<PAGE> 1
Commission File No. 1-1098
As filed with the United States Securities and Exchange Commission on
March 18, 1998.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______to ______
COLUMBIA ENERGY GROUP
(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.)
12355 Sunrise Valley Drive, Suite 300, Reston, VA 20191-3420
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (703) 295-0300
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>
6.39% Series A due November 28, 2000
6.61% Series B due November 28, 2002
6.80% Series C due November 28, 2005
7.05% Series D due November 28, 2007
7.32% Series E due November 28, 2010
7.42% Series F due November 28, 2015
7.62% Series G due November 28, 2025
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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. [X]
The aggregate market value of the outstanding common shares of the Registrant
held by nonaffiliates as of January 31, 1998, was $4,195,400,000. 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 January 31,
1998, was: Common Stock $10 Par Value: 55,507,078 shares outstanding.
Documents Incorporated by Reference
-----------------------------------
Part III of this report incorporates by reference the Registrant's Proxy
Statement relating to the 1998 Annual Meeting of Stockholders.
<PAGE> 2
CONTENTS
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Page
Part I No.
----
<S> <C>
Item 1. Business................................................................... 3
Item 2. Properties................................................................. 7
Item 3. Legal Proceedings.......................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders........................ 12
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.. 12
Item 6. Selected Financial Data.................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 15
Item 8. Financial Statements and Supplementary Data................................ 39
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................... 70
Part III
Item 10. Directors and Executive Officers of the Registrant......................... 70
Item 11. Executive Compensation..................................................... 70
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 70
Item 13. Certain Relationships and Related Transactions............................. 71
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 71
Undertaking made in Connection with 1933 Act Compliance on Form S-8................. 71
Signatures.......................................................................... 72
</TABLE>
<PAGE> 3
PART 1
ITEM 1. BUSINESS
General
Columbia Energy Group (Columbia), formerly The Columbia Gas System, Inc. and its
subsidiaries comprise one of the nation's largest integrated natural gas systems
engaged in natural gas transmission, natural gas distribution, and exploration
for and production of natural gas and oil. Columbia is also engaged in related
energy businesses including the marketing of natural gas and electricity, the
generation of electricity, primarily fueled by natural gas, and the distribution
of propane. Columbia, 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 17 direct
subsidiaries. Columbia owns all of the securities of these direct subsidiaries
except for approximately 8 percent of the stock in Columbia LNG Corporation.
Columbia and its subsidiaries are sometimes collectively referred to herein as
the Columbia Group.
On January 20, 1998, Columbia announced that its name had been changed from The
Columbia Gas System, Inc. to Columbia Energy Group to better reflect its
expanded participation in the energy marketplace.
Columbia and its principal pipeline subsidiary, Columbia Gas Transmission
Corporation (Columbia Transmission), emerged from bankruptcy on November 28,
1995, after filing separate petitions for protection under Chapter 11 of the
Federal Bankruptcy Code (Bankruptcy Code) on July 31, 1991. During the
bankruptcy period, both Columbia and Columbia Transmission were
debtors-in-possession under the Bankruptcy Code and continued to operate their
businesses in the normal course subject to the jurisdiction of the United States
Bankruptcy Court for the District of Delaware.
Transmission and Storage Operations
Columbia's two interstate pipeline subsidiaries, Columbia Transmission and
Columbia Gulf Transmission Company (Columbia Gulf), operate a 18,500-mile
pipeline network extending from offshore in the Gulf of Mexico to Lake Erie, New
York and the eastern seaboard. In addition, Columbia Transmission operates one
of the nation's largest underground natural gas storage systems. The
transmission subsidiaries serve customers in fifteen northeastern, midatlantic,
midwestern, and southern states and the District of Columbia. Columbia Gulf's
pipeline system extends from offshore Louisiana to West Virginia and transports
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 Transmission provides an array of competitively priced natural gas
transportation and storage services for local distribution companies and
industrial and commercial customers who contract directly with producers or
marketers for their gas supplies.
Columbia LNG Corporation is a partner with Potomac Electric Power Company in the
Cove Point LNG Limited Partnership (Partnership). The Partnership owns one of
the largest natural gas peaking and storage facilities in the United States
located in Cove Point, Maryland. The facility has the capacity to liquefy
natural gas at a rate of 15,000 Mcf of natural gas per day. The facility enables
liquefied natural gas to be stored until needed for the winter peak-day
requirements of utilities and other large gas users.
Distribution Operations
Columbia's five distribution subsidiaries provide natural gas service to
approximately 2 million residential, commercial and industrial customers in
Ohio, Pennsylvania, Virginia, Kentucky and Maryland. Approximately 31,700 miles
of distribution pipelines serve these major markets. The distribution
subsidiaries have initiated transportation programs that allow residential and
small commercial customers the opportunity to choose their natural gas suppliers
and to use the distribution subsidiaries for transportation service. This
ability to choose a supplier was previously limited to larger commercial and
industrial customers. See "Competition and Business Strategies" on page 4 for
additional information.
Exploration and Production Operations
Columbia's exploration and production subsidiary, Columbia Natural Resources,
Inc. (Columbia Resources), explores for, develops, gathers and produces natural
gas and oil in Appalachia and Canada. As of December 31, 1997, Columbia
Resources held interest in approximately 2.1 million net acres of gas and oil
leases and had proved gas reserves of nearly 811 billion cubic feet of natural
gas equivalent. On August 7, 1997, Columbia Resources acquired Alamco, Inc.
(Alamco), an Appalachian gas and oil exploration and development company and
during the
3
<PAGE> 4
ITEM 1. BUSINESS (Continued)
first quarter of 1998, Columbia Resources purchased 26 producing wells and
approximately 5,000 undeveloped acres in Ontario, Canada. For additional
information, see Item 7, page 32.
Marketing, Propane and Power Generation Operations
Columbia Energy Services Corporation (Columbia Energy Services), and its
subsidiaries conduct Columbia's nonregulated natural gas and power marketing
operations and provide an array of energy supply and fuel management services to
distribution companies, independent power producers and other large end users
both on and off Columbia's transmission and distribution pipeline systems.
Columbia Energy Services is also actively pursuing opportunities to provide
natural gas supplies to retail customers as a result of the unbundling of
services that is occurring at the local distribution level. Columbia Energy
Services, through its subsidiary, Columbia Service Partners, Inc. (Columbia
Service), provides a variety of nonregulated services to both homeowners and
businesses. In the second quarter of 1997, Columbia Energy Services acquired
PennUnion Energy Services L.L.C. (PennUnion), an energy-marketing affiliate of
the Pennzoil Company. As a result of this acquisition, Columbia Energy Services
markets a substantial portion of Pennzoil Company's North American natural gas
production. During 1997, Columbia Energy Services began purchasing and marketing
Kerr-McGee Corporation's (Kerr-McGee) offshore natural gas production. Columbia
Energy Services will manage all of Kerr-McGee's U.S. natural gas marketing
activities including scheduling, nominating and balancing pipeline
transportation as well as providing financial risk management services. In
October 1997, Columbia Energy Services and Honeywell Inc. formed an alliance to
sell a targeted set of products and services in a seven-state region for use in
homes, commercial buildings and industrial facilities. See Item 7, page 35, for
additional information.
During 1997, Commonwealth Propane, Inc. merged into Columbia Propane Corporation
(Columbia Propane), both wholly-owned subsidiaries of Columbia, in order to
increase administrative and operating efficiencies. Columbia Propane sells
propane at wholesale and retail to nearly 97,000 customers in parts of ten
states and the District of Columbia. During the first quarter of 1997, the
assets of Supertane Gas Corporation were purchased, bringing total propane sales
for 1997 to 70.9 million gallons. In the first quarter of 1998, Columbia Propane
purchased certain assets of Central Jersey Propane, Inc. (Ace Gas) located in
New Jersey. Ace Gas sells approximately 2.2 million gallons of propane annually
to 3,600 customers. For additional information, see Item 7, page 36.
Columbia Electric Corporation (Columbia Electric), formally TriStar Ventures
Corp., a wholly owned subsidiary of Columbia, holds interests in three
cogeneration projects that produce both electricity and useful thermal energy.
These projects are fueled principally by natural gas and have a total capacity
of nearly 250 megawatts. In the first quarter of 1998, Columbia Electric entered
into a joint ownership agreement to develop three natural gas-fired electricity
generating plants by 2001. In total, the three plants will provide approximately
1000 megawatts of electricity using approximately 160 Mmcf per day of natural
gas. Total development costs are estimated at $600 million to $700 million.
Columbia Network Services Corporation (Columbia Network), a wholly owned
subsidiary of Columbia, and through its subsidiaries provides telecommunications
and information services and assists personal communications services and other
microwave radio service licensees in locating and constructing antenna
facilities. In October 1996, Columbia Network entered into an agreement with The
SABRE Group, Inc. (SABRE) to jointly develop an electronic information system
which will operate under the name of The SABRE Energy Network. The SABRE Energy
Network will serve as a central access point for scheduling natural gas
transportation.
For additional discussion of the Columbia Group's business segments, including
financial information for the last three fiscal years, see Item 7, pages 21
through 38 and Note 16 on pages 62 through 64 of Item 8.
Competition and Business Strategies
The energy markets continue to undergo tremendous change. Over the past ten
years open access to natural gas supplies over interstate pipelines has
developed and the commodity price of gas has been deregulated. During this
period, distribution companies, larger industrial and commercial customers and
marketers began to purchase gas directly from producers and marketers and an
open competitive market for gas supplies emerged. This separation or
"unbundling" of the transportation and other services offered by pipelines
allows customers to select the service they want independent from the purchase
of the commodity. This unbundling of services and deregulation of the commodity
price is occurring at the distribution company level as well. Columbia's
distribution subsidiaries are involved in programs that provide residential
customers the opportunity to purchase their natural gas requirements from third
parties and use the distribution subsidiaries for transportation services. It is
likely, that over time, distribution companies will have a very limited merchant
function. At the same time that the natural gas markets
4
<PAGE> 5
ITEM 1. BUSINESS (Continued)
are evolving, the markets for competing energy sources are also changing. During
1997, open access to interstate transmission of electricity was approved by the
Federal Energy Regulatory Commission (FERC) and will result in increased
competition in the market for electricity. The energy market of the future may
be characterized by open competition not only in the market for supply of a
particular commodity but also open competition between interchangeable fuels.
For additional information regarding competition, see Item 7.
In order to capitalize on the opportunities presented by this increasingly
competitive environment, Columbia's management is developing a more responsive,
entrepreneurial, customer-focused organization that will utilize Columbia's core
asset strengths, its expansive customer base and its knowledge and experience in
the energy markets to remake Columbia into a "total energy company," a leading
provider of energy and energy-related services. To achieve this goal, Columbia
has developed the following strategic initiatives:
Develop Nonregulated Energy Business. Columbia has established a
strategic goal to increase its investment in non-rate regulated businesses to a
level that would provide for such operations to contribute approximately 30% of
Columbia's consolidated operating income by 2002. Columbia's extensive presence
in the northeast, mid-Atlantic and midwestern regions of the country provides
significant opportunities to offer customers a wide variety of non-rate
regulated energy-related products and services. Through Columbia Energy
Services, Columbia Service and Columbia Network, Columbia expects to offer
nonregulated energy-related products and services to all energy consumers within
its wholesale and retail market area. Columbia's Appalachian exploration and
production subsidiary, Columbia Resources, acquired Alamco, Inc. in the third
quarter of 1997, making it one of the largest-volume natural gas and oil
producers in the Appalachian Basin. This acquisition provides contiguous assets
that give Columbia Resources a major presence in north-central West Virginia,
southern Kentucky and northern Tennessee. In late 1997, Columbia Resources
entered into an agreement to purchase producing assets and undeveloped acreage
in Ontario, Canada with consummation of the transaction expected in the first
half of 1998.
Capitalize on Core Asset Strengths. Columbia continues to focus on and
expand its core businesses. Consistent with this focus, Columbia has undertaken
an expansion of Columbia Transmission's storage and transportation systems that
are being phased in over a three-year period that began in 1997. Once completed,
the expansion will add approximately 500,000 Mcf per day of firm storage to 23
customers. Columbia Transmission is also participating in the proposed 442-mile
Millennium Pipeline Project that has been submitted to the FERC for approval. As
proposed, the project will transport approximately 700,000 Mcf per day of
natural gas from the Lake Erie region to eastern markets. For additional
information regarding the Millennium project see Item 7, page 21.
Exploit Synergies. Unlike the structure of many of its peers,
Columbia's distribution, storage, and exploration and production operations form
a grid connected by Columbia Transmission. Columbia is embarking on a
system-wide strategy that will provide customers with a variety of unbundled gas
supply services: gathering; processing; transportation; storage; distribution
and, other energy delivery services. Columbia is also working on initiatives
with regulators designed to promote rate structures that will reward Columbia's
transmission and distribution subsidiaries for enhanced productivity and
efficiency.
Streamline Organizational Structure. In 1996, Columbia's subsidiaries
completed a top-down review of their management structure and operations in an
effort to streamline their organizational structure and improve customer
service. The studies examined all aspects of Columbia's operations including the
configuration and location of its management. These studies resulted in
recommendations that were being implemented during 1997. The benefits of this
reengineering initiative are now being realized through cost savings and
improved efficiencies.
Implement CVA. An integral part of Columbia's financial strategy is the
recent application of a value added approach, called Columbia Value Added (CVA),
to all of its businesses. CVA is a financial process as well as a financial
measure that determines whether the anticipated return on a business activity or
project exceeds its risk adjusted capital cost. All discretionary capital
expenditures will be subject to the CVA process. CVA is also being employed in
Columbia's strategic planning process and in the setting of management
compensation levels.
Maintain Financial Flexibility. As a result of its recapitalization in
late 1995, Columbia achieved one of the lowest average costs of debt in the
natural gas industry (7.03%) with an average maturity of 14 years and, as of
year-end 1997, had reduced its ratio of long-term debt to total capitalization
to 53%. In 1997, Fitch Investors Service (Fitch), Moody's Investors Service,
Inc. (Moody's) and Standard & Poor's Ratings Group (S&P) upgraded Columbia's
long-term debt rating to BBB+, Baa1 and BBB+, respectively. One of management's
objectives is to improve the quality of its credit rating over time and to
better position Columbia to take advantage of business
5
<PAGE> 6
ITEM 1. BUSINESS (Continued)
opportunities as they arise. To further enhance its financial flexibility,
Columbia recently implemented unsecured revolving credit facilities totaling
$1.35 billion, consisting of a $900 million five-year revolving credit facility
and a $450 million 364-day revolving credit facility with a one-year term loan
option. The $900 million five-year facility will provide for the issuance of up
to $300 million of letters of credit. The credit facilities also support
Columbia's commercial paper program.
The foregoing discussion includes statements regarding market risk sensitive
instruments and contains "forward-looking statements," within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Investors and prospective investors should understand that
several factors govern whether any forward-looking statement contained herein
will be or can be achieved. Any one of those factors could cause actual results
to differ materially from those projected herein. These forward-looking
statements include statements concerning Columbia's plans, objectives, expected
performance, expenditures and recovery of expenditures through rates, stated on
either a consolidated or segment basis, and including any and all underlying
assumptions and other statements that are other than statements of historical
fact. From time to time, Columbia may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of
Columbia, are also expressly qualified by these cautionary statements. All
forward-looking statements are based on assumptions that management believes to
be reasonable; however, there can be no assurance that actual results will not
differ materially. Realization of Columbia's objectives and expected performance
is subject to a wide range of risks and can be adversely affected by, among
other things, competition, weather, regulatory and legislative changes as well
as changes in general economic and capital and commodity market conditions many
of which are beyond the control of Columbia. In addition, the relative
contributions to profitability by segment, and the assumptions underlying the
forward-looking statements relating thereto, may change over time due to changes
in the marketplace.
With respect to any references made to ratings assigned to Columbia's debt
securities, there can be no assurance that Columbia will be successful at
maintaining its credit quality or that such credit ratings will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely by these rating agencies. Credit ratings reflect only the views of the
rating agencies, whose methodology and the significance of their ratings may be
obtained from them.
Other Relevant Business Information
Columbia Group's customer base is broadly diversified, with no single customer
accounting for a significant portion of revenues.
As of January 31, 1998, the Columbia Group had 8,529 full-time employees of
which 2,443 are subject to collective bargaining agreements.
Columbia'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 have subsequently become
subject to environmental regulation. Information relating to environmental
matters is detailed in Item 7, pages 22 and 28, and in Item 8, Note 13 on page
60.
For a listing of the direct subsidiaries of Columbia and their lines of business
refer to Exhibit 21.
6
<PAGE> 7
ITEM 2. PROPERTIES
Information relating to properties of subsidiary companies is detailed below and
on page 8 and page 47 of Item 8 under Note 1F. Assets under lien and other
guarantees are described on page 60 in Note 13C of Item 8.
Neither Columbia nor any subsidiary knows of material defects in the title to
any real properties of the subsidiaries of Columbia or any material adverse
claim of any right, title, or interest therein, pending or contemplated.
Substantially all of Columbia Transmission's property has been pledged to
Columbia as security for First Mortgage Bonds issued by Columbia Transmission to
Columbia.
EXPLORATION AND DEVELOPMENT DATA
Acreage - at December 31, 1997
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Developed Acreage Undeveloped Acreage
----------------- ----------------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Appalachian ........ 1,447,656 1,406,597 813,519 664,139
========= ========= ========= =========
</TABLE>
Net Wells Completed - 12 Months Ended December 31,
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Exploratory Development Total
------------------ ----------------- -------------------
Productive Dry Productive Dry Productive Dry
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
1997...... 0 0 84 18 84 18
1996...... 0 0 19 8 19(a) 8
1995...... 4 4 64 21 68(a) 25
</TABLE>
Productive and Drilling Wells - At December 31, 1997
<TABLE>
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Production Wells
--------------------------------------
Gross(b) Net Wells Drilling
------------- -------------- ----------------------
Gas Oil Gas Oil Gross Net
--- --- --- --- ----- ---
<S> <C> <C> <C> <C> <C>
7,343 138 6,728 84 27 17
</TABLE>
(a) Includes 1 net horizontal well in 1996 and 18 net horizontal wells in 1995.
(b) Includes 778 multiple completion gas wells, all of which are included as
single wells in the table. Also includes 1 gross productive horizontal
well.
7
<PAGE> 8
ITEM 2. PROPERTIES (continued)
GAS PROPERTIES OF SUBSIDIARIES - AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Underground Storage Miles of Pipeline Compressor Stations
-------------------- ------------------------------------------ --------------------
Gathering Installed
Subsidiaries State Acreage Wells and Storage Transmission Distribution Number Capacity(hp)
- ------------------------------------- ----- -------- ------- ------------- -------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Columbia Gas of Kentucky, Inc. KY -- -- -- -- 2,374 -- --
Columbia Gas of Maryland, Inc. MD -- -- -- -- 595 -- --
Columbia Gas of Ohio, Inc. OH -- -- -- -- 17,914 -- --
Columbia Gas of Pennsylvania, Inc. PA 3,400 8 4 -- 6,908 1 800
Columbia Gas of Virginia, Inc. VA -- -- -- -- 3,873 -- --
Columbia Gas Transmission Corporation DE -- -- -- 3 -- -- --
KY -- -- 32 745 -- 7 18,270
MD 945 -- 22 227 -- 1 12,000
NJ -- -- -- 69 -- -- --
NY 26,084 143 58 487 -- 4 6,040
NC -- -- -- 1 -- 1 1,200
OH 486,892 2,467 992 4,029 -- 27 100,312
PA 63,351 245 578 2,062 -- 27 68,913
VA -- -- 130 1,123 -- 11 79,480
WV 293,711 817 1,236 2,507 -- 46 304,736
Columbia Gulf Transmission Company AR -- -- -- 8 -- -- --
KY -- -- -- 716 -- 2 70,290
LA -- -- -- 2,041 -- 5 192,500
MS -- -- -- 659 -- 3 121,382
TN -- -- -- 556 -- 2 83,000
TX -- -- -- 200 -- -- --
WY -- -- -- 10 -- -- --
Columbia Natural Resources, Inc. KY -- -- 1,872 -- -- 8 125
MI -- -- 6 -- -- -- --
NY -- -- 2 -- -- -- --
OH -- -- 112 -- -- -- --
PA -- -- 37 -- -- -- --
VA -- -- 393 -- -- -- --
WV -- -- 2,529 -- -- -- --
---------- ------- -------------- -------------- ------------- ---- ----------
874,383 3,680 8,003 15,443 31,664 145 1,059,048
========== ======= ============== ============== ============= ==== ==========
</TABLE>
NOTE: This table excludes minor gas properties and all construction work in
progress. The titles to the real properties of the subsidiaries of
Columbia have not been examined for the purpose of this document. Neither
Columbia nor any subsidiary know of material defects in the title to any
of the real properties of the subsidiaries of Columbia or of any material
adverse claim of any right, title, or interest therein, pending or
contemplated. Substantially all of Columbia Transmissions's property has
been, pledged to Columbia as security for First Mortgage Bonds issued by
Columbia Transmission to Columbia.
8
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
I. Purchase and Production Matters
A. Pending Producer Matters
1. Estimation Proceedings. Claims by certain producers for
damages resulting from the rejection of gas purchase contracts remain unresolved
as discussed in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations section of this Report.
2. New Ulm and Fox v. Mobil Oil Corp., 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 gas
contracts.
After the Bankruptcy Court entered an order modifying the
automatic stay provided under the Federal Bankruptcy Code, jury trial began in
Texas state court 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. Thereafter, Columbia Transmission appealed to the
Court of Appeals for the First District of Texas.
On July 28, 1994, the Court of Appeals found that evidence
proffered by Columbia Transmission was improperly excluded from trial.
Consequently, the Court of Appeals reversed the trial court's judgment and
remanded the matter to the trial court for proceedings not inconsistent with the
Court of Appeals' opinion. On January 11, 1996, the Texas Supreme Court granted
both Columbia Transmission's and New Ulm's application for writ of error. On
October 18, 1996, the Texas Supreme Court reversed the judgment of the Court of
Appeals on New Ulm's contract interpretation claim and rendered judgment in
favor of Columbia Transmission on that issue. The Texas Supreme Court also
affirmed, in part, the appellate court's judgment by remanding New Ulm's fraud
claim to the trial court for further proceedings. The Texas Supreme Court denied
New Ulm's request for rehearing on December 13, 1996, on the contract
interpretation claim, and on February 3, 1997, issued the mandate of its
judgment to the Texas trial court.
Consistent with the order of the Texas Supreme Court of
October 18, 1996, a new trial was held regarding New Ulm's fraud claim and on
July 31, 1997, the jury returned a verdict that awarded plaintiff $512,070
compensatory damages and $2,560,350 punitive damages.
The Court entered judgment on the verdict and stipulated
contract damages in the amount of approximately $15,800 for a total judgment
amount of nearly $3.1 million plus interest. On September 26, 1997, Columbia
Transmission filed a motion for new trial, and on October 7, 1997, filed a
motion for remittitur to reduce the punitive damages in the judgment. On October
10, 1997, Columbia Transmission perfected an appeal. On October 29, 1997, the
Court denied Columbia Transmission's motion for remittitur. The Court ordered a
mediation process to be conducted in December 1997. As a result of the
mediation, Columbia Transmission and New Ulm settled the litigation and New
Ulm's claims for a proposed allowed amount of $2.25 million in December 1997,
subject to Columbia Transmission's Plan of Reorganization. The Bankruptcy Court
approved the settlement on January 26, 1998.
3. New Bremen Corp. v. Columbia Gas Transmission Corp. and
Columbia Gulf Transmission Co., No. 88V-631 (Dist. Ct. Austin County, TX). On
November 16, 1988, New Bremen filed a complaint alleging it is entitled to a
higher price than the market-out price Columbia Transmission paid for past
periods under the same gas purchase contract price provision involved in the New
Ulm case discussed above. On January 10, 1989, Columbia Transmission removed the
case to the United States District Court for the Southern District of Texas (No.
H-89-0072).
By order entered December 7, 1992, the Bankruptcy Court
modified the automatic stay provided under the Federal Bankruptcy Code to allow
the U.S. District Court to decide the pending motions for summary judgment
regarding a contract interpretation issue raised by both parties. Other issues
raised by New Bremen's claim and Columbia Transmission's response thereto were
referred to the claims mediator. On August 11, 1995, an order was entered
granting Columbia Transmission's motion for partial summary judgment and denying
New Bremen's motion for partial summary judgment on the issue of contract
interpretation. On August 29, 1995, the U.S. District Court denied New Bremen's
motion to withdraw and set aside its August 11, 1995 order, but stated that it
would withdraw and vacate its order if the Bankruptcy Court determined that it
was in violation of the automatic stay. On November 2, 1995, the Bankruptcy
Court denied New Bremen's motion for an order that the August 11, 1995 order
9
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS (Continued)
was a violation of the automatic stay. The U.S. District Court, on March 12,
1996, acting upon a motion filed by Columbia Transmission, entered an order
finding that there was no just reason to delay entry of judgment and therefore
entered final judgment of its August 11, 1995 order which granted Columbia
Transmission's motion for partial summary judgment.
New Bremen appealed the U.S. District Court's grant of partial
summary judgment to the U.S. Court of Appeals for the Fifth Circuit. On February
10, 1997, the Fifth Circuit denied New Bremen's appeal and upheld the U. S.
District Court's grant of partial summary judgment in favor of Columbia
Transmission on the contract pricing issue. On February 3, 1997, the claims
mediator issued a recommendation as to issues not resolved by the decisions of
the U. S. District Court and the Fifth Circuit Court of Appeals. On February 25,
1997, Columbia Transmission filed a motion with the Bankruptcy Court seeking to
have New Bremen's claim allowed by the Bankruptcy Court in accordance with the
Fifth Circuit decision and the claims mediator's report and recommendations
issued in the claims estimation proceedings (resolving issues not covered by the
Fifth Circuit decision). Just prior to the hearing scheduled for April, 1997,
the Court advised the parties that it would review all submissions in connection
with the motion and advise the parties as to whether oral argument would be
required at a later date. To date, the Court has taken no further action
regarding Columbia Transmission's motion.
II. Regulatory Matters
A. Matters that have been resolved
1. Transportation Costs Recovery Adjustment (TCRA): Columbia
Gas Transmission Corp., Docket No. RP95-196 and UGI Utilities, Inc. v. Columbia
Gulf Transmission Co. and Columbia Gas Transmission Corp., Docket No. RP95-392.
As reported in the Quarterly Report on Form 10-Q for the second quarter of 1997,
Columbia Transmission and the parties in this case reached a settlement, which
the FERC approved on June 25, 1997. No requests for rehearing were filed,
thereby concluding the proceeding. This matter is now concluded.
2. Direct Billing of Past Period Production and
Production-Related Costs: Columbia Gas Transmission Corp. v. FERC, C.A. No.
94-1727 (U.S. Ct. of App., D.C. Circuit). As reported in the Quarterly Report on
Form 10-Q for the third quarter of 1997, Columbia Transmission and
Transcontinental Gas Pipeline Corporation ("Transco") reached an agreement to
settle a FERC Order No. 94 matter for a total payment to Transco of $5.4
million. On September 9, 1997, the Bankruptcy Court entered an order approving
the settlement agreement. Columbia Transmission has made the $5.4 million refund
to Transco as required by the settlement. Columbia Transmission and its Virginia
customers have subsequently agreed to a plan whereby Columbia Transmission and
the customers shared in the refund payment to Transco. The agreement resulted in
billings to these customers of approximately $1.9 million. This matter is now
concluded.
III. Environmental
1. Columbia Gas Transmission Corp. v. Aetna Casualty & Surety
Co., et al., C.A. No. 94-C-454 (Kanawha (W.Va.) Cir. Ct. March 14, 1994).
Columbia Transmission filed a complaint in West Virginia state court seeking
coverage from various insurers under various insurance policies for
environmental cleanup costs. These costs are discussed more fully in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of this Report. All insurers have responded to the complaint
denying such claims. The case is currently stayed under the evergreen provision
of the agreed scheduling order entered by the state court on November 29, 1995,
in order to allow informal discussions among the parties to the litigation. The
parties have also entered into an agreed order concerning a special discovery
master which was entered by the court. Columbia Transmission continues to pursue
recovery of environmental expenditures from its insurance carriers, however, at
this time, management is unable to determine the total amount or final
disposition of any recovery.
2. Columbia Gulf Transmission Co. v. Aetna Casualty & Surety
Co., et al., C.A. No. 95-C-177 (Kanawha (W.Va.) Cir. Ct. January 19, 1995).
Columbia Gulf filed a complaint in West Virginia state court seeking coverage
from various insurers under various insurance policies for environmental cleanup
costs. These costs are discussed more fully in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section of this
Report. All insurers have responded to the complaint denying such claims. The
case is currently stayed under the evergreen provision of the agreed scheduling
order entered by the state court on December 1, 1995, in order to allow informal
discussions among the parties to the litigation. The parties have also entered
into an agreed order concerning a special discovery master which was entered by
the court. Columbia Gulf continues to pursue recovery
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS (Continued)
of environmental expenditures from its insurance carriers, however, at this
time, management is unable to determine the total amount or final disposition of
any recovery.
IV. Other
A. Matters that have been resolved
1. LG&E Natural Marketing Inc. v. Columbia Gulf Transmission
Co. and Columbia Gas Transmission Corp., Case No. 1:96CV02238 (U.S. Dist. Ct.
for the District of Columbia) and C.A. No. 96-CA07745 (Sup. Ct. of the District
of Columbia). As reported in the Quarterly Report on Form 10-Q for the first
quarter of 1997, a settlement was reached in this matter in March 1997.
B. Pending Matters
1. Canada Southern Petroleum Ltd. v. Columbia Gas Development
of Canada Ltd. (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.
In November 1993, the plaintiff amended its Amended Statement
of Claim to include allegations that the balance in the Carried Interest Account
(an account for operating costs which are recoverable by working interest
owners) which is in excess of the balance as of November 1988 should be reduced
to zero. Columbia, on behalf of Columbia Canada, consented to the amendment in
consideration of the plaintiff's acknowledgment that some $63 million was
properly charged to the account. However, Columbia and Columbia Canada continue
to dispute the claim to the extent that the claim challenges expenditures
incurred since November 1988, including expenditures made after Columbia Canada
was sold to Anderson Exploration Ltd. ("Anderson") effective December 31, 1991.
A trial commenced in the third quarter of 1996 in the Court of
Queen's Bench, and was adjourned while the plaintiff sought to have Amoco's (a
co-defendant) counsel removed based upon a conflict of interest. At a hearing on
the matter, the court ruled against the plaintiff, and a subsequent appeal by
the plaintiff was dismissed. The trial resumed in September 1997. Due to the
complex nature of the litigation, Columbia cannot predict the length of the
trial. Management continues to believe that its defenses are meritorious, and
that the risk of any material liability to Columbia is de minimis.
Pursuant to an Indemnification Agreement regarding the
Kotaneelee Litigation entered into when Columbia Canada was sold to Anderson,
Columbia agreed to indemnify and hold Anderson harmless for losses due to this
litigation arising out of actions occurring prior to December 31, 1991. As a
result of the 1997 upgrading of Columbia's long-term debt, an escrow account
that provides security for the indemnification obligation and is now funded by a
letter of credit was reduced to approximately $35,835,000 (Cdn).
2. Cathodic Protection. In September 1995, the management of
Commonwealth Gas Services, Inc. (now Columbia Gas of Virginia, Inc.) ("Columbia
of Virginia") advised the Staff of the Virginia State Corporation Commission
that there had been deficiencies in Columbia of Virginia's cathodically
protected pipeline distribution system in its Northern Operating Area in
Virginia. Following several months of informal investigation, on March 1, 1996,
the Commission issued a subpoena for Columbia of Virginia to produce documents
related to its cathodic protection program in the Northern Operating Area.
Columbia of Virginia complied with the subpoena, and continues to provide
monthly reports to the Commission updating the status of remedial work in the
Northern Operating Area and annual test station monitoring. Given the early
status of this investigation, Columbia is unable to determine at this time the
likelihood or magnitude of any penalties that might be assessed.
11
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Columbia is traded on the New York Stock Exchange under the
ticker symbol CG and abbreviated as either ColumEngy or ColumEgy in trading
reports. The number of shareholders on December 31, 1997, was approximately
37,698 and the stock closed at $78.5625, as reflected in the New York Stock
Exchange Composite Transactions as reported by The Wall Street Journal. On
February 18, 1998, Columbia declared a quarterly dividend of $0.25 per share for
the first quarter of 1998, which will be payable on or about March 16, 1998, to
holders of record on March 2, 1998.
See Item 7 on page 20 for additional information regarding Columbia's common
stock prices and dividends.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
($ in millions, except per share amounts) 1997 1996 1995* 1994* 1993* 1992*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA ($)
Total operating revenues 5,035.6 3,354.0 2,635.2 2,747.1 3,313.8 2,859.2
Products purchased 3,138.1 1,481.1 820.6 984.2 1,577.7 1,236.9
Earnings (Loss) before extraordinary item
and accounting changes 273.3 221.6 (432.3) 246.2 152.2 90.9
Earnings (Loss) on common stock 273.3 221.6 (360.7) 240.6 152.2 51.2
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings (Loss) per common share ($):
Before extraordinary item and accounting changes 4.93 4.12 (8.97) 4.87 3.01 1.79
Earnings (Loss) per common share 4.93 4.12 (7.15) 4.76 3.01 1.01
Average common shares outstanding (000) 55,405 53,792 50,477 50,563 50,563 50,563
Diluted earnings (loss) per common share ($):
Before extraordinary item and accounting changes 4.90 4.11 (8.57) 4.87 3.01 1.79
Diluted earnings (loss) per common share 4.90 4.11 (7.15) 4.76 3.01 1.01
Diluted average common shares (000) 55,734 53,951 50,477 50,563 50,563 50,563
Dividends:
Per share ($) 0.90 0.60 - - - -
Payout ratio (%) 18.3 14.6 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($)
Capitalization including debt
subject to Chapter 11:
Common stock equity 1,790.7 1,553.6 1,114.0 1,468.0 1,227.3 1,075.1
Preferred stock - - 399.9 - - -
Long-term debt 2,003.5 2,003.8 2,004.5 4.3 4.8 5.4
Short-term debt N/A N/A N/A - - -
Current maturities of long-term debt 0.5 0.8 0.5 1.2 1.3 1.4
Debt subject to Chapter 11 - - - 2,317.1 2,317.1 2,317.1
Total 3,794.7 3,558.2 3,518.9 3,790.6 3,550.5 3,399.0
Total assets 6,612.3 6,004.6 6,057.0 7,164.9 6,957.9 6,505.9
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Capitalization ratio (%) (including
current maturities**):
Common stock equity 47.2 43.7 31.7 38.7 34.6 31.6
Preferred stock - - 11.4 - - -
Debt 52.8 56.3 56.9 61.3 65.4 68.4
Capital expenditures ($) 560.3 314.8 421.8 447.2 361.3 299.7
Net cash from operations ($) 468.2 477.0 (804.1) 572.8 850.4 765.4
Book value per common share ($) 32.27 28.11 22.64 29.03 24.27 21.26
Return on average common equity before
extraordinary item and accounting changes (%) 16.3 16.6 (33.5) 18.3 13.2 8.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not applicable
Dilutive potential common shares were not included in the 1995 computation of
diluted EPS as the effect would be antidilutive.
* Reference is made to Note 2 of Notes to Consolidated Financial Statements. Due
to the bankruptcy filings, interest expense of approximately $230 million,
$210 million, $204 million and $86 million was not recorded in 1994, 1993,
1992 and 1991, respectively. Interest expense of $982.9 million including
write-off of unamortized discounts on debentures, was recorded in the fourth
quarter of 1995.
**Prior to 1991, Columbia made extensive use of variable rate debt since the
associated cost was normally less than senior long-term debt. Inclusion of the
short-term debt in years prior to 1991 makes those historical ratios more
meaningful.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
($ in millions, except per share amounts) 1991* 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA ($)
Total operating revenues 2,463.7 2,346.7 3,189.3 3,157.5 2,855.7
Products purchased 1,056.5 846.8 1,669.0 1,822.3 1,534.2
Earnings (Loss) before extraordinary item
and accounting changes (794.8) 104.7 145.8 119.0 111.3
Earnings (Loss) on common stock (694.4) 104.7 145.8 111.1 100.5
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings (Loss) per common share ($):
Before extraordinary item and
accounting changes (15.72) 2.21 3.21 2.46 2.30
Earnings (Loss) per common share (13.74) 2.21 3.21 2.46 2.30
Average common shares outstanding (000) 50,537 47,326 45,511 45,210 43,787
Diluted earnings (loss) per common share ($):
Before extraordinary item and
accounting changes (15.72) 2.21 3.19 2.46 2.29
Diluted earnings (loss) per common share (13.74) 2.21 3.19 2.46 2.29
Diluted average common shares (000) 50,537 47,426 45,696 45,210 43,837
Dividends:
Per share ($) 1.16 2.20 2.00 2.29 3.18
Payout ratio (%) N/A 99.5 62.3 93.3 138.3
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($)
Capitalization including debt
subject to Chapter 11:
Common stock equity 1,006.9 1,757.8 1,620.3 1,552.6 1,523.7
Preferred stock - - - - 110.0
Long-term debt 6.1 1,428.7 1,196.0 1,038.4 1,438.0
Short-term debt N/A 735.5 634.2 697.1 327.5
Current maturities of long-term debt 2.9 35.2 47.2 52.7 69.6
Debt subject to Chapter 11 2,317.1 - - - -
Total 3,333.0 3,957.2 3,497.7 3,340.8 3,468.8
Total assets 6,332.2 6,196.3 5,878.4 5,641.0 5,440.9
- ----------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Capitalization ratio (%) (including
current maturities**):
Common stock equity 30.2 44.4 46.3 46.5 43.9
Preferred stock - - - - 3.2
Debt 69.8 55.6 53.7 53.5 52.9
Capital expenditures ($) 381.9 629.6 473.5 307.9 298.8
Net cash from operations ($) 531.6 420.1 400.5 429.4 702.0
Book value per common share ($) 19.92 34.83 35.50 34.18 34.08
Return on average common equity
before extraordinary item
and accounting changes (%) N/A 6.2 9.2 7.7 7.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not Applicable
Dilutive potential common shares were not included in the 1995 computation of
diluted EPS as the effect would be antidilutive.
* Reference is made to Note 2 of Notes to Consolidated Financial Statements.
Due to the bankruptcy filings, interest expense of approximately $230
million, $210 million and $86 million was not recorded in 1994, 1993, 1992
and 1991, respectively. Interest expense of $982.9 million including
write-off of unamortized discounts on debentures, was recorded in the
fourth quarter of 1995.
** Prior to 1991, Columbia 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.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Index Page
- --------------------------------------------------------------------------------
Consolidated Review...................................................... 15
Liquidity and Capital Resources.......................................... 17
Transmission and Storage Operations...................................... 21
Distribution Operations.................................................. 26
Exploration and Production Operations.................................... 32
Marketing, Propane and Power Generation Operations....................... 35
Bankruptcy Matters....................................................... 38
- --------------------------------------------------------------------------------
The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments, contains "forward-looking statements," within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors should
understand that several factors govern whether any forward-looking statement
contained herein will be or can be achieved. Any one of those factors could
cause actual results to differ materially from those projected herein. These
forward-looking statements include statements concerning Columbia's plans,
objectives, expected performance, expenditures and recovery of expenditures
through rates, stated on either a consolidated or segment basis, and including
any and all underlying assumptions and other statements that are other than
statements of historical fact. From time to time, Columbia may publish or
otherwise make available forward-looking statements of this nature. All such
subsequent forward-looking statements, whether written or oral and whether made
by or on behalf of Columbia, are also expressly qualified by these cautionary
statements. All forward-looking statements are based on assumptions that
management believes to be reasonable; however, there can be no assurance that
actual results will not differ materially. Realization of Columbia's objectives
and expected performance is subject to a wide range of risks and can be
adversely affected by, among other things, competition, weather, regulatory and
legislative changes as well as changes in general economic and capital and
commodity market conditions many of which are beyond the control of Columbia. In
addition, the relative contributions to profitability by segment, and the
assumptions underlying the forward-looking statements relating thereto, may
change over time due to changes in the marketplace.
With respect to any references made to ratings assigned to Columbia's debt
securities, there can be no assurance that Columbia will be successful at
maintaining its credit quality or that such credit ratings will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely by these rating agencies. Credit ratings reflect only the views of the
rating agencies, whose methodology and the significance of their ratings may be
obtained from them.
CONSOLIDATED REVIEW
Net Income
Columbia's 1997 record-setting net income was $273.3 million, or $4.93 per
share. Net income was up $51.7 million, or 81 cents per share, over 1996 due in
large part to lower operating costs for the regulated subsidiaries and increased
revenues from transportation and storage services and gas management activities.
This improvement was achieved despite weather that was 4% warmer than 1996. The
weather difference reduced 1997 net income by $15.2 million compared to 1996.
Several nonrecurring items also impacted the results of both years.
Restructuring activities reduced net income in 1997 by $20.2 million and in 1996
by $35.7 million. Current period results were improved by a $12.8 million
reduction to tax expense resulting from benefits gained through the filing of a
consolidated state tax return, a $6 million after-tax gain from the sale of coal
assets and a $5.5 million gain on the temporary deactivation of a storage field.
The 1996 results benefited from a $5.6 million favorable adjustment to the 1995
sale of Columbia's southwest gas and oil subsidiary.
Revenues
Operating revenues for 1997 were $5,053.6 million, an increase of $1,699.6
million over 1996. The higher revenues were principally due to increased sales
by the gas marketing subsidiary, Columbia Energy Services Corporation (Columbia
Energy Services), and higher rates in effect for the distribution subsidiaries
for the recovery of increased gas costs. Also improving revenues were the
effects of regulatory settlements reached in 1997 for Columbia Gas Transmission
Corp. (Columbia Transmission) and Columbia Gas of Ohio, Inc. (Columbia of Ohio)
and increased off-system sales, transportation and storage services. Tempering
these improvements were lower
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
sales volumes in 1997 compared to 1996 for the distribution subsidiaries related
to warmer weather and lower wellhead prices for gas production.
In 1996, operating revenues of $3,354 million reflected an increase of $718.8
million over 1995 primarily due to additional sales by the gas marketing and
distribution subsidiaries. Also increasing revenues in 1996 were higher gas
prices that increased both the gas commodity portion of the distribution
subsidiaries' rates and prices received for gas production as well as the effect
of colder weather experienced in early 1996. Higher base rates in effect for the
regulated subsidiaries also increased revenues $68.7 million. In 1995, revenues
included $96.1 million from Columbia's former southwest gas and oil subsidiary,
that was sold effective year end 1995, as well as $12.2 million of exit fee
payments received by Columbia Gulf Transmission Company (Columbia Gulf). Exit
fee payments were paid to Columbia Gulf by certain of its customers as
compensation for terminating their transportation agreements before the
scheduled expiration date.
Expenses
Operating expenses for 1997 of $4,544.2 million were $1,668.4 million higher
than 1996. This increase reflected $1,657 million higher product purchased
expense attributable to gas purchased by Columbia Energy Services to meet sales
requirements and the higher cost of gas purchased by the distribution
subsidiaries. Despite acquisitions made in 1997 and higher startup costs for new
services, Columbia's 1997 operation and maintenance expense decreased $3.6
million from 1996. Operation and maintenance expense for the Marketing, Propane
and Power Generation segment rose $22.4 million due in large part to expanding
the marketing operations through the acquisition of PennUnion Energy Services
L.L.C. (PennUnion) and building Columbia Energy Services' infrastructure to
support its growth. Also contributing to higher costs was the 1997 acquisition
of Alamco, Inc. (Alamco), an Appalachian exploration and production company.
Operation and maintenance costs for the regulated subsidiaries decreased, after
adjusting for nonrecurring items, reflecting the beneficial effect of
implementing restructuring initiatives. These nonrecurring items included a
$10.1 million reserve for the anticipated sale of certain pipeline facilities;
restructuring charges recorded in both years; a $5.3 million period-to-period
improvement for FERC Order No. 94 adjustments, an environmental reserve addition
in 1997 and the costs of a risk management program for Columbia of Ohio and
Columbia Gas of Kentucky, Inc. (Columbia of Kentucky), designed to mitigate
potential adverse effects of certain future business risks.
In 1996, operating expenses of $2,875.8 million increased $630.8 million over
1995 reflecting a $660.5 million increase in products purchased primarily to
meet additional sales requirements. Operation and maintenance expense increased
$22.6 million and included restructuring costs of $54.9 million in 1996 and $5.8
million in 1995. Expenses in 1995 also included $39.1 million associated with
the operations of Columbia's former southwest gas and oil subsidiary. After
adjusting for restructuring charges, operation and maintenance expense was down
approximately $30 million in 1996. Depreciation and depletion expense decreased
$54.8 million primarily as a result of reduced depletable plant due to the sale
of Columbia's southwest gas and oil subsidiary and a lower depletion rate
attributable to higher gas prices.
Other Income (Deductions)
<TABLE>
<CAPTION>
Twelve Months Ended December 31 (in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income and other, net $ 40.4 $ 26.1 $ (58.2)
Interest expense and related charges (157.6) (166.8) (988.4)
Reorganization items, net -- -- 13.4
- --------------------------------------------------------------------------------
Total Other Income (Deductions) $(117.2) $ (140.7) $(1,033.2)
- --------------------------------------------------------------------------------
</TABLE>
Other Income (Deductions) reduced income $117.2 million in 1997 and $140.7
million in 1996. The improvement was largely due to $3.5 million of reduced
interest expense on short-term borrowings, an $8.5 million pre-tax gain for the
payment received from a coal company related to the deactivation of a storage
field to allow the mining of coal reserves as well as increased interest income
on temporary cash investments. Also in 1997, Columbia's coal assets were sold
which improved pre-tax income approximately $9.5 million. In the second quarter
of 1996, an $8.6 million pre-tax favorable adjustment was recorded for the 1995
sale of Columbia's southwest gas and oil subsidiary. Interest income and other,
net, in 1996 included approximately $13.5 million for Order 94 refunds that was
offset in interest expense and related charges with no effect on income.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
When comparing 1996 to 1995, Other Income (Deductions) reduced income $140.7
million in 1996, compared to a decrease in income of $1,033.2 million in 1995.
The principal reason for the $988.4 million decrease in 1995's income for
interest expense and related charges was $983 million of prepetition debt
obligations recorded at emergence from bankruptcy in November 1995. Interest
income and other, net, of $26.1 million in 1996 included the adjustment recorded
for the sale of Columbia's southwest gas and oil subsidiary; $5.6 million of
interest earned on certain tax issues; $3.3 million of interest income on
temporary cash investments; and a $1.8 million gain on the sale of Columbia
Gulf's interests in the Overthrust pipeline partnership. Interest expense and
related charges for 1996 reflected $140.4 million of interest expense on
long-term debt and $11.7 million of interest expense on short-term debt
obligations. Interest expense in 1996 also included $3.9 million of interest on
rate refunds recorded by the rate regulated subsidiaries.
Income Taxes
Income tax expense in 1997 of $118.9 million increased only $3 million over the
year earlier despite $54.7 million higher taxable income. This was due in large
part to a $12.8 million reduction to tax expense resulting from benefits gained
through the filing of a consolidated state tax return. The change in taxable
income was the primary reason for the variance in income tax expense between
1996 and 1995.
Extraordinary Item
In 1995, Columbia recorded an extraordinary after-tax gain of $71.6 million for
the cumulative adjustment for the reapplication of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," (SFAS No. 71) for Columbia Transmission and Columbia Gulf. The
impact of the reapplication resulted in the recognition of regulatory assets for
certain costs previously expensed which are expected to be recovered in rates,
mainly environmental and postemployment benefit costs, and the recording of
revenues and expenses in a manner to reflect the ratemaking process. Management
believes that cost of service rate concepts will continue to be applicable to
the Federal Energy Regulatory Commission (FERC) regulated transmission
subsidiaries for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations
A significant portion of Columbia's operations are subject to seasonal
fluctuations in cash flow. During the heating season, which is primarily from
November through March, cash receipts from sales and transportation services
typically exceed cash requirements. Conversely, during the remainder of the
year, cash on hand, together with external short-term and long-term financing as
needed, are used to purchase gas to place in storage for heating season
deliveries, perform necessary maintenance of facilities, make capital
improvements in plant and expand service into new areas.
For 1997, net cash from operations was $468.2 million, a decrease of $8.8
million from the same period in 1996 primarily reflecting higher cash needs for
working capital purposes. During 1997, $90.3 million of additional cash was
invested in working capital, compared to $41.4 million of additional cash in
1996. Before these working capital changes, long-term cash flow from operations
was $558.5 million in 1997, compared to $518.4 million in 1996, an increase of
$40.1 million. The increase was primarily due to the $51.7 million increase in
net income during the year. The increased use of cash for working capital during
1997 was caused by higher accounts receivable, offset by lower income tax
refunds receivable and a switch from being underrecovered to overrecovered for
the distribution subsidiaries' gas costs. Tempering these uses of cash was the
full period effect of higher base rates for Columbia Transmission and Columbia
of Kentucky.
The rise in gas prices in 1996 resulted in an increase in the commodity portion
of the distribution subsidiaries' rates as provided for under the current
regulatory process, resulting in a higher recovery level of gas costs in 1997.
As of year end 1996, the distribution subsidiaries were in an underrecovered
position because the rapid increase in the cost of gas exceeded the recovery
levels that were allowed. The distribution subsidiaries were in an overrecovered
position as of year end 1997.
After adjusting the 1995 deficit for emergence payments, net cash from
operations in 1996 decreased $168.9 million from 1995 to $477 million. Cash in
1996 was lower than 1995 due to the lag in recovering gas costs by the
distribution subsidiaries in 1996 stemming from a rise in prices that exceeded
the distribution subsidiaries' then current recovery levels. Also reducing cash
in 1996 from 1995 was the effect of a higher average cost of gas placed in
storage. This decrease was partially offset by the working capital improvement
for income tax refunds of $271.5
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
million, the favorable impact of colder weather in 1996 on the distribution
subsidiaries, and higher base rates in effect for the regulated subsidiaries.
Financing Activities
Columbia satisfies its liquidity requirements through internally generated funds
and the use of two unsecured bank revolving credit facilities that total $1.35
billion (Credit Facilities). The Credit Facilities were established in March
1998, and replaced the $1 billion five-year revolving credit facility entered
into by Columbia in November 1995. The Credit Facilities also support Columbia's
recently established commercial paper program.
Columbia's $1.35 billion Credit Facilities consist of a $900 million five-year
revolving credit facility and a $450 million 364-day revolving credit facility
with a one-year term loan option. The five-year facility will provide for the
issuance of up to $300 million of letters of credit.
As of December 31, 1997, Columbia had $120 million of short-term debt and
approximately $42.7 million of letters of credit outstanding under the prior
credit facility. Under Columbia's commercial paper program, $208.8 million was
outstanding at December 31, 1997. There were no commercial paper borrowings in
1996.
Interest rates on borrowings under the Credit Facilities are based upon the
London Interbank Offered Rate, Certificate of Deposit rates or other short-term
interest rates. The interest rate margins and facility fees on the commitment
amount are based on Columbia's public debt ratings. In 1997, Fitch Investors
Service, Moody's Investors Service, Inc. and Standard & Poor's Ratings Group
upgraded Columbia's long-term debt rating to BBB+, Baa1 and BBB+, respectively.
Under the Credit Facilities, higher debt ratings result in lower facility fees
and interest rates on borrowings. Columbia's commercial paper credit ratings are
F-2 by Fitch, P-2 by Moody's and A-2 by S&P.
Columbia has an effective shelf registration statement on file with the U. S.
Securities and Exchange Commission for the issuance of up to $1 billion in
aggregate of debentures, common stock or preferred stock in one or more series.
In March 1996, Columbia issued 5,750,000 shares of common stock under the shelf
registration and used the proceeds to reduce borrowings incurred under the prior
credit facility and to retire $400 million of preferred stock issued in late
1995. No further issuances of the remaining $750 million available under the
shelf registration are scheduled at this time.
Management believes that its sources of funding are sufficient to meet
short-term and long-term liquidity needs not met by cash flows from operations.
Capital Expenditures
The table below reflects actual capital expenditures by segment for 1997 and
1996 and an estimate for 1998:
<TABLE>
<CAPTION>
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Transmission and Storage $250 $245 $143
Distribution 162 159 148
Exploration and Production 86 136* 12
Marketing, Propane and Power Generation 46 15 6
Corporate 11 5 6
- --------------------------------------------------------------------------------
Total $555 $560 $315
- --------------------------------------------------------------------------------
</TABLE>
* Does not reflect approximately $23 million of gathering facilities that
Columbia Transmission sold to Columbia Natural Resources, Inc.
For 1997, capital expenditures were $560 million, an increase of $245 million
over 1996. The Alamco acquisition in 1997 represented approximately $101 million
of the increase. In addition, the 1997 program included $118 million for market
expansion activities in the transmission and storage segment. The largest
portion of the transmission and storage segment's investments are made to ensure
the safety and reliability of the pipelines and for market expansion activities.
The distribution subsidiaries' program includes investments to extend service to
new areas and develop future markets, as well as expenditures required to ensure
safe, reliable and improved service.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
For 1998, capital expenditures of $555 million are expected to be essentially
the same as the 1997 program. Included in the 1998 program is approximately $86
million for market expansion initiatives for the transmission and storage
segment and an additional $65 million is planned for new business and
development activities for the distribution segment. The 1998 program also
includes an increase in the Marketing, Propane and Power Generation segment for
additional investment in Columbia Energy Services' infrastructure. The principal
reason for the increase in the corporate segment was expenditures associated
with the new corporate headquarters, scheduled for completion in the fall of
1998.
All discretionary capital expenditures are subject to Columbia's value added
approach (CVA) that determines whether the anticipated return on a business
activity or project exceeds its risk adjusted capital cost.
Market Risk Exposure
Subsidiaries in Columbia's production, marketing and propane operations are
exposed to market risk due to fluctuations in commodity prices. In order to help
minimize this risk, Columbia engages in commodity hedging activities to help
ensure stable cash flows, favorable prices and margins as well as to help
capture any long-term increases in value. Financial instruments utilized by
Columbia for commodity hedging include futures, swaps and options. Columbia
Natural Resources, Inc. (Columbia Resources) utilizes financial instruments to
fix prices for a portion of its future production volumes. These positions are
hedged in the marketplace through a gas marketing subsidiary. Columbia Energy
Services utilizes financial instruments to help assure adequate margins on the
purchase and resale of natural gas. Columbia Propane utilizes financial
instruments to help protect the value of inventories. Therefore, any losses or
gains on the physical transactions are largely offset by gains or losses on
these financial trades.
Columbia's current risk management program allows the subsidiaries to use
derivative instruments for hedging purposes only. In addition, Columbia employs
multiple risk control mechanisms to mitigate market risk, including volumetric
limits. For the gas marketing operations, where most of Columbia's derivative
activity occurs, its market risk at year end 1997 was computed using a value at
risk methodology. Value at risk simulates forward price curves in the energy
markets to estimate the size and probability of future potential losses. The
year end value at risk calculation was based on a 95% confidence interval and a
two-day time horizon. Loss is defined in the calculation as fair market value
loss. As of December 31, 1997, the value at risk for Columbia's market risk
sensitive instruments was immaterial.
Restructuring Activities
In 1997, approximately $31.1 million of pre-tax expense was recorded to reflect
restructuring-related costs, primarily for relocation, severance and benefits.
This restructuring initiative began in 1995 to streamline operations and make
them more efficient and cost-competitive. During 1996, $54.9 million pre-tax was
recorded for similar restructuring activities. The beneficial effect of
efficiencies gained will be realized through improved profitability of
Columbia's operations and reduced rates being charged to customers of the
regulated subsidiaries.
As indicated in the results of operations, Columbia is realizing lower operation
and maintenance costs as a result of implementing these reengineering
initiatives in its various operations. It is anticipated that the favorable
effect of these initiatives will continue in the future. The project was
substantially completed at year end 1997 and resulted in the total number of
employees System-wide decreasing approximately 15% from the year-end 1995 level
of nearly ten thousand.
