Company
and an integral part of its management who participates in the decision-making
process relative to short and long term planning and policy for the Company;
and
WHEREAS, the Company wishes to assure itself of the continued
services of the Employee for the said period of three (3) years, by granting to
the Employee a Retention Award under certain conditions if he remains employed
by the Company at the end of said period of three (3) years;
NOW THEREFORE, it is hereby agreed by and between the parties
hereto as follows:
1. RETENTION AWARD
(a) In the event the Employee's employment is not terminated prior
to July 19, 1994 by the Company or any of its subsidiaries or
affiliates for a reason specified in paragraph (b) below, and
provided further that the Employee remains employed by the
Company or any of its subsidiaries or affiliates on July 19,
1994, then the Employee shall be eligible to receive a
Retention Award of $95,445 on July 19, 1994. In the event the
Employee's employment terminates prior to July 19, 1994
because of his death or disability, because of a Change of
Control as defined in paragraph (c) below, or because the
Employee is terminated by the Company or any of its
subsidiaries or affiliates for a reason other than those
specified in paragraph (b) below, then a pro-rata share of
said Retention Award shall be paid to the Employee or the
Employee's beneficiary. Said pro-rata share of the Retention
Award shall be based on the date of termination in relation to
the three-year period of July 19, 1991 through July 19, 1994,
and shall be paid to the Employee or the Employee's
beneficiary as soon as practicable after the Employee's date
of termination.
(b) No portion of the Retention Award specified in paragraph
<PAGE> 3
(a) above shall be paid to the Employee or the Employee's
beneficiary in the event the Employee's employment is
terminated by the Company or any of its subsidiaries or its
affiliates because of:
(i) the Employee's serious, willful misconduct in respect
of the Employee's duties, including conviction for a
felony or perpetration of a common law fraud which
has resulted, or is likely to result, in material
economic damage to the Company or any of its
subsidiaries or affiliates; or
(ii) the Employee's repeated failure to follow rules or
procedures of the Company or any of its subsidiaries
or affiliates, or to meetbona fide objectives and
qualifications duly promulgated as part of the
customary personnel practices of the Company or any
of its subsidiaries or affiliates.
(c) As used in this Agreement, "Change in Control" means the
happening of any of the following:
(i) the acquisition by any party or parties of the
beneficial ownership of 25% or more of the voting
shares of the Company, or
(ii) the occurrence of a transaction requiring
shareholders approval for the acquisition of the
Company through purchase or exchange of stock or
assets, or by merger, or otherwise, or
(iii) the election during a period of 24 months, or less,
of 30% or more, of the members of the Board of
Directors of the Company, without the approval of a
majority of the Board of Directors as constituted at
the beginning of the period, or
(iv) the occurrence of a transaction requiring the filing
of a report or disclosure with the Securities and
Exchange Commission in connection with the obtaining
of an interest in the Company through a purchase or
exchange of stock or assets, or by merger or
otherwise.
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<PAGE> 4
(d) This Retention Award shall not constitute an agreement or
contract of employment for any duration of time, including
(but not limited to) the three (3) year period of July 19,
1991 through July 19, 1994.
2. Source of Payments
The Retention Award provided for in paragraphs 1 and 3 herein shall be
paid in cash from the general funds of the Company, its subsidiaries
or affiliates. The Company, or its subsidiaries or affiliates, shall
not be required to establish a special or separate fund or other
segregation of assets to assure payment of such Retention Award.
3. Litigation Expenses; Arbitration
(a) In the event of any litigation or other proceeding between the
Company or any of its subsidiaries or affiliates and the
Employee with respect to the subject matter of this Agreement
and the enforcement of rights hereunder, the Employee shall be
reimbursed for all reasonable costs and expenses relating to
such litigation or other proceeding, including his reasonable
attorneys' fees and expenses, provided that such litigation or
proceeding results in any:
(i) settlement requiring the Company or any of its
subsidiaries or affiliates to make a payment to the
Employee; or
(ii) judgment or order in favor of the Employee,
regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral
proceeding.
In no event shall the Employee be required to reimburse the
Company or any of its subsidiaries or affiliates for any of
the costs and expenses relating to such litigation or other
proceeding. The obligation of the Company or any of its
subsidiaries or affiliates under this paragraph 3 shall
survive the termination for any reason of this Agreement
(whether such termination is by the Company or any of its
subsidiaries or affiliates, by the Employee, upon the
expiration of this Agreement or otherwise).
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<PAGE> 5
(b) In the event of any dispute or difference between the Company
or any of its subsidiaries or affiliates and the Employee with
respect to the subject matter of this Agreement and the
enforcement of rights hereunder, the Employee may, in his sole
discretion by notice to the Company or any such subsidiary or
affiliate, require such dispute or difference to be submitted
to arbitration. The arbitrator or arbitrators shall be
selected by agreement of the parties or, if they cannot agree
on an arbitrator or arbitrators within 30 days after the
Employee had notified the Company or any of its subsidiaries
or affiliates of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be
selected by the American Arbitration Association (the "AAA")
in Philadelphia, Pennsylvania, upon the application of the
Employee. The determination reached in such arbitration shall
be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by
such arbitrator or arbitrators may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rule of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Wilmington, Delaware, and shall be
conducted in accordance with the rules of the AAA.
4. Income Tax Withholding
The Company or any of its subsidiaries or affiliates may withhold from
any payments made under this Agreement all Federal, State, City or
other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
5. Entire Understanding
This Agreement contains the entire understanding between the Company
or any of its subsidiaries or affiliates and the Employee with respect
to the subject matter hereof.
6. Severability
If, for any reason, any one or more of the provisions or part of a
provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement not held so invalid, illegal or
unenforceable, and each other
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<PAGE> 6
provision or part of a provision shall to the full extent consistent
with law continue in full force and effect. If this Agreement is held
invalid or cannot be enforced, then to the full extent permitted by
law any prior agreement between the Company or any of its subsidiaries
or affiliates and the Employee shall be deemed reinstated as if this
Agreement had not been executed.
7. Consolidation, Merger, or Sale of Assets
Nothing in this Agreement shall preclude the Company or any of its
subsidiaries or affiliates from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another
corporation which assumes this Agreement and all obligations and
undertakings of the Company or any of its subsidiaries or affiliates
hereunder. Upon such a consolidation, merger or transfer of assets
and assumption, the term, "the Company," as used herein shall mean
such other corporation and this Agreement shall continue in full force
and effect.
8. Notices
All notices, requests, demands and other communications required or
permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, first
class as follows:
(a) to the Company or any of its subsidiaries or affiliates at:
20 Montchanin Road
Wilmington, Delaware 19807
Attention: Vice President, Human Resources
(b) to the Employee at:
Logan W. Wallingford
124 Ponds Lane
Wilmington, DE 19807
or to such other address as either party shall have previously
specified in writing to the other.
-5-
<PAGE> 7
9. No Attachment
Except as required by law, no right to receive a Retention Award under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no
effect.
10. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit
of, the Employee and the Company or any of its subsidiaries or
affiliates and their respective permitted successors and assigns.
11. Modification and Waiver
This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any
estoppel against the enforcement of any provision of this Agreement
except by written instrument signed by the party charged with such
waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
12. Headings of No Effect
The paragraph headings contained in this Agreement are included solely
for convenience of reference and shall not in any way affect the
meaning or interpretation of any of the provisions of this Agreement.
13. Governing Law
This Agreement and its validity, interpretation, performance, and
enforcement shall be governed by the laws of the State of Delaware.
-6-
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by the Chairman of the
Compensation Committee of its Board of Directors thereunto duly authorized, and
the Employee has signed this Agreement, all as of the date first above written.
<TABLE>
<S> <C> <C>
THE COLUMBIA GAS SYSTEM, INC.
ATTEST:
By: -----------------------
Chairman,
Compensation Committee
Secretary of the Board of Directors
By: /S/ LOGAN W. WALLINGFORD
------------------------
Logan W. Wallingford
</TABLE>
-7-
<PAGE> 1
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
COVE POINT LNG LIMITED PARTNERSHIP
==============================================================================
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of COVE POINT LNG
LIMITED PARTNERSHIP (this "LP Agreement") is made as of the 27th day of
January, 1994, by and among CLNG CORPORATION, a Delaware corporation ("CLNG
Corp."), and COVE POINT ENERGY COMPANY, INC., a Delaware corporation ("COPE"),
as the General Partners, and COLUMBIA LNG CORPORATION, a Delaware corporation
("CLG"), and PEPCO ENERGY COMPANY, INC., a Delaware corporation ("PENCO"), as
the Limited Partners, together with any other Persons who become general or
limited partners of the Partnership in accordance with the provisions hereof
and whose names are set forth as General Partners or Limited Partners on
Appendix B to this LP Agreement (collectively, the "Partners").
W I T N E S S E T H:
WHEREAS, CLG and COPE have heretofore formed the Partnership, under the name
"Cove Point LNG Company, L.P.," by filing a Certificate of Limited Partnership
with the office of the Secretary of State of the State of Delaware on October
28, 1993, and entered into an Agreement of Limited Partnership of the
Partnership, dated as of October 28, 1993 (the "Original Partnership
Agreement"), with CLG as the general partner, and COPE as the Initial Limited
Partner; and
WHEREAS, upon the terms and conditions set forth in this LP Agreement, CLG
will withdraw as general partner of the Partnership, and will be admitted to
the Partnership as a Limited Partner, and CLNG Corp. will be admitted to the
Partnership as a General Partner; and
WHEREAS, upon the terms and conditions set forth in this LP Agreement, COPE
will withdraw as the Initial Limited Partner, and will be admitted to the
Partnership as a General Partner, and PENCO will be admitted to the Partnership
as a Limited Partner; and
WHEREAS, the Partners desire to change the registered agent of the
Partnership and change the name of the Partnership to "Cove Point LNG Limited
Partnership" and continue the Partnership under such new name as a limited
partnership under the Act and this LP Agreement; and
LP Agreement
<PAGE> 2
WHEREAS, the Partners desire to provide for the governance of the Partnership
and to set forth in detail their respective rights and duties relating to the
Partnership and to amend and restate the Original Partnership Agreement in its
entirety.
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Partners, intending to be
legally bound, hereby amend and restate the Original Partnership Agreement in
its entirety and hereby agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.01. Definitions. For purposes of this LP Agreement, capitalized
terms used and not otherwise defined herein shall have the meanings assigned to
them in Appendix A to this LP Agreement, which is incorporated herein by
reference and made a part hereof (such definitions to be equally applicable to
both the singular and the plural forms of the terms defined). Any term defined
by reference to an agreement, instrument or other document shall have the
meaning so assigned to it whether or not such agreement, instrument or other
document is in effect.
Section 1.02. References. Unless otherwise indicated, references in this LP
Agreement to articles, sections, sub-sections, paragraphs, clauses, appendices,
schedules and exhibits are to the same contained in or attached to this LP
Agreement. The use of the words "hereof," "herein," "hereunder," "herewith"
and words of similar import shall refer to this LP Agreement as a whole (as the
same may be amended or restated from time to time) and not to any particular
subdivision thereof. Any reference to the date hereof shall be to the date as
of which this LP Agreement was made, as first above written.
ARTICLE II
CONTINUATION AND PURPOSES
Section 2.01. Continuation. The Partners hereby continue the Partnership as a
limited partnership under and pursuant to the provisions of the Act and agree
that the rights, duties and liabilities of the Partners shall be as provided in
the Act, except as otherwise provided herein. The General Partners shall
execute and file a certificate of amendment in accordance with Section 17-202
of the Act to reflect the change in registered agent, the change in name of the
Partnership, the withdrawal of CLG as a general partner of the Partnership,
and the admission of CLNG Corp. and COPE to the Partnership as General
Partners.
Section 2.02. Name. The name of the Partnership heretofore formed and
continued hereby is "Cove Point LNG Limited Partnership," unless and until the
name of the Partnership is further changed by the General Partners, in their
sole discretion,
2
LP Agreement
<PAGE> 3
and an appropriate amendment to the Certificate of Limited Partnership is filed
as required by the Act. The Partnership's business may be conducted under the
name of the Partnership or any other name or names deemed advisable by the
General Partners, including the name of any General Partner or any Affiliate
thereof. The words "Limited Partnership," "L.P." or similar words or letters
shall be included in the Partnership's name where necessary for the purposes of
complying with the laws of any jurisdiction that so requires.
Section 2.03. Principal Place of Business. The principal place of business of
the Partnership shall be located at 2100 Cove Point Road, Lusby, Calvert
County, Maryland 20657. The General Partners may hereafter change the
principal place of business of the Partnership to such other place or places as
the General Partners may determine from time to time in their sole discretion.
The General Partners shall give Notice of any such change to the Limited
Partners. The Partnership may maintain such other offices at such other places
as the General Partners deem advisable from time to time.
Section 2.04. Registered Office. The address of the registered office of the
Partnership in the State of Delaware is 20 Montchanin Road, Wilmington, New
Castle County, Delaware 19807.
Section 2.05. Registered Agent. The Partnership's registered agent for
service of process on the Partnership in the State of Delaware is CLNG
Corporation, 20 Montchanin Road, Wilmington, New Castle County, Delaware 19807.
Section 2.06. Purposes. The purpose and business of the Partnership shall be
any business which lawfully may be conducted by a limited partnership formed
pursuant to the Act, including primarily, but without limitation, to own,
maintain, operate, improve and dispose of the Facility, to pursue, finance,
develop, construct, own, operate, and dispose of the Initial Project and to do
the same with respect to any additional Project undertaken by the Partnership
in accordance with the provisions of Section 17.03 of this LP Agreement, and to
conduct any other lawful business (together with such incidental and other
activities related to or arising from the foregoing) as the General Partners,
from time to time, deem necessary or appropriate to promote and maintain the
assets and businesses of the Partnership, subject to Applicable Law.
Section 2.07. Powers.
(a) General Powers. The Partnership shall have the power to do any and all
acts necessary, appropriate, proper, advisable, incidental or convenient to or
for the furtherance of the purposes and business described herein and for the
protection and benefit of the Partnership, and shall have, without limitation,
any and all of the powers that may be exercised on behalf of the Partnership by
the General Partners pursuant to Article VIII. The Partnership, and the
General Partners on behalf of the Partnership, may file and prosecute
applications with the FERC and other Governmental Authorities for the
furtherance and accomplishment of the purposes and businesses of the
Partnership, and may enter into and perform
3
LP Agreement
<PAGE> 4
the Operating Agreement, the Loan Documents, the Asset Contribution Agreement,
and any documents expressly required therein to be executed by or on behalf of
the Partnership (collectively, the "Transaction Documents"), without any
further act, vote or approval of any Partner notwithstanding any other
provision of this LP Agreement, the Act or other Applicable Law, rule or
regulation, in form and substance acceptable to the General Partners. The
General Partners are hereby authorized to enter into and cause the Partnership
to perform the Transaction Documents on behalf of the Partnership, but such
authorization shall not be deemed a restriction on the power of the General
Partners to enter into and cause the Partnership to perform other agreements on
behalf of the Partnership.
(b) Specific Powers. Without limiting the generality of Sections 2.06 and
2.07(a), the Partnership shall have the power, subject to the terms and
conditions of this LP Agreement:
(i) to conduct its business, carry on its operations and have and exercise
its powers in any state, territory, district or possession of the United
States, or in any foreign country, that may be necessary, convenient or
incidental to the accomplishment of the purposes and businesses of the
Partnership, and in connection therewith, to be qualified, formed or
registered under foreign qualification, registration or assumed or fictitious
name statutes or similar laws in any jurisdiction in which the Partnership
transacts, or proposes to transact, any business;
(ii) to acquire by purchase, lease, contribution of property or otherwise,
own, hold, operate, maintain, finance, improve, lease, sell, convey,
mortgage, transfer, demolish or dispose of any real or personal property that
may be necessary, convenient or incidental to the accomplishment of the
purposes of the Partnership;
(iii) to enter into, perform and carry out contracts of any kind, including,
without limitation, contracts with any Partner, any Affiliate thereof, or any
agent of the Partnership necessary to, in connection with, convenient to, or
incidental to the accomplishment of the purposes and businesses of the
Partnership;
(iv) to purchase, take, receive, subscribe for or otherwise acquire, own,
hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose
of, and otherwise use and deal in and with, shares or other interests in or
obligations of domestic or foreign corporations, associations, general or
limited partnerships, trusts, limited liability companies, individuals, or
direct or indirect obligations of the United States of America or of any
government, state, territory, governmental district or municipality or of any
instrumentality of any of them;
(v) to lend money for its proper purpose, to invest and reinvest its funds,
to take and hold real and personal property for the payment of funds so
loaned or invested;
4
LP Agreement
<PAGE> 5
(vi) to sue and be sued, complain and defend, and participate in
administrative or other proceedings, in the name of the Partnership;
(vii) to elect, designate or otherwise appoint employees, officers and agents
of the Partnership, and define their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the Act;
(ix) to cease its activities and cancel its Certificate of Limited
Partnership;
(x) to negotiate, enter into, renegotiate, extend, renew, terminate, modify,
amend, waive, execute, acknowledge or take any other action with respect to
any lease, contract or security agreement in respect of any assets of the
Partnership;
(xi) to borrow money and issue evidences of indebtedness, and to secure the
same by a mortgage, pledge or other lien on the assets of the Partnership;
(xii) to pay, collect, compromise, litigate, arbitrate or otherwise adjust or
settle any and all other claims or demands of or against the Partnership or
to hold such proceeds against the payment of contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and all documents or
instruments necessary, convenient or incidental to the accomplishment of the
purposes and businesses of the Partnership.
Section 2.08. Term. The term of the Partnership (the "Term") commenced on
October 28, 1993, which was the date the Certificate of Limited
Partnership was filed in the office of the Secretary of State (the "Formation
Date") and shall continue until the 1st day of January, 2043, unless dissolved
before such date in accordance with the provisions of this LP Agreement or
extended beyond January 1, 2043, pursuant to a Majority Vote and the Consent of
all General Partners.
ARTICLE III
NAMES AND ADDRESSES OF PARTNERS
Section 3.01. Withdrawal of Original Partners; Admission of New Partners.
Upon the execution and delivery of this LP Agreement, (i) CLNG Corp. and COPE,
as general partners of the Partnership, and CLG and PENCO, as limited partners
of the Partnership, shall be admitted to the Partnership, and (ii) CLG, as
general partner of the Partnership under the Original Partnership Agreement,
and COPE, as the Initial Limited Partner, shall withdraw from the Partnership.
Section 3.02. General Partners. The names and mailing addresses of the
General Partners are set forth on Appendix B to this LP Agreement, which is
incorporated herein by reference and made a part hereof.
Section 3.03. Limited Partners. The names and addresses of the Limited
Partners are set forth on Appendix B to this LP Agreement, which is
incorporated herein by reference and made a part hereof.
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LP Agreement
<PAGE> 6
Section 3.04. Time of Admission of Partners. After the date hereof, a Person
shall be deemed admitted as a Limited Partner or General Partner, as the case
may be, at the time such Person (i) executes this LP Agreement or a counterpart
of this LP Agreement and (ii) is named as a Limited Partner or General Partner,
as the case may be, on Appendix B hereto. Any reference in this LP Agreement
to Appendix B shall be deemed to be a reference to Appendix B as amended and in
effect from time to time to reflect admissions and withdrawals of Partners duly
undertaken in accordance herewith.
ARTICLE IV
PARTNERSHIP FINANCING AND CAPITAL ACCOUNTS
Section 4.01. Partners' Initial Capital Contributions. As of the date hereof,
CLG and COPE have contributed in cash to the capital of the Partnership the
amount set forth opposite their name on Appendix B hereto. Such amount
constitutes the agreed value of such contribution made by such Partners.
Section 4.02. Partnership Interests. In consideration of the Partners'
respective commitments to make Capital Contributions pursuant to this Article
IV, each Partner shall, as of the date hereof, have the Partnership Interest
set forth opposite such Partner's name on Appendix B hereto.
Section 4.03. Initial Project Finance. Subject to satisfaction or waiver of
the applicable conditions precedent set forth in Article XVIII of this LP
Agreement:
(a) Development Costs. On and as of the Construction Capital Closing Date,
the Columbia Partners' shall be deemed to have contributed to the Partnership,
and their Capital Accounts shall be ratably adjusted to reflect, all
expenditures made or incurred by them, or on behalf of them by any of their
Affiliates, prior to the Formation Date, up to $1 million in connection with
the planning, engineering, designing, financing, marketing of services, and
obtaining of FERC and other regulatory approvals for the Initial Project,
including without limitation, expenditures related to planning and development
of a proposed business plan for the Initial Project, as verified by COPE (the
"Qualified Development Expenditures"). The Columbia Partners shall neither
have any right of reimbursement with respect to such Qualified Development
Expenditures, nor shall such Qualified Development Expenditures be either (i)
included in the Columbia Partners' Cash Investment or (ii) considered for
purposes of Section 6.01(b).
(b) CLG's Pre-Closing Initial Project Costs. After the Formation Date, costs
incurred by the Columbia Partners related to the development of the Initial
Project in accordance with the Approved Budget shall be treated as advances to
the Partnership. On the Construction Capital Closing Date, the Columbia
Partners shall be reimbursed by the Partnership without interest, in cash, or
cash equivalents acceptable to the Columbia Partners, for all such costs
incurred by them between the Formation Date and the Construction Capital
Closing as verified by COPE, subject to a
6
LP Agreement
<PAGE> 7
maximum of $1 million. To the extent that the Columbia Partners incur
additional costs related to the Initial Project above such $1 million amount
between the Formation Date and the Construction Capital Closing, then such
additional expenditures incurred in accordance with the Approved Budget for the
Initial Project and verified by COPE shall continue to be advances to the
Partnership by the Columbia Partners which shall be repaid without interest at
the Construction Capital Closing by crediting the amount of such additional
expenditures as a portion of the Columbia Partners' Cash Investment pursuant to
Section 4.03(e).
(c) PEPCO Partners' Equity Capital. On the Construction Capital Closing Date,
the PEPCO Partners will contribute as a Capital Contribution to the
Partnership, in cash or cash equivalents acceptable to the General Partners,
$10 million, which amount shall be contributed by the PEPCO Partners in
proportion to their respective Partnership Interests and the PEPCO Partners'
respective Capital Accounts will be adjusted to reflect such Capital
Contribution. The Partnership shall use such funds for the recommissioning of
the Facility and the implementation of the Initial Project, including, without
limitation, for construction of the Liquefaction Unit and related equipment,
for reimbursing CLG for its costs in accordance with the first sentence of
Section 4.03(b), for the Partnership's Property Taxes and O&M Expenses, and to
provide reasonable reserves for working capital requirements through the first
three (3) months after the In-Service Date, all in accordance with the Approved
Budgets and the Project Construction Plan for the Initial Project. After the
proceeds of the PEPCO Partners' $10 million Capital Contribution (plus any
investment or reinvestment income earned thereon) have been depleted, the
Partnership shall make use of the Loan as needed to continue financing the
Initial Project.
(d) The Loan. On and after the Construction Capital Closing Date, PENCO will
provide construction and term loans to the Partnership up to an aggregate
principal amount of $15 million (the "Loan") on a secured basis pursuant to,
and subject to the conditions precedent set forth in, the Loan Documents which
shall be satisfactory in form and substance to PENCO and the General Partners.
(e) Columbia Partners' Equity Capital. If, and only after, the Loan proceeds
have been fully utilized as provided in the Loan Documents, any additional
amounts are necessary to fund the recommissioning, construction, Property
Taxes, O&M Expenses and working capital requirements through the In-Service
Date of the Initial Project, such additional amounts will be contributed in
cash, or cash equivalents acceptable to the General Partners, by the Columbia
Partners in proportion to their respective Partnership Interests, and the
Columbia's Partners' respective Capital Accounts will be adjusted to reflect
such Capital Contribution; provided, however, that such contributions shall be
required to be made only as and when required by the Partnership to fund such
recommissioning, construction, working capital, Property Taxes and O&M Expenses
in accordance with Approved Budgets; and provided,
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LP Agreement
<PAGE> 8
further, that the maximum obligation of the Columbia Partners to make such
Capital Contributions under this Section 4.03(e) shall be $7 million, less: any
amounts credited to the Columbia Partners' Cash Investment in accordance with
the last sentence of Section 4.03(b). The Columbia Partners shall, on or prior
to the Construction Capital Closing, provide the Columbia Keepwell Letter to
the Partnership.
(f) Cash Investment. For each Partner, the total of all Capital Contributions
made in the form of cash (or cash equivalents acceptable to the General
Partners) pursuant to Sections 4.03(c) or 4.03(e), as applicable, will
constitute such Partners' "Cash Investment" for purposes of making
distributions of Net Cash Flows pursuant to Article VI of this LP Agreement.
(g) CLG's Contribution of the Facility. On the Construction Capital Closing
Date, CLG shall contribute the Facility and related assets to the Partnership,
and the Partnership shall assume certain obligations related to such assets,
all in accordance with the Asset Contribution Agreement. The Columbia
Partners' Capital Accounts shall be adjusted to reflect the contribution of the
Facility at its Gross Asset Value as of the Construction Capital Closing Date,
as determined in accordance with Section 10.15(i) of this LP Agreement.
Section 4.04. Additional Capital Contributions. After the In-Service Date of
the Initial Project, if the General Partners determine that the Partnership
requires additional Capital Contributions from the Partners for any purpose,
including the funding of any Additional Project in accordance with Section
17.03 of this LP Agreement, then the General Partners may cause Cash Calls for
such amounts to be given promptly to all Partners specifying the aggregate
Capital Contributions required and the amount of each Partner's ratable share
thereof. Upon the date specified in any such Cash Call, which date shall not
be less than fifteen (15) days after the date such Cash Call is given, each
Partner shall contribute to the Partnership, in cash, its pro rata share, based
on its Partnership Interest set forth on Appendix B hereto, of the total amount
of additional capital required by the Partnership, provided, however, that no
Partner shall be required to make any additional Capital Contribution to the
Partnership other than such Capital Contributions as shall have been Consented
to by such Partner in advance of any such Cash Call, and provided, further,
that no Capital Contributions may be made by any Partner without the prior
approval of the General Partners.
Section 4.05. Capital Accounts.
(a) Maintenance of Capital Accounts. For each Partner, a separate capital
account (a "Capital Account") shall be established on the books and records of
the Partnership and maintained in accordance with Section 4.05(b) of this LP
Agreement. In addition, to the extent necessary or appropriate under GAAP
and/or the accounting rules and regulations, if any, at the time prescribed by
the FERC or any other regulatory body or bodies with jurisdiction over the
Partnership or its assets, the Partnership shall maintain separate books and
records reflecting the Partners' capital in
8
LP Agreement
<PAGE> 9
accordance with such other accounting principles, provided, that, all
references in this LP Agreement to a Partner's Capital Account shall be to such
Partner's "Capital Account" as defined in the immediately preceding sentence.
The initial Capital Account established for any Transferee shall be in the same
amount as, and shall replace, the Capital Account of the Partner whom such
Transferee succeeds, and, for purposes of this LP Agreement, such Transferee
shall be deemed to have acquired the Partnership Interest of the Partner whom
such Transferee succeeds. To the extent a Transferee acquires less than the
entire Partnership Interest of the Partner it succeeds, the original Capital
Account of such Transferee and its Partnership Interest shall be in proportion
to the interest it acquires, and the Capital Account of any Transferor Partner
who retains a partial interest in the Partnership, and the amount of its
Partnership Interest, shall be reduced in proportion to the interest it
retains.
(b) Adjustments to Capital Accounts. The Capital Account of each Partner
shall be maintained and adjusted in accordance with the following provisions:
(i) to such Partner's Capital Account there shall be credited such Partner's
cash Capital Contributions and the Gross Asset Value of any non- cash Capital
Contributions, such Partner's allocable share of Profits and any items in the
nature of income or gain which are specially allocated pursuant to Section
5.04 or Section 5.05 hereof, and the amount of any Partnership liabilities
that are assumed by such Partner or that are secured by any Partnership
assets distributed to such Partners;
(ii) to such Partner's Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any Partnership assets distributed to such
Partner pursuant to any provision of this LP Agreement, such allocable
distributive share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 5.04 or Section 5.05
hereof, and the amount of any liabilities of such Partner that are assumed by
the Partnership or that are secured by any property contributed by such
Partner to the Partnership; and
(iii) in determining the amount of any liability for purposes of this Section
4.05(b), and for purposes of determining the amount of any Capital
Contribution there shall be taken into account Section 752(c) of the Code and
any other applicable provisions of the Code and Treasury Regulations.
(c) The foregoing provisions and the other provisions of this LP Agreement
relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Treasury Regulations. In the
event the General Partners shall determine that it is necessary or appropriate
to modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed
9
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<PAGE> 10
property or which are assumed by the Partnership or any Partner), are computed
in order to comply with such Regulations, the General Partners may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Partner pursuant to Section 10.18 hereof upon the
dissolution of the Partnership. The General Partners also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes, in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(q), and (ii)
make any modifications that are necessary or appropriate in the event
unanticipated events might otherwise cause this LP Agreement not to comply with
Treasury Regulations Section 1.704- 1(b).
Section 4.06. Status of Capital Contributions.
(a) Return of Capital Contributions. No Partner shall be entitled to demand
or receive the return of any Capital Contribution, or to receive any funds or
property of the Partnership, except as otherwise expressly provided in this LP
Agreement, and no Partner shall be entitled to interest on any Capital
Contribution or the balance of its Capital Account.
(b) No Partner Compensation. No Partner shall receive any interest, salary,
or drawing with respect to its Capital Contributions or its Capital Account or
for services rendered on behalf of the Partnership or otherwise in its capacity
as a Partner. The foregoing shall not prohibit compensation to any Partner or
Affiliate of a Partner for services rendered to the Partnership (i) as
contemplated by the Operating Agreement, or (ii) to the extent approved in
writing by the General Partners.
(c) Limited Liability. Except as otherwise specifically provided in the Act
or in this LP Agreement, no Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. Except as
otherwise specifically provided in the Act or in this LP Agreement, a Limited
Partner shall be liable only to make Capital Contributions as provided in
Article IV of this LP Agreement and, except as contemplated by Section 4.03(d),
shall not be required to lend any funds to the Partnership and, after such
Capital Contributions have been paid in accordance with this LP Agreement,
shall not be required to make any additional Capital Contributions to the
Partnership. No General Partner shall have any personal liability for the
repayment of any loan, advance or Capital Contribution of any Limited Partner.
(d) Defaulting Partners. Upon the failure of any Partner (a "Defaulting
Partner") to pay in full, or make provisions for payment reasonably acceptable
to the other Partners (the "Non-Defaulting Partners"), within ten (10) days
after Notice of default is received by such Partner (such tenth (10th) day
after delivery of such notice being the "Default Date"), any Capital
Contribution specified in any Cash Call or otherwise required to be made
pursuant to this LP Agreement (a "Defaulted Capital Contribution"):
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(i) such Defaulting Partner shall not be entitled to exercise any voting or
other consensual rights with respect to its Partnership Interest until such
Defaulted Capital Contribution is cured, except as otherwise required by the
Act or Section 13.02(b)(ii);
(ii) the Non-Defaulting Partners shall have the right, but not the
obligation, to make advances to the Partnership pursuant to Section 4.07 in
an aggregate amount equal to the amount of such Defaulted Capital
Contribution (a "Defaulted Contribution Advance") which shall be repaid
(together with interest thereon at a rate per annum equal to the lesser of
the then applicable Prime Rate or the maximum rate permitted by Applicable
Law) prior to any distributions to Partners;
(iii) the Defaulting Partner's distributions of Net Cash Flow and allocations
to its Capital Account shall be suspended from the Default Date until such
Defaulted Capital Contribution is cured in accordance with this Section
4.06(d) whereupon, subject to Section 13.04(a), any suspended distributions
shall be restored to the curing Partner;
(iv) if such Defaulted Capital Contribution is not cured on or before the
first anniversary of the Default Date, and the Defaulting Partner fails to
cure (or provide for a cure reasonably acceptable to the Non-Defaulting
Partners) within ten (10) days after a Notice of forfeiture is received by
such Defaulting Partner (such tenth (10th) day after delivery of such Notice
being the "Forfeiture Date"), the Defaulting Partner shall thereupon forfeit
its Partnership Interest, and such Defaulting Partner shall have no rights or
interest in the Partnership and shall cease to be a Partner;
(v) if such Defaulted Capital Contribution is not cured in accordance with
this Section 4.06(d), all amounts which would have been distributed to such
Defaulting Partner from the Default Date to the Forfeiture Date shall be
treated for all purposes of this LP Agreement as if distributed to such
Defaulting Partner during such period and, subject to Section 13.04(a), such
amounts shall be distributed to the remaining Partners in accordance with
Section 6.01 and such Defaulting Partner's Capital Account shall be
reallocated under Section 4.05(c) in accordance with the Partnership
Interests of the remaining partners; and
(vi) after the Forfeiture Date, the remaining General Partner(s) shall be
entitled to cause the Partnership to commence any judicial or other
proceeding with respect to damages resulting from a Defaulted Capital
Contribution.
The provisions of this Section 4.06(d) shall constitute the Non-Defaulting
Partners' exclusive remedy with respect to such Defaulted Capital Contribution.
Section 4.07. Advances. If any Partner shall advance any funds to the
Partnership in excess of its Capital Contribution, the amount of such advance
shall neither increase its Partnership Interest nor entitle it to any increase
in its share of the distributions of the Partnership. The amount of any such
advance
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shall be a debt obligation of the Partnership to such Partner and, except as
otherwise provided in (x) Section 4.06(d)(ii) with respect to advances relating
to Defaulted Capital Contributions or (y) Section 4.08 with respect to advances
relating to the Loan, shall be repaid to it by the Partnership with such
interest and upon such other terms and conditions as shall be agreed to in
writing by such Partner and the Partnership. All Partner advances provided for
in this LP Agreement shall be payable and collectible only out of the
Partnership assets, and no Partner shall be personally obligated to repay any
part thereof. No Person who makes any nonrecourse loan to the Partnership
shall have or acquire, as a result of making such loan, any direct or indirect
interest in the profits, capital, business or property of the Partnership,
other than as a secured creditor. Except as provided in Section 4.06(d)(ii)
and Section 4.08, no Partner shall make any advances or loans to the
Partnership without the prior approval of the General Partners.
Section 4.08. Advances Related to the Loan. (a) Unless prohibited by Section
6.02(a) of the Construction and Term Loan Agreement, before or after the
occurrence of any actual or threatened "Event of Default" as such term is used
in the Loan Documents, any Partner shall have the right, but not the
obligation, to advance funds to the Partnership as may be necessary under the
circumstances to avert or cure such Event of Default, as the case may be, or to
satisfy all or part of the Partnership's obligations under the Loan Documents
then due and owing (including, if such Event of Default gives rise to the
acceleration of the Loan, for payment of the outstanding principal amount of
the Loan, together with all accrued interest thereon and other costs then due
and owing in connection therewith). The right of each Partner to make advances
pursuant to this Section 4.08 shall be ratable in accordance with its
Partnership Interest, provided, however, that in the event any Partner elects
not to advance its ratable share of such funds, the remaining Partners shall
have the right, but not the obligation, to advance additional funds to cover
any shortfall, which additional fund advances shall be made pro rata among the
advancing Partners determined on the basis of their Partnership Interests,
without giving effect to the Partnership Interest(s) of the non-advancing
Partner(s).
(b) Upon the receipt by the Partnership of any Notice from the Lender as to
any Event of Default (or any notice of acceleration of the Loan), or in the
event that any Partner with knowledge of the occurrence or potential occurrence
of any Event of Default with respect to the Partnership's payment obligations,
gives Notice to one or more of the other Partners thereof, the Partners shall
have ten (10) days (or such shorter period as may be required under the
circumstances) to elect whether or not to make an advance contemplated by this
Section 4.08. Any Partner's failure to make an election to advance during such
ten (10) day period shall be deemed such Partner's election not to exercise its
right to make an advance pursuant to this Section 4.08. Any Partner may
condition its election on the receipt of necessary regulatory approvals by it
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and its Affiliates. Any Partner electing to make an advance pursuant to this
Section 4.08 shall promptly notify the Lender of its intent to do so.
(c) Advances made pursuant to this Section 4.08 shall accrue interest at the
lesser of Two Hundred (200) basis points over the Prime Rate or the maximum
rate permitted by Applicable Law. To the extent any advances made in
accordance with this Section 4.08 are made in partial payment of the Loan, the
Partnership's obligation to repay such advances shall be subordinate to the
Partnership's obligation to repay the Loan and, if requested by the Lender, the
advancing Partners shall execute subordination agreements reasonably
satisfactory to the Lender upon the making of any such advance. The
Partnership shall repay any advances in accordance with this Section 4.08 in
such manner as shall be agreed to in writing by the General Partners, provided,
however, that in the event the General Partners are unable to agree on the
repayment terms of such advances:
(i) The interest thereon shall be due and payable in arrears on the first day
of each calendar quarter after the date of the advance (the "Advance Payment
Date"); and
(ii) the principal amount thereof shall be repaid in equal quarterly
installments with the first installment due on the initial Advance Payment
Date and the last installment due on the Advance Payment Date nearest in time
to the stated maturity of the Loan;
provided, further, that all interest and principal due on such advance shall
automatically become due and payable in full upon the happening of any event
causing the dissolution of the Partnership pursuant to Section 13.02 hereof.
ARTICLE V
ALLOCATIONS
Section 5.01. Annual Allocable Shares.
(a) For any Fiscal Year with respect to which cash is distributed to the
Partners pursuant to Section 6.01 of this LP Agreement, each Partner's "Annual
Allocable Share" shall be a fraction equal to (x) the amount of cash
distributed to such Partner, divided by (y) the total amount of cash
distributed to all of the Partners for such Fiscal Year.
