UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
------------- ------------
Commission file number 0-8503
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2144267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 Water Street, Port Huron, Michigan 48060
(Address of principal executive offices)
810-987-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of July 31, 1994, is
11,114,473.
<PAGE> 2
INDEX TO FORM 10-Q
------------------
For Quarter Ended June 30, 1994
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
COVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Thousands of Dollars Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1 9 9 4 1 9 9 3 1 9 9 4 1 9 9 3
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Gas sales $32,928 $31,150 $121,983 $108,917
Gas marketing 38,458 17,443 79,174 33,691
Transportation 2,837 2,711 6,220 6,219
Other operations 1,730 1,707 3,364 3,339
------- ------- -------- --------
$75,953 $53,011 $210,741 $152,166
------- ------- -------- --------
OPERATING EXPENSES
Cost of gas sold $22,156 $20,434 $ 86,124 $ 75,487
Cost of gas marketed 37,343 16,980 76,982 32,105
Operation 7,403 7,261 15,125 14,968
Maintenance 1,095 893 2,160 1,832
Depreciation 2,916 3,036 5,836 6,159
Income taxes 272 (133) 5,299 3,465
Taxes, other than income taxes 2,053 2,022 4,393 4,234
------- ------- -------- --------
$73,238 $50,493 $195,919 $138,250
------- ------- -------- --------
OPERATING INCOME $ 2,715 $ 2,518 $ 14,822 $ 13,916
OTHER INCOME (EXPENSE), NET 22 64 192 (490)
------- ------- -------- --------
INCOME BEFORE INCOME DEDUCTIONS $ 2,737 $ 2,582 $ 15,014 $ 13,426
------- ------- -------- --------
INCOME DEDUCTIONS
Interest on long-term debt $ 1,708 $ 2,351 $ 3,878 $ 4,715
Other interest 391 262 862 747
Amortization of debt expense 76 84 158 169
Dividends on preferred stock of subsidiary 45 45 89 89
------- ------- -------- --------
$ 2,220 $ 2,742 $ 4,987 $ 5,720
------- ------- -------- --------
NET INCOME $ 517 $ (160) $ 10,027 $ 7,706
Dividends on convertible preferred stock 4 5 9 10
------- ------- -------- --------
NET INCOME AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY ITEM $ 513 $ (165) $ 10,018 $ 7,696
EXTRAORDINARY ITEM-Loss on early extinguishment of debt, net of
income taxes of $692 1,286 0 1,286 0
------- ------- -------- --------
NET INCOME AVAILABLE FOR COMMON STOCK $ (773) $ (165) $ 8,732 $ 7,696
======= ======= ======== ========
EARNINGS PER SHARE OF COMMON STOCK BEFORE EXTRAORDINARY ITEM $ .05 $ (.02) $ .92 $ .78
======= ======= ======== ========
EARNINGS PER SHARE OF COMMON STOCK $ (.07) $ (.02) $ .80 $ .78
======= ======= ======== ========
CASH DIVIDENDS PER SHARE OF COMMON STOCK BASED ON AVERAGE
SHARES OUTSTANDING $ .19 $ .18 $ .38 $ .36
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (IN THOUSANDS) 11,078 9,962 10,925 9,929
======= ======= ======== ========
<FN>The notes to the consolidated financial statements are an integral part of this statement.
</TABLE>
-3-
<PAGE> 4
<TABLE>
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
A S S E T S
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1994 1993 1993
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
UTILITY PLANT:
Plant in Service, at Cost $278,958 $272,571 $261,125
Less - Accumulated depreciation 75,339 70,629 67,069
-------- -------- --------
$203,619 $201,942 $194,056
OTHER PROPERTY, net 16,254 16,357 18,248
-------- -------- --------
$219,873 $218,299 $212,304
-------- -------- --------
CURRENT ASSETS
Cash and temporary cash investments $ 52,682 $ 2,965 $ 524
Accounts receivables, less reserves
of $1,103 at June 30, 1994, $1,355
at December 31, 1993 and $1,251 at
June 30, 1993 30,619 31,708 21,109
Accrued utility revenue 1,604 17,674 1,908
Materials and supplies, at average cost 3,623 2,894 3,149
Gas in underground storage 22,877 31,146 29,148
Gas charges, recoverable from customers 6,111 15,970 6,121
Other current assets 7,200 9,862 6,738
-------- -------- --------
$124,716 $112,219 $ 68,697
-------- -------- --------
DEFERRED CHARGES:
Unamortized debt expense $ 6,134 $ 5,840 $ 4,762
Deferred gas charges, recoverable
from customers 1,101 1,474 849
Other 13,742 10,454 8,569
-------- -------- --------
$ 20,977 $ 17,768 $ 14,180
-------- -------- --------
$365,566 $348,286 $295,181
======== ======== ========
<FN>The notes to the consolidated financial statements are an integral part of this
statement.
</TABLE>
-4-
<PAGE> 5
<TABLE>
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1994 1993 1993
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
STOCKHOLDERS' INVESTMENT
Common stock equity
Common stock - $1 par value;
20,000,000 shares authorized;
11,114,473, 9,680,376 and
9,526,498 shares outstanding,
respectively $ 11,114 $ 9,680 $ 9,527
Capital surplus - common stock 81,169 64,212 60,874
Retained earnings 18,231 13,691 15,652
Capital stock expense (2,620) (1,926) (1,926)
-------- -------- --------
$107,894 $ 85,657 $ 84,127
-------- -------- --------
Preferred stock equity and surplus -
Convertible preferred stock -
$1 par value; 500,000 shares
authorized; each convertible
to 4.11 common shares $ 8 $ 8 $ 8
Capital surplus 182 182 193
-------- -------- --------
$ 190 $ 190 $ 201
-------- -------- --------
Total stockholders' investment $108,084 $ 85,847 $ 84,328
-------- -------- --------
CUMULATIVE PREFERRED STOCK OF
SUBSIDIARY -
$100 par value (redemption price
$105 per share); 50,000 shares
authorized issuable in series;
31,000 shares outstanding $ 3,100 $ 3,100 $ 3,100
-------- -------- --------
LONG-TERM DEBT $104,950 $ 97,884 $101,272
-------- -------- --------
CURRENT LIABILITIES
Notes payable to banks $ -0- $ 52,342 $ 26,325
Current maturities of long-term debt 58,275 19,138 665
Accounts payable 30,193 30,053 22,640
Customer advance payments 2,449 6,804 2,502
Accrued taxes 3,108 262 5,621
Accrued interest 1,422 1,855 1,699
Accumulated deferred income taxes 140 201 702
Amounts payable to customers 549 1,089 1,241
Other 6,175 6,571 7,028
-------- -------- --------
$102,311 $118,315 $ 68,423
-------- -------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes $ 18,031 $ 16,102 $ 14,166
Unamortized investment tax credit 3,450 3,584 3,717
Deferred gas costs payable to suppliers 1,168 1,479 713
Customer advances for construction 8,142 7,806 6,959
Other 16,330 14,169 12,503
-------- -------- --------
$ 47,121 $ 43,140 $ 38,058
-------- -------- --------
$365,566 $348,286 $295,181
======== ======== ========
<FN>The notes to the consolidated financial statements are an integral part of this
statement.
</TABLE>
-5-
<PAGE> 6
<TABLE>
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Six Months Ended
June 30,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $231,233 $168,833
Cash paid for payrolls and to suppliers (173,318) (125,251)
Interest paid (5,174) (5,665)
Income taxes paid (1,500) (3,200)
Taxes other than income taxes paid (1,478) (1,540)
Other cash receipts and payments, net 783 1,728
-------- --------
NET CASH FROM OPERATING ACTIVITIES $ 50,546 $ 34,905
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Natural gas distribution property additions $ (7,283) $ (5,962)
Interest in other natural gas related property (32) (962)
Other property additions (667) (190)
Property retirement costs net of proceeds (115) (104)
-------- --------
NET CASH FROM INVESTING ACTIVITIES $ (8,097) $ (7,218)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 17,698 $ 2,465
Net change in notes payable to banks (52,342) (26,775)
Issuance of long-term debt 80,000 -0-
Repayment of long-term debt (33,797) (606)
Payment of dividends (4,291) (3,692)
-------- --------
NET CASH FROM FINANCING ACTIVITIES $ 7,268 $(28,608)
-------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS $ 49,717 $ (921)
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of Period $ 2,965 $ 1,445
-------- --------
End of Period $ 52,682 $ 524
======== ========
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
Net income available for common stock $ 8,732 $ 7,696
Adjustments to reconcile net income to net cash
from operating activity
Depreciation 5,836 6,159
Extraordinary item 1,286 -0-
Deferred taxes and ITC 1,207 (1,097)
Equity (income) loss, net of distributions (60) 1,155
Accounts receivable 1,090 11,432
Accrued utility revenue 16,071 14,623
Materials and supplies and gas in underground storage 7,540 720
Gas charges, recoverable from customers 9,859 (1,272)
Other current assets 2,661 (834)
Accounts payable (1,296) (3,328)
Customer advances and amounts payable to customers (4,557) (3,666)
Accrued taxes 3,538 2,522
Other, net (1,361) 795
-------- --------
NET CASH FROM OPERATING ACTIVITIES $ 50,546 $ 34,905
======== ========
<FN>The notes to the consolidated financial statements are an integral part of this statement.
</TABLE>
-6-
<PAGE> 7
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Under the rules and regulations of the Securities and Exchange Commission
for Form 10-Q Quarterly Reports, certain footnotes and other financial
statement information normally included in Southeastern Michigan Gas
Enterprises, Inc.'s (the Company's) year-end financial statements have been
condensed or omitted in the accompanying unaudited financial statements. These
financial statements prepared by the Company should be read in conjunction with
the financial statements and notes thereto included in the Company's 1993
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The information in the accompanying financial statements reflects, in the
opinion of the Company's management, all adjustments (which include only normal
recurring adjustments) necessary for a fair statement of the information shown,
subject to year-end and other adjustments, as later information may require.
(2) REGULATORY MATTERS
In June 1994, pursuant to the Michigan Public Service Commission
securities orders U-10509 and U-10510, Southeastern Michigan Gas Company
(Southeastern) and Michigan Gas Company (Michigan Gas) issued $23,000,000 and
$31,000,000, respectively, of long-term debt securities to the Company.
This debt was used to redeem higher cost long-term and certain short-term
debt currently owed to the Company and, in Southeastern's case, was used to
redeem all of its remaining First Mortgage Bonds.
At June 30, 1994, the Company had a total of $728,000 in remaining
take-or-pay liabilities. These costs are substantially recoverable from
ratepayers. The Company does not anticipate additional take-or-pay
assessments.
At June 30, 1994, the Company had $1,403,000 of remaining direct-billed
liabilities related to Federal Energy Regulatory Commission Order 636. The
Company does not anticipate any significant additional direct billings. As
with take-or-pay costs, the Company expects Order 636 costs will be recoverable
from ratepayers.
(3) CAPITALIZATION
Common Stock Equity
- - -------------------
On June 9, 1994, the Company's Board of Directors declared a regular
quarterly cash dividend on common stock of $.20 per share payable on August 15
to shareholders of record on August 5.
-7-
<PAGE> 8
In May 1994, the Company issued a 5% stock dividend and paid a quarterly
cash dividend of $.20 per share to its common shareholders. Of the total cash
dividend of $2,105,000, $768,000 was reinvested by shareholders into common
stock through participation in the Dividend Reinvestment and Common Stock
Purchase Plan (DRIP). This portion of the quarterly dividend, shareholders'
optional cash payments of $722,000, and the 5% stock dividend resulted in
606,866 new shares issued to existing shareholders during the quarter.
Earnings per common share, cash dividends per common share and weighted
average number of shares outstanding give retroactive effect for all periods
presented to the 5% stock dividends in May 1994 and 1993.
Long-Term Debt
- - --------------
On June 30, 1994, the Company issued $55,000,000 of 8.00% Senior Notes due
2004 and $25,000,000 of 8.32% Senior Notes due 2024 through private placement.
The proceeds of the offering were used to pay down short-term debt incurred to
fund the redemption of the Company's 10% debentures in February 1994, to pay
down the variable rate term loan due 1997 ($20,000,000), and to redeem the
Company's 9.8% debentures due 2014 ($28,720,000) and Southeastern's outstanding
First Mortgage Bonds ($9,555,000). The variable rate loan was paid in July
1994. The 9.8% debentures and First Mortgage Bonds were redeemed in August
1994.
The Company recognized an extraordinary loss of $1,286,000, net of
applicable income taxes, in the second quarter of 1994 from expensing a portion
of the call premium and unamortized debt expense associated with the early
extinguishment of the 9.8% debentures.