1997 Acquisitions
Columbia's strategic goal is to increase its investment in non-rate regulated
(nonregulated) businesses to a level that would provide for such operations to
contribute approximately 30% of Columbia's consolidated operating income by
2002. Consistent with this objective, Columbia Energy Services purchased
PennUnion in 1997, an energy-marketing affiliate of Pennzoil Company, for
approximately $14.75 million, subject to certain working capital and other
adjustments. In addition, Columbia Resources acquired Alamco, an Appalachian gas
and oil exploration and development company, for approximately $101 million. For
additional information on the Alamco acquisition, see the Exploration and
Production segment, and see the Marketing, Propane and Power Generation segment
for a further discussion of the PennUnion acquisition. Columbia continually
evaluates acquisition and strategic alliance opportunities made available to it
by the marketplace. However, it is Columbia's general policy not to comment on
the specifics of any such opportunity.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Impact of Year 2000 on Computer Systems
The Year 2000 issue is a world-wide concern that many existing computer programs
were initially designed without considering the impact of the change to the year
2000. This could result in the programs incorrectly identifying dates in the
year 2000. If not corrected, certain applications could fail or create erroneous
results.
Columbia is currently in the process of reviewing its computer applications and
their interaction with third parties to address the Year 2000 issue. Based on
the review to date, certain applications have been found that are not Year 2000
compliant. It is anticipated that all major applications will have been reviewed
and, if necessary, corrected or replaced by the year 2000.
At the present time, management does not anticipate that the cost of correcting
or replacing those applications that are not Year 2000 compliant will have a
material impact on Columbia's financial condition.
Common Stock Prices and Dividends
<TABLE>
<CAPTION>
Market Price
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarterly
Quarter Ended High Low Close Dividends Paid
- -----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
1997
December 31 78 5/8 69 1/2 78 9/16 .25
September 30 72 1/4 65 3/16 70 .25
June 30 67 3/8 56 65 1/4 .25
March 31 65 7/8 57 /58 57 5/8 .15
- -----------------------------------------------------------------------------------------------------------------------------------
1996
December 31 66 1/4 56 63 5/8 .15
September 30 59 5/8 51 56 .15
June 30 52 1/8 43 3/4 51 7/8 .15
March 31 46 1/2 42 1/4 45 7/8 .15
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
TRANSMISSION AND STORAGE OPERATIONS
Proposed Millennium and Vector Pipeline Projects
The proposed Millennium Pipeline Project, in which Columbia Transmission is
participating and will serve as developer and operator, will transport western
gas supplies to Northeast and Mid-Atlantic markets. The 442-mile pipeline will
connect to TransCanada Pipe Lines Ltd. at a new Lake Erie export point and
transport up to approximately 700,000 Mcf per day to eastern markets. Eight
shippers have agreements for the available capacity. A filing with the FERC
requesting approval of the Millennium Project, was made on December 22, 1997.
This filing begins the extensive review process, including opportunities for
public review, communication and comment. On February 3, 1998, the FERC issued a
Notice of the Millennium Application which provided that any person desiring to
participate in the hearing process or make any protest to the application
should, on or before February 24, 1998, file with the FERC a motion to intervene
or a protest in accordance with FERC regulations. Several interventions were
submitted to the FERC by interested parties. On. March 9, 1998, Columbia
Transmission filed with the FERC a response to the interventions. The proposed
in-service date is November 1999. Columbia Transmission will continue its
ongoing assessment of the project's schedule into the second quarter of 1998.
The current sponsors of the proposed Millennium Project are Columbia
Transmission, Westcoast Energy, Inc., TransCanada Pipe Lines Ltd., and MCN
Energy Group, Inc.
Columbia Transmission is in discussions with IPL Energy Inc. to become a sponsor
of the proposed Vector Pipeline project to transport western gas supplies from
Chicago to the Ontario area. The proposed Vector Pipeline would provide one of
several upstream links for Columbia Transmission's proposed Millennium Pipeline.
Market Expansion Project
After receiving final FERC approval, Columbia Transmission began construction on
the expansion of its pipeline and storage systems during 1997 to meet increased
customer demand. The first phase of service began in November 1997. Upon
completion, which is expected in 1999, the expansion will add approximately
500,000 Mcf per day of firm service to 23 customers.
The New York State Electric & Gas Corporation (NYSEG) filed an appeal to the
expansion project with the U. S. Court of Appeals for the District of Columbia
Circuit, primarily to challenge the FERC's approval of rolled-in pricing for the
market expansion service levels. NYSEG has not requested a stay of Columbia
Transmission's certificate order. Accordingly, construction is proceeding.
Competition and the Effect of LDC Unbundling Services
The transmission subsidiaries compete with other interstate pipelines for the
transportation and storage of natural gas. Furthermore, since the issuance of
Order No. 636, various states throughout Columbia Transmission's service area
have initiated proceedings dealing with open access and unbundling of local
distribution companies' (LDC) services. Among other things, unbundling involves
providing all LDC customers with the choice of what entity will serve as the
merchant supplier, a role historically filled by the LDC. While the scope and
timing of these various unbundling initiatives varies from state to state,
retail choice programs are being extended to increasing numbers of LDC customers
throughout Columbia Transmission's market area.
Among the issues being addressed in the state unbundling proceedings is the
treatment of the pipeline transmission and storage agreements which have
underpinned the traditional LDC merchant function. In the case of Columbia
Transmission and Columbia Gulf, contracts covering the majority of their firm
transportation and storage quantities with LDCs have primary terms which extend
to October 31, 2004. Management fully expects that the LDCs, or those entities
to which pipeline capacity may be assigned as a result of the LDC unbundling
process, will continue to fulfill their obligations under these agreements.
However, in view of the changing market and regulatory environment, the
transmission companies have commenced the process of discussing long-term
transportation and storage service needs with their firm customers. While those
discussions could result in the restructuring of some of these contracts on
mutually agreeable terms prior to 2004, it is not possible to predict the
results of those discussions at this time.
Although the specific outcome of these capacity issues is uncertain, at this
time, management does not believe that it will have a material impact on
Columbia's financial condition.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Regulatory Matters
Columbia Gulf's Rate Filing
Columbia Gulf filed a general rate case on October 31, 1996, which became
effective on May 1, 1997, subject to refund. An agreement in principle settling
all issues and rate levels in Columbia Gulf's rate proceedings was reached in
January 1998. Active parties in the proceeding have unanimously agreed to the
terms of the settlement. On March 3, 1998, a written offer of settlement was
filed with the FERC. Columbia Gulf anticipates that the settlement will be
approved without any modification by the end of the second quarter of 1998.
Management believes that if the settlement is approved as presently written, it
will not have a material impact on Columbia's financial statements which include
an adequate reserve for the settlement.
Columbia Gulf Main-line Capacity Proceeding
In September 1993, the FERC directed Columbia Gulf to show cause as to why it
had not filed for FERC abandonment authorization to reduce capacity on its
mainline facility. Since that time, Columbia Gulf has responded to various
information requests from the FERC. In an August 8, 1997 order, the FERC
approved a settlement, which required Columbia Gulf to conduct a 30-day open
season on additional firm mainline capacity up to its certificated design.
Although certain of Columbia Gulf's customers challenged the terms of the
settlement, Columbia Gulf concluded the open season on December 15, 1997, which
resulted in requests for capacity that exceeded the capacity specified in
Columbia Gulf's FERC certificate. The challenges remain pending at the FERC.
Columbia Transmission's Phase II Rate Proceeding
Columbia Transmission's rate case settlement, approved by the FERC in April
1997, excluded the environmental cost recovery issue. A hearing to address this
issue is currently scheduled for the fall of 1998. Pending the outcome of this
proceeding, Columbia Transmission continues to collect approximately $18 million
per year, subject to refund, for environmental costs.
Challenge to Columbia Transmission's Rate Design
Pursuant to a provision of Columbia Transmission's 1997 rate settlement, the New
York Public Service Commission (NYPSC) had the right to initiate a hearing
challenging the appropriateness of the Straight Fixed Variable (SFV) rate design
for Columbia Transmission. The NYPSC exercised its right to a hearing, which is
currently scheduled for late 1998. Any change from the current SFV methodology
would be placed into effect no earlier than February 1, 2000.
Sale of Gathering Facilities
Effective September 1, 1997, Columbia Transmission sold approximately 2,700
miles of gathering lines to Columbia Resources for approximately $23 million,
with an additional 750 miles anticipated to be sold to Columbia Resources by the
second quarter of 1998. In addition, approximately 1,800 miles of gathering
lines and facilities in Ohio were sold to Gatherco, Inc., effective October 31,
1997. The majority of the remaining 800 miles of gathering lines are expected to
be sold to other parties during 1998.
Capital Expenditure Program
The transmission and storage segment's net capital expenditure program was
approximately $245 million in 1997 and is projected to be $250 million in 1998.
Market expansion initiatives totaled approximately $118 million in 1997 and $86
million is anticipated in 1998. The remaining expenditures are for modernizing
and upgrading facilities.
Restructuring and Relocation Activities
Columbia Transmission and Columbia Gulf began a restructuring project in early
1996 to streamline the business functions and improve productivity by focusing
on all processes within the transmission companies. In 1996, the implementation
of key recommendations began and continued throughout 1997. In addition, during
1997 certain staff and management positions were relocated to Northern Virginia.
In 1997, approximately $24.3 million was recorded for restructuring and
relocation costs.
Environmental Matters
Columbia's transmission subsidiaries have implemented programs to continually
review compliance with existing environmental standards. In addition, the
transmission subsidiaries continue to review past operational activities and to
formulate remediation programs where necessary. Columbia Transmission is
currently conducting assessment, characterization and remediation activities at
specific sites under a 1995 Environmental Protection Agency (EPA) Administrative
Order by Consent (AOC).
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
In 1995, Columbia Transmission estimated that the cost of its environmental
program under the AOC may range between $204 million and $319 million over the
life of the program. This estimate was based on a limited amount of actual data
available and utilized a variety of assumptions, including: the number of sites
to be investigated, characterized and remediated; the location, nature and
levels of wastes that will be treated at or disposed of from each site; the
amount of time and nature of equipment required for such activities; the
appropriate remediation levels and the technology to be utilized; and the
frequency with which groundwater contamination might be discovered at sites
requiring remediation. The estimate did not include previously identified costs
for certain specific activities, aggregating approximately $50 million, for
which Columbia Transmission already had reasonable estimates.
Following an extensive review of assumptions utilized in arriving at the
estimate, management has concluded that only those site investigation,
characterization and remediation costs currently known and determinable can be
considered "probable and reasonably estimable" under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5). This
conclusion was based upon the fact that the actual characterization and
remediation experience of Columbia Transmission was extremely limited and
information on environmental conditions at many of the sites or former sites of
operations was not yet available. The nature and condition of such sites varies
greatly, and any change in any of the numerous assumptions used in the estimate
may materially alter the estimated range of costs, with no assurance that actual
costs will not exceed amounts specified in the range. Columbia Transmission is
unable, at this time, to accurately estimate the time frame and potential costs
of all site screening, characterization and remediation. As Columbia
Transmission continues its program pursuant to the AOC and costs become probable
and reasonably estimable, the associated reserves will be adjusted as
appropriate. Moreover, in time, management expects that, as additional work is
performed and more facts become available, it will then be able to develop a
probable and reasonable estimate for the entire program or a major portion
thereof consistent with U. S. Securities and Exchange Commission's Staff
Accounting Bulletin No. 92, SFAS No. 5 and American Institute of Certified
Public Accountants Statement of Position 96-1.
Columbia Transmission received EPA approval for and completed characterization
activities for 73 major facilities, approximately 2,800 liquid removal points
and approximately 900 mercury measurement stations in 1997. In addition,
approximately 400 mercury measuring stations were remediated.
Columbia Transmission also continued to conduct assessment and remediation of
impacted soils at locations prior to normal construction and maintenance
activities under its EPA approved Construction and Operations Work Plan.
Columbia Transmission conducted assessments at 160 sites and based on these
assessment results, performed remedial activities in varying degrees at
approximately 85 locations.
As a result of these 1997 activities, Columbia Transmission recorded an
additional liability of $16.8 million. Actual expenditures of approximately
$17.1 million during 1997 charged to the liability resulted in a remaining
liability of $125.4 million. Columbia Transmission's environmental cash
expenditures are expected to be approximately $18 million in 1998 and up to $20
million annually until the AOC is satisfied. These expenditures will be charged
against Columbia Transmission's previously recorded liability. Consistent with
Statement of Financial Accounting Standards No. 71, a regulatory asset has been
recorded to the extent environmental expenditures are expected to be recovered
through rates. Columbia Transmission continues to pursue recovery of
environmental expenditures from its insurance carriers; however, at this time,
management is unable to determine the total amount or final disposition of any
recovery. Management does not believe that Columbia Transmission's environmental
expenditures will have a material adverse effect on its operations, liquidity or
financial position, based on known facts and existing laws and regulations and
the long period over which expenditures will be made.
In addition, predecessor companies of Columbia Transmission may have been
involved in the operation of manufactured gas plants. When such plants were
abandoned, material used and created in the process was sometimes buried at the
site. At this time Columbia Transmission is unable to determine if it will
become liable for any characterization or remediation costs at such sites.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Throughput
Columbia Transmission's throughput consists of transportation and storage
services for local distribution companies and other customers within its market
area. Throughput for Columbia Gulf reflects mainline transportation services
from Rayne, Louisiana, to West Virginia and short-haul transportation services
from the Gulf of Mexico to Rayne, Louisiana.
Total throughput for the transmission and storage segment totaled 1,301.5 Bcf
for 1997, a decrease of 76.6 Bcf from 1996 primarily due to warmer weather in
Columbia Transmission's operating territory. Total throughput for 1996 was
1,378.1 Bcf, an increase of 41.9 Bcf from 1995. The colder weather in 1996
contributed to increased demand as well as increased marketing efforts on
Columbia Gulf's system.
Columbia Transmission's market area transportation declined 69.8 Bcf to 1,032.6
Bcf during 1997 largely due to the 5% warmer weather in the first quarter and
lower summer-related requirements from electric cogeneration facilities. Total
throughput for 1996 of 1,102.4 Bcf declined 3.7 Bcf from 1995 primarily due to
additional transportation services utilized in the summer of 1995 and increased
storage withdrawals in the last quarter of 1995 to meet colder weather demands.
Mainline transportation for Columbia Gulf decreased 26.2 Bcf to 607.5 Bcf in
1997, reflecting the impact of warmer weather in Columbia Transmission's
operating territory. During 1996, mainline transportation increased 28.7 Bcf
from 1995 due to the colder weather during the 1995-1996 winter heating season.
As a result, Columbia Gulf's mainline services were heavily utilized during the
summer of 1996 to refill depleted gas inventories on Columbia Transmission's
storage system in preparation for the 1996-1997 winter heating season.
Columbia Gulf's short-haul transportation decreased 14.1 Bcf from 1996 to 252.4
Bcf in 1997 largely due to a decline in market demand in the area south of
Rayne, Louisiana. An increase in short-haul transportation of 45.1 Bcf in 1996
over 1995 reflected increased production and new sources of offshore supply as
well as new interconnections in Louisiana.
Operating Revenues
Operating revenue of $849.8 million in 1997 increased $39 million over the
previous year. After adjusting for the recovery of upstream transportation costs
and certain other revenues that are fully offset in operating expense, current
operating revenues increased $28 million. This increase was largely due to the
sale of certain base gas volumes that were part of Columbia Transmission's
overall rate case settlement which became effective in the second quarter.
Increased revenues from transportation and storage services also contributed to
the improvement. Tempering these improvements were reduced revenues attributable
to a lower cost-of-service level underlying Columbia Transmission's rates in
1997. During the first quarter of 1998, an additional 5 Bcf of base gas is
anticipated to be sold under the terms of Columbia Transmission's rate case
settlement.
Operating revenue increased $50.5 million to $810.8 million in 1996. After
adjusting for recovery items mentioned above, operating revenue increased $37.7
million over 1995. This increase was primarily due to the new rates in place for
Columbia Transmission effective February 1, 1996. This increase was partially
offset by recognizing $12.2 million in exit fees collected by Columbia Gulf in
1995.
Operating Income
Operating income for the transportation and storage segment for 1997 was $264.3
million, an increase of $56.5 million over 1996. This improvement is
attributable to $39 million higher operating revenues, as discussed previously,
and $17.5 million lower operating expense. Operation and maintenance expense
declined $10.4 million primarily reflecting lower restructuring costs and
savings achieved through the implementation of restructuring initiatives. In
addition, operation and maintenance expense declined $5.4 million due to the
effects in 1997 and 1996 of a 1980's issue regarding production-related costs.
Columbia LNG Corp. contributed to 1997 results an additional $4.3 million over
1996, primarily reflecting a higher level of peaking services for new and
existing customers. Tempering these improvements were higher 1997 expense of
$10.1 million to reflect a valuation reserve for the anticipated sale of certain
pipeline facilities and an increase in the environmental reserve.
Operating income decreased $5.2 million to $207.8 million in 1996 from 1995
primarily as a result of a $55.7 million increase in operating expenses
partially offset by the increase in revenues mentioned above. This increase was
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
primarily the result of restructuring charges and employee incentive awards.
These decreases to operating income were tempered by a $2.8 million improvement
for Columbia LNG, reflecting its first full year of commercial operations.
STATEMENTS OF OPERATING INCOME FROM TRANSMISSION AND
STORAGE OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Transportation revenues $622.0 $629.0 $612.7
Storage revenues 179.8 159.5 139.3
Other revenues 48.0 22.3 8.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 849.8 810.8 760.3
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 428.3 444.1 392.5
Depreciation 104.3 102.6 103.8
Other taxes 52.9 56.3 51.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 585.5 603.0 547.3
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $264.3 $207.8 $213.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TRANSMISSION AND STORAGE OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES ($ in millions) 244.9 142.7 172.5 179.1 137.2
- -----------------------------------------------------------------------------------------------------------------------------------
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area 1,032.6 1,102.4 1,106.1 1,038.6 895.9
Columbia Gulf
Main-line 607.5 633.7 605.0 590.3 579.9
Short-haul 252.4 266.5 221.4 225.4 258.1
Intrasegment eliminations (591.0) (624.5) (596.3) (583.2) (561.7)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Transportation 1,301.5 1,378.1 1,336.2 1,271.1 1,172.2
Sales - - - 0.9 183.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total Throughput 1,301.5 1,378.1 1,336.2 1,272.0 1,355.9
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
DISTRIBUTION OPERATIONS
Market Conditions
Weather during 1997 was 4% warmer than 1996 in the market area served by
Columbia's distribution companies (Distribution) and, as a result,
Distribution's weather-sensitive deliveries were down 15 Bcf compared to 1996.
In addition, a 10-month labor strike shut down production at a major customer,
causing a 7 Bcf decline in usage compared to 1996. Although warmer than 1996,
1997's weather was 2% colder than normal. There were some notable weather
fluctuations in 1997, which had the fifth warmest February and the second
coldest April/May period since 1950.
Competition
Distribution competes with investor-owned, municipal, and cooperative electric
utilities throughout its five-state service area. Competition is generally
strongest in the residential and commercial markets of Kentucky, southern Ohio
and southwestern Pennsylvania where electric rates are driven by low-cost
coal-fired generation. The northern Ohio and Pittsburgh, Pennsylvania areas have
less competitive electric rates, due to the use of higher-cost nuclear-generated
power. Distribution continues to capture a major portion of the energy market
for newly built homes as a result of a strong customer preference for natural
gas.
Approximately 40% of Distribution's industrial and commercial throughput, or 128
Bcf, is susceptible to bypass, because these customers are located close to
multiple natural gas pipelines and local gas distribution companies. With the
use of innovative rate and capacity release strategies and the negotiation of
customer arrangements, substantial inroads by other natural gas competitors have
been avoided to date. As a result, the estimated throughput exposure to bypass
has been reduced to approximately 43 Bcf, representing about $11 million in
annual net revenue.
Regulatory Matters
On January 7, 1998, the Public Utilities Commission of Ohio (PUCO) approved a
second amendment to Columbia of Ohio's 1994 rate case. The amendment was filed
in November 1997 by Columbia of Ohio and a group comprising diverse interested
parties, also known as the Collaborative. The amendment establishes a five-year
funding mechanism that will enable Columbia of Ohio to expand its Customer
CHOICE(R) transportation program for residential and small commercial customers
statewide in 1998. The funding mechanism authorizes Columbia of Ohio to use
off-system sales, capacity release revenues and fees collected from marketers to
offset the cost of transition capacity that may be generated by expansion of the
Customer CHOICE(R) program, while simultaneously providing Columbia of Ohio with
an opportunity to retain some of the capacity release and off-system sales
revenues along with the benefit of reductions to upstream capacity charges. The
amendment to the settlement also extends by one year, to January 1, 2000,
Columbia of Ohio's commitment not to file a base rate increase.
Although the amendment approves the funding mechanism to expand the Customer
CHOICE(R) program statewide, the Collaborative will meet in early 1998 to
discuss operationally-oriented program modifications that may be necessary or
desirable to expand the program. Any modifications will be submitted to the PUCO
for approval, and it is anticipated that the program will be expanded throughout
Ohio in the second half of 1998.
The amendment gives Columbia of Ohio the responsibility to manage the transition
pipeline capacity costs that will arise as residential and small commercial
customers elect to acquire the commodity directly from marketers participating
in the Customer CHOICE(R) program, and revenue streams from a number of sources
including off-system sales and capacity releases with which to manage this
responsibility. Columbia of Ohio has accepted the risk for up to 11% of the
transition capacity costs to the extent these costs exceed the revenue streams
available to offset them. However, if after the conclusion of the five year
program, the revenues from these sources more than offset the transition
capacity costs, then customers and Columbia of Ohio will share the credit
balance, 75% to the customers and 25% to Columbia of Ohio.
Distribution continues to pursue initiatives that give retail customers the
opportunity to purchase natural gas directly from marketers and to use
Distribution's facilities for transportation service. These opportunities are
being pursued through regulatory initiatives in all of its jurisdictions which
have resulted in pilot transportation programs being offered in four of its five
service areas. Once fully implemented, these programs would reduce
Distribution's merchant function and provide customers with the opportunity for
reduced energy costs. Excess capacity costs and
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
costs incurred by a utility associated with providing gas if the marketing
company cannot supply the gas that customers purchased, sometimes referred to as
the supplier of last resort, are two threshold issues that must be addressed as
these programs expand to all customers. The state commissions in Distribution's
five jurisdictions are at various stages in addressing these issues.
Distribution is currently recovering the costs resulting from the unbundling of
its services and believes that most such future costs and costs resulting from
being the supplier of last resort will be recovered. As set forth in its
regulatory settlement, as previously discussed, Columbia of Ohio will be at risk
for up to 11% of the transition capacity costs. In addition, Columbia of Ohio
has agreed to participate in discussions with interested parties regarding
issues related to being the supplier of last resort.
Columbia of Ohio's Customer CHOICE(R) pilot transportation program, which began
April 1, 1997, continues to add customers. There are now over 46,000 customers
participating, including 41,000 residential customers. Of 17 marketers approved
for participation, 13 are currently active in the program. The PUCO approved the
initial program for a one-year period. As discussed earlier, Columbia of Ohio
expects to expand the program to all of its 1.3 million customers beginning in
mid-1998.
In June 1997, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania)
received approval from the Pennsylvania Public Utility Commission (PPUC) to
extend its pilot Customer CHOICE(R) program into Allegheny County, including the
city of Pittsburgh, beginning on November 1, 1997. There are nearly 26,000
customers and 9 marketers signed up to participate in the program. Columbia of
Pennsylvania has over 100,000 customers in Allegheny County who are eligible for
the program. Columbia of Pennsylvania's two-year pilot program began on November
1, 1996, in Washington County and there are over 11,000 out of a total of 37,000
customers and 9 marketers participating. As approved by the PPUC, the new
program will give marketers the option of using their own pipeline capacity,
rather than taking assignment of capacity held by Columbia of Pennsylvania.
Although the PPUC has not taken a final position on transition capacity costs,
such costs are currently being recovered through a surcharge mechanism.
In February 1998, Columbia Gas of Maryland, Inc. (Columbia of Maryland) reached
an agreement with the staff of the Maryland Public Service Commission and the
Maryland People's Counsel to settle a pending proceeding in which the People's
Counsel had sought an annual revenue reduction of $1.6 million, and Columbia of
Maryland had sought an annual revenue increase of $1.2 million. The settlement
agreement provides for an annual revenue increase of $200,000, which includes
the effect of a decrease in annual depreciation rates of approximately $534,000.
In June 1997, Columbia of Maryland entered into the second year of its pilot
transportation program for small commercial and industrial customers with 5
marketers and 500 customers participating. The second year of the residential
pilot program began in November 1997 and has 5 marketers and 2,500 customers
participating.
Columbia Gas of Virginia, Inc. (Columbia of Virginia), formerly Commonwealth Gas
Services, Inc., filed a rate case with the Virginia State Corporation Commission
(VSCC) in May 1997, requesting a $10.1 million increase in annual revenue.
Approximately $8.5 million of the requested increase is to recover normal
increases in the cost-of-service. Higher rates to recover these increased costs
went into effect on October 18, 1997, subject to refund. The remaining $1.6
million of the requested increase was based on recently passed legislation in
Virginia providing for performance-based ratemaking (PBR). The PBR rules allow
Columbia of Virginia to more timely recover the costs associated with its
capital expenditure program if certain service quality benchmarks are attained.
Also included were additional PBR rate increases of $1.9 million effective
October 18, 1998, and $900,000 effective October 18, 1999. On December 31, 1997,
Columbia of Virginia filed a motion to withdraw the PBR aspect of the case,
which was subsequently granted. This action was the result of a delay imposed by
the VSCC of the requested October 18, 1997 effective date for the initial $1.6
million PBR increase, pending the outcome of a hearing in mid-1998. The
withdrawal of the PBR converts the case to a traditional general rate case
proceeding.
On September 30, 1997, the VSCC approved Columbia of Virginia's proposed
two-year pilot transportation program for residential and small commercial
customers called Customer CHOICE(R) Program. The pilot program, which began
December 1, 1997, is open to approximately 27,000 customers in the Gainesville
market area of Northern Virginia. There are over 1,800 customers participating
in the program. These customers are served by 5 marketers out of a total of 8
approved to participate. Columbia of Virginia could expand the program and
eventually make it available to all of its 165,000 customers depending on the
results of the pilot program. Columbia of Virginia is the first company in
Virginia to file tariffs to support such a program.
27
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Columbia of Virginia's 1995 rate case settlement provided for a separate
proceeding to consider capacity release and off-system sales proposals. A
hearing on these issues was held in September 1996, and the Hearing Examiner
issued a report in March 1997, recommending approval of Columbia of Virginia's
capacity release and off-system sales pilot incentive program. In October 1997,
the VSCC issued an order which permits Columbia of Virginia to retain a portion
of capacity release proceeds once a benchmark has been reached, but disallowed
any retention from off-system sales proceeds. Columbia of Virginia filed a
petition for rehearing and reconsideration. On November 4, 1997, the VSCC
granted partial reconsideration of its order by extending the capacity release
incentive pilot through the end of 1997, rather than ending it in October 1997,
as provided for by the original order. All other aspects of the petition for
rehearing were denied.
Columbia of Kentucky received permanent approval for the Weather Normalization
Adjustment (WNA) which had been on pilot status the previous three years. The
WNA alleviates the impact of unusual weather on customers' bills and Columbia of
Kentucky's revenues. Columbia of Maryland has a similar program in effect.
Voluntary Severance Program
In September 1997, Columbia of Pennsylvania and Columbia of Maryland announced a
voluntary severance program available to their 990 employees. The program was
the result of a review of the two companies' operations which identified some
opportunities to better position the companies in their evolving business
climate. As a result of this program, in the fourth quarter of 1997 Columbia of
Pennsylvania and Columbia of Maryland recorded a total of $4.3 million of costs
representing severance and benefit costs related to the voluntary severance of
79 management, professional, manual and administrative/technical employees that
elected to participate in the program. The majority of those participating left
the companies by the end of November 1997.
Capital Expenditure Program
In addition to maintaining and upgrading facilities to assure safe, reliable and
efficient operation, Distribution's 1997 capital expenditure program of
approximately $159 million (an increase of $11 million from 1996) included
expenditures of $64 million for extending service to new areas and $75 million
for replacement and betterment projects. The estimated 1998 capital expenditure
program amounts to approximately $162 million, including $65 million for new
business and development and $83 million for replacement and betterment
projects.
Gas Supply
Distribution's gas supply portfolio, with its large storage component, has the
reliability and flexibility to accommodate the impact of weather variations on
traditional customer demand as well as provide opportunities to increase
revenues through off-system sales and other incentive programs. Off-system sales
are sales or other transactions conducted outside of Distribution's traditional
market. For 1997, Distribution had off-system sales of 45.4 Bcf. This was a
significant increase of 34.6 Bcf from 1996 due to Columbia of Ohio's 1997 rate
settlement and indirectly to the mild weather in the first quarter of 1997 that
enabled Distribution to aggressively market its storage volumes in March 1997.
Columbia of Ohio, Columbia of Pennsylvania, Columbia of Maryland and Columbia of
Kentucky now have incentive programs in place that have been approved by their
respective regulatory commissions that provide for the sharing of the proceeds
from off-system sales with customers. For 1997, these programs resulted in
pre-tax income for Distribution of $26.1 million, an increase of $11.6 million
from 1996. Columbia of Ohio's 1996 rate settlement permits the retention of up
to $51 million from off-system sales over three years subject to an earnings
limitation.
Proceeds from releasing unused pipeline capacity totaled $19.5 million for 1997,
up $5.3 million from 1996. Distribution can retain a portion of the proceeds
that exceeds established capacity release incentive benchmarks. All other
proceeds are recorded as a reduction to gas costs and the benefit is passed
through to customers. In 1997, Columbia of Ohio, Columbia of Pennsylvania and
Columbia of Maryland were able to retain capacity release proceeds amounting to
$3.1 million. As residential and small commercial transportation programs
develop into widespread practice and marketers take assignment of the LDCs'
pipeline capacity contracts, earnings from these non-traditional services may
decline.
Environmental Matters
Distribution's primary environmental issues relate to 15 former manufactured gas
plant sites. Investigations or remedial activity are currently underway at seven
sites and additional site investigation may be required at some of the remaining
sites. To the extent Distribution's site investigations have been conducted,
remediation plans
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
developed and any responsibility for remediation action established, the
appropriate liabilities have been recorded. Regulatory assets have been recorded
for a majority of these costs as rate recovery has been allowed or is
anticipated.
Throughput
For 1997, Distribution's throughput of 526.7 Bcf decreased 27.5 Bcf from 1996
due to warmer weather, an overall reduction in customer usage and a decrease in
industrial throughput of 7 Bcf due to the ten-month strike at a large industrial
customer. Higher demand for power generation and competitive natural gas prices
in 1997 contributed to a 10.1 Bcf increase in transportation volumes.
Distribution's 1996 throughput of 554.2 Bcf reflected an increase of 15.1 Bcf
over 1995 as residential and commercial sales rose 19 Bcf due to colder weather.
Transportation volumes decreased 7.1 Bcf reflecting reduced requirements for
power generation and increased pressure from competitive fuels due to higher
natural gas prices.
Net Revenues
Net revenues for 1997 of $898.1 million were down $8.6 million from 1996. The
decrease included the effect of 4% warmer weather that reduced net revenues by
approximately $23 million. This decrease was partially offset by an increase in
revenues for a 1997 regulatory settlement that Columbia of Ohio reached with
interested parties, together with income for certain gas management activities
that Columbia of Ohio retained under the terms of its 1996 rate settlement and
revenues generated by higher rates.
In 1996, net revenues of $906.7 million were up $85.2 million over 1995 due to
5% colder weather which contributed $26 million to the increase in net revenues,
while higher rates produced $21.2 million and Columbia of Ohio's retention of
revenues from certain gas management activities resulted in another $10.7
million. The remaining net revenue increase was attributable to increased
deliveries to higher margin transportation customers, customer growth and higher
revenue surcharges that were offset in expense.
Operating Income
Operating income for 1997 for Distribution of $224.2 million decreased by $1.8
million from 1996 as the decrease in net revenues was partially offset by a $6.8
million decrease in operating expenses. The decrease in operating expenses is
primarily the result of a reduced level of restructuring costs recorded in 1997
compared to 1996 and the implementation over the last two years of cost
conservation measures and operating efficiencies. Tempering these improvements
was costs related to a risk management program for Columbia of Ohio and Columbia
of Kentucky designed to mitigate potential adverse effects of certain future
business risks. Other taxes rose $11.4 million primarily due to increases in
gross receipts taxes and property taxes.
In 1996, operating income of $226 million increased $62.4 million as the
increase in net revenues was partially offset by an increase of $22.8 million in
operating expenses, primarily due to increased restructuring costs of $21.1
million.
29
<PAGE> 30
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) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES
Sales revenues $2,153.1 $2,007.9 $1,677.8
Less: Cost of gas sold 1,385.6 1,206.4 952.2
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales Revenues 767.5 801.5 725.6
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation revenues 143.2 119.8 105.3
Less: Associated gas costs 12.6 14.6 9.4
- -----------------------------------------------------------------------------------------------------------------------------------
Net Transportation Revenues 130.6 105.2 95.9
- -----------------------------------------------------------------------------------------------------------------------------------
Net Revenues 898.1 906.7 821.5
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 441.0 463.0 443.0
Depreciation 78.2 74.4 70.9
Other taxes 154.7 143.3 144.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 673.9 680.7 657.9
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 224.2 $ 226.0 $ 163.6
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
DISTRIBUTION OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES ($ in millions) 159.5 148.4 151.8 151.4 117.8
- --------------------------------------------------------------------------------------------------------------
THROUGHPUT (Bcf)
Sales
Residential 190.9 209.4 196.6 189.7 194.7
Commercial 72.7 85.7 79.5 80.8 83.4
Industrial and Other 4.2 10.3 7.1 9.7 14.2
- --------------------------------------------------------------------------------------------------------------
Total Sales 267.8 305.4 283.2 280.2 292.3
Transportation 258.9 248.8 255.9 232.5 217.5
- --------------------------------------------------------------------------------------------------------------
Total Throughput 526.7 554.2 539.1 512.7 509.8
Off-System Sales 45.4 10.8 7.5 0.3 -
- --------------------------------------------------------------------------------------------------------------
Total Sold and Transported 572.1 565.0 546.6 513.0 509.8
- --------------------------------------------------------------------------------------------------------------
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot market* 295.0 298.7 210.4 235.3 142.3
Producers 35.7 47.9 70.9 67.5 56.9
Pipelines - - - - 118.4
Storage withdrawals (injections) 4.0 (20.8) 23.6 (14.0) (6.7)
Company use and other (21.5) (9.6) (14.2) (8.3) (18.6)
- --------------------------------------------------------------------------------------------------------------
Total Sources of Gas Sold 313.2 316.2 290.7 280.5 292.3
Gas received for delivery to customers 258.9 248.8 255.9 232.5 217.5
- --------------------------------------------------------------------------------------------------------------
Total Sources 572.1 565.0 546.6 513.0 509.8
- --------------------------------------------------------------------------------------------------------------
CUSTOMERS
Sales
Residential 1,769,647 1,815,269 1,794,800 1,764,968 1,737,609
Commercial 168,413 173,689 172,114 167,067 164,037
Industrial and Other 2,340 2,285 2,265 2,312 2,302
- --------------------------------------------------------------------------------------------------------------
Total Sales Customers 1,940,400 1,991,243 1,969,179 1,934,347 1,903,948
Transportation 93,923 12,804 6,789 6,520 5,282
- --------------------------------------------------------------------------------------------------------------
Total Customers 2,034,323 2,004,047 1,975,968 1,940,867 1,909,230
- --------------------------------------------------------------------------------------------------------------
DEGREE DAYS 5,736 5,975 5,692 5,530 5,677
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects volumes under purchase contracts of less than one year.
31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
EXPLORATION AND PRODUCTION OPERATIONS
Acquisitions
On August 7, 1997, Columbia Resources acquired Alamco, a gas and oil production
company that operates in the Appalachian Basin, for $101 million. Under the
agreement, holders of Alamco received $15.75 per share of common stock. The
combined companies at the start of 1998 are producing approximately 125 million
cubic feet (Mmcf) of natural gas per day, making Columbia Resources one of the
largest natural gas and oil producers in the Appalachian Basin. This acquisition
provides contiguous assets that give Columbia Resources a major presence in
north-central West Virginia, southern Kentucky and northern Tennessee with
proved reserves of nearly 811 billion cubic feet of gas equivalent (Bcfe).
During the first quarter of 1998, Columbia Resources purchased producing assets
and undeveloped acreage in Ontario, Canada for approximately $3.6 million (U.S.
dollars). These assets consist of 26 producing wells and approximately 5,000
undeveloped acres.
Market Conditions
Although gas prices fluctuated considerably in 1997, gas prices were still
generally lower than 1996 prices. In January 1997, gas deliveries averaged
approximately $4.79 per Mcf in the Appalachian area but have steadily decreased
throughout the year, reflecting the impact of warmer weather and ample storage
inventory. Columbia Resources' natural gas prices averaged $2.63 per Mcf in
1997, compared with $2.84 per Mcf in 1996.
Fluctuations in gas prices can cause significant variations in revenues for the
exploration and production (E&P) segment. To diminish the impact of these price
swings and help stabilize revenues, Columbia Resources uses gas commodity
futures and options contracts as well as swap agreements to hedge the price risk
for a portion of its production.
To lessen the impact of market price volatility, Columbia Resources has secured
an average price of $3.02 per Mcf for approximately 60% of its natural gas
production through October 1998 through a gas marketing affiliate. The gas
marketing affiliate in turn, as part of its normal course of business, hedged
these positions in the marketplace. Additional hedge transactions for 1998
production may be executed in the future to reduce Columbia Resources' remaining
exposure to market price fluctuations.
Gathering Facilities
On September 1, 1997, Columbia Transmission transferred to Columbia Resources
certain gathering facilities for $23 million. Approximately 70% of Columbia
Resources' production flows through this system.
Sale of Coal Assets
In December 1997, Columbia Resources sold its coal assets located in southern
West Virginia for $20.1 million that resulted in an improvement to income of
approximately $6 million after-tax. The sale involved underground reserves
containing more than 300 million tons of low-sulfur, steam quality coal
reserves.
Exploration and Drilling Program
Columbia Resources participated in the drilling of 131 gross wells of which 82%
were successful. In total, 1997 reserves increased 161.6 Bcfe, or 25%, over
1996. This increase included the acquisition of Alamco that contributed
approximately 95 Bcfe as well as the results of a series of successful
exploratory wells in New York. Total proven reserves as of December 31, 1997,
were estimated at 810.7 Bcfe. For 1998, Columbia Resources expects natural gas
production to reach approximately 51 Bcf, an increase of 47% from 1997.
Capital Expenditure Program
In order to meet its drilling objectives, Columbia Resources' capital
expenditure program for 1998 is approximately $86 million. This investment will
support development of traditional Appalachian prospects as well as continue
definition in deeper horizons, such as upstate New York. Included in the $136
million program for 1997 was $101 million for the acquisition of Alamco. Not
reflected in the 1997 program was an additional $23 million for the purchase of
gathering facilities from Columbia Transmission. Columbia Resources continues to
pursue opportunities to expand its operations which may include additional
capital expenditures for acquisitions that are not reflected in the current
estimate for 1998, which primarily reflects drilling efforts.
32
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Production
Gas production in 1997 increased 3% to 34.7 Bcf over 1996 due to the acquisition
of Alamco as well as production shut-ins during 1996 resulting from facility
problems at Columbia Transmission's Kanawha Extraction Plant. From 1995 to 1996,
gas production volumes decreased 49% to 33.6 Bcf reflecting the sale of
Columbia's southwest gas and oil subsidiary, Columbia Gas Development
Corporation (Columbia Development). After adjusting for this sale, gas
production was essentially unchanged.
Oil and liquids produced was down 25% from 1996 to 210,000 barrels largely due
to Columbia Resources' sale of a production field in December 1996. In 1996,
production was down 2.6 million barrels to 281,000 barrels compared to 1995 due
to the sale of Columbia Development.
Operating Revenues
Operating revenues for 1997 were $113.3 million, an increase of $8.8 million
from 1996, primarily for a reclassification in the recording of gathering
activities. The recovery of gathering costs is now reflected in revenues with
costs associated with gathering activities included as an operating expense;
therefore, the change in reporting has no impact on operating income.
Previously, gathering activities were shown net of associated expenses. After
adjusting for gathering revenues, total operating revenues increased $1.9
million primarily due to a $4.1 million first quarter 1997 improvement related
to cash received from a contract buyout by a cogeneration facility. In addition,
volumes increased 3% over the prior period adding $3.2 million to operating
revenues. These improvements were offset by the impact of lower prices and
reduced oil and liquids production. The weaker natural gas prices reflected the
impact of warmer weather and ample storage inventory. Columbia Resources'
average gas sales price for 1997 was $2.63 per Mcf, down more than 7% from last
year. Operating revenues of $104.5 million in 1996 were down $76.1 million from
1995 due to the sale of Columbia Development at year-end 1995.
Operating Income
Operating income of $30.9 million for 1997 reflected a small improvement of
$900,000 from the prior year. The increase in operating revenues was largely
offset by higher operation and maintenance expense due primarily to additional
costs associated with the acquisition of Alamco. From 1995 to 1996, operating
income increased by $26.3 million to $30 million primarily reflecting higher
average gas prices as well as lower operating expenses resulting from the sale
of Columbia Development and reengineering initiatives.
33
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
STATEMENTS OF OPERATING INCOME FROM EXPLORATION AND
PRODUCTION OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Gas $109.5 $ 99.1 $134.4
Oil and liquids 3.8 5.4 46.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 113.3 104.5 180.6
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 45.7 37.0 79.6
Depreciation and depletion 27.6 28.8 86.9
Other taxes 9.1 8.7 10.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 82.4 74.5 176.9
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 30.9 $ 30.0 $ 3.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXPLORATION AND PRODUCTION OPERATING HIGHLIGHTS*
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES ($ in millions) 158.7 12.1 86.8 101.6 95.1
- -----------------------------------------------------------------------------------------------------------------------------------
PROVED RESERVES
Gas (Bcf) 800.5 644.5 599.5 683.8 697.0
Oil and Liquids (000 barrels) 1,700 774 1,651 12,255 12,792
- -----------------------------------------------------------------------------------------------------------------------------------
PRODUCTION
Gas (Bcf) 34.7 33.6 65.4 66.7 71.5
Oil and Liquids (000 barrels) 210 281 2,849 3,611 3,603
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE PRICES
Gas ($ per Mcf)** 2.63 2.84 1.96 2.18 2.28
Oil and Liquids ($ per barrel) 17.99 19.07 16.17 15.09 16.17
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Years 1993 through 1995 include operating results from Columbia Development,
which was sold effective December 31, 1995.
**Includes the effect of hedging activities.
34
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
MARKETING, PROPANE AND POWER GENERATION OPERATIONS
During 1997, the Marketing, Propane and Power Generation segment was involved in
several transactions designed to help achieve Columbia's goal to increase its
nonregulated operations' contribution to consolidated results. Columbia Energy
Services acquired PennUnion, an energy-marketing subsidiary of Pennzoil and
signed an agreement to purchase and market Kerr-McGee Corporation's (Kerr-McGee)
offshore natural gas production. In addition, Commonwealth Propane, Inc.
(Commonwealth Propane) purchased the assets of Supertane Gas Corporation
(Supertane). Each of these transactions is discussed more fully below.
Energy Marketing Operations
As utility regulations provide for a more open and competitive environment, LDCs
are beginning to unbundle services, thereby creating an opportunity for Columbia
Energy Services and other marketing companies to provide natural gas and other
services to retail customers. In this new environment, LDCs will substantially
reduce their merchant function and primarily become a transporter of natural
gas. Marketing companies are positioned to provide cost-effective gas supplies
and will assume this merchant role. The LDC customers may benefit from reduced
utility costs. Pilot programs underway in Ohio and other states have
demonstrated that there is substantial demand for these services and that this
market has significant potential for growth.
Columbia Energy Services provides gas and electricity supply, fuel management
and transportation-related services to a diverse customer base, including
cogenerators, local distribution companies, industrial plants, commercial
businesses, joint marketing partners and residential customers.
On June 30, 1997, Columbia Energy Services purchased PennUnion for approximately
$14.75 million, subject to certain working capital and other adjustments.
Including the PennUnion operations, Columbia Energy Services' trading volumes
are nearly 4 Bcf per day. A portion of Columbia Energy Services' marketing
volumes is represented by a contract committing Columbia Energy Services to
purchase most of Pennzoil's U.S. natural gas production of approximately 585
Mmcf per day at certain index prices. This contract is for a four-year period.
Effective May 1, 1997, Columbia Energy Services began purchasing and marketing
Kerr-McGee's offshore natural gas production of approximately 250 Mmcf per day
totaling 90 Bcf a year. The marketing alliance will continue for three years.
Columbia Energy Services will manage all of Kerr-McGee's U.S. natural gas
marketing activities including scheduling, nominating and balancing pipeline
transportation as well as providing financial risk management services.
Columbia Energy Services has taken several other initiatives to become a full
service provider of energy and energy-related services. During the fourth
quarter of 1997, Columbia Energy Services began marketing electricity through
its recently formed wholly-owned subsidiary, Columbia Power Marketing
Corporation. A ten-year natural gas supply contract between Columbia Energy
Services and a municipal gas authority was also signed in December 1997.
Effective January 1, 1998, Columbia Energy Services will sell the municipal gas
authority approximately 12 Mmcf of natural gas per day. As part of the
agreement, in December 1997, the municipal gas authority made an advance payment
of $71.6 million for such future deliveries.
In October 1997, Columbia Energy Services and Honeywell Inc. (Honeywell) formed
an alliance to sell a targeted set of products and services in a seven-state
region for use in homes, commercial buildings and industrial facilities.
Columbia Energy Services and Honeywell began offering these products and
services in the fourth quarter of 1997, which include indoor air quality
solutions, ventilating and air conditioning systems, energy strategy consulting
as well as control automation solutions to reduce energy consumption.
Columbia Energy Services needs to strengthen its infrastructure to accommodate
the significant increase in the volume of business and to improve its business
practices. Such needed improvements are of the type associated with "start-up"
enterprises, and include the hiring of additional skilled personnel, the
development of new policies and procedures for trading, risk management, credit,
contract administration and documentation, as well as new computer systems for
accounting, marketing management and customer service. During 1997, $4 million
was spent on these activities, and an additional $29 million is expected to be
spent in 1998, of which approximately $27 million will be capital expenditures.
It is anticipated, however, that continued management attention to Columbia
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Energy Services' infrastructure and continued expenditures and improvements will
be required as the company builds and expands its business.
Propane
During the first quarter of 1997, Commonwealth Propane purchased the assets of
Supertane of Ranson, West Virginia. This acquisition added 7,700 customers and
approximately 3.9 million gallons annually. In October 1997, Commonwealth
Propane was merged into Columbia Propane Corporation (Columbia Propane) to
increase administrative and operating efficiencies. Columbia Propane serves
approximately 97,000 customers in parts of 10 eastern states and the District of
Columbia. Total propane sales for 1997 were 70.9 million gallons, a decrease of
5 million gallons from 1996, resulting from significantly warmer weather in the
first quarter of 1997 and lower spot market sales activity.
In February 1998, Columbia Propane purchased certain assets of Central Jersey
Propane, Inc. (Ace Gas) located in New Jersey. Ace Gas sells approximately 2.2
million gallons of propane annually to 3,600 customers.
Power Generation
Columbia is part owner in three cogeneration projects through its subsidiary,
Columbia Electric Corporation (Columbia Electric), formerly TriStar Ventures
Corporation. These facilities produce both electricity and useful thermal energy
fueled principally by natural gas. Columbia Electric holds various interests in
these facilities that have a total capacity of approximately 250 megawatts.
Columbia Electric's primary focus has been the development, ownership and
operation of natural gas-fueled cogeneration power plants selling electric power
to local electric utilities under long-term contracts.
On January 29, 1998, Columbia Electric and Westcoast Energy Inc. signed a joint
ownership agreement to develop three natural gas-fired electricity generating
plants by 2001. In total, the three plants will provide approximately 1000
megawatts of electricity using approximately 160 Mmcf per day of natural gas.
Total development costs are estimated at $600 million to $700 million. The exact
locations of the plants have yet to be determined.
Commodity Hedging
Columbia Energy Services and Columbia Propane use commodity futures contracts
and basis swaps to hedge prices on commitments for natural gas and power
purchases and sales and propane inventories. Internal guidelines prohibit
speculative trading.
Columbia Energy Services uses these financial transactions to provide acceptable
margins on the purchase and resale of natural gas in future months. When
Columbia Energy Services makes a sale for future delivery without having natural
gas committed to that sale, it purchases derivative instruments to reduce the
risk of increasing prices prior to purchasing the natural gas to fulfill the
sales obligation. Conversely, Columbia Energy Services may use derivative
instruments to mitigate price volatility on future sales if it has contracted
for natural gas supplies before obtaining a firm sales commitment. In late 1997,
Columbia Energy Services began trading of electric power.
Columbia Propane purchases propane and places it in storage for future sale.
Columbia Propane sells commodity futures on a portion of its inventory at the
time of purchase to hedge against decreasing prices.
Net Revenues
Net revenues for 1997 increased $9.9 million over last year to $66.5 million.
Columbia Energy Services' volumes more than tripled the 1996 level to 888.4 Bcf,
reflecting the significant growth of Columbia Energy Services' operations
including the effect of the PennUnion acquisition and the agreement with
Kerr-McGee. Much of the growth came from increased lower-margin wholesale sales
that was necessary to expand Columbia Energy Services' base for future retail
growth. The impact of higher sales volumes was nearly offset by a decrease in
average margins that resulted in a total net gas marketing revenue increase of
$4.3 million. Net revenues for Columbia Propane increased $2.3 million due to
11% higher margins, which were partially offset by a 7% decrease in volumes
resulting from the warmer than normal weather experienced in the first quarter
of 1997 and lower spot market sales activity. Columbia Electric recorded $2.6
million in revenues for assuming Binghamton Partnership's gas transportation
contract with Columbia Transmission.
36
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Net revenues for 1996 increased $9.6 million over 1995 due to the favorable
effect of colder weather which increased volumes for both Columbia Energy
Services and Columbia Propane. Net revenues in 1996 from power generation
activities were essentially unchanged from 1995.
Operating Income (Loss)
An operating loss of $2.9 million was recorded in 1997 compared to a gain of
$12.5 million in the prior period. The increase in net revenues was more than
offset by higher operating costs associated with expanding the gas marketing
operations and building its infrastructure. As mentioned previously, these costs
include, among other things, implementing operational improvements and adding
additional staff. Operation and maintenance expense for Columbia Propane also
increased over the prior period due to increased staffing levels resulting from
its purchase of the assets of Supertane. In addition, start-up costs for new
services led to higher operating costs.
In 1996, operating income increased a modest $300,000 over 1995 to $12.5
million. The increase in Columbia Energy Services' net revenues was partially
offset by higher operating expenses due largely to the start-up costs for new
services.
STATEMENTS OF OPERATING INCOME FROM MARKETING, PROPANE
AND POWER GENERATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES
Gas marketing revenues $ 2,186.8 $ 728.0 $ 237.9
Less: Products Purchased 2,166.0 711.5 230.8
- -------------------------------------------------------------------------------------
Net Gas Marketing Revenues 20.8 16.5 7.1
- -------------------------------------------------------------------------------------
Propane revenues 77.9 80.7 65.1
Less: Products purchased 43.2 48.3 35.5
- -------------------------------------------------------------------------------------
Net Propane Revenues 34.7 32.4 29.6
- -------------------------------------------------------------------------------------
Other revenues 11.0 7.7 10.3
- -------------------------------------------------------------------------------------
Net Revenues 66.5 56.6 47.0
- -------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 61.2 38.8 29.7
Depreciation 5.2 3.1 2.6
Other taxes 3.0 2.2 2.5
- -------------------------------------------------------------------------------------
Total Operating Expenses 69.4 44.1 34.8
- -------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $ (2.9) $ 12.5 $ 12.2
- -------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
MARKETING, PROPANE AND POWER GENERATION OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES ($ in millions) 15.0 6.3 6.6 4.7 9.7
- --------------------------------------------------------------------------------------------------------------
PROPANE
Gallons sold (millions) 70.9 75.9 68.9 68.5 58.1
Customers 96,954 79,650 74,308 68,218 67,895
- --------------------------------------------------------------------------------------------------------------
MARKETING SALES (Bcf) 888.4 259.6 131.6 111.2 81.5
- --------------------------------------------------------------------------------------------------------------
</TABLE>
BANKRUPTCY MATTERS
On November 28, 1995, Columbia and its wholly-owned subsidiary, Columbia
Transmission, emerged from Chapter 11 protection of the Federal Bankruptcy Code
under the jurisdiction of the United States Bankruptcy Court for the District of
Delaware (Bankruptcy Court). Both Columbia and Columbia Transmission had
operated under Chapter 11 protection since July 31, 1991. In settlement of its
prepetition obligations, Columbia distributed approximately $3.6 billion to its
creditors, which included $2.3 billion in payment of Columbia's prepetition debt
and approximately $1 billion of interest on that debt. Certain residual
unresolved bankruptcy-related matters are still within the jurisdiction of the
Bankruptcy Court.
Columbia Transmission's approved plan of reorganization (Plan) was guaranteed
financially by Columbia, and provided a total distribution of approximately $3.9
billion to its creditors of which approximately $1.2 billion represented
producer claims. Columbia Transmission's Plan provided that producers who
rejected settlement offers contained in Columbia Transmission's Plan may
continue to litigate their claims under the Bankruptcy Court-approved claims
estimation procedures and receive the same percentage payout on their allowed
claims, when and if ultimately allowed, as received by the settling producers.
Columbia Transmission's Plan further provided that since the actual distribution
percentage for all producer claims, which would not be less than 68.875% or
greater than 72.5%, cannot be determined until the total amount of producer
claims is essentially established, 5% of the maximum amount (based on a 72.5%
payout) to be distributed to producer claimants for allowed claims and to
Columbia for unsecured debt will be withheld until the total has been
determined. An interim distribution could be made if Columbia Transmission
determines at any time that the holdback amount exceeds parameters stated in its
Plan.
Columbia believes adequate reserves have been established for resolution of the
remaining producer claims.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is in Item 7 on page 19.
38
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page
- --------------------------------------------------------------------------------
Report of Independent Public Accountants ................................. 40
Statements of Consolidated Income ........................................ 41
Consolidated Balance Sheets .............................................. 42
Statements of Consolidated Cash Flows .................................... 44
Statements of Consolidated Common Stock Equity ........................... 45
Notes of Consolidated Financial Statements ............................... 46
Schedule II - Valuation and Qualifying Accounts .......................... 69
- --------------------------------------------------------------------------------
39
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Columbia Energy Group:
We have audited the accompanying consolidated balance sheets of Columbia Energy
Group (a Delaware corporation, the "Corporation") and subsidiaries as of
December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
Index to Item 8, Financial Statements and Supplementary Data, is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states 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 LLP
New York, New York
January 23, 1998
40
<PAGE> 41
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Statements of Consolidated Income
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 (in millions, except per share amounts) 1997 1996 1995*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Gas sales $ 4,286.7 $ 2,679.4 $ 1,929.0
Transportation 531.5 491.3 487.7
Other 235.4 183.3 218.5
- ----------------------------------------------------------------------------------------------------------
Total Operating Revenues 5,053.6 3,354.0 2,635.2
- ----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Products purchased 3,138.1 1,481.1 820.6
Operation 862.1 854.5 826.7
Maintenance 100.2 111.4 116.6
Depreciation and depletion 221.3 215.2 270.0
Other taxes 225.5 213.6 211.1
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses 4,544.2 2,875.8 2,245.0
- ----------------------------------------------------------------------------------------------------------
OPERATING INCOME 509.4 478.2 390.2
- ----------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net (Note 14) 40.4 26.1 (58.2)
Interest expense and related charges** (Note 15) (157.6) (166.8) (988.4)
Reorganization items, net (Note 2) - - 13.4
- ----------------------------------------------------------------------------------------------------------
Total Other Income (Deductions) (117.2) (140.7) (1,033.2)
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 392.2 337.5 (643.0)
Income taxes (Note 7) 118.9 115.9 (210.7)
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 273.3 221.6 (432.3)
EXTRAORDINARY ITEM (NOTE 1) - - 71.6
- ----------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 273.3 $ 221.6 $ (360.7)
==========================================================================================================
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(based on average shares outstanding)
Before extraordinary item $ 4.93 $ 4.12 $ (8.57)
Extraordinary item - - 1.42
- ----------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share of Common Stock $ 4.93 $ 4.12 $ (7.15)
- ----------------------------------------------------------------------------------------------------------
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.90 $ 0.60 $ -
- ----------------------------------------------------------------------------------------------------------
AVERAGE COMMON STOCK SHARES OUTSTANDING (THOUSANDS) 55,405 53,792 50,477
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Reference is made to Note 2 of Notes to Consolidated Financial Statements.