(b) In all other Fiscal Years, each Partner's Annual Allocable Share shall be
determined in the same manner as provided in Section 5.01(a) using the fiction
that $1.00 of cash had been distributed to all of the Partners with respect to
such Fiscal Year in the proportions specified in Section 6.01(a) hereof.
Section 5.02. Profits. (a) After giving effect to the special allocations set
forth in Sections 5.04 and 5.05 hereof, Profits for any Fiscal Year shall be
allocated among the Partners in proportion to their Annual Allocable Shares.
(b) Notwithstanding Sections 5.02(a) and 5.03 hereof, Profits or Losses, if
any, attributable to a distribution (or to an event which produces a
distribution) under Section 6.02(c) hereof shall
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be allocated among the Partners in accordance with each Partner's Partnership
Interest.
Section 5.03. Losses.
(a) After giving effect to the special allocations set forth in Sections 5.04
and 5.05 hereof, Losses for any Fiscal Year shall be allocated among the
Partners in proportion to their Annual Allocable Shares.
(b) The Losses allocated pursuant to Section 5.03(a) hereof shall not exceed
the maximum amount of Losses that can be so allocated without causing any
Partner to have an Adjusted Capital Account Deficit at the end of any Fiscal
Year. In the event some but not all of the Partners would have Adjusted
Capital Account Deficits as a consequence of an allocation of Losses pursuant
to Section 5.03(a) hereof, the limitation set forth in this Section 5.03(b)
shall be applied on a Partner by Partner basis so as to allocate the maximum
permissible Losses to each Partner under Section 1.704-1(b)(2)(ii)(d) of the
Treasury Regulations. All Losses, if any, in excess of the limitations set
forth in this Section 5.03(b) shall be allocated to the General Partners in
proportion to their Partnership Interests.
Section 5.04. Special Allocations. The following special allocations shall be
made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Treasury Regulations, notwithstanding any other provision of
this Article V, if there is a net decrease in Partnership Minimum Gain during
any Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g). Allocations pursuant to the immediately preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Treasury Regulations. This Section 5.04(a) is intended to comply with the
minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury
Regulations and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(i)(4) of the Treasury Regulations, notwithstanding any other provision
of this Article V, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year,
each Partner who has a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated
items of Partnership income and gain for such Fiscal Year (and, if necessary,
subsequent Fiscal Years) in an amount equal to such Partner's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with
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Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the
immediately preceding sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section
5.04(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(c) Qualified Income Offset. In the event any Limited Partner unexpectedly
receives any adjustments, allocations, or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations, items of Partnership
income and gain shall be specially allocated to each such Limited Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit of such Limited
Partner as quickly as possible, provided that an allocation pursuant to this
Section 5.04(c) shall be made only if and to the extent that such Limited
Partner would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 5.04(c) have been tentatively made as
if this Section 5.04(c) were not in this LP Agreement.
(d) Gross Income Allocation. In the event any Partner has a deficit in its
Capital Account balance at the end of any Fiscal Year which is in excess of the
sum of (i) the amount such Partner is obligated to restore pursuant to any
provision of this LP Agreement, and (ii) the amount such Partner is deemed to
be obligated to restore pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, each such Partner
shall be specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible, provided that an allocation pursuant to
this Section 5.04(d) shall be made only if and to the extent that such Partner
would have a deficit in its Capital Account balance in excess of such sum after
all other allocations provided for in this Article V have been made as if
Section 5.04(c) hereof and this Section 5.04(d) were not part of this LP
Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year shall
be specially allocated among the Partners in proportion to their Partnership
Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Fiscal Year shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4) to be taken into
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account in determining Capital Account balances as the result of a distribution
to a Partner in complete liquidation of its Partnership Interest, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership in the event
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partner
to whom such distribution was made in the event Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
Section 5.05. Curative Allocations. The allocations set forth in Section 5.04
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Partners
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss, or deduction pursuant to this Section 5.05.
Therefore, notwithstanding any other provision of this Article V (other than
provisions relating to Regulatory Allocations), the General Partners shall make
such offsetting special allocations of Partnership income, gain, loss, or
deduction in whatever manner they determine appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of this LP Agreement and
all Partnership items were allocated pursuant to Sections 5.02, 5.03, and 5.08
of this LP Agreement. In exercising its discretion under this Section 5.05,
the General Partners shall take into account future Regulatory Allocations
under Sections 5.04(a) and (b) that, although not yet made, are likely to
offset other Regulatory Allocations previously made under Sections 5.04(e) and
(f).
Section 5.06. Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partners using any permissible method under Code Section 706 and the Treasury
Regulations promulgated thereunder.
(b) The Partners are aware of the income tax consequences of the allocations
made by this Article V and hereby agree to be bound by the provisions of this
Article V in reporting their shares of Partnership income and loss for income
tax purposes.
(c) Solely for purposes of determining a Partner's proportionate share of the
"excess nonrecourse liabilities" of the Partnership within the meaning of
Section 1.752-3(a)(3) of the Treasury Regulations, the Partners' interests in
Partnership profits are in proportion to their Partnership Interests.
(d) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partners shall endeavor to treat distributions of Net
Cash Flow as having been made from the
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proceeds of a nonrecourse liability or a Partner Nonrecourse Debt only to the
extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Limited Partner.
Section 5.07. Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Treasury Regulations thereunder, income, gain, loss, and
deduction with respect to any property contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its initial Gross Asset
Value (computed in accordance with Section 10.15(i) hereof). In the event the
Gross Asset Value of any Partnership asset is adjusted pursuant to Section
10.15(ii) hereof, subsequent allocations of income, gain, loss, and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the Treasury
Regulations thereunder. Any elections or other decisions relating to such
allocations shall be made by the General Partners in any manner that reasonably
reflects the purpose and intention of this LP Agreement. Allocations pursuant
to this Section 5.07 are solely for purposes of federal, state, and local taxes
and shall not affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this LP Agreement.
Section 5.08. Equalization Allocations in Connection with Liquidation
Distributions. Notwithstanding Sections 5.02 and 5.03 hereof, if and to the
extent that gain or loss is recognized, or deemed recognized pursuant to
Section 10.14(iii) hereof, in connection with the distribution to one or more
Partners of any assets of the Partnership or the sale of any assets of the
Partnership other than in the ordinary course of business, pursuant to Section
13.04 of this LP Agreement or otherwise, such gain or loss shall be allocated
among the Partners so that, to the maximum extent practicable the ratio of each
partner's Capital Account to the total of all Partners' Capital Accounts shall
be equal to each such Partner's Partnership Interest.
ARTICLE VI
DISTRIBUTIONS
Section 6.01. Net Cash Flow. Except as otherwise specifically provided in
Article XIII (relating to the dissolution of the Partnership), any
distributions of the Net Cash Flow of the Partnership with respect to any
Fiscal Year shall be made to the Partners as follows:
(a) Net Cash Flow Less Than Distribution Threshold. At the end of each Fiscal
Year, the Partnership's Net Cash Flow for such Fiscal Year shall be computed
(without regard to any Operator's Bonuses payable for such Fiscal Year) and, if
greater than zero, divided by the number which represents the cumulative total
of all
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the Partners' Cash Investments at that time. If the resulting quotient is less
than .26 (the "Distribution Threshold"), then the Partnership's Net Cash Flow,
if any, for such Fiscal Year shall be distributed to the Partners, pro rata, in
the same proportion that each Partner's respective Cash Investment bears to the
combined total Cash Investments of all Partners.
(b) Net Cash Flow Greater Than Distribution Threshold. At the end of each
Fiscal Year in which the quotient referred to in Section 6.01(a) equals or
exceeds the Distribution Threshold, the Net Cash Flow for such Fiscal Year
shall be distributed to the Partners in the following order: (i) first, each
Partner will receive a cash distribution equal to 26% of its Cash Investment;
(ii) second, the Columbia Partners will receive a cash distribution equal to
26% of the difference between $25 million and the Columbia Partners' aggregate
Cash Investments, which shall be divided between them in shares proportionate
to their respective Partnership Interests; and (iii) third, any and all
remaining Net Cash Flow shall thereafter be distributed equally between the
Columbia Partners and the PEPCO Partners in shares proportionate to their
respective Partnership Interests.
(c) Equalization. Beginning with the Fiscal Year following the first Fiscal
Year in which either (i) the Loan is fully repaid or (ii) the Partnership
commences the operation of a Terminalling Business, and continuing thereafter,
all Net Cash Flow, if any, shall be distributed equally between the Columbia
Partners and the PEPCO Partners in shares proportionate to their respective
Partnership Interests, without regard to the distribution mechanisms set forth
in Sections 6.01(a) and 6.01(b) (the "Equalization"), provided, however, that
in the event that the Loan is prepaid in full at any time during the five (5)
Fiscal Years following the Fiscal Year in which the In-Service Date of the
Initial Project occurs (the "In-Service Year"), Equalization shall take effect
commencing on the first day of the sixth (6th) Fiscal Year following the
In-Service Year.
Section 6.02. Distribution Rules.
(a) Net Cash Flow shall be distributed annually within sixty (60) days after
the close of each Fiscal Year unless otherwise approved by the General
Partners.
(b) Any distributions of Net Cash Flow made by the Partnership pursuant to
Section 6.01 shall be made only in cash.
(c) All other distributions of cash to the Partners shall be distributed pro
rata in accordance with each Partner's Partnership Interest at such times and
in such amounts as shall be determined by the General Partners in accordance
with this LP Agreement.
Section 6.03. Restricted Distributions. Notwithstanding any provision to
contrary contained in this LP Agreement, the Partnership, and the General
Partners on behalf of the Partnership, shall not make a distribution to any
Partner on account of its Partnership Interest if such distribution would
violate Section 17-607 of the Act or other Applicable Law.
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ARTICLE VII
FEES AND EXPENSES OF GENERAL PARTNERS
Section 7.01. Fees.
(a) No Management Fees. Subject to Section 7.02 hereunder, the General
Partners shall not be entitled to any fees or other compensation in connection
with their acting in their capacities as General Partners hereunder.
Section 7.02. Reimbursement of Expenses. The Partnership shall reimburse any
General Partner for its ordinary and reasonably necessary out- of-pocket
expenses, incurred by it with the approval of the General Partners, when acting
in such capacity on behalf of the Partnership, upon submission of receipts
therefor.
ARTICLE VIII
MANAGEMENT
Section 8.01. Management and Control of the Partnership. The General Partners
shall have full, exclusive and complete discretion to manage and control the
business and affairs of the Partnership, to make all decisions affecting the
business and affairs of the Partnership and to take all such actions as they
deem necessary or appropriate to accomplish the purpose of the Partnership as
set forth herein. No Limited Partner, as such, shall have any authority, right
or power to bind the Partnership or to manage or control, or to participate in
the management or control of, the business and affairs of the Partnership in
any manner whatsoever.
Section 8.02. Powers of the General Partners.
(a) Powers. Subject to the limitations set forth in Section 8.02(b) of this
LP Agreement and except as otherwise specifically provided herein, the General
Partners (acting on behalf of the Partnership), shall have the right, power and
authority, in the management of the business and affairs of the Partnership, to
do or cause to be done any and all acts, at the expense of the Partnership, as
the General Partners deem to be necessary or appropriate to effectuate the
business, purposes and objectives of the Partnership. The power and authority
of the General Partners shall include, without limitation, the power and
authority, on behalf of, and in furtherance of the purpose and businesses of
the Partnership:
(i) to acquire, own, lease, sublease, manage, finance, hold, deal in,
encumber, control or dispose of any interest or rights in personal property
or real property;
(ii) to negotiate, enter into, renegotiate, extend, renew, terminate, modify,
amend, waive, execute, acknowledge or take any other action with respect to
any lease, contract or security agreement in respect of any assets of the
Partnership;
(iii) to pay, collect, compromise, litigate, arbitrate, or otherwise adjust
or settle any and all other claims or demands of or against the Partnership
or to hold such proceeds against the payment of contingent liabilities;
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(iv) to borrow money or to obtain credit in such amounts, at such rate of
interest and upon such other terms and conditions as the General Partners
deem appropriate, provided that such indebtedness is nonrecourse to the
Partners (unless otherwise agreed to in writing by all of the Partners), from
banks, other lending institutions or any other Person, including the
Partners, and pursuant to indentures, loan agreements or any other type of
instrument, for any purpose or business of the Partnership and to secure
payment of the principal of any such indebtedness and the interest thereon by
mortgage, pledge, conveyance or assignment in trust of or grant any other
liens or security interests in the whole or any part of any or all of the
property and assets of the Partnership;
(v) to make, execute, assign, acknowledge and file on behalf of the
Partnership any and all documents or instruments of any kind which the
General Partners may deem necessary or appropriate in carrying out the
purposes and business of the Partnership; and any Person dealing with any
General Partner shall not be required to determine or inquire into its
authority or power to bind the Partnership or to execute, acknowledge or
deliver any and all documents in connection therewith;
(vi) to assume obligations, enter into contracts, including contracts of
guaranty or suretyship, incur liabilities, lend money and otherwise use the
credit of the Partnership, and to secure any and all obligations, contracts
or liabilities of the Partnership by mortgage, pledge or other encumbrance of
all or any part of the property and income of the Partnership;
(vii) to invest funds of the Partnership;
(viii) to employ and engage suitable agents, employees, advisors, consultants
and counsel (including any custodian, investment advisor, accountant,
attorney, corporate fiduciary, bank or other reputable financial institution,
or any other agents, employees or Persons who may serve in such capacity for
the General Partners or any Affiliate of the General Partners) to carry out
any activities that the General Partners are authorized or required to carry
out under this LP Agreement (subject to the supervision and control of the
General Partners), including, without limitation, the Operator or similar
Person who may be engaged to undertake some or all of the general management,
property management, financial accounting and recordkeeping or other duties
of the General Partners and to indemnify such Persons against liabilities
incurred by them in acting in such capacity as on behalf of the Partnership;
(ix) to employ, retain or appoint Persons as may be necessary or appropriate
for the conduct of the Partnership's business (subject to the supervision and
control of the General Partners), including Persons who may be designated as
officers with titles including but not limited to "chairman," "vice
chairman," "controller," "secretary," and assistants thereto
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(collectively, the "Partnership Officials") as determined, and to the extent
authorized, by the General Partners;
(x) to register, qualify, list or report, or cause to be registered,
qualified, listed or reported, this LP Agreement, the Limited Partner
Interests issued in connection herewith or the Partnership pursuant to the
Securities Act of 1933, as amended (the "Exchange Act"), any other securities
laws of the United States, the securities rules and regulations of any State
of the United States, the laws of any other jurisdiction, the rules and
regulations of any securities exchange or pursuant to an automated quotation
system of a registered securities association as the General Partners deem
appropriate;
(xi) to qualify the Partnership to do business in any state, territory,
dependency or foreign country;
(xii) to sell or dispose of all or a portion of the Partnership's assets for
the benefit of the Partners at the times and on terms determined by the
General Partners, in their sole discretion;
(xiii) to form or cause to be formed, and to own the stock of, one or more
corporations, and to form or cause to be formed and to participate in
partnerships, joint ventures, limited liability companies, trusts and other
entities; and
(xiv) to possess and exercise any additional rights and powers of General
Partners under the partnership laws of the State of Delaware, including,
without limitation, the Act and the Delaware Uniform Partnership Law (and any
other Applicable Law, to the extent not expressly prohibited by this LP
Agreement);
provided, however, that the expression of any power or authority of the General
Partners in this LP Agreement shall not in any way limit or exclude any other
power or authority which is not specifically or expressly set forth in this LP
Agreement, and provided, further, that the Partnership shall at all times be
managed in such a manner as the General Partners deem reasonable and necessary
or appropriate to comply with Applicable Law and preserve the limited liability
of the Limited Partners.
(b) Limitations. Notwithstanding the foregoing provisions of Sections 8.01
and 8.02, the General Partners shall have no authority, without the written
approval of all Partners, to:
(i) take any action or cause the Partnership to act in contravention of this
LP Agreement;
(ii) borrow from the Partnership;
(iii) confess a judgment against the Partnership;
(iv) fail to qualify or maintain the qualification of the Partnership to do
business in any jurisdiction in which the failure to do so would subject any
Limited Partner to liability as a general partner therein, or perform any act
that would subject any Limited Partner to liability as a general partner in
any jurisdiction; and
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(v) except in accordance with the express terms hereof, admit a Person as an
additional, successor or substituted Partner of the Partnership.
(c) Manner of Taking Action. All powers vested in the General Partners
pursuant to this LP Agreement shall be exercised only with the unanimous
Consent of all General Partners and all agreements or other documents executed
on behalf of the Partnership shall be executed by each and every General
Partner, provided, however, that the General Partners may, and it is the intent
of the Parties hereto that the General Partners shall whenever practicable, act
through their designated Representatives in the manner provided for in Section
8.09 of this LP Agreement.
Section 8.03. Outside Businesses. The General Partners shall engage in no
business activities other than in connection with their acting as General
Partners hereunder. The Limited Partners and their respective officers,
directors, stockholders, employees, agents and Affiliates (other than the
General Partners) may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Partnership, and neither the Partnership nor
any other Person shall have any rights by virtue of this LP Agreement in and to
such independent ventures or the income or profits derived therefrom, and the
pursuit of any such venture, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper. None of the Partners or
their respective officers, directors, stockholders, employees, agents and
Affiliates shall be obligated to present any particular investment opportunity
to the Partnership even if such opportunity is of a character which, if
presented to the Partnership, could be taken by the Partnership, and any such
Person shall have the right to recommend to others any such particular
investment opportunity or, in the case of any such Person other than a General
Partner, to take for its own account (individually or as a partner or
fiduciary) any such particular investment opportunity.
Section 8.04. Relationships with Affiliates. The Partnership may enter into
any agreement or contract with any Partner, any Person who is an Affiliate of a
Partner, or any of their respective officers, directors, stockholders,
employees and agents, to the extent approved by the General Partners, provided
that any such agreement or contract shall contain substantially such terms and
conditions as would be contained in a similar agreement or contract entered
into by the Partnership as the result of arm's-length negotiations from a
comparable unaffiliated disinterested third party. The Transaction Documents
shall be deemed to be in compliance with this Section 8.04. The Partners agree
that (i) CLNG Corp. shall have sole authority, as General Partner, to act on
behalf of the Partnership with respect to any purported breach under the Loan
Documents, and (ii) COPE shall have sole authority, as General Partner, to act
on behalf of the Partnership with respect to any purported breach under the
Operating Agreement. In the event of any conflict between the Partnership and
any such affiliated Person, the General Partners shall resolve such conflict
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in accordance with Section 8.07 of this LP Agreement, provided, that any
General Partner may, in its sole discretion, recuse itself from taking any
action contrary to its or its Affiliates' interests with respect to such
conflict, by written Notice to the other General Partner(s), upon which such
other General Partner(s) shall have sole power and authority to resolve such
conflict in the manner provided in Section 8.07.
Section 8.05. Title to Assets of the Partnership. Title to assets of the
Partnership, whether real, personal or mixed, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such assets
of the Partnership or any portion thereof. Title to any or all of the assets
of the Partnership may be held in the name of the Partnership, any General
Partner or in the name of one or more nominees, as the General Partners may
determine. Each General Partner hereby declares and warrants that any assets
of the Partnership for which legal title is held in the name of such General
Partner shall be held in trust by the General Partner for the use and benefit
of the Partnership in accordance with the terms and provisions of this LP
Agreement. All assets of the Partnership shall be recorded as the property of
the Partnership on its books and records, irrespective of the name in which
legal title to such assets of the Partnership is held.
Section 8.06. Non-Recourse. Unless otherwise approved by the General
Partners, the Partnership shall not enter into any contract, lease, sublease,
note, deed of trust, or other agreement or contractual obligation, unless there
is contained therein an appropriate provision limiting the claims of all
Parties to such instrument and other beneficiaries thereunder to the assets of
the Partnership and expressly waiving any rights of such Parties and other
beneficiaries to proceed against any of the Partners individually; provided,
however, the Partnership may enter into contracts not containing such a
provision provided that such contract is in the ordinary course of its business
and the Partnership's obligations thereunder (including any potential or
contingent obligations for any purported breach of any such contract) are in
the aggregate less than $25,000.
Section 8.07. Resolution of Conflicts of Interest.
(a) Manner of Resolution. Except as expressly provided in the third sentence
of Section 8.04, and subject to the right of recusal set forth in the proviso
in Section 8.04, (i) whenever a conflict of interest exists or arises between
any General Partner or any of its Affiliates, on the one hand, and the
Partnership, or any other Partner on the other hand, or (ii) whenever this LP
Agreement or any other agreement contemplated herein or therein provides that
the General Partners shall act in a manner which is, or provides terms which
are, fair and reasonable to the Partnership, or any Limited Partner, the
General Partners shall resolve such conflict of interest in, or otherwise act
in a manner consistent with, the best interests of the Partnership, provided,
that in taking such action or providing such terms, the General Partners may
consider
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in each case the relative interests of each Party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith, the resolution, action or terms so made, taken or provided by any
General Partner in accordance with this Section 8.07(a) shall not constitute a
breach of this LP Agreement or any other agreement contemplated herein or of
any duty or obligation of the General Partner at law or in equity or otherwise.
(b) Meaning of Discretion. Whenever in this LP Agreement the General Partners
are permitted or required to make a decision (i) in their "sole discretion" or
"discretion" or under a grant of similar authority or latitude, the General
Partners shall be entitled to consider only such interests and factors as they
desire, provided, however, that in all cases the General Partners shall
consider, and act in accordance with, the best interests of the Partnership or
(ii) in "good faith" or under another expressed standard, the General Partners
shall act under such express standard and shall not be subject to any other or
different standards imposed by this LP Agreement or any other agreement
contemplated herein or by Applicable Law or in equity or otherwise.
(c) Arbitration. In the event the General Partners are unable to agree as to
the resolution of any conflict, and no General Partner has sole authority to
act on behalf of the Partnership with respect to such issue pursuant to Section
8.04, the issue shall be resolved by arbitration in accordance with Article XIV
of this LP Agreement.
(d) No Liability. No General Partner shall be liable to the Partnership or to
any other Partner for acting in accordance with the good faith belief and
judgment of its officers, Representatives, Alternate Representatives or other
agents that such actions are in the best interests of the Partnership.
Section 8.08. Merger. The Partnership may merge with, or consolidate into,
another business entity (as defined in Section 17-211(a) of the Act) upon the
approval by the General Partners and a Majority Vote. In accordance with
Section 17-211 of the Act (including Section 17- 211(g)), notwithstanding
anything to the contrary contained in this LP Agreement, an agreement of merger
or consolidation approved by the General Partners and a Majority Vote, may (A)
effect any amendment to this LP Agreement, or (B) effect the adoption of a new
partnership agreement for the Partnership if it is the surviving or resulting
limited partnership of the merger or consolidation. Any amendment to this LP
Agreement or adoption of a new partnership agreement made pursuant to the
foregoing sentence shall be effective at the effective time or date of the
merger or consolidation. For purposes of any vote required by the Limited
Partners in connection with any merger or consolidation, the Limited Partners
shall be treated for purposes of voting as a single class of limited partners.
The provisions of this Section 8.08 shall not be construed to limit the
accomplishment of a merger
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or of any of the matters referred to herein by any other means otherwise
permitted by law.
Section 8.09. Partnership Governance.
(a) Appointment of Representatives/Partnership Officials. Upon the execution
of this LP Agreement, each of the General Partners shall appoint one (1)
individual to represent and vote for such General Partner with respect to any
matter within the powers of the General Partners hereunder (the
"Representatives"). Each General Partner shall also appoint one or more
individuals to be such General Partner's "Alternate Representatives" with full
power of substitution and authority to act in place of individuals to be such
General Partner's Representative in the event of the unavailability of such
Representative. Each Representative and Alternate Representative shall be
deemed to be acting solely in a representative capacity on behalf of the
General Partner that he or she represents, and in so doing, to the maximum
extent permitted by Applicable Law, shall have no fiduciary duty (including,
without limitation, any duty of loyalty, candor or care) to any Person other
than to such General Partner, provided, that the foregoing shall not diminish
or affect any such duty owed by the General Partner to the Partnership. Each
General Partner shall have only one vote at any meeting of the General Partners
exercisable through its Representative or Alternate Representative, as the case
may be. As of the date hereof, each General Partner's Representative and
Alternate Representatives are those listed on Appendix C hereto. Each General
Partner reserves the right to change any one or more of its Representatives or
Alternate Representatives, as the case may be, and to appoint successors and
substitutes therefor, from time to time, in such General Partner's sole
discretion, and any such change shall be effective upon such General Partner
delivering a Notice of such change to the other General Partner. Except as may
be specifically provided otherwise herein, or in any written directives that
are executed by all of the General Partners, all approvals, decisions and
actions with respect to the management and control of the Partnership that have
been made or taken by the Representatives or Alternate Representatives, as the
case may be, in accordance with this Section 8.09, shall be approvals,
decisions and actions duly made or taken by the General Partners hereunder, and
as such shall be binding on the Partnership and the Partners. Each General
Partner shall have the right to call meetings on three (3) business days'
Notice to the other General Partner. Meetings of the General Partners shall be
held at the offices of the Partnership at Cove Point, Maryland, unless
otherwise agreed to by the General Partners.
(b) Rules and Regulations. From time to time, the General Partners may adopt
rules and regulations consistent with this LP Agreement with respect to the
operation and governance of the Partnership (the "Rules and Regulations"). The
Rules and Regulations may, among other things, govern the conduct of meetings
of the General Partners, and describe the duties of Partnership Officials.
Neither the adoption of any Rules and Regulations in accordance with this
Section 8.09(b) nor the adoption of any
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amendment or supplement to such Rules and Regulations, shall be deemed an
amendment to this LP Agreement. Any reference in this LP Agreement to the
Rules and Regulations shall be deemed to be a reference to the same as amended
or supplemented and in effect from time to time.
(c) Partnership Officials. Unless otherwise approved by the General Partners,
there shall at all times be appointed a Chairman and Vice Chairman of the
Partnership. The General Partners shall elect the first Chairman and the first
Vice Chairman of the Partnership at an organizational meeting of the General
Partners which shall be held no later than five (5) business days after the
date of this LP Agreement, or such later date as fixed by the General Partners.
The first Chairman of the Partnership shall be a Person nominated by CLNG
Corp., and the first Vice Chairman shall be a Person nominated by COPE.
Starting with the earlier to occur of (i) commencement of the first Fiscal Year
occurring after the In-Service Date for the Initial Project or (ii) January 1,
1996, and continuing annually thereafter, nomination of the Chairmanship and
Vice Chairmanship shall rotate among the General Partners, and elections will
take place no later than ten (10) business days after the close of the
Partnership's Fiscal Year, or such later date as fixed by approval of the
General Partners.
(d) The Chairman and Vice Chairman. Unless otherwise approved by the General
Partners, the Chairman shall at all times be a duly appointed Representative,
and shall preside at all meetings of the General Partners. The Vice Chairman
shall also be a Representative and shall perform the duties of the Chairman at
the request, or in the absence, of the Chairman, or upon the refusal or
inability of the Chairman to perform his or her responsibilities. The Chairman
and Vice Chairman shall have the power and authority to execute on behalf of
the Partnership, and obligate the Partnership to perform, any contracts,
agreements and other documents or instruments specifically approved by the
General Partners for execution by the Chairman, Vice Chairman or both, as the
case may be, provided, however, that such approval shall not limit the power of
the General Partners to execute on behalf of the Partnership, and cause the
Partnership to perform, any contracts, agreements and other documents of the
Partnership, to the extent execution by the General Partners is necessary or
appropriate under the circumstances.
(e) Other Officers. The General Partners may, from time to time, appoint such
other Partnership Officials as the General Partners deem necessary or
appropriate, including, without limitation, a Secretary and a Controller for
the Partnership and any assistants thereto. Such Partnership Officials shall
serve at all times under the supervision of, and at the pleasure of the General
Partners, and their functions and duties shall be only as prescribed by the
General Partners by written directive.
(f) Performance by Operator. With the exception of the Chairman and Vice
Chairman, subject to approval by the General Partners, the function of any
Partnership Official may be performed
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by the Operator to the extent provided in the Operating Agreement, or by any
director, officer, or employee of the Operator.
(g) Indemnification by General Partner. To the fullest extent permitted by
Applicable Law, each General Partner shall indemnify and hold harmless those
Representatives, Alternate Representatives, Partnership Officials (or other
individuals acting in connection with the Partnership's business or affairs at
the request of such General Partner) who are its employees or employees of its
Affiliates, against all actions, claims, demands, costs (including fees and
expenses of counsel) and liabilities arising out of the acts (or failure to
act) of any such Persons based upon any actual or alleged breach of fiduciary
duty (including any duty of care, candor or loyalty) owed or claimed to be
owed, to the Partnership.
Section 8.10. The Operator. The Partnership shall retain the Operator to
provide certain services as an independent contractor under the Operating
Agreement. The Operator shall have no duties or obligations to the Partnership
or the Partners other than the duties and obligations of the Operator expressly
set forth in the Operating Agreement.
Section 8.11. Request for Instructions. In the event that any Partnership
Official is unsure of the application of any provision of this LP Agreement,
any related Transaction Document or any other agreement relating to the
transactions contemplated hereby or thereby, such Partnership Official may
request and rely upon written instructions of the General Partners (which
instructions shall be signed by an authorized officer of each General Partner);
provided, however, that if such instructions have not been received within
twenty (20) days after the date of such request (or such earlier date as
reasonably requested or as necessary under the circumstances) until instructed
otherwise, the requesting Person may, but shall be under no duty to, take or
refrain from taking such action as the requesting Person may deem advisable in
the best interests of the Partnership.
ARTICLE IX
LIMITED PARTNERS
Section 9.01. Liability of Limited Partners. Except as otherwise expressly
required by law, a Limited Partner, in its capacity as such, shall have no
liability in excess of (i) the amount of its Capital Contributions, (ii) its
share of any undistributed profits and assets of the Partnership, (iii) its
obligation to make other payments expressly provided for in this LP Agreement,
and (iv) the amount of any distributions wrongfully distributed to it. It is
the intent of the Parties hereto that no distribution to any Limited Partner
shall be deemed a return of any money or other property in violation of the
Act. The payment of any such money or distribution of any such property to a
Limited Partner shall be deemed to be a compromise within the meaning of
Section 17-502(b) of the Act, and the Limited Partner receiving any such money
or property shall not be required to return any such money or property to any
Person, the Partnership or any creditor of
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the Partnership. However, if any court of competent jurisdiction finally
determines that, notwithstanding the provisions of this LP Agreement, any
Limited Partner is obligated to return such money or property, such obligation
shall be the obligation of such Limited Partner and not of the General
Partners.
Section 9.02. No Management by Limited Partners. No Limited Partner, in its
capacity as such, shall have any right to be represented at any meeting of the
General Partners or otherwise to take part in the management, operation or
control of the business and affairs at the Partnership. The Limited Partners
shall not have any right, power, or authority to transact any business in the
name of the Partnership or to act for or on behalf of or to bind the
Partnership. A Limited Partner shall have no rights other than those
specifically provided herein or granted by Applicable Law.
Section 9.03. Employees, Agents or Officers of the Partnership or a General
Partner. An employee, agent, director or officer of a Limited Partner may also
serve as a Partnership Official or be an employee, agent, director or officer
of the Operator or any General Partner. The existence of these relationships
and acting in such capacities will not result in a Limited Partner being deemed
to be participating in the control of the business of the Partnership or
otherwise affect the liability of the Limited Partner or the Person so acting.
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ARTICLE X
BOOKS, RECORDS, FINANCIAL STATEMENTS AND TAX MATTERS
Section 10.01. Records and Access to Records. At all times during the
continuation of the Partnership, the General Partners shall keep or cause to be
kept full and true books of account maintained in accordance with GAAP in which
shall be entered fully and accurately each transaction of the Partnership.
Such books of account, together with a copy of this LP Agreement and of the
Certificate of Limited Partnership, shall at all times be maintained at the
principal place of business of the Partnership (or such other location(s)
approved by the General Partners from time to time) and shall be open to
inspection and examination at reasonable times by all Limited Partners and
their duly authorized representatives for any purpose reasonably related to
such Limited Partner's interest as a Limited Partner in the Partnership.
Unless otherwise approved by the General Partners, the books of account and the
records of the Partnership shall be examined by and reported upon as of the end
of each Fiscal Year of the Partnership by a firm of independent certified
public accountants of national reputation selected by the General Partners.
Section 10.02. [RESERVED]
Section 10.03. Financial Statements. The General Partners shall prepare and
maintain, or cause to be prepared and maintained, the books of account of the
Partnership and the following documents that shall be transmitted, unless
otherwise approved by the General Partners, to each Partner at the times
hereinafter set forth:
(1) Within thirty (30) days after the close of each Fiscal Year of the
Partnership, the following financial statements, examined by and reported
upon by the independent certified public accountants referred to in Section
10.01:
(i) balance sheet of the Partnership as of the beginning and close of such
year;
(ii) statement of Partnership Profits and Losses for such year;
(iii) statement of cash flow for the Partnership; and
(iv) statement of such Partner's Capital Account as of the close of such
year, and changes therein during such year.
(2) Within thirty (30) days after the close of each Fiscal Year of the
Partnership, a statement showing an estimate of such Partner's share of each
item of Partnership income, gain, loss, deduction, or credit for such year
for income-tax purposes.
(3) On a monthly basis, the General Partners shall use best efforts to
transmit to the Partners a statement setting forth an estimate of the
Partnership's net income for such month within five (5) business days after
the last business day of the applicable calendar month. In addition, on a
monthly and quarterly basis, the General Partners shall use best efforts
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to have prepared and transmitted to the Partners within fifteen (15) business
days after the last business day of the applicable calendar month or fiscal
quarter, as the case may be, such financial statements referred to in clauses
(i), (ii) and (iii) of Section 10.03(a)(1) on an unaudited basis. Such
financial statements shall be prepared in accordance with GAAP, consistently
applied (except when the Partnership is required to adopt a new standard),
subject to normal year-end adjustments and the absence of notes, and shall be
accompanied by a certification by the General Partners that such financial
statements present fairly in all material respects the financial condition
and results of operations of the Partnership for the periods indicated.
Section 10.04. Bank or Brokerage Accounts. All funds of the Partnership shall
be deposited in the Partnership's name in such bank or brokerage account or
accounts as shall be designated by the General Partners. Withdrawals from any
such bank or brokerage account or accounts shall be made upon such signature or
signatures as the General Partners may designate. Such funds shall not be
commingled with the funds of any other Person. Subject to prior approval by
the General Partners, the Partnership may make such short-term investments of
funds which may include, but shall not be limited to, checking and savings
accounts, certificates of deposit and time or demand deposits in commercial
banks, United States of America government securities, securities guaranteed by
government agencies, bankers' acceptances, Eurodollar deposits and notes, both
fixed and floating rate, securities issued by money market mutual funds,
savings and loan association deposits, or commercial paper, rated investment
grade or better by Standard & Poors' Corporation or Moody's Investor Services,
Inc., or the successor to either of them ("Permitted Short-Term Investments");
provided that, the Partnership shall not make any such deposits or investments
that would require registration of the Partnership under the Investment Company
Act of 1940 or would otherwise be prohibited by Applicable Law.
Section 10.05. Right to Make Section 754 Election. The General Partners may,
in their sole discretion, make or revoke, on behalf of the Partnership, an
election in accordance with Section 754 of the Code, so as to adjust the basis
of Partnership property in the case of a distribution of property within the
meaning of Section 734 of the Code, and in the case of a Transfer of a
Partnership interest within the meaning of Section 743 of the Code. Each of
the Partners shall, upon request of the General Partners, supply the
information necessary to give effect to such an election.
Section 10.06. Tax Matters Partner.
(a) Designation. CLNG Corp. is hereby designated as the initial "Tax Matters
Partner" (the "TMP"), of the Partnership as defined in Section 6231(a)(7) of
the Code and, in such capacity, shall have the power (subject to the limitation
on the TMP's discretion set forth in Section 10.06(d)) to manage and control,
on behalf of the Partnership, any administrative proceeding at the Partnership
level with the IRS relating to the determination of any item of
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Partnership income, gain, loss, deduction or credit for federal income tax
purposes. The TMP and other Partners shall use their best efforts to comply
with the responsibilities (including, without limitation, the making of
elections and preparing of returns) outlined in this Article X and in Sections
6622 through 6231 and 6050K of the Code and in doing so shall incur no
liability to any other Partner, provided, that such efforts are undertaken in
good faith and in a manner that the TMP or Partner, as the case may be,
believes to be in the best interests of the Partners generally.
(b) IRS Notices. The TMP shall, within ten (10) days after the TMP's
receipt of any notice from the IRS in any administrative proceeding at the
Partnership level relating to the determination of any Partnership item of
income, gain, loss, deduction or credit, mail a copy of such notice to each
Partner.
(c) New Tax Matters Partners. The Partners may at any time hereafter
designate a new TMP; provided, however, that only a General Partner may be
designated as the TMP of the Partnership and the Partner serving as TMP for a
given taxable year shall continue as TMP with respect to all matters concerning
such year.
(d) No Discretion. Unless otherwise expressly provided in this LP Agreement,
or required by the Code or Treasury Regulations, the TMP shall act (or refrain
from acting) on behalf of the Partnership in accordance with the directions of
the General Partners, and shall make no election, declaration or statement,
settle or compromise any audit matter or dispute, or execute or file any tax
return, tax filing or other document on behalf of the Partnership without the
prior approval of the General Partners.
Section 10.07. Partnership Status. It is the intention of the Partners that
the Partnership be treated as a partnership for purposes of federal and state
income tax, and each Partner hereby covenants that it will make no election,
declaration or statement on or in any tax return, tax filing, or any book or
record maintained by it which is inconsistent with or detrimental to the
Partnership's ongoing maintenance of partnership tax status.