4. COMMITMENTS AND CONTINGENCIES
Guarantees. SEMCO Arkansas Pipeline Company, a wholly-owned subsidiary of
SEMCO, has a 31.67% interest in a partnership which operates the NOARK Pipeline
System (NOARK). NOARK is a 302-mile intrastate natural gas pipeline,
originating in northwest Arkansas and extending northeast across the state.
The pipeline became operational during the third quarter of 1992.
The Company, SEMCO Arkansas Pipeline Company and SEMCO have guaranteed 40%
of the principal and interest payments on up to $93,000,000 of debt used to
finance the pipeline. Of the total, $63,000,000 is pursuant to a long-term
arrangement requiring annual principal payments of approximately $3,150,000
together with interest on the unpaid balance. This arrangement matures in 2009
and has a fixed interest rate of 9.7375%. The remaining debt of $30,000,000 is
pursuant to a credit agreement which currently terminates January 1997. Under
the terms of the credit agreement, NOARK may request, on an annual basis, a one
year extension of the then-effective termination date. At June 30, 1994, NOARK
had $27,500,000 outstanding under the agreement with interest payments at a
variable interest rate.
-8-
<PAGE> 9
NOARK has entered into an interest rate swap relating to a notional amount
of $40,000,000. Pursuant to the swap, NOARK will receive interest payments at
5% per annum on $40,000,000 and make interest payments on $40,000,000 at a rate
equal to six-month LIBOR. The Company has guaranteed 40% of the payments due
pursuant to this swap.
In December 1993, Vesta Energy Corporation (Vesta), a firm shipper on
NOARK, filed a complaint in the Federal District Court for the Northern
District of Oklahoma against seven defendants, including NOARK. Vesta seeks
actual damages on several theories in an aggregate amount exceeding $1,000,000,
seeks punitive damages in excess of $1,000,000 and seeks to rescind its
contracts with certain defendants, including its contract with NOARK.
In February 1994, the defendants, including NOARK, filed a motion for
dismissal of Vesta's claim due to lack of Federal jurisdiction in the Oklahoma
court. In addition, NOARK and certain other defendants filed separate claims
in Arkansas against Vesta for breach of contract. In June 1994, the Oklahoma
court dismissed Vesta's case. Vesta can still litigate its claims in Arkansas.
Under the terms of Vesta's 50,000 Mcf per day contract with NOARK, Vesta
is obligated to pay full firm rates which consist of a demand fee of
approximately 19.3 cents per Mcf on 50,000 Mcf per day and approximately 9.2
cents per Mcf for volumes actually transported on the NOARK system. This
contract is set to expire in 1997.
On January 1, 1994, Vesta discontinued shipments of gas pursuant to its
contract with NOARK and ceased payment of the demand fee. An affiliate of
Southwestern Energy Pipeline Company, a NOARK general partner, which was
providing 25,000 Mcf per day of the gas transported by Vesta over the NOARK
system, shipped those volumes over the system at the full firm rates from
January 1994 through May 1994 and at discounted interruptible rates in June
1994.
At this time, the Company estimates the after tax loss from its equity
investment in the NOARK system could approximate $1,000,000 for 1994 compared
to a loss of $834,000 for 1993. The results for the six months ended June 30,
1994, include a $404,000 after tax loss from NOARK.
As these circumstances continue, NOARK's operating cash flows will be
insufficient to meet debt service requirements. To meet debt service
requirements, NOARK may draw on its available line of credit, require an equity
contribution or a loan from its partners, or a combination thereof. The
Company estimates the above circumstances could result in a related cash
outflow of approximately $1,000,000 in 1994.
The Company expects to ultimately recover the remaining cost of its
investment in NOARK over the life of the project.
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION - (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
The Company reported net income available for common shareholders before
extraordinary item of $513,000 ($.05 per share) for the second quarter of 1994,
compared to a net loss of $165,000 ($.02 per share) for the same period in
1993. For the six-month period ended June 30, 1994, net income available for
common before extraordinary item increased to $10,018,000 ($.92 per share)
compared to $7,696,000 ($.78 per share) for the same period in 1993.
The Company reported a net loss available for common of $773,000 ($.07 per
share) for the quarter ended June 30, 1994, and net income available for common
of $8,732,000 ($.80 per share) for the six months ended June 30, 1994. These
results reflect an extraordinary charge of $1,286,000, net of tax, ($.12 per
share) for the early extinguishment of the Company's 9.8% debentures due 2014.
Since the Company's primary business of natural gas distribution depends
upon the winter months for the majority of its operating revenue, the Company
typically experiences a net loss in the second quarter (see "Quarter Results"
for those factors contributing to net income, before extraordinary item, in the
second quarter of 1994).
See Note 4 in the notes to the consolidated financial statements for a
discussion of commitments and contingencies.
A comparison of quarterly and year-to-date revenues, margins and system
throughput follows on the next page.
-10-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1 9 9 4 1 9 9 3 1 9 9 4 1 9 9 3
------- ------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Operating Revenue
Gas Sales
Residential $20,760 $19,799 $ 76,315 $ 67,672
Commercial 9,527 8,998 36,709 33,004
Industrial 2,641 2,353 8,959 8,241
------- ------- -------- --------
$32,928 $31,150 $121,983 $108,917
Cost of Gas Sold 22,156 20,434 86,124 75,487
------- ------- -------- --------
Gross Margin $10,772 $10,716 $ 35,859 $ 33,430
======= ======= ======== ========
Gas Marketing $38,458 $17,443 $ 79,174 $ 33,691
Cost of Gas Marketed 37,343 16,980 76,982 32,105
------- ------- -------- --------
Gross Margin $ 1,115 $ 463 $ 2,192 $ 1,586
======= ======= ======== ========
Transportation $ 2,837 $ 2,711 $ 6,220 $ 6,219
======= ======= ======== ========
Other Revenues $ 1,730 $ 1,707 $ 3,364 $ 3,339
======= ======= ======== ========
<CAPTION>
(in millions of cubic feet)
<S> <C> <C> <C> <C>
Gas Volumes
Gas Sales
Residential 3,521 3,544 15,257 13,909
Commercial 1,814 1,867 7,855 7,316
Industrial 551 554 2,087 1,966
------- ------- -------- --------
5,886 5,965 25,199 23,191
======= ======= ======== ========
Gas Marketing 18,589 7,302 34,155 15,166
======= ======= ======== ========
Gas Transported 4,729 4,197 10,714 9,856
======= ======= ======== ========
Degree Days - Actual 922 979 4,634 4,345
Gas Sales Customers - Average 217,130 209,903 216,347 209,805
</TABLE>
Quarter Results
- - ---------------
Net income before the extraordinary item, noted above, for the quarter
ended June 30, 1994, increased $678,000 compared to the quarter ended June 30,
1993. The change primarily results from higher gas marketing volumes and lower
interest expenses, offset by slightly higher operations and maintenance
expenses.
In the second quarter of 1994, gas volumes marketed increased by 155% over
the second quarter of 1993. This contributed to a $652,000, or 141%, increase
in gross margin from gas marketing. The increase in gas marketing volumes is
primarily attributable to the 1993 implementation of Federal Energy Regulatory
Commission Order 636 (Order 636). With the interstate pipelines no longer able
to sell "bundled" natural gas sales services with gathering, transportation and
storage services, the demand for natural gas marketing and related services has
increased. SEMCO has responded to this increased demand with new gas marketing
services and more aggressive marketing efforts. While these efforts have
substantially increased marketing volumes over the same period in 1993, SEMCO's
future marketing volumes and margins are subject to significant competitive
factors. In addition to fluctuations caused by the price of alternate fuels
and seasonal patterns, competition within the industry is likely to increase as
companies continue to adapt to the post-Order 636 environment.
-11-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Interest on long-term debt decreased by $643,000 in the second quarter of
1994 compared to 1993 due primarily to the redemption of the Company's 10%
debentures in the first quarter of 1994. Other interest increased by $129,000
over the same period due primarily to the temporary use of short-term
borrowings to partially fund the redemption of the Company's 10% debentures.
Gross margin from gas sales increased only slightly in the second quarter
of 1994 over the same period in 1993 as an increase of 3.1% in the average
number of customers was offset by warmer weather over these periods.
Year-to-Date Results
- - --------------------
Before the extraordinary item discussed above, net income for the six
month period ended June 30, 1994, increased $2,322,000 over the same period
last year.
Gross margin on gas sales for the six-month period ended June 30, 1994,
increased $2,429,000 over the same period last year primarily due to the impact
of colder temperatures on volumes sold in the first quarter of this year
compared to last year and the impact of customer additions. Temperatures in
the first quarter of 1994 were approximately 10% colder than the same period
last year. In addition, the average number of customers served year-to-date
1994 increased from 1993 by over 6,000.
Year-to-date 1994, gross margin from gas marketing increased $606,000, or
38.2%, over 1993 as gas marketing volumes increased by 125.2%. As noted above,
Order 636 has increased the demand for the expanded gas marketing services
provided by SEMCO.
Interest on long-term debt decreased by $837,000 and other interest
increased by $115,000 in the first six months of 1994, compared to the same
period in 1993, primarily due to the temporary use of short-term borrowings to
partially fund the February 1994 redemption of the Company's 10% debentures.
Income tax expense increased $1,834,000 in the first six months of 1994
compared to the same period in 1993 due primarily to higher pre-tax earnings.
Liquidity and Capital Resources
- - -------------------------------
Cash flows from operating activities were $50,546,000 during the first
half of 1994. The most significant source of funds was the billing and
collection of accrued utility revenue.
Financing activities provided $7,268,000 in funds during the six months
ended June 30, 1994. The Company received $17,698,000 through the February
1994 sale of 747,500 shares of common stock and additional common stock sales
through the DRIP. While the June 1994 issuance of $55,000,000, 8.00% Senior
Notes and $25,000,000, 8.32% Senior Notes provided an additional $80,000,000,
the Company used $33,797,000 and $52,342,000 to redeem its 10% debentures and
pay notes payable to banks, respectively.
-12-
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Cash flows used for investing activities were $8,097,000. The following
table identifies capital expenditures by line of business for the six months
ended June 30, 1994 and 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Natural Gas Distribution, net of capitalized payroll $7,283 $5,962
Transmission, Gathering and Storage 32 962
Other 667 190
------ ------
$7,982 $7,114
====== ======
</TABLE>
The $7,283,000 expended for natural gas distribution was primarily for
installation of services and mains for new customers and the normal replacement
of distribution services and mains. Transmission, gathering and storage
capital expenditures were decreased in 1994 compared to 1993 with the
completion of the Litchfield Lateral project during the first quarter of 1993.
The Company anticipates spending approximately $15,200,000 for capital
items during the remainder of 1994. These estimated amounts will primarily
relate to customer additions and system replacement in the gas distribution
operations.
Future Financing Sources
- - ------------------------
The Company's operating cash flow needs, dividend payments and capital
expenditures for the balance of 1994 are expected to be generated primarily
through operating activities, short-term borrowings and cash from the DRIP.
In August 1994, the Company redeemed its 9.8% debentures and Southeastern
redeemed its First Mortgage Bonds. These redemptions, including all applicable
call premiums, were funded by cash provided by the June 1994 debt issuance
discussed above.
At June 30, 1994, the Company had $74,900,000 in unused lines of credit.
See Note 4 in the notes to the consolidated financial statements for a
discussion of commitments and contingencies.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Retained earnings were available for payment of dividends on
preferred and common stock at June 30, 1994, as follows:
Total Retained Earnings - $18,256,000
Amount Available for Payment of Dividends - $18,256,000
Item 3. Not applicable.
Item 4. Not applicable.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits - (See page 16 for the Exhibit Index.)
--Agreement to furnish Indenture of Mortgage and Deed of Trust dated
October 1, 1950 and supplements thereto.
--Agreement to furnish Credit agreement dated October 3, 1985, as
amended, between Enterprises and NBD Bank (National Bank of
Detroit).
--Trust Indenture dated September 1, 1987, between Enterprises and
Centerre Trust Company of St. Louis as Trustee.
--Trust Indenture dated December 1, 1987, between Enterprises and
Centerre Trust Company of St. Louis as Trustee.
--Trust Indenture dated December 15, 1988, between Enterprises and
Boatmen's Trust Company as Trustee.
--Trust Indenture dated April 1, 1992, between Enterprises and NBD
Bank, N.A. as Trustee.
--Note Agreement dated as of June 1, 1994, relating to issuance of
$80,000,000 of long-term debt.