** Due to the bankruptcy filings, interest expenses of $982.9 million,
including the write-off of unamortized discounts on debentures, was
recorded in the fourth quarter of 1995. (See Note 2 of Notes to
Consolidated Financial Statements.)
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
41
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED BALANCE SHEETS
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
ASSETS as of December 31 (in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $ 7,368.9 $ 6,994.4
Accumulated depreciation (3,481.5) (3,344.5)
- --------------------------------------------------------------------------------
Net Gas Utility and Other Plant 3,887.4 3,649.9
- --------------------------------------------------------------------------------
Gas and oil producing properties, full cost method 660.2 502.8
Accumulated depletion (196.0) (146.4)
- --------------------------------------------------------------------------------
Net Gas and Oil Producing Properties 464.2 356.4
- --------------------------------------------------------------------------------
Net Property, Plant and Equipment 4,351.6 4,006.3
- --------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Accounts receivable - noncurrent 1.6 6.3
Unconsolidated affiliates 74.1 69.0
Assets held for sale 1.5 12.1
Other 8.0 15.9
- --------------------------------------------------------------------------------
Total Investments and Other Assets 85.2 103.3
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments 28.7 49.8
Accounts receivable
Customer (less allowance for doubtful accounts
of $18.7 and $16.2, respectively) 815.8 562.2
Other 52.7 35.4
Gas inventory 226.8 237.8
Other inventories - at average cost 35.6 45.1
Prepayments 107.7 73.8
Regulatory assets 64.6 63.4
Underrecovered gas costs 41.4 104.7
Prepaid property tax 80.8 81.1
Exchange gas receivable 189.0 114.6
Other 64.6 68.0
- --------------------------------------------------------------------------------
Total Current Assets 1,707.7 1,435.9
- --------------------------------------------------------------------------------
REGULATORY ASSETS 409.9 410.1
DEFERRED CHARGES 66.9 49.0
- --------------------------------------------------------------------------------
TOTAL ASSETS $6,612.3 $6,004.6
- --------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
42
<PAGE> 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES as of December 31 (in millions) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, par value $10 per share - issued
55,495,460 and 55,263,659 shares, respectively $ 554.9 $ 552.6
Additional paid in capital 754.2 743.2
Retained earnings 482.7 259.3
Unearned employee compensation (1.1) (1.5)
- --------------------------------------------------------------------------------------------------
Total Common Stock Equity 1,790.7 1,553.6
LONG-TERM DEBT (Note 10) 2,003.5 2,003.8
- --------------------------------------------------------------------------------------------------
Total Capitalization 3,794.2 3,557.4
- --------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term debt (Note 11) 328.1 250.0
Accounts and drafts payable 536.7 348.6
Accrued taxes 140.9 142.6
Accrued interest 29.4 14.8
Estimated rate refunds 68.4 114.0
Estimated supplier obligations 73.9 115.1
Overrecovered gas costs 84.6 --
Transportation and exchange gas payable 89.2 95.4
Other 367.0 371.1
- --------------------------------------------------------------------------------------------------
Total Current Liabilities 1,718.2 1,451.6
- --------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes - noncurrent 618.4 557.7
Investment tax credits 35.6 37.1
Postretirement benefits other than pensions 148.8 172.3
Regulatory liabilities 41.3 44.5
Other 255.8 184.0
- --------------------------------------------------------------------------------------------------
Total Other Liabilities and Deferred Credits 1,099.9 995.6
- --------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 13) -- --
- --------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $6,612.3 $6,004.6
- --------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED CASH FLOWS
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1997 1996 1995*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 273.3 $221.6 $ (360.7)
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 221.3 215.2 270.0
Deferred income taxes 29.3 78.1 66.1
Earnings from equity investment, net of distributions 2.4 9.2 (15.5)
Reapplication of SFAS 71 -- -- (71.6)
Loss on sale of Columbia Gas Development Corp. -- -- 77.8
Interest expense settled at emergence -- -- 702.9
Payment of Chapter 11 liabilities -- -- (1,169.1)
Other - net** 32.2 (5.7) (75.2)
Changes in components of working capital:
Accounts receivable (199.2) (64.3) 99.7
Income tax refunds -- 271.5 --
Gas inventory 11.0 (65.6) 58.0
Prepayments (33.9) (16.3) 12.3
Accounts payable 186.8 160.8 38.3
Accrued taxes (30.4) (85.5) (314.9)
Accrued interest (1.2) (71.5) (56.5)
Estimated rate refunds (45.6) 17.8 (56.6)
Estimated supplier obligations (41.2) (63.2) (44.0)
Under/Overrecovered gas costs 147.9 (146.3) (18.0)
Exchange gas receivable/payable (89.5) 46.9 17.4
Other working capital 5.0 (25.7) 35.5
- -----------------------------------------------------------------------------------------
Net Cash From Operations 468.2 477.0 (804.1)
- -----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Capital expenditures (420.5) (316.4) (411.0)
Proceeds received on the sale of
Columbia Gas Development Corp. -- 187.8 --
Purchase of Alamco, Inc. (99.4) -- --
Sale of partnership interest -- 2.7 10.9
Other investments - net (9.1) -- 21.9
- -----------------------------------------------------------------------------------------
Net Investment Activities (529.0) (125.9) (378.2)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Retirement of prepetition debt obligations -- -- (637.3)
Retirement of preferred stock -- (400.0) --
Dividends paid (49.9) (32.1) --
Issuance of common stock 11.7 250.8 1.8
Issuance (repayment) of short-term debt 77.1 (88.9) 338.9
Other financing activities 0.8 (39.1) 5.1
- -----------------------------------------------------------------------------------------
Net Financing Activities 39.7 (309.3) (291.5)
- -----------------------------------------------------------------------------------------
Increase (Decrease) in cash and temporary cash investments (21.1) 41.8 (1,473.8)
Cash and temporary cash investments at beginning of year 49.8 8.0 1,481.8
- -----------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 28.7 $ 49.8 $ 8.0
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 145.4 $ 150.9 $ 284.9
Cash paid for income taxes (net of refunds) $ 90.7 $ (93.4) $ 42.3
- -----------------------------------------------------------------------------------------
</TABLE>
* Reference is made to Note 2 of Notes to Consolidated Financial Statements.
** Includes changes in Liabilities Subject to Chapter 11 Proceedings of
($2,842) million in 1995.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
44
<PAGE> 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
Columbia Energy Group and Subsidiaries
<TABLE>
<CAPTION>
Common Stock*
-----------------------------------------
Shares Additional Unearned
(in millions, except Outstanding Par Treasury Paid In Retained Employee
for share amounts) (000) Value Stock Capital Earnings Compensation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 50,563 $505.6 $ - $601.9 $ 430.5 $(70.0) $1,468.0
Net loss (360.7) (360.7)
Termination of LESOP (1,416) (57.8) (7.9) 70.0 4.3
Common stock issued:
Long-term incentive plan 57 0.6 1.8 2.4
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 49,204 506.2 (57.8) 595.8 69.8 - 1,114.0
Net income 221.6 221.6
Cash dividends:
Common stock (32.1) (32.1)
Common stock issued:
Public offering 5,750 43.3 57.8 137.5 238.6
Long-term incentive plan 310 3.1 9.9 (1.5) 11.5
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 55,264 552.6 - 743.2 259.3 (1.5) 1,553.6
Net income 273.3 273.3
Cash dividends:
Common stock (49.9) (49.9)
Common stock issued:
Long-term incentive plan 232 2.3 11.0 0.4 13.7
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 55,496 $554.9 $ - $754.2 $ 482.7 $ (1.1) $1,790.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 100 million shares authorized at December 31, 1997, 1996, 1995 and 1994 - $10
par value.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
45
<PAGE> 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Columbia Energy Group (Columbia) and all subsidiaries. All
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to the 1996 and 1995 financial statements to
conform to the 1997 presentation.
B. CASH AND CASH EQUIVALENTS. Columbia considers all highly liquid short-term
investments to be cash equivalents.
C. EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128). This statement supersedes APB Opinion No. 15, "Earnings
per Share" and simplifies the computation of earnings per share (EPS). Primary
EPS is replaced with a presentation of Basic EPS. Basic EPS includes no dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. In
addition, Fully Diluted EPS is replaced with Diluted EPS. Diluted EPS reflects
the potential dilution if certain securities are converted into common stock.
This statement requires dual presentation of Basic and Diluted EPS by entities
with complex capital structures and also requires restatement of all
prior-period EPS data presented. SFAS No. 128 is effective for financial
statements for both interim and annual periods after December 15, 1997.
Under the requirements of SFAS No. 128, Columbia's Diluted EPS are as follows:
<TABLE>
<CAPTION>
Diluted EPS Computation 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss) ($ in millions) 273.3 221.6 (360.7)
- ----------------------------------------------------------------------------------
Denominator (thousands)
Average Common shares outstanding 55,405 53,792 50,477
Dilutive potential common shares - options 329 159 --(a)
- ----------------------------------------------------------------------------------
Diluted Average Common Shares 55,734 53,951 50,477
- ----------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ 4.90 $ 4.11 $ (7.15)
- ----------------------------------------------------------------------------------
</TABLE>
(a) The addition of 57 dilutive potential common shares would be antidilutive
in the 1995 computation of Diluted EPS, and therefore, are not included.
D. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS No. 71), 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. Columbia's transmission subsidiaries reapplied the provisions of SFAS
No. 71 during 1995, concurrent with the emergence from Chapter 11 protection. As
a result of reapplying SFAS No. 71, an extraordinary gain of $71.6 million was
recorded in 1995. Columbia's gas distribution subsidiaries have been following
and continue to follow the accounting and reporting requirements of SFAS No. 71.
Certain expenses and credits subject to utility regulation or rate determination
normally reflected in income are deferred on the balance sheet and are
recognized in income as the related amounts are included in service rates and
recovered from or refunded to customers.
46
<PAGE> 47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Information for assets and liabilities subject to utility regulation and rate
determination are as follows:
<TABLE>
<CAPTION>
Transmission Distribution
Subsidiaries Subsidiaries
At December 31 ($ in millions) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Environmental costs 125.8 123.6 7.4 7.1
Postemployment and postretirement benefits 64.6 69.4 121.8 129.9
Percent of income plan receivables -- -- 22.6 17.9
Retirement income plan costs 21.7 21.4 19.2 20.2
Regulatory effects of accounting for income taxes -- -- 50.8 49.0
Post in-service carrying charges -- -- 18.3 18.9
Underrecovered gas costs -- -- 41.4 104.7
Other 7.4 9.9 5.9 6.3
- --------------------------------------------------------------------------------------------
TOTAL REGULATORY ASSETS 219.5 224.3 287.4 354.0
- --------------------------------------------------------------------------------------------
LIABILITIES
Rate refunds and reserves 55.9 95.5 12.5 18.4
Overrecovered gas costs -- -- 84.6 --
Regulatory effects of accounting for income taxes 19.5 21.5 24.1 25.2
Other 7.5 6.8 -- --
- --------------------------------------------------------------------------------------------
TOTAL REGULATORY LIABILITIES 82.9 123.8 121.2 43.6
- --------------------------------------------------------------------------------------------
</TABLE>
E. 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 rate regulated subsidiaries includes an
allowance for funds used during construction (AFUDC). Property, plant and
equipment of other subsidiaries includes interest during construction (IDC). The
1997 before-tax rates for AFUDC and IDC were 7.09% and 7.05%, respectively. The
1996 and 1995 before-tax rates for AFUDC were 6.15% and 8%, respectively, and
for IDC were 6.9% and 9.6%, respectively.
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.
Columbia's subsidiaries provide for annual depreciation on a composite
straight-line basis.
The average annual depreciation rate for the transmission subsidiaries' property
was 2.5% in 1997, 2.5% in 1996 and 2.6% in 1995. The average annual depreciation
rate for the distribution subsidiaries' property was 3.2% in 1997, 3.2% in 1996
and 3.1% in 1995.
F. GAS AND OIL PRODUCING PROPERTIES. Columbia's subsidiary engaged in exploring
for and developing gas and oil reserves follows the full cost method of
accounting. Under this method of accounting, all productive and nonproductive
costs directly identified with acquisition, exploration and development
activities including certain payroll and other internal costs are capitalized.
Depletion for the subsidiary is based upon the ratio of current-year revenues to
expected total revenues, utilizing current prices, over the life of production.
If costs exceed the sum of the estimated present value of the net future gas and
oil 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 gas and oil properties are
normally recorded as adjustments to capitalized costs, except in the case of a
sale of a significant amount of properties, which would be reflected in the
income statement.
On April 30, 1996, Columbia sold Columbia Gas Development Corporation (Columbia
Development) effective December 31, 1995, to a privately held exploration and
development firm for approximately $200 million. The sale included approximately
196 billion cubic feet equivalent of proved gas and oil reserves, located in the
Gulf of Mexico and on-shore continental United States. An after-tax loss of
$54.8 million was recorded in the fourth quarter of 1995. An adjustment to the
loss of $5.6 million after-tax was recorded during 1996, which increased income.
47
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
G. COMMODITY HEDGING. In accordance with Statement of Financial Accounting
Standards No. 80, "Accounting for Futures Contracts," a futures contract
qualifies as a hedge if the commodity to be hedged is exposed to price risk and
the futures contract reduces that exposure and is designated as a hedge.
Subsidiaries in Columbia's production, marketing and propane operations engage
in commodity hedging activities to help minimize the risk of market fluctuations
associated with the price of natural gas production, propane inventories and
commitments for natural gas purchases and sales. The hedging objectives include
assurance of stable and known minimum cash flows, fixing favorable prices and
margins when they become available and participation in any long-term increases
in value. Under internal guidelines, speculative positions are prohibited.
Columbia's exploration and production company utilizes futures, options and
swaps on futures as well as commodity price swaps and basis swaps. Futures help
manage commodity price risk by fixing prices for future production volumes. The
options provide a price floor for future production volumes and the opportunity
to benefit from any increases in prices. Swaps are negotiated and executed
over-the-counter and are structured to provide the same risk protection as
futures and options. Basis swaps are used to manage risk by fixing the basis or
differential that exists between a delivery location index and the commodity
futures prices. These positions are hedged in the marketplace through a gas
marketing affiliate.
Columbia's marketing and propane operations utilize futures contracts and basis
swaps to help assure adequate margins on the purchase and resale of natural gas
as well as protecting the value and margins of its propane inventories.
Premiums paid for option and swap agreements are included as current assets in
the consolidated balance sheet until they are exercised or expire. Margin
requirements for natural gas and propane futures are also recorded as current
assets. Unrealized gains and losses on all futures contracts are deferred on the
consolidated balance sheet as either current assets or other deferred credits.
Realized gains and losses from the settlement of natural gas futures, options
and swaps are included in revenues or products purchased as appropriate,
concurrent with the associated physical transaction. Realized gains and losses
from the settlement of propane futures contracts are included in products
purchased. The cash flows from commodity hedging are included in operating
activities in the consolidated statement of cash flows.
Columbia and its subsidiaries are exposed to credit losses in the event of
nonperformance by the counterparties to its various hedging contracts.
Management has evaluated such risk and believes that overall business risk is
significantly reduced as a result of these hedging contracts which are primarily
with major investment grade financial institutions or their affiliates.
H. GAS INVENTORY. The distribution subsidiaries' gas inventory is carried at
cost on a last-in, first-out (LIFO) basis. The excess of replacement cost of gas
inventory at December 31, 1997, over the carrying value is approximately $25
million. Liquidation of LIFO layers related to gas delivered by the distribution
subsidiaries does not affect income since the effect is passed through to
customers as part of purchased gas adjustment tariffs.
I. INCOME TAXES AND INVESTMENT TAX CREDITS. Columbia and its subsidiaries record
income taxes to recognize full interperiod tax allocations. Under the liability
method of income tax accounting, deferred income taxes are 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 regulated subsidiaries were
deferred and are being amortized over the life of the related properties to
conform with regulatory policy.
J. 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.
K. DEFERRED GAS PURCHASE COSTS. Columbia'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.
48
<PAGE> 49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
L. REVENUE RECOGNITION. Columbia's gas distribution 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.
M. ENVIRONMENTAL EXPENDITURES. Columbia accrues for costs associated with
environmental remediation obligations when such costs are probable and can be
reasonably estimated, regardless of when expenditures are made. The undiscounted
estimated future expenditures are based on currently enacted laws and
regulations, existing technology and, when possible, site-specific costs. The
reserve is adjusted as further information is developed or circumstances change.
Rate-regulated subsidiaries applying SFAS No. 71 establish a regulatory asset on
the balance sheet to the extent that future recovery of environmental
remediation costs is expected through the regulatory process.
N. USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
O. STOCK OPTIONS AND AWARDS. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS No. 123), effective in
1996, encourages, but does not require, entities to adopt the fair value method
of accounting for stock-based compensation plans. This statement requires the
value of the option at the date of grant be amortized over the vesting period of
the option. Columbia continues to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25).
For stock appreciation rights, compensation expense is recognized on the
aggregate difference between the market price of Columbia's stock and the option
price. Restricted stock awards are recorded as deferred compensation in the
consolidated balance sheet at the date of grant. Compensation expense related to
restricted stock awards is recognized ratably over the vesting period.
Compensation expense related to contingent stock awards is recognized over the
vesting period. Columbia sets the grant price of the options at the market price
of the stock on the grant date. In accordance with APB Opinion No. 25, expense
related to stock options is measured by the difference between the grant price
and Columbia's stock price on the measurement date (grant date). Since the
difference between the grant price and Columbia's stock price on the measurement
date is de minimis, no compensation expense is recognized. When stock options
are exercised, common stock is credited for the par value of shares issued and
additional paid in capital is credited with the consideration in excess of par.
2. EMERGENCE FROM CHAPTER 11 OF THE BANKRUPTCY CODE
A. GENERAL. On November 28, 1995, Columbia and its wholly owned subsidiary,
Columbia Gas Transmission Corporation (Columbia Transmission), emerged from
Chapter 11 protection of the Federal Bankruptcy Code under the jurisdiction of
the United States Bankruptcy Court for the District of Delaware (Bankruptcy
Court). Both Columbia and Columbia Transmission had operated under Chapter 11
protection since July 31, 1991. In settlement of its prepetition obligations,
Columbia distributed approximately $3.6 billion to its creditors, which included
$2.3 billion in payment of Columbia's prepetition debt and approximately $1
billion of interest on that debt. Certain residual unresolved bankruptcy-related
matters are still within the jurisdiction of the Bankruptcy Court.
Columbia Transmission's approved plan of reorganization (Plan) was guaranteed
financially by Columbia, and provided a total distribution of approximately $3.9
billion to its creditors of which approximately $1.2 billion represented
producer claims. Columbia Transmission's Plan provided that producers who
rejected settlement offers contained in Columbia Transmission's Plan may
continue to litigate their claims under the Bankruptcy Court-approved claims
estimation procedures and receive the same percentage payout on their allowed
claims, when and if ultimately allowed, as received by the settling producers.
Columbia Transmission's Plan further provided that since the actual distribution
percentage for all producer claims, which would not be less than 68.875% or
greater than 72.5%, can not be determined until the total amount of producer
claims is essentially established, 5% of the maximum amount (based on 72.5%
payout) to be distributed to producer claimants for allowed claims and to
Columbia for unsecured debt will be withheld until the total has been
determined. An interim distribution could be
49
<PAGE> 50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
made if Columbia Transmission determines at any time that the holdback amount
exceeds the parameters stated in the Plan.
Columbia believes adequate reserves have been established for resolution of the
remaining producer claims and the payment of any amounts ultimately due to
producers with respect to the 5% holdback.
B. REORGANIZATION ITEMS. During the bankruptcy period, Columbia and Columbia
Transmission earned interest income on cash accumulated from the suspension of
payments related to prepetition liabilities and incurred expenses associated
with professional fees and other related services.
Listed below is a summary of Reorganization Items included in the income
statements.
<TABLE>
<CAPTION>
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income on accumulated cash -- -- 93.5
Professional fees and related expenses -- -- (28.2)
Other reorganization items, net -- -- (51.9)
- --------------------------------------------------------------------------------
REORGANIZATION ITEMS, NET -- -- 13.4
- --------------------------------------------------------------------------------
</TABLE>
3. REGULATORY MATTERS
A. In April 1997, the Federal Energy Regulatory Commission (FERC) approved a
settlement of Columbia Transmission's rate case which provides for an increase
in revenues to recover the higher costs incurred since 1991. The settlement also
provides an opportunity for the recovery of Columbia Transmission's net
investment in gathering and certain gas processing facilities and incorporates a
revised version of a partial settlement filed by Columbia Transmission on August
30, 1996. That element of the settlement provides for the continued use of
system-wide rates, commonly known as postage-stamp rates, in lieu of zone rates.
Under the settlement, Columbia Transmission will not place a new rate case into
effect prior to February 1, 2000. The settlement allows Columbia Transmission to
retain the gain from the 1996 sale of base gas from one of its storage fields,
as well as certain future base gas sales. Specifically, the settlement permits
Columbia Transmission to retain approximately 95% of the first $60 million
pre-tax gain from future base gas sales. After that level has been reached,
Columbia Transmission would share equally with customers any gain from such
sales. The settlement rates became effective June 1, 1997 and an after-tax
improvement of $12.4 million was recorded in the second quarter of 1997 to
reflect the terms of the settlement, including the base gas sale.
Excluded from the settlement is the environmental cost issue which will be
addressed in the second phase of the proceeding scheduled for hearings during
the fall of 1998. Columbia Transmission continues to collect approximately $18
million per year, subject to refund, for environmental costs.
B. In its September 1993 order on Columbia Transmission's and Columbia Gulf
Transmission Company's (Columbia Gulf) FERC Order No. 636 (Order 636) compliance
filings, the FERC initiated a proceeding concerning Columbia Gulf's
transportation service to Columbia Transmission. It directed Columbia Gulf to
show cause as to why it had not filed for FERC's abandonment authorization to
reduce capacity on its mainline facilities. In a response to the FERC in late
1993, Columbia Gulf asserted that no abandonment authorization was required. The
FERC issued an order on August 8, 1997, approving a Stipulation and Consent
Agreement that required Columbia Gulf to conduct a 30-day open season on
additional firm mainline capacity up to its certificated design capacity. The
open season concluded on December 15, 1997 and resulted in requested capacity
that exceeded Columbia Gulf's certificated level. Challenges by certain of
Columbia Gulf's customers to the terms of the approved settlement remain pending
at the FERC.
C. On March 1, 1995, Columbia Transmission filed with the FERC to recover $39
million of transportation costs that were billed to Columbia Transmission by
Columbia Gulf. Various parties protested Columbia Transmission's filing, and
challenged among other things Columbia Transmission's ability to recover costs
attributable to Columbia Gulf.
In an April 2, 1996 order, the FERC ruled that Columbia Gulf was entitled to
bill its prudently incurred costs, under its cost-of-service tariff, to Columbia
Transmission, and that Columbia Transmission was entitled to flow such amounts
through to its customers. The FERC ruled that approximately $19 million of the
Columbia Gulf charges were recoverable by Columbia Transmission, subject to a
general FERC audit, which has been completed with no
50
<PAGE> 51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
adjustment to the amounts billed. With respect to the remaining $20 million of
costs associated with environmental issues, Columbia Transmission and the
parties to the case filed an uncontested offer of settlement in May 1997 that
provided for a resolution of the environmental issues. On June 25, 1997, the
FERC approved the settlement which provided for a refund of $4 million,
including interest. Previously established reserves were sufficient and the
settlement had no effect on 1997 operating income. In addition, the settlement
establishes a method for determining whether Columbia Gulf may seek recovery of
future environmental costs incurred at specific sites and provides for the
withdrawal of a number of related court appeals.
D. On October 31, 1996, Columbia Gulf filed a general rate case with the FERC.
The filing, which reflected a proposed increase in revenues of approximately
$9.6 million, was accepted by the FERC subject to refund and conditions, pending
the outcome of a hearing. On April 29, 1997, Columbia Gulf filed revised rates
reflecting changes required by the FERC's acceptance order. The revised rates,
which reflect an increase in revenues of approximately $8.1 million, went into
effect on May 1, 1997, subject to refund. An agreement in principle settling all
issues and rate levels was reached in January 1998. The FERC staff and active
parties in the proceeding have unanimously agreed to the terms of the
settlement. Management believes that if the settlement is approved as presently
written, it will not have a material impact on Columbia's financial statements.
E. Columbia Gas of Ohio, Inc.'s (Columbia of Ohio) 1994 rate case settlement
provided for a review of the company's revenue requirements by a collaborative
group composed of diverse interested parties (Collaborative), for the purpose of
evaluating the need to adjust base rates at May 1, 1996. The review process was
completed and the Public Utilities Commission of Ohio (PUCO) approved an
amendment to the 1994 rate case settlement in December 1996. The settlement
permitted Columbia of Ohio to retain up to $51 million of revenues over the next
three years subject to a sharing mechanism, under which a portion of any
earnings above an industry composite allowed return on equity would be shared
with customers. The revenues retained were primarily from historic off-system
sales transactions completed or agreed to prior to August 31, 1996. This revenue
mechanism was in lieu of a base rate increase to customers. Additionally, the
settlement provided that Columbia of Ohio would not implement any increase in
base rates before January 1, 1999.
On January 7, 1998, the PUCO approved a second amendment to the 1994 rate case
settlement. The new amendment establishes a five-year funding mechanism that
will enable Columbia of Ohio to expand its Customer CHOICE(R) transportation
program for residential and small commercial customers statewide in 1998. The
funding mechanism authorizes Columbia of Ohio to use off-system sales, capacity
release revenues and fees collected from marketers to offset the cost of
transition capacity that may be generated by expansion of the Customer CHOICE(R)
program, while simultaneously providing Columbia of Ohio with an opportunity to
retain some of the capacity release and off-system sales revenue. The amendment
also extends by one year, to January 1, 2000, Columbia of Ohio's commitment not
to implement any increase in base rates. The amendment gives Columbia of Ohio
the responsibility to manage the transition pipeline capacity costs that will
arise as residential and small commercial customers elect to acquire the
commodity directly from marketers participating in the Customer CHOICE(R)
program, and revenue streams from a number of sources including off-system sales
and capacity releases with which to manage this responsibility. Columbia of Ohio
has accepted the risk for up to 11% of the transition capacity costs to the
extent these costs exceed the revenue streams available to offset them. However,
if after the conclusion of the five-year program the revenues from these sources
more than offset the transition capacity costs, then customers and Columbia of
Ohio will share the credit balance, 75% to the customers and 25% to Columbia of
Ohio.
4. RESTRUCTURING ACTIVITIES
In 1996, Columbia's subsidiaries completed a top-down review of their management
structure and operations in an effort to streamline their organizations and
improve customer service. The studies examined all aspects of Columbia's
operations including the configuration and location of its management.
The transmission subsidiaries restructuring project focused on all processes
within the companies operations. These efforts resulted in streamlined business
functions, improved organizational structures and reduced staff levels.
The distribution segment initiated a restructuring of its headquarters'
operations as part of its ongoing efforts to provide enhanced customer service
and to achieve greater operating efficiencies. These initiatives, which are
designed to streamline and enhance customer service, are continuing. Additional
studies are underway in all of the
51
<PAGE> 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
distribution segment's service territories that may affect the field
organizations in functions other than customer service and may result in
additional positions being eliminated, with additional expense being recorded.
In the third quarter of 1996, Columbia Energy Group Service Corporation,
Columbia LNG Corporation and Columbia Electric Corporation (Columbia Electric),
formerly TriStar Ventures Corporation, implemented restructuring programs and
moved their corporate headquarters from Wilmington, Delaware to Reston,
Virginia.
As a result of these restructuring programs, it is estimated that 1,412
management, professional, administrative and technical positions will ultimately
be eliminated. In 1996, Columbia recorded a pre-tax charge of $60.9 million in
operating expense representing severance and related benefit costs, relocation
costs, the establishment of the new corporate center and costs related to the
sale of the former headquarters building. This charge included $52.7 million of
estimated termination benefits. Partially offsetting these charges was a $6
million pre-tax gain on the sale of the former headquarters building. During
1997, Columbia recorded pre-tax charges of $31.1 million in operating expense
representing additional severance and related benefits costs, and additional
relocation costs. This charge included $18.9 million of estimated termination
benefits. As of December 31, 1997, approximately 1,300 employees have been
terminated as a result of these programs. At December 31, 1997, the consolidated
balance sheet reflected an accrual of $16.8 million associated with
restructuring activities.
5. COMMODITY HEDGING ACTIVITIES
A. GAS PRODUCTION. At December 31, 1997, there were 31 open future equivalent
contracts representing a notional quantity amounting to 0.3 Bcf of natural gas
production through February 1998, at an average price of $2.45 per Mcf. A total
of $0.2 million of unrealized gains have been deferred on the consolidated
balance sheet with respect to these open contracts. Additional production is
hedged in the marketplace through a gas marketing affiliate. At December 31,
1996, there were 1,490 open contracts representing a notional quantity amounting
to 14.9 Bcf of natural gas production through October 1997, at an average price
of $2.32 per Mcf. A total of $1.2 million of unrealized gains were deferred on
the consolidated balance sheet with respect to those open contracts at December
31, 1996.
During the year ended December 31, 1997, $0.2 million of gains were realized on
the settlement of natural gas option and swap contracts entered into to hedge
the value of gas production. During the year ended December 31, 1996, $3.7
million of losses were realized on the settlement of these contracts.
These gains and losses are largely offset when the production is sold in the
cash market.
B. MARKETING, PROPANE AND POWER GENERATION. At December 31, 1997, there were
27,423 open future equivalent contracts maturing from January 1998 to January
2008 representing a notional quantity amounting to 272.2 Bcf of natural gas. A
total of $1.14 million of unrealized losses have been deferred on the
consolidated balance sheet with respect to these open contracts. At December 31,
1996, there were 5,173 open contracts through October 1998, representing a
notional quantity amounting to 51.7 Bcf of natural gas. A total of $0.8 million
of unrealized gains were deferred on the consolidated balance sheet with respect
to these open contracts at December 31, 1996. These unrealized losses are
largely offset by gains which are realized when the products are sold.
During the year ended December 31, 1997, $4.7 million of gains were recognized
in operating income on the settlement of natural gas swap contracts. During the
year ended December 31, 1996, $6.3 million of losses were realized on the
settlement of natural gas futures, options and swap contracts. Gains and losses
on propane and gas marketing hedging activities were offset by amounts realized
from the sale of the underlying products.
6. NEW ACCOUNTING STANDARDS
A. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 will be effective for financial statements for both interim and annual
periods beginning after December 15, 1997 and reclassification of financial
statements for earlier periods presented will be required for comparative
purposes. Columbia will adopt this statement on January 1, 1998. Columbia does
not anticipate the adoption of this statement will have a significant impact on
the consolidated financial statements.
52
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
B. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). This statement establishes
standards for reporting information about operating segments in annual financial
statements and requires the reporting of selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997, and in the initial
year of application, comparative information for earlier years is to be
restated. Columbia will adopt this statement on January 1, 1998, and does not
expect a significant impact on present segment reporting.
7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME TAXES
Current
Federal 82.4 30.4 (284.8)
State 7.2 7.5 8.1
- ---------------------------------------------------------------------------------
Total Current 89.6 37.9 (276.7)
- ---------------------------------------------------------------------------------
Deferred
Federal 50.4 64.6 69.7
State (19.6) 14.9 (2.2)
- ---------------------------------------------------------------------------------
Total Deferred 30.8 79.5 67.5
- ---------------------------------------------------------------------------------
Deferred Investment Credits (1.5) (1.5) (1.5)
- ---------------------------------------------------------------------------------
Income taxes included in income before
extraordinary item 118.9 115.9 (210.7)
Deferred taxes related to extraordinary item -- -- 36.9
- ---------------------------------------------------------------------------------
TOTAL INCOME TAXES 118.9 115.9 (173.8)
- ---------------------------------------------------------------------------------
</TABLE>
Total income taxes are different from the amount that 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) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Book income (loss) before income taxes and
extraordinary item 392.2 337.5 (643.0)
Tax expense (benefit) at statutory Federal income tax rate 137.3 35.0% 118.1 35.0% (225.0) 35.0%
Increases (reductions) in taxes resulting from:
State income taxes, net of Federal income tax benefit (8.1) (2.1) 16.7 4.9 4.7 (0.7)
Estimated non-deductible expenses 0.7 0.2 0.9 0.3 9.0 (1.4)
Effect of change in deferred taxes previously provided (1.9) (0.5) (4.0) (1.2) -- --
Adjustment to prior year's tax provision
due to pending settlement (3.2) (0.8) (11.3) (3.4) -- --
Other (5.9) (1.5) (4.5) (1.3) 0.6 (0.1)
- -------------------------------------------------------------------------------------------------------------------------------
INCOME TAXES BEFORE EXTRAORDINARY ITEM 118.9 30.3% 115.9 34.3% (210.7) 32.8%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Deferred income taxes result from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The principal components of Columbia's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
At December 31 ($ in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Property basis differences 655.3 631.5
Gas purchase costs 52.4 94.4
Partnership deferrals 27.5 23.9
Other 39.5 14.6
- --------------------------------------------------------------------------------
Gross Deferred Tax Liabilities 774.7 764.4
- --------------------------------------------------------------------------------
Deferred tax assets
Estimated supplier obligations (28.8) (45.4)
Alternative minimum tax (0.2) (46.9)
Estimated rate refunds (12.5) (25.0)
Capitalized inventory overheads (26.7) (24.3)
Unbilled utility revenue (23.2) (23.9)
Restructuring costs (8.5) (21.4)
Postretirement benefits (10.5) (16.5)
Environmental liabilities (8.1) (8.6)
Tax loss carryforwards (48.7) (40.1)
Off-system sales (21.8) (7.8)
Other (51.2) (34.3)
- --------------------------------------------------------------------------------
Gross Deferred Tax Assets (240.2) (294.2)
- --------------------------------------------------------------------------------
Deferred Tax Asset Valuation Allowance 34.4 34.7
- --------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY* 568.9 504.9
- --------------------------------------------------------------------------------
</TABLE>
*Includes net current deferred tax assets of $49.5 million and $52.8 million
reflected in Current Assets for 1997 and 1996, respectively.
As reflected by the valuation allowance in the table above, Columbia had
potential tax benefits of $34.4 million and $34.7 million at December 31, 1997
and 1996, respectively, which were not recognized in the statements of
consolidated income when generated. These benefits resulted from state income
tax operating loss carryforwards which are available to reduce future tax
liabilities. Management believes there is a risk that certain of these
carryforwards may expire unused and therefore, an asset has not been recorded
for such future benefits. The expiration of the tax loss carryforward benefits,
net of federal taxes, in 1999 is $2.3 million, in 2000 is $1.2 million, in 2001
is $0.4 million, in 2002 is $0.1 million and beyond is $44.7 million.
8. PENSION AND OTHER POSTRETIREMENT BENEFITS
A. PENSION PLANS. Columbia has a noncontributory, qualified defined benefit
pension plan covering essentially all employees. Benefits are based primarily on
years of credited service and employees' highest three-year average annual
compensation in the final five years of service. Columbia's funding policy
complies with Federal law and tax regulations. Columbia also has a nonqualified
pension plan that provides benefits to some employees in excess of the qualified
plan's Federal tax limits. Effective 1996, Columbia is reflecting the
information presented below as of September 30, rather than December 31. The
effect of this change is not material.
The following table shows the components of net pension expense for the
qualified and nonqualified plans and the annual contributions for each of the
three years:
<TABLE>
<CAPTION>
PENSION COSTS ($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost 28.7 35.0 26.7
Interest cost 67.6 70.7 69.9
Actual return on assets (236.9) (81.9) (202.5)
Net amortization (deferral) 142.3 (5.1) 124.8
- --------------------------------------------------------------------------------
NET PENSION EXPENSE 1.7 18.7 18.9
- --------------------------------------------------------------------------------
CONTRIBUTIONS 0.0 0.0 1.2
- --------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The following table provides a reconciliation of the plans' funded status and
amounts reflected in Columbia's balance sheet at December 31:
<TABLE>
<CAPTION>
PLAN ASSETS AND OBLIGATIONS ($ in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value 1,164.6 1,033.9
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 765.8 660.6
Nonvested benefits 60.5 48.7
- --------------------------------------------------------------------------------
Accumulated benefit obligation 826.3 709.3
Effect of projected future salary increases 62.6 160.6
- --------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATIONS 888.9 869.9
- --------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 275.7 164.0
Unrecognized net gain (390.2) (281.5)
Unrecognized prior service cost 48.9 52.6
Unrecognized transition obligation 5.8 7.0
- --------------------------------------------------------------------------------
ACCRUED PENSION COST (59.8) (57.9)
- --------------------------------------------------------------------------------
DISCOUNT RATE ASSUMPTION 7.5% 8.0%
- --------------------------------------------------------------------------------
ASSET EARNINGS RATE ASSUMPTION 9.0% 9.0%
- --------------------------------------------------------------------------------
</TABLE>
Plan assets consist of primarily equity (international and domestic) and fixed
income securities.
The compensation growth rate assumption was revised downward from 5.0% in 1996
to 3.5% for 1997-1999, and 4.5% thereafter. This equates to a weighted average
of 4.3% over 15 years. As of December 31, 1997, the discount rate assumption was
revised downward to 7.5%. The net effect of these changes was to increase the
accumulated benefit obligation and the projected benefit obligation by $41.7
million and $34.9 million, respectively.
B. OTHER POSTRETIREMENT BENEFITS. Columbia also provides medical coverage and
life insurance to retirees. Essentially all active employees are eligible for
these benefits upon retirement after completing ten consecutive years of service
after age 45. Normally, spouses and dependents of retirees are also eligible for
medical benefits. Effective 1996, Columbia is reflecting the information
presented below as of September 30 rather than December 31. The effect of this
change is not material.
55
<PAGE> 56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The following table shows components of other postretirement costs for each of
the three years:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT COSTS ($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost 13.0 13.8 11.3
Interest Cost 23.5 22.4 24.1
Actual return on assets (48.3) (12.5) (30.0)
Other, net amortization (deferral) 23.4 (5.4) 16.0
- --------------------------------------------------------------------------------
OTHER POSTRETIREMENT COSTS, NET 11.6 18.3 21.4
- --------------------------------------------------------------------------------
CONTRIBUTIONS 35.0 39.5 45.6
- --------------------------------------------------------------------------------
</TABLE>
The following table provides a reconciliation of other postretirement plans'
funded status and amounts reflected on Columbia's balance sheet at December 31:
<TABLE>
<CAPTION>
PLAN ASSETS AND OBLIGATIONS ($ in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees 170.5 151.0
Fully eligible active plan participants 50.5 54.5
Other participants 88.8 81.7
- --------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 309.8 287.2
Plan assets at fair value (242.9) (179.6)
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 66.9 107.6
Unrecognized actuarial net gain 129.9 117.5
Less: Fourth quarter contributions 7.4 6.6
- --------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST 189.4 218.5
- --------------------------------------------------------------------------------
DISCOUNT RATE ASSUMPTION 7.5% 8.0%
- --------------------------------------------------------------------------------
MEDICAL COST TREND 5.5% 5.5%
- --------------------------------------------------------------------------------
ASSET EARNINGS RATE ASSUMPTION* 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%.
Plan assets consist of shares in various equity (international and domestic) and
fixed income mutual funds. The assets are held in three trust accounts and one
401(h) account.
The compensation growth rate assumption was revised downward from 5.0% in 1996
to 3.5% for 1997-1999, and 4.5% thereafter. This equates to a weighted average
of 4.3% over 15 years. As of December 31, 1997, the discount rate assumption was
revised downward to 7.5% from 8.0%. The medical cost trend rate remained at 5.5%
for December 31, 1997. The net effect of these changes was a $13.3 million
increase in the accumulated postretirement benefit obligation. A one percent
increase in medical inflation trend rates for each future year would have
increased the accumulated postretirement benefit obligation by another $17.0
million and other postretirement costs by $3.0 million in 1997.
All of Columbia's subsidiaries participate in funding for retiree life insurance
benefits, using a voluntary employee beneficiary association (VEBA) trust.
Columbia's funding policy is to make annual contributions to this trust, subject
to the maximum tax-deductible limit. Contributions of approximately $3.9
million, and $3.3 million were made to the retiree life insurance VEBA trust in
1997 and 1996, respectively.
Columbia's regulated subsidiaries participate in funding for retiree medical
costs, using two trusts and a 401(h) account. Columbia's non-regulated companies
have elected not to fund retiree health care costs, and make contributions to
the trust accounts on a pay-as-you-go basis. Contributions of approximately
$31.1 million and $36.2 million were made to these retiree medical trusts in
1997 and 1996, respectively.
9. LONG-TERM INCENTIVE PLAN
On April 26, 1996, shareholders approved a new Long-Term Incentive Plan (New
LTIP). The New LTIP which is effective for ten years, beginning February 21,
1996, provides for the granting of nonqualified stock options and incentive
stock options, contingent stock awards, stock appreciation rights and restricted
stock awards to officers and
56
<PAGE> 57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
key employees. The New LTIP also provides for the granting of nonqualified stock
options to outside directors. A total of 3,000,000 shares of Columbia's
authorized common stock is available under the New LTIP's provisions.
On April 26, 1996, shareholders approved an incentive compensation plan for
outside directors under which they may receive benefits in lieu of a retirement
plan and defer current compensation in the form of phantom stock units, which
equates the amounts granted to the directors with the performance of Columbia's
stock.
Columbia's Long-Term Incentive Plan (LTIP), in effect from 1985 through 1995,
provided 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 had the right to modify any
outstanding award. A total of 1,500,000 shares of Columbia's authorized common
stock was initially reserved for issuance under the LTIP's provisions.
Stock appreciation rights, which were 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. Stock
options and related stock appreciation rights granted under the LTIP generally
have a maximum term of ten years and vest over two to four years.
Transactions for the three years ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Options
----------------------------
Without Stock With Stock Options
Appreciation Appreciation Price
Rights Rights Range
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 484,965 156,150 $ 34.30-$46.68
Granted 93,000 -- $ 28.99-$31.05
Exercised (33,245) (6,100) $ 28.99-$38.30
Cancelled (20,400) -- $ 34.30-$46.68
- -----------------------------------------------------------------------------------
Outstanding at December 31, 1995 524,320 150,050 $ 28.99-$46.68
Granted 100,000 -- $ 48.6875
Exercised (209,625) (66,860) $ 28.99-$46.68
Forfeited (9,020) (7,260) $ 34.30-$46.68
- -----------------------------------------------------------------------------------
Outstanding at December 31, 1996 405,675 75,930 $ 28.99-$48.6875
Granted 1,133,350 -- $58.375-$71.0938
Exercised (183,138) (48,790) $ 28.99-$63.6875
Forfeited (41,962) (3,240) $ 34.30-$63.6875
===================================================================================
OUTSTANDING AT DECEMBER 31, 1997 1,313,925 23,900 $ 28.99-$71.0938
===================================================================================
EXERCISABLE AT DECEMBER 31, 1997 596,824 23,900 $ 28.99-$63.6875
===================================================================================
</TABLE>
Regarding the stock options granted in 1997, such options vest ratably over
three years. Regarding the stock options granted in 1996, 50% of such options
vested in 1996 and the other 50% vested in 1997. All of the stock options
granted in 1995 had vested in 1995.
The following table shows the weighted average option exercise price information
for the three years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1 $42.88 $41.31 $42.69
Granted during the year 63.40 48.69 29.10
Exercised during the year 44.31 41.07 35.36
Forfeited during the year 62.01 44.15 --
Cancelled during the year -- -- 40.61
OUTSTANDING AT DECEMBER 31 59.37 42.88 41.31
EXERCISABLE AT DECEMBER 31 54.70 42.21 41.31
- --------------------------------------------------------------------------------
</TABLE>
In addition to the options, contingent stock awards totaling 27,500 shares were
granted to two key executives in 1995. All of these shares vested and 22,820
shares have been issued (net of amounts withheld to pay taxes). In 1996,
contingent stock awards totaling 1,500 shares were granted to one key executive
and all 1,500 shares vested
57
<PAGE> 58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
and were issued during 1996. There were no contingent stock awards granted in
1997. Restricted stock awards totaling 29,785 shares were granted to one key
executive in 1996 of which 5,957 shares vested during 1997.
During 1997, 1996 and 1995, $3.2 million, $2.1 million and $1.1 million were
expensed for the long-term incentive plans, respectively.
Had compensation cost been determined consistent with the provisions of the SFAS
No. 123 fair value method (See Note 1), Columbia's net income would have been
$255.6 million (earnings per share of $4.61 and diluted earnings per share of
$4.59) in 1997. The effect on Columbia's net income and earnings per share for
both 1996 and 1995 would have been immaterial. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 1997, 1996 and 1995:
dividend yield of zero percent for 1997 and 1996 to reflect dividend equivalents
applicable to awards granted and 1.18% for 1995; expected volatility ranging
from 18.41% to 19.29% for 1997 and 20.12% for both 1996 and 1995; risk free
interest rates ranging from 5.86% to 6.89% for 1997, 6.58% for 1996, and 5.93%
and 6.39% for 1995; and expected lives of seven years. The weighted-average fair
market value of options granted were $24.85, $19.80 and $9.72 for 1997, 1996 and
1995, respectively.
10. LONG-TERM DEBT
The long-term debt (exclusive of current maturities) of Columbia and its
subsidiaries is as follows:
<TABLE>
<CAPTION>
At December 31 ($ in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Columbia Energy Group Debentures
6.39% Series A due November 28, 2000 311.0 311.0
6.61% Series B due November 28, 2002 281.5 281.5
6.80% Series C due November 28, 2005 281.5 281.5
7.05% Series D due November 28, 2007 281.5 281.5
7.32% Series E due November 28, 2010 281.5 281.5
7.42% Series F due November 28, 2015 281.5 281.5
7.62% Series G due November 28, 2025 281.5 281.5
- --------------------------------------------------------------------------------
Total Debentures 2,000.0 2,000.0
Subsidiary Debt:
Capitalized lease obligations 2.7 2.5
Other 0.8 1.3
================================================================================
TOTAL LONG-TERM DEBT 2,003.5 2,003.8
================================================================================
</TABLE>
The aggregate maturities of long-term debt and capitalized lease obligations
during the next five years are as follows:
<TABLE>
<CAPTION>
($ in millions)
- --------------------------------------------------------------------------------
<S> <C>
1998 0.6
1999 0.5
2000 311.3
2001 0.5
2002 281.7
- --------------------------------------------------------------------------------
</TABLE>
11. SHORT-TERM DEBT AND CREDIT FACILITIES
In November 1995, Columbia entered into an unsecured bank revolving credit
agreement (Credit Facility). The Credit Facility is a five-year revolving credit
agreement maturing November 2000 and is used to support outstanding commercial
paper and to meet other short-term requirements. The Credit Facility had an
initial commitment amount of $1 billion with scheduled quarterly commitment
reductions of $25 million beginning on December 31, 1997. As of December 31,
1997, the commitment amount was $975 million. Interest rates on borrowings are
based upon the London Interbank Offered Rate, Certificate of Deposit rates or
other short-term interest rates. Compensating balances are not required.
Columbia is required to pay a facility fee on the commitment amount at a rate
which is based on Columbia's public debt rating. The facility fee rate as of
December 31, 1997 is 0.11%. The Credit Facility contains certain covenants that
must be met to borrow funds including
58
<PAGE> 59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
restrictions on the incurrence of liens, a maximum leverage ratio, and a minimum
consolidated net worth. At December 31, 1997, Columbia had outstanding $120
million under the Credit Facility at an average interest rate of 6.17%. At
December 31, 1996, Columbia had outstanding $250 million under the Credit
Facility at an average interest rate of 6.44%. The maximum credit facility
indebtedness outstanding during the year occurred on January 1, 1997 in the
amount of $250 million at an average interest rate of 6.44%.
The Credit Facility provides for the issuance of up to $100 million of standby
letters of credit. At the option of Columbia, an additional $50 million of the
credit facility can be utilized for letters of credit or borrowings. As of
December 31, 1997, Columbia had $42.7 million of letters of credit outstanding
under the Credit Facility. Fees for letters of credit issued are calculated at
rates that are based on Columbia's public debt rating plus a commission of
0.125% to the issuing bank. At December 31, 1997, fees for letters of credit
issued in connection with certain financial obligations were at a rate of 0.19%.
Columbia has an $850 million commercial paper program authorized and rated by
the rating agencies. At December 31, 1997, Columbia had commercial paper
outstanding of $208.1 million (net of discount) at a weighted average interest
rate of 6.42%. No commercial paper borrowings were made during 1996. The maximum
commercial paper indebtedness outstanding during the year occurred on December
4, 1997, in the amount of $326.4 million at an average interest rate of 5.97%.
In addition, Columbia had a $75 million letter of credit outstanding at December
31, 1997, as a guarantee of certain transactions of its wholly owned marketing
affiliate.
At December 31, 1997, approximately $7.5 million of investments were pledged as
collateral on outstanding letters of credit related to Columbia's wholly owned
insurance captive.
In March 1998, Columbia replaced the Credit Facility with two new unsecured bank
revolving credit facilities that total $1.35 billion (New Credit Facilities).
The New Credit Facilities consist of a $900 million five-year revolving credit
facility and a $450 million 364-day revolving credit facility with a one-year
term loan option. The five-year facility will provide for the issuance of up to
$300 million of letters of credit. Interest rates on borrowings under the New
Credit Facilities are based upon the London Interbank Offered Rate or Citibank's
publicly announced "base rate." Facility fee payments and fees for letters of
credit are based upon Columbia's public debt ratings. At Columbia's current
rating, the facility fee charged on the $900 million credit facility is 0.11%
and on the $450 million credit facility is 0.085%.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," 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 the
consolidated balance sheets, for which it is practicable to estimate a 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.
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. Columbia utilizes standby letters
of credit (See Note 11) and does not believe it is practicable to estimate their
fair value.
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:
LONG-TERM INVESTMENTS
Long-term investments include loans receivable ($3.7 million for 1997 and $4.0
million for 1996) whose estimated fair values are based on the present value of
estimated future cash flows using an estimated rate for similar loans. Long-term
investments also include pledged assets of $7.5 million for 1997, whose
estimated fair value is based on the trading value provided by a financial
institution. The financial instruments included in long-term investments are
primarily reflected in Investments and Other Assets on the consolidated balance
sheets. Long-term investments for which it is practicable to estimate fair value
had carrying amounts of $11.2 million and $4.0 million, and estimated fair
values of $10.8 million and $3.6 million at December 31, 1997 and 1996,
respectively. Long-term investments for which it is not practicable to estimate
fair value had carrying amounts of $4.2 million at December
59
<PAGE> 60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
31, 1996. There are no long-term investments for which it is not practicable to
estimate fair value at December 31, 1997.
LONG-TERM DEBT
The estimated fair value of Columbia's debentures, including accrued interest,
is based on estimates provided by brokers. Long-term debt of $2,012.9 million
and $2,012.9 million at December 31, 1997 and 1996, have estimated fair values
of $2,051.6 million and $1,948.1 million, respectively.
13. OTHER COMMITMENTS AND CONTINGENCIES
A. CAPITAL EXPENDITURES. Capital expenditures for 1998 are currently estimated
at $555 million. Of this amount, $250 million is for transmission and storage
operations, $162 million for distribution operations, $86 million for
exploration and production operations, $46 million for marketing, propane and
power generation operations and $11 million for Corporate.
B. OTHER LEGAL PROCEEDINGS. Columbia and its subsidiaries have been named as
defendants in various legal proceedings. In the opinion of management, the
ultimate disposition of these currently asserted claims will not have a material
adverse impact on Columbia's consolidated financial position or results of
operations.
C. ASSETS UNDER LIEN. Substantially all of Columbia Transmission's properties
have been pledged to Columbia as security for debt owed by Columbia Transmission
to Columbia.
Columbia Electric Corporation (Columbia Electric), formerly TriStar Ventures
Corporation, a wholly owned subsidiary of Columbia, holds indirectly through
various Columbia Electric subsidiaries, both general and limited partnership
interests in Pedricktown Cogeneration Limited Partnership and Vineland
Cogeneration Limited Partnership (the "Partnerships"), which own and operate
project-financed non-utility power generation facilities in New Jersey. The
assets of the Partnerships, including plant facilities and contract rights, have
been pledged as collateral for loans to a bank syndicate in the case of
Pedricktown, or to an indenture trustee for the benefit of certain bondholders
in the case of Vineland. Columbia Electric's investment in the Partnerships, as
of December 31, 1997, amounted to $17 million.
D. INTERNAL REVENUE SERVICE (IRS) AUDIT. A settlement with the IRS of Columbia's
1991 through 1994 federal income tax returns has been concluded. The field audit
for 1995 has been finalized and management believes adequate reserves have been
established for issues in the 1995 tax return.
E. OPERATING LEASES. Payments made in connection with operating leases are
charged to operation and maintenance expense as incurred. Such amounts were
$62.9 million in 1997, $60.9 million in 1996 and $61.6 million in 1995.
Future minimum rental payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year are:
<TABLE>
<CAPTION>
($ in millions)
- --------------------------------------------------------------------------------
<S> <C>
1998 30.1
1999 28.2
2000 24.2
2001 22.9
2002 22.4
After 205.5
- --------------------------------------------------------------------------------
</TABLE>
F. ENVIRONMENTAL MATTERS. Columbia'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
have subsequently become subject to environmental regulation.
60
<PAGE> 61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
A subsidiary has received notice from the United States Environmental Protection
Agency (EPA) that it is among several parties responsible under federal law for
placing wastes at a Superfund site. It is sharing in the cost for remediation of
this site. Considering known facts, existing laws and possible insurance and
rate recoveries, management does not believe the identified Superfund matter
will have a material adverse effect on future annual income or on Columbia's
financial position.
Columbia's transmission subsidiaries have implemented programs to continually
review compliance with existing environmental standards. In addition, the
transmission subsidiaries continue to review past operational activities and to
formulate remediation programs where necessary. Columbia Transmission is
currently conducting assessment, characterization and remediation activity of
specific sites under a 1995 EPA Administrative Order by Consent (AOC).
In 1995, Columbia Transmission estimated that the cost of its environmental
program under the AOC may range between $204 million and $319 million over the
life of the program. This estimate was based on a limited amount of actual data
available and utilized a variety of assumptions, including: the number of sites
to be investigated, characterized and remediated; the location, nature and
levels of wastes that will be treated at or disposed of from each site; the
amount of time and nature of equipment required for such activities; the
appropriate remediation levels and the technology to be utilized; and the
frequency with which groundwater contamination might be discovered at sites
requiring remediation. The estimate did not include previously identified costs
for certain specific activities, aggregating approximately $50 million, for
which Columbia Transmission already had reasonable estimates.
Following an extensive review of assumptions utilized in arriving at the
estimate, management concluded that only those site investigation,
characterization and remediation costs currently known and determinable can be
considered "probable and reasonably estimable" under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5). This
conclusion was based upon the fact that the actual characterization and
remediation experience of Columbia Transmission was extremely limited and
information on environmental conditions at many of the sites or former sites of
operations is not yet available. The nature and condition of such sites varies
greatly, and any change in any of the numerous assumptions used in the estimate
may materially alter the estimated range of costs, with no assurance that actual
costs will not exceed amounts specified in the range. Columbia Transmission is
unable, at this time, to accurately estimate the time frame and potential costs
of all site screening, characterization and remediation. As Columbia
Transmission continues its program pursuant to the AOC and additional costs
become probable and reasonably estimable, the associated reserves will be
adjusted as appropriate. Moreover, in time, management expects that, as
additional work is performed and more facts become available, it will then be
able to develop a probable and reasonable estimate for the entire program or a
major portion thereof consistent with U. S. Securities and Exchange Commission's
Staff Accounting Bulletin No. 92, "Accounting and Disclosure Relating to Loss
Contingencies," SFAS No. 5 and American Institute of Certified Public
Accountants Statement of Position 96-1, "Environmental Remediation Liabilities."