Section 10.08. Income Tax Compliance and Capital Accounts. The TMP shall
prepare or cause to be prepared and filed on behalf of the Partnership, when
and as required by Applicable Law, all federal, state and local income tax
information returns or requests for extensions thereof. Not less than two
weeks prior to the due date (including extensions) for any return, the TMP
shall submit to each Partner a copy of the return as proposed for review and a
schedule showing the Partner's allocable share of partnership tax attributes
("Tax Attributes") sufficient to allow such Partner to include such Tax
Attributes in its federal income tax return. Each Partner shall provide to the
TMP, when and as requested, all information concerning the affairs of such
Partner as may be reasonably required to permit the filing of such returns.
Section 10.09. Tax Elections. The TMP shall make the following tax elections
on behalf of the Partnership:
(a) Unless required to adopt a different taxable year pursuant to Section
706(b) of the Code, adopt the calendar year as the annual accounting period;
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(b) Adopt the accrual method of accounting;
(c) Deduct interest expense and taxes attributable to the construction or
installation of real and personal property improvements to the fullest extent
permitted by the Code;
(d) Compute the allowance for depreciation under the most accelerated tax
depreciation method and using the shortest life and lowest salvage value
authorized by Applicable Law, consistent with the election provided for in
Section 10.09(e), with respect to all depreciable assets;
(e) If allowed by the Code, and to the maximum extent allowable, elect to
take available investment tax credit on the full basis of each asset.
(f) Make the election provided for in Section 754 of the Code if, and only
if, each Partner who has acquired a Partnership Interest with respect to which
the election is made or is in effect shall have provided to the TMP
concurrently, or within thirty (30) days after the end of the tax year in which
such Partnership Interest is acquired, its irrevocable and unconditional
written undertaking to the effect that it, and its successors in interest
hereunder, will reimburse the Partnership annually for additional
administrative costs reasonably incurred by the Partnership as a result of such
election as determined by the Partnership's Certified Public Accountants; and
(g) Make such other elections as the TMP shall have been directed in writing
by the General Partners to make. The requirement to make any of the elections
set forth in Sections 10.09(a) through 10.09(f) is predicated upon the
assumption that current federal income tax law will continue in force. If any
legislative change is made in the Code or any other tax statutes or by the IRS
in regulations and other pronouncements or by the courts in case law affecting
any of such elections so as to materially alter the economic result of the
required election, the TMP shall make such election in respect of the item so
affected as directed by the General Partners; provided, however, that such
election shall be made in a manner consistent with the best interests of the
Partners as a group.
Section 10.10. Allocation of Tax Attributes. Subject to the provisions of
Sections 10.11 and 10.14, and Article XIII, the Profits and Losses, as the case
may be, of the Partnership for each Fiscal Year and, in each case, all related
tax characteristics or attributes of the Partnership, or tax credits of the
Partnership, shall be allocated among the Partners in accordance with the
provisions of Article V.
Section 10.11. Specific Tax Allocation Rules. It is the intention of the
Partners that the allocation of Tax Attributes arising from the Partnership
comply with applicable provisions of the Code and Treasury Regulations Section
1.704-1(b) as they exist and any amendments thereto. Notwithstanding anything
to the contrary in this Section 10.11, each General Partner shall at all times
be allocated at least 1% of each item of Partnership Tax Attributes.
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Section 10.12. Notice of Change. Prior to making any change in the tax
elections required by Sections 10.09(a) through 10.09(f), pursuant to Section
10.09(g), the TMP shall give each Partner at least thirty (3O) calendar days'
written notice specifying such change.
SECTION 10.13 [RESERVED]
Section 10.14. Profits and Losses. "Profits" and "Losses" shall mean, for
each Fiscal Year, an amount equal to the Partnership's taxable income or loss,
as the case may be, for such Fiscal Year, determined in accordance with Section
703(a) of the Code (but including in taxable income or loss, for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code), with the following adjustments:
(i) any income of the Partnership exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses pursuant to this
definition shall be added to such taxable income or loss;
(ii) any expenditures of the Partnership described in Section 705 (a)(2)(B)
of the Code (or treated as expenditures described in Section 705(a)(2)(B) of
the Code pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) and
not otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be subtracted from such taxable income or loss;
(iii) in the event the Gross Asset Value of any Partnership asset is adjusted
in accordance with Paragraph (ii) or Paragraph (iii) of the definition of
"Gross Asset Value" in Section 10.15, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such asset for
purposes of computing Profits or Losses;
(iv) gain or loss resulting from any disposition of any asset of the
Partnership with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other
period, computed in accordance with the definition of "Depreciation" in
Appendix A hereto;
(vi) to the extent an adjustment to the adjusted tax basis of any Partnership
asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Partner's Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the
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disposition of the asset and shall be taken into account for purposes of
computing Profits or Losses; and (vii) notwithstanding any other provision of
this Section 10.14, any items which are specially allocated pursuant to
Section 5.04 or Section 5.05 hereof shall not be taken into account in
computing Profits or Losses. The amounts of the items of Partnership income,
gain, loss, or deduction available to be specially allocated pursuant to
Sections 5.04 and 5.05 hereof shall be determined by applying the rules set
forth in Sections 10.14(i) through 10.14(vi) above, as applicable.
Section 10.15. Gross Asset Value. "Gross Asset Value" means, with respect to
any asset, such asset's adjusted basis for federal income tax purposes, except
as follows:
(i) the initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset as agreed
to by the contributing Partner and the other Partners; provided that, the
initial Gross Asset Value of the Facility and related assets contributed to
the Partnership pursuant to Section 4.03(g) hereof shall be equal to CLG's
tax basis thereof as of the Construction Capital Closing Date (it being
acknowledged and agreed by the Partners that, as of July 1, 1994, CLG's tax
basis in such assets is estimated to be $5.2 million);
(ii) the Gross Asset Value of all Partnership assets shall be adjusted to
equal their respective gross fair market values, as determined by the General
Partners, as of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (b) the distribution by the
Partnership to a Partner of more than a de minimis amount of Partnership
assets as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant
to Clause (a) and Clause (b) of this sentence shall be made only if the
General Partners reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Partners in the
Partnership;
(iii) the Gross Asset Value of any Partnership asset distributed to any
Partner shall be the gross fair market value of such asset on the date of
distribution, as determined by the distributee Partner and the General
Partners;
(iv) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m) and
Sections 10.14(vi) and 5.04(g) hereof; provided, however, that Gross Asset
Values shall not be
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adjusted pursuant to this paragraph (iv) to the extent the General Partners
determine that an adjustment pursuant to paragraph (ii) above is necessary or
appropriate in connection with a transaction that would otherwise result in
an adjustment pursuant to this paragraph (iv); and
(v) if the Gross Asset Value of an asset has been determined or adjusted
pursuant to Paragraphs (i), (ii) or (iv) above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses.
Section 10.16. New Partners. The Partnership Interests of additional Partners
shall not be entitled to any retroactive allocation of the Partnership's
income, gains, losses, deductions, credits or other items; provided that,
subject to the restrictions of Section 706(d) of the Code, the Partnership
Interests of additional Partners shall be entitled to their respective share of
the Partnership's income, gains, losses, deductions, credits and other items
arising under contracts entered into before the effective date of the issuance
of any such interests to the extent that such income, gains, losses,
deductions, credits and other items arise after such effective date. To the
extent consistent with Section 706(d) of the Code and Treasury Regulations
promulgated thereunder, the Partnership's books may be closed at the time the
Partnership Interests of additional Partners are issued (as though the
Partnership's tax year had ended) or the Partnership may credit to the
additional Partners pro rata allocations of the Partnership's income, gains,
losses, deductions, credits and items for that portion of the Partnership's
Fiscal Year after the effective date of the issuance of the Partnership
Interests of additional Partners.
Section 10.17. Sales; Transfers. The provisions of this LP Agreement shall
inure to the benefit and be binding upon the Parties hereto and their
successors and assigns. The Partners agree that if any one of them makes a
Transfer of its Partnership Interest under this LP Agreement, such Transfer
will be structured, if possible, so as not to cause a termination under Code
Section 708(b)(1)(B). If a Code Section 708(b)(1)(B) termination is caused,
the terminating Partner will indemnify the non-terminating Partners and save
them harmless for any increase in taxes, interest, and penalties or decreases
in credits caused by such termination. As between any Partner and its
Transferee, Profits and Losses for the Fiscal Year of the Partnership in which
such assignment occurs shall be apportioned for federal income tax purposes in
accordance with any convention permitted under Section 706(d) of the Code and
determined by the TMP.
Section 10.18. Deficit Capital Account on Liquidation. In the event the
Partnership is "liquidated" within the meaning of Treasury Regulation, Section
1.704-1(b)(2)(ii)(g):
(a) (i) subject to Section 13.04(a) hereof, distributions shall be made
pursuant to this Section 10.18 to the Partners who have positive Capital
Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2) and, (ii) if any
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General Partner's Capital Account has a deficit balance (after giving effect to
all contributions, distributions, and allocations for all Fiscal years,
including the Fiscal Year during which such liquidation occurs), such Partner
shall contribute to the capital of the Partnership the amount necessary to
restore such deficit balance to zero in compliance with Treasury Regulations
Section 1.704-1(b)(2)(ii)(b)(3), provided, that no General Partner shall be
obligated to contribute to the capital of the Partnership any amount in excess
of such General Partners' pro rata share of the aggregate amount of recourse
Partnership liabilities approved or provided for under Section 8.06 hereof.
(b) If any Limited Partner has a deficit balance in its Capital Account
(after giving effect to all contributions, distributions, and allocations for
all Fiscal Years, including the Fiscal Year during which such liquidation
occurs), such Limited Partner shall have no obligation to make any contribution
to the capital of the Partnership with respect to such deficit, and such
deficit shall not be considered a debt owed to the Partnership or to any other
Person for any purpose whatsoever.
(c) In the discretion of the General Partners, a pro rata portion of the
distributions that would otherwise be made to the Partners pursuant to
paragraph (a) of this Section 10.18 may be:
(i) distributed to a trust established for the benefit of the Partners for
the purposes of liquidating Partnership assets, collecting amounts owed to
the Partnership, and paying any liabilities or obligations of the Partnership
or of the General Partners arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the
Partners from time to time, in the reasonable discretion of the General
Partners in the same proportions as the amount distributed to such trust by
the Partnership would otherwise have been distributed to the Partners
pursuant to Section 13.04(b) hereof; or
(ii) withheld to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as
practicable.
ARTICLE XI
ASSIGNABILITY; ADMISSION AND WITHDRAWAL OF PARTNERS
Section 11.01. Assignability of a General Partner's Interest in the
Partnership. A General Partner shall neither Transfer nor pledge, encumber,
mortgage, or otherwise hypothecate (hereinafter in this Article XI collectively
referred to as "assign" or "assignment") the whole or any part of its interest
as a General Partner in the Partnership without the prior Consent of the other
Partners. An assignee of all or part of the interest of a General Partner in
the Partnership shall be admitted to the Partnership as a general partner of
the Partnership only if (i) the other Partners Consent to the admission of such
assignee as an additional or
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successor General Partner, and (ii) such assignee agrees in writing to accept
and adopt the terms and provisions of this LP Agreement. If such conditions
are satisfied, the admission shall be effective upon the filing of an amendment
to the Certificate of Limited Partnership with the Secretary of State which
indicates that such Person has been admitted to the Partnership as a general
partner of the Partnership. If a General Partner Transfers all of its
Partnership Interest and a successor General Partner is admitted, in accordance
with this Section 11.01, the admission of the successor General Partner shall
occur, and for all purposes shall be deemed to have occurred, immediately prior
to the time the Transferor ceases to be a general partner of the Partnership.
Such Transferor shall cease to be a general partner of the Partnership upon the
filing of an amendment to the Certificate of Limited Partnership with the
Secretary of State which indicates that such Transferor is no longer a general
partner of the Partnership. Such Transferee and the other General Partners are
hereby authorized to and shall continue the Partnership without dissolution.
Section 11.02. Assignability of a Limited Partner's Interest in the
Partnership. No Limited Partner may assign the whole or any part of its
interest in the Partnership without the prior unanimous Consent of the General
Partners, which Consent shall not be unreasonably withheld (taking into account
the best interests of the Partnership). If the prior Consent of all General
Partners is obtained for any such assignment, such assignment shall,
nevertheless, not entitle the assignee to become a Substituted Limited Partner
or to be entitled to exercise or receive any of the rights, powers or benefits
of a Limited Partner unless the assigning Limited Partner designates, in a
written instrument delivered to the General Partners, its assignee to become a
Substituted Limited Partner and the General Partners, in their sole discretion,
Consent to the admission of such assignee as a Limited Partner; and provided
further, that such assignee shall not become a Substituted Limited Partner
without (i) having first executed an instrument in form and substance
satisfactory to the General Partners accepting and adopting the terms and
provisions of this LP Agreement, including, if requested by the General
Partners, a counterpart signature page to this LP Agreement, and (ii) having
paid to the Partnership, in cash, a fee sufficient to cover all reasonable
expenses of the Partnership in connection with its admission as a Substituted
Limited Partner.
Section 11.03. Recognition of Assignment by Partnership. No
assignment, or any part thereof, that is in violation of this Article XI shall
be valid or effective, and neither the Partnership nor the General Partners
shall recognize the same for the purpose of making distributions of Net Cash
Flow pursuant to Section 6.01 with respect to such Partnership Interest, or
part thereof. Neither the Partnership nor the General Partners shall incur any
liability as a result of refusing to make any such distributions to the
recipient of any such invalid assignment.
Section 11.04. Effective Date of Assignment. Any valid assignment of a
Limited Partner's interest in the Partnership, or
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part thereof, pursuant to Section 11.02 shall be effective as of the close of
business on the last day of the calendar month in which the General Partners
give their written consent to such assignment (or the last day of the calendar
month in which such assignment occurs, if later). The Partnership shall, from
the effective date of such assignment, thereafter pay all further distributions
of Net Cash Flow, on account of the Partnership Interest (or part thereof) so
assigned, to the assignee of such interest, or part thereof. As between any
Partner and its assignee, Profits and Losses for the fiscal year of the
Partnership in which such assignment occurs shall be apportioned for federal
income-tax purposes in accordance with any manner permitted under Section
706(d) of the Code as such Partner and its assignee may agree to.
Section 11.05. Death, Incompetency, Bankruptcy, or Dissolution of a
Limited Partner. The death, incompetency, Bankruptcy, dissolution or other
cessation to exist as a legal entity of a Limited Partner shall not, in and of
itself, dissolve the Partnership. In any such event, the legal representative
or successor of such Limited Partner may exercise all of the rights of such
Limited Partner for the purpose of settling its estate or administering its
property, subject to the terms and conditions of this LP Agreement, including
any power of an assignee to become a Limited Partner.
Section 11.06. Withdrawal from the Partnership. Except as specifically
provided in this LP Agreement, a General Partner or a Limited Partner may not
withdraw as a general partner of the Partnership or as a limited partner of the
Partnership, as the case may be.
Section 11.07. Removal of General Partner. A General Partner may be
removed as a general partner of the Partnership with or without cause upon (i)
the unanimous Consent of the Limited Partners and (ii) the election by such
Limited Partners of a successor General Partner. Upon any such election, all
Partners shall be bound thereby and shall be deemed to have approved thereof.
Such successor General Partner shall be deemed admitted to the Partnership
immediately prior to the removal of the predecessor General Partner and shall
continue the Partnership without dissolution. A successor General Partner
shall be admitted as a general partner of the Partnership upon the filing of an
amendment to the Certificate of Limited Partnership with the Secretary of State
which indicates that the successor General Partner has been admitted as a
general partner of the Partnership and that the removed General Partner is no
longer a general partner of the Partnership.
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ARTICLE XII
EXCULPATION AND INDEMNIFICATION OF
THE GENERAL PARTNERS AND OTHER INDEMNIFIED PERSONS
Section 12.01. Exculpatory Provisions.
(a) Covered Persons. Notwithstanding any other terms of this LP
Agreement, whether express or implied, or obligation or duty at law or in
equity, neither the General Partners, their Affiliates, nor any of their
respective Representatives, Alternate Representatives, officers, directors,
shareholders, partners, employees, or agents nor any Partnership Official or
any other officer, employee, representative or agent of the Partnership and its
Affiliates (individually, a "Covered Person" and collectively, the "Covered
Persons") shall be liable to the Partnership or any Partner for any act or
omission (in relation to the Partnership, this LP Agreement, any related
document or any transaction or investment contemplated hereby or thereby) taken
or omitted in good faith by a Covered Person and in the reasonable belief that
such act or omission is in or is not contrary to the best interests of the
Partnership and is within the scope of authority granted to such Covered Person
by this LP Agreement, provided that such act or omission does not constitute
Disabling Conduct.
(b) Reliance. A Covered Person may rely and shall incur no liability
in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, paper, document, signature or writing reasonably believed by it to
be genuine, and may rely on a certificate signed by an officer of any Person in
order to ascertain any fact with respect to such Person or within such Person's
knowledge and may rely on an opinion of counsel reasonably selected by such
Covered Person with respect to legal matters unless such Covered Person acts in
bad faith.
(c) Fiduciary Duty. To the extent that, at law or in equity, a Covered
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Partnership or to any other Covered Person, a Covered Person acting
under this LP Agreement shall not be liable to the Partnership or to any other
Covered Person for its good faith reliance on the provisions of this LP
Agreement. The provisions of this LP Agreement, to the extent that they
restrict the duties and liabilities of a Covered Person otherwise existing at
law or in equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Covered Person.
Section 12.02. Indemnification of General Partner and Other
Indemnified Persons.
(a) Scope of Indemnity. To the fullest extent permitted by Applicable
Law, the Partnership shall indemnify and hold harmless each General Partner,
its Affiliates and all directors, officers, shareholders, partners, employees,
Representatives, Alternate Representatives and agents of each General Partner
and its Affiliates and all Partnership Officials and all other officers,
employees, representatives and agents of the Partnership and its
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Affiliates (individually, an "Indemnified Person" and collectively, the
"Indemnified Persons") from and against any and all losses, claims, demands,
liabilities, expenses (including all fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, in which the Indemnified Person may be involved, or threatened
to be involved, as a party or otherwise, by reason of its involvement with the
management of the affairs of the Partnership, or a General Partner or its
status as a General Partner, an Affiliate thereof, or partner, director,
officer, stockholder, employee, representative or agent thereof or of the
Partnership or a Person serving at the request of the Partnership, a General
Partner or any Affiliate thereof in another entity in a similar capacity, which
relates to or arises out of the Partnership, its property, its business or
affairs, and regardless of whether the liability or expense accrued at or
relates to, in whole or in part, any time before, on or after the date hereof.
The adverse disposition of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not, of itself, create a presumption that the Indemnified Person acted in
a manner contrary to the standard set forth in Section 12.02(b) below. Any
indemnification pursuant to this Section 12.02 shall be made only out of the
assets of the Partnership.
(b) Limitation. An Indemnified Person shall not be entitled to
indemnification under this Section 12.02 with respect to any claim, issue or
matter in which it (i) has a right of indemnity under Section 8.09(g), or (ii)
has engaged in Disabling Conduct; provided, however, that a court of competent
jurisdiction, may determine upon application that, despite such Disabling
Conduct, in view of all the circumstances of the case, the Indemnified Person
is fairly and reasonably entitled to indemnification for such liabilities and
expenses as the court may deem proper.
(c) Expenses. To the fullest extent permitted by law, expenses
(including legal fees) incurred by an Indemnified Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by the Partnership prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Partnership of an undertaking by
or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 12.02.
(d) Other Rights. The indemnification provided by Section 12.02 shall
be in addition to any other rights to which an Indemnified Person may be
entitled under any agreement, by law or vote of the Partners as a matter of law
or otherwise, both as to action in the Indemnified Person's capacity as a
General Partner, an Affiliate thereof or a partner, director, officer,
stockholder, partner, representative, employee or agent thereof, or an officer,
employee, representative or agent of the Partnership or an Affiliate thereof
and, as to action in any other capacity, shall continue as to an Indemnified
Person who has ceased to serve in
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such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of an Indemnified Person. The General Partners and the
Partnership may enter into indemnity contracts with Indemnified Persons and
adopt written procedures pursuant to which arrangements are made for the
advancement of expenses and the funding of obligations under this Section 12.02
and containing such other procedures regarding indemnification as are
appropriate.
(e) Insurance.
(i) Liability. Each General Partner shall at all times maintain
commercial or comprehensive general liability insurance coverage to
include blanket contractual and broad-form liability endorsements, or
their equivalents, completed operations coverage and, when applicable,
products coverage, with minimum limits of $100 million. The
Partnership shall, in addition, purchase primary liability coverage in
the form of a "joint venture" or similar policy approved by the
General Partners with limits of at least $5 million.
(ii) All-Risk/Property. All of the Partnership's assets, including,
without limitation, the Facility and the Pipeline, shall be insured
under an all-risks property insurance policy approved by the General
Partners, with limits of coverage sufficient to provide coverage for
all of the Partnership's equipment and other fixed assets, and also
including business interruption and pollution coverage if available on
reasonable terms, as the General Partners may approved from time to
time.
(iii) Directors and Officers. Unless otherwise approved by the General
Partners, the Partnership shall not procure or provide "Directors and
Officers" or similar liability coverage for any Person, and each
General Partner may provide such coverage for any individual acting in
connection with the Partnership's business at such General Partner's
behest.
(iv) Other Insurance. The Partnership may maintain in existence any
and all other forms of insurance coverage necessary, appropriate or
customary to the Partnership's business, as approved from time to time
by the General Partners, including, without limitation, automobile,
workmen's compensation, crime, and other standard coverages.
(f) No Liability to Limited Partners. In no event may any Indemnified
Person subject the Limited Partners to personal liability by
reason of any indemnification of an Indemnified Person under this LP Agreement
or otherwise.
(g) Interest in Transaction. An Indemnified Person shall not be denied
indemnification in whole or in part under this Section 12.02 because the
Indemnified Person had an interest in the transaction with respect to which the
indemnification applies if the transaction is otherwise permitted by the terms
of this LP Agreement.
(h) Benefit of Indemnity. The provisions of Section 12.02 are for the
benefit of the Indemnified Persons and shall not be deemed to be for the
benefit of any other Persons.
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ARTICLE XIII
DISSOLUTION AND TERMINATION
Section 13.01. No Dissolution. The Partnership shall not be dissolved
by the admission of additional Limited Partners or Substituted Limited Partners
or by the admission of additional General Partners or successor General
Partners in accordance with the terms of this LP Agreement.
Section 13.02. Events Causing Dissolution. The Partnership shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:
(a) The expiration of the term of the Partnership, as provided in
Section 2.08;
(b) The withdrawal, removal or Bankruptcy of any General Partner, or
the assignment by any General Partner of its entire interest in the Partnership
when the assignee has not been admitted to the Partnership as a successor
General Partner in accordance with Section 11.01, or the occurrence of any
other event that results in any General Partner ceasing to be a general partner
of the Partnership under the Act, provided that, the Partnership shall not be
dissolved and required to be wound up in connection with any of the events
specified in this clause (b) if (i) at the time of the occurrence of such event
there is at least one remaining general partner of the Partnership who is
hereby authorized to and does carry on the business of the Partnership, or (ii)
within ninety (90) days after the occurrence of such event, all remaining
Partners agree in writing to continue the business of the Partnership and to
the appointment, effective as of the date of such event, if required, of one or
more successor general partners of the Partnership;
(c) A written determination by the General Partners to dissolve the
Partnership;
(d) The affirmative vote of holders of seventy-five percent (75%) or
more of the Limited Partner Interests to dissolve the Partnership;
(e) The sale by the Partnership of all or substantially all of the
Partnership's assets; or
(f) The entry of a decree of judicial dissolution under Section
17-802 of the Act.
Section 13.03. Notice of Dissolution. Upon the dissolution of the
Partnership, the General Partners or the Liquidating Trustee, as the
case may be, shall promptly Notify the Partners of such dissolution.
Section 13.04. Liquidation. Upon dissolution of the Partnership, the
General Partners, or, in the event that the dissolution is caused by an event
described in Section 13.02(b) and there is no General Partner, a Person or
Persons who may be approved by a Majority Vote (the "Liquidating Trustee"),
shall immediately commence to wind up the Partnership's affairs; provided,
however, that a reasonable time shall be allowed for the orderly liquidation of
the assets of the Partnership and the discharge of liabilities to creditors so
as to enable the Partners
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to minimize the normal losses attendant upon a liquidation. The Partners shall
continue to receive allocations of Profits and Losses during liquidation in the
same proportions as specified in Article V as before liquidation. Each Partner
shall be furnished with a statement prepared by the Partnership's certified
public accountant that shall set forth the assets and liabilities of the
Partnership as of the date of dissolution. The proceeds of liquidation shall
be distributed, as realized, in the following order and priority:
(a) To creditors of the Partnership, including any Partners or their
Affiliates who are creditors, to the extent otherwise permitted by law, in
satisfaction of the liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment thereof); and
(b) To distribute to the Partners the remaining proceeds of
liquidation in accordance with the provisions of Section 10.18 of this LP
Agreement, after giving effect to all contributions, distributions, and
allocations for all periods, including any allocations under Section 5.08
hereof.
Section 13.05. Methods Of Liquidation. The Partnership may be
liquidated by either:
(a) Selling the Partnership assets and distributing the net proceeds
therefrom in the manner provided in Section 13.04. Any net gain or loss
realized by the Partnership on the sale or other disposition of Partnership
assets in the process of liquidation of the Partnership shall be allocated to
the Partners' Capital Accounts in proportion to their respective Partnership
Interests; or
(b) If unanimously Consented to by all Partners at such time, and
subject to the order of priority set forth in Section 13.04, distributing the
Partnership assets proportionately to the Partners in kind with each Partner
accepting an undivided interest in the Partnership assets, subject to
Partnership liabilities, in satisfaction of its proportionate interests in the
Partnership. For the purpose of determining the amount distributed to each
Partner, any property distributed in kind in the liquidation shall be valued at
Appraised Fair Market Value.
Section 13.06. Termination of Partnership. The Partnership shall
terminate when all of the assets of the Partnership, after payment of or due
provision for all debts, liabilities and obligations of the Partnership, shall
have been distributed to the Partners in the manner provided for in this
Article XIII, and the Certificate of Limited Partnership shall have been
canceled in the manner required by the Act.
Section 13.07. Deemed Distribution and Recontribution. Notwithstanding
any other provision of this Article XIII, in the event the Partnership is
liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury
Regulations but no event of dissolution has occurred under Section 13.02
hereof, the Partnership's assets shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs
shall not be wound up. Instead, solely for federal income
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tax purposes, the Partnership shall be deemed to have distributed the
Partnership's assets in kind to the Partners, who shall be deemed to have
assumed and taken subject to all Partnership liabilities, all in accordance
with their respective Capital Accounts and, if any General Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions, and allocations for all Fiscal Years, including the Fiscal Year
during which such liquidation occurs), such General Partner shall, subject to
the limitation in Section 10.18(b) hereof, contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Immediately thereafter, the Partners shall be deemed to have recontributed the
Partnership's assets in kind to the Partnership, which shall be deemed to have
assumed and taken subject to all such liabilities.
ARTICLE XIV
DISPUTE RESOLUTION
Section 14.01. Arbitration. To the fullest extent permitted by the Act
and other Applicable Law, any controversy or claim arising out of or relating
to this LP Agreement, or any breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), as amended and in effect on the date that demand for
arbitration is filed with the AAA. Each Party hereto agrees that any such
controversy shall be submitted to a single arbitrator if agreed to by the
parties to the arbitration. Otherwise, each party to the arbitration shall
select one arbitrator, and the two arbitrators selected shall then choose a
third arbitrator. The ruling of the arbitrator(s) shall be binding and
conclusive upon the Parties hereto to the fullest extent permitted by law. Any
arbitration shall occur in Baltimore, Maryland, or any other location agreed to
in writing by the parties to the arbitration, and judgment upon the award
rendered may be entered in any court having jurisdiction thereof. The
arbitrator(s) shall be governed by and shall apply the substantive law of the
State of Delaware in making their award. The expenses of the arbitration shall
be borne equally by the parties to the arbitration, and each such party shall
pay for and bear the cost of its or its own experts, evidence and legal
counsel, unless the arbitrator(s) determine(s) that any party to the
arbitration proceeded in bad faith, or asserted meritless claims or positions,
in which event the arbitrator(s) shall be empowered to award the other party
all or part of the reasonable costs of such arbitration.
ARTICLE XV
POWER OF ATTORNEY
Section 15.01. Appointment of General Partners. Each Limited Partner
hereby irrevocably constitutes and appoints each General
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Partner and each Liquidating Trustee as its true and lawful attorney-in-fact,
in its name, place, and stead, to make, execute, acknowledge, and file the
following documents, to the extent consistent with the other provisions of this
LP Agreement:
(a) This LP Agreement, and, to the extent required by law, the
Certificate of Limited Partnership;
(b) Any fictitious or assumed-name certificates required to be filed
on behalf of the Partnership;
(c) Any application or registration to do business in any State other
than, or in addition to, the State of Delaware;
(d) Deeds, notes, mortgages, pledges, security instruments of any kind
and nature, leases, and such other instruments as may be necessary to carry on
the business of the Partnership; provided that no such instrument shall
increase the personal liability of the Limited Partners;
(e) All certificates and other instruments that the General Partners
deem appropriate or necessary to form and qualify, or continue the
qualification of, the Partnership as a limited partnership in the State of
Delaware and all jurisdictions in which the Partnership may intend to conduct
business or own property;
(f) Any duly adopted amendment to or restatement of this LP Agreement
or the Certificate of Limited Partnership;
(g) All conveyances and other instruments or documents that the
General Partners deem appropriate or necessary to effect or reflect the
dissolution, liquidation and termination of the Partnership pursuant to the
terms of this LP Agreement (including a certificate of cancellation);
(h) Any and all financing statements, continuation statements,
mortgages or other documents necessary to grant to or perfect for secured
creditors of the Partnership, including any General Partner and its Affiliates,
a security interest, mortgage, pledge or lien on all or any of the assets of
the Partnership; and
(i) All other instruments as the attorneys-in-fact or any of them may
deem necessary or advisable to carry out fully the provisions of this LP
Agreement in accordance with its terms.
Section 15.02. Power Coupled with Interest. It is expressly intended
by each Limited Partner that the power of attorney granted by Section 15.01 is
coupled with an interest, shall be irrevocable, and shall survive and not be
affected by the subsequent disability or incapacity of such Limited Partner (or
if such Limited Partner is a corporation, partnership, trust, association,
limited liability company or other legal entity, by the dissolution or
termination thereof).
ARTICLE XVI
MISCELLANEOUS
Section 16.01. Notices.
(a) Address for Notices. All Notices provided for in this LP Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
delivered as follows:
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(i) if given to the Partnership, in care of each General Partner at
its mailing address set forth on Appendix B attached hereto;
(ii) if given to any General Partner, at its mailing address set forth
on Appendix B attached hereto;
(iii) if given to any Limited Partner, at the address set forth
opposite its name on Appendix B attached hereto; or
(iv) at such other address as any Partner may hereafter designate by
written notice to the Partnership.
(b) Sufficiency of Notice. Each Notice, demand, request or
communication hereunder shall be deemed sufficiently given, served, sent or
received for all purposes if and when delivered in person or when sent to a
Person at the address set forth above by certified mail, postage prepaid and
return receipt requested, by facsimile transmission, listed telex or other
confirmed transmission, or by any nationally recognized express mail service
which provides a means for tracking deliveries and guarantees next-day
delivery, including, without limitation, Airborne Express and Federal Express.
Section 16.02. Amendments.
(a) Amendments with the Consent of Limited Partners. Except as
provided in Section 16.02(b), no amendment to this LP Agreement shall be
effective or binding upon the Parties hereto without the written Consent of all
General Partners and a Majority Vote; provided, however, that any modification
or amendment that would: (i) increase the amount of the capital contributions
to be made by any Partner, (ii) increase the liability of the Limited Partners,
or (iii) materially adversely affect the rights of the Limited Partners under
this LP Agreement shall require the Consent of all General Partners and all
Limited Partners. Upon receipt of a written proposal executed by all Limited
Partners for the adoption of an amendment of this LP Agreement, or should the
General Partners desire to propose such an amendment, the General Partners
shall adopt and implement a plan whereby the Limited Partners may vote for or
against the adoption of such an amendment.
(b) Amendments Without Limited Partner Consent. Notwith-standing
anything herein to the contrary, the General Partners may amend this LP
Agreement without the consent of any Limited Partner:
(i) to reflect the addition or substitution of Limited Partners (made
in accordance with the terms hereof) or the reduction of the Capital
Accounts upon the return of capital to Limited Partners;
(ii) to add to the representations, duties or obligations of the
General Partners or surrender any right or power granted to the
General Partners herein, for the benefit of the Limited Partners;
(iii) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or
to add any other provisions with respect to matters or questions
arising under this LP Agreement which will not be inconsistent with
the provisions of this LP Agreement;
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(iv) to delete or add any provision from or to this LP Agreement
requested to be so deleted or added by the staff of the SEC or by a
state regulatory agency, the deletion or addition of which provision
is deemed by such staff or such regulatory agency to be for the
benefit or protection of the Limited Partners; and
(v) to modify any provision of this LP Agreement, if, in the opinion
of counsel to the Partnership and the General Partners, such
modification is necessary to prevent the Partnership or the Partners
from in any manner being regulated as a registered holding company or
non-exempt subsidiary thereof under PUHCA, as amended, to prevent the
Partnership from being treated for tax purposes as an association
taxable as a corporation, rather than being taxable as a partnership,
or to prevent the Partnership from being treated as a "publicly traded
partnership" as defined in the Code.
Section 16.03. Fiscal Year. The "Fiscal Year" of the Partnership shall
be the calendar year commencing at 12:01 a.m. on January 1 of each year and
ending at 12:00 midnight on December 31 of each year.
Section 16.04. Securities Act Investment Covenant. Each Partner
represents and warrants that it is acquiring its interest in the Partnership
for its own account, and not with a view to resale or distribution thereof
within the meaning of the Securities Act of 1933, as amended, and that no such
interest will be sold, transferred, hypothecated, or assigned by it in
contravention of the Securities Act of 1933, as amended, or any state Blue Sky
or securities statute.
Section 16.05. Failure to Pursue Remedies. The failure of any Party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this LP Agreement shall not prevent a subsequent act, which would
have originally constituted a violation, from having the effect of an original
violation.
Section 16.06. Headings. The headings in this LP Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this LP
Agreement or any provision hereof.
Section 16.07. Cumulative Remedies. The rights and remedies provided
by this LP Agreement are cumulative and the use of any one right or remedy by
any Party shall not preclude or waive its right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights
the Parties may have by law, statute, ordinance or otherwise.
Section 16.08. Binding Effect. This LP Agreement shall be binding upon
and inure to the benefit of all the Parties and, to the extent permitted by
this LP Agreement, their successors, legal representatives, and assigns.
Section 16.09. Interpretation. Throughout this LP Agreement and any
amendment hereto, nouns, pronouns, and verbs shall be construed as masculine,
feminine, neuter, singular or plural, whichever shall be applicable.
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Section 16.10. Severability. The invalidity or unenforceability of any
particular provision of this LP Agreement shall not affect the other provisions
hereof, and this LP Agreement shall be construed in all respects as if such
invalid or unenforceable provision were omitted.
Section 16.11. Counterparts. This LP Agreement may be executed in any
number of counterparts with the same effect as if all Partners had signed the
same document. All counterparts shall be construed together and shall
constitute one instrument.
Section 16.12. Whole Agreement. This LP Agreement and Appendices A, B
and C annexed hereto, each of which is made a part hereof by this reference,
contain the entire "partnership agreement" of the Partnership for purposes of
the Act and, except as otherwise provided herein, may be changed only by
written amendment. There are no oral understandings or agreements between the
Parties upon the subject matter of this LP Agreement, and any prior written
agreements as to the governance of the affairs of the Partnership, including,
without limitation, the Original Partnership Agreement, are hereby superseded
and merged herein, except only as herein otherwise expressly stated.
Section 16.13. Governing Law. This LP Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflicts of laws.
Section 16.14. Mutual Representations and Warranties. Each Party
hereto (the "Warranting Party") represents and warrants to each other Party
hereto, and each such other Party in agreeing to enter into this LP Agreement
has relied upon such representations and warranties, that:
(a) The Warranting Party has the requisite power and authority,
corporate and otherwise, to execute and deliver this LP Agreement and to
perform its duties and obligations hereunder, and any Person signing this LP
Agreement on behalf of a Warranting Party is duly authorized, empowered and
directed to sign this LP Agreement on such Warranting Party's behalf;
(b) This LP Agreement has been duly and validly executed by the
Warranting Party and, assuming the due execution and delivery of this LP
Agreement by all other Parties hereto, constitutes the Warranting Party's valid
and binding obligation, enforceable against the Warranting Party in accordance
with the terms hereof, except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
relating to creditors' rights generally or general principles of equity; and
(c) Except for the Initial FERC Certificate, and the approvals
contemplated by Section 18.01, no consent, approval, or other authorization by
any judicial, governmental or regulatory authority, domestic or foreign, or any
third party, is required to be obtained by the Warranting Party in connection
with the valid execution, delivery, and performance by the Warranting Party of
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this LP Agreement, or the consummation by the Warranting Party of the
transactions contemplated hereby.
Section 16.15. No Rights of Third Parties. None of the provisions of
this LP Agreement shall be construed as existing for the benefit of any Person
not a Party hereto, including, without limitation, any creditor of the
Partnership or of any of the Partners, or shall be enforceable by any Person
not a signatory to this LP Agreement.