--Guaranty Agreement dated October 10, 1991, relating to construction
financing of NOARK.
--Group A Employment Contract.
--Short-Term Incentive Plan.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of 1994.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
(Registrant)
Dated: August 12, 1994
By: Robert F. Caldwell
-----------------------------------------
Robert F. Caldwell, Executive Vice
President and Principal Accounting and
Financial Officer
-15-
<PAGE> 16
<TABLE>
EXHIBIT INDEX
Form 10-Q
Second Quarter 1994
<CAPTION>
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- - ------- ----------- -------- ---------
<S> <C> <C> <C>
2 Plan of Acquisition, etc. NA NA
4(a) Agreement to furnish Indenture of Mortgage and
Deed of Trust dated October 1, 1950 and
supplements thereto.(d) x
4(b) Agreement to furnish credit Agreement dated
October 3, 1985, between Enterprises and
NBD-Bank (National Bank of Detroit).(e) x
4(c) Trust Indenture dated September 1, 1987,
between Enterprises and Centerre Trust Company
of St. Louis as Trustee.(a) x
4(d) Trust Indenture dated December 1, 1987, between
Enterprises and Centerre Trust Company of
St. Louis as Trustee.(b) x
4(e) Trust Indenture dated December 15, 1988,
between Enterprises and Boatmen's Trust Company
as Trustee.(c) x
4(f) Trust Indenture dated April 1, 1992, between
Enterprises and NBD Bank, N.A. as Trustee.(g) x
4(g) Note Agreement dated as of June 1, 1994,
relating to issuance of $80,000,000 of
long-term debt. x
10 Material Contracts.
10(a) Guaranty Agreement dated October 10, 1991,
relating to financing of NOARK.(f) x
10(b) Group A Employment Contract.(h) x
10(c) Short-Term Incentive Plan.(h) x
11 Statement re computation of per share earnings. NA NA
15 Letter re unaudited interim financial
information. NA NA
18 Letter re change in accounting principle. NA NA
19 Report furnished to security holders. NA NA
22 Published report regarding matters submitted
to a vote of security holders. NA NA
23 Consent of Independent Public Accountants. NA NA
24 Power of Attorney. NA NA
27 Financial Data Schedule. x
99 Additional exhibits. NA NA
</TABLE>
Key to Exhibits Incorporated by Reference
(a) Filed with Enterprises' Registration Statement, Form S-2, No.
33-18979, filed December 10, 1987.
(b) Filed with Enterprises' Form 10-K for 1987, dated March 28, 1988,
File No. 0-8503.
(c) Filed with Enterprises' Form 10-K for 1988, dated March 30, 1989,
File No. 0-8503.
(d) Filed with Enterprises' Form 10-Q for the quarter ended June 30,
1989, File No. 0-8503.
(e) Filed with Enterprises' Form 10-Q for the quarter ended September 30,
1990, File No. 0-8503.
(f) Filed with Enterprises' Registration Statement, Form S-2, No.
33-46413, filed March 16, 1992.
(g) Filed with Enterprises' Form 10-Q for the quarter ended March 31,
1992, File No. 0-8503.
(h) Filed with Enterprises' Form 10-K for 1992, dated March 30, 1993,
File No. 0-8503.
-16-
===============================================================================
Southeastern Michigan Gas Enterprises, Inc.
Note Agreement
Dated as of June 1, 1994
Re: $55,000,000 8.0% Senior Notes
Due June 1, 2004
and
$25,000,000 8.32% Senior Notes
Due June 1, 2024
===============================================================================
254130.07.01
1097625
<PAGE> 2
<TABLE>
Table of Contents
(Not a part of the Agreement)
<CAPTION>
Section Heading Page
<S> <C>
Parties.................................................................. 1
Section 1. Description of Notes and Commitment.................... 1
Section 1.1. Description of Notes................................. 1
Section 1.2. Commitment, Closing Date............................. 2
Section 1.3. Several Obligations.................................. 2
Section 2. Prepayment of Notes.................................... 2
Section 2.1. Prepayments - General................................ 2
Section 2.2. Optional Prepayment with Premium..................... 2
Section 2.3. Notice of Optional Prepayments of Notes.............. 2
Section 2.4. Application of Prepayments........................... 3
Section 2.5. Direct Payment....................................... 3
Section 3. Representations........................................ 3
Section 3.1. Representations of the Company....................... 3
Section 3.2. Representations of the Purchasers.................... 3
Section 4. Closing Conditions..................................... 4
Section 4.1. Conditions........................................... 4
Section 4.2. Waiver of Conditions................................. 5
Section 5. Company Covenants...................................... 6
Section 5.1. Corporate Existence, Etc............................. 6
Section 5.2. Insurance............................................ 6
Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws............................... 6
Section 5.4. Maintenance, Etc..................................... 7
Section 5.5. Nature of Business................................... 7
Section 5.6. Limitations on Debt.................................. 7
Section 5.7. Fixed Charges Coverage Ratio......................... 8
Section 5.8. Limitation on Liens.................................. 8
Section 5.9. Restricted Payments.................................. 11
Section 5.10. Mergers, Consolidations and Sales of Assets.......... 12
Section 5.11. Guaranties........................................... 14
Section 5.12. Repurchase of Notes.................................. 14
Section 5.13. Transactions with Affiliates......................... 14
Section 5.14. Termination of Pension Plans......................... 14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 5.15. Reports and Rights of Inspection..................... 15
Section 6. Events of Default and Remedies Therefor................ 18
Section 6.1. Events of Default.................................... 18
Section 6.2. Notice to Holders.................................... 19
Section 6.3. Acceleration of Maturities........................... 19
Section 6.4. Rescission of Acceleration........................... 20
Section 7. Amendments, Waivers and Consents....................... 21
Section 7.1. Consent Required..................................... 21
Section 7.2. Solicitation of Holders.............................. 21
Section 7.3. Effect of Amendment or Waiver........................ 21
Section 8. Interpretation of Agreement; Definitions............... 22
Section 8.1. Definitions.......................................... 22
Section 8.2. Accounting Principles................................ 30
Section 8.3. Directly or Indirectly............................... 30
Section 9. Miscellaneous.......................................... 30
Section 9.1. Registered Notes..................................... 30
Section 9.2. Exchange of Notes.................................... 30
Section 9.3. Loss, Theft, Etc. of Notes........................... 31
Section 9.4. Expenses, Stamp Tax Indemnity........................ 31
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative.... 32
Section 9.6. Notices.............................................. 32
Section 9.7. Successors and Assigns............................... 32
Section 9.8. Survival of Covenants and Representations............ 32
Section 9.9. Severability......................................... 32
Section 9.10. Governing Law........................................ 33
Section 9.11. Captions............................................. 33
Signatures............................................................... 33
</TABLE>
-ii-
<PAGE> 4
Attachments to Note Agreement:
Schedule I -- Names of Note Purchasers and Amounts of Commitments
Schedule II -- Liens Securing Funded Debt (including Capitalized Leases)
as of May 31, 1994
Exhibit A-1 -- Form of 8.0% Senior Notes due June 1, 2004
Exhibit A-2 -- Form of 8.32% Senior Note due June 1, 2024
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Description of Special Counsel's Closing Opinion
Exhibit D -- Description of Closing Opinion of General Counsel of the
Company
-iii-
<PAGE> 5
Southeastern Michigan Gas Enterprises, Inc.
405 Water Street
Port Huron, Michigan 48060
Note Agreement
Re: $55,000,000 8.0% Senior Notes
Due June 1, 2004
and
$25,000,000 8.32% Senior Notes
Due June 1, 2024
Dated as of
June 1, 1994
To the Purchasers named on Schedule I
to this Agreement
The undersigned, Southeastern Michigan Gas Enterprises, Inc., a Michigan
corporation (the "Company"), agrees with the Purchasers named on Schedule I to
this Agreement (the "Purchasers") as follows:
Section 1. Description of Notes and Commitment.
Section 1.1. Description of Notes. The Company will authorize the issue
and sale of:
(a) $55,000,000 aggregate principal amount of its 8.0% Senior Notes
to be dated the date of issue, to bear interest from such date of issue at
the rate of 8.0% per annum, to be expressed to mature on June 1, 2004, and
to be substantially in the form attached hereto as Exhibit A-1 (the "2004
Notes"); and
(b) $25,000,000 aggregate principal amount of its 8.32% Senior Notes
to be dated the date of issue, to bear interest from such date of issue at
the rate of 8.32% per annum, to be expressed to mature on June 1, 2024,
and to be substantially in the form attached hereto as Exhibit A-2 (the
"2024 Notes").
The 2004 Notes and the 2024 Notes are hereinafter collectively referred to as
the "Notes". The 2004 Notes and the 2024 Notes are each herein referred to as
Notes of a "Series". The interest on the Notes of each Series shall be payable
semiannually on the first day of each June and December in each year
(commencing December 1, 1994) and at maturity and shall bear interest on
overdue principal (including any overdue required o-r optional prepayment of
principal) and premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest at the Overdue Rate applicable to such Series
after the date due, whether by acceleration or otherwise, until paid. Interest
on the Notes shall be computed on the basis of a 360-day year of twelve 30-day
<PAGE> 6
months. The Notes are not subject to prepayment or redemption prior to their
expressed maturity dates except as set forth in Section 2 of this Agreement.
The term "Notes" as used herein shall include each Note delivered pursuant to
this Agreement.
Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and such Purchaser agrees to purchase from the Company, Notes of the Series and
in the principal amount set forth opposite such Purchaser's name on Schedule I
hereto at a price of 100% of the principal amount thereof on the Closing Date
hereafter mentioned.
Delivery of the Notes will be made at the offices of Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, against payment therefor in
Federal Reserve or other funds current and immediately available at the
principal office of Michigan National Bank, ABA NO. 072000805, for the account
of Southeastern Michigan Gas Enterprises, Inc., Account No. 2705-29672-7, in
the amount of the purchase price at 10:00 a.m. Chicago time, on June 30, 1994
(the "Closing Date"). The Notes delivered to each Purchaser on the Closing
Date will be delivered to such Purchaser in the form of a single registered
Note in the form attached hereto as Exhibit A-1 or A-2, as the case may be, for
the full amount of such Purchaser's purchase (unless different denominations
are specified by such Purchaser), registered in such Purchaser's name or in the
name of such Purchaser's nominee, all as such Purchaser may specify at any time
prior to the date fixed for delivery.
Section 1.3. Several Obligations. The obligations of the Purchasers
shall be several and not joint and no Purchaser shall be liable or responsible
for the acts or defaults of any other Purchaser.
Section 2. Prepayment of Notes.
Section 2.1. Prepayments - General. Except as set forth in Section 2.2,
the 2004 Notes and the 2024 Notes are not subject to any prepayment or
redemption prior to their express maturity date.
Section 2.2. Optional Prepayment with Premium. Upon compliance with
Section 2.3 the Company shall have the privilege, at any time and from time to
time, of prepaying the outstanding Notes, either in whole or in part (but if in
part then in a minimum principal amount of $100,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium equal
to the Make-Whole Amount, determined as of five business days prior to the date
of such prepayment pursuant to this Section 2.2.
Section 2.3. Notice of Optional Prepayments of Notes. The Company will
give notice of any prepayment of the Notes to be prepaid pursuant to Section
2.2 to each Holder thereof not less than 30 days nor more than 60 days before
the date fixed for such optional prepayment specifying (i) such date, (ii) the
-2-
<PAGE> 7
principal amount of the Holder's Notes to be prepaid on such date, (iii) that a
premium may be payable, (iv) the date when such premium will be calculated, (v)
the estimated premium, and (vi) the accrued interest applicable to the
prepayment. Such notice of prepayment shall also certify all facts, if any,
which are conditions precedent to any such prepayment. Notice of prepayment
having been so given, the aggregate principal amount of the Notes specified in
such notice, together with accrued interest thereon and the premium, if any,
payable with respect thereto shall become due and payable on the prepayment
date specified in said notice. Not later than two business days prior to the
prepayment date specified in such notice, the Company shall provide each Holder
written notice of the premium, if any, payable in connection with such
prepayment and, whether or not any premium is payable, a reasonably detailed
computation of the Make-Whole Amount.