Columbia Transmission received EPA approval for and completed characterization
of 73 major facilities, approximately 2,800 liquid removal points and
approximately 900 mercury measurement stations in 1997. In addition,
approximately 400 mercury measuring stations were remediated.
Columbia Transmission also continued to conduct assessment and remediation of
impacted soils at locations prior to normal construction and maintenance
activities under its EPA approved Construction and Operations Work Plan.
Columbia Transmission conducted assessments at 160 sites and, based on these
assessment results, performed remedial activities in varying degrees at
approximately 85 locations.
As a result of these 1997 activities, Columbia Transmission recorded in 1997 an
additional liability of $16.8 million. Actual expenditures of approximately
$17.1 million during 1997 charged to the liability resulted in a remaining
liability of $125.4 million. Columbia Transmission's environmental cash
expenditures are expected to be approximately $18 million in 1998 and up to $20
million annually until the AOC is satisfied. These expenditures will be charged
against Columbia Transmission's previously recorded liability. Consistent with
Statement of Financial Accounting Standards No. 71, a regulatory asset has been
recorded to the extent environmental expenditures are expected to be recovered
through rates. Columbia Transmission continues to pursue recovery of
environmental expenditures from its insurance carriers; however, at this time,
management is unable to determine the total amount or final disposition of any
recovery.
61
<PAGE> 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
In addition, predecessor companies of Columbia Transmission may have been
involved in the operation of manufactured gas plants. When such plants were
abandoned, material used and created in the process was sometimes buried at the
site. At this time, Columbia Transmission is unable to determine if it will
become liable for any characterization or remediation costs at such sites.
The distribution subsidiaries' (Distribution) primary environmental issues
relate to 15 former manufactured gas plant sites. Investigations or remedial
activities are currently underway at seven sites and additional site
investigations may be required at some of the remaining sites. To the extent
Distribution site investigations have been conducted, remediation plans
developed and any responsibility for remediation action established, the
appropriate liabilities have been recorded. Regulatory assets have also been
recorded for a majority of these identified liabilities as rate recovery has
been allowed or is anticipated.
The eventual total cost of full future environmental compliance for Columbia 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 established based on information currently available
which resulted in a total recorded net liability of approximately $129.1 million
for Columbia at December 31, 1997. As new issues are identified, additional
liabilities will be recorded.
It is management's continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve mutually
acceptable compliance plans. However, there can be no assurance that fines and
penalties will not be incurred. Management expects most environmental assessment
and remediation costs to be recoverable through rates.
14. INTEREST INCOME AND OTHER, NET
<TABLE>
<CAPTION>
Year Ended December 3l ($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income 21.0 13.4 22.8
Sale of Columbia Development -- 6.9 (77.8)
Miscellaneous 19.4 5.8 (3.2)
- --------------------------------------------------------------------------------
TOTAL INTEREST INCOME AND OTHER, NET 40.4 26.1 (58.2)
- --------------------------------------------------------------------------------
</TABLE>
15. INTEREST EXPENSE AND RELATED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31 ($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on emergence, including amortization of
discounts on long-term debt -- -- 982.9
Interest on debentures 140.4 140.4 --
Interest on short-term debt 8.2 11.7 15.1
Interest on rate refunds 3.4 3.9 17.7
Interest on prior years' taxes 9.1 8.3 17.6
Allowance for borrowed funds used
and interest during construction (3.5) 2.5 (52.4)
Other interest charges -- -- 7.5
- --------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE AND RELATED CHARGES 157.6 166.8 988.4
- --------------------------------------------------------------------------------
</TABLE>
16. BUSINESS SEGMENT INFORMATION
Columbia is a registered holding company under the Public Utility Holding
Company Act of 1935, as amended and derives substantially all of its revenues
and earnings from the operating results of its 17 direct subsidiaries.
Columbia's subsidiaries are divided into four primary business segments. The
transmission and storage segment offers transportation, storage and gas peaking
services for local distribution companies and industrial and commercial
customers located in northeastern, middle Atlantic, midwestern, and southern
states and the District of Columbia. The distribution segment provides natural
gas service and transportation for residential, commercial and
62
<PAGE> 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland. The
exploration and production segment explores for, develops, produces, and markets
gas and oil in the United States. The marketing, propane and power generation
segment includes the sale of propane at wholesale and retail to customers in
eight states, participation in natural gas fueled cogeneration projects and the
marketing of natural gas and related energy services to distribution companies,
independent power producers and other retail end-users.
The following tables provide information concerning Columbia'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) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Transmission and Storage
Unaffiliated 516.9 456.2 436.0
Intersegment 332.9 354.6 324.3
- --------------------------------------------------------------------------------
TOTAL 849.8 810.8 760.3
- --------------------------------------------------------------------------------
Distribution
Unaffiliated 2,283.6 2,120.4 1,780.6
Intersegment 12.7 7.3 2.5
- --------------------------------------------------------------------------------
TOTAL 2,296.3 2,127.7 1,783.1
- --------------------------------------------------------------------------------
Exploration and Production
Unaffiliated 44.3 45.5 111.5
Intersegment 69.0 59.0 69.1
- --------------------------------------------------------------------------------
TOTAL 113.3 104.5 180.6
- --------------------------------------------------------------------------------
Marketing, Propane
and Power Generation
Unaffiliated 2,208.9 731.5 307.1
Intersegment 66.8 84.9 6.2
- --------------------------------------------------------------------------------
TOTAL 2,275.7 816.4 313.3
- --------------------------------------------------------------------------------
Adjustments and eliminations
Unaffiliated (0.1) 0.4 --
Intersegment (481.4) (505.8) (402.1)
- --------------------------------------------------------------------------------
TOTAL (481.5) (505.4) (402.1)
- --------------------------------------------------------------------------------
CONSOLIDATED 5,053.6 3,354.0 2,635.2
- --------------------------------------------------------------------------------
</TABLE>
63
<PAGE> 64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
<TABLE>
<CAPTION>
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME (LOSS)
Transmission and Storage 264.3 207.8 213.0
Distribution 224.2 226.0 163.6
Exploration and Production 30.9 30.0 3.7
Marketing, Propane
and Power Generation (2.9) 12.5 12.2
Corporate (7.1) 1.9 (2.3)
- --------------------------------------------------------------------------------
CONSOLIDATED 509.4 478.2 390.2
- --------------------------------------------------------------------------------
DEPRECIATION & DEPLETION
Transmission and Storage 104.3 102.6 103.8
Distribution 78.2 74.4 70.9
Exploration and Production 27.6 28.8 86.9
Marketing, Propane
and Power Generation 5.2 3.1 2.6
Adjustments and eliminations 6.0 6.3 5.8
- --------------------------------------------------------------------------------
CONSOLIDATED 221.3 215.2 270.0
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Transmission and Storage 2,758.7 2,761.2 2,978.9
Distribution 2,753.5 2,648.3 2,295.7
Exploration and Production 564.6 421.7 412.4
Marketing, Propane
and Power Generation 613.2 289.0 125.8
Corporate and unallocated 471.9 504.6 604.6
Adjustments and eliminations (549.6) (620.2) (360.4)
- --------------------------------------------------------------------------------
CONSOLIDATED 6,612.3 6,004.6 6,057.0
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Transmission and Storage 244.9 142.7 172.5
Distribution 159.5 148.4 151.8
Exploration and Production 158.7 12.1 86.8
Marketing, Propane
and Power Generation 15.0 6.3 6.6
Corporate 5.3 5.3 4.1
Adjustments and eliminations (23.1) -- --
- --------------------------------------------------------------------------------
CONSOLIDATED 560.3 314.8 421.8
- --------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data does not always reveal the trend of the Columbia's
business operations due to 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>
1997
Operating Revenues 1,527.7 810.7 995.0 1,720.2
Operating Income 256.6 84.3 29.7 138.8
Net Income on Common Stock 162.7(a) 34.9(b) 0.1 75.6(c)
Per Share Amounts
Earnings Per Share 2.94 0.63 -- 1.36
Diluted Earnings Per Share 2.93 0.63 -- 1.35
- ----------------------------------------------------------------------------------------------
1996
Operating Revenues 1,203.0 582.4 450.8 1,117.8
Operating Income 278.2 36.0 20.9 143.1
Net Income (Loss) on Common Stock 151.3 8.2(d) (6.1)(e) 68.2(f)
Per Share Amounts
Earnings (Loss) Per Share 2.99 0.15 (0.11) 1.24
Diluted Earnings (Loss) Per Share 2.98 0.15 (0.11) 1.23
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $12.8 million reduction in state income tax expense and $5.5
million gain on deactivation of a storage field.
(b) Includes $12.4 million from Columbia Transmission's sale of base gas, as
agreed to under the terms of Columbia Transmission's rate settlement.
(c) Includes the net income effect of $6.0 million for the sale of coal assets.
(d) Includes a decrease in net income of $18.6 million to reflect severance and
benefit costs associated with ongoing restructuring activities, partially
offset by an increase in net income of $5.6 million for an adjustment to the
loss on the sale of Columbia Development.
(e) Includes a decrease in net income of $2.5 million to reflect severance and
benefit costs associated with ongoing restructuring activities.
(f) Includes a decrease in net income of $11.1 million to reflect severance and
benefit costs associated with ongoing restructuring activities.
18. EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
On August 7, 1997, Columbia Natural Resources, Inc. (Columbia Resources)
acquired Alamco, a gas and oil production company operating in the Appalachian
Basin. On April 30, 1996, Columbia sold Columbia Development, its wholly owned
Southwest exploration and production subsidiary, effective December 31, 1995.
The information contained in the following tables includes amounts attributable
to the operations and reserves of Alamco for August 7, 1997, through year-end
and the operations and reserves of Columbia Development for 1995.
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.
65
<PAGE> 66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
<TABLE>
<CAPTION>
RESERVE QUANTITY INFORMATION
- -----------------------------------------------------------------------------------
Oil and Other
Gas Liquids
Proved Reserves (Bcf) (000 Bbls)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Reserves as of December 31, 1994 683.8 12,255
Revisions of previous estimate 72.4 (522)
Extensions, discoveries
and other additions 53.6 2,668
Production (65.4) (2,849)
Sale of reserves-in-place(a) (144.9) (9,901)
- -----------------------------------------------------------------------------------
Reserves as of December 31, 1995 599.5 1,651
Revisions of previous estimate 78.9 (169)
Extensions, discoveries
and other additions 5.5 161
Production (33.6) (281)
Sale of reserves-in-place (5.8) (588)
- -----------------------------------------------------------------------------------
Reserves as of December 31, 1996 644.5 774
Revisions of previous estimate 69.5 (139)
Extensions, discoveries
and other additions 33.2 59
Production (34.7) (210)
Purchase of reserves-in-place (b) 88.0 1,216
- -----------------------------------------------------------------------------------
RESERVES AS OF DECEMBER 31, 1997 800.5 1,700
- -----------------------------------------------------------------------------------
Proved developed reserves as of December 31,
1995 471.6 1,608
1996 518.3 730
1997 653.2 1,330
- -----------------------------------------------------------------------------------
</TABLE>
(a) Includes the sale of Columbia Development.
(b) Includes the purchase of Alamco.
CAPITALIZED COSTS
<TABLE>
<CAPTION>
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITALIZED COSTS AT YEAR END
Proved properties 628.4 475.4 486.2
Unproved properties (a) 31.8 27.4 30.1
- --------------------------------------------------------------------------------
Total capitalized costs 660.2 502.8 516.3
Accumulated depletion (196.0) (146.4) (141.1)
- --------------------------------------------------------------------------------
NET CAPITALIZED COSTS 464.2 356.4 375.2
- --------------------------------------------------------------------------------
COSTS CAPITALIZED DURING YEAR (b)
Acquisition - Unproved properties 0.1 0.7 1.1
Exploration 1.0 2.7 4.3
Development 132.4 8.7 15.5
- --------------------------------------------------------------------------------
COSTS CAPITALIZED 133.5 12.1 20.9(c)
- --------------------------------------------------------------------------------
</TABLE>
(a) Represents expenditures associated with properties on which evaluations have
not been completed.
(b) Includes internal costs capitalized pursuant to the accounting policy
described in Note 1 of Notes to Consolidated Financial Statements of $1.4
million in 1997, $0.9 million in 1996 and $1.7 million in 1995.
(c) Excludes capital expenditures for properties sold.
66
<PAGE> 67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
OTHER EXPLORATION AND PRODUCTION DATA
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Average sales price per Mcf of gas ($)(a) 2.63 2.84 1.96
Average sales price per barrel
of oil and other liquids ($) 17.99 19.07 16.17
Production (lifting) cost per
dollar of gross revenue ($) 0.24 0.22 0.27
Depletion rate per dollar
of gross revenue ($) 0.28 0.29 0.49
- --------------------------------------------------------------------------------
</TABLE>
(a) Includes the effect of hedging activities.
<TABLE>
<CAPTION>
HISTORICAL RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Appalachia Southwest Total
------------------------ -------------------- ------------------------
($ in millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross revenues
Unaffiliated 27.4 43.1 46.6 -- -- 60.1 27.4 43.1 106.7
Affiliated 69.0 58.8 32.8 -- -- 35.9 69.0 58.8 68.7
Production costs 23.3 21.7 21.2 -- -- 26.7 23.3 21.7 47.9
Depletion 26.6 28.8 39.5 -- -- 47.0 26.6 28.8 86.5
Income tax expense 14.3 15.1 6.5 -- -- 7.8 14.3 15.1 14.3
- -----------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS 32.2 36.3 12.2 -- -- 14.5 32.2 36.3 26.7
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Results of operations for exploration and production activities exclude
administrative and general costs, corporate overhead and interest expense.
Income tax expense is expressed at statutory rates less Section 29 credits.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
Appalachia
- --------------------------------------------------------------------------------
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows 2,503.0 2,389.1 1,793.8
Future production costs (719.9) (715.5) (606.7)
Future development costs (182.7) (165.8) (166.3)
Future income tax expense (557.5) (499.7) (327.1)
- --------------------------------------------------------------------------------
Future net cash flows 1,042.9 1,008.1 693.7
Less 10% discount 582.2 574.4 377.7
- --------------------------------------------------------------------------------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW 460.7 433.7 316.0
- --------------------------------------------------------------------------------
</TABLE>
Future cash inflows are computed by applying year-end prices to estimated future
production of proved gas and oil 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 Columbia's gas and oil 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.
67
<PAGE> 68
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 gas and oil reserves for
the three years ending December 31, follows:
<TABLE>
<CAPTION>
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year 433.7 316.0 406.3
- --------------------------------------------------------------------------------
Gas and oil sales,
net of production costs (73.1) (80.2) (124.3)
Net changes in prices
and production costs (107.8) 170.4 132.7
Change in future
development costs (16.9) 0.5 (49.7)
Extensions, discoveries
and other additions,
net of related costs 51.9 9.4 106.5
Revisions of previous
estimates, net of
related costs 64.0 90.1 72.5
Sales of reserves-in-place (4.1) (18.4) (195.6)
Purchases of reserves-in-place 67.0 -- --
Accretion of discount 64.3 46.0 55.2
Net change in income taxes (30.5) (65.3) (64.9)
Timing of production
and other changes 12.2 (34.8) (22.7)
- --------------------------------------------------------------------------------
END OF YEAR 460.7 433.7 316.0
- --------------------------------------------------------------------------------
</TABLE>
68
<PAGE> 69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Columbia Energy Group and Subsidiaries
Year Ended December 31,
($ in Millions)
<TABLE>
<CAPTION>
Additions - Charged to
----------------------------------
Beginning Other Ending
Description Balance Income Accounts(a) Deductions(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
1997 16.2 29.8 19.8 47.1 18.7
1996 12.3 25.6 17.7 39.4 16.2
1995 11.6 31.6 11.3 42.2 12.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects reclassifications 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.
69
<PAGE> 70
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
Certain information required by this item is contained in Columbia's Proxy
Statement related to the 1998 Annual Meeting of Stockholders, to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 and is
incorporated herein by reference.
Information regarding Columbia's current executive officers, is as follows:
OLIVER G. RICHARD III, 45, Chairman, Chief Executive Officer and President of
Columbia (since April 28, 1995). Chairman of New Jersey Resources Corporation
from 1992 to 1995; President and Chief Executive Officer from 1991 to 1995.
President and Chief Executive Officer of Northern Natural Gas Company from 1989
to 1991. Senior Vice President and subsequently Executive Vice President of
Enron Gas Pipeline Group from 1987 to 1989. Vice President and General Counsel
of Tenngasco, a subsidiary of Tenneco Corporation, from 1985 to 1987. Federal
Energy Regulatory Commission Commissioner from 1982 to 1985.
PETER M. SCHWOLSKY, 51, Senior Vice President and Chief Legal Officer of
Columbia and Columbia Energy Group Service Corporation since August 1995; Senior
Vice President from June 1995 to August 1995. Executive Vice President, Law and
Corporate Development, for New Jersey Resources Corporation from 1991 to 1995.
Of counsel and then Partner with Steptoe & Johnson from 1986 to 1991.
MICHAEL W. O'DONNELL, 53, Senior Vice President and Chief Financial Officer of
Columbia and Columbia Energy Group Service Corporation since October 1993.
Senior Vice President and Assistant Chief Financial Officer of Columbia and
Columbia Energy Group Service Corporation from 1989 to 1993.
CATHERINE GOOD ABBOTT, 47, Chief Executive Officer and President of Columbia Gas
Transmission Corporation and Chief Executive Officer of Columbia Gulf
Transmission Company since January 1996. Principal with Gem Energy Consulting,
Inc. from 1995 to January 1996. Vice president for various business units of
Enron Corporation from 1985 to 1995.
RAY R. KASKEL, 60, Senior Vice President of Columbia Energy Group Service
Corporation since April 1997. President and Chief Executive Officer of Enron
Liquid Services Corp. from 1993 to April 1997. President and Chief Operating
Officer of Enron Europe from 1990 to 1993. Prior to 1990, Mr. Kaskel held
various executive positions at Enron Corporation and was President of Terrance
Development Corporation.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is contained in Columbia's Proxy Statement
related to the 1998 Annual Meeting of Stockholders, to be 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 Columbia's Proxy Statement
related to the 1998 Annual Meeting of Stockholders, to be filed pursuant to
Section 14 of the Securities Exchange Act of 1934 and is incorporated herein by
reference.
70
<PAGE> 71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in Columbia's Proxy Statement
related to the 1998 Annual Meeting of Stockholders, to be 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 73 through 75 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 Columbia or its subsidiaries have not
been included as Exhibits because such debt does not exceed 10% of the total
assets of Columbia and its subsidiaries on a consolidated basis. Columbia agrees
to furnish a copy of any such instrument to the U.S. Securities and Exchange
Commission 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 December 19, 1997, containing a Press Release
issued that day announcing that Columbia Energy Services had begun marketing
electricity in addition to natural gas.
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, as amended (the Act), Columbia undertakes the
following, which is incorporated by reference into the registration statements
on Form S-8, Nos. 33-03869 (filed May 16, 1996) and 33-42776 (filed September
13, 1991):
Insofar as indemnification for liabilities arising under the 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 U.S. 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.
71
<PAGE> 72
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.
COLUMBIA ENERGY GROUP
(Registrant)
Dated: March 18, 1998
By: /s/ Oliver G. Richard III
(Oliver G. Richard III)
Director (Principal
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
March 18, 1998 /s/ Oliver G. Richard III March 18, 1998 /s/ J. Bennett Johnston
Director (Principal J. Bennett Johnston
Executive Officer) Director
March 18, 1998 /s/ Richard F. Albosta March 18, 1998 /s/ Malcolm Jozoff
Richard F. Albosta Malcolm Jozoff
Director Director
March 18, 1998 /s/ Robert H. Beeby March 18, 1998 /s/ William E. Lavery
Robert H. Beeby William E. Lavery
Director Director
March 18, 1998 /s/ Wilson K. Cadman March 18, 1998 /s/ Gerald E. Mayo
Wilson K. Cadman Gerald E. Mayo
Director Director
March 18, 1998 /s/ Jeffrey W. Grossman March 18, 1998 /s/ Michael W. O'Donnell
Jeffrey W. Grossman Michael W. O'Donnell
Vice President & Controller Senior Vice President
(Principal Accounting Officer) (Chief Financial Officer)
March 18, 1998 /s/ James P. Heffernan March 18, 1998 /s/ Douglas E. Olesen
James P. Heffernan Douglas E. Olesen
Director Director
March 18, 1998 /s/ Karen L. Hendricks March 18, 1998 /s/ James R. Thomas, II
Karen L. Hendricks James R. Thomas, II
Director Director
March 18, 1998 /s/ Donald P. Hodel March 18, 1998 /s/ William R. Wilson
Donald P. Hodel William R. Wilson
Director Director
March 18, 1998 /s/ Malcolm T. Hopkins
Malcolm T. Hopkins
Director
</TABLE>
72
<PAGE> 73
EXHIBIT INDEX (continued)
Reference is made in the two right-hand columns below to those exhibits
which have heretofore been filed with the U.S. Securities and Exchange
Commission. Exhibits so referred to are incorporated herein by reference.
<TABLE>
<CAPTION>
Reference
File No. Exhibit
-------- -------
<S> <C> <C>
3-A - Restated Certificate of Incorporation of The Columbia 1-1098 3-A
Gas System, Inc., dated as of November 28, 1995.
3-B - By-Laws of The Columbia Gas System, Inc., as amended dated 1-1098 3-B
November 18, 1987.
3-C * - Certificate of Ownership and Merger, Merging Columbia
Energy Group, Inc. into The Columbia Gas System, Inc.
4-A - Indenture between The Columbia Gas System, Inc. 33-64555 4-S
and Marine Midland Bank, N.A. Trustee, dated as of
November 28, 1995.
4-B - First Supplemental Indenture, between The Columbia Gas 33-64555 4-T
System, Inc. and Marine Midland Bank, N.A. Trustee,
dated as of November 28, 1995.
4-C - Second Supplemental Indenture, between The Columbia Gas 33-64555 4-U
System, Inc., and Marine Midland Bank, N.A. Trustee,
. dated as of November 28, 1995.
4-D - Third Supplemental Indenture, between The Columbia Gas 33-64555 4-V
System, Inc. and Marine Midland Bank, N.A. Trustee,
. dated as of November 28, 1995.
4-E - Fourth Supplemental Indenture, between The Columbia Gas 33-64555 4-W
System, Inc. and Marine Midland Bank, N.A. Trustee,
dated as of November 28, 1995.
4-F - Fifth Supplemental Indenture, between The Columbia Gas 33-64555 4-X
System, Inc. and Marine Midland Bank, N.A. Trustee,
dated as of November 28, 1995.
4-G - Sixth Supplemental Indenture, between The Columbia Gas 33-64555 4-Y
System, Inc. and Marine Midland Bank, N.A. Trustee, dated
as of November 28, 1995.
4-H - Seventh Supplemental Indenture, between The Columbia 33-64555 4-Z
Gas System, Inc. and Marine Midland Bank, N.A., Trustee,
dated as of November 28, 1995.
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-T - Agreement and Bridge Agreement dated 1-1098 10-T
December 1, 1993, between Columbia Gas
Transmission Corporation and Consol
Pennsylvania Coal Company.
10-AE - U.S. Environmental Protection Agency Administrative 1-1098 10-AE
Order by Consent for Removal Actions for Columbia Gas
Transmission Corporation dated September 22,1994.
10-AF - Amended and Restated Indenture of Mortgage and 1-1098 10-AF
Deed of Trust by Columbia Gas Transmission
Corporation to Wilmington Trust Company,
dated as of November 28, 1995
</TABLE>
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
* Filed herewith.
73
<PAGE> 74
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Reference
File No. Exhibit
-------- -------
<S> <C> <C>
10-BB(a) - Annual Incentive Compensation Plan of The Columbia Gas 1-1098 10-BB
System, Inc., dated November 16, 1988.
10-BC(a) - Employment Agreement between Oliver G. Richard III 1-1098 10-BC
and The Columbia Gas System, Inc., dated March 15, 1995.
10-BE(a) - Employment Agreement between Peter M. Schwolsky 1-1098 10-BE
and The Columbia Gas System, Inc., dated May 30, 1995.
10-BF(a) - Employment Agreement between Catherine Good Abbott and The
Columbia Gas System, Inc., dated January 17, 1996.
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.
10-BW - Kotaneelee Litigation Indemnity Agreement dated 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-CA(a) - The Columbia Gas System, Inc. Retirement Plan 1-1098 10-CA
for Outside Directors, as amended, August 21, 1991.
10-CB - Credit Agreement, dated as of November 28, 1995, 1-1098 10-CB
among The Columbia Gas System, Inc., certain banks party
thereto and Citibank, N.A.
10-CC - First Amendment and Supplement to Credit 1-1098 10-CC
Agreement, dated December 6, 1995
10-CD * - Credit Agreement for $450,000,000, dated March 11, 1998,
among Columbia Energy Group and certain banks party thereto and
Citibank, N.A. as Administrative and Syndication Agent.
10-CE * - Credit Agreement for $900,000,000, dated March 11, 1998,
among Columbia Energy Group and certain banks party thereto and
Citibank, N.A. as Administrative and Syndication Agent.
10-CF * - Memorandum of Understanding among the Millennium Pipeline
Project partners (Columbia Transmission, West Coast Energy, MCN
Investment Corp. and TransCanada Pipelines Limited) dated
December 1, 1997
10-CJ - Amended and Restated Agreement of Cove Point 1-1098 10-CJ
LNG Limited Partnership between Columbia LNG and
PEPCO Energy Company, Inc. dated January 27, 1994.
10-CM - Plan of Reorganization for Columbia Gas Transmission 1-1098 10-CM
Corporation as filed with the United States Bankruptcy
Court for the District of Delaware on January 18, 1994.
12 * - Statements of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.
21 * - Subsidiaries of Columbia Energy Group
</TABLE>
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K.
* Filed herewith.
74
<PAGE> 75
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Reference
File No. Exhibit
-------- -------
<S> <C> <C>
23-A * - Letter report, dated January 23, 1998, and the written
consent to the filing and use of information contained in such
letter report, Reports and Registration Statements filed during
1998, of Ryder Scott Company Petroleum Engineers, independent
petroleum and natural gas consultants.
23-B * - Written consent of Arthur Andersen LLP,
independent public accountants, to the
incorporation by reference of their report
included in the 1997 Annual Report on Form
10-K of Columbia Energy Group and
their report included in Columbia Energy Group's
1997 Annual Report to Shareholders
in the registration statements on Form S-8
(File No. 33-03869), and Form S-8
(File No. 33-42776).
27 * - Financial Data Schedule for the period ended
December 31, 1997.
</TABLE>
* Filed herewith.
75
<PAGE> 1
Exhibit 3-C
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
COLUMBIA ENERGY GROUP, INC.
INTO
THE COLUMBIA GAS SYSTEM, INC.
(Pursuant to Section 253 of the General
Corporation Law of the State of Delaware)
The Columbia Gas System, Inc., a corporation organized and existing
under the laws of the State of Delaware (this "Corporation"), DOES HEREBY
CERTIFY:
FIRST: That this Corporation owns all of the outstanding shares of
common stock (the only outstanding class of stock) of Columbia Energy Group,
Inc., a corporation incorporated on the 17th day of November 1997, pursuant to
the General Corporation Law of the State of Delaware, 8 Del. C. Sections
101 et seq. (the "DGCL").
SECOND: That this Corporation, by resolutions (the "Resolutions of
Merger") duly adopted by its Board of Directors, at a meeting thereof duly
called and held on the 19th day of November, 1997, at which a quorum was present
and acting throughout, determined to effect a merger of said Columbia Energy
Group, Inc. into itself, pursuant to Section 253 of the DGCL, in which this
Corporation shall be the surviving corporation (the "Merger"). A true and
correct copy of the Resolutions of Merger is annexed hereto as Exhibit A and
incorporated herein by reference. The Resolutions of Merger have not been
amended, modified, rescinded or revoked and are in full force and effect on the
date hereof.
THIRD: That, as provided in the Resolutions of Merger: (a) Pursuant to
Section 253(b) of the DGCL, upon the Merger becoming effective, the name of the
surviving corporation shall be changed from "The Columbia Gas System, Inc." to
"Columbia Energy Group"; and (b) Pursuant to Section 102(a)(I) of the DGCL, the
undersigned hereby certifies that the surviving corporation's total assets, as
defined in 8 Del. C. Section 503(i), are not less than $10,000,000.00.
FOURTH: That the Merger shall become effective at 5:00 p.m. upon the
date of filing of this certificate with the Office of the Secretary of State of
the State of Delaware.
IN WITNESS WHEREOF, The Columbia Gas System, Inc., has caused this
Certificate to be executed and acknowledged in accordance with Section 103 of
the DGCL by Oliver G. Richard III, its Chairman, President and Chief Executive
Officer.
THE COLUMBIA GAS SYSTEM, INC.
By /s/ Oliver G. Richard III
-------------------------------
Oliver G. Richard III
Chairman, President and
Chief Executive Officer
<PAGE> 1
Exhibit-10 CD
U.S. $450,000,000
CREDIT AGREEMENT
Dated as of March 11, 1998
Among
COLUMBIA ENERGY GROUP,
as Borrower,
and
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders,
and
CITIBANK, N.A.,
as Administrative and Syndication Agent,
and
THE CHASE MANHATTAN BANK, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK AND PNC BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents,
and
BANK OF MONTREAL, CANADIAN IMPERIAL BANK OF COMMERCE,
THE CHASE MANHATTAN BANK, CITIBANK, N.A.,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND PNC BANK, NATIONAL
ASSOCIATION,
as Co-Arrangers,
and
BANK OF MONTREAL, BANKERS TRUST COMPANY
AND CANADIAN IMPERIAL BANK OF COMMERCE,
as Senior Managing Agents,
and
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
COMMERZBANK, THE FIRST NATIONAL BANK OF CHICAGO,
THE FIRST NATIONAL BANK OF MARYLAND, FIRST UNION NATIONAL BANK,
NATIONAL CITY BANK AND UNION BANK OF CALIFORNIA,
as Co-Agents
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms.................................. 1
SECTION 1.02. Computation of Time Periods............................ 12
SECTION 1.03. Accounting Terms....................................... 12
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. ....................................................... 12
SECTION 2.02. Making the Advances.................................... 12
SECTION 2.03. Optional Termination or Reduction of Revolving Credit
Commitments............................................ 13
SECTION 2.05. Interest on Advances................................... 13
SECTION 2.06. Interest Rate Determination............................ 14
SECTION 2.07. Fees................................................... 15
SECTION 2.08. Optional Conversion of Revolving Credit Advances....... 16
SECTION 2.09. Prepayments of Advances................................ 16
SECTION 2.10. Increased Costs........................................ 16
SECTION 2.11. Illegality............................................. 17
SECTION 2.12. Payments and Computations.............................. 18
SECTION 2.13. Taxes.................................................. 19
SECTION 2.14. Sharing of Payments, Etc............................... 20
SECTION 2.15. Use of Proceeds........................................ 21
SECTION 2.16. Extensions of Termination Date and Final Maturity Date. 21
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01.. 22
SECTION 3.02. Conditions Precedent to Each Borrowing and to Extension
of the Final Maturity Date............................. 23
SECTION 3.03. Determinations Under Section 3.01...................... 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower......... 24
ARTICLE V COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.................................. 26
SECTION 5.02. Negative Covenants..................................... 29
SECTION 5.03. Leverage Ratio......................................... 31
ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. Events of Default...................................... 31
ARTICLE VII THE AGENT
SECTION 7.01. Authorization and Action............................... 33
SECTION 7.02. Agent's Reliance, Etc.................................. 33
SECTION 7.03. Citibank and Affiliates................................ 34
SECTION 7.04. Lender Credit Decision................................. 34
SECTION 7.05. Indemnification........................................ 34
SECTION 7.06. Successor Agent........................................ 34
SECTION 7.07. Senior Managing Agents and Co-Documentation Agents as
Lenders................................................ 35
ARTICLE VIII MISCELLANEOUS
SECTION 8.01. Amendments, Etc........................................ 35
SECTION 8.02. Notices, Etc........................................... 35
<PAGE> 3
SECTION 8.03. No Waiver; Remedies.................................... 35
SECTION 8.04. Costs and Expenses; Indemnification; Limitation of
Liability.............................................. 35
SECTION 8.05. Right of Setoff........................................ 36
SECTION 8.06. Binding Effect......................................... 36
SECTION 8.07. Assignments, Designations and Participations........... 37
SECTION 8.08. Confidentiality........................................ 39
SECTION 8.09. Governing Law.......................................... 39
SECTION 8.10. Execution in Counterparts.............................. 39
SECTION 8.11. Jurisdiction, Etc...................................... 39
SECTION 8.12. Severability of Provisions............................. 40
<PAGE> 4
SCHEDULES
Schedule I - List of Applicable Lending Offices
Schedule II - Non-Core Subsidiaries
Schedule 3.01(b) - Disclosed Litigation
Schedule 4.01(c) - Required Authorizations and Approvals
Schedule 5.02(a) - Liens
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Notice of Revolving Credit Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Counsel for the Borrower
<PAGE> 5
COLUMBIA ENERGY GROUP
CREDIT AGREEMENT
Dated as of March 11, 1998
Columbia Energy Group, a Delaware corporation (formerly known
as The Columbia Gas System, Inc.) (the "Borrower"), the banks, financial
institutions and other institutional lenders (the "Initial Lenders") listed on
the signature pages hereof, and Citibank, N.A. ("Citibank"), as administrative
agent, co-documentation agent and co-syndication agent (the "Agent") for the
Lenders (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Adjusted CD Rate" means, for any Interest Period for each CD
Rate Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate
of interest determined by the Agent to be the average (rounded
upward to the nearest whole multiple of 1/100 of 1% per annum,
if such average is not such a multiple) of the consensus bid
rate determined by the Agent for the bid rates per annum, at
9:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period, of two
or more New York certificate of deposit dealers of recognized
standing selected by the Agent for the purchase at face value
of certificates of deposit of each Reference Bank in an amount
substantially equal to such Reference Bank's CD Rate Advance
comprising part of such Revolving Credit Borrowing and with a
maturity equal to such Interest Period, by (ii) a percentage
equal to 100% minus the Adjusted CD Rate Reserve Percentage
for such Interest Period, plus
(b) the Assessment Rate for such Interest Period.
"Adjusted CD Rate Reserve Percentage" for any Interest Period
for all CD Rate Advances comprising part of the same Revolving Credit
Borrowing means the reserve percentage applicable on the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, but not limited
to, any emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or including
(among other liabilities) U.S. dollar nonpersonal time deposits in the
United States and with a maturity equal to such Interest Period.
"Advance" means a Revolving Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 20% or more of the Voting Stock of such Person or to direct or
cause the direction of the management
<PAGE> 6
and policies of such Person, whether through the ownership of Voting
Stock, by contract or otherwise.
"Agent's Account" means the account of the Agent maintained by
the Agent at Citibank with its office at 2 Penn's Way, Suite 200, New
Castle, Delaware 19720.
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of a Base
Rate Advance or a CD Rate Advance and such Lender's Eurodollar Lending
Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" means, as of any date, a percentage per
annum determined by reference to the public debt rating in effect on
such date as set forth below:
<TABLE>
<CAPTION>
============================================================================================================
Public Debt Rating Applicable Margin for Applicable Margin for Applicable Applicable
S&P/Moody's Base Rate Advances Eurodollar Rate Advances Margin Margin for
for CD Rate Facility Fee
Advances
============================================================================================================
<S> <C> <C> <C> <C>
Level 1 0 .13% .255% .05%
AA-/AA3 or higher
- ------------------------------------------------------------------------------------------------------------
Level 2 0 .20% .325% .06%
A+/A/A-/A1/A2/A3
- ------------------------------------------------------------------------------------------------------------
Level 3 0 .215% .34% .085%
BBB+/Baa1
- ------------------------------------------------------------------------------------------------------------
Level 4 0 .26% .385% .105%
BBB/Baa2
- ------------------------------------------------------------------------------------------------------------
Level 5 0 .31% .45% .125%
BBB-/Baa3 or lower
============================================================================================================
</TABLE>
For purposes of this definition, "public debt rating" means, as of any
date, the rating that has been most recently announced by either S&P or
Moody's, as the case may be, for any class of non-credit enhanced
long-term senior unsecured debt issued by the Borrower. For purposes of
the foregoing, (a) if only one of S&P and Moody's shall have in effect
a public debt rating, the Applicable Margin shall be determined by
reference to the available rating; (b) if neither S&P nor Moody's shall
have in effect a public debt rating, the Applicable Margin will be set
in accordance with Level 5 under the definition of "Applicable Margin";
(c) if the ratings established by S&P and Moody's shall fall within
different levels, the Applicable Margin shall be determined by
reference to the higher rating; provided, however, that if the ratings
are different by two or more levels, the Applicable Margin shall be
determined by reference to the rating that is one rating lower than the
higher rating; (d) if any rating established by S&P or Moody's shall be
changed, such change shall be effective as of the date on which such
change is first announced publicly by the rating agency making such
change; and (e) if S&P or Moody's shall change the basis on which
ratings are established, each reference to the public debt rating
announced by S&P or Moody's, as the case may be, shall refer to the
then equivalent rating by S&P or Moody's, as the case may be.
"Appropriate Lender" means, at any time, with respect to the
Revolving Credit Facility, a Lender that has a Revolving Credit
Commitment with respect to such Facility at such time.
"Arranger" means Citicorp Securities, Inc., as arranger of the
syndicate of Initial Lenders hereunder.
<PAGE> 7
"Assessment Rate" for any Interest Period for all CD Rate
Advances comprising part of the same Revolving Credit Borrowing means
the annual assessment rate estimated by the Agent on the first day of
such Interest Period for determining the then current annual assessment
payable by Citibank to the Federal Deposit Insurance Corporation (or
any successor) for insuring U.S. dollar deposits of Citibank in the
United States.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Agent, in substantially the form of Exhibit C hereto.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, 11
U.S.C. Sections 101 et seq., as amended from time to time.
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the higher of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate; and
(b) 1/2 of one percent per annum above the Federal
Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that
bears interest as provided in Section 2.05(a)(i).
"Borrowing" means a Revolving Credit Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings are carried on in the London interbank market.
"Capitalized Leases" has the meaning specified in clause (e)
of the definition of "Debt".
"Capitalization" means, with respect to any Subsidiary, the
total amount of liabilities of such Subsidiary plus the total amount of
equity of such Subsidiary all as determined in accordance with GAAP.
"Cash Collateral Account" means an interest bearing cash
collateral account to be established and maintained by the Agent, over
which the Agent shall have sole dominion and control, upon such terms
as may be satisfactory to the Agent.
"CD Rate Advance" means a Revolving Credit Advance that bears
interest as provided in Section 2.05(a)(iii).
"CGTC" means Columbia Gas Transmission Corporation, a
wholly-owned subsidiary of the Borrower as of the date hereof.
"Citibank" means Citibank, N.A.
"Co-Documentation Agents" means The Chase Manhattan
Bank, Morgan Guaranty Trust Company of New York and PNC
Bank, National Association.
"Confidential Information" means information that the Borrower
furnishes to the Agent or any Lender in a writing designated as
confidential, but does not include any such information that is or
becomes generally available to the public or that is or becomes
available to the Agent or such Lender
3
<PAGE> 8
from a source other than the Borrower or any of its Affiliates.
"Consolidated" refers to the consolidation of accounts
in accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Revolving Credit Advances of one Type into Revolving
Credit Advances of another Type pursuant to Section 2.06 or 2.08.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services,
excluding (x) such obligations arising in the ordinary course of
business and maturing six months or less from the date of creation
thereof; and (y) such obligations arising in the ordinary course of
business and maturing in more than six months if in the aggregate on a
consolidated basis for the Borrower and its Subsidiaries such
obligations are less than $30,000,000, (c) all obligations of such
Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all obligations of such Person created or arising
under any conditional sale or other similar title retention agreement
with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property),
(e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases
("Capitalized Leases") (provided that the value of any Capitalized
Lease shall be equal to the value of such Capitalized Lease that is or
should be capitalized in accordance with GAAP), (f) an amount equal to
the present value (discounted at the then applicable five-year treasury
bond rate) of operating lease obligations of such Person in excess of
$30,000,000 in any calendar year, disregarding for this purpose leases
other than those with an initial or remaining noncancellable lease term
in excess of one year, (g) to the extent required to be reflected on
the balance sheet of such Person prepared in accordance with GAAP or in
the footnotes thereto, all Debt of others directly and indirectly
guaranteed by such Person, but only to the extent of such direct or
indirect guarantee, and only to the extent that in the aggregate or a
consolidated basis for the Borrower and its Subsidiaries such
obligations exceed $30,000,000 and (h) to the extent required to be
reflected on the balance sheet of such Person prepared in accordance
with GAAP or in the footnotes thereto, all Debt referred to in clauses
(a) through (g) above secured by any Lien on property owned by such
Person, even though such Person has not assumed or become liable for
the payment of such Debt, but only to the extent of the book value of
the property subject to such Lien.
"Declining Lender" has the meaning specified in Section
2.16(a).
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section
3.01(b).
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office
of such Lender as such Lender may from time to time specify to the
Borrower and the Agent.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$1,000,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof,
and having total assets in excess of $1,000,000,000; (v) a commercial
bank organized under the laws of any other country that is a member of
the Organization for Economic Cooperation and Development or has
concluded special lending arrangements with the International
4
<PAGE> 9
Monetary Fund associated with its General Arrangements to Borrow, or a
political subdivision of any such country, and having total assets in
excess of $1,000,000,000 so long as such bank is acting through a
branch or agency located in the country in which it is organized or
another country that is described in this clause (v); (vi) the central
bank of any country that is a member of the Organization for Economic
Cooperation and Development; (vii) a finance company, insurance company
or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary
course of its business and having total assets in excess of
$1,000,000,000 and (viii) any other Person approved by the Agent and
the Borrower, such approval not to be unreasonably withheld or delayed;
provided, however, that neither the Borrower nor an Affiliate of the
Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any material action, suit,
demand, demand letter, claim, notice of non-compliance or violation,
notice of liability or potential liability, proceeding, consent order
or consent agreement arising pursuant to, or in connection with, an
alleged violation of any Environmental Law, Environmental Permit or
Hazardous Materials or arising from alleged injury or threat of injury
to health or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief.
"Environmental Law" means any applicable federal, state or
local statute, law, ordinance, rule, regulation, code, order, judgment
or decree relating to pollution or protection of the environment,
health or natural resources, including, without limitation, those
relating to the use, handling, transportation, treatment, storage,
disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, license or
other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the Borrower's controlled group, or under
common control with the Borrower, within the meaning of Section 414(b)
or (c) of the Internal Revenue Code or, solely for purposes of Section
302 of ERISA and Section 412 of the Internal Revenue Code, the entirety
of Section 414 of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
ERISA Plan unless the 30-day notice requirement with respect to such
event has been waived by the PBGC, or (ii) the requirements of
subsection (1) of Section 4043(b) of ERISA (without regard to
subsection (2) of such Section) are met with a contributing sponsor, as
defined in Section 4001(a)(13) of ERISA, of an ERISA Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such ERISA
Plan within the following 30 days; (b) the application for a minimum
funding waiver with respect to an ERISA Plan; (c) the provision by the
administrator of any ERISA Plan of a notice of intent pursuant to
Section 4041(a)(2) of ERISA (including any such notice with respect to
a plan amendment referred to in Section 4041(e) of ERISA) to terminate
such ERISA Plan pursuant to Section 4041(c) of ERISA; (d) the cessation
of operations at a facility of the Borrower or any ERISA Affiliate in
the circumstances described in Section 4062(e) of ERISA; (e) the
withdrawal by the Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
for the imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any ERISA Plan; (g) the adoption of an
5
<PAGE> 10
amendment to an ERISA Plan requiring the provision of security to such
ERISA Plan pursuant to Section 307 of ERISA; or (h) the institution by
the PBGC of proceedings to terminate an ERISA Plan pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in
Section 4042(a) of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, an ERISA Plan;
provided, however, that the occurrence of an event or condition
described in Section 4042(a)(4) of ERISA shall be an ERISA Event only
if (i) the Borrower or any ERISA Affiliate knows or has reason to know
thereof or (ii) the PBGC has notified the Borrower or any ERISA
Affiliate that it is considering termination of an ERISA Plan on such
basis.
"ERISA Plan" means a Single Employer Plan or a Multiple
Employer Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office
is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the
Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Revolving Credit
Borrowing, an interest rate per annum equal to the average (rounded
upward to the nearest whole multiple of 1/100 of 1% per annum, if such
average is not such a multiple) of the rate per annum at which deposits
in U.S. dollars are offered by the principal office of each of the
Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period in an amount substantially equal
to such Reference Bank's Eurodollar Rate Advance comprising part of
such Revolving Credit Borrowing to be outstanding during such Interest
Period and for a period equal to such Interest Period. The Eurodollar
Rate for any Interest Period for each Eurodollar Rate Advance
comprising part of the same Revolving Credit Borrowing shall be
determined by the Agent on the basis of applicable rates furnished to
and received by the Agent from the Reference Banks two Business Days
before the first day of such Interest Period, subject, however, to the
provisions of Section 2.06.
"Eurodollar Rate Advance" means a Revolving Credit Advance
that bears interest as provided in Section 2.05(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Lender for any
Interest Period for all Eurodollar Rate Advances comprising part of the
same Borrowing means the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for such Lender with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities (or with respect to
any other category of liabilities that includes deposits by reference
to which the interest rate on Eurodollar Rate Advances is determined)
having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Agreement" means the $1,000,000,000 credit agreement
dated as of November 28, 1995 among the Borrower, the Agent and the
lender parties thereto.
6
<PAGE> 11
"Extending Lender" has the meaning specified in Section
2.16(a).
"Facility" means the Revolving Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Final Maturity Date" means (a) the Termination Date or (b) if
extended pursuant to Section 2.16(b), the date requested by the
Borrower pursuant to Section 2.16(b), but in no event shall such date
be later than the first anniversary of the then scheduled Termination
Date.
"Five-Year Credit Agreement" means the Credit Agreement dated
as of March 11, 1998 among the Borrower, the Agent and the lenders
named therein.
"Five-Year Loan Documents" means the Five-Year Credit
Agreement and the Five-Year Notes.
"Five-Year Notes" means each of the promissory notes of the
Borrower executed pursuant to the Five-Year Credit Agreement.
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum
products or byproducts, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other
chemicals, materials or substances designated, classified or regulated
as hazardous or toxic under any Environmental Law.
"Indenture" means the indenture dated as November 28, 1995
between the Borrower and Marine Midland Bank, N.A., Trustee, as amended
and supplemented to the date hereof.
"Information Memorandum" means the information memorandum
dated January 1998 used by the Arranger in connection with the
syndication of the Revolving Credit Commitments.
"Interest Period" means, for each Eurodollar Rate Advance or
CD Rate Advance comprising part of the same Revolving Credit Borrowing,
the period commencing on the date of such Eurodollar Rate Advance, CD
Rate Advance or the date of the Conversion of any Base Rate Advance
into such Eurodollar Rate Advance or CD Rate Advance and ending on the
last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, with respect to Eurodollar Rate
Advances and CD Rate Advances, each subsequent period commencing on the
last day of the immediately preceding Interest Period and ending on the
last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
(a) in the case of a Eurodollar Rate Advance, one, two, three, six, or
(with the consent of all Lenders) twelve months, as the Borrower may,
upon notice received by the Agent not later than 11:00 A.M. (New York
City time) on the third Business Day prior to the first day of such
Interest Period, select and (b) in the case of a CD Rate Advance, 30,
60, 90 or 180 days as the Borrower may, upon notice received by the
Agent not later than 11:00 A.M. (New York City time) on the second
Business Day prior to the first day of such Interest Period, select;
provided, however, that:
7
<PAGE> 12
(i) the Borrower may not select any Interest Period
that ends after the Final Maturity Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances or CD Rate Advances comprising part
of the same Revolving Credit Borrowing shall be of the same
duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 8.07(a), (b) and (c).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, including, without limitation, any easement,
right of way or other encumbrance of record on title to real property.
"Loan Documents" means this Agreement and each Note executed
hereunder.
"Material Adverse Change" means any material adverse change in
the condition (financial or otherwise) or operations of the Borrower
and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the condition (financial or otherwise) or operations of the
Borrower and its Subsidiaries taken as a whole, (b) the rights and
remedies of the Agent or any Lender under any Loan Document or (c) the
ability of the Borrower to perform its obligations under any Loan
Document or any Five-Year Loan Document.
"Material Subsidiaries" means all of the Borrower's
Subsidiaries excluding (i) each Subsidiary listed on Schedule II hereto
and (ii) any other Subsidiary hereafter formed or acquired unless or
until the Borrower's direct or indirect investment therein exceeds
$10,000,000 or the assets of such Subsidiary exceeds $25,000,000.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of
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ERISA, that (a) is maintained for employees of the Borrower or any
ERISA Affiliate and at least one Person other than the Borrower and the
ERISA Affiliates or (b) was so maintained and in respect of which the
Borrower or any ERISA Affiliate could have liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be
terminated.
"Non-Recourse Debt" means (a) Debt of a Project Finance
Subsidiary and (b) Debt of any other Person other than the Borrower or
a Material Subsidiary secured by a Lien in or upon one or more assets
of such Person where the rights and remedies of the holder of such Debt
in respect of such Debt do not extend to any other assets of such
Person other than in respect of claims for (a) misapplied moneys,
including insurance and condemnation proceeds and security deposits,
(b) indemnification by such person in favor of holders of such Debt and
their Affiliates in respect of liabilities to third parties, including
environmental liabilities, (c) breaches of customary representations
and warranties given to the holder of such Debt and (d) such other
similar obligations as are customarily excluded from the provisions
that otherwise limit the recourse of commercial lenders making
so-called "non-recourse" loans to institutional borrowers and trustees
and agents for such lender.
"Note" means a Revolving Credit Note.
"Notice of Revolving Credit Borrowing" has the meaning
specified in section 2.02(a).
"PBGC" means the Pension Benefit Guaranty Corporation
(or any successor).
"Permitted Liens" means (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid
under Section 5.01(b) hereof; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business; (c)
pledges or deposits to secure obligations under workers' compensation
laws or similar legislation or to secure public or statutory
obligations; (d) easements, rights of way and other encumbrances on
title to real property that do not themselves render such title
unmarketable or materially adversely affect the use of such property
for its present purposes; and (e) pledges or deposits to secure the
performance of bids, contracts, leases, surety or appeal bonds or other
obligations of a like nature.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"PNC Bank" means PNC Bank, National Association.
"Project Finance Subsidiary" means a Subsidiary of the
Borrower created and maintained for the sole purpose of developing,
constructing, financing, holding or operating, directly or indirectly,
a property or project or a group of related properties or projects,
either alone or with one or more other Persons, and that (a) does not
engage in any business unrelated to such Subsidiary, project or
property or the financing thereof, and (b) does not have any assets or
Debt other than those related to its interest in such subsidiary,
project or property or the financing thereof.
"Pro Rata Share" of any amount means, with respect to any
Lender at any time, the product of such amount times, in the case of a
Lender, a fraction the numerator of which is the amount of such
Lender's Revolving Credit Commitment at such time and the denominator
of which is the aggregate amount of the Revolving Credit Commitments of
all Lenders at such time.
"PUHCA" means the Public Utility Holding Company Act of 1935,
as amended from time to
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time.
"Reference Banks" means Citibank and Canadian Imperial Bank of
Commerce.
"Register" has the meaning specified in Section 8.07(g).
"Replacement Lender" has the meaning specified in Section
2.16(a).
"Required Lenders" means at any time Lenders owed at least 51%
of the then aggregate unpaid principal amount of the Revolving Credit
Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least 51% of the Revolving Credit
Commitments.
"Revolving Credit Advance" means an advance by a Lender to the
Borrower as part of a Revolving Credit Borrowing and refers to a Base
Rate Advance, a CD Rate Advance or a Eurodollar Rate Advance (each of
which shall be a "Type" of Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Commitment" has the meaning specified in
Section 2.01(a).
"Revolving Credit Facility" means, at any time, the aggregate
amount of the Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Note" means a promissory note of the
Borrower payable to the order of any Lender, in substantially the form
of Exhibit A hereto, evidencing the aggregate indebtedness of the
Borrower to such Lender resulting from the Revolving Credit Advances
made by such Lender.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower or any ERISA Affiliate and no Person other
than the Borrower and the ERISA Affiliates or (b) was so maintained and
in respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been
or were to be terminated.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate which is
consolidated under GAAP with the accounts of such Person of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such limited liability
company, partnership or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Tangible Net Worth" means, at any time, the excess of total
assets over total liabilities (including, without limitation, the
aggregate liquidation value of all stock of such Person that is
mandatorily redeemable other than for the common stock of such Person
or that may be put by the holder to such Person for consideration other
than the common stock of such Person, in either case on or before
December 31, 2004) of the Borrower and its Subsidiaries at such time,
on a Consolidated basis, total assets and total liabilities each to be
determined in accordance with GAAP, excluding, however, from the
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<PAGE> 15
determination of total assets (i) goodwill, organizational expenses,
research and development expenses, trademark, trade names, copyrights,
patents, patent applications, licenses and rights if any thereof, and
other similar intangibles, (ii) all prepaid expenses and deferred
charges (other than those of the type incurred by the Borrower and its
Subsidiaries in the ordinary course of business on or immediately prior
to the date hereof) or unamortized debt discount and expense, (iii) all
reserves carried and not deducted from assets, (iv) treasury stock, (v)
securities (other than investments which are accounted for pursuant to
GAAP as investments or property, plant and equipment) which are not
readily marketable, (vi) cash held in a sinking or other analogous fund
established for the purpose of redemption, retirement or prepayment of
capital stock or indebtedness, except to the extent such capital stock
or indebtedness is included in total liabilities pursuant to GAAP,
(vii) any write-up in the book value of any asset resulting from a
revaluation thereof subsequent to September 30, 1997, other than
write-ups of assets of a going concern business made within 12 months
after the acquisition of such business pursuant to GAAP, and (viii) any
items not included in clauses (i) through (vii) above which are treated
as intangibles in conformity with GAAP; provided, however, that
notwithstanding the foregoing exclusions, regulatory assets recorded on
the Consolidated balance sheet of the Borrower and its Subsidiaries
shall not be excluded for purposes of determining Tangible Net Worth.
"Termination Date" means the earlier of (i) 364 days after the
Effective Date or, if extended pursuant to Section 2.16(a), the date
that is 364 days after the Termination Date then in effect, and (ii)
the date of termination in whole of the Revolving Credit Commitments
pursuant to Section 2.03 or 6.01.
"Total Debt" means, at any time, all Debt (including, without
limitation, the aggregate outstanding principal amount of all Advances
hereunder) of the Borrower and its Subsidiaries, on a Consolidated
basis at such time, provided that for the purposes of the calculation
of Total Debt, any Non-Recourse Debt shall be included only in an
amount equal to the lessor of (i) the principal amount of such
Non-Recourse Debt and (ii) the equity of the Borrower and its
Subsidiaries in the asset or Project Finance Subsidiary, as the case
may be, relating to such Non-Recourse Debt.
"Type" has the meaning specified in the definition of
"Revolving Credit Advance".
"UCP" has the meaning specified in Section 8.09.
"Unused Revolving Credit Commitment" means at any time, (a)
the aggregate Revolving Credit Commitment at such time minus (b) the
sum of the aggregate principal amount of all Revolving Credit Advances
made by all Lenders and outstanding at such time.
"U.S. Dollar" and the sign "$" each means lawful money of the
United States.