ARTICLE XVII
PROJECTS; FERC APPLICATIONS
Section 17.01. Scope of the Initial Project. The first Project
undertaken by the Partnership shall consist of the construction of the
Liquefaction Unit at the Cove Point Site, alterations and improvements to the
Facility to integrate the Liquefaction Unit as part of the Facility, and such
other refurbishments to the Facility as are necessary to enable the Partnership
to engage in the Peaking Business and the Transportation Business (the "Initial
Project"). Prior to the Construction Capital Closing, the Partners shall use
best efforts to cooperate in maximizing the peaking revenues and volumes
represented by the Service Agreements.
Section 17.02. The Initial FERC Application.
(a) Diligent Prosecution. After execution of this LP Agreement, the
Partnership shall continue to diligently prosecute the Initial FERC Application
seeking certificate authority to permit the Partnership to acquire and own the
Facility, to construct and operate the Initial Project, and to carry on the
Peaking Business and the Transportation Business. All Partners hereby agree to
cooperate in the prosecution thereof, including any amendments, modifications,
appeals or similar actions deemed necessary from time to time by the General
Partners.
(b) Acceptance by Partnership. If and when the Initial FERC
Certificate is granted to the Partnership either (i) in the form and substance
requested in the Initial FERC Application, as the same may have been amended or
modified to the satisfaction of the General Partners from time to time, with no
material alterations or modifications on the part of the FERC, or (ii) if not
granted as specifically requested, if the Initial FERC Certificate would
otherwise permit the Partnership to proceed with the Initial Project in all
material respects without detriment to any Partner, such Initial FERC
Certificate shall be automatically accepted by the Partnership with no approval
or other action being necessary by any Partner. In the event that the Initial
FERC Certificate is not subject to such automatic acceptance, the General
Partners may, upon their sole discretion, nonetheless cause the Partnership to
accept any Initial FERC Certificate issued by the FERC. In either event, upon
acceptance by the Partnership of the Initial FERC Certificate, the Partnership
shall forthwith proceed to construct and operate the Initial Project after the
Construction Capital Closing Date subject to satisfaction or waiver of the
other conditions precedent set forth in Section 18.02.
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(c) Right to Withdraw. If the Initial FERC Certificate is not accepted
in accordance with Section 17.02(b), any Partner shall have the right to
withdraw from the Partnership prior to the Construction Capital Closing Date by
giving written Notice to the other Partners. Subject to the Act, upon such
withdrawal of any Partner, the remaining Partners may elect, on such terms as
they deem advisable in their sole discretion, to continue the existence of the
Partnership and cause it to continue with the Initial Project to the extent of
the Partnership's rights, if any, to use the Facility for such purpose.
Section 17.03. Additional Projects. (a) In the event that the
Partnership is presented with an opportunity to expand the Peaking Business,
initiate a baseload LNG import trade or to pursue other opportunities with
respect to expansion of the Facility, including power generation, and the
Partnership's pursuit of such activities is approved by unanimous Consent of
all Partners, Capital Contributions required to fund such Additional Projects
will be made by, and the economic benefits of such Additional Projects will be
shared by each Partner in proportion to such Partner's Partnership Interest.
The Partners hereby agree that an express purpose of the Partnership shall be
to pursue the implementation of an ongoing baseload LNG import trade.
(b) The General Partners shall cause the Partnership to develop,
market, construct and operate any such Additional Project following approval by
the General Partners of a Project Construction Plan, provided, that the
implementation thereof shall be subject to the Partnership first obtaining any
and all necessary consents and approvals of the FERC and any other applicable
Governmental Authorities, and further subject to any applicable and enforceable
restrictive covenants contained in the Sierra Club Agreement. Any such
Additional Project for which a Project Construction Plan has been approved by
the General Partners shall, in the absence of a written agreement of all
Partners to the contrary, be funded jointly by all Partners upon Cash Calls
made in accordance with Section 4.04 of this LP Agreement, and/or through
external financing, including, without limitation, Project debt financing, to
the extent approved by the General Partners.
Section 17.04. Project Construction Plan. For each Project proposed to
be constructed by the Partnership, the General Partners shall agree upon a
"Project Construction Plan" setting forth the scope of the Project and a plan
for administering, coordinating and supervising the design, construction and
permitting of the Project, including without limitation the proposed design
criteria, construction cost estimate and schedule, project milestone schedule
(including projected dates for the filing for and issuance of all necessary
regulatory permits through the projected In-Service Date for such Project), a
completion and testing protocol establishing the criteria to be satisfied to
establish the In- Service Date for such Project (the "Completion and Testing
Protocol"), an estimate of the operating and maintenance budget, marketing
plan, business plan and a cost-benefit analysis with respect to the Project,
and such other information as either of the General Partners may
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reasonably request. Each Project Construction Plan shall be in addition to the
Partnership's Annual Plan; however, all such plans and each annual Approved
Budget of the Partnership shall be coordinated with and consistent with each
other. With respect to the Project Construction Plan for the Initial Project,
the General Partners shall use their best efforts to reach agreement upon such
Plan on or before the Construction Capital Closing Date, which Plan, in the
case of the Initial Project, shall not include the cost-benefit analysis
referred to above in this Section 17.04.
ARTICLE XVIII. THE CONSTRUCTION CAPITAL CLOSING;
CERTAIN REGULATORY MATTERS
Section 18.01. Partners' Regulatory Approvals.
(a) Columbia Approvals. Notwithstanding anything to the contrary
contained herein, the Columbia Partners' obligations hereunder are expressly
conditioned upon the receipt by the Columbia Partners of the order requested on
December 8, 1993, from the SEC under PUHCA with respect to the transactions
contemplated hereby in substantially the form requested (or with such
modifications thereto as may be requested (x) by Columbia or the Columbia
Partners consistent with the Transaction Documents, or (y) by the SEC which do
not materially adversely affect the Columbia Partners) (the "SEC Order"). In
connection therewith, each of the Columbia Partners shall have the
unconditional right to withdraw from the Partnership at any time that the SEC
Order is denied by the SEC; or any of Columbia or the Columbia Partners
reasonably determines in good faith that further prosecution of the application
for the SEC Order is futile.
(b) PEPCO Approvals. The PEPCO Partners shall take such actions and
make such filings as are necessary or appropriate to obtain any requisite
approvals of any public utility commissions or other regulatory agencies having
jurisdiction over their or their Affiliates' properties or the conduct of their
or their Affiliates' businesses. Until such time as the Columbia Partners have
obtained the SEC Order, the PEPCO Partners shall have the unconditional right
to withdraw from the Partnership in the event that the PEPCO Partners are
denied any required regulatory approval reasonably satisfactory in form and
substance to the PEPCO Partners.
(c) Cooperation. All Partners agree to diligently pursue and use their
best efforts to obtain their respective required regulatory approvals, and to
cooperate with the efforts of all other Partners and their respective
Affiliates in obtaining such regulatory approvals, and no Partner will take any
action contrary to or in opposition of any such Partner and/or such Partner's
Affiliates obtaining such approvals. In connection therewith, each of the
Partners agrees to join in and execute any such filings, in a timely manner, as
the other Partner and/or such Partner's Affiliates reasonably request and take
all such other actions as may be necessary and appropriate in order to obtain
the necessary approvals from all regulatory authorities having jurisdiction
over the transactions contemplated hereby (collectively, the "Regulatory
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Approvals"). If at any time either Partner receives information from any
regulatory agency or other Governmental Authority, which by Applicable Law is
required to approve, or which has the authority to challenge the validity of,
the transactions contemplated hereby, in judicial proceedings or otherwise,
that provides a high probability for such Partner to conclude in good faith
that the required Regulatory Approval will not be granted or that the
transactions contemplated hereby or in the Transaction Documents will be so
challenged, such Partner shall immediately Notify the other Partners, and the
Partners shall confer as to the appropriate action to be taken in response
thereto.
Section 18.02. Conditions Precedent to Construction Capital Closing.
(a) General Conditions. The obligation of each of the Partners to
perform its obligations hereunder at the Construction Capital Closing shall be
subject to the satisfaction, or waiver in writing by such Partner, on or prior
to the Construction Capital Closing, of each of the following conditions:
(i) FERC Approval. The Partnership shall have accepted the Initial
FERC Certificate in the manner provided in Section 17.02, and the
Initial FERC Certificate shall be in full force and effect and not
subject to any further review or reconsideration by any Governmental
Authority;
(ii) Regulatory Approvals. Each Partner's necessary Regulatory
Approvals shall have been received and shall be final (not subject to
any further administrative or judicial review or reconsideration) and
in full force and effect, with all required waiting periods (if any)
having expired ("Final Regulatory Approval");
(iii) Service Agreements. The Partnership shall have obtained executed
Service Agreements for a Peaking Business substantially equivalent to
the "Nominated Revenues Business Plan" projections dated October 22,
1993, or such other level of executed Service Agreements as may be
agreed upon by the General Partners;
(iv) Sierra Club Agreement. The Sierra Club Agreement shall have been
duly executed and delivered by each of the parties thereto, and shall
be in full force and effect and fully assignable to the Partnership as
provided herein and therein;
(v) Transaction Documents. Each of the Transaction Documents shall
have been duly executed and delivered by each of the Parties thereto,
and shall be in full force and effect and the conditions precedent to
the transactions contemplated thereby shall have been satisfied or
waived;
(vi) Absence of Injunction. No Governmental Authority shall have
issued any injunction, cease and desist order or similar restraint
upon the performance by any of the Partners or their Affiliates of
their respective obligations contemplated hereby, which injunction,
order or other restraint would remain in effect at what would have
otherwise been the effective time of the Construction Capital Closing;
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(vii) Partnership Opinion. The Partners shall have received an
opinion, dated the Construction Capital Closing Date, of Richards,
Layton and Finger as special Delaware counsel to the Columbia Partners
to the effect that the Partnership was duly formed and validly exists
as a limited partnership under the Act; and
(viii) Budget and Plan. The General Partners shall have agreed on an
Approved Budget and Project Construction Plan for the Initial Project.
(b) Conditions to the PEPCO Partners' Obligations. The obligation of
each PEPCO Partner to perform its obligations hereunder at the Construction
Capital Closing shall be subject to the satisfaction, or waiver in writing by
the PEPCO Partners, on or prior to the Construction Capital Closing, of each of
the following conditions:
(i) Representations and Warranties/Officer's Certificate. The
representations and warranties of the Columbia Partners set forth in
Section 16.14 hereof shall be true and correct in all material
respects as of the effective time of the Construction Capital Closing
as though made on and at the Construction Capital Closing, except to
the extent that such representations and warranties may relate solely
to an earlier time, in which case such representations and warranties
shall have been true and correct on and as of such earlier time, and
the PEPCO Partners shall have received a certificate signed by the
Presidents of the Columbia Partners to that effect;
(ii) Performance of Obligations of the Columbia Partners. The Columbia
Partners shall have performed all obligations required to be performed
by the Columbia Partners under this LP Agreement prior to the
Construction Capital Closing Date;
(iii) Corporate Authorization. The Columbia Partners shall have
certified in writing that all corporate action necessary to authorize
the execution, delivery and performance of this LP Agreement and the
consummation of the transactions contemplated hereby and thereby,
shall have been duly and validly taken by the Boards of Directors and
stockholders of the Columbia Partners;
(iv) Acceptance of the PEPCO Partners' Counsel. The form and substance
of all legal matters contemplated hereby and all papers delivered
hereunder shall be acceptable to the PEPCO Partners' respective
counsel.
(c) Conditions to the Columbia Partners' Obligations. The obligation
of each Columbia Partner to perform its obligations under this LP Agreement at
the Construction Capital Closing shall be subject to the satisfaction, or
waiver in writing by the Columbia Partners, at or prior to the Construction
Capital Closing, of each of the following conditions:
(i) Representations and Warranties Officer's Certificate. The
representations and warranties of the PEPCO Partners set forth in
Section 16.14 hereof shall be true and correct in all material
respects as of the effective time of the Construction Capital Closing
as though made on and at the Construction
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Capital Closing, except to the extent that such representations and
warranties may relate solely to an earlier time, in which case such
representations and warranties shall have been true and correct on and
as of such earlier time, and the Columbia Partners shall have received
a certificate signed by the Presidents of the PEPCO Partners to that
effect;
(ii) Performance of Obligations of the PEPCO Partners. The PEPCO
Partners shall have performed all obligations required to be performed
by the PEPCO Partners under this LP Agreement prior to the
Construction Capital Closing Date;
(iii) Corporate Authorization. The PEPCO Partners shall have certified
in writing that all corporate action necessary to authorize the
execution, delivery and performance of this LP Agreement, and the
consummation of the transactions contemplated hereby, shall have been
duly and validly taken by the Boards of Directors and stockholders of
the PEPCO Partners;
(iv) Acceptance of the Columbia Partners' Counsel. The form and
substance of all legal matters contemplated hereby and all papers
delivered hereunder shall be acceptable to the Columbia Partners'
respective counsel.
Section 18.03. Construction Capital Closing.
(a) Time and Place. The closing for the purpose of consummating the
transactions contemplated by this LP Agreement (the "Construction
Capital Closing") shall, unless another date or place is agreed to in writing
by the Parties hereto, take place at 20 Montchanin Road, Wilmington, Delaware
19807, on such date (the "Construction Capital Closing Date") which shall be
the thirtieth (30th) day after the date which is the latest to occur of (i) the
Partnership's acceptance of the Initial FERC Certificate, or (ii) the PEPCO
Partners' and the Columbia Partners' respective receipt of Final Regulatory
Approvals, or at such other time as the PEPCO Partners and the Columbia
Partners shall mutually agree to in writing.
(b) Events of Termination. The Partners' obligations to proceed to the
Construction Capital Closing may be terminated at any time prior to the
effective time of the Construction Capital Closing upon the happening of any
one or more of the following events ("Events of Termination"):
(i) by mutual written agreement executed by all of the Partners;
(ii) by the PEPCO Partners, upon written Notice to the Columbia
Partners, if as of the scheduled or otherwise agreed to Construction
Capital Closing Date the conditions to the PEPCO Partners' obligations
specified in Sections 18.02(a) or 18.02(b) hereof have not been
satisfied and shall not have been waived in writing by the PEPCO
Partners, unless and to the extent that the failure to satisfy such
condition is the result of a material breach by the PEPCO Partners of
any agreement, representation, warranty or covenant made or contained
in this LP Agreement;
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(iii) by the Columbia Partners, upon written Notice to the PEPCO
Partners, if as of the scheduled or otherwise agreed to Construction
Capital Closing Date the conditions specified in Sections 18.02(a) and
18.02(c) hereof have not been satisfied and shall not have been waived
in writing by the Columbia Partners, unless and to the extent that the
failure to satisfy such condition is the result of a material breach
by the Columbia Partners of any agreement, representation, warranty or
covenant made or contained in this LP Agreement;
(iv) by the Columbia Partners or the PEPCO Partners, upon written
Notice to the other Partners of their withdrawal from the Partnership
in accordance with Section 18.01(a) or (b);
(v) by any Partner hereto, upon written Notice to the other Partners
of such Partner's election to withdraw from the Partnership pursuant
to Section 17.02(c); or
(vi) by any Partner hereto, upon written Notice to the other Partners
if the Construction Capital Closing does not occur on or prior to
October 28, 1998.
(c) Effect of Termination. Upon the happening of an Event of
Termination, any Partner may withdraw from the Partnership and, unless the
remaining Partners take appropriate action hereunder and under the Act to
continue the Partnership, the Partnership shall be dissolved and its affairs
would up on accordance herewith and with the Act.
Section 18.04 Expenses. Whether or not there occurs an Event of
Termination prior to the Construction Capital Closing, each Partner shall bear
its own expenses in connection with its (i) obtaining any consents or approvals
in connection herewith, (ii) drafting, review, negotiation and performance of
the Transaction Documents and (iii) due diligence, provided, however, that upon
the Construction Capital Closing, the Partnership shall bear all out-of-pocket
costs in connection with the conveyance of the Facility and perfection of the
security interests securing repayment of Loan, including, without limitation,
all transfer taxes, recording fees, title insurance premiums, and the fees and
disbursements of any counsel retained by or on behalf of the Partnership in
connection therewith, provided that the retention of such counsel was approved
in advance by the General Partners.
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IN WITNESS WHEREOF, the Parties hereto have executed this LP Agreement
as of the date first above stated.
GENERAL PARTNERS:
CLNG CORPORATION
By:----------------------------
Name:
Title:
COVE POINT ENERGY COMPANY, INC.
By:----------------------------
Name:
Title:
LIMITED PARTNERS:
COLUMBIA LNG CORPORATION
By:---------------------------
Name:
Title:
PEPCO ENERGY COMPANY, INC.
By:---------------------------
Name:
Title:
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<PAGE> 1
FOURTH AMENDMENT TO CREDIT AGREEMENT
AND
FIRST AMENDMENT TO SECURITY AGREEMENT
FOURTH AMENDMENT, dated as of April 26, 1993 (the
"Amendment"), to the Secured Revolving Credit Agreement, dated as of September
23, 1991 (as heretofore amended, the "Credit Agreement"), among THE COLUMBIA
GAS SYSTEM, INC., a Delaware corporation and debtor-in- possession (the
"Borrower"), the banks party thereto (the "Banks") and CHEMICAL BANK, a New
York banking corporation ("Chemical"), as successor by merger to Manufacturers
Hanover Trust Company, as agent for the Banks (in such capacity, the "Agent");
and FIRST AMENDMENT to the Security Agreement, dated as of September 23, 1991
(the "Security Agreement"), between the Borrower and the Agent.
W I T N E S S E T H:
WHEREAS, on September 23, 1991, the Borrower, the Banks and
the Agent entered into the Credit Agreement;
WHEREAS, the Maturity Date under the Credit Agreement is
currently scheduled to occur on September 23, 1993;
WHEREAS, the Borrower has requested that the Borrower and the
Agent agree to extend the Maturity Date to December 31, 1994 and to make
certain additional amendments to the Credit Agreement as further specified
herein;
WHEREAS, certain Banks no longer wish to be parties to the
Credit Agreement; and
WHEREAS, certain Banks and the Agent have agreed to extend the
Maturity Date under the Credit Agreement and make certain additional amendments
on the terms and conditions set forth below;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. (a) Unless otherwise defined
herein, terms that are defined in the Credit Agreement are used herein as so
defined.
(b) For purposes of this Amendment, the following terms shall
have the following meanings:
"Fourth Amendment Effective Date" means June 1, 1993, or such
later date on which all conditions precedent set forth in Section 11
hereof shall have been satisfied or waived.
<PAGE> 2
"Remaining Bank" means a Bank designated as a "Remaining
Bank" on the signature pages hereto.
"Terminating Bank" means a Bank which has chosen not to remain
a Bank under the Credit Agreement after the Fourth Amendment Effective
Date, the Commitment of which Terminating Bank will terminate on the
Fourth Amendment Effective Date in accordance with the terms of this
Amendment.
SECTION 2. AMENDMENT OF INTRODUCTORY STATEMENT. Clause (a)
of the fourth paragraph of the Introductory Statement is hereby amended in its
entirety to read as follows:
"(a) a first priority perfected Lien from the Borrower in all
property of the Borrower, other than voting securities of Subsidiaries
that are "Gas Utility Companies" under PUHCA ('Excluded Securities')
that is not otherwise subject to a Lien;"
SECTION 3. AMENDMENT OF SECTION 1.1. Section 1.1 of the
Credit Agreement is hereby amended by (a) deleting the definition of the term
"Maturity Date" in its entirety and inserting in lieu thereof the following
definition:
"'Maturity Date' means December 31, 1994."; and
(b) inserting in the appropriate alphabetical order the
following new definition:
"'Fourth Amendment' means the Fourth Amendment, dated as of
April 26, 1993, to this Agreement.
SECTION 4. AMENDMENT OF SECTION 2.10. Subsection (a) of
Section 2.10 of the Credit Agreement is hereby amended by deleting the last
sentence thereof in its entirety.
SECTION 5. AMENDMENT OF SECTION 6.1. Section 6.1 of the
Credit Agreement is hereby amended by deleting subsection (g) thereof in its
entirety and inserting in lieu thereof the following subsection:
"(g) The following Debt incurred by Columbia LNG Corporation:
Debt for which there is no recourse to the Borrower and which is
incurred to (i) refinance or replace Permitted Intercompany Loans not
to exceed $50,000,000 in the aggregate or (ii) finance the
recommissioning of existing facilities and the construction of a new
liquifaction unit including related improvements at the Cove Point
Terminal."
SECTION 6. AMENDMENT OF SECTION 6.4. Section 6.4 of the
Credit Agreement is hereby amended by (a) by inserting the following new
subsection immediately after subsection (d) thereof:
"(e) investments by the Borrower in any of the Subsidiaries
listed in Exhibit A to the Fourth Amendment, provided that after
giving effect to any such investment the capitalization of such
Subsidiary, determined on a basis
<PAGE> 3
consistent with Exhibit A to the Fourth Amendment, shall be
substantially as set forth in Exhibit A to the Fourth Amendment;" and
(b) redesignating subsections (e) and (f) thereof as
subsections (f) and (g), respectively.
SECTION 7. AMENDMENT OF SECTION 6.6. Clause (iii) of
subsection (a) of Section 6.6 of the Credit Agreement is hereby amended by
inserting at the end thereof the following phrase "occurring after June 1,
1993".
SECTION 8. AMENDMENT OF SECTION 6.11. Section 6.11 of the
Credit Agreement is hereby amended by deleting such Section in its entirety and
inserting in lieu thereof the following Section:
"SECTION 6.11. LIMITATION ON CAPITAL EXPENDITURES. The
Borrower will not, and will not permit any Subsidiary (other than TCO)
to, make or commit to make (by way of the acquisition of securities of
a Person or otherwise) any Capital Expenditures exceeding, in the
aggregate for the Borrower and its Subsidiaries (other than TCO), (i)
$309,000,000 for the fiscal year ending December 31, 1993 and (ii)
$388,000,000 for the fiscal year ending December 31, 1994; provided,
however, that if Columbia Gulf Transmission Corporation at any time
ceases its participation in the Arkoma G-I Line Project, the amounts
of expenditures permitted under clauses (i) and (ii) above shall be
reduced to $301,000,000 and $323,000,000, respectively. Any portion
of such amounts that are not expended in the period set forth in
clause (i) above may be added to the amount which may be expended in
the next succeeding period."
SECTION 9. AMENDMENT OF SECTION 6.12. Section 6.12 of the
Credit Agreement is hereby amended by inserting the following dates and
required EBITDA amounts at the ends of the appropriate columns, immediately
following the date "September 30, 1993" and the EBITDA amount "17,000,000"
appearing in such Section:
<TABLE>
<CAPTION>
Period Ended EBITDA Amount
------------ -------------
<S> <C>
"October 31, 1993 11,000,000
November 30, 1993 51,000,000
December 31, 1993 99,000,000
January 31, 1994 150,000,000
February 28, 1994 163,000,000
March 31, 1994 159,000,000
April 30, 1994 106,000,000
May 31, 1994 49,000,000
June 30, 1994 10,000,000
July 31, 1994 (5,000,000)
August 31, 1994 (1,000,000)
September 30, 1994 (6,000,000)
October 31, 1994 11,000,000
November 30, 1994 52,000,000
December 31, 1994 97,000,000"
</TABLE>
<PAGE> 4
SECTION 10. AMENDMENT OF SCHEDULE I. The Credit Agreement is
hereby amended by deleting Schedule I thereto in its entirety and inserting in
lieu thereof Schedule I attached hereto.
SECTION 11. AMENDMENT OF COMMITMENTS. On the Fourth
Amendment Effective Date, the following events shall occur:
(i) the Commitments of each Terminating Bank shall
automatically terminate and each such Terminating Bank shall cease to
be a Bank under the Credit Agreement;
(ii) any outstanding Loans owing to the Terminating Banks on
the Amendment Effective Date shall be repaid by the Borrower in full;
(iii) the Borrower shall make such Borrowings from and
repayments to the Remaining Banks as shall be required to cause the
aggregate principal amount of outstanding Loans of each Bank under the
Credit Agreement to equal such Bank's Pro Rata Share of the total
Loans Outstanding after giving effect to such Borrowings and
repayments and the other provisions of this Amendment; and
(iv) if any Letters of Credit are outstanding on the Amendment
Effective Date, (A) each of the Terminating Banks shall be deemed to
have sold and transferred all of its interest and participation in
each such outstanding Letter of Credit to the Fronting Bank with
respect thereto and (B) each of the Fronting Banks and the Remaining
Banks shall be deemed to have unconditionally and irrevocably sold
and/or purchased, in each case without recourse or warranty, such
undivided interests and participations in all outstanding Letters of
Credit as shall be required to cause each Bank's percentage
participation in the obligations under each outstanding Letter of
Credit to equal such Bank's Pro Rata Share (after giving effect to the
provisions of this Amendment) of the obligations under such Letter of
Credit.
SECTION 12. AMENDMENT OF SECURITY AGREEMENT. (a) The
Borrower hereby confirms and agrees that, effective as of the Fourth Amendment
Effective Date, in accordance with Section 2 hereof, the definition of
"Excluded Securities" shall be amended to exclude all shares of capital stock
of Columbia LNG Corporation, and accordingly, effective as of the Fourth
Amendment Effective Date, Columbia LNG Corporation shall be deemed to be an
"Issuer" for purposes of Section 1 of the Security Agreement, and all shares of
capital stock of Columbia LNG Corporation owned by the Borrower, together with
all stock certificates, options or rights of any nature whatsoever that may at
any time be issued by Columbia LNG Corporation to the Borrower (collectively,
the "LNG Stock") shall be deemed to be "Pledged Stock" for purposes of the
Security Agreement.
(b) In furtherance of the agreements set forth in subsection
(a) above, the Borrower hereby grants, mortgages, pledges, assigns, transfers,
sets over, conveys and delivers to the Agent for the ratable benefit of the
Banks, effective as of the Fourth Amendment Effective Date, a security interest
in and lien on all of the Borrower's right, title and interest in, to
<PAGE> 5
and under the LNG Stock, whether now owned or at any time hereafter acquired by
the Borrower or in which the Borrower now has or at any time in the future may
acquire any right, title or interest. Such security interest and lien shall be
subject to and governed by the terms and provisions of the Security Agreement.
SECTION 13. CONDITIONS PRECEDENT TO EFFECTIVENESS. The
agreement of each Bank and the Agent to enter into this Amendment is subject to
the satisfaction of the following conditions precedent:
(a) the Agent shall have received, with a counterpart for
each Bank, this Amendment, duly executed and delivered by the parties
thereto;
(b) each of the Remaining Banks as to which the Commitment
after giving effect to this Amendment will be different from its
Commitment prior to the Fourth Amendment Effective Date shall have
delivered to the Agent, for the benefit of the Borrower, the Note
previously issued to such Bank under the Credit Agreement, marked
"cancelled," in exchange for a new Note, duly executed and delivered
by the Borrower in favor of such Bank, and reflecting the Bank's
Commitment after giving effect to this Amendment;
(c) each of the Terminating Banks shall have delivered to the
Agent, for the benefit of the Borrower, the Note previously issued to
such Bank under the Credit Agreement, marked "cancelled."
(d) the Agent shall have received, with a counterpart for
each Bank, an opinion of Daniel L. Bell, Esq., Chief Legal Officer of
the Borrower, dated the Fourth Amendment Effective Date, in form and
substance satisfactory to the Agent;
(e) the Bankruptcy Court shall have entered an order in the
Chapter 11 Case, in form and substance satisfactory to the Agent,
authorizing the execution, delivery and performance by the Borrower of
this Amendment and affirming the continued validity of the Agreement
and the Security Agreement, as amended hereby, and the validity and
priority of the superpriority claims and liens granted in favor of the
Agent and the Banks;
(f) no Default or Event of Default shall have occurred and be
continuing;
(g) all representations and warranties of the Borrower
contained in the Agreement and the Security Agreement, or otherwise
made in connection therewith, shall be true and correct in all
material respects on and as of the Fourth Amendment Effective Date as
if made on and as of such date (unless stated to relate to a specific
earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date);
<PAGE> 6
(h) the Borrower shall have paid to the Agent, for the
account of each Remaining Bank, a renewal fee of 5/8 of 1% of such
Bank's Commitment, as in effect after giving effect to this Amendment;
(i) all other fees payable by the Borrower to the Agent and
the Banks on or before the Fourth Amendment Effective Date shall have
been paid in full;
(j) the Securities and Exchange Commission shall have issued
its order approving the transactions contemplated by this Amendment;
(k) the Agent shall have received, with a counterpart for
each Bank, copies of the resolutions, in form and substance
satisfactory to the Agent, of the board of directors of the Borrower
authorizing the Borrower to enter into this Amendment, certified by
the Secretary or an Assistant Secretary of the Borrower as of the
Fourth Amendment Effective Date, which certificate shall state the
such resolutions have not been amended, modified revoked or rescinded;
(l) the Agent shall have received a certificate, dated the
Fourth Amendment Effective Date, of a Responsible Officer of the
Borrower as to the facts specified in subsections (g) through (j)
above; and
(m) the Agent shall have received such additional documents
as it shall have reasonably requested.
The Agent shall deliver all Notes received by the Remaining Banks and the
Terminating Banks to the Borrower promptly following receipt thereof.
SECTION 14. CONSENT OF BANKS TO AMENDMENTS. Execution and
delivery of this Amendment by each Terminating Bank shall constitute the
consent of such Terminating Bank to the termination of its Commitment and the
repayment of any outstanding Loans to such Terminating Bank in accordance with
Section 11 hereof. Execution and delivery of this Amendment by each Remaining
Bank shall constitute the consent of such Remaining Bank to (i) the amendment
of such Bank's Commitment, as set forth on Schedule I hereto, and to all
borrowings and repayments to be made pursuant to Section 11 hereof and (ii) all
further amendments to the Credit Agreement and the Security Agreement as set
forth in Sections 2 through 12 hereof.
SECTION 15. CONTINUING EFFECT; AMENDMENT LIMITED. Except as
expressly amended hereby, the Credit Agreement and the Security Agreement shall
continue to be and shall remain in full force and effect in accordance with
their respective terms. Any reference to the "Agreement" in the Credit
Agreement or the "Credit Agreement" in the Security Agreement shall be a
reference to the Credit Agreement as amended by this Amendment. Any reference
to the "Security Agreement" in the Credit Agreement or the "Agreement" in the
Security Agreement shall be a reference to the Security Agreement as amended by
this Amendment.
<PAGE> 7
SECTION 16. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW.
SECTION 17. COUNTERPARTS. This Amendment may be executed in
any number of counterparts, each of which shall be an original but all of
which together shall constitute one agreement.
<PAGE> 8
IN WITNESS WHEREOF, each party has caused this Amendment to be
executed and delivered by its respective duly authorized officer as of the date
first above written.
THE COLUMBIA GAS SYSTEM, INC.
By:--------------------------------
Title:
CHEMICAL BANK, as a Remaining Bank,
as Agent and as Concentration
Bank
By:--------------------------------
Title:
BANK OF MONTREAL, as a Remaining
Bank
By: -------------------------------
Title:
BANQUE NATIONALE DE PARIS, as a
Remaining Bank
By:--------------------------------
Title:
By:--------------------------------
Title:
BANQUE PARIBAS, as a Remaining Bank
By:--------------------------------
Title:
By:--------------------------------
Title:
<PAGE> 9
BERLINER HANDELS-UND FRANKFURTER
BANK, as a Remaining Bank
By:--------------------------------
Title:
By:--------------------------------
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
(NEW YORK BRANCH), as a Remaining
Bank
By:--------------------------------
Title:
CONTINENTAL BANK, as a Remaining
Bank
By:--------------------------------
Title:
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH, as a Remaining Bank
By:--------------------------------
Title:
CROWN LEASING USA INC., as a
Terminating Bank
By:--------------------------------
Title:
GREAT AMERICAN INSURANCE COMPANY,
as a Remaining Bank
By:--------------------------------
Title:
J.P. MORGAN DELAWARE, as a
Remaining Bank
By:--------------------------------
Title:
MELLON BANK, N.A., as a Remaining
Bank
By:-------------------------------
Title:
<PAGE> 10
NATIONAL CITY BANK, as a Remaining
Bank
By:--------------------------------
Title:
PITTSBURGH NATIONAL BANK, as a
Remaining Bank
By:--------------------------------
Title:
SOCIETE GENERALE, as a Remaining
Bank
By:--------------------------------
Title:
U.S. WEST FINANCIAL SERVICES, as a
Terminating Bank
By:--------------------------------
Title:
WESTPAC BANKING CORPORATION, as a
Terminating Bank
By:--------------------------------
Title:
<PAGE> 11
SCHEDULE I
<TABLE>
<CAPTION>
Bank Pro Rata Share Commitment
- ---- -------------- ----------
<S> <C> <C>
CHEMICAL BANK 9.5% $ 9,500,000
BANK OF MONTREAL 8.5 8,500,000
BANQUE NATIONALE DE PARIS 6 6,000,000
BANQUE PARIBAS 6 6,000,000
BERLINER HANDELS-UND
FRANKFURTER BANK 6 6,000,000
CANADIAN IMPERIAL BANK OF
COMMERCE (NEW YORK BRANCH) 8.5 8,500,000
CONTINENTAL BANK 6 6,000,000
CREDIT LYONNAIS, CAYMAN
ISLAND BRANCH 6 6,000,000
GREAT AMERICAN INSURANCE
COMPANY 6 6,000,000
J.P. MORGAN DELAWARE 8.5 8,500,000
MELLON BANK, N.A. 8.5 8,500,000
NATIONAL CITY BANK 6 6,000,000
PITTSBURGH NATIONAL BANK 6 6,000,000
SOCIETE GENERALE 8.5 8,500,000
------------
$100,000,000
============
</TABLE>
<PAGE> 1
SECOND AMENDMENT
SECOND AMENDMENT, dated as of December 9, 1993 (this
"Amendment"), to the Amended and Restated Secured Revolving Credit Agreement,
dated as of April 2, 1992, as amended by the First Amendment, dated as of
January 8, 1993 (the "Agreement"), between COLUMBIA GAS TRANSMISSION
CORPORATION, a Delaware corporation and debtor-in-possession (the "Company"),
and CHEMICAL BANK (as successor by merger to Manufacturers Hanover Trust
Company), a New York banking corporation (the "Bank").
W I T N E S S E T H :
WHEREAS, the Company and the Bank entered into a Secured
Revolving Credit Agreement, dated as of August 5, 1991 (the "Original
Agreement");
WHEREAS, pursuant to the Agreement, the Original Agreement was
amended and restated in its entirety to eliminate the commitment of the Bank to
make loans to the Company and to replace such commitment with a discretionary
letter of credit facility;
WHEREAS, pursuant to the Agreement, the Agreement was amended
to extend the Maturity Date under the Agreement to December 31, 1994, or such
later date as may be agreed from time to time between the Company and the Bank;
and
WHEREAS, the parties wish to amend the Agreement as set forth
below in order to extend the Maturity Date under the Agreement to December 31,
1995, or such later date as may be agreed from time to time between the Company
and the Bank;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth below, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein,
terms that are defined in the Agreement are used herein as so defined.
SECTION 2. AMENDMENT OF SECTION 1.1. Section 1.1 of the
Agreement is hereby amended by deleting the definition "Maturity Date" in its
entirety and inserting in lieu thereof the following definition:
"'Maturity Date' means December 31, 1995, or such later date
as may be from time to time agreed in writing by the Company and the
Bank."
SECTION 3. EFFECTIVENESS. This Amendment shall become
effective on the date (the "Amendment Effective Date") on which all of the
following conditions precedent shall have been satisfied:
<PAGE> 2
(a) this Amendment shall have been executed and delivered by
the Company and the Bank;
(b) the Bank shall have received an opinion of G.D.H. Snyder,
Esq., General Counsel of the Company, dated the Amendment Effective
Date, in form and substance satisfactory to the Bank;
(c) no Default or Event of Default shall have occurred and be
continuing;
(d) all representations and warranties of the Company
contained in the Agreement and the Security Agreement, or otherwise
made in connection therewith, shall be true and correct in all
material respects on and as of the Amendment Effective Date as if made
on and as of such date (unless stated to relate to a specific earlier
date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date);
(e) the Company shall have paid to the Bank, on the Amendment
Effective Date, a renewal fee of 1/16 of 1% of the Maximum L/C Amount,
in payment for the extension of the Maturity Date under the Agreement
to December 31, 1995;
(f) all other fees payable by the Company pursuant to the
Agreement on or before the Amendment Effective Date shall have been
paid in full; and
(g) the Bank shall have received such additional documents as
it shall have reasonably requested.
Upon the satisfaction of all of the above conditions, the Bank shall issue to
the Company a written notice declaring the effectiveness of this Amendment.
SECTION 4. CONTINUING EFFECT; AMENDMENT LIMITED. Except as
expressly amended hereby, the Agreement shall continue to be and shall remain
in full force and effect in accordance with its terms. Any reference to the
"Agreement" in the Agreement shall be a reference to the Agreement as amended
by this Amendment.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW.
<PAGE> 3
SECTION 6. COUNTERPARTS. This Amendment may be executed in
any number of counterparts, each of which shall be an original but all of
which together shall constitute one agreement.
IN WITNESS WHEREOF, each party has caused this Amendment to be
executed and delivered by its respective duly authorized officer as of the date
first above written.
COLUMBIA GAS TRANSMISSION
CORPORATION
By:--------------------------------
Title:
CHEMICAL BANK (as successor by
merger to Manufacturers Hanover
Trust Company)
By:--------------------------------
Title:
<PAGE> 1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- ----------------------------------x
In re: : Chapter 11
: Case No. 91-804
COLUMBIA GAS TRANSMISSION :
CORPORATION, :
:
Debtor. :
- ----------------------------------x
PLAN OF REORGANIZATION OF
COLUMBIA GAS TRANSMISSION CORPORATION
Respectfully Submitted,
STROOCK & STROOCK & LAVAN
Lewis Kruger
Robin E. Keller
Seven Hanover Square
New York, New York 10004-2594
(212) 806-5400
CRAVATH, SWAINE & MOORE
John F. Hunt
825 Eighth Avenue
New York, New York 10019-7475
(212) 474-1000
YOUNG, CONAWAY, STARGATT & TAYLOR
James L. Patton, Jr.