Section 2.4. Application of Prepayments. All partial prepayments of any
Series of Notes shall be applied on all outstanding Notes of such Series
ratably in accordance with the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes, in the case of any Note owned by any
Holder that is a Purchaser or any other Institutional Holder which has given
written notice to the Company requesting that the provisions of this Section
2.5 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and premium, if any, due with respect to said
principal, without any presentment thereof, directly to such Holder at its
address set forth herein or such other address as such Holder may from time to
time designate in writing to the Company or, if a bank account with a United
States bank is so designated for such Holder, the Company will make such
payments in immediately available funds to such bank account, marked for
attention as indicated, or in such other manner or to such other account in any
United States bank as such Holder may from time to time direct in writing;
provided that if the principal, interest and premium, if any, with respect to
any Note has been paid in full, such Note shall thereafter in due course be
returned by the Holder thereof to the Company for cancellation.
Section 3. Representations.
Section 3.1. Representations of the Company. The Company represents and
warrants that all representations and warranties set forth in Exhibit B are
true and correct as of the date hereof and are incorporated herein by reference
with the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchasers. Each Purchaser
represents, and in entering into this Agreement the Company understands, that
such Purchaser is acquiring the Notes for the purpose of investment and not
with a view to the distribution thereof, and that such Purchaser has no present
intention of selling, negotiating or otherwise disposing of the Notes; it being
understood, however, that the disposition of such Purchaser's property shall at
all times be and remain within such Purchaser's control. Such Purchaser
further represents that either: (1) no part of the funds to be used by such
-3-
<PAGE> 8
Purchaser to purchase the Notes constitutes assets allocated to any separate
account maintained by such Purchaser; or (2) all or a part of such funds
constitute assets of one or more separate accounts, trusts or a commingled
pension trust maintained by such Purchaser, and such Purchaser has disclosed in
writing to the Company the names of such employee benefit plans whose assets in
such separate account or accounts or pension trusts exceed 10% of the total
assets or are expected to exceed 10% of the total assets of such account or
accounts or trusts as of the date of such purchase and the Company has advised
such Purchaser in writing (and in making the representations set forth in this
clause (2) such Purchaser is relying on such advice) that the Company is not a
party-in-interest nor are the Notes employer securities with respect to the
particular employee benefit plan disclosed to the Company by such Purchaser as
aforesaid (for the purpose of this clause (2), all employee benefit plans
maintained by the same employer or employee organization are deemed to be a
single plan), or (3) after having been provided by the Company with information
regarding all employee benefit plans which the Company or its ERISA Affiliates
maintain after having requested the same in writing from the Company (upon
which information the Purchaser making the following representation is
relying), all or part of such funds constitute assets of such Purchaser's
general account and no part of such assets constitutes assets of an employee
benefit plan maintained by the Company or any ERISA Affiliate. As used in this
Section 3.2, the terms "separate account", "party-in-interest", "employer
securities", and "employee benefit plan" shall have the respective meanings
assigned to them in ERISA.
Section 4. Closing Conditions.
Section 4.1. Conditions. The obligation of each Purchaser to purchase
the Notes proposed to be sold to such Purchaser pursuant to this Agreement on
the Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Closing Certificate. On the Closing Date, such Purchaser shall
have received a certificate dated the Closing Date, signed by the
President or a Vice President of the Company, the truth and accuracy of
which shall be a condition to such Purchaser's obligation to purchase the
Notes proposed to be sold to such Purchaser and to the effect that (i) the
representations and warranties of the Company set forth in Exhibit B
hereto are true and correct on and with respect to the Closing Date, (ii)
the Company has performed all of its obligations hereunder which are to be
performed on or prior to the Closing Date, and (iii) no Default or Event
of Default has occurred and is continuing.
(b) Legal Opinions. On the Closing Date, such Purchaser shall have
received from Chapman and Cutler, who is acting as special counsel to the
Purchasers in this transaction, and from Lawrence J. Gagnon, General
Counsel of the Company, their respective opinions dated the Closing Date,
-4-
<PAGE> 9
in form and substance satisfactory to such Purchaser, and covering the
matters set forth in Exhibits C and D, respectively, hereto.
(c) Related Transactions. On the Closing Date, the Company shall
have consummated the sale of the entire principal amount of the Notes
scheduled to be sold on the Closing Date pursuant to this Agreement;
provided, however, that the Company's obligation to sell any such Notes
shall be contingent upon the purchase by the Purchasers of all other such
Notes in the respective amounts set forth on Schedule I.
(d) Private Placement Number. On or prior to the Closing Date, a
private placement number for each Series of Notes shall have been obtained
from Standard & Poor's Corporation.
(e) NAIC-2 Rating. On or prior to the Closing Date, the Notes shall
have been rated NAIC-2 or higher by the NAIC.
(f) Legal Investment. On the Closing Date, the Notes purchased by
such Purchaser shall qualify as legal investments under the laws and
regulations of each jurisdiction to which such Purchaser is subject
(without resort to so called "basket provisions" permitting limited
investments by it without restriction as to the character of a particular
investment) and such purchase shall not subject such Purchaser to any
penalty or other onerous condition under or pursuant to any applicable law
or governmental regulation; and such Purchaser shall have received such
certificates or other evidence as it may reasonably request to enable it
to establish compliance with this condition.
(g) Satisfactory Proceedings. On the Closing Date, all proceedings
taken in connection with the transactions contemplated by this Agreement,
and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to such Purchaser and such Purchaser's
special counsel, and such Purchaser shall have received a copy (executed
or certified as may be appropriate) of all legal documents or proceedings
taken in connection with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the Company
fails to tender to any Purchaser the Notes to be issued to such Purchaser on
such date or if the conditions specified in Section 4.1 have not been
fulfilled, such Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement. Without limiting the foregoing, if the
conditions specified in Section 4.1 have not been fulfilled, such Purchaser may
waive compliance by the Company with any such condition to such extent as such
Purchaser may in its sole discretion determine. Nothing in this Section 4.2
shall operate to relieve the Company of any of its obligations hereunder or to
waive any Purchaser's rights against the Company.
-5-
<PAGE> 10
Section 5. Company Covenants.
From and after the Closing Date and continuing so long as any amount
remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and
keep in full force and effect, and will cause each Subsidiary to preserve and
keep in full force and effect, its corporate existence and all licenses and
permits necessary to the proper conduct of its business provided, that the
Company shall not be required to preserve and keep in full force and effect any
such license, permit or corporate existence if the loss thereof would not have
a material adverse effect on the financial condition or business of the Company
and its Subsidiaries, taken as a whole; provided further, however, that the
foregoing shall not prevent any transaction permitted by Section 5.10.
Section 5.2. Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
corporations of established reputation engaged in the same or a similar
business and owning and operating similar properties; provided, that the
Company shall not be deemed to be in violation of this Section 5.2 for minor
variations from the foregoing requirements if such variations could not
reasonably be expected to have a material adverse effect upon the financial
condition or business of the Company and its Subsidiaries, taken as a whole.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of
the Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment, charge, levy,
account payable or claim if (i) the validity, applicability or amount thereof
is being contested in good faith by appropriate actions or proceedings which
are intended to prevent the forfeiture or sale of any property of the Company
or such Subsidiary or any material interference with the use thereof by the
Company or such Subsidiary, and the Company or such Subsidiary shall set aside
on its books, reserves deemed by it to be adequate with respect thereto, or
(ii) the non-payment of all such taxes, assessments, charges, levies, accounts
payable and claims would not have a material adverse effect on the financial
condition or business of the Company and its Subsidiaries, taken as a whole.
The Company will promptly comply and will cause each Subsidiary to comply with
all laws, ordinances or governmental rules and regulations to which it is
subject including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, ERISA and all laws, ordinances, governmental rules and
regulations relating to environmental protection in all applicable
jurisdictions, the violation of which would have a material adverse effect on
-6-
<PAGE> 11
the financial condition or business of the Company and its Subsidiaries, taken
as a whole, or would result in any Lien not permitted under Section 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained;
provided, that the Company shall not be required to so maintain, preserve and
keep any such properties or to so make such repairs, replacements, renewals and
additions unless the failure to take any such action would have a material
adverse effect on the financial condition or business of the Company and its
Subsidiaries, taken as whole.
Section 5.5. Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the
business, taken on a consolidated basis, which would then be engaged in by the
Company and its Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Company and its Subsidiaries on the
date of this Agreement. For purposes of the preceding sentence, the general
nature of the business of the Company and its Subsidiaries shall not be deemed
to be substantially changed from that engaged in on the date of this Agreement
so long as not less than 80% of the net sales of the Company and its
Subsidiaries for any fiscal year ending after the Closing Date shall be derived
from energy operations and related businesses of the Company and its
Subsidiaries.
Section 5.6. Limitations on Debt. (a) The Company will at all times
keep and maintain Consolidated Adjusted Funded Debt in an amount (i) which is
less than 65% of Consolidated Adjusted Total Capitalization, and (ii) which,
when added to Guaranteed Amounts, shall be less than 70% of the sum of
Consolidated Adjusted Total Capitalization plus Guaranteed Amounts.
(b) The Company will not, and will not permit any Subsidiary to create,
assume or incur or in any manner become liable in respect of any secured Debt
except Debt secured by Liens permitted by Section 5.8; provided, however, that
after giving effect to the issuance of Debt of the Company or a Subsidiary
secured by a Lien permitted by Section 5.8(a)(xi) and to the application of the
proceeds thereof, the aggregate amount of all Debt of the Company and its
Subsidiaries secured by Liens permitted solely by Section 5.8(a)(xi) shall not
exceed $2,000,000.
(c) The Company will not permit any Subsidiary to create, assume or incur
or in any manner become liable in respect of any unsecured Debt, except
(i) unsecured Debt of a Subsidiary incurred under a line of credit
established and used by such Subsidiary for the sole purpose of financing
accounts receivable of such Subsidiary, provided that after giving effect
to the incurrence of such unsecured Debt, the aggregate amount of
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<PAGE> 12
unsecured Debt outstanding under such line of credit shall not be in
excess of the aggregate amount of accounts receivable of such Subsidiary
then being financed thereunder;
(ii) unsecured Debt of any Subsidiary to the Company or to a
Wholly-owned Subsidiary;
(iii) unsecured Debt of any business entity acquired by the Company
or a Subsidiary, provided that such Debt was in existence prior to the
acquisition and was not incurred in connection with or in contemplation of
the acquisition; and
(iv) in the event of a consolidation or merger of the Company in
compliance with Section 5.10(a)(2) where the surviving corporation is not
the Company (the surviving corporation being the "Acquiring Corporation"),
the unsecured Debt of any subsidiary of such Acquiring Corporation,
provided that such Debt was in existence prior to such consolidation or
merger, as the case may be, and was not incurred in connection with or in
contemplation of such consolidation or merger.
(d) Any corporation which becomes a Subsidiary after the date hereof
shall for all purposes of this Section 5.6 be deemed to have created, assumed
or incurred at the time it becomes a Subsidiary all Debt of such corporation
existing immediately after it becomes a Subsidiary.
Section 5.7. Fixed Charges Coverage Ratio. The Company will keep and
maintain the ratio of Net Income Available for Fixed Charges to Fixed Charges
for each period of four consecutive fiscal quarters at not less than 1.50 to
1.00; provided, that if the Company or any Subsidiary (the "Acquiring Entity")
shall, during any such period, incur, create, or assume any Indebtedness
("Acquisition Indebtedness") for the purpose of financing the acquisition (the
"Acquisition") of additional property ("Acquired Property"), then (i) in
computing Fixed Charges for such period, there shall be included therein Fixed
Charges on Acquisition Indebtedness for that portion of such period preceding
the date of Acquisition (the "Preacquisition Portion" of such period), as
though the Acquisition Indebtedness had been incurred at the beginning of such
period at an interest rate for the Preacquisition Portion of such period equal
to the interest rate of the Acquisition Indebtedness in effect on the date of
the Acquisition, and (ii) in computing Net Income Available for Fixed Charges,
there shall be included therein the net earnings or net loss, as the case may
be (herein the "Net Income") for the Preacquisition Portion of such period, as
though the Acquired Property had been owned by the Acquiring Entity for the
entire such period (such Net Income to be determined (x) prior to any deduction
for Interest Charges or any Federal, state or other income taxes and (y) on a
cumulative basis for the Preacquisition Portion of such period).