"Voting Stock" means outstanding capital stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any corporation,
partnership, joint venture, limited liability company, trust or estate
which is consolidated with the accounts of such Person and of which (or
in which) 100% (other than directors' qualifying shares or interests)
of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class
or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such limited liability company, partnership or joint venture
or (c) the beneficial
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interest in such trust or estate is at the time directly or indirectly
owned or controlled by such Person, by such Person and one or more of
its other Wholly Owned Subsidiaries or by one or more of such Person's
other Wholly Owned Subsidiaries.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, as in effect on the date hereof, consistent with
those applied in the preparation of the financial statements referred to in
Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
Revolving Credit Advances to the Borrower from time to time on any Business Day
during the period from the Effective Date until the Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set forth
opposite such Lender's name on the signature pages hereof under the caption
"Revolving Credit Commitment" or, if such Lender has entered into any Assignment
and Acceptance, set forth for such Lender in the Register maintained by the
Agent pursuant to Section 8.07(g), as such amount may and shall be reduced
pursuant to Section 2.03 (such Lender's "Revolving Credit Commitment"), provided
that no Revolving Credit Borrowing shall be made if, following the making of
such Revolving Credit Borrowing the aggregate amount of the Advances then
outstanding would exceed the aggregate amount of the Revolving Credit
Commitments of the Lenders. Each Revolving Credit Borrowing shall be in an
aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof and shall consist of Revolving Credit Advances of the same Type made on
the same day by the Lenders ratably according to their respective Revolving
Credit Commitments. Within the limits of each Lender's Revolving Credit
Commitment, the Borrower may borrow under this Section 2.01(a), prepay pursuant
to Section 2.09 and, unless the Borrower has delivered a request pursuant to the
provisions of Section 2.16(b), reborrow under this Section 2.01(a).
SECTION 2.02. Making the Advances. (a) Each Revolving Credit
Borrowing shall be made on notice, given not later than 11:00 A.M. (New York
City time) on (i) the third Business Day prior to the date of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Eurodollar Rate Advances, (ii) the second Business Day prior to
the date of the proposed Revolving Credit Borrowing in the case of a Revolving
Credit Borrowing consisting of CD Rate Advances, and (iii) the first Business
Day prior to the date of the proposed Revolving Credit Borrowing in the case of
a Revolving Credit Borrowing consisting of Base Rate Advances, by the Borrower
to the Agent, which shall give to each Lender prompt notice thereof by
telecopier or tested telex. Each such notice of a Revolving Credit Borrowing (a
"Notice of Revolving Credit Borrowing") shall be by telephone, confirmed
immediately in writing, or telecopier or tested telex in substantially the form
of Exhibit B hereto, specifying therein the requested (i) date of such Revolving
Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit
Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and (iv)
in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate
Advances or CD Rate Advances, initial Interest Period for each such Revolving
Credit Advance. Each Lender shall, before 11:00 A.M. (New York City time) on the
date of such Revolving Credit Borrowing, make available for the account of its
Applicable Lending Office to the Agent at the Agent's Account, in same day
funds, such Lender's ratable portion of such Revolving Credit Borrowing. After
the Agent's receipt of such funds and upon fulfillment
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of the applicable conditions set forth in Article III, the Agent will make such
funds available to the Borrower at the Agent's address referred to in Section
8.02.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit
Borrowing is less than $10,000,000 or if the obligation of the Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.06 or
2.11 and (ii) Revolving Credit Advances may not be outstanding as part of more
than ten separate Borrowings; provided, however, that for purposes of the
limitation set forth in clause (ii) of this sentence, all Borrowings consisting
of Base Rate Advances shall constitute a single Borrowing.
(c) Each Notice of Borrowing shall be irrevocable and binding
on the Borrower. In the case of any Revolving Credit Borrowing that the related
Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar
Rate Advances or CD Rate Advances, the Borrower shall indemnify each Lender
against any loss, cost or expense to the extent incurred by such Lender as a
direct result of any failure to fulfill on or before the date specified in such
Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss (excluding loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Revolving Credit Advance to be made by such Lender as
part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a
result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from the
Appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Revolving Credit Commitment, that such Lender will not
make available to the Agent such Lender's ratable portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with subsection (a) of this Section
2.02 and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the Agent, such
Lender and the Borrower severally agree to repay or pay to the Agent forthwith
on demand such corresponding amount and to pay interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid or paid to the Agent, at (i) in the case of the Borrower, the
interest rate applicable at such time under Section 2.05 to Advances comprising
such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall pay to the Agent such corresponding amount, such amount so
paid shall constitute such Lender's Advance as part of such Borrowing for all
purposes.
(e) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Optional Termination or Reduction of Revolving
Credit Commitments. The Borrower shall have the right, upon at least three
Business Days' notice to the Agent, to terminate in whole or reduce ratably in
part the unused portions of the respective Revolving Credit Commitments of the
Lenders, provided that each partial reduction shall be in the aggregate amount
of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.
SECTION 2.04. Repayment of Revolving Credit Advances. The
Borrower shall repay to the Agent for the ratable account of the Lenders on the
Final Maturity Date the aggregate principal amount of the Revolving Credit
Advances then outstanding.
SECTION 2.05. Interest on Advances. (a) Scheduled Interest.
The Borrower shall pay
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interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is
a Base Rate Advance, a rate per annum equal at all times to the sum of
(x) the Base Rate in effect from time to time plus (y) the Applicable
Margin in effect from time to time, payable in arrears quarterly on the
first Business Day of each January, April, July and October during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Revolving Credit Advance to
the sum of (x) the Eurodollar Rate for such Interest Period for such
Revolving Credit Advance plus (y) the Applicable Margin in effect from
time to time, payable in arrears on the last day of such Interest
Period and, if such Interest Period has a duration of more than three
months, on each day that occurs during such Interest Period every three
months from the first day of such Interest Period and on the date such
Eurodollar Rate Advance shall be Converted or paid in full.
(iii) CD Rate Advances. During such periods as such Advance is
a CD Rate Advance, a rate per annum equal at all times during each
Interest Period for such Revolving Credit Advance to the sum of (x) the
Adjusted CD Rate for such Interest Period for such Revolving Credit
Advance plus (y) the Applicable Margin in effect from time to time,
payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than 90 days, on each day that
occurs during such Interest Period every 90 days from the first day of
such Interest Period and on the date such CD Advance shall be Converted
or paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default under Section 6.01(a), the Borrower shall pay
interest on (i) the unpaid principal amount of each Advance owing to each
Lender, payable in arrears on the dates referred to in clause (a)(i), (a)(ii) or
(a)(iii) above, at a rate per annum equal at all times to 2% per annum above the
rate per annum required to be paid on such Advance pursuant to clause (a)(i),
(a)(ii) or (a)(iii) above and (ii) to the fullest extent permitted by law, the
amount of any interest, fee or other amount payable hereunder that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on Base Rate Advances pursuant to clause (a)(i)
above.
(c) Additional Interest on Eurodollar Rate Advances. The
Borrower shall pay to each Lender, so long as such Lender shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Advance of such Lender during such periods as such Advance is a
Eurodollar Rate Advance, from the date of such Advance until such principal
amount is paid in full, at an interest rate per annum equal at all times to the
remainder obtained by subtracting (i) the Eurodollar Rate for such Interest
Period for such Eurodollar Rate Advance from (ii) the rate obtained by dividing
such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage of such Lender for such Interest Period, payable on each date
on which interest is payable on such Eurodollar Rate Advance. Such additional
interest shall be determined by such Lender and notified to the Borrower through
the Agent.
SECTION 2.06. Interest Rate Determination. (a) Each Reference
Bank agrees to furnish to the Agent timely information for the purpose of
determining each Eurodollar Rate and each Adjusted CD Rate. If any one or more
of the Reference Banks shall not furnish such timely information to the Agent
for the purpose of determining any such interest rate, the Agent shall determine
such interest rate on the basis of timely information furnished by the remaining
Reference Banks. The Agent shall give prompt notice to the Borrower and the
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Lenders of the applicable interest rate determined by the Agent for purposes of
Section 2.05(a)(i), (ii) or (iii), and the rate, if any, furnished by each
Reference Bank for the purpose of determining the interest rate under Section
2.05(a)(ii) or (iii).
(b) If, with respect to any Eurodollar Rate Advances, the
Required Lenders notify the Agent prior to the commencement of the Interest
Period therefor that the Eurodollar Rate for such Interest Period for such
Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving
Credit Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances or any CD Rate Advance in
accordance with the provisions contained in the definition of "Interest Period"
in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders
and such Advances will automatically, on the last day of the then existing
Interest Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount
of Eurodollar Rate Advances or CD Rate Advances comprising any Borrowing shall
be reduced, by payment or prepayment or otherwise, to less than $10,000,000,
such Advances shall automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any
Event of Default under Section 6.01(a), (i) each Eurodollar Rate Advance and CD
Rate Advance will automatically, on the last day of the then existing Interest
Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances or CD
Rate Advances shall be suspended.
(f) If none of the Reference Banks furnish timely information
to the Agent for determining the Eurodollar Rate or Adjusted CD Rate for any
Eurodollar Rate Advances or CD Rate Advances, as the case may be:
(i) the Agent shall forthwith notify the Borrower and the
Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances or CD Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such
Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance (or if such
Advance is then a Base Rate Advance, will continue as a Base Rate
Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate
Advances or CD Rate Advances or to Convert Revolving Credit Advances
into Eurodollar Rate Advances shall be suspended until the Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
SECTION 2.07. Fees. (a) Facility Fee. The Borrower agrees to
pay to the Agent for the account of each Lender a facility fee on the daily
aggregate amount of such Lender's Revolving Credit Commitment (i) from the
earlier of (x) the Effective Date or (y) 30 days following the date hereof in
the case of each Initial Lender and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender (but not prior to
the earlier of (i) the Effective Date or (ii) 30 days following the date hereof)
in the case of each other Lender until the Termination Date then in effect, at a
rate per annum equal to the Applicable Margin in effect from time to time or
(ii) if the Borrower has extended the Final Maturity date pursuant to Section
2.16(b), from the Termination Date then in effect until the Final Maturity Date
as a per annum rate equal to the Applicable Margin in effect from time to time,
payable in arrears quarterly on the first Business
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Day of each January, April, July and October, commencing April 1, 1998, and on
the Termination Date or Final Maturity Date.
(b) Agent's Fees. The Borrower shall pay to the Agent for its
own account such fees as may from time to time be agreed between the Borrower
and the Agent.
(c) Arranger's, Co-Documentation Agents and Co-Arranger's Fee.
The Borrower shall pay to the Arranger for its own account or, as applicable,
the account of a Co-Documentation Agent or Co-Arranger such fees as agreed
between the Borrower and the Arranger, the Borrower and the Co-Arrangers and the
Borrower and the Co-Documentation Agents.
(d) Senior Managing and Co-Agents' Fee. The Borrower shall pay
to the Agent for the account of each Senior Managing and Co-Agent such fees as
specified in the Information Memorandum.
SECTION 2.08. Optional Conversion of Revolving Credit
Advances. The Borrower may on any Business Day, upon notice given to the Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the date of the proposed Conversion and subject to the provisions of Sections
2.06 and 2.11, Convert all or any portion of the Advances of one Type comprising
the same Borrowing into Advances of another Type or change the Interest Period
therefor into another permissible Interest Period; provided, however, that (i)
in the event that any Conversion of Eurodollar Rate Advances or CD Rate Advances
into Base Rate Advances is made on a day other than the last day of an Interest
Period for such Eurodollar Rate Advances or CD Rate Advances, the Borrower shall
be obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(c), (ii) each Conversion shall be of Advances in an aggregate amount not
less than $10,000,000, (iii) no Conversion of any Advances shall result in more
separate Borrowings than permitted under Section 2.02(c) and (iv) each
Conversion of Advances comprising part of the same Borrowing under any Facility
shall be made ratably among the appropriate Lenders in accordance with their
Revolving Credit Commitments under such Facility. Each such notice of a
Conversion shall, within the restrictions specified above, specify (A) the date
of such Conversion, (B) the Advances to be Converted and (C) if such Conversion
is into Eurodollar Rate Advances or CD Rate Advances, the duration of the
initial Interest Period for each such Advance. Each notice of Conversion shall
be irrevocable and binding on the Borrower.
SECTION 2.09. Prepayments of Advances. (a) Optional. The
Borrower may, upon (i) at least three Business Days' notice in the case of a
Eurodollar Rate Advance or CD Rate Advance and (ii) at least one Business Day's
notice in the case of a Base Rate Advance in each case to the Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amount of
such Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, however, that (x) each partial prepayment shall be in
an aggregate principal amount of $10,000,000 or an integral multiple of
$1,000,000 in excess thereof ; provided, however, that following each partial
prepayment of any Eurodollar Rate Advance the remaining outstanding amount of
such Advance shall be at least $10,000,000 and (y) in the event of any such
prepayment of a Eurodollar Rate Advance or CD Rate Advance other than on the
last day of the Interest Period therefor, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to Section 8.04(c).
(b) Mandatory. (i) The Borrower shall, on each Business Day,
prepay an aggregate principal amount of the Revolving Credit Advances comprising
part of the same Borrowings equal to the amount by which (A) the sum of the
aggregate principal amount of the Revolving Credit Advances exceeds (B) the
Revolving Credit Facility on such Business Day.
(ii) All prepayments under this subsection (b) shall be made
together with accrued interest to the date of such prepayment on the principal
amount prepaid. If any payment required to be made under this
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Section 2.09(b) on account of Eurodollar Rate Advances or CD Rate Advances would
be made other than on the last day of the applicable Interest Period therefor,
the Borrower may, in lieu of prepaying such Advance, deposit the amount of such
payment in the Cash Collateral Account until the last day of the applicable
Interest Period at which time such payment shall be made.
SECTION 2.10. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation, with respect to any Eurodollar Rate Advance or CD Rate Advance,
after the date hereof or (ii) the compliance with any guideline or request from
any central bank or other governmental authority (whether or not having the
force of law), adopted or made, with respect to any Eurodollar Rate Advance or
CD Rate Advance, after the date hereof, there shall be any increase in the cost
to any Lender of agreeing to make or making, funding or maintaining Eurodollar
Rate Advances or CD Rate Advances (excluding for purposes of this Section 2.10
any such increased costs resulting from taxes, including Taxes and Other Taxes
(as to which Section 2.13 shall govern)), then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the Agent), pay
to the Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost to the extent actually incurred;
provided, however, that, before making any such demand, each Lender agrees to
use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, such increased cost and would not, in the sole reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender. A certificate as to the
amount of such increased cost, setting forth the basis therefor in reasonable
detail, submitted to the Borrower and the Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If any Lender reasonably determines that compliance with
any law or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) adopted after
the date hereof affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender and that the amount of such capital is increased by or based upon the
existence of such Lender's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Lender (with a copy of such demand to the
Agent), the Borrower shall pay to the Agent for the account of such Lender, from
time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender or such corporation in the light of such circumstances,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend hereunder to
the extent actually incurred; provided, however, that, before making any such
demand, each Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such a designation would avoid the
need for, or reduce the amount of, such additional amounts payable under this
subsection (b) and would not, in the sole reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate as to such amounts
setting forth the basis therefor in reasonable detail, submitted to the Borrower
and the Agent by such Lender shall be conclusive and binding for all purposes,
absent manifest error.
(c) Notwithstanding any other provision in this Section 2.10,
no Lender shall be entitled to demand compensation pursuant to this Section 2.10
unless, at such time, it is the general policy or practice of such Lender to
demand such compensation in similar circumstances under comparable provisions of
other comparable credit agreements with borrowers of similar credit quality. The
Borrower shall pay each Lender the amount shown as due on any certificate
delivered by such Lender pursuant to subsection (a) or (b) above within 30 days
after its receipt of the same.
(d) No Lender shall be entitled to compensation under this
Section 2.10 for any costs incurred or reductions suffered with respect to any
event or circumstance unless such Lender shall have notified the Borrower, not
more than 120 days after such Lender becomes aware of such event or
circumstance, that it will demand compensation for such costs or reductions in a
certificate described in the last sentence of each of subsections (a) and (b)
above.
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SECTION 2.11. Illegality. Notwithstanding any other provision
of this Agreement, if any Lender shall notify the Agent and the Borrower that
the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of
the Lenders to make Eurodollar Rate Advances or to Convert Revolving Credit
Advances into Eurodollar Rate Advances shall be suspended, whereupon any request
by the Borrower for a Borrowing comprised of Eurodollar Rate Advances shall be
deemed a request for a Base Rate Advance until the affected Lender shall notify
the Agent and the Borrower that the circumstances causing such suspension no
longer exist and (ii) the Lenders may require that all outstanding Eurodollar
Rate Advances made by it be Converted to Base Rate Advances, in which event all
such Eurodollar Rate Advances shall be automatically Converted to Base Rate
Advances as of the effective date of such notice; provided, however, that each
Lender agrees to use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to designate a different Eurodollar Lending
Office if the making of such a designation would enable such Lender to withdraw
its notice under this Section and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender. In the event any Lender
shall notify the Agent and the Borrower of the occurrence of the circumstances
causing such suspension under this Section, all payments and prepayments of
principal that would otherwise have been applied to repay the Eurodollar Rate
Advances that would have been made by such Lender or the Converted Eurodollar
Rate Advances shall instead be applied to repay the Base Rate Advances made by
such Lender in lieu of such Eurodollar Rate Advances, or resulting from the
Conversion of such Eurodollar Rate Advances. For purposes of this Section 2.11,
a notice to the Borrower by any Lender shall be effective as to each Eurodollar
Rate Advance, if lawful, on the last day of the Interest Period currently
applicable to such Eurodollar Rate Advance; in all other cases such notice shall
be effective on the date of the occurrence of the circumstances causing such
suspension.
SECTION 2.12. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Agent at the
Agent's Account in same day funds. The Agent will promptly thereafter cause to
be distributed like funds relating to the payment of principal or interest or
facility fees ratably (other than amounts payable pursuant to Section 2.10, 2.13
or 8.04(c)) to the Lenders for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Lender to such Lender for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 8.07(c),
from and after the effective date specified in such Assignment and Acceptance,
the Agent shall make all payments hereunder and under the Notes in respect of
the interest assigned thereby to the Lender assignee thereunder, and the parties
to such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate (to
the extent governed by clause (a) of the definition thereof) shall be made by
the Agent on the basis of a year of 365 or 366 days, as the case may be, and all
computations of interest based on the Eurodollar Rate, Adjusted CD Rate or the
Federal Funds Rate and of facility fees shall be made by the Agent on the basis
of a year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or facility fees are payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or facility fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate
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<PAGE> 23
Advances to be made in the next following calendar month, such payment shall be
made on the next preceding Business Day.
(d) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent the Borrower shall not have so made such payment in full to
the Agent, each Lender shall repay to the Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Agent, at the Federal Funds Rate.
SECTION 2.13. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.12,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, taxes
imposed on its overall net income, and franchise taxes imposed on it in lieu of
net income taxes, by the jurisdiction under the laws of which such Lender or the
Agent (as the case may be) is organized, managed or controlled or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.13) such Lender or the Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made under any Note or from the
execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or any the Note (hereinafter referred to as "Other
Taxes").
(c) The Borrower shall indemnify each Lender and the Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
taxes imposed by any jurisdiction on amounts payable under this Section 2.13)
imposed on or paid by such Lender or the Agent (as the case may be) and any
liability (including, without limitation, penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Lender or the Agent (as the case may be) makes
written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent, at its address referred to in Section 8.02,
the original or a certified copy of a receipt evidencing payment thereof. In the
case of any payment hereunder or under the Notes by or on behalf of the Borrower
through an account or branch outside the United States or by or on behalf of the
Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to the Agent, at such address, an
opinion of counsel acceptable to the Agent stating that such payment is exempt
from Taxes imposed by the jurisdiction from which such payment is made. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
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(e) Each Lender organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this Agreement in the case of each Initial Lender, on the date of the
Assignment and Acceptance pursuant to which it becomes a Lender in the case of
each other Lender, and from time to time thereafter as requested in writing by
the Borrower (but only so long as such Lender remains lawfully able to do so),
shall provide each of the Agent and the Borrower with two original Internal
Revenue Service forms 1001 or 4224, as appropriate, or any successor or other
form prescribed by the Internal Revenue Service, certifying that such Lender is
exempt from or entitled to a reduced rate of United States withholding tax on
payments pursuant to this Agreement or the Notes. If the forms provided by a
Lender at the time such Lender first becomes a party to this Agreement indicates
a United States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from Taxes unless and until such
Lender provides the appropriate forms certifying that a lesser rate applies,
whereupon withholding tax at such lesser rate only shall be considered excluded
from Taxes for periods governed by such form; provided, however, that, if at the
date of the Assignment and Acceptance pursuant to which a Lender assignee
becomes a party to this Agreement, the Lender assignor was entitled to payments
under subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) the lesser of (i) the United States
withholding tax, if any, applicable with respect to the Lender assignee on such
date and (ii) the United States withholding tax, if any, applicable with respect
to the Lender assignor on such date. For purposes of this subsection (e), the
term Assignment and Acceptance shall include a change in the Applicable Lending
Office of a Lender. If any form or document referred to in this subsection (e)
requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service form 1001 or 4224, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrower and shall not
be obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender has failed
to provide the Borrower with the appropriate form described in Section 2.13(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided, or if such form
otherwise is not required under the first sentence of subsection (e) above),
such Lender shall not be entitled to indemnification under Section 2.13(a) or
(c) with respect to Taxes imposed by the United States by reason of such
failure; provided, however, that should a Lender become subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as the Lender shall reasonably request to assist the Lender to
recover such Taxes and any cost or expense incurred by the Borrower in
connection therewith shall be promptly reimbursed by such Lender.
(g) If a Lender or the Agent receives a refund from a taxing
authority in respect of any Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.13, it shall within 30 days from
the date of such receipt pay over such refund to the Borrower, net of all
out-of-pocket expenses of such Lender or the Agent; provided, however, that the
Borrower, upon the request of such Lender or the Agent, agrees to repay the
amount paid over to the Borrower to such Lender or the Agent in the event such
Lender or the Agent is required to repay such refund to such taxing authority.
(h) Any Lender claiming any indemnity payment or additional
amounts payable pursuant to this Section 2.13 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document reasonably requested in writing by the Borrower or to change the
jurisdiction of its Applicable Lending Office if the making of such a filing or
change would avoid the need for or reduce the amount of any such indemnity
payment or additional amounts that may thereafter accrue and would not, in the
sole reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.14. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether
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voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of the Revolving Credit Advances owing to it (other than
pursuant to Section 2.10, 2.13 or 8.04(c)) in excess of its ratable share of
payments on account of the Revolving Credit Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participation in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.14 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of setoff) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
SECTION 2.15. Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely for general corporate purposes of the Borrower and its Subsidiaries
including, without limitation, the financing of acquisitions not otherwise
prohibited by this Agreement.
SECTION 2.16. Extensions of Termination Date and Final
Maturity Date. (a) No earlier than 60 days and no later than 45 days prior to
the Termination Date in effect at any time, the Borrower may, by written notice
to the Administrative Agent, request that such Termination Date be extended for
a period of 364 days. Such request shall be irrevocable and binding upon the
Borrower. The Administrative Agent shall promptly notify each Lender of such
request. If a Lender agrees, in its individual and sole discretion, to so extend
its Revolving Credit Commitment (an "Extending Lender"), it shall deliver to the
Administrative Agent a written notice of its agreement to do so no earlier than
30 days and no later than 20 days prior to such Termination Date and the
Administrative Agent shall notify the Borrower of such Extending Lender's
agreement to extend its Commitment no later than 15 days prior to such
Termination Date. The Revolving Credit Commitment of any Lender that fails to
accept or respond to the Borrower's request for extension of the Termination
Date (a "Declining Lender") shall be terminated on the Termination Date
originally in effect (without regard to any extension by other Lenders) and on
such Termination Date the Borrower shall pay in full the principal amount of all
Advances owing to such Declining Lender, together with accrued interest thereon
to the date of such payment of principal and all other amounts payable to such
Declining Lender under this Agreement. The Administrative Agent shall promptly
notify each Extending Lender of the aggregate Commitments of the Declining
Lender. The Extending Lenders, or any of them, may offer to increase their
respective Commitments by an aggregate amount up to the aggregate amount of the
Declining Lenders' Commitments and any such Extending Lender shall deliver to
the Administrative Agent a notice of its offer to so increase its Commitment no
later than 15 days prior to such Termination Date. To the extent of any
shortfall in the aggregate amount of extended Commitments, the Borrower shall
have the right to require any Declining Lender to assign in full its rights and
obligations under this Agreement to an Eligible Assignee designated by the
Borrower and acceptable to the Administrative Agent, such acceptance not to be
unreasonably withheld, that agrees to accept all of such rights and obligations
(a "Replacement Lender"), provided that (i) such increase and/or such assignment
is otherwise in compliance with Section 8.07, (ii) such Declining Lender
receives payment in full of the principal amount of all Advances owing to such
Declining Lender, together with accrued interest thereon to the date of such
payment of principal and all other amounts payable to such Declining Lender
under this Agreement and (iii) any such increase shall be effective on the
Termination Date in effect at the time the Borrower requests such extension and
any such assignment shall be effective on the date specified by the Borrower and
agreed to by the Replacement Lender and the Administrative Agent. If Extending
Lenders and Replacement Lenders provide Commitments in an aggregate amount at
least equal to 51% of the aggregate amount of the Commitments outstanding 30
days prior to the Termination Date in effect at the time the Borrower requests
such extension, the Termination Date shall be
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extended by 364 days for such Extending Lenders, subject, however, to the
provisions of subsection (b) of this Section 2.16.
(b) No earlier than 60 days and no later than 45 days prior to
the Termination Date in effect at any time, the Borrower may, by written notice
to the Administrative Agent, request that the Final Maturity Date be a date
occurring up to the first anniversary of the then scheduled Termination Date.
Such request shall be irrevocable and binding upon the Borrower. The
Administrative Agent shall promptly notify each Lender of such request. Subject
to the satisfaction of the applicable conditions set forth in Section 3.02 as of
such Termination Date, the Final Maturity Date shall be, effective as of such
Termination Date, such date as the Borrower shall request pursuant to this
subsection (b) of this Section 2.16 and, as of such Termination Date, all Unused
Revolving Credit Commitments shall be canceled.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section
2.01. Section 2.01 of this Agreement shall become effective on and as of the
first date occurring not later than March 20, 1998 (the "Effective Date") on
which the following conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1996.
(b) There shall exist no action, suit, investigation,
litigation or proceeding affecting the Borrower or any of its Material
Subsidiaries pending or threatened before any court, governmental
agency or arbitrator that (i) is reasonably likely to have a Material
Adverse Effect other than the matters described on Schedule 3.01(b)
hereto (the "Disclosed Litigation") or (ii) purports to affect the
legality, validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, and there shall
have been no material adverse change in the status, or financial effect
on the Borrower and its Material Subsidiaries taken as a whole, of the
Disclosed Litigation from that described on Schedule 3.01(b) hereto.
(c) All governmental, regulatory and third party consents and
approvals necessary in connection with the transactions contemplated
hereby (including, without limitation, all consents and approvals
required under PUHCA) shall have been obtained (without the imposition
of any conditions that are not acceptable in the reasonable judgment of
the Lenders) and shall remain in effect, and no law or regulation shall
be applicable in the reasonable judgment of the Lenders that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
(d) The Borrower shall have notified the Agent in writing as
to the proposed Effective Date.
(e) The Borrower shall have paid all fees and expenses of the
Agent and fees of the Lenders (including the fees and expenses of
counsel to the Agent) and fees of the Co-Documentation Agents then due;
provided that the Borrower shall not be required to pay any expenses
(including fees and expenses of counsel to the Agent) on the Effective
Date unless the Borrower shall have received an invoice therefor at
least three Business Days prior to the Effective Date.
(f) On the Effective Date, the following statements shall be
true and the Agent shall have received for the account of each Lender a
certificate signed by a duly authorized officer of the Borrower, dated
the Effective Date, stating that:
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(i) the representations and warranties contained in
Section 4.01 are correct on and as of the Effective Date,
(ii) no event has occurred and is continuing that
constitutes a Default, and
(iii) the Information Memorandum and all other
information, exhibits and reports furnished by the Borrower to
the Agent and the Lenders in connection with the negotiation
of the Loan Documents, taken as a whole, does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein,
in light of the circumstances under which they were made, not
misleading.
(g) The Borrower shall have received, and shall continue to
maintain as of the Effective Date, a long term unsecured debt rating
equal to or higher than BBB+ from S&P and equal to or higher than Baa1
from Moody's.
(h) The Agent shall have received on or before the Effective
Date the following, each dated such day, in form and substance
satisfactory to the Agent and (except for the Revolving Credit Notes)
in sufficient copies for each Lender:
(i) The Revolving Credit Notes to the order of the
Lenders, respectively.
(ii) Certified copies of the resolutions of the Board
of Directors of the Borrower approving the Facilities, and of
all documents evidencing other necessary corporate action,
governmental and regulatory approvals and third party consents
(including, without limitation, all approvals and consents
required under PUHCA) with respect to this Agreement and the
Notes.
(iii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Agreement and the Notes and the other documents to be
delivered hereunder.
(iv) A favorable opinion of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., counsel for the Borrower, substantially in the
form of Exhibit D hereto.
(v) A favorable opinion of Shearman & Sterling,
counsel for the Agent, in form and substance satisfactory to
the Agent.
(vi) Such other approvals, opinions or documents as
any Lender through the Agent may reasonably request.
(vii) The Agent shall have received on or before the
Effective Date a letter from the Borrower, dated on or before
such day, terminating in whole the commitments of the banks
party to the Existing Agreement, and each of the Lenders that
is party to the Existing Agreement waives, upon execution of
this Agreement, the three Business Days' notice required by
Section 2.05(a) of the Existing Agreement relating to the
termination of commitments under the Existing Agreement.
(viii) The Borrower shall have satisfied and
discharged all of its obligations under the Existing Agreement
including, without limitation, the payment of all fees under
the Existing Agreement.
SECTION 3.02. Conditions Precedent to Each Borrowing and to
Extension of the Final
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Maturity Date. The obligation of each Lender to make an Advance on the occasion
of each Borrowing and the extension of the Final Maturity Date pursuant to
Section 2.16(b) shall be subject to the conditions precedent that the Effective
Date shall have occurred and on the date of such Borrowing or in the case of the
extension of the Final Maturity Date, on the Termination date then in effect,
the following statements shall be true (and each of the giving of the applicable
Notice of Borrowing or notice of extension of the Final Maturity Date, as the
case may be, and the acceptance by the Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by the Borrower that on
the date of such Borrowing such statements are true):
(i) the representations and warranties contained in Section
4.01 are correct on and as of the date of such Revolving Credit, before
and after giving effect to such Revolving Credit and to the application
of the proceeds therefrom, as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result
from such Revolving Credit or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.03. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date, which notice shall be conclusive and binding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower and the Material Subsidiaries are each
entities duly organized, validly existing and in good standing under
the laws of the jurisdiction of their organization.
(b) The execution, delivery and performance by the Borrower of
each of the Loan Documents to which the Borrower is a party, and the
consummation of the transactions contemplated thereby, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not (A) contravene (i) the Borrower's charter
or by-laws or (ii) any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal
Reserve System), or any contractual restriction binding on or, to the
Borrower's knowledge, affecting the Borrower (except that certain
orders are required under PUHCA for the performance of this Agreement
and the execution, performance and delivery of any Note hereunder,
which orders have been obtained) or (B) result in the imposition of any
Lien.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery
and performance by the Borrower of any Loan Document to which the
Borrower is a party, except for those authorizations, approvals,
actions, notices and filings (including any such authorizations,
approvals, actions, notices and filings required under PUHCA for the
performance of this Agreement and the execution, performance and
delivery of any Note hereunder) listed on Schedule 4.01(c) hereto, all
of
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which, as of the Effective Date, have been duly obtained, taken, given
or made and are in full force and effect.
(d) This Agreement has been, and each of the other Loan
Documents to which the Borrower is a party when delivered hereunder
will have been, duly executed and delivered by the Borrower. This
Agreement is, and each of the other Loan Documents to which the
Borrower is a party when delivered hereunder will be, the legal, valid
and binding obligation of the Borrower enforceable against the Borrower
in accordance with their respective terms.
(e) The Consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 1996, and the related Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Arthur Andersen, LLP, independent public accountants, and the
Consolidated balance sheet of the Borrower and its Subsidiaries as of
September 30, 1997, and the related Consolidated statements of income
and cash flows of the Borrower and its Subsidiaries for the nine months
then ended, duly certified by the chief accounting officer of the
Borrower, copies of which have been furnished to each Lender, fairly
present, subject, in the case of said balance sheet as of September 30,
1997, and said statements of income and cash flows for the nine months
ended, to year-end audit adjustments, the Consolidated financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with
generally accepted accounting principles consistently applied. Since
December 31, 1996, there has been no Material Adverse Change.
(f) The Borrower is a "holding company" and each of the
Borrower's Subsidiaries is a "subsidiary company" of the Borrower
within the meaning of PUHCA; provided, however, that this
representation shall be applicable only so long as PUHCA shall not be
abolished or repealed.
(g) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, against or, to the Borrower's knowledge,
affecting the Borrower or any of its Material Subsidiaries before any
court, governmental agency or arbitrator that (i) is reasonably likely
to have a Material Adverse Effect (other than the Disclosed Litigation)
or (ii) purports to affect in a material way the legality, validity or
enforceability of any Loan Document or the consummation of the
transactions contemplated thereby, and there has been no material
adverse change in the status, or financial effect on the Borrower and
its Material Subsidiaries taken as a whole, of the Disclosed Litigation
from that described on Schedule 3.01(b) hereto.
(h) Neither the Borrower nor any of its Subsidiaries is
engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve System), and no
proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock, provided that the Borrower may repurchase
its own stock so long as any such repurchase or repurchases are made in
the ordinary course of business.
(i) The Borrower and each of its Material Subsidiaries is
currently in compliance, in all material respects, with all applicable
laws, rules, regulations and orders, including, without limitation,
compliance with PUHCA and ERISA and Environmental Laws as provided in
Section 5.01(a), except in each case to the extent that failure to do
so is not reasonably likely to have a Material Adverse Effect.
(j) No ERISA Event has occurred or is reasonably expected to
occur with respect to any ERISA Plan that is reasonably likely to
result in a Material Adverse Effect.
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(k) Neither the Borrower nor any ERISA Affiliate has incurred
or is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan that is reasonably likely to result in a Material
Adverse Effect.
(l) Neither the Borrower nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA, where such notification, reorganization
or termination is reasonably likely to result in a Material Adverse
Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Revolving Credit Commitment
hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Material Subsidiaries to comply, in all material respects, with all
material contracts to which it is a party and all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and Environmental Laws, except in
each case to the extent that failure to do so is not reasonably likely
to result in a Material Adverse Effect; provided, however, that neither
the Borrower nor any of its Material Subsidiaries shall be required to
comply with any applicable laws, rules, regulations or orders to the
extent that the validity thereof or the application thereof to the
Borrower or its Subsidiary, as applicable, is being contested in good
faith and by proper proceedings and as to which appropriate reserves
are being maintained to the extent required by generally accepted
accounting principles.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Material Subsidiaries to pay and discharge, before the same
shall become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all
lawful claims that, if unpaid, might by law become a Lien upon its
property, except in each case to the extent that failure to do so is
not reasonably likely to result in a Material Adverse Effect; provided,
however, that neither the Borrower nor any of its Material Subsidiaries
shall be required to pay or discharge any such tax, assessment, charge,
levy or claim that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained
to the extent required by generally accepted accounting principles,
unless and until any Lien resulting therefrom attaches to its property
and becomes enforceable against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its
Material Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general
areas in which the Borrower or such Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Material Subsidiaries to preserve and
maintain, its corporate existence, material rights (charter and
statutory) and material franchises; provided, however, that (i) the
Borrower may consummate any merger or consolidation permitted under
Section 5.02(b) and (ii) subject only to Section 5.02(c), any
Subsidiary may merge, consolidate or liquidate, or be sold or otherwise
disposed of or sell or otherwise dispose of its assets and provided
further that neither the Borrower nor any of its Material Subsidiaries
shall be required to preserve any right or franchise if (x) the Board
of Directors of the Borrower or such Subsidiary shall determine that
the preservation thereof is no longer desirable in the conduct of the
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business of the Borrower or such Subsidiary, as the case may be, and
that the loss thereof is not disadvantageous in any material respect to
the Borrower and its Subsidiaries taken as a whole or the Lenders or
(y) such right or franchise shall be taken or transferred pursuant to
the exercise by any Person of the power of eminent domain or action in
lieu of or in settlement of such exercise.
(e) Visitation Rights. At any reasonable time and from time to
time, subject to reasonable prior notice to the Borrower, permit the
Agent or any of the Lenders or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and books
of account of, and visit the properties of, the Borrower and any of its
Material Subsidiaries, and to discuss the affairs, finances and
accounts of the Borrower and any of its Material Subsidiaries with any
of their officers or directors and with their independent certified
public accountants; provided that the Borrower shall be afforded an
opportunity to be present during any such discussion with its
independent certified public accountants.
(f) Keeping of Books. Keep, and cause each of its Material
Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Subsidiary in
accordance with generally accepted accounting principles in effect from
time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Material Subsidiaries to maintain and preserve, all
of its properties (including, without limitation, all patents,
trademarks and other intellectual property) that are material to the
conduct of its business in good working order and condition, ordinary
wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of
its Material Subsidiaries to conduct, all material transactions
otherwise permitted under this Agreement with any of their Affiliates
(other than transactions between the Borrower and any of its Wholly
Owned Subsidiaries or between any such Wholly Owned Subsidiaries;
provided that any Debt (other than Capitalized Leases) of any such
Wholly Owned Subsidiary owing to any third party other than the
Borrower or another of its Wholly Owned Subsidiaries does not exceed 5%
of each Subsidiary's Capitalization) on terms that are fair and
reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate; provided, however, that, notwithstanding the
foregoing, (i) the Borrower shall be permitted to continue its present
intercompany loan program pursuant to which the Borrower makes loans to
Subsidiaries at rates of interest based upon the Borrower's cost of
capital and (ii) transactions between the Borrower and Subsidiaries, or
between Subsidiaries, conducted at cost, shall be permitted.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 50
days after the end of each of the first three quarters of each
fiscal year of the Borrower, Consolidated balance sheets of
the Borrower and its Subsidiaries as of the end of such
quarter and Consolidated statements of income and cash flows
of the Borrower and its Subsidiaries for the period commencing
at the end of the previous fiscal year and ending with the end
of such quarter, duly certified (subject to year-end audit
adjustments) by the chief accounting officer of the Borrower
as having been prepared in accordance with generally accepted
accounting principles and certificates of the chief financial
officer of the Borrower as to compliance with the terms of
this Agreement and setting forth in reasonable detail the
calculations necessary to demonstrate compliance with Section
5.03, provided that in the event of any change in GAAP used in
the preparation of such financial statements, the Borrower
shall also provide, if necessary for the determination of
compliance with Section 5.03, a statement of reconciliation
conforming such financial statements to GAAP;
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(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, (A) a
copy of the annual audit report for such year for the Borrower
and its Subsidiaries, containing Consolidated balance sheets
of the Borrower and its Subsidiaries as of the end of such
fiscal year and Consolidated statements of income and cash
flows of the Borrower and its Subsidiaries for such fiscal
year, in each case accompanied by an opinion (without material
qualification) by Arthur Andersen, LLP or other independent
public accountants acceptable to the Required Lenders,
provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Borrower shall
also provide, if necessary for the determination of compliance
with Section 5.03, a statement of reconciliation conforming
such financial statements to GAAP and (B) consolidating
balance sheets of the Borrower and its Subsidiaries as of the
end of such fiscal year and consolidating statements of income
and cash flows of the Borrower and its Subsidiaries for such
fiscal year;
(iii) as soon as possible and in any event within
three Business Days after any executive officer of the
Borrower obtains knowledge of the occurrence of any Default or
any event, development or occurrence reasonably likely to have
a Material Adverse Effect continuing on the date of such
statement, a statement of the chief financial officer of the
Borrower setting forth details of such Default or event,
development or occurrence reasonably likely to have a Material
Adverse Effect and the action that the Borrower has taken and
proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof,
copies of all reports that the Borrower sends to its security
holders generally, and copies of all reports and effective
registration statements that the Borrower or any Subsidiary
files with the Securities and Exchange Commission or any
national securities exchange, other than registration
statements filed on Form S-8, any Form 11-K or any reports or
filings made pursuant to PUHCA;
(v) promptly after the commencement thereof (or, if
later, the date that the Borrower determines that the
applicable action or proceeding is of the type described in
Section 4.01(g)), notice of all actions and proceedings before
any court, governmental agency or arbitrator against, or to
the Borrower's knowledge affecting the Borrower or any of its
Material Subsidiaries of the type described in Section
4.01(g);
(vi) promptly and in any event within 15 days after
the Borrower or within 30 days after any ERISA Affiliate knows
or has reason to know that any ERISA Event has occurred which
event has resulted or could reasonably be expected to result
in liability exceeding $10,000,000, a statement of the chief
financial officer of the Borrower describing such ERISA Event
and the action, if any, that the Borrower or such ERISA
Affiliate has taken and proposes to take with respect thereto;
(vii) promptly and in any event within three Business
Days after receipt thereof by the Borrower or any ERISA
Affiliate, copies of each notice from the PBGC stating its
intention to terminate any ERISA Plan or to have a trustee
appointed to administer any ERISA Plan;
(viii) promptly and in any event within 20 days after
the receipt thereof by the Borrower or within 30 days after
the receipt thereof by any ERISA Affiliate, a copy of the
annual actuarial report for each ERISA Plan the unfunded
current liability of which exceeds $10,000,000;
(ix) promptly and in any event within five Business
Days after receipt thereof by
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the Borrower or within 10 Business Days after receipt thereof
any ERISA Affiliate from the sponsor of a Multiemployer Plan,
copies of each notice concerning (A) the imposition of
Withdrawal Liability by any such Multiemployer Plan on the
Borrower or an ERISA Affiliate in excess of $15,000,000 or the
incurrence of any current payment obligations on the Borrower
or such ERISA Affiliate in excess of $5,000,000, (B) the
reorganization or termination, within the meaning of Title IV
of ERISA, of any such Multiemployer Plan that is reasonably
likely to result in the imposition of liability on the
Borrower or an ERISA Affiliate in excess of $15,000,000 or the
incurrence of any current payment obligations on the Borrower
or such ERISA Affiliate in excess of $5,000,000 or (C) the
amount of liability incurred, or that may be incurred, by the
Borrower or any ERISA Affiliate in connection with any event
described in clause (A) or (B);
(x) promptly after the assertion or occurrence
thereof, notice of any Environmental Action against or of any
noncompliance by the Borrower or any of its Material
Subsidiaries with any Environmental Law or Environmental
Permit that would reasonably be expected
to have a Material Adverse Effect;
(xi) promptly and in any event within two Business
Days after receipt by the Borrower of notice of any change in
the Borrower's unsecured long-term debt ratings by Moody's or
S&P; and
(xii) such other information respecting the Borrower
or any of its Subsidiaries as any Lender through the Agent may
from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Revolving Credit Commitment
hereunder, the Borrower will not:
(a) Liens. Create or suffer to exist, or permit any of its
Material Subsidiaries to create or suffer to exist, any Lien on or with
respect to any of its properties, whether now owned or hereafter
acquired, or assign, or permit any of its Material Subsidiaries to
assign, any right to receive income, other than:
(i) Permitted Liens,
(ii) Liens to secure obligations of the Borrower's
Subsidiaries owing to the Borrower or to other direct Wholly
Owned Subsidiaries of the Borrower that have no debt
outstanding other than to the Borrower,
(iii) Liens existing on the date hereof (and not
otherwise included in any other subsection of this Section
5.02(a)) and listed on Schedule 5.02(a) hereto,
(iv) Liens on any property acquired by the Borrower
or any of its Material Subsidiaries after the date hereof that
are existing at the time such property is so acquired and not
created in contemplation of the acquisition of such property,
(v) Liens on any property of any Person that becomes
a Subsidiary of the Borrower after the date hereof that are
existing at the time such Person becomes a Subsidiary, other
than any such Lien created in contemplation of such Person
becoming a Subsidiary,
(vi) Liens securing Debt of the Borrower or any of
its Material Subsidiaries of the type described in Sections
3.03 and 3.04 of the Indenture; provided that, for purposes of
this
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clause (vi), (A) references to "Secured Debt", "Funded Debt"
or "Debt" in Sections 3.03 and 3.04 of the Indenture shall be
deemed to refer to "Debt" as defined herein, (B) references to
the "Company" in Section 3.03 of the Indenture shall be deemed
to refer to the "Borrower" or any "Material Subsidiary" as
defined herein, and (C) references to "Significant Subsidiary"
in Section 3.04 of the Indenture shall be deemed to refer to
any "Material Subsidiary" as defined herein,
(vii) assignments of receivables for collection in
the ordinary course,
(viii) sales of receivables in asset securitization
transactions,
(ix) other Liens securing Debt and other obligations
in an aggregate principal amount not to exceed $25,000,000
outstanding,
(x) other Liens and assignments, not securing Debt
for borrowed money, which, individually or in aggregate, are
not reasonably likely to have a Material Adverse Effect,
provided that the total aggregate principal amount of Debt or
other obligations secured by Liens and assignments under this
clause (x) shall not exceed $50,000,000 outstanding, and
(xi) except as otherwise restricted or prohibited in
the Indenture, the replacement, extension or renewal of any
Lien permitted above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or
contingent obligor) of the Debt secured thereby.
(b) Mergers. Merge or consolidate with or into, or sell,
lease, transfer or otherwise dispose of its property or assets as, or
substantially as, an entirety in a single transaction or a series of
transactions to, any Person, except that the Borrower may merge with
any other Person so long as the Borrower is the surviving corporation
(or the surviving corporation shall be approved by Lenders holding 80%
of the Revolving Credit Commitments), provided, in each case, that (i)
no Default shall have occurred and be continuing at the time of such
proposed transaction or would result therefrom and (ii) the Borrower
shall be able to satisfy all of the conditions set forth in Section
3.02 at the time of such proposed transaction and immediately
thereafter.
(c) Sale of Assets. Sell, convey, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions),
without the written consent of the Required Lenders, (i) more than 25%
of its equity investments (measured as of the date of such sale,
conveyance, transfer or other disposition) in or (ii) more than 25% of
the fair market value (measured as of the date of such sale,
conveyance, transfer or other disposition) of the assets (excluding
accounts receivable and current inventory held for sale) of either one
of the following groups:
Group I: Columbia Gas Transmission Corporation;
Columbia Gulf Transmission Company
Group II: Columbia Gas of Kentucky, Inc.; Columbia
Gas of Maryland, Inc.; Columbia Gas of Ohio, Inc.;
Columbia Gas of Pennsylvania, Inc.; Columbia Gas of
Virginia, Inc.;
provided, however, that in no event may the aggregate of all sales,
conveyances, transfers and other dispositions by the Borrower from the
Effective Date through the Final Maturity Date result in the sale,
conveyance, transfer or other disposition, without the written consent
of the Required Lenders, of (i) more than 25% of its equity investments
(measured as of the date hereof) in or (ii) more than 25% of the
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fair market value (measured as of the date hereof) of the assets
(excluding accounts receivable and current inventory held for sale) of
either one of the above groups; and provided further, that any sales,
conveyances, transfers and other dispositions shall not be counted for
purposes of this covenant to the extent that proceeds therefrom are
reinvested in any of the entities listed in Group I or Group II and
only to the extent that any debt incurred by such entity in connection
with such reinvestment would have been permitted if the assets
comprising such reinvestment were assets held as of the date of this
Agreement; and provided still further that, in any calendar year,
sales, conveyances, transfers or other dispositions of property in the
ordinary course of business with a value of up to $10,000,000
collectively for Groups I and II shall not be counted for purposes of
this covenant.
(d) Limitation on Subsidiary Debt. Permit its Significant
Subsidiaries (as defined in the Indenture) to incur any Funded Debt (as
defined in the Indenture) other than as permitted in the Indenture.
(e) Limitation on Material Subsidiary Funding. Enter into any
agreement or understanding, and shall not permit any Material
Subsidiary to (except with the Borrower) enter into any agreement or
understanding, which by its terms limits, in any material respect, a
Material Subsidiary's ability to make funds available to the Borrower
(whether by way of dividend or other distribution or by way of
repayment of intercompany indebtedness); provided, however, that the
foregoing shall not prohibit (i) agreements and understandings to which
a Subsidiary is a party on the date such Subsidiary first becomes a
Subsidiary, (ii) customary provisions in leases and other contracts
that prohibit the assignment thereof and (iii) agreements or
understandings in connection with Liens permitted hereunder that apply
only to the property subject to such Liens.
SECTION 5.03. Leverage Ratio. So long as any Advance shall
remain unpaid or any Lender shall have any Revolving Credit Commitment
hereunder, the Borrower will maintain a ratio of Total Debt to the sum of Total
Debt plus Tangible Net Worth of not greater than the amount set forth below for
each relevant period set forth below:
Relevant Period Ratio
--------------- -----
Effective Date - 12/30/98 0.675:1.00
12/31/98 - 12/30/00 0.650:1.00
12/31/00 and thereafter 0.625:1.00
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable; or the Borrower shall
fail to pay any interest on any Advance or make any other payment of
fees or other amounts payable under this Agreement, any Loan Document
or any Five-Year Loan Document within five Business Days after the same
becomes due and payable; or
(b) any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) in connection with or
pursuant to this Agreement shall prove to have been incorrect in any
material respect when made; or
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(c) (i) the Borrower shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(d) (as it applies
to the Borrower's existence) or (h), 5.01(i)(vi) through (ix), 5.02 or
5.03, or (ii) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(e) or (i) (other than
5.01(i)(vi) through (ix)) and such failure shall remain unremedied for
10 days after written notice thereof shall have been given to the
Borrower by the Agent or any Lender and (iii) the Borrower shall fail
to perform or observe any other term, covenant or agreement contained
in this Agreement on its part to be performed or observed and such
failure shall remain unremedied for 30 days after written notice
thereof shall have been given to the Borrower by the Agent or any
Lender; or
(d) (i) the Borrower or any of its Material Subsidiaries
(other than any Project Finance Subsidiaries) shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in
a principal amount of at least $30,000,000 in the aggregate (but
excluding Debt outstanding hereunder) of the Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or (ii) any other event shall occur
or condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, the maturity of such Debt; or
(iii) any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof; provided,
however, that the foregoing clauses (ii) and (iii) shall not apply to
any Debt that becomes due or is required to be repaid as a result of
the sale or other disposition of, or any casualty or condemnation with
respect to, any property securing such Debt, the voluntary termination
of any Capitalized Lease, or other circumstances that are not in the
nature of a default by or altered circumstances of the obligor in
respect of such Debt; or
(e) the Borrower or any of its Material Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any of its Material
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property under any such law
and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 60 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its
property) shall occur; or the Borrower or any of its Material
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) any final judgment or non-appealable order for the payment
of money in excess of $30,000,000 shall be rendered against the
Borrower or any of its Material Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
(g) any non-monetary judgment or order shall be rendered
against the Borrower or any of its Subsidiaries that could be
reasonably expected to have a Material Adverse Effect, and there shall
be
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any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(h) (i) any Person or two or more Persons acting in concert
(excluding any thrift plan or any other employee benefit plan of the
Borrower) shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of Voting
Stock of the Borrower (or other securities convertible into such Voting
Stock) representing 20% or more of the combined voting power of all
Voting Stock of the Borrower (determined on a fully diluted basis); or
(ii) during any period of up to 24 consecutive months, commencing after
the date of this Agreement, individuals who at the beginning of such
24-month period were directors of the Borrower shall cease for any
reason to constitute a majority of the board of directors of the
Borrower (it being understood that, for purposes of this clause,
individuals elected to become new directors of the Borrower during a
24-month period shall be deemed to have been directors of the Borrower
at the beginning of such period if the election or nomination of such
individuals as directors was approved by a majority of those
individuals who at the beginning of such 24-month period were directors
of the Borrower and any new directors so approved); or (iii) any Person
or two or more Persons acting in concert shall have acquired by
contract or otherwise (excluding employment contracts with officers of
the Borrower), or shall have entered into a contract or arrangement
(excluding employment contracts with officers of the Borrower) that,
upon consummation, will result in its or their acquisition of the power
to exercise, directly or indirectly, a controlling influence over the
management or policies of the Borrower; or
(i) the Borrower or any of its ERISA Affiliates shall incur,
or, in the reasonable opinion of the Required Lenders, shall be
reasonably likely to incur liability in excess of $30,000,000 in the
aggregate as a result of one or more of the following: (i) the
occurrence of any ERISA Event; (ii) the partial or complete withdrawal
of the Borrower or any of its ERISA Affiliates from a Multiemployer
Plan; or (iii) the reorganization or termination of a Multiemployer
Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower under the
Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers and discretion under this Agreement as are delegated to
the Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining
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from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to this Agreement or
applicable law. The Agent agrees to give to each Lender prompt notice of each
notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement; (iv) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the Borrower
or to inspect the property (including the books and records) of the Borrower;
(v) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its
Revolving Credit Commitment the Advances made by it and the Note issued to it,
Citibank shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries and any Person who may do business
with or own securities of the Borrower or any such Subsidiary, all as if
Citibank were not the Agent and without any duty to account therefor to the
Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agent or any other
Lender and based on the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Revolving Credit Notes then held by each
of them (or if no Revolving Credit Notes are at the time outstanding or if any
Revolving Credit Notes are held by Persons that are not Lenders, ratably
according to the respective amounts of their Revolving Credit Commitments), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, provided that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each
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Lender agrees to reimburse the Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any
time by giving ten days' written notice thereof to the Lenders and the Borrower
and may be removed at any time with or without cause by the Required Lenders.
Upon any such resignation or removal, the Required Lenders shall have the right
to appoint a successor Agent with the consent of the Borrower (which consent
shall not be unreasonably withheld). If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation or the
Required Lenders' removal of the retiring Agent, then the retiring Agent may, on
behalf of the Lenders with the consent of the Borrower (which consent shall not
be unreasonably withheld), appoint a successor Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$50,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article VII shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 7.07. Senior Managing Agents and Co-Documentation
Agents as Lenders. No Senior Managing Agent or Co-Documentation Agent shall have
any rights, responsibilities or obligations other than as a Lender hereunder.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. Other than as specified in
Section 2.01(b) or 5.02(b), no amendment or waiver of any provision of this
Agreement or the Notes, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) increase the Revolving Credit
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable to the Lenders hereunder, (d) postpone any date fixed for any
payment of principal of, or interest on, the Notes or any fees or other amounts
payable to the Lenders hereunder, (e) change the percentage of the Revolving
Credit Commitments or of the aggregate unpaid principal amount of the Notes, or
the number of Lenders, that shall be required for the Lenders or any of them to
take any action hereunder or (f) amend this Section 8.01; and provided further
that no amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Lenders required above to take such action, affect the
rights or duties of the Agent under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or delivered, if to the Borrower, at its address at 12355 Sunrise Valley Drive,
Suite 300, Reston, VA 20191, Attention: Treasurer; if to any Initial Lender, at
its Domestic Lending Office specified opposite its name
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on Schedule I hereto; if to any other Lender, at its Domestic Lending Office
specified in the Assignment and Acceptance pursuant to which it became a Lender;
and if to the Agent, at its address at 2 Penn's Way, Suite 200, New Castle,
Delaware 19720, Attention: Pia Saenganan with a copy to Citicorp Securities,
Inc. 1200 Smith Street, Suite 2000, Houston, Texas 77002, Attention: David
Gorte, or, as to the Borrower or the Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Agent. All such notices and
communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when deposited in the mails, telecopied, delivered to the telegraph
company or confirmed by telex answerback, respectively, except that notices and
communications to the Agent pursuant to Article II, III or VII shall not be
effective until received by the Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender or the Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses; Indemnification; Limitation
of Liability. (a) The Borrower agrees to pay on demand all costs and expenses of
the Agent and the Arranger in connection with the preparation, execution,
delivery, administration, modification and amendment of this Agreement, the
Notes and the other documents to be delivered hereunder, including, without
limitation, (i) all due diligence, syndication (including expenses related to
printing, distribution and bank meetings), transportation, computer and
duplication expenses and (ii) the reasonable fees and expenses of counsel for
the Agent and the Arranger with respect thereto and with respect to advising the
Agent and the Arranger as to their respective rights and responsibilities under
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses of the Agent, the Arranger and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the
Agent, the Arranger, each Managing and Co-Syndication Agent, each Lender and
each of their Affiliates and their officers, directors, employees, agents and
advisors (each, an "Indemnified Party") from and against any and all claims,
damages, losses, liabilities and reasonable expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of, or in connection with the preparation for
a defense of, any investigation, litigation or proceeding arising out of,
related to or in connection with the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances whether or not such investigation, litigation or proceeding is
brought by the Borrower, its directors, shareholders or creditors or an
Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claim, damage, loss, liability or expense
is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct.