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0381
(302) 571-6600
Co-Counsel for Debtors.
Dated: January 18, 1994
<PAGE> 2
<TABLE>
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. "Accepting 3.3D Claimant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. "Accepting 3.4 Claimant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. "Administrative Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. "Administrative Fee Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. "Aggregate Settlement Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. "Aggregate Settlement Value Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. "Allowed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. "Assumed Executory Contract Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. "Avoidance Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. "Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. "Bankruptcy Court" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
12. "Bankruptcy Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
13. "Bar Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14. "Bar Date Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. "BG&E Appeal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
17. "Calendar Quarter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
18. "Cash Collateral Orders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
19. "Chemical Bank's Secured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
20. "Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
21. "Claims Estimation Procedures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
22. "Claims Reserve" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
23. "Claims Supervision Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
24. "Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
25. "CNR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
26. "Columbia" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
27. "Columbia Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
28. "Columbia Omnibus Settlement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
29. "Columbia Secured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
30. "Columbia Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
31. "Columbia Unsecured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
32. "Confirmation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
33. "Confirmation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
34. "Confirmation Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
35. "Creditor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
36. "Creditors' Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
37. "Customer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
38. "Customers' Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
39. "DIP Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
40. "Disbursing Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
41. "Disclosure Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
42. "Disputed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
43. "Dissenting 3.4 Claimant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
44. "Dissenting 3.4 Claimants Reserve Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
45. "Distribution Formula" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
46. "East Lynn Condemnation Award" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
47. "East Lynn Condemnation Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
48. "East Lynn Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
49. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
50. "Enterprise Energy Action" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
51. "Enterprise Energy Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
52. "Enterprise Energy Opt-Out Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
53. "Enterprise Energy Settlement Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
54. "Environmental Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
55. "Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
56. "Fee Examiner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
57. "FERC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
58. "FERC Gas Tariff" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
59. "File" or "Filed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
60. "Final Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
61. "First Mortgage Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
62. "General Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
63. "General Fund Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
64. "General Fund Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
65. "General Fund Deposit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
66. "General Fund Distributable Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
67. "General Fund Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
68. "GRI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
69. "GRI Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
70. "Intercompany Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
71. "Interests" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
72. "Inventory Financing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
73. "Inventory Loan Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
74. "Inventory Security Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
75. "Miscellaneous Administrative Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
76. "1990 Rate Case" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
77. "1990 Rate Case Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
78. "1990 Rate Case Settlement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
79. "NGA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
80. "Non-General Fund Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
81. "Non-Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
82. "Omnibus FERC Motion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
83. "Omnibus FERC Motion Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
84. "PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
85. "Petition Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
86. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
87. "Plan Mailing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
88. "Post-Effective Date Costs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
89. "Post-Petition Operational Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
90. "Potential Disputed Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
91. "Priority Tax Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
92. "Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
93. "Professional" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
94. "Professional Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
95. "Pro Rata" and "Pro Rata Share" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
96. "Refund Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
97. "Refund Dispute" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
98. "Refund Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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99. "Reorganization Case" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
100. "Reorganized TCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
101. "RIA Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
102. "Schedule of Liabilities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
103. "Section 4(e) Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
104. "Secured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
105. "Secured Tax Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
106. "Service Contract" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
107. "Settlement Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
108. "Settlement Value Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
109. "Sharing Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
110. "Sharing Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
111. "Tax Allocation Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
112. "Tax Reimbursement Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
113. "TCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
114. "TCO Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
115. "TCO Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
116. "Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
117. "Trust Fund Decision" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
118. "Unclaimed Distribution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
119. "Unsecured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
120. "U.S. Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
121. "U.S. Trustee's Fee Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
122. "Voting Deadline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
123. "Waiver Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
B. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
C. Computation of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
D. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
B. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
a. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
b. Post-Petition Operational Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
c. Assumed Executory Contract Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
d. U.S. Trustee's Fee Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
e. Miscellaneous Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3. East Lynn Condemnation Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
C. Classes of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1. Class 1 Claims - Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
a. Class 1.1 - Chemical Bank's Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . 32
b. Class 1.2 - Secured Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
c. Class 1.3 - Secured Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
d. Class 1.4 - Other Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2. Class 2.1 Claim - Columbia Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3. Class 3 Claims - Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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a. Class 3.1 - Unsecured Claims of $50,000 or Less . . . . . . . . . . . . . . . . . . . . . . 32
b. Class 3.2 - Unsecured Claims in Excess of $50,000 But Not in Excess of $250,000 . . . . . . 33
c. Class 3.3A - Unsecured Recoverable Non-Gas Cost Claims . . . . . . . . . . . . . . . . . . 33
d. Class 3.3B - Unsecured Recoverable Gas Cost Claims . . . . . . . . . . . . . . . . . . . . 34
e. Class 3.3C - Unsecured Enterprise Energy Claims . . . . . . . . . . . . . . . . . . . . . . 34
f. Class 3.3D - Unsecured Enterprise Energy Opt-Out Claims . . . . . . . . . . . . . . . . . . 34
g. Class 3.4 - Unsecured Customer Claims and GRI Claims . . . . . . . . . . . . . . . . . . . 34
h. Class 3.5A - Unsecured Allowed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
i. Class 3.5B - Columbia Unsecured Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
j. Class 3.6 - Unsecured Disputed Non-Producer Claims . . . . . . . . . . . . . . . . . . . . 35
k. Class 3.7 - Unsecured Disputed Producer Non-Contract Rejection Claims . . . . . . . . . . 35
l. Class 3.8 - Unsecured Disputed Producer Contract Rejection Claims . . . . . . . . . . . . . 36
D. Class 4 Claims - Assumed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
1. Class 4.1 - Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2. Class 4.2 - Certain Condemnation Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3. Class 4.3 - Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4. Class 4.4 - Surety Bond Related Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
E. Class 5 Interests - Common Stock of TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
III. TREATMENT OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
A. Treatment of Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
1. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
a. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
b. Post-Petition Operational Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
c. Assumed Executory Contracts Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
d. U.S. Trustee's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
e. Miscellaneous Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3. East Lynn Condemnation Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Treatment of Classified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
1. Class 1 Claims - Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
a. Class 1.1 - Chemical Bank's Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . 39
b. Class 1.2 - Secured Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
c. Class 1.3 - Secured Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
d. Class 1.4 - Other Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2. Class 2.1 Claim - Columbia Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3. Class 3 Claims - Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
a. Settlement Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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b. Class 3.1 - Unsecured Claims of $50,000 or Less . . . . . . . . . . . . . . . . . . . . . . 45
c. Class 3.2 - Unsecured Claims in Excess of $50,000 But Not in Excess of $250,000 . . . . . . 46
d. Class 3.3A Claims - Unsecured Recoverable Non-Gas Cost Claims . . . . . . . . . . . . . . 47
e. Class 3.3B Claims - Unsecured Recoverable Gas Cost Claims . . . . . . . . . . . . . . . . . 48
f. Class 3.3C Claims - Enterprise Energy Claims . . . . . . . . . . . . . . . . . . . . . . . 49
g. Class 3.3D - Enterprise Energy Opt-Out Claims . . . . . . . . . . . . . . . . . . . . . . . 50
h. Class 3.4 Claims - Unsecured Customer Claims and GRI Claims . . . . . . . . . . . . . . . . 51
i. Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 - General Fund Claims . . . . . . . . . . . . . . . . 55
4. Class 4 Claims - Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
a. Class 4.1 - Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
b. Class 4.2 - Certain Condemnation Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 56
c. Class 4.3 - Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
d. Class 4.4 - Surety Bond Related Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 56
C. Treatment of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
1. Class 5 Interests - Common Stock of TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
IV. PROVISIONS GOVERNING DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
A. Transactions On the Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
B. Distributions on Non-General Fund Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
1. Non-General Fund Claims Allowed as of the Effective Date . . . . . . . . . . . . . . . . . . . 58
2. Claims Reserve for Subsequently Allowed Non-General Fund Claims . . . . . . . . . . . . . . . 58
a. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
b. Distributions From the Claims Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
c. Distribution of Funds Remaining In the Claims Reserve . . . . . . . . . . . . . . . . . . . 59
d. Tax Requirements for Income Generated by the Claims Reserve . . . . . . . . . . . . . . . . 60
3. Reserve for Dissenting 3.4 Claimants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
a. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
b. Distributions from the RIA Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
c. Distribution of Funds Remaining in the RIA Account . . . . . . . . . . . . . . . . . . . . 62
C. Distributions to Holders of General Fund Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
1. Establishment of General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2. Distribution Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3. Delay of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
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4. Funds Remaining In the General Fund Upon Termination . . . . . . . . . . . . . . . . . . . . . 64
5. Tax Requirements of the General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
D. Reorganized TCO or Third Party as Disbursing Agent For Non-General Fund Claims . . . . . . . . . . . . . 65
E. Post-Effective Date Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
F. Delivery of Distributions; Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
1. Delivery of Distributions in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
2. Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
G. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
H. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
I. Effective Date Payments or Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
J. Limit on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
K. Continuation of Certain Retirement, Workers' Compensation and Long-Term Disability Benefits . . . . . . 70
V. MEANS FOR IMPLEMENTATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
A. Continued Corporate Existence and Vesting of Assets in Reorganized TCO . . . . . . . . . . . . . . . . . 70
B. Corporate Governance, Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
1. Certificate of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
2. Directors and Officers of Reorganized TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
C. Preservation of Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
D. The Claims Estimation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
E. Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
F. TCO's Funding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
G. Columbia Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
A. Bar Date for Objections to Certain Non-Administrative Claims . . . . . . . . . . . . . . . . . . . . . . 75
1. Potential Disputed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2. Claims Subject to the Claims Estimation Procedures . . . . . . . . . . . . . . . . . . . . . . 75
3. Other Non-Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
B. Bar Dates for Certain Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
1. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2. Bar Date for Administrative Claims Arising from Rejection of Executory Contracts
or Unexpired Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
C. Authority to Prosecute Objections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
B. Payments Related to Assumption of Executory Contracts and Unexpired Leases . . . . . . . . . . . . . . . 78
C. Bar Date for Rejection Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
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D. Executory Contracts and Unexpired Leases Entered Into and Other Obligations
Incurred After the Petition Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
A. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
B. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
C. Waiver of Conditions to Confirmation or Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 83
D. Effect of Non-Occurrence of Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 84
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
A. Confirmability and Severability of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
B. Cramdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
A. Discharge of Claims and Termination of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
B. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
C. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
D. Settlement of Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
E. Settlement of Refund Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
F. Approval of 1990 Rate Case Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
XI. RETENTION OF JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
XII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
A. Dissolution of the Creditors' Committee and the Customers' Committee and Creation of the
Claims Supervision Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
1. Dissolution of the Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
2. Claims Supervision Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
a. Function and Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
b. Employment of Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
c. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
B. Modification of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
C. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
D. Severability of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
E. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
F. Service of Documents on TCO or Reorganized TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
G. Payment and Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
CONFIRMATION REQUEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
EXHIBIT A - Affidavit of John H. Croom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B - Calculation of Post-Petition Interest on
the Columbia Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C - Waiver Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
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EXHIBIT D - Settlement Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-1 - Class 3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-2 - Class 3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-3 - Class 3.3A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-4 - Class 3.3B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-5 - Class 3.3D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-6 - Class 3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-7 - Class 3.5A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-8 - Class 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-9 - Class 3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
D-10 - Class 3.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
* See Separately Bound Volume
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<PAGE> 10
INTRODUCTION
Columbia Gas Transmission Corporation ("TCO") proposes the following
plan of reorganization (the "Plan") for the resolution of TCO's outstanding
creditor claims and equity interests. Columbia (as defined herein), the sole
shareholder of TCO, has been authorized by its Board of Directors to support
the Plan and to enter into the Columbia Omnibus Settlement (as defined herein),
subject to the necessary approvals of the Bankruptcy Court having jurisdiction
over Columbia's Chapter 11 case and of the Securities and Exchange Commission
pursuant to the Public Utility Holding Company Act of 1935, and any other
regulatory approvals which Columbia may be required to obtain. See affidavit
of John H. Croom annexed as Exhibit A hereto.
For a discussion of TCO's history, businesses, properties, results of
operations and projections for future operations and for a summary and analysis
of the Plan and related matters, reference should be made to the Disclosure
Statement pursuant to section 1125 of the Bankruptcy Code for the Plan of
Reorganization of Columbia Gas Transmission Corporation (the "Disclosure
Statement") Filed by TCO with the Bankruptcy Court. TCO and, subject to the
approvals described above, Columbia are the proponents of the Plan within the
meaning of section 1129 of the Bankruptcy Code.
ALL HOLDERS OF CLAIMS AGAINST TCO SHOULD READ THE PLAN AND THE
DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE
PLAN.
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<PAGE> 11
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. DEFINED TERMS
As used in the Plan, the capitalized terms below have the following
meanings. Any term used in the Plan that is not defined herein, but that is
used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
1. "ACCEPTING 3.3D CLAIMANT" means a holder of a Class 3.3D
Claim that is Allowed as a result of the acceptance of its proposed Settlement
Value.
2. "ACCEPTING 3.4 CLAIMANT" means, if Class 3.4 votes to accept
the Plan, a holder of a Class 3.4 Claim that either (i) votes in favor of the
Plan (and accordingly, by the terms of the ballot by which such vote is cast,
agrees to be bound by the Waiver Agreement) or (ii) does not vote for the Plan
but, prior to the Effective Date, executes a written Waiver Agreement.
3. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses
of administration allowed under sections 503, 507(a)(1), 507(b) or 1114(e)(2)
of the Bankruptcy Code, including, without limitation (a) the actual and
necessary costs and expenses incurred after the Petition Date of preserving the
Estate and operating the business of TCO, (b) compensation for legal, financial
advisory, accounting and other services and reimbursement of expenses awarded
or allowed under sections 330(a) or 331 of the Bankruptcy Code, and (c) all
fees and charges assessed against the Estate under chapter 123, sections
- 2 -
<PAGE> 12
1911 through 1930, of title 28 of the United States Code. Administrative
Claims consist of the Claims described in Section II.B.1.
4. "ADMINISTRATIVE FEE ORDER" means the Administrative Order
under sections 105(a) and 331 of the Bankruptcy Code Establishing Procedures
for Interim Compensation and Reimbursement of Expenses for all Professionals
entered in the Reorganization Case by the Bankruptcy Court on November 15,
1991.
5. "AGGREGATE SETTLEMENT VALUE" has the meaning set forth in
Section III.B.3.a.
6. "AGGREGATE SETTLEMENT VALUE CLAIMS" has the meaning set
forth in Section III.B.3.a.
7. "ALLOWED" when used with respect to a Claim, means a Claim
against TCO:
a. which has been scheduled as undisputed, not
contingent and liquidated in the Schedule of Liabilities, and as to which no
proof of Claim or objection has been timely Filed;
b. as to which a proof of Claim has been timely Filed
and either:
i. no objection thereto has been timely Filed;
or
ii. the Claim has been allowed (but only to the
extent allowed) by a Final Order; or
c. which, in the case of the Columbia Secured Claim and
the Columbia Unsecured Claim, has been allowed under the provisions of the
Plan.
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<PAGE> 13
8. "ASSUMED EXECUTORY CONTRACT CLAIM" means a Claim described
in Section II.B.1.c hereof.
9. "AVOIDANCE CLAIM" means a Claim, other than an Intercompany
Claim, which a trustee, debtor in possession or appropriate party-in-interest
may assert under sections 542, 544, 545, 547, 548, 549, 550 or 551 of the
Bankruptcy Code.
10. "BANKRUPTCY CODE" means title 11 of the United States Code,
Section Section 101 et seq., as now in effect or hereafter amended.
11. "BANKRUPTCY COURT" means the United States Bankruptcy Court
for the District of Delaware or, if such court ceases to exercise jurisdiction
over the Reorganization Case or any proceeding in the case, the court or
adjunct thereof that exercises jurisdiction over the Reorganization Case or any
such proceeding, as the case may be, in lieu thereof.
12. "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the Local Bankruptcy Rules for the District of
Delaware, as now in effect or as the same may from time to time hereafter be
amended.
13. "BAR DATE" means any applicable bar date, as established by
the Bar Date Order, the Plan, or the Confirmation Order.
14. "BAR DATE ORDER" means, collectively, the orders of the
Bankruptcy Court establishing bar dates by which proofs of Claim must have
been, or in the future must be, Filed, including the Order Establishing Bar
Date for Filing Proofs of Claim entered by the Bankruptcy Court on December 13,
1991.
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<PAGE> 14
15. "BG&E APPEAL" means the case pending before the United
States Court of Appeals for the District of Columbia Circuit styled Baltimore
Gas & Electric Co. v. FERC, D.C. Cir. No. 88-1779 and involving TCO's right to
retain recoveries from Customers of certain costs billed to TCO by its pipeline
suppliers.
16. "BUSINESS DAY" means any day which is not a Saturday, a
Sunday or a day which in Wilmington, Delaware, Charleston, West Virginia or New
York, New York is a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close.
17. "CALENDAR QUARTER" means a three (3) month period ending on
any March 31, June 30, September 30 or December 31 which is more than 60 days
after the Effective Date; provided that the first Calendar Quarter shall be
deemed to be the period commencing on the Effective Date and ending on the last
day of the first of such three (3) month periods.
18. "CASH COLLATERAL ORDERS" means the final orders of the
Bankruptcy Court dated August 23, 1991, and October 20, 1993, which
respectively authorize TCO (i) to use Columbia's cash collateral and granting
to Columbia certain replacement liens and security interests in TCO's assets
and (ii) to transfer liens on storage working gas to the proceeds of sale
thereof and to Columbia's cash collateral.
19. "CHEMICAL BANK'S SECURED CLAIM" means the Claim described in
Section II.C.1.a.
- 5 -
<PAGE> 15
20. "CLAIM" means, as against TCO,
a. a right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or
b. a right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
21. "CLAIMS ESTIMATION PROCEDURES" means the procedures
established by orders of the Bankruptcy Court dated August 27, 1992 and October
9, 1992, to liquidate disputed, contingent or unliquidated Producer Claims, as
the same may be amended from time to time by the Bankruptcy Court.
22. "CLAIMS RESERVE" has the meaning set forth in Section
IV.B.2.a.
23. "CLAIMS SUPERVISION COMMITTEE" has the meaning set forth in
Section XII.A.2.
24. "CLASS" means a class of Claims or Interests.
25. "CNR" means Columbia Natural Resources, Inc., a Texas
corporation.
26. "COLUMBIA" means The Columbia Gas System, Inc., a Delaware
corporation.
27. "COLUMBIA GUARANTY" has the meaning set forth in Section V.G.
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<PAGE> 16
28. "COLUMBIA OMNIBUS SETTLEMENT" means Columbia's agreement,
conditioned on consummation of the Plan without any modification that is not
consented to by Columbia, to facilitate the reorganization of TCO and to settle
the Intercompany Claims by (a) funding, together with TCO, distributions to
creditors under the Plan aggregating $3.3 billion, (b) providing for all
Claims, other than the Columbia Secured Claim, to be paid in cash and $100
million of Columbia Stock (or, if Columbia so elects, entirely in cash), (c)
accepting TCO equity and debt securities in respect of the Columbia Secured
Claim, and (d) agreeing to the waiver by TCO of its right to impose a bar date
on certain pre-petition environmental Claims of governmental agencies and to
the assumption of those and certain other Claims by Reorganized TCO.
Columbia's provision of the funding required of it pursuant hereto may be in
the form of a direct cash capital investment in TCO or a loan to TCO, or both.
Columbia may utilize for such purposes the distributions made to it and its
affiliates under the Plan including, the distributions in respect of the
Columbia Unsecured Claim and the East Lynn Condemnation Obligation.
29. "COLUMBIA SECURED CLAIM" means, as of the Effective Date,
the aggregate of:
a. the unpaid principal and accrued interest due as of the
Petition Date in respect of the Inventory Financing Agreement and the First
Mortgage Bonds, together with interest
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<PAGE> 17
thereon from the Petition Date to the Effective Date, calculated in the manner
described in Exhibit B; and
b. all amounts to which Columbia is entitled under the Cash
Collateral Orders, including post-petition interest as Allowed by the
Bankruptcy Court.
30. "COLUMBIA STOCK" means shares of currently authorized but
unissued common stock, par value $10 per share, of Columbia.
31. "COLUMBIA UNSECURED CLAIM" means Columbia's Claims against
TCO for the repayment of principal and interest arising under and related to
unsecured loans made by Columbia to TCO under certain promissory notes and
revolving credit notes, as more specifically set forth in Columbia's proof of
Claim numbered 11442, Filed on March 17, 1992.
32. "CONFIRMATION" means the entry of the Confirmation Order.
33. "CONFIRMATION DATE" means the date on which the Bankruptcy
Court enters the Confirmation Order on its docket.
34. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
35. "CREDITOR" means
a. an entity that has a Claim against TCO that arose at the
time of or before the Petition Date; or
b. an entity that has a Claim against the Estate of a kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code.
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<PAGE> 18
36. "CREDITORS' COMMITTEE" means the Official Committee of
Unsecured Creditors appointed in the Reorganization Case pursuant to section
1102 of the Bankruptcy Code.
37. "CUSTOMER" means any entity that purchases or has purchased
natural gas or services from TCO pursuant to the FERC Gas Tariff or agreements
entered into in connection therewith.
38. "CUSTOMERS' COMMITTEE" means the Official Committee of
Customers of TCO appointed in the Reorganization Case pursuant to section 1102
of the Bankruptcy Code.
39. "DIP FACILITY" means the Amended and Restated Secured
Revolving Credit Agreement, dated as of April 2, 1992, between TCO and Chemical
Bank, as successor to Manufacturers Hanover Trust Company.
40. "DISBURSING AGENT" means (a) TCO or Reorganized TCO, in each
case in its capacity as a disbursing agent under the Plan, (b) the General Fund
Trustee or (c) any third party designated to act as a disbursing agent under
the Plan, in its capacity as such disbursing agent.
41. "DISCLOSURE STATEMENT" has the meaning set forth in the
"Introduction" to this Plan.
42. "DISPUTED" when used with respect to a Claim, means a Claim
against TCO that is not an Allowed Claim and that has not been barred or
otherwise disallowed or discharged. To the extent an objection is timely Filed
or deemed timely Filed and relates to the allowance of only a portion of a
Claim, such Claim shall be a Disputed Claim to the extent of such objection.
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<PAGE> 19
43. "DISSENTING 3.4 CLAIMANT" means, if Class 3.4 votes to
accept the Plan, any holder of a Class 3.4 Claim that is not an Accepting 3.4
Claimant, and, if Class 3.4 rejects the Plan, any holder of a Class 3.4 Claim.
44. "DISSENTING 3.4 CLAIMANTS RESERVE AMOUNT" means the
aggregate amount which TCO, in its discretion, believes, as of the Effective
Date, would be payable by Reorganized TCO to the Dissenting 3.4 Claimants,
under the Plan or otherwise, were the Dissenting 3.4 Claimants to ultimately
prove completely successful in each of the Refund Disputes.
45. "DISTRIBUTION FORMULA" means the formula described in
Section IV.C.2 pursuant to which distributions from the General Fund are to be
made.
46. "EAST LYNN CONDEMNATION AWARD" means the funds received by
TCO for the damages arising from the condemnation of the East Lynn Property by
the United States government and held in trust by TCO on behalf and for the
benefit of CNR, in such form as such funds are from time to time invested,
together with all income earned on such funds while so held, net of applicable
taxes, if any, payable by TCO in respect of such award or such income.
47. "EAST LYNN CONDEMNATION OBLIGATION" means the obligation of
TCO set forth in Section II.B.3.
48. "EAST LYNN PROPERTY" means the real estate that was the
subject of a taking by eminent domain by the United States of America in the
cases styled United States v. 16,286.08 Acres of
- 10 -
<PAGE> 20
Land Situate in Wayne County, West Virginia (Case No. CA77-3324-H) and United
States v. 298.25 Acres of Land Situate in Wayne County, West Virginia (Case No.
CA75-0061-H).
49. "EFFECTIVE DATE" means the first Business Day that is more
than ten (10) days after the Confirmation Date and on which (a) no stay of the
Confirmation Order is in effect and (b) all conditions to the Effective Date
set forth in Section VIII.B have been satisfied or, if waivable, waived.
50. "ENTERPRISE ENERGY ACTION" means the action brought in the
United States District Court for the Southern District of Ohio, Eastern
Division, styled Enterprise Energy Corp., et al., vs. Columbia Gas Transmission
Corporation, Civil Action No. C2-85-1209.
51. "ENTERPRISE ENERGY CLAIM" means a Claim that is the subject
of the Enterprise Energy Action and has been settled under the terms of the
Enterprise Energy Settlement Agreement but does not include any contract
rejection Claim arising from the rejection of any gas purchase contract.
52. "ENTERPRISE ENERGY OPT-OUT CLAIM" means a Claim that would
qualify as an Enterprise Energy Claim but for the fact that the holder thereof
elected not to participate in the Enterprise Energy Action or to be bound by
the Enterprise Energy Settlement Agreement but does not include any contract
rejection Claim arising from the rejection of any gas purchase contract.
53. "ENTERPRISE ENERGY SETTLEMENT AGREEMENT" means the
settlement agreement outlined and summarized in that certain
- 11 -
<PAGE> 21
Stipulation of Proposed Class Action Settlement entered into among the parties
to the Enterprise Energy Action pursuant to which certain claims which are the
subject of the Enterprise Energy Action were settled.
54. "ENVIRONMENTAL CLAIMS" has the meaning set forth in Section
II.D.1.
55. "ESTATE" means the estate created for TCO in the
Reorganization Case pursuant to section 541 of the Bankruptcy Code.
56. "FEE EXAMINER" means the fee examiner appointed by the
Bankruptcy Court pursuant to the Court's January 8, 1992 Order Retaining
Examiner on Fees and Expenses.
57. "FERC" means the Federal Energy Regulatory Commission.
58. "FERC GAS TARIFF" means the documents filed by TCO with, and
in force from time to time pursuant to, procedures established by FERC setting
forth the rates at and the conditions under which TCO renders its services to
the various classes of its Customers.
59. "FILE" OR "FILED" means file or filed in the Reorganization
Case with the Bankruptcy Court, or in the case of proofs of Claim, (a) file or
filed with Poorman-Douglas Corporation, the claims agent designated by order of
the Bankruptcy Court, or (b) deemed so filed pursuant to section 1111(a) of the
Bankruptcy Code.
60. "FINAL ORDER" means an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction,
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<PAGE> 22
entered on the docket in the Reorganization Case, which has not been reversed
or stayed, and as to which the time to appeal or seek certiorari has expired
with no appeal or petition for certiorari having been timely taken or filed, or
as to which any appeal that has been or may be taken or any petition for
certiorari that has been or may be filed has been resolved by the highest court
to which the order or judgment was appealed or from which certiorari was
sought.
61. "FIRST MORTGAGE BONDS" means those certain bonds, designated
Series A, B, D, E and F, issued pursuant to the Indenture of Mortgage and Deed
of Trust dated August 30, 1985, made by TCO in favor of Wilmington Trust
Company as Trustee.
62. "GENERAL FUND" means the trust established pursuant to
Section IV.C.1.
63. "GENERAL FUND CLAIM" means (i) any Claim in a General Fund
Class, (ii) any Claim in Class 3.2, 3.3A or 3.3B if its Class rejects the Plan,
(iii) any Claim in Class 3.3D the holder of which does not agree to accept its
proposed Settlement Value, which Claim accordingly becomes a Class 3.7 Claim
under the Plan, (iv) any Claim of any Dissenting 3.4 Claimant that was
originally classified in Class 3.4, whether or not Class 3.4 has accepted the
Plan and (v) solely for purposes of calculating distributions pursuant to the
Distribution Formula, any Sharing Claim.
64. "GENERAL FUND CLASS" means any of Classes 3.5A, 3.5B, 3.6,
3.7 and 3.8.
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<PAGE> 23
65. "GENERAL FUND DEPOSIT" means an amount equal to $3.3
billion, less the sum of the following:
a. the amount of the cash required to be paid on the
Effective Date to the holders of unclassified Claims (including, without
limitation, any interest payable with respect thereto) other than Post-Petition
Operational Claims and Miscellaneous Administrative Claims;
b. the amount of the cash required to be paid on the
Effective Date to holders of Allowed Claims in Classes 1.1, 1.2, 1.3 and 1.4;
c. an amount equal to the aggregate of the Allowed Claims
in Class 1.4 that are satisfied on the Effective Date other than by payment in
cash, including Claims in such Class that are satisfied by set-off;
d. the amount of the Columbia Secured Claim;
e. the amount of the cash required to be paid on the
Effective Date to holders of Allowed Claims in Classes 3.1, 3.2, 3.3A, 3.3B,
3.3C, 3.3D and 3.4 including, in the case of Class 3.4, any amount that is paid
by credit to a rate mechanism or other means in lieu of cash;
f. the amount of the Dissenting 3.4 Claimants Reserve
Amount;
g. the amount deposited on the Effective Date in the Claims
Reserve; and
h. a sum equal to the aggregate of all amounts paid by TCO
subsequent to the date the Plan is Filed and prior to the
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<PAGE> 24
Effective Date pursuant to one or more orders of the Bankruptcy Court which,
had they not been paid, would on the Effective Date have been:
i. Assumed Executory Contract Claims;
ii. Priority Tax Claims;
iii. Class 1.3 - Secured Tax Claims;
iv. Class 3.3A - Unsecured Recoverable Non-Gas
Cost Claims
v. Class 3.3B - Unsecured Recoverable Gas Cost
Claims
vi. Class 3.3C - Unsecured Enterprise Energy
Claims
vii. Class 3.3D - Unsecured Enterprise Energy
Opt-Out Claims
viii. Class 3.4 - Unsecured Customer Claims and
GRI Claims but not including any Refund
Obligations and GRI Claim for amounts
received by TCO post-petition that have
been paid pursuant to the Trust Fund
Decision.
66. "GENERAL FUND DISTRIBUTABLE AMOUNT" means, from time to
time, the amount equal to the aggregate of the following (without any deduction
for distributions made to holders of Allowed Claims):
a. the amount of the General Fund Deposit;
b. any portion of the Claims Reserve or the RIA Account,
including income earned thereon, net, in the case of income earned on the
Claims Reserve, of any applicable taxes payable by Reorganized TCO with
respect to such income, which as of such time it has been determined by
Reorganized TCO is no
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<PAGE> 25
longer required for the purpose for which it is reserved and which has been
paid to the General Fund Trustee;
c. the aggregate amount of all recoveries, if any, in
respect of Avoidance Claims or Tax Reimbursement Claims theretofore received by
TCO, Reorganized TCO, or the Claims Supervision Committee and which has been
paid to the General Fund Trustee; and
d. income theretofore earned on any cash or securities held
by the General Fund Trustee;
less the aggregate of:
e. any income or other taxes payable or required to be
withheld with respect to the income referred to in clause d. above; and
f. all Post-Effective Date Costs that to the knowledge of
the General Fund Trustee have theretofore been incurred or which the General
Fund Trustee reasonably believes may thereafter be incurred or will otherwise
be required to be paid from the General Fund.
67. "GENERAL FUND TRUSTEE" means the Trustee of the General Fund.
68. "GRI" means the Gas Research Institute.
69. "GRI CLAIM" means any pre-petition Claim of GRI for monies
collected by TCO from Customers on behalf of GRI.
70. "INTERCOMPANY CLAIMS" means the claims and causes of actions
asserted against Columbia and CNR on behalf of TCO by the Creditors' Committee
in that certain complaint styled and
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<PAGE> 26
numbered Columbia Gas Transmission Corporation v. The Columbia Gas System, Inc.
and Columbia Natural Resources, Inc., Adv. No. A92-35, Filed on March 19, 1992,
and any claims and causes of action against Columbia or CNR arising out of the
same or similar facts and circumstances.
71. "INTERESTS" means the rights of Columbia as the sole holder
of all of the issued and outstanding common stock of TCO.
72. "INVENTORY FINANCING AGREEMENT" means the Inventory
Financing Agreement constituting part of the Inventory Loan Agreements.
73. "INVENTORY LOAN AGREEMENTS" means that certain Inventory
Financing Agreement dated June 19, 1985 between Columbia and TCO and the
related Security Agreement dated June 19, 1985 by and between TCO and
Wilmington Trust Company as Trustee, as each such Agreement may have been
amended from time to time.
74. "INVENTORY SECURITY AGREEMENT" means the Security Agreement
constituting part of the Inventory Loan Agreements.
75. "MISCELLANEOUS ADMINISTRATIVE CLAIM" means a Claim described
in Section II.B.1.e.
76. "1990 RATE CASE" means TCO's general rate case under Section
4(e) of the NGA, FERC Docket No. RP90-108, which went into effect, subject to
refund, on November 1, 1990.
77. "1990 RATE CASE CLAIM" means any pre-petition Claim, whether
or not listed on the Schedule of Liabilities and whether or not Filed, of a
Customer arising from the 1990 Rate Case or
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<PAGE> 27
which is the subject of or has been settled by the terms of the 1990 Rate Case
Settlement.
78. "1990 RATE CASE SETTLEMENT" means the settlement of the 1990
Rate Case among TCO and certain other parties thereto, approved by FERC on
October 15, 1992.
79. "NGA" means the Natural Gas Act, 15 U.S.C. Section Section
717-717W (1988).
80. "NON-GENERAL FUND CLAIM" means any Claim that is not a
General Fund Claim, a Post-Petition Operational Claim, a Miscellaneous
Administrative Claim, the Class 2.1 Claim or a Class 4 Claim.
81. "NON-PRODUCER" means, when used as an adjective modifying a
Claim or Class of Claims, a Claim or Class of Claims that is not a Producer
Claim or Class of Claims, and when used as a noun, means an entity that is not
a Producer.
82. "OMNIBUS FERC MOTION" means the motion Filed by TCO on
August 23, 1991 entitled "Motion for Order Authorizing Columbia Gas
Transmission Corporation to Comply with its Federal Energy Regulatory
Commission Gas Tariff and Orders and Regulations of the Federal Energy
Regulatory Commission."
83. "OMNIBUS FERC MOTION CLAIM" means any GRI Claim and any
pre-petition Claim of a Customer for a regulatory refund that is the subject of
the Omnibus FERC Motion.
84. "PBGC" means the Pension Benefit Guaranty Corporation.
85. "PETITION DATE" means July 31, 1991.
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<PAGE> 28
86. "PLAN" means this plan of reorganization of TCO and all
exhibits, attachments and schedules annexed hereto or referenced herein, as the
same may be amended, modified or supplemented.
87. "PLAN MAILING DATE" means that date set by order of the
Bankruptcy Court as the date for the mailing of the Plan to creditors for
purposes of voting thereon.
88. "POST-EFFECTIVE DATE COSTS" means (i) all reasonable costs
and expenses, including legal and other professional fees and disbursements,
incurred by any Disbursing Agent, including TCO and Reorganized TCO, in making
distributions under the Plan to holders of Non-General Fund Claims, (ii) all
reasonable costs and expenses, including legal and other professional fees and
disbursements, of, and any fees payable to, the General Fund Trustee and any
entity employed by it to assist in making the distributions required from the
General Fund, (iii) all reasonable costs and expenses, including legal and
other professional fees and disbursements, incurred by TCO and Reorganized TCO
in connection with (a) the operation of the General Fund and the making of the
distributions therefrom, (b) the prosecution of Claims objections, (c)
participation in the Claims Estimation Procedures, (d) the prosecution of
Avoidance Claims and Tax Reimbursement Claims, or (e) otherwise in connection
with the administration or implementation of the Plan, and (iv) all reasonable
costs and expenses, including legal and other professional fees and
disbursements, incurred by the
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<PAGE> 29
Claims Supervision Committee in the discharge of its duties under the Plan.
89. "POST-PETITION OPERATIONAL CLAIM" means any Claim described
in Section II.B.1.b.
90. "POTENTIAL DISPUTED CLAIMS" has the meaning set forth in
Section VI.A.1.
91. "PRIORITY TAX CLAIM" means a Claim described in Section
II.B.2.
92. "PRODUCER" (i) when used as an adjective modifying a Claim
or Class of Claims, means a Claim arising from a first sale of natural gas, as
that term is defined in the Natural Gas Policy Act of 1978, under a contract
for the sale of natural gas to TCO or from the breach, termination or rejection
of such contract, or a Class of Claims made up of such Claims, and (ii) when
used as a noun, means an entity that has so sold natural gas to TCO.
93. "PROFESSIONAL" means any professional employed in the
Reorganization Case pursuant to sections 327 or 1103 of the Bankruptcy Code,
and any professional seeking compensation or reimbursement of expenses pursuant
to sections 330(a) and 503(b)(4) of the Bankruptcy Code.
94. "PROFESSIONAL CLAIM" means a Claim described in Section
II.B.1.a.
95. "PRO RATA" AND "PRO RATA SHARE" mean, when referring to an
interest in or distribution from the General Fund, the proportion which the
Allowed Claim, the pro rata share of which is being calculated, bears to the
aggregate of (i) the Allowed
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<PAGE> 30
amount of all General Fund Claims which are Allowed on the date as of which
such calculation is being made and (ii) the aggregate amount, as Filed or as
capped by or with the approval of the Bankruptcy Court, of all General Fund
Claims which, as of such date, are Disputed Claims.