Section 5.8. Limitation on Liens. (a) Except as set forth in Section
5.8(b) below, the Company will not, and will not permit any Subsidiary to,
create or incur, or suffer to be incurred or to exist, any Lien on its or their
property or assets, whether now owned or hereafter acquired, or upon any income
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or profits therefrom, or transfer any property for the purpose of subjecting
the same to the payment of obligations in priority to the payment of its or
their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon conditional sales agreements
or other title retention devices, except:
(i) Liens for taxes and assessments or governmental charges or
levies and Liens securing claims or demands of mechanics and materialmen,
provided payment thereof is not at the time required by Section 5.3;
(ii) Liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which shall not have expired, or
in respect of which the Company or a Subsidiary shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect
of which a stay of execution pending such appeal or proceeding for review
shall have been secured;
(iii) Liens incidental to the conduct of business or the ownership
of properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorneys' liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money; provided in each case, the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings;
(iv) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and
which do not in any event materially impair the operation of the business
of the Company and its Subsidiaries, taken as a whole;
(v) Liens securing Indebtedness of a Subsidiary to the Company or
to another Subsidiary;
(vi) Liens existing as of May 31, 1994 and reflected in Schedule II
hereto;
(vii) Liens incurred after the Closing Date given to secure the
payment of the purchase price incurred in connection with the acquisition
of fixed assets useful and intended to be used in carrying on the business
of the Company or a Subsidiary, including Liens existing on such fixed
assets (1) at the time of acquisition thereof or (2) at the time of
acquisition by the Company or a Subsidiary of any business entity then
owning such fixed assets (in the event of any such acquisition of a
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business entity as used in this paragraph (vii), the term "fixed assets"
shall mean and include any assets of such business entity), whether or not
such existing Liens were given to secure the payment of the purchase price
of the fixed assets to which they attach so long as they were not
incurred, extended or renewed in contemplation of such acquisition,
provided that (x) the Lien shall attach solely to the fixed assets
acquired or purchased, (y) at the time of acquisition of such fixed
assets, the aggregate amount remaining unpaid on all Debt secured by Liens
on such fixed assets whether or not assumed by the Company or a Subsidiary
shall not exceed an amount equal to 90% (or 100% in the case of
Capitalized Leases) of the lesser of the total purchase price or fair
market value at the time of acquisition of such fixed assets (as
determined in good faith by the (A) President or Executive Vice President
of the Company, or (B) by the Board of Directors of the Company, or (C) if
the fixed assets are being acquired by a Subsidiary, by the Board of
Directors of the Subsidiary), and (z) all such Debt shall have been
permitted under the limitations provided in Section 5.6;
(viii) in the event of a consolidation or merger of the Company in
compliance with Section 5.10(a)(2) where the surviving corporation is not
the Company (the surviving corporation being the "Acquiring Corporation"),
Liens existing on the assets of the Acquiring Corporation and its
subsidiaries at the time of the consolidation or merger, as the case may
be, so long as (A) any Debt secured by such Liens was not incurred in
connection with or in contemplation of such consolidation or merger, and
(B) all such Debt is permitted under the limitations provided in Section
5.6(a);
(ix) Liens on assets constituting part or all of the project in a
project financing of the Company or a Subsidiary; provided, that (x) any
Debt incurred to finance any such project shall be nonrecourse to the
Company and its Subsidiaries (other than a Subsidiary all the assets of
which constitute assets relating to such project) with recourse being
limited to the assets which constitute the project, and (y) immediately
after giving effect to any such project financing, no Default or Event of
Default shall have occurred which shall then be continuing;
(x) any extension, renewal or replacement of any Lien permitted by
the preceding paragraphs (vi), (vii) and (viii) of this Section 5.8(a) in
respect of the same property theretofore subject to such Lien in
connection with the extension, renewal or replacement of the Debt secured
thereby; provided that (1) such Lien shall attach solely to the same such
property, (2) such extension, renewal or replacement of such Debt shall be
without increase in the principal remaining unpaid as of the date of such
extension, renewal or replacement, and (3) the Debt secured by such Lien
shall have been permitted under the limitations provided in Section 5.6;
and
(xi) Liens in addition to those set forth in paragraphs (i) through
(x) of this Section 5.8(a), securing Debt of the Company or any
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Subsidiary, provided, that any such Debt shall have been permitted under
the applicable limitations provided in Section 5.6.
(b) If the Company or any Subsidiary shall create or assume any Lien upon
any of its property or assets, whether now owned or hereafter acquired, other
than Liens permitted by the provisions of Section 5.8(a) above, it will make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with or prior to any and all other Indebtedness
thereby secured so long as any such other Indebtedness shall be so secured and
delivers to the holders of the Notes an opinion of counsel that the Notes are
so secured. In the event the Company shall propose to secure the Notes
pursuant to this Section 5.8(b), the mortgage or other instrument creating such
Lien shall be satisfactory in form and substance (including without limitation
the portion thereof pertaining to the release of the collateral secured thereby
and the application of the proceeds from the sale or other disposition of such
collateral) to the holders of not less than 66-2/3% in aggregate principal
amount of the Notes then outstanding.
Section 5.9. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable in shares of capital stock of the Company);
(b) Directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its
capital stock (other than in exchange for or out of the net cash proceeds
to the Company from the substantially concurrent issue or sale of other
shares of capital stock of the Company or warrants, rights or options to
purchase or acquire any shares of its capital stock); or
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions being herein collectively called "Restricted
Payments"), if after giving effect thereto (i) any Event of Default shall have
occurred and be continuing, (ii) the aggregate amount of Restricted Payments
made during the period from and after January 1, 1994 to and including the date
of the making of the Restricted Payment in question, would exceed the sum of
(y) $11,000,000 plus (z) 100% of Consolidated Net Income for such period,
computed on a cumulative basis for said entire period (or if such Consolidated
Net Income is a deficit figure, then minus 100% of such deficit), or (iii)
Consolidated Net Worth shall be less than $80,000,000.
The Company will not declare any dividend which constitutes a Restricted
Payment payable more than 90 days after the date of declaration thereof.
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For the purposes of this Section 5.9, the amount of any Restricted Payment
declared, paid or distributed in property shall be deemed to be the greater of
the book value or fair market value (as determined in good faith by the Board
of Directors of the Company) of such property at the time of the making of the
Restricted Payment in question.
Section 5.10. Mergers, Consolidations and Sales of Assets. (a) The
Company will not, and will not permit any Subsidiary to, (i) consolidate with
or be a party to a merger with any other corporation or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d)
of this Section 5.10) of the assets of the Company and its Subsidiaries;
provided, however, that:
(1) any Subsidiary may merge or consolidate with or into the Company
or any Wholly-owned Subsidiary so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing
corporation;
(2) the Company may consolidate or merge with any other corporation
if (i) the corporation which results from such consolidation or merger
(the "surviving corporation") either (y) is the Company or (z) is not the
Company and (A) is organized under the laws of any State of the United
States or the District of Columbia, and (B) the obligations of the Company
under this Agreement are expressly assumed in writing by the surviving
corporation and the surviving corporation shall furnish the holders of the
Notes an opinion of counsel satisfactory to such holders to the effect
that the instrument of assumption has been duly authorized, executed and
delivered and constitutes the legal, valid and binding contract and
agreement of the surviving corporation enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally and except that equitable remedies lie in the discretion
of a court and may be unenforceable, (ii) approval of appropriate
governmental regulatory authorities has been obtained, and (iii) at the
time of such consolidation or merger and immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing and the surviving corporation could incur at least $1.00 of
additional Indebtedness pursuant to Section 5.6; and
(3) any Subsidiary may sell, lease or otherwise dispose of all or
any substantial part of its assets to the Company or any Wholly-owned
Subsidiary.
(b) The Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the purposes of this
Section 5.10, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors, or except in satisfaction of
the validly pre-existing preemptive rights of minority shareholders in
connection with the simultaneous issuance of stock to the Company and/or a
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Subsidiary whereby the Company and/or such Subsidiary maintain their same
proportionate interest in such Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Subsidiary (except to qualify directors) or any
Indebtedness of any Subsidiary (except, in either such case, to a Wholly-owned
Subsidiary), and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly-owned Subsidiary) any shares of
stock or any Indebtedness of any other Subsidiary, unless:
(1) simultaneously with such sale, transfer, or disposition, all
shares of stock and all Indebtedness of such Subsidiary at the time owned
by the Company and by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(2) the Board of Directors of the Company shall have determined, as
evidenced by a resolution thereof, that the proposed sale, transfer or
disposition of said shares of stock and Indebtedness is in the best
interests of the Company;
(3) said shares of stock and Indebtedness are sold, transferred or
otherwise disposed of to a Person, for a consideration and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(4) the Subsidiary being disposed of shall not have any continuing
investment in the Company or any other Subsidiary not being simultaneously
disposed of; and
(5) such sale or other disposition does not involve a substantial
part (as hereinafter defined) of the assets of the Company and its
Subsidiaries.
(d) As used in this Section 5.10, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of the Company
and its Subsidiaries if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
and its Subsidiaries determined on a consolidated basis (other than in the
ordinary course of business) during the 12-month period ending with the date of
such sale, lease or other disposition, exceeds 10% of Tangible Assets,
determined as of the end of the immediately preceding fiscal year; provided,
however, that assets shall not be deemed to be sold, leased or otherwise
disposed of for purposes of the computations required by the preceding
provisions of this paragraph (d) to the extent that the net proceeds therefrom
remaining after satisfying any indebtedness secured by such assets shall,
within 180 days from the date of such sale, lease or disposition thereof by the
Company or a Subsidiary, as the case may be, be used to purchase other capital
assets for the Company and/or its Subsidiaries having a value at least equal
to, the assets sold to obtain such proceeds.
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<PAGE> 18
Section 5.11. Guaranties. The Company will not, and will not permit any
Material Subsidiary to, become or be liable in respect of any Guaranty except
Guaranties which are limited in amount to a stated maximum dollar exposure
(other than the usual and customary fees, costs and expenses with respect to
the enforcement thereof); provided, however, there shall be excluded from the
foregoing limitation (i) any Guaranties without a stated maximum dollar
exposure existing on May 31, 1994, and (ii) Guaranties of obligations of
Affiliates or Subsidiaries, or parties to transactions with Affiliates or
Subsidiaries, without a stated maximum dollar exposure so long as the aggregate
amount of such Guaranties would not reasonably be expected to have a material
adverse effect upon the financial condition or business of the Company and its
Subsidiaries, taken as a whole.
Section 5.12. Repurchase of Notes. Neither the Company nor any
Subsidiary may, nor shall the Company or any Subsidiary cause any Affiliate to,
repurchase or make any offer to repurchase any Notes of a Series unless an
offer has been made to repurchase Notes, pro rata, from all Holders of Notes of
such Series at the same time and upon the same terms. In case the Company
repurchases or otherwise acquires any Notes, such Notes shall immediately
thereafter be canceled and no Notes shall be issued in substitution therefor.
Without limiting the foregoing, upon the repurchase or other acquisition of any
Notes by the Company, any Subsidiary or any Affiliate (or upon the agreement of
Company, any Subsidiary or any Affiliate to purchase or otherwise acquire the
Notes), such Notes shall no longer be outstanding for purposes of any section
of this Agreement relating to the taking by the Holders of any actions with
respect hereto, including, without limitation, Section 6.3, Section 6.4 and
Section 7.1.
Section 5.13. Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate (including, without limitation, the purchase
from, sale to or exchange of property with, or the rendering of any service by
or for, any Affiliate), except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a Person other
than an Affiliate; provided, that if the Company or any Subsidiary shall enter
into or be a party to any such transaction or arrangement with an Affiliate
which does not comply with the foregoing provisions of this Section 5.13 (a
"Noncomplying Transaction"), the Company shall not be deemed to be in violation
of this Section 5.13 unless and until all such Noncomplying Transactions in the
aggregate have a material adverse effect on the financial condition or business
of the Company and its Subsidiaries, taken as a whole.
Section 5.14. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to (a) withdraw from any Multiemployer Plan if
such withdrawal could result in withdrawal liability (as described in Part I of
Subtitle E of Title IV of ERISA) which would have a material adverse effect on
the financial condition or business of the Company and its Subsidiaries, taken
as a whole or (b) terminate any Plan if such termination could result in the
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imposition of a lien on any property of the Company or any Subsidiary pursuant
to Section 4068 of ERISA.