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.06(d) or (e), 2.08 or
2.10, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, the Borrower shall, upon demand by such Lender (with a copy of
such demand to the Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any
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additional losses, costs or expenses that it may reasonably incur as a result of
such payment or Conversion, including, without limitation, any loss (excluding
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in Sections 2.10, 2.13 and 8.04 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Setoff. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes due and payable pursuant to the provisions of
Section 6.01, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the obligations of
the Borrower now or hereafter existing under this Agreement and the Note held by
such Lender, whether or not such Lender shall have made any demand under this
Agreement or such Note and although such obligations may be unmatured. Each
Lender agrees promptly to notify the Borrower after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of each Lender under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of setoff) that such Lender and its Affiliates may
have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective (other than Section 2.01, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Agent and when the Agent shall
have been notified by each Initial Lender that such Initial Lender has executed
it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent and each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments, Designations and Participations.
(a) Each Lender may, upon the written consent of the Borrower (which consent
shall not be unreasonably withheld) and, if demanded by the Borrower (following
a demand by such Lender pursuant to Section 2.10 or 2.13 or notice from such
Lender pursuant to Section 2.11) upon at least five Business Days' notice to
such Lender and the Agent, will, assign to one or more Persons all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Revolving Credit Commitment, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all
rights and obligations under this Agreement, (ii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Revolving Credit Commitment of the assigning Lender
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment) shall in no event
be less than the lesser of (A) 1% of the total Revolving Credit Commitment, (B)
$5,000,000 or (C) the full amount of such assigning Lender's Revolving Credit
Commitment, (iii) unless an assigning Lender assigns the full amount of its
Revolving Credit Commitment, such assigning Lender may not assign Revolving
Credit Commitments such that its remaining Revolving Credit Commitments are in
an amount less than the lesser of (A) 1% of the total Revolving Credit
Commitment or (B) $5,000,000; (iv) each such assignment shall be to an Eligible
Assignee, (v) each such assignment made as a result of a demand by the Borrower
pursuant to this Section 8.07(a) shall be arranged by the Borrower after
consultation with the Agent and shall be either an assignment of all of the
rights and obligations of the assigning Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or other such assignments that together cover all of the
rights and obligations of the assigning Lender under this
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Agreement, (vi) no Lender shall be obligated to make any such assignment as a
result of a demand by the Borrower pursuant to this Section 8.07(a) unless and
until such Lender shall have received one or more payments from either the
Borrower or one or more Eligible Assignees in an aggregate amount at least equal
to the aggregate outstanding principal amount of the Advances owing to such
Lender, together with accrued interest thereon to the date of payment of such
principal amount and all other amounts payable to such Lender under this
Agreement, and (vii) the parties to each such assignment shall provide the Agent
with written notice of such assignment and shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Revolving Credit Note subject to such assignment
and a processing and recordation fee of $3,000 (provided, that in the case of a
ratable assignment of a Lender's Revolving Credit Commitments and such Lender's
commitments under the Five-Year Loan Documents, such processing and recordation
fee shall only be payable once with respect to both assignments); provided
further that in the case of an assignment by any Lender to an Affiliate of such
Lender, or an assignment by any Lender to any other Lender, the Borrower must be
given written notice thereof, but the consent of the Borrower shall not be
required. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Revolving Credit Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit C hereto, subject to the
Borrower's consent thereto, (if required), (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within ten Business Days after
its receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent in exchange for the surrendered Revolving Credit Note a new
Note to the order of such Eligible Assignee in an amount equal to the Revolving
Credit Commitment assumed by it pursuant
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to such Assignment and Acceptance and, if the assigning Lender has retained a
Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order
of the assigning Lender in an amount equal to the Revolving Credit Commitment
retained by it hereunder. Such new Revolving Credit Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Revolving Credit Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A hereto.
(d) The Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Revolving Credit Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Each Lender may sell participations to one or more banks
or other entities (other than the Borrower or any of its Affiliates) in or to
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Revolving Credit Commitment, the
Advances owing to it and the Note or Notes held by it); provided, however, that
(i) such Lender's obligations under this Agreement (including, without
limitation, its Revolving Credit Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement, (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by the
Borrower therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee, designee or participant or proposed assignee,
designee or participant, any information relating to the Borrower furnished to
such Lender by or on behalf of the Borrower; provided that, prior to any such
disclosure, the assignee, designee or participant or proposed assignee, designee
or participant shall agree to preserve the confidentiality of any Confidential
Information relating to the Borrower received by it from such Lender on the
terms set forth in Section 8.08.
(g) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
SECTION 8.08. Confidentiality. Neither the Agent nor any
Lender shall disclose any Confidential Information to any other Person without
the consent of the Borrower, other than (a) to the Agent's or such Lender's
Affiliates and their officers, directors, employees, agents and advisors and, as
contemplated by Section 8.07(i), to actual or prospective assignees and
participants, provided that any Person to whom disclosure is made shall agree to
be bound by this Section, (b) as required by any law, rule or regulation or
judicial process, provided that, to the extent practicable, prior notice of such
disclosure shall be given to the Borrower, (c) to any rating agency when
required by it, provided that, prior to any such disclosure, such rating agency
shall undertake
39
<PAGE> 44
to preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender, and (d) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
Each Lender and each other Person required to preserve the confidentiality of
Confidential Information hereunder shall use such information only for purposes
of evaluating extensions of credit to the Borrower and its Subsidiaries.
SECTION 8.09. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court for any thereof, in any action or proceeding arising out of or
relating to this Agreement or the Notes, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York State court or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any New York State or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
SECTION 8.12. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
40
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COLUMBIA ENERGY GROUP
By
--------------------------------------
Title:
CITIBANK, N.A.,
as Administrative Agent
By /s/ Mark Stanfield Packard
--------------------------------------
Name: MARK STANFIELD PACKARD
Title: Vice President
Initial Lenders
Revolving Credit
Commitment
$50,000,000.00 CITIBANK, N.A.,
By /s/ Mark Stanfield Packard
--------------------------------------
Name: MARK STANFIELD PACKARD
Title: Vice President
Revolving Credit
Commitment
$50,000,000.00 PNC BANK, NATIONAL ASSOCIATION
By /s/ Thomas A. Majeski
--------------------------------------
Name: Thomas A. Majeski
Title: Vice President
<PAGE> 46
Initial Lenders (continued)
Revolving Credit
Commitment
$50,000,000.00 THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
--------------------------------------
Name: MARY JO WOODFORD
Title: VICE PRESIDENT
Revolving Credit
Commitment
$50,000,000.00 MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By /s/ Kathryn Sayko-Yanes
--------------------------------------
Name: KATHRYN SAYKO-YANES
Title: VICE PRESIDENT
Revolving Credit
Commitment
$33,333,333.33 BANK OF MONTREAL
By /s/ Elizabeth F. Trapp
--------------------------------------
Name: Elizabeth F. Trapp
Title: Director
Revolving Credit
Commitment
$33,333,333.33 CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Michael A.G. Corkum
--------------------------------------
Name: Michael A.G. Corkum
Title: AUTHORIZED SIGNATORY
<PAGE> 47
Initial Lenders (continued)
Revolving Credit
Commitment
$25,000,000.00 BANKERS TRUST COMPANY
By /s/ Mr. Marcus M. Tarkington
--------------------------------------
Name: Mr. Marcus M. Tarkington
Title: Principal
Revolving Credit
Commitment
$10,000,000.00 BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By /s/ J. A. Don
--------------------------------------
Name: J. A. DON
Title: VP & MGR
Revolving Credit
Commitment
$6,666,666.66 UNION BANK OF CALIFORNIA
By /s/ David A. Musicant
--------------------------------------
Name: David A. Musicant
Title: Vice President
Revolving Credit
Commitment
$16,666,666.67 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Madeleine N. Pember
--------------------------------------
Name: MADELEINE N. PEMBER
Title: Assistant Vice President
<PAGE> 48
Initial Lenders (continued)
Revolving Credit
Commitment
$16,666,666.67 THE FIRST NATIONAL BANK OF MARYLAND
By /s/ Shaun E. Murphy
--------------------------------------
Name: Shaun E. Murphy
Title: Senior Vice President
Revolving Credit
Commitment
$16,666,666.67 FIRST UNION NATIONAL BANK
By /s/ Michael J. Kolosowsky
--------------------------------------
Name: MICHAEL J. KOLOSOWSKY
Title: VICE PRESIDENT
Revolving Credit
Commitment
$16,666,666.67 NATIONAL CITY BANK
By /s/ Jeffrey L. Hawthorne
--------------------------------------
Name: JEFFREY L. HAWTHORNE
Title: VICE PRESIDENT
Revolving Credit
Commitment
$15,000,000.00 COMMERZBANK
By /s/ Dempsey L. Gable
--------------------------------------
Name: Dempsey L. Gable
Title: Senior Vice President
/s/ Andrew Kjoller
--------------------------------------
Andrew Kjoller
Assistant Treasurer
<PAGE> 49
Initial Lenders (continued)
Revolving Credit
Commitment
$10,000,000.00 ARAB BANK, PLC
By /s/ Michael Barker
--------------------------------------
Name: Michael Barker
Title:
Revolving Credit
Commitment
$10,000,000.00 THE BANK OF NOVA SCOTIA
By /s/ F. C. Ashby
--------------------------------------
Name: F. C. H. Ashby
Title: Senior Manager
Loan Operations
Revolving Credit
Commitment
$10,000,000.00 CRIDIT AGRICOLE INDOSUEZ
By /s/ Dean Balice
--------------------------------------
Name: DEAN BALICE
Title: SENIOR VICE PRESIDENT
BRANCH MANAGER
By /s/ David Eouhl
--------------------------------------
Name: DAVID EOUHL F.V.P.
Title: HEAD OF CORPORATE BANKING
CHICAGO
Revolving Credit
Commitment
$10,000,000.00 CRESTAR BANK
By /s/ Nancy R. Petrash
--------------------------------------
Name: Nancy R. Petrash
Title: Senior Vice President
<PAGE> 50
Initial Lenders (continued)
Revolving Credit
Commitment
$10,000,000.00 BANCA MONTE DEI PASCHI DI SIENA, S.p.A.
By /s/ S. M. Sondak
--------------------------------------
Name: S. M. Sondak
Title: F.V.P. & Dep. General Manager
By /s/ Brian R. Landy
--------------------------------------
Name: Brian R. Landy
Title: Vice President
Revolving Credit
Commitment
$10,000,000.00 SOCIETE GENERALE
By /s/ Gordon Eadon
--------------------------------------
Name: Gordon Eadon
Title: Vice President
<PAGE> 1
Exhibit 10-CE
U.S. $900,000,000
CREDIT AGREEMENT
Dated as of March 11, 1998
Among
COLUMBIA ENERGY GROUP,
as Borrower,
and
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders,
and
CITIBANK, N.A.,
as Administrative and Syndication Agent,
and
THE CHASE MANHATTAN BANK, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK AND PNC BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents,
and
BANK OF MONTREAL, CANADIAN IMPERIAL BANK OF COMMERCE,
THE CHASE MANHATTAN BANK, CITIBANK, N.A.,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND PNC BANK, NATIONAL ASSOCIATION,
as Co-Arrangers,
and
BANK OF MONTREAL, BANKERS TRUST COMPANY
AND CANADIAN IMPERIAL BANK OF COMMERCE,
as Senior Managing Agents,
and
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
COMMERZBANK, THE FIRST NATIONAL BANK OF CHICAGO,
THE FIRST NATIONAL BANK OF MARYLAND, FIRST UNION NATIONAL BANK,
NATIONAL CITY BANK AND UNION BANK OF CALIFORNIA,
as Co-Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms......................................................................... 1
SECTION 1.02. Computation of Time Periods................................................................... 14
SECTION 1.03. Accounting Terms.............................................................................. 14
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances.................................................................................. 14
SECTION 2.02. Making the Advances........................................................................... 16
SECTION 2.03. The Competitive Bid Advances.................................................................. 18
SECTION 2.04. Issuance of and Drawings and Reimbursement Under Letters of Credit............................ 21
SECTION 2.05. Optional Termination or Reduction of Revolving Credit Commitments............................. 22
SECTION 2.06. Repayment of Advances......................................................................... 22
SECTION 2.07. Interest on Advances.......................................................................... 23
SECTION 2.08. Interest Rate Determination................................................................... 24
SECTION 2.09. Fees.......................................................................................... 25
SECTION 2.10. Optional Conversion of Revolving Credit Advances.............................................. 26
SECTION 2.11. Prepayments of Advances....................................................................... 26
SECTION 2.12. Increased Costs............................................................................... 27
SECTION 2.13. Illegality.................................................................................... 28
SECTION 2.14. Payments and Computations..................................................................... 28
SECTION 2.15. Taxes......................................................................................... 29
SECTION 2.16. Sharing of Payments, Etc...................................................................... 31
SECTION 2.17. Use of Proceeds............................................................................... 31
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03............................... 31
SECTION 3.02. Conditions Precedent to Each Borrowing........................................................ 33
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing........................................ 33
SECTION 3.04. Determinations Under Section 3.01............................................................. 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower................................................ 34
ARTICLE V COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants......................................................................... 36
SECTION 5.02. Negative Covenants............................................................................ 39
SECTION 5.03. Leverage Ratio................................................................................ 41
ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. Events of Default............................................................................. 41
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default...................................... 43
ARTICLE VII THE AGENT
SECTION 7.01. Authorization and Action...................................................................... 43
SECTION 7.02. Agent's Reliance, Etc......................................................................... 44
SECTION 7.03. Citibank and Affiliates....................................................................... 44
SECTION 7.04. Lender Credit Decision........................................................................ 44
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 7.05. Indemnification............................................................................... 44
SECTION 7.06. Successor Agent............................................................................... 45
SECTION 7.07. Senior Managing Agents and Co-Documentation Agents as Lenders................................. 45
ARTICLE VIII MISCELLANEOUS
SECTION 8.01. Amendments, Etc............................................................................... 45
SECTION 8.02. Notices, Etc.................................................................................. 45
SECTION 8.03. No Waiver; Remedies........................................................................... 46
SECTION 8.04. Costs and Expenses; Indemnification; Limitation of Liability.................................. 46
SECTION 8.05. Right of Setoff............................................................................... 47
SECTION 8.06. Binding Effect................................................................................ 47
SECTION 8.07. Assignments, Designations and Participations.................................................. 47
SECTION 8.08. Confidentiality............................................................................... 50
SECTION 8.09. Governing Law................................................................................. 50
SECTION 8.10. Execution in Counterparts..................................................................... 51
SECTION 8.11. Jurisdiction, Etc............................................................................. 51
SECTION 8.12. Severability of Provisions.................................................................... 51
</TABLE>
ii
<PAGE> 4
SCHEDULES
Schedule I - List of Applicable Lending Offices
Schedule II - Non-Core Subsidiaries
Schedule 2.01(d) - Outstanding Letters of Credit
Schedule 3.01(b) - Disclosed Litigation
Schedule 4.01(c) - Required Authorizations and Approvals
Schedule 5.02(a) - Liens
EXHIBITS
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit A-3 - Form of Swing Line Promissory Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - Form of Notice of Competitive Bid Borrowing
Exhibit B-3 - Form of Letter of Credit Request
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Designation Agreement
Exhibit E - Form of Opinion of Counsel for the Borrower
iii
<PAGE> 5
COLUMBIA ENERGY GROUP
CREDIT AGREEMENT
Dated as of March 11, 1998
Columbia Energy Group, a Delaware corporation (formerly known
as The Columbia Gas System, Inc.) (the "Borrower"), the banks, financial
institutions and other institutional lenders (the "Initial Lenders") listed on
the signature pages hereof, and Citibank, N.A. ("Citibank"), as administrative
agent and syndication agent (the "Agent") for the Lenders (as hereinafter
defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"364-Day Credit Agreement" means the Credit Agreement dated as of
March 11, 1998 among the Borrower, the Agent and the lenders named
therein.
"364-Day Loan Documents" means the 364-Day Credit Agreement and the
364-Day Notes.
"364-Day Notes" means each of the promissory notes of the Borrower
executed pursuant to the 364-Day Credit Agreement.
"Adjusted CD Rate" means, for any Interest Period for each CD Rate
Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate of
interest determined by the Agent to be the average (rounded upward
to the nearest whole multiple of 1/100 of 1% per annum, if such
average is not such a multiple) of the consensus bid rate determined
by the Agent for the bid rates per annum, at 9:00 A.M. (New York
City time) (or as soon thereafter as practicable) on the first day
of such Interest Period, of two or more New York certificate of
deposit dealers of recognized standing selected by the Agent for the
purchase at face value of certificates of deposit of each Reference
Bank in an amount substantially equal to such Reference Bank's CD
Rate Advance comprising part of such Revolving Credit Borrowing and
with a maturity equal to such Interest Period, by (ii) a percentage
equal to 100% minus the Adjusted CD Rate Reserve Percentage for such
Interest Period, plus
(b) the Assessment Rate for such Interest Period.
"Adjusted CD Rate Reserve Percentage" for any Interest Period for
all CD Rate Advances comprising part of the same Revolving Credit
Borrowing means the reserve percentage applicable on the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for
Citibank with respect to liabilities consisting of or including (among
other liabilities) U.S. dollar nonpersonal time deposits in the United
States and with a maturity equal to such Interest Period.
"Advance" means a Revolving Credit Advance, a Swing Line Advance, a
Letter of Credit
<PAGE> 6
Advance or a Competitive Bid Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 20% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Agent's Account" means the account of the Agent maintained by the
Agent at Citibank with its office at 2 Penn's Way, Suite 200, New Castle,
Delaware 19720.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance or a
CD Rate Advance and such Lender's Eurodollar Lending Office in the case of
a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance,
the office of such Lender notified by such Lender to the Agent as its
Applicable Lending Office with respect to such Competitive Bid Advance.
"Applicable Margin" means, as of any date, a percentage per annum
determined by reference to the public debt rating in effect on such date
as set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable Margin
Public Debt Rating Applicable Margin for Applicable Margin for for CD Rate Applicable Margin
S&P/Moody's Base Rate Advances Eurodollar Rate Advances Advances for Facility Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level 1 0 .115% .24% .065%
AA-/AA3 or higher
- -----------------------------------------------------------------------------------------------------------------------------------
Level 2 0 .15% .275% .07%
A+/A/A1/A2
- -----------------------------------------------------------------------------------------------------------------------------------
Level 3 0 .17% .295% .09%
A-/A3
- -----------------------------------------------------------------------------------------------------------------------------------
Level 4 0 .19% .315% .11%
BBB+/Baa1
- -----------------------------------------------------------------------------------------------------------------------------------
Level 5 0 .235% .36% .13%
BBB/Baa2
- -----------------------------------------------------------------------------------------------------------------------------------
Level 6 0 .285% .41% .15%
BBB-/Baa3
- -----------------------------------------------------------------------------------------------------------------------------------
Level 7 0 .5% .625% .20%
BB+/BB/Ba1/Ba2
- -----------------------------------------------------------------------------------------------------------------------------------
Level 8 0 1.00% 1.125% .50%
BB-/Ba3 or lower
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this definition, "public debt rating" means, as of any
date, the rating that has been most recently announced by either S&P or
Moody's, as the case may be, for any class of non-credit enhanced
long-term senior unsecured debt issued by the Borrower. For purposes of
the foregoing, (a) if only one
2
<PAGE> 7
of S&P and Moody's shall have in effect a public debt rating, the
Applicable Margin shall be determined by reference to the available
rating; (b) if neither S&P nor Moody's shall have in effect a public debt
rating, the Applicable Margin will be set in accordance with Level 8 under
the definition of "Applicable Margin"; (c) if the ratings established by
S&P and Moody's shall fall within different levels, the Applicable Margin
shall be determined by reference to the higher rating; provided, however,
that (i) if the ratings are different by two or more levels, the
Applicable Margin shall be determined by reference to the rating that is
one rating lower than the higher rating and (ii) if one rating is
investment grade (BBB-/Baa3 or better) and the other rating is
non-investment grade, (BB+/Ba1 or lower), then the Applicable Margin shall
be determined by reference to the higher of (A) the Applicable Margin
yielded by the previous exception and (B) except with respect to Base Rate
Advances, an increase of 5 basis points per annum in each Applicable
Margin for Level 6; (d) if any rating established by S&P or Moody's shall
be changed, such change shall be effective as of the date on which such
change is first announced publicly by the rating agency making such
change; and (e) if S&P or Moody's shall change the basis on which ratings
are established, each reference to the public debt rating announced by S&P
or Moody's, as the case may be, shall refer to the then equivalent rating
by S&P or Moody's, as the case may be.
"Appropriate Lender" means, at any time, with respect to (a) the
Revolving Credit Facility, a Lender that has a Revolving Credit Commitment
with respect to such Facility at such time, (b) the Letter of Credit
Facility, (i) any Issuing Lender and (ii) if the other Lenders have made
Letter of Credit Advances pursuant to Section 2.04(b) that are outstanding
at such time, each such other Lender and (c) the Swing Line Facility, a
Swing Line Bank that has a Swing Line.
"Arranger" means Citicorp Securities, Inc., as arranger of the
syndicate of Initial Lenders hereunder.
"Assessment Rate" for any Interest Period for all CD Rate Advances
comprising part of the same Revolving Credit Borrowing means the annual
assessment rate estimated by the Agent on the first day of such Interest
Period for determining the then current annual assessment payable by
Citibank to the Federal Deposit Insurance Corporation (or any successor)
for insuring U.S. dollar deposits of Citibank in the United States.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Agent, in substantially the form of Exhibit C hereto.
"Available Amount" of any Letter of Credit means, at any time, the
maximum amount or the U.S. Dollar Equivalent of the maximum amount
available to be drawn under such Letter of Credit at such time (assuming
compliance at such time with all conditions to drawing).
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, 11 U.S.C.
Sections 101 et seq., as amended from time to time.
"Base Rate" means a fluctuating interest rate per annum in effect
from time to time, which rate per annum shall at all times be equal to the
higher of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate; and
(b) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that bears
interest as provided in Section 2.07(a)(i).
3
<PAGE> 8
"Borrowing" means a Revolving Credit Borrowing, a Swing Line
Borrowing or a Competitive Bid Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.
"Canadian Dollar" means lawful money of Canada.
"Canadian Dollar Letter of Credit" means a Letter of Credit issued
hereunder in Canadian Dollars.
"Canadian Dollar Letter of Credit Advance" means a Letter of Credit
Advance hereunder made in Canadian Dollars.
"Capitalized Leases" has the meaning specified in clause (e) of the
definition of "Debt".
"Capitalization" means, with respect to any Subsidiary, the total
amount of liabilities of such Subsidiary plus the total amount of equity
of such Subsidiary all as determined in accordance with GAAP.
"Cash Collateral Account" means an interest bearing cash collateral
account to be established and maintained by the Agent, over which the
Agent shall have sole dominion and control, upon such terms as may be
satisfactory to the Agent.
"CD Rate Advance" means a Revolving Credit Advance that bears
interest as provided in Section 2.07(a)(iii).
"CGTC" means Columbia Gas Transmission Corporation, a wholly-owned
subsidiary of the Borrower as of the date hereof.
"Citibank" means Citibank, N.A.
"Co-Documentation Agents" means The Chase Manhattan Bank, Morgan
Guaranty Trust Company of New York and PNC Bank, National Association.
"Competitive Bid Advance" means an advance by a Lender to the
Borrower as part of a Competitive Bid Borrowing resulting from the
competitive bidding procedure described in Section 2.03 and refers to a
Fixed Rate Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
simultaneous Competitive Bid Advances from each of the Lenders whose offer
to make one or more Competitive Bid Advances as part of such borrowing has
been accepted under the competitive bidding procedure described in Section
2.03.
"Competitive Bid Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of Exhibit
A-2 hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from a Competitive Bid Advance made by such Lender.
"Competitive Bid Reduction" has the meaning specified in Section
2.01.
"Confidential Information" means information that the Borrower
furnishes to the Agent or any Lender in a writing designated as
confidential, but does not include any such information that is or becomes
generally available to the public or that is or becomes available to the
Agent or such Lender
4
<PAGE> 9
from a source other than the Borrower or any of its Affiliates.
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Convert", "Conversion" and "Converted" each refers to a conversion
of Revolving Credit Advances of one Type into Revolving Credit Advances of
another Type pursuant to Section 2.08 or 2.10.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services,
excluding (x) such obligations arising in the ordinary course of business
and maturing six months or less from the date of creation thereof; and (y)
such obligations arising in the ordinary course of business and maturing
in more than six months if in the aggregate on a consolidated basis for
the Borrower and its Subsidiaries such obligations are less than
$30,000,000, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all obligations of such
Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person as lessee under leases
that have been or should be, in accordance with GAAP, recorded as capital
leases ("Capitalized Leases") (provided that the value of any Capitalized
Lease shall be equal to the value of such Capitalized Lease that is or
should be capitalized in accordance with GAAP), (f) an amount equal to the
present value (discounted at the then applicable five-year treasury bond
rate) of operating lease obligations of such Person in excess of
$30,000,000 in any calendar year, disregarding for this purpose leases
other than those with an initial or remaining noncancellable lease term in
excess of one year, (g) to the extent required to be reflected on the
balance sheet of such Person prepared in accordance with GAAP or in the
footnotes thereto, all Debt of others directly and indirectly guaranteed
by such Person, but only to the extent of such direct or indirect
guarantee, and only to the extent that in the aggregate on a consolidated
basis for the Borrower and its Subsidiaries such obligations exceed
$30,000,000 and (h) to the extent required to be reflected on the balance
sheet of such Person prepared in accordance with GAAP or in the footnotes
thereto, all Debt referred to in clauses (a) through (g) above secured by
any Lien on property owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt, but only to the
extent of the book value of the property subject to such Lien.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Designated Bidder" means (a) an Eligible Assignee or (b) a special
purpose corporation that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and
that issues (or the parent of which issues) commercial paper rated at
least "Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or the
then equivalent grade) by S&P and that, in the case of either clause (a)
or (b), (i) is organized under the laws of the United States or any State
thereof, (ii) shall have become a party hereto pursuant to Sections
8.07(d), (e) and (f) and (iii) is not otherwise a Lender.
"Designation Agreement" means a designation agreement entered into
by a Lender (other than a Designated Bidder) and a Designated Bidder, and
accepted by the Agent, in substantially the form of Exhibit D hereto.
"Disclosed Litigation" has the meaning specified in Section 3.01(b).
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender
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<PAGE> 10
specified as its "Domestic Lending Office" opposite its name on Schedule I
hereto or in the Assignment and Acceptance pursuant to which it became a
Lender, or such other office of such Lender as such Lender may from time
to time specify to the Borrower and the Agent.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$1,000,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and
having total assets in excess of $1,000,000,000; (v) a commercial bank
organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development or has concluded
special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000 so long as such bank is acting through a branch or agency
located in the country in which it is organized or another country that is
described in this clause (v); (vi) the central bank of any country that is
a member of the Organization for Economic Cooperation and Development;
(vii) a finance company, insurance company or other financial institution
or fund (whether a corporation, partnership, trust or other entity) that
is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business and having total assets in
excess of $1,000,000,000 and (viii) any other Person approved by the Agent
and the Borrower, such approval not to be unreasonably withheld or
delayed; provided, however, that neither the Borrower nor an Affiliate of
the Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any material action, suit, demand,
demand letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, proceeding, consent order or consent
agreement arising pursuant to, or in connection with, an alleged violation
of any Environmental Law, Environmental Permit or Hazardous Materials or
arising from alleged injury or threat of injury to health or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial
or other actions or damages and (b) by any governmental or regulatory
authority or any third party for damages, contribution, indemnification,
cost recovery, compensation or injunctive relief.
"Environmental Law" means any applicable federal, state or local
statute, law, ordinance, rule, regulation, code, order, judgment or decree
relating to pollution or protection of the environment, health or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, license or other
authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the Borrower's controlled group, or under common
control with the Borrower, within the meaning of Section 414(b) or (c) of
the Internal Revenue Code or, solely for purposes of Section 302 of ERISA
and Section 412 of the Internal Revenue Code, the entirety of Section 414
of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any ERISA
Plan unless the 30-day notice requirement with respect to such event has
been waived by the PBGC, or (ii) the requirements of subsection (1) of
Section
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<PAGE> 11
4043(b) of ERISA (without regard to subsection (2) of such Section) are
met with a contributing sponsor, as defined in Section 4001(a)(13) of
ERISA, of an ERISA Plan, and an event described in paragraph (9), (10),
(11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to
occur with respect to such ERISA Plan within the following 30 days; (b)
the application for a minimum funding waiver with respect to an ERISA
Plan; (c) the provision by the administrator of any ERISA Plan of a notice
of intent pursuant to Section 4041(a)(2) of ERISA (including any such
notice with respect to a plan amendment referred to in Section 4041(e) of
ERISA) to terminate such ERISA Plan pursuant to Section 4041(c) of ERISA;
(d) the cessation of operations at a facility of the Borrower or any ERISA
Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by the Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the
imposition of a lien under Section 302(f) of ERISA shall have been met
with respect to any ERISA Plan; (g) the adoption of an amendment to an
ERISA Plan requiring the provision of security to such ERISA Plan pursuant
to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings
to terminate an ERISA Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042(a) of ERISA
that constitutes grounds for the termination of, or the appointment of a
trustee to administer, an ERISA Plan; provided, however, that the
occurrence of an event or condition described in Section 4042(a)(4) of
ERISA shall be an ERISA Event only if (i) the Borrower or any ERISA
Affiliate knows or has reason to know thereof or (ii) the PBGC has
notified the Borrower or any ERISA Affiliate that it is considering
termination of an ERISA Plan on such basis.
"ERISA Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and Acceptance
pursuant to which it became a Lender (or, if no such office is specified,
its Domestic Lending Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar
Rate Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/100 of 1% per annum, if such average is not
such a multiple) of the rate per annum at which deposits in U.S. dollars
are offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to such Reference Bank's
Eurodollar Rate Advance comprising part of such Revolving Credit Borrowing
to be outstanding during such Interest Period and for a period equal to
such Interest Period. The Eurodollar Rate for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Revolving Credit
Borrowing shall be determined by the Agent on the basis of applicable
rates furnished to and received by the Agent from the Reference Banks two
Business Days before the first day of such Interest Period, subject,
however, to the provisions of Section 2.08.
"Eurodollar Rate Advance" means a Revolving Credit Advance that
bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Lender for any Interest
Period for all Eurodollar Rate Advances or LIBO Rate Advances comprising
part of the same Borrowing means the reserve percentage applicable during
such Interest Period (or if more than one such percentage shall be so
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<PAGE> 12
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Lender with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurodollar
Rate Advances or LIBO Rate Advances is determined) having a term equal to
such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Agreement" means the $1,000,000,000 credit agreement dated
as of November 28, 1995 among the Borrower, the Agent and the lender
parties thereto.
"Facility" means the Revolving Credit Facility, the Swing Line
Facility or the Letter of Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three Federal funds brokers of recognized standing selected
by it.
"Financial Obligation Letter of Credit" means a standby Letter of
Credit other than a Performance Letter of Credit.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum products or
byproducts, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous
or toxic under any Environmental Law.
"Indenture" means the indenture dated as November 28, 1995 between
the Borrower and Marine Midland Bank, N.A., Trustee, as amended and
supplemented to the date hereof.
"Information Memorandum" means the information memorandum dated
January 1998 used by the Arranger in connection with the syndication of
the Revolving Credit Commitments.
"Initial Swing Line Bank" means either Citibank or PNC Bank.
"Interest Period" means, for each Eurodollar Rate Advance or CD Rate
Advance comprising part of the same Revolving Credit Borrowing and each
LIBO Rate Advance comprising part of the same Competitive Bid Borrowing,
the period commencing on the date of such Eurodollar Rate Advance, CD Rate
Advance or LIBO Rate Advance or the date of the Conversion of any Base
Rate Advance into such Eurodollar Rate Advance or CD Rate Advance and
ending on the last day of the period selected by the Borrower pursuant to
the provisions below and, thereafter, with respect to Eurodollar Rate
Advances and
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CD Rate Advances, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be (a) in the case of a
Eurodollar Rate Advance, one, two, three, six, or (with the consent of all
Lenders) twelve months, as the Borrower may, upon notice received by the
Agent not later than 11:00 A.M. (New York City time) on the third Business
Day prior to the first day of such Interest Period, select, (b) in the
case of a CD Rate Advance, 30, 60, 90 or 180 days as the Borrower may,
upon notice received by the Agent not later than 11:00 A.M. (New York City
time) on the second Business Day prior to the first day of such Interest
Period, select and (c) in the case of a LIBO Rate Advance, as specified in
the applicable Notice of Competitive Bid Borrowing; provided, however,
that:
(i) the Borrower may not select any Interest Period that ends
after the Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances or CD Rate Advances comprising part of the
same Revolving Credit Borrowing or for LIBO Rate Advances comprising
part of the same Competitive Bid Borrowing shall be of the same
duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, however, that, if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Issuing Lender" means Citibank, Canadian Imperial Bank of Commerce,
Morgan Guaranty Trust Company of New York and any other U.S. or Canadian
Lender mutually acceptable to the Borrower and the Agent, each as issuer
of a Letter of Credit.
"L/C Cash Collateral Account" means the interest-bearing cash
collateral account to be established and maintained by the Agent, over
which the Agent shall have sole dominion and control, upon such terms as
may be satisfactory to the Agent.
"Lenders" means the Initial Lenders, the Issuing Lenders, the Swing
Line Bank and each Person that shall become a party hereto pursuant to
Section 8.07(a), (b) and (c) and, except when used in reference to a
Revolving Credit Advance, a Revolving Credit Borrowing, a Revolving Credit
Note, a Revolving Credit Commitment or a related term, each Designated
Bidder.
"Letter of Credit" has the meaning specified in Section 2.01(c).
"Letter of Credit Advance" means an advance made by any Issuing
Lender pursuant to Section 2.04(b).
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<PAGE> 14
"Letter of Credit Facility" means $300,000,000, as such amount may
be reduced pursuant to Section 2.05.
"Letter of Credit Request" has the meaning specified in Section
2.04(a).
"LIBO Rate" means, for any Interest Period for all LIBO Rate
Advances comprising part of the same Competitive Bid Borrowing, an
interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/100 of 1% per annum, if such average is not
such a multiple) of the rate per annum at which deposits in U.S. dollars
are offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to the amount that would be the
Reference Banks' respective ratable shares of such Borrowing if such
Borrowing were to be a Revolving Credit Borrowing to be outstanding during
such Interest Period and for a period equal to such Interest Period. The
LIBO Rate for any Interest Period for each LIBO Rate Advance comprising
part of the same Competitive Bid Borrowing shall be determined by the
Agent on the basis of applicable rates furnished to and received by the
Agent from the Reference Banks two Business Days before the first day of
such Interest Period, subject, however, to the provisions of Section 2.08.
"LIBO Rate Advances" has the meaning specified in Section
2.03(a)(i).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, including, without limitation, any easement,
right of way or other encumbrance of record on title to real property.
"Loan Documents" means this Agreement, each Note executed hereunder
and each Letter of Credit.
"Material Adverse Change" means any material adverse change in the
condition (financial or otherwise) or operations of the Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
condition (financial or otherwise) or operations of the Borrower and its
Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or
any Lender under any Loan Document or (c) the ability of the Borrower to
perform its obligations under any Loan Document or any 364-Day Loan
Document.
"Material Subsidiaries" means all of the Borrower's Subsidiaries
excluding (i) each Subsidiary listed on Schedule II hereto and (ii) any
other Subsidiary hereafter formed or acquired unless or until the
Borrower's direct or indirect investment therein exceeds $10,000,000 or
the assets of such Subsidiary exceeds $25,000,000.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate
is making or accruing an obligation to make contributions, or has within
any of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower or any ERISA Affiliate and at least one Person other than the
Borrower and the ERISA Affiliates or (b) was so maintained and in respect
of which the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in
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<PAGE> 15
the event such plan has been or were to be terminated.
"Non-Recourse Debt" means (a) Debt of a Project Finance Subsidiary
and (b) Debt of any other Person other than the Borrower or a Material
Subsidiary secured by a Lien in or upon one or more assets of such Person
where the rights and remedies of the holder of such Debt in respect of
such Debt do not extend to any other assets of such Person other than in
respect of claims for (a) misapplied moneys, including insurance and
condemnation proceeds and security deposits, (b) indemnification by such
person in favor of holders of such Debt and their Affiliates in respect of
liabilities to third parties, including environmental liabilities, (c)
breaches of customary representations and warranties given to the holder
of such Debt and (d) such other similar obligations as are customarily
excluded from the provisions that otherwise limit the recourse of
commercial lenders making so-called "non-recourse" loans to institutional
borrowers and trustees and agents for such lender.
"Note" means a Revolving Credit Note, a Competitive Bid Note or a
Swing Line Note.
"Notice of Borrowing" means a Notice of Revolving Credit Borrowing,
a Notice of Swing Line Borrowing or a Notice of Competitive Bid Borrowing.
"Notice of Competitive Bid Borrowing" has the meaning specified in
Section 2.03(a).
"Notice of Revolving Credit Borrowing" has the meaning specified in
Section 2.02(a).
"Notice of Swing Line Borrowing" has the meaning specified in
Section 2.02(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Performance Letter of Credit" means a nontransferable standby
Letter of Credit to support certain performance obligations, other than
any payment obligation, of the Borrower or the Borrower's Subsidiaries.
"Permitted Liens" means (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid under
Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business; (c) pledges or deposits
to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; (d) easements,
rights of way and other encumbrances on title to real property that do not
themselves render such title unmarketable or materially adversely affect
the use of such property for its present purposes; and (e) pledges or
deposits to secure the performance of bids, contracts, leases, surety or
appeal bonds or other obligations of a like nature.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"PNC Bank" means PNC Bank, National Association.
"Project Finance Subsidiary" means a Subsidiary of the Borrower
created and maintained for the sole purpose of developing, constructing,
financing, holding or operating, directly or indirectly, a property or
project or a group of related properties or projects, either alone or with
one or more other Persons, and that (a) does not engage in any business
unrelated to such Subsidiary, project or property or the financing
thereof, and (b) does not have any assets or Debt other than those related
to its interest in
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<PAGE> 16
such subsidiary, project or property or the financing thereof.
"Pro Rata Share" of any amount means, with respect to any Lender or
any Swing Line Bank, as the case may be, at any time, the product of such
amount times, in the case of a Lender, a fraction the numerator of which
is the amount of such Lender's Revolving Credit Commitment at such time
and the denominator of which is the aggregate amount of the Revolving
Credit Commitments of all Lenders at such time, in the case of a Swing
Line Bank, a fraction the numerator of which is the amount of such Swing
Line Bank's Swing Line Commitment at such time and the denominator of
which is the aggregate amount of the Swing Line Commitments of all Swing
Line Banks at such time.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended from time to time.
"Reference Banks" means Citibank and Canadian Imperial Bank of
Commerce.
"Register" has the meaning specified in Section 8.07(g).
"Required Lenders" means at any time Lenders owed at least 51% of
the then aggregate unpaid principal amount of the Revolving Credit
Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least 51% of the Revolving Credit
Commitments.
"Revolving Credit Advance" means an advance by a Lender to the
Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate
Advance, a CD Rate Advance or a Eurodollar Rate Advance (each of which
shall be a "Type" of Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Commitment" has the meaning specified in Section
2.01(a).
"Revolving Credit Facility" means, at any time, the aggregate amount
of the Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of Exhibit
A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the Revolving Credit Advances made by such Lender.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower or any ERISA Affiliate and no Person other than the Borrower and
the ERISA Affiliates or (b) was so maintained and in respect of which the
Borrower or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate which is consolidated
under GAAP with the accounts of such Person and of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the
capital or profits of such limited liability
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<PAGE> 17
company, partnership or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Swing Line Advance" means an advance made by a Swing Line Bank
pursuant to Section 2.01(b).
"Swing Line Banks" means Citibank, PNC Bank and such other Lenders
mutually acceptable to the Borrower and the Agent.
"Swing Line Borrowing" means a Borrowing consisting of a Swing Line
Advance made by a Swing Line Bank.
"Swing Line Commitment" has the meaning specified in Section
2.01(b).
"Swing Line Cost of Funds Advance" means a Swing Line Advance which
shall bear interest, during such periods as such Swing Line Advance is a
Swing Line Cost of Funds Advance, at a rate per annum equal, at all times
during each Interest Period for such Swing Line Advance, to the sum of (i)
the weighted average cost per annum of funds as reasonably determined by
each Swing Line Bank making such Advance plus (ii) the greater of (a)
1.00% per annum or (b) two times the sum of (x) the Applicable Margin then
in effect for Eurodollar Rate Advances plus (y) the applicable Margin then
in effect for the Facility Fee.
"Swing Line Facility" has the meaning specified in Section 2.01(b).
"Swing Line Note" means a promissory note of the Borrower payable to
the order of a Swing Line Bank, in substantially the form of Exhibit A-3
hereto, evidencing the Swing Line Advances made by such Swing Line Bank.
"Tangible Net Worth" means, at any time, the excess of total assets
over total liabilities (including, without limitation, the aggregate
liquidation value of all stock of such Person that is mandatorily
redeemable other than for the common stock of such Person or that may be
put by the holder to such Person for consideration other than the common
stock of such Person, in either case on or before December 31, 2004) of
the Borrower and its Subsidiaries at such time, on a Consolidated basis,
total assets and total liabilities each to be determined in accordance
with GAAP, excluding, however, from the determination of total assets (i)
goodwill, organizational expenses, research and development expenses,
trademark, trade names, copyrights, patents, patent applications, licenses
and rights if any thereof, and other similar intangibles, (ii) all prepaid
expenses and deferred charges (other than those of the type incurred by
the Borrower and its Subsidiaries in the ordinary course of business on or
immediately prior to the date hereof) or unamortized debt discount and
expense, (iii) all reserves carried and not deducted from assets, (iv)
treasury stock, (v) securities (other than investments which are accounted
for pursuant to GAAP as investments or property, plant and equipment)
which are not readily marketable, (vi) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or indebtedness, except to the extent such
capital stock or indebtedness is included in total liabilities pursuant to
GAAP, (vii) any write-up in the book value of any asset resulting from a
revaluation thereof subsequent to September 30, 1997, other than write-ups
of assets of a going concern business made within 12 months after the
acquisition of such business pursuant to GAAP, and (viii) any items not
included in clauses (i) through (vii) above which are treated as
intangibles in conformity with GAAP; provided, however, that
notwithstanding the foregoing exclusions, regulatory assets recorded on
the Consolidated balance sheet of the Borrower and its Subsidiaries shall
not be excluded for purposes of determining Tangible Net Worth.
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"Termination Date" means the earlier of (i) the fifth anniversary of
the Effective Date and (ii) the date of termination in whole of the
Revolving Credit Commitments pursuant to Section 2.05 or 6.01.
"Total Debt" means, at any time, all Debt (including, without
limitation, the aggregate outstanding principal amount of all Advances
hereunder) of the Borrower and its Subsidiaries, on a Consolidated basis
at such time, provided that for purposes of the calculation of Total Debt,
any Non-Recourse Debt shall be included only in an amount equal to the
lesser of (i) the principal amount of such Non-Recourse Debt and (ii) the
equity of the Borrower and its Subsidiaries in the asset or Project
Finance Subsidiary, as the case may be, relating to such Non-Recourse
Debt.
"Type" has the meaning specified in the definition of "Revolving
Credit Advance".
"UCP" has the meaning specified in Section 8.09.
"Unused Revolving Credit Commitment" means at any time, (a) the
aggregate Revolving Credit Commitment at such time (after giving effect to
the Competitive Bid Reduction, if any, at such time) minus (b) the sum,
without duplication, of (i) the aggregate principal amount of all
Revolving Credit Advances made by all Lenders and outstanding at such
time, plus (ii) the aggregate principal amount of all Swing Line Advances
outstanding at such time, plus (iii) (A) the aggregate Available Amount of
all Letters of Credit outstanding at such time and (B) the aggregate
principal amount of all Letter of Credit Advances made all Issuing Lenders
pursuant to Section 2.03(c) and outstanding at such time.
"U.S. Dollar" and the sign "$" each means lawful money of the United
States.
"U.S. Dollar Equivalent" means, with respect to any Canadian Dollar
Letter of Credit Advance or the Available Amount of any Canadian Dollar
Letter of Credit, on any date of determination, the equivalent in U.S.
Dollars of an amount in Canadian Dollars, determined at the rate of
exchange quoted by Reuters BOFC page, at 12:00 p.m. (New York City time)
on such date of determination, to prime banks in New York City for the
spot purchase in the New York foreign exchange market of such amount of
Canadian Dollars with U.S. Dollars.
"Voting Stock" means outstanding capital stock issued by a
corporation, or equivalent interests in any other Person, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote
for the election of directors (or persons performing similar functions) of
such Person, even if the right so to vote has been suspended by the
happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any corporation,
partnership, joint venture, limited liability company, trust or estate
which is consolidated with the accounts of such Person and of which (or in
which) 100% (other than directors' qualifying shares or interests) of (a)
the issued and outstanding capital stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits
of such limited liability company, partnership or joint venture or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or
more of its other Wholly Owned Subsidiaries or by one or more of such
Person's other Wholly Owned Subsidiaries.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of
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periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding".
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles, as in effect on the date hereof, consistent with those
applied in the preparation of the financial statements referred to in Section
4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Revolving Credit Advances. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
Revolving Credit Advances to the Borrower from time to time on any Business Day
during the period from the Effective Date until the Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set forth
opposite such Lender's name on the signature pages hereof under the caption
"Revolving Credit Commitment" or, if such Lender has entered into any Assignment
and Acceptance, set forth for such Lender in the Register maintained by the
Agent pursuant to Section 8.07(g), as such amount may and shall be reduced
pursuant to Section 2.05 (such Lender's "Revolving Credit Commitment"), provided
that the aggregate amount of the Revolving Credit Commitments of the Lenders
shall be deemed used from time to time to the extent of the aggregate amount of
the Competitive Bid Advances then outstanding and such deemed use of the
aggregate amount of the Revolving Credit Commitments shall be allocated among
the Lenders ratably according to their respective Revolving Credit Commitments
(such deemed use of the aggregate amount of the Revolving Credit Commitments
being a "Competitive Bid Reduction") and; provided further that no Revolving
Credit Borrowing shall be made if, following the making of such Revolving Credit
Borrowing the aggregate amount of the Advances then outstanding plus the
Available Amount of all Letters of Credit then outstanding would exceed the
aggregate amount of the Revolving Credit Commitments of the Lenders. Each
Revolving Credit Borrowing (other than a Borrowing the proceeds of which shall
be used solely to repay or prepay in full outstanding Swing Line Advances made
by any Swing Line Bank or outstanding Letter of Credit Advances made by any
Issuing Lender) shall be in an aggregate amount of $10,000,000 or an integral
multiple of $1,000,000 in excess thereof (or, if less, an aggregate amount equal
to the amount by which the aggregate amount of a proposed Competitive Bid
Borrowing requested by the Borrower exceeds the aggregate amount of Competitive
Bid Advances offered to be made by the Lenders and accepted by the Borrower in
respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is
made on the same date as such Revolving Credit Borrowing) and shall consist of
Revolving Credit Advances of the same Type made on the same day by the Lenders
ratably according to their respective Revolving Credit Commitments. Within the
limits provided herein, the Borrower may borrow under this Section 2.01(a),
prepay pursuant to Section 2.11 and reborrow under this Section 2.01(a).
(b) The Swing Line Advances. Each Swing Line Bank severally agrees, on the
terms and conditions hereinafter set forth, to make Swing Line Advances to the
Borrower from time to time on any Business Day from the Effective Date until the
Termination Date in an aggregate amount which shall not exceed at any time
outstanding the amount set opposite such Swing Line Bank's name on the signature
pages hereof under the caption "Swing Line Commitments" (such amount being such
Swing Line Bank's "Swing Line Commitment"); provided, however, that the
aggregate amount of all Swing Line Advances outstanding at any time shall not
exceed $127,500,000 (the "Swing Line Facility") and, provided further that no
Swing Line Borrowing shall be made if, following the making of such Swing Line
Borrowing, either (i) the Unused Revolving Credit Commitments of the Lenders
shall be less than the aggregate unpaid principal amount of the Swing Line
Advances or (ii) the aggregate amount of the Advances then outstanding would
exceed the aggregate amount of the Revolving Credit Commitments of the Lenders.
No Swing Line Advance shall be used for the purpose of funding
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the payment of principal of any other Swing Line Advance. Each Swing Line
Borrowing shall be in an amount of $100,000 or an integral multiple of $10,000
in excess thereof and shall be made, at the determination of the Borrower,
either (i) as a Base Rate Advance, (ii) as a Swing Line Cost of Funds Advance or
(iii) as an Advance bearing interest as the Borrower and the Applicable Swing
Line Bank shall otherwise agree. The terms and conditions of the Swing Line
Commitment of any Swing Line Bank and the Swing Line Advances made by any such
Swing Line Bank (other than terms and conditions relating to the amount of the
Swing Line Commitment, interest rate, tenor or term of any such Swing Line
Advance) may be modified from the terms and conditions provided herein upon
mutual agreement of the Borrower and such Swing Line Bank. Within the limits of
the Swing Line Facility and within the limits referred to in this Section, the
Borrower may borrow under this Section 2.01(b), repay pursuant to Section 2.06
or prepay pursuant to Section 2.11 and reborrow under this Section 2.01(b).
(c) Letters of Credit. Each Issuing Lender severally agrees, on the terms
and conditions hereinafter set forth, to issue letters of credit (each a "Letter
of Credit") for the account of the Borrower from time to time on any Business
Day during the period from the Effective Date until 60 days before the
Termination Date; provided that the aggregate Available Amount of all Letters of
Credit shall not exceed at any time outstanding the lesser of (i) $300,000,000
and (ii) the aggregate amount of the Revolving Credit Commitments at such time;
provided, further, that no letter of credit shall be issued if issuance thereof
would cause the sum of the aggregate outstanding principal amount of all
Advances plus the aggregate Available Amount of all Letters of Credit to exceed
the Revolving Credit Commitments at such time; provided further that no Issuing
Lender shall be required to issue Letters of Credit the undrawn and unexpired
aggregate amount of which shall at any time exceed $100,000,000 without such
Lender's written consent; and provided further that each Letter of Credit issued
hereunder shall be either a standby Financial Obligation Letter of Credit or a
standby Performance Letter of Credit. Classification of a Letter of Credit as a
Financial Obligation Letter of Credit or a Performance Letter of Credit shall be
determined by the Agent in its reasonable discretion; the Agent shall promptly
notify the Lenders of such classification after each issuance. No Letter of
Credit shall have an expiration date later than one year from the date of
issuance and under no circumstances shall any Letter of Credit have an
expiration date later than the Termination Date. Each Issuing Lender severally
agrees, on the terms and conditions hereinafter set forth, to issue Letters of
Credit in either U.S. Dollars or Canadian Dollars at the option of the Borrower.
The U.S. Dollar Equivalent of each Canadian Dollar Letter of Credit Advance and
of the Available Amount of each Canadian Dollar Letter of Credit shall be
recalculated hereunder on each date on which it shall be necessary to determine
the Unused Revolving Credit Commitment, or any or all Letter of Credit Advances
outstanding on such date. Within the limits of the Letter of Credit Facility,
and subject to the limits referred to above, the Borrower may request the
issuance of Letters of Credit under this Section 2.01(c), repay any Letter of
Credit Advances resulting from drawings thereunder pursuant to Section 2.04(b)
and request the issuance of additional Letters of Credit under this Section
2.01(c).
(d) Outstanding Letters of Credit. The letters of credit under the
Existing Facility set forth on Schedule 2.01(d) hereto opposite such Issuing
Lender's name (each, an "Outstanding Letter of Credit") which are outstanding
and undrawn on the Effective Date shall be deemed to be Letters of Credit of
such Issuing Lenders for the purposes of this Agreement. The Agent shall on the
Effective Date determine the classification of each Outstanding Letter of Credit
in accordance with Section 2.01(c) of this Agreement.
SECTION 2.02. Making the Advances. (a) Each Revolving Credit Borrowing
shall be made on notice, given not later than 11:00 A.M. (New York City time) on
(i) the third Business Day prior to the date of the proposed Revolving Credit
Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar
Rate Advances, (ii) the second Business Day prior to the date of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of CD Rate Advances, and (iii) the first Business Day prior to the
date of the proposed Revolving Credit Borrowing in the case of a Revolving
Credit Borrowing consisting of Base Rate Advances, by the Borrower to the Agent,
which shall give to each Lender prompt notice thereof by telecopier or tested
telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving
Credit
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Borrowing") shall be by telephone, confirmed immediately in writing, or
telecopier or tested telex in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such Revolving Credit Borrowing,
(ii) Type of Advances comprising such Revolving Credit Borrowing, (iii)
aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a
Revolving Credit Borrowing consisting of Eurodollar Rate Advances or CD Rate
Advances, initial Interest Period for each such Revolving Credit Advance. Each
Lender shall, before 11:00 A.M. (New York City time) on the date of such
Revolving Credit Borrowing, make available for the account of its Applicable
Lending Office to the Agent at the Agent's Account, in same day funds, such
Lender's ratable portion of such Revolving Credit Borrowing. After the Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Agent will make such funds available to the Borrower
at the Agent's address referred to in Section 8.02; provided, however, that
after giving effect to each Revolving Credit Advance made hereunder, the Unused
Revolving Credit Commitment shall be equal to or greater than the amount of
Swing Line Advances then outstanding, plus interest accrued and unpaid to and as
of such date.
(b) Each Swing Line Borrowing shall be made on notice, given not later
than 2:00 P.M. (New York City time), or such later time as agreed to by the
Borrower and the applicable Swing Line Bank, on the date of the proposed Swing
Line Borrowing, by the Borrower to the applicable Swing Line Bank and the Agent.
Each such notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing")
shall be by telephone, confirmed immediately in writing, or tested telex or
telecopier, specifying therein the requested (i) date of such Swing Line
Borrowing, (ii) amount of such Swing Line Borrowing and (iii) maturity of such
Swing Line Borrowing (which maturity shall be no later than the tenth day after
the requested date of such Borrowing). The applicable Swing Line Bank will make
the amount of each Swing Line Advance available to the Agent at the Agent's
Account, in same day funds or make such amount available to the Borrower as
agreed between such applicable Swing Line Bank and the Borrower. Upon written
demand to the Agent (who shall promptly notify each other Lender) by any Swing
Line Bank with an outstanding Swing Line Advance each other Lender shall
purchase from such Swing Line Bank, and such Swing Line Bank shall sell and
assign to each such other Lender, such other Lender's Pro Rata Share of such
outstanding Swing Line Advance as of the date of such demand, by making
available for the account of its Applicable Lending Office to the Agent for the
account of such Swing Line Bank, by deposit to the Agent's Account, in same day
funds, an amount equal to the portion of the outstanding principal amount of
such Swing Line Advance to be purchased by such Lender. The Borrower hereby
agrees to each such sale and assignment. Each Lender unconditionally agrees to
purchase its Pro Rata Share of an outstanding Swing Line Advance on (i) the
Business Day on which demand therefor is made by the Swing Line Bank that made
such Advance, provided that notice of such demand is given not later than 11:00
A.M. (New York City time) on such Business Day or (ii) the first Business Day
next succeeding such demand if notice of such demand is given after such time.