96. "REFUND CLAIM" means any pre-petition Claim, whether or not
listed on the Schedule of Liabilities and whether or not Filed, of a Customer
arising from any Refund Obligation, excluding any 1990 Rate Case Claim but
including, without limitation, any Omnibus FERC Motion Claim, any Section 4(e)
Claim and any Claim which is the subject of the BG&E Appeal. The amount of any
such Claim shall include (i) in the case of any Claim that is attributable to
funds which, prior to the Petition Date, were transferred to TCO by third
parties for payment to the holder of such Claim (which funds may have included
interest paid by such third party to TCO) and which have been determined to be
trust funds, interest as prescribed by FERC from the date such funds were
transferred to TCO until the Petition Date, and thereafter, with respect only
to the approximately $3.3 million which under the Trust Fund Decision was
determined to be distributable as trust funds after application of the "lowest
intermediate balance" principle, at the rate income is earned by TCO on such
funds, (ii) in the case of any Claim attributable to any funds so transferred
to TCO for such purpose subsequent to the Petition Date, interest on the amount
so transferred at the rate income is earned by TCO on such funds, and (iii) in
the case
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<PAGE> 31
of any other such Claim attributable to funds transferred to or collected by
TCO prior to the Petition Date, which are not trust funds, interest as
prescribed by FERC to the Petition Date.
97. "REFUND DISPUTE" means any right or claim of any Customer or
GRI with respect to any pre-petition Refund Obligation including, but not
limited to, (i) any right to appeal from or otherwise seek modification of the
Trust Fund Decision or otherwise seek more favorable treatment of its Omnibus
FERC Motion Claims than that provided in the Trust Fund Decision, (ii) any
right to assert a Refund Claim which is the subject of the BG&E Appeal, (iii)
any claim or right in respect of any other Refund Claim other than as provided
in the Plan, (iv) any right of setoff or recoupment in respect of its Class 3.4
Claims, (v) any claim or right to compel assumption, rejection or enforcement
of its pre-petition Service Contracts except as otherwise provided herein and
(vi) any right or claim against Columbia in respect of or arising from any
Refund Claim, but not including any right or Claim in respect of any 1990 Rate
Case Claim.
98. "REFUND OBLIGATION" means any obligation on the part of TCO
arising prior to the Petition Date to make refunds, including applicable
interest thereon, to Customers pursuant to regulations or orders of FERC, or
any order of a court of competent jurisdiction on appeal of an order of FERC,
or the terms of the FERC Gas Tariff. Refund Obligations include the GRI Claim.
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<PAGE> 32
99. "REORGANIZATION CASE" means the Chapter 11 case bearing
number 91-804 pending in the Bankruptcy Court with respect to TCO.
100. "REORGANIZED TCO" means TCO (i) on the Effective Date to the
extent and for the purpose of performing those acts which are required under
the Plan to be performed by Reorganized TCO on the Effective Date and (ii)
after the Effective Date.
101. "RIA ACCOUNT" means a restricted investment arrangement
established by TCO pursuant to an order dated January 6, 1993 by the Bankruptcy
Court under which TCO holds funds received by TCO from various sources pending
resolution of the Refund Disputes.
102. "SCHEDULE OF LIABILITIES" means the schedule of assets and
liabilities Filed by TCO under section 521(1) of the Bankruptcy Code.
103. "SECTION 4(E) CLAIM" means any pre-petition Refund
Obligations arising pursuant to TCO's general rate filings under Section 4(e)
of the NGA, but shall not include any 1990 Rate Case Claim.
104. "SECURED CLAIM" means a pre-petition Claim that is secured
by a lien on property in which the Estate has an interest or that is subject to
setoff under section 553 of the Bankruptcy Code to the extent of the value of
the interest of the holder of such Claim in the Estate's interest in such
property or to the extent of the amount subject to setoff, as applicable, as
determined pursuant to section 506(a) of the Bankruptcy Code.
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<PAGE> 33
105. "SECURED TAX CLAIM" means a Secured Claim held by a taxing
authority.
106. "SERVICE CONTRACT" means a pre-petition agreement between
TCO and a Customer pursuant to which TCO provides or has provided sales,
transportation, storage or related services to such Customer pursuant to the
relevant provisions of the FERC Gas Tariff.
107. "SETTLEMENT VALUE" has the meaning set forth in Section
III.B.3.a.
108. "SETTLEMENT VALUE CLAIM" means any Claim for which a
Settlement Value has been proposed, but does not include the Aggregate
Settlement Value Claims.
109. "SHARING CLAIM" means, for purpose of calculating
distributions pursuant to the Distribution Formula, any Claim as to which the
Sharing Event has occurred.
110. "SHARING EVENT" means, with respect to any Claim in any of
Classes 3.2, 3.3A, 3.3B or 3.4, if such Class has voted to accept the Plan,
when the aggregate amount of the distributions with respect to any General Fund
Claim equals the same percentage of such General Fund Claim as is provided in
the Plan for distribution to Allowed Claims in Class 3.2, 3.3A, 3.3B or 3.4, as
the case may be.
111. "TAX ALLOCATION AGREEMENT" means the Tax Allocation
Agreement dated December 31, 1990, among Columbia and its subsidiaries,
interpreted and applied in a manner consistent with its interpretation and
application prior to the Petition Date.
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<PAGE> 34
112. "TAX REIMBURSEMENT CLAIM" has the meaning set forth in
Section III.A.2.
113. "TCO" means Columbia Gas Transmission Corporation, a
Delaware corporation, the debtor and debtor in possession in the Reorganization
Case.
114. "TCO NOTE" has the meaning set forth in Section IV.C.1.
115. "TCO OBLIGATION" has the meaning set forth in Section V.F.
116. "TERMINATION DATE" means the date as to which the General
Fund Trustee determines that no further Disputed Claims remain, that all assets
of the General Fund to be disbursed have been disbursed and that all functions
for which the Claims Supervision Committee has been established have been
fulfilled, provided, however, that the General Fund Trustee shall notify
Reorganized TCO, the U.S. Trustee and the Claims Supervision Committee of the
anticipated Termination Date in writing at least thirty (30) days prior to the
Termination Date, and provided further, that either Reorganized TCO or the
Claims Supervision Committee may at any time seek an order from the Bankruptcy
Court, on at least 20 days' notice to the other, to the General Fund Trustee
and to the U.S. Trustee, setting a Termination Date.
117. "TRUST FUND DECISION" means the decision of the United
States Court of Appeals for the Third Circuit dated July 6, 1993 and published
at 997 F.2d 1039 with respect to the payment by TCO
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<PAGE> 35
of certain refunds to certain of its Customers and payments by TCO to GRI.
118. "UNCLAIMED DISTRIBUTION" shall have the meaning ascribed to
it in Section IV.F.2.
119. "UNSECURED CLAIM" means a Claim that is neither a Secured
Claim nor an unclassified Claim described in Section II.B.
120. "U.S. TRUSTEE" means the Office of the United States Trustee.
121. "U.S. TRUSTEE'S FEE CLAIMS" means the Claims described in
Section II.B.1.d.
122. "VOTING DEADLINE" means the deadline for voting to accept or
reject the Plan established by order of the Bankruptcy Court.
123. "WAIVER AGREEMENT" means an agreement, in the form annexed
hereto as Exhibit C, pursuant to which a Customer or GRI agrees to accept the
treatment provided for in the Plan for Accepting 3.4 Claimants and in
consideration of such treatment agrees (i) to the full settlement,
satisfaction, discharge and termination of all of its Refund Claims and Refund
Disputes, and (ii) not to oppose recovery by Reorganized TCO from Customers of
certain sums, as more fully described in Exhibit C.
B. RULES OF INTERPRETATION
For purposes of the Plan: (i) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (ii) any
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<PAGE> 36
reference in the Plan to a contract, instrument, release, indenture or other
agreement or document being in a particular form or on particular terms and
conditions means that such document shall be substantially in such form or
substantially on such terms and conditions; (iii) any reference in the Plan to
a document or exhibit Filed or to be Filed means such document or exhibit, as
it may have been or may be amended, modified or supplemented; (iv) unless
otherwise specified, all references in the Plan to sections, articles and
exhibits are references to sections, articles and exhibits of or to the Plan;
(v) the words "herein" and "hereto" refer to the Plan in its entirety rather
than a particular portion of the Plan; (vi) captions and headings to articles
and sections are inserted for convenience of reference only and are not
intended to be a part of or to affect the interpretation of the Plan; and (vii)
the rules of construction set forth in section 102 of the Bankruptcy Code shall
apply.
C. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
D. GOVERNING LAW
EXCEPT TO THE EXTENT THAT THE BANKRUPTCY CODE OR BANKRUPTCY RULES ARE
APPLICABLE, AND SUBJECT TO THE PROVISIONS OF ANY CONTRACT, INSTRUMENT, RELEASE,
INDENTURE OR OTHER AGREEMENT OR DOCUMENT ENTERED INTO IN CONNECTION WITH THE
PLAN, THE RIGHTS AND OBLIGATIONS ARISING UNDER THE PLAN SHALL BE GOVERNED BY,
AND
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<PAGE> 37
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO DELAWARE'S PRINCIPLES OF CONFLICTS OF LAW.
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS
A. GENERAL
Administrative Claims, Priority Tax Claims and the East Lynn
Condemnation Obligation, as described below in Section II.B, have not been
classified and the holders thereof are therefore not entitled to vote on the
Plan.
To the extent that a proof of Claim asserts more than one Claim, each
such Claim shall be treated as a separate Claim under the Plan, and where such
Claims may be classified in different Classes, such Claims shall be deemed for
purposes of this Plan to be distinct Claims entitled to be voted in their
respective Classes subject, however, to the following condition. If any holder
of Claims holds more than one Claim in any Class, all of such Claims shall
together be deemed for all purposes to constitute one Claim in the amount of
the aggregate of all such Claims; provided, however, that if as a result of
such aggregation of (i) Claims in Class 3.1, the one Claim so constituted shall
exceed $50,000 but not $250,000, such Claim shall, unless voluntarily reduced
to an aggregate of $50,000 on or before the Voting Deadline, participate for
all purposes as a Class 3.2 Claim and (ii) Claims in Class 3.2 (including any
Claim in Class 3.2 that results from the aggregation of Claims in Class
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<PAGE> 38
3.1), the one Claim so constituted shall exceed $250,000, such Claim shall,
unless voluntarily reduced to an aggregate of $250,000 on or before the Voting
Deadline, again be deemed for purposes of the Plan to be distinct Claims each
of which shall participate for all purposes as a Claim in the Class in which it
would be classified were it a Claim in excess of $250,000.
A Claim is classified in a particular Class only to the extent that
the Claim qualifies within the description of that Class and is classified in
one or more other Classes to the extent that any remainder of the Claim
qualifies within the description of such other Class or Classes. A Claim is
also classified in a particular Class for the purpose of receiving
distributions pursuant to the Plan only to the extent that such Claim is an
Allowed Claim in that Class and has not been paid, released or otherwise
satisfied.
B. UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
Administrative Claims consist of those Claims more fully described
below:
a. PROFESSIONAL CLAIMS
Professional Claims consist of all Administrative Claims for unpaid
fees and expenses of Professionals and amounts for compensation allowed under
sections 330(a) and 503(b) of the Bankruptcy Code.
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<PAGE> 39
b. POST-PETITION OPERATIONAL CLAIMS
Post-Petition Operational Claims consist of all those Administrative
Claims, other than Environmental Claims included in Class 4.1, in respect of
liabilities incurred by TCO in the ordinary course of business during the
pendency of the Reorganization Case including, but not limited to,
Administrative Claims of governmental units for taxes, Refund Obligations
attributable to rates and charges for services rendered by TCO after the
Petition Date and FERC mandated post-petition interest thereon, trade vendor
and supplier payment obligations and obligations under contracts and leases.
c. ASSUMED EXECUTORY CONTRACT CLAIMS
Assumed Executory Contract Claims consist of all obligations of TCO
to cure defaults arising from or in connection with the assumption of
pre-petition executory contracts and unexpired leases by TCO, under the Plan or
otherwise, pursuant to section 365(b)(1) of the Bankruptcy Code, including
TCO's obligation under the Tax Allocation Agreement to pay post-petition
interest on amounts included in the Priority Tax Claim and to reimburse
Columbia or any other subsidiary of Columbia for refunds and the right to
receive interest used by TCO to offset the Priority Tax Claim amount and
post-petition interest thereon.
d. U.S. TRUSTEE'S FEE CLAIMS
The U.S. Trustee's Fee Claims consist of the fees TCO is required to
pay pursuant to 28 U.S.C. Section 1930(a)(6).
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<PAGE> 40
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims consist of all Administrative
Claims other than Professional Claims, Post-Petition Operational Claims,
Assumed Executory Contract Claims and U.S. Trustee's Fee Claims, including but
not limited to Claims which are (i) contingent indemnification Claims of
officers, directors and employees of TCO, including indemnification Claims by
(a) employees in connection with pre- and post-petition personal injury and
property damage actions brought against them by third parties, and (b) officers
and directors in connection with pre-petition stockholder class actions and
other securities law actions, (ii) post-petition personal injury and property
damage Claims, and (iii) Claims arising pursuant to performance bonds issued on
behalf of TCO post-petition.
2. PRIORITY TAX CLAIMS
Priority Tax Claims consist of all Claims for the payment of taxes
entitled to priority in payment pursuant to section 507(a)(7) of the Bankruptcy
Code.
3. EAST LYNN CONDEMNATION OBLIGATION
The East Lynn Condemnation Obligation consists of TCO's obligation to
turn over the East Lynn Condemnation Award to CNR.
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<PAGE> 41
C. CLASSES OF CLAIMS
1. CLASS 1 CLAIMS - SECURED CLAIMS
a. CLASS 1.1 - CHEMICAL BANK'S SECURED CLAIM
Class 1.1 consists of all Secured Claims of Chemical Bank as agent
under the DIP Facility.
b. CLASS 1.2 - SECURED PRODUCER CLAIMS
Class 1.2 consists of all Claims of Producers that supplied gas to
TCO pre-petition to the extent such Claims are secured by statutory liens.
c. CLASS 1.3 - SECURED TAX CLAIMS
Class 1.3 consists of all Secured Tax Claims.
d. CLASS 1.4 - OTHER SECURED CLAIMS
Class 1.4 consists of all Secured Claims not included in Classes 1.1,
1.2, 1.3 or 2.1, and includes setoff Claims permitted under section 553 of the
Bankruptcy Code.
2. CLASS 2.1 CLAIM - COLUMBIA SECURED CLAIM
Class 2.1 consists of the Columbia Secured Claim.
3. CLASS 3 CLAIMS - UNSECURED CLAIMS
a. CLASS 3.1 - UNSECURED CLAIMS OF $50,000 OR LESS
Class 3.1 consists of all Unsecured Claims (other than Enterprise
Energy Claims included in Class 3.3C, Enterprise Energy Opt-Out Claims
originally classified in Class 3.3D and Customer Claims included in Class 3.4)
that do not exceed $50,000 or that, on or prior to the Voting Deadline, are
reduced voluntarily or by a Final Order to $50,000 or less. If an Unsecured
Claim that, as Filed, is for more than $50,000 and
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<PAGE> 42
consequently is classified in another Class (other than Classes 3.3C, 3.3D or
3.4), has a proposed Settlement Value that does not exceed $50,000, and if the
holder of such Claim elects to accept such proposed Settlement Value, such
Claim shall be treated for all purposes as a Class 3.1 Claim.
b. CLASS 3.2 - UNSECURED CLAIMS IN EXCESS OF $50,000 BUT
NOT IN EXCESS OF $250,000
Class 3.2 consists of all Unsecured Claims (other than Enterprise
Energy Claims included in Class 3.3C, Enterprise Energy Opt-Out Claims
originally classified in Class 3.3D and Customer Claims included in Class 3.4)
that exceed $50,000 but do not exceed $250,000 or that, on or prior to the
Voting Deadline, are reduced voluntarily or by a Final Order to an amount in
excess of $50,000 but not in excess of $250,000. If an Unsecured Claim that,
as Filed, is for more than $250,000 and consequently is classified in another
Class (other than Classes 3.3C, 3.3D or 3.4), has a proposed Settlement Value
that exceeds $50,000 but does not exceed $250,000, and if the holder of such
Claim elects to accept such proposed Settlement Value, such Claim shall be
entitled to be voted in and receive the treatment provided for Class 3.2.
c. CLASS 3.3A - UNSECURED RECOVERABLE NON-GAS COST CLAIMS
Class 3.3A consists of all Unsecured Claims (i) that are not gas cost
Claims, (ii) not included in Classes 3.1 or 3.2, (iii) (a) that relate to
periods subsequent to March 31, 1990 and the payment of which is recoverable by
TCO from Customers
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<PAGE> 43
pursuant to the Transportation Cost Recovery Adjustment provisions of the FERC
Gas Tariff or any successor recovery mechanism or (b) the payment of which is
recoverable by TCO from Customers pursuant to the provisions of the FERC Gas
Tariff permitting dollar for dollar recovery of upstream pipeline FERC Order
Nos. 500 and 528 costs, and (iv) that do not arise from the rejection of
upstream pipeline transportation contracts or transportation obligations
contained in gas purchase contracts.
d. CLASS 3.3B - UNSECURED RECOVERABLE GAS COST CLAIMS
Class 3.3B consists of all Unsecured Claims (i) that are gas cost
Claims related to periods subsequent to March 31, 1987, (ii) not included in
Classes 3.1, 3.2, 3.3C or 3.3D, (iii) the payment of which is recoverable by
TCO from Customers as a gas cost pursuant to the Purchased Gas Adjustment
provisions of the FERC Gas Tariff or any successor recovery mechanism, and (iv)
that do not arise from the rejection by TCO of pre-petition agreements with
Producers or upstream pipelines for the purchase by TCO of natural gas.
e. CLASS 3.3C - UNSECURED ENTERPRISE ENERGY CLAIMS
Class 3.3C consists of all Enterprise Energy Claims.
f. CLASS 3.3D - UNSECURED ENTERPRISE ENERGY OPT-OUT CLAIMS
Class 3.3D consists of all Enterprise Energy Opt-Out Claims.
g. CLASS 3.4 - UNSECURED CUSTOMER CLAIMS AND GRI CLAIMS
Class 3.4 consists of all GRI Claims, all Refund Claims and all 1990
Rate Case Claims. Claims arising out of or in connection
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<PAGE> 44
with environmental obligations or liabilities and Claims for trade payables
owed to Customers are not included in this Class.
h. CLASS 3.5A - UNSECURED ALLOWED CLAIMS
Class 3.5A consists of all Unsecured Claims (other than those
included in Classes 3.1 through 3.4 or in Class 3.5B) that are Allowed as of
the Voting Deadline, including (i) any Settlement Value Claim classified in
Class 3.6, 3.7 or 3.8 the holder of which elects to accept the Settlement Value
proposed for it, and (ii) the Aggregate Settlement Value Claims if the holders
thereof all elect to accept the proposed Aggregate Settlement Value and, prior
to the Voting Deadline, individual Settlement Values are allocated to them by
mutual agreement or by the Bankruptcy Court.
i. CLASS 3.5B - COLUMBIA UNSECURED CLAIM
Class 3.5B consists of the Columbia Unsecured Claim.
j. CLASS 3.6 - UNSECURED DISPUTED NON-PRODUCER CLAIMS
Class 3.6 consists of all Unsecured Non-Producer Claims that, as of
the Voting Deadline, are Disputed Claims and that are not included in Classes
3.1 through 3.4.
k. CLASS 3.7 - UNSECURED DISPUTED PRODUCER NON-CONTRACT
REJECTION CLAIMS
Class 3.7 consists of all Unsecured Producer Claims that are Disputed
Claims as of the Voting Deadline and that (i) do not arise from the rejection
by TCO of pre-petition agreements for the purchase by TCO of natural gas and
(ii) are not included in Classes 3.1 through 3.3D. This Class also includes
any Claim
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classified in Class 3.3D the holder of which does not accept its proposed
Settlement Value.
l. CLASS 3.8 - UNSECURED DISPUTED PRODUCER CONTRACT REJECTION
CLAIMS
Class 3.8 consists of all Unsecured Producer Claims that are Disputed
Claims as of the Voting Deadline and that (i) arise from the rejection by TCO
of pre-petition agreements for the purchase by TCO of natural gas and (ii) are
not included in Classes 3.1 through 3.3D.
D. CLASS 4 CLAIMS - ASSUMED CLAIMS
1. CLASS 4.1 - ENVIRONMENTAL CLAIMS
Class 4.1 consists of all pre- and post-petition environmental
compliance and remediation obligations to state and federal environmental
enforcement and regulatory agencies, other than non-consensual pre-petition
environmental penalty liabilities.
2. CLASS 4.2 - CERTAIN CONDEMNATION CLAIMS
Class 4.2 consists of condemnation awards payable pursuant to the
Bankruptcy Court's December 18, 1992 Order Authorizing TCO to Pay Condemnation
Awards Adjudicated Post-Petition Where No Bond Has Been Posted.
3. CLASS 4.3 - PENSION CLAIMS
Class 4.3 consists of all contingent Claims arising under or related
to Claims Filed by the PBGC in connection with employee or retiree benefit or
pension plans or programs.
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4. CLASS 4.4 - SURETY BOND RELATED CLAIMS
Class 4.4 consists of all contingent Claims arising under or related
to Claims Filed by Columbia in connection with TCO's obligation to reimburse
Columbia for any payments Columbia is or may be required to make on behalf of
TCO under or in connection with surety bonds issued for TCO's benefit.
E. CLASS 5 INTERESTS - COMMON STOCK OF TCO
Class 5 consists of Columbia's Interests.
III. TREATMENT OF CLAIMS AND INTERESTS
A. TREATMENT OF UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
a. PROFESSIONAL CLAIMS
Each holder of an Allowed Professional Claim will receive cash equal
to the amount of such Claim (unless TCO and the holder of such Claim agree to
other treatment) on the later of (i) the Effective Date, or (ii) thirty (30)
days after the date on which an order allowing such Claim becomes a Final
Order.
b. POST-PETITION OPERATIONAL CLAIMS
Each Post-Petition Operational Claim that is unpaid as of the
Effective Date will be assumed and paid by Reorganized TCO pursuant to the
terms and conditions of the particular transaction giving rise to such Claim,
without any further action on the part of the holder of such Claim.
c. ASSUMED EXECUTORY CONTRACTS CLAIMS
Assumed Executory Contract Claims that are or become Allowed on or
before the Effective Date will be paid in cash on
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the Effective Date or upon such earlier or later date as may be authorized by
order of the Bankruptcy Court. Any Assumed Executory Contract Claim that
becomes an Allowed Claim after the Effective Date will be paid in cash on the
forty-fifth day after the end of the Calendar Quarter in which such Claim
becomes an Allowed Claim. Payment will be made net of any setoff of moneys
owed by the holder of such Claim to TCO. See Section IV.B.2, "Claims Reserve
for Subsequently Allowed Non-General Fund Claims."
d. U.S. TRUSTEE'S FEES
U.S. Trustee's Fee Claims that are unpaid as of the Effective Date
will be paid in full in cash on the Effective Date.
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims that are unpaid as of the
Effective Date, including any obligation to provide collateral, will be assumed
and paid by Reorganized TCO as they become due and payable or as otherwise
directed by the Bankruptcy Court.
2. PRIORITY TAX CLAIMS
Each Priority Tax Claim that is Allowed on the Effective Date will be
paid, to the extent Allowed, in cash on the Effective Date; provided, however,
that if and to the extent any such Priority Tax Claim is for Federal income
taxes allocable to entities other than TCO in accordance with the terms of the
Tax Allocation Agreement, such Claim will be paid by TCO only if not
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paid on or before the Effective Date by Columbia or such other entity, in which
case Reorganized TCO shall assert a claim for any amount so paid against the
entity to which such obligation is allocable under the Tax Allocation Agreement
(a "Tax Reimbursement Claim"). Columbia, as part of the Columbia Guaranty,
shall guarantee to Reorganized TCO the full, due and prompt payment by any
affiliate of Columbia of any sums owing to Reorganized TCO in respect of any
Tax Reimbursement Claim. Any amounts paid to Reorganized TCO in respect of a
Tax Reimbursement Claim will be paid over by Reorganized TCO to the General
Fund Trustee for distribution to the holders of Allowed General Fund Claims.
Any Priority Tax Claim that becomes an Allowed Claim after the Effective Date
will be paid, to the extent described above, in cash within thirty (30) days
from the date on which it becomes an Allowed Claim.
3. EAST LYNN CONDEMNATION OBLIGATION
On the Effective Date, the East Lynn Condemnation Award will be
delivered to CNR, except to the extent CNR subordinates its right to receive
such distribution in favor of the holders of General Fund Claims that are
Allowed as of the Effective Date as provided in Section VIII.B, "Conditions to
Effective Date."
B. TREATMENT OF CLASSIFIED CLAIMS
1. CLASS 1 CLAIMS - SECURED CLAIMS
a. CLASS 1.1 - CHEMICAL BANK'S SECURED CLAIM
Each Class 1.1 Claim will be paid in full on the Effective Date, if
then Allowed, or, if not then Allowed, on the forty-
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fifth day after the end of the Calendar Quarter in which such Claim becomes an
Allowed Claim. See Section IV.B.2, "Claims Reserve for Subsequently Allowed
Non-General Fund Claims." On the Effective Date, the DIP Facility will
terminate by its terms and any then outstanding letters of credit under the DIP
Facility, if not extended by agreement between Reorganized TCO and Chemical
Bank, will be replaced on terms acceptable to Reorganized TCO. Class 1.1
Claims are unimpaired.
b. CLASS 1.2 - SECURED PRODUCER CLAIMS
On the Effective Date, TCO shall pay to each holder of a Class 1.2
Claim that is then Allowed, cash in an amount equal to the lesser of (i) the
Allowed amount of such Claim, including post-petition interest to the extent
Allowed by the Bankruptcy Court, and (ii) the value of such holder's collateral
as determined by the Bankruptcy Court. Any Class 1.2 Claim that is not Allowed
as of the Effective Date but that becomes an Allowed Claim after the Effective
Date shall be paid in cash in such amount on the forty-fifth day after the end
of the Calendar Quarter in which such Claim becomes an Allowed Claim. See
Section IV.B.2, "Claims Reserve for Subsequently Allowed Non-General Fund
Claims." Any deficiency Claim is treated as a general Unsecured Claim in the
appropriate category of Class 3. Class 1.2 Claims are unimpaired.
c. CLASS 1.3 - SECURED TAX CLAIMS
On the Effective Date, TCO shall pay to each holder of a Class 1.3
Claim that is then Allowed, cash in an amount equal to
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the lesser of (i) the Allowed amount of such Claim, including post-petition
interest and penalties to the extent Allowed by the Bankruptcy Court, and (ii)
the value of such holder's collateral as determined by the Bankruptcy Court.
Any Class 1.3 Claim that becomes an Allowed Claim after the Effective Date will
be paid in cash in such amount on the forty-fifth day after the end of the
Calendar Quarter in which such Claim becomes an Allowed Claim. See Section
IV.B.2, "Claims Reserve for Subsequently Allowed Non-General Fund Claims."
Class 1.3 Claims are unimpaired.
d. CLASS 1.4 - OTHER SECURED CLAIMS
On the Effective Date, TCO shall satisfy each Class 1.4 Claim which
is then Allowed by, at TCO's option (i) paying each holder of such Allowed
Claim cash in an amount equal to the lesser of (x) the Allowed amount of such
Claim, including post-petition interest to the extent Allowed by the Bankruptcy
Court, and (y) the value of such holder's collateral as determined by the
Bankruptcy Court, (ii) reinstating the maturity of the obligation giving rise
to such Allowed Claim and curing all defaults in connection therewith in
accordance with the provisions of section 1124 of the Bankruptcy Code, or (iii)
permitting setoff of such Allowed Claim against any obligation the holder of
such Claim may have to TCO. Any Class 1.4 Claim that becomes an Allowed Claim
after the Effective Date will, on the forty-fifth day after the end of the
Calendar Quarter in which such Claim becomes an Allowed Claim, receive the
treatment described in the preceding sentence. See Section IV.B.2, "Claims
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Reserve for Subsequently Allowed Non-General Fund Claims." Any deficiency
Claim is treated as a general Unsecured Claim in the appropriate category of
Class 3. Class 1.4 Claims are unimpaired.
2. CLASS 2.1 CLAIM - COLUMBIA SECURED CLAIM
The Columbia Secured Claim shall be Allowed as Filed.
On the Effective Date, Columbia shall receive in respect of the
Columbia Secured Claim, newly issued debt securities of Reorganized TCO (which
will be secured by all of the assets of Reorganized TCO) having a principal
amount calculated to provide Reorganized TCO with an appropriate funded
debt-to-equity ratio as of the Effective Date, and the right to retain the
presently outstanding common stock of Reorganized TCO, with the remainder of
the Columbia Secured Claim to be contributed to the capital of Reorganized TCO.
The terms of such debt securities will be as proposed by TCO and approved by
the Bankruptcy Court on or before the Effective Date.
The Class 2.1 Claim is impaired.
3. CLASS 3 CLAIMS - UNSECURED CLAIMS
a. SETTLEMENT VALUES
A dollar amount (a "Settlement Value") has been proposed for (i) each
Claim in Classes 3.3A, 3.3D, 3.4 and 3.5A, identified as such prior to the Plan
Mailing Date, and (ii) each of those Claims in Classes 3.1, 3.2, 3.3B, 3.6, 3.7
and 3.8 identified as such prior to the Plan Mailing Date for which TCO
believes it has sufficient information to formulate an
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appropriate proposal. The Settlement Values, determined as set forth below,
are listed on one of the schedules (one for each such class) annexed hereto as
Exhibits D-1 through D-10:
(i) The Settlement Value proposed for each Settlement Value
Claim which is an Allowed Claim as of the Plan Mailing Date is the
Allowed amount of the Claim as of that date and accordingly is deemed
accepted by the holder thereof without any further action on its
part.
(ii) The Settlement Value proposed for each Settlement Value
Claim which is not an Allowed Claim on the Plan Mailing Date is the
amount at which TCO, in light of all the relevant facts known to it ,
believes the Claim should, and consents to have the Claim, be
Allowed.
(iii) The Settlement Value for each Claim in Class 3.3D has
been determined by calculating such Claim in accordance with the same
methodology as was used to determine the amount of each Class 3.3C
Claim for the purpose of making distributions under the Enterprise
Energy Settlement Agreement and multiplying the amount so determined
for each such Claim by a fraction, the numerator of which is $30
million and the denominator of which is the aggregate of all Claims
settled under the Enterprise Energy Settlement Agreement as the same
were calculated for the purpose of receiving distributions
thereunder.
(iv) The Settlement Values for Class 3.4 are calculated as of
the date set forth on Exhibit D-6 and will be adjusted as of the
Effective Date to reflect refunds received by TCO subsequent to such
calculation date.
Each holder of a Settlement Value Claim that agrees to accept the
Settlement Value proposed for its Claim will be deemed to have agreed to have
its Claim Allowed at its Settlement Value and the Claim will, subject to
Bankruptcy Court approval, be so Allowed, as of the Voting Deadline, for voting
and distribution purposes, in the Class in which such Claim is classified by
virtue of such allowance. If the holder of a Settlement Value
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Claim does not agree to accept the proposed Settlement Value, allowance of its
Claim will be determined by litigation before the Claims Mediator or the
Bankruptcy Court or by settlement approved by the Bankruptcy Court. If the
Plan is not consummated for any reason, the agreement to accept a Settlement
Value may be nullified at the option of the holder of the Claim by written
notice to TCO in accordance with such procedure as shall be determined by the
Bankruptcy Court.
Settlement Value Claims (other than Claims in Classes 3.1, 3.3C, and
3.3D, which are unimpaired and accordingly are not voted on the Plan) (i) if
Allowed as of the Voting Deadline, whether by acceptance of its proposed
Settlement Value or otherwise, may be voted at its Allowed amount, or (ii) if
Disputed as of the Voting Deadline, may be allowed for voting purposes at its
proposed Settlement Value if one is proposed, or as otherwise determined by
order of the Bankruptcy Court.
For certain of those Class 3.8 Claims for which no Settlement Value
has been proposed (the "Aggregate Settlement Value Claims") there is proposed
on Exhibit D-10 one amount (the "Aggregate Settlement Value") which is not
allocated among such Claims but which is the aggregate amount at which TCO, in
the light of all the relevant facts known to it, believes such Claims should,
and TCO will consent to have such Claims, be Allowed.
If each of the Aggregate Settlement Value Claims is voted in favor of
the Plan, such votes shall be deemed an agreement among the holders of such
Claims and TCO that such Claims will,
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subject to Bankruptcy Court approval, be Allowed at amounts which aggregate the
Aggregate Settlement Amount. In such event, the amount at which each Aggregate
Settlement Value Claim will be Allowed will be determined by consent among the
parties, subject to Bankruptcy Court approval, or by the Bankruptcy Court
through the Claims Estimation Procedures or such other methodology as the
Bankruptcy Court may determine. If the Plan is not consummated for any reason,
the agreement described in the first sentence of this paragraph may be
nullified at the option of the holder of any of the Aggregate Settlement Value
Claims by written notice to TCO in accordance with such procedure as shall be
determined by the Bankruptcy Court.
If the holder of any of the Aggregate Settlement Value Claims does
not accept the proposed Aggregate Settlement Value, TCO may continue the Claims
Estimation Procedures with respect to such Claims and may petition the
Bankruptcy Court to establish the maximum aggregate amount at which such Claims
may be Allowed.
b. CLASS 3.1 - UNSECURED CLAIMS OF $50,000 OR LESS
On the Effective Date, TCO shall pay to each holder of a Class 3.1
Claim that is then Allowed, cash in an amount equal to one hundred (100%)
percent of the Allowed amount of such Claim. Any Class 3.1 Claim that becomes
an Allowed Claim after the Effective Date will be paid in cash its Allowed
amount on the forty-fifth day after the end of the Calendar Quarter in which
such Claim becomes an Allowed Claim. See Section IV.B.2, "Claims Reserve for
Subsequently Allowed Non-General Fund Claims." If
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the Plan is not consummated, any voluntary reduction made by a holder of a
Claim in order to receive for such Claim the treatment provided for Class 3.1,
may be nullified at the option of the holder of the Claim by written notice to
TCO in accordance with such procedure as shall be determined by the Bankruptcy
Court. Class 3.1 Claims are unimpaired.
c. CLASS 3.2 - UNSECURED CLAIMS IN EXCESS OF $50,000 BUT NOT
IN EXCESS OF $250,000
If Class 3.2 votes to accept the Plan, TCO shall pay to each holder
of an Allowed Class 3.2 Claim, cash in an amount equal to ninety-five (95%)
percent of the Allowed amount of such Claim, on the Effective Date, if the
Claim is then Allowed, or if not then Allowed, then on the forty-fifth day
after the end of the Calendar Quarter in which such Claim becomes an Allowed
Claim. See Section IV.B.2, "Claims Reserve for Subsequently Allowed
Non-General Fund Claims." In addition, after the occurrence of the Sharing
Event with respect to Class 3.2, each Claim in this Class will become a Sharing
Claim and each holder of an Allowed Class 3.2 Claim shall receive, from the
General Fund, distributions, in part in cash and in part in shares of Columbia
Stock (or, if Columbia so elects, entirely in cash), such that the value of the
recovery, as a percentage of the Allowed amount of the Claim, to each holder of
an Allowed Class 3.2 Claim shall equal, on the same percentage basis, the value
of the recovery to holders of Allowed General Fund Claims. Such distributions
from the General Fund, if any, shall be made quarterly in accordance with the
Distribution Formula.
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If Class 3.2 rejects the Plan, each Claim in this Class will become a
General Fund Claim and will receive distributions in accordance with the
Distribution Formula.
See Section III.B.3.i, "Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 -
General Fund Claims" and Section IV.C, "Distributions to Holders of General
Fund Claims."
If the Plan is not consummated, any voluntary reduction made by the
holder of a Claim in order to receive for its Claim the treatment provided for
Class 3.2 may be nullified at the option of such holder by written notice to
TCO in accordance with such procedure as shall be determined by the Bankruptcy
Court.
Class 3.2 Claims are impaired.
d. CLASS 3.3A CLAIMS - UNSECURED RECOVERABLE NON-GAS COST CLAIMS
If Class 3.3A votes to accept the Plan, each holder of an Allowed
Class 3.3A Claim shall receive a distribution in cash in an amount equal to
ninety (90%) percent of the Allowed amount of such Claim. In addition, after
the occurrence of the Sharing Event with respect to Class 3.3A, each Claim in
this Class will become a Sharing Claim and each holder of an Allowed Class 3.3A
Claim shall receive, from the General Fund, distributions, in part in cash and
in part in shares of Columbia Stock (or, if Columbia so elects, entirely in
cash), such that the value of the recovery, as a percentage of the Allowed
amount of the Claim, to each holder of an Allowed Class 3.3A Claim shall equal,
on the same percentage basis, the value of the recovery to holders of Allowed
General Fund Claims.
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If Class 3.3A rejects the Plan, each Claim in this Class will become
a General Fund Claim and will receive distributions in accordance with the
Distribution Formula.
See Section III.B.3.i, "Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 -
General Fund Claims" and Section IV.C, "Distributions to Holders of General
Fund Claims."
If Class 3.3A votes to accept the Plan, the distribution with respect
to each Claim shall be made on the Effective Date if the Claim is then Allowed,
or if not then Allowed, then on the forty-fifth day after the end of the
Calendar Quarter in which such Claim becomes Allowed. See Section IV.B.2,
"Claims Reserve for Subsequently Allowed Non-General Fund Claims."
Distributions from the General Fund, if any, shall be made quarterly in
accordance with the Distribution Formula. See Section IV.C, "Distributions to
Holders of General Fund Claims."