Section 5.15. Reports and Rights of Inspection. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of,
or in relation to, the business and affairs of the Company or such Subsidiary,
in accordance with GAAP consistently applied (except for changes disclosed in
the financial statements furnished to the Holders pursuant to this Section 5.15
and concurred in by the independent public accountants referred to in Section
5.15(b) hereof), and will furnish to each Institutional Holder (in duplicate if
so specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and its
Subsidiaries as of the close of such quarterly fiscal period, setting
forth in comparative form the consolidated figures for the fiscal
year then most recently ended,
(2) consolidated statements of income of the Company and its
Subsidiaries for such quarterly fiscal period and for the portion of
the fiscal year ending with such quarterly fiscal period, in each
case setting forth in comparative form the consolidated figures for
the corresponding periods of the preceding fiscal year, and
(3) consolidated statements of cash flows of the Company and
its Subsidiaries for the portion of the fiscal year ending with such
quarterly fiscal period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding
fiscal year, all in reasonable detail and certified as complete and
correct by an authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, copies of:
(1) consolidated balance sheets of the Company and its
Subsidiaries as of the close of such fiscal year, and
(2) consolidated statements of income and retained earnings and
cash flows of the Company and its Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and accompanied by
a report thereon of a firm of independent public accountants of recognized
national or regional standing selected by the Company to the effect that
the consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
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Subsidiaries as of the end of the fiscal year being reported on and the
consolidated results of the operations and cash flows for said year in
conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in accordance
with generally accepted auditing standards;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
annual or special audit made by independent public accountants of the
books of the Company or any Subsidiary;
(d) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement
sent by the Company to stockholders generally and of each regular or
periodic report, and any registration statement or prospectus filed by the
Company or any Subsidiary with any securities exchange or the Securities
and Exchange Commission or any successor agency, and copies of any orders
in any proceedings to which the Company or any of its Subsidiaries is a
party, issued by any governmental agency, Federal or state, having
jurisdiction over the Company or any of its Subsidiaries, which orders may
have a material adverse effect on the financial condition or business of
the Company and its Subsidiaries, taken as a whole;
(e) ERISA Reports. Promptly upon the occurrence thereof and upon a
Responsible Company Officer first obtaining knowledge thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the
institution of any steps by the Company, any ERISA Affiliate, the PBGC or
any other person to terminate any Plan; (iii) the institution of any steps
by the Company or any ERISA Affiliate to withdraw from any Plan; (iv) a
non-exempt "prohibited transaction" within the meaning of Section 406 of
ERISA in connection with any Plan; (v) any material increase in the
contingent liability of the Company or any Subsidiary under any welfare
plan attributable to an increase in benefits offered under such a plan; or
(vi) the taking of any action by, or the threatening of the taking of any
action by, the Internal Revenue Service, the Department of Labor or the
PBGC with respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of the Company stating that such officer has reviewed the
provisions of this Agreement and setting forth: (i) the information
(including the source thereof) and detailed computations which establish
whether the Company was in compliance with the requirements of Sections
5.6, 5.7, 5.9 and 5.10 at the end of the period covered by the financial
statements then being furnished; provided, however, that, with respect to
Section 5.6(b), only the computations necessary to show compliance with
Section 5.8(a)(xi) need be provided and, with respect to Section 5.10(d),
the computations with respect to the calculation of a "substantial part"
need be provided only for such times during the period covered by such
financial statements when the aggregate book value of the assets sold,
leased or otherwise disposed of for the preceding 12-month period exceeds
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5% of Tangible Assets, and (ii) to the best of such officer's knowledge,
whether there existed as of the date of such financial statements and
whether there exists on the date of the certificate or existed at any time
during the period covered by such financial statements any Default or
Event of Default and, if any such condition or event exists on the date of
the certificate, specifying the nature and period of existence thereof and
the action the Company is taking and proposes to take with respect
thereto;
(g) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they have
reviewed this Agreement and stating further whether, in making their
audit, such accountants have become aware of any Default or Event of
Default under any of the terms or provisions of this Agreement insofar as
any such terms or provisions pertain to or involve accounting matters or
determinations, and if any such condition or event then exists, specifying
the nature and period of existence thereof;
(h) Rule 144A. Except at such times as the Company is a reporting
company under Section 13 or Section 15(d) of the Securities and Exchange
Act of 1934, as amended, or has complied with the requirements for the
exemption from registration under the Securities and Exchange Act of 1934,
as amended, set forth in Rule 12g3-2(b) under such Act, such financial or
other information as any holder of the Notes or any Person designated by
such holder may reasonably determine is required to permit such holder to
comply with the requirements of Rule 144A promulgated under the Act in
connection with the resale by it of the Notes, in any such case promptly
after the same is requested; and
(i) Requested Information. With reasonable promptness, such other
data and information as such Institutional Holder may reasonably request.
Without limiting the foregoing, the Company will permit each Institutional
Holder (or such Persons as such Institutional Holder may designate), to visit
and inspect, under the Company's guidance, any of the properties of the Company
or any Subsidiary, to examine all of their books of account, records, reports
and other papers, to make copies and extracts therefrom and to discuss their
respective affairs, finances and accounts with their respective officers, and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with any Institutional Holder the finances and
affairs of the Company and its Subsidiaries) all at such reasonable times and
as often as may be reasonably requested. The Company shall not be required to
pay or reimburse any Holder for expenses which such Holder may incur in
connection with any such visitation or inspection, except that if such
visitation or inspection is made during any period when a Default or an Event
of Default shall have occurred and be continuing, the Company agrees to
reimburse such Holder for all such expenses promptly upon demand.
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Section 6. Events of Default and Remedies Therefor.
Section 6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note when
the same shall have become due and such default shall continue for more
than 10 days; or
(b) Default shall occur in the making of any payment of the
principal of any Note or premium, if any, thereon at the expressed or any
accelerated maturity date or at any date fixed for prepayment; or
(c) Default shall be made in the payment when due (whether by lapse
of time, by declaration, by call for redemption or otherwise) of the
principal of or interest on any Indebtedness (including Notes of another
Series) of the Company or any Subsidiary under any indenture, agreement or
other instrument under which Indebtedness of the Company or any Subsidiary
aggregating $2,000,000 or more is outstanding and such default shall
result in the acceleration of the maturity of any such Indebtedness; or
(d) Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any Indebtedness of
the Company or any Subsidiary aggregating $2,000,000 or more is
outstanding and such default or event shall result in the acceleration of
the maturity of any such Indebtedness; or
(e) Default shall occur in the observance or performance of any
covenant or agreement contained in Section 5.6, Section 5.7, Section 5.9,
Section 5.10 or Section 6.2; or
(f) Default shall occur in the observance or performance of any
other provision of this Agreement which is not remedied within 45 days
after the earlier of (i) the day on which a Responsible Company Officer
first obtains knowledge of such default, or (ii) the day on which written
notice thereof is given to the Company by any Holder; or
(g) Any material representation or warranty made by the Company
herein, or made by the Company in any statement or certificate furnished
by the Company in connection with the consummation of the issuance and
delivery of the Notes or furnished by the Company pursuant hereto, is
untrue in any material respect as of the date of the issuance or making
thereof; or
(h) Final judgment or judgments for the payment of money aggregating
in excess of $1,000,000 is or are outstanding against the Company or any
Subsidiary or against any property or assets of either and such judgments
aggregating in excess of $1,000,000 have remained unpaid, unvacated,
unbonded and unstayed by appeal or otherwise for a period of 30 days from
the date of its entry; or
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(i) A custodian, liquidator, trustee or receiver is appointed for
the Company or any Material Subsidiary or for the major part of the
property of either and is not discharged within 60 days after such
appointment; or
(j) The Company or any Material Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Material
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Material
Subsidiary or for the major part of the property of either; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Material Subsidiary and, if instituted against
the Company or any Material Subsidiary, are consented to or are not
dismissed within 60 days after such institution.
Section 6.2. Notice to Holders. When, to the knowledge of any
Responsible Company Officer, any Event of Default described in the foregoing
Section 6.1 has occurred, or if any Holder or the holder of any other evidence
of Debt of the Company gives any notice or takes any other action with respect
to a claimed default, the Company agrees to give notice within five business
days of such event to all Holders.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a) or (b) of Section 6.1 has happened and is continuing
with respect to any Series, (i) any Holder of such Series which, as a result of
such Event of Default, has not received a payment due on the Notes held by it,
may declare all Notes held by it to be, and all Notes of such Holder shall
thereupon become, forthwith due and payable, and (ii) any Holder or Holders
holding at least 33-1/3% of the principal amount of the Notes of such Series at
any time outstanding may declare the entire principal and all interest accrued
on all Notes of such Series to be, and all Notes of such Series shall thereupon
become, forthwith due and payable. When any Event of Default described in
paragraphs (c) through (i), inclusive, of said Section 6.1 has happened and is
continuing, any Holder or Holders holding 33-1/3% or more of the principal
amount of Notes of any Series at the time outstanding may, by written notice to
the Company, declare the entire principal and all interest accrued on all Notes
of such Series to be, and all Notes of such Series shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived; provided,
however, that if an Event of Default described in paragraph (d) shall occur and
results from the acceleration of an aggregate amount of Indebtedness which is
less than $10,000,000 (the "Defaulted Indebtedness"), the right of the Holders
of any Series of Notes to accelerate the maturity of such Series pursuant to
the foregoing provisions of this sentence may be exercised only by Holders
holding 66-2/3% or more of the principal amount of the Notes of such Series at
the time outstanding and if such right is so exercised with respect to such an
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Event of Default, the Holders of such Series shall not initiate any collection
actions until the expiration of the 15-day period (the "Cure Period")
immediately following the date on which such Event of Default occurred;
provided further, that if during the Cure Period (i) the Company shall either
(A) pay the creditors of such Defaulted Indebtedness in full and terminate the
underlying agreement, or (B) obtain a written waiver of the default which
resulted in the acceleration of the Defaulted Indebtedness from the creditors,
(ii) the Company shall furnish the Holders of such Series with written notice
and evidence of the Company's satisfaction of either requirement set forth in
clause (i) above, and (iii) no other Default or Event of Default shall be
outstanding hereunder, the acceleration of the Notes of such Series shall be
deemed to be rescinded and annulled.
When any Event of Default described in paragraph (j) or (k) of Section 6.1
has occurred, then all outstanding Notes shall immediately become due and
payable without presentment, demand or notice of any kind. Upon any Notes
becoming due and payable as a result of any Event of Default as aforesaid, the
Company will forthwith pay to the Holders of such Notes, the entire principal
and interest accrued on such Notes and, to the extent not prohibited by
applicable law, an amount as liquidated damages for the loss of the bargain
evidenced hereby (and not as a penalty) equal to the Make-Whole Amount,
determined as of the date on which such Notes shall so become due and payable.
No course of dealing on the part of the Holder or Holders nor any delay or
failure on the part of any Holder to exercise any right shall operate as a
waiver of such right or otherwise prejudice such Holder's rights, powers and
remedies. The Company further agrees, to the extent permitted by law, to pay
to the Holder or Holders all costs and expenses incurred by them in the
collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such Holder's or Holders' attorneys for all services
rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of Section 6.3
are subject to the condition that if the principal of and accrued interest on
all or any outstanding Notes of a Series have been declared immediately due and
payable by reason of the occurrence of any Event of Default described in
paragraphs (a) through (i), inclusive, of Section 6.1, the Holders holding more
than 66-2/3% in aggregate principal amount of the Notes of such Series then
outstanding may, by written instrument filed with the Company, rescind and
annul such declaration and the consequences thereof, provided that at the time
such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes of such Series and
all other sums payable under such Notes and under this Agreement (except
any principal, interest or premium on such Notes which has become due and
payable solely by reason of such declaration under Section 6.3) shall have
been duly paid; and
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(c) each and every other Default and Event of Default shall have
been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
Section 7. Amendments, Waivers and Consents.
Section 7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived with respect to any Series of Notes (either
generally or in a particular instance and either retroactively or
prospectively), if the Company shall have obtained the consent in writing of
the Holders holding more than 66-2/3% in aggregate principal amount of
outstanding Notes of such Series; provided, however, that without the written
consent of all of the Holders of such Series, no such amendment or waiver shall
be effective with respect to such Series (i) which will change the time of
payment of the principal of or the interest on any Note of such Series or
change the principal amount thereof or change the rate of interest thereon, or
(ii) which will change any of the provisions with respect to optional
prepayments for such Series, or (iii) which will change the percentage of
Holders required to consent to any such amendment or waiver of any of the
provisions of this Section 7 or Section 6.
Section 7.2. Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment with respect to a Series of any of
the provisions of this Agreement or the Notes of such Series unless each Holder
of Notes of such Series (irrespective of the amount of Notes then owned by it)
shall be informed thereof by the Company and shall be afforded the opportunity
of considering the same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with respect thereto.
The Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any Holder of the Notes of a Series as consideration for or as an
inducement to entering into by such Holder of any waiver or amendment of any of
the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to all Holders
of Notes of such Series.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the Holders of the Notes of a Series and
shall be binding upon them, upon each future Holder of Notes of such Series and
upon the Company, whether or not any Note shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall extend to or
affect any obligation not expressly amended or waived or impair any right
consequent thereon.
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Section 8. Interpretation of Agreement; Definitions.
Section 8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Agreement" shall mean this Note Agreement.