Upon any such assignment by a Swing Line Bank to any other Lender of a portion
of a Swing Line Advance, such Swing Line Bank represents and warrants to such
other Lender that such Swing Line Bank is the legal and beneficial owner of such
interest being assigned by it, but makes no other representation or warranty and
assumes no responsibility with respect to such Swing Line Advance, the Loan
Documents the Borrower or any of its Subsidiaries. If and to the extent that any
Lender shall not have so made the amount of such Swing Line Advance available to
the Agent, such Lender agrees to pay to the Agent forthwith on demand such
amount together with interest thereon, for each day from the date of demand by
such Swing Line Bank until the date such amount is paid to the Agent, at the
Federal Funds Rate. If such Lender shall pay to the Agent such amount for the
account of such Swing Line Bank on any Business Day, such amount so paid in
respect of principal shall constitute a Swing Line Advance made by such Lender
on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Swing Line Advance made by such Swing Line Bank shall be
reduced by such amount on such Business Day. The obligation of each other Lender
to purchase a pro-rata share of any Swing Line Bank's Swing Line Advances is
absolute and unconditional notwithstanding the occurrence of any circumstances
including without limitation, any Event of Default, set-off or deduction by the
Borrower or its Subsidiaries.
(c) Anything in subsection (a) above to the contrary notwithstanding, (i)
the Borrower may not select Eurodollar Rate Advances for any Revolving Credit
Borrowing if the aggregate amount of such
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Revolving Credit Borrowing is less than $10,000,000 or if the obligation of the
Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.08 or 2.13 and (ii) Revolving Credit Advances may not be outstanding
as part of more than ten separate Borrowings; provided, however, that for
purposes of the limitation set forth in clause (ii) of this sentence, all
Borrowings consisting of Base Rate Advances shall constitute a single Borrowing.
(d) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Revolving Credit Borrowing that the related Notice
of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate
Advances or CD Rate Advances, the Borrower shall indemnify each Lender against
any loss, cost or expense to the extent incurred by such Lender as a direct
result of any failure to fulfill on or before the date specified in such Notice
of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(excluding loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Revolving Credit Advance to be made by such Lender as part of
such Revolving Credit Borrowing when such Revolving Credit Advance, as a result
of such failure, is not made on such date.
(e) Unless the Agent shall have received notice from the Appropriate
Lender prior to the date of any Borrowing under a Facility under which such
Lender has a Revolving Credit Commitment that such Lender will not make
available to the Agent such Lender's ratable portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with subsection (a) or (b) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the Agent,
such Lender and the Borrower severally agree to repay or pay to the Agent
forthwith on demand such corresponding amount and to pay interest thereon, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid or paid to the Agent, at (i) in the case of the
Borrower, the interest rate applicable at such time under Section 2.07 to
Advances comprising such Borrowing and (ii) in the case of such Lender, the
Federal Funds Rate. If such Lender shall pay to the Agent such corresponding
amount, such amount so paid shall constitute such Lender's Advance as part of
such Borrowing for all purposes.
(f) The failure of any Lender to make the Advance to be made by it as part
of any Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Advance on the date of such Borrowing, but no Lender shall
be responsible for the failure of any other Lender to make the Advance to be
made by such other Lender on the date of any Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally
agrees that the Borrower may make Competitive Bid Borrowings under this Section
2.03 from time to time on any Business Day during the period from the Effective
Date until the date occurring 30 days prior to the Termination Date in the
manner set forth below; provided that, following the making of each Competitive
Bid Borrowing, the aggregate amount of the Advances then outstanding plus the
Available Amount of all Letters of Credit then outstanding shall not exceed the
aggregate amount of the Revolving Credit Commitments of the Lenders (computed
without regard to any Competitive Bid Reduction).
(i) The Borrower may request a Competitive Bid Borrowing under this
Section 2.03 by delivering to the Agent, by telecopier or tested telex, a
notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
therein the requested (v) date of such proposed Competitive Bid Borrowing,
(w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in
the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances,
Interest Period, or in the case of a Competitive Bid Borrowing consisting
of Fixed Rate Advances, maturity date for repayment of each Fixed Rate
Advance to be made as part of such Competitive Bid Borrowing (which
maturity date may not be earlier than the date occurring 10 days after
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the date of such Competitive Bid Borrowing or later than the earlier of
(i) 270 days after the date of such Competitive Bid Borrowing and (ii) the
Termination Date), (y) interest payment date or dates relating thereto,
and (z) other terms (if any) to be applicable to such Competitive Bid
Borrowing, not later than 10:00 A.M. (New York City time) (A) at least two
Business Day prior to the date of the proposed Competitive Bid Borrowing,
if the Borrower shall specify in the Notice of Competitive Bid Borrowing
that the rates of interest to be offered by the Lenders shall be fixed
rates per annum (the Advances comprising any such Competitive Bid
Borrowing being referred to herein as "Fixed Rate Advances") and (B) at
least five Business Days prior to the date of the proposed Competitive Bid
Borrowing, if the Borrower shall instead specify in the Notice of
Competitive Bid Borrowing that the rates of interest be offered by the
Lenders are to be based on the LIBO Rate (the Advances comprising such
Competitive Bid Borrowing being referred to herein as "LIBO Rate
Advances"). Subject to clause (iii)(x) below, each Notice of Competitive
Bid Borrowing shall be irrevocable and binding on the Borrower. The Agent
shall in turn promptly notify each Lender of each request for a
Competitive Bid Borrowing received by it from the Borrower by sending such
Lender a copy of the related Notice of Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Advances to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or
rates of interest specified by such Lender in its sole discretion, by
notifying the Agent (which shall give prompt notice thereof to the
Borrower), before 10:00 A.M. (New York City time) one Business Day prior
to the date of the proposed Competitive Bid Borrowing, in the case of a
Competitive Bid Borrowing consisting of Fixed Rate Advances and before
10:00 A.M. (New York City time) three Business Days before the date of
such proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of LIBO Rate Advances, of the minimum amount and
maximum amount of each Competitive Bid Advance which such Lender would be
willing to make as part of such proposed Competitive Bid Borrowing (which
amounts may, subject to the proviso to the first sentence of this Section
2.03(a), exceed such Lender's Revolving Credit Commitment, if any), the
rate or rates of interest therefor and such Lender's Applicable Lending
Office with respect to such Competitive Bid Advance; provided that if the
Agent in its capacity as a Lender shall, in its sole discretion, elect to
make any such offer, it shall notify the Borrower of such offer at least
30 minutes before the time and on the date on which notice of such
election is to be given to the Agent by the other Lenders. If any Lender
shall elect not to make such an offer, such Lender shall so notify the
Agent, before 10:00 A.M. (New York City time) on the date on which notice
of such election is to be given to the Agent by the other Lenders, and
such Lender shall not be obligated to, and shall not, make any Competitive
Bid Advance as part of such Competitive Bid Borrowing; provided that the
failure by any Lender to give such notice shall not cause such Lender to
be obligated to make any Competitive Bid Advance as part of such proposed
Competitive Bid Borrowing.
(iii) The Borrower shall, in turn, before 11:00 A.M. (New York City
time) one Business Day prior to the date of such proposed Competitive Bid
Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed
Rate Advances and before 11:00 A.M. (New York City time) three Business
Days before the date of such proposed Competitive Bid Borrowing, in the
case of a Competitive Bid Borrowing consisting of LIBO Rate Advances,
either:
(x) cancel such Competitive Bid Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above, in its sole discretion, by
giving notice to the Agent of the amount of each Competitive Bid
Advance (which amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount, notified to
the Borrower by the Agent on behalf of such Lender for such
Competitive Bid Advance pursuant to paragraph (ii) above) to be made
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by each Lender as part of such Competitive Bid Borrowing, and reject
any remaining offers made by Lenders pursuant to paragraph (ii)
above by giving the Agent notice to that effect. The Borrower shall
accept the offers made by any Lender or Lenders to make Competitive
Bid Advances in order of the lowest to the highest rates of interest
offered by such Lenders. If two or more Lenders have offered the
same interest rate, the amount to be borrowed at such interest rate
will be allocated among such Lenders in proportion to the amount
that each such Lender offered at such interest rate; provided,
however, that such allocation may be adjusted upward or downward by
the Agent, as necessary, to make the amount to be borrowed from each
Lender equal to $5,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(iv) If the Borrower notifies the Agent that such Competitive Bid
Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent
shall give prompt notice thereof to the Lenders and such Competitive Bid
Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in
turn promptly notify (A) each Lender that has made an offer as described
in paragraph (ii) above, of the date and aggregate amount of such
Competitive Bid Borrowing and whether or not any offer or offers made by
such Lender pursuant to paragraph (ii) above have been accepted by the
Borrower, (B) each Lender that is to make a Competitive Bid Advance as
part of such Competitive Bid Borrowing, of the amount of each Competitive
Bid Advance to be made by such Lender as part of such Competitive Bid
Borrowing, and (C) each Lender that is to make a Competitive Bid Advance
as part of such Competitive Bid Borrowing, upon receipt, that the Agent
has received forms of documents appearing to fulfill the applicable
conditions set forth in Article III. Each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing shall,
before 12:00 noon (New York City time) on the date of such Competitive Bid
Borrowing specified in the notice received from the Agent pursuant to
clause (A) of the preceding sentence or any later time when such Lender
shall have received notice from the Agent pursuant to clause (C) of the
preceding sentence, make available for the account of its Applicable
Lending Office to the Agent at the Agent's Account, in same day funds,
such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment
of the applicable conditions set forth in Article III and after receipt by
the Agent of such funds, the Agent will make such funds available to the
Borrower at the Agent's address referred to in Section 8.02. Promptly
after each Competitive Bid Borrowing the Agent will notify each Lender of
the amount of the Competitive Bid Borrowing, the consequent Competitive
Bid Reduction and the dates upon which such Competitive Bid Reduction
commenced and will terminate.
(vi) If the Borrower notifies the Agent that it accepts one or more
of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y)
above, such notice of acceptance shall be irrevocable and binding on the
Borrower. The Borrower shall indemnify each Lender against any loss, cost
or expense to the extent incurred by such Lender as a direct result of any
failure to fulfill on or before the date specified in the related Notice
of Competitive Bid Borrowing for such Competitive Bid Borrowing the
applicable conditions set forth in Article III, including, without
limitation, any loss (excluding loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such Lender to fund the Competitive Bid Advance
to be made by such Lender as part of such Competitive Bid Borrowing when
such Competitive Bid Advance, as a result of such failure, is not made on
such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Competitive Bid Borrowing, the Borrower shall be in
compliance with the limitations set forth in the proviso to the first sentence
of subsection (a) above.
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(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.03.
(d) The Borrower shall repay to the Agent for the account of each Lender
that has made a Competitive Bid Advance, on the maturity date of each
Competitive Bid Advance (such maturity date being that specified by the Borrower
for repayment of such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above), the
then unpaid principal amount of such Competitive Bid Advance. The Borrower shall
have no right to prepay any principal amount of any Competitive Bid Advance
except as specified in the Notice of Competitive Bid Borrowing relating thereto.
(e) The Borrower shall pay interest on the unpaid principal amount of each
Competitive Bid Advance from the date of such Competitive Bid Advance to the
date the principal amount of such Competitive Bid Advance is repaid in full, at
the rate of interest for such Competitive Bid Advance specified by the Lender
making such Competitive Bid Advance in its notice with respect thereto delivered
pursuant to subsection (a)(ii) above, payable on the interest payment date or
dates specified by the Borrower for such Competitive Bid Advance in the related
Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i)
above, as provided in the Competitive Bid Note evidencing such Competitive Bid
Advance. Upon the occurrence and during the continuance of an Event of Default
under Section 6.01(a), the Borrower shall pay interest on the amount of past-due
principal of and interest on each Competitive Bid Advance owing to a Lender and
any past-due fees relating thereto, payable in arrears on the date or dates
interest is payable thereon, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid on such Competitive Bid
Advance under the terms of the Competitive Bid Note evidencing such Competitive
Bid Advance unless otherwise agreed in such Competitive Bid Note.
(f) The indebtedness of the Borrower resulting from each Competitive Bid
Advance made to the Borrower as part of a Competitive Bid Borrowing shall be
evidenced by a Competitive Bid Note of the Borrower payable to the order of the
Lender making such Competitive Bid Advance.
(g) Upon delivery of each Notice of Competitive Bid Borrowing, the
Borrower shall pay a non-refundable fee of $3,500 to the Agent for its own
account.
SECTION 2.04. Issuance of and Drawings and Reimbursement Under Letters of
Credit. (a) Request for Issuance. Each Letter of Credit shall be issued upon
request, given not later than 11:00 A.M. (New York City time) on the fifth
Business Day prior to the date of the proposed issuance of such Letter of Credit
(or such shorter notice as agreed between the Borrower and any Issuing Lender),
by the Borrower to the Agent, which shall give to each Issuing Lender prompt
notice thereof by tested telex, telecopier or cable. Each such request for
issuance of a Letter of Credit (a "Letter of Credit Request") shall be by
telephone, confirmed immediately in writing, or telecopier or tested telex
substantially in the form of Exhibit B-3 hereto, specifying therein the
requested (A) date of such issuance (which shall be a Business Day), (B)
currency and Available Amount of such Letter of Credit, (C) expiration date of
such Letter of Credit (which shall not be more than one year from the date of
issuance), (D) name and address of the beneficiary of such Letter of Credit and
(E) form of such Letter of Credit. If the requested form of such Letter of
Credit is reasonably acceptable to the Issuing Lender, the Issuing Lender will,
upon fulfillment of the applicable conditions set forth in Article III, make
such Letter of Credit available to the Borrower at its office referred to in
Section 8.02 or as otherwise agreed with the Borrower in connection with such
issuance. Within a reasonable time after the issuance of each Letter of Credit
hereunder, the Agent shall provide notice thereof and a copy of such Letter of
Credit to each Lender.
(b) Drawing and Reimbursement. (i) The payment by any Issuing Lender of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by such Issuing Lender of an Advance (each being a "Letter
of Credit Advance"), which initially shall be a Base Rate Advance (subject to
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Section 2.10), in the amount of such draft; provided, however, that if, at the
time of any such drawing under a Letter of Credit the Borrower is not able to
satisfy each of the conditions set forth in Section 3.02, such drawing shall not
constitute an advance hereunder and the Borrower shall immediately reimburse the
Issuing Lender for such amount drawn. The payment by any Issuing Lender of a
draft drawn under any Canadian Dollar Letter of Credit shall constitute for all
purposes of this Agreement the making by such Issuing Lender of a Canadian
Dollar Letter of Credit Advance; provided, however, that if, at the time of any
such drawing under a Canadian Dollar Letter of Credit, the Borrower is not able
to satisfy each of the conditions set forth in Section 3.02, such drawing shall
not constitute an Advance hereunder and the Borrower shall immediately reimburse
the Issuing Lender for such amount drawn. Upon the making of a Canadian Dollar
Letter of Credit Advance, the amount of such Advance in Canadian Dollars shall
be immediately converted to the U.S. Dollar Equivalent and shall thereafter
constitute a Base Rate Advance in the amount of such U.S. Dollar Equivalent.
Upon written demand by any Issuing Lender with an outstanding Letter of Credit
Advance, with a copy of such demand to the Agent, each other Lender shall
purchase from such Issuing Lender, and such Issuing Lender shall sell and assign
to each such other Lender, such other Lender's Pro Rata Share of such
outstanding Letter of Credit Advance as of the date of such purchase, by making
available for the account of its Applicable Lending Office to the Agent for the
account of such Issuing Lender, by deposit to the Agent's Account, in same day
funds, an amount equal to the portion of the outstanding principal amount of
such Letter of Credit Advance to be purchased by such other Lender; provided,
however, that so long as such written demand shall be made by any such Issuing
Lender within two Business Days of the making of such Letter of Credit Advance,
each such purchasing Lender shall also pay its Pro Rata Share of the interest
accrued on such Letter of Credit Advance through the date of such demand and;
provided further, that if any Lender's public debt rating (as such term is
defined in the definition of "Applicable Margin") falls below BBB- or Baa3 by
S&P or Moody's, respectively, such Lender shall, upon 5 Business Days' notice
from the Agent, cash collateralize its Pro Rata Share of the Available Amount of
all Letters of Credit issued and outstanding at such time by depositing such
amount into the L/C Cash Collateral Account, such depositing Lender to be
entitled to interest on any such deposited funds at the Federal Funds Rate so
long as such amounts are deposited in the L/C Cash Collateral Account. Promptly
after receipt of all such funds from the purchasing Lenders, the Agent shall
transfer such funds to such Issuing Lender. The Borrower hereby agrees to each
such sale and assignment. Each Lender agrees to purchase its Pro Rata Share of
an outstanding Letter of Credit Advance on (A) the Business Day on which demand
therefor is made by the Issuing Lender which made such Advance, provided notice
of such demand is given not later than 11:00 A.M. (New York City time) on such
Business Day or (B) the first Business Day next succeeding such demand if notice
of such demand is given after such time. Upon any such assignment by an Issuing
Lender to any other Lender of a portion of a Letter of Credit Advance, such
Issuing Lender represents and warrants to such other Lender that such Issuing
Lender is the legal and beneficial owner of such interest being assigned by it,
free and clear of any liens, but makes no other representation or warranty and
assumes no responsibility with respect to such Letter of Credit Advance, this
Agreement or any party hereto. If and to the extent that any Lender shall not
have so made the amount of such Letter of Credit Advance available to the Agent,
such Lender agrees to pay to the Agent forthwith on demand such amount together
with interest thereon, for each day from the date of demand by such Issuing
Lender until the date such amount is paid to the Agent, at the Federal Funds
Rate for its account or the account of such Issuing Lender, as applicable. If
such Lender shall pay to the Agent such amount for the account of such Issuing
Lender on any Business Day, such amount so paid in respect of principal shall
constitute a Letter of Credit Advance made by such Lender on such Business Day
for purposes of this Agreement, and the outstanding principal amount of the
Letter of Credit Advance made by such Issuing Lender shall be reduced by such
amount on such Business Day.
(ii) If the Borrower has commenced any action or proceeding seeking to
enjoin or preclude the payment or drawing with respect to any Letter of Credit,
and such action or proceeding is not concluded on or prior to the Termination
Date, the Agent may make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Agent on behalf of the Lenders in same day
funds at the Agent's office designated in such demand, for deposit in the L/C
Cash Collateral Account, an amount equal to the Available Amount of any such
Letter of Credit.
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(c) Failure to Make Letter of Credit Advances. The failure of any Lender
to make the Letter of Credit Advance to be made by it on the date specified in
Section 2.04(b) shall not relieve any other Lender of its obligation hereunder
to make its Letter of Credit Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make the Letter of Credit
Advance to be made by such other Lender on such date.
SECTION 2.05. Optional Termination or Reduction of Revolving Credit
Commitments. The Borrower shall have the right, upon at least three Business
Days' notice to the Agent, to terminate in whole or reduce ratably in part the
unused portions of the respective Revolving Credit Commitments of the Lenders,
provided that each partial reduction shall be in the aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof and provided
further that the aggregate amount of the Revolving Credit Commitments of the
Lenders shall not be reduced to an amount that is less than the aggregate
principal amount of the Competitive Bid Advances then outstanding.
SECTION 2.06. Repayment of Advances. (a) Revolving Credit Advances. The
Borrower shall repay to the Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of the Revolving Credit Advances
then outstanding.
(b) Swing Line Advances. The Borrower shall repay to each Lender that has
made a Swing Line Advance the outstanding principal amount of each Swing Line
Advance made by each of them (together with interest thereon) on the earlier of
the maturity date specified in the applicable Notice of Swing Line Borrowing
(which maturity shall be no later than the tenth day after the requested date of
such Borrowing) and the Termination Date.
(c) Letter of Credit Advances. (i) The Borrower shall repay to the Agent
for the account of each Issuing Lender and each other Lender that has made a
Letter of Credit Advance on the Termination Date the outstanding principal
amount of each Letter of Credit Advance made by each of them (irrespective of
whether any such Letter of Credit Advance was made before, on or, if in
accordance with applicable law, after the expiry date stated in the applicable
Letter of Credit).
(ii) The obligations of the Borrower under this Agreement shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(A) any lack of validity or enforceability of this Agreement, any
Letter of Credit or any Letter of Credit Request;
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Borrower in respect of
any Letter of Credit or any other amendment or waiver of or any consent to
departure from all or any of the Letters of Credit;
(C) the existence of any claim, setoff, defense or other right that
the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), any Issuing Lender or
any other Person, whether in connection with the transactions contemplated
by the Letter of Credit or any unrelated transaction;
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid or any statement
therein being untrue or inaccurate in any respect;
(E) payment by any Issuing Lender under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit so long as such draft or
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certificate substantially complies; or
(F) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
SECTION 2.07. Interest on Advances. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance (excluding
Competitive Bid Advances) owing to each Lender from the date of such Advance
until such principal amount shall be paid in full, at the following rates per
annum:
(i) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum of (x)
the Base Rate in effect from time to time plus (y) the Applicable Margin
in effect from time to time, payable in arrears quarterly on the first
Business Day of each January, April, July and October during such periods
and on the date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest Period for such Revolving Credit Advance to the sum of (x)
the Eurodollar Rate for such Interest Period for such Revolving Credit
Advance plus (y) the Applicable Margin in effect from time to time,
payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day
of such Interest Period and on the date such Eurodollar Rate Advance shall
be Converted or paid in full.
(iii) CD Rate Advances. During such periods as such Advance is a CD
Rate Advance, a rate per annum equal at all times during each Interest
Period for such Revolving Credit Advance to the sum of (x) the Adjusted CD
Rate for such Interest Period for such Revolving Credit Advance plus (y)
the Applicable Margin in effect from time to time, payable in arrears on
the last day of such Interest Period and, if such Interest Period has a
duration of more than 90 days, on each day that occurs during such
Interest Period every 90 days from the first day of such Interest Period
and on the date such CD Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an
Event of Default under Section 6.01(a), the Borrower shall pay interest on (i)
the unpaid principal amount of each Advance (excluding Competitive Bid Advances)
owing to each Lender, payable in arrears on the dates referred to in clause
(a)(i), (a)(ii) or (a)(iii) above, at a rate per annum equal at all times to 2%
per annum above the rate per annum required to be paid on such Advance pursuant
to clause (a)(i), (a)(ii) or (a)(iii) above and (ii) to the fullest extent
permitted by law, the amount of any interest, fee or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on Base Rate
Advances pursuant to clause (a)(i) above.
(c) Additional Interest on Eurodollar Rate Advances. The Borrower shall
pay to each Lender, so long as such Lender shall be required under regulations
of the Board of Governors of the Federal Reserve System to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each Advance
of such Lender during such periods as such Advance is a Eurodollar Rate Advance,
from the date of such Advance until such principal amount is paid in full, at an
interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for such Interest Period for such Eurodollar
Rate Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such
Lender for
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such Interest Period, payable on each date on which interest is payable on such
Eurodollar Rate Advance. Such additional interest shall be determined by such
Lender and notified to the Borrower through the Agent.
SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank agrees
to furnish to the Agent timely information for the purpose of determining each
Eurodollar Rate, each Adjusted CD Rate and each LIBO Rate. If any one or more of
the Reference Banks shall not furnish such timely information to the Agent for
the purpose of determining any such interest rate, the Agent shall determine
such interest rate on the basis of timely information furnished by the remaining
Reference Banks. The Agent shall give prompt notice to the Borrower and the
Lenders of the applicable interest rate determined by the Agent for purposes of
Section 2.07(a)(i), (ii) or (iii) or for purposes of any LIBO Rate Advance, and
the rate, if any, furnished by each Reference Bank for the purpose of
determining the interest rate under Section 2.07(a)(ii) or (iii) or any LIBO
Rate Advance.
(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders
notify the Agent prior to the commencement of the Interest Period therefor that
the Eurodollar Rate for such Interest Period for such Advances will not
adequately reflect the cost to such Required Lenders of making, funding or
maintaining their respective Eurodollar Rate Advances for such Interest Period,
the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i)
each Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance, and (ii)
the obligation of the Lenders to make, or to Convert Revolving Credit Advances
into Eurodollar Rate Advances shall be suspended until the Agent shall notify
the Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
(c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances or any CD Rate Advance in accordance
with the provisions contained in the definition of "Interest Period" in Section
1.01, the Agent will forthwith so notify the Borrower and the Lenders and such
Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances or CD Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $10,000,000, such
Advances shall automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default
under Section 6.01(a), (i) each Eurodollar Rate Advance and CD Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances or CD Rate Advances shall
be suspended.
(f) If none of the Reference Banks furnish timely information to the Agent
for determining the Eurodollar Rate, Adjusted CD Rate or LIBO Rate for any
Eurodollar Rate Advances, CD Rate Advances or LIBO Rate Advances, as the case
may be:
(i) the Agent shall forthwith notify the Borrower and the Lenders
that the interest rate cannot be determined for such Eurodollar Rate
Advances, CD Rate Advances or LIBO Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such Advance
will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance (or if such Advance is then a
Base Rate Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate
Advances, CD Rate Advances or LIBO Rate Advances or to Convert Revolving
Credit Advances into Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances
causing such
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suspension no longer exist.
SECTION 2.09. Fees. (a) Facility Fee. The Borrower agrees to pay to the
Agent for the account of each Lender (other than the Designated Bidders) a
facility fee on the daily aggregate amount of such Lender's Revolving Credit
Commitment from the earlier of (i) the Effective Date or (ii) 30 days following
the date hereof in the case of each Initial Lender and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a Lender
(but not prior to the earlier of (i) the Effective Date or (ii) 30 days
following the date hereof) in the case of each other Lender until the
Termination Date at a rate per annum equal to the Applicable Margin in effect
from time to time, payable in arrears quarterly on the first Business Day of
each January, April, July and October, commencing April 1, 1998, and on the
Termination Date.
(b) Annual Agency Fee. The Borrower shall pay to the Agent for its own
account such fees as may from time to time be agreed upon between the Borrower
and the Agent.
(c) Agent's Fees. The Borrower shall pay to the Agent for its own account
such fees as may from time to time be agreed between the Borrower and the Agent.
(d) Arranger's, Co-Documentation Agents and Co-Arranger's Fee. The
Borrower shall pay to the Arranger for its own account or, as applicable, the
account of a Co-Documentation Agent or Co-Arranger such fees as agreed between
the Borrower and the Arranger, the Borrower and the Co-Arrangers and the
Borrower and the Co-Documentation Agents.
(e) Senior Managing and Co-Agents' Fee. The Borrower shall pay to the
Agent for the account of each Senior Managing and Co-Agent such fees as
specified in the Information Memorandum.
(f) Letter of Credit Fees. (i) The Borrower shall pay to the Agent for the
account of each Lender a commission on such Lender's Pro Rata Share of the daily
aggregate Available Amount (in U.S. Dollars) of all Letters of Credit
outstanding from time to time at the rate per annum equal to (A) the Applicable
Margin for Eurodollar Rate Advances for Financial Obligation Letters of Credit
and (B) 50% of the Applicable Margin for Eurodollar Rate Advances for
Performance Letters of Credit, payable in arrears quarterly on the first
Business Day of each January, April, July and October, commencing April 1, 1998,
and on the Termination Date.
(ii) The Borrower shall pay to the Agent for the account of each Issuing
Lender a commission on the daily aggregate Available Amount (in U.S. Dollars) of
all Letters of Credit issued by such Issuing Lender and outstanding from time to
time at the rate per annum equal to 1/8 of 1%, payable in arrears quarterly on
the first Business Day of each January, April, July and October, commencing
April 1, 1998, and on the Termination Date.
SECTION 2.10. Optional Conversion of Revolving Credit Advances. The
Borrower may on any Business Day, upon notice given to the Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.13,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of another Type or change the Interest Period therefor
into another permissible Interest Period; provided, however, that (i) in the
event that any Conversion of Eurodollar Rate Advances or CD Rate Advances into
Base Rate Advances is made on a day other than the last day of an Interest
Period for such Eurodollar Rate Advances or CD Rate Advances, the Borrower shall
be obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(c), (ii) each Conversion shall be of Advances in an aggregate amount not
less than $10,000,000, (iii) no Conversion of any Advances shall result in more
separate Borrowings than permitted under Section 2.02(c) and (iv) each
Conversion of Advances comprising part of the same Borrowing under any Facility
shall be made ratably among the appropriate Lenders in accordance with their
Revolving Credit Commitments under such Facility. Each such notice of a
Conversion shall, within the restrictions specified above, specify (A) the date
of
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such Conversion, (B) the Advances to be Converted and (C) if such Conversion is
into Eurodollar Rate Advances or CD Rate Advances, the duration of the initial
Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
SECTION 2.11. Prepayments of Advances. (a) Optional. The Borrower may,
upon (i) at least three Business Days' notice in the case of a Eurodollar Rate
Advance or CD Rate Advance, (ii) at least one Business Day's notice in the case
of a Base Rate Advance and (iii) same day notice in the case of a Swing Line
Advance, in each case to the Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of such Advances (other than
Competitive Bid Advances) comprising part of the same Borrowing in whole or
ratably in part, together with accrued interest to the date of such prepayment
on the principal amount prepaid; provided, however, that (x) each partial
prepayment shall be in an aggregate principal amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof (or, in the case of Swing Line
Advances, the full amount of any such Swing Line Advance); provided, however,
that following each partial prepayment of any Eurodollar Rate Advance the
remaining outstanding amount of such Advance shall be at least $10,000,000 and
(y) in the event of any such prepayment of a Eurodollar Rate Advance or CD Rate
Advance other than on the last day of the Interest Period therefor, the Borrower
shall be obligated to reimburse the Lenders in respect thereof pursuant to
Section 8.04(c).
(b) Mandatory. (i) The Borrower shall, on each Business Day, prepay an
aggregate principal amount of the Revolving Credit Advances comprising part of
the same Borrowings, the Letter of Credit Advances, the Swing Line Advances and
the Competitive Bid Advances equal to the amount by which (A) the sum of the
aggregate principal amount of (w) the Competitive Bid Advances, (x) the
Revolving Credit Advances, (y) the Letter of Credit Advances and (z) the Swing
Line Advances then outstanding plus the aggregate Available Amount of all
Letters of Credit then outstanding exceeds (B) the Revolving Credit Facility on
such Business Day. If, after giving effect to the foregoing prepayments, the
aggregate Available Amount of all Letters of Credit then outstanding exceeds the
Letter of Credit Facility, then the Borrower shall pay to the Agent on behalf of
the Lenders and the Issuing Lenders in same day funds, for deposit in the L/C
Cash Collateral Account, an aggregate amount equal to such excess in accordance
with arrangements reasonably satisfactory to the Agent. For purposes of
determining, at any time, the aggregate principal amount of Letter of Credit
Advances or the aggregate Available Amount of all Letters of Credit then
outstanding at such time, the aggregate principal amount of all Canadian Dollar
Letter of Credit Advances and the aggregate Available Amount of all Canadian
Dollar Letters of Credit outstanding at such time shall be converted to the U.S.
Dollar Equivalent determined as at such time.
(ii) Prepayments made pursuant to clause (i) above shall be first applied
to prepay Letter of Credit Advances then outstanding until such Advances are
paid in full, second applied to prepay Swing Line Advances then outstanding
until such Advances are paid in full, and third applied to prepay Revolving
Credit Advances then outstanding comprising part of the same Borrowings until
such Advances are paid in full.
(iii) All prepayments under this subsection (b) shall be made together
with accrued interest to the date of such prepayment on the principal amount
prepaid. If any payment required to be made under this Section 2.05(b) on
account of Eurodollar Rate Advances or CD Rate Advances would be made other than
on the last day of the applicable Interest Period therefor, the Borrower may, in
lieu of prepaying such Advance, deposit the amount of such payment in the Cash
Collateral Account until the last day of the applicable Interest Period at which
time such payment shall be made.
SECTION 2.12. Increased Costs. (a) If, due to either (i) the introduction
of or any change in or in the interpretation of any law or regulation, with
respect to any Eurodollar Rate Advance or CD Rate Advance, after the date
hereof, and with respect to any LIBO Rate Advance, after the date on which one
or more Lenders offered to make such LIBO Rate Advance or (ii) the compliance
with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), adopted or made, with
respect to any Eurodollar Rate Advance or CD Rate Advance, after the date
hereof, and with respect to any LIBO
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Rate Advance, after the date on which one or more Lenders offered to make such
LIBO Rate Advance, there shall be any increase in the cost to any Lender of
agreeing to make or making, funding or maintaining Eurodollar Rate Advances, CD
Rate Advances or LIBO Rate Advances (excluding for purposes of this Section 2.12
any such increased costs resulting from taxes, including Taxes and Other Taxes
(as to which Section 2.15 shall govern)), then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the Agent), pay
to the Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost to the extent actually incurred;
provided, however, that, before making any such demand, each Lender agrees to
use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, such increased cost and would not, in the sole reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender. A certificate as to the
amount of such increased cost, setting forth the basis therefor in reasonable
detail, submitted to the Borrower and the Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If any Lender reasonably determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) adopted after
the date hereof affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender and that the amount of such capital is increased by or based upon the
existence of such Lender's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Lender (with a copy of such demand to the
Agent), the Borrower shall pay to the Agent for the account of such Lender, from
time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender or such corporation in the light of such circumstances,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend hereunder to
the extent actually incurred; provided, however, that, before making any such
demand, each Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such a designation would avoid the
need for, or reduce the amount of, such additional amounts payable under this
subsection (b) and would not, in the sole reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate as to such amounts
setting forth the basis therefor in reasonable detail, submitted to the Borrower
and the Agent by such Lender shall be conclusive and binding for all purposes,
absent manifest error.
(c) Notwithstanding any other provision in this Section 2.12, no Lender
shall be entitled to demand compensation pursuant to this Section 2.12 unless,
at such time, it is the general policy or practice of such Lender to demand such
compensation in similar circumstances under comparable provisions of other
comparable credit agreements with borrowers of similar credit quality. The
Borrower shall pay each Lender the amount shown as due on any certificate
delivered by such Lender pursuant to subsection (a) or (b) above within 30 days
after its receipt of the same.
(d) No Lender shall be entitled to compensation under this Section 2.12
for any costs incurred or reductions suffered with respect to any event or
circumstance unless such Lender shall have notified the Borrower, not more than
120 days after such Lender becomes aware of such event or circumstance, that it
will demand compensation for such costs or reductions in a certificate described
in the last sentence of each of subsections (a) and (b) above.
SECTION 2.13. Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Agent and the Borrower that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate
Advances hereunder, (i) the obligation of the Lenders to make Eurodollar Rate
Advances or LIBO Rate Advances, as the case may be, or to Convert Revolving
Credit Advances into Eurodollar Rate Advances shall be suspended, whereupon any
request by the Borrower for a Borrowing comprised of Eurodollar Rate Advances
shall
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be deemed a request for a Base Rate Advance until the affected Lender shall
notify the Agent and the Borrower that the circumstances causing such suspension
no longer exist and (ii) the Lenders may require that all outstanding Eurodollar
Rate Advances and LIBO Rate Advances, as the case may be, made by it be
Converted to Base Rate Advances, in which event all such Eurodollar Rate
Advances and LIBO Rate Advances, as the case may be, shall be automatically
Converted to Base Rate Advances as of the effective date of such notice;
provided, however, that each Lender agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate a
different Eurodollar Lending Office if the making of such a designation would
enable such Lender to withdraw its notice under this Section and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender. In the event any Lender shall notify the Agent and the Borrower of the
occurrence of the circumstances causing such suspension under this Section, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Rate Advances or LIBO Rate Advances that would have been
made by such Lender or the Converted Eurodollar Rate Advances shall instead be
applied to repay the Base Rate Advances made by such Lender in lieu of such
Eurodollar Rate Advances or LIBO Rate Advances, or resulting from the Conversion
of such Eurodollar Rate Advances. For purposes of this Section 2.13, a notice to
the Borrower by any Lender shall be effective as to each Eurodollar Rate Advance
and LIBO Rate Advance, if lawful, on the last day of the Interest Period
currently applicable to such Eurodollar Rate Advance or LIBO Rate Advance, as
the case may be; in all other cases such notice shall be effective on the date
of the occurrence of the circumstances causing such suspension.
SECTION 2.14. Payments and Computations. (a) The Borrower shall make each
payment hereunder and under the Notes and any Letter of Credit not later than
11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent
at the Agent's Account in same day funds. The Agent will promptly thereafter
cause to be distributed like funds relating to the payment of principal or
interest or facility fees ratably (other than amounts payable pursuant to
Section 2.03, 2.12, 2.15 or 8.04(c)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
and any Letter of Credit in respect of the interest assigned thereby to the
Lender assignee thereunder, and the parties to such Assignment and Acceptance
shall make all appropriate adjustments in such payments for periods prior to
such effective date directly between themselves.
(b) All computations of interest based on the Base Rate (to the extent
governed by clause (a) of the definition thereof) shall be made by the Agent on
the basis of a year of 365 or 366 days, as the case may be, and all computations
of interest based on the Eurodollar Rate, Adjusted CD Rate or the Federal Funds
Rate and of facility fees and Letter of Credit fees shall be made by the Agent
on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or facility fees are payable. Each determination by the
Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes or any Letter of
Credit shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest or
facility fee, as the case may be; provided, however, that, if such extension
would cause payment of interest on or principal of Eurodollar Rate Advances or
LIBO Rate Advances to be made in the next following calendar month, such payment
shall be made on the next preceding Business Day.
(d) Unless the Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Lenders hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the Agent may,
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in reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.
SECTION 2.15. Taxes. (a) Any and all payments by the Borrower hereunder or
under the Notes shall be made, in accordance with Section 2.14, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction under the laws of which such Lender or the Agent (as
the case may be) is organized, managed or controlled or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.15) such Lender or the Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made under any Note or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or any the Note (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Agent for the full
amount of Taxes or Other Taxes (including, without limitation, any taxes imposed
by any jurisdiction on amounts payable under this Section 2.15) imposed on or
paid by such Lender or the Agent (as the case may be) and any liability
(including, without limitation, penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender or the Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
shall furnish to the Agent, at its address referred to in Section 8.02, the
original or a certified copy of a receipt evidencing payment thereof. In the
case of any payment hereunder or under the Notes by or on behalf of the Borrower
through an account or branch outside the United States or by or on behalf of the
Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to the Agent, at such address, an
opinion of counsel acceptable to the Agent stating that such payment is exempt
from Taxes imposed by the jurisdiction from which such payment is made. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender, on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender in the case of each other
Lender, and from time to time thereafter as requested in writing by the Borrower
(but only so long as such Lender remains lawfully able to do so), shall provide
each of the Agent and the Borrower with two original Internal Revenue Service
forms 1001 or 4224, as appropriate, or any successor or other form prescribed by
the Internal Revenue Service,
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certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the forms provided by a Lender at the time such Lender first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from Taxes unless and until such Lender provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
pursuant to which a Lender assignee becomes a party to this Agreement, the
Lender assignor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent, the term Taxes shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) the lesser of (i) the United States withholding tax, if any, applicable
with respect to the Lender assignee on such date and (ii) the United States
withholding tax, if any, applicable with respect to the Lender assignor on such
date. For purposes of this subsection (e), the term Assignment and Acceptance
shall include a change in the Applicable Lending Office of a Lender. If any form
or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Borrower and shall not be obligated to include in
such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to provide
the Borrower with the appropriate form described in Section 2.15(e) (other than
if such failure is due to a change in law occurring subsequent to the date on
which a form originally was required to be provided, or if such form otherwise
is not required under the first sentence of subsection (e) above), such Lender
shall not be entitled to indemnification under Section 2.15(a) or (c) with
respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender become subject to Taxes because of its
failure to deliver a form required hereunder, the Borrower shall take such steps
as the Lender shall reasonably request to assist the Lender to recover such
Taxes and any cost or expense incurred by the Borrower in connection therewith
shall be promptly reimbursed by such Lender.
(g) If a Lender or the Agent receives a refund from a taxing authority in
respect of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 2.15, it shall within 30 days from the date of such
receipt pay over such refund to the Borrower, net of all out-of-pocket expenses
of such Lender or the Agent; provided, however, that the Borrower, upon the
request of such Lender or the Agent, agrees to repay the amount paid over to the
Borrower to such Lender or the Agent in the event such Lender or the Agent is
required to repay such refund to such taxing authority.
(h) Any Lender claiming any indemnity payment or additional amounts
payable pursuant to this Section 2.15 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
reasonably requested in writing by the Borrower or to change the jurisdiction of
its Applicable Lending Office if the making of such a filing or change would
avoid the need for or reduce the amount of any such indemnity payment or
additional amounts that may thereafter accrue and would not, in the sole
reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) on account of the Revolving Credit Advances owing to it
(other than pursuant to Section 2.12, 2.15 or 8.04(c)) in excess of its ratable
share of payments on account of the Revolving Credit Advances obtained by all
the Lenders, such Lender shall forthwith purchase from the other Lenders such
participation in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender,
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such purchase from each Lender shall be rescinded and such Lender shall repay to
the purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.16 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of setoff) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely for
general corporate purposes of the Borrower and its Subsidiaries including,
without limitation, the financing of acquisitions not otherwise prohibited by
this Agreement.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and
2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and as
of the first date occurring not later than March 20, 1998 (the "Effective Date")
on which the following conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1996.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Borrower or any of its Material Subsidiaries
pending or threatened before any court, governmental agency or arbitrator
that (i) is reasonably likely to have a Material Adverse Effect other than
the matters described on Schedule 3.01(b) hereto (the "Disclosed
Litigation") or (ii) purports to affect the legality, validity or
enforceability of any Loan Document or the consummation of the
transactions contemplated thereby, and there shall have been no material
adverse change in the status, or financial effect on the Borrower and its
Material Subsidiaries taken as a whole, of the Disclosed Litigation from
that described on Schedule 3.01(b) hereto.
(c) All governmental, regulatory and third party consents and
approvals necessary in connection with the transactions contemplated
hereby (including, without limitation, all consents and approvals required
under PUHCA) shall have been obtained (without the imposition of any
conditions that are not acceptable in the reasonable judgment of the
Lenders) and shall remain in effect, and no law or regulation shall be
applicable in the reasonable judgment of the Lenders that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
(d) The Borrower shall have notified the Agent in writing as to the
proposed Effective Date.
(e) The Borrower shall have paid all fees and expenses of the Agent
and fees of the Lenders (including the fees and expenses of counsel to the
Agent) and fees of the Co-Documentation Agents then due; provided that the
Borrower shall not be required to pay any expenses (including fees and
expenses of counsel to the Agent) on the Effective Date unless the
Borrower shall have received an invoice therefor at least three Business
Days prior to the Effective Date.
(f) On the Effective Date, the following statements shall be true
and the Agent shall have
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received for the account of each Lender a certificate signed by a duly
authorized officer of the Borrower, dated the Effective Date, stating
that:
(i) the representations and warranties contained in Section
4.01 are correct on and as of the Effective Date,
(ii) no event has occurred and is continuing that constitutes
a Default, and
(iii) the Information Memorandum and all other information,
exhibits and reports furnished by the Borrower to the Agent and the
Lenders in connection with the negotiation of the Loan Documents,
taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statements made therein, in light of the circumstances under which
they were made, not misleading.
(g) The Borrower shall have received, and shall continue to maintain
as of the Effective Date, a long term unsecured debt rating equal to or
higher than BBB+ from S&P and equal to or higher than Baa1 from Moody's.
(h) The Agent shall have received on or before the Effective Date
the following, each dated such day, in form and substance satisfactory to
the Agent and (except for the Revolving Credit Notes and the Swing Line
Notes) in sufficient copies for each Lender:
(i) The Revolving Credit Notes to the order of the Lenders and
the Swing Line Notes to the order of the Swing Line Banks,
respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower approving the Facilities, and of all
documents evidencing other necessary corporate action, governmental
and regulatory approvals and third party consents (including,
without limitation, all approvals and consents required under PUHCA)
with respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names and true signatures of the
officers of the Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(iv) A favorable opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., counsel for the Borrower, substantially in the form of
Exhibit E hereto.
(v) A favorable opinion of Shearman & Sterling, counsel for
the Agent, in form and substance satisfactory to the Agent.
(vi) Such other approvals, opinions or documents as any Lender
through the Agent may reasonably request.
(vii) The Agent shall have received on or before the Effective
Date a letter from the Borrower, dated on or before such day,
terminating in whole the commitments of the banks party to the
Existing Agreement, and each of the Lenders that is party to the
Existing Agreement waives, upon execution of this Agreement, the
three Business Days' notice required by Section 2.05(a) of the
Existing Agreement relating to the termination of commitments under
the Existing Agreement.
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(viii) The Borrower shall have satisfied and discharged all of
its obligations under the Existing Agreement including, without
limitation, the payment of all fees under the Existing Agreement.
SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of
each Lender to make an Advance (other than a Competitive Bid Advance) on the
occasion of each Borrowing or of each Issuing Lender to issue a Letter of Credit
shall be subject to the conditions precedent that the Effective Date shall have
occurred and on the date of such Borrowing or such issuance the following
statements shall be true (and each of the giving of the applicable Notice of
Borrowing or Notice of Issuance and the acceptance by the Borrower of the
proceeds of such Borrowing or of such Letter of Credit shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
or issuance such statements are true):
(i) the representations and warranties contained in Section
4.01 are correct on and as of the date of such Borrowing, before and
after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The
obligation of each Lender that is to make a Competitive Bid Advance on the
occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as
part of such Competitive Bid Borrowing is subject to the conditions precedent
that (i) the Agent shall have received the written confirmatory Notice of
Competitive Bid Borrowing with respect thereto, (ii) on or before the date of
such Competitive Bid Borrowing, but prior to such Competitive Bid Borrowing, the
Agent shall have received a Competitive Bid Note payable to the order of such
Lender on such terms as were agreed to for such Competitive Bid Advance in
accordance with Section 2.03 and substantially in the form of Exhibit A-2
hereto, and (iii) on the date of such Competitive Bid Borrowing the following
statements shall be true (and each of the giving of the applicable Notice of
Competitive Bid Borrowing and the acceptance by the Borrower of the proceeds of
such Competitive Bid Borrowing shall constitute a representation and warranty by
the Borrower that on the date of such Competitive Bid Borrowing such statements
are true):
(a) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such Competitive Bid Borrowing, before
and after giving effect to such Competitive Bid Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date,
(b) no event has occurred and is continuing, or would result from
such Competitive Bid Borrowing or from the application of the proceeds
therefrom, that constitutes a Default, and
(c) no event has occurred and no circumstance exists as a result of
which the information concerning the Borrower that has been provided to
the Agent and each Lender by the Borrower in connection herewith would
include an untrue statement of a material fact or omit to state any
material fact or any fact necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date, which notice shall be conclusive and
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binding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower and the Material Subsidiaries are each entities
duly organized, validly existing and in good standing under the laws of
the jurisdiction of their organization.
(b) The execution, delivery and performance by the Borrower of each
of the Loan Documents to which the Borrower is a party, and the
consummation of the transactions contemplated thereby, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not (A) contravene (i) the Borrower's charter or
by-laws or (ii) any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System), or any contractual restriction binding on or, to the Borrower's
knowledge, affecting the Borrower (except that certain orders are required
under PUHCA for the performance of this Agreement and the execution,
performance and delivery of any Note hereunder, which orders have been
obtained) or (B) result in the imposition of any Lien.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery and
performance by the Borrower of any Loan Document to which the Borrower is
a party, except for those authorizations, approvals, actions, notices and
filings (including any such authorizations, approvals, actions, notices
and filings required under PUHCA for the performance of this Agreement and
the execution, performance and delivery of any Note hereunder) listed on
Schedule 4.01(c) hereto, all of which, as of the Effective Date, have been
duly obtained, taken, given or made and are in full force and effect.
(d) This Agreement has been, and each of the other Loan Documents to
which the Borrower is a party when delivered hereunder will have been,
duly executed and delivered by the Borrower. This Agreement is, and each
of the other Loan Documents to which the Borrower is a party when
delivered hereunder will be, the legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with their
respective terms.
(e) The Consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 1996, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Arthur
Andersen, LLP, independent public accountants, and the Consolidated
balance sheet of the Borrower and its Subsidiaries as of September 30,
1997, and the related Consolidated statements of income and cash flows of
the Borrower and its Subsidiaries for the nine months then ended, duly
certified by the chief accounting officer of the Borrower, copies of which
have been furnished to each Lender, fairly present, subject, in the case
of said balance sheet as of September 30, 1997, and said statements of
income and cash flows for the nine months ended, to year-end audit
adjustments, the Consolidated financial condition of the Borrower and its
Subsidiaries as at such date and the Consolidated results of the
operations of the Borrower and its Subsidiaries for the period ended on
such date, all in accordance with generally accepted accounting principles
consistently applied. Since December 31, 1996, there has been no Material
Adverse Change.
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(f) The Borrower is a "holding company" and each of the Borrower's
Subsidiaries is a "subsidiary company" of the Borrower within the meaning
of PUHCA, provided, however, that this representation shall be applicable
only so long as PUHCA shall not be abolished or repealed.
(g) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Action, against or, to the Borrower's knowledge, affecting the Borrower or
any of its Material Subsidiaries before any court, governmental agency or
arbitrator that (i) is reasonably likely to have a Material Adverse Effect
(other than the Disclosed Litigation) or (ii) purports to affect in a
material way the legality, validity or enforceability of any Loan Document
or the consummation of the transactions contemplated thereby, and there
has been no material adverse change in the status, or financial effect on
the Borrower and its Material Subsidiaries taken as a whole, of the
Disclosed Litigation from that described on Schedule 3.01(b) hereto.
(h) Neither the Borrower nor any of its Subsidiaries is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Advance
will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock,
provided that the Borrower may repurchase its own stock so long as any
such repurchase or repurchases are made in the ordinary course of
business.
(i) The Borrower and each of its Material Subsidiaries is currently
in compliance, in all material respects, with all applicable laws, rules,
regulations and orders, including, without limitation, compliance with
PUHCA and ERISA and Environmental Laws as provided in Section 5.01(a),
except in each case to the extent that failure to do so is not reasonably
likely to have a Material Adverse Effect.
(j) No ERISA Event has occurred or is reasonably expected to occur
with respect to any ERISA Plan that is reasonably likely to result in a
Material Adverse Effect.
(k) Neither the Borrower nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability to any Multiemployer
Plan that is reasonably likely to result in a Material Adverse Effect.
(l) Neither the Borrower nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no such Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of
ERISA, where such notification, reorganization or termination is
reasonably likely to result in a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender shall have any
Revolving Credit Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Material Subsidiaries to comply, in all material respects, with all
material contracts to which it is a party and all applicable laws, rules,
regulations and orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws, except in each case to the
extent that failure to do so is not reasonably likely to
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result in a Material Adverse Effect; provided, however, that neither the
Borrower nor any of its Material Subsidiaries shall be required to comply
with any applicable laws, rules, regulations or orders to the extent that
the validity thereof or the application thereof to the Borrower or its
Subsidiary, as applicable, is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained to
the extent required by generally accepted accounting principles.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Material Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if
unpaid, might by law become a Lien upon its property, except in each case
to the extent that failure to do so is not reasonably likely to result in
a Material Adverse Effect; provided, however, that neither the Borrower
nor any of its Material Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge, levy or claim that is being contested in
good faith and by proper proceedings and as to which appropriate reserves
are being maintained to the extent required by generally accepted
accounting principles, unless and until any Lien resulting therefrom
attaches to its property and becomes enforceable against its other
creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its
Material Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in
which the Borrower or such Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of its Material Subsidiaries to preserve and maintain, its
corporate existence, material rights (charter and statutory) and material
franchises; provided, however, that (i) the Borrower may consummate any
merger or consolidation permitted under Section 5.02(b) and (ii) subject
only to Section 5.02(c), any Subsidiary may merge, consolidate or
liquidate, or be sold or otherwise disposed of or sell or otherwise
dispose of its assets and provided further that neither the Borrower nor
any of its Material Subsidiaries shall be required to preserve any right
or franchise if (x) the Board of Directors of the Borrower or such
Subsidiary shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Borrower or such
Subsidiary, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to the Borrower and its
Subsidiaries taken as a whole or the Lenders or (y) such right or
franchise shall be taken or transferred pursuant to the exercise by any
Person of the power of eminent domain or action in lieu of or in
settlement of such exercise.