Class 3.3A Claims are impaired.
e. CLASS 3.3B CLAIMS - UNSECURED RECOVERABLE GAS COST CLAIMS
If Class 3.3B votes to accept the Plan, each holder of an Allowed
Class 3.3B Claim shall receive a distribution in cash in an amount equal to
ninety (90%) percent of the Allowed amount of such Claim. In addition, after
the occurrence of the Sharing Event with respect to Class 3.3B, each Claim in
this Class will become a Sharing Claim and each holder of an Allowed Class 3.3B
Claim shall receive, from the General Fund, distributions, in part in cash and
in part in shares of Columbia Stock (or, if Columbia so elects, entirely in
cash), such that the value of the
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recovery, as a percentage of the Allowed amount of the Claim, to each holder of
an Allowed Class 3.3B Claim shall equal, on the same percentage basis, the
value of the recovery to holders of Allowed General Fund Claims.
If Class 3.3B rejects the Plan, each Claim in this Class will become
a General Fund Claim and will receive distributions in accordance with the
Distribution Formula.
See Section III.B.3.i, "Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 -
General Fund Claims" and Section IV.C, "Distributions to Holders of General
Fund Claims."
If Class 3.3B votes to accept the Plan, the distribution with respect
to each Claim shall be made on the Effective Date if the Claim is then Allowed,
or if not then Allowed, then on the forty-fifth day after the end of the
Calendar Quarter in which such Claim becomes Allowed. See Section IV.B.2,
"Claims Reserve for Subsequently Allowed Non-General Fund Claims."
Distributions from the General Fund, if any, shall be made quarterly in
accordance with the Distribution Formula. See Section IV.C, "Distributions to
Holders of General Fund Claims."
Class 3.3B Claims are impaired.
f. CLASS 3.3C CLAIMS - ENTERPRISE ENERGY CLAIMS
On the Effective Date, TCO shall pay to the trustee under the
Enterprise Energy Settlement Agreement the sum of $15 million in cash for
distribution to each holder of an Allowed Claim in this Class in accordance
with and after giving effect to any distributions required to be made to others
under the Enterprise
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Energy Settlement Agreement. Any contract rejection Claim arising from the
rejection of a gas purchase contract from which a Class 3.3C Claim arises shall
be deemed to arise from the rejection of such contract as the same is required
to be amended in accordance with the terms of the Enterprise Energy Settlement
Agreement and shall otherwise remain unaffected by the treatment of Class 3.3C
Claims under the Plan.
Class 3.3C Claims are unimpaired.
g. CLASS 3.3D - ENTERPRISE ENERGY OPT-OUT CLAIMS
Each Accepting 3.3D Claimant shall receive a distribution in cash in
an amount equal to one hundred (100%) percent of the Allowed amount of its
Claim. Any Class 3.3D Claim, the holder of which is not an Accepting 3.3D
Claimant will become a Class 3.7 Claim, will vote in Class 3.7 and, if it
becomes Allowed, will receive distributions in accordance with the Distribution
Formula.
Any contract rejection Claim arising from the rejection of a gas
purchase contract from which a Class 3.3D Claim arises shall be deemed to arise
from the rejection of such contract as the same would be constituted if it were
to be amended in accordance with the terms of the Enterprise Energy Settlement
Agreement and shall otherwise remain unaffected by the treatment of Class 3.3D
Claims under the Plan.
See Section III.B.3.i, "Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 -
General Fund Claims" and Section IV.C, "Distributions to Holders of General
Fund Claims."
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Distributions to Accepting 3.3D Claimants shall be made on the
Effective Date.
Class 3.3D Claims are unimpaired.
h. CLASS 3.4 CLAIMS - UNSECURED CUSTOMER CLAIMS AND GRI CLAIMS
On the Effective Date, each Class 3.4 Claim shall be Allowed to the
extent of its holder's entitlement under the 1990 Rate Case Settlement in
respect of such holders 1990 Rate Case Claim and shall receive the treatment
described below.
If Class 3.4 votes to accept the Plan, each Accepting 3.4 Claimant
shall receive on the Effective Date (i) that to which such holder is entitled
under the Trust Fund Decision and Bankruptcy Court orders made in furtherance
or implementation thereof (to the extent not previously paid), (ii) that to
which such holder is entitled under the 1990 Rate Case Settlement (to the
extent not previously paid) and (iii) an amount equal to ninety (90%) percent
of such holder's Allowed Claim remaining after application of any sums paid
pursuant to clauses (i) and (ii) of this sentence or previously paid in respect
of the Trust Fund Decision or of the 1990 Rate Case Settlement. In addition,
after the occurrence of the Sharing Event with respect to Class 3.4, each
Accepting 3.4 Claimant that is a holder of an Allowed Class 3.4 Claim shall
receive, from the General Fund, distributions, in part in cash and in part in
shares of Columbia Stock (or, if Columbia so elects, entirely in cash), such
that the value of the recovery, as a percentage of the Allowed amount of the
Claim, to each such Accepting 3.4 Claimant shall equal, on
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the same percentage basis, the value of the recovery to the holders of Allowed
General Fund Claims.
If Class 3.4 votes to accept the Plan, each Dissenting 3.4 Claimant
will be entitled to pursue its Refund Disputes and shall receive in respect of
its Allowed Class 3.4 Claim (i) that to which such holder is entitled under the
1990 Rate Case Settlement (to the extent not previously paid), (ii) that to
which it is entitled under the terms of any final resolution, by orders not
subject to further review, of the Refund Disputes relating to such Dissenting
3.4 Claimant (to the extent not previously paid), and the balance of its
Allowed Class 3.4 Claim remaining after application of any sums paid pursuant
to clauses (i) and (ii) above will be a General Fund Claim and will receive
distributions in accordance with the Distribution Formula.
See Section III.B.3.i, "Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 -
General Fund Claims" and Section IV.C, "Distributions to Holders of General
Fund Claims."
If Class 3.4 rejects the Plan, each Dissenting 3.4 Claimant will be
entitled to pursue its Refund Disputes and will receive in respect of its
Claim, to the extent it becomes Allowed, the treatment for Dissenting 3.4
Claimants described above, including that to which such holder is entitled
under the 1990 Rate Case Settlement (to the extent not previously paid).
Pending the issuance of final orders in respect of all Refund
Disputes, Reorganized TCO shall maintain the RIA Account and shall thereafter
make distributions therefrom in accordance
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with the provisions of Section IV.B.3, "Reserve for Dissenting 3.4 Claimants."
In no event shall a Dissenting 3.4 Claimant's Claim be deemed
Allowed, and in no event shall any distribution be made to a Dissenting 3.4
Claimant, until all Refund Disputes relating to such Dissenting 3.4 Claimant
have been resolved by final orders that are not subject to further review;
provided, however, that upon a final resolution of all Refund Disputes, by
orders not subject to further review, with respect to and upholding the Trust
Fund Decision, such Claim shall be deemed partially Allowed to the extent of
such claimholder's entitlement under such resolution and distribution will be
made with respect to such Claim as so deemed partially Allowed.
Distributions to each Dissenting 3.4 Claimant shall be made (i) with
respect to its entitlement under the 1990 Rate Case Settlement, on the
Effective Date, (ii) with respect to its entitlement upon final resolution of
the Refund Disputes with respect to the Trust Fund Decision, on the forty-fifth
day after the end of the Calendar Quarter in which such final resolution occurs
and such holder's Claim is Allowed or deemed partially Allowed (to the extent
not previously paid), (iii) with respect to final resolutions of such
Dissenting 3.4 Claimant's other Refund Disputes, in accordance with the terms
of such final resolutions (when all such Refund Disputes are resolved), and
(iv) from the General Fund, if any shall be required, quarterly in accordance
with the Distribution Formula. See Section IV.B.2,
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"Claims Reserve for Subsequently Allowed Non-General Fund Claims," Section
IV.B.3, "Reserve for Dissenting 3.4 Claimants" and Section IV.C, "Distribution
to Holders of General Fund Claims."
Any distributions to be made to a holder of an Allowed Class 3.4
Claim (including any distributions to a Dissenting 3.4 Claimant), shall be
distributed in cash or in such form as may be appropriate under the FERC Gas
Tariff or any relevant order of FERC. If such distribution is made in other
than cash, including, but not limited to, distributions in the form of a credit
to a rate mechanism, Reorganized TCO shall receive the cash which would
otherwise be distributed to such holder from the Claims Reserve or the RIA
Account.
TCO may, in its discretion, petition the Bankruptcy Court for an
order estimating, for voting and distribution purposes, the Claims which are
the subject of the BG&E Appeal and any other Disputed Claims of Dissenting 3.4
Claimants.
If Class 3.4 rejects the Plan, or if the Plan is not consummated, any
acceptance or deemed acceptance of the Waiver Agreement may, at the option of
the holder of the Claim, be considered null and void by written notice to TCO
in accordance with such procedure as shall be determined by the Bankruptcy
Court.
Class 3.4 Claims are impaired.
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i. CLASSES 3.5A, 3.5B, 3.6, 3.7 AND 3.8 - GENERAL FUND CLAIMS
Each holder of an Allowed General Fund Claim shall receive from the
General Fund its Pro Rata Share of the General Fund Distributable Amount, at
the times and in accordance with the Distribution Formula described in Section
IV.C.2.
Each distribution in respect of an Allowed General Fund Claim shall
be made in part in cash and in part in shares of Columbia Stock (or, if
Columbia so elects, entirely in cash) as described in Section IV.C.2,
"Distribution Formula," except to the extent Columbia subordinates its right to
receive such distribution in favor of the holders of General Fund Claims that
are Allowed as of the Effective Date as provided in Section VIII.B, "Conditions
to Effective Date."
The Class 3.5B Claim shall be Allowed as Filed and shall be deemed to
have voted to accept the Plan.
Each of Classes 3.5A, 3.5B, 3.6, 3.7 and 3.8 is impaired.
4. CLASS 4 CLAIMS - OTHER CLAIMS
a. CLASS 4.1 - ENVIRONMENTAL CLAIMS
Claims in Class 4.1 shall survive and be unaffected by entry of the
Confirmation Order. All Class 4.1 Claims shall be assumed by Reorganized TCO
and paid if and when due and payable, either in the course of Reorganized TCO's
business or in accordance with such agreements or stipulations as may be
entered into with the relevant governmental environmental authority. Class 4.1
Claims are unimpaired.
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b. CLASS 4.2 - CERTAIN CONDEMNATION CLAIMS
Claims in Class 4.2 shall survive and be unaffected by entry of the
Confirmation Order. Class 4.2 Claims will be satisfied when and if due in the
ordinary course of Reorganized TCO's business. Class 4.2 Claims are
unimpaired.
c. CLASS 4.3 - PENSION CLAIMS
On the Effective Date, Reorganized TCO will assume its obligations
relating to all employee and retiree benefit or pension plans or programs in
existence as of the Petition Date in full satisfaction of any and all Claims in
Class 4.3. Class 4.3 Claims are unimpaired.
d. CLASS 4.4 - SURETY BOND RELATED CLAIMS
Claims in Class 4.4 shall survive and be unaffected by entry of the
Confirmation Order. Class 4.4 Claims will be satisfied when and if due in the
ordinary course of Reorganized TCO's business. Class 4.4 Claims are
unimpaired.
C. TREATMENT OF INTERESTS
1. CLASS 5 INTERESTS - COMMON STOCK OF TCO
Columbia shall receive no distribution in respect of its Interests.
Class 5 Interests are impaired.
IV. PROVISIONS GOVERNING DISTRIBUTIONS
A. TRANSACTIONS ON THE EFFECTIVE DATE
The following transfers and transactions shall take place on the
Effective Date:
1. Columbia, in consideration of the settlement of the Intercompany
Claims, shall deliver to TCO the cash, the Columbia
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Stock, if any, and the Columbia Guaranty to the extent required by TCO to fund
the distributions to be made to creditors under the Plan, as contemplated by
the Columbia Omnibus Settlement and as described in Section IV.C.1,
"Establishment of General Fund."
2. TCO, as Disbursing Agent, shall make the distributions provided for
in the Plan to be made on the Effective Date to the holders of Allowed
Non-General Fund Claims.
3. Reorganized TCO shall issue and deliver to Columbia new secured debt
securities of Reorganized TCO, as provided in Section III.B.2, "Treatment of
Classified Claims; Class 2.1 Claim - Columbia Secured Claim," in respect of the
Class 2.1 Claim.
4. The General Fund shall be established by the payment by TCO to the
General Fund Trustee of the General Fund Deposit in the manner described in
Section IV.C.1, "Establishment of General Fund."
5. TCO shall establish the Claims Reserve, as provided in Section
IV.B.2, "Claims Reserve for Subsequently Allowed Non-General Fund Claims."
6. TCO shall deposit in or withdraw from the RIA Account such amount as
may be required to cause the amount in the RIA Account to equal the Dissenting
3.4 Claimants Reserve Amount, as provided in Section IV.B.3.a, "Reserve for
Dissenting 3.4 Claimants."
7. The General Fund Trustee shall make the distributions provided for in
the Plan to be made on the Effective Date to the holders of Allowed General
Fund Claims in accordance with the Distribution Formula.
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B. DISTRIBUTIONS ON NON-GENERAL FUND CLAIMS
1. NON-GENERAL FUND CLAIMS ALLOWED AS OF THE EFFECTIVE DATE
Under the Plan, except as otherwise provided, or pursuant to orders
of the Bankruptcy Court, distributions to holders of Non-General Fund Claims
that are Allowed Claims as of the Effective Date will be made by TCO in cash on
the Effective Date, in accordance with the treatment provided for such
Non-General Fund Claims.
2. CLAIMS RESERVE FOR SUBSEQUENTLY ALLOWED NON-GENERAL FUND
CLAIMS
a. GENERAL
On the Effective Date, Reorganized TCO shall establish a reserve (the
"Claims Reserve") by depositing in a segregated interest bearing account, cash
equal to the maximum amount TCO in its discretion estimates is required to be
paid after the Effective Date and is not reserved for in the RIA Account, in
respect of then Disputed Non-General Fund Claims. The Claims Reserve,
including any income earned thereon, net of applicable taxes, if any, on such
income, and any sums transferred to the Claims Reserve from the RIA Account,
shall be available to make the distributions provided for under the Plan to
Non-General Fund Claims which become Allowed after the Effective Date. No
payments or distributions shall be made on account of any Non-General Fund
Claim until such Claim becomes an Allowed Claim.
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b. DISTRIBUTIONS FROM THE CLAIMS RESERVE
Within forty-five (45) days after the end of each Calendar Quarter,
Reorganized TCO shall distribute from the Claims Reserve to each holder of a
Non-General Fund Claim (other than a Professional Claim or a Priority Tax
Claim) that became an Allowed Claim during such Calendar Quarter, the cash to
which such holder is entitled under the Plan to the extent not then or
theretofore paid from the RIA Account. Each subsequently Allowed Professional
Claim and Priority Tax Claim shall be paid from the Claims Reserve in
accordance with the treatment set forth for such Claim in Section III.A,
"Treatment of Unclassified Claims."
In the event that the funds in the Claims Reserve are insufficient to
make the distributions required to be made from the Claims Reserve, Reorganized
TCO shall, from its own funds, deposit into the Claims Reserve funds sufficient
to make the requisite distributions. Such obligation of Reorganized TCO shall
be guaranteed by Columbia as part of the Columbia Guaranty.
c. DISTRIBUTION OF FUNDS REMAINING IN THE CLAIMS RESERVE
From time to time, as any Disputed Non-General Fund Claim is Allowed
or otherwise disposed of at an amount requiring Plan distributions that are
less than the amount which have been reserved therefor in the Claims Reserve,
the amount reserved in the Claims Reserve in respect of such Disputed
Non-General Fund Claim may, at Reorganized TCO's discretion, either be
deposited into the RIA Account, or distributed to the General Fund Trustee.
Any cash remaining in the Claims Reserve after all objections to
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Non-General Fund Claims have been resolved, all distributions have been made in
respect thereof and any transfers have been made to the RIA Account, shall be
distributed as soon as practicable to the General Fund Trustee.
d. TAX REQUIREMENTS FOR INCOME GENERATED BY THE CLAIMS RESERVE
Reorganized TCO, as Disbursing Agent, or such third-party Disbursing
Agent as TCO may appoint pursuant to Section IV.D, shall pay, or cause to be
paid, out of the funds held in the Claims Reserve, any tax imposed by any
governmental unit on the income generated by the funds held in the Claims
Reserve and shall also file, or cause to be filed, any tax or information
return related to the Claims Reserve, and shall withhold with respect to any
distributions therefrom, as is required by any governmental authority.
3. RESERVE FOR DISSENTING 3.4 CLAIMANTS
a. GENERAL
From and after the Effective Date, Reorganized TCO shall continue to
maintain the RIA Account for the purpose of segregating and holding the
Dissenting 3.4 Claimants Reserve Amount, any income that may be earned thereon
and any sums which may be transferred thereto from the Claims Reserve or
otherwise, and for effecting distributions to the Dissenting 3.4 Claimants
entitled thereto in accordance with any final disposition of the Refund
Disputes and the Plan.
As of the Effective Date, the amount in the RIA Account shall be
adjusted to equal the Dissenting 3.4 Claimants Reserve
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Amount. To the extent the funds in the RIA Account on the Effective Date are
in an amount which is (i) less than the Dissenting 3.4 Claimants Reserve
Amount, TCO shall deposit an amount equal to such deficiency in the RIA
Account, on the Effective Date, or (ii) greater than the Dissenting 3.4
Claimants Reserve Amount, the excess shall be available to TCO for its funding
requirements under the Plan and otherwise.
b. DISTRIBUTIONS FROM THE RIA ACCOUNT
Distributions from the RIA Account shall be made to Dissenting 3.4
Claimants in accordance with final resolutions, by orders not subject to
further review, of the Refund Disputes and with applicable law and FERC
regulations and in accordance with the Plan upon Allowance of their respective
Claims. Any sums reserved in the RIA Account in respect of any Refund Claim
that is adjudicated or otherwise determined by Reorganized TCO to no longer be
required for the purpose for which it was reserved may, at Reorganized TCO's
discretion, be deposited into the Claims Reserve or distributed to the General
Fund Trustee.
In the event the funds in the RIA Account are insufficient to make
the distributions required to be made from the RIA Account, Reorganized TCO
shall, from its own funds, deposit into the RIA Account funds sufficient to
make the requisite distributions. Such obligation of Reorganized TCO shall be
guaranteed by Columbia as part of the Columbia Guaranty.
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c. DISTRIBUTION OF FUNDS REMAINING IN THE RIA ACCOUNT
Any cash remaining in the RIA Account after all Refund Disputes have
been resolved, all distributions have been made in respect thereof, all
distributions required under the Plan to Dissenting 3.4 Claimants have been
made and any transfers have been made to the Claims Reserve, shall be
distributed as soon as practicable to the General Fund Trustee.
C. DISTRIBUTIONS TO HOLDERS OF GENERAL FUND CLAIMS
1. ESTABLISHMENT OF GENERAL FUND
On the Effective Date, TCO shall establish a trust (the "General
Fund") to effect distributions to the holders of Allowed General Fund Claims by
delivering to the General Fund Trustee the amount of the General Fund Deposit,
of which $100 million shall be in the form of Columbia Stock and the balance
shall be in cash; provided, however, that Columbia may elect to have the
General Fund Deposit funded entirely in cash and provided further, that in lieu
of any portion of the General Fund Deposit consisting of cash not required for
distribution on the Effective Date, Reorganized TCO may, at its option, deliver
to the General Fund Trustee its unsecured promissory note (the "TCO Note"), in
such principal amount, bearing a rate of interest equal to the rate income is
earned from time to time on any cash in the General Fund, and payable in
installments when and as distributions are required to be made from the General
Fund, each such installment to be in an amount equal to that percentage of the
required distribution which the principal amount of the TCO
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Note bears to the General Fund Distributable Amount. Columbia, as part of the
Columbia Guaranty, shall guarantee the full, due and prompt payment by
Reorganized TCO of the TCO Note. The terms of the TCO Note will be as proposed
by TCO and approved by the Bankruptcy Court on or before the Effective Date.
The General Fund Trustee, and such entities as the General Fund
Trustee shall designate for such purpose, shall make the distributions required
under the Plan to be made from the General Fund in accordance with the
Distribution Formula described in Section IV.C.2.
2. DISTRIBUTION FORMULA
Each holder of an Allowed General Fund Claim will be entitled to
receive its Pro Rata Share of the General Fund Distributable Amount.
On the Effective Date and thereafter within forty-five (45) days
after the end of each Calendar Quarter until the Termination Date,
distributions shall be made from the General Fund to each holder of an Allowed
General Fund Claim in an amount derived in accordance with the following
formula:
D=(FxA)-P
-
T
where
D = the amount to be distributed to the holder of an
Allowed General Fund Claim
F = the General Fund Distributable Amount as of the
Effective Date or as of the end of the Calendar
Quarter with respect to which the calculation
is being made, as the case may be
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A = the amount of such holder's Allowed General Fund
Claim
T = the aggregate, as of the Effective Date or as
of the end of the Calendar Quarter with respect to
which the calculation is being made, as the case may
be, of (i) the Allowed amounts of all Allowed
General Fund Claims and (ii) the aggregate amount of
the Disputed General Fund Claims as Filed or as
capped by estimation or other procedure approved by
the Bankruptcy Court
P = the aggregate of all distributions theretofore
made from the General Fund to the holder of such
Allowed General Fund Claim under the Plan; provided,
however, that if the result from such subtraction is
negative or zero, the distribution with respect to
such Claim shall equal zero.
The Columbia Stock shall be valued, voted and distributed pursuant to
procedures proposed by TCO and approved by the Bankruptcy Court.
3. DELAY OF DISTRIBUTION
Notwithstanding anything else herein contained, if at the end of any
Calendar Quarter, the aggregate of the distributions then required to be made
to the holders of Allowed General Fund Claims is less than $25 million and does
not constitute the remaining balance of the General Fund Distributable Amount,
the General Fund Trustee may in its discretion elect not to make such
distribution, in which case it shall add such distributable amounts to the
amounts to be distributed at the end of the next Calendar Quarter.
4. FUNDS REMAINING IN THE GENERAL FUND UPON TERMINATION
The General Fund shall terminate on the Termination Date. Any assets
remaining in the General Fund on the Termination Date
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in excess of the amounts that remain distributable pursuant to the Distribution
Formula or that are required to pay Post-Effective Date Costs shall be
available for the payment of such post-petition interest to Creditors as may be
Allowed by the Bankruptcy Court and any balance remaining after payment of such
interest shall be turned over by the General Fund Trustee to Reorganized TCO on
the Termination Date, net of applicable taxes, if any, with respect thereto.
5. TAX REQUIREMENTS OF THE GENERAL FUND
The General Fund Trustee shall pay or cause to be paid, out of the
General Fund, any tax imposed by any governmental unit on the income generated
by the General Fund. The General Fund Trustee shall also file, or cause to be
filed, any tax or information returns related to the General Fund and shall
satisfy any withholding obligation with respect to any distribution therefrom.
D. REORGANIZED TCO OR THIRD PARTY AS DISBURSING AGENT FOR NON-GENERAL
FUND CLAIMS
Reorganized TCO, as Disbursing Agent, or such third-party Disbursing
Agent as Reorganized TCO may in its sole discretion employ, shall make all
distributions of cash required in respect of the Non-General Fund Claims under
the Plan. Each such Disbursing Agent shall serve without bond, and each such
third-party Disbursing Agent shall be entitled to receive, from the applicable
reserve, without further Bankruptcy Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable
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out-of-pocket expenses incurred in connection with such services, on terms
acceptable to Reorganized TCO.
E. POST-EFFECTIVE DATE COSTS
Each of TCO, Reorganized TCO, the Claims Supervision Committee, the
General Fund Trustee and each other Disbursing Agent, if any, shall be entitled
to be reimbursed from the General Fund for any and all Post-Effective Date
Costs incurred by it. To obtain such reimbursement, the entity claiming
reimbursement shall submit to the General Fund Trustee, with copies to
Reorganized TCO and the Claims Supervision Committee, a written request for
such reimbursement setting forth in reasonable detail the nature and basis for
and supporting evidence of the Post-Effective Date Costs for which
reimbursement is being sought. The General Fund Trustee shall make payment in
accordance with such request not less than ten (10) nor more than twenty (20)
days after receipt of such request unless on or before such tenth day the
General Fund Trustee, Reorganized TCO or the Claims Supervision Committee shall
object in writing (delivered by such objecting party to the other two entities)
to such reimbursement. In the event the parties do not resolve any dispute
within thirty (30) days after submission of the request for reimbursement, the
party requesting the reimbursement may File a request for payment with the
Bankruptcy Court, which shall retain jurisdiction for the purpose of resolving
any such dispute. Any entity having a right to reimbursement hereunder
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shall have the right to set off any sums owed to it against funds in its
possession payable to the General Fund Trustee.
F. DELIVERY OF DISTRIBUTIONS; UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to each holder of an Allowed Claim shall be made (i) at
the address set forth on the proof of Claim Filed by such holder, (ii) at the
address set forth in any written notice of address change delivered to the
relevant Disbursing Agent after the date of Filing of any related proof of
Claim, or (iii) at the address of such holder reflected in the Schedule of
Liabilities if no proof of Claim has been Filed and the relevant Disbursing
Agent has not received a written notice of a change of address.
2. UNCLAIMED DISTRIBUTIONS
An Unclaimed Distribution shall be any distribution made to the
holder of an Allowed Claim pursuant to the Plan including, in the case of any
check or other instrument, the proceeds thereof, that (i) is returned to
Reorganized TCO, the General Fund Trustee or other Disbursing Agent as
undeliverable or because delivery thereof is not accepted, or (ii) in the case
of a distribution made in the form of a check or other instrument, is not
negotiated.
Any Unclaimed Distribution shall, until such time as such Unclaimed
Distribution becomes deliverable, be paid over by the Disbursing Agent to
Reorganized TCO, which shall hold such funds and may commingle them with its
other funds; provided, however,
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that any holder of an Allowed Claim that does not claim an Unclaimed
Distribution within the later of five (5) years after the Effective Date or two
(2) years after such Claim became an Allowed Claim shall have its Claim for
such Unclaimed Distribution discharged, shall not participate in any further
distributions under the Plan, and shall be forever barred from asserting any
such Claim against Reorganized TCO or its property. Any cash held for
distribution on account of such holder's Claim and any accumulated income
thereon shall be property of Reorganized TCO, free of any restrictions thereon.
To the extent that such undeliverable cash and any income thereon are held by a
third-party Disbursing Agent, the third-party Disbursing Agent shall pay over
such cash and income to Reorganized TCO. Nothing contained in the Plan shall
require any Disbursing Agent, the General Fund Trustee or Reorganized TCO to
attempt to locate any holder of an Allowed Claim other than by reviewing its
own or Reorganized TCO's records.
Within forty-five (45) days after the end of each Calendar Quarter,
Reorganized TCO, the General Fund Trustee, or other Disbursing Agent, as
applicable, shall distribute all such previously Unclaimed Distributions that
became deliverable during the preceding Calendar Quarter.
G. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in United States
dollars by check drawn on a domestic bank selected by TCO or Reorganized TCO,
or by wire transfer from a domestic bank, at
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the option of TCO or Reorganized TCO; provided, however, that cash payments to
foreign creditors, if any, may be made, at the option of TCO or Reorganized
TCO, in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction.
H. SETOFFS
Reorganized TCO may set off or direct the General Fund Trustee to set
off on behalf of Reorganized TCO, against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim, the
claims, rights and causes of action of any nature that TCO or Reorganized TCO
may hold against the holder of such Allowed Claim; provided, however, that
neither the failure to effect such a set off nor the allowance of any Claim
hereunder shall constitute a waiver or release by TCO or Reorganized TCO of any
such claim, right or cause of action that TCO or Reorganized TCO may possess
against such holder.
Any amounts set off by the General Fund Trustee on behalf of
Reorganized TCO shall be paid by the General Fund Trustee to Reorganized TCO
from the General Fund in cash.
I. EFFECTIVE DATE PAYMENTS OR DISTRIBUTIONS
Any payment or distribution that is required under the Plan to be
made on the Effective Date, if made as soon as practicable thereafter, shall be
deemed to have been made on the Effective Date.
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J. LIMIT ON DISTRIBUTIONS
Anything to the contrary contained in the Plan notwithstanding, no
holder of a Claim shall receive under the Plan more than the Allowed amount of
such Claim, plus any post-petition interest to which such Claim holder may be
entitled pursuant to the Plan, any order of the Bankruptcy Court, FERC orders
or regulations, or other applicable law. All payments and distributions to be
made under the Plan shall be made without interest, penalty or late charge
arising subsequent to the Petition Date, except as expressly provided by the
Plan.
K. CONTINUATION OF CERTAIN RETIREMENT, WORKERS' COMPENSATION AND
LONG-TERM DISABILITY BENEFITS
Notwithstanding anything to the contrary herein contained, all
employee and retiree benefit plans or programs in existence as of the Petition
Date shall continue after the Effective Date as required by sections
1114(e)(1)(B) and 1114(g) of the Bankruptcy Code.
V. MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN REORGANIZED
TCO
TCO shall continue to exist after the Effective Date as Reorganized
TCO, a Delaware corporation, with all the powers of a corporation under
applicable law and without prejudice to any right to alter or terminate such
existence (whether by merger or otherwise) under Delaware state law, subject to
the terms and provisions of this Plan and the Confirmation Order. Except as
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otherwise provided in the Plan, on or after the Effective Date, all property of
the Estate, and any property acquired by TCO or Reorganized TCO under any
provisions of the Plan, shall vest in Reorganized TCO, free and clear of all
Claims, liens, charges and other encumbrances. On and after the Effective
Date, Reorganized TCO may operate its business and may use, acquire and dispose
of property and compromise or settle any claims against it without supervision
or approval by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan and the Confirmation Order. Without limiting the
foregoing, Reorganized TCO may pay the charges that it incurs on or after the
Effective Date for professional fees, disbursements, expenses or related
support services without application to the Bankruptcy Court.
B. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS
1. CERTIFICATE OF INCORPORATION AND BY-LAWS
Upon the Effective Date, the certificate of incorporation and the
by-laws of Reorganized TCO shall be unchanged except that the certificate of
incorporation shall be amended to prohibit the issuance of non-voting equity
securities to the extent required by section 1123(a) of the Bankruptcy Code.
After the Effective Date, Reorganized TCO may amend and restate its certificate
of incorporation or by-laws as permitted by the Delaware General Corporation
Law.
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2. DIRECTORS AND OFFICERS OF REORGANIZED TCO
Those persons serving as the Directors and Officers of TCO as of the
date hereof will, subject to changes in the ordinary course of business,
continue to serve in their same capacities on behalf of Reorganized TCO after
Confirmation.
3. CORPORATE ACTION
Upon the Effective Date, adoption by Reorganized TCO of the amendment
to the certificate of incorporation and the other matters contemplated by or
provided for under the Plan involving the corporate structure of TCO or
Reorganized TCO or corporate action to be taken by or required of either TCO or
Reorganized TCO shall be deemed to have occurred and be effective and all
actions required or contemplated in order to consummate the Plan shall be
authorized and approved in all respects without any requirement of further
action by stockholders or directors of TCO or Reorganized TCO.
C. PRESERVATION OF RIGHTS OF ACTION
Except as provided elsewhere in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into or
created in connection with the Plan, in accordance with section 1123(b) of the
Bankruptcy Code, Reorganized TCO shall retain and may enforce any claims,
rights and causes of action that either TCO or its Estate may hold against any
entity and shall retain the right to prosecute all adversary proceedings
asserting Avoidance Claims that are pending before the Bankruptcy Court as of
the Effective Date. All other
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Avoidance Claims will be released. Reorganized TCO or its successors may
pursue such retained claims, rights or causes of action, as appropriate, in
accordance with the best interests of Reorganized TCO. Reorganized TCO
reserves the right to seek recovery from Customers of payments made pursuant to
the Plan which are recoverable under applicable FERC regulations or orders,
regardless of the characterization of the Claim in respect of which such
payment is made and regardless of the Class in which such Claim is classified.
D. THE CLAIMS ESTIMATION PROCEDURES
Following the Effective Date, all Disputed Claims subject to the
Claims Estimation Procedures will continue to be subject thereto and each such
Claim will be liquidated in accordance with the Claims Estimation Procedures.
After the Effective Date, Reorganized TCO shall continue to participate in the
Claims Estimation Procedures.
E. RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan, on the Effective Date, all mortgages, deeds of trust,
liens or other security interests against the property or assets of the Estate
shall be deemed discharged and satisfied, and all the right, title and interest
of any holder of any such mortgage, deed of trust, lien or other security
interest shall revert to Reorganized TCO and its successors and assigns. The
new debt securities issued by
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Reorganized TCO in payment of the Columbia Secured Claim will be secured by the
lien on the assets of Reorganized TCO in favor of Wilmington Trust Company (or
any successor thereto) for the benefit of Columbia.
F. TCO'S FUNDING OBLIGATIONS
TCO and Reorganized TCO shall be obligated to fund all cash payments
required to be made under the Plan, on the Effective Date or otherwise,
including but not limited to, payments (i) to the holders of Non-General Fund
Claims on the Effective Date, (ii) by the General Fund Trustee, from time to
time, to the holders of Allowed General Fund Claims, (iii) from the Claims
Reserve and the RIA Account, and (iv) in respect of those obligations expressly
assumed by Reorganized TCO under the Plan (collectively, the "TCO Obligation").
G. COLUMBIA GUARANTY
Columbia shall unconditionally guaranty the full and prompt payment
by (i) TCO and Reorganized TCO of any amounts required to be paid by them
pursuant to those portions of the TCO Obligation described in clauses (i), (ii)
and (iii) of Section V.F and (ii) any subsidiary of Columbia of any obligation
of such subsidiary in respect of any Tax Reimbursement Claim (the "Columbia
Guaranty").
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VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS
A. BAR DATE FOR OBJECTIONS TO CERTAIN NON-ADMINISTRATIVE CLAIMS
1. POTENTIAL DISPUTED CLAIMS
Objections, if any, to Claims that are not Administrative Claims and
that (i) are listed on the Schedule of Liabilities as undisputed, liquidated
and not contingent or (ii) as of the date of the hearing on the Disclosure
Statement have been Filed and have not been Allowed by order of the Bankruptcy
Court (all of such Claims collectively, the "Potential Disputed Claims"), shall
be Filed at least ten (10) Business Days prior to the Plan Mailing Date, unless
the Bankruptcy Court orders otherwise. Any Potential Disputed Claim that has
not been objected to prior to such deadline shall be an Allowed Claim in the
appropriate Class.
2. CLAIMS SUBJECT TO THE CLAIMS ESTIMATION PROCEDURES
All objections by TCO and all other parties-in-interest to Producer
Claims which are the subject of the Claims Estimation Procedures shall be
governed by the provisions of the Claims Estimation Procedures or by other
orders of the Bankruptcy Court relating to such Claims.
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3. OTHER NON-ADMINISTRATIVE CLAIMS
Any non-Administrative Claim which was not Filed at least thirty (30)
days prior to the date of the hearing on the Disclosure Statement may be
objected to by TCO or Reorganized TCO, the Creditors' Committee or the Claims
Supervision Committee by the later of (i) the Effective Date or (ii) sixty (60)
days after a proof of Claim with respect to such Claim has been Filed. Any
such Claim that has not been objected to on or prior to such date shall be an
Allowed Claim in the appropriate Class.
B. BAR DATES FOR CERTAIN ADMINISTRATIVE CLAIMS
1. PROFESSIONAL CLAIMS
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested pursuant to section 503(b)(4) of the
Bankruptcy Code by any Professional or other entity for making a "substantial
contribution" in the Reorganization Case) shall File and serve on Reorganized
TCO, the U.S. Trustee, the Fee Examiner and the Claims Supervision Committee an
application for final allowance of compensation and reimbursement of expenses
no later than thirty (30) days after the Effective Date; provided, however,
that any Professional who may receive compensation or reimbursement of expenses
pursuant to the Administrative Fee Order or other such order of the Bankruptcy
Court may continue to receive such compensation and reimbursement of expenses
for
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services rendered before the Effective Date. Objections to applications of
Professionals or other entities for compensation or reimbursement of expenses
must be Filed and served on Reorganized TCO, the U.S. Trustee, the Fee
Examiner, the Claims Supervision Committee and the requesting party no later
than sixty (60) days after the Effective Date.
2. BAR DATE FOR ADMINISTRATIVE CLAIMS ARISING FROM REJECTION OF
EXECUTORY CONTRACTS OR UNEXPIRED LEASES
Bar dates for Administrative Claims arising from the
rejection of executory contracts or unexpired leases shall be established as
set forth in Section VII.C.
C. AUTHORITY TO PROSECUTE OBJECTIONS
Subject to the Bar Dates and other limitations set forth in this
Section VI and in Section VII.C, after the Effective Date, only Reorganized TCO
and the Claims Supervision Committee shall have the authority to File
objections, and each shall have authority to settle, compromise, withdraw or
litigate to judgment objections to Claims Filed by it, upon notice to the other
party and subject to the approval of the Bankruptcy Court.
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES
A. GENERAL
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture, or other agreement or document entered into in
connection with the Plan, on the Effective Date, (i) all of TCO's executory
contracts that have not been expressly assumed or rejected by order of the
Bankruptcy
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Court as of the Confirmation Date and that are listed on Exhibit 5 attached to
the Disclosure Statement shall be assumed or rejected or otherwise dealt with
as set forth on said Exhibit 5, and (ii) all other executory contracts that
have not been so expressly assumed shall be rejected.
B. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Any monetary amounts by which any executory contract or unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied,
pursuant to section 1123(a)(5)(G) of the Bankruptcy Code, by payment of the
defaulted amount in cash on the Effective Date, to the extent not previously
paid, or on such other terms as are agreed to by TCO and the parties to such
executory contract or unexpired lease. In the event of a dispute regarding (i)
the amount of any cure payments, (ii) the ability of Reorganized TCO to provide
"adequate assurance of future performance" (within the meaning of section 365
of the Bankruptcy Code) under the contract or lease to be assumed or (iii) any
other matter pertaining to assumption, the cure payments required by section
1123(a)(5)(G) of the Bankruptcy Code will be made following the entry of a
Final Order resolving the dispute and approving the assumption.
C. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant
to the Plan or the Confirmation Order gives rise to an Unsecured Claim or
Administrative Claim by the other party or parties to such contract or lease,
such Claim will be forever
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barred and will not be enforceable against TCO, Reorganized TCO or its
successors, or the properties of any of them, unless a request for payment,
with respect to Administrative Claims, or a proof of Claim, with respect to
other Claims, is Filed and served on Reorganized TCO within the later of (i)
the time period established by the Bankruptcy Court in its Final Order
authorizing such rejection or (ii) thirty (30) days after the Effective Date.
Objections to any request for payment or proof of Claim shall be filed not
later than sixty (60) days after the Effective Date.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other
obligations incurred by TCO after the Petition Date (unless an order of the
Bankruptcy Court has been entered authorizing rejection of such contracts or
leases) shall survive and remain unaffected by the Plan or entry of the
Confirmation Order.
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The Bankruptcy Court shall not enter the Confirmation Order unless
and until each of the following conditions has been satisfied or, to the extent
permitted, duly waived by TCO, with the consent of Columbia, pursuant to
Section VIII.C:
1. Prior to or concurrently with Confirmation, the Bankruptcy
Court shall have entered an order, pursuant to section 1129 of the Bankruptcy
Code, confirming a Plan of Reorganization
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for Columbia which provides for Columbia to fulfill the terms of the Columbia
Omnibus Settlement and the Columbia Guaranty and for the financing of
Reorganized TCO on terms satisfactory to TCO.
2. Any authorization or approval required under the Public
Utility Holding Company Act of 1935 with respect to Columbia or Reorganized
TCO, or of the transactions contemplated by the Plan or by the Plan of
Reorganization for Columbia, shall have been obtained prior to confirmation of
the Plan and the Plan of Reorganization for Columbia and shall be final and not
subject to further review.
3. The Confirmation Order shall provide that the Intercompany
Claims are deemed settled, released and discharged as provided in Section X.D,
"Settlement of Intercompany Claims."
4. There shall have been no material adverse change to TCO's
business, properties, financial condition, results of operations or business
prospects between the Plan Mailing Date and the Confirmation Date.
5. No material environmental liability Claim shall have been
Filed by any entity including, without limitation, any state or federal
environmental or regulatory agency, asserting actual or potential liability
against TCO, other than Claims Filed pursuant to settlement agreements between
TCO and such state or federal environmental or regulatory agency or other
governmental entity.
6. FERC shall have issued a final order, not subject to further
review, approving TCO's right to recover from its
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Customers all amounts payable to the holders of Allowed Claims in each of
Classes 3.3A, 3.3B, 3.3C and 3.3D and of amounts anticipated to be paid by TCO
to certain of its upstream pipeline suppliers to obtain their consent to the
termination of transportation contracts with such pipelines.
7. The Confirmation Order shall approve the settlement, in
accordance with the Plan, of the Refund Disputes with Accepting 3.4 Claimants
and the 1990 Rate Case Settlement.
8. The tentative settlement agreement between TCO and the
Internal Revenue Service with respect to the latter's Priority Tax Claim as
described in the Disclosure Statement shall have become final and binding.
9. TCO and Columbia shall have received a ruling from the
Internal Revenue Service, in form and substance satisfactory to TCO and
Columbia, to the effect that payments made by TCO under the Plan that are
attributable to the breach, termination or rejection of gas purchase contracts
are currently deductible by TCO for Federal income tax purposes.
10. All holders of General Fund Claims that have not placed a
maximum monetary value on the Claims Filed by them shall have done so or a
maximum monetary value shall have otherwise been fixed for such Claims.
11. The Bankruptcy Court shall have approved those Settlement
Values that have been accepted by the holders of the Claims for which they have
been proposed.
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12. The Plan shall not have been amended without the consent of
Columbia, after consultation with the official committees appointed in
Columbia's reorganization case.
B. CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not
occur unless and until each of the following conditions has been satisfied or,
to the extent permitted, duly waived by TCO with the consent of Columbia
pursuant to Section VIII.C:
1. The order of the Bankruptcy Court confirming Columbia's Plan
of Reorganization shall become a Final Order and Columbia's Plan of
Reorganization shall have become effective on terms consistent with the Plan.
2. The order confirming the Plan shall have become a Final
Order.
3. There shall have been no material adverse change to TCO's
business, properties, financial condition, results of operations or business
prospects between the Confirmation Date and the Effective Date.
4. The Distribution Formula shall yield a distribution to each
holder of a General Fund Claim that is Allowed as of the Effective Date of at
least fifty (50%) percent of its Allowed Claim; provided, however, that this
condition may be satisfied, at Columbia's option, by Columbia subordinating or
causing to be subordinated, in whole or in part, its right to receive a
distribution on the Effective Date in respect of its Class 3.5B Claim and CNR's
right to receive the distribution on the
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Effective Date in respect of the East Lynn Condemnation Obligation, in each
case in favor, on a pro-rata basis, of holders of General Fund Claims that are
Allowed as of the Effective Date, to the extent required to provide such
minimum distribution to such holders, in which event Columbia and CNR shall be
subrogated, pari passu, to the rights of such holders to further distributions
from the General Fund until Columbia and CNR shall have recouped the amounts
subordinated by them.
5. Any condition to Confirmation described in Section VIII.A
that is waived by TCO as permitted by Section VIII.C and that, at the time of
such waiver, TCO elects to have become a condition to the consummation of the
Plan, shall have been satisfied or, if waivable, waived.
6. The Effective Date shall occur on or before June 30, 1994.
C. WAIVER OF CONDITIONS TO CONFIRMATION OR EFFECTIVE DATE
Each of the conditions set forth in Sections VIII.A and VIII.B may,
with the consent of Columbia after consultation with the official committees
appointed in Columbia's reorganization case, be waived in whole or in part by
TCO at any time in its discretion except that (i) the condition numbered 2 in
Section VIII.A may be waived only if TCO elects to have such condition become a
condition to the Effective Date and may not be waived as a condition to the
Effective Date (ii) the conditions numbered 8 and 9 in Section VIII.A may be
waived only if TCO elects to have the condition waived become a condition to
the Effective Date and
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as such may not be waived as a condition to the Effective Date without the
Official Committee of Equity Holders appointed in Columbia's reorganization
case having been given notice and an opportunity to be heard, and (iii) the
condition numbered 4 in Section VIII.B may not be waived. To be effective, any
such waiver and consent must be in writing and Filed. The failure of a
condition to have been satisfied may be asserted by TCO regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by TCO or Columbia). TCO's failure to
exercise any of the foregoing rights shall not be deemed a waiver of any other
rights and each such right shall be deemed an ongoing right, which may be
asserted at any time.
D. EFFECT OF NON-OCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to the Effective Date must be satisfied or
duly waived by TCO by the 180th day after the Confirmation Date or by such
later date as is proposed by TCO and is approved by order of the Bankruptcy
Court after notice and a hearing. If the Confirmation Order is vacated, the
Plan, including the discharge of Claims pursuant to section 1141 of the
Bankruptcy Code, and the assumptions or rejections of executory contracts or
unexpired leases pursuant to Section VII.A, shall be null and void in all
respects. In the event the Confirmation Order is so vacated, nothing contained
in the Plan shall (i) constitute a waiver or release of any Claim by or
against, or any Interests in, TCO or Columbia, (ii) prejudice in any manner
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the rights of TCO or Columbia or (iii) constitute an admission against TCO or
Columbia.
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN
A. CONFIRMABILITY AND SEVERABILITY OF THE PLAN
TCO and the Plan must satisfy the confirmation requirements of
section 1129 of the Bankruptcy Code. TCO reserves the right to modify, revoke
or withdraw the Plan pursuant to Sections XII.B or XII.C. A determination by
the Bankruptcy Court that the Plan is not confirmable pursuant to section 1129
of the Bankruptcy Code shall not limit or affect TCO's ability to modify the
Plan to satisfy the confirmation requirements of said section 1129.
B. CRAMDOWN
TCO requests Confirmation under section 1129(b) of the Bankruptcy
Code if any impaired Class does not accept the Plan pursuant to section 1126 of
the Bankruptcy Code. TCO reserves the right to modify the Plan if necessary to
obtain Confirmation pursuant to section 1129(b) of the Bankruptcy Code.
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION
A. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
Except as otherwise expressly provided in the Plan or in the
Confirmation Order, the Confirmation Date operates as a discharge, pursuant to
section 1141(d) of the Bankruptcy Code, effective as of the Effective Date, of
all debts of, Claims against and Interests in TCO including any interest
accrued on Claims from the Petition Date, that arose prior to the
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Confirmation Date. Without limiting the generality of the foregoing, on the
Effective Date, TCO shall be discharged from any debt that arose prior to the
Confirmation Date and from all debts of the kind specified in sections 502(g),
502(h) or 502(i) of the Bankruptcy Code, whether or not (i) a proof of Claim
based on such debt was Filed pursuant to section 501 of the Bankruptcy Code,
(ii) a Claim based on such debt is an Allowed Claim pursuant to section 502 of
the Bankruptcy Code or (iii) the holder of a Claim based on such debt has voted
to accept the Plan.
As of the Confirmation Date, except as otherwise specifically
provided in the Plan or Confirmation Order, all entities shall be precluded
from asserting against TCO, Reorganized TCO, or their respective successors, or
the properties of any of them, any other or further Claims, debts, rights,
causes of action, liabilities or equity interests based upon any act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date. In accordance with the foregoing, except as provided in the
Plan or Confirmation Order, the Confirmation Order shall be a judicial
determination of discharge of all such Claims and other debts and liabilities
against TCO, pursuant to sections 524 and 1141 of the Bankruptcy Code, and such
discharge shall void any judgment obtained against TCO at any time, to the
extent that such judgment relates to a discharged Claim.
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B. INJUNCTION
As of the Confirmation Date, except as provided in the Plan or
Confirmation Order, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities, other than actions
brought to enforce any rights or obligations under the Plan: (i) commencing or
continuing in any manner any action or other proceeding against TCO,
Reorganized TCO or their respective successors, or the property of any of them;
(ii) enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against TCO, Reorganized TCO or their respective
properties; (iii) creating, perfecting or enforcing any lien or encumbrance
against TCO, Reorganized TCO, or their respective properties; (iv) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to TCO, Reorganized TCO, or their respective
properties; and (v) commencing or continuing, in any manner or in any place,
any action that does not comply with or is inconsistent with the provisions of
the Plan.
C. LIMITATION OF LIABILITY
TCO, Reorganized TCO, their affiliates and their respective
directors, officers, employees, agents, representatives and Professionals
(acting in such capacity), and the Creditors' Committee, the Customers'
Committee and their respective members
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and Professionals (acting in such capacity), and their respective heirs,
executors, administrators, successors and assigns, shall neither have nor incur
any liability to any entity for any act taken or omitted to be taken in
connection with or related to the formulation, preparation, dissemination,
implementation, confirmation or consummation of the Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created or entered into, or any other act taken or omitted to be taken in
connection with the Plan or the Reorganization Case, provided, however, that
the foregoing provisions of this Section X.C shall have no effect on the
liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a Final Order
to have constituted gross negligence or willful misconduct.
D. SETTLEMENT OF INTERCOMPANY CLAIMS
As of the Effective Date, in exchange for the consideration described
in the definition herein of the Columbia Omnibus Settlement, all Intercompany
Claims shall be deemed settled, released and discharged. Columbia, TCO,
Reorganized TCO, CNR, and each of their respective affiliates, and each of
their respective present and former directors, officers, employees, agents,
attorneys, accountants, bankers, investment bankers and other representatives,
and each of their respective heirs, executors, administrators, successors, and
assigns, and each official committee appointed in the Reorganization Case and
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Columbia's reorganization case, shall be released as of that date from the
Intercompany Claims and from any and all Claims arising from or related to the
transactions that are the subject of the Intercompany Claims, and the
Confirmation Order will enjoin the prosecution by any entity, whether directly,
derivatively or otherwise, of any claim, debt, right, cause of action or
liability which was or could have been asserted in connection with the
Intercompany Claims. Acceptance of the Plan shall constitute consent to the
settlement of all Intercompany Claims provided for in the Plan.
E. SETTLEMENT OF REFUND DISPUTES
As of the Effective Date, in consideration of the distributions to be
made to Accepting 3.4 Claimants under the Plan, the Refund Claims and Refund
Disputes held by such claimants shall be deemed settled, released and
discharged. Columbia, TCO, Reorganized TCO, and each of their respective
affiliates, and each of their respective present and former directors,
officers, employees, agents, attorneys, accountants, bankers, investment
bankers and other representatives, and each of their respective heirs,
executors, administrators, successors, and assigns, and each official committee
appointed in the Reorganization Case and Columbia's reorganization case, shall
be released as of that date from such Refund Claims and Refund Disputes and
from any and all claims arising from or related to the transactions that are
the subject of such Refund Claims and Refund Disputes, and the Confirmation
Order will enjoin the
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prosecution by any entity, whether directly, derivatively or otherwise, of any
claim, debt, right, cause of action or liability which was or could have been
asserted in connection with such Refund Claims and Refund Disputes.
F. APPROVAL OF 1990 RATE CASE SETTLEMENT
As of the Effective Date, the 1990 Rate Case Settlement shall be
deemed approved and final, and, in consideration of the distribution to be made
to each Class 3.4 Claimant pursuant to the Plan in respect of such Claimant's
1990 Rate Case Claim, such Claimant's 1990 Rate Case Claims shall be deemed
settled, released and discharged. Columbia, TCO, Reorganized TCO, and each of
their respective affiliates, and each of their respective present and former
directors, officers, employees, agents, attorneys, accountants, bankers,
investment bankers, and other representatives, and each of their respective
heirs, executors, administrators, successors, and assigns, and each official
committee appointed in the Reorganization Case and Columbia's reorganization
case, shall be released as of that date from each 1990 Rate Case Claim and from
any and all claims arising from or related to the transactions that are the
subject of the 1990 Rate Case Settlement, except as provided therein, and the
Confirmation Order will enjoin the prosecution by any entity, whether directly,
derivatively or otherwise, of any claim, debt, right, cause of action or
liability which was or could have been asserted in connection with the 1990
Rate Case or the 1990 Rate Case Claims, except as provided in the 1990 Rate
Case Settlement.
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XI. RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court shall retain such
jurisdiction over the Reorganization Case after the Effective Date as is
legally permissible, including jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate,
or establish the priority or secured or unsecured status of, any Claim,
including the resolution of any request for payment of any Administrative
Claim, the resolution of any dispute regarding Post-Effective Date Costs and
the resolution of any and all objections to the allowance or priority of Claims
(including any Administrative Claim and any Priority Tax Claim);
2. Grant or deny any application for allowance of compensation
or reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption or rejection
of any executory contract or unexpired lease to which TCO is a party or with
respect to which TCO may be liable and to hear, determine and, if necessary,
Allow any Claim arising therefrom;
4. Decide or resolve any matter arising under the Claims
Estimation Procedures;
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5. Resolve any determinations which may be requested by TCO of
unpaid tax liability under sections 505 and 1146(d) of the Bankruptcy Code;
6. Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan;
7. Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny any
applications that may be pending on the Effective Date, that arise in or relate
to the Reorganization Case or the Plan;
8. Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents created in
connection with the Plan or the Disclosure Statement, except as otherwise
provided herein;
9. Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of the
Plan or any entity's obligations under or in connection with the Plan, except
that such retention of jurisdiction shall not apply to any cases,
controversies, suits or disputes that may arise in connection with FERC
regulatory matters;
10. Modify the Plan before, on or after the Effective Date
pursuant to section 1127 of the Bankruptcy Code or modify the Disclosure
Statement or any contract, instrument, release, indenture or other agreement or
document created in connection with the Plan or the Disclosure Statement, or
remedy any defect
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or omission or reconcile any inconsistency in any Bankruptcy Court order, the
Plan, the Disclosure Statement or any contract, instrument, release, indenture
or other agreement or document created in connection with the Plan or the
Disclosure Statement, in such manner as may be necessary or appropriate to
consummate the Plan, to the extent authorized by the Bankruptcy Code;
11. Issue injunctions, enter and implement other orders or take
such other actions as may be necessary or appropriate to restrain interference
by any entity with consummation or enforcement of the Plan, except as otherwise
provided herein;
12. Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified, stayed,
reversed, revoked or vacated;
13. Determine any other matters that may arise in connection
with or relate to the Plan, the Disclosure Statement, the Confirmation Order,
any Claim or any contract, instrument, release, indenture or other agreement or
document created in connection with the Plan or the Disclosure Statement,
except as otherwise provided herein;
14. Determine the Termination Date; and
15. Enter an order concluding the Reorganization Case.
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XII. MISCELLANEOUS PROVISIONS
A. DISSOLUTION OF THE CREDITORS' COMMITTEE AND THE CUSTOMERS' COMMITTEE
AND CREATION OF THE CLAIMS SUPERVISION COMMITTEE
1. DISSOLUTION OF THE COMMITTEES
The Creditors' Committee and the Customers' Committee shall continue
in existence until the Effective Date for the principal purposes of
participating in the reconciliation and resolution of Disputed Claims and in
overseeing the implementation of the Plan. On the Effective Date, the
Creditors' Committee and the Customers' Committee shall dissolve and the
members of those Committees as such shall be released and discharged from all
rights and duties arising from or related to the Reorganization Case. The
Professionals retained by the Creditors' Committee and the Customers' Committee
and the members thereof shall not be entitled to compensation or reimbursement
of expenses for any services rendered after the Effective Date, except for
services rendered and expenses incurred in connection with any applications for
allowance of compensation and reimbursement of expenses pending on the
Effective Date or Filed and served after the Effective Date pursuant to Section
VI.B.1.
2. CLAIMS SUPERVISION COMMITTEE
a. FUNCTION AND COMPOSITION
Prior to the Effective Date, the Bankruptcy Court shall appoint the
members of the Claims Supervision Committee. The Claims Supervision Committee
is to consist of five members, one of whom shall be the holder of the largest
Class 3.5A Claim that is Allowed as of the Effective Date who is willing to
serve, one
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of whom shall be of the holder of the largest Class 3.6 Claim that, as of the
Effective Date, is willing to serve, two of whom are to be holders of Class 3.7
or Class 3.8 Claims designated by the Creditors' Committee who are willing to
serve, and one of whom shall be a person designated by Columbia. With respect
to the two holders of Class 3.7 or 3.8 Claims, one shall be a holder of a
Producer Claim arising from the purchase by TCO of natural gas primarily from
the Appalachian region of the United States, and one shall be a the holder of a
Producer Claim arising from the purchase by TCO of natural gas primarily from
the Southwestern region of the United States.
The only functions of the Claims Supervision Committee will be to (i)
participate in the reconciliation and resolution of Disputed Claims, in which
connection the Claims Supervision Committee may participate, to the extent it
deems appropriate and in the interest of creditors, in the Claims Estimation
Procedures, (ii) file objections to Claims as described in Section VI.C, (iii)
oversee distributions on account of all Claims entitled thereto by Reorganized
TCO, the General Fund Trustee and any Disbursing Agent appointed by them, and
(iv) object to and monitor the reimbursement from the General Fund of
Post-Effective Date Costs.
b. EMPLOYMENT OF PROFESSIONALS
The Claims Supervision Committee shall be authorized to retain and
employ one or more law firms as counsel and one or more accounting firms and
such other professional and technical
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assistance as it may deem appropriate in the discharge of its obligations. The
role of the Claims Supervision Committee's professionals shall be limited to
assisting the Claims Supervision Committee in the performance of its functions
as described in Section XII.A.2.a. The actual, necessary, reasonable and
documented fees and expenses of the professionals retained by the Claims
Supervision Committee, as well as the actual, necessary, reasonable and
documented expenses incurred by each member of the Claims Supervision
Committee, in the performance of their respective duties, shall be
Post-Effective Date Costs and paid from the General Fund as provided in the
Plan.
c. DISSOLUTION
Subject to further order of the Bankruptcy Court, the Claims
Supervision Committee shall dissolve on the Termination Date. The
professionals retained by the Claims Supervision Committee and the members of
the Committee shall not be entitled to compensation or reimbursement of
expenses for any services rendered after the Termination Date.
B. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in section
1127 of the Bankruptcy Code, TCO reserves the right to alter, amend or modify
the Plan before its substantial consummation; provided, however, that no
alterations, amendments or modifications shall be made without the consent of
Columbia.
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C. REVOCATION OF THE PLAN
TCO reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If TCO revokes or withdraws the Plan, or if Confirmation
does not occur, then the Plan shall be null and void in all respects, and
nothing contained in the Plan shall: (i) constitute a waiver or release of any
Claims by or against, or any Interests in, TCO or Columbia, (ii) prejudice in
any manner the rights of TCO or Columbia or (iii) constitute an admission
against TCO or Columbia.
D. SEVERABILITY OF PLAN PROVISIONS
If any term or provision of the Plan is held by the Bankruptcy Court
prior to or at the time of Confirmation to be invalid, void or unenforceable,
the Bankruptcy Court shall have the power to alter and interpret such term or
provision to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held to be
invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. In the event of any such holding,
alteration, or interpretation, the remainder of the terms and provisions of the
Plan may, at TCO's option, with the consent of Columbia, remain in full force
and effect and not be deemed affected, impaired or invalidated by such holding,
alteration or interpretation. However, TCO and Columbia reserve the right not
to proceed to Confirmation or consummation of the Plan if any such ruling
occurs. The Confirmation Order shall constitute a judicial determination and
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shall provide that each term and provision of the Plan, as it may have been
altered or interpreted in accordance with the foregoing, is valid and
enforceable pursuant to its terms.
E. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit of, any
heir, executor, administrator, successor or assign of such entity.
F. SERVICE OF DOCUMENTS ON TCO OR REORGANIZED TCO
Any pleading, notice or other document required by the Plan to be
served on or delivered to TCO or Reorganized TCO shall be sent by first class
U.S. mail, postage prepaid to:
Columbia Gas Transmission Corporation
1700 40
MacCorkle Avenue, S.E.
Charleston, West Virginia 25314
Attention: James A. Jarrell
with copies to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2594
Attention: Lewis Kruger
Robin E. Keller
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019-7475
Attention: John F. Hunt
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 39
Wilmington, Delaware 19899-0381
Attention: James L. Patton, Jr.
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G. PAYMENT AND WITHHOLDING OF TAXES
Except as otherwise specifically provided in the Plan, (i) to the
extent that any distribution (other than a distribution from the RIA Account)
made pursuant to the Plan includes or is deemed to include the income (or an
amount equal to the income) earned on funds used to provide such distribution,
the amount of the distribution shall be reduced by the amount of income taxes
payable with respect to such income, (ii) if any of the income referred to in
clause (i) is reportable by TCO (or attributable to TCO on a consolidated tax
return), TCO shall be reimbursed out of such funds for the amount of income
taxes payable on such income, and (iii) all distributions made pursuant to the
Plan shall, where applicable, be subject to information reporting to
appropriate governmental authorities and to withholding of taxes. For purposes
of clauses (i) and (ii) of the preceding sentence, the amount of income taxes
payable with respect to income earned on such funds shall be calculated by
multiplying (x) the amount of the income (net of any deductions attributable to
such income) by (y) the highest marginal federal, state and local income tax
rates for corporations applicable to such income (as adjusted for any
deductions for state and local income taxes).
- 99 -
<PAGE> 109
CONFIRMATION REQUEST
TCO hereby requests Confirmation of the Plan pursuant to section
1129(a) or section 1129(b) of the Bankruptcy Code (in the event the Plan is not
accepted by each of those Classes of Claims and Interests entitled to vote).
Dated: January 18, 1994
Charleston, West Virginia
Respectfully submitted,
COLUMBIA GAS TRANSMISSION
CORPORATION
By: /s/ JAMES P. HOLLAND
--------------------------
James P. Holland
Chairman and Chief
Executive Officer
- 100 -
<PAGE> 1
Exhibit 11
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements Re Computation of Per Share Earnings
Year Ended December 31,
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Computation for Statements of Consolidated
- ------------------------------------------
Income ($ in millions)
- ----------------------
Income (loss) before extraordinary item and
cumulative effect of accounting changes . . . . . . . . . . . . 152.2 90.9 (794.8)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . - (39.7) -
Change in accounting for income taxes . . . . . . . . . . . . . . . - - 170.0
Change in accounting for postretirement benefits . . . . . . . . . - - (69.6)
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . 152.2 51.2 (694.4)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock (based
on average shares outstanding) ($)
Before extraordinary item and accounting changes . . . . . . . . . 3.01 1.79 (15.72)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . - (.78) -
Change in accounting for income taxes . . . . . . . . . . . . . . . - - 3.36
Change in accounting for postretirement benefits . . . . . . . . . - - (1.38)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) on common stock . . . . . . . . . . . . . . . . . 3.01 1.01 (13.74)
===============================================================================================================
Additional computation of average common
shares outstanding (thousands) NOTE
- ---------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding . . . . . . . . . . . . 50,559 50,559 50,537
Incremental common shares applicable to
common stock based on the common stock
daily average market price:
Applicable to common stock options . . . . . . . . . . . . . . . - - -
Applicable to contingent stock awards . . . . . . . . . . . . . . 4 4 -
- ----------------------------------------------------------------------------------------------------------------
Average common shares as adjusted . . . . . . . . . . . . . . . . . 50,563 50,563 50,537
===============================================================================================================
Average shares of common stock outstanding . . . . . . . . . . . . 50,559 50,559 50,537
Incremental common shares applicable to
common stock based on the more dilutive
of the common stock ending or daily average
market price during the year:
Applicable to common stock options . . . . . . . . . . . . . . . - - -
Applicable to contingent stock awards . . . . . . . . . . . . . . 4 4 -
- ----------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution . . . . . . . . . . . 50,563 50,563 50,537
===============================================================================================================
Earnings (loss) per share of common stock
as adjusted:
Before extraordinary item and accounting changes . . . . . . . . . 3.01 1.79 (15.72)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . - (.78) -
Change in accounting for income taxes . . . . . . . . . . . . . . . - - 3.36
Change in accounting for postretirement benefits . . . . . . . . . - - (1.38)
- ---------------------------------------------------------------------------------------------------------------
Average common shares as adjusted ($) . . . . . . . . . . . . . . . 3.01 1.01 (13.74)
===============================================================================================================
Earnings (loss) per common shares assuming full
dilution:
Before extraordinary item and accounting changes . . . . . . . . . 3.01 1.79 (15.72)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . - (.78) -
Change in accounting for income taxes . . . . . . . . . . . . . . . - - 3.36
Change in accounting for postretirement benefits . . . . . . . . . - - (1.38)
- ----------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution ($) . . . . . . . . . 3.01 1.01 (13.74)
===============================================================================================================
</TABLE>
NOTE These caculations are submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15
because they result in dilution of less than 3%.
<PAGE> 1
Exhibit 12
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
($ in millions)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes and Extraordinary Charges ... 288.1 161.4 (1,205.8) 162.6 215.1
Adjustments:
Interest during construction ................... - - (3.4) (10.0) (4.0)
Distributed (Undistributed) equity income....... (0.1) (0.1) (2.4) 2.9 (3.2)
Fixed charges *,**.............................. 101.5 13.7 139.9 182.5 208.8
----------- ----------- ----------- ------------ ---------
Earnings Available ........................... 389.5 175.0 (1,071.7) 338.0 416.7
----------- ----------- ----------- ------------ ---------
Fixed Charges:
Interest on long-term and short-term debt ...... 3.1 4.9 112.4 170.6 159.7
Other interest ................................. 98.4 8.8 27.6 10.5 48.0
----------- ----------- ----------- ------------ ---------
Total Fixed Charges before Adjustments *,**... 101.5 13.7 140.0 181.1 207.7
----------- ----------- ----------- ------------ ---------
Adjustments:
Gain/(Loss) on reacquired debt ................. - - (0.1) 1.4 1.1
----------- ----------- ----------- ------------ ---------
Total Fixed Charges *,**...................... 101.5 13.7 139.9 182.5 208.8
----------- ----------- ----------- ------------ ---------
Ratio of Earnings Before Taxes to Fixed Charges .. 3.84 12.77 N/A(a) 1.85 2.00
=========== =========== =========== ============ =========
Preferred Stock Dividend Requirements
(Pre-income Tax Basis) ......................... - - - - -
----------- ----------- ----------- ------------ ---------
Total Fixed Charges and Preferred Stock Dividend
Requirements *,**............................... 101.5 13.7 139.9 182.5 208.8
=========== =========== =========== ============ =========
Ratio of Earnings before Taxes to Fixed Charges
and Preferred Stock Dividends .................. 3.84 12.77 N/A(a) 1.85 2.00
=========== =========== =========== ============ =========
</TABLE>
(a) To achieve a one-to-one coverage, the Corporation would need an additional
$1,211.6 million of earnings, excluding the unrecorded interest expense.
* This amount excludes $212 million, $225 million and $86 million of interest
expense not recorded in 1993, 1992 and 1991 respectively. See Note 2 of
Notes to Consolidated Financial Statements of the Corporation's Annual
Report to Shareholders.
** This amount excludes $8.6 million, $8.6 million and $8.8 million and $6.7
million of interest expense not recorded with respect to the registrants
guarantee of LESOP Trust's debentures for 1993, 1992, 1991 and 1990
respectively. See Note 9 of Notes to Consolidated Financial Statements of
the Corporation's Annual Report to Shareholders.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COLUMBIA GAS SYSTEM, INC.
as of December 31, 1993
<TABLE>
<CAPTION>
State of
Segment / Subsidiary Organization
- --------------------------------------------------- -------------------
<S> <C>
Oil and Gas Operations
- ----------------------
Columbia Gas Development Corporation Delaware
Columbia Natural Resources, Inc. Texas
Transmission Operations
- -----------------------
Columbia Gas Transmission Corporation Delaware
Columbia Gulf Transmission Company Delaware
Columbia LNG Corporation Delaware
Distribution Operations
- -----------------------
Columbia Gas of Kentucky, Inc. Kentucky
Columbia Gas of Maryland, Inc. Delaware
Columbia Gas of Ohio, Inc. Ohio
Columbia Gas of Pennsylvania, Inc. Pennsylvania
Commonwealth Gas Services, Inc. Virginia
Other Energy Operations
- -----------------------
Columbia Atlantic Trading Corporation Delaware
Columbia Coal Gasification Corporation Delaware
Columbia Energy Services Corporation Delaware
Columbia Gas System Service Corporation Delaware
Columbia Propane Corporation Delaware
Commonwealth Propane, Inc. Virginia
TriStar Ventures Corporation Delaware
TriStar Capital Corporation Delaware
TriStar Trading, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23-A
CONSENT
As independent petroleum and natural gas consultants, we
hereby consent to the filing of this Letter Report in its entirety as an
Exhibit to the 1993 Annual Report of The Columbia Gas System, Inc., to the
Securities and Exchange Commission on Form 10-K, and any Registration Statement
of The Columbia Gas System, Inc., relating to the issue of securities to the
public during 1994; to the quotation or summarization of portions of this
Letter Report, subject to our approval of the related page(s) of the
document(s), in the 10-K, the Prospectus included in said Registration
Statement(s) or the 1993 annual Report to Stockholders; and, subject to
approval of the related page(s) of the document(s), to the use of our name and
the reliance upon our authority as experts in said Annual Report to
Stockholders, Form 10-K and Prospectus(es) and in Part II of said Registration
Statement(s). We have no interest of a substantial or material nature in The
Columbia Gas System, Inc., or in any affiliate, nor are we to receive any such
interest as payment for the preparation of this Letter Report; we have not been
employed for such preparation on a contingent fee basis; and we are not
connected with The Columbia Gas System, Inc., or any affiliate as a promoter,
underwriter, voting trustee, director, officer, employee, or affiliate.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
January 24, 1994
<PAGE> 1
EXHIBIT 23-B
January 5, 1994
The Securities and Exchange Commission
RE: Consent Of Independent Petroleum Engineers
As independent petroleum and natural gas consultants, we hereby consent to the
use of our name, reference to our Reports which have been performed at various
times, and reference to our firm as "experts" in the 1993 Annual Report of the
Columbia Gas System, Inc. to the Securities and Exchange Commission on Form
10-K, the 1993 Annual Report to Stockholders and any Registration Statement of
the Columbia Gas System, Inc., relating to the issue of securities to the
public during 1994.
We have no interest of a substantial or material nature in the Columbia Gas
System, Inc., or any affiliate, nor are we to receive any such interest as
payment for the preparation of the Reports. We have not been employed for such
preparation on a contingency fee basis and we are not connected with the
Columbia Gas System, Inc., or any affiliate as a promoter, underwriter, voting
trustee, director, officer, employee, or affiliate.
Sincerely,
McDaniel & Associates Consultants Ltd.
/s/W.C. Seth
- -----------------------------
C. Seth, P. Eng.
President & Managing Director
Dated: January 5, 1994
Calgary, Alberta
<PAGE> 1
EXHIBIT 23-C
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 10, 1994, included in The Columbia Gas System, Inc.'s
1993 Annual Report on Form 10-K, into the following previously filed
registration statements:
1. Form S-8 of The Columbia Gas System, Inc. (File No. 33-10004)
2. Form S-8 of The Columbia Gas System, Inc. (File No. 33-42776)
ARTHUR ANDERSEN & CO.
New York, New York
March 11, 1994
<PAGE> 1
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints J.
H. Croom, M. W. O'Donnell, R. E. Lowe, D. L. Bell, Jr., and L. J. Bainter, and
each of them, as attorneys for him or her in his or her name, place and stead
to sign such Form 10-K and any and all amendments thereto, and to file the same
with all exhibits thereto, and other documents in connection therewith, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he or she might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/CG Board of Directors
------------------------------
Dated: February 16, 1994
<PAGE> 2
J. H. Croom
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints M.
W. O'Donnell, R. E. Lowe, D. L. Bell, Jr., and L. J. Bainter, and each of them,
as attorneys for him or her in his or her name, place and stead to sign such
Form 10-K and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, hereby giving
and granting to said attorneys full power and authority (including substitution
and revocation) to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully, to all
intents and purposes, as he or she might or could do if personally present at
the doing thereof, hereby ratifying and confirming all that said attorneys may
or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/J. H. Croom
------------------------------
Dated: February 15, 1994
<PAGE> 3
M. W. O'Donnell
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints J.
H. Croom, R. E. Lowe, D. L. Bell, Jr., and L. J. Bainter, and each of them, as
attorneys for him or her in his or her name, place and stead to sign such Form
10-K and any and all amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, hereby giving and
granting to said attorneys full power and authority (including substitution and
revocation) to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully, to all intents and
purposes, as he or she might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/M. W. O'Donnell
------------------------------
Dated: February 15, 1994
<PAGE> 4
R. E. Lowe
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints J.
H. Croom, M. W. O'Donnell, D. L. Bell, Jr., and L. J. Bainter, and each of
them, as attorneys for him or her in his or her name, place and stead to sign
such Form 10-K and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he or she might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/R. E. Lowe
------------------------------
Dated: Febuary 16, 1994
<PAGE> 5
D. L. Bell, Jr.
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints J.
H. Croom, M. W. O'Donnell, R. E. Lowe, and L. J. Bainter, and each of them, as
attorneys for him or her in his or her name, place and stead to sign such Form
10-K and any and all amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, hereby giving and
granting to said attorneys full power and authority (including substitution and
revocation) to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully, to all intents and
purposes, as he or she might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/D. L. Bell, Jr.
------------------------------
Dated: Febuary 16, 1994
<PAGE> 6
L. J. Bainter
COLUMBIA GAS SYSTEM 10-K FILING
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation
(the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the fiscal year ended December 31, 1993, together with
such exhibits and amendments as may be necessary or appropriate thereto.
NOW THEREFORE, the undersigned hereby constitutes and appoints J.
H. Croom, M. W. O'Donnell, R. E. Lowe, D. L. Bell, Jr., and each of them, as
attorneys for him or her in his or her name, place and stead to sign such Form
10-K and any and all amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, hereby giving and
granting to said attorneys full power and authority (including substitution and
revocation) to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully, to all intents and
purposes, as he or she might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her
hand on the date indicated.
/s/L. J. Bainter
------------------------------
Dated: Febuary 16, 1994
<PAGE> 7
CERTIFICATION
I, Tejinder S. Bindra, Assistant Secretary of THE COLUMBIA GAS SYSTEM,
INC., do hereby certify that the following is a true and complete copy of
resolutions duly adopted by the Board of Directors of said Corporation at a
meeting duly called and held in Wilmington, Delaware, on February 16, 1994, at
which a quorum was present and acting throughout.
RESOLVED, that the officers of the Corporation be, and they
hereby are, authorized to file an Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, under the Securities Exchange Act
of 1934, as amended, together with such exhibits and amendments as may
be necessary or appropriate thereto; and
RESOLVED, that J. H. Croom, L. J. Bainter, D. L. Bell, Jr., R. E.
Lowe, and M. W. O'Donnell be, and each of them with full power to act
without the others and with full power of substitution and
resubstitution hereby is, authorized to sign such Annual Report for the
fiscal year ended December 31, 1993, on Form 10-K, and any and all
amendments thereto, on behalf of and as attorneys for this Corporation
and on behalf of and as attorneys for the principal executive officer,
the principal financial officer, the principal accounting officer, any
member of the Board of Directors, and any other officer of this
Corporation.
WITNESS my hand and the corporate seal of said Corporation, this 17th
day of February, 1994.
/s/T. S. Bindra
------------------------------
Tejinder S. Bindra
SEAL