"Capitalized Lease" shall mean any lease the obligation for Rentals with
respect to which is required to be capitalized on a consolidated balance sheet
of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Southeastern Michigan Gas Enterprises, Inc., a
Michigan corporation, and any Person who succeeds to all, or substantially all,
of the assets and business of Southeastern Michigan Gas Enterprises, Inc.
"Consolidated Adjusted Funded Debt" shall mean all Consolidated Funded
Debt (i) minus Guaranteed Amounts to the extent included in determining such
Consolidated Funded Debt, (ii) plus Additional Funded Debt; provided, however,
that (A) no Funded Debt shall for purposes of this definition be included as
Consolidated Funded Debt if money sufficient to pay such Funded Debt in full
(either on the date of maturity expressed therein or on such earlier date as
such Funded Debt may be called for redemption) shall be held in trust for such
purpose by the trustee or proper depository under the instrument pursuant to
which such Funded Debt was issued, and (B) in the event of the issuance of
Funded Debt ("New Funded Debt"), for purposes of this definition there shall be
excluded from Consolidated Funded Debt at the time of such issuance and
thereafter:
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(1) existing Funded Debt which is paid in full substantially
concurrently with the issuance of the New Funded Debt and out of proceeds
therefrom; and
(2) existing Funded Debt which is paid out of the proceeds from the
issuance of the New Funded Debt in compliance with the following:
(x) on the date of the issuance of the New Funded Debt (the
"Issuance Date") an amount from the proceeds sufficient to pay such
existing Funded Debt in full if called for redemption as hereinafter
described shall be deposited in an escrow account (the "Escrow
Account") with a third party selected by the Company with written
instructions from the Company that the proceeds shall be used for
such purpose;
(y) not later than the 30th day following the Issuance Date,
such existing Funded Debt shall be called for redemption on a date
which is not later than the 70th day following the Issuance Date; and
(z) on a date which is not later than the 70th day following
the Issuance Date, such existing Funded Debt shall be paid in full
from the proceeds deposited in the Escrow Account.
As used in this definition, the term "Additional Funded Debt" shall mean at any
time an amount equal to the excess, if any, of (i) the lowest daily average of
the smallest aggregate principal amount of Consolidated Current Debt minus
Guaranteed Amounts to the extent included in determining such Consolidated
Current Debt outstanding on each day for any period of 30 consecutive days
during the 12-month period immediately preceding the date of determination,
over (ii) the sum of $10,000,000.
"Consolidated Adjusted Total Capitalization" shall mean, as of the date of
any determination thereof, the sum of (i) the aggregate principal amount of
Consolidated Adjusted Funded Debt then outstanding, plus (ii) Consolidated Net
Worth.
"Consolidated Current Debt" shall mean all Current Debt of the Company and
its Subisidiaries determined on a consolidated basis eliminating intercompany
items.
"Consolidated Debt" shall mean all Debt of the Company and its
Subsidiaries, determined on a consolidated basis eliminating intercompany
items.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company and
its Subsidiaries determined on a consolidated basis eliminating intercompany
items.
"Consolidated Net Income" for any period shall mean the gross revenues of
the Company and its Subsidiaries for such period less all expenses and other
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proper charges (including taxes on income), determined on a consolidated basis
after eliminating earnings (except to the extent provided in clause (f) below)
or losses attributable to outstanding Minority Interests, but excluding in any
event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired in
any manner by the Company or any Subsidiary, realized by such corporation
prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have consolidated
or which shall have merged into or with the Company or a Subsidiary prior
to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a Subsidiary) in
which the Company or any Subsidiary has an ownership interest unless such
net earnings shall have actually been received by the Company or such
Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or write-up
of assets;
(i) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of acquisition thereof over the
amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities of the
Company or any Subsidiary;
(k) any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from
income arising during such period; and
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(l) any items other than those described in clauses (a) through (k)
above of this definition which are properly classified under GAAP as
extraordinary items.
"Consolidated Net Worth" shall mean as of the date of any determination
thereof the stockholders' capital and surplus of the Company determined in
accordance with GAAP.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Debt" of any Person shall mean all Current Debt and all Funded Debt of
such Person.
"Default" shall mean any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Fixed Charges" for any period shall mean on a consolidated basis the sum
of all Interest Charges on all Debt (including the interest component of
Rentals on Capitalized Leases) of the Company and its Subsidiaries.
"Funded Debt" of any Person shall mean (i) all Indebtedness of such Person
for borrowed money or which has been incurred in connection with the
acquisition of assets in each case having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or extendible
at the option of the obligor for a period or periods more than one year from
the date of origin), including all principal payments in respect thereof that
are required to be made within one year from the date of any determination of
Funded Debt, whether or not the obligation to make such payments shall
constitute a current liability of the obligor under GAAP; provided, that any
notes of such Person evidencing Indebtedness of such Person which when issued
constitute a current liability of such Person under GAAP shall not be included
as Funded Debt of such Person, (ii) all Capitalized Rentals of such Person, and
(iii) all Guaranties by such Person of Funded Debt of others.
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"GAAP" shall mean generally accepted accounting principles at the time in
the United States.
"Guaranteed Amounts" shall mean as of any date the aggregate amounts of
Guaranties of the Company and its Subsidiaries of Debt of others determined on
a consolidated basis.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment of
such Indebtedness or obligation, (iii) to lease property or to purchase
Securities or other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all computations made
under this Agreement, a Guaranty in respect of any Indebtedness for borrowed
money shall be deemed to be Indebtedness equal to the principal amount of such
Indebtedness for borrowed money which has been guaranteed, and a Guaranty in
respect of any other obligation or liability or any dividend shall be deemed to
be Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend which has been guaranteed.
"Holder" shall mean any Person which is, at the time of reference, the
registered holder of any Note.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include all (i) obligations of such Person for borrowed money or which has been
incurred in connection with the acquisition of property or assets,
(ii) obligations secured by any Lien upon property or assets owned by such
Person, even though such Person has not assumed or become liable for the
payment of such obligations, (iii) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default
are limited to repossession or sale of property, (iv) Capitalized Rentals and
(v) Guaranties of obligations of others of the character referred to in this
definition.
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"Institutional Holder" shall mean any Holder which is a Purchaser or an
insurance company, bank, savings and loan association, trust company,
investment company, charitable foundation, employee benefit plan (as defined in
ERISA) or other institutional investor or financial institution and, for
purposes of the direct payment provisions of this Agreement, shall include any
nominee of any such Holder.
"Interest Charges" for any period shall mean all interest and all
amortization of debt discount and expense on any particular Indebtedness for
which such calculations are being made.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale
agreement, Capitalized Lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.
"Make-Whole Amount" with respect to any Series of Notes shall mean in
connection with any prepayment or acceleration of such Series of Notes the
excess, if any, of (i) the aggregate present value as of the date of such
prepayment of each dollar of principal being prepaid and the amount of interest
(exclusive of interest accrued to the date of prepayment) that would have been
payable in respect of such dollar if such prepayment had not been made,
determined by discounting such amounts at the Reinvestment Rate from the
respective dates on which they would have been payable, over (ii) 100% of the
principal amount of the outstanding Notes of such Series being prepaid. If the
Reinvestment Rate with respect to the 2004 Notes is equal to or higher than
8.0%, the Make-Whole Amount shall be zero. If the Reinvestment Rate with
respect to the 2024 Notes is equal to or higher than 8.32%, the Make-Whole
Amount shall be zero. For purposes of any determination of the Make-Whole
Amount:
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"Reinvestment Rate" for purposes of Section 2.2 shall mean 0.50%, and
for purposes of all other provisions of this Agreement, shall mean 1.00%,
plus the arithmetic mean of the yields published in the Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the maturity of the
principal being prepaid. If no maturity exactly corresponds to such
maturity, yields for the published maturity next longer than such maturity
and for the published maturity next shorter than such maturity shall be
calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated from such yields on a
straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purposes of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to the date of
determination the Make-Whole Amount shall be used. "Statistical Release"
shall mean the then most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded U.S.
Government Securities adjusted to constant maturities or, if such
statistical release is not published at the time of any determination
hereunder, then such other reasonably comparable index which shall be
designated by the Holders holding 66-2/3% in aggregate principal amount of
the outstanding Notes of such Series so being accelerated or prepaid.
"Material Subsidiary" shall mean a Subsidiary which at the date of any
determination either (a) has Tangible Assets with a book value equal to or in
excess of 5% of Tangible Assets, determined as of the end of the immediately
preceding fiscal year, or (b) during the most recent period of four consecutive
fiscal quarters immediately preceding such date of determination, had net
income at least equal to 5% of Consolidated Net Income.
"Minority Interests" shall mean any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that
are not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such preferred
stock, whichever is greater, and by valuing Minority Interests constituting
common stock at the book value of capital and surplus applicable thereto
adjusted, if necessary, to reflect any changes from the book value of such
common stock required by the foregoing method of valuing Minority Interests in
preferred stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Income Available for Fixed Charges" for any period shall mean the sum
of (i) Consolidated Net Income during such period plus (to the extent deducted
in determining Consolidated Net Income), (ii) all provisions for any Federal,
state or other income taxes made by the Company and its Subsidiaries during
such period and (iii) Fixed Charges of the Company and its Subsidiaries during
such period.
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"Overdue Rate" shall mean with respect to (a) the 2004 Notes, 10.0% per
annum or (b) the 2024 Notes, 10.32% per annum.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Subsidiary, as lessee or sublessee under
a lease of real or personal property, but shall be exclusive of any amounts
required to be paid by the Company or a Subsidiary (whether or not designated
as rents or additional rents) on account of maintenance, repairs, insurance,
taxes and similar charges. Fixed rents under any so-called "percentage leases"
shall be computed solely on the basis of the minimum rents, if any, required to
be paid by the lessee regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Responsible Company Officer" shall mean any one of the President, any
Executive Vice President, any Vice President, the Treasurer or the Controller
of the Company.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "subsidiary" shall mean as to any particular parent corporation
any corporation of which more than 50% (by number of votes) of the Voting Stock
shall be beneficially owned, directly or indirectly, by such parent
corporation. The term "Subsidiary" shall mean a subsidiary of the Company.
"Tangible Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its Subsidiaries on a
consolidated basis (less depreciation, depletion and other properly deductible
valuation reserves) after deducting good will, patents, trade names, trade
marks, copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, deferred assets other than prepaid
insurance and prepaid taxes, the excess of cost of shares acquired over book
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value of related assets and such other assets as are properly classified as
"intangible assets" in accordance with GAAP.
"Voting Stock" shall mean Securities of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares and except preferred stock in
the case of Southeastern Michigan Gas Company) shall be owned by the Company
and/or one or more of its Wholly-owned Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in
accordance with GAAP, to the extent applicable, except where such principles
are modified or replaced by the specific terms of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person; provided that, in
the case of indirect action, such action is, in fact, taken at the direction of
such Person.
Section 9. Miscellaneous.
Section 9.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register"), and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time any Holder which has been duly
registered as hereinabove provided may transfer such Note upon surrender
thereof at the principal office of the Company duly endorsed or accompanied by
a written instrument of transfer duly executed by the Holder or its attorney
duly authorized in writing.
The Person in whose name any registered Note shall be registered shall be
deemed and treated as the owner and holder thereof and a Holder for all
purposes of this Agreement. Payment of or on account of the principal,
premium, if any, and interest on any registered Note shall be made to or upon
the written order of such Holder.