(e) Visitation Rights. At any reasonable time and from time to time,
subject to reasonable prior notice to the Borrower, permit the Agent or
any of the Lenders or any agents or representatives thereof, to examine
and make copies of and abstracts from the records and books of account of,
and visit the properties of, the Borrower and any of its Material
Subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower and any of its Material Subsidiaries with any of their officers
or directors and with their independent certified public accountants,
provided that the Borrower shall be afforded an opportunity to be present
during any such discussion with its independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Material
Subsidiaries to keep, proper books of record and account in which full and
correct entries shall be made of all financial transactions and the assets
and business of the Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Material Subsidiaries to maintain and preserve, all of its
properties (including, without limitation, all patents, trademarks and
other intellectual property) that are material to the conduct of its
business in good
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working order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of its
Material Subsidiaries to conduct, all material transactions otherwise
permitted under this Agreement with any of their Affiliates (other than
transactions between the Borrower and any of its Wholly Owned Subsidiaries
or between any such Wholly Owned Subsidiaries, provided that any Debt
(other than Capitalized Leases) of any such Wholly Owned Subsidiary owing
to any third party other than the Borrower or another of its Wholly Owned
Subsidiaries does not exceed 5% of each Subsidiary's Capitalization) on
terms that are fair and reasonable and no less favorable to the Borrower
or such Subsidiary than it would obtain in a comparable arm's-length
transaction with a Person not an Affiliate; provided, however, that,
notwithstanding the foregoing, (i) the Borrower shall be permitted to
continue its present intercompany loan program pursuant to which the
Borrower makes loans to Subsidiaries at rates of interest based upon the
Borrower's cost of capital and (ii) transactions between the Borrower and
Subsidiaries, or between Subsidiaries, conducted at cost, shall be
permitted.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 50 days after
the end of each of the first three quarters of each fiscal year of
the Borrower, Consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, duly certified
(subject to year-end audit adjustments) by the chief accounting
officer of the Borrower as having been prepared in accordance with
generally accepted accounting principles and certificates of the
chief financial officer of the Borrower as to compliance with the
terms of this Agreement and setting forth in reasonable detail the
calculations necessary to demonstrate compliance with Section 5.03,
provided that, in the event of any change in GAAP used in the
preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with
Section 5.03, a statement of reconciliation conforming such
financial statements to GAAP;
(ii) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, (A) a copy of the
annual audit report for such year for the Borrower and its
Subsidiaries, containing Consolidated balance sheets of the Borrower
and its Subsidiaries as of the end of such fiscal year and
Consolidated statements of income and cash flows of the Borrower and
its Subsidiaries for such fiscal year, in each case accompanied by
an opinion (without material qualification) by Arthur Andersen, LLP
or other independent public accountants acceptable to the Required
Lenders, provided that in the event of any change in GAAP used in
the preparation of such financial statements, the Borrower shall
also provide, if necessary for the determination of compliance with
Section 5.03, a statement of reconciliation conforming such
financial statements to GAAP and (B) consolidating balance sheets of
the Borrower and its Subsidiaries as of the end of such fiscal year
and consolidating statements of income and cash flows of the
Borrower and its Subsidiaries for such fiscal year;
(iii) as soon as possible and in any event within three
Business Days after any executive officer of the Borrower obtains
knowledge of the occurrence of any Default or any event, development
or occurrence reasonably likely to have a Material Adverse Effect
continuing on the date of such statement, a statement of the chief
financial officer of the Borrower setting forth details of such
Default or event, development or occurrence reasonably likely to
have a Material Adverse Effect and the action that the Borrower has
taken and proposes to take with respect thereto;
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(iv) promptly after the sending or filing thereof, copies of
all reports that the Borrower sends to its security holders
generally, and copies of all reports and effective registration
statements that the Borrower or any Subsidiary files with the
Securities and Exchange Commission or any national securities
exchange, other than registration statements filed on Form S-8, any
Form 11-K or any reports or filings made pursuant to PUHCA;
(v) promptly after the commencement thereof (or, if later, the
date that the Borrower determines that the applicable action or
proceeding is of the type described in Section 4.01(g)), notice of
all actions and proceedings before any court, governmental agency or
arbitrator against, or to the Borrower's knowledge affecting the
Borrower or any of its Material Subsidiaries of the type described
in Section 4.01(g);
(vi) promptly and in any event within 15 days after the
Borrower or within 30 days after any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred which event has
resulted or could reasonably be expected to result in liability
exceeding $10,000,000, a statement of the chief financial officer of
the Borrower describing such ERISA Event and the action, if any,
that the Borrower or such ERISA Affiliate has taken and proposes to
take with respect thereto;
(vii) promptly and in any event within three Business Days
after receipt thereof by the Borrower or any ERISA Affiliate, copies
of each notice from the PBGC stating its intention to terminate any
ERISA Plan or to have a trustee appointed to administer any ERISA
Plan;
(viii) promptly and in any event within 20 days after the
receipt thereof by the Borrower or within 30 days after the receipt
thereof by any ERISA Affiliate, a copy of the annual actuarial
report for each ERISA Plan the unfunded current liability of which
exceeds $10,000,000;
(ix) promptly and in any event within five Business Days after
receipt thereof by the Borrower or within 10 Business Days after
receipt thereof by any ERISA Affiliate from the sponsor of a
Multiemployer Plan, copies of each notice concerning (A) the
imposition of Withdrawal Liability by any such Multiemployer Plan on
the Borrower or an ERISA Affiliate in excess of $15,000,000 or the
incurrence of any current payment obligations on the Borrower or
such ERISA Affiliate in excess of $5,000,000, (B) the reorganization
or termination, within the meaning of Title IV of ERISA, of any such
Multiemployer Plan that is reasonably likely to result in the
imposition of liability on the Borrower or an ERISA Affiliate in
excess of $15,000,000 or the incurrence of any current payment
obligations on the Borrower or such ERISA Affiliate in excess of
$5,000,000 or (C) the amount of liability incurred, or that may be
incurred, by the Borrower or any ERISA Affiliate in connection with
any event described in clause (A) or (B);
(x) promptly after the assertion or occurrence thereof, notice
of any Environmental Action against or of any noncompliance by the
Borrower or any of its Material Subsidiaries with any Environmental
Law or Environmental Permit that would reasonably be expected to
have a Material Adverse Effect;
(xi) promptly and in any event within two Business Days after
receipt by the Borrower of notice of any change in the Borrower's
unsecured long-term debt ratings by Moody's or S&P; and
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(xii) such other information respecting the Borrower or any of
its Subsidiaries as any Lender through the Agent may from time to
time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender shall have any
Revolving Credit Commitment hereunder, the Borrower will not:
(a) Liens. Create or suffer to exist, or permit any of its Material
Subsidiaries to create or suffer to exist, any Lien on or with respect to
any of its properties, whether now owned or hereafter acquired, or assign,
or permit any of its Material Subsidiaries to assign, any right to receive
income, other than:
(i) Permitted Liens,
(ii) Liens to secure obligations of the Borrower's
Subsidiaries owing to the Borrower or to other direct Wholly Owned
Subsidiaries of the Borrower that have no debt outstanding other
than to the Borrower,
(iii) Liens existing on the date hereof (and not otherwise
included in any other subsection of this Section 5.02(a)) and listed
on Schedule 5.02(a) hereto,
(iv) Liens on any property acquired by the Borrower or any of
its Material Subsidiaries after the date hereof that are existing at
the time such property is so acquired and not created in
contemplation of the acquisition of such property,
(v) Liens on any property of any Person that becomes a
Subsidiary of the Borrower after the date hereof that are existing
at the time such Person becomes a Subsidiary, other than any such
Lien created in contemplation of such Person becoming a Subsidiary,
(vi) Liens securing Debt of the Borrower or any of its
Material Subsidiaries of the type described in Sections 3.03 and
3.04 of the Indenture; provided that, for purposes of this clause
(vi), (A) references to "Secured Debt", "Funded Debt" or "Debt" in
Sections 3.03 and 3.04 of the Indenture shall be deemed to refer to
"Debt" as defined herein, (B) references to the "Company" in Section
3.03 of the Indenture shall be deemed to refer to the "Borrower" or
any "Material Subsidiary" as defined herein, and (C) references to
"Significant Subsidiary" in Section 3.04 of the Indenture shall be
deemed to refer to any "Material Subsidiary" as defined herein,
(vii) assignments of receivables for collection in the
ordinary course;
(viii) sale of receivables in asset securitization
transactions;
(ix) other Liens securing Debt and other obligations in an
aggregate principal amount not to exceed $25,000,000 outstanding,
(x) other Liens and assignments, not securing Debt for
borrowed money, which, individually or in aggregate, are not
reasonably likely to have a Material Adverse Effect, provided that
the total aggregate principal amount of Debt or other obligations
secured by Liens and assignments under this clause (x) shall not
exceed $50,000,000 outstanding, and
(xi) except as otherwise restricted or prohibited in the
Indenture, the replacement,
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extension or renewal of any Lien permitted above upon or in the same
property theretofore subject thereto or the replacement, extension
or renewal (without increase in the amount or change in any direct
or contingent obligor) of the Debt secured thereby.
(b) Mergers. Merge or consolidate with or into, or sell, lease,
transfer or otherwise dispose of its property or assets as, or
substantially as, an entirety in a single transaction or a series of
transactions to, any Person, except that the Borrower may merge with any
other Person so long as the Borrower is the surviving corporation (or the
surviving corporation shall be approved by Lenders holding 80% of the
Revolving Credit Commitments), provided, in each case, that (i) no Default
shall have occurred and be continuing at the time of such proposed
transaction or would result therefrom and (ii) the Borrower shall be able
to satisfy all of the conditions set forth in Section 3.02 at the time of
such proposed transaction and immediately thereafter.
(c) Sale of Assets. Sell, convey, transfer or otherwise dispose of
(whether in one transaction or in a series of transactions), without the
written consent of the Required Lenders, (i) more than 25% of its equity
investments (measured as of the date of such sale, conveyance, transfer or
other disposition) in or (ii) more than 25% of the fair market value
(measured as of the date of such sale, conveyance, transfer or other
disposition) of the assets (excluding accounts receivable and current
inventory held for sale) of either one of the following groups:
Group I: Columbia Gas Transmission Corporation; Columbia Gulf
Transmission Company
Group II: Columbia Gas of Kentucky, Inc.; Columbia Gas of
Maryland, Inc.; Columbia Gas of Ohio, Inc.; Columbia Gas of
Pennsylvania, Inc.; Columbia Gas of Virginia, Inc.;
provided, however, that in no event may the aggregate of all sales,
conveyances, transfers and other dispositions by the Borrower from the
Effective Date through the Termination Date result in the sale,
conveyance, transfer or other disposition, without the written consent of
the Required Lenders, of (i) more than 25% of its equity investments
(measured as of the date hereof) in or (ii) more than 25% of the fair
market value (measured as of the date hereof) of the assets (excluding
accounts receivable and current inventory held for sale) of either one of
the above groups; and provided further, that any sales, conveyances,
transfers and other dispositions shall not be counted for purposes of this
covenant to the extent that proceeds therefrom are reinvested in any of
the entities listed in Group I or Group II and only to the extent that any
debt incurred by such entity in connection with such reinvestment would
have been permitted if the assets comprising such reinvestment were assets
held as of the date of this Agreement; and provided still further that, in
any calendar year, sales, conveyances, transfers or other dispositions of
property in the ordinary course of business with a value of up to
$10,000,000 collectively for Groups I and II shall not be counted for
purposes of this covenant.
(d) Limitation on Subsidiary Debt. Permit its Significant
Subsidiaries (as defined in the Indenture) to incur any Funded Debt (as
defined in the Indenture) other than as permitted in the Indenture.
(e) Limitation on Material Subsidiary Funding. Enter into any
agreement or understanding, and shall not permit any Material Subsidiary
to (except with the Borrower) enter into any agreement or understanding,
which by its terms limits, in any material respect, a Material
Subsidiary's ability to make funds available to the Borrower (whether by
way of dividend or other distribution or by way of repayment of
intercompany indebtedness); provided, however, that the foregoing shall
not prohibit (i) agreements and understandings to which a Subsidiary is a
party on the date such Subsidiary first becomes
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a Subsidiary, (ii) customary provisions in leases and other contracts that
prohibit the assignment thereof and (iii) agreements or understandings in
connection with Liens permitted hereunder that apply only to the property
subject to such Liens.
SECTION 5.03. Leverage Ratio. So long as any Advance shall remain unpaid,
any Letter of Credit shall be outstanding or any Lender shall have any Revolving
Credit Commitment hereunder, the Borrower will maintain a ratio of Total Debt to
the sum of Total Debt plus Tangible Net Worth of not greater than the amount set
forth below for each relevant period set forth below:
<TABLE>
<CAPTION>
Relevant Period Ratio
--------------- -----
<S> <C>
Effective Date - 12/30/98 0.675:1.00
12/31/98 - 12/30/00 0.650:1.00
12/31/00 - Termination Date 0.625:1.00
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or the Borrower shall fail to pay any
interest on any Advance or make any other payment of fees or other amounts
payable under this Agreement, any Loan Document or any 364-Day Loan
Document within five Business Days after the same becomes due and payable;
or
(b) any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with or pursuant to
this Agreement shall prove to have been incorrect in any material respect
when made; or
(c) (i) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d) (as it applies to the
Borrower's existence) or (h), 5.01(i)(vi) through (ix), 5.02 or 5.03, or
(ii) the Borrower shall fail to perform or observe any term, covenant or
agreement contained in Section 5.01(e) or (i) (other than 5.01(i)(vi)
through (ix)) and such failure shall remain unremedied for 10 days after
written notice thereof shall have been given to the Borrower by the Agent
or any Lender and (iii) the Borrower shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement on its part
to be performed or observed and such failure shall remain unremedied for
30 days after written notice thereof shall have been given to the Borrower
by the Agent or any Lender; or
(d) (i) the Borrower or any of its Material Subsidiaries (other than
any Project Finance Subsidiaries) shall fail to pay any principal of or
premium or interest on any Debt that is outstanding in a principal amount
of at least $30,000,000 in the aggregate (but excluding Debt outstanding
hereunder) of the Borrower or such Subsidiary (as the case may be), when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or (ii) any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate the maturity of such
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Debt; or (iii) any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof; provided,
however, that the foregoing clauses (ii) and (iii) shall not apply to any
Debt that becomes due or is required to be repaid as a result of the sale
or other disposition of, or any casualty or condemnation with respect to,
any property securing such Debt, the voluntary termination of any
Capitalized Lease, or other circumstances that are not in the nature of a
default by or altered circumstances of the obligor in respect of such
Debt; or
(e) the Borrower or any of its Material Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against the Borrower or any of its Material Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property under any such law and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding
shall remain undismissed or unstayed for a period of 60 days, or any of
the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or the Borrower or any of
its Material Subsidiaries shall take any corporate action to authorize any
of the actions set forth above in this subsection (e); or
(f) any final judgment or non-appealable order for the payment of
money in excess of $30,000,000 shall be rendered against the Borrower or
any of its Material Subsidiaries and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order or
(ii) there shall be any period of 30 consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) any non-monetary judgment or order shall be rendered against the
Borrower or any of its Subsidiaries that could be reasonably expected to
have a Material Adverse Effect, and there shall be any period of ten
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(h) (i) any Person or two or more Persons acting in concert
(excluding any thrift plan or any other employee benefit plan of the
Borrower) shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of Voting Stock of the
Borrower (or other securities convertible into such Voting Stock)
representing 20% or more of the combined voting power of all Voting Stock
of the Borrower (determined on a fully diluted basis); or (ii) during any
period of up to 24 consecutive months, commencing after the date of this
Agreement, individuals who at the beginning of such 24-month period were
directors of the Borrower shall cease for any reason to constitute a
majority of the board of directors of the Borrower (it being understood
that, for purposes of this clause, individuals elected to become new
directors of the Borrower during a 24-month period shall be deemed to have
been directors of the Borrower at the beginning of such period if the
election or nomination of such individuals as directors was approved by a
majority of those individuals who at the beginning of such 24-month period
were directors of the Borrower and any new directors so approved); or
(iii) any Person or two or more Persons acting in concert shall have
acquired by contract or otherwise (excluding employment contracts with
officers of the Borrower), or shall have entered into a contract or
arrangement (excluding employment contracts with officers of the Borrower)
that, upon consummation, will result in its or their
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acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the Borrower; or
(i) the Borrower or any of its ERISA Affiliates shall incur, or, in
the reasonable opinion of the Required Lenders, shall be reasonably likely
to incur liability in excess of $30,000,000 in the aggregate as a result
of one or more of the following: (i) the occurrence of any ERISA Event;
(ii) the partial or complete withdrawal of the Borrower or any of its
ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or
termination of a Multiemployer Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances (other than Letter of Credit
Advances) or to issue Letters of Credit to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower under the
Federal Bankruptcy Code (A) the obligation of each Lender to make Advances
(other than Letter of Credit Advance) and issue Letters of Credit shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
SECTION 6.02. Actions in Respect of Letters of Credit upon Default. If any
Event of Default shall have occurred and be continuing, the Agent may,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Agent on behalf of the Lenders in same day
funds at the Agent's office designated in such demand, for deposit in the L/C
Cash Collateral Account, an amount equal to the aggregate Available Amount of
all Letters of Credit then outstanding. If at any time the Agent determines that
any funds held in the L/C Cash Collateral Account are subject to any right or
claim of any Person other than the Agent and the Lenders or that the total
amount of such funds is less than the aggregate Available Amount of all Letters
of Credit, the Borrower will, forthwith upon demand by the Agent, pay to the
Agent, as additional funds to be deposited and held in the L/C Cash Collateral
Account, an amount equal to the excess of (a) such aggregate Available Amount
over (b) the total amount of funds, if any, then held in the L/C Cash Collateral
Account that the Agent determines to be free and clear of any such right and
claim.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this
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Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
payee of any Note as the holder thereof until the Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section
8.07; (ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement on the part of the Borrower or
to inspect the property (including the books and records) of the Borrower; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its Revolving
Credit Commitment the Advances made by it and the Note issued to it, Citibank
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Agent; and the term "Lender"
or "Lenders" shall, unless otherwise expressly indicated, include Citibank in
its individual capacity. Citibank and its Affiliates may accept deposits from,
lend money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or own
securities of the Borrower or any such Subsidiary, all as if Citibank were not
the Agent and without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders (other than the Designated
Bidders) agree to indemnify the Agent (to the extent not reimbursed by the
Borrower), ratably according to the respective principal amounts of the
Revolving Credit Notes then held by each of them (or if no Revolving Credit
Notes are at the time outstanding or if any Revolving Credit Notes are held by
Persons that are not Lenders, ratably according to the respective amounts of
their Revolving Credit Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender (other than
the Designated Bidders) agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights
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or responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any time by giving
ten days' written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent with the consent of the Borrower (which consent shall not be
unreasonably withheld). If no successor Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders with the consent of the Borrower (which consent shall not be
unreasonably withheld), appoint a successor Agent, which shall be a commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $50,000,000. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
SECTION 7.07. Senior Managing Agents and Co-Documentation Agents as
Lenders. No Senior Managing Agent and or Co-Documentation Agent shall have any
rights, responsibilities or obligations other than as a Lender hereunder.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. Other than as specified in Section 2.01(b)
or 5.02(b), no amendment or waiver of any provision of this Agreement or the
Notes, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Required Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders (other than the Designated Bidders), do any of the
following: (a) waive any of the conditions specified in Section 3.01, (b)
increase the Revolving Credit Commitments of the Lenders or subject the Lenders
to any additional obligations, (c) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable to the Lenders hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable to the Lenders hereunder, (e) change
the percentage of the Revolving Credit Commitments of the aggregate unpaid
principal amount of the Notes, or the number of Lenders, that shall be required
for the Lenders or any of them to take any action hereunder or (f) amend this
Section 8.01; and provided further that no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Lenders required
above to take such action, affect the rights or duties of the Agent under this
Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier, telegraphic or telex
communication) and mailed, telecopied, telegraphed, telexed or delivered, if to
the Borrower, at its address at 12355 Sunrise Valley Drive, Suite 300, Reston,
VA 20191, Attention: Treasurer; if to any Initial Lender, at its Domestic
Lending Office specified opposite its name on Schedule I hereto; if to any other
Lender, at its Domestic Lending Office specified in the Assignment and
Acceptance pursuant to which it became a Lender; and if to the Agent, at its
address at 2 Penn's Way, Suite 200, New Castle, Delaware 19720, Attention: Pia
Saenganan with a copy to Citicorp Securities, Inc., 1200 Smith
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Street, Suite 2000, Houston, Texas 77002, Attention: David Gorte, or, as to the
Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrower and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed or telexed, be effective when deposited in the
mails, telecopied, delivered to the telegraph company or confirmed by telex
answerback, respectively, except that notices and communications to the Agent
pursuant to Article II, III or VII shall not be effective until received by the
Agent. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement or the Notes or of any Exhibit hereto
to be executed and delivered hereunder shall be effective as delivery of a
manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or
the Agent to exercise, and no delay in exercising, any right hereunder or under
any Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses; Indemnification; Limitation of
Liability. (a) The Borrower agrees to pay on demand all costs and expenses of
the Agent and the Arranger in connection with the preparation, execution,
delivery, administration, modification and amendment of this Agreement, the
Notes and the other documents to be delivered hereunder, including, without
limitation, (i) all due diligence, syndication (including expenses related to
printing, distribution and bank meetings), transportation, computer and
duplication expenses and (ii) the reasonable fees and expenses of counsel for
the Agent and the Arranger with respect thereto and with respect to advising the
Agent and the Arranger as to their respective rights and responsibilities under
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses of the Agent, the Arranger and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).
(b) (i) The Borrower agrees to indemnify and hold harmless the Agent, the
Arranger, each Managing and Co-Syndication Agent, each Lender and each Issuing
Lender and each of their Affiliates and their officers, directors, employees,
agents and advisors (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and reasonable expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of, or in connection with the preparation for
a defense of, any investigation, litigation or proceeding arising out of,
related to or in connection with (i) the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances and (ii) the issuance of any Letter of Credit or the payment of
any amount thereunder, in each case whether or not such investigation,
litigation or proceeding is brought by the Borrower, its directors, shareholders
or creditors or an Indemnified Party or any other Person or any Indemnified
Party is otherwise a party thereto and whether or not the transactions
contemplated hereby are consummated, except to the extent such claim, damage,
loss, liability or expense is found in a final, non-appealable judgment by a
court of competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct.
(ii) Any action, inaction or omission suffered or taken by any Issuing
Lender in connection with any Letter of Credit, if taken in good faith and in
conformity with foreign or U.S. laws or regulations, shall be binding upon the
Borrower and shall not place any Issuing Lender under any resulting liability to
the Borrower. Without limiting the generality of the foregoing, the Issuing
Lenders (a) may act in reliance upon any oral, telephonic, telegraphic,
facsimile electronic or written request or notice in good faith believed to have
been authorized by the Borrower, (b) shall not be responsible for the form,
genuineness, identity or authority of any signer, or falsification or legal
effect of documents presented under any Letter of Credit, if such documents on
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their face appear to be in order, (c) may accept or pay as complying with the
terms of any Letter of Credit any drafts or other documents appearing on their
face to be signed by or issued to the administrator, executor, successor or
trustee in bankruptcy of, or the receiver of any property of, or any other
person or entity acting as the representative or in the place of the
beneficiary, (d) may waive inconsequential discrepancies and letter of credit
terms imposed solely for bank convenience or bank protection and (e) shall be
fully protected in acting in accordance with any prevailing banking usage.
Assistance provided by any Issuing Lender in preparing the text of any Letter of
Credit shall not deem such Issuing Lender the drafter of such Letter of Credit
and such Issuing Lender shall not be responsible for the effectiveness or
suitability of such Letter of Credit for the Borrower's commercial purpose.
Notwithstanding anything contained in this Section 8.04(b) or in Section
2.06(c)(ii), no Issuing Lender will be excused from any liability for damage,
loss or expense if such damage, loss or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Issuing Lender's gross negligence or willful misconduct; provided,
however, that no Issuing Lender shall be liable to the Borrower for any
consequential or special damages relating to any Letter of Credit.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance or LIBO Rate Advance is made by the Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or
2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, the Borrower shall, upon demand by such Lender (with a copy of
such demand to the Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.12, 2.15 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Setoff. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the obligations of the Borrower
now or hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such setoff and application, provided
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of each Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) that such Lender and its Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective (other
than Sections 2.01 and 2.03, which shall only become effective upon satisfaction
of the conditions precedent set forth in Section 3.01) when it shall have been
executed by the Borrower and the Agent and when the Agent shall have been
notified by each Initial Lender that such Initial Lender has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent and each Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments, Designations and Participations. (a) Each
Lender (other than the Designated Bidders) may, upon the written consent of the
Borrower (which consent shall not be unreasonably
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withheld) and, if demanded by the Borrower (following a demand by such Lender
pursuant to Section 2.12 or 2.15 or notice from such Lender pursuant to Section
2.13) upon at least five Business Days' notice to such Lender and the Agent,
will, assign to one or more Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Credit Commitment, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations under this Agreement (other than any right to make Competitive Bid
Advances, Competitive Bid Advances owing to it and Competitive Bid Notes), (ii)
except in the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Revolving Credit Commitment
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than the lesser of (A) 1% of the total
Revolving Credit Commitment, (B) $5,000,000 or (C) the full amount of such
assigning Lender's Revolving Credit Commitment, (iii) unless an assigning Lender
assigns the full amount of its Revolving Credit Commitment, such assigning
Lender may not assign Revolving Credit Commitments such that its remaining
Revolving Credit Commitments are in an amount less than the lesser of (A) 1% of
the total Revolving Credit Commitment or (B) $5,000,000, (iv) each such
assignment shall be to an Eligible Assignee, (v) each such assignment made as a
result of a demand by the Borrower pursuant to this Section 8.07(a) shall be
arranged by the Borrower after consultation with the Agent and shall be either
an assignment of all of the rights and obligations of the assigning Lender under
this Agreement or an assignment of a portion of such rights and obligations made
concurrently with another such assignment or other such assignments that
together cover all of the rights and obligations of the assigning Lender under
this Agreement, (vi) no Lender shall be obligated to make any such assignment as
a result of a demand by the Borrower pursuant to this Section 8.07(a) unless and
until such Lender shall have received one or more payments from either the
Borrower or one or more Eligible Assignees in an aggregate amount at least equal
to the aggregate outstanding principal amount of the Advances owing to such
Lender, together with accrued interest thereon to the date of payment of such
principal amount and all other amounts payable to such Lender under this
Agreement, and (vii) the parties to each such assignment shall provide the Agent
with written notice of such assignment and shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Revolving Credit Note subject to such assignment
and a processing and recordation fee of $3,000 (provided, that in the case of a
ratable assignment of a Lender's Revolving Credit Commitments and such Lender's
commitments under the 364-Day Loan Documents, such processing and recordation
fee shall only be payable once with respect to both assignments); provided
further that in the case of an assignment by any Lender to an Affiliate of such
Lender, or an assignment by any Lender to any other Lender, the Borrower must be
given written notice thereof, but the consent of the Borrower shall not be
required. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such
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assignee confirms that it has received a copy of this Agreement, together with
copies of the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, subject to the Borrower's consent
thereto (if required), (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within ten Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Revolving Credit Note a new Note to the order of
such Eligible Assignee in an amount equal to the Revolving Credit Commitment
assumed by it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Revolving Credit Commitment hereunder, a new Revolving
Credit Note to the order of the assigning Lender in an amount equal to the
Revolving Credit Commitment retained by it hereunder. Such new Revolving Credit
Note or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Revolving Credit Note or Notes, shall be
dated the effective date of such Assignment and Acceptance and shall otherwise
be in substantially the form of Exhibit A-1 hereto.
(d) Each Lender (other than the Designated Bidders) may designate one or
more banks or other entities to have a right to make Competitive Bid Advances as
a Lender pursuant to Section 2.03; provided, however, that (i) no such Lender
shall be entitled to make more than two such designations, (ii) each such Lender
making one or more of such designations shall retain the right to make
Competitive Bid Advances as a Lender pursuant to Section 2.03, (iii) each such
designation shall be to a Designated Bidder and (iv) the parties to each such
designation shall execute and deliver to the Agent, for its acceptance and
recording in the Register, a Designation Agreement. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Designation Agreement, the designee thereunder shall be a party hereto
with a right to make Competitive Bid Advances as a Lender pursuant to Section
2.03 and the obligations related thereto.
(e) By executing and delivering a Designation Agreement, the Lender making
the designation thereunder and its designee thereunder confirm and agree with
each other and the other parties hereto as follows: (i) such Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such designee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Designation Agreement; (iv) such designee will, independently and without
reliance upon the Agent, such designating Lender or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such designee confirms that it is a
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Designated Bidder; (vi) such designee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers and discretion as are reasonably incidental thereto; and (vii)
such designee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(f) Upon its receipt of a Designation Agreement executed by a designating
Lender and a designee representing that it is a Designated Bidder, the Agent
shall, if such Designation Agreement has been completed and is substantially in
the form of Exhibit D hereto, (i) accept such Designation Agreement, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower.
(g) The Agent shall maintain at its address referred to in Section 8.02 a
copy of each Assignment and Acceptance and each Designation Agreement delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and, with respect to Lenders other than Designated
Bidders, the Revolving Credit Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(h) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Revolving Credit Commitment, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Revolving Credit Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Note for all purposes of this Agreement, (iv) the Borrower, the
Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any Note, or any consent to any departure by the Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation.
(i) Any Lender may, in connection with any assignment, designation or
participation or proposed assignment, designation or participation pursuant to
this Section 8.07, disclose to the assignee, designee or participant or proposed
assignee, designee or participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower; provided that, prior
to any such disclosure, the assignee, designee or participant or proposed
assignee, designee or participant shall agree to preserve the confidentiality of
any Confidential Information relating to the Borrower received by it from such
Lender on the terms set forth in Section 8.08.
(j) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 8.08 Confidentiality. Neither the Agent nor any Lender shall
disclose any
51
<PAGE> 56
Confidential Information to any other Person without the consent of the
Borrower, other than (a) to the Agent's or such Lender's Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 8.07(i), to actual or prospective assignees and participants, provided
that any Person to whom disclosure is made shall agree to be bound by this
Section, (b) as required by any law, rule or regulation or judicial process,
provided that, to the extent practicable, prior notice of such disclosure shall
be given to the Borrower, (c) to any rating agency when required by it, provided
that, prior to any such disclosure, such rating agency shall undertake to
preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender, and (d) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
Each Lender and each other Person required to preserve the confidentiality of
Confidential Information hereunder shall use such information only for purposes
of evaluating extensions of credit to the Borrower and its Subsidiaries.
SECTION 8.09. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York. Each Letter of Credit issued under this Agreement shall be governed by,
and construed in accordance with, the Uniform Customs and Practice for
Documentary Credits, version 500, published by the International Chamber of
Commerce (the "UCP") or such later version in effect at the time of the issuance
of the Letter of Credit. Matters not addressed by the UCP shall be subject to
and governed by the laws of the State of New York.
SECTION 8.10 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court for
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement or
the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
SECTION 8.12. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
52
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COLUMBIA ENERGY GROUP
By
--------------------------------------
Title:
CITIBANK, N.A.,
as Administrative Agent
By /s/ Mark Stanfield Packard
--------------------------------------
Name: MARK STANFIELD PACKARD
Title: Vice President
Initial Lenders
Revolving Credit
Commitment
$50,000,000.00 CITIBANK, N.A.,
By /s/ Mark Stanfield Packard
--------------------------------------
Name: MARK STANFIELD PACKARD
Title: Vice President
Revolving Credit
Commitment
$50,000,000.00 PNC BANK, NATIONAL ASSOCIATION
By /s/ Thomas A. Majeski
--------------------------------------
Name: Thomas A. Majeski
Title: Vice President
<PAGE> 58
Initial Lenders (continued)
Revolving Credit
Commitment
$50,000,000.00 THE CHASE MANHATTAN BANK
By /s/ Mary Jo Woodford
--------------------------------------
Name: MARY JO WOODFORD
Title: VICE PRESIDENT
Revolving Credit
Commitment
$50,000,000.00 MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By /s/ Kathryn Sayko-Yanes
--------------------------------------
Name: KATHRYN SAYKO-YANES
Title: VICE PRESIDENT
Revolving Credit
Commitment
$33,333,333.33 BANK OF MONTREAL
By /s/ Elizabeth F. Trapp
--------------------------------------
Name: Elizabeth F. Trapp
Title: Director
Revolving Credit
Commitment
$33,333,333.33 CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Michael A.G. Corkum
--------------------------------------
Name: Michael A.G. Corkum
Title: AUTHORIZED SIGNATORY
<PAGE> 59
Initial Lenders (continued)
Revolving Credit
Commitment
$25,000,000.00 BANKERS TRUST COMPANY
By /s/ Mr. Marcus M. Tarkington
--------------------------------------
Name: Mr. Marcus M. Tarkington
Title: Principal
Revolving Credit
Commitment
$10,000,000.00 BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By /s/ J. A. Don
--------------------------------------
Name: J. A. DON
Title: VP & MGR
Revolving Credit
Commitment
$6,666,666.66 UNION BANK OF CALIFORNIA
By /s/ David A. Musicant
--------------------------------------
Name: David A. Musicant
Title: Vice President
Revolving Credit
Commitment
$16,666,666.67 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Madeleine N. Pember
--------------------------------------
Name: MADELEINE N. PEMBER
Title: Assistant Vice President
<PAGE> 60
Initial Lenders (continued)
Revolving Credit
Commitment
$16,666,666.67 THE FIRST NATIONAL BANK OF MARYLAND
By /s/ Shaun E. Murphy
--------------------------------------
Name: Shaun E. Murphy
Title: Senior Vice President
Revolving Credit
Commitment
$16,666,666.67 FIRST UNION NATIONAL BANK
By /s/ Michael J. Kolosowsky
--------------------------------------
Name: MICHAEL J. KOLOSOWSKY
Title: VICE PRESIDENT
Revolving Credit
Commitment
$16,666,666.67 NATIONAL CITY BANK
By /s/ Jeffrey L. Hawthorne
--------------------------------------
Name: JEFFREY L. HAWTHORNE
Title: VICE PRESIDENT
Revolving Credit
Commitment
$15,000,000.00 COMMERZBANK
By /s/ Dempsey L. Gable
--------------------------------------
Name: Dempsey L. Gable
Title: Senior Vice President
/s/ Andrew Kjoller
--------------------------------------
Andrew Kjoller
Assistant Treasurer
<PAGE> 61
Initial Lenders (continued)
Revolving Credit
Commitment
$10,000,000.00 ARAB BANK, PLC
By /s/ Michael Barker
--------------------------------------
Name: Michael Barker
Title:
Revolving Credit
Commitment
$10,000,000.00 THE BANK OF NOVA SCOTIA
By /s/ F. C. Ashby
--------------------------------------
Name: F. C. H. Ashby
Title: Senior Manager
Loan Operations
Revolving Credit
Commitment
$10,000,000.00 CRIDIT AGRICOLE INDOSUEZ
By /s/ Dean Balice
--------------------------------------
Name: DEAN BALICE
Title: SENIOR VICE PRESIDENT
BRANCH MANAGER
By /s/ David Eouhl
--------------------------------------
Name: DAVID EOUHL F.V.P.
Title: HEAD OF CORPORATE BANKING
CHICAGO
Revolving Credit
Commitment
$10,000,000.00 CRESTAR BANK
By /s/ Nancy R. Petrash
--------------------------------------
Name: Nancy R. Petrash
Title: Senior Vice President
<PAGE> 62
Initial Lenders (continued)
Revolving Credit
Commitment
$10,000,000.00 BANCA MONTE DEI PASCHI DI SIENA, S.p.A.
By /s/ S. M. Sondak
--------------------------------------
Name: S. M. Sondak
Title: F.V.P. & Dep. General Manager
By /s/ Brian R. Landy
--------------------------------------
Name: Brian R. Landy
Title: Vice President
Revolving Credit
Commitment
$10,000,000.00 SOCIETE GENERALE
By /s/ Gordon Eadon
--------------------------------------
Name: Gordon Eadon
Title: Vice President
<PAGE> 1
Exhibit 10-CF
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU.") is made and entered into as
of this 1st day of December, 1997 by and between Columbia Gas Transmission
Corporation ("Columbia"), Westcoast Energy (U.S.), Inc. ("Westcoast"), MCN
Investment Corporation ("MCN"), and TransCanada PipeLines Limited
("TransCanada"), sometimes collectively referred to herein as the "Parties" and
each individually as a "Party").
RECITALS:
A. Columbia currently owns and operates as part of its interstate
natural gas transmission system the following facilities: (1) Line A-5,
consisting of 8" to 24" diameter pipe located in the State of New York; (2) the
portion of Line 1278 and Line K from Milford, Pennsylvania to its
interconnection with Line A-5; and (3) other related lines, appurtenant
facilities, land and land rights (collectively referred to herein as the "A-5
System").
B. The Parties desire to form a new entity (the "Enterprise") which
would acquire a portion of the A-5 System and add new facilities to operate as a
new interstate natural gas transmission system. The resulting system is planned
to extend from a new Lake Erie export point interconnecting with TransCanada
PipeLines Limited to a terminus in Westchester County, New York as described on
Exhibit A attached hereto (the "Project").
C. The Parties are desirous of entering into this MOU in order to (i)
set out their respective participation interests in the Project, (ii) ascertain
the potential demand for the Project, including assessment of supply, end-use
demand, pricing, preliminary routing and potential regulatory and environmental
issues for the Project, (iii) provide for a method of funding the activities of
the Parties and (iv) provide for the management of the Project, all prior to or
concurrently with the negotiation and execution of definitive agreements
concerning the ownership, structure and operation of the Enterprise.
NOW, THEREFORE, in consideration of the mutual benefits to be derived,
the representations, warranties, conditions and promises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
1
<PAGE> 2
ARTICLE 1
PROJECT DEVELOPMENT, MANAGEMENT AND OWNERSHIP
1.1 Project. The Project will consist of the acquisition of a portion
of the A-5 System and the development of new facilities into an approximately
400 mile long 24 and 36 inch diameter high pressure natural gas pipeline with a
preliminary estimated capacity to exceed 575 MMcf per day.
1.2 Ownership. The ownership of the Enterprise and the participation
interests in the Project shall be as follows:
Columbia 47.5%
Westcoast 21%
MCN 10.5%
TransCanada 21%
The admittance of a new party to the Enterprise and the Project shall be
permitted, subject to Section 6.03, only by the unanimous vote of the Management
Committee.
1.3 Equity Contribution. Each Party's equity contribution to the
Enterprise shall equal its percentage ownership interest in the Enterprise;
provided, however, Columbia's contribution will consist, in part, of a portion
of the A-5 System. The value of Columbia's A-5 System contribution will be the
net book value of the A-5 System (partial facilities, easements and
rights-of-way) assigned to the Enterprise which Columbia estimates to be
approximately $18,400,000 (U.S.) at May, 1999. This contribution shall be
reduced by the cost of any environmental remediation to the contributed
facilities, which Columbia estimates to be approximately $1,000,000 (U.S.).
Furthermore, this contribution will be made to the Enterprise pursuant to an
agreement (the "Contribution Agreement") that addresses, among other things,
final valuation of the contribution, the appropriate representations and
warranties as to title and condition of the assets, and agreement on
pre-existing liabilities.
1.4 Development of Project. Columbia will construct, operate and
maintain the Project for the Enterprise under competitive rates and in
accordance with a development agreement (the "Development Agreement") and an
operating, maintenance and management agreement (the "Operating Agreement") to
be negotiated between Columbia and the Enterprise. It is anticipated that
Columbia, pursuant to the Development Agreement and Operating Agreement, will be
reimbursed for certain indirect expenditures incurred in connection with the
development of the Project and operation of the Enterprise.
1.5 Definitive Agreements. Following completion of the feasibility
assessment referred to in Section 2.01 and a finding by the Management Committee
that the Project is feasible, the Parties agree to utilize commercially prudent
efforts to negotiate any and all definitive agreements, including but not
limited to the Development Agreement, the Operating Agreement, the Contribution
Agreement, and all other agreements that are necessary to form the Enterprise
and to develop, operate and manage the Project (collectively, the "Definitive
Agreements").
2
<PAGE> 3
ARTICLE 2
PROJECT IMPLEMENTATION, FEASIBILITY AND MANAGEMENT
2.1 Feasibility of Project. During the term of this MOU, the Parties,
including any additional parties which may be admitted to the Enterprise, agree
to work together to assess the overall feasibility of the Project. Such
feasibility shall include, but not be limited to, various studies, engineering
and analysis, rate design, marketing activities and Open Season participation.
Subsequent to a finding by the Management Committee that the Project is
feasible, the Parties intend to develop, finance, construct and operate the
Project. Attached hereto as Exhibit B is the schedule setting forth the proposed
time line for accomplishing certain objectives for the Project.
2.2 Management Committee. During the term of the MOU, the Project shall
be managed by a Management Committee (the "Management Committee") which shall be
comprised of one (1) representative from each Party. Each Party shall appoint
and designate in writing their own representative to serve on the Management
Committee. The initial representatives to serve on the Management Committee upon
the execution of this MOU shall be:
(a) Columbia Representative: David Pentzien
(b) Westcoast Representative: John Wolnik
(c) MCN Representative: Mike Feodorov
(d) TransCanada Representative: Brian Fowler
The representatives shall serve on the Management Committee until such time as
he or she resigns, is replaced by another representative, or the appointing
party ceases to be a Party. Each Party shall have the right from time to time
and at any time to designate in writing to the other Parties an alternate or
substitute representative to serve on the Management Committee. It is
anticipated by the Parties that the Definitive Agreements will provide for the
same management structure as set forth in this MOU with such modifications as
may be agreed by the Parties.
2.3 Duties of Management Committee. The Management Committee shall
conduct, direct and exercise full control over all activities of the Enterprise
and the Project. Except as otherwise expressly provided herein, all management
powers over the business and affairs of the Project and Enterprise shall be
exclusively vested in the Management Committee. The Management Committee shall
have full power and authority to do all things necessary or desirable by it to
further the development of the Project and formation of the Enterprise.
2.4 Chairman of the Management Committee. The Parties hereby agree that
Columbia shall have the right to appoint the initial Chairman of the Management
Committee for a term of (2) years after the in service date. The Chairman shall
disburse all payments, maintain accounts and financial records and carry on all
other financial matters in furtherance of the Enterprise. The Chairman shall
have the authority to make all approved expenditures on behalf of the Enterprise
and to make expenditures which vary from the budgeted amounts so long as such
budget modifications do not cause the cumulative budget amount to exceed lesser
of (a) ten
3
<PAGE> 4
percent (10%) of the cumulative budget or (b) $5,000 (U.S.) without approval
from the Management Committee. In addition, the Chairman shall be responsible
for notifying the representatives of each meeting of the Management Committee,
presiding over each such meeting and ensuring that accurate minutes of each
meeting are kept and distributed to each representative.
2.5 Meetings of the Management Committee. The business of the
Management Committee shall be conducted at regular meetings, which shall be
held, at such date, time and place as shall from time to time be determined by
the Management Committee upon two (2) days advance written notice. In no event
shall meetings occur less than once a month.
2.6 Voting. Except as otherwise provided herein, the day!to!day
business activities of the Enterprise shall be approved by the affirmative vote
of at least two members of the Management Committee representing at least fifty
and one-tenth percent (50.1%) of the proposed ownership interests in the
Enterprise as set forth in Section 1.02. Voting may be in person, by proxy or in
any other manner as deemed appropriate by the Management Committee. The
following decisions shall require the approval of all of the members of the
Management Committee entitled to vote thereon:
(a) Approval of the Contribution Agreement
(b) Approval of the Development Agreement
(c) Approval of the Operating Agreement
(d) Approval of the Lease Agreement
(e) Subject to Section 2.04, amendment of the 1997 and
1998 Budgets
(f) Any other material agreement by Columbia on behalf of
the Project with Columbia or its affiliates
(g) A finding the Project is feasible pursuant to Section
2.01
(h) All precedent agreements
2.7 Action Without Meeting. Any action required or permitted to be
taken by the Management Committee at any meeting may be taken without a meeting
if a consent in writing setting forth the action so taken is signed by all of
the representatives of the Management Committee. Such consent shall have the
same force and effect as if such action was taken at a meeting of the Management
Committee.
2.8 Telephone Meetings. The Management Committee may hold, and each
member thereof may participate in, a meeting of the Management Committee by
using conference telephone or similar communications equipment by means of which
all members participating in the meeting can hear each other, and participation
in such meeting shall constitute presence in person at such meeting.
4
<PAGE> 5
ARTICLE 3
BUDGET AND CASH CONTRIBUTIONS
3.1 Budget. The initial budget (the "Budget"), delineated by line item
of expenditure for each month for 1997 is attached hereto as Schedule 3.01. Upon
request, the Parties shall be entitled to receive a full accounting of all
expenditures to date and shall be entitled to audit such costs.
3.2 Cash Calls. At the direction of the Management Committee, the
Chairman shall make written calls for cash contributions ("Cash Calls") from the
Parties to fund the Budget. Such Cash Calls shall be made no more frequently
than once a month. Each Party's contribution shall be proportionate to the
equity participation in the Project described in Section 1.02 of this MOU. Each
Party shall bear its proportionate share of all historical costs and expenses
incurred by Columbia through and including the date of execution of this
Agreement and shall pay such proportionate shares of costs and expenses to
Columbia on or before ten (10) days of execution of this Agreement; provided
that any such payment shall be subject to adjustment if the Management Committee
so determines as a result of any audit performed pursuant to Section 3.01. Each
Party shall tender its share of the Cash Call within ten (10) days of receipt of
the notice of such Cash Call from the Chairman. Any payments not made timely
shall accrue interest charges at the prime rate of interest charged by Citibank,
N.A. for the applicable period plus two (2) percentage points. If a Party
remains in arrears on the payment of any Cash Call for more than forty-five (45)
days, then the representatives of those Parties of the Management Committee
representing at least a majority of the proposed ownership interest in the
Project who are not in arrears with respect to any Cash Calls may by written
notice terminate that Party's rights to participate in the Enterprise, with no
recourse against the remaining Parties and with no right to refund of amounts
already paid in response to Cash Calls. In addition, the defaulting Party shall
remain liable for all unpaid Cash Calls for which that Party remains in arrears.
3.3 Recoverable Costs. The recovery of expenses associated with
employees of individual Parties will not be permitted unless provided for in the
Budget or expressly approved by the Management Committee. Attached hereto as
Schedule 3.03 is a list of all Columbia employees that are permitted to recover
labor and reasonable overhead expenses and all reasonable travel and travel
related expenses that are for the benefit of the Project. These expenses are
reflected in Schedule 3.01. Employee expenses of non Columbia employees which
are permitted to be recovered shall be recoverable at the rate of $400.00 per
day plus all reasonable travel and travel related expenses of such employees
that are for the benefit of the Project and approved by the Management
Committee, provided they are submitted within 45 days of the end of the month in
which the expenses were incurred. All costs and expenses incurred by the Parties
prior to the execution of this MOU shall be deemed to be contributions to the
Enterprise only if such costs and expenses are approved by the Management
Committee and submitted within 45 days of execution of the MOU.
5
<PAGE> 6
ARTICLE 4
NON-COMPETITION AND CONFIDENTIALITY
4.1 Non-Compete. The Parties agree to work exclusively with one
another, to evaluate the Project and to complete the Project if the results of
the due diligence and studies indicate positive feasibility. The Parties agree
not to participate in the development of or invest in, directly or indirectly as
an equity participant, any other greenfield project or venture into the U.S.
Northeast which, if developed, would offer natural gas transportation services
in competition with the Project until the later of (a) the filing of the
application for approval of a FERC certificate of public convenience and
necessity authorizing the Project or (b) the expiration of one (1) year from the
date of this MOU, unless a Party discloses such interest in a potentially
competing project and receives written consent to participate from the
Management Committee. The Parties shall be free to pursue any complimentary or
non-competing ventures without the participation of any other Party. The Parties
hereby agree that Columbia's service on its existing transmission system and
Columbia's market expansion project authorized pursuant to FERC Docket No.
CP96-213 will not be deemed as a violation of its covenant not to compete. The
Parties further acknowledge that Westcoast is involved in the Maritimes and
Northeast Pipeline Project, MCN is involved in the Portland Natural Gas
Transmission Project, and TransCanada is involved in the TransMaritime Gas
Transmission Project, Iroquois Gas Transmission and the Portland Natural Gas
Transmission Project, as well as the TransCanada PipeLine, Limited Canadian
Mainline, and the Parties agree that participation or ownership in any of the
aforementioned projects or pipelines, or any contemplated or future expansions
thereof, will not be a violation of the covenant not to compete.
4.2 Confidentiality. The Parties agree that the nature, existence and
terms of this MOU shall be subject to the terms and conditions of the
Confidentiality Agreements (the "Confidentiality Agreements") previously
executed by the Parties.
ARTICLE 5
TERMINATION
5.1 Definitive Agreement Supersedes. Upon the execution of the
Definitive Agreements contemplated in Section 1.05, this MOU shall be wholly
superseded.
5.2 Project Not Feasible. Upon unanimous determination by the Parties
in writing that the Project is not feasible and will not be pursued, this MOU
shall terminate with no continuing rights or obligations except as provided in
Section 4.02; provided, however, that the covenant not to compete will be
released for all Parties. Further, should this MOU be terminated as provided for
in this Section 5.02, the Parties shall not be entitled to reimbursement of any
expenses incurred in furtherance of the Project incurred through the date of
termination; provided, however, the Parties shall remain liable for all expenses
incurred and previously authorized by the Management Committee.
5.3 Withdrawal by Individual Parties. At any time prior to the
execution of the Definitive Agreements, any Party may withdraw from its
participation in the Project and this
6
<PAGE> 7
MOU by delivering to the Management Committee written notice of its intention to
withdraw. No Party withdrawing pursuant to this Section 5.03 shall be entitled
to reimbursement of any expenses in furtherance of the Project incurred through
the date of withdrawal and such Party shall remain liable for all Cash Calls
made prior to the date of such withdrawal; provided, however, if the remaining
Parties continue the Project, then the withdrawing Party shall be entitled to an
amount equal to its cash contributions to the Enterprise upon the commencement
of commercial service of the Project or upon the introduction of a substitute
Party to the Enterprise, so long as either occurs within five years from the
date of withdrawal. Unless the remaining Parties agree otherwise, the remaining
Parties will receive a pro rata share of the withdrawing Party's rights in and
to the Enterprise and the Project.
5.4 No Agreement. If no Definitive Agreements have been signed by the
Parties by February 1, 1998 and the Parties have not elected in writing to
continue the terms and conditions of this MOU, then the MOU shall terminate
automatically; provided, however, each Party shall continue to be obligated to
pay for its share of costs and expenses approved by the Management Committee and
incurred prior to the termination of this MOU.
ARTICLE 6
MISCELLANEOUS
6.1 Preliminary Agreement. The Parties acknowledge and agree that this
MOU, although binding, is a preliminary agreement between the Parties concerning
the Enterprise and the Project and does not contain comprehensive details
concerning the management, organization, funding, development, construction,
operation, and other matters which will be essential to the Enterprise and the
Project and which will be set forth in the Definitive Agreements. The purpose of
this MOU is to establish the relationship between, and the obligations of, the
Parties prior to execution and delivery of the Definitive Agreements as well as
to provide an outline of the basic terms and conditions of the Definitive
Agreements. The obligation of the Parties to proceed with the Project and the
Enterprise beyond the obligations expressly set forth in this MOU is subject in
all respects to the execution and delivery of the Definitive Agreements.
6.2 Relationship of Parties. This MOU does not create a partnership,
joint venture or relationship of trust or agency between the Parties.
6.3 Assignment. Except as otherwise provided herein, this MOU shall not
be assigned without the prior written consent of the Parties, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, this MOU may
be assigned without the consent of the other Parties to (a) a wholly owned
affiliate with financial support of the assignor, or an affiliate of equivalent
or greater financial capability or (b) following the interest being first
offered through a right of first refusal to the remaining Parties to this MOU,
any entity succeeding to all or substantially all of the assets of such Party,
provided any such assignee expressly agrees in writing to bound by the terms of
this MOU.
6.4 Amendment. This MOU may not be altered, changed or amended, except
by an instrument in writing executed by all parties hereto.
7
<PAGE> 8
6.5 Choice of Law. This Agreement shall be governed and construed in
accordance with the State of Delaware except to the extent of any laws of the
United States of America and any rules, regulations, or orders issued or
promulgated thereunder applicable to this Agreement preempt Delaware Law, in
which event such Federal Law shall control.
6.6 Notices. Except as may otherwise be specifically provided for
elsewhere herein, any notice or communication required or permitted hereunder
shall be in writing and shall be deemed to have been duly given (i) if sent by
registered or certified mail (return receipt requested) on the date that is five
(5) business days following the date when delivery is made to the U.S. or
Canadian Postal Services (ii) if delivered personally, on the date that delivery
is made, (iii) if sent by facsimile on a business day during the hours of 8:00
and 5:00 p.m. ET by a facsimile machine which generates an electronic
confirmation of such receipt on the date when sent, and if sent by facsimile
after 5:00 p.m. ET on a business day, on the next following business day, or
(iii) if sent by overnight mail or overnight courier, on the business day
following the day when sent, at the following addresses (or at such other
addresses as shall be specified by the Parties from time to time):
Columbia: 12801 Fair Lakes Parkway
Post Office Box 10146
Fairfax, Virginia 22030
Att.: David Pentzien
Telephone: (703) 227-3223
Telecopy: (703) 227-3326
Westcoast: 50 Keil Drive North
Chatham, Ontario
Canada N7M 5M1
Att.: John Wolnik
Telephone: (519) 436-4567
Telecopy: (519) 436-4521
MCN: City Place I
185 Asylum Street, 32nd Floor
Hartford, CT 06103
Att.: Mike Feodorov
Telephone: (860) 275-6460
Telecopy: (860) 275-6245
TransCanada: TransCanada Pipelines Tower
111 5th Avenue, SW
Calgary Alberta
T2P 3Y6
Att.: Brian Fowler
Telephone: (403) 267-1908
Telecopy: (403) 267-8573
8
<PAGE> 9
6.7 Damages. No Party shall have any liability to the other Parties for
special, incidental, indirect or consequential damages nor for any matter
whatsoever associated with the activities covered by this MOU, except as
specifically set forth herein.
6.8 Entirety. This MOU and the Confidentiality Agreements constitute
the entire agreement between the Parties with respect to the subject matter
hereof, and, except for the Confidentiality Agreements, all prior
correspondence, memoranda, agreements or understandings (written or oral) with
respect hereto are merged into and superseded by this MOU.
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
If fewer than all of the Parties execute this MOU, it shall
nevertheless be enforceable against the Parties executing this MOU and the
ownership of the Enterprise, and the participating interests in the Project
shall be adjusted on a pro-rata basis among the Parties that have executed this
MOU unless the remaining parties agree otherwise.
9
<PAGE> 10
IN WITNESS WHEREOF, executed as of the date first written above.
Columbia Gas Transmission Corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
Westcoast Energy (U.S.), Inc.
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
MCN Investment Corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
TransCanada PipeLines Limited
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
10
<PAGE> 1
Exhibit 12
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
($ in millions)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes, Extraordinary Item and Cumulative
Effect of Accounting Change 392.2 337.5 (643.0) 392.2 288.1
Adjustments:
Interest during construction (3.0) (1.1) (20.2) -- --
Distributed (Undistributed) equity income 3.6 1.5 (7.9) (0.9) (0.1)
Fixed charges * 182.0 184.6 1,061.3 33.7 120.0
------ ------ ------- ------ ------
Earnings Available 574.8 522.5 390.2 425.0 408.0
------ ------ ------- ------ ------
Fixed Charges:
Interest on long-term and short-term debt 145.6 150.8 987.2 0.7 3.1
Other interest 15.4 13.5 53.6 14.1 98.4
Portion of rentals representing interest 21.0 20.3 20.5 18.9 18.5
------ ------ ------- ------ ------
Total Fixed Charges **, *** 182.0 184.6 1,061.3 33.7 120.0
------ ------ ------- ------ ------
Ratio of Earnings Before Taxes to Fixed Charges 3.16 2.83 N/A(a) 12.61 3.40
====== ====== ======= ====== ======
</TABLE>
(a) To achieve a one-to-one coverage, the Corporation would need an additional
$671.1 million of earnings in 1995.
* Amounts for the twelve months ended December 31, 1993 through December 31,
1996 have been restated to conform to 1997 presentation.
** This amount excludes approximately $230 million and $210 million of interest
expense not recorded for the twelve months ended December 31, 1994 and 1993,
respectively. This amount includes interest expense of $982.9 million
including the write-off of unamortized discounts on debentures recorded in
1995. Reference is made to the Statements of Consolidated Income for the
twelve months ended December 31, 1995, as reported on Form 10-K and Note 2
of Notes to Consolidated Financial Statements of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995.
*** This amount excludes $8.6 million of interest expense not recorded with
respect to the registrant's guarantee of LESOP Trust's debentures for the
twelve months ended December 31, 1994 and 1993.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COLUMBIA ENERGY GROUP
as of December 31, 1997
<TABLE>
<CAPTION>
State of
Segment / Subsidiary Incorporation
-------------------- -------------
<S> <C>
Transmission and Storage 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
Columbia Gas of Virginia, Inc. Virginia
Exploration and Production Operations
Columbia Natural Resources, Inc. Texas
Marketing, Propane and Power Generation
Columbia Atlantic Trading Corporation Delaware
Columbia Energy Services Corporation Kentucky
Columbia Propane Corporation Delaware
Columbia Electric Corporation Delaware
TriStar Capital Corporation Delaware
Corporate
Columbia Energy Group Service Corporation Delaware
Columbia Insurance Corporation, Ltd Bermuda
Columbia Network Services Corporation 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 dated January 23, 1998 in its
entirety as an Exhibit to the 1997 Annual Report of Columbia Energy Group, to
the Securities and Exchange Commission on Form 10-K, and any Registration
Statement of Columbia Energy Group, relating to the issue of securities to the
public during 1997; 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 1997
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 Columbia Energy Group, 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 Columbia Energy Group, or any affiliate
as a promoter, underwriter, voting trustee, director, officer, employee, or
affiliate.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
January 23, 1998
<PAGE> 1
EXHIBIT 23-B
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 23, 1998, included in Columbia Energy Group's 1997 Annual
Report on Form 10-K, into the following previously filed registration
statements:
1. Form S-8 of Columbia Energy Group (File No. 33-03869)
2. Form S-8 of Columbia Energy Group (File No. 33-42776)
New York, New York
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> COLUMBIA ENERGY GROUP AND SUBSIDIARIES
<SUBSIDIARY>
<NUMBER> 1
<NAME> CEG
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,887,400
<OTHER-PROPERTY-AND-INVEST> 549,400
<TOTAL-CURRENT-ASSETS> 1,707,700
<TOTAL-DEFERRED-CHARGES> 66,900
<OTHER-ASSETS> 400,900
<TOTAL-ASSETS> 6,612,300
<COMMON> 554,900
<CAPITAL-SURPLUS-PAID-IN> 754,200
<RETAINED-EARNINGS> 482,700
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,790,700
0
0
<LONG-TERM-DEBT-NET> 2,003,500
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 500
0
<CAPITAL-LEASE-OBLIGATIONS> 2700
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,818,100
<TOT-CAPITALIZATION-AND-LIAB> 6,612,300
<GROSS-OPERATING-REVENUE> 5,053,600
<INCOME-TAX-EXPENSE> 118,900
<OTHER-OPERATING-EXPENSES> 4,544,200
<TOTAL-OPERATING-EXPENSES> 4,544,200
<OPERATING-INCOME-LOSS> 509,400
<OTHER-INCOME-NET> 40,400
<INCOME-BEFORE-INTEREST-EXPEN> 549,800
<TOTAL-INTEREST-EXPENSE> 157,600
<NET-INCOME> 273,300
0
<EARNINGS-AVAILABLE-FOR-COMM> 273,300
<COMMON-STOCK-DIVIDENDS> 49,900
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 468,200
<EPS-PRIMARY> 4.93
<EPS-DILUTED> 4.90
</TABLE>