Section 9.2. Exchange of Notes. At any time and from time to time, upon
not less than ten days' notice to that effect given by the Holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section
-30-
<PAGE> 35
9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note at its
office, the Company will deliver in exchange therefor, without expense to such
Holder, except as set forth below, a Note for the same aggregate principal
amount as the then unpaid principal amount of the Note so surrendered, or Notes
in the denomination of $500,000 or any amount in excess thereof as such Holder
shall specify, dated as of the date to which interest has been paid on the Note
so surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, registered in the name of such
Person or Persons as may be designated by such Holder, and otherwise of the
same form and tenor as the Notes so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax or governmental
charge imposed upon such exchange or transfer.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
any Note, and in the case of any such loss, theft or destruction upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon surrender
and cancellation of the Note, the Company will make and deliver without expense
to the Holder thereof, a new Note, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Note. If an Institutional Holder is the owner of any
such lost, stolen or destroyed Note, then the affidavit of an authorized
officer of such owner, setting forth the fact of loss, theft or destruction and
of its ownership of such Note at the time of such loss, theft or destruction
shall be accepted as satisfactory evidence thereof and no further indemnity
shall be required as a condition to the execution and delivery of a new Note
other than the written agreement of such owner to indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of the Purchasers' out-of-pocket expenses in connection with
the preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, special counsel to the Purchasers,
duplicating and printing costs and charges for shipping the Notes, adequately
insured to each Purchaser's home office or at such other place as such
Purchaser may designate, and all such expenses of the Holders relating to any
amendment, waivers or consents pursuant to the provisions hereof, including,
without limitation, any amendments, waivers, or consents resulting from any
work-out, renegotiation or restructuring relating to the performance by the
Company of its obligations under this Agreement and the Notes. The Company
also agrees that it will pay and save each Purchaser harmless against any and
all liability with respect to stamp and other taxes (other than taxes based, in
part, on the income of a Holder), if any, which may be payable or which may be
determined to be payable in connection with the execution and delivery of this
Agreement or the Notes originally issued hereunder. The Company agrees to
protect and indemnify each Purchaser against any liability for any and all
brokerage fees and commissions payable or claimed to be payable to any Person
in connection with the transactions contemplated by this Agreement. Each
-31-
<PAGE> 36
Purchaser represents that no placement agent, broker or finder has been
retained by such Purchaser in connection with its purchase of the Notes.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of any Holder in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies of each
Holder are cumulative to, and are not exclusive of, any rights or remedies any
such Holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall
be in writing and, if to a Holder, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in each
case addressed to such Holder at its address or its facsimile number, as the
case may be, appearing beneath its signature at the foot of this Agreement or
such other address or facsimile number as any Holder may designate to the
Company in writing, and if to the Company, delivered or mailed by registered or
certified mail or overnight air courier, or by facsimile communication, to the
Company at the address or the facsimile number, as the case may be, appearing
beneath its signature at the foot of this Agreement or to such other address or
facsimile number as the Company may in writing designate to the Holders;
provided, however, that a notice to a party hereto by overnight air courier
shall only be effective if delivered to such party at a street address
designated for such purpose in accordance with this Section 9.6, and a notice
to such party by facsimile communication shall only be effective if made by
confirmed transmission to such party at a telephone number designated for such
purpose in accordance with this Section 9.6 and promptly followed by the
delivery of such notice by registered or certified mail or overnight air
courier, as set forth above.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each of the parties hereto and shall inure
to the benefit of each successor and assign, including each successive Holder.
Section 9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made herein and in any certificates delivered
pursuant hereto, whether or not in connection with the Closing Date, shall
survive the closing and the delivery of this Agreement and the Notes.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with
the invalid or unenforceable portion thereof eliminated and it is hereby
declared the intention of the parties hereto that they would have executed the
remaining portion of this Agreement without including therein any such part,
parts or portion which may, for any reason, be hereafter declared invalid or
unenforceable.
-32-
<PAGE> 37
Section 9.10. Governing Law. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with Michigan
law.
Section 9.11. Captions. The descriptive headings of the various Sections
or parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
The execution hereof by the Purchasers shall constitute a contract among
the Company and the Purchasers for the uses and purposes hereinabove set forth.
This Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
Southeastern Michigan Gas
Enterprises, Inc.
By Ward N. Kirby
--------------------------------------
Its President
Southeastern Michigan Gas Enterprises, Inc.
405 Water Street
Port Huron, Michigan 48060
Attention: President
Telefacsimile: (313) 987-4570
Confirmation: (313) 987-2200
-33-
<PAGE> 38
Accepted as of June 1, 1994:
First Colony Life Insurance Company
By David R. Gardner
--------------------------------------
Its Vice President
First Colony Life Insurance
Company
700 Main Street
P. O. Box 1280
Lynchburg, Virginia 24505
Attention: Mr. George D. Vermilya, Jr.
Telefacsimile Number: (804) 948-5713
Confirmation Number: (804) 845-0911
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.32% Senior Notes due 2024,
principal, premium or interest") to:
Crestar Bank (ABA #05-10-0002-0)
Richmond, Virginia
Credit - 2111
Attention: Income Processing Unit Number 27955
for credit to: First Colony Life Insurance Company
Account Number 10765400
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 54-0596414
-34-
<PAGE> 39
Accepted as of June 1, 1994:
New York Life Insurance Company
By Donald DePietto
--------------------------------------
Its Investment Vice President
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attention: Investment Department,
Private Finance Group, Room 206
Telefacsimile Number: (212) 447-4122
Confirmation Number: (212) 576-6065
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal, premium or interest") to:
Morgan Guaranty Trust Company of New York (ABA #021-000-238)
23 Wall Street
New York, New York
for credit to: New York Life Insurance Company
General Account Number 810-00-000
Notices
All notices and communications regarding unscheduled or optional payments to be
addressed: New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attention: Treasury Department, Securities Income Section, Room 209
Telefacsimile Number: (212) 576-4296
All other notices and communications to be addressed as first provided above,
with a copy to such address, but indicating: Attention: Office of the General
Counsel, Investment Section, Room 10SB, Telefacsimile Number (212) 576-8340
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-5582869
-35-
<PAGE> 40
Accepted as of June 1, 1994:
Alexander Hamilton Life Insurance
Company of America
By William Lang
--------------------------------------
Its Vice President - Credit Management
Alexander Hamilton Life Insurance
Company of America
33045 Hamilton Court
Farmington Hills, Michigan 48334
Attention: William Lang, Department R-12A
Telefacsimile Number: (810) 489-4792
Confirmation Number: (810) 489-4727
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal, premium or interest") to:
Comerica Bank (ABA #0720-0009-6)
Securities Department 3B/MBB
411 West LaFayette
Detroit, Michigan 48226
Attention: MaryAnn Kadets
for credit to: Account Number 82043
Bnfac: 21585-98546, Master Trust
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: Calhoun & Co.
Taxpayer I.D. Number: 38-2190143
-36-
<PAGE> 41
Accepted as of June 1, 1994:
First Alexander Hamilton Life
Insurance Company of America
By William Lang
--------------------------------------
Its Vice President - Credit Management
First Alexander Hamilton Life Insurance
Company of America
33045 Hamilton Court
Farmington Hills, Michigan 48334
Attention: William Lang, Department R-12A
Telefacsimile Number: (810) 489-4792
Confirmation Number: (810) 489-4727
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal, premium or interest") to:
Marine Midland Bank, N.A. (ABA #0210-0108-8)
140 Broadway
New York, New York 10015
Attention: Buffalo Office, Susan Orlowski
Credit 713-00010-4 FBO A/C
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: Jacquith & Co.
Taxpayer I.D. Number: 22-2768833
-37-
<PAGE> 42
Accepted as of June 1, 1994:
Security Mutual Life Insurance
Company of New York
By William W. Atkin
--------------------------------------
Its Executive Vice President
Security Mutual Life Insurance
Company of New York
100 Court St.
P. O. Box 1625
Binghamton, New York 13902
Attention: Investment Department
Telefacsimile Number: (607) 772-2114
Confirmation Number: (607) 723-3551, Ext. 362
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "OBI
= Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
Account No. G 05831, principal, premium or interest, payable date: _______,
contact name: _______________, contact telephone number: ______________") to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Chase NYC/CTR/
BNF = Income Processing Account #9009000200
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above, with a copy to:
The Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 5
Bowling Green Station
New York, New York 10275-0072
Attn: Security Mutual Private Placements
Name of Nominee in which Notes are to be issued: Cudd & Co
-38-
<PAGE> 43
Accepted as of June 1, 1994:
Massachusetts Mutual Life Insurance
Company
By Mark A. Ahmed
--------------------------------------
Its Second Vice President
Massachusetts Mutual Life Principal Amount of 2004 Notes
Insurance Company to be Purchased:
1295 State Street
Springfield, Massachusetts 01111 $14,000,000
Attention: Securities Investment Division
Telefacsimile Number: (413) 744-6210 (Two Notes: one for $9,500,000
Confirmation Number: (413) 744-8442 and the other for $4,500,000)
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal or interest") to:
(a) In the case of payments on the $9,500,000 Note:
Chemical Bank (ABA #021-000128)
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004-2413
for credit to: Massachusetts Mutual Life Insurance Company
IFM Traditional Account Number 321-029-852
(b) In the case of payments on the $4,500,000 Note:
Chemical Bank (ABA #021-000128)
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004-2413
for credit to: Massachusetts Mutual Life Insurance Company
Pension Management GIA Account Number 321-029-828
with telephone advice to the Securities Custody and Collection Department of
Massachusetts Mutual Life Insurance Company at (413) 788-8411, Facsimile:
(413) 744-6263.
-39-
<PAGE> 44
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments and corporate actions, to be addressed
Attention: Securities Custody and Collection Department, E381.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 04-1590850
-40-
<PAGE> 45
Accepted as of June 1, 1994:
Aid Association for Lutherans
By James Abitz
--------------------------------------
Its Vice President - Securities
Aid Association for Lutherans
432l North Ballard Road
Appleton, Wisconsin 54919
Attention: Investment Department
Telefacsimile Number: (414) 730-3752
Confirmation Number: (414) 730-3732
Payments
All payments of principal, interest and premium on the account of the Notes
shall be made by bank wire transfer (in immediately available funds) to:
Harris Trust and Savings Bank, Chicago (ABA #071 000 288)
A/C Number 109-211-3
Attention: Trust Collection/P&I
Reference Information:
Southeastern Michigan Gas Enterprises, Inc.
8.0% Senior Notes
Due June 1, 2004
[PPN Number]
Payable Date
Principal and interest breakdown
Notices
All notices on or in respect to the Notes and written confirmation of each such
payment to be addressed to:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attention: Investment Accounting
-41-
<PAGE> 46
All corporate action notices to be addressed to:
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
Attention: Institutional Custody--5E
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 39-0123480
-42-
<PAGE> 47
Accepted as of June 1, 1994:
Knights of Columbus
By Robert J. Lane
--------------------------------------
Its Assistant Supreme Secretary
Knights of Columbus
One Columbus Plaza
New Haven, Connecticut 06507
Attention: Investment Department
Telefacsimile Number: (203) 772-0037
Confirmation Number: (203) 772-2130
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal or interest") to:
Morgan Guaranty Trust Company of New York (ABA #021000238)
60 Wall Street
New York, New York 10260
for credit to: Knights of Columbus
MGT Receipts
Account Number 001-02-667
Notices
All notices and communications, to be addressed as first provided above,
except notices with respect to payments and written confirmation of each such
payment, to be addressed Attention: Accounting Department.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 060416470
-43-
<PAGE> 48
Accepted as of June 1, 1994:
Ohio National Life Insurance
Corporation
By Michael A. Boedeker
--------------------------------------
Its Vice President, Fixed Income
Securities
The Ohio National Life Insurance
Company
237 William Howard Taft Road
Cincinnati, Ohio 45219
Attention: Investment Department
Telefacsimile Number: (513) 559-6589
Confirmation Number: (513) 559-6421
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Southeastern Michigan Gas Enterprises, Inc., 8.0% Senior Notes due 2004,
principal or interest") to:
Star Bank, N.A. (ABA #042-0000-13)
Fifth and Walnut Streets
Cincinnati, Ohio 45202
for credit to: The Ohio National Life Insurance Company
Account Number 910-275-7
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
-44-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENT OF INCOME, CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> JUN-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 203,619
<OTHER-PROPERTY-AND-INVEST> 16,254
<TOTAL-CURRENT-ASSETS> 124,716
<TOTAL-DEFERRED-CHARGES> 20,977
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 365,566
<COMMON> 11,114
<CAPITAL-SURPLUS-PAID-IN> 78,549
<RETAINED-EARNINGS> 18,231
<TOTAL-COMMON-STOCKHOLDERS-EQ> 107,894
0
3,290
<LONG-TERM-DEBT-NET> 104,950
<SHORT-TERM-NOTES> 20,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 38,275
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 91,157
<TOT-CAPITALIZATION-AND-LIAB> 365,566
<GROSS-OPERATING-REVENUE> 210,741
<INCOME-TAX-EXPENSE> 5,299
<OTHER-OPERATING-EXPENSES> 190,620
<TOTAL-OPERATING-EXPENSES> 195,919
<OPERATING-INCOME-LOSS> 14,822
<OTHER-INCOME-NET> 192
<INCOME-BEFORE-INTEREST-EXPEN> 15,014
<TOTAL-INTEREST-EXPENSE> 4,987
<NET-INCOME> 10,027
9
<EARNINGS-AVAILABLE-FOR-COMM> 8,732
<COMMON-STOCK-DIVIDENDS> 4,193
<TOTAL-INTEREST-ON-BONDS> 3,878
<CASH-FLOW-OPERATIONS> 50,546
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
